NOTES ON LABOR LAW REVIEW

PART ONE
First Semester, SY 2022-2023

BY:

ATTY. VON LOVEL D. BEDONA, LL.M.

Professor

I. Basic Principles

Jurisprudential references

The State is bound under the Constitution to afford full protection to labor. When conflicting
interests of labor and capital are to be weighed on the scales of social justice, the heavier influence of
the latter should be counterbalanced with the sympathy and compassion the law accords the less
privileged workingman. This is only fair if the worker is to be given the opportunity and the right to
assert and defend his cause not as a subordinate but as part of management with which he can
negotiate on even plane. Hence, labor is not a mere employee of capital but its active and equal
partner.

Evidently, courts should be ever vigilant in the preservation of the constitutionally enshrined
rights of the working class. Certainly, without the protection accorded by our laws and the tempering
of courts, the natural and historical inclination of capital to ride roughshod over the rights of labor
would run unabated.

The Court will not allow the circumvention of the basic principles of labor laws which were
meticulously crafted to ensure full protection to laborers.

II. Existence of Employer – Employee Relationship; Tests

Employment status is not determined by contract or document. Neither is an employee's avowal

of his or her employment status—as regular, casual, contractual, seasonal—conclusive upon the Court.
To be sure, employment status is determined by the four–fold test, and the attendant circumstances of
each case, as supported by any competent and relevant evidence. The status of employment cannot be
dictated by the stipulation of contract or any document, because the same is contrary to public policy
and heavily impressed with public interest. The law relating to labor and employment is an area where
the parties are not at liberty to insulate themselves and their relationships from the impact of labor laws
and regulations by means of contract or waiver.

The rule is that where a person who works for another performs his job more or less at his
own pleasure, in the manner he sees fit, not subject to definite hours or conditions of work, and is
compensated according to the result of his efforts and not the amount thereof, no employer–employee
relationship exists.

In determining the existence of an employer– employee relationship, the following elements

are considered: (1) the selection and engagement of the workers; (2) the power to control the worker's
conduct; (3) the payment of wages by whatever means; and (4) the power of dismissal. Specifically, on

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the "control test," this power to control is oft–repeated in jurisprudence as the most important and
crucial among the four tests.

However, not every form of control is indicative of employer–employee relationship. A

person who performs work for another and is subjected to its rules, regulations, and code of ethics does
not necessarily become an employee. As long as the level of control does not interfere with the means
and methods of accomplishing the assigned tasks, the rules imposed by the hiring party on the hired
party do not amount to the labor law concept of control that is indicative of employer–employee
relationship. Logically, the line should be drawn between rules that merely serve as guidelines towards
the achievement of the mutually desired result without dictating the means or methods to be employed
in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the
use of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it.

Specifically, on the control test, this power to control is oft–repeated in jurisprudence as the
most important and crucial among the four tests.

Here, the control test is the most important and crucial among the four tests. However, in cases
where there is no written agreement to base the relationship on and where the various tasks performed
by the worker bring complexity to the relationship with the employer, the better approach would
therefore be to adopt a two – tiered test involving: a) 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 b) the
underlying economic realities of the activity or relationship.

In applying the second tier, the determination of the relationship between employer and
employee depends upon the circumstances of the whole economic activity (economic reality or multi –
factor test), such as: a) the extent to which the services performed are an integral part of the
employer's business; b) the extent of the worker's investment in equipment and facilities; c) the
nature and degree of control exercised by the employer; d) the worker's opportunity for profit and
loss; e) the amount of initiative, skill, judgment or foresight required for the success of the claimed
independent enterprise; f) the permanency and duration of the relationship between the worker and
the employer; and g) the degree of dependency of the worker upon the employer for his continued
employment in that line of business. Under all of these tests, the burden to prove by substantial
evidence all of the elements or factors is incumbent on the employee for he or she is the one claiming
the existence of an employment relationship.

Under the control test, an employer–employee relationship exists where the person for whom
the services are performed reserves the right to control not only the end achieved, but also the manner
and means to be used in reaching that end. As applied in the healthcare industry, 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. But where a person who works
for another performs his job more or less at his own pleasure, in the manner he sees fit, not subject to
definite hours or conditions of work, and is compensated according to the result of his efforts and not
the amount thereof, no employer – employee relationship exists.

Jurisprudence requires that anyone who claims to be an employee of the employer must prove
by substantial evidence that the employer–employee relationship actually exists. Although no
particular form of evidence is required to prove the existence of an employer–employee relationship,
and any competent and relevant evidence to prove the relationship may be admitted, a finding that the

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relationship exists must nonetheless rest on substantial evidence, or such amount of relevant evidence
which a reasonable mind might accept as adequate to justify a conclusion.

III. Termination of Employment

A valid termination of employment necessitates compliance with both substantive and

procedural due process requirements. The quantum of proof required in these cases is substantial
evidence.

"The quantum of proof required in determining the legality of an employee's dismissal is only
substantial evidence," which is "that amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion."

"The standard of substantial evidence is satisfied where the employer has reasonable ground to
believe that the employee is responsible for the misconduct and his participation therein renders him
unworthy of the trust and confidence demanded by his position."

Jurisprudence, however explained the acceptable standard of procedure to be considered in

terminating the services of an employee:

(1) The first written notice to be served on the employees should contain the specific
causes or grounds for termination against them, and a directive that the employees are given the
opportunity to submit their written explanation within a reasonable period. Reasonable opportunity
under the Omnibus Rules means every kind of assistance that management must accord to the
employees to enable them to prepare adequately for their defense. This should be construed as a period
of at least five (5) calendar days from receipt of the notice to give the employees an opportunity to
study the accusation against them, consult a union official or lawyer, gather data and evidence, and
decide on the defenses they will raise against the complaint.

(2) After serving the first notice, the employers should schedule and conduct a hearing
or conference wherein the employees will be given the opportunity to: (1) explain and clarify their
defenses to the charge against them; (2) present evidence in support of their defenses; and (3) rebut the
evidence presented against them by the management. During the hearing or conference, the employees
are given the chance to defend themselves personally, with the assistance of a representative or
counsel of their choice. Moreover, this conference or hearing could be used by the parties as an
opportunity to come to an amicable settlement.

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

Article 297(a) – Serious Misconduct and Willful Disobedience

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, but not when the same transgression results from simple
negligence or mere error in judgment. In the same vein, fraud and dishonesty can only be used to

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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 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.

Misconduct is defined as the transgression of some established and definite rule of action, a
forbidden act, a dereliction of duty, willful in character, and implies wrongful intent and not mere error
in judgment. In order for serious misconduct to justify dismissal, these requisites must be present: (a) it
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. On the other hand, to be considered as a just cause for terminating an employee's
services, insubordination requires that the orders, regulations or instructions of the employer or
representative must be (a) reasonable and lawful; (b) sufficiently known to the employee; (c) in
connection with the duties which the employee has been engaged to discharge; and (d) the employee's
assailed conduct must have been willful or intentional, the willfulness being characterized by a
wrongful and perverse attitude. As a just cause for termination of employment, on the other hand, the
neglect of duties must not only be gross but habitual as well. Gross negligence means an absence of
that diligence that a reasonably prudent man would use in his own affairs and connotes want of care in
the performance of one's duties. Habitual neglect implies repeated failure to perform one's duties for a
period of time, depending upon the circumstances. A single or isolated act of negligence does not
constitute a just cause for the dismissal of the employee.

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.

Article 297(b) – Gross and Habitual Neglect

Gross Negligence

Gross negligence implies a want or absence of or a failure to exercise slight care or diligence,
or the entire absence of care. It evinces a thoughtless disregard of consequences without exerting any
effort to avoid them. Habitual neglect implies repeated failure to perform one's duties for a period of
time, depending upon the circumstances.

Negligence is the failure to observe for the protection of the interests of another person that
degree of care, precaution, and vigilance which the circumstances justly demand, whereby such other
person suffers injury. The test of negligence is: Did the employee in doing the alleged negligent act
use that reasonable care and caution which an ordinarily prudent person would have used in the same
situation? The law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.

Habitual Neglect of Duties

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 Gross negligence has been defined as "the want or absence of or failure to exercise slight care
or diligence, or the entire absence of care. It evinces a thoughtless disregard of consequences without
exerting any effort to avoid them." On the other hand, habitual neglect "imparts repeated failure
to perform one's duties for a period of time, depending on the circumstances." A single or
isolated act of negligence does not constitute a just cause for the dismissal of the employee.

The totality of infractions or the number of violations committed during the

period of employment shall be considered in determining the penalty to be
imposed upon an erring employee.

Fitness for continued employment cannot be compartmentalized into tight little cubicles of
aspects of character, conduct and ability separate and independent of each other. While it may be true
that the erring employee was penalized for his previous infractions, this does not and should not mean
that his employment record would be wiped clean of his infractions. After all, the record of an
employee is a relevant consideration in determining the penalty that should be meted out since an
employee's past misconduct and present behavior must be taken together in determining the proper
imposable penalty. Indeed, the employer cannot be compelled to retain a misbehaving employee, or
one who is guilty of acts inimical to its interests. It has the right to dismiss such an employee if only as
a measure of self – protection.

To be sure, the totality of an employee's infractions is considered and weighed in determining

the imposable sanction for the current infraction.

Abandonment of work is another form of gross neglect

Indeed, "an employee who loses no time in protesting his layoff cannot by any reasoning be
said to have abandoned his work, for it is already a well – settled doctrine that the filing by an
employee of a complaint for illegal dismissal with a prayer for reinstatement is proof enough of his
desire to return to work, thus negating the employer's charge of abandonment."

Settled is the rule that mere absence or failure to report for work is not tantamount to
abandonment. The absence must be accompanied by overt acts unerringly pointing to the fact that the
employee simply does not want to work anymore, and the burden of proof to show that there was
unjustified refusal to go back to work rests on the employer.

The remedy when there is no abandonment and absence of dismissal–each

party should bear its losses.

Article 297(c) – Fraud or willful breach of trust

To justify a valid dismissal based on loss of trust and confidence, the concurrence of two (2)
conditions must be satisfied: (1) the employee concerned must be holding a position of trust and
confidence; and (2) there must be an act that would justify the loss of trust and confidence. However,
the degree of proof required in proving loss of trust and confidence differs between a managerial
employee and a rank-and-file employee.

In terminating managerial employees based on loss of trust and confidence, proof beyond
reasonable doubt is not required, but the mere existence of a basis for believing that such employee has
breached the trust of his employer suffices. As firmly entrenched in our jurisprudence, loss of trust and
confidence, as a just cause for termination of employment, is premised on the fact that an employee

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concerned holds a position where greater trust is placed by management and from whom greater
fidelity to duty is correspondingly expected. The betrayal of this trust is the essence of the offense for
which an employee is penalized. It must be noted, however, that in a plethora of cases, the Supreme
Court has distinguished the treatment of managerial employees from that of rank–and–file personnel,
insofar as the application of the doctrine of loss of trust and confidence is concerned. Thus, with
respect to rank – and – file personnel, loss of trust and confidence, as ground for valid dismissal,
requires proof of involvement in the alleged events in question, and that mere uncorroborated
assertions and accusations by the employer will not be sufficient.

The right of an employer to freely select or discharge his employees is subject to the regulation
by the State in the exercise of its paramount police power. However, there is also an equally
established principle that an employer cannot be compelled to continue in employment an employee
guilty of acts inimical to the interest of the employer and justifying loss of confidence in him. The
employee’s lack of previous record of inefficiency, infractions or violations of company rules during
his long period of service cannot serve as justification to reduce the severity of the penalty. There is
really no premium for a clean record, for a belated discovery of the misdeed does not serve to sanitize
the intervening period from its commission up to its eventual discovery.

It must be noted, however, that in a plethora of cases, the Supreme Court has distinguished the
treatment of managerial employees from that of rank–and–file personnel, insofar as the application of
the doctrine of loss of trust and confidence is concerned. Thus, with respect to rank – and – file
personnel, loss of trust and confidence, as ground for valid dismissal, requires proof of involvement in
the alleged events in question, and that mere uncorroborated assertions and accusations by the
employer will not be sufficient. But as regards a managerial employee, the mere existence of a basis
for believing that such employee has breached the trust of his employer would suffice for his
dismissal. Hence, in the case of managerial employees, proof beyond reasonable doubt is not required,
it being sufficient that there is some basis for such loss of confidence, such as when the employer has
reasonable ground to believe that the employee concerned is responsible for the purported misconduct,
and the nature of his participation therein renders him unworthy of the trust and confidence demanded
of his position.

The doctrine of loss of confidence requires the concurrence of the following: (1) loss of
confidence should not be simulated; (2) it should not be used as a subterfuge for causes which are
improper, illegal, or unjustified; (3) it may not be arbitrarily asserted in the face of overwhelming
evidence to the contrary; (4) it must be genuine, not a mere afterthought to justify an earlier action
taken in bad faith; and (5) the employee involved holds a position of trust and confidence.

Other Forms of Termination

While not explicitly mentioned in the Labor Code, case law recognizes that dismissal from
employment due to the enforcement of the union security clause in the Collective Bargaining
Agreement (CBA) is another just cause for termination of employment. To validly terminate the
employment of an employee through the enforcement of the union security clause, the following
requisites must concur: (1) the union security clause is applicable; (2) the union is requesting for the
enforcement of the union security provision in the CBA; and (3) there is sufficient evidence to support
the decision of the union to expel the employee from the union.

Defiance of the return-to-work order issued by the Secretary of Labor and Employment will result to
termination of employment.

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Participation in the illegal strike ground for termination of employment.

Article 298 – Closure of Establishment and Reduction of Personnel

The Law on Redundancy

Under Article 298 of the Labor Code (Closure of Establishment and Reduction of Personnel)
the employer may also terminate the employment of any employee due to the installation of labor–
saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of
the establishment or undertaking unless the closing is for the purpose of circumventing the provisions
of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at
least one (1) month before the intended date thereof. In case of termination due to the installation of
labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay
equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service,
whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay or at least one – half (1/2) month pay for every
year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1)
whole year.

Redundancy exists when an employee's services are in excess of what is reasonably demanded
by the actual requirements of the enterprise. While a declaration of redundancy is ultimately a
management decision, and the employer is not obligated to keep in its payroll more employees than are
needed for its day – to – day operations, management must not violate the law nor declare redundancy
without sufficient basis.

A valid redundancy program requires the following: (1) written notice served on both the
employees and the Department of Labor and Employment (DOLE) at least one (1) month prior to the
intended date of termination of employment; (2) payment of separation pay equivalent to at least one
(1) 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.

The Law on Retrenchment

Retrenchment is a management prerogative to downsize its work force to avert business

losses, which could either be already incurred or impending. Where appropriate and where conditions
are in accord with law and jurisprudence, the Court has authorized valid reductions in the work force
to forestall business losses, the hemorrhaging of capital, or even to recognize an obvious reduction in
the volume of business which has rendered certain employees redundant. However, for retrenchment
to be valid, certain requisites must first be satisfied.

The complete designation of this authorized cause is retrenchment to prevent losses precisely to
save a financially ailing business establishment from eventually collapsing. Without the purpose to
prevent losses, the termination becomes illegal. However, the employer or the company need not be
incurring losses already; the requirement is that there may be impending losses hence the resort to
retrenchment.

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 The three (3) basic requirements are: (a) proof that the retrenchment is necessary to prevent
losses or impending losses; (b) service of written notices to the employees and to the Department of
Labor and Employment at least one (1) month prior to the intended date of retrenchment; and (c)
payment of separation pay equivalent to one (1) month pay, or at least one – half (1/2) month pay for
every year of service, whichever is higher. In addition, jurisprudence has set the standards for losses
which may justify retrenchment, thus: (1) the losses incurred are substantial and not de minimis; (2)
the losses are actual or reasonably imminent; (3) the retrenchment is reasonably necessary and is likely
to be effective in preventing the expected losses; and (4) the alleged losses, if already incurred, or the
expected imminent losses sought to be forestalled, are proven by sufficient and convincing evidence.

The Law on Cessation or Closure of Business (Article 298)

One of the authorized causes for dismissal recognized under the Labor Code is the bona fide
cessation of business operations by the employer. Article 298 (formerly Art. 283) of the Labor Code
explicitly sanctions terminations due to the employer's cessation or business or operations — as long
as the cessation is bona fide or is not made "for the purpose of circumventing the employee's right to
security of tenure."

There are three requirements 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 of 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.

A closure or cessation of business or operations as ground for the termination of an employee is

considered invalid when there was no genuine closure of business but mere simulations which make it
appear that the employer intended to close its business or operations when in truth, there was no such
intention. To unmask the true intent of an employer when effecting a closure of business, it is
important to consider not only the measures adopted by the employer prior to the purported closure but
Labor Code which guarantees security of tenure.

Article 299 – Disease as Ground for Termination

As the Supreme Court stated in Triple Eight Integrated Services, Inc. vs. NLRC, the
requirement for a medical certificate under Article 299 of the Labor Code cannot be dispensed with;
otherwise, it would sanction the unilateral and arbitrary determination by the employer of the gravity
or extent of the employee's illness and thus defeat the public policy in the protection of labor.

Since the burden of proving the validity of the dismissal of the employee rests on the
employer, the latter should likewise bear the burden of showing that the requisites for a valid dismissal
due to a disease have been complied with. In the absence of the required certification by a competent
public health authority, the Court has ruled against the validity of the employee's dismissal. The Court
will not sanction a dismissal premised on mere conjectures and suspicions, the evidence must be
substantial and not arbitrary and must be founded on clearly established facts sufficient to warrant his
separation from work.

For dismissal under Article 299 to be valid, two requirements must be complied with: (1) the
employee's disease cannot be cured within six (6) months and his continued employment is prohibited
by law or prejudicial to his health as well as to the health of his co – employees; and (2) certification
issued by a competent public health authority that even with proper medical treatment, the disease

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cannot be cured within six (6) months. The burden of proving compliance with these requisites is on
the employer. Non – compliance leads to the conclusion that the dismissal was illegal.

The Implementing Rules of the Labor Code impose upon the employer the duty not to
terminate an employee until there is a certification by a competent public health authority that the
employee's disease is of such nature or at such a stage that it cannot be cured within a period of six
months even with proper medical treatment.

Note: The employee can be placed under leave without pay until the certification by competent
government physician stating that the illness is incurable is obtained.

Article 300 (formerly 285) – Termination by Employee

Constructive dismissal arises when continued employment is rendered impossible,

unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear
discrimination, insensibility or disdain by an employer becomes unbearable to the employee. In such
cases, the impossibility, unreasonableness, or unlikelihood of continued employment leaves an
employee with no other viable recourse but to terminate his or her employment.

By definition, constructive dismissal can happen in any number of ways. At its core, however,
is the gratuitous, unjustified, or unwarranted nature of the employer's action. As it is a question of
whether an employer acted fairly, it is inexorable that any allegation of constructive dismissal be
contrasted with the validity of exercising management prerogative.

Article 301 – When Employment Not Deemed Terminated

In invoking Article 301 of the Labor Code, the paramount consideration should be the dire
exigency of the business of the employer that compels it to put some of its employees temporarily out
of work. This means that the employer should be able to prove that it is faced with a clear and
compelling economic reason that reasonably forces it to temporarily shut down its business operations
or a particular undertaking, incidentally resulting to the temporary lay – off of its employees. Due to
the grim economic consequences to the employee, case law states that the employer should also bear
the burden of proving that there are no posts available to which the employee temporarily out of work
can be assigned. Airborne Maintenance and Allied Services, Inc. v. Arnulfo M. Egos, G.R. No. 222748,
April 3, 2019

IV. Requirements for Labor–Only Contracting

It is a settled rule that Article 295 of the Labor Code finds no application in a trilateral
relationship involving a principal, an independent job contractor, and the latter's employees. Indeed,
the Supreme Court has ruled that said provision is not the yardstick for determining the existence of an
employment relationship because it merely distinguishes between two kinds of employees, i.e., regular
employees and casual employees, for purposes of determining the right of an employee to certain
benefits, to join or form a union, or to security of tenure; it does not apply where the existence of an
employment relationship is in dispute.

Article 106 of the Labor Code defines labor – only contracting as an arrangement where
a person without substantial capital or investment in the form of tools, equipment, machinery, or
work premises, among other things, supplies workers to an employer, and such workers perform
activities directly related to the principal business of the latter. In agreements of this nature, the

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contractor merely acts as an agent in recruiting workers on account of the principal with the
intent to circumvent the constitutional and statutory rights of employees. There is no question
that the practice is inimical to the national interest and that it runs contrary to public policy. As
such, it is proscribed by law.

Nevertheless, not all forms of contracting are prohibited. Job contracting is the permissible yet
regulated practice of farming out a specific job or service to a contractor for a definite or
predetermined period of time, regardless of whether the contractor's employees perform their assigned
tasks within or outside the principal employer's premises. In job contracting, the contractor carries out
a business distinct and independent from the principal, and undertakes the work or service on its own
account, using its own manner and methods in doing so. Also, the contractor's employees are free from
the control of the principal employer, save only as to the result thereof.

As mentioned, job contracting is a regulated practice. Accordingly, the law authorizes the
Secretary of Labor to promulgate administrative rules that distinguish between valid job contracting
and prohibited labor – only contracting, keeping with the fundamental state policy of protecting labor.
In view of this statutory directive, the Department of Labor and Employment (DOLE) requires
contractors to register themselves with the DOLE Regional Office in which they operate, so as to
monitor their compliance with the law's guiding principles. Failure to comply with the registration
requirement gives rise to a presumption that the contractor is engaged in labor – only contracting.

First, as stated above, Article 106 of the Labor Code defines a labor – only contractor as
one who "does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others."

For clarity, the relevant provisions of both sets of rules are quoted below. D.O. No. 18 – 2
states the requirement, viz.:

Section 5. Prohibition against labor – only contracting. — Labor-only contracting is

hereby declared prohibited. For this, purpose, labor-only contracting shall refer to an
arrangement where the contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any of the following
elements are present:

(i) The contractor or subcontractor does not have substantial capital of

investment which relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal; or

(ii) The contractor does not exercise the right to control over the performance of
the work of the contractual employee.

On the other hand, D.O. No. 18 – A states:

Section 6. Prohibition against labor – only contracting. — Labor-only contracting is

hereby declared prohibited. For this purpose, labor only contracting shall refer to an
arrangement where:

(a) The contractor does not have substantial capital or investments in the form of
tools, equipment, machineries, work premises, among others, and the employees

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 recruited and placed are performing activities which are usually necessary or desirable
to the operation of the company, or directly related to the main business of the principal
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;
or

(b) The contractor does not exercise the right to control over the performance of
the work of the employee.

Unlike the registration requirement, which serves only to raise a disputable presumption
of job contracting, the possession of substantial capital or investments is indispensable
in proving a contractor's legitimacy. Apropos, D.O. No. 18 – A provides a concrete
numerical threshold for determining substantial capital. Under Section 3 (1) thereof, the
capitalization requirement is met by corporations, partnerships, and cooperative that
have at least P 3,000,000.00 in paid – up capital stocks/shares

Second, under D.O. No. 18 – 2 and D.O. No. 18 – A, the fact that the contractor does not
exercise control over its purported employees is another conclusive indicator of labor–only
contracting. Jurisprudence is replete with rulings stating that the most important criterion in
determining the existence of an employer – employee relationship is the power to control the means
and methods by which employees perform their work. Pursuant to the so – called "control test," the
employer is the person who has the power to control both the end achieved by his or her employees,
and the manner and means they use to achieve that end. To emphasize, it is not essential that the
employer actually exercise the power of control, as the ability to wield the same is sufficient.

Whether or not the contractor is carrying on an independent business; the nature and extent of
the work; the skill required; the term and duration of the relationship; the right to assign the
performance of specified pieces of work; the control and supervision of the work to another; the
employers power with respect to the hiring, firing and payment of the contractors workers; the control
of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode,
manner and terms of payment.

Regular employees may only be terminated for just or authorized cause. This applies in cases of
labor–only contracting, where the law creates an employer–employee relationship between the
principal and the employees of the purported contractor.

V. Rights of Employees and of Labor Organization; Membership in Unions

Article 292 (c) states:

(c) 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.

Section 8, Article III:

The right of the people, including those employed in the public and private sectors, to form unions,
associations or societies for purpose not contrary to law shall not be abridged.

With respect to other civil servants, that is, employees of all branches, subdivisions, instrumentalities
and agencies of the government including government–owned or controlled corporations with original

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charters and who are, therefore, covered by the civil service laws, the guidelines for the exercise of
their right to organize is provided for under Executive Order No. 180. Chapter IV thereof, consisting
of Sections 9 to 12, regulates the determination of the "sole and exclusive employees' representative."

The provisions of Section 3, Article XIII:

The state shall afford protection to labor, local and overseas, organized and unorganized and
promote full employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self – organization, collective bargaining
and negotiation, and peaceful and concerted activities, including the right to strike in
accordance with law. They shall be entitled to security of tenure, humane conditions of work and a
living wage. They shall also participate in policy and decision – making processes affecting their
rights and benefits as maybe provided by law.

Under special circumstances, alien is allowed to exercise the right to self-

organization

Omnibus Rules Implementing Book V of the Labor Code allows alien employees 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 sale or similar rights to Filipino workers, as certified by the Department of Foreign Affairs, or
which has ratified either ILO Convention No. 87 and ILO Convention No. 98.

Article 254 (formerly 244) – Right of Employees in the Public Service

Right to Self – Organization of Government Employees Does Not Include CBA

Negotiations on Economic Benefits

Officers and employees of government-owned or controlled corporations without the original

charters are covered by the Labor Code and not by the Civil Service Law.

However, non-chartered government-owned or controlled corporations are limited by law in

negotiating economic terms with their employees. This is because the law has provided the
Compensation and Position Classification System, which applies to all government-owned or
controlled corporations, chartered or non-chartered.

The right to self-organization is not limited to private employees and encompasses all workers
in both the public and private sectors, as shown by the clear declaration in Article IX (B), Section 2 (5)
that "the right to self-organization shall not be denied to government employees." Article III, Section 8
of the Bill of Rights likewise states, "the right of the people, including those employed in the public
and private sectors, to form unions, associations, or societies for purposes not contrary to law shall not
be abridged."

While the right to self-organization is absolute, the right of government employees to collective
bargaining and negotiation is subject to limitations.

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 Collective bargaining is a series of negotiations between an employer and a representative of
the employees to regulate the various aspects of the employer – employee relationship such as working
hours, working conditions, benefits, economic provisions, and others.

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.

Article 250 (formerly 241) – Rights and Conditions of Membership in a Labor Organization

The assent of 30% of the union members is not a factor in the acquisition of
jurisdiction by the Bureau of Labor Relations in intra – union conflicts.

The use of the permissive "may" in the provision at once negates the notion that the assent of
30% of all the members is mandatory. More decisive is the fact that the provision expressly declares
that the report may be made, alternatively by "any member or members specially concerned." And
further confirmation that the assent of 30% of the union members is not a factor in the acquisition of
jurisdiction by the Bureau of Labor Relations is furnished by Article 226 (now Article 232) of the same
Labor Code, which grants original and exclusive jurisdiction to the Bureau, and the Labor Relations
Division in the Regional Offices of the Department of Labor, over "all inter – union and intra – union
conflicts, and all disputes, grievances or problems arising from or affecting labor management
relations," making no reference whatsoever to any such 30% - support requirement. Indeed, the
officials mentioned are given the power to act "on all inter–union and intra – union conflicts (1) "upon
request of either or both parties" as well as (2) "at their own initiative."

Attorney’s fees may not be deducted or checked off from any amount due to an
employee without his written consent

It is very clear from the above – quoted provision that attorney's fees may not be deducted or
checked off from any amount due to an employee without his written consent except for mandatory
activities under the Code. A mandatory activity has been defined as a judicial process of settling
dispute laid down by the law.

An individual written authorization duly signed by every employee in order that

a special assessment may be validly checked – off is required.

Paragraph (n) refers to "levy" while paragraph (o) refers to "check – off" of a special
assessment. Both provisions must be complied with. Under paragraph (n), the Union must submit to
the Company a written resolution of a majority of all the members at a general membership meeting
duly called for the purpose. In addition, the secretary of the organization must record the minutes of
the meeting which, in turn, must include, among others, the list of all the members present as well as
the votes cast.

Paragraph (o) on the other hand requires an individual written authorization duly signed by
every employee in order that a special assessment may be validly checked – off. Even assuming that
the special assessment was validly levied pursuant to paragraph (n), and granting that individual

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written authorizations were obtained by the Union, nevertheless there can be no valid check – off
considering that the majority of the union members had already withdrawn their individual
authorizations. A withdrawal of individual authorizations is equivalent to no authorization at all.

Article 251 (formerly 242) – Rights of Legitimate Labor Organizations

Article 251 (a) and (b)

Basic in the realm of labor union rights is that the certification election is the sole concern of
the workers, and the employer is deemed an intruder as far as the certification election is concerned.
Thus, the employer lacked the legal personality to assail the proceedings for the certification election,
and should stand aside as a mere bystander who could not oppose the petition, or even appeal the Med
– Arbiter's orders relative to the conduct of the certification election. As the Court has explained in
Republic v. Kawashima Textile Mfg., Philippines, Inc. (Kawashima):

Except when it is requested to bargain collectively, an employer is a mere bystander to any

petition for certification election; such proceeding is non – adversarial and merely investigative, for
the purpose thereof is to determine which organization will represent the employees in their collective
bargaining with the employer. The choice of their representative is the exclusive concern of the
employees; the employer cannot have any partisan interest therein; it cannot interfere with, much less
oppose, the process by filing a motion to dismiss or an appeal from it; not even a mere allegation that
some employees participating in a petition for certification election are actually managerial
employees will lend an employer legal personality to block the certification election. The employer's
only right in the proceeding is to be notified or informed thereof.

The employer’s meddling in the conduct of the certification election among its employees
unduly gave rise to the suspicion that it intended to establish a company union. For that reason, the
challenges it posed against the certification election proceedings were rightly denied.

VI. Management Prerogative

The Court has recognized the right of the 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 workers. It is a general principle of labor law to discourage interference with an
employer's judgment in the conduct of his business. As already noted, even as the law is solicitous of
the welfare of the employees, it also recognizes employer's exercise of management prerogatives. As
long as the company's exercise of judgment is in good faith to advance its interest and not for the
purpose of defeating or circumventing the rights of employees under the laws or valid agreements,
such exercise will be upheld.

It is axiomatic that appropriate disciplinary sanction is within the purview of management

imposition. What should not be overlooked is the prerogative of an employer company to prescribe
reasonable rules and regulations necessary for the proper conduct of its business and to provide certain
disciplinary measures in order to implement said rules to assure that the same would be complied with.
An employer has a free reign and enjoys wide latitude of discretion to regulate all aspects of
employment, including the prerogative to instill discipline in its employees and to impose penalties,
including dismissal, upon erring employees.

VII. Illegal Recruitment of Overseas Filipino Workers

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 Section 10 of RA 8042 provides that the employer and the recruitment or placement agency
are jointly liable for money claims arising from the employment relationship or any contract involving
overseas Filipino workers. If the recruitment or placement agency is a juridical being, the corporate
officers and directors and partners as the case may be, shall themselves be jointly and solidarily liable
with the corporation or partnership for the aforesaid claims and damages. In providing for the joint and
solidary liability of private recruitment agencies with their foreign principals, RA 8042 precisely
affords OFWs with a recourse and assures them of immediate and sufficient payment of what is due
them.

Republic Act (R.A.) No. 8042, known as the "Migrant Workers and Overseas Filipinos Act
of 1995," defines illegal recruitment in Section 6 thereof, thus:

SEC. 6. Definition. — For purposes of this Act, illegal recruitment shall mean any
act of canvassing, enlisting, contracting, transporting, utilizing, hiring, or procuring workers and
includes referring, contract services, promising or advertising for employment abroad, whether for
profit or not, when undertaken by a non-licensee or non-holder of authority contemplated under Article
13 (f) of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the
Philippines: Provided, That any such non-licensee or non-holder who, in any manner, offers or
promises for a fee employment abroad to two or more persons shall be deemed so engaged. It shall
likewise include the following acts, whether committed by any person, whether a non-licensee, non-
holder, licensee or holder of authority:

(m) Failure to reimburse expenses incurred by the worker in connection with his
documentation and processing for purposes of deployment, in cases where the deployment does not
actually take place without the worker's fault. Illegal recruitment when committed by a syndicate or in
large scale shall be considered an offense involving economic sabotage.

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. It is deemed committed in large scale if
committed against three (3) or more persons individually or as a group.

The persons criminally liable for the above offenses are the principals, accomplices and
accessories. In case of juridical persons, the officers having control, management or direction of their
business shall be liable. 30

Under Section 6, paragraph (m) of R.A. No. 8042, illegal recruitment "is deemed committed
in large scale if committed against three (3) or more persons individually or as a group," and "illegal
recruitment when committed by a syndicate or in large scale shall be considered an offense involving
economic sabotage." Thus, the offense charged in the Information is illegal recruitment in large scale
because it was committed against the five private complainants.

Moreover, Section 6, paragraph (m) of R.A. No. 8042 provides that in case of juridical
persons, the officers having control, management or direction of their business shall be liable.
Accused-appellant, as President of the recruitment agency, is therefore liable for illegal recruitment in
large scale for failure to reimburse the expenses incurred by private complainants in connection with
their documentation and processing for purposes of deployment to South Korea, which did not actually
take place without their fault under Section 6, paragraph (m) of R.A. No. 8042.

Section 7 of R.A. No. 8042 provides for the penalties for illegal recruitment as
follows:

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 SEC. 7. Penalties. —

(a) Any person found guilty of illegal recruitment shall suffer the penalty of
imprisonment of not less than six (6) years and one (1) day but not more than twelve (12) years
and a fine of not less than two hundred thousand pesos (P 200,000.00) nor more than five
hundred thousand pesos (P 500,000.00).

(b) The penalty of life imprisonment and a fine of not less than five hundred
thousand pesos (P 500,000.00) nor more than one million pesos (P 1,000,000.00) shall be
imposed if illegal recruitment constitutes economic sabotage as defined herein.

Provided, however, That the maximum penalty shall be imposed if the person
illegally recruited is less than eighteen (18) years of age or committed by a non-licensee or
non-holder of authority.

RA 8042 or the Migrant Workers and Overseas Filipinos Act of 1995, approved on 7 June
1995, further strengthened the protection extended to those seeking overseas employment. Section 6,
in particular, extended the activities covered under the term illegal recruitment:

II. ILLEGAL RECRUITMENT

Sec. 6. DEFINITIONS. — For purposes of this Act, illegal recruitment shall mean
any act of canvassing, enlisting, contracting, transporting, utilizing, hiring, procuring workers
and includes referring, contact services, promising or advertising for employment abroad,
whether for profit or not, when undertaken by a non-licensee or non-holder of authority
contemplated under Article 13(f) of Presidential Decree No. 442, as amended, otherwise
known as the Labor Code of the Philippines. Provided, that such non-license or non-holder,
who, in any manner, offers or promises for a fee employment abroad to two or more persons
shall be deemed so engaged. It shall likewise include the following acts, whether committed
by any persons, whether a non-licensee, non-holder, licensee or holder of authority.

(a) To charge or accept directly or indirectly any amount greater than the
specified in the schedule of allowable fees prescribed by the Secretary of Labor and
Employment, or to make a worker pay any amount greater than that actually received by him
as a loan or advance;

(b) To furnish or publish any false notice or information or document in

relation to recruitment or employment;

(c) To give any false notice, testimony, information or document or commit

any act of misrepresentation for the purpose of securing a license or authority under the Labor
Code;

(d) To induce or attempt to induce a worker already employed to quit his

employment in order to offer him another unless the transfer is designed to liberate a worker
from oppressive terms and conditions of employment;

(e) To influence or attempt to influence any persons or entity not to employ any
worker who has not applied for employment through his agency;

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 (f) To engage in the recruitment of placement of workers in jobs harmful to
public health or morality or to dignity of the Republic of the Philippines;

(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and

Employment or by his duly authorized representative;

(h) To fail to submit reports on the status of employment, placement vacancies,

remittances of foreign exchange earnings, separations from jobs, departures and such other
matters or information as may be required by the Secretary of Labor and Employment;

(i) To substitute or alter to the prejudice of the worker, employment contracts

approved and verified by the Department of Labor and Employment from the time of actual
signing thereof by the parties up to and including the period of the expiration of the same
without the approval of the Department of Labor and Employment;

(j) For an officer or agent of a recruitment or placement agency to become an

officer or member of the Board of any corporation engaged in travel agency or to be engaged
directly on indirectly in the management of a travel agency;

(k) To withhold or deny travel documents from applicant workers before

departure for monetary or financial considerations other than those authorized under the
Labor Code and its implementing rules and regulations;

(l) Failure to actually deploy without valid reasons as determined by the

Department of Labor and Employment; and

(m) Failure to reimburse expenses incurred by the workers in connection with

his documentation and processing for purposes of deployment, in cases where the deployment
does not actually take place without the worker's fault. Illegal recruitment when committed by
a syndicate or in large scale shall be considered as offense involving economic sabotage.

Illegal recruitment is deemed committed by a syndicate carried out by a group of

three (3) or more persons conspiring or confederating with one another. It is deemed
committed in large scale if committed against three (3) or more persons individually or as a
group.

The persons criminally liable for the above offenses are the principals, accomplices
and accessories. In case of juridical persons, the officers having control, management or
direction of their business shall be liable.

Simply put, illegal recruitment is "committed by persons who, without authority from the
government, give the impression that they have the power to send workers abroad for employment
purposes."

Illegal recruitment may be undertaken by either non-license or license holders. Non-license

holders are liable by the simple act of engaging in recruitment and placement activities, while license
holders may also be held liable for committing the acts prohibited under Section 6 of RA 8042.

Under RA 8042, a non-licensee or non-holder of authority commits illegal recruitment for

overseas employment in two ways: (1) by any act of canvassing, enlisting, contracting, transporting,

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utilizing, hiring, or procuring workers, and includes referring, contract services, promising or
advertising for employment abroad, whether for profit or not; or (2) by undertaking any of the acts
enumerated under Section 6 of RA 8042.

The Court has held in several cases that an accused who represents to others that he or she
could send workers abroad for employment, even without the authority or license to do so, commits
illegal recruitment.

It is the absence of the necessary license or authority to recruit and deploy workers that
renders the recruitment activity unlawful. To prove illegal recruitment, it must be shown that "the
accused gave the complainants the distinct impression that she had the power or ability to deploy the
complainants abroad in a manner that they were convinced to part with their money for that end."

On the other hand, illegal recruitment committed by a syndicate has the following elements:
(a) the offender does not have the valid license or authority required by law to engage in recruitment
and placement of workers; (b) the offender undertakes any of the "recruitment and placement"
activities defined in Article 13 (b) of the Labor Code, or engages in any of the prohibited practices
enumerated under now Section 6 of RA 8042; and (c) the illegal recruitment is "carried out by a group
of three or more persons conspiring and/or confederating with one another in carrying out any
unlawful or illegal transaction, enterprise or scheme." 44 In the third element, it "is not essential that
there be actual proof that all the conspirators took a direct part in every act. It is sufficient that they
acted in concert pursuant to the same objective."

In our jurisdiction, it is settled that a person who commits illegal recruitment may be charged
and convicted separately of illegal recruitment under the Labor Code and estafa under par. 2(a) of Art.
315 of the Revised Penal Code. The offense of illegal recruitment is malum prohibitum where the
criminal intent of the accused is not necessary for conviction, while estafa is malum in se where the
criminal intent of the accused is crucial for conviction. Conviction for offenses under the Labor Code
does not bar conviction for offenses punishable by other laws. Conversely, conviction for estafa under
par. 2 (a) of Art. 315 of the Revised Penal Code does not bar a conviction for illegal recruitment under
the Labor Code. It follows that one's acquittal of the crime of estafa will not necessarily result in his
acquittal of the crime of illegal recruitment in large scale, and vice versa.

The elements of estafa by means of deceit under Article 315 (2) (a) of the RPC are: (a) that
there must be a false pretense or fraudulent representation as to his power, influence, qualifications,
property, credit, agency, business or imaginary transactions; (b) that such false pretense or fraudulent
representation was made or executed prior to or simultaneously with the commission of the fraud; (c)
that the offended party relied on the false pretense, fraudulent act, or fraudulent means and was
induced to part with his money or property; and (d) that, as a result thereof, the offended party suffered
damage.

VIII. Remedies (Labor Standards Violations)

There are two (2) Labor Code provisions that are applicable to this coverage. These are the
visitorial and enforcement power (Article 128) and Recovery of Wages, Simple Money Claims and
Other benefits (Article 129).

When employer – employee exists

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 Article 128(b) applies when there exists employer-employee relationship. Second paragraph of
Article 128(b) states:

“An order issued by the duly authorized representative of the Secretary of Labor and
Employment under this Article may be appealed to the latter. In case said order involves a
monetary award, an appeal may be perfected only upon the posting of cash or surety bond
issued by a reputable bonding company duly accredited by the Secretary of Labor and
Employment in the amount equivalent to the award in the order appealed from.”

It is well – entrenched doctrine that the decision of the Secretary of Labor and Employment
(SOLE) in the exercise of his appellate jurisdiction can be reviewed by the Supreme Court via petition
for certiorari under Rule 65 of the Rules of Court.

When employer – employee does not exist

The Regional Director of the DOLE acquires jurisdiction on money claims not exceeding P
5,000.00 and the complaint is not accompanied by action for reinstatement. Applying the rules on
appeal, the decision of the Regional Director of the DOLE can be appealed to the National Labor
Relations Commission (NLRC) within five (5) days from receipt. The decision of the NLRC in the
exercise of his appellate jurisdiction can be reviewed by the Supreme Court via petition for certiorari
under Rule 65 of the Rules of Court.

Citing the provisions of Article 224 of the Labor Code, when the complaint is accompanied
by a claim for reinstatement, the jurisdiction is vested with the Labor Arbiter even if the money claim
does not exceed P 5,000.00. The Labor Arbiter likewise acquires jurisdiction over money claims
exceeding P 5,000.00. The decision of the Labor Arbiter is appealable to the NLRC within ten 10)
days from receipt of the decision. The decision of the NLRC in the exercise of his appellate
jurisdiction can be reviewed by the Supreme Court via petition for certiorari under Rule 65 of the
Rules of Court.

The Prescription of Action on Money Claims

Basic is the rule that any action for money claim based on labor standards violation prescribes
after the lapse of three (3) years.

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