THE LABOR CODE OF THE PHILIPPINES

(P.D. 442. as amended)

A DECREE INSTITUTING A LABOR CODE THEREBY REVISING AND

CONSOLIDATING LABOR AND SOCIAL LAWS TO AFFORD PROTECTION TO
LABOR, PROMOTE EMPLOYMENT AND HUMAN RESOURCES DEVELOPMENT
AND INSURE INDUSTRIAL PEACE BASED ON SOCIAL JUSTICE

PRELIMINARY TITLE
Chapter I

GENERAL PROVISIONS

Article I. Name o/ Decree. — This Decree shall be known as the "Labor Code or the
Philippines."

NOTES AND COMMENTS

1. The Labor Code

Presidential Decree No. 442, otherwise known as the "Labor Code of the Philippines,"
was promulgated on 1 May 1974, but it formally took effect on I November 1974. There
was a six-month transition period to enable labor and management to study the law and
recommend measures or proposals to the Department of Labor and Employment that
may help in crafting the implementing rules and guidelines. Furthermore, it provides the
period for the Department of Labor to correct the defects of the Code.

The Labor Code is defined as the "charter of human rights and a bill of obligations" for
every working man. It is designed to be an institution for national development. The
enacting clause of the law is reflective of this purpose. "to afford protection to labor,

promote employment and human development and insure industrial peace based on
social justice.” 36

1
2. Basic reforms and features of the Labor Code

One of the salient features introduced in the Code is the purging of laws built in
leverages for graft and corruption. Anti-graft provisions are embedded to maintain
industrial peace and harmony in the working world. Unworkable and obsolete provisions
subversive to the common good were eliminated.

The Code introduces the following reforms:

a) Emancipation of Labor Relations. The Labor Code has emancipated labor

relations from the litigious and wasteful procedures adopted by the Court of
Industrial Relations under the old system. Created in its place was the modern-
oriented, faster-moving National Labor Relations Commission which administers
speedy labor justice for it is not governed by the rigid and technical rules of
procedure and evidence.

b) Transformation of Workmen’s Compensation. The Code has transformed

workmen's compensation from an employer's liability to a social security scheme by
integrating the same with the Social Security System and the Government Service
Insurance System. Under this principle, speedy delivery of benefits to an injured or
disabled worker is effected. The delay in settling a simple claim characteristic of the old
system is eliminated.

Moreover. the Code integrates maternity benefits into the Social Security (RA 8282).

(c) Abolition of the Permit System. The Code has abolished the permit system in
labor administration. The reporting system is introduced in its place to eradicate the
breeding place of graft and corruption. To illustrate. business establishments may now
open on Sundays without a permit in view of the repeal by the Code of the Blue Sunday
Law which was scandalously abused by licensing agencies under the old order.

(d) Placing of Government Corporations with original charters under the Civil
Service. The scope of the civil service has been expanded to embrace every branch,
agency, subdivision and instrumentality of the Government, including government-
owned or controlled corporations with original charters.
However, employees of government-owned or controlled corporation without original
charters (government subsidiaries) are governed by the Labor Code (LTRA v. Venus, 37
G.R. No. 163782, 24 March 2006.

2
 e) Creation of Overseas Employment Development Board and National Seamen
Board The Code has created the offices to promote the export of manpower.
They are task to determine and implement policies that protect Overseas Filipino
Workers from economic exploitation and oppression The offices have already
been abolished and their functions Raised by the Philippine Overseas and
Employment Administration created under E.O. 797 signed on 1 May 1982

f) Incorporation of Agrarian Reform. The Code ha incorporated agrarian reform

emphasizing the policy of the State to promote social justice. With the
emancipation of the tenants from the bondage of the soil, agrarian uprisings like
those of the 1950s may not be repeated

g) Updating of all Labor and Social Legislations. The Code has updated all labor
and social legislations such as Woman and Child Labor Law, Apprenticeship
Law, Industrial Safety Law,etc., to harmonize them with national development
priorities based on social justice and human dignity.

Physically, the Code is divided into seven (7) books: a) Book 1- Pre-employment,
covering recruitment and placement of workers, and employment of non-resident aliens;
b) Book II – Human Resources Development, dealing with national manpower
development program. and training and employment of special workers; e) Book III -
Conditions of Employment, dealing with working conditions, rest periods, wages, etc.; d)
Book IV-Health, Safety and Social Welfare Benefits-covering, medical, dental and
occupational safety, e) Book V - Labor Relations, covering labor organization, unfair
labor practices, collective bargaining, strikes. lockouts, etc: Book VI - Post Employment,
covering termination of employment and retirement from the service, and g) Book VI–
Penal Provisions, Prescription, Transitory, and Final Provisions.

The seven (7) books can be classified into three (3) main parts: Pre-employment; State
of employment; and Post-employment.

Art. 2. Date of effectivity. - This Code shall take effect six (6) months after its
promulgation.

38

NOTES AND COMMENTS

1. Effectivity of the Labor Code

3
The Labor Code was promulgated on 1 May 1974, and took on 1 November 1974 after
the lapse of a six-month transition period.

Art. 3. Declaration of basic policy. - The State shall ford protection to labor,
promote full employment, ensure tual work opportunities regardless of sex, race
or creed and regulate the relations between workers and employers. The State
shall assure the rights of workers to self-organization, collective bargaining,
security of tenure, and just and humane conditions of work.

NOTES AND COMMENTS

1. Purpose of affording protection to labor

The purpose is to place labor on an equal plane with management with all its power
and influence in negotiating for the advancement of his interests and the defense of his
rights. Under the policy of social justice, the law bends to accommodate the interests of
the working class on the human justification that those with less privi leges in life should
have more privileges in law (Phil. Air Lines, Inc. Santos, Jr., et al., G.R. No. 77875, 4
February 1993). Protection to labor does not signify the promotion of employment alone.
What concerns the Constitution more paramountly is that such employment be above
all, decent, just, and humane (Phil. Association of Service Exporters, Inc. v. Drilon, G.R.
No. 81958, 30 June 1988). The policy of the law is to apply it to a greater number of
employees (Francisco . NLRC, G.R. No. 170087, 31 August 2006).

2.Extent and limits of the protection

The principle of protection extends upon an employee who is abused either by the
employer or by the union leadership or their respective representatives. However, the
right is unavailing in the following instances:

(a) Protection to labor is not a license to condone wrong doings. Thus, if the loss
of the merchandise is reasonably at tribute to said employee, and he is charged
with theft, even if he is acquitted of the charge on reasonable doubt, when the

39
employer has lost its trust and confidence in him, it would be highly unfair to
require said employer to continue employing him or to reiterate him for the law
authorizes neither oppression nor self-destruction of the employer (Phil
Education Co, Inc v Unions of the Phil. Education Employees, G on L-13778, 28
April 18 Pacific Mills, Inc. U. Alonzo, 199 SC 617)
4
 (b) The care and solicitude in the protection and vindication of the right of
workers cannot justify disregard relevant act in the construction of the text of
applicable rule In order to arrive at a disposition in favor of an employee (Phi Air
Lines, Inc. . NLRC, 201 SCRA 687). (e) The rule that there should be concern,
sympathy and solicitude for the rights and welfare of the workers meet and
proper. But to disregard the employer's own rights and interests solely on the
basis of concern and solicitude for labor is unjust and unacceptable (Soriano v.
Offshore shipping and Manning Corp. et al., G.R. No. 78409, 14 September
1989) Thus, in the guise of affording protection to labor, courts cannot render
decisions on the basis of sympathy and solicitude for the workers at the expense
of the employer for this would run for with the avowed principle of non-oppression
ordained in the Civil Code (Caltex. PLO, 92 Phil. 1014).

(d) Where both parties have violated the law, neither party is entitled to protection
(PAMBUSCO Employees Union Court of Industrial Relations, 68 Phil. 591).

(e) The constitutional policy to provide full protection to labor is not meant to be a
sword to oppress employers (Agabon e. NLRC, 442 SCRA 573).

f) The liberal construction in favor of labor must not sacrifice the fundamental
principles of due process for the protection of the rich and the poor in order to
attain proper justice (Magalona v. WCC, 101 Phil. 441). ® Protection to labor
does not mean that every labor dispute will be decided in favor of the workers.
The law also recognizes the employer's rights which are entitled to respect and
enforcement in the interest of fair play (Duncan v. Glaxo, GR No. 162994, 17
September 2004).

(h) In affording full protection to labor, the State must ensure equal work
opportunities to all employees regardless

40

of sex, race or creed (Francisco . NLRC, G.R. No. 17008731 August 2006),

Art. 4. Construction in favor of labor. --- All doubts in the implementation and
interpretation of the provisions of this Code, including its implementing rules and
regulations shall be resolved in favor of labor.

5
 NOTES AND COMMENTS

1. Affirmance of the Civil Code provision

The above provision reaffirms Art. 1702 of the Civil Code which states that "all labor
legislations and all labor contracts construed in favor of the safety and decent living for
the laborer."

The Civil Code also provides that "neither capital nor labor shall act oppressively
against each other, or impair the interest or convenience of the public." Thus,in all
contractual property. or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental weakness, tender age
or other handicaps, the court must be vigilant for his protection. To illustrate, the
Supreme Court in one case held: The private respondents were at a disadvantage
insofar as the contractual relationship was concerned. Workers in our country do not
have the luxury or freedom of declining job openings or filing resignations even when
some terms and conditions of employment are not only onerous and iniquitous but
illegal. It is precisely because of this situation that the framers of the Constitution
embodies provisions on social justice and protection to labor in the Declaration of
Principles and State Policies."

In another case, the Supreme Court ruled that respondent company's invocation of
solutio indebiti or payment by mistake due to its use of 251 days as divisor must fail in
the light of the Labor Code mandate that "all doubts in the implementation and
interpretation of this Code, including its implementing rules and regulations shall be
resolved in favor of labor" (Union of Filipro Employees v. Vivar, Jr., 205 SCRA 200).

However, it is now settled that the employer can require employees to refund what it
has erroneously paid, provided it was immediately corrected after its discovery
(Wesleyan University Phils. v. Wesleyan University-Phils. Faculty and Staff Ass'n, G.R.
No. 181806, 12 March 2014).

41
Moreover, the failure to submit a position paper on time is not, a ground for dismissal of
a complaint in labor cases, and therefore it cannot be invoked by the employer to
declare the employees as non-suited (FEMS Elegance Lodging House v Murillo, 58
SCAD 79). This ruling is in accord with Art. 4 of the Labor Code which resolves all
doubts in the interpretation of the law and its implementing and mutations in favor of
labor. Jurudence is rich as to the State’s basic policy of extending protection to labor
where conflicting interests between labor and management exist (Supra)
6
 2. Application of the rule of Statutory construction in favour of labor

The rule of liberal construction in favor of labor applies Case there is doubt. If the
contractual provision escrita cesto it must be applied in accordance with its express
term. The male according to the Code Commission, is justified on grounds of public
policy.
This is clearly pictured in one case. An employee died of acute hemorrhagic
pancreatitis after retiring from the night shift. Decedent's mother filed a claim for income
benefits which was denied by the GSIS on the ground that the disease was not
operational. Furthermore, he failed to show causal connection between the ailment and
the nature of the employment. The decision of the GSIS was affirmed by the Employees
Compensation Commission Petitioner went to the Supreme Court which held for the
former. It stated among other things that since the exact cause of the acute
hemorrhagic pancreatitis is still unknown despite extensive researches in this field any
doubt thereof shall be resolved in favor of labor (Villa Vertu. ECC and GSIS, GR No.
48605, 14 December 1981; Jimenez t. ECC, G.R. No. 58176, 23 March 1984).

3. Liberal construction in favor of labor, its purpose

In carrying out and interpreting Labor Code provisions including its implementing rules
and regulations, the worker's welfare should be the primordial and paramount
consideration (Songco, et al. . NLRC, G.R. Nos. 50999-51000, 23 March 1990), for an
exploited working class is a discontented working class. It is a treadmill to progress and
a threat to freedom. Thus, all efforts must be exerted to dignify the lot of the employee,
elevating him to the same plane as his employer, that they may better work together as
equal partners in the quest for a better life (Ocampo, Jr. v. NLRC, G.R. No. 81077, 6
June 1990). The principle of liberal construction

in favor of labor is in accord with the doctrine that those who have less in life should 42
have more in law. When conflicting interest of and capital are weighed on the scales of
social justice, the heavier influence of the latter must be counterbalanced by the
sympathy and compassion the law must accord the underprivileged worker (Eastern
Shipping Lines u. POEA, 166 SCRA 523). The law authorizes neither oppression nor
self-destruction of the employer (JPL Mktg. Promotions v. C.A., G.R. No. 151966, 8 July
2005).

7
Art. 5. Rules and Regulations. - The Department of Labor and Employment and
other government agencies charged with the administration and enforcement of
this Code or any of its parts shall promulgate the necessary implementing rules
and regulations. Such rules and regulations shall become effective fifteen (15)
days after announcement of their adoption in newspapers of general circulation.

NOTES AND COMMENTS

1. Implementing agencies

The Department of Labor and Employment, other agencies tasked to administer

and enforce the Labor Code or any part thereof and to promulgate the necessary
implementing rules and regulations are the following: National Labor Relations
Commission, Philippine Overseas Employment Administration, National Wages and
Productivity Commission, Employees Compensation Commission, Social Security
Commission, OWWA, GSIS, etc.

2. Extent and limits of rule-making power

Regulations adopted under legislative authority by a particular department must

be in harmony with the provisions of the law and for the sole purpose of carrying into
effect its general provisions. By such regulations, the law itself cannot be extended. So
long as they relate solely to carrying into effect the provisions of the law, they are valid
(United States v. Molina, 29 Phil. 119). It is elementary that an Act of Congress cannot
be amended by a rule promulgated by the Workmen's Compensation Commission
(Santos v. Hon Estenzo, et al., 109 Phil. 419). It is also settled that rules and regulations
duly promulgated and adopted in pursuance of properly delegated authority have the
force and effect of law where they are legislative

43
in character, but rules and regulations which are merely executive or administrative
views as to the meaning and construction of the statute are not controlling on the courts,
and cannot alter or extend the plain meaning of a statute, although they are entitled to
great weight where the statute ambiguous (89 CIS, 770-771).

Administrative rules and regulations must also be published if their purpose is to enforce
or implement existing law pursuant also to a valid delegation. However, interpretative
regulations and those merely internal in nature, that is, regulating only the personnel of
the administrative agency and not the public, need not be published. Neither is
8
publication required of the so-called letters of instructions INSued by administrative
superiors concerning the rules or guidelines to be followed by their subordinates in the
performance of their duties (Tañada v. Tuvera, 146 SCRA 446).

Needless to stress, the implementing rules partake of a statute and are binding as if
written in the law itself. They have the force and effect of law and enjoy the presumption
of constitutionality and legality until they are set aside with finality in an appropriate case
by a competent court (De La Salle Araneta University v. Bernardo, G.R. No. 190809, 13
February 2017).

3.Laws on effectivity

The following are the rules on effectivity:

(a) Laws shall take effect after fifteen (15) days following the completion of
their publication in the Official Gazette, unless it is otherwise provided (Art. 2,
Civil Code).

(b) In addition to other rulemaking requirements provided by law not

inconsistent with this Book, each rule shall become effective fifteen (15) days
from the date of filing as above provided unless a different date is fixed by law, or
specified in the rule in cases of imminent danger to public health, safety and
welfare, the existence of which must be expressed in a statement accompanying
the rules. The agency shall take appropriate measures to make emergency rules
known to persons who may be affected by them (Chapter 2, Book VII, 1987
Administrative Code).

Thus, in one case, the Supreme Court ruled that the questioned circulars (DOLE
Department Order No. 16, Series of 1991 and POEA Memorandum Circulars
Nos. 30 and 37, Series of 1991, temporarily
44
suspending the recruitment by private employment agencies of Filipino domestic
helpers for Hong Kong) are a valid exercise of police power delegated to the executive
branch of Government. Nevertheless, they are legally invalid, defective and
unenforceable lack of proper publication and filing in the Office of the National
administrative Register as required in Art. 2 of the Civil Code, Art. The Labor Code and
Secs, 3(1) and 4, Chapter 2, Book VII of the Administrative Code of 1987 (Phil.
Association of Service Exporters, Inc. v. Torres, 212 SCRA 298).

9
Art. 6. Applicability. - All rights and benefits granted n workers under this Code
shall, except as may otherwise be provided herein, apply alike to all workers,
whether agricultural or non-agricultural.

NOTES AND COMMENTS

1. Purpose of the law

The above provision is designed to encourage workers to seek jobs in agricultural

undertakings. It has been observed that the country's industrial development is
strengthened through accelerated and improved development of its agricultural
economy. Therefore, agricultural workers need support from the State; and this can be
attained only through legislations actually enacted for their uplift. Also, balance of labor
supply will both be maintained in the industrial and agricultural sectors, thereby reducing
labor oversupply in the urban areas where industrial establishments confine.

2. Employer-employee relationship; the jurisdictional foundation

Proof of employment relation is of first importance, for the reason that the existence of
the employer-employee relationship is the jurisdictional foundation for a compensation
claim (Asia Steel Corp. v. WCC, L-7636, 27 June 1955). This is so for an employee can
enjoy all the rights and benefits under the Labor Code if such relationship exists.

The basic factor underlying the exercise of rights and the filing of claims for benefits
under the Labor Code and other presidential

45
issuances of labor legislations is the status and nature of one's employment. Whether
an employer-employee relationship exists and whether such employment is managerial
character or that of a rank and file employee are primordial considerations before
extending labor benefits (Villuga, et al. v NLRC, G.R. No, 75038, 23 August 1993.)

Commencement of employer-employee relationship Employer-employee relationship is

created by an employment contract, whether express or implied. Such contract may be
shown to exist by proof of hire by competent person, either by the employer himself or
through an authorized representative or agent (Asia Steel Corp. e. WCC, L-7636, 27
10
June 1965). It has been held that the contract of employment marks the beginning of
employment, not the commencement of work.

In our jurisdiction, the benchmark of economic reality in analyzing possible employment

relationships for purposes of applying the labor code ought to be the economic
dependence of the worker on his employer (Orozco v. CA. 5562 SCRA 36 (2008).

4. Hiring by competent person

The question of authority to hire arises where hiring is done by a person other than the
employer himself. It has been held that the usual principle of agency applies. Thus,
hiring is considered competent in the following instances:

(a) if it is done by an agent with actual authority:

(b) if it is done by an agent with apparent authority: is done without authority;

(c) if it is done without authority, but subsequently ratified either expressly or impliedly
(Asia Steel Corp. v. WCC L-7636, 27 June 1956),

5. Four-fold test (Indicia of determination); "Economic or Economic Reality Test"

The existence or non-existence of the employer-employee relationship is commonly

determined by examination of certain factors or aspects of the relationship, as follows:
(a) the manner of selection and engagement of the putative employee;

46
(b) the mode of payment of wages,

(c) the presence or absence of the power of dismissal:

(d) the presence or absence of a power to control the putative employee's conduct
(Hijos De F. Escano, Inc. v. NLRC, GR. No. 59229, 22 August 1991), ie, the power to
control the employee with respect to the means and methods by which the work is to be
accomplished.

11
To bolster the payment of wages and control test. the existing economic conditions
prevailing between the parties, like the inclu don of the employee in the payrolls (Sevilla
v. C.A., G.R. Nos 44182 $, 15 April 1988), submission of his name with the SSS, Pag-
IBIG, PhilHealth, otherwise known as the economic test, are also applied in determining
employer-employee relationship.

6. The most decisive control test; Factors that determine control test

The control test assumes primacy in the overall consideration. Under this test, an
employment relation obtains where work is per formed or services rendered under the
control and supervision of the party contracting for the service, not only as to the result
of the work but also as to the manner and details of the performance (Iloilo Chi. nese
Commercial School v. Fabrigar, L-16600, 27 December 1961; Jimenez, et al. v. NLRC,
G.R. No. 116960, 2 April 1996). The power of control refers merely to the existence of
the power and not to the actual exercise thereof (MAM Realty Dev. Corp. v. NLRC, G.R.
No. 114787, 2 June 1995).

The following factors determine control test:

(a) Not every form of control establishes employer employee relationship. A

demarcation line should be drawn between: (a) rules that merely serve as guidelines
which only promote the result, and (b) rules that fix the methodology and bind or restrict
the party hired to the use of such means or methods. Under the first category, there
exists no employer employee relationship. In the second category it has the effect of
establishing employer-employee relationship (Insular Life Assurance Co., Ltd. v. NLRC,
179 SCRA 439; Consulta v. C.A., G.R. No. 145443, 18 March 2005);

47
(b) The skills rendered, source of instrumentalities and tools, location of the work,
duration of the relationship, the hired party's discretion when and how long to work, the
manner of payment, whether the work is part of the regular business of the hiring party,
the contract provisions on benefit (Sonza n ABS CBN, GR. No, 138051, 10 June 2004):

(e) The bus owner has control over a bus driver, an employee, although paid on
commission basis (HR. Transport v. Ejandra, G.R. Na. 148508, 20 May 2004);

(d) Employment does not exist for a sales agent who receives commission on his gross
sales (Abante u. Lamadrid Bearing and Parts, G.R. No. 616989, 28 May 2004);
12
(e) Where there is less control in the exercise, the more likely the person hired is an
independent contractor (Sonza v. ABS-CBN, G.R. No. 138051, 10 June 2004):

(f) Where the hirer cannot discipline or dismiss the hired person over his performance
(Ibid);

(g) The worker performs subject to employer specifi cations indicating control (Dy Keh
Beng v. ILMUP, G.R. No.32245, 23 May 1979):

(h) The company has direct control and supervision over the activities of pakiao workers
(PRC . C.A., G.R. No. 29590, 30 September 1982);

(i) Since the owner controls the work performance of a caretaker of a barber
shop, he is an employee of the establishment (Jo v. NLRC, G.R. No. 121605,
2 February 2000).

Thus, insurance agents whose time and effort spent by them are solely dependent on
their own will and they are paid on their commissions based on a certain percentage of
their sales. No employer-employee relationship exists between the insurance company
and such agents (Great Pacific Life v. Judico, 180 SCRA 445).

7. The "whole economic activity or totality of economic circumstances" test

The need to consider the existing economic conditions prevailing between the parties, in
addition to the standard of right-of-control
48

like the inclusion of the employee in the payrolls, to give a clear. 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; o) the extent of the workers investment in
equipment and facilties: (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
13
employment in that line of business (Francisco . NLRC, G.R. No. 170087, 31 August
2006; Sevilla v. C.A., G.R. Nos. L-41182 3, 15 April 1988).

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

8. The "two-tiered" test: economic dependence and control test

There are certain cases the control test is not sufficient to give a complete picture of
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
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

49
of the relationship based on the various positions and responsibilities given to the
worker over the period of the latter's employment

9.Suspension of employer-employee relationship

Employer employee relationship is not severed in the following instances:

(a) Regular seasonal employees are not, strictly speaking, separated from the service
but are merely considered as on leave of absence without pay until they are re-
employed. Their employment relationship is never severed but only pended (Manila
Hotel Co. v. CIR, 9 SCRA 184; ICAWO U C 16 SCRA 562):

14
(b) The cessation of the milling activities at the end of the season is certainly not
permanent or definitive; it I foreseeable suspension of work. There is merely a
temporary cessation of manufacturing process due to passing shortage of raw materials
that by itself alone is not sufficient to severe employment relationship between the
parties since the shortage is not permanent (ICAWO v. CIR, 16 SCRA 562)

(c) Bona fide suspension of operation of a business or undertaking for a period not
exceeding six (6) months does not terminate employment relationship (Art. 292, infra);

(d) Fulfilment by the employee of a military or civic duty does not terminate employment
relationship (Ibid.);

(e) Regular employees of the work pool, while waiting for their assignment are not
considered terminated from their services;

(f) An employee who was dismissed for a specific cause services which turned out to be
false or non-existent is entitled to reinstatement (Pepito v. Sec. of Labor, 96 SCRA 454;
Magtoto v. NLRC, G.R. No. 63370, 18 November 1985):

(g) Filing by the employee of an illegal dismissal case does not severe employment
relationship;

(h) Employees who stage a legal strike does not constitute severance of employer-
employee relationship, and

(i) Employees of employer whose fishing vessels are dry-docked or undergoing repairs
are not terminated from

50
employment (Phil. Fishing Boat Officers v. CIR, 159,112 SCRA)

10. Working scholars not employees

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

colleges or universities on the other, where students work for the latter in exchange for
the privilege to study charge, provided the students are given real opportunity. ,ncluding
such facilities as may be reasonable, necessary to finish their chosen courses under
such arrangement (Sec. 14, Rule X, Book III, Rules Implementing the Labor Code).

In a civil suit for damages filed by an injured person against a working scholar and the
school, the latter claimed non-existence of employer-employee relationship. It must be
noted that for purposes of imposing liability for tortious act, the working scholar is consid
15
ered an employee and the school as employer (Filamer Christian Institute v. IAC, 212
SCRA 637).

11. Resident physicians as employees of a hospital

It is settled that there exists employer-employee relationship between a resident

physician and the hospital. Under the control test" an employment relationship exists
between a physician and a hospital if the hospital controls both the means and the
details of the process by which the physician is to accomplish his task. The resident
doctors maintained specific work schedules as determined by the Medical Director, and
hospital supervised and monitored the resident doctors work through the nursing
supervisors, charge nurses and orderlies. They were made subject to hospital's code
ethics, the provisions of which cover administrative and disciplinary measures on
negligence of duties, personnel conduct and behavior, and offences against persons,
property and the hospital's interest. Lastly, IDs, BIR forms and SSS/Medicare program
enrollment all prove that resident doctors were employees (Calamba Medical Center,
Inc. v. NLRC, G.R. No. 176484, 25 November 2008).

12. Resident physicians not as employees of a hospital

There exists no employer-employee relationship between resident licensed physician

and the accredited training hospital if:
(a) there is training agreement between them; and

51
(h) the training program is duly accredited by accredited by the Department of Health
(DOH) whose training program is also accredited by the Professional Regulation
Commission (PRC) (DO No 18 Series 2017)

Physicians undergo residency training in order to improve their knowledge in

specialized medical field or discipline. It is to this purpose, residency necessitates
further on-the-job training. Thus, the relationship between the training hospital and the
resident doctor is not one of an employer employee. The training hospital in treated in
this instance, as a medical school training the resident doctor in a special medical
discipline (UERMMMC v. Usec Laguesma, G.R. No 195495-26, 9 November 1993).

13. Lawyers as employees

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Legal problems resulting from complex business transactions are usually handled by
lawyers hired by companies, known as in. house lawyers. In the company's
organizational chart, they are considered as employees or be treated like other officers.
Under the circumstances, in house lawyers are employees of the company. Thus, if an
in-house lawyer failed to perform his duties, he can be dismissed (Hydro Resources v.
Paglilauan, 172 SCRA 399).

14. Professors as employees

The University practically exercises an effective control and supervision over the work of
professors which includes what subjects to be taught, when to be taught and where to
be taught. Furthermore, they receive regular compensations from the university and
where their services are proven to be unsatisfactory, they can be dismissed (FEATI
University v. Bautista, 18 SCRA 1191).

15. Stevedores not employees

A shipping company usually contracts out with other com companies offering arrastre
services as it is not customarily engaged in stevedoring activities. Thus, stevedoring
employees are not employed by the shipping company (Escano v. NLRC, 201 SCRA
63).

16. Jeepney drivers as employees 52

Under the "boundary" system, the jeepney driver is not paid a fixed wage, and he
shoulders gasoline expenses, but these factors by themselves do not create a lessor
lessee relationship. The jeepney owner still exercises control and supervision over the
driver by seeing to it that he negotiates the route prescribed by the government agency.
In lease, the lessor loses complete control over the chattel. In the case of a jeepney
owner, he retains control over his vehicle (CLFW v. Abbas, 18 SCRA 71; Jardin u.
NLRC, 326 SCRA 299).

The fact that the transportation company paid a driver on commission basis does not
rule out the presence of employer employee relationship (R Transport v. Ejandra, G.R.
No. 148508, 20 May 2004).

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17. Caddies of Golf Clubs not employees

Although caddies submit to some supervision of their conduct to the Golf Club while
enjoying the pursuit of their occupation within the premises; however, they do not
observe working hours and are free to leave anytime they please or stay away for as
long as they like. With or without breach of club rules, they can be barred in the golf
premises. All these considerations negate existence of employer employee relationship
(Manila Golf and Country Club, Inc. v. IAC, 237 SCRA 207).

18. Crew members not employees of boat owner; relationship assumes a joint
venture

The relationship between the boat owner and crew members partakes that of a joint
venture as shown by the following: (a) crew members do not receive compensation, (b)
they divide/share in the fish catch, (c) they venture into the sea regardless of the
instruction of the boat owner under their best judgment on how long and where they go
fishing, and (d) crew members join the expedition upon invitation of the ship master
even without the knowledge of the boat owner. Under these circumstances, there exists
no employer employee relationship between the boat owner and the crew members
(Villa Villa v. C.A., 212 SCRA 488).

53

19, Medical consultants not employees

It settled, there is no employer-employee relationship between a hospital and medical

consultants( Ramos v. CA. 380 SCRA 467) as the latter are not under the effective
control and supervision of the former. At most they receive certain honorarium or fees
on matters that require consultation advice by the consultants. However purpose of
allocating responsibility in medical negligence cases (tortuous act ) employer employee
relationship exists between the hospital and its attending or visiting physician.

20. Status of Women Workers in Certain Work Places

Any woman who is permitted or suffered to work with or without compensation, in any
night club, cocktail lounge, beer house massage clinic, bar or similar establishments,
under the effective control or supervision of the employer for a substantial period of time
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as determined by the secretary of Labor and Employment, shall be considered as an
employee of such establishments for purposes of labor and social legislation (Sec. 4,
Rule XII, Book III. Omnibus Rules Implementing the Labor Code).

21. Owner of the project, an employer in labor-only contracting

The "labor only contractor"-i.e., "the person or intermediaryis 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' rights
under the Labor Code (Vigilla v. PCCR, G.R. No. 200094, 10 June 2013).

22 Termination of employer-employee relationship

An employer may not terminate the services of an employee except for a just or
authorized cause (Arts. 285288289 and 290, infra). On the other hand, an employee
may terminate without

54
just cause, employment relationship by serving a written notice on employer at least one
(1) month in advance. However, be may terminate employment relationship without
serving notice on the employer for just causes provided in Art. 285, infra.

23. Effects of illegal dismissal

Employment relationship is not terminated in an illegal dismissal case. An employee

who was illegally dismissed is entitled reinstatement without loss of seniority rights, full
back wages elusive of allowances, damages and other benefits due him computed from
the time of his compensation was withheld up to the time of his actual reinstatement
(Art. 285, infra.; Arts. 2917 to 2220,New Civil Code)

24. Applicability and non-applicability

Does Art. (6) of the Labor Code apply to government corpora tions?

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By express provision of the Constitution and the Labor Code, terms and conditions of
employment of all government employees including employees of government-owned or
controlled corporations with original charters shall be governed by civil service law, rules
and regulations (P.D. 807, as amended; Art. IX-B, Sec. 2011987 Phil. Constitution)

It should be noted, however that the term "government- owned or controlled

corporation" must be interpreted in the light of Opinion No. 62 of the Secretary of
Justice, series of 1976. Under this Opinion, there is a difference between corporations
organized pursuant to a legislative charter or a special law and corporations not directly
chartered or created by special law but were acquired or taken over by corporations
created under special law. The former are government-owned or controlled corporations
with original charters governed by civil service law; while, the latter are known as
subsidiaries or corporate offsprings governed by the Labor Code.

Opinion No. 62 of the Secretary of Justice, series of 1976 was, in essence, voided by
the Supreme Court in its ruling laid down in National Housing Authority u. Juco: "there
should be no longer any question at this time that employees of government-owned or
controlled corporations are governed by the civil service law and civil service rules and
regulations.xxx A government-owned or controlled

55
corporation could create subsidiary corporations (and) these subsidiary corporation
would enjoy the best of two worlds. Their officials and employees would be privileged
individual, free from the strict accountability required by the Civil Service Decree and the
regulations of the Commission on Audit. Their incomes would not be subject to the
competitive restraints of the open market nor to the terms and conditions of the civil
service employment. Such a situation cannot be allowed to exist" (NHA v. Juco, 134
SCRA 172).

In National Service Corporation v. NLRC, the Supreme Court ruled (abandoning the
NHA doctrine, but resurrecting Opinion 62 of the Secretary of Justice, series of 1976) on
the impact of the constitutional provision on the scope of civil service which reads: "The
civil service embraces all branches, subdivisions, instrumentalities, and agencies of the
government, including government-owned controlled corporations with original
charters." According to the Court, "By clear implication, the Civil Service does not
include government-owned or controlled corporations which are organized e
subsidiaries of government-owned or controlled corporations under the general
corporation law * Government corporations with original charters are those created by
20
law, by an act of Congress, by special law and not under the general corporation law."
In view of the constitutional mandate, the Court affirmed the jurisdiction of the National
Labor Relations Commission on a complaint filed by a NASECO employee.
Furthermore, it argued that NASECO a company that provides security guards as well
as messenger janitorial and other similar services to the Philippine National Bank and
its agencies, being a subsidiary of the National Investment and Development
Corporation (NIDC), a subsidiary wholly-owned by the Philippine National Bank, in turn
a government-owned corporation, it (NASECO) is therefore a government-owned or
controlled corporation without original charter (NASECO . NLRC, G.R. Nos. 69870,
70295, 29 November 1988). The PNB is now a privately. owned corporation.

25. The manner-of-creation test (original charter test)

A corporation is government-owned and controlled if the capital stock is owned by the

government even if the corporation is organized in accordance with the corporation law
(PNOC-Energy Dev. Corp. u. NLRC, G.R. No. 100947, 31 May 1993).

The test in determining whether a government-owned of controlled corporation is

subject to Civil Service Law is the manner

56

of its creation that such government corporations created by special odors are subject
to its provisions while those incorporated under the general Corporation Law are not
within its coverage. Thus, the PNOC-EDC having been incorporated under the general
Corporation Law, is a government-owned or controlled corporation whose employees
are subject to the provisions of the Labor Code (PNOC Energy Development
Corporation v. Hon. Leopardo, G.R. 58494, 5 July 1989). However, employees of the
National Ns Development Committee, as an agency of the government, Parovered by
civil service rules and regulations (Republic v. CA, G.R. No. 87676, 20 December
1989), and are compulsory members The GSIS. Likewise, the Philippine National Red
Cross was not mpliedly converted to a private corporation simply because its charter
was amended to vest in it the authority to secure loans, be exempted from payment of
all duties, taxes, fees and other charges tall kinds on all importations and purchases for
its exclusive use (Camporedondo v. National Labor Relations Commission, G.R. No.
199049, 6 August 1999).

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