[ G.R. No. 232687.

February 04, 2019 ]

SLORD DEVELOPMENT CORPORATION, PETITIONER, V. BENERANDO M. NOYA,

RESPONDENT.

DECISION
PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari[1] are the Decision[2] dated January 25, 2017 and
the Resolution[3] dated July 7, 2017 of the Court of Appeals (CA) in CA-G.R. SP No. 138705,
which reversed and set aside the Decision[4] dated September 30, 2014 and the Resolution[5]
dated November 14, 2014 of the National Labor Relations Commission (NLRC) in NLRC LAC
Case No. 09-002333-14. The NLRC declared that while respondent Benerando M. Noya
(respondent) committed an act of disloyalty that caused his expulsion from the union and legal
dismissal from work pursuant to the closed shop provision of the Collective Bargaining
Agreement (CBA), petitioner Slord Development Corporation (petitioner) failed to properly
observe the procedure in dismissing respondent, and thereby, ordered petitioner to pay
respondent P10,000.00 as nominal damages.
The Facts

Respondent was employed on September 9, 2008 as a welder by petitioner, a domestic

corporation engaged in the business of manufacturing and processing of sardines and other
canned goods.[6] Respondent's employment was covered by a CBA[7] effective April 14, 2009 to
April 15, 2014 between petitioner and Nagkakaisang Lakas ng Manggagawa-Katipunan
(NLM-Katipunan), the company's sole and exclusive bargaining agent for all the regular
rank-and-file employees.[8] Among its provisions was a union security clause, which reads:

ARTICLE II

UNION SECURITY

xxxx

Section 3. Dismissal. – Any new employee covered by the bargaining unit, who attains regular
status in the COMPANY but fails to join the UNION mentioned in Section 2 hereof, and any
union member who is expelled from the UNION or fails to maintain their membership in the
UNION, like:

1) non-payment of union dues;

2) resignation or abandonment from the UNION;

3) refusal to sign check-off authorization in favor of the UNION;

4) organizing or joining another labor UNION or any other labor group;

5) violation of UNION'S Constitution and By-Laws;

6) any criminal act or violent conduct of activity against the UNION and its members;

7) participation in any unfair labor practice or violation of this agreement; and

8) refusal to abide with any resolution passed by the Board of Directors of the General
Membership of the UNION and by NLM-KATIPUNAN, shall upon written demand to the
COMPANY by the UNION, be dismissed from employment by the COMPANY.

x x x x[9]

Petitioner claimed that sometime in December 2013, respondent asked several employees to
affix their signatures on a blank sheet of yellow paper for the purpose of forming a new union,
prompting the president of NLM-Katipunan to file expulsion proceedings against him for
disloyalty.[10] Subsequently, or on February 9, 2014, respondent organized[11] a new union named
the Bantay Manggagawa sa SLORD Development Corporation (BMSDC), which he registered
with the Department of Labor and Employment (DOLE) on February 20, 2014.[12]

In the ensuing investigation, respondent failed to appear and participate at the scheduled
hearings before the union. Thus, NLM-Katipunan resolved,[13] with the ratification of its
members, to expel respondent on the ground of disloyalty. Accordingly, a notice of expulsion[14]
dated February 27, 2014 was issued by NLM-Katipunan to respondent. Subsequently, a letter[15]
dated March 16, 2014 was sent by NLM-Katipunan to petitioner, demanding his termination from
employment pursuant to the union security clause of the CBA. After notifying respondent of the
union's decision to expel him and showing him all the documents attached to the union's
demand for his dismissal, respondent's employment was terminated on March 19, 2014.[16]

Consequently, respondent filed a complaint[17] for illegal dismissal, unfair labor practice, and
illegal deduction against petitioner before the National Labor Relations Commission (NLRC),
asserting that he did not violate any CBA provision since he validly organized BMSDC during
the freedom period.[18]

The Labor Arbiter's (LA) Ruling

In a Decision[19] dated August 27, 2014, the LA dismissed the case for lack of merit,[20] ruling that
respondent's dismissal was neither illegal nor an unfair labor practice. Among others, the LA
held that petitioner was duty-bound to terminate respondent's employment after having been
expelled by NLM-Katipunan for organizing a rival union. Notably, NLM-Katipunan has a valid
closed shop agreement in the CBA that required the members to remain with the union as a
condition for continued employment.[21]

Aggrieved, respondent appealed[22] to the NLRC.

The NLRC Ruling

In a Decision[23] dated September 30, 2014, the NLRC affirmed the LA Decision with
modification, ordering petitioner to pay respondent P10,000.00 as nominal damages.[24] In so
ruling, the NLRC held that while respondent had committed an act of disloyalty that caused his
expulsion from NLM-Katipunan and subsequent dismissal from work pursuant to the closed
shop agreement provision of the CBA, petitioner failed to provide respondent ample opportunity
to defend himself through written notices and subsequent hearing.[25]

Dissatisfied, respondent moved for reconsideration[26] but the same was denied in a
Resolution[27] dated November 14, 2014. Hence, respondent elevated the matter to the CA via a
petition for certiorari,[28] docketed as CA-G.R. SP No. 138705.

The CA Ruling

In a Decision[29] dated January 25, 2017, the CA granted respondent's petition, finding his
dismissal to be illegal.[30] Accordingly, it ordered petitioner to immediately reinstate respondent
and pay his full backwages and other allowances, computed from the time he was illegally
dismissed up to the time of actual reinstatement, plus attorney's fees equivalent to ten percent
(10%) of the total monetary award.[31] It found no just cause in terminating respondent's
employment for lack of sufficient evidence to support the union's decision to expel him,
explaining that the act of soliciting signatures on a blank yellow paper was not prohibited under
the Labor Code nor could it be automatically considered as an act of disloyalty. Finally, it also
found respondent to have been deprived of procedural due process.[32]

Petitioner moved for reconsideration[33] but the same was denied in a Resolution[34] dated July 7,
2017; hence, this petition.

The Issue Before the Court

The issue for the Court's resolution is whether or not the CA was correct in ruling that
respondent was illegally dismissed.

The Court's Ruling

The petition is meritorious.

At the outset, it bears stressing that only questions of law may be raised in and resolved by this
Court on petitions brought under Rule 45 of the Rules of Civil Procedure.[35] When supported by
substantial evidence, the Court cannot inquire into the veracity of the CA's factual findings,
which are final, binding, and conclusive upon this Court. However, when the CA's factual
findings are contrary to those of the administrative body exercising quasi-judicial functions from
which the action originated,[36] the Court may examine the facts only for the purpose of resolving
allegations and determining the existence of grave abuse of discretion. This is consistent with
the ruling that in a Rule 45 review in labor cases, the Court examines the CA's Decision from
the prism of whether the latter had correctly determined the presence or absence of grave
abuse of discretion in the NLRC's Decision.[37]

In labor cases, grave abuse of discretion may be ascribed to the NLRC when its findings and
conclusions are not supported by substantial evidence, which refer to that amount of relevant
evidence that a reasonable mind might accept as adequate to justify a conclusion. Thus, if the
NLRC's ruling has basis in the evidence and the applicable law and jurisprudence, then no
grave abuse of discretion exists and the CA should so declare and, accordingly, dismiss the
petition.[38]

Under the parameter above-described and after a thorough evaluation of the evidence, the
Court finds that the CA erroneously ascribed grave abuse of discretion on the part of the NLRC,
whose Decision was supported by substantial evidence and consistent with law and
jurisprudence.

Case law states that in order to effect a valid dismissal of an employee, both substantial and
procedural due process must be observed by the employer.[39] An employee's right not to be
dismissed without just or authorized cause, as provided by law, is covered by his right to
substantial due process. On the other hand, compliance with procedure provided in the Labor
Code constitutes the procedural due process right of an employee.[40]

While not explicitly mentioned in the Labor Code,[41] case law recognizes that dismissal from
employment due to the enforcement of the union security clause in the CBA is another just
cause for termination of employment.[42] Similar to the enumerated just causes in the Labor
Code, the violation of a union security clause amounts to a commission of a wrongful act or
omission out of one's own volition; hence, it can be said that the dismissal process was initiated
not by the employer but by the employee's indiscretion.[43] Further, a stipulation in the CBA
authorizing the dismissal of employees is of equal import as the statutory provisions on
dismissal under the Labor Code, since a CBA is the law between the company and the union
and compliance therewith is mandated by the express policy to give protection to labor;[44] thus,
there is parallel treatment between just causes and violation of the union security clause.

Pertinent is Article 259 (formerly 248), paragraph (e) of the Labor Code, which states that
"[n]othing in this Code or in any other law shall stop the parties from requiring membership in a
recognized collective bargaining agent as a condition for employment, except those employees
who are already members of another union at the time of the signing of the collective bargaining
agreement. x x x" The stipulation in a CBA based on this provision of the Labor Code is
commonly known as the "union security clause."

"Union security is a generic term which is applied to and comprehends 'closed shop,' 'union
shop,' 'maintenance of membership' or any other form of agreement which imposes upon
employees the obligation to acquire or retain union membership as a condition affecting
employment. There is union shop when all new regular employees are required to join the union
within a certain period for their continued employment. There is maintenance of membership
shop when employees, who are union members as of the effective date of the agreement, or
who thereafter become members, must maintain union membership as a condition for continued
employment until they are promoted or transferred out of the bargaining unit, or the agreement
is terminated. A closed shop, on the other hand, may be defined as an enterprise in which, by
agreement between the employer and his employees or their representatives, no person may
be employed in any or certain agreed departments of the enterprise unless he or she is,
becomes, and, for the duration of the agreement, remains a member in good standing of a
union entirely comprised of or of which the employees in interest are a part."[45]

This is consistent with the State policy to promote unionism to enable workers to negotiate with
management on an even playing field and with more persuasiveness than if they were to
individually and separately bargain with the employer. Thus, the law has allowed stipulations for
"union shop" and "closed shop" as means of encouraging workers to join and support the union
of their choice in the protection of their rights and interest vis-a-vis the employer.[46]

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.[47]

In this case, the Court finds the confluence of the foregoing requisites, warranting the
termination of respondent's employment.

It is undisputed that the CBA contains a closed shop agreement stipulating that petitioner's
employees must join NLM-Katipunan and remain to be a member in good standing; otherwise,
through a written demand, NLM-Katipunan can insist the dismissal of an employee. Notably, the
Court has consistently upheld the validity of a closed shop agreement as a form of union
security clause. In BPI v. BPI Employees Union-Davao Chapter-Federation of Unions in BPI
Unibank[48] the Court has explained that:

When certain employees are obliged to join a particular union as a requisite for continued
employment, as in the case of Union Security Clauses, this condition is a valid restriction of the
freedom or right not to join any labor organization because it is in favor of unionism. This Court,
on occasion, has even held that a union security clause in a CBA is not a restriction of the right
of freedom of association guaranteed by the Constitution.

Moreover, a closed shop agreement is an agreement whereby an employer binds himself to hire
only members of the contracting union who must continue to remain members in good standing
to keep their jobs. It is "the most prized achievement of unionism." It adds membership and
compulsory dues. By holding out to loyal members a promise of employment in the closed shop,
it wields group solidarity.[49]

Further, records show that NLM-Katipunan requested the enforcement of the union security
clause by demanding the dismissal of respondent from employment. In a letter[50] dated March
16, 2014, NLM-Katipunan asked petitioner to dismiss respondent from employment for having
committed an act of disloyalty in violation of the CBA's union security clause. NLM-Katipunan
explained that respondent solicited support from employees and thereafter, formed and
organized a new union outside the freedom period, or from February 14, 2014 to April 14, 2014.

Finally, there is sufficient evidence to support the union's decision to expel respondent.
Particularly, NLM-Katipunan presented to petitioner: (a) a written statement of one Elaine Rosel
(Rosel), stating that respondent and one Henry Cabasa went to her house on December 13,
2013 to convince her to join in forming another union and made her sign on a yellow paper;[51]
(b) a joint written statement of Meliorita V. Nolla and Emilda S. Rubido, corroborating Rosel's
claim;[52] (c) a written statement of one Joselito Gonzales (Gonzales), attesting to respondent's
act of soliciting signatures for the purpose of forming a new union;[53] (d) an affidavit[54] of
NLM-Katipunan President Lolita Abong, further corroborating Gonzales' statement and formally
lodging a complaint against respondent before the union;[55] and (e) an application for
registration[56] of BMSDC, showing that respondent formed and organized BMSDC on February
9, 2014.[57]

Notably, in contrast to the factual milieu of PICOP Resources, Incorporated v. Tañeca,[58] which
was relied upon by the CA, respondent, in this case, did not only solicit support in the formation
of a new union but actually formed and organized a rival union, BMSDC, outside the freedom
period. Similarly, in Tanduay Distillery Labor Union v. NLRC,[59] the Court ruled that the
organization by union members of a rival union outside the freedom period, without first
terminating their membership in the union and without the knowledge of the officers of the latter
union, is considered an act of disloyalty, for which the union members may be sanctioned.[60] As
an act of loyalty, a union may require its members not to affiliate with any other labor union and
to consider its infringement as a reasonable cause for separation, pursuant to the union security
clause in its CBA. Having ratified the CBA and being members of the union, union members
owe fealty and are required under the union security clause to maintain their membership in
good standing during the term thereof. This requirement ceases to be binding only during the
sixty (60)-day freedom period immediately preceding the expiration of the CBA, which enjoys
the principle of sanctity or inviolability of contracts guaranteed by the Constitution.[61]

Thus, based on the above-discussed circumstances, the NLRC did not gravely abuse its
discretion in ruling that there existed just cause to validly terminate respondent's employment.
This notwithstanding, petitioner, however, failed to observe the proper procedure in terminating
respondent's employment, warranting the payment of nominal damages.

In Distribution & Control Products, Inc. v. Santos,[62] the Court has explained that procedural due
process consists of the twin requirements of notice and hearing. The employer must furnish the
employee with two (2) written notices before the termination of employment can be effected: (1)
the first apprises the employee of the particular acts or omissions for which his dismissal is
sought; and (2) the second informs the employee of the employer's decision to dismiss him. The
requirement of a hearing is complied with as long as there was an opportunity to be heard, and
not necessarily that an actual hearing was conducted.[63]

Here, records fail to show that petitioner accorded respondent ample opportunity to defend
himself through written notices and subsequent hearing. Thus, as held by the NLRC, as affirmed
by the CA, respondent's right to procedural due process was violated, entitling him to the
payment of nominal damages, which the Court deems proper to increase from P10,000.00 to
P30,000.00 in line with existing jurisprudence. It is settled that in cases involving dismissals for
just cause but without observance of the twin requirements of notice and hearing, the validity of
the dismissal shall be upheld, but the employer shall be ordered to pay nominal damages in the
amount of P30,000.00.[64]

WHEREFORE, the petition is GRANTED. The Decision dated January 25, 2017 and the
Resolution dated July 7, 2017 of the Court of Appeals in CA-G.R. SP No. 138705 are hereby
REVERSED and SET ASIDE. The Decision dated September 30, 2014 and the Resolution
dated November 14, 2014 of the National Labor Relations Commission in NLRC LAC No.
09-002333-14 are REINSTATED with the MODIFICATION increasing the award of nominal
damages to P30,000.00.

SO ORDERED.
 November 29, 2017

G.R. No. 184819

VETERANS FEDERATION OF THE PHILIPPINES, Petitioner

vs.
EDUARDO L. MONTENEJO, MYLENE M. BONIFACIO, EVANGELINE E. VALVERDE,
DEANA N. PAGAL, and VFP MANAGEMENT DEVELOPMENT CORPORATION,
Respondents

DECISION

VELASCO, JR., J.:

This case is an appeal1 from the Decision dated July 29, 20082 and Resolution dated October 2,
20083 of the Court of Appeals (CA) in CA-G.R. SP No. 101041.

The Facts

VFP. VFPIA and the VMDC

Petitioner Veteran's Federation of the Philippines (VFP) is a national federation of associations

of Filipino war veterans. It was created in 1960 by virtue of Republic Act No. 2640.4

In 1967, through the government's Proclamation No. 192, VFP was able to obtain control and
possession of a vast parcel of land located in Taguig. VFP eventually developed said land into
an industrial complex, which is now known as the VFP Industrial Area (VFPIA).

Respondent VFP Management and Development Corporation (VMDC), on the other hand, is a
private management company organized in 1990 pursuant to the general incorporation law.

The Management Agreement and its Termination

On January 4, 1991, VFP entered into a management agreement5 with VMDC. Under the said
agreement, VMDC was to assume exclusive management and operation of the VFPIA in
exchange for forty percent (40%) of the lease rentals generated from the area.

In managing and operating the VFPIA, VMDC hired its own personnel and employees. Among
those hired by VMDC were respondents Eduardo L. Montenejo, Mylene M. Bonifacio,
Evangeline E. Valverde and Deana N. Pagal (hereafter collectively referred to as "Montenejo, et
al.").6

The management agreement between VFP and VMDC had a term of five (5) years, or up to 4
January 1996, and is renewable for another five (5) years.7 Subsequently, both parties acceded
to extend the agreement up to 1998.8 After 1998, the agreement was again extended by VFP
and VMDC albeit only on a month-to-month basis.

Then, in November 1999, the VFP board passed a resolution terminating the management
agreement effective December 31, 1999.9 VMDC conceded to the termination and eventually
agreed to turn over to VFP the possession of all buildings, equipment and other properties
necessary to the operation of the VFPIA.10

On January 3, 2000, the President of VMDC11 issued a memorandum12 informing the company's
employees of the termination of their services effective at the close of office hours on January
31, 2000 "[i]n view of the termination of the [management agreement]." True to the
memorandum's words, on January 31, 2000, VMDC dismissed all of its employees and paid
each his or her separation pay.

The Illegal Dismissal Complaint

Contending in the main that their dismissals had been effected without cause and observance of
due process, Montenejo, et al. filed before the Labor Arbiter (LA) a complaint for illegal
dismissal,13 money claims and damages. They impleaded both VMDC and VFP as defendants
in the complaint.

VMDC, for its part, denied the contention. It argued that the dismissals of Montenejo, et al. were
valid as they were due to an authorized cause-the cessation or closure of its business. VMDC
claimed that the cessation of its operations was but the necessary consequence of the
termination of such agreement.

VFP, on the other hand, seconded the arguments of VMDC. In addition, however, VFP asserted
that it could not, at any rate, be held liable under the complaint because it is not the employer of
Montenejo, et al.

The Ruling of the LA

On November 7, 2005, the LA rendered a decision14 disposing of the illegal dismissal complaint
as follows:

WHEREFORE, judgment is hereby made dismissing as lacking in merit the

[Montenejo et al.'s] charge of illegal dismissal but ordering [VFP] and [VMDC] to
pay, solidarily, each complainant his/her salaries for eleven (11) months. [VFP and
VMDC] are so ordered to recompute their separation pay with the date January 4,
2001 as their last day of service and accordingly pay them their balance.

[VFP and VMDC] are also ordered to pay, solidarily, [Montenejo et al.'s]
proportionate 13th month pay for the year 2000.

Other claims are dismissed for lack of merit.

SO ORDERED.

The LA hinged its disposition on the following findings:15

1. Montenejo, et al. were not illegally dismissed. Their separation was the result of the closure of
VMDC, an authorized cause. Hence, Montenejo, et al. are not entitled to reinstatement and
backwages.

2. Montenejo, et al. were contractual employees; they were hired for a definite term that is
similar to the maximum term of the management agreement between VFP and VMDC. As the
management agreement between VFP and VMDC can have a maximum term of ten (10) years
from January 4, 1991, or until January 4, 2001, the employments of Montenejo, et al. also have
terms of up to January 4, 2001.

In this case, however, Montenejo, et al. were dismissed on January 3, 2000-which is eleven (11)
months short of their January 4, 2001 contract date. Accordingly, Montenejo, et al. are each
entitled: (a) to their salary corresponding to the unexpired portion of their contract and (b) also to
a separation pay computed with January 4, 2001 as their last day of employment.

3. Montenejo, et al. are not entitled to recover damages. Their dismissals were not shown to be
tainted with bad faith.

4. VFP and VMDC are solidarily liable for the monetary awards in favor of Montenejo, et al. The
basis of VFP's liability is the fact that it is an indirect employer of Montenejo, et al.

Montenejo, et al. and VFP filed separate appeals16 with the National Labor Relations
Commission (NLRC).

The Ruling of the NLRC

On appeal, the NLRC reversed and set aside17 the decision of the LA. It decreed:

WHEREFORE, premises considered, the appeal is GRANTED. The Decision of

[the LA] dated November 7, 2005 is hereby REVERSED[,] SET ASIDE and a NEW
ONE entered declaring that [VFP and VMDC] ILLEGALLY DISMISSED [Montenejo
 et al.]. [VFP and VMDC] are therefore ordered to pay [Montenejo et al.'s] separation
pay in lieu of reinstatement and to pay them full backwages, 13th month pay and
SLIP (sic), as computed below:

A. EDUARDO L. MONTENEJO Pd: 1/1/91-1/4/0l(GIVEN)

Rate: ₱30,000.00
*VP for Operation
Cut-off date: 8/7/06

1) SEP. PAY (1 MO.):

1/1/91-8/7/06
₱30,000.00 x 16 yrs.= ₱480,000.00

2) BACKWAGES: ₱2,013,000.00
1/4/01-8/7/06
₱30,000.00 x 67.10 =

13th MO. PAY: 167,750.00 2,180,750.00

₱2,013,000/12 =

₱2,660,750.00

Less: Amt. already rcvd (See, Annexes 175,000

"2-5, "pp. 358-361, Vol. II, Records)

TOTAL:
₱2,485, 750.00

B. MYLENE M. BONIFACIO Pd: 1/1/91-1/4/0l(GIVEN)

Rate: ₱6,798.15
Cut-off date: 8/7 /06

1) SEP. PAY (1 MO.): ₱109,200.00

1/1/93-8/7/06
₱300 x 26 x 14 yrs. =

2) BACKWAGES:
1/4/01-8/7/06

1/4/01-6/15/05 ₱362,817.26
₱6,789.15 x 53.37 =

6/16/05-7/10/06 91,520.00
₱275 x 26 x 12.80 =

7/11/06-8/7 /06 7,020.00

₱300 x 26 x .90

₱461,357.26

13th MO. PAY: 38,446.43

₱461,357.26/12 =

SILP: ₱261.46
₱6,789.15 / 26 =

1/4/01-6/15/05 ₱362,817.26
₱261.46 x 5/12 x 53.37 =
 6/16/05-7/10/06 1,466.67
₱275 x 5/12 x 12.80 =

7/11/06-8/7/06 112.50
₱300 x 5/12 x .90 =

7,393.38

COLA:

11/5/01-1/31/02 ₱1,119.30
₱15 x 26 x 2.87 =

2/1/02-7 /9/04 22,830.60

₱30 x 26 x29.27 =

7/10/04-7/10/06 31,200.00
₱50x26 x24=

₱523,900.54
55,149.90

₱633,100.54

Less: Amt. already rcvd (See, Annexes 53,661.87

"6-7, "pp. 362-363, Vol. II, Records)

TOTAL ₱579,438.67

C. EVANGELINE E. VAL VERDE- Pd: 1/1/91-1/4/0l(GIVEN)

Rate: ₱10,000.00
Cut-off date: 8/7/06

1) SEP. PAY (1 MO.): ₱160,000.00

1/1/91-8/7/06
₱10,000.00 x 16 yrs.=

2) BACKWAGES: ₱671,000.00
1/4/01-8/7/06
₱10,000.00 x 67.10 =

13th MO. PAY: 55,916.67

₱671,000.00/12 =

SILP: ₱384.61
₱10,000 / 26 =

1/4/01-8/7 /06 737,669.72

₱384.61 x 5/12 x 67.10 =
10,753.05

₱897,669.72

Less: Amt. already rcvd (See, Annex 32,172.61

"17" pp. 358-361, Vol. II, Records)

TOTAL:
₱865,497.11
 D. DEANA N. PAGAL Pd: 1/1/91-1/4/0l(GIVEN)
Rate: ₱15,000.00
Cut-off date: 8/7/06

1) SEP. PAY (1 MO.): ₱240,000.00

1/1/91-8/7 /06
₱15,000.00 x 16 yrs. =

2) BACKWAGES: ₱1,060,000.00
1/4/01-8/7 /06
₱15,000.00 x 67.10 =

13th MO. PAY: 83,875.00

₱l,006,500.00/12 =

SILP: ₱576.92
₱15,000 I 26 =

1/4/01-8/7 /06 16, 129.72 1,106,504.72

₱576.92 x 5/12 x 67.10=

₱1,346,504.72

Less: Amt. already rcvd. (See, Annex 199.803.96

"11-15" pp. 344-350, Vol. II, Records)

TOTAL: ₱1,146,700.76

SUMMARY OF COMPUTATION:

A. EDUARDO A. MONTENEJO ₱2,485, 750.00

B. MYLENE BONIFACIO 579,438.67

C. EVANGELINE F. VAL VERDE 865,497.11

D. DEANA N. PAGAL 1,146,700.76

TOTAL AWARD: ₱5,077 ,386.54

The claim for damages is dismissed for lack of substantial evidence that
respondents acted in bad faith.

SO ORDERED.

The reversal was premised on the NLRC's disagreement with the first two findings of the LA.
For the NLRC, the dismissals of Montenejo, et al. were illegal and the latter were not merely
contractual employees:18

1. Montenejo, et al. were illegally dismissed. Accordingly, Montenejo, et al. should be paid full
backwages, separation pay in lieu of reinstatement, 13th month pay and service incentive leave
pay (SILP). In addition, petitioner Mylene M. Bonifacio should also be awarded with cost of living
allowance (COLA).

The dismissals of Montenejo, et al. were not valid because

a. VMDC was not able to establish that the dismissals were based on an authorized
cause. VMDC presented no evidence that it had formally closed shop and a closure
cannot be inferred from the mere termination of the management agreement
 between it and VFP. The claim of VMDC that its very existence hinges on the
management agreement is belied by its own Articles of Incorporation.19 Under
VMDC's Articles of Incorporation, VMDC is authorized, as part of its primary
purpose, to "manage, operate, lease, develop, organize, any and all kinds of
business enterprises."20 Hence, the existence of VMDC cannot be regarded as
exclusively dependent on its management agreement with VFP.

b. Further compromising VMDC's claim of closure is the fact that it had never filed a
notice of closure or cessation of its operations with the Department of Labor and
Employment (DOLE).

2. Montenejo, et al. are not contractual employees but regular employees of VMDC. The
management agreement between VFP and VMDC is not the contract of employment of
Montenejo, et al. One cannot be applied to or equated with the other.

The NLRC, however, concurred with the third finding of the LA. Like the LA, the NLRC was of
the view that Montenejo, et al. are not entitled to recover any damages for the reason that there
is not enough evidence showing that their dismissals were tainted with bad faith.

The NLRC also agreed with the LA regarding the solidary liability of VFP and VMDC for the
monetary awards due to Montenejo, et al. However, the NLRC proffered a different opinion as to
the legal basis of VFP's liability. According to the NLRC, the liability of VFP was not due to the
latter being an indirect employer of Montenejo, et al. but is based on the application of the
doctrine of piercing the veil of corporate fiction. The NLRC noted that there are circumstances
present in the instant case that warrant a disregard of the separate personalities of VFP and
VMDC insofar as the claims of Montenejo, et al. were concerned.

Aggrieved, VFP filed a certiorari petition21 with the CA.

The Ruling of the CA and the Present Appeal

On July 29, 2008, the CA rendered a decision dismissing VFP's certiorari petition.22 In doing so,
the CA essentially agreed with the ratiocinations of the NLRC. VFP moved for reconsideration,
but the CA remained steadfast.

Hence, this appeal by VFP.

VFP, in substance, raises two qualms in this appeal:23

First. VFP first questions the finding that Montenejo, et al. had been illegally dismissed, viz:

a. VFP insists that the dismissals of Montenejo, et al. were based on the closure of VMDC that
was, in turn, occasioned by the termination of the management agreement. It maintains the
decision to close shop was an exercise by VMDC's management of its prerogative, which ought
to be upheld as valid in the absence of showing that the same was implemented in bad faith
and/or to circumvent the rights of its employees.

b. VFP also argues that the failure of VMDC to file a notice of closure with the DOLE did not
invalidate the former' s closure. In support of such argument, VFP cites the ruling in Sebuguero
v. NLRC.24

Second. VFP also challenges the finding that it may be held solidarily liable with VMDC for any
monetary award that may be adjudged in favor of Montenejo, et al. It submits that liability for any
award ought to rest exclusively on VMDC, the latter being the sole employer of Montenejo, et al.
In this connection, VFP contends that it cannot be treated as one and the same corporation as
VMDC. It denies the existence of circumstances in the case at bench that may justify the
application of the doctrine of piercing the veil of corporate fiction.

Our Ruling

We grant the appeal.

I
The first qualm of VFP is justified. The NLRC and the CA erred in ruling that Montenejo, et al.
were illegally dismissed.

Montenejo, et al. were dismissed as a result of the closure of VMDC. Contrary to the ruling of
the NLRC and the CA, there is ample support from the records to establish that VMDC did, in
fact, close its operations. VMDC's closure, more importantly, qualifies as a bona fide cessation
of operations or business as contemplated under Article 298 of the Labor Code.25

The dismissals of Montenejo, et al. were, therefore, premised on an authorized cause. Being so,
such dismissals are valid and remain to be valid even though they suffer from a procedural
defect. Consequently, Montenejo, et al. are not entitled to the monetary awards (i.e., full
backwages, separation pay in lieu of reinstatement, 13th month pay, SILP and COLA) granted
to them by the NLRC, but only to nominal damages on top of the separation pay under Article
298 of the Labor Code.

Concept of Illegal Dismissal; Closure of

Business as an Authorized Cause for the
Termination of Employment

We begin with the basics.

In our jurisdiction, the right of an employer to terminate employment is regulated by law. Both
the Constitution26 and our laws guarantee security of tenure to labor and, thus, an employee can
only be validly dismissed from work if the dismissal is predicated upon any of the just or
authorized causes allowed under the Labor Code.27 Correspondingly, a dismissal that is not
based on either of the said causes is regarded as illegal and entitles the dismissed employee to
the payment of backwages and, in most cases, to reinstatement.28

One of the authorized causes for dismissal recognized under the Labor Code is the bona fide
cessation of business or operations by the employer. Article 298 of the Labor Code explicitly
sanctions terminations due to the employer's cessation of business or operations-as long as the
cessation is bona fide or is not made ''for the purpose of circumventing the [employees' right to
security of tenure]":

Art. 298. 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.

As stated in the provision, an employer's closure or cessation of business or operations is

regarded as an invalid ground for the termination of employment only when the closure or
cessation is made for the purpose of circumventing the tenurial rights of the employees. A
survey of relevant jurisprudence can shed light on what can be considered as an invalid
cessation of business or operations:

1. In Me-Shurn Corporation v. Me-Shurn Workers Union-FSM,29 a company that supposedly

closed due to financial losses was discovered to have revived its operations barely a month
after it closed. Some of the employees who were dismissed as a consequence of the company's
closure challenged their terminations on the ground that such closure is not bona fide and
claimed that the same was only made to forestall the formation of their union. When the issue
reached us, we sided with the employees-ratiocinating that the company's unusual and
immediate resumption of operations had lent credence to the employees' claim that the
company's earlier closure had been done in bad faith.

2. Danzas Intercontinental, Inc. v. Daguman,30 on the other hand, featured a company which
apparently closed one of its departments. However, in the ensuing illegal dismissal case filed by
the employees terminated in the closure, it had been established that the company did not
actually stop operating the concerned department as it even hired a new set of staff for the
same. On these premises, we declared that the company's earlier closure of the subject
department as not bona fide and ordered the reinstatement of the terminated employees.

3. A cross between Me-Shum and Danzas is the case of St. John Colleges, Inc. v. St. John
Academy Faculty and Employees Union.31 In St. John, a deadlock in the Collective Bargaining
Agreement negotiations between a school and its faculty union prompted the former to close its
high school department and effect a mass lay-off. But barely one year after it announced such
closure, the school reopened its high school department. The employees who lost their jobs in
the closure of the high school department lodged an illegal dismissal complaint hinged on the
argument that said closure is invalid and made in bad faith. We favored the employees and
observed that the timing and the reason of both the closure of the high school department and
its reopening were indicative of the school's bad faith in effecting the closure.

4. And finally, the case of Eastridge Golf Club, Inc. v. East Ridge Golf Club, Inc. Labor
Union-Super.32 Eastridge involved a company which closed one of its departments by allegedly
transferring its operations to a concessionaire. However, in the illegal dismissal case filed by the
employees laid off in the closure, it was proven that the company did not actually transfer the
operations of the subject department to a concessionaire and that the former remained to be the
employer of all the workers in the department. On this score, we ruled that the company's
closure of its department was simulated and that the employees' dismissal by reason thereof
was illegal.

All of the instances of invalid closures of business or operations discussed above have a
common and telling characteristic-all of them were not genuine closures or cessations of
businesses; they are mere simulations which make it appear that the employer intended to
close its business or operations when the latter, in truth, had 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 also the actions
taken by the latter after the fact. For, as can be seen from the examples in the cited cases, the
employer's subsequent acts of suddenly reviving a business it had just closed or surreptititiously
continuing with its operation after announcing a shutdown are telltale badges that the employer
had no real intent to cease its business or operations and only seeks an excuse to terminate
employees capriciously.

Guided by the foregoing, we shall now address the issue at hand.

VMDC's Closure Was Established;

The Closure Is Bona Fide; The
Dismissals of Montenejo, et al. Are
Based on an Authorized Cause

In this case, the NLRC and the CA both ruled against the validity of the dismissals of Montenejo,
et al. for the reason that the dismissals were not proven to be based on any valid cause. The
NLRC and the CA were disapproving of the claim that the dismissals were due to the closure of
VMDC, lamenting the lack of any evidence showing that VMDC had formally closed its
business.

We disagree.

Though not proclaimed in any formal document, the closure of VMDC was still duly proven in
this case. The closure can be inferred from other facts that were established by the records
and/or were not refuted by the parties. These facts are:
1. The fact that VMDC, on January 3, 2000, had turned over possession of all buildings,
equipment and other properties necessary to the operation of the VFPIA to VFP;33 and

2. The fact that, on January 31, 2000, VMDC had dismissed all of its officials and employees,
which included Montenejo, et al.34

The confluence of the above facts, to our mind, indicates that VMDC indeed closed shop or
ceased operations following the termination of its management agreement with VFP. The acts of
VMDC in relinquishing all properties required for its operations and in dismissing its entire
workforce would have indubitably compromised its ability to continue on with its operations and
are, thus, the practical equivalents of a business closure. Hence, in these regards, we hold that
the closure of VMDC had been established.

Moreover, we find VMDC's cessation of operations to be bona fide. None of the telltale badges
of bad faith in closures of business, as illustrated in our jurisprudence, was shown to be present
in this case. Here, there is no evidence on record that shows that VMDC-after dismissing its
entire workforce and ceasing to operate-had revived its business or had hired new employees to
replace those dismissed. Thus, it cannot be reasonably said that VMDC's cessation of
operations was just a ruse or had been implemented merely as an excuse to terminate its
employees.

The mere fact that VMDC could have chosen to continue operating despite the termination of its
management agreement with VFP is also of no consequence. The decision of VMDC to cease
its operations after the termination of the management agreement is, under the law, a lawful
exercise by the company's leadership of its management prerogative that must perforce be
upheld where, as in this case, there is an absence of showing that the cessation was made for
prohibited purposes.35 As Alabang Country Club, Inc. v. NLRC reminds:36

For any bona fide reason, an employer can lawfully close shop anytime. Just as no
law forces anyone to go into business, no law can compel anybody to continue the
same. It would be stretching the intent and spirit of the law if a court interferes with
management's prerogative to close or cease its business operations just because
the business is not suffering from any loss or because of the desire to provide the
workers continued employment.

The validity of the closure of VMDC necessarily validates the dismissals of Montenejo, et al. that
resulted therefrom. The dismissals cannot be regarded as illegal because they were predicated
upon an authorized cause recognized by law.

Montenejo, et al Are Not Entitled to

Monetary Awards Adjudged in Their Favor by
the NLRC; They Are Only Entitled to
Separation Pay Under Article 298 of the
Labor Code

Since Montenejo, et al. had been validly dismissed, it becomes apparent that the monetary
awards granted to them by the NLRC, and affirmed by the CA, were not proper. We
substantiate:

1. The awards for full backwages and separation pay in lieu of reinstatement cannot be
sustained as these awards are reserved by law, and jurisprudence, for employees who were
illegally dismissed.37

2. The awards for 13th month pay, SILP and COLA, on the other hand, must also be invalidated
as these are mere components of the award for backwages and were, thus, made by the NLRC
and the CA in consideration of the illegality of the dismissals of Montenejo, et al. The 13th
month pay, SILP and COLA that were awarded by the NLRC and the CA refer to the benefits
that Montenejo, et al. would be entitled to had they not been illegally dismissed and are
computed from the time of their dismissals up to the time the judgment declaring their dismissals
illegal becomes final.38 The awards, in other words, were not due to any failure on the part of
VMDC to pay 13th month pay, SILP and COLA to Montenejo, et al. during the subsistence of
their employer-employee relationship.

For having been terminated by reason of the employer's closure of operations that was not due
to serious business losses or financial reverses, Montenejo, et al. are, however, entitled to be
paid separation pay pursuant to Article 298 of the Labor Code. The records in this regard,
though, reveal that Montenejo, et al. have already received their respective separation pays
from VMDC.39

Failure of VMDC to File a Notice of Closure

with the DOLE Does Not Invalidate the
Dismissals of Montenejo, et al.; Such
Procedural Lapse Only Gives Rise to
Liability for Nominal Damages

Anent the failure of VMDC to file a notice of closure with the DOLE, we find our rulings in
Agabon v. NLRC40 and Jaka Food Processing Corporation v. Pacot41 to be apt.

To recall, Agabon laid out the rule that when a dismissal is based on a just cause but is
implemented without observance of the statutory notice requirements, the dismissal should be
upheld as valid but the employer must thereby pay an indemnity to the employee in the amount
of ₱30,000. Jaka, on the other hand, expounded on Agabon in two (2) ways:

1. First, Jaka extended the application of the Agabon doctrine to dismissals that were based on
authorized causes but have been effected without observance of the notice requirements. Thus,
similar to Agabon, the dismissals under such circumstances will also be regarded as valid while
the employer shall likewise be required to pay an indemnity to the employee; and

2. Second, Jaka increased the amount of indemnity payable by the employer in cases where the
dismissals are based on authorized causes but have been effected without observance of the
notice requirements. It fixed the amount of indemnity in the mentioned scenario to ₱50,000.

Verily, the failure of VMDC to file a notice of closure with the DOLE does not render the
dismissals of Montenejo, et al., which were based on an authorized cause, illegal. Following
Agabon and Jaka, such failure only entitles Montenejo, et al. to recover nominal damages from
VMDC in the amount of ₱50,000 each, on top of the separation pay they already
received.1awp++i1

II

The NLRC and the CA also erred in ruling that VFP may be held solidarily liable with VMDC for
any monetary award that may be found due to Montenejo, et al. We find that, contrary to the
holding of the NLRC and the CA, the application of the doctrine of piercing the veil of corporate
fiction is not justified by the facts of this case.

Accordingly, the liability for the award of nominal damages-the only award that Montenejo, et al.
are entitled to in this case-ought to rest exclusively upon their employer, VMDC.

Doctrine of Piercing the Veil of

Corporate Fiction Does Not Apply to
This Case

The NLRC and the CA's stance is based on their submission that the doctrine of piercing the
veil of corporate fiction is applicable to this case, i.e., that VFP and VMDC could, for purposes of
satisfying any monetary award that may be due to Montenejo, et al., be treated as one and the
same entity. According to the two tribunals, the doctrine may be applied to this case because
VFP apparently owns almost all of the shares of stock of VMDC. In this regard, both the NLRC
and the CA cite the Closing Agreement42 of VFP and VMDC which states that:

NOW THEREFORE, for and in consideration of the foregoing premises the [VFP]
and the [VMDC] hereby agree to terminate the [management agreement] for the
 development and management of the [VFPIA] in Taguig effective on 3 January
2000, subject to the following conditions:

1. The [VMDC] agrees that the [VFP] is the majority stockholder of the [VMDC] and
that all its original incorporators have endorsed all their shares of stock to the [VFP]
except one (1) qualifying share each to be able to sit as Director in the Board of
Directors of the [VMDC]. (Emphasis supplied)

We disagree with the submission.

The doctrine of piercing the veil of corporate fiction is a legal precept that allows a corporation's
separate personality to be disregarded under certain cirumstances, so that a corporation and its
stockholders or members, or a corporation and another related corporation could be treated as
a single entity. The doctrine is an equitable principle, it being meant to apply only in situations
where the separate corporate personality of a corporation is being abused or being used for
wrongful purposes.43 As Manila Hotel Corporation v. NLRC44 explains:

Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend a crime. It is done only when a corporation is a mere alter ego or business
conduit of a person or another corporation. (Citations omitted)

In Concept Builders, Inc. v. NLRC,45 we laid down the following test to determine when it would
be proper to apply the doctrine of piercing the veil of corporate fiction:

1. Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of

The absence of any one of these elements prevents piercing the Ocorporate veil. In
applying the instrumentality or alter ego doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual
defendant's relationship to that operation. (Emphasis supplied and citations
omitted).

Relative to the Concept Builders test are the following critical ruminations from Rufina Luy Lim v.
CA:46

Mere ownership by a single stockholder or by another corporation of all or nearly all

of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.

Moreover, to disregard the separate juridical personality of a corporation, the

wrong-doing must be clearly and convincingly established. It cannot be presumed.
(Citations omitted)

Utilizing the foregoing standards, it becomes clear that the NLRC and the CA were mistaken in
their application of the doctrine to the case at bench. The sole circumstance used by both to
justify their disregard of the separate personalities of VFP and VMDC is the former's alleged
status as the majority stockholder of the latter. Completely absent, however, both from the
decisions of the NLRC and the CA as well as from the records of the instant case itself, is any
circumstance which establishes that VFP had complete control or domination over the
''finances[,]. .. policy and business practice" of VMDC. Worse, even assuming that VFP had
such kind of control over VMDC, there is likewise no evidence that the former had used the
same to "commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of [another's] legal rights."

Given the absence of any convincing proof of misuse or abuse of the corporate shield, we, thus,
find the application of the doctrine of piercing the veil of corporate fiction to the present case to
be unwarranted, if not utterly improper. Consequently, we must also reject, for being erroneous,
the pronouncement that VFP may be held solidarily liable with VMDC for any monetary award
that may be adjudged in favor of Montenejo, et al. in this case.

Application: Exclusive Liability for

Nominal Damages Rests on VMDC

As established in the previous discussion, the only award to which Montenejo, et al. are entitled
in the instant case is for nominal damages pursuant to the Agabon and Jaka doctrines.
Considering that the doctrine of piercing the veil of corporate fiction does not apply, the liability
for the satisfaction of this award must be deemed to rest exclusively on the employer of
Montenejo, et al., VMDC.

III

In fine-

Our finding upholding the validity of the dismissals of Montenejo, et al. warranted the
nullification of the awards of full backwages, separation pay in lieu of reinstatement, 13th month
pay, SILP and COLA that were originally adjudged in their favor by the NLRC. Thus, the
assailed CA decision and resolution, for sustaining such awards, ought to be reversed and set
aside. Necessarily, the NLRC decision must also be set aside except with respect to the finding
that Montenejo, et al. were regular employees of VMDC. The statuses of Montenejo, et al. as
regular employees of VMDC were not challenged in the present appeal of VFP.

In light of the failure of VMDC to file a notice of closure with the DOLE, however, we must
adjudge VMDC to pay nominal damages to Montenejo, et al. pursuant to the Agabon and Jaka
doctrines. The amount of the nominal damages is ₱50,000 per person and the satisfaction
thereof is the exclusive liability of VMDC, the employer of Montenejo, et al. VFP is absolved
from any further liability to Montenejo, et al.

WHEREFORE, premises considered, the instant petition is GRANTED. The Decision dated July
29, 2008 and Resolution dated October 2, 2008 of the Court of Appeals in CA-G.R. SP No.
101041 are REVERSED and SET ASIDE. Except as to the finding that respondents Eduardo L.
Montenejo, Mylene M. Bonifacio, Evangeline E. Valverde and Deana N. Pagal were regular
employees of the VFP Management and Development Corporation, the Decision dated May 16,
2007 of the National Labor Relations Commission in NLRC NCR Case Nos. 30-01-00494-02
and 048927-06 is SET ASIDE.

Judgment is hereby made directing the VFP Management and Development Corporation to PAY
respondents Eduardo L. Montenejo, Mylene M. Bonifacio, Evangeline E. Valverde and Deana N.
Pagal the sum of ₱50,000 each as NOMINAL DAMAGES.

SO ORDERED.
 [ G.R. No. 200815, August 24, 2020 ]

SAN MIGUEL CORPORATION, PETITIONER, VS. ROSARIO A. GOMEZ, RESPONDENT.

DECISION

HERNANDO, J.:

Challenged in this appeal is the October 21, 2011 Decision1 of the Court of Appeals (CA) in
CA-GR SP. No. 108758 which held that petitioner San Miguel Corporation (SMC) illegally
terminated the services of respondent Rosario A. Gomez (Gomez).

SMC is a corporation organized under Philippine laws which is engaged in the business of
manufacturing fermented beverages, particularly beer, among others.2

SMC employed Gomez on September 16, 1986 as a researcher in the Security Department and
concurrently as Executive Secretary to the Head of the Security Department. Sometime in
October 1994, Gomez was assigned as coordinator in the Mailing Department of SMC. On
December 20, 2002, SMC terminated her services on the ground of fraud or willful breach of
trust.3

The Antecedents

The circumstances which led to the termination of Gomez's employment involved SMC's
arrangement with C2K Express, Inc. (C2K).4

C2K is a corporation engaged in courier and delivery services, which entered into business with
SMC sometime in January 2001 as the latter's courier. For the first three months, the
relationship between C2K and SMC went smoothly until C2K encountered difficulty in collecting
its service fee from SMC. Eventually, it was found out that C2K's former manager, Daniel
Tamayo (Tamayo), formed another courier services group, Starnec, which had been using fake
C2K receipts and collecting the fees pertaining to C2K. C2K claimed that it was through
Gomez's intervention that Tamayo's group was able to transact business with SMC.5

C2K brought the matter to the attention of SMC, which conducted an investigation. In line with
this, SMC requested C2K's President, Edwin Figuracion (Figuracion), to execute an affidavit
naiTating their claim. In the said affidavit,6 Figuracion mentioned that Gomez had been collecting
25% commission from the total payment received by C2K. An audit was conducted where it was
discovered that Gomez was allegedly involved in anomalies which caused tremendous losses to
SMC.7

SMC conducted an administrative investigation and hearing where Gomez was able to present
her evidence and witnesses to disprove the charges against her.8 After the investigation, Gomez
was found guilty of committing fraud against SMC and of receiving bribes through commissions
in connection with the performance of her function.9 On December 20, 2002, SMC issued a
Notice of Termination of Services10 to Gomez prompting her to file a case for illegal dismissal
with the National Labor Relations Commission (NLRC).11

Ruling of the Labor Arbiter:

In a March 30, 2006 Decision,12 the Labor Arbiter held that Gomez's employment was validly
terminated, viz.:

WHEREFORE, premises considered, the instant complaint is hereby DISMISSED for lack of
merit.

Respondents' counter claims are also denied for lack of jurisdiction but without prejudice.

SO ORDERED.13

Ruling of the NLRC:

Aggrieved, Gomez appealed to the NLRC. In its September 23, 2008 Decision14 in NLRC NCR
CA No. 050019-06, the NLRC reversed and set aside the findings of the Labor Arbiter and held
that Gomez was illegally terminated. The dispositive portion of said Decision reads:

WHEREFORE, premises considered, the Decision appealed from is hereby REVERSED and
SET ASIDE and a new one entered declaring complainant's employment was illegally
terminated. Accordingly, respondent is hereby ordered to reinstate complainant to her former or
substantially equivalent position and to pay her backwages from the time of her illegal dismissal
until actual reinstatement, moral damages in the amount of Twenty Thousand Pesos
(P20,000.00) and ten percent (10%) of the total award as attorney's fees.

SO ORDERED.15 (Emphasis in the original)

SMC filed a Motion for Reconsideration16 which was denied by the NLRC in its April 16, 2009
Resolution.17

Unsatisfied, SMC filed with the CA a Petition for Certiorari18 under Rule 65 of the Rules of Court
seeking to set aside the NLRC's September 23, 2008 Decision and April 16, 2009 Resolution. In
said petition, SMC imputed grave abuse of discretion amounting to lack or excess of jurisdiction
on the NLRC when it reversed and set aside the Labor Arbiter's Decision and held that Gomez
was illegally terminated.

Ruling of the CA:

In its October 21, 2011 Decision,19 the CA dismissed the petition and upheld the findings of the
NLRC.Ꮮαwρhi৷ The CA pointed out that "Gomez's dismissal on the ground of fraud and loss of
trust and confidence was not founded on clearly established facts."20 Thus, the dispositive
portion of the CA's Decision states:

WHEREFORE, premises considered, the instant Petition is hereby DENIED. The assailed
Decision dated September 23, 2008 and the Resolution dated April 16, 2009, both issued by
public respondent NLRC in NLRC NCR CA No. 050019-06 are hereby AFFIRMED.

SO ORDERED.21 (Emphasis in the original).

SMC filed a Motion for Reconsideration which was denied by the CA in its February 27, 2012
Resolution.22

Issues:

Thus, SMC filed the instant Petition for Review on Certiorari23 under Rule 45 of the Rules of
Court, which raises the following arguments:

(i) Gomez's termination from service was valid, legal and effective.24

(ii) Gomez can no longer be reinstated since her dismissal was valid, legal and effective.
Assuming that the dismissal was illegal, the CA should have ordered separation pay in lieu of
reinstatement since SMC already lost the trust and confidence it reposed upon Gomez.25

(iii) Gomez's appeal filed before the NLRC should not have been given consideration since it
was not filed in accordance with the NLRC's 2005 Rules of Procedure.26

The Court's Ruling

This Court finds SMC's instant petition meritorious. Thus, We reverse the CA's ruling and
reinstate the Labor Arbiter's findings that Gomez was validly terminated on the ground of loss of
trust and confidence.

SMC claims that it validly terminated Gomez's services on the grounds of fraud and betrayal of
the trust and confidence reposed on her due to her alleged acceptance of commission from C2K
and Tamayo's group, and for allegedly allowing the courier to increase the actual weights of the
packages in order to compensate for her commission.27
We find SMC's arguments tenable.

At the outset, We note that Gomez was accorded with procedural due process since she was
given both notice and hearing where she was able to present her evidence and witnesses to
disprove the charges against her.28

On the substantive aspect, this Court finds Gomez liable for fraud or Willful breach of trust, a
valid ground for the termination of her employment.Ꮮαwρhi৷

Article 297 282(c) of the Labor Code provides that an employer may terminate the services of its
employee for "[f]raud or willful breach x x x of the trust reposed in him by his employer or duly
authorized representative." As a rule, employers have the discretion to manage its own affairs,
which includes the imposition of disciplinary measures on its employees.29 Thus, "employers are
generally given wide latitude in terminating the services of employees who perform functions
which by their nature require the employer's full trust and confidence."30

Nonetheless, employers may not arbitrarily dismiss their employees by simply invoking Article
297 282(c). The loss of confidence must be genuine and cannot be used as a "subterfuge for
causes which are improper, illegal or unjustified."31 In Matis v. Manila Electric Co.,32 We have
pointed out that "[l]oss of confidence as a ground for dismissal has never been intended to
afford an occasion for abuse by the employer of its prerogative, as it can easily be subject to
abuse because of its subjective nature.

In University of the Immaculate Conception v. Office of the Secretary of Labor and

Employment,33 citing Cruz v. Court of Appeals,34 this Court summarized the guidelines when
loss of confidence constitutes a valid ground for dismissal:

[T]he language of Article 282(c) of the Labor Code states that the loss of trust and confidence
must be based on willful breach of the trust reposed in the employee by his employer. Such
breach is willful if it is done intentionally, knowingly, and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. Moreover,
it must be based on substantial evidence and not on the employer's whims or caprices or
suspicions other wise, the employee would eternally remain at the mercy of the employer. Loss
of confidence must not be indiscriminately used as a shield by the employer against a claim that
the dismissal of an employee was arbitrary. And, in order to constitute a just cause for dismissal,
the act complained of must be work-related and shows that the employee concerned is unfit to
continue working for the employer. In addition, loss of confidence as a just cause for termination
or employment is premised on the fact that the employee concerned holds a position of
responsibility, trust and confidence or that the employee concerned is entrusted with confidence
with respect to delicate matters, such as the handling or care and protection of the property and
assets of the employer. The betrayal of this trust is the essence of the offense for which an
employee is penalized.

Thus, the requisites for dismissal on the ground of loss of trust and confidence are: "1) the
employee concerned must be holding a position of trust and confidence; (2) there must be an
act that would justify the loss of trust and confidence; [and (3)] such loss of trust relates to the
employee's performance of duties."35

In view of the first requisite above, this Court must make a determination with regard to the true
nature of Gomez's position. SMC claims that Gomez is a mailing coordinator at the Mailing
Department tasked with weighing and determining the volume of documents and other
shipments of the corporation,36 including the Kaunlaran Magazines. The Mailing Department is
headed by a manager, in this case Ms. Rosanna Mallari (Gomez's boss), who takes care of the
voluminous mailing as well as courier services of SMC.37

In the leading case of Mabeza v. National Labor Relations Commission,38 which was reiterated
in Philippine Auto Components, Inc. v. Jumadla,39 and University of the Immaculate Conception
v. Office of the Secretary of Labor and Employment,40 We have explained what constitutes a
"position of trust and confidence":
[L]oss of confidence should ideally apply only to cases involving employees occupying positions
of trust and confidence or to those situations where the employee is routinely charged with the
care and custody of the employer's money or property. To the first class belong managerial
employees, i.e., those vested with the powers or prerogatives to lay down management policies
and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees or
effectively recommend such managerial actions; and to the second class belong cashiers,
auditors, property custodians, etc., or those who, in the normal and routine exercise of their
functions, regularly handle significant amounts of money or property. x x x (Emphasis supplied)

The Court finds that Gomez indeed occupied a position of trust and confidence, as defined by
law and jurisprudence, since she was entrusted with SMC's property, in particular its mail matter
which included weighing and determining volumes of documents to be shipped. Thus, she was
routinely charged with custody of SMC's mail matter.

In addition, We find that SMC likewise substantially proved the second requisite (i.e. there must
be an act that would justify the loss of trust and confidence). In Cadavas v. Court of Appeals,41
We have emphasized that "[l]oss of trust and confidence to be a valid cause for dismissal must
be based on a willful breach of trust and founded on clearly established facts. Such breach is
willful if it is done intentionally, knowingly, and purposely, without justifiable excuse as
distinguished from an act done, carelessly, thoughtlessly, heedlessly or inadvertently."42

In this case, We find that Gomez willfully, intentionally, knowingly, purposely, and without
justifiable excuse disregarded SMC's rules and regulations in the workplace.

This Court notes that it was through Gomez's intervention that Starnec Tamayo's group) was
able to transact business with SMC, wherein Starnec used fake receipts and collected the fees
pertaining to C2K.43 Gomez, as the used factor in SMC's Mailing Department, should have
known or noticed said fake receipts since she had previously transacted with C2K.

Moreover, We give credence to the claim of C2K's President, Figuration, in his affidavit44 that
Gomez had been collecting 25% commission from the total payment received by C2K. This was
corroborated by SMC's audit findings where it was discovered that Gomez's anomalies caused
and tremendous losses to SMC.45 Furthermore, SMC conducted its investigation which resulted
in Gomez being found guilty of committing fraud against SMC and of receiving bribes through
commissions in connection with the performance of her function.46

In view of the foregoing, this Court finds that Gomez was validly terminated on the ground of
loss of trust and confidence.

In termination cases, the employer bears the burden of proving that the employee's dismissal
was for a valid and authorized cause. Consequently, the failure of the employer to prove that the
dismissal was valid, would mean that dismissal was unjustified, and thus illegal.

We are of the firm view that SMC sufficiently discharged the burden.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed October
21, 2011 Decision and the February 27, 2012 Resolution of the Court of Appeals in CA GR SP.
No. 108758 are hereby REVERSED AND SET ASIDE. The March 30, 2006 Decision of the
Labor Arbiter holding that Rosario A. Gomez's employment was validly terminated hereby
REINSTATED. No pronouncement as to costs.

SO ORDERED.
 [ G.R. No. 240005. December 06, 2022 ]

FLORENCIO B. NEDIRA,* SUBSTITUTED BY HIS WIFE EMMA G. NEDIRA, PETITIONER,

VS. NJ WORLD CORPORATION, REPRESENTED BY MICHELLE Y. BUALAT,
RESPONDENT.

DECISION

GESMUNDO, C.J.:

The civil procedure classification of causes of action into either personal or real may not be
applied to a complaint for illegal dismissal because (1) an employment contract is one imbued
with public interest, and (2) a complaint for illegal dismissal is not merely for redress of a private
right but a command for the employer to make public reparation for his violation of the Labor
Code.1

This is an Appeal by Certiorari2 seeking to reverse and set aside the December 6, 2017
Decision3 and the June 6, 2018 Resolution4 of the Court of Appeals (CA) in CA-G.R. SP No.
142044. The CA annulled and set aside the May 29, 20155 and July 30, 20156 Resolutions of
the National Labor Relations Commission (NLRC) in NLRC LAC No. 01-000095-15, and
reinstated the November 17, 2014 Decision7 of the Labor Arbiter (LA) in NLRC Case No. NCR
10-14386-13.8 The LA dismissed for lack of merit the complaint for illegal dismissal filed by
Florencio B. Nedira (Florencio), substituted by his wife Emma G. Nedira (Emma), against NJ
World Corporation (respondent).

The Antecedents

Respondent, a taxi company, hired Florencio as a taxi driver on September 2, 2010. On

October 29, 2013, Florencio filed a complaint for constructive dismissal before the NLRC, but
died during the pendency of the proceedings. His wife, Emma, filed an Omnibus Motion (For
Substitution and Extension of Time to File Position Paper).9 Subsequently, Emma filed a position
paper alleging that Florencio was illegally suspended on July 16, 2013 and August 6, 2013 for
infractions that were either untrue or did not deserve "a length of suspension as what was
imposed" on him. Allegedly, when Florencio reported back to work after serving his suspension,
respondent's manager, Carlos M. Almarines III (Carlos), told him that he would be placed on
floating status until he pays the penalty of P6,000.00. Florencio allegedly asked that the bond
imposed upon him for every tour of duty be applied to the penalty but Carlos refused, reasoning
that the bond would not be enough. Emma further claimed that Florencio was indefinitely placed
on floating status conditioned upon the payment of an amount he could not raise "precisely
because he was denied of [sic] the opportunity to report for work." Lastly, she alleged that
Florencio was never paid the value of his unused service incentive leaves (SIL) and his 13th
month pay, and she asserted the bond he gave to respondent must be returned.10

Citing Cruz v. Cruz,11 respondent countered that the complaint for constructive dismissal
does not involve property or property rights. Thus, it did not survive the death of Florencio, and
Emma can no longer pursue it. Respondent also denied that Florencio was constructively
dismissed, and instead averred that Florencio was an on-call taxi driver who stopped driving
after failing to remit boundary payments in 2013. Lastly, respondent asserted that there is no
documentary evidence supporting the allegations in the complaint.12

The LA Ruling

In its November 17, 2014 Decision, the LA dismissed the complaint for illegal dismissal. The
fallo reads:

WHEREFORE, premises considered, this case should be, as it is hereby

DISMISSED for lack of merit.

SO ORDERED.13

The LA held that Emma, widow of the deceased Florencio, may pursue the complaint since
it had already been filed by the late complainant. However, the LA found that Emma could not
testify on the facts of the case as she is without personal knowledge thereof. The LA stated that
the claims of constructive dismissal and illegal suspension, and the facts leading to the same,
are personal to Florencio. It observed that Emma could not even state the exact dates when
Florencio was supposedly suspended, when Florencio returned to work, and why he was fined
in the amount of P6,000.00. Thus, the RTC declared that the claims of constructive dismissal
and illegal suspension were not substantiated.14

The NLRC Ruling

Emma appealed to the NLRC, which granted the same in its May 29, 2015 Resolution. It
ordered respondent to pay Florencio's heirs backwages, separation pay, and attorney's fees.
The dispositive portion of the resolution provides:

WHEREFORE, premises considered, Complainant-Appellant's appeal is hereby

GRANTED. The 17 November 2014 Decision of Labor Arbiter Fe S. Cellan is
hereby VACATED and SET ASIDE.

Respondents-appellees are hereby ordered to pay complainant­-appellant's

heirs substituted [sic] by his wife Emma G. Nedira, backwages and separation pay
in the amounts of Php58,043.70 and Php17,589.00. Further,
complainant-appellant's heirs [are] entitled to 10% attorney's fees.

All other claims are hereby DISMISSED.

SO ORDERED.15

The NLRC found that the LA erred in finding that Florencio was not illegally dismissed by
respondent. It declared that Florencio was an employee of respondent. He was an on-call taxi
driver paying boundary fees for the use of the taxi on a per day basis. He was also subject to
the control of respondent, and as such he was suspended and fined by the latter for alleged
violations. His functions were necessary and desirable in the usual business or trade of
respondent as a taxi company. It thus declared that respondent had the burden of proof and
failed to substantiate its claim that it did not dismiss Florencio.16

Respondent filed a motion for reconsideration, which the NLRC denied on July 30, 2015.17

The CA Ruling

Respondent filed a petition for certiorari before the CA, challenging the resolutions of the
NLRC. The CA granted the petition in its December 6, 2017 Decision, the dispositive portion of
which reads:

WHEREFORE, the petition for certiorari is GRANTED. The May 29, 2015 and
July 30, 2015 Resolutions of the National Labor Relations Commission, Third
Division in NLRC LAC No. 01-000095-15 are hereby ANNULLED and SET ASIDE.
The November 17, 2014 Decision of the Labor Arbiter is REINSTATED.

SO ORDERED.18

The CA found merit in respondent's imputation of grave abuse of discretion on the part of
the NLRC in ruling that there was constructive dismissal despite Emma's failure to substantiate
her claims.19

First, the CA found that Florencio was properly substituted by his surviving spouse, Emma,
as the substitution was done during the pendency of the case. Further, it held that the complaint
for illegal dismissal survived the death of Florencio because the right of a person to his labor is
"property." Florencio's death did not extinguish the alleged monetary claims arising from his
employment with respondent.20

Second, the CA declared that while an employer-employee relationship existed between

Florencio and respondent, there is, however, no evidence of constructive dismissal. It found that
Emma failed to show that Florencio's continuous employment with respondent was rendered
impossible, unreasonable, or unlikely due to respondent's act of clear discrimination,
insensibility, or disdain. It also stated that Emma's allegations were not supported by substantial
evidence. On the other hand, it found that respondent proved Florencio's failure to remit
boundary payments in 2013. Citing Caong, Jr. v. Regualos,21 the CA held that the suspension of
drivers who failed to remit the full amount of the boundary is a fair and reasonable exercise of
management prerogative, and therefore, it was within respondent's management prerogative to
suspend Florencio. This suspension cannot be categorized as constructive or illegal dismissal.22

Emma filed a motion for reconsideration, which the CA denied in its June 6, 2018
Resolution. Hence, this appeal.

The Petition

Emma assails the CA decision, alleging that Florencio was suspended without any
explanation. Thus, he was left with no choice but to file a complaint for constructive dismissal.
Florencio was placed on floating status indefinitely, which would only be lifted once he paid the
penalty of P6,000.00. This, Emma argues, amounted to constructive dismissal. She also claims
that respondent's asse1iion that Florencio merely stopped driving after he failed to remit some
boundary payments is antithetical to Florencia's immediate filing of the instant complaint.
Accordingly, she pleads that the heirs of Florencio be entitled to the payment of backwages as a
consequence of Florencio's illegal dismissal. Payment of separation pay and attorney's fees is
also proper.23

The Court's Resolution24 requiring respondent to comment on the petition was sent to its
counsel, who manifested that respondent moved out of its office and closed its business without
notice, and, thus, sought her withdrawal as counsel for respondent.25 On August 24, 2022, the
Court deemed respondent's right to file a comment as having been waived.

The Issue

Emma raises the following singular issue:

WHETHER THE COURT OF APPEALS GRAVELY ERRED IN ANNULLING

AND SETTING ASIDE THE NLRC'S RESOLUTIONS WHERE IT WAS HELD
THAT THE DECEASED FLORENCIO NEDIRA WAS ILLEGALLY DISMISSED
AND HIS HEIRS ARE ENTITLED TO BACKWAGES AND SEPARATION PAY.26

The Court's Ruling

The appeal lacks merit and must be denied. The CA did not commit any serious error in
finding that Emma failed to prove that Florencio was illegally dismissed.

Florencio, through Emma,

failed to prove the fact of his
illegal dismissal.

The fact of dismissal was not established in the instant case.

It is well-established that the employee must first prove the fact of dismissal before the
burden shifts to the employer to prove that the dismissal was legal:

Ei incumbit probatio qui dicit, non qui negat. The burden of proof is on the
one who declares, not on one who denies. A party alleging a critical fact must
suppo1i his allegation with substantial evidence, for any decision based on
unsubstantiated allegation cannot stand without offending due process. And in
illegal termination cases, jurisprudence had underscored that the fact of
dismissal must be established by positive and overt acts of an employer
indicating the intention to dismiss before the burden is shifted to the employer
that the dismissal was legal.27

It is regrettable that there is a dearth of proof about the fact of dismissal of Florencio. The
records are absent of any evidence as to the nature of the supposed suspension, as well as the
circumstances of the alleged constructive dismissal. No documentary proof was presented to
substantiate the claim that respondent required Florencio to pay P6,000.00, and that, due to his
alleged nonpayment, he was not permitted to work. Thus, as a result of the lack of evidence to
substantiate this claim, the charge of constructive dismissal was not established.

It must also be emphasized that Florencio passed away before the position paper was filed
before the LA. Thus, apart from his complaint, which merely stated as causes of action the
constructive dismissal and nonpayment of monetary amounts, there is nothing from Florencio
himself to establish the fact of his dismissal. The lack of specificities in Emma's narration of
events simply does not establish the purported constructive dismissal.

For this reason, the Court cannot grant the relief prayed for.

Nonetheless, the Court finds that this case presents an opportunity to clarify the effect of the
death of a complainant to a pending suit for illegal dismissal. The Court deems it proper to
address the pertinent portion of the CA ruling, despite the fact that it was not assailed in the
instant petition. In any case, the Court notes that respondent consistently raised before the
lower tribunals the issue of the propriety of Emma's substitution for Florencio.

A complaint for illegal

dismissal may not be
classified, like an ordinary
civil action, as to cause or
foundation for purposes of
determining the effect of
death of any of the parties to
the case.

To recall, Florencio filed the instant Complaint28 for illegal dismissal on October 29, 2013. He
passed away on June 3, 2014.29 Subsequently, Emma filed an omnibus motion for substitution
and extension of time to file position paper, after which Emma filed the Position Paper.30

The CA held that the substitution of Emma for Florencio was proper. While this conclusion is
correct, the CA was mistaken on its basis for arriving at such determination.

First, the CA erred in applying to a complaint for illegal dismissal the civil procedure rule on
survival of actions. It inappropriately relied on jurisprudence interpreting Section 16, Rule 3 of
the Rules of Court on the death of a party and the corresponding duty of counsel arising from
such death.

Second, even if the Court were to consider such application to be proper, the CA
erroneously concluded that a complaint for illegal dismissal is one that involves property rights
and is, accordingly, one that survives the death of complainant.

Labor cases are governed by the NLRC Rules of Procedure. Here, the 2011 NLRC Rules of
Procedure, as amended31 (2011 NLRC Rules of Procedure), is controlling since the complaint
was filed in the year 2013. Scrutiny of the 2011 NLRC Rules of Procedure readily reveals that it
is silent on what happens when one of the parties to the action dies.

This silence may have caused the parties, as well as the CA, to rely on the Rules of Court.
After all, the Rules of Court apply in a suppletory character to cases governed by the NLRC
Rules of Procedure. This is in accordance with Sec. 3, Rule 1 of the 2011 NLRC Rules of
Procedure, viz.:

Section 3. Suppletory Application of the Rules of Court. — In the absence of

any applicable provision in these Rules, and in order to effectuate the objectives
of the Labor Code, as amended, the pertinent provisions of the Rules of
Court of the Philippines, as amended, may, in the interest of expeditious
dispensation of labor justice and whenever practicable and convenient, be
applied by analogy or in a suppletory character and effect. (Emphasis
supplied)
 The Rules of Court itself echoes the 2011 NLRC Rules of Procedure in providing for such
suppletory effect. Sec. 4, Rule 1 of the Rules of Court reads:

Section 4. In what cases not applicable. — These Rules shall not apply to
election cases, land registration, cadastral, naturalization and insolvency
proceedings, and other cases not herein provided for, except by analogy or
in a suppletory character and whenever practicable and convenient.
(Emphases supplied)

Sec. 16, Rule 3 of the Rules of Court governs situations where a party to a
pending action dies during such pendency. It reads as follows:

Section 16. Death of party; duty of counsel. — Whenever a party to a pending

action dies, and the claim is not thereby extinguished, it shall be the duty of
his counsel to inform the court within thirty (30) days after such death of the
fact thereof, and to give the name and address of his legal representative or
representatives. Failure of counsel to comply with this duty shall be a ground for
disciplinary action.

The heirs of the deceased may be allowed to be substituted for the

deceased, without requiring the appointment of an executor or administrator
and the court may appoint a guardian ad litem for the minor heirs.

The court shall forthwith order said legal representative or representatives to

appear and be substituted within a period of thirty (30) days from notice.

If no legal representative is named by the counsel for the deceased party, or if

the one so named shall fail to appear within the specified period, the court may
order the opposing party, within a specified time, to procure the appointment of an
executor or administrator for the estate of the deceased and the latter shall
immediately appear for and on behalf of the deceased. The court charges in
procuring such appointment, if defrayed by the opposing party, may be recovered
as costs. (Emphases supplied)

Thus, in civil actions, the heirs of a deceased may substitute the deceased in a pending
action if such action survives the death of the deceased. The survival of the action is the
determinative factor.

The survival of the action depends on its classification as to cause or foundation.

Then Chief Justice Manuel V. Moran elucidated that ordinary civil actions "may be classified,
as to their cause or foundation, into real and personal:"32

Ordinary civil actions may be classified, as to their cause or foundation, into

real and personal. Real action is that founded on privity of real estate. Personal
action is that founded on privity of contract. In other words, in a real action, one
seeks to recover a specific real property or its possession; while in a personal
action, one seeks the enforcement of a contract or the recovery of personal
property or damages.33

Concomitantly, the Court explained in Bonilla v. Barcena34 that causes of action involving
injury to the person do not survive death, while those that involve property and property rights
do:

The question as to whether an action survives or not depends on the nature

of the action and the damage sued for. In the causes of action which survive the
wrong complained affects primarily and principally property and property rights,
the injuries to the person being merely incidental, while in the causes of action
which do not survive the injury complained of is to the person, the property and
rights of property affected being incidental.35
 The Court further elaborated in Jardeleza v. Spouses Jardeleza36 that "[t]his rule is
applicable regardless of whether it is the plaintiff or the defendant who dies, or whether the case
is in the trial or in the appellate courts."37

The CA, in the instant case, inaccurately held that a complaint for illegal dismissal is one
that principally involves property rights. It stated that, "[a]s aptly argued by Emma, the right of a
person to his labor is deemed to be 'property' within the meaning of constitutional guarantees.
One's employment, profession, trade or calling is a property right and the wrongful interference
therewith is an actionable wrong."38

Article 414 of the Civil Code defines property as "all things which are or may be the object of
appropriation" and it may be classified as either (1) immovable or real property;39 or (2) movable
or personal property.40

Certainly, the CA's conclusion that a complaint for illegal dismissal involves property rights
would make sense only if the Civil Code definition of property is solely considered. However, the
distinction between an action involving injury to the person and one involving property rights is
rooted in the very nature of the civil action involved, not on the object of such action.

In Ruiz v. Court of Appeals,41 the Court firmly rejected the proposition that the inclusion of
real properties as the subject of a complaint for collection of sum of money converted the action
to one that survives the death of the party. The Court resolutely held that it is the nature of the
action, not the object or kind of property sought to be recovered, which determines the survival
of the action.

The core of petitioners' argument is that action should not be dismissed since
their complaint involves not just monetary claim but also real properties, as well.

Petitioners' contention is untenable. While they maintain that what they are
claiming include real properties, their Complaint is captioned as "For Collection of
Money and for Specific Performance." Obviously, the petitioners themselves, who
are lawyers, believed that the cause of action against the private respondent was in
the nature of actio in personam.

"Actio in personam is a personal action seeking redress against a particular

person. Personal actions are such whereby a man claims a debt, or personal duty,
or damages in lieu thereof." In the present case, petitioners seek to recover
attorney's fees from private respondent for the professional services they rendered
to the latter. Attorney's fee is basically a compensation. In its ordinary sense, "the
term (compensation) applies not only to salaries, but to compensation by fees for
specific service."

Viewed in proper perspective, an action to recover attorney's fees is basically a

monetary claim, which under Section 21, Rule 3 of B.P. 129 is an action that does
not survive. Such is the fate of Civil Case No. 6465.

Petitioners theorize that the inclusion of real properties as part of the

attorney's fees private respondent owes them, converted the action into one
that survives or at the very least, split the action into one that did not survive,
with respect to the monetary obligation, and which survived, with respect to
the real properties of the deceased.

In Harden vs. Harden, x x x the Court ruled that an action for the satisfaction of
attorney's fees is founded on a personal obligation which does not survive the death
of the defendant before adjudication.

As enunciated in Bonilla, the litmus test in determining what action survives

and what does not depends on the nature of the action and not on the object
or kind of property sought to be recovered.42 (Emphases supplied; citations
omitted)
 Jurisprudence43 has consistently applied such rule, basing its determination on the nature of
the action and not on the object thereof.

This very analysis led the Court to its ruling in Fontana Development Corp. v. Vukasinovic44
(Fontana Development). Therein, the Court characterized a complaint for illegal dismissal as
one that involves injury to the person and, thus, does not survive the death of the employee:

The instant case involves an illegal dismissal which is an action that does not
survive the death of the accused [sic]. The Court ruled in Bonilla v. Barcena, to wit:

The question as to whether an action survives or not depends

on the nature of the action and the damage sued for. In the causes
of action which survive, the wrong complained [of] affects primarily
and principally property and property rights, the injuries to the
person being merely incidental, while in the causes of action which
do not survive, the injury complained of is to the person, the
property and rights of property affected being incidental.

Since the property and property rights of the respondent is only incidental to his
complaint for illegal dismissal, the same does not survive his death. Nonetheless,
considering the foregoing disposition dismissing respondent's petition before the CA
and ergo his complaint for illegal dismissal, the Court can proceed with the
resolution of the petition even without the need for substitution of the heirs of
respondent.45 (Citation omitted)

Truly, if the traditional classification of an ordinary civil action as to cause or foundation is

applied, a complaint for illegal dismissal, contrary to the CA's pronouncement, is one that
involves injury to the person – the alleged illegal dismissal from employment of the employee by
the employer. Any award of backwages and separation pay would only be incidental to the injury
to the person complained of in such complaints.

Nonetheless, there is a plethora of cases46 where the Court allowed the substitution of the
heirs for the deceased complainant in a complaint for illegal dismissal.

The application or use of the classification of ordinary civil actions as to cause or foundation
on the effect of death of any of the parties to a pending action, as done by the CA and by this
Court in Fontana Development, involves an inherent acknowledgment that such classification
properly applies to labor complaints for illegal dismissal.

However, it would be remiss to accept this proposition as gospel truth without scrutinizing
the propriety of applying such classification to a labor complaint.

Stated otherwise: should a complaint for illegal dismissal be analyzed through the lense that
one views an ordinary civil action – classified as either one that involves injury to the person or
one that primarily affects property or property rights?

The Court answers in the negative.

We rule that an illegal dismissal complaint cannot be classified as to cause or foundation

like an ordinary civil action insofar as the effect of death of any of the parties is concerned. To do
so would be to oversimplify the nature of a complaint for illegal dismissal and, in the process,
ignore certain characteristics of illegal dismissal complaints which distinguish and prevent them
from fitting said mold of ordinary civil actions. The abundance of cases where substitution was
allowed demonstrate and reflect this view.

The Court begins its analysis with the following considerations.

First, an employment contract is one imbued with public interest.

The Civil Code is firm in its declaration that the relations between capital and labor are not
merely contractual. It is, in fact, one impressed with public interest. Art. 1700 of the Civil Code
expressly provides:
 Article 1700. The relations between capital and labor are not merely
contractual. They are so impressed with public interest that labor
contracts must yield to the common good. Therefore, such contracts are
subject to the special laws on labor unions, collective bargaining, strikes and
lockouts, closed shop, wages, working conditions, hours of labor and similar
subjects. (Emphasis supplied)

Accordingly, the interest involved in an employment contract is not merely private and
individual, but also public.

Considering that such contractual relations are imbued with public interest, the enforcement
of rights and obligations under such employment contract is also of public interest.
Concomitantly, any violation of the employment contract would necessarily be of public interest.

Second, an illegal dismissal is a violation of the Labor Code and its implementing rules and
regulations.

At first blush, it is easy to mistake a complaint for illegal dismissal as one that is personal to
the complainant, the alleged illegally dismissed employee. However, such characterization fails
to take into consideration an important matter.

The Labor Code expressly upholds the constitutionally guaranteed right to security of tenure
by ordaining that a regular employee may not be terminated from service except for just or
authorized cause:

Article 294. [279] Security of Tenure.47 — In cases of regular employment,

the employer shall not terminate the services of an employee except for a
just cause or when authorized by this Title. An employee who is unjustly
dismissed from work shall be entitled to reinstatement without loss of seniority
rights and other privileges and to his full backwages, inclusive of allowances,
and to his other benefits or their monetary equivalent computed from the time
his compensation was withheld from him up to the time of his actual
reinstatement. (Emphasis supplied)

Thus, an illegal dismissal – a dismissal without just or authorized cause – is not only a
violation of the contractual relations between the employer and the employee but is, in fact, a
violation of the Labor Code and its implementing rules and regulations. In short, when an
employer illegally dismisses an employee, said employer is essentially violating a statute.

These two important considerations, which affect the very nature of a complaint for illegal
dismissal, separate and distinguish it from the realm of mere contractual obligations normally
implicated in a civil complaint. These considerations are of such character and weight that a
complaint for illegal dismissal should not and cannot be classified in the same manner as
ordinary civil actions.

While it is easy to pare down an ordinary civil action into either an action that involves injury
to the person or one that involves property or property rights, a complaint for illegal dismissal
cannot be treated in the same manner due to the public policy concerns involved. Further, aside
from the public interest in the contractual relations of an employer and an employee, the State
itself has an interest in ensuring that employers do not illegally dismiss their employees owing to
the fact that such illegal dismissal constitutes a violation of labor laws.

The Court's disquisition in Callanta v. Carnation Phils., Inc.48 is illuminating. The case,
admittedly, revolved around the prescriptive period of complaints for illegal dismissal, with the
Court eventually ruling that the four-­year prescriptive period under Art. 1146 of the Civil Code
applies to illegal dismissal cases instead of the three-year prescriptive period for money claims
or offenses provided for in the Labor Code. To arrive at this conclusion, the Court delved into an
analysis of the nature of a complaint for illegal dismissal:

Verily, the dismissal without just cause of an employee from

his employment constitutes a violation of the Labor Code and
its implementing rules and regulations. Such violation, however,
 does not amount to an "offense" as understood under Article 291 of
the Labor Code. In its broad sense, an offense is an illegal act
which does not amount to a crime as defined in the penal law, but
which by statute carries with it a penalty similar to those imposed by
law for the punishment of a crime. It is in this sense that a general
penalty clause is provided under Article 289 of the Labor Code
which provides that "x x x any violation of the provisions of this code
declared to be unlawful or penal in nature shall be punished with a
fine of not less than One Thousand Pesos [P1,000.00 nor more
than Ten Thousand Pesos 10,000.00, or imprisonment of not less than
three 3 months nor more than three 3 years, or both such fine and
imprisonment at the discretion of the court." x x x

The confusion arises over the use of the term "illegal dismissal"
which creates the impression that termination of an employment
without just cause constitutes an offense. It must be noted,
however[,] that unlike in cases of commission of any of the
prohibited activities during strikes or lockouts under Article 265,
unfair labor practices under Articles 248, 249 and 250 and illegal
recruitment activities under Article 38, among others, which the
Code itself declares to be unlawful, termination of an employment
without just or valid cause is not categorized as an unlawful
practice.

Besides, the reliefs principally sought by an employee who was

illegally dismissed from his employment are reinstatement to his
former position without loss of seniority rights and privileges, if any,
backwages and damages, in case there is bad faith in his dismissal.
As an affirmative relief, reinstatement may be ordered, with or
without backwages. While ordinarily, reinstatement is a concomitant
of backwages, the two are not necessarily complements, nor is the
award of one a condition precedent to an award of the other. And, in
proper cases, backwages may be awarded without ordering
reinstatement. In either case, no penalty of fine nor imprisonment is
imposed on the employer upon a finding of illegality in the dismissal.
By the very nature of the reliefs sought, therefore, an action for
illegal dismissal cannot be generally categorized as an "offense" as
used under Article 291 of the Labor Code, which according to public
respondent, must be brought within the period of three 3 years from
the time the cause of action accrued, otherwise, the same is forever
barred.

It is true that the "backwages" sought by an illegally dismissed

employee may be considered, by reason of its practical effect, as a
"money claim." However, it is not the principal cause of action in
an illegal dismissal case but the unlawful deprivation of one's
employment committed by the employer in violation of the
right of an employee. Backwages is merely one of the reliefs
which an illegally dismissed employee prays the labor arbiter and
the NLRC to render in his favor as a consequence of the unlawful
act committed by the employer. The award thereof is not private
compensation or damages but is in furtherance and
effectuation of the public objectives of the Labor Code. Even
though the practical effect is the enrichment of the individual,
the award of backwages is not in redress of a private right, but,
rather, is in the nature of a command upon the employer to
make public reparation for his violation of the Labor Code.

xxxx
 Indeed there is, merit in the contention of petitioner that the four 4­-year
prescriptive period under Article 1146 of the New Civil Code, applies by way of
supplement, in the instant case, to wit:

Art 1146. The following actions must be instituted within four

years.

1 Upon an injury to the rights of the plaintiff.

xxxx

As this Court stated in Bondoc vs. People's Bank and Trust Co.,
when a person has no property, his job may possibly be his
only possession or means of livelihood, hence, he should be
protected against any arbitrary and unjust deprivation of his
job. Unemployment, said the Court in Almira vs. B.F. Goodrich
Philippines, brings "untold hardships and sorrows on those
dependent on the wage earners. The misery and pain attendant on
the loss of jobs thus could be avoided if there be acceptance of the
view that under all the circumstances of this case, petitioners should
not be deprived of their means of livelihood."

It is a principle in American jurisprudence which, undoubtedly, is

well-recognized in this jurisdiction that one's employment, profession, trade or
calling is a "property right," and the wrongful interference therewith is an
actionable wrong. The right is considered to be property within the protection
of a constitutional guaranty of due process of law. Clearly then, when one is
arbitrarily and unjustly deprived of his job or means of livelihood, the action
instituted to contest the legality of one's dismissal from employment
constitutes, in essence, an action predicated "upon an injury to the rights of
the plaintiff," as contemplated under Art. 1146 of the New Civil Code, which must
be brought within four 4 years.49 (Emphases supplied; citations omitted)

This analysis reveals the dual character of a complaint for illegal dismissal. It is an action
predicated upon an injury to the rights of the plaintiff, the purportedly illegally dismissed
employee. As the Court previously noted, one's employment is a right and its violation is an
injury. At the same time, the award arising from the finding of illegal dismissal – the payment of
backwages – is not merely for redress of a private right, but a command for the employer to
make public reparation for his or her violation of the Labor Code.

Couple this dual character with the public interest imbued in labor contractual relations and it
is evident that complaints for illegal dismissal cannot be classified as to cause or foundation in
the same manner as ordinary civil actions insofar as the death of any of the parties and its
effects are concerned.

Substitution by the heirs of the deceased complainant in a pending complaint for illegal
dismissal should be allowed. This approach respects and breathes life to the public interest
imbued in contractual relations between the employer and the employee. Further, it allows for
public reparation by the employer in case he or she is found to have violated the Labor Code.

Accordingly, the statement in Fontana Development that a complaint for illegal dismissal is
one that involves injury to the person and does not survive the death of the employee loses its
efficacy. One cannot simply classify a complaint for illegal dismissal as either personal or real,
like an ordinary civil action, in order to invoke the rules on the death of parties and its effects.

In keeping with the peculiar nature of a complaint for illegal dismissal, the rule is that in case
any of the parties to a complaint for illegal dismissal dies during the pendency of such
proceedings, he or she may be substituted by his or her heirs.

This perspective is embodied in the present NLRC Rules of Procedure.

 In 2017, the 2011 NLRC Rules of Procedure was revised to allow substitution where any of
the parties die during the pendency of the proceedings:

RULE V
PROCEEDINGS BEFORE LABOR ARBITERS

Section 20. Death of Parties. – In case any of the parties dies during the
pendency of the proceedings, he/she may be substituted by his/her heirs. In the
event a favorable judgment is obtained by the complainants, the same shall be
enforced in accordance with Section 11, Rule XI of this Rules. (As amended by
En Banc Resolution No. 14-17, Series of 2017)

This revision reflects and solidifies the prevailing rule on the death of any of the parties in a
complaint for illegal dismissal. It must be emphasized that, while the revision to the 2011 NLRC
Rules of Procedure was introduced only in 2017, substitution has repeatedly been allowed in
complaints for illegal dismissal filed even before such revision.50

Aside from the rationale behind the allowance of substitution, another important
consideration is that the 2011 NLRC Rules of Procedure is a remedial device. The Court has
previously held in Zulueta v. Asia Brewery, Inc.51 that procedural or remedial laws may be given
retroactive effect, to wit:

As a general rule, laws have no retroactive effect. But there are certain
recognized exceptions, such as when they are remedial or procedural in nature.
This Court explained this exception in the following language:

It is true that under the Civil Code of the Philippines, "(l)aws

shall have no retroactive effect, unless the contrary is provided." But
there are settled exceptions to this general rule, such as when the
statute is CURATIVE or REMEDIAL in nature or when it CREATES
NEW RIGHTS.

[x x x x]

On the other hand, remedial or procedural laws, i.e., those

statutes relating to remedies or modes of procedure, which do not
create new or take away vested rights, but only operate in
furtherance of the remedy or confirmation of such rights, ordinarily
do not come within the legal meaning of a retrospective law, nor
within the general rule against the retrospective operation of
statutes.

Thus, procedural laws may operate retroactively as to pending proceedings

even without express provision to that effect.1a⍵⍴h!1 Accordingly, rules of
procedure can apply to cases pending at the time of their enactment. In fact,
statutes regulating the procedure of the courts will be applied on actions
undetermined at the time of their effectivity. Procedural laws are retrospective in
that sense and to that extent.52

The instant complaint for illegal dismissal was filed on October 29, 2013, and was pending
when the 2011 NLRC Rules of Procedure, particularly Sec. 20 of Rule V, was revised. Thus,
Sec. 20, being a procedural rule, may be given retroactive effect to cases such as this, pending
at the time of its enactment.

In light of the foregoing considerations, the Court holds that the CA's reliance on the Rules
of Civil Procedure was unnecessary and, in fact, improper.

WHEREFORE, the appeal is DENIED. The December 6, 2017 Decision and the June 6,
2018 Resolution of the Court of Appeals in CA-G.R. SP No. 142044 are AFFIRMED.

SO ORDERED.
 3Rcpuhltc of tbe flbilippincs
~upr.em.e ([:ourt
,:lR!lanila

SECOND DIVISION

CHRISDEN CABRERA G.R. No. 246892

DITIANGKIN, HENDRIX
MASAMAYOR MOLINES, Present:
HARVEY MOSQUITO JUANIO,
JOSELITO CASTRO VERDE, and LEONEN, J, Chairperson,
BRIAN ANTHONY CUBACUB LAZARO-JAVIER,
NABONG,
LOPEZ, M.*,
Petitioners,
LOPEZ, J., and
KHO, JR., JJ.
-versus-

LAZADA E-SERVICES
PHILIPPINES, INC., ALLAN
ANCHETA, RICHARD
DELANTAR, and JADE
ANDRADE, (,
Respondents. ----r-~~~~I
x-----------------------------------------~------\0------------x
DECISION

LEONEN,J.:

When the status of the employment is in dispute, the employer bears

the burden to prove that the person whose service it pays for is an
independent contractor rather than a regular employee with or without fixed
terms. 1

This resolves a Petition for Review2 assailing the January 14, 2019 3

On official business.
1
Fuji Television Network, Inc. v. Espiritu, 749 Phil. 388 (2014) [Per J. Leonen, Second Division].
' Rollo, pp. II .-.40.
Decision 2 G.R. No. 246892

and March 15, 20194 Resolutions of the Court of Appeals in CA-G.R. SP

No. 158529, which affirmed the ruling of the National Labor Relations
Commission. The National Labor Relations Commission ruled that there is
no employer-employee relationship between the parties.

In February 2016, Chrisden Cabrera Ditiangkin, Hendrix Masamayor

Molines, 5 Harvey Mosquito Juanio, Joselito Castro Verde, and Brian
Anthony Cubacub Nabong ( collectively, riders) were hired as riders by
Lazada E-Services Philippines, Inc. (Lazada). They were primarily tasked to
pick up items from sellers and deliver them to Lazada's warehouse. Each of
them signed an Independent Contractor Agreement (Contract) which states
that they will be paid F'l,200.00 per day as service fee. 6 The contract also
states that they are engaged for a period of one year. 7 The riders used their
privately-owned motorcycles in their trips. 8

Sometime in January 2017, the riders were told by a dispatcher that

they have been removed from their usual routes and will no longer be given
any schedules. Despite this, they still reported to work for three days and
waited all day for new assignments to no avail. 9 Thereafter, they learned
that their routes were already given to other employees. 10

The riders then filed a complaint before the National Labor Relations
Commission against Lazada, its employees, and its officers for illegal
dismissal, non-payment of salary, overtime pay, holiday pay, service
incentive leave pay, thirteenth month pay, separation pay, and illegal
deduction, with claims for moral and exemplary damages and attorney's
fees. 11

The riders claimed that they are regular employees of Lazada given
that the means and methods by which they carry out their work is subject to
the discretion and control of Lazada. 12

On the other hand, Lazada maintained that the riders are not regular
employees but independent contractors. 13 It argued that it is not a common
carrier but a business which facilitates the sale of goods between its sellers

Id. at 42-49. The Resolution was penned by Associate Justice Apolinario D. Bruselas, Jr., and
concurred in by Associate Justices Maria Filomena D. Singh (now a Member of this Court) and
Geraldine C. Fiel-Macaraig of the Special Ninth Division of the Court of Appeals, Manila.
4
Id. at 51-53. The Resolution was penned by Associate Justice Apolinario D. Bruselas, Jr., and
concun-ed in by Associate Justices Maria Filomena D. Singh (now a Member of this Court) and
Geraldine C. Piel-Macaraig of the Former Special Ninth Division of the Court of Appeals, Manila.
Sometimes refen-ed to as "J-leindrix."
6
Rollo, p. 14.
7
Id. at 207.
Id. at 14.
9
Id. at 14.
10 Id. at 16.
11
Id.at14.
12
Id.at15.
13
Id. at 15.
Decision 3 G.R. No. 246892

14
and b:1yers. When a buyer purchases an item through Lazada, it merely
coordmates the delivery of the product through a..'1 independent
transportation service. Thus, delivery is merely an ancillary activity and not
its main line of business. 15

Further, Lazada explained that after the surge of deliveries during

Christmas season, the demand decreased to its normal rate by January.
Because of this, it had to reorganize the schedule to ensure that all riders will
16
have a trip. Lazada argued that the riders misunderstood the temporary
team assignments as termination. 17

The Labor Arbiter dismissed the complaint and ruled that the riders
are not regular employees ofLazada. 18

WHEREFORE, the complaint is dismissed for lack of

jurisdiction, there being no employer-employee relationship between the
parties.

SO ORDERED. 19 (Emphasis in the original)

The Labor Arbiter zeroed in on the Contract signed by the riders

which states that "no employer-employee relationship exists between
[Lazada] and the [riders]." 20 It held that since the terms of the Contract are
explicit and clear, its literal meaning should control. 21

Further, the Labor Arbiter considered that the riders had control over
the means and methods of their work. Particularly, the riders provided their
own vehicles or were free to choose the means of transport to be used. They
also decided on their delivery routes and working hours. 22

The Labor Arbiter noted that Lazada only requires that the goods are
delivered promptly and in good condition. While Lazada gives out rules and
regulations on the delivery of goods, this does not amount to the level of
control that interfered with the riders' means and methods of accomplishing
their work. Thus, the Labor Arbiter concluded that there is no employer-
employee relationship between Lazada and the riders. 23

On appeal, the National Labor Relations Commission affirmed the

14
Id. at 12 l.
15
Id. at 121-122.
16
Id.atl51.
17
Id. at 151-152.
18
Id. at JI 9-126. The November 3, 2017 Decision was penned by Labor Arbiter Lau dimer I. Samar.
19
Id. at 126.
20
Id. at 123-124.
21
rd: at 124.
22
Id. at 125.
23 Id.
Decision 4 G.R. No. 246892

Labor Arbiter's ruling. 24

The National Labor Relations Commission reiterated that the Contract

signed by the riders is explicit that there is no employer-employee
relationship between the parties; thus, its stipulations should control. 25
Further, in applying the four-fold test, the National Labor Relations
Commission found that Lazada had no control over the means and methods
employed by the riders in performing their services. 26

The riders moved for reconsideration, but this was denied by the
National Labor Relations Commission. 27

The riders then elevated the case to the Court of Appeals through a
Rule 65 petition which was dismissed outright. 28

The Court of Appeals held that the correct remedy is a Rule 43

petition; not a Rule 65 certiorari petition. It explained that a Rule 65 petition
can only cmTect errors of jurisdiction, including commission of grave abuse
of discretion amounting to lack or excess of jurisdiction. However, the
riders failed to support their allegation that the National Labor Relations
Commission committed grave abuse of discretion in dismissing their case.
On the contrary, the Court of Appeals noted that the National Labor
Relations Commission evaluated the evidence before it arrived at its own
findings. Thus, the Court of Appeals did not grant the petition absent any
prima facie showing of grave abuse of discretion on the part of the National
Labor Relations Commission. 29

Their motion for reconsideration having been denied, 30 petitioners

filed a Petition for Review under Rule 45 before this Court.

Petitioners argue that Rule 65 is the proper procedural vehicle to

appeal the case and not Rule 43 as concluded by the Court of Appeals. 31
They point out that there is grave abuse of discretion on the part of the
National Labor Relations Commission in finding that they are independent

24
Id. at 98-107. The April 30, 2018 Decision was penned by Presiding Commissioner Gregorio 0. Bilog,
Ill, and concurred in by Commissioners Erlinda T. Agus and Dominador B. Medroso, Jr. of the
National Labor Relations Commission, Second Division, Quezon City.
25
Id. at 103-104.
26 ld. at 105-I06.
27
Id. at 111-112. The September 10, 2018 Resolution was penned by Presiding Commissioner Julia
Cecily Coching-Sosito, and concurred in by Commissioners Erlinda T. Agus and Dominador B.
Medroso, Jr. of the National Labor Relations Commission, Second Division, Quezon City.
28
Id. at 45.
29
Id. at 46--49.
30
Id. at 51-53. The Resolution dated March 15, 2019 was penned by Associate Justice Apolinario D.
Bruselas, Jr., and Associate Justice Maria Filomena D. Singh and Associate Justice Geraldine C. Fiel-
Macaraig of the Court of Appeais, Former Special Ninth Division, Manila.
31
ld. at 20.
 Decision 5 G.R. No. 246892

contractors. 32

Petitioners aver that they are regular employees, regardless of the title
and stipulations of their Contract. They underscore that their Contracts
should be treated differently from ordinary contracts given the constitutional
policy to afford full protection to labor. 33

Citing Article 295 of the Labor Code, petitioners claim that they are
regular employees considering that their service is necessary and desirable in
the usual business of respondent Lazada. They stress that Lazada's business
is mainly marketing, provision of platform for sellers, and delivery of goods
and services to customers. Further, they have attained regular employment
because they have been doing the same work for years. 34

Applying the four-fold test, petitioners assert that all elements of an

employer-employee relationship are present: (!) respondents specifically
selected and engaged their services as they are former employees of
RGSERVE, Inc., the contractor previously hired by respondents; 35 (2)
petitioners were paid by respondents and were required to pay cash bonds
and other deductions; (3) respondents have the power to dismiss petitioners;
and (4) respondents have control over the performance of their work. 36

Petitioners argue that the method of their service is controlled by

respondents. They claim they are expected to report to work every day
within definite work hours. They are also required to follow company rules
and regulations. 37 They point to their Contracts which explicitly provide that
"[t]he method by which Contractor is to perform such services shall be as
instructed by, and within the discretion and control of the Company." 38 This,
they did by keeping track of the arrival, departure, and unloading time
through a route sheet. Respondents also impose on them a penalty of
P500.00 for any lost parcel, on top of the lost parcel's value. The mode of
paying their salaries are also in respondents' discretion. Petitioners add that
in incident reports they are required to submit, the word "EMPLOYEE" is
on it. 39 To support these claims, they submit their time cards,
advertisements, trip tickets, company-issued scanners, cellphones, and sim
cards. 40

Further, petitioners aver that they were required to render 12 hours of

work a day for six days a week, effectively preventing them from gaining

32
Id. at 21.
·'·' Id.
34
Id. at 21-23.
35
Id. at 22.
36
Id. at 22-23.
37
Id. at 23.
38
Id. at 25.
39 Id.
'° Id. at 26.
Decision 6 G.R. No. 246892

other employment. This made them solely reliant on respondents for

income, showing economic dependence which supports their regular
employment. 41

Petitioners also claim that they do not have the substantial capital or
investment to become independent contractors. They allege that they do not
have the capacity to perfonn their duties without the tools provided by
respondents, such as cellphones, product scanners, and uniforms. 42

Being regular employees, petitioners argue that they are entitled to the
monetary claims and damages due to their illegal dismissal. 43 Particularly,
they submit that respondents should pay them full backwages and separation
pay in lieu of reinstatement. They also demand salary for when they
reported to work for three days back in January 2017. 44

Petitioners add that they were not given their thirteenth month pay,
service incentive leave pay, and holiday pay despite working during
holidays. 45 They further assert that cash bonds were illegally collected from
them, given that DOLE Labor Advisory No. 11 only allows the posting of
cash bonds for security agencies. They claim that these cash bonds and
other deductions have not been returned to them. Petitioners also argue that
the value added and withholding tax deductions on their salaries have no
legal basis. 46

Lastly, petitioners argue that they are entitled to moral and exemplary
damages as their dismissal was attended by bad faith, was oppressive to
labor, and was done in a manner contrary to morals, good customs, or public
poiicy. 47 They claim that respondents should likewise be liable for
attorney's fees considering that their wages were not paid. 48

In their Comment, respondents claim that petitioners' services are

neither necessary nor desirable to their business. Lazada's main business is
providing an online platform where sellers and buyers can transact. It does
not function as a common carrier responsible for the delivery of products to
the customers. Thus, it can still operate as an online marketplace and simply
leave the delivery of the goods to the buyers and sellers. 49

Further, respondents submit that petitioners failed to satisfy the four-

41
Id. at 24.
42
Id. at 26-27
43
Id. at 30.
44
Id. at 28.
45
Id. at 29
46
Id. at 30-31.
47
Id. at 3 l•-32.
48
Id. at 33.
49
Id. at 589-590.
Decision 7 G.R. No. 246892

fold test, especially the control test. 50

First, petitioners' claim that they were selected and engaged by

RGSERVE, Inc., which was engaged earlier by Lazada, is immaterial as
there was no proof that RGSERVE, Inc. and Lazada are affiliates branches
or alter-egos of each other. Petitioners' employment with RGSERVE, ' Inc. is'
beside the point as petitioners entered into Contracts with respondents. 51

Second, petitioners are paid Contract Service Fees. Cash bonds and
deposits are also deducted from petitioners in accordance with the Contract.
The cash bond is supposedly a measure of equity as respondents could have
imposed a lump sum posting of the security deposit instead of agreeing with
installment payments. Moreover, they claim that petitioners represented
having sufficient capital to be engaged as independent contractors when they
signed the Contract. Further, respondents aver that the Contract is governed
by the Civil Code and not by the Labor Code. 52 Thus, these stipulations
should stand given that the parties freely agreed upon them. 53

Third, respondents claim to have no power of dismissal over

petitioners given that their agreement can only be terminated in keeping with
their Contract. Thus, respondents argue that the proper remedy is to go
through arbitration or to file a civil suit. Moreover, petitioners were not
dismissed by respondents and they acted based on an unnamed dispatcher's
claim that they will no longer be given trips. 54

Lastly, respondents claim they have no control over petitioners'

conduct as the terms and conditions of their Contract are only necessary to
safeguard the rights and interests of both parties and do not amount to the
degree of control in an employer-employee relationship. Particularly,
petitioners were asked to comply with respondent Lazada's guidelines
merely to ensure that the deliveries are carried out smoothly. 55

Further, respondents assert that petitioners failed to satisfy the

economic dependence test. They point out that petitioners have the
discretion on how to perfonn their task. Petitioners can choose their mode of
transportation, the specific routes to take, when to have breaks, and when to
begin their deliveries. Respondents assert that the Contract does not state
the specific period for the deliveries, contradicting petitioners' claim that
they were ordered to work 12 hours a day for six days a week. 56 Given this //
arrangement, petitioners are free to offer their services to other parties. 57 ,(

50
Id. at 591.
51
Id. at 592.
52
Id. at 593.
" Id. citing CIVIL CODE, art. I 306.
54
Id. at 594.
ss Id.
56
Id. at 601.
57
Id. at 602.
Decision 8 G.R. No. 246892

Respondents stress that the route sheet is not an indication of control

but merely necessary to guide petitioners in the pick up and delivery of
parcels. The nature of their service necessitates respondent Lazada to
provide the information for the pickup and delivery of the parcels. Further,
the penalty for lost parcels is only to ensure that parcels are delivered and
not an indicator of control. Respondents add that the provision of cellphones
and sim cards is only an additional measure for coordinating deliveries. 58 As
for the manual time cards, respondents submit that this is only for
monitoring the period of service rendered by petitioners for purposes of
billing. Moreover, respondents argue that the advertisements do not prove
anything except that respondent Lazada uses delivery services in its
business. 59

Accordingly, respondents maintain that petit10ners cannot claim

backwages, separation pay, and other benefits considering that they are not
regular employees. Moreover, their Contract with petitioners clearly
provides that they will be paid fees for each full day of service rendered.
Thus, petitioners should not expect to be paid while on standby. 60

Further, respondents aver that petitioners are not entitled to the refund
of their cash bonds and other deductions. While deductions from
employees' wages are generally not allowed, petitioners voluntarily agreed
to this arrangement as provided in their Contract. 61 Respondents further
argue that petitioners are not entitled to moral and exemplary damages, and
attorney's fees because they were never terminated in the first place. 62
Given that they are not respondents' regular employees, there can be no bad
faith or fraud that can be ascribed to respondents' acts. 63

In their Reply, petitioners stress that their service as riders is necessary

and desirable in respondent Lazada's business because part of its business is
to deliver the goods and services to its customers. 64

Petitioners reiterate that using the four-fold test, they are considered
employees of respondent Lazada. 65 They highlight that respondents have
control over their performance of work as provided in the Contract,
specifically the part stating that the method of their service "shall be as
instructed by, and within the discretion and control of [respondent
Lazada.]" 66 /J
,l'
ss Id.
59
Id. at 603.
60
Id. at 606-007.
61 Id.
62
ld.a,610-61!.
63
Id. at 61 I.
64
Id. at I 075.
6s Id.
66
Id. at 1077.
Decision 9 G.R. No. 246892

Moreover, petitioners submit that the degree of control exercised by

respondents amounts to an employer-employee relationship. The guidelines
are not mere instructions but are intended for accountability. 67 Given that
they are regular employees of respondents, there is illegal dismissal when
they were terminated without notice. 68

The following issues are raised for this Court's resolution:

First, whether or not the Court of Appeals erred m dismissing the

petition for certiorari outright;

Second, whether or not petitioners are regular employees of

respondent Lazada; subsumed under this issue are the following: (1) whether
or not petitioners are independent contractors; (2) whether or not petitioners
satisfied the four-fold test; (3) whether or not there is economic dependence
in petitioners' employment with respondents; and

Finally, whether or not petitioners are entitled to monetary awards.

In St. Martin Funeral Home v. NLRC, 69 this Court ruled that the
decision of the National Labor Relations Commission may be reviewed by
the Court of Appeals through a Rule 65 certiorari petition when there 1s
grave abuse of discretion amounting to lack or excess of jurisdiction.

Grave abuse of discretion is defined in this wise:

By grave abuse of discretion is meant such capnc10us and

whimsical exercise of judgment as is equivalent to lack of jUi--isdiction.
The abuse of discretion must be grave as where the power is exercised in
an arbitrary or despotic manner by reason of passion or personal hostility
and must be so patent and gross as to amount to an evasion of positive
duty or to a virtual refusal to perform the duty enjoined by or to act at all
in contemplation oflaw.

Grave abuse of discretion refers not merely to palpable errors of

jurisdiction; or to violations of the Constitution, the law and jurisprudence.
It refers also to cases in which, for various reasons, there has been a gross
misapprehension offacts. 70 (Citations omitted)

67
Id. at 1077-1078.
68
Id. at 1080.
69
356 Phil. 8 I I (I 998) [Per J. Regalado, En Banc].
70
United Coconut Planters Bank v. Looyuko, 560 Phil. 581. 591-592 (2007) [Per J. Austria-Martinez,
Third Division].
Decision 10 G.R. No. 246892

Decisions of the National Labor Relations Commission may be

imputed with grave abuse of discretion when they are "not supported by
substantial evidence or are in total disregard of evidence material to or even
decisive of the controversy; when it is necessary to prevent a substantial
wrong or to do substantial justice; when the findings of the [National Labor
Relations Commission] contradict those of the [Labor Arbiter]; and when
necessary to arrive at a just decision of the case." 71

Meanwhile, from the Court of Appeals, a party may elevate the case
before this Court through a petition for review under Rule 45, where only
questions of law may be raised. In labor cases, a Rule 45 petition is limited
to resolving if the Court of Appeals correctly determined whether there is
grave abuse of discretion and other jurisdictional errors in the ruling of the
National Labor Relations Commission. 72

In Fuji Television Network, Inc. v. Espiritu, 73 we explained the

parameters of reviewing a Rule 45 labor petition before this Court, which
assails a resolution on a Rule 65 petition before the Court of Appeals.

When a decision of the Court of Appeals under a Rule 65 petition

is brought to this court by way of a petition for review under Rule 45, only
questions of law may be decided upon. As held in Meralco Industrial v.
National Labor Relations Commission:

This Court is not a trier of facts. Well-settled is the

rule that the jurisdiction of this Court in a petition for
review on certiorari under Rule 45 of the Revised Rules of
Court is limited to reviewing only errors of law, not of fact,
unless the factual findings complained of are completely
devoid of support from the evidence on record, or the
assailed judgment is based on a gross misapprehension of
facts. Besides, factual findings of quasi-judicial agencies
like the NLRC, when affirmed by the Court of Appeals, are
conclusive upon the parties and binding on this Court.

Career Philippines v. Serna, citing Montoya v. Transmed, is

instructive on the parameters of judicial review under Rule 45:

As a rule, only questions of law may be raised in a

Rule 45 petition. In one case, we discussed the particular
parameters of a Rule 45 appeal from the CA's Rule 65
decision on a labor case, as follows:

In a Rule 45 review, we consider the correctness of

the assailed CA decision, in contrast with the review for
jurisdictional error that we undertake under Rule 65.

71
Paragele v. GMA Network. Inc., G.R. No. 235315, July 13, 2020,
<https://elibrary._judiciary.gov.ph/thebookshelf/showdocs/1 /6640 l > [Per J. Leon en, Third Division].
72
Fuji Television Network, Inc. v. Espiritu, 749 Phil. 388 (2014) [Per J. Leonen, Second Division].
73
749 Phil. 388 (2014) [Per J. Leonen, Second Division].
Decision 11 G.R. No. 246892

Furthermore, Rule 45 limits us to the review of questions of

law raised against the assailed CA decision. In ruling for
legal correctness, we have to view the CA decision in the
same context that the petition for certiorari it ruled upon
was presented to it; we have to examine the CA decision
from the prism of whether it correctly determined the
presence or absence of grave abuse of discretion in the
NLRC decision before it, not on the basis of whether the
NLRC decision on the merits of the case was correct. In
other words, we have to be keenly aware that the CA
undertook a Rule 65 review, not a review on appeal, of the
NLRC decision challenged before it[.]74 (Citations
omitted)

Thus, this Court generally will not reevaluate the sufficiency of

evidence before the labor tribunals. 75 However, this rule admits certain
exceptions:

(1) when the factual findings of the Court of Appeals and the trial court
are contradictory;
(2) when the conclusion is a finding grounded entirely on speculation,
surmises, or conjectures;
(3) when the inference made by the Court of Appeals from its findings
of fact is manifestly mistaken, absurd, or impossible;
(4) when there is a grave abuse of discretion in the appreciation of facts;
(5) when the Appellate Court, in making its findings, went beyond the
issues of the case and such findings are contrary to the admissions of both
appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
(7) when the Court of Appeals failed to notice certain relevant facts
which, if properly considered, would justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and
( l 0) when the findings of fact of the Court of Appeals are premised on the
absence of evidence but such findings are contradicted by the evidence on
record. 76 (Citation omitted)

In this case, the Court of Appeals dismissed the certiorari petition

outright, ruling that petitioners should have filed a Rule 43 petition instead.
This is untenable. As held in Fuji Television Network, Inc., the decision of
the National Labor Relations Commission may be elevated before the Court
of Appeals through a Rule 65 petition.

Petitioners mainly contend that there is grave abuse of discretion

because the conclusions of the Labor Arbiter and the National Labor
Relations Commission are based on gross misapprehension of facts and are
74
/
Id. at 415-416.
75
Navotas Industrial Corp. v. Guanzon, G.R. No. 230931, November 15, 2021,
<https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/68038> [Per J. Leonen, Third Division].
76
Visayan Electric Company v. Alfeche, 82 l Phil. 971, 982 (2017) [Per J. Leanen, Third Division].
Decision 12 G.R. No. 246892

contradicted by evidence on record. A careful review of the Petition shows

these errors committed by the labor tribunals.

Taking all these in consideration, this Court can resolve questions of

fact and reassess the tribunals' findings.

II

Consistent with the constitutional recognition that labor is a primary

social economic force, 77 full protection to labor is a social policy enshrined
in Article XIII, Section 3 of the Constitution.

ARTICLE XIII

SECTION 3. The State shall afford full 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 negotiations, and peaceful 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 may be provided by law.

The State shall promote the principle of shared responsibility between

workers and employers and the preferential use of voluntary modes in
settling disputes, including conciliation, and shall enforce their mutual
compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers,
recognizing the right of labor to its just share in the fruits of production
and the right of enterprises to reasonable returns on investments, and to
expansion and growth.

The provision guarantees the right of workers to security of tenure,

among others. One's employment is a property right which cannot be
revoked without due process. 78 In Rivera v. Genesis Transport Service,
Inc.: 79

It is the policy of the state to assure the right of workers to

"security of tenure." The guarantee is an act of social justice. When a
person has no property, his job may possibly be his only possession or
means of livelihood. Therefore, he should be protected against any
arbitrary deprivation of his job. Article 280 of the Labor Code has
construed security of tenure as meaning that "the employer shall not
terminate the services of an employee except for a just cause or when

" CONST., Art. !I, sec. l 8.

78
Rivera v. Genes;s Transport Service, Inc., 765 Phil. 545 (2015) [Per J. Leonen, Second Division].
79
765 Phil. 545 (2015) [Per J. Leonen, Second Division].
Decision 13 G.R. No. 246892

authorized by" the code. Dismissal is not justified for being arbitrary
where the workers were denied due process and a clear denial of due
process, or constitutional right must be safeguarded against at all times[.] 80

Our laws strengthen this policy. In labor contracts, the nature of

employment of a worker is prescribed by law, regardless of what the contract
and the parties present it to be. 81 Employment contracts are not ordinary
contracts because they are imbued with public interest. 82 Article 1700 of the
Civil Code affirms this policy:

ARTICLE 1700. The relations between capital and labor are not merely
contractual. They are so impressed with public interest that labor
contracts must yield to the common good. Therefore, such contracts are
subject to the special laws on labor unions, collective bargaining, strikes
and lockouts, closed shop, wages, working conditions, hours of labor and
similar subjects.

The applicable provisions of the law are deemed incorporated into the
contract and the parties cannot exempt themselves from the coverage of
labor laws simply by entering into contracts. 83 Thus, regardless of the
nomenclature and stipulations of the contract, the employment contract must
be read consistent with the social policy of providing protection to labor. 84

Article 295 of the Labor Code provides four classifications of

employment, namely: regular, project, seasonal, and casual. It reads:

ARTICLE 295. Regular and Casual Employment.~ The provisions of

written agreement to the contrary notwithstanding and regardless of the
oral agreement of the parties, an employment shall be deemed to be
regular where the employee has been engaged to perform activities which
are usually necessary or desirable in the usual business or trade of the
employer, except where the employment has been fixed for a specific
project or undertaking the completion or termination of which has been
detennined at the time of the engagement of the employee or where the
work or service to be performed is seasonal in nature and the employment
is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the

preceding paragraph: Provided, That any employee who has rendered at
least one year of service, whether such service is continuous or broken,
shall be considered a regular employee with respect to the activity in
which he is employed and his employment shall continue while such
activity exists.

80 Id. at 553-554 citing Rance v. National labor Relations Commission. 246 Phil . 287, 292-293 (1988)
[Per J. Paras, Second Division].
81
LABOR CODE, art. 295.
82
Jnnodata Knowledge Services, Inc. v. Jnting, 822 Phil. 314 (2017) [Per J. Peralta, Second Division].
83
Id.
84
Leyte Geothermal Power Progressive Employees Union-ALU-TUC? v. PNOC-EDC, 662 Phil. 225
(2011) [Per J. Nachura, Second Division].
Decision 14 G.R. No. 246892

Employees who perform activities which are necessary or desirable in

the usual business of the employer may be regular, project, or seasonal
employees. 85 Of the three, project and seasonal employees are generally
engaged to perform tasks which only lasts for a specific period and
duration. 86 Meanwhile, casual employees are those who perform work
which are not usually necessary or desirable for the employer's business. 87

Activities which are considered usually necessary or desirable in the

employer's business generally depends on the industry. 88 There must be a
reasonable connection between the work performed by the employee and the
usual trade or business of the employer. 89

Brent School, Inc. v. Zamora 90 recognized another category of

employment which is fixed-term. A fixed-term employment is an
arrangement wherein an employee is hired for a specific period. In fixed-
term employment, the work performed may also be necessary or desirable to
the usual business of the employer.

Fixed-term employments are recognized by law for projects with pre-

determined completion or generally in a work where a fixed term is essential
and natural appurtenance. 91 As explained in Brent School, Inc v. Zamora, 92

Some familiar examples may be cited of employment contracts

which may be neither for seasonal work nor for specific projects, but to
which a fixed term is an essential and natural appurtenance: overseas
employment contracts, for one, to which, whatever the nature of the
engagement, the concept of regular employment with all that it implies
does not appear ever to have been applied, Article 280 of the Labor Code
notwithstanding; also appointments to the positions of dean, assistant
dean, college secretary, principal, and other administrative offices in
educational institutions, which are by practice or tradition rotated among
the faculty members, and where fixed terms are a necessity without which
no reasonable rotation would be possible. Similarly, despite the provisions
of Article 280, Policy Instructions No. 8 of the Minister of Labor
implicitly recognize that certain company officials may be elected for what
would amount to fixed periods, at the expiration of which they would have
to stand down, in providing that these officials, " ... may lose their jobs as
president, executive vice-president or vice-president, etc. because the
stockholders or the board of directors for one reason or another did not
reelect them." 93 (Citation omitted)

85 GMA Network, Inc. v. Pabriga, 722 Phil. 161 (2013) [Per J. Leonardo-De Castro, First Division].
86 Paragele v. GMA Nehvork, !nc., G.R. No. 235315, July 13, 2020,
<https://elibrary.judiciary.gov.ph/thebookshelttshowdocs/1/66401> [Per J. Leanen, Third Division].
87 GMA Network, Inc. v. Pabriga, 722 Phil. 161 (2013) [Per J. Leonardo-De Castro, First Division].
88 I/uslrisimo v. St. Joseph Fish Brokerage, Inc., G.R. No. 235761, October 6, 2021 [Per J. Leonen, Third
Division].
89 Price v. Jnnodata Phils. Inc., 588 Phil. 568 (2008) [Per J. Chico-Nazario, Third Division].
90 260 Phil. 747 (1990) [Per J. Narvasa, En Banc].
91 Brent School, Inc. v. Zamora, 260 Phil. 747 (1990) [Per J. Narvasa, En Banc].
92
260 Phil. 747 (1990) [Per J. Narvasa, En Banc].
93
ld.at761.
 Decision 15 G.R. No. 246892

For a fixed-term employment to be valid, either of these

circwnstances must be proven:

1) The fixed period of employment was knowingly and voluntarily

agreed upon by the parties without any force, duress, or improper pressure
being brought to bear upon the employee and absent any other
circumstances vitiating his consent; or

2) It satisfactorily appears that the employer and the employee dealt with
each other on more or less equal terms with no moral dominance exercised
by the former or the latter. 94 (Citation omitted)

These criteria presume that an employee, "on account of special skills

or market forces, is in a position to make demands upon the prospective
95
employer[.]" The parity of standing between the employer and employee
indicates that the employee needs less protection than that of the ordinary
96
worker. In determining whether the fixed-term employment is valid, the
burden of proof lies with the employer to show that it deals with the
employee in more or less equal terms. The recognition of fixed-term
employment in Brent remains an exception rather than the general rule. 97

To detennine the existence of an employer-employee relationship, this

Court employs a two-tiered test: the four-fold test and the economic
dependence test. 98

Under the four-fold test, to establish an employer-employee

relationship, four factors must be proven: (a) the employer's selection and
engagement of the employee; (b) the payment of wages; ( c) the power to
dismiss; and (d) the power to control the employee's conduct. The power of
control is the most significant factor in the four-fold test. 99

The right to control extends not only over the work done but over the
means and methods by which the employee must accomplish the work. 100
The power of control does not have to be actually exercised by the employer.
It is sufficient that the employer "has a right to wield the power." 101

However, this Court has clarified that not all rules imposed upon the

94
GMA Network. Inc. ic Pabriga, 722 Phil. 161, 178 (2013) [Per J. Leonardo-De Castro, First Division].
95
ld.
96
Id.
97
Fuji Television Network, Inc. ic Espiritu, 749 Phil. 388 (2014) [Per J. Leonen, Second Division].
98
Francisco v. National Labor Relations Commission, 532 PhiL 399 (2006) [Per J. Ynares-Santiago, First
Division].
99
Coca Cola Bottlers Phils., Inc. v. National Labor Relations Commission, 366 Phil. 581 (1999) [Per J.
Bellosillo, Second Division].
100
Orozco v Court ofAppeals, 584 Phil. 35 (2008) [Per J. Nachura, Third Division].
101
J. Leonen, Concurring Opinion in Del Rosario v. ABS-CBN Broadcasting Corp., G.R. Nos. 202481,
202495, 202497, 210165, 219125, 222057, 224879, 225101 & 225874, September 8, 2020,
<https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/l/66570> [Per J. Caguioa, En Banc].
Decision 16 G.R. No. 246892

worker is an indication of control. When rules are intended to serve as

general guidelines to accomplish the work, it is not an indicator of control. 102
In Orozco v. Court ofAppeals, 103

It should, however, be obvious that not every form of control that

the hiring party reserves to himself over the conduct of the party hired in
relation to the services rendered may be accorded the effect of establishing
an employer-employee relationship between them in the legal or technical
sense of the term. A line must be drawn somewhere, if the recognized
distinction between an employee and an individual contractor is not to
vanish altogether. Realistically, it would be a rare contract of service that
gives untrammelled freedom to the party hired and eschews any
intervention whatsoever in his performan.ce of the engagement.

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 pai:ty
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[.] 104 (Citation
omitted)

When the control test is insufficient, the economic realities of the

employment are considered to get a comprehensive assessment of the true
ciassification of the worker. 105 In Francisco v. National Labor Relations
Commission, 106 this Court explained the import of this test:

Thus, the determination of the relationship between employer and

employee depends upon the circumstances of the whole economic activity,
such as: (1) the extent to which the services performed are an integral part
of the employer's business; (2) the extent of the worker's investment in
equipment andfacilities; (3) the nature and degree of control exercised by
the employer; (4) the worker's opportunity for profit and loss; (5) the
amount of initiative, skill, judgment or foresight required for the success of
the claimed independent enterprise; (6) the permanency and duration of
the relationship between the worker and the employer; and (7) the degree
of dependency of the worker upon the employer for his continued
employment in that line of business.

The proper standard of economic dependence is whether the

worker is dependent on the alleged employer for his continued
employment in that line of business. In the United States, the touchstone
of economic reality in analyzing possible employment relationships for
purposes of the Federal Labor Standards Act is dependency. By analogy,
the benchmark of economic reality in analyzing possible employment
relationships for purposes of the Labor Code ought to be the economic

" 2 Orozco v. Court ofAppeals, 584 Phil. 35 (2008) [Per J. Nachura, Third Division].
103 584 Phil. 35 (2008) [Per J. Nachura, Third Division].
104
Id. at 49.
105 Francisco v. National Labor Relations Commission, 532 Phil. 399 (2006) [Per J. Ynares-Santiago, First
Division].
106 532 Phil. 399 (2006) [Per J. Ynares-Santiago, First Division].
 Decision 17 G.R. No. 246892

dependence of the worker on his employer. 107 (Emphasis supplied,

citations omitted)

_ Respondents here_ 1?-ainly contend that there is no employer-employee

relat1onsh1p because petitioners are independent contractors.

An independent contractor is defined as:

[O]ne who carries on a distinct and independent business and undertakes

to perform the job, work, or service on its own account and under one's
own responsibility according to one's own manner and method, free from
the control and direction of the principal in all matters connected with the
performance of the work except as to the results thereof_ 1° 8 (Citation
omitted)

Our laws and jurisprudence recognize two types of contractors:

legitimate job contractors and independent contractors who possess unique
skills and talent. 109

Article l 06 of the Labor Code governs legitimate job contractors and

subcontractors:

ARTICLE 106. Contractor or Subcontractor. - V\lhenever an employer

enters into a contract with another person for the performance of the
farmer's work, the employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance with the provisions of
this Code.

In the event that the contractor or subcontractor fails to pay the wages of
his employees in accordance with this Code, the employer shall be jointly
and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner
and extent that he is liable to employees directly employed by him.

The Secretary of Labor and Employment may, by appropriate regulations,

restrict or prohibit the contracting-ont of labor to protect the rights of
workers established under this Code. In so prohibiting or restricting, he
may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and
determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.

There is "labor-only" contracting where the person supplying workers to

an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the

07
workers recruited and placed by such person are performing activities
which are directly related to the principal business of such employer. In /
' Id. at 408-409.
ws Fuji Television Network, Inc. v. Espiritu, 749 Phil. 388,424 (2014)[Per J. Leonen, Second Division].
109 Id.
Decision 18 G.R. No. 246892

such cases, the person or intermediary shall be considered merely as an

agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him. 110

To be considered a legitimate contractor, the contractor must have a

substantial capital or investment. It must also have a distinct and
independent business uncontrolled by the principal and compliant with all
the rights and benefits for the employees. 111 Section 8 of DOLE Department
Order No. 174-2017 lays down the conditions for permissible contracting or
subcontracting:

SECTION 8. Permissible Contracting or Subcontracting Arrangements.

- Notwithstanding Sections 5 and 6 hereof, contracting or subcontracting
sha[l only be allowed if all the following circumstances concur:

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

independent business and undertakes to perform the job or work on its
own responsibility, according to its own manner and method;

b) The contractor or subcontractor has substantial capital to carry out the

job farmed out by the principal on his account, manner and method,
investment in the form of tools, equipment, machinery and supervision;

c) In perfonning the work farmed out, the contractor or subcontractor is

free from the control and/or direction of the principal in all matters
connected with the performance of the work except as to the result thereto;
and

d) The Service Agreement ensures compliance with all the rights and
benefits for all the employees of the contractor or subcontractor under the
labor laws.

Permissible contracting or subcontracting is governed by a trilateral

relationship wherein the principal engages the contractor's services. In tum,
the contractor hires workers to accomplish the work for the principal. 112

The second type of independent contractor consists of individuals who

possess unique skills and talents which set them apart from ordinary
employees and whose means and methods of work are free from the control
of the employer. 113 Examples can include a columnist who was hired
because of her talent, skill, experience, and feminist standpoint, 114 a
basketball referee who has special skills and independent judgment, 115 and a
masiador or sentenciador who had expertise in cockfight gambling. 116 In
these instances, there is no trilateral relationship but a bilateral relationship f
110
LABOR CODE, Art. 106.
111 Mago v. Sun Power Manufacturing Limited, 824 Phil. 464(2018) [Per J. Reyes, Jr., Second Division].
112 Fuji Television Network, Inc. v. Espiritu, 749 Phil. 388 (2014) [Per J. Leonen, Second Division].
113 Id.
114 Orozco v. Court ofAppeals, 584 Phil. 35-57 (2008) [Per J. Nachura, Third Division].
115 Bernarle v. Philippine Basketball Association, 673 Phil. 384 (2011) [Per J. Carpio, Second Division].
116 Semblante v. Court ofAppeals, 671 Phil. 213 (2011) [Per J. Velasco, Jr., Third Division].
 Decision 19 G.R. No. 246892

because the independent contractors are directly engaged by the principal. 117

With this type of contracting, there is no employer-employee

relationship between an independent contractor and the principal, and their
contracts are governed by the Civil Code. When the status of the
employment is in dispute, the employer bears the burden to prove that the
workers are independent contractors rather than regular employees. 118

In this case, respondents contend that petitioners are independent

contractors and that there is no employer-employee relationship between
them. They submit that petitioners represented having substantial capital
when they signed the Contract and should be bound by its stipulations.

However, respondents failed to discharge their burden of proving that

petitioners are independent contractors. Petitioners do not fall under any of
the categories of independent contractors.

First, petitioners are not hired by a contractor or subcontractor.

Petitioners merely refer to RGSERVE, Inc. as their former employer, but it is
clear in the parties' submissions that petitioners were directly hired by
respondents. Each petitioner signed an individual Contract with respondent
Lazada who paid them directly. 119 Thus, there is no trilateral relationship
wherein a contractor or subcontractor is required to possess substantial
capital or investment.

Second, petitioners cannot be considered independent contractors in a

bilateral relationship. The work performed by petitioners do not require a
special skill or talent. Picking up and delivering goods from warehouse to
buyers do not call for a specific expertise. It is also not shown that
petitioners were hired due to their unique ability or competency.

Contrary to respondents' assertions, petitioners satisfy both the four-

fold and economic dependence tests.

Here, the four factors are present. First, pet1t10ners are directly
employed by respondent Lazada as evidenced by the Contracts they signed.
Petitioner's former employer, RGSERVE, Inc., is not a party to the Contract
with respondent Lazada. Second, as indicated in the Contract, petitioners
receive their salaries from respondent Lazada. Petitioners are paid by
respondent Lazada the amount of Pl ,200.00 for each day of service. Third,
respondent Lazada has the power to dismiss petitioners. In their contract,
respondents can immediately terminate the agreement if there is a breach of

117
Fuji Television Network, Inc. v Espiritu, 749 Phil. 388 (2014) [Per J. Leonen, Second Division].
1rs ld.
119
Rollo, p. 203.
Decision 20 G.R. No. 246892

material provisions of the Contract.; 2 o Lastly, respondent Lazada has control

over the means and methods of the performance of petitioners' work.

This is explicit in their agreement which states:

2. Duties. Contractor, as an Independent Contractor, agrees to provide and

to make itself available to provide, services ("Services") as a logistics and
delivery services provider to the Company during such reasonable hours
and at such times as the Company may from time to time request. The
method by which Contractor is to perform such Services shall be as
instructed by, and within the discretion and control of the Company. In
performing Services under this agreement, Contractor agrees that it shall
use diligent efforts and professional skills and judgment. 121 (Emphasis
supplied)

This is also reflected in the way petitioners' work is carried out.

Respondent Lazada requires the accomplishment of a route sheet which
keeps track of the arrival, departure, and unloading time of the items.
Petitioners shoulder a penalty of P500.00 if an item is lost on top of its actual
value. Petitioners were also required to submit trip tickets and incident
reports to respondent. 122

Even if we consider these instructions as mere guidelines, the

circumstances of the whole economic activity between petitioners and
respondents confirm the existence of an employer-employee relationship.

The services performed by petitioners are integral to respondents'

business. Respondents insist that the delivery of items is only incidental to
their business as they are mainly an online platform where sellers and buyers
transact. However, the delivery of items is clearly integrated in the services
offered by respondents. That respondents could have left the delivery of the
goods to the sellers and buyers is ofno moment because this is evidently not
the business model they are implementing.

In carrying out their business, they are not merely a platform where
parties can transact; they also offer the delivery of the items from the sellers
to the buyers. The delivery eases the transaction between the sellers and
buyers and is an integral part of respondent Lazada's business. Further,
respondent Lazada admitted that it has different route managers to supervise
the delivery of the products from the sellers to the buyers. I 23 Thus, it has
taken steps to facilitate not only the transaction of the seller and buyer in the _#
online platform but also the delivery of the items. ,_;f

120 Id.
121
Id.
!22
Id. at 25.
123
Id. at 584.
Decision 21 G.R. No. 246892

Further, pe~it10ners ha_v~ invested in equipment to be engaged by

respondents. Particularly, pet1t10ners are required by respondents to use their
?wn motor vehicles and other equipment and supplies in the delivery of the
items. Moreover, petitioners had no control over their own profit or loss
because they were paid a set daily wage. Petitioners also had no control
over their own time and they cannot offer their service to other companies as
respondents can demand their presence from time to time. 124

More importantly, petitioners are dependent on respondents for their

continued employment in this line of business. As the facts reveal,
petitioners have been previously engaged by a third-party contractor to
provide services for respondents. This time, petitioners were directly hired
by respondents. This demonstrates that petitioners have been economically
dependent on respondents for their livelihood.

Petitioners cannot be deemed regular employees with a fixed-term

employment. The fixed-term employment enunciated in Brent presupposes
an employee who is more or less on equal footing with an employer. It
applies only in exceptional cases where the employee has bargaining power
on account of a special skill or the market force. 125 This is not demonstrated
or argued by the respondents. Respondents even failed to allege as to how
the terms and conditions of their Contracts were agreed upon. 126

The validity of a fixed-tenn employment and the level of protection

accorded to labor is determined based on the "nature of the work,
qualifications of the employee, and other relevant circUJnstances." 127 Here,
petitioners cannot bargain the terms of their employment. To reiterate, it is
not shown that petitioners were hired by respondents due to their special
talent or skills. Their work as riders does not require strict and distinctive
qualifications that distinguish them from other riders. More importantly, it is
not shown that the fixed-term of one year in petitioners' case is an essential
and natural appurtenance to their work as riders. The delivery of items is a
usual and continuous activity in respondent Lazada's business.

Respondents maintain that the Contract they signed with petitioners

explicitly states that there is no employer-employee relationship between
them. However, protection of the law afforded to labor precedes over the
nomenclature and stipulations of the Contract. The Contract petitioners
signed is not as ordinary as respondents purport it to be. Thus, it is patently
erroneous for the labor tribunals to reject an employer-employee relationship
simply because the Contract stipulates that this relationship does not exist.
f
124
Id. at 203.
125
GMA Nenvork, Inc. v. Pabriga, 722 Phil. 161 (2013) [Per J. Leonardo-De Castro, First Division].
126
See Parage/e v. GMA Network, Inc.. G.R. No. 235315, July 13, 2020,
<https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/6640 l> [Per J. Leanen, Third Division].
127
Claret School of Quezon City v. Sinday, G.R. No. 226358, October 9, 2019.
<https://elibrary.judiciary.gov.ph/thebookshelf/docmonth/Oct/2019/l> [Per J. Leanen, Third Division].
Decision 22 G.R. No. 246892

Finding that petitioners are regular employees of respondents,

petitioners should be reinstated to their positions with full backwages
computed from the time of dismissal up to the time of actual reinstatement.
This includes their salary for holiday pay and the cash bonds they advanced.
If reinstatement is no longer feasible, they should be given separation pay in
addition to full backwages. Petitioners are likewise entitled to the payment
of attorney's fees considering that they were forced to litigate. 128

Nevertheless, there is no showing that respondents acted with malice,

fraud, or bad faith. In Rivera v. Genesis Transport Service, Inc., 129 we
explained when moral and exemplary damages may be awarded:

"Moral damages are awarded in termination cases where the

employee's dismissal was attended by bad faith, malice or fraud, or where
it constitutes an act oppressive to labor, or where it was done in a manner
contrary to morals, good customs or public policy." Also, to provide an
"example or correction for the public good," exemplary damages may be
awarded. 130 (Citations omitted)

Here, petitioners failed to demonstrate that respondents acted with

intent to do a wrongful act out of malice or that they purposely oppressed
petitioners when they failed to provide them schedules. 131 As explained by
respondents, they failed to provide schedules due to the shortage of orders.
Thus, there is no basis for the award of moral or exemplary damages.

WHEREFORE, the Petition for Review is GRANTED. The January

14, 2019 and March 15, 2019 Resolutions of the Court of Appeals in CA-
G.R. SP No. 158529 are REVERSED.

Respondents Lazada E-Services Philippines, Inc., Allan Ancheta,

Richard Delantar, and Jade Andrade are ORDERED to reinstate Chrisden
Cabrera Ditiangkin, Hendrix Masamayor Molines, Harvey Mosquito Juanio,
Joselito Castro Verde, and Brian Anthony Cubacub Nabong to their former
positions, and to pay their full backwages, overtime pay, thirteenth month
pay, cash bond deposit, and other benefits and privileges from the time they
were dismissed on January 16, 2017, up to their actual reinstatement.

This case is REMANDED to the Labor Arbiter for the computation of

the total monetary benefits awarded and due to Chrisden Cabrera Ditiangkin,
Hendrix Masamayor Molines, Harvey Mosquito Juanio, Joselito Castro
Verde, and Brian Anthony Cubacub Nabong. All monetary awards shall be
subject to the interest rate of 6% per annum from the date of finality of this

128
Paragele v. GMA Network, Inc., G.R. No. 235315. July 13, 2020.
<https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/6640 l> [Per J. Leonen, Third Division].
129
765 Phil. 544 (2015) [Per J. Leanen, Second Division].
130
Id. at 560.
131
Montinola v. Philippine Airlines, 742 Phil. 487 (2014) [Per J. Leonen, Second Division].
Decision 23 G.R. No. 246892

Decision until full payment. 132

SO ORDERED.

WE CONCUR:

/Jo, fl____- .
. LTzARO-JAVIER
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.

Senior Associate Justice

Chairperson

132
Nacar v. Gallery Frames. 716 Phil. 267 (2013) [Per j_ Peralta, En Banc].
Decision 24 G.R. No. 246892

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution and the

Division Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.

MARVIC M.V.F. LEONEN

Acting Chief Justice
(Per Special Order No. 2914)