G.R. No.
195466 July 2, 2014 Sinumpaang Salaysay,"14 executed by Presbitero Solano and
ARIEL L. DAVID, doing business under the name and style
"YIELS HOG DEALER," Petitioner, vs. JOHN G. MACASIO,
Respondent.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari1 the challenge
to the November 22, 2010 decision2 and the January 31, 2011
resolution3 of the Court of Appeals (CA) in CA-G.R. SP No.
116003. The CA decision annulled and set aside the May 26,
2010 decision4 of the National Labor Relations Commission
(NLRC)5 which, in turn, affirmed the April 30, 2009 Decision6 of
the Labor Arbiter (LA). The LA's decision dismissed respondent
John G. Macasio's monetary claims.
The Factual Antecedents
In January 2009, Macasio filed before the LA a complaint7
against petitioner Ariel L. David, doing business under the name
and style "Yiels Hog Dealer," for non-payment of overtime pay,
holiday pay and 13th month pay. He also claimed payment for
moral and exemplary damages and attorney’s fees. Macasio
also claimed payment for service incentive leave (SIL).8
Macasio alleged9 before the LA that he had been working as a
butcher for David since January 6, 1995. Macasio claimed that
David exercised effective control and supervision over his work,
pointing out that David: (1) set the work day, reporting time and
hogs to be chopped, as well as the manner by which he was to
perform his work; (2) daily paid his salary of ₱700.00, which was
increased from ₱600.00 in 2007, ₱500.00 in 2006 and ₱400.00
in 2005; and (3) approved and disapproved his leaves. Macasio
added that David owned the hogs delivered for chopping, as well
as the work tools and implements; the latter also rented the
workplace. Macasio further claimed that David employs about
twenty-five (25) butchers and delivery drivers.
In his defense,10 David claimed that he started his hog dealer
business in 2005 and that he only has ten employees. He
alleged that he hired Macasio as a butcher or chopper on
"pakyaw" or task basis who is, therefore, not entitled to overtime
pay, holiday pay and 13th month pay pursuant to the provisions
of the Implementing Rules and Regulations (IRR) of the Labor
Code. David pointed out that Macasio: (1) usually starts his work
at 10:00 p.m. and ends at 2:00 a.m. of the following day or
earlier, depending on the volume of the delivered hogs; (2)
received the fixed amount of ₱700.00 per engagement,
regardless of the actual number of hours that he spent chopping
the delivered hogs; and (3) was not engaged to report for work
and, accordingly, did not receive any fee when no hogs were
delivered.
Macasio disputed David’s allegations.11 He argued that, first,
David did not start his business only in 2005. He pointed to the
Certificate of Employment12 that David issued in his favor which
placed the date of his employment, albeit erroneously, in
January 2000. Second, he reported for work every day which
the payroll or time record could have easily proved had David
submitted them in evidence.
Refuting Macasio’s submissions,13 David claims that Macasio
was not his employee as he hired the latter on "pakyaw" or task
basis. He also claimed that he issued the Certificate of
Employment, upon Macasio’s request, only for overseas
employment purposes. He pointed to the "Pinagsamang
Page 1 of 191
1
Christopher (Antonio Macasio’s co-butchers), to corroborate his
claims.
In the April 30, 2009 decision,15 the LA dismissed Macasio’s
complaint for lack of merit. The LA gave credence to David’s
claim that he engaged Macasio on "pakyaw" or task basis. The
LA noted the following facts to support this finding: (1) Macasio
received the fixed amount of ₱700.00 for every work done,
regardless of the number of hours that he spent in completing
the task and of the volume or number of hogs that he had to
chop per engagement; (2) Macasio usually worked for only four
hours, beginning from 10:00 p.m. up to 2:00 a.m. of the following
day; and (3) the ₱700.00 fixed wage far exceeds the then
prevailing daily minimum wage of ₱382.00. The LA added that
the nature of David’s business as hog dealer supports this
"pakyaw" or task basis arrangement.
The LA concluded that as Macasio was engaged on "pakyaw"
or task basis, he is not entitled to overtime, holiday, SIL and 13th
month pay.
The NLRC’s Ruling
In its May 26, 2010 decision,16 the NLRC affirmed the LA
ruling.17 The NLRC observed that David did not require
Macasio to observe an eight hour work schedule to earn the
fixed ₱700.00 wage; and that Macasio had been performing a
non-time work, pointing out that Macasio was paid a fixed
amount for the completion of the assigned task, irrespective of
the time consumed in its performance. Since Macasio was paid
by result and not in terms of the time that he spent in the
workplace, Macasio is not covered by the Labor Standards laws
on overtime, SIL and holiday pay, and 13th month pay under the
Rules and Regulations Implementing the 13th month pay law.18
Macasio moved for reconsideration19 but the NLRC denied his
motion in its August 11, 2010 resolution,20 prompting Macasio
to elevate his case to the CA via a petition for certiorari.21
The CA’s Ruling
In its November 22, 2010 decision,22 the CA partly granted
Macasio’s certiorari petition and reversed the NLRC’s ruling for
having been rendered with grave abuse of discretion.
While the CA agreed with the LAand the NLRC that Macasio
was a task basis employee, it nevertheless found Macasio
entitled to his monetary claims following the doctrine laid down
in Serrano v. Severino Santos Transit.23 The CA explained that
as a task basis employee, Macasio is excluded from the
coverage of holiday, SIL and 13th month pay only if he is
likewise a "field personnel." As defined by the Labor Code, a
"field personnel" is one who performs the work away from the
office or place of work and whose regular work hours cannot be
determined with reasonable certainty. In Macasio’s case, the
elements that characterize a "field personnel" are evidently
lacking as he had been working as a butcher at David’s "Yiels
Hog Dealer" business in Sta. Mesa, Manila under David’s
supervision and control, and for a fixed working schedule that
starts at 10:00 p.m.
Accordingly, the CA awarded Macasio’s claim for holiday, SIL
and 13th month pay for three years, with 10% attorney’s fees on
the total monetary award. The CA, however, denied Macasio’s
claim for moral and exemplary damages for lack of basis.
David filed the present petition after the CA denied his motion
for reconsideration24 in the CA’s January 31, 2011 resolution.25
The Petition
In this petition,26 David maintains that Macasio’s engagement
was on a "pakyaw" or task basis. Hence, the latter is excluded
from the coverage of holiday, SIL and 13th month pay. David
reiterates his submissions before the lower tribunals27 and adds
that he never had any control over the manner by which Macasio
performed his work and he simply looked on to the "end-result."
He also contends that he never compelled Macasio to report for
work and that under their arrangement, Macasio was at liberty
to choose whether to report for work or not as other butchers
could carry out his tasks. He points out that Solano and Antonio
had, in fact, attested to their (David and Macasio’s) established
"pakyawan" arrangement that rendered a written contract
unnecessary. In as much as Macasio is a task basis employee
– who is paid the fixed amount of ₱700.00 per engagement
regardless of the time consumed in the performance – David
argues that Macasio is not entitled to the benefits he claims.
Also, he posits that because he engaged Macasio on "pakyaw"
or task basis then no employer-employee relationship exists
between them.
Finally, David argues that factual findings of the LA, when
affirmed by the NLRC, attain finality especially when, as in this
case, they are supported by substantial evidence. Hence, David
posits that the CA erred in reversing the labor tribunals’ findings
and granting the prayed monetary claims.
The Case for the Respondent
Macasio counters that he was not a task basis employee or a
"field personnel" as David would have this Court believe.28 He
reiterates his arguments before the lower tribunals and adds
that, contrary to David’s position, the ₱700.00 fee that he was
paid for each day that he reported for work does not indicate a
"pakyaw" or task basis employment as this amount was paid
daily, regardless of the number or pieces of hogs that he had to
chop. Rather, it indicates a daily-wage method of payment and
affirms his regular employment status. He points out that David
did not allege or present any evidence as regards the quota or
number of hogs that he had to chop as basis for the "pakyaw" or
task basis payment; neither did David present the time record or
payroll to prove that he worked for less than eight hours each
day. Moreover, David did not present any contract to prove that
his employment was on task basis. As David failed to prove the
alleged task basis or "pakyawan" agreement, Macasio
concludes that he was David’s employee. Procedurally, Macasio
points out that David’s submissions in the present petition raise
purely factual issues that are not proper for a petition for review
on certiorari. These issues – whether he (Macasio) was paid by
result or on "pakyaw" basis; whether he was a "field personnel";
whether an employer-employee relationship existed between
him and David; and whether David exercised control and
supervision over his work – are all factual in nature and are,
therefore, proscribed in a Rule 45 petition. He argues that the
CA’s factual findings bind this Court, absent a showing that such
findings are not supported by the evidence or the CA’s judgment
was based on a misapprehension of facts. He adds that the
issue of whether an employer-employee relationship existed
between him and David had already been settled by the LA29
and the NLRC30 (as well as by the CA per Macasio’s
manifestation before this Court dated November 15, 2012),31 in
his favor, in the separate illegal case that he filed against David.
Page 2 of 191
2
The Issue
The issue revolves around the proper application and
interpretation of the labor law provisions on holiday, SIL and
13th month pay to a worker engaged on "pakyaw" or task basis.
In the context of the Rule 65 petition before the CA, the issue is
whether the CA correctly found the NLRC in grave abuse of
discretion in ruling that Macasio is entitled to these labor
standards benefits.
The Court’s Ruling
We partially grant the petition.
Preliminary considerations: the Montoya ruling and the factual-
issue-bar rule
In this Rule 45 petition for review on certiorari of the CA’s
decision rendered under a Rule 65 proceeding, this Court’s
power of review is limited to resolving matters pertaining to any
perceived legal errors that the CA may have committed in
issuing the assailed decision. This is in contrast with the review
for jurisdictional errors, which we undertake in an original
certiorari action. In reviewing the legal correctness of the CA
decision, we examine the CA decision based on how it
determined the presence or absence of grave abuse of
discretion in the NLRC decision before it and not on the basis of
whether the NLRC decision on the merits of the case was
correct.32 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.33
Moreover, the Court’s power in a Rule 45 petition limits us to a
review of questions of law raised against the assailed CA
decision.34
In this petition, David essentially asks the question – whether
Macasio is entitled to holiday, SIL and 13th month pay. This one
is a question of law. The determination of this question of law
however is intertwined with the largely factual issue of whether
Macasio falls within the rule on entitlement to these claims or
within the exception. In either case, the resolution of this factual
issue presupposes another factual matter, that is, the presence
of an employer-employee relationship between David and
Macasio.
In insisting before this Court that Macasio was not his employee,
David argues that he engaged the latter on "pakyaw" or task
basis. Very noticeably, David confuses engagement on
"pakyaw" or task basis with the lack of employment relationship.
Impliedly, David asserts that their "pakyawan" or task basis
arrangement negates the existence of employment relationship.
At the outset, we reject this assertion of the petitioner.
Engagement on "pakyaw" or task basis does not characterize
the relationship that may exist between the parties, i.e., whether
one of employment or independent contractorship. Article 97(6)
of the Labor Code defines wages as "xxx the remuneration or
earnings, however designated, capable of being expressed in
terms of money, whether fixed or ascertained on a time, task,
piece, or commission basis, or other method of calculating the
same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to
be done, or for services rendered or to be rendered[.]"35 In
relation to Article 97(6), Article 10136 of the Labor Code speaks
of workers paid by results or those whose pay is calculated in
terms of the quantity or quality of their work output which
includes "pakyaw" work and other non-time work.
More importantly, by implicitly arguing that his engagement of
Macasio on "pakyaw" or task basis negates employer-employee
relationship, David would want the Court to engage on a factual
appellate review of the entire case to determine the presence or
existence of that relationship. This approach however is not
authorized under a Rule 45 petition for review of the CA decision
rendered under a Rule 65 proceeding.
First, the LA and the NLRC denied Macasio’s claim not because
of the absence of an employer-employee but because of its
finding that since Macasio is paid on pakyaw or task basis, then
he is not entitled to SIL, holiday and 13th month pay. Second,
we consider it crucial, that in the separate illegal dismissal case
Macasio filed with the LA, the LA, the NLRC and the CA
uniformly found the existence of an employer-employee
relationship.37
In other words, aside from being factual in nature, the existence
of an employer-employee relationship is in fact a non-issue in
this case. To reiterate, in deciding a Rule 45 petition for review
of a labor decision rendered by the CA under 65, the narrow
scope of inquiry is whether the CA correctly determined the
presence or absence of grave abuse of discretion on the part of
the NLRC. In concrete question form, "did the NLRC gravely
abuse its discretion in denying Macasio’s claims simply because
he is paid on a non-time basis?"
At any rate, even if we indulge the petitioner, we find his claim
that no employer-employee relationship exists baseless.
Employing the control test,38 we find that such a relationship
exist in the present case.
Even a factual review shows that Macasio is David’s employee
To determine the existence of an employer-employee
relationship, four elements generally need to be considered,
namely: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the
power to control the employee’s conduct. These elements or
indicators comprise the so-called "four-fold" test of employment
relationship. Macasio’s relationship with David satisfies this test.
First, David engaged the services of Macasio, thus satisfying the
element of "selection and engagement of the employee." David
categorically confirmed this fact when, in his "Sinumpaang
Salaysay," he stated that "nag apply po siya sa akin at kinuha
ko siya na chopper[.]"39 Also, Solano and Antonio stated in their
"Pinagsamang Sinumpaang Salaysay"40 that "[k]ami po ay
nagtratrabaho sa Yiels xxx na pag-aari ni Ariel David bilang
butcher" and "kilalanamin si xxx Macasio na isa ring butcher xxx
ni xxx David at kasama namin siya sa aming trabaho."
Second, David paid Macasio’s wages.Both David and Macasio
categorically stated in their respective pleadings before the
lower tribunals and even before this Court that the former had
been paying the latter ₱700.00 each day after the latter had
finished the day’s task. Solano and Antonio also confirmed this
fact of wage payment in their "Pinagsamang Sinumpaang
Salaysay."41 This satisfies the element of "payment of wages."
Page 3 of 191
Third, David had been setting the day and time when Macasio
3
should report for work. This power to determine the work
schedule obviously implies power of control. By having the
power to control Macasio’s work schedule, David could regulate
Macasio’s work and could even refuse to give him any
assignment, thereby effectively dismissing him.
And fourth, David had the right and power to control and
supervise Macasio’s work as to the means and methods of
performing it. In addition to setting the day and time when
Macasio should report for work, the established facts show that
David rents the place where Macasio had been performing his
tasks. Moreover, Macasio would leave the workplace only after
he had finished chopping all of the hog meats given to him for
the day’s task. Also, David would still engage Macasio’s services
and have him report for work even during the days when only
few hogs were delivered for butchering.
Under this overall setup, all those working for David, including
Macasio, could naturally be expected to observe certain rules
and requirements and David would necessarily exercise some
degree of control as the chopping of the hog meats would be
subject to his specifications. Also, since Macasio performed his
tasks at David’s workplace, David could easily exercise control
and supervision over the former. Accordingly, whether or not
David actually exercised this right or power to control is beside
the point as the law simply requires the existence of this power
to control 4243 or, as in this case, the existence of the right and
opportunity to control and supervise Macasio.44
In sum, the totality of the surrounding circumstances of the
present case sufficiently points to an employer-employee
relationship existing between David and Macasio.
Macasio is engaged on "pakyaw" or task basis
At this point, we note that all three tribunals – the LA, the NLRC
and the CA – found that Macasio was engaged or paid on
"pakyaw" or task basis. This factual finding binds the Court
under the rule that factual findings of labor tribunals when
supported by the established facts and in accord with the laws,
especially when affirmed by the CA, is binding on this Court.
A distinguishing characteristic of "pakyaw" or task basis
engagement, as opposed to straight-hour wage payment, is the
non-consideration of the time spent in working. In a task-basis
work, the emphasis is on the task itself, in the sense that
payment is reckoned in terms of completion of the work, not in
terms of the number of time spent in the completion of work.45
Once the work or task is completed, the worker receives a fixed
amount as wage, without regard to the standard measurements
of time generally used in pay computation.
In Macasio’s case, the established facts show that he would
usually start his work at 10:00 p.m. Thereafter, regardless of the
total hours that he spent at the workplace or of the total number
of the hogs assigned to him for chopping, Macasio would receive
the fixed amount of ₱700.00 once he had completed his task.
Clearly, these circumstances show a "pakyaw" or task basis
engagement that all three tribunals uniformly found.
In sum, the existence of employment relationship between the
parties is determined by applying the "four-fold" test;
engagement on "pakyaw" or task basis does not determine the
parties’ relationship as it is simply a method of pay computation.
Accordingly, Macasio is David’s employee, albeit engaged on
"pakyaw" or task basis.

As an employee of David paid on pakyaw or task basis, we now
go to the core issue of whether Macasio is entitled to holiday,
13th month, and SIL pay.
On the issue of Macasio’s entitlement to holiday, SIL and 13th
month pay
The LA dismissed Macasio’s claims pursuant to Article 94 of the
Labor Code in relation to Section 1, Rule IV of the IRR of the
Labor Code, and Article 95 of the Labor Code, as well as
Presidential Decree (PD) No. 851. The NLRC, on the other
hand, relied on Article 82 of the Labor Code and the Rules and
Regulations Implementing PD No. 851. Uniformly, these
provisions exempt workers paid on "pakyaw" or task basis from
the coverage of holiday, SIL and 13th month pay.
In reversing the labor tribunals’ rulings, the CA similarly relied
on these provisions, as well as on Section 1, Rule V of the IRR
of the Labor Code and the Court’s ruling in Serrano v. Severino
Santos Transit.46 These labor law provisions, when read
together with the Serrano ruling, exempt those engaged on
"pakyaw" or task basis only if they qualify as "field personnel."
In other words, what we have before us is largely a question of
law regarding the correct interpretation of these labor code
provisions and the implementing rules; although, to conclude
that the worker is exempted or covered depends on the facts
and in this sense, is a question of fact: first, whether Macasio is
a "field personnel"; and second, whether those engaged on
"pakyaw" or task basis, but who are not "field personnel," are
exempted from the coverage of holiday, SIL and 13th month
pay.
To put our discussion within the perspective of a Rule 45 petition
for review of a CA decision rendered under Rule 65 and framed
in question form, the legal question is whether the CA correctly
ruled that it was grave abuse of discretion on the part of the
NLRC to deny Macasio’s monetary claims simply because he is
paid on a non-time basis without determining whether he is a
field personnel or not.
To resolve these issues, we need tore-visit the provisions
involved.
Provisions governing SIL and holiday pay
Article 82 of the Labor Code provides the exclusions from the
coverage of Title I, Book III of the Labor Code - provisions
governing working conditions and rest periods.
Art. 82. Coverage.— The provisions of [Title I] shall apply to
employees in all establishments and undertakings whether for
profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the
employer who are dependent on him for support, domestic
helpers, persons in the personal service of another, and workers
who are paid by results as determined by the Secretary of Labor
in appropriate regulations.
xxxx
Page 4 of 191
"Field personnel" shall refer to non-agricultural employees who
4
regularly perform their duties away from the principal place of
business or branch office of the employer and whose actual
hours of work in the field cannot be determined with reasonable
certainty. [emphases and underscores ours]
Among the Title I provisions are the provisions on holiday pay
(under Article 94 of the Labor Code) and SIL pay (under Article
95 of the Labor Code). Under Article 82,"field personnel" on one
hand and "workers who are paid by results" on the other hand,
are not covered by the Title I provisions. The wordings of
Article82 of the Labor Code additionally categorize workers
"paid by results" and "field personnel" as separate and distinct
types of employees who are exempted from the Title I provisions
of the Labor Code.
The pertinent portion of Article 94 of the Labor Code and its
corresponding provision in the IRR47 reads:
Art. 94. Right to holiday pay. (a) Every worker shall be paid his
regular daily wage during regular holidays, except in retail and
service establishments regularly employing less than (10)
workers[.] [emphasis ours]
xxxx
SECTION 1. Coverage. – This Rule shall apply to all employees
except:
xxxx
(e)Field personnel and other employees whose time and
performance is unsupervised by the employer including those
who are engaged on task or contract basis, purely commission
basis, or those who are paid a fixed amount for performing work
irrespective of the time consumed in the performance thereof.
[emphases ours]
On the other hand, Article 95 of the Labor Code and its
corresponding provision in the IRR48 pertinently provides:
Art. 95. Right to service incentive. (a) Every employee who has
rendered at least one year of service shall be entitled to a yearly
service incentive leave of five days with pay.
(b) This provision shall not apply to those who are already
enjoying the benefit herein provided, those enjoying vacation
leave with pay of at least five days and those employed in
establishments regularly employing less than ten employees or
in establishments exempted from granting this benefit by the
Secretary of Labor and Employment after considering the
viability or financial condition of such establishment. [emphases
ours]
xxxx
Section 1. Coverage. – This rule shall apply to all employees
except:
xxxx
(e) Field personnel and other employees whose performance is
unsupervised by the employer including those who are engaged
on task or contract basis, purely commission basis, or those who
are paid a fixed amount for performing work irrespective of the
time consumed in the performance thereof. [emphasis ours]
Under these provisions, the general rule is that holiday and SIL
pay provisions cover all employees. To be excluded from their
coverage, an employee must be one of those that these
provisions expressly exempt, strictly in accordance with the
exemption. Under the IRR, exemption from the coverage of
holiday and SIL pay refer to "field personnel and other
employees whose time and performance is unsupervised by the
employer including those who are engaged on task or contract
basis[.]" Note that unlike Article 82 of the Labor Code, the IRR
on holiday and SIL pay do not exclude employees "engaged on
task basis" as a separate and distinct category from employees
classified as "field personnel." Rather, these employees are
altogether merged into one classification of exempted
employees.
Because of this difference, it may be argued that the Labor Code
may be interpreted to mean that those who are engaged on task
basis, per se, are excluded from the SIL and holiday payment
since this is what the Labor Code provisions, in contrast with the
IRR, strongly suggest. The arguable interpretation of this rule
may be conceded to be within the discretion granted to the LA
and NLRC as the quasi-judicial bodies with expertise on labor
matters.
However, as early as 1987 in the case of Cebu Institute of
Technology v. Ople49 the phrase "those who are engaged on
task or contract basis" in the rule has already been interpreted
to mean as follows:
[the phrase] should however, be related with "field personnel"
applying the rule on ejusdem generis that general and unlimited
terms are restrained and limited by the particular terms that they
follow xxx Clearly, petitioner's teaching personnel cannot be
deemed field personnel which refers "to non-agricultural
employees who regularly perform their duties away from the
principal place of business or branch office of the employer and
whose actual hours of work in the field cannot be determined
with reasonable certainty. [Par. 3, Article 82, Labor Code of the
Philippines]. Petitioner's claim that private respondents are not
entitled to the service incentive leave benefit cannot therefore
be sustained.
In short, the payment of an employee on task or pakyaw basis
alone is insufficient to exclude one from the coverage of SIL and
holiday pay. They are exempted from the coverage of Title I
(including the holiday and SIL pay) only if they qualify as "field
personnel." The IRR therefore validly qualifies and limits the
general exclusion of "workers paid by results" found in Article 82
from the coverage of holiday and SIL pay. This is the only
reasonable interpretation since the determination of excluded
workers who are paid by results from the coverage of Title I is
"determined by the Secretary of Labor in appropriate
regulations."
The Cebu Institute Technology ruling was reiterated in 2005 in
Auto Bus Transport Systems, Inc., v. Bautista:
A careful perusal of said provisions of law will result in the
conclusion that the grant of service incentive leave has been
Page 5 of 191
delimited by the Implementing Rules and Regulations of the
5
Labor Code to apply only to those employees not explicitly
excluded by Section 1 of Rule V. According to the Implementing
Rules, Service Incentive Leave shall not apply to employees
classified as "field personnel." The phrase "other employees
whose performance is unsupervised by the employer" must not
be understood as a separate classification of employees to
which service incentive leave shall not be granted. Rather, it
serves as an amplification of the interpretation of the definition
of field personnel under the Labor Code as those "whose actual
hours of work in the field cannot be determined with reasonable
certainty."
The same is true with respect to the phrase "those who are
engaged on task or contract basis, purely commission basis."
Said phrase should be related with "field personnel," applying
the rule on ejusdem generis that general and unlimited terms
are restrained and limited by the particular terms that they follow.
The Autobus ruling was in turn the basis of Serrano v. Santos
Transit which the CA cited in support of granting Macasio’s
petition.
In Serrano, the Court, applying the rule on ejusdem generis50
declared that "employees engaged on task or contract basis xxx
are not automatically exempted from the grant of service
incentive leave, unless, they fall under the classification of field
personnel."51 The Court explained that the phrase "including
those who are engaged on task or contract basis, purely
commission basis" found in Section 1(d), Rule V of Book III of
the IRR should not be understood as a separate classification of
employees to which SIL shall not be granted. Rather, as with its
preceding phrase - "other employees whose performance is
unsupervised by the employer" - the phrase "including those
who are engaged on task or contract basis" serves to amplify
the interpretation of the Labor Code definition of "field
personnel" as those "whose actual hours of work in the field
cannot be determined with reasonable certainty."
In contrast and in clear departure from settled case law, the LA
and the NLRC still interpreted the Labor Code provisions and
the IRR as exempting an employee from the coverage of Title I
of the Labor Code based simply and solely on the mode of
payment of an employee. The NLRC’s utter disregard of this
consistent jurisprudential ruling is a clear act of grave abuse of
discretion.52 In other words, by dismissing Macasio’s complaint
without considering whether Macasio was a "field personnel" or
not, the NLRC proceeded based on a significantly incomplete
consideration of the case. This action clearly smacks of grave
abuse of discretion.
Entitlement to holiday pay
Evidently, the Serrano ruling speaks only of SIL pay. However,
if the LA and the NLRC had only taken counsel from Serrano
and earlier cases, they would have correctly reached a similar
conclusion regarding the payment of holiday pay since the rule
exempting "field personnel" from the grant of holiday pay is
identically worded with the rule exempting "field personnel" from
the grant of SIL pay. To be clear, the phrase "employees
engaged on task or contract basis "found in the IRR on both SIL
pay and holiday pay should be read together with the exemption
of "field personnel."
In short, in determining whether workers engaged on "pakyaw"
or task basis" is entitled to holiday and SIL pay, the presence (or
absence) of employer supervision as regards the worker’s time
and performance is the key: if the worker is simply engaged on
pakyaw or task basis, then the general rule is that he is entitled
to a holiday pay and SIL pay unless exempted from the
exceptions specifically provided under Article 94 (holiday pay)
and Article95 (SIL pay) of the Labor Code. However, if the
worker engaged on pakyaw or task basis also falls within the
meaning of "field personnel" under the law, then he is not
entitled to these monetary benefits.
Macasio does not fall under the classification of "field personnel"
Based on the definition of field personnel under Article 82, we
agree with the CA that Macasio does not fall under the definition
of "field personnel." The CA’s finding in this regard is supported
by the established facts of this case: first, Macasio regularly
performed his duties at David’s principal place of business;
second, his actual hours of work could be determined with
reasonable certainty; and, third, David supervised his time and
performance of duties. Since Macasio cannot be considered a
"field personnel," then he is not exempted from the grant of
holiday, SIL pay even as he was engaged on "pakyaw" or task
basis.
Not being a "field personnel," we find the CA to be legally correct
when it reversed the NLRC’s ruling dismissing Macasio’s
complaint for holiday and SIL pay for having been rendered with
grave abuse of discretion.
Entitlement to 13th month pay
With respect to the payment of 13th month pay however, we find
that the CA legally erred in finding that the NLRC gravely abused
its discretion in denying this benefit to Macasio.1âwphi1
The governing law on 13th month pay is PD No. 851.53
As with holiday and SIL pay, 13th month pay benefits generally
cover all employees; an employee must be one of those
expressly enumerated to be exempted. Section 3 of the Rules
and Regulations Implementing P.D. No. 85154 enumerates the
exemptions from the coverage of 13th month pay benefits.
Under Section 3(e), "employers of those who are paid on xxx
task basis, and those who are paid a fixed amount for performing
a specific work, irrespective of the time consumed in the
performance thereof"55 are exempted.
Note that unlike the IRR of the Labor Code on holiday and SIL
pay, Section 3(e) of the Rules and Regulations Implementing
PD No. 851 exempts employees "paid on task basis" without any
reference to "field personnel." This could only mean that insofar
as payment of the 13th month pay is concerned, the law did not
intend to qualify the exemption from its coverage with the
requirement that the task worker be a "field personnel" at the
same time.
WHEREFORE, in light of these considerations, we hereby
PARTIALLY GRANT the petition insofar as the payment of 13th
month pay to respondent is concerned. In all other aspects, we
AFFIRM the decision dated November 22, 2010 and the
resolution dated January 31, 2011 of the Court of Appeals in CA-
G.R. SP No. 116003.
SO ORDERED.
Page 6 of 191
G.R. No. 175869 April 18, 2016
6
ROBINA FARMS CEBU/UNIVERSAL ROBINA
CORPORATION, Petitioner, vs. ELIZABETH VILLA,
Respondent.
DECISION
BERSAMIN, J.:
The employer appeals the decision promulgated on September
27, 2006, 1 whereby the Court of Appeals (CA) dismissed its
petition for certiorari and affirmed with modification the adverse
decision of the National Labor Relations Commission (NLRC)
declaring it liable for the illegal dismissal of respondent
employee.
Antecedents
Respondent Elizabeth Villa brought against the petitioner her
complaint for illegal suspension, illegal dismissal, nonpayment
of overtime pay, and nonpayment of service incentive leave pay
in the Regional Arbitration Branch No. VII of the NLRC in Cebu
City.
In her verified position paper, 2 Villa averred that she had been
employed by petitioner Robina Farms as sales clerk since
August 1981; that in the later part of 2001, the petitioner had
enticed her to avail herself of the company's special retirement
program; that on March 2, 2002, she had received a
memorandum from Lily Ngochua requiring her to explain her
failure to issue invoices for unhatched eggs in the months of
January to February 2002; that she had explained that the
invoices were not delivered on time because the delivery
receipts were delayed and overlooked; that despite her
explanation, she had been suspended for 10 days from March
8, 2012 until March 19, 2002; that upon reporting back to work,
she had been advised to cease working because her application
for retirement had already been approved; that she had been
subsequently informed that her application had been
disapproved, and had then been advised to tender her
resignation with a request for financial assistance; that she had
manifested her intention to return to work but the petitioner had
confiscated her gate pass; and that she had since then been
prevented from entering the company premises and had been
replaced by another employee.
The petitioner admitted that Villa had been its sales clerk at
Robina Farms. It stated that on December 12, 2001, she had
applied for retirement under the special privilege program
offered to its employees in Bulacan and Anti polo who had
served for at least 10 years; that in February 2002, her attention
had been called by Anita Gabatan of the accounting department
to explain her failure to issue invoices for the unhatched eggs
for the month of February; that she had explained that she had
been busy; that Gabatan had referred the matter to Florabeth
Zanoria who had in turn relayed the matter to Ngochua; and that
the latter had then given Villa the chance to explain, which she
did.
The petitioner added that after the administrative hearing Villa
was found to have violated the company rule on the timely
issuance of the invoices that had resulted in delay in the
payment of buyers considering that the payment had depended
upon the receipt of the invoices; that she had been suspended
from her employment as a consequence; that after serving the
suspension, she had returned to work and had followed up her
application for retirement with Lucina de Guzman, who had then
informed her that the management did not approve the benefits
equivalent to 86% of her salary rate applied for, but only Yz
month for every year of service; and that disappointed with the from receipt of this decision and to pay complainant the following

7
outcome, she had then brought her complaint against the sums, to wit:
petitioners.3

1. Backwages P119,900.00
Ruling of the Labor Arbiter
2. SILP P 7,194.00

3. Overtime Pay P 3,445.00

On April 21, 2003, Labor Arbiter Violeta Ortiz-Bantug rendered
her Decision4 finding that Villa had not been dismissed from Total P130,539.00
employment, holding thusly:
4. Attorney's fees (10%) 13,053.90

Grand Total P143,592.91

Complainant's application, insofar the benefits are concerned,
was not approved which means that while her application for
retirement was considered, management was willing to give her
retirement benefits equivalent only to half-month pay for every
year of service and not 86% of her salary for every year of
service as mentioned in her application. Mrs. De Guzman
suggested that if she wanted to pursue her supposed retirement
despite thereof, she should submit a resignation letter and
include therein a request for financial assistance. We do not find
anything illegal or violative in the suggestion made by Mrs. De
Guzman. There was no compulsion since the choice was left
entirely to the complainant whether to pursue it or not. 5
Although ordering Villa's reinstatement, the Labor Arbiter denied
her claim for backwages and overtime pay because she had not
adduced evidence of the overtime work actually performed. The
Labor Arbiter declared that Villa was entitled to service incentive
leave pay for the period of the last three years counted from the
filing of her complaint because the petitioner did not refute her
claim thereon. Thus, the Labor Arbiter disposed as follows:
SO ORDERED.8
According to the NLRC, the petitioner's appeal was fatally
defective and was being dismissed outright because it lacked
the proper verification and certificate of non-forum shopping.
The NLRC held the petitioner liable for the illegal dismissal of
Villa, observing that because Villa's retirement application had
been subject to the approval of the management, her act of
applying therefor did not indicate her voluntary intention to sever
her employment relationship but only her opting to retire by
virtue of her having qualified under the plan; that upon informing
her about the denial of her application, the petitioner had
advised her to tender her resignation and to request for financial
assistance; that although she had signified her intention to
return to work, the petitioner had prevented her from doing so
by confiscating her gate pass and informing her that she had
already been replaced by another employee; and that the
petitioner neither disputed her allegations thereon, nor adduced
evidence to controvert the same.9

After the denial of its motion for reconsideration, 10 the petitioner

WHEREFORE, premises considered, judgment is hereby
filed a petition for certiorari in the CA.
rendered ordering respondents ROBINA FARMS CEBU (a
Division of UNIVERSAL ROBINA CORPORATION) and LILY
NGOCHUA to REINSTATE complainant to her former position
without loss of seniority rights and privileges within ten (10) days Decision of the CA
from receipt of this decision but without payment of backwages.
Respondents are also ordered to pay complainant SEVEN
THOUSAND ONE HUNDRED NINETY FOUR PESOS (P7,
194.00) as service incentive leave pay benefits. The petitioner alleged in its petition for certiorari the following
jurisdictional errors of the NLRC, to wit:

The other claims are dismissed for lack of merit.

I

SO ORDERED.6
PUBLIC RESPONDENT NLRC COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS
OF JURISDICTION WHEN IT DISMISSED PETITIONERS
The parties respectively appealed to the NLRC. APPEAL MEMORANDUM ON A MERE TECHNICALITY AND
NOT RESOLVE IT ON THE MERITS.

Judgment of the NLRC

II.

On February 23, 2005, the NLRC rendered its judgment

dismissing the appeal by the petitioner but granting that of Villa,7 PUBLIC RESPONDENT NLRC COMMITTED GRAVE ABUSE
to wit: OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS
OF JURISDICTION WHEN IT DID NOT DISMISS PRIVATE
RESPONDENT'S MEMORANDUM ON APPEAL EVEN
THOUGH IT LACKED THE PROPER VERIFICATION AND
WHEREFORE, premises considered, the appeal of respondents
PROCEEDED TO RESOLVE HER APPEAL ON THE MERITS.
is hereby DISMISSED for non-perfection while the appeal of
complainant is hereby GRANTED. The decision of the Labor
Arbiter is REVERSED and SET ASIDE and a new one
ENTERED declaring complainant to have been illegally III.
dismissed. Consequently, respondents arc hereby directed to
immediately reinstate complainant to her former position without
loss of seniority rights and other privileges within ten (10) days

Page 7 of 191
PUBLIC RESPONDENT NLRC COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS
OF JURISDICTION WHEN IT RULED THAT THERE WAS
ILLEGAL DISMISSAL AND THAT PRIVATE RESPONDENT BE
IMMEDIATELY REINSTATED WITHOUT LOSS OF
SENIORITY RIGHTS.
IV.
PUBLIC RESPONDENT NLRC COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS
OF JURISDICTION WHEN IT DIRECTED PETITIONERS
INCLUDING PETITIONER LILY NGOCHUA TO PAY PRIVATE
RESPONDENT BACKWAGES, SERVICE INCENTIVE LEAVE
PAY, OVERTIME PAY AND ATTORNEY'S FEES. 11
On September 27, 2006, the CA promulgated its assailed
decision dismissing the petition for certiorari, 12 decreeing as
follows:
WHEREFORE, premises considered, the instant petition is
hereby ordered DISMISSED for lack of merit. The assailed
decision is AFFIRMED with MODIFICATION, in that petitioner
Lily Ngochua should not be held liable with petitioner
corporation. The other aspects of the assailed decision remains.
Consequently, the prayer for a temporary restraining order
and/or preliminary injunction is NOTED.
SO ORDERED. 13
The CA treated the petitioner's appeal as an unsigned pleading
because the petitioner did not present proof showing that
Florabeth P. Zanoria, its Administrative Officer and Chief
Accountant who had signed the verification, had been
authorized to sign and file the appeal. It opined that the belated
submission of the secretary's certificate showing the authority of
Bienvenido S. Bautista to represent the petitioner, and the
special power of attorney executed by Bautista to authorize
Zanoria to represent the petitioner did not cure the defect. It
upheld the finding of the NLRC that the petitioner had illegally
dismissed Villa. It deemed the advice by Ngochua and de
Guzman for Villa to resign and to request instead for financial
assistance was a strong and unequivocal indication of the
petitioner's desire to sever the employer-employee relationship
with Villa.
The CA later denied the motion for reconsideration. 14
Issues
Hence, this appeal in which the petitioner submits that:
I mandatory, and the failure to do so could not be cured by a later
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED WHEN IT DID NOT RULE THAT THERE WAS NO
VERIFICATION ATTACHED TO RESPONDENT VILLA'S
NOTICE OF APPEAL AND MEMORANDUM ON APPEAL
DATED MAY 29, 2003 AND THAT IT WAS AN UNSIGNED
PLEADING AND WITHOUT LEGAL EFFECT, MOREOVER, IT
COMMITTED UNFAIR TREATMENT
Page 8 of 191
8
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED WHEN IT DID NOT RULE THAT THE NATIONAL
LABOR RELATIONS COMMISSION FOURTH DIVISION HAD
NO JURISDICTION TO REVERESE AND SET ASIDE THE
DECISION OF THE LABOR ARBITER DA TED APRIL 21, 2003
WHICH HAD ALREA[D]Y BECOME FINAL AND IMMUTABLE
AS r AR AS RESPONDENT IS CONCERNED
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED WHEN IT COMMITTED MISAPPREHENSION OF THE
FACTS AND ISSUED ITS DECISION AND RESOLUTION
CONTRARY TO THE EVIDENCE ON RECORD AND
FINDINGS OF THE LABOR ARBITER. 15
Ruling of the Court
The appeal lacks merit.
The petitioner prays that Villa's appeal should be treated as an
unsigned pleading because she had accompanied her appeal
with the same verification attached to her position paper.
The petitioner cannot be sustained. The NLRC justifiably gave
due course to Villa's appeal.
Section 4(a), Rule VI of the Amended NLRC Rules of Procedure
requires an appeal to be verified by the appellant herself. The
verification is a mere formal requirement intended to secure and
to give assurance that the matters alleged in the pleading are
true and correct. The requirement is complied with when one
who has the ample knowledge to swear to the truth of the
allegations in the complaint or petition signs the verification, or
when the matters contained in the petition have been alleged in
good faith or are true and correct. 16 Being a mere formal
requirement, the courts may even simply order the correction of
improperly verified pleadings, or act on the same upon waiving
the strict compliance with the rules of procedure. 17 It is the
essence of the NLRC Rules of Procedure to extend to every
party-litigant the amplest opportunity for the proper and just
determination of his cause, free from the constraints of
technicalities. 18 Accordingly, the substantial compliance with
the procedural rules is appreciated in favor of Villa.
We cannot rule in the same way for the petitioner. For one, it
belatedly submitted proof of Zanoria' s authority to verify the
pleading for the petitioner. Also, it did not submit the certification
of non-forum shopping at the time of the filing of the appeal. The
filing of the certification with the initiatory pleading was
submission. 19 The non-submission of the certification, being a
ground for dismissal, was fatal to the petition. There is no
question that the non-compliance with the requirement for the
certification, or a defect in the certification, would not be cured
by the subsequent submission or the correction of the
certification, except in cases of substantial compliance or upon
compelling reasons.20 Accordingly, the dismissal of the
petitioner's appeal cannot be reversed or undone.
The petitioner next submits that the CA erred in holding that Villa
had been illegally dismissed; that it had no intention to terminate
her; that de Guzman had merely suggested to her that she
should be filing the letter of resignation with the request for
financial assistance because the management had disapproved
her application for the 86% salary rate as basis for her retirement
benefits; that it was Villa who had the intention to sever the
employer-employee relationship because she had kept on
following up her application for retirement; that she had
prematurely filed the complaint for illegal dismissal; that she had
voluntarily opted not to report to her work; and that she had not
presented proof showing that it had prevented her from working
and entering its premises.21
The petitioner's submissions are bereft of merit.
We note that the CA and the NLRC agreed on their finding that
the petitioner did not admit Villa back to work after the
completion of her 10-day suspension. In that regard, the CA
observed:
It is undeniable that private respondent was suspended for ten
(10) days beginning March 8, 2002 to March 19, 2002.
Ordinarily, after an employee [has] served her suspension, she
should be admitted back to work and to continue to receive
compensation for her services. In the case at bar, it is clear that
private respondent was not admitted immediately after her
suspension. Records show that when private respondent
reported back after her suspension, she was advised by Lucy
de Guzman not to report back anymore as her application was
approved, which was latter [sic] on disapproved. It is at this point
that, said Lucy de Guzman had advised private respondent to
tender a resignation letter with request for financial assistance.
Not only Lucy De Guzman has advised her to tender her
resignation letter. The letter of petitioner Lily Ngochua dated
April 11, 2002 to private respondent which reads:
"As explained by Lucy de Guzman xxx your request for special
retirement with financial assistance of 86%/year of service has
not been approved. Because this offer was for employees
working in operations department and not in Adm. & Sales.
"However, as per Manila Office, you can be given financial
assistance of V2 per year of service if you tender letter of
resignation with request for financial assistance."
shows that petitioner Lily Ngochua has also advised private
respondent to the same. These acts are strong indication that
petitioners wanted to severe [sic] the employer-employee
relationship between them and that of private respondent. This
is buttressed by the fact that when private respondent signified
her intention to return back to work after learning of the
disapproval of her application, she was prevented to enter the
petitioner's premises by confiscating her ID and informing her
that a new employee has already replaced her.
It should be noted that when private respondent averred this
statement in her position paper submitted before the Labor
Arbiter petitioners did not refute the same. Neither did they
contest this allegation in their supposed Appeal Memorandum
nor in their Motion for Reconsideration of the assailed decision
of public respondent. Basic is the rule that matters not
controverted are deemed admitted. To contest this allegation at
this point of proceeding is not allowed for it is a settled rule that
matters, theories or arguments not brought out in the original
proceedings cannot be considered on review or appeal where
they arc raised for the first time. To consider the alleged facts
Page 9 of 191
and arguments raised belatedly would amount to trampling on
9
the basic principles of fair play, justice and due process.22
Neither did Villa's application for early retirement manifest her
intention to sever the employer-employee relationship. Although
she applied for early retirement, she did so upon the belief that
she would receive a higher benefit based on the petitioner's
offer. As such, her consent to be retired could not be fairly
deemed to have been knowingly and freely given.
Retirement is the result of a bilateral act of both the employer
and the employee based on their voluntary agreement that upon
reaching a certain age, the employee agrees to sever his
employment.23 The difficulty in the case of Villa arises from
determining whether the retirement was voluntary or involuntary.
The line between the two is thin but it is one that the Court has
drawn. On one hand, voluntary retirement cuts the employment
ties leaving no residual employer liability; on the other,
involuntary retirement amounts to a discharge, rendering the
employer liable for termination without cause. The employee's
intent is decisive. In determining such intent, the relevant
parameters to consider are the fairness of the process
governing the retirement decision, the payment of stipulated
benefits, and the absence of badges of intimidation or
coercion.24
In case of early retirement programs, the offer of benefits must
be certain while the acceptance to be retired should be
absolute.25 The acceptance by the employees contemplated
herein must be explicit, voluntary, free and uncompelled.26 In
Jaculbe v. Silliman University, 27 we elucidated that:
[A]n employer is free to impose a retirement age less than 65 for
as long as it has the employees' consent.1âwphi1 Stated
conversely, employees are free to accept the employer's offer to
lower the retirement age if they feel they can get a better deal
with the retirement plan presented by the employer. Thus,
having terminated petitioner solely on the basis of a provision of
a retirement plan which was not freely assented to by her,
respondent was guilty of illegal dismissal.28 (bold emphasis
supplied)
Under the circumstances, the CA did not err in declaring the
petitioner guilty of illegal dismissal for violating Article 28229 of
the Labor Code and the twin notice rule.30
The petitioner posits that the CA erroneously affirmed the giving
of overtime pay and service incentive leave pay to Villa; that she
did not adduce proof of her having rendered actual ove1iime
work; that she had not been authorized to render overtime work;
and that her availment of vacation and sick leaves that had been
paid precluded her claiming the service incentive leave pay.
We partly agree with the petitioner's position.
Firstly, entitlement to overtime pay must first be established by
proof that the overtime work was actually performed before the
employee may properly claim the benefit.31 The burden of
proving entitlement to overtime pay rests on the employee
because the benefit is not incurred in the normal course of
business.32 Failure to prove such actual performance
transgresses the principles of fair play and equity.
And, secondly, the NLRC's reliance on the daily time records
(DTRs) showing that Villa had stayed in the company's premises
beyond eight hours was misplaced. The DTRs did not
substantially prove the actual performance of overtime work.
The petitioner correctly points out that any employee could
render overtime work only when there was a prior authorization
therefor by the management.33 Without the prior authorization,
therefore, Villa could not validly claim having performed work
beyond the normal hours of work. Moreover, Section 4(c), Rule
I, Book III of the Omnibus Rules Implementing the Labor Code
relevantly states as follows:
Section 4. Principles in determining hours worked. – The
following general principles shall govern in determining whether
the time spent by an employee is considered hours worked for
purposes of this Rule:
(a) x x x.
(b) x x x.
(c) If the work performed was necessary, or it benefited the
employer, or the employee could not abandon his work at the
end of his normal working hours because he had no
replacement, all time spent for such work shall be considered as
hours worked, if the work was with the knowledge of his
employer or immediate supervisor. (bold emphasis supplied)
(d) x x x.
We uphold the grant of service incentive leave pay.
Although the grant of vacation or sick leave with pay of at least
five days could be credited as compliance with the duty to pay
service incentive leave,34 the employer is still obliged to prove
that it fully paid the accrued service incentive leave pay to the
employee.
The Labor Arbiter originally awarded the service incentive leave
pay because the petitioner did not present proof showing that
Villa had been justly paid.35 The petitioner submitted the
affidavits of Zanoria explaining the payment of service incentive
leave after the Labor Arbiter had rendered her decision.36 But
that was not enough, for evidence should be presented in the
proceedings before the Labor Arbiter, not after the rendition of
the adverse decision by the Labor Arbiter or during appeal. Such
a practice of belated presentation cannot be tolerated because
it defeats the speedy administration of justice in matters
concerning the poor workers. 37
WHEREFORE, the Court DENIES the petition for review on
certiorari for lack of merit; AFFIRMS the decision promulgated
on September 27, 2006 by the Court of Appeals, with the
MODIFICATION that the award of overtime pay in favor of
respondent Elizabeth Villa is DELETED; and ORDERS the
petitioner to pay the costs of suit.
SO ORDERED.
G.R. No. L-48645 January 7, 1987
"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE
PHILIPPINES, ANTONIO CASBADILLO, PROSPERO
TABLADA, ERNESTO BENGSON, PATRICIO SERRANO,
Page 10 of 191
ANTONIO B. BOBIAS, VIRGILIO ECHAS, DOMINGO
10
PARINAS, NORBERTO GALANG, JUANITO NAVARRO,
NESTORIO MARCELLANA, TEOFILO B. CACATIAN, RUFO
L. EGUIA, CARLOS SUMOYAN, LAMBERTO RONQUILLO,
ANGELITO AMANCIO, DANILO B. MATIAR, ET AL.,
petitioners, vs. HON. RONALDO B. ZAMORA,
PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, OFFICE
OF THE PRESIDENT, HON. AMADO G. INCIONG,
UNDERSECRETARY OF LABOR, SAN MIGUEL
CORPORATION, GENARO OLIVES, ENRIQUE CAMAHORT,
FEDERICO OÑATE, ERNESTO VILLANUEVA, ANTONIO
BOCALING and GODOFREDO CUETO, respondents.
Armando V. Ampil for petitioners.
Siguion Reyna, Montecillo and Ongsiako Law Office for private
respondents.
GUTIERREZ, JR., J.:
The elemental question in labor law of whether or not an
employer-employee relationship exists between petitioners-
members of the "Brotherhood Labor Unit Movement of the
Philippines" (BLUM) and respondent San Miguel Corporation, is
the main issue in this petition. The disputed decision of public
respondent Ronaldo Zamora, Presidential Assistant for legal
Affairs, contains a brief summary of the facts involved:
1. The records disclose that on July 11, 1969, BLUM filed
a complaint with the now defunct Court of Industrial Relations,
charging San Miguel Corporation, and the following officers:
Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio
Eugenia Jr., Ernesto Villanueva, Antonio Bocaling and
Godofredo Cueto of unfair labor practice as set forth in Section
4 (a), sub-sections (1) and (4) of Republic Act No. 875 and of
Legal dismissal. It was alleged that respondents ordered the
individual complainants to disaffiliate from the complainant
union; and that management dismissed the individual
complainants when they insisted on their union membership.
On their part, respondents moved for the dismissal of the
complaint on the grounds that the complainants are not and
have never been employees of respondent company but
employees of the independent contractor; that respondent
company has never had control over the means and methods
followed by the independent contractor who enjoyed full
authority to hire and control said employees; and that the
individual complainants are barred by estoppel from asserting
that they are employees of respondent company.
While pending with the Court of Industrial Relations CIR
pleadings and testimonial and documentary evidences were
duly presented, although the actual hearing was delayed by
several postponements. The dispute was taken over by the
National Labor Relations Commission (NLRC) with the decreed
abolition of the CIR and the hearing of the case intransferably
commenced on September 8, 1975.
On February 9, 1976, Labor Arbiter Nestor C. Lim found for
complainants which was concurred in by the NLRC in a decision
dated June 28, 1976. The amount of backwages awarded,
however, was reduced by NLRC to the equivalent of one (1) year
salary.
On appeal, the Secretary in a decision dated June 1, 1977, set
aside the NLRC ruling, stressing the absence of an employer-
mployee relationship as borne out by the records of the case. ...
The petitioners strongly argue that there exists an employer-
employee relationship between them and the respondent
company and that they were dismissed for unionism, an act
constituting unfair labor practice "for which respondents must be
made to answer."
Unrebutted evidence and testimony on record establish that the
petitioners are workers who have been employed at the San
Miguel Parola Glass Factory since 1961, averaging about seven
(7) years of service at the time of their termination. They worked
as "cargadores" or "pahinante" at the SMC Plant loading,
unloading, piling or palleting empty bottles and woosen shells to
and from company trucks and warehouses. At times, they
accompanied the company trucks on their delivery routes.
The petitioners first reported for work to Superintendent-in-
Charge Camahort. They were issued gate passes signed by
Camahort and were provided by the respondent company with
the tools, equipment and paraphernalia used in the loading,
unloading, piling and hauling operation.
Job orders emanated from Camahort. The orders are then
transmitted to an assistant-officer-in-charge. In turn, the
assistant informs the warehousemen and checkers regarding
the same. The latter, thereafter, relays said orders to the
capatazes or group leaders who then give orders to the workers
as to where, when and what to load, unload, pile, pallet or clean.
Work in the glass factory was neither regular nor continuous,
depending wholly on the volume of bottles manufactured to be
loaded and unloaded, as well as the business activity of the
company. Work did not necessarily mean a full eight (8) hour
day for the petitioners. However, work,at times, exceeded the
eight (8) hour day and necessitated work on Sundays and
holidays. For this, they were neither paid overtime nor
compensation for work on Sundays and holidays.
Petitioners were paid every ten (10) days on a piece rate basis,
that is, according to the number of cartons and wooden shells
they were able to load, unload, or pile. The group leader notes
down the number or volume of work that each individual worker
has accomplished. This is then made the basis of a report or
statement which is compared with the notes of the checker and
warehousemen as to whether or not they tally. Final approval of
report is by officer-in-charge Camahort. The pay check is given
to the group leaders for encashment, distribution, and payment
to the petitioners in accordance with payrolls prepared by said
leaders. From the total earnings of the group, the group leader
gets a participation or share of ten (10%) percent plus an
additional amount from the earnings of each individual.
The petitioners worked exclusive at the SMC plant, never having
been assigned to other companies or departments of SMC
plant, even when the volume of work was at its minimum. When
any of the glass furnaces suffered a breakdown, making a
shutdown necessary, the petitioners work was temporarily
suspended. Thereafter, the petitioners would return to work at
the glass plant.
Sometime in January, 1969, the petitioner workers —
numbering one hundred and forty (140) organized and affiliated
themselves with the petitioner union and engaged in union
activities. Believing themselves entitled to overtime and holiday
pay, the petitioners pressed management, airing other
grievances such as being paid below the minimum wage law,
inhuman treatment, being forced to borrow at usurious rates of
interest and to buy raffle tickets, coerced by withholding their
salaries, and salary deductions made without their consent.
Page 11 of 191
However, their gripes and grievances were not heeded by the
11
respondents.
On February 6, 1969, the petitioner union filed a notice of strike
with the Bureau of Labor Relations in connection with the
dismissal of some of its members who were allegedly castigated
for their union membership and warned that should they persist
in continuing with their union activities they would be dismissed
from their jobs. Several conciliation conferences were
scheduled in order to thresh out their differences, On February
12, 1969, union member Rogelio Dipad was dismissed from
work. At the scheduled conference on February 19, 1969, the
complainant union through its officers headed by National
President Artemio Portugal Sr., presented a letter to the
respondent company containing proposals and/or labor
demands together with a request for recognition and collective
bargaining.
San Miguel refused to bargain with the petitioner union alleging
that the workers are not their employees.
On February 20, 1969, all the petitioners were dismissed from
their jobs and, thereafter, denied entrance to respondent
company's glass factory despite their regularly reporting for
work. A complaint for illegal dismissal and unfair labor practice
was filed by the petitioners.
The case reaches us now with the same issues to be resolved
as when it had begun.
The question of whether an employer-employee relationship
exists in a certain situation continues to bedevil the courts. Some
businessmen try to avoid the bringing about of an employer-
employee relationship in their enterprises because that judicial
relation spawns obligations connected with workmen's
compensation, social security, medicare, minimum wage,
termination pay, and unionism. (Mafinco Trading Corporation v.
Ople, 70 SCRA 139).
In determining the existence of an employer-employee
relationship, the elements that are generally considered are the
following: (a) the selection and engagement of the employee; (b)
the payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee with respect to the
means and methods by which the work is to be accomplished.
It. is the called "control test" that is the most important element
(Investment Planning Corp. of the Phils. v. The Social Security
System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra,
and Rosario Brothers, Inc. v. Ople, 131 SCRA 72).
Applying the above criteria, the evidence strongly indicates the
existence of an employer-employee relationship between
petitioner workers and respondent San Miguel Corporation. The
respondent asserts that the petitioners are employees of the
Guaranteed Labor Contractor, an independent labor contracting
firm.
The facts and evidence on record negate respondent SMC's
claim.
The existence of an independent contractor relationship is
generally established by the following criteria: "whether or not
the contractor is carrying on an independent business; the
nature and extent of the work; the skill required; the term and
duration of the relationship; the right to assign the performance
of a specified piece of work; the control and supervision of the
work to another; the employer's power with respect to the hiring,
firing and payment of the contractor's workers; the control of the
premises; the duty to supply the premises tools, appliances,
materials and labor; and the mode, manner and terms of
payment" (56 CJS Master and Servant, Sec. 3(2), 46; See also
27 AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75
ALR 7260727)
None of the above criteria exists in the case at bar.
Highly unusual and suspect is the absence of a written contract
to specify the performance of a specified piece of work, the
nature and extent of the work and the term and duration of the
relationship. The records fail to show that a large commercial
outfit, such as the San Miguel Corporation, entered into mere
oral agreements of employment or labor contracting where the
same would involve considerable expenses and dealings with a
large number of workers over a long period of time. Despite
respondent company's allegations not an iota of evidence was
offered to prove the same or its particulars. Such failure makes
respondent SMC's stand subject to serious doubts.
Uncontroverted is the fact that for an average of seven (7) years,
each of the petitioners had worked continuously and exclusively
for the respondent company's shipping and warehousing
department. Considering the length of time that the petitioners
have worked with the respondent company, there is justification
to conclude that they were engaged to perform activities
necessary or desirable in the usual business or trade of the
respondent, and the petitioners are, therefore regular
employees (Phil. Fishing Boat Officers and Engineers Union v.
Court of Industrial Relations, 112 SCRA 159 and RJL Martinez
Fishing Corporation v. National Labor Relations Commission,
127 SCRA 454).
As we have found in RJL Martinez Fishing Corporation v.
National Labor Relations Commission (supra):
... [T]he employer-employee relationship between the parties
herein is not coterminous with each loading and unloading job.
As earlier shown, respondents are engaged in the business of
fishing. For this purpose, they have a fleet of fishing vessels.
Under this situation, respondents' activity of catching fish is a
continuous process and could hardly be considered as seasonal
in nature. So that the activities performed by herein
complainants, i.e. unloading the catch of tuna fish from
respondents' vessels and then loading the same to refrigerated
vans, are necessary or desirable in the business of respondents.
This circumstance makes the employment of complainants a
regular one, in the sense that it does not depend on any specific
project or seasonable activity. (NLRC Decision, p. 94,
Rollo).lwphl@itç
so as it with petitioners in the case at bar. In fact, despite past
shutdowns of the glass plant for repairs, the petitioners,
thereafter, promptly returned to their jobs, never having been
replaced, or assigned elsewhere until the present controversy
arose. The term of the petitioners' employment appears
indefinite. The continuity and habituality of petitioners' work
bolsters their claim of employee status vis-a-vis respondent
company,
Even under the assumption that a contract of employment had
indeed been executed between respondent SMC and the
alleged labor contractor, respondent's case will, nevertheless,
fail.
Page 12 of 191
12
Section 8, Rule VIII, Book III of the Implementing Rules of the
Labor Code provides:
Job contracting. — There is job contracting permissible under
the Code if the following conditions are met:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all
matters connected with the performance of the work except as
to the results thereof; and
(2) The contractor has substantial capital or investment in
the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his
business.
We find that Guaranteed and Reliable Labor contractors have
neither substantial capital nor investment to qualify as an
independent contractor under the law. The premises, tools,
equipment and paraphernalia used by the petitioners in their
jobs are admittedly all supplied by respondent company. It is
only the manpower or labor force which the alleged contractors
supply, suggesting the existence of a "labor only" contracting
scheme prohibited by law (Article 106, 109 of the Labor Code;
Section 9(b), Rule VIII, Book III, Implementing Rules and
Regulations of the Labor Code). In fact, even the alleged
contractor's office, which consists of a space at respondent
company's warehouse, table, chair, typewriter and cabinet, are
provided for by respondent SMC. It is therefore clear that the
alleged contractors have no capital outlay involved in the
conduct of its business, in the maintenance thereof or in the
payment of its workers' salaries.
The payment of the workers' wages is a critical factor in
determining the actuality of an employer-employee relationship
whether between respondent company and petitioners or
between the alleged independent contractor and petitioners. It
is important to emphasize that in a truly independent contractor-
contractee relationship, the fees are paid directly to the
manpower agency in lump sum without indicating or implying
that the basis of such lump sum is the salary per worker
multiplied by the number of workers assigned to the company.
This is the rule in Social Security System v. Court of Appeals (39
SCRA 629, 635).
The alleged independent contractors in the case at bar were
paid a lump sum representing only the salaries the workers were
entitled to, arrived at by adding the salaries of each worker which
depend on the volume of work they. had accomplished
individually. These are based on payrolls, reports or statements
prepared by the workers' group leader, warehousemen and
checkers, where they note down the number of cartons, wooden
shells and bottles each worker was able to load, unload, pile or
pallet and see whether they tally. The amount paid by
respondent company to the alleged independent contractor
considers no business expenses or capital outlay of the latter.
Nor is the profit or gain of the alleged contractor in the conduct
of its business provided for as an amount over and above the
workers' wages. Instead, the alleged contractor receives a
percentage from the total earnings of all the workers plus an
additional amount corresponding to a percentage of the
earnings of each individual worker, which, perhaps, accounts for
the petitioners' charge of unauthorized deductions from their
salaries by the respondents.
Anent the argument that the petitioners are not employees as
they worked on piece basis, we merely have to cite our rulings
in Dy Keh Beng v. International Labor and Marine Union of the
Philippines (90 SCRA 161), as follows:
"[C]ircumstances must be construed to determine indeed if
payment by the piece is just a method of compensation and
does not define the essence of the relation. Units of time . . . and
units of work are in establishments like respondent (sic) just
yardsticks whereby to determine rate of compensation, to be
applied whenever agreed upon. We cannot construe payment
by the piece where work is done in such an establishment so as
to put the worker completely at liberty to turn him out and take
in another at pleasure."
Article 106 of the Labor Code provides the legal effect of a labor
only contracting scheme, to wit:
... 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.
Firmly establishing respondent SMC's role as employer is the
control exercised by it over the petitioners that is, control in the
means and methods/manner by which petitioners are to go
about their work, as well as in disciplinary measures imposed by
it.
Because of the nature of the petitioners' work as cargadores or
pahinantes, supervision as to the means and manner of
performing the same is practically nil. For, how many ways are
there to load and unload bottles and wooden shells? The mere
concern of both respondent SMC and the alleged contractor is
that the job of having the bottles and wooden shells brought to
and from the warehouse be done. More evident and pronounced
is respondent company's right to control in the discipline of
petitioners. Documentary evidence presented by the petitioners
establish respondent SMC's right to impose disciplinary
measures for violations or infractions of its rules and regulations
as well as its right to recommend transfers and dismissals of the
piece workers. The inter-office memoranda submitted in
evidence prove the company's control over the petitioners. That
respondent SMC has the power to recommend penalties or
dismissal of the piece workers, even as to Abner Bungay who is
alleged by SMC to be a representative of the alleged labor
contractor, is the strongest indication of respondent company's
right of control over the petitioners as direct employer. There is
no evidence to show that the alleged labor contractor had such
right of control or much less had been there to supervise or deal
with the petitioners.
The petitioners were dismissed allegedly because of the
shutdown of the glass manufacturing plant. Respondent
company would have us believe that this was a case of
retrenchment due to the closure or cessation of operations of
the establishment or undertaking. But such is not the case here.
The respondent's shutdown was merely temporary, one of its
furnaces needing repair. Operations continued after such
repairs, but the petitioners had already been refused entry to the
premises and dismissed from respondent's service. New
workers manned their positions. It is apparent that the closure
of respondent's warehouse was merely a ploy to get rid of the
petitioners, who were then agitating the respondent company for
benefits, reforms and collective bargaining as a union. There is
no showing that petitioners had been remiss in their obligations
and inefficient in their jobs to warrant their separation.
Page 13 of 191
As to the charge of unfair labor practice because of SMC's
13
refusal to bargain with the petitioners, it is clear that the
respondent company had an existing collective bargaining
agreement with the IBM union which is the recognized collective
bargaining representative at the respondent's glass plant.
There being a recognized bargaining representative of all
employees at the company's glass plant, the petitioners cannot
merely form a union and demand bargaining. The Labor Code
provides the proper procedure for the recognition of unions as
sole bargaining representatives. This must be followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
GRANTED. The San Miguel Corporation is hereby ordered to
REINSTATE petitioners, with three (3) years backwages.
However, where reinstatement is no longer possible, the
respondent SMC is ordered to pay the petitioners separation
pay equivalent to one (1) month pay for every year of service.
SO ORDERED.
G.R. No. L-18939 August 31, 1964
NATIONAL WATERWORKS and SEWERAGE AUTHORITY,
petitioner, vs. NWSA CONSOLIDATED UNIONS, ET AL.,
respondents.
Govt. Corp. Counsel Simeon M. Gopengco and Asst. Govt.
Corp. Counsel Arturo B. Santos for petitioner.
Cipriano Cid and Associates and Israel Bocobo for respondents.
Alfredo M. Montesa for intervenor-respondent.
BAUTISTA ANGELO, J.:
Petitioner National Waterworks & Sewerage Authority is a
government-owned and controlled corporation created under
Republic Act No. 1383, while respondent NWSA Consolidated
Unions are various labor organizations composed of laborers
and employees of the NAWASA. The other respondents are
intervenors Jesus Centeno, et al., hereinafter referred to as
intervenors.
Acting on a certification of the President of the Philippines, the
Court of Industrial Relations conducted a hearing on December
5, 1957 on the controversy then existing between petitioner and
respondent unions which the latter embodied in a "Manifesto"
dated December 51, 1957, namely: implementation of the 40-
Hour Week Law (Republic Act No. 1880); alleged violations of
the collective bargaining agreement dated December 28, 1956
concerning "distress pay"; minimum wage of P5.25; promotional
appointments and filling of vacancies of newly created positions;
additional compensation for night work; wage increases to some
laborers and employees; and strike duration pay. In addition,
respondent unions raised the issue of whether the 25%
additional compensation for Sunday work should be included in
computing the daily wage and whether, in determining the daily
wage of a monthly-salaried employee, the salary should be
divided by 30 days.
On December 13, 1957, petitioner and respondent unions,
conformably to a suggestion of the Court of Industrial Relations,
submitted a joint stipulation of facts on the issues concerning the
40-Hour Week Law, "distress pay," minimum wage of P5.25,
filling of vacancies, night compensation, and salary adjustments,
reserving the right to present evidence on matters not covered
therein. On December 4, 1957, respondent intervenors filed a
petition in intervention on the issue for additional compensation
for night work. Later, however, they amended their petition by
including a new demand for overtime pay in favor of Jesus
Centeno, Cesar Cabrera, Feliciano Duiguan, Cecilio Remotigue,
and other employees receiving P4,200.00 per annum or more.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this Honorable
Court, without prejudice to the parties adducing other evidence
to prove their case not covered by this stipulation of facts.
1äwphï1.ñët
On February 5, 1958, petitioner filed a motion to dismiss the
claim for overtime pay alleging that respondent Court of
Industrial Relations was without jurisdiction to pass upon the
same because, as mere intervenors, the latter cannot raise new
issues not litigated in the principal case, the same not being the
lis mota therein involved. To this motion the intervenors filed an
opposition. Thereafter, respondent court issued an order
allowing the issue to be litigated. Petitioner's motion to
reconsider having been denied, it filed its answer to the petition
for intervention. Finally, on January 16, 1961, respondent court
rendered its decision stating substantially as follows:
The NAWASA is an agency not performing governmental
functions and, therefore, is liable to pay additional compensation
for work on Sundays and legal holidays conformably to
Commonwealth Act No. 444, known as the Eight-Hour Labor
Law, even if said days should be within the staggered five work
days authorized by the President; the intervenors do not fall
within the category of "managerial employees" as contemplated
in Republic Act 2377 and so are not exempt from the coverage
of the Eight-Hour Labor Law; even those intervenors attached
to the General Auditing Office and the Bureau of Public Works
come within the purview of Commonwealth Act No. 444; the
computation followed by NAWASA in computing overtime
compensation is contrary to Commonwealth Act 444; the
undertime of a worker should not be set-off against the worker
in determining whether the latter has rendered service in excess
of eight hours for that day; in computing the daily wage of those
employed on daily basis, the additional 25% compensation for
Sunday work should be included; the computation used by the
NAWASA for monthly salaried employees to wit, dividing the
monthly basic pay by 30 is erroneous; the minimum wage
awarded by respondent court way back on November 25, 1950
in Case No. 359-V entitled MWD Workers Union v. Metropolitan
Water District, applies even to those who were employed long
after the promulgation of the award and even if their workers are
hired only as temporary, emergency and casual workers for a
definite period and for a particular project; the authority granted
to NAWASA by the President to stagger the working days of its
workers should be limited exclusively to those specified in the
authorization and should not be extended to others who are not
therein specified; and under the collective bargaining agreement
entered into between the NAWASA and respondent unions on
December 28, 1956, as well as under Resolution No. 29, series
of 1957 of the Grievance Committee, even those who work
outside the sewerage chambers should be paid 25% additional
compensation as "distress pay."
Its motion for reconsideration having been denied, NAWASA
filed the present petition for review raising merely questions of
law. Succinctly, these questions are:
1. Whether NAWASA is performing governmental functions and,
therefore, essentially a service agency of the government;
2. Whether NAWASA is a public utility and, therefore, exempted
from paying additional compensation for work on Sundays and
legal holidays;
Page 14 of 191
14
3. Whether the intervenors are "managerial employees" within
the meaning of Republic Act 2377 and, therefore, not entitled to
the benefits of Commonwealth Act No. 444, as amended;
4. Whether respondent Court of Industrial Relations has
jurisdiction to adjudicate overtime pay considering that this issue
was not among the demands of respondent union in the principal
case but was merely dragged into the case by the intervenors;
5. Whether those attached to the General Auditing Office and
the Bureau of Public Works come within the purview of
Commonwealth Act No. 444, as amended;
6. In determining whether one has worked in excess of eight
hours, whether the undertime for that day should be set off;
7. In computing the daily wage, whether the additional
compensation for Sunday work should be included;
8. What is the correct method to determine the equivalent daily
wage of a monthly salaried employee, especially in a firm which
is a public utility?;
9. Considering that the payment of night compensation is not by
virtue of any statutory provision but emanates only from an
award of respondent Court of Industrial Relations, whether the
same can be made retroactive and cover a period prior to the
promulgation of the award;
10. Whether the minimum wage fixed and awarded by
respondent Court of Industrial Relations in another case (MWD
Workers Union v. MWD CIR Case No. 359-V) applies to those
employed long after the promulgation thereof, whether hired as
temporary, emergency and casual workers for a definite period
and for a specific project;
11. How should the collection bargaining agreement of
December 28, 1956 and Resolution No. 29, series of 1957 of the
Grievance Committee be interpreted and construed insofar as
the stipulations therein contained relative to "distress pay" is
concerned?; and
12. Whether, under the first indorsement of the President of the
Philippines dated August 12, 1957, which authorizes herein
petitioner to stagger the working days of its employees and
laborers, those whose services are indispensably continuous
throughout the year may be staggered in the same manner as
the pump, valve, filter and chlorine operators, guards,
watchmen, medical services, and those attached to the
recreational facilities.
DISCUSSION OF THE ISSUES
1. Is NAWASA an agency that performs governmental functions
and, therefore, essentially a service agency of the government?
Petitioner sustains the affirmative because, under Republic Act
No. 1383, it is a public corporation, and such it exist a an agency
independent of the Department of Public Works of our
government. It also contends that under the same Act the Public
Service Commission does not have control, supervision or
jurisdiction over it in the fixing of rates concerning of the other purposes; to purify the source of supply, regulate the

15
operation of the service. It can also incur indebtedness or issue control and use, and prevent the waste of water; and to fix water
bonds that are exempt from taxation which circumstance implies rates and provide for the collection of rents therefor;
that it is essentially a government- function corporation because
it enjoys that attribute of sovereignty. Petitioner likewise invokes
the opinion of the Secretary of Justice which holds that the
(f) To construct, maintain and operate such system of sanitary
NAWASA being essentially a service agency of the government
sewers as may be necessary for the proper sanitation of the
can be classified as a corporation performing governmental
cities and towns comprising the Authority and to charge and
function.
collect such sums for construction and rates for this service as
may be determined by the Board to be equitable and just;

With this contention, we disagree. While under republic Act No.

1383 the NAWASA is considered as a public corporation it does
(g) To acquire, purchase, hold, transfer, sell, lease, rent,
not show that it was so created for the government of a portion
mortgage, encumber, and otherwise dispose of real and
of the State. It should be borne in mind that there are two kinds
personal property, including rights and franchises, within the
of public corporation, namely, municipal and non-municipal. A
Philippines, as authorized by the purpose for which the Authority
municipal corporation in its strict is the body politic constituted
was created and reasonably and necessarily required of the
by the inhabitants of a city or town for the purpose of local
transaction of the lawful business of the same, unless otherwise
government thereof. It is the body politic established by law
provided in this Act;
particularly as an agency of the State to assist in the civil
government of the country chiefly to regulate the local and
internal affairs of the city or town that is incorporated (62 C.J.S.,
p. 61). Non- municipal corporations, on the other hand, are The business of providing water supply and sewerage service,
public corporations created as agencies of the State for limited as this Court held, "may for all practical purposes be likened to
purposes to take charge merely of some public or state work an industry engaged in by coal companies, gas companies,
other than community government (Elliot, Municipal power plants, ice plants, and the like" (Metropolitan Water
Corporations, 3rd ed., p. 7; McQuillin, Mun. Corp., 3rd ed., Vol. District v. Court of Industrial Relations, et al., L-4488, August 27,
1, p. 476). 1952). These are but mere ministrant functions of government
which are aimed at advancing the general interest of society. As
such they are optional (Bacani v. National Coconut Corporation,
supra). And it has been held that "although the state may
The National Waterworks and Sewerage Authority was not
regulate the service and rates of water plants owned and
created for purposes of local government. It was created for the
operated by municipalities, such property is not employed for
"purpose of consolidating and centralizing all waterworks,
governmental purposes and in the ownership operation thereof
sewerage and drainage system in the Philippines under one
the municipality acts in its proprietary capacity, free from
control and direction and general supervision." The NAWASA
legislative interference" (1 McQuillin, p. 683). In Mendoza v. De
therefore, though a public corporation, is not a municipal
Leon, 33 Phil., 508, 509, this Court also held:
corporation, because it is not an agency of the State to regulate
or administer the local affairs of the town, city, or district which
is incorporated.
Municipalities of the Philippine Islands organized under the
Municipal Code have both governmental and corporate or
business functions. Of the first class are the adoption of
Moreover, the NAWASA, by its charter, has personality and
regulations against fire and disease, preservation of the public
power separate and distinct from the government. It is an
peace, maintenance of municipal prisons, establishment of
independent agency of the government although it ids placed,
primary schools and post-offices, etc. Of the latter class are the
for administrative purposes, under the Department of Public
establishment of municipal waterworks for the use of the
Works and Communications. It has continuous succession
inhabitants, the construction and maintenance of municipal
under its corporate name and sue and be sued in court. It has
slaughterhouses, markets, stables, bathing establishments,
corporate power to exercised by its board of directors; it has its
wharves, ferries, and fisheries. ...
own assets and liabilities; and it may charge rates for its
services.

On the strength of the foregoing considerations, our conclusions

In Bacani vs. National Coconut Corporation, 53 O.G., 2798, we
stated: "To recapitulate, we may mention that the term
'Government of the Republic of the Philippines'... refers only to
that government entity through which the functions of the
government are exercised as an attribute of sovereignty, and in
this are included those arms through which political authority is
made effective whether they be provincial, municipal or other
form of local government. These are what we call municipal
corporations. They do not include government entities which are
given a corporate personality separate and distinct from the
government and which are governed by the Corporation Law.
Their powers, duties and liabilities have to be determined in the
light of that law and of their corporate charter."
The same conclusion may be reached by considering the
powers, functions and activities of the NAWASA which are
enumerated in Section 2, Republic Act No. 1383, among others,
as follows:
(e) To construct, maintain and operate mains pipes, water
reservoirs, machinery, and other waterworks for the purpose of
supplying water to the inhabitants of its zone, both domestic and
Page 15 of 191
is that the NAWASA is not an agency performing governmental
functions. Rather, it performs proprietary functions, and as such
comes within the coverage of Commonwealth Act No. 444.
2. We agree with petitioner that the NAWASA is a public utility
because its primary function is to construct, maintain and
operate water reservoirs and waterworks for the purpose of
supplying water to the inhabitants, as well as consolidate and
centralize all water supplies and drainage systems in the
Philippines. We likewise agree with petitioner that a public utility
is exempt from paying additional compensation for work on
Sundays and legal holidays conformably to Section 4 of
Commonwealth Act No. 444 which provides that the prohibition,
regarding employment of Sundays and holidays unless an
additional sum of 25% of the employee's regular remuneration
is paid shall not apply to public utilities such as those supplying
gas, electricity, power, water or providing means of
transportation or communication. In other words, the employees
and laborers of NAWASA can be made to work on Sundays and
legal holidays without being required to pay them an additional
compensation of 25%.
It is to be noted, however, that in the case at bar it has been
stipulated that prior to the enactment of Republic Act No. 1880,
providing for the implementation of the 40-Hour Week Law, the
Metropolitan Water District had been paying 25% additional
compensation for work on Sundays and legal holidays to its
employees and laborers by virtue of Resolution No. 47, series
of 1948, of its board of Directors, which practice was continued
by the NAWASA when the latter took over the service. And in
the collective bargaining agreement entered into between the
NAWASA and respondent unions it was agreed that all existing
benefits enjoyed by the employees and laborers prior to its
effectivity shall remain in force and shall form part of the
agreement, among which certainly is the 25% additional
compensation for work on Sundays and legal holidays therefore
enjoyed by said laborers and employees. It may, therefore, be
said that while under Commonwealth Act No. 444 a public utility
is not required to pay additional compensation to its employees
and workers for work done on Sundays and legal holidays, there
is, however, no prohibition for it to pay such additional
compensation if it voluntarily agrees to do so. The NAWASA
committed itself to pay this additional compensation. It must pay
not because of compulsion of law but because of contractual
obligation.
3. This issue raises the question whether the intervenors are
"managerial employees" within the meaning of Republic Act
2377 and as such are not entitled to the benefits of
Commonwealth Act No. 444, as amended. Section 2 of Republic
Act 2377 provides:
Sec. 2. This Act shall apply to all persons employed in any
industry or occupation, whether public or private with the
exception of farm laborers, laborers who prefer to be paid on
piece work basis, managerial employees, outside sales
personnel, domestic servants, persons in the personal service
of another and members of the family of the employer working
for him.
The term "managerial employee" in this Act shall mean either
(a) any person whose primary duty consists of the management
of the establishment in which he is employed or of a customarily
recognized department or subdivision thereof, or (b) ally officer
or member of the managerial staff.
One of the distinguishing characteristics managerial employee
may be known as expressed in the explanatory note of Republic
Act No. 2377 is that he is not subject to the rigid observance of
regular office hours. The true worth of his service does not
depend so much on the time he spends in office but more on the
results he accomplishes. In fact, he is free to go out of office
anytime.
On the other hand, in the Fair Labor Standards Act of the United
States, which was taken into account by the sponsors of the
present Act in defining the degree of work of a managerial
employee, we find interesting the following dissertation of the
nature of work o a managerial employee:
Decisions have consumed and applied a regulation in substance
providing that the term "professional" employee shall mean any
employee ... who is engaged in work predominantly intellectual
and varied in character, and requires the consistent exercise of
discretion and judgment in its performance and is of such a
character that the output produced or the result accomplished
cannot be standardized in relation to a given period of time, and
whose hours of work of the same nature as that performed by
non-exempt employees do not exceed twenty percent of the
hours worked in the work week by the non-exempt employees,
except where such work is necessarily incident to work of a
professional nature; and which requires, first, knowledge of an
Page 16 of 191
advanced type in a field of science or learning customarily
16
acquired by a prolonged course or specialized intellectual
instruction and study, or, second, predominantly original and
creative in character in a recognized field of artistic endeavor.
Stranger v. Vocafilm Corp., C.C.A. N.Y., 151 F. 2d 894, 162
A.L.R. 216; Hofer v. Federal Cartridge Corp., D.C. Minn. 71 F.
Supp. 243; Aulen v. Triumph Explosive, D.C. Md., 58 P. Supp.
4." (56 C.J.S., p. 666).
Under the provisions of the Fair Labor Standards Act 29
U.S.C.A., Section 23 (a) (1), executive employees are exempted
from the statutory requirements as to minimum wages and
overtime pay. ...
Thus the exemption attaches only where it appears that the
employee's primary duty consists of the management of the
establishment or of a customarily recognized department or
subdivision thereof, that he customarily and regularly directs the
work of other employees therein, that he has the authority to hire
or discharge other employees or that his suggestions and
recommendations as to the hiring or discharging and as to the
advancement and promotion or any other change of status of
other employees are given particular weight, that he customarily
and, regularly exercises discretionary powers, ... . (56 C.J.S.,
pp. 666-668.)
The term "administrative employee" ordinarily applies only to an
employee who is compensated for his services at a salary or fee
of not less than a prescribed sum per month, and who regularly
and directly assists an employee employed in a bona fide
executive or administrative capacity, where such assistance is
nonmanual in nature and requires the exercise of discretion and
independent judgment; or who performs under only general
supervision, responsible non-manual office or field work, directly
related to management policies or general business operations,
along specialized or technical lines' requiring special training
experience, or knowledge, and the exercise of discretion and
independent judgment; ... . (56 C.J.S., p. 671.)
The reason underlying each exemption is in reality apparent.
Executive, administrative and professional workers are not
usually employed at hourly wages nor is it feasible in the case
of such employees to provide a fixed hourly rate of pay nor
maximum hours of labor, Helena Glendale Perry Co. v. Walling,
C.C.A. Ark. 132 F. 2d 616, 619. (56 C.J.S., p. 664.)
The philosophy behind the exemption of managerial employees
from the 8-Hour Labor Law is that such workers are not usually
employed for every hour of work but their compensation is
determined considering their special training, experience or
knowledge which requires the exercise of discretion and
independent judgment, or perform work related to management
policies or general business operations along specialized or
technical lines. For these workers it is not feasible to provide a
fixed hourly rate of pay or maximum hours of labor.
The intervenors herein are holding position of responsibility.
One of them is the Secretary of the Board of Directors. Another
is the private secretary of the general manager. Another is a
public relations officer, and many other chiefs of divisions or
sections and others are supervisors and overseers. Respondent
court, however, after examining carefully their respective
functions, duties and responsibilities found that their primary
duties do not bear any direct relation with the management of
the NAWASA, nor do they participate in the formulation of its
policies nor in the hiring and firing of its employees. The chiefs
of divisions and sections are given ready policies to execute and
standard practices to observe for their execution. Hence, it
concludes, they have little freedom of action, as their main
function is merely to carry out the company's orders, plans and any action of the management, since in either case there would

policies.
To the foregoing comment, we agree. As a matter of fact, they
are required to observe working hours and record their time work
and are not free to come and go to their offices, nor move about
at their own discretion. They do not, therefore, come within the
category of "managerial employees" within the meaning of the
law.
4. Petitioner's claim is that the issue of overtime compensation
not having been raised in the original case but merely dragged
into it by intervenors, respondent court cannot take cognizance
thereof under Section 1, Rule 13, of the Rules of Court.
Intervenors filed a petition for intervention alleging that being
employees of petitioner who have worked at night since 1954
without having been fully compensated they desire to intervene
insofar as the payment of their night work is concerned.
Petitioner opposed the petition on the ground that this matter
was not in the original case since it was not included in the
dispute certified by the President of the Philippines to the Court
of Industrial Relations. The opposition was overruled. This is
now assigned as error.
17
be an influence at work that could possibly lead, if not to positive
malfeasance, to, laxity and indifference that would gradually
erode and endanger the critical supervision entrusted to these
auditing employees.
The inclusion of their items in the PRISCO budget should be
viewed as no more than a designation by the national
government of the fund or source from which their emoluments
are to be drawn, and does not signify that they are thereby made
PRISCO employees.
The GAO employees assigned to the NAWASA are exactly in
the same position regarding their status, compensation and right
to overtime pay as the rest of the GAO employees assigned to
the defunct PRISCO, and following our ruling in the PRISCO
case, we hold that the GAO employees herein are not covered
by the 8-Hour Labor Law, but by other pertinent laws on the
matter.
The same thing may be said with regard to the employer of the
Bureau of Public Works assigned to, and working in, the
NAWASA. Their position is the same as that of the GAO
employees. Therefore, they are not also covered by the 8-Hour
Labor Law.

There is no dispute that the intervenors were in the employ of

petitioner when they intervened and that their claim refers to the The respondent court, therefore, erred in considering them as
8-Hour Labor Law and since this Court has held time and again employees of the NAWASA for the mere reason that they are
that disputes that call for the application of the 8-Hour Labor Law paid out of its fund and are subject to its administration and
are within the jurisdiction of the Court of Industrial Relations if supervision.
they arise while the employer-employee relationship still exists,
it is clear that the matter subject of intervention comes within the
jurisdiction of respondent court.1 The fact that the question of
6. A worker is entitled to overtime pay only for work in actual
overtime payment is not included in the principal casein the
service beyond eight hours. If a worker should incur in undertime
sense that it is not one of the items of dispute certified to by the
during his regular daily work, should said undertime be deducted
President is of no moment, for it comes within the sound
in computing his overtime work? Petitioner sustains the
discretion of the Court of Industrial Relations. Moreover, in labor
affirmative while respondent unions the negative, and
disputes technicalities of procedure should as much as possible
respondent court decided the dispute in favor of the latter.
be avoided not only in the interest of labor but to avoid
Hence this error.
multiplicity of action. This claim has no merit.

There is merit in the decision of respondent court that the

5. It is claimed that some intervenors are occupying positions in
the General Auditing Office and in the Bureau of Public Works
for they are appointed either by the Auditor General or by the
Secretary of Public Works and, consequently, they are not
officers of the NAWASA but of the insular government, and as
such are not covered by the Eight-Hour Labor Law.
The status of the GAO employees assigned to, and working in,
government-controlled corporations has already been decided
by this Court in National Marketing Corporation, et al. v. Court
of Industrial Relations, et al., L-17804, January 31, 1963. In said
case, this Court said:
method used by petitioner in offsetting the overtime with the
undertime and at the same time charging said undertime to the
accrued leave of the employee is unfair, for under such method
the employee is made to pay twice for his undertime because
his leave is reduced to that extent while he was made to pay for
it with work beyond the regular working hours. The proper
method should be to deduct the undertime from the accrued
leave but pay the employee the overtime to which he is entitled.
This method also obviates the irregular schedule that would
result if the overtime should be set off against the undertime for
that would place the schedule for working hours dependent on
the employee.

7. and 8. How is a daily wage of a weekly employee computed

We agree with appellants that members of the auditing force can in the light of Republic Act 1880?
not be regarded as employees of the PRISCO in matters relating
to their compensation. They are appointed and supervised by
the Auditor General, have an independent tenure, and work
According to petitioner, the daily wage should be computed
subject to his orders and instructions, and not to those of the
exclusively on the basic wage, without including the automatic
management of appellants. Above all, the nature of their
increase of 25% corresponding to the Sunday differential. To
functions and duties, for the purpose of fiscal control of
include said Sunday differential would be to increase the basic
appellants' operations, imperatively demands, as a matter of
pay which is not contemplated by said Act. Respondent court
policy, that their positions be completely independent from
disagrees with this manner of computation. It holds that
interference or inducement on the part of the supervised
Republic Act 1880 requires that the basic weekly wage and the
management, in order to assure a maximum of impartiality in the
basic monthly salary should not be diminished notwithstanding
auditing functions. Both independence and impartiality require
the reduction in the number of working days a week. If the
that the employees in question be utterly free from apprehension
automatic increase corresponding to the salary differential
as to their tenure and from expectancy of benefits resulting from
should not be included there would be a diminution of the weekly
Page 17 of 191
wage of the laborer concerned. Of course, this should only
benefit those who have been working seven days a week and
had been regularly receiving 25% additional compensation for
Sunday work before the effectivity of the Act.
It is evident that Republic Act 1880 does not intend to raise the
wages of the employees over what they are actually receiving.
Rather, its purpose is to limit the working days in a week to five
days, or to 40 hours without however permitting any reduction in
the weekly or daily wage of the compensation which was
previously received. The question then to be determined is: what
is meant by weekly or daily wage? Does the regular wage
include differential payments for work on Sundays or at nights,
or is it the total amount received by the laborer for whatever
nature or concept?
It has been held that for purposes of computing overtime
compensation a regular wage includes all payments which the
parties have agreed shall be received during the work week,
including piece work wages, differential payments for working at
undesirable times, such as at night or on Sundays and holidays,
and the cost of board and lodging customarily furnished the
employee (Walling v. Yangermah-Reynolds Hardwook Co., 325
U.S. 419; Walling v. Harischfeger Corp., 325 U.S. 427.) The
"regular rate" of pay also ordinarily includes incentive bonus or
profit-sharing payments made in addition to the normal basic
pay (56 C.J.S., pp. 704-705), and it was also held that the higher
rate for night, Sunday and holiday work is just as much a regular
rate as the lower rate for daytime work. The higher rate is merely
an inducement to accept employment at times which are not as
desirable from a workman's standpoint (International L. Ass'n v.
National Terminals Corp. C.C. Wise, 50 F. Supp. 26, affirmed
C.C.A. Carbunao v. National Terminals Corp. 139 F. 2d 853).
Respondent court, therefore, correctly included such differential
pay in computing the weekly wages of those employees and
laborers who worked seven days a week and were continuously
receiving 25% Sunday differential for a period of three months
immediately preceding the implementation of Republic Act
1880.
The next issue refers to the method of computing the daily rate
of a monthly-salaried employee. Petitioner in computing this
daily rate divides the monthly basic pay of the employee by 30
in accordance with Section 254 of the Revised Administrative
Code which in part provides that "In making payment for part of
a month, the amount to be paid for each day shall be determined
by dividing the monthly pay into as many parts as there are days
in the particular month." The respondent court disagrees with
this method and holds that the way to determine the daily rate
of a monthly employee is to divide the monthly salary by the
actual number of working hours in the month. Thus, according
to respondent court, Section 8 (g) of Republic Act No. 1161, as
amended by Republic Act 1792, provides that the daily rate of
compensation is the total regular compensation for the
customary number of hours worked each day. In other words,
according to respondent court, the correct computation shall be
(a) the monthly salary divided by the actual of working hours in
a month or (b) the regular monthly compensation divided by the
number of working days in a month.
This finding of respondent court should be modified insofar as
the employees of the General Auditing Office and of the Bureau
of Public Works assigned to work in the NAWASA are
concerned for, as already stated, they are government
employees and should be governed by Section 254 of the
Revised Administrative Code. This section provides that in
making payments for part of a month, the amount to be paid for
each day shall be determined by dividing the monthly pay. Into
as many parts as there are days in the particular month. With
Page 18 of 191
this modification we find correct the finding of the respondent
18
court on this issue.
9. The Court of Industrial Relations awarded an additional 25%
night compensation to some, workers with retroactive effect, that
is, effective even before the presentation of the claim, provided
that they had been given authorization by the general manager
to perform night work. It is petitioner's theory that since there is
no statute requiring payment of additional compensation for
night work but it can only be granted either by the voluntary act
of the employer or by an award of the industrial court under its
compulsory arbitration power, such grant should only be
prospective in operation, and not retroactive, as authorized by
the court.
It is of common occurrence that a working man who has already
rendered night time service takes him a long time before he can
muster enough courage to confront his employer with the
demand for payment for it for fear of possible reprisal. It happens
that many months or years are allowed to pass by before he
could be made to present such claim against his employer, and
so it is neither fair nor just that he be deprived of what is due him
simply because of his silence for fear of losing the means of his
livelihood. Hence, it is not erroneous for the Court of Industrial
Relations to make the payment of such night compensation
retroactive to the date when the work was actually performed.
The power of the Court of Industrial Relations to order the
payment of compensation for overtime service prior to the date
of the filing of the claim has been recognized by this Court
(Luzon Stevedoring Co., Inc. v. Luzon Marine Department
Union, et al., L-9265, April 29, 1957). The same reasons given
therein for the retroactivity of overtime compensation may also
be given for the retroactivity of payment of night compensation,
as such reasoning runs along the line already above-stated.
10. The Court of Industrial Relations in its resolution dated
November 25, 1950 issued in Case No. 359-V entitled MWD
Workers Union, et al. v. Metropolitan Water District, fixed the
following rates of minimum daily wage: P5.25 for those working
in Manila and suburbs; P4.50 for those working in Quezon City;
and P4.00 for those working in Ipo. Montalban and Balara. It
appears that in spite of the notice to terminate said award filed
with the court on December 29, 1953, the Metropolitan Water
District continued paying the above wages and the NAWASA
which succeeded it adopted the same rates for sometime. In
September, 1955, the NAWASA hired the claimants as
temporary workers and it is now contended that said rates
cannot apply to these workers.
The Court of Industrial Relations, however, held that the
discontinuance of this minimum wage rate was improper and
ordered the payment of the difference to said workers from the
date the payment of said rates was discontinued, advancing,
among others, the following reasons: that the resolution of
November 25, 1950 is applicable not only to those laborers
already in the service but also to those who may be employed
thereafter; the notice of determination of said award given on
December 29, 1953 is not legally effective because the same
was given without hearing and the employer continued paying
the minimum wages even after the notice of termination; and
there is no showing that the minimum wages violate Civil Service
Law or the principles underlying the WAPCO.
We find no valid reason to disagree with the foregoing finding of
the Court of Industrial Relations considering that the award
continued to be valid and effective in spite of the notice of
termination given by the employer. No good reason is seen why
such award should not apply to those who may be employed
after its approval by the court there being nothing therein that
may prevent its extension to them. Moreover, the industrial court
can at any time during the effectiveness of an award or reopen
any question involved therein under Section 17 of
Commonwealth Act No. 103, and such is what said court has
done when it made the award extensive to the new employees,
more so when they are similarly situated. To do otherwise would
be to foster discrimination.
11. This issue has to do with the meaning of "distress pay."
Paragraph 3, Article VIII, of the collective bargaining agreement
entered into between the employer and respondent unions,
provides:
Because of the peculiar nature of the function of those
employees and laborers of the Sewerage Division who actually
work in the sewerage chambers, causing "unusual distress" to
them, they shall receive extra compensation equivalent to
twenty-five (25%) of their basic wage.
Pursuant to said agreement, a grievance committee was
created composed of representatives of management and labor
which adopted the following resolution:
Resolution No. 9
Series of 1957
BE IT RESOLVED, That the employees and laborers of the
Sewerage Division who actually work in the sewerage chambers
causing unusual distress to them, be paid extra compensation
equivalent to 25% of their basic wage, as embodied in Article
VIII, Paragraph 3 of the Collective Bargaining Agreement;
PROVIDED, however, that any employee who may be required
to work actually in the sewerage chambers shall also be paid
25% extra compensation and, PROVIDED FURTHER, that the
term "sewerage chambers" shall include pits, trenches, and
other excavations that are necessary to tap the sewer line, and
PROVIDED FINALLY that this will not prejudice any laborer or
employee who may be included in one way or another in the
term "unusual distress" within the purview of Paragraph 3 of
Article VIII, of the Collective Bargaining Agreement.
And in a conference held between management and labor on
November 25, 1957, the following was agreed upon: "Distress
Management agreed to pay effective October 1, 1956 25%
additional compensation for those who actually work in and
outside sewerage chambers in accordance with Resolution No.
9 of the Grievance Committee."
The question that arose in connection with this distress pay is
with regard to the meaning of the phrase "who actually work in
and outside sewerage chambers." Petitioner contends that the
distress pay should be given only to those who actually work
inside the sewerage chambers while the union maintains that
such pay should be given to all those whose work have to do
with the sewerage chambers, whether inside or outside. The
Court of Industrial Relations sustained the latter view holding
that the distress pay should be given to those who actually work
in and outside the sewerage chambers effective October 1,
1956. This view is now disputed by petitioner.
The solution of the present issue hinges upon the interpretation
of paragraph 3, Article VIII of the collective bargaining
agreement, copied above, as explained by Resolution No. 9,
and the agreement of November 25, 1957, also copied above,
which stipulation has to be interpreted as a whole pursuant to
Article 1374 of the Civil Code. As thus interpreted, we find that
Page 19 of 191
those who are entitled to the distress pay are those employees
19
and laborers who work in the sewerage chambers whether they
belong to the sewerage division or not, and by sewerage
chambers should be understood to mean as the surroundings
where the work is actually done, not necessarily "inside the
sewerage chambers." This is clearly inferred from the
conference held in the Department of Labor on November 25,
1957 where it was agreed that the compensation should be paid
to those who work "in and outside" the sewerage chambers in
accordance with the terms of Resolution No. 9 of the Grievance
Committee. It should be noted that according to said resolution,
sewerage chambers include "pits, trenches, and other
excavations that are necessary to tap the sewer lines." And the
reason given for this extra compensation is the "unusual
distress" that is caused to the laborers by working in the
sewerage chambers in the form and extent above-mentioned.
It is clear then that all the laborers whether of the sewerage
division or not assigned to work in and outside the sewerage
chambers and suffer in unusual distress because of the nature
of their work are entitled to the extra compensatory. And this
conclusion is further bolstered by the findings of the industrial
court regarding the main activities of the sewerage division.
Thus, the Court of Industrial Relations found that the sewerage
division has three main activities, to wit: (a) cooperation of the
sewerage pumping stations; (b) cleaning and maintenance of
sewer mains; and (c) installation and repairs of house sewer
connections.
The pump operators and the sewer attendants in the seven
pumping stations in Manila, according to the industrial court,
suffer unusual distress. The pump operators have to go to the
wet pit to see how the cleaning of the screen protecting the
pump is being performed, and go also to the dry pit abutting the
wet pit to make repairs in the breakdown of the pumps. Although
the operators used to stay near the motor which is but a few
meters from the pump, they unavoidably smell the foul odor
emitting from the pit. Thesewerage attendants go down and
work in the wet pit containing sewerage materials in order to
clean the screen.
A group assigned to the cleaning and maintenance of the sewer
mains which are located in the middle of the streets of Manila is
usually composed of a capataz and four sewerage attendants.
These attendants are rotated in going inside the manholes,
operation of the window glass, bailing out from the main to the
manhole and in supplying the water service as necessity
demand. These attendants come into contact with dirt, stink, and
smell, darkness and heat inside and near the sewage pipes. The
capataz goes from one manhole to another seeing to it that the
work is properly performed and as such also suffers unusual
distress although to a lesser degree.
The group resigned to the third kind of activity is also usually
composed of a capataz and four attendants. Their work is to
connect sewer pipes from houses to the sewer mains and to do
this they excavate the trench across the street from the proper
line to the sewer main and then they install the pipe after tapping
the sewer main. In the tapping, the sewer pipe is opened and so
the sewerage gets out and fills up the trench and the men have
to wade in and work with the sewerage water. The capataz has
to go near the filthy excavations or trenches full of filthy
sewerage, matter to aid the attendants in making pipe
connections, especially when these are complicated.
It cannot therefore be gainsaid that all there laborers suffer
unusual distress. The wet pits, trenches, manholes, which are
full of sewage matters, are filthy sources of germs and different
diseases. They emit foul and filthy odor dangerous to health.
Those working in such places and exposed directly to the
distress of contamination.
Premises considered, the decision of the Court of Industrial
Relations in this respect should be modified in the sense that all
employees and laborers, whether or not they belong to the
sewerage division, who actually work in and outside the
sewerage chambers, should be paid the distress pay or the extra
compensation equivalent to 25% of their basic wage effective
October 1, 1956.
12. On August 6, 1957, the NAWASA requested the President
of the Philippines for exemption from Executive Order No. 251
which prescribes the office hours to be observed in government
and government-owned or controlled corporations in order that
it could stagger the working hours of its employees and laborers.
The request is based on the fact that there are essential and
indispensable phases in the operation of the NAWASA that are
required to be attended to continuously for twenty-four hours for
the entire seven days of the week without interruption some of
which being the work performed by pump operators, valve
operators, filter operators, chlorine operators, watchmen and
guards, and medical personnel. This request was granted and,
accordingly, the NAWASA staggered the work schedule of the
employees and laborers performing the activities above-
mentioned. Respondent unions protested against this
staggering schedule of work and this protest having been
unheeded, they brought the matter to the Court of Industrial
Relations.
In resolving this issue, the industrial court justified the staggering
of the work days of those holding positions as pump operators,
valve operators, filter operators, chlorine operators, watchmen
and guards, and those in the medical service for the reason that
the same was made pursuant to the authority granted by the
President who in the valid exercise of the powers conferred upon
him by Republic Act No. 1880 could prescribe the working days
of employees and laborers in government-owned and controlled
corporations depending upon the exigencies of the service. The
court, however, stated that the staggering should not apply to
the personnel in the construction, sewerage, maintenance,
machineries and shops because they work below 365 days a
year and their services are not continuous to require staggering.
From this portion of the decision, the petitioner appeals.
Considering that respondent court found that the workers in
question work less than 365 days a year and their services are
not continuous to require staggering, we see no reason to
disturb this finding. This is contrary to the very essence of the
request that the staggering should be made only with regard to
those phases of the operation of the NAWASA that have to be
attended to continuously for twenty-four hours without
interruption which certainly cannot apply to the workers
mentioned in the last part of the decision of the respondent court
on the matter.
RECAPITULATION
In resume, this Court holds:
(1) The NAWASA, though a public corporation, does not perform
governmental functions. It performs proprietary functions, and
hence, it is covered by Commonwealth Act No. 444;
(2) The NAWASA is a public utility. Although pursuant to Section
4 of Commonwealth Act 444 it is not obliged to pay an additional
sum of 25% to its laborers for work done on Sundays and legal
Page 20 of 191
holidays, yet it must pay said additional compensation by virtue
20
of the contractual obligation it assumed under the collective
bargaining agreement;
(3) The intervenors are not "managerial employees" as defined
in Republic Act No. 2377, hence they are covered by
Commonwealth Act No. 444, as amended;
(4) The Court of Industrial Relations has jurisdiction to
adjudicate overtime pay in the case at bar there being an
employer-employee relationship existing between intervenors
and petitioner;
(5) The GAO employees assigned to work in the NAWASA
cannot be regarded as employees of the NAWASA on matters
relating to compensation. They are employees of the national
government and are not covered by the Eight-Hour Labor Law.
The same may be said of the employees of the Bureau of Public
Works assigned to work in the NAWASA;
(6) The method used by the NAWASA in off-setting the overtime
with the undertime and at the same time charging said
undertime to the accrued leave is unfair;
(7) The differential pay for Sundays is a part of the legal wage.
Hence, it was correctly included in computing the weekly wages
of those employees and laborers who worked seven days a
week and were regularly receiving the 25% salary differential for
a period of three months prior to the implementation of Republic
Act 1880. This is so even if petitioner is a public utility in view of
the contractual obligation it has assumed on the matter;
(8) In the computation of the daily wages of employees paid by
the month distinction should be made between government
employees like the GAO employees and those who are not. The
computation for government employees is governed by Section
254 of the Revised Administrative Code while for others the
correct computation is the monthly salary divided by the actual
number of working hours in the month or the regular monthly
compensation divided by the number of working days in the
month;
(9) The Court of Industrial Relations did not err in ordering the
payment of night compensation from the time such services
were rendered. The laborer must be compensated for nighttime
work as of the date the same was rendered;
(10) The rates of minimum pay fixed in CIR Case No. 359-V are
applicable not only to those who were already in the service as
of the date of the decision but also to those who were employed
subsequent to said date;
(11) All the laborers, whether assigned to the sewerage division
or not who are actually working inside or outside the sewerage
chambers are entitled to distress pay; and
(12) There is no valid reason to disturb the finding of the Court
of Industrial Relations that the work of the personnel in the
construction, sewerage, maintenance, machineries and shops
of petitioner is not continous as to require staggering.
CONCLUSION

With the modification indicated in the above resume as
elaborated in this decision, we hereby affirm the decision of
respondent court in all other respects, without pronouncement
as to costs.
G.R. No. 101761. March 24, 1993.
NATIONAL SUGAR REFINERIES CORPORATION,
petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION and NBSR SUPERVISORY UNION, (PACIWU)
TUCP, respondents.
Jose Mario C. Bunag for petitioner.
The Solicitor General and the Chief Legal Officer, NLRC, for
public respondent.
Zoilo V. de la Cruz for private respondent.
DECISION
REGALADO, J p:
The main issue presented for resolution in this original petition
for certiorari is whether supervisory employees, as defined in
Article 212 (m), Book V of the Labor Code, should be considered
as officers or members of the managerial staff under Article 82,
Book III of the same Code, and hence are not entitled to
overtime rest day and holiday pay.
Petitioner National Sugar Refineries Corporation
(NASUREFCO), a corporation which is fully owned and
controlled by the Government, operates three (3) sugar
refineries located at Bukidnon, Iloilo and Batangas. The
Batangas refinery was privatized on April 11, 1992 pursuant to
Proclamation No. 50. 1 Private respondent union represents the
former supervisors of the NASUREFCO Batangas Sugar
Refinery, namely, the Technical Assistant to the Refinery
Operations Manager, Shift Sugar Warehouse Supervisor,
Senior Financial/Budget Analyst, General Accountant, Cost
Accountant, Sugar Accountant, Junior Financial/Budget
Analyst, Shift Boiler Supervisor,, Shift Operations Chemist, Shift
Electrical Supervisor, General Services Supervisor,
Instrumentation Supervisor, Community Development Officer,
Employment and Training Supervisor, Assistant Safety and
Security Officer, Head and Personnel Services, Head Nurse,
Property Warehouse Supervisor, Head of Inventory Control
Section, Shift Process Supervisor, Day Maintenance Supervisor
and Motorpool Supervisor.
On June 1, 1988, petitioner implemented a Job Evaluation (JE)
Program affecting all employees, from rank-and-file to
department heads. The JE Program was designed to
rationalized the duties and functions of all positions, reestablish
levels of responsibility, and recognize both wage and
operational structures. Jobs were ranked according to effort,
responsibility, training and working conditions and relative worth
of the job. As a result, all positions were re-evaluated, and all
employees including the members of respondent union were
granted salary adjustments and increases in benefits
commensurate to their actual duties and functions.
We glean from the records that for about ten years prior to the
JE Program, the members of respondent union were treated in
the same manner as rank-and file employees. As such, they
used to be paid overtime, rest day and holiday pay pursuant to
the provisions of Articles 87, 93 and 94 of the Labor Code as
amended. With the implementation of the JE Program, the
following adjustments were made: (1) the members of
respondent union were re-classified under levels S-5 to S-8
which are considered managerial staff for purposes of
Page 21 of 191
compensation and benefits; (2) there was an increase in basic
21
pay of the average of 50% of their basic pay prior to the JE
Program, with the union members now enjoying a wide gap
(P1,269.00 per month) in basic pay compared to the highest
paid rank-and-file employee; (3) longevity pay was increased on
top of alignment adjustments; (4) they were entitled to increased
company COLA of P225.00 per month; (5) there was a grant of
P100.00 allowance for rest day/holiday work.
On May 11, 1990, petitioner NASUREFCO recognized herein
respondent union, which was organized pursuant to Republic
Act NO. 6715 allowing supervisory employees to form their own
unions, as the bargaining representative of all the supervisory
employees at the NASUREFCO Batangas Sugar Refinery.
Two years after the implementation of the JE Program,
specifically on June 20, 1990, the members of herein
respondent union filed a complainant with the executive labor
arbiter for non-payment of overtime, rest day and holiday pay
allegedly in violation of Article 100 of the Labor Code.
On January 7, 1991, Executive Labor Arbiter Antonio C. Pido
rendered a decision 2 disposing as follows:
"WHEREFORE, premises considered, respondent National
Sugar refineries Corporation is hereby directed to —
1. pay the individual members of complainant union the
usual overtime pay, rest day pay and holiday pay enjoyed by
them instead of the P100.00 special allowance which was
implemented on June 11, 1988; and
2. pay the individual members of complainant union the
difference in money value between the P100.00 special
allowance and the overtime pay, rest day pay and holiday pay
that they ought to have received from June 1, 1988.
All other claims are hereby dismissed for lack of merit.
SO ORDERED."
In finding for the members therein respondent union, the labor
ruled that the along span of time during which the benefits were
being paid to the supervisors has accused the payment thereof
to ripen into contractual obligation; at the complainants cannot
be estopped from questioning the validity of the new
compensation package despite the fact that they have been
receiving the benefits therefrom, considering that respondent
union was formed only a year after the implementation of the
Job Evaluation Program, hence there was no way for the
individual supervisors to express their collective response
thereto prior to the formation of the union; and the comparative
computations presented by the private respondent union
showed that the P100.00 special allowance given NASUREFCO
fell short of what the supervisors ought to receive had the
overtime pay rest day pay and holiday pay not been
discontinued, which arrangement, therefore, amounted to a
diminution of benefits.
On appeal, in a decision promulgated on July 19, 1991 by its
Third Division, respondent National Labor Relations
Commission (NLRC) affirmed the decision of the labor arbiter on
the ground that the members of respondent union are not
managerial employees, as defined under Article 212 (m) of the
Labor Code and, therefore, they are entitled to overtime, rest who are paid by results as determined by the Secretary of Labor

22
day and holiday pay. Respondent NLRC declared that these in Appropriate regulations.
supervisory employees are merely exercising recommendatory
powers subject to the evaluation, review and final action by their
department heads; their responsibilities do not require the
"As used herein, 'managerial employees' refer to those whose
exercise of discretion and independent judgment; they do not
primary duty consists of the management of the establishment
participate in the formulation of management policies nor in the
in which they are employed or of a department or subdivision
hiring or firing of employees; and their main function is to carry
thereof, and to other officers or members of the managerial
out the ready policies and plans of the corporation. 3
staff." (Emphasis supplied.)
Reconsideration of said decision was denied in a resolution of
public respondent dated August 30, 1991. 4

xxx xxx xxx

Hence this petition for certiorari, with petitioner NASUREFCO
asseverating that public respondent commission committed a
grave abuse of discretion in refusing to recognized the fact that 'Sec. 2. Exemption. — The provisions of this rule shall not apply
the members of respondent union are members of the to the following persons if they qualify for exemption under the
managerial staff who are not entitled to overtime, rest day and condition set forth herein:
holiday pay; and in making petitioner assume the "double
burden" of giving the benefits due to rank-and-file employees
together with those due to supervisors under the JE Program.
xxx xxx xxx

We find creditable merit in the petition and that the extraordinary

writ of certiorari shall accordingly issue. (b) Managerial employees, if they meet all of the following
conditions, namely:

The primordial issue to be resolved herein is whether the

members of respondent union are entitled to overtime, rest day (1) Their primary duty consists of the management of the
and holiday pay. Before this can be resolved, however it must of establishment in which they are employed or of a department or
necessity be ascertained first whether or not the union subdivision thereof:
members, as supervisory employees, are to be considered as
officers or members of the managerial staff who are exempt from
the coverage of Article 82 of the Labor Code. (2) They customarily and regularly direct the work of two
or more employees therein:

It is not disputed that the members of respondent union are

supervisory employees, as defined employees, as defined (3) They have the authority to hire or fire other employees
under Article 212(m), Book V of the Labor Code on Labor of lower rank; or their suggestions and recommendations as to
Relations, which reads: the hiring and firing and as to the promotion or any other change
of status of other employees are given particular weight.

"(m) 'Managerial employee' is one who is vested with

powers or prerogatives to lay down and execute management
policies and/or to hire, transfer, suspend, lay-off, recall,
discharged, assign or discipline employees. Supervisory
employees are those who, in the interest of the employer
effectively recommend such managerial actions if the exercise
of such authority is not merely routinary or clerical in nature but
requires the use of independent judgment. All employees not
falling within any of those above definitions are considered rank-
and-file employees of this Book."
Respondent NLRC, in holding that the union members are
entitled to overtime, rest day and holiday pay, and in ruling that
the latter are not managerial employees, adopted the definition
stated in the aforequoted statutory provision.
Petitioner, however, avers that for purposes of determining
whether or not the members of respondent union are entitled to
overtime, rest day and holiday pay, said employees should be
considered as "officers or members of the managerial staff" as
defined under Article 82, Book III of the Labor Code on "Working
Conditions and Rest Periods" and amplified in Section 2, Rule I,
Book III of the Rules to Implement the Labor Code, to wit:
"Art. 82 Coverage. — The provisions of this title shall apply to
employees in all establishments and undertakings whether for
profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the
employer who are dependent on him for support, domestic
helpers, persons in the personal service of another, and workers
Page 22 of 191
(c) Officers or members of a managerial staff if they
perform the following duties and responsibilities:
(1) The primary duty consists of the performance of work
directly related to management policies of their employer;
(2) Customarily and regularly exercise discretion and
independent judgment;
(3) (i) Regularly and directly assist a proprietor or a
managerial employee whose primary duty consists of the
management of the establishment in which he is employed or
subdivision thereof; or (ii) execute under general supervision
work along specialized or technical lines requiring special
training, experience, or knowledge; or (iii) execute under general
supervision special assignments and tasks; and
(4) Who do not devote more 20 percent of their hours
worked in a work-week to activities which are not directly and
closely related to the performance of the work described in
paragraphs (1), (2), and above."
It is the submission of petitioner that while the members of
respondent union, as supervisors, may not be occupying
managerial positions, they are clearly officers or members of the
managerial staff because they meet all the conditions prescribed
by law and, hence, they are not entitled to overtime, rest day and
supervisory employees under Article 212 (m) should be made to
apply only to the provisions on Labor Relations, while the right
of said employees to the questioned benefits should be
considered in the light of the meaning of a managerial employee
and of the officers or members of the managerial staff, as
contemplated under Article 82 of the Code and Section 2, Rule
I Book III of the implementing rules. In other words, for purposes
of forming and joining unions, certification elections, collective
bargaining, and so forth, the union members are supervisory
employees. In terms of working conditions and rest periods and
entitlement to the questioned benefits, however, they are
officers or members of the managerial staff, hence they are not
entitled thereto.
While the Constitution is committed to the policy of social justice
and the protection of the working class, it should not be
supposed that every labor dispute will be automatically decided
in favor of labor. Management also has its own rights which, as
such, are entitled to respect and enforcement in the interest of
simple fair play. Out of its concern for those with less privileges
in life, this Court has inclined more often than not toward the
worker and upheld his cause in his conflicts with the employer.
Such favoritism, however, has not blinded us to the rule that
justice is in every case for the deserving, to be dispensed in the
light of the established facts and the applicable law and doctrine.
5 subordinates and recommends necessary action for their
This is one such case where we are inclined to tip the scales of
justice in favor of the employer.
The question whether a given employee is exempt from the
benefits of the law is a factual one dependent on the
circumstances of the particular case, In determining whether an
employee is within the terms of the statutes, the criterion is the
character of the work performed, rather than the title of the
employee's position. 6
Consequently, while generally this Court is not supposed to
review the factual findings of respondent commission,
substantial justice and the peculiar circumstances obtaining
herein mandate a deviation from the rule.
A cursory perusal of the Job Value Contribution Statements 7 of
the union members will readily show that these supervisory
employees are under the direct supervision of their respective
department superintendents and that generally they assist the
latter in planning, organizing, staffing, directing, controlling
communicating and in making decisions in attaining the
company's set goals and objectives. These supervisory
employees are likewise responsible for the effective and efficient
operation of their respective departments. More specifically,
their duties and functions include, among others, the following
operations whereby the employee:
1) assists the department superintendent in the following:
a) planning of systems and procedures relative to
department activities;
b) organizing and scheduling of work activities of the
department, which includes employee shifting scheduled and
manning complement;
Page 23 of 191
c) decision making by providing relevant information data
23
and other inputs;
d) attaining the company's set goals and objectives by
giving his full support;
e) selecting the appropriate man to handle the job in the
department; and
f) preparing annual departmental budget;
2) observes, follows and implements company policies at
all times and recommends disciplinary action on erring
subordinates;
3) trains and guides subordinates on how to assume
responsibilities and become more productive;
4) conducts semi-annual performance evaluation of his
development/advancement;
5) represents the superintendent or the department when
appointed and authorized by the former;
6) coordinates and communicates with other inter and
intra department supervisors when necessary;
7) recommends disciplinary actions/promotions;
8) recommends measures to improve work methods,
equipment performance, quality of service and working
conditions;
9) sees to it that safety rules and regulations and
procedure and are implemented and followed by all
NASUREFCO employees, recommends revisions or
modifications to said rules when deemed necessary, and
initiates and prepares reports for any observed abnormality
within the refinery;
10) supervises the activities of all personnel under him and
goes to it that instructions to subordinates are properly
implemented; and
11) performs other related tasks as may be assigned by his
immediate superior.
From the foregoing, it is apparent that the members of
respondent union discharge duties and responsibilities which
ineluctably qualify them as officers or members of the
managerial staff, as defined in Section 2, Rule I Book III of the
aforestated Rules to Implement the Labor Code, viz.: (1) their
primary duty consists of the performance of work directly related
to management policies of their employer; (2) they customarily
and regularly exercise discretion and independent judgment; (3)
they regularly and directly assist the managerial employee
whose primary duty consist of the management of a department
of the establishment in which they are employed (4) they
execute, under general supervision, work along specialized or
technical lines requiring special training, experience, or
knowledge; (5) they execute, under general supervision, special
assignments and tasks; and (6) they do not devote more than
20% of their hours worked in a work-week to activities which are
not directly and clearly related to the performance of their work
hereinbefore described.
Under the facts obtaining in this case, we are constrained to
agree with petitioner that the union members should be
considered as officers and members of the managerial staff and
are, therefore, exempt from the coverage of Article 82. Perforce,
they are not entitled to overtime, rest day and holiday.
The distinction made by respondent NLRC on the basis of
whether or not the union members are managerial employees,
to determine the latter's entitlement to the questioned benefits,
is misplaced and inappropriate. It is admitted that these union
members are supervisory employees and this is one instance
where the nomenclatures or titles of their jobs conform with the
nature of their functions. Hence, to distinguish them from a
managerial employee, as defined either under Articles 82 or 212
(m) of the Labor Code, is puerile and in efficacious. The
controversy actually involved here seeks a determination of
whether or not these supervisory employees ought to be
considered as officers or members of the managerial staff. The
distinction, therefore, should have been made along that line
and its corresponding conceptual criteria.
II. We likewise no not subscribe to the finding of the labor
arbiter that the payment of the questioned benefits to the union
members has ripened into a contractual obligation.
A. Prior to the JE Program, the union members, while
being supervisors, received benefits similar to the rank-and-file
employees such as overtime, rest day and holiday pay, simply
because they were treated in the same manner as rank-and-file
employees, and their basic pay was nearly on the same level as
those of the latter, aside from the fact that their specific functions
and duties then as supervisors had not been properly defined
and delineated from those of the rank-and-file. Such fact is
apparent from the clarification made by petitioner in its motion
for reconsideration 8 filed with respondent commission in NLRC
Case No. CA No. I-000058, dated August 16, 1991, wherein, it
lucidly explained:
"But, complainants no longer occupy the same positions they
held before the JE Program. Those positions formerly classified
as 'supervisory' and found after the JE Program to be rank-and-
file were classified correctly and continue to receive overtime,
holiday and restday pay. As to them, the practice subsists.
"However, those whose duties confirmed them to be
supervisory, were re-evaluated, their duties re-defined and in
most cases their organizational positions re-designated to
confirm their superior rank and duties. Thus, after the JE
program, complainants cannot be said to occupy the same
positions." 9
It bears mention that this positional submission was never
refuted nor controverted by respondent union in any of its
pleadings filed before herein public respondent or with this
Court. Hence, it can be safely concluded therefrom that the
members of respondent union were paid the questioned benefits
for the reason that, at that time, they were rightfully entitled
thereto. Prior to the JE Program, they could not be categorically
Page 24 of 191
classified as members or officers of the managerial staff
24
considering that they were then treated merely on the same level
as rank-and-file. Consequently, the payment thereof could not
be construed as constitutive of voluntary employer practice,
which cannot be now be unilaterally withdrawn by petitioner. To
be considered as such, it should have been practiced over a
long period of time, and must be shown to have been consistent
and deliberate. 10
The test or rationale of this rule on long practice requires an
indubitable showing that the employer agreed to continue giving
the benefits knowingly fully well that said employees are not
covered by the law requiring payment thereof. 11 In the case at
bar, respondent union failed to sufficiently establish that
petitioner has been motivated or is wont to give these benefits
out of pure generosity.
B. It remains undisputed that the implementation of the JE
Program, the members of private respondent union were re-
classified under levels S-5 S-8 which were considered under the
program as managerial staff purposes of compensation and
benefits, that they occupied re-evaluated positions, and that
their basic pay was increased by an average of 50% of their
basic salary prior to the JE Program. In other words, after the JE
Program there was an ascent in position, rank and salary. This
in essence is a promotion which is defined as the advancement
from one position to another with an increase in duties and
responsibilities as authorized by law, and usually accompanied
by an increase in salary. 12
Quintessentially, with the promotion of the union members, they
are no longer entitled to the benefits which attach and pertain
exclusively to their positions. Entitlement to the benefits
provided for by law requires prior compliance with the conditions
set forth therein. With the promotion of the members of
respondent union, they occupied positions which no longer met
the requirements imposed by law. Their assumption of these
positions removed them from the coverage of the law, ergo, their
exemption therefrom.
As correctly pointed out by petitioner, if the union members
really wanted to continue receiving the benefits which attach to
their former positions, there was nothing to prevent them from
refusing to accept their promotions and their corresponding
benefits. As the sating goes by, they cannot have their cake and
eat it too or, as petitioner suggests, they could not, as a simple
matter of law and fairness, get the best of both worlds at the
expense of NASUREFCO.
Promotion of its employees is one of the jurisprudentially-
recognized exclusive prerogatives of management, provided it
is done in good faith. In the case at bar, private respondent union
has miserably failed to convince this Court that the petitioner
acted implementing the JE Program. There is no showing that
the JE Program was intended to circumvent the law and deprive
the members of respondent union of the benefits they used to
receive.
Not so long ago, on this particular score, we had the occasion
to hold that:
". . . it is the prerogative of the management to regulate,
according to its discretion and judgment, all aspects of
employment. This flows from the established rule that labor law
does not authorize the substitution of the judgment of the
employer in the conduct of its business. Such management
prerogative may be availed of without fear of any liability so long
as it is exercised in good faith for the advancement of the
employer's interest and not for the purpose of defeating on SO ORDERED. (Rollo, p. 58)

25
circumventing the rights of employees under special laws or
valid agreement and are not exercised in a malicious, harsh,
oppressive, vindictive or wanton manner or out of malice or
On December 12, 1986, after considering the appeal
spite." 13
memorandum of complainant and the opposition of
respondents, the First Division of public respondent NLRC
composed of Acting Presiding Commissioner Franklin Drilon,
WHEREFORE, the impugned decision and resolution of Commissioner Conrado Maglaya, Commissioner Rosario D.
respondent National Labor Relations Commission promulgated Encarnacion as Members, promulgated its Resolution,
on July 19, 1991 and August 30, 1991, respectively, are hereby upholding the Labor Arbiters' decision. The Resolution's
ANNULLED and SET ASIDE for having been rendered and dispositive portion reads:
adopted with grave abuse of discretion, and the basic complaint
of private respondent union is DISMISSED.
'Surely, the customary functions referred to in the above- quoted
provision of the agreement includes the long-standing practice
G.R. No. 78210 February 28, 1989 and institutionalized non-compensable assembly time. This, in
effect, estopped complainants from pursuing this case.
TEOFILO ARICA, DANILO BERNABE, MELQUIADES
DOHINO, ABONDIO OMERTA, GIL TANGIHAN, SAMUEL
LABAJO, NESTOR NORBE, RODOLFO CONCEPCION,
RICARDO RICHA, RODOLFO NENO, ALBERTO BALATRO, The Commission cannot ignore these hard facts, and we are
BENJAMIN JUMAMOY, FERMIN DAAROL, JOVENAL constrained to uphold the dismissal and closure of the case.
ENRIQUEZ, OSCAR BASAL, RAMON ACENA, JAIME
BUGTAY, and 561 OTHERS, HEREIN REPRESENTED BY
KORONADO B. APUZEN, petitioners vs. NATIONAL WHEREFORE, let the appeal be, as it is hereby dismissed, for
LABOR RELATIONS COMMISSION, HONORABLE lack of merit.
FRANKLIN DRILON, HONORABLE CONRADO B.
MAGLAYA, HONORABLE ROSARIO B. ENCARNACION,
and STANDARD (PHILIPPINES) FRUIT CORPORATION,
respondents. SO ORDERED. (Annex "H", Rollo, pp. 86-89).

Koronado B. Apuzen and Jose C. Espinas for petitioners.

The Solicitor General for public respondent. On January 15, 1987, petitioners filed a Motion for
Reconsideration which was opposed by private respondent
Dominguez & Paderna Law Offices Co. for private respondent. (Annex "I", Rollo, pp. 90-91; Annex J Rollo, pp. 92-96).
PARAS, J.:

Public respondent NLRC, on January 30, 1987, issued a

resolution denying for lack of merit petitioners' motion for
This is a petition for review on certiorari of the decision of the reconsideration (Annex "K", Rollo, p. 97).
National Labor Relations Commission dated December 12,
1986 in NLRC Case No. 2327 MC-XI-84 entitled Teofilo Arica et
al. vs. Standard (Phil.) Fruits Corporation (STANFILCO) which
affirmed the decision of Labor Arbiter Pedro C. Ramos, NLRC, Hence this petition for review on certiorari filed on May 7, 1987.
Special Task Force, Regional Arbitration Branch No. XI, Davao
City dismissing the claim of petitioners.
The Court in the resolution of May 4, 1988 gave due course to
this petition.
This case stemmed from a complaint filed on April 9, 1984
against private respondent Stanfilco for assembly time, moral
damages and attorney's fees, with the aforementioned Regional Petitioners assign the following issues:
Arbitration Branch No. XI, Davao City.

1) Whether or not the 30-minute activity of the petitioners

After the submission by the parties of their respective position before the scheduled working time is compensable under the
papers (Annex "C", pp. 30-40; Annex "D", Rollo, pp. 41-50), Labor Code.
Labor Arbiter Pedro C. Ramos rendered a decision dated
October 9, 1985 (Annex 'E', Rollo, pp. 51-58) in favor of private
respondent STANFILCO, holding that:
2) Whether or not res judicata applies when the facts obtaining
in the prior case and in the case at bar are significantly different
from each other in that there is merit in the case at bar.
Given these facts and circumstances, we cannot but agree with
respondent that the pronouncement in that earlier case, i.e. the
thirty-minute assembly time long practiced cannot be
considered waiting time or work time and, therefore, not 3) Whether or not there is finality in the decision of
compensable, has become the law of the case which can no Secretary Ople in view of the compromise agreement novating
longer be disturbed without doing violence to the time- honored it and the withdrawal of the appeal.
principle of res-judicata.

4) Whether or not estoppel and laches lie in decisions for the

WHEREFORE, in view of the foregoing considerations, the enforcement of labor standards (Rollo, p. 10).
instant complaint should therefore be, as it is hereby,
DISMISSED.
Petitioners contend that the preliminary activities as workers of
respondents STANFILCO in the assembly area is compensable
Page 25 of 191
as working time (from 5:30 to 6:00 o'clock in the morning) since
these preliminary activities are necessarily and primarily for
private respondent's benefit.
These preliminary activities of the workers are as follows:
(a) First there is the roll call. This is followed by getting their
individual work assignments from the foreman.
(b) Thereafter, they are individually required to accomplish the
Laborer's Daily Accomplishment Report during which they are
often made to explain about their reported accomplishment the
following day.
(c) Then they go to the stockroom to get the working materials,
tools and equipment.
(d) Lastly, they travel to the field bringing with them their tools,
equipment and materials.
All these activities take 30 minutes to accomplish (Rollo,
Petition, p. 11).
Contrary to this contention, respondent avers that the instant
complaint is not new, the very same claim having been brought
against herein respondent by the same group of rank and file
employees in the case of Associated Labor Union and Standard
Fruit Corporation, NLRC Case No. 26-LS-XI-76 which was filed
way back April 27, 1976 when ALU was the bargaining agent of
respondent's rank and file workers. The said case involved a
claim for "waiting time", as the complainants purportedly were
required to assemble at a designated area at least 30 minutes
prior to the start of their scheduled working hours "to ascertain
the work force available for the day by means of a roll call, for
the purpose of assignment or reassignment of employees to
such areas in the plantation where they are most needed."
(Rollo, pp. 64- 65)
Noteworthy is the decision of the Minister of Labor, on May 12,
1978 in the aforecited case (Associated Labor Union vs.
Standard (Phil.) Fruit Corporation, NLRC Case No. 26-LS-XI-76
where significant findings of facts and conclusions had already
been made on the matter.
The Minister of Labor held:
The thirty (30)-minute assembly time long practiced and
institutionalized by mutual consent of the parties under Article
IV, Section 3, of the Collective Bargaining Agreement cannot be
considered as waiting time within the purview of Section 5, Rule
I, Book III of the Rules and Regulations Implementing the Labor
Code. ...
Furthermore, the thirty (30)-minute assembly is a deeply-
rooted, routinary practice of the employees, and the
proceedings attendant thereto are not infected with complexities
as to deprive the workers the time to attend to other personal
pursuits. They are not new employees as to require the
company to deliver long briefings regarding their respective
work assignments. Their houses are situated right on the area
where the farm are located, such that after the roll call, which
does not necessarily require the personal presence, they can go
Page 26 of 191
back to their houses to attend to some chores. In short, they are
26
not subject to the absolute control of the company during this
period, otherwise, their failure to report in the assembly time
would justify the company to impose disciplinary measures. The
CBA does not contain any provision to this effect; the record is
also bare of any proof on this point. This, therefore,
demonstrates the indubitable fact that the thirty (30)-minute
assembly time was not primarily intended for the interests of the
employer, but ultimately for the employees to indicate their
availability or non-availability for work during every working day.
(Annex "E", Rollo, p. 57).
Accordingly, the issues are reduced to the sole question as to
whether public respondent National Labor Relations
Commission committed a grave abuse of discretion in its
resolution of December 17, 1986.
The facts on which this decision was predicated continue to be
the facts of the case in this questioned resolution of the National
Labor Relations Commission.
It is clear that herein petitioners are merely reiterating the very
same claim which they filed through the ALU and which records
show had already long been considered terminated and closed
by this Court in G.R. No. L-48510. Therefore, the NLRC can not
be faulted for ruling that petitioners' claim is already barred by
res-judicata.
Be that as it may, petitioners' claim that there was a change in
the factual scenario which are "substantial changes in the facts"
makes respondent firm now liable for the same claim they earlier
filed against respondent which was dismissed. It is thus
axiomatic that the non-compensability of the claim having been
earlier established, constitute the controlling legal rule or
decision between the parties and remains to be the law of the
case making this petition without merit.
As aptly observed by the Solicitor General that this petition is
"clearly violative of the familiar principle of res judicata. There
will be no end to this controversy if the light of the Minister of
Labor's decision dated May 12, 1979 that had long acquired the
character of finality and which already resolved that petitioners'
thirty (30)-minute assembly time is not compensable, the same
issue can be re-litigated again." (Rollo, p. 183)
This Court has held:
In this connection account should be taken of the cognate
principle that res judicata operates to bar not only the relitigation
in a subsequent action of the issues squarely raised, passed
upon and adjudicated in the first suit, but also the ventilation in
said subsequent suit of any other issue which could have been
raised in the first but was not. The law provides that 'the
judgment or order is, with respect to the matter directly adjudged
or as to any other matter that could have been raised in relation
thereto, conclusive between the parties and their successors in
interest by title subsequent to the commencement of the action
.. litigating for the same thing and in the same capacity.' So, even
if new causes of action are asserted in the second action (e.g.
fraud, deceit, undue machinations in connection with their
execution of the convenio de transaccion), this would not
preclude the operation of the doctrine of res judicata. Those
issues are also barred, even if not passed upon in the first. They
could have been, but were not, there raised. (Vda. de Buncio v.
Estate of the late Anita de Leon, 156 SCRA 352 [1987]).
Moreover, as a rule, the findings of facts of quasi-judicial 3. November 20, 1980: for nonpayment of ecolas

27
agencies which have acquired expertise because their under P.D. Nos. 525, 1123, 1614, 1634, 1678 and 1713 for
jurisdiction is confined to specific matters are accorded not only November 1-15, 1980, and extra loads during typhoons "Nitang"
respect but at times even finality if such findings are supported and "Osang" on July 21 and 25, 1980, respectively;
by substantial evidence (Special Events & Central Shipping
Office Workers Union v. San Miguel Corporation, 122 SCRA 557
[1983]; Dangan v. NLRC, 127 SCRA 706 [1984]; Phil. Labor
4. April 13, 1981: for violation of P.D. No. 1751 and
Alliance Council v. Bureau of Labor Relations, 75 SCRA 162
nonpayment of extra loads on February 12-13, 1980
[1977]; Mamerto v. Inciong, 118 SCRA 265 (1982]; National
(Anniversary celebration);
Federation of Labor Union (NAFLU) v. Ople, 143 SCRA 124
[1986]; Edi-Staff Builders International, Inc. v. Leogardo, Jr., 152
SCRA 453 [1987]; Asiaworld Publishing House, Inc. v. Ople, 152
SCRA 219 [1987]). 5. April 27, 1981: for nonpayment of all ecolas for April
1-15, 1981 to faculty members who were also members of the
union;
The records show that the Labor Arbiters' decision dated
October 9, 1985 (Annex "E", Petition) pointed out in detail the
basis of his findings and conclusions, and no cogent reason can 6. May 21, 1981: for violation of Wage Order No. 1
be found to disturb these findings nor of those of the National and delayed payment of salaries; and
Labor Relations Commission which affirmed the same.

7. June 17, 1981: for nonpayment of salary

PREMISES CONSIDERED, the petition is DISMISSED for lack differentials for summer under P.D. No. 451.1
of merit and the decision of the National Labor Relations
Commission is AFFIRMED.
The Regional Director in San Fernando, La Union certified six
(6) of these complaints to Labor Arbiter Pedro Fernandez of the
SO ORDERED. Dagupan City District Office of the then Ministry of Labor and
Employment for compulsory arbitration. 2 According to the
petitioner, it was made to understand by Fernandez that the
G.R. Nos. 64821-23 January 29, 1993 seventh complaint should also be discussed in its position
paper. Accordingly, petitioner filed a position paper discussing
UNIVERSITY OF PANGASINAN FACULTY UNION, the merits of all the seven complaints. On the other hand, the
petitioner, vs. NATIONAL LABOR RELATIONS University limited its discussion to only four: the complaints filed
COMMISSION and UNIVERSITY OF PANGASINAN, on April 13, 1981, April 27, 1981, May 21, 1981 and June 17,
respondents. 1981. Petitioner was of the view that Executive Labor Arbiter
Sotero L. Tumang adopted the stand of the University on the
Tanopo & Serafica for petitioner. four complaints and accordingly dismissed them in his decision
of January 25, 1982.3
Hermogenes S. Decano for private respondents.

ROMERO, J.:
Observing that in its position paper, the petitioner included
matters which were "beyond the scope of the issues alleged in
the complaints," said Labor Arbiter discussed the four
In the instant petition for mandamus and certiorari, petitioner
complaints individually. On the April 13, 1981 complaint, he
union seeks to enjoin the respondent National Labor Relations
ruled that because at the time P.D. No. 1123 took effect on May
Commission (NLRC) to resolve, or direct the Labor Arbiter to
1, 1977, the University had not increased its tuition fees, there
hear and decide, the merits of three of petitioner's unresolved
was of "nothing to integrate."4 However, from June 16, 1979
complaints, and to annul and set aside the resolution of the
when the University increased its tuition fees, it was obligated to
NLRC affirming the decision of the Executive Labor Arbiter
cause the integration of the across-the-board increase of P60.00
dismissing the petitioner's complaints for violation of certain
in emergency allowance into the basic pay as mandated by P.D.
labor standards laws but requiring respondent university to
Nos. 1123 and 1751.
integrate the cost of living allowance into the basic pay of the
covered employees and reminding it to pay its employees at
intervals not exceeding sixteen (16) days.
On the alleged nonpayment of extra loads handled by the
employees on February 12 and 13, 1981 when classes were
suspended, Tumang stated that Consuelo Abad, the petitioner's
The uncontroverted facts show that on various dates, petitioner
president, had no cause to complain because her salary was
filed the following complaints against the University of
fully paid and that, since there were "no complainants for the
Pangasinan (University for brevity) before the Arbitration Branch
alleged nonpayment of extra loads for two days," the issue had
of the NLRC in Dagupan City:
become academic.

1. October 14, 1980: for nonpayment of benefits

With respect to the April 27, 1981 complaint, Tumang said that
under P.D. No. 1713 and emergency cost of living allowance
since the salary paid to Consuelo Abad and other faculty
(ecola) to part-time teachers, and for prompt and accurate
members for the April 1-15, 1981 period had been earned "as
computation of benefits under P.D. No. 451 and the payment of
part of their salary for the ten-month period," she was no longer
ecolas;
entitled to an emergency cost of living allowance. He added that
"payment of emergency cost of living allowance is based on
actual work performed except when they (employees) are on
2. November 7, 1980: for nonpayment of all leave with pay." Hence, because classes ended in March 1981,
ecolas to instructors from October 18-31, 1980; the teachers who did not report for work could not be considered
on leave with pay and, therefore, they were not entitled to an
emergency cost of living allowance.

Page 27 of 191
As regards the May 21, 1981 complaint alleging violation of
Wage Order No. 1, Tumang found that the University had
actually implemented the additional living allowance of P2.00 a
day required therein. On the alleged delay in the payment of
salaries of the employees, he rationalized that delays could not
be avoided but he reminded the University to pay its employees
on time.
The June 17, 1981 complaint was also resolved in favor of the
University. Stating that P.D. No. 451 which mandates salary
increases is dependent on enrollment and allowable deductions,
Tumang ruled that, again, Consuelo Abad had no cause to
complain as she had been paid out of the allowable 12.74% for
distribution which was a "substantial compliance with P.D. No.
451." 5 The dispositive portion of the decision states:
IN THE LIGHT OF THE FOREGOING CONSIDERATION, the
above-entitled cases are dismissed for lack of merit.
Respondent however, is required to integrate the allowance of
P60.00 under P.D. 1123 into the basic pay of the covered
employees if the same has not as yet been complied with.
Respondent is also reminded to pay the employees at intervals
not exceeding sixteen (16) days pursuant to Article 102 of the
Labor Code.
SO ORDERED.
The petitioner appealed the said decision to the NLRC. In its
resolution of June 20, 1993, the NLRC affirmed the decision of
Executive Labor Article Tumang. Hence, the instant petition for
mandamus and certiorari with the following prayer:
WHEREFORE, the foregoing premises considered, it is
respectfully prayed that this petition be given due course and
that judgment issue:
1. Declaring petitioner as possessed with capacity to
represent its members in the complaints it filed thru its president,
Miss Consuelo Abad, against private respondent, and the
complaints are pertaining to the members who are entitled under
the law to the claims sought herein, not to Miss Abad alone;
2. Annulling and setting aside the appealed resolution
insofar as the issues of nonpayment of Ecola for April 1-15, 1981
and nonpayment of salary differentials for summer of 1981
under P.D. No. 451 are concerned;
3. Ordering private respondent to pay covered members
of petitioner their Ecola for April 1-15, 1981 and their salary
differentials for summer of 1981 pursuant to the mandate of P.D.
451;
4. Enjoining public respondent to resolve on the merits
the issues of nonpayment of extra loads of February 12-13, 1980
and violation of Wage Order No. 1 which were properly brought
on appeal to said office;
5. Enjoining public respondent to resolve on the merits
the issues or grievances alleged in the complaints filed on
October 14, November 7 and November 20, all in 1980, which
were not resolved by the labor arbiter but nonetheless appealed
to public respondents, or
Page 28 of 191
6. Enjoining public respondent to order or direct the labor
28
arbiter to resolve on the merits the said issues or grievances
alleged in the complaints mentioned in the next preceding
paragraph;
7. Attorney's fee in such amount as this Honorable
Tribunal may deem just and reasonable in the premises;
8. Ordering private respondent to pay costs of suit,
including this appeal.
Petitioner further prays for safeguards and/or measures to
insure the correct computation of the amount of claims herein
sought due to each covered member of petitioner, and for such
other reliefs just and equitable in the premises.6
We shall first deal with the propriety of the special civil action of
mandamus. In this regard, petitioner contends that the NLRC
should have, in the exercise of its appellate jurisdiction, resolved
the issues raised in the three (3) complaints filed on October 14,
November 7 and November 20, 1980 or, in the alternative,
ordered the Labor Arbiter to hear and decide the
aforementioned three (3) complaints, it having the power of
supervision over Labor Arbiters.
Sec. 3, Rule 65 of the Rules of Court provides:
Sec. 3. Petition for Mandamus. — When any tribunal,
corporation, board, or person unlawfully neglects the
performance of an act which the law specifically enjoins as a
duty resulting from an office, trust, or station, or unlawfully
excludes another from the use and enjoyment of a right or office
to which such other is entitled, and there is no other plain,
speedy and adequate remedy in the ordinary course of law, the
person aggrieved thereby may file a verified petition in the
proper court alleging the facts with certainty and praying that
judgment be rendered commanding the defendant, immediately
or at some other specified time, to do the act required to be done
to protect the rights of the petitioner, and to pay the damages
sustained by the petitioner by reason of the wrongful acts of the
defendant.
As succinctly provided in this section, anyone who wishes to
avail of the remedy of mandamus must state in a verified petition
"the facts with certainty." On account of this requirement,
mandamus is never issued in doubtful cases and showing of a
clear and certain right on the part of the petitioner is required. 7
Indeed, while the labor arbiter is duty bound to resolve all
complaints referred to him for arbitration and, therefore, he may
be compelled by mandamus to decide them (although not in any
particular way or in favor of anyone),8 we find that the peculiar
circumstances in this case do not merit the issuance of the writ
of mandamus.
Petitioner admits that only six of the complaints were certified to
Labor Arbiter Fernandez for compulsory arbitration. It failed,
however, to allege why this was the case or whether it had
exerted any effort to include the remaining complaint in the
certification. What it stresses is the alleged assurance of Labor
Arbiter Fernandez that the seventh complaint may be discussed
in its position paper. It turned out, however, that, according to
the unrebutted allegation of the Solicitor General, Labor Arbiter
Fernandez inhibited himself from handling the cases referred to
him as he was teaching at the University. Hence, Labor Arbiter
Fernandez forwarded the complaints to the Assistant Director
for Arbitration in Regional Office No. 1 in San Fernando, La
Union for appropriate action. He should have forwarded all of
the complaints to the said Assistant Director, but it appears that
Fernandez turned over only four of them. In turn, the Assistant
Director referred only complaints Nos. 5, 6 and 7, which had
been docketed as RBI-C-24-81, LS-42-81 and LS-43-81, to
Executive Labor Arbiter Sotero L. Tumang for compulsory
arbitration. However, while only these three docket numbers
appear on the caption of the decision, the same actually
resolved four complaints, as earlier mentioned. 9
From these facts, one may infer that there must have been a
mishandling of the complaints and/or the records of the cases.
However, the petitioner failed to substantiate by evidence such
negligence on the part of the public respondents as to warrant
the issuance of a writ of mandamus. 10 Its officials even
neglected the simple act of verifying from the MOLE office in
Dagupan City whether the records of all the cases filed had been
forwarded to the proper official who should resolve them. 11
Infact, nowhere in its pleadings 12 is there an allegation to that
effect.
On the contrary, the petitioner took Fernandez' words seriously
and allowed the proceedings to reach its inevitable conclusion.
When it received a copy of the decision, the petitioner should
have taken note of Executive Labor Arbiter Tumang's
observation therein that it had discussed matters "beyond the
scope of the issues alleged in the complaints." In its
memorandum of appeal, it should have prayed for the inclusion
of the three complaints inasmuch as in labor cases, an appeal
may be treated as a motion for reconsideration or
vice-versa. 13 The fact that three complaints had been omitted
did not escape the attention of the NLRC which stated in its
resolution that "since those cases were not consolidated it is
now too late to consolidate them" with the four decided cases.
14 We agree with the NLRC that the said complaints should
proceed separately as long as their resolution would not conflict
with the resolved
cases.15 It should be added that under Art. 217(b) of the Labor
Code, the NLRC has "exclusive appellate jurisdiction over all
cases decided by the Labor Arbiters." Needless to say, the
NLRC could not have acted on matters outside of the cases
appealed to it.
Petitioner's contention that the cases filed by Consuelo Abad as
its president should affect, not only herself, but all the other
union members similarly situated as she was, is well taken. The
uncontroverted allegation of the petitioner is that it is the holder
of Registration Certificate No. 9865-C, having been registered
with the then Ministry of Labor and Employment on February 16,
1978. As such, petitioner possessed the legal personality to sue
and be sued under its registered name.16 Corollarily, its
president, Consuelo Abad, correctly filed the complaints even if
some of them involved rights and interest purely or exclusively
appertaining to individual employees, it appearing that she
signed the complaints "for and in behalf of the University of
Pangasinan Faculty Union."17
The University's contention that petitioner had no legal
personality to institute and prosecute money claims must,
therefore, fail. To quote then Associate Justice Teehankee in
Heirs of Teodelo M. Cruz v. CIR,18 "[w]hat should be borne in
mind is that the interest of the individual worker can be better
protected on the whole by a strong union aware of its moral and
legal obligations to represent the rank and file faithfully and
secure for them the best wages and working terms and
conditions. . . . Although this was stated within the context of
collective bargaining, it applies equally well to cases, such as
the present wherein the union, through its president, presented
its individual members' grievances through proper proceedings.
While the complaints might not
have disclosed the identities of the individual employees
claiming monetary benefits,19 such technical defect should not
Page 29 of 191
be taken against the claimants, especially because the
29
University appears to have failed to demand a bill of particulars
during the proceedings before the Labor Arbiter.
On the merits of the petition, the NLRC did not abuse its
discretion in resolving the appeal from the decision of Executive
Labor Arbiter Tumang except for the disallowance of the
emergency cost of living allowance to members of the petitioner.
The Rules Implementing P.D. No. 1713 which took effect on
August 18, 1980 provide:
Sec. 6. Allowances of full-time and part-time employees. —
Employees shall be paid in full the monthly allowance on the
basis of the scales provided in Section 3 hereof, regardless of
the number of their regular working days if they incur no
absences during the month. If they incur absences without pay,
the amounts corresponding to the absences may be deducted
from the monthly allowance provided that in determining the
equivalent daily allowance of such deduction, the applicable
monthly allowance shall be divided by thirty (30) days.
xxx xxx xxx
(Emphasis supplied).
This Section, which is a virtual reproduction of Section 12 of the
old Rules Implementing P.D. No. 1123, has been interpreted by
this Court as requiring that the full amount of the cost of living
allowance mandated by law should be given monthly to each
employee if the latter has worked continuously for each month,
regardless of the number of the regular working days.20 But
more apropos is the ruling of this Court in University of
Pangasinan Faculty Union v. University of Pangasinan and
NLRC,21 a case involving the same parties as in the instant
petition and dealing with a complaint filed by the petitioner on
December 18, 1981 seeking, among others, the payment of
emergency cost of living allowances for November 7 to
December 5, 1981, a semestral break. The Court held therein:
. . . The "No work, no pay" principle does not apply in the instant
case. The petitioner's members received their regular salaries
during this period. It is clear from the . . . law that it contemplates
a "no work" situation where the employees voluntarily absent
themselves. Petitioners, in the case at bar, certainly do not, ad
voluntatem absent themselves during semestral breaks. Rather,
they are constrained to take mandatory leave from work. For
this, they cannot be faulted nor can they be begrudged that
which is due them under the law. To a certain extent, the private
respondent can specify dates when no classes would be held.
Surely, it was not the intention of the framers of the law to allow
employers to withhold employee benefits by the simple
expedient of unilaterally imposing "no work" days and
consequently avoiding compliance with the mandate of the law
for those days.
As interpreted and emphasized in the same case, the law
granting emergency cost of living allowances was designed to
augment the income of the employees to enable them to cope
with the rising cost of living and inflation. Clearly, it was enacted
in pursuance of the State's duty to protect labor and to alleviate
the plight of the workers. To uphold private respondent's
interpretation of the law would be running counter to the intent
of the law and the Constitution.
WHEREFORE, the petition for mandamus is hereby
DISMISSED. The decision of the NLRC is AFFIRMED subject
to the MODIFICATION that private respondent University of
Pangasinan shall pay its regular and fulltime teachers and
employees emergency cost of living allowance for the period
April 1-15, 1981. Costs against private respondent.
SO ORDERED.
G.R. No. 119205 April 15, 1998
SIME DARBY PILIPINAS, INC. petitioner, vs. NATIONAL
LABOR RELATIONS COMMISSION (2ND DIVISION) and
SIME DARBY SALARIED EMPLOYEES ASSOCIATION
(ALU-TUCP), respondents.
BELLOSILLO, J.:
Is the act of management in revising the work schedule of its
employees and discarding their paid lunch break constitutive of
unfair labor practice?
Sime Darby Pilipinas, Inc., petitioner, is engaged in the
manufacture of automotive tires, tubes and other rubber
products. Sime Darby Salaried Employees Association (ALU-
TUCP), private respondent, is an association of monthly salaried
employees of petitioner at its Marikina factory. Prior to the
present controversy, all company factory workers in Marikina
including members of private respondent union worked from
7:45 a.m. to 3:45 p.m. with a 30-minute paid "on call" lunch
break.
On 14 August 1992 petitioner issued a memorandum to all
factory-based employees advising all its monthly salaried
employees in its Marikina Tire Plant, except those in the
Warehouse and Quality Assurance Department working on
shifts, a change in work schedule effective 14 September 1992
thus —
TO: ALL FACTORY-BASED EMPLOYEES
RE: NEW WORK SCHEDULE
Effective Monday, September 14, 1992, the new work schedule
of the factory office will be as follows:
7:45 A.M. — 4:45 P.M. (Monday to Friday)
7:45 A.M. — 11:45 A.M. (Saturday).
Coffee break time will be ten minutes only anytime between:
9:30 A.M. — 10:30 A.M. and
2:30 P.M. — 3:30 P.M.
Lunch break will be between:
12:00 NN — 1:00 P.M. (Monday to Friday).
Page 30 of 191
30
Excluded from the above schedule are the Warehouse and QA
employees who are on shifting. Their work and break time
schedules will be maintained as it is now.1
Since private respondent felt affected adversely by the change
in the work schedule and discontinuance of the 30-minute paid
"on call" lunch break, it filed on behalf of its members a
complaint with the Labor Arbiter for unfair labor practice,
discrimination and evasion of liability pursuant to the resolution
of this Court in Sime Darby International Tire Co., Inc. v. NLRC.2
However, the Labor Arbiter dismissed the complaint on the
ground that the change in the work schedule and the elimination
of the 30-minute paid lunch break of the factory workers
constituted a valid exercise of management prerogative and that
the new work schedule, break time and one-hour lunch break
did not have the effect of diminishing the benefits granted to
factory workers as the working time did not exceed eight (8)
hours.
The Labor Arbiter further held that the factory workers would be
unjustly enriched if they continued to be paid during their lunch
break even if they were no longer "on call" or required to work
during the break. He also ruled that the decision in the earlier
Sime Darby case3 was not applicable to the instant case
because the former involved discrimination of certain employees
who were not paid for their 30-minute lunch break while the rest
of the factory workers were paid; hence, this Court ordered that
the discriminated employees be similarly paid the additional
compensation for their lunch break.
Private respondent appealed to respondent National Labor
Relations Commission (NLRC) which sustained the Labor
Arbiter and dismissed the appeal.4 However, upon motion for
reconsideration by private respondent, the NLRC, this time with
two (2) new commissioners replacing those who earlier retired,
reversed its earlier decision of 20 April 1994 as well as the
decision of the Labor Arbiter.5 The NLRC considered the
decision of this Court in the Sime Darby case of 1990 as the law
of the case wherein petitioner was ordered to pay "the money
value of these covered employees deprived of lunch and/or
working time breaks." The public respondent declared that the
new work schedule deprived the employees of the benefits of a
time-honored company practice of providing its employees a 30-
minute paid lunch break resulting in an unjust diminution of
company privileges prohibited by Art. 100 of the Labor Code, as
amended. Hence, this petition alleging that public respondent
committed grave abuse of discretion amounting to lack or
excess of jurisdiction: (a) in ruling that petitioner committed
unfair labor practice in the implementation of the change in the
work schedule of its employees from 7:45 a.m. — 3:45 p.m. to
7:45 a.m. — 4:45 p.m. with one-hour lunch break from 12:00 nn
to 1:00 p.m.; (b) in holding that there was diminution of benefits
when the 30-minute paid lunch break was eliminated; (c) in
failing to consider that in the earlier Sime Darby case affirming
the decision of the NLRC, petitioner was authorized to
discontinue the practice of having a 30-minute paid lunch break
should it decide to do so; and, (d) in ignoring petitioner's inherent
management prerogative of determining and fixing the work
schedule of its employees which is expressly recognized in the
collective bargaining agreement between petitioner and private
respondent.
The Office of the Solicitor General filed in a lieu of comment a
manifestation and motion recommending that the petitioner be
granted, alleging that the 14 August 1992 memorandum which
contained the new work schedule was not discriminatory of the
union members nor did it constitute unfair labor practice on the
part of petitioner.
We agree, hence, we sustain petitioner. The right to fix the work
schedules of the employees rests principally on their employer.
In the instant case petitioner, as the employer, cites as reason
for the adjustment the efficient conduct of its business
operations and its improved production.6 It rationalizes that
while the old work schedule included a 30-minute paid lunch
break, the employees could be called upon to do jobs during that
period as they were "on call." Even if denominated as lunch
break, this period could very well be considered as working time
because the factory employees were required to work if
necessary and were paid accordingly for working. With the new
work schedule, the employees are now given a one-hour lunch
break without any interruption from their employer. For a full
one-hour undisturbed lunch break, the employees can freely
and effectively use this hour not only for eating but also for their
rest and comfort which are conducive to more efficiency and
better performance in their work. Since the employees are no
longer required to work during this one-hour lunch break, there
is no more need for them to be compensated for this period. We
agree with the Labor Arbiter that the new work schedule fully
complies with the daily work period of eight (8) hours without
violating the Labor Code.7 Besides, the new schedule applies
to all employees in the factory similarly situated whether they
are union members or not.8
Consequently, it was grave abuse of discretion for public
respondent to equate the earlier Sime Darby case9 with the
facts obtaining in this case. That ruling in the former case is not
applicable here. The issue in that case involved the matter of
granting lunch breaks to certain employees while depriving the
other employees of such breaks. This Court affirmed in that case
the NLRC's finding that such act of management was
discriminatory and constituted unfair labor practice.
The case before us does not pertain to any controversy involving
discrimination of employees but only the issue of whether the
change of work schedule, which management deems necessary
to increase production, constitutes unfair labor practice. As
shown by the records, the change effected by management with
regard to working time is made to apply to all factory employees
engaged in the same line of work whether or not they are
members of private respondent union. Hence, it cannot be said
that the new scheme adopted by management prejudices the
right of private respondent to self-organization.
Every business enterprise endeavors to increase its profits. In
the process, it may devise means to attain that goal. Even as
the law is solicitous of the welfare of the employees, it must also
protect the right of an employer to exercise what are clearly
management prerogatives.10 Thus, management is free to
regulate, according to its own discretion and judgment, all
aspects of employment, including hiring, work assignments,
working methods, time, place and manner of work, processes to
be followed, supervision of workers, working regulations,
transfer of employees, work supervision, lay off of workers and
discipline, dismissal and recall of workers.11 Further,
management retains the prerogative, whenever exigencies of
the service so require, to change the working hours of its
employees. So long as such prerogative is exercised in good
faith for the advancement of the employer's interest and not for
the purpose of defeating or circumventing the rights of the
employees under special laws or under valid agreements, this
Court will uphold such exercise.12
While the Constitution is committed to the policy of social justice
and the protection of the working class, it should not be
supposed that every dispute will be automatically decided in
favor of labor. Management also has rights which, as such, are
entitled to respect and enforcement in the interest of simple fair
play. Although this Court has inclined more often than not toward
the worker and has upheld his cause in his conflicts with the
employer, such favoritism has not blinded the Court to the rule
that justice is in every case for the deserving, to be dispensed in
Page 31 of 191
the light of the established facts and the applicable law and
31
doctrine.13
WHEREFORE, the Petition is GRANTED. The Resolution of the
National Labor Relations Commission dated 29 November 1994
is SET ASIDE and the decision of the Labor Arbiter dated 26
November 1993 dismissing the complaint against petitioner for
unfair labor practice is AFFIRMED.
SO ORDERED.
G.R. No. L-25094 April 29, 1969
PAN AMERICAN WORLD AIRWAYS INC., petitioner, vs.
PAN AMERICAN EMPLOYEES ASSOCIATION, COURT OF
INDUSTRIAL RELATIONS, respondents.
Ross, Selph, Salcedo, Del Rosario, Bito and Misa for petitioner.
Jose C. Espinas and Associates for respondent Pan American
Employees Association.
FERNANDO, J.:
The failure of the respondent Court of Industrial Relations to
indulge petitioner Pan American World Airways, Inc. in its plea
to exclude from a return-to-work order five union officials of
respondent Pan American Employees Association on the
ground of having led an illegal strike, in itself, according to
petitioner, a sufficient cause for dismissal thus resulting in their
losing their incentive and motivation for doing their jobs properly
with the consequent fear that they could cause grave injury to it,
is challenged in this special civil action for certiorari as
constituting a grave abuse of discretion. Whatever may be said
against such order complained of respondent Court of Industrial
Relations, the refusal to grant the prayer for such exclusion
cannot be characterized as an abuse of discretion, much less as
one that possesses an element of gravity.
So it must be unless we are prepared to restrict the broad scope
of authority possessed by respondent Court of Industrial
Relations in discharging its power of compulsory arbitration in
cases certified to it by the President, and what is worse, unless
an undeserved reflection on the quality of leadership in the labor
movement, indicative of management refusal to accord to it the
presumption of responsibility, is countenanced. The petition thus
carries on its face the seeds of its own infirmity. It cannot hope
to succeed.
It was set forth in the petition, after the usual allegation as to the
personality of the parties, that on August 25, 1965, respondent
union filed a notice of strike with the Department of Labor and
on August 28, 1965, the same respondent union declared and
maintained a strike against the herein petitioner. 1 Then, on
September 17, 1965, the President of the Philippines certified
the strike to the respondent Court of Industrial Relations as
being an industrial dispute affecting the national interest, the
parties being called to a conference on September 20, 1965. 2
Several conferences were held between petitioner and
respondent Union before the Honorable Amando C. Bugayong,
Associate Judge of respondent Court on September 20, 21, 23,
24 and 25, 1965. It was the position of the Union that its
members would not resume the performance of their duties
unless its officers were likewise included in the return-to-work
order. Petitioner was of a different mind. It was agreeable to
having the workers return to work but not the five officials of
respondent Union. It alleged that the strike was illegal, being
offensive to a no-strike clause of an existing collective
bargaining agreement the result being that the officials could, as
the responsible parties, be liable for dismissal. Consequently, it
was not agreeable to their being allowed to return to the
positions held by them prior to the strike as they would not be
only lacking in "incentive and motivation for doing their work
properly" but would likewise have the opportunity to cause
"grave and irreparable injury to petitioner." 3 Management did
offer, however, to deposit their salaries even if they would not
be working, with the further promise that they would not even be
required to refund any amount should the right to remain in their
positions be considered as legally terminated by their calling the
alleged illegal strike.
Nonetheless, on September 28, 1965, Judge Bugayong issued
an order requiring petitioner to accept the five union officers
pending resolution on the merits of the dispute involved in the
strike. 4 There was a motion for reconsideration which was
denied by the court on October 8, 1965. 5 Hence, this petition,
alleging a grave abuse of discretion, consisting in the failure to
grant petitioner's rather unorthodox demand.
As already noted, the inherent weakness of the petition cannot
escape attention.
1. Considering that this is a case certified by the President, with
respondent Court exercising its broad authority of compulsory
arbitration, the discretion it possesses cannot be so restricted
and emasculated that the mere failure to grant a plea to exclude
from the return-to-work order the union officials could be
considered as tantamount to a grave abuse thereof. The law is
anything but that.
As far back as 1957, this Court, speaking through Justice
Labrador, categorically stated: "We agree with counsel for the
Philippine Marine Radio Officers' Association that upon
certification by the President under Section 10 of Republic Act
875, the case comes under the operation of Commonwealth Act
103, which enforces compulsory arbitration in cases of labor
disputes in industries indispensable to the national interest when
the President certifies the case to the Court of Industrial
Relations. The evident intention of the law is to empower the
Court of Industrial Relations to act in such cases, not only in the
manner prescribed under Commonwealth Act 103, but with the
same broad powers and jurisdiction granted by that Act. If the
Court of Industrial Relations is granted authority to find a solution
in an industrial dispute and such solution consists in ordering of
employees to return back to work, it cannot be contended that
the Court of Industrial Relations does not have the power or
jurisdiction to carry that solution into effect. And of what use is
its power of conciliation and arbitration if it does not have the
power and jurisdiction to carry into effect the solution it has
adopted. Lastly, if the said court has the power to fix the terms
and conditions of employment, it certainly can order the return
of the workers with or without backpay as a term or condition of
the employment." 6
Only recently this Court, speaking through Justice Sanchez,
emphasized: "The overwhelming implication from the quoted
text of Section 10 is that CIR is granted great breadth of
discretion in its quest for a solution to a labor problem so
certified." 7 Hence, as was announced at to the outset of this
opinion, there can be no legal objection to the mode of exercise
of authority in such fashion by respondent Court of Industrial
Relations. The allegation as to the grave abuse of discretion is
clearly devoid of merit.
2. That should conclude the matter except for the fact that the
question presented possesses an element of novelty which may
require further reflection.
Page 32 of 191
32
The situation thus presented is the validity of the return to work
order insofar as five union officers are affected, petitioner airline
firm rather insistent on their being excluded arguing that since
the strike called by them was illegal, and that in any event there
was enough ground for dismissal, there was present a factor
which might make them "lose all their incentive and motivation
for doing their work properly" and which would furnish them "the
opportunity to cause grave and irreparable injury to petitioner."
To be more specific, the apprehension entertained by petitioner
was in the petition expressed by it thus: "The five officers of the
union consist of three (3) Passenger Traffic Representatives
and a reservation clerk who in the course of their duties could
cause mix-ups in the reservation and accommodation of
passengers which could result in very many suits for damages
against petitioner such as the case of Nicolas Cuenca vs.
Northwest Airlines, G.R. No. L-22425 promulgated August 31,
1965 in which this Honorable Court required the airline to pay
P20,000.00 as nominal damages alone. The other union officer
who, is in the cargo department could underweight or overweigh
cargo to the great detriment of the service or even, of the safety
of petitioner's aircraft." 8
Petitioner would attempt to remove the sting from its objection
to have the union officers return to work by offering to deposit
the salaries of the five officers with respondent Court to be paid
to them, coupled with what it considered to be a generous
concession that if their right to return to work be not recognized,
there would be no need for refund.
Petitioner, perhaps without so intending it, betrayed an
inexcusable lack of confidence in the responsibility of union
officials and ultimately in the validity of the collective bargaining
process itself. For it is the basic premise under which a regime
of collective bargaining was instituted by the Industrial Peace
Act that through the process of industrial democracy, with both
union and management equally deserving of public trust, labor
problems could be susceptible of the just solution and industrial
peace attained. Implicit in such a concept is the confidence that
must be displayed by management in the sense of responsibility
of union officials to assure that the two indispensable elements
in industry and production could-work side by side, attending to
the problems of each without neglecting the common welfare
that binds them together.lawphi1.nêt
The moment management displays what in this case appears to
be grave but unwarranted distrust in the union officials
discharging their functions just because a strike was resorted to,
then the integrity of the collective bargaining process itself is
called into question. It would have been different if there were a
rational basis for such fears, purely speculative in character. The
record is bereft of slightest indication that any danger, much less
one clear and present, is to be expected from their return to
work. Necessarily, the union officials have the right to feel
offended by the fact that, while they will be paid their salaries in
the meanwhile they would not be considered as fit persons to
perform the duties pertaining to the positions held by them. Far
from being generous such an offer could rightfully, be
considered insulting.
The greater offense is to the labor movement itself, more
specifically to the right of self-organization. There is both a
constitutional and statutory recognition that laborers have the
right to form unions to take care of their interests vis-a-vis their
employers. Their freedom organizations would be rendered
nugatory if they could not choose their own leaders to speak on
their behalf and to bargain for them.
If petitioner were to succeed in their unprecedented demand, the
laborers in this particular union would thus be confronted with
the sad spectacle of the leaders of their choice condemned as
irresponsible, possibly even constituting a menace to the
operations of the enterprise. That is an indictment of the gravest
character, devoid of any factual basis. What is worse, the result,
even if not intended, would be to call into question their
undeniable right to choose their leaders, who must be treated as
such with all the respect to which they are legitimately entitled.
The fact that they would be paid but not be allowed to work is,
to repeat, to add to the infamy that would thus attach to them
necessarily, but to respondent union equally.
Apparently, respondent Court was alive to the implication of
such an unwarranted demand, the effect of which would have
been to deprive effectively the rank and file of their freedom of
choice as to who should represent them. For what use are
leaders so undeserving of the minimum confidence. To that
extent then, their constitutional and statutory right to freedom of
association suffers an impairment hardly to be characterized as
inconsequential.
Fortunately, respondent Court was of a different mind it acted,
according to law. It had a realistic concept of what was in store
for labor if its decision were otherwise. Nor did it in the process
disregard the rights of management. There is no occasion then
for the supervisory authority of this Court coming into play.
WHEREFORE, this petition for a writ of certiorari is denied. With
costs against petitioner.
G.R. No. L-30452 September 30, 1982
MERCURY DRUG CO., INC., petitioner, vs. NARDO DAYAO,
ET AL., respondents,
Caparas & Ilagan for petitioner.
Gerardo P. Cabo Chan and Elias Banzali for respondents.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the decision of the
Court of Industrial Relations dated March 30, 1968 in Case No.
1926-V and the Resolution of the Court en banc dated July 6,
1968 denying two separate motions for reconsideration filed by
petitioners and respondents.
The factual background of Case No. 1926-V is summarized by
the respondent Court of Industrial Relations as follows:
This is a verified petition dated March 17, 1964 which was
subsequently amended on July 31, 1964 filed by Nardo Dayao
and 70 others against Mercury Drug Co., Inc., and/or Mariano
Que, President & General Manager, and Mercury Drug Co., Inc.,
Employees Association praying, with respect to respondent
corporation and its president and general manager: 1) payment
of their unpaid back wages for work done on Sundays and legal
holidays plus 25c/c additional compensation from date of their
employment up to June 30, 1962; 2) payment of extra
compensation on work done at night; 3) reinstatement of
Januario Referente and Oscar Echalar to their former positions
with back salaries; and, as against the respondent union, for its
disestablishment and the refund of all monies it had collected
from petitioners.
In separate motions, respondent management and respondent
union move to dismiss, the first on the ground that:
Page 33 of 191
33
I. The petition states no cause of action.
II. This Court has no jurisdiction over the subject of the
claims of petitioners Januario Referente and Oscar Echalar.
III. There is another action pending between the same
parties, namely, Mercury Drug Co., Inc., and/or Mariano Que
and Nardo Dayao.
while on the other hand, the second alleges that this Court has
no jurisdiction over the acts complained of against the
respondent union.
For reasons stated in the Order dated March 24, 1965, two Court
resolved the motions to dismiss, as follows:
1. Ground No. 1 of management's motion to dismiss was
denied for lack of merit.
2. Its second ground was found meritorious and,
accordingly Januario Referente and Oscar Echalar were
dropped as party petitioners in this case.
3. The third ground was denied, holding that there still
exists the employer- employee relationship between Nardo
Dayao and the management.
4. With respect to the fourth ground, the Court held that
on the basis of section 7-A of C.A. No. 444, as amended by R.A.
No. 1993, 'it can be safely said that,
counting backward the three (3) year prescriptive period from
the date of the filing of the instant petition - March 20, 1964 - all-
of petitioners' claims have not yet prescribed.'
5. In so far as respondent union's motion is concerned,
the Court held that 'petitioners' cause of action against the
respondent Association should be dismissed without prejudice
to the refiling of the same as an unfair labor practice case.'
Only the respondent management moved to reconsider the
Order of March 24, 1965 but the same was denied by the Court
en banc in a resolution dated August 26, 1965. Respondent
submitted an answer to the amended petition which was
subsequently amended on January 6, 1966, containing some
admissions and some denials of the material averments of the
amended petition. By way of affirmative and special defenses,,
respondents alleged that petitioners have no cause of action
against Mariano Que because their employer respondent
Mercury Drug Company, Inc., an existing corporation which has
a separate and distinct personality from its incorporators
stockholders and/or officer, that the company being a service
enterprise is excluded from the coverage of the Eight Hour Labor
Law, as amended; that no court has the power to set wages,
rates of pay, hours of employment, or other conditions of
employment to the extent of disregarding an agreement thereon
between the respondent company and the petitioners, and of
fixing night differential wages; that the petitioners were fully paid
for services rendered under the terms and conditions of the
individual contracts of employment; that the petition having been
verified by only three of the petitioners without showing that the
others authorized the inclusion of their names as petitioners
does not confer jurisdiction to this Court; that there is no
employer-employee relationship between management and
petitioner Nardo Dayao and that his claim has been released
and/or barred by another action and that petitioners' claims
accuring before March 20, 1961 have prescribed." (Annex "P",
pp. 110-112, rollo).
After hearing on the merits, the respondent court rendered its
decision. The dispositive portion of the March 30, 1968 decision
reads:
IN VIEW OF THE FOREGOING, the Court hereby resolves that:
1. The claim of the petitioners for payment of back wages
correspoding to the first four hours work rendered on every other
Sunday and first four hours on legal holidays should be denied
for lack of merit.
2. Respondent Mercury Drug Company, Inc.. is hereby
ordered to pay the sixty- nine (69) petitioners:
(a) An additional sum equivalent to 25% of their respective
basic or regular salaries for services rendered on Sundays and
legal holidays during the period from March 20. 1961 up to June
30, 1962; and
(b) Another additional sum or premium equivalent to 25%
of their respective basic or regular salaries for nighttime services
rendered from March 20, 1961 up to June 30, 1962.
3. Petitioners' petition to convert them to monthly
employees should be, as it is hereby, denied for lack of merit.
4. Respondent Mariano Que, being an officer and acted
only as an agent in behalf of the respondent corporation, should
be absolved from the money claims of herein petitioners whose
employer, according to the pleadings and evidence, is the
Mercury Drug Company,, Inc.
To expedite the computation of the money award, the Chief
Court Examiner or his authorized representative is hereby
directed to proceed to the office of the respondent corporation
at Bambang Street, Sta. Cruz, Manila, the latter to make
available to said employee its records, like time records, payrolls
and other pertinent papers, and compute the money claims
awarded in this decision and, upon the completion thereof, to
submit his report as soon as possible for further disposition of
the Court.
Not satisfied with the decision, the respondents filed a motion
for its reconsideration. The motion for reconsideration, was
however, denied by the Court en banc in its Resolution dated
July 6, 1968.
Petitioner Mercury Drug Company, Inc., assigned the following
errors in this petition:
I of extra or additional pay for services rendered during Sundays
Page 34 of 191
34
RESPONDENT CIR ERRED IN DECLARING THE
CONTRACTS OF EMPLOYMENT, EXHIBITS "A" AND "B",
NULL AND VOID AS BEING CONTRARY TO PUBLIC POLICY
AND IN SUSTAINING, ACCORDINGLY, PRIVATE
RESPONDENTS' CLAIMS FOR 25% SUNDAY AND LEGAL
HOLIDAY PREMIUMS BECAUSE SUCH DECLARATION AND
AWARD ARE NOT SUPPORTED BY SUBSTANTIAL
EVIDENCE, THUS INFRINGING UPON THE CARDINAL
RIGHTS OF THE PETITIONER; AND ALSO BECAUSE THE
VALIDITY OF SAID t CONTRACTS OF EMPLOYMENT HAS
NOT BEEN RAISED.
II
RESPONDENT CIR ERRED IN SUSTAINING PRIVATE
RESPONDENTS' CLAIMS FOR NIGHTTIME WORK
PREMIUMS NOT ONLY BECAUSE OF THE DECLARED
POLICY ON COLLECTIVE BARGAINING FREEDOM EX.
PRESSED IN REPUBLIC ACT 875 AND THE EXPRESS
PROHIBITION IN SECTION 7 OF SAID STATUTE, BUT ALSO
BECAUSE OF THE WAIVER OF SAID CLAIMS AND THE
TOTAL ABSENCE OF EVIDENCE THEREON.
III
RESPONDENT CIR ERRED IN MAKING AWARDS IN FAVOR
OF THE PRIVATE RESPONDENTS WHO NEITHER GAVE
EVIDENCE NOR EVEN APPEARED TO SHOW THEIR
INTEREST.
Three issues are discussed by the petitioner in its first
assignment of error. The first issue refers to its allegation that
the respondent Court erred in declaring the contracts of
employment null and void and contrary to law. This allegation is
premised upon the following finding of the respondent court:
But the Court finds merit in the claim for the payment of
additional compensation for work done on Sundays and
holidays. While an employer may compel his employees to
perform service on such days, the law nevertheless imposes
upon him the obligation to pay his employees at least 25%
additional of their basic or regular salaries.
No person, firm or corporation, business establishment or place
of center of labor shall compel an employee or laborer to work
during Sundays and legal holidays unless he is paid an
additional sum of at least twenty-five per centum of his regular
remuneration: PROVIDED, HOWEVER, That this prohibition
shall not apply to public utilities performing some public service
such as supplying gas, electricity, power, water, or providing
means of transportation or communication. (Section 4, C. A. No.
444) (Emphasis supplied)
Although a service enterprise, respondent company's
employees are within the coverage of C. A. No. 444, as
amended known as the Eight Hour Labor Law, for they do not
fall within the category or class of employees or laborers
excluded from its provisions. (Section 2, Ibid.)
The Court is not impressed by the argument that under the
contracts of employment the petitioners are not entitled to such
claim for the reason that the same are contrary to law. Payment
and legal holidays is mandated by law. Even assuming that the
petitioners had agreed to work on Sundays and legal holidays
without any further consideration than their monthly salaries,
they are not barred nevertheless from claiming what is due
them, because such agreement is contrary to public policy and
is declared nun and void by law.
Any agreement or contract between employer and the laborer or
employee contrary to the provisions of this Act shall be null and
void ab initio.
Under the cited statutory provision, the petitioners are justified
to receive additional amount equivalent to 25% of their
respective basic or regular salaries for work done on Sundays
and legal holidays for the period from March 20, 1961 to June
30, 1962. (Decision, pp. 119-120, rollo)
From a perusal of the foregoing statements of the respondent
court, it can be seen readily that the petitioner-company based
its arguments in its first assignment of error on the wrong
premise. The contracts of employment signed by the private
respondents are on a standard form, an example of which is that
of private respondent Nardo Dayao quoted hereunder:
Mercury Drug Co., Inc. 1580 Bambang, Manila
October 30, 1959
Mr. Nardo Dayao
1015 Sta. Catalina
Rizal Ave., Exten.
Dear Mr. Dayao:
You are hereby appointed as Checker, in the Checking
Department of MERCURY DRUG CO., INC., effective July 1,
1959 and you shall receive an annual compensation the amount
of Two Thousand four hundred pesos only (P2,400.00), that
includes the additional compensation for work on Sundays and
legal holidays.
Your firm being a Service Enterprise, you will be required to
perform work every day in a year as follows:
8 Hours work on regular days and-all special Holidays that may
be declared but with the 25% additional compensation;
4 Hours work on every other Sundays of the month;
For any work performed in excess of the hours as above
mentioned, you shall be paid 25 % additional compensation per
hour.
This appointment may be terminated without notice for cause
and without cause upon thirty days written notice.
This supersedes your appointment of July 1, 1959.
Page 35 of 191
35
Very truly yours,
MERCURY DRUG CO., INC.
(Sgd.) MARIANO QUE General Manager
ACCEPTED WITH FULL CONFORMITY:
(Sgd.) NARDO DAYAO
(EXH. "A" and "l ")
(Decision, pp. 114-115, rollo)
These contracts were not declared by the respondent court null
and void in their entirety. The respondent court, on the basis of
the conflicting evidence presented by the parties, in effect: 1)
rejected the theory of the petitioner company that the 25%
additional compensation claimed by the private respondents for
the four-hour work they rendered during Sundays and legal
holidays provided in their contracts of employment were covered
by the private respondents' respective monthly salaries; 2) gave
credence to private respondents', (Nardo Dayao, Ernesto
Talampas and Josias Federico) testimonies that the 25%
additional compensation was not included in the private
respondents' respective monthly salaries and 3) ruled that any
agreement in a contract of employment which would exclude the
25% additional compensation for work done during Sundays
and holidays is null and void as mandated by law.
On the second issue, the petitioner-company reiterated its stand
that under the,- respective contracts of employment of the
private respondents, the subject 25 % additional compensation
had already been included in the latter's respective monthly
salaries. This contention is based on the testimony of its lone
witness, Mr. Jacinto Concepcion and pertinent exhibits. Thus:
Exhibit A shows that for the period of October 30, 1960, the
annual compensation of private respondent Nardo Dayao,
including the additional compensation for the work he renders
during the first four (4) hours on every other Sunday and on the
eight (8) Legal Holidays at the time was P2,400.00 or P200.00
per month. These amounts did not represent basic salary only,
but they represented the basic daily wage of Nardo Dayao
considered to be in the amount of P7.36 x 305 ordinary working
days at the time or in the total amount of P2,144.80. So plus the
amount of P156.40 which is the equivalent of the Sunday and
Legal Holiday rate at P9.20 basic rate of P7.36 plus 25% thereof
or P1.84) x 17, the latter figure representing 13 Sundays and 4
Legal Holidays of 8 hours each. ...
xxx xxx xxx
That the required minimum 25% Sunday and Legal Holiday
additional compensation was paid to and received by the
employees for the work they rendered on every other Sunday
and on the eight Legal Holidays for the period October, 1959 to
June 30, 1962 is further corroborated by Exhibits 5, 6, 8, 9 and
9-A and the testimony of Mr. Jacinto Concepcion thereon. (Brief
for the Petitioner, pp. 24, 27).
The aforesaid computations were not given credence by the
respondent court. In fact the same computations were not even
mentioned in the court's decision which shows that the court
found such computations incredible. The computations,
supposedly patterned after the WAS Interpretative Bulletin No.
2 of the Department Labor demonstrated in Exhibits "6", "7", "8",
"9", and "9-A", miserably failed to show the exact and correct
annual salary as stated in the respective contracts of
employment of the respondent employees. The figures arrived
at in each case did not tally with the annual salaries on to the
employees' contracts of employment, the difference varying
from P1.20 to as much as P14.40 always against the interest of
the employees. The petitioner's defense consists of
mathematical computations made after the filing of the case in
order to explain a clear attempt to make its employees work
without the extra compensation provided by law on Sundays and
legal holidays.
In not giving weight to the evidence of the petitioner company,
the respondent court sustained the private respondents'
evidence to the effect that their 25% additional compensation for
work done on Sundays and Legal Holidays were not included in
their respective monthly salaries. The private respondents
presented evidence through the testimonies of Nardo Dayao,
Ernesto Talampas, and Josias Federico who are themselves
among the employees who filed the case for unfair labor practice
in the respondent court and are private respondents herein. The
petitioner- company's contention that the respondent court's
conclusion on the issue of the 25% additional compensation for
work done on Sundays and legal holidays during the first four
hours that the private respondents had to work under their
respective contracts of employment was not supported by
substantial evidence is, therefore, unfounded. Much less do We
find any grave abuse of discretion on the part of the respondent
court in its interpretation of the employment contract's provision
on salaries. In view of the controlling doctrine that a grave abuse
of discretion must be shown in order to warrant our disturbing
the findings of the respondent court, the reversal of the court's
endings on this matter is unwarranted. (Sanchez vs. Court of
Industrial Relations, 27 SCRA 490).
The last issue raised in the first assignment of error refers to a
procedural matter. The petitioner-company contends that ,-the
question as to whether or not the contracts of employment were
null and void was not put in issue, hence, the respondent court
pursuant to the Rules of Court should have refrained from ruling
that such contracts of employment were null and void. In this
connection We restate our finding that the respondent court did
not declare the contracts of employment null and void in their
entirety. Only the objectionable features violative of law were
nullified. But even granting that the Court of Industrial Relations
declared the contracts of employment wholly void, it could do so
notwithstanding the procedural objection. In Sanchez u. Court
of Industrial Relations, supra, this Court speaking through then
Justice, now Chief Justice Enrique M. Fernando, stated:
xxx xxx xxx
Moreover, petitioners appear to be oblivious of the statutory
mandate that respondent Court in the hearing, investigation and
determination of any question or controversy and in the exercise
of any of its duties or power is to act 'according to justice and
equity and substantial merits of the case, without regard to
technicalities or legal forms and shall not be bound by any
technical rules of legal evidence' informing its mind 'in such
manner as it may deem just and equitable.' Again, this Court has
invariably accorded the most hospitable scope to the breadth
and amplitude with which such provision is couched. So it has
been from the earliest case decided in 1939 to a 1967 decision.
Page 36 of 191
Two issues are raised in the second assignment of error by the
36
petitioner-company. The first hinges on the jurisdiction of the
respondent court to award additional compensation for nighttime
work. Petitioner wants Us to re- examine Our rulings on the
question of nighttime work. It contends that the respondent court
has no jurisdiction to award additional compensation for
nighttime work because of the declared policy on freedom of
collective bargaining expressed in Republic Act 875 and the
express prohibition in Section 7 of the said statute. A re-
examination of the decisions on nighttime pay differential was
the focus of attention in Rheem of the Philippines, Inc. et al., v.
Ferrer, et al (19 SCRA 130). The earliest cases cited by the
petitioner-company, Naric v. Naric Workers Union L-12075, -
May 29, 1959 and Philippine Engineers' Syndicate u. Bautista,
L-16440, February 29, 196.4, were discussed lengthily. Thus -
xxx xxx xxx
2. On the claim for night differentials, no extended
discussion is necessary. To be read as controlling here is
Philippine Engineers' Syndicate, Inc. vs. Hon. Jose S. Bautista,
et al., L-16440, February 29, 1964, where this Court, speaking
thru Mr. Chief Justice Cesar Bengzon, declared —
Only one issue is raised: whether or not upon the enactment of
Republic Act 875, the CIR lost its jurisdiction over claims for
additional compensation for regular night work. Petitioner says
that this Act reduced the jurisdiction of respondent court and
limited it to specific cases which this Court has defined as: ... (1)
when the labor dispute affects an industry which is
indispensable to the national interest and is so certified by the
President to the industrial court (Sec. 10, Republic Act 875); (2)
when the controversy refers to minimum wage under the
Minimum Wage Law (Republic Act 602); (3) when it involves
hours of employment under the Eight-Hour Labor Law
(Commonwealth Act 444) and (4) when it involves an unfair
labor practice [Sec. 5(a), Republic Act 8751', [Paflu, et al. vs.
Tan, et al., 52 Off. Gaz, No. 13, 5836].
Petitioner insists that respondents' case falls in none of these
categories because as held in two previous cases, night work is
not overtime but regular work; and that respondent court's
authority to try the case cannot be implied from its general
jurisdiction and broad powers' under Commonwealth Act 103
because Republic Act 875 precisely curbed such powers limiting
them to certain specific litigations, beyond which it is not
permitted to act.
We believe petitioner to be in error. Its position collides with our
ruling in the Naric case [National Rice & Corn Corp. (NARIC) vs.
NARIC Workers' Union, et al., G.R. No. L-12075, May 29, 1959]
where we held;
While it is true that this Court made the above comment in the
aforementioned case, it does not intend to convey the Idea that
work done at night cannot also be an overtime work. The
comment only served to emphasize that the demand which the
Shell Company made upon its laborers is not merely overtime
work but night work and so there was need to differentiate night
work from daytime work. In fact, the company contended that
there was no law that required the payment of additional
compensation for night work unlike an overtime work which is
covered by Commonwealth Act No. 444 (Eight Hour Labor Law).
And this Court in that case said that while there was no law
actually requiring payment of additional compensation for night
work, the industrial court has the power to determine the wages
that night workers should receive under Commonwealth Act No.
103, and so it justified the additional compensation in the Shell
case for 'hygienic, medical, moral, cultural and sociological
reasons.

xxx xxx xxx
True, in Paflu, et al. vs. Tan, et al., supra, and in a series of
cases thereafter, We held that the broad powers conferred by
Commonwealth Act 103 on the CIR may have been curtailed by
Republic Act 875 which limited them to the four categories
therein expressed in line with the public policy of allowing
settlement of industrial disputes via the collective bargaining
process; but We find no cogent reason for concluding that a suit
of this nature for extra compensation for night work falls outside
the domain of the industrial court. Withal, the record does not
show that the employer-employee relation between the 64
respondents and the petitioner had ceased.
After the passage of Republic Act 875, this Court has not only
upheld the industrial court's assumption of jurisdiction over
cases for salary differentials and overtime pay [Chua Workers
Union (NLU) vs. City Automotive Co., et al., G.R. No. L- 11655,
April 29, 1959; Prisco vs. CIR, et al., G.R. No. L-13806, May 23,
1960] or for payment of additional compensation for work
rendered on Sundays and holidays and for night work [Nassco
vs. Almin, et al., G.R. No. L9055, November 28, 1958; Detective
& Protective Bureau, Inc. vs. Felipe Guevara, et al., G.R. No. L-
8738, May 31, 1957] but has also supported such court's ruling
that work performed at night should be paid more than work
done at daytime, and that if that work is done beyond the
worker's regular hours of duty, he should also be paid additional
compensation for overtime work. [Naric vs. Naric Workers'
Union. et al., G. R No. L-12075, May 29, 1959, citing Shell Co.
vs. National Labor Union, 81 Phil. 315]. Besides, to hold that this
case for extra compensation now falls beyond the powers of the
industrial court to decide, would amount to a further curtailment
of the jurisdiction of said court to an extent which may defeat the
purpose of the Magna Carta to the prejudice of labor.' [Luis
Recato Dy, et al v-9. CIR, G.R. No. L-17788, May 25,1962]"
The petitioner-company's arguments on the respondent court's
alleged lack of jurisdiction over additional compensation for work
done at night by the respondents is without merit.
The other issue raised in the second assignment of error is
premised on the petitioner-company's contention that the
respondent court's ruling on the additional compensation for
nighttime work is not supported by substantial evidence.
This contention is untenable. Pertinent portions of the
respondent court's decision read:
xxx xxx xxx
There is no serious disagreement between the petitioners and
respondent management on the facts recited above. The
variance in the evidence is only with respect to the money
claims. Witnesses for petitioners declared they worked on
regular days and on every other Sunday and also during all
holidays; that for services rendered on Sundays and holidays
they were not paid for the first four (4) hours and what they only
received was the overtime compensation corresponding to the
number of hours after or in excess of the first four hours; and
that such payment is being indicated in the overtime pay for work
done in excess of eight hours on regular working days. It is also
claimed that their nighttime services could well be seen on their
respective daily time records. .. (Emphasis supplied) (p.116,
rollo)
Page 37 of 191
The respondent court's ruling on additional compensation for
37
work done at night is, therefore, not without evidence. Moreover,
the petitioner-company did not deny that the private
respondents rendered nighttime work. In fact, no additional
evidence was necessary to prove that the private respondents
were entitled to additional compensation for whether or not they
were entitled to the same is a question of law which the
respondent court answered correctly. The "waiver rule" is not
applicable in the case at bar. Additional compensation for
nighttime work is founded on public policy, hence the same
cannot be waived. (Article 6, Civil Code). On this matter, We
believe that the respondent court acted according to justice and
equity and the substantial merits of the case, without regard to
technicalities or legal forms and should be sustained.
The third assignment of error is likewise without merit. The fact
that only three of the private respondents testified in court does
not adversely affect the interests of the other respondents in the
case. The ruling in Dimayuga V. Court of Industrial Relations
(G.R. No. L-0213, May 27, 1957) has been abandoned in later
rulings of this Court. In Philippine Land Air-Sea Labor Union
(PLASLU) vs. Sy Indong Company Rice And Corn Mill (11
SCRA 277) We had occasion to re-examine the ruling in
Dimayuga We stated:
The latter reversed the decision of the trial Judge as regards the
reinstatement with backwages of ... upon the theory that this is
not a class suit; that, consequently, it is necessary and
imperative that they should personally testify and prove the
charges in the complaint', and that, having failed to do so, the
decision of the trial Judge in their favor is untenable under the
rule laid down in Dimayuga vs. Court of Industrial Relations,
G.R. No. L-0213 (May 27,1957).
We do not share the view taken in the resolution appealed from.
As the trial Judge correctly said, in Ms dissent from said
resolution,:
xxx xxx xxx
In the case of Sanchez v. Court of Industrial Relations, supra,
this Court stated:
To the reproach against the challenged order in the brief of
petitioners in view of only two of the seven claimants testifying,
a statement by this Court in Ormoc Sugar Co., Inc. vs. OSCO
Workers Fraternity Labor Union would suffice by way of
refutation. Thus: "This Court fully agrees with the respondent
that quality and not quantity of witnesses should be the
primordial consideration in the appraisal of evidence.' Barely
eight days later, in another decision, the above statement was
given concrete expression. Thus: 'The bases of the awards were
not only the respective affidavits of the claimants but the
testimonies of 24 witnesses (because 6 were not given
credence by the court below) who Identified the said 239
claimants. The contention of petitions on this point is therefore
unfounded Moveover in Philippine Land-Air-Sea Labor Union
(PLASLU) v. Sy Indong company Rice & Corn Mill, this Court,
through the present Chief Justice rejected as untenable the
theory of the Court of Industrial Relations concerning the
imperative needs of all the claimants to testify personality and
prove their charges in the complaint. As tersely put: 'We do not
share the view taken in the resolution appealed from.
The petitioner's contention that its employees fully understood
what they signed when they entered into the contracts of
employment and that they should be bound by their voluntary
commitments is anachronistic in this time and age.
 Arnold Miranda 3rd Officer US$310.00

The Mercury Drug Co., Inc., maintains a chain of drugstores that
are open every day of the week and, for some stores, up to very
late at night because of the nature of the pharmaceutical retail
business. The respondents knew that they had to work Sundays
and holidays and at night, not as exceptions to the rule but as
part of the regular course of employment. Presented with
contracts setting their compensation on an annual basis with an
express waiver of extra compensation for work on Sundays and
holidays, the workers did not have much choice. The private
respondents were at a disadvantage insofar as the contractual
relationship was concerned. Workers in our country do not have
the luxury or freedom of declining job openings or filing
resignations even when some terms and conditions of
employment are not only onerous and inequitous but illegal. It is
precisely because of this situation that the framers of the
Constitution embodied the provisions on social justice (Section
6, Article 11) and protection to labor (Section 9, Article I I) in the
Declaration of Principles And State Policies.
It is pursuant to these constitutional mandates that the courts
are ever vigilant to protect the rights of workers who are placed
in contractually disadvantageous positions and who sign
waivers or provisions contrary to law and public policy.
WHEREFORE, the petition is hereby dismissed. The decision
and resolution appealed from are affirmed with costs against the
petitioner.
38
Maximo Rosello Cook US$230.00
Aniceto Betana 3rd Engineer US$400.00
Petitioners were deployed on May 7, 1985, and discharged on
July 12, 1986.
Thereafter, petitioners collectively and/or individually filed
complaints for non-payment of overtime pay, vacation pay and
terminal pay against private respondent. In addition, they
claimed that they were made to sign their contracts in blank.
Likewise, petitioners averred that although they agreed to
render services on board the vessel Rio Colorado managed by
Golden Light Ocean Transport, Ltd., the vessel they actually
boarded was MV "SOIC I" managed by Columbus Navigation.
Two (2) petitioners, Jorge de Castro and Juanito de Jesus,
charged that although they were employed as ordinary seamen
(OS), they actually performed the work and duties of Able
Seamen (AB).
Private respondent was furnished with copies of petitioners'
complaints and summons, but it failed to file its answer within
the reglementary period. Thus, on January 12, 1987, an Order
was issued declaring that private respondent has waived its right
to present evidence in its behalf and that the cases are
submitted for decision (Page 68, Records).

On August 5, 1987, the Philippine Overseas Employment

G.R. Nos. 85122-24 March 22, 1991
JULIO N. CAGAMPAN, SILVINO C. VICERA, JORGE C. DE
CASTRO, JUANITO R. DE JESUS, ARNOLD J. MIRANDA,
MAXIMO O. ROSELLO & ANICETO L. BETANA, petitioners,
vs. NATIONAL LABOR RELATIONS COMMISSION, & ACE
MARITIME AGENCIES, INC., respondents.
Benjamin S. David for petitioners.
De Luna, Sumnoad and Gaerlan for private respondent.
Administration (POEA) rendered a Decision dismissing
petitioners' claim for terminal pay but granted their prayer for
leave pay and overtime pay. The dispositive portion of the
Decision reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
ordering respondent (private respondent) Ace Maritime
Agencies, Inc. to pay the following complainants (petitioners) in
the amounts opposite their names:

PARAS, J.:
1. Julio Cagampan—US$583.33 plus US$2,125.00
representing the 30% guaranteed overtime pay;
Presented before Us for review is the decision of public
respondent National Labor Relations Commission handed down
on March 16, 1988 reversing the decision of the Philippine
2. Silvino Vicera—US$933.33 plus US$3,400.00
Oversees Employment Administration and correspondingly
representing the 30% guaranteed overtime pay;
dismissing the cases for lack of merit. The POEA decision
granted overtime pay to petitioners equivalent to 30% of their
basic pay.
3. Jorge de Castro—US$233.33 plus US$850.00
representing the 30% guaranteed overtime pay;
We do not dispute the facts as found by the Solicitor General.
Thus:
4. Juanito de Jesus—US$233.33 plus US$850.00
representing the 30% guaranteed overtime pay;
On April 17 and 18,1985, petitioners, all seamen, entered into
separate contracts of employment with the Golden Light Ocean
Transport, Ltd., through its local agency, private respondent 5. Lauro Diongzon—US$233.33 plus US$850.00
ACE MARITIME AGENCIES, INC. Petitioners, with their representing the 30% guaranteed overtime pay;
respective ratings and monthly salary rates, are as follows:

6. Arnold Miranda—US$455.00 plus US$1,659.50

Petitioners Rating Salary per month representing the 30% guaranteed overtime pay;
Julio Cagampan 2nd Engineer US$500.00

Silvino Vicera 2nd Engineer US$800.00 7. Maximo Rosello—US$303.33 plus US$1,105.00

representing the 30% guaranteed overtime pay; and
Juanito de Jesus Ordinary Seaman US$120.00

Jorge C. de Castro Ordinary Seaman US$160.00

Page 38 of 191
8. Aniceto Betana—US$583.33 plus US$2,125.00
representing the 30% guaranteed overtime pay.
The payments represent their leave pay equivalent to their
respective salary (sic) of 35 days and should be paid in
Philippine currency at the current rate of exchange at the time
of actual payment. (pp. 81-82, Records)
Private respondent appealed from the POEA's Decision to the
NLRC on August 24, 1987. On March 16, 1988, the NLRC
promulgated a Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the appealed decision is
hereby REVERSED and SET ASIDE and another one entered
dismissing these cases for lack of merit. (p. 144, Records)
On May 8, 1988, petitioners filed an Urgent Motion for
Reconsideration of the NLRC's Decision (p. 210, Records), but
the same was denied by the NLRC for lack of merit in its
Resolution dated September 12, 1988 (p. 212, Records).
Hence, this appeal from the decision and resolution of the
respondent NLRC.
Petitioners allege that respondent Commission gravely abused
its discretion or erred in deciding in favor of private respondent
company by reason of the following:
1. Respondent NLRC overlooked the fact that private
respondent company had repeatedly failed and refused to file its
answer to petitioners' complaints with their supporting
documents.
2. Respondent Commission erred in reversing and setting
aside the POEA decision and correspondingly dismissing the
appeal of petitioners, allegedly in contravention of law and
jurisprudence.
Private respondent maritime company disclaims the aforesaid
allegations of petitioners through these arguments:
1. As borne out by the records, its former counsel
attended all the hearings before the POEA wherein he raised
the basis objection that the complaint of petitioners was so
generally couched that a more detailed pleading with supporting
documents was repeatedly requested for the latter to submit.
2. The NLRC never abused its discretion in arriving at assailed
decision considering that the same was based on the
Memorandum on Appeal dated August 14, 1987 filed by private
respondent.
3. In the hearings conducted by respondent Commission,
all the arguments of both parties were properly ventilated and
considered by said Commission in rendering its decision.
4. The Labor Code basically provides that the rules of
evidence prevailing in courts of law or equity shall not be
controlling and it is the spirit and intention of the Code that the
Page 39 of 191
Commission and its members and Labor Arbiters should use
39
every and an reasonable means to ascertain the facts in each
case speedily and objectively and without regard to
technicalities of law and procedure, all in the interest of due
process.
5. Petitioners' motion for reconsideration of the NLRC
decision did not invoke the merits of the case but merely raised
purely technical and procedural matters. Even assuming that
private respondent, technically speaking, waived the
presentation of evidence, its appeal to the NLRC was valid since
it involved merely a correct interpretation and clarification of
certain provisions of the contract the validity of which has never
been questioned.
The Solicitor General, arguing for public respondent NLRC,
contends:
1. Petitioners' assumption that a party who is declared to
have waived his right to present evidence also loses his right to
appeal from an adverse judgment made against him is a falsity
for, although the technical rules of evidence prevailing in the
courts of law or equity do not bind labor tribunals, even the Rules
of Court allows a party declared in default to appeal from said
judgment by attaching the propriety of the relief awarded therein.
2. The NLRC did not abuse its discretion in the rendition
of subject decision because the evidence presented by
petitioners in support of their complaint is by itself sufficient to
back up the decision. The issue of the disallowance of overtime
pay stems from an interpretation of particular provisions of the
employment contract.
We cannot sustain petitioners' position.
The failure of respondent to submit its responsive pleading was
not fatal as to invalidate its case before the Phil. Overseas
Employment Authority. Evidently, such formal or technical
defect was rectified by the fact that the POEA proceeded with
the hearings on the case where both parties were given
sufficient leeway to ventilate their cases.
Petitioners' manifest pursuit of their claims before the POEA in
the absence of the answer produced the effect of condoning the
failure of private respondent to submit the said answer. Their
submission to the POEA's authority without questioning its
jurisdiction to continue the hearings further strengthens the fact
that the alleged technical defect had already been cured. After
all, what is there to complain of when the POEA handed down a
decision favorable to petitioners with the allowance of the latter's
leave pay and overtime pay.
Notably, it was only when private respondent appealed the
NLRC decision to this Court that petitioners suddenly unearth
the issue of private respondent's default in the POEA case. Had
the decision favoring them not been reversed by the NLRC,
petitioners could have just clammed up. They resorted to
bringing up a technical, not a substantial, defect in their
desperate attempt to sway the Court's decision in their favor.
Private respondent has pointedly argued that the NLRC
anchored its decision primarily upon the Memorandum on
Appeal.1âwphi1 In the case of Manila Doctors Hospital v. NLRC
(153 SCRA 262) this Court ruled that the National Labor
Relations Commission and the Labor Arbiter have authority
under the Labor Code to decide a case based on the position
papers and documents submitted without resorting to the
technical rules of evidence.
On the issue of whether or not petitioners should be entitled to
terminal pay, We sustain the finding of respondent NLRC that
petitioners were actually paid more than the amounts fixed in
their employment contracts. The pertinent portion of the NLRC
decision reads as follows.
On this award for leave pay to the complainants (petitioners),
the (private) respondent maintains that the actually they were
paid much more than what they were legally entitled to under
their contract. This fact has not been disputed by the
complainants (petitioners.) Thus, as mentioned in (private)
respondent's Memorandum on Appeal dated 14 August 1987,
their overpayment is more than enough and sufficient to offset
whatever claims for leave pay they filed in this case and for
which the POEA favorably considered in their favor. For
complainant (petitioner) Aniceto Betana, it appears that under
the crew contract his monthly salary was US$400 while he was
overpaid by US$100 as he actually received US$500. In fine,
Betana had received at least US1,400 excess salary for a period
of fourteen (14) months which was the period of his employment.
In the case of complainant (petitioner) Jorge C. de Castro his
stipulated monthly pay was US$160 but he actually received a
monthly pay of US$200 or an overpayment of US$560 for the
same period of service. For complainant (petitioner) Juanito R.
de Jesus, his overpayment is US$1120. Complainant
(petitioner) Arnold J. Miranda has also the same amount of
excess payment as de Jesus. Indeed, We cannot simply ignore
this material fact. It is our duty to prevent a miscarriage of justice
for if We sustain the award for leave pay in the face of
undisputed facts that the complainants (petitioners) were even
paid much more than what they should receive by way of leave
pay, then they would be enriching themselves at the expense of
others. Accordingly, justice and equity compel Us to deny this
award.
Even as the denial of petitioners' terminal pay by the NLRC has
been justified, such denial should not have been applied to
petitioners Julio Cagampan and Silvino Vicera. For, a deeper
scrutiny of the records by the Solicitor General has revealed that
the fact of overpayment does not cover the aforenamed
petitioners since the amounts awarded them were equal only to
the amounts stipulated in the crew contracts. Since petitioners
Cagampan and Vicera were not overpaid by the company, they
should be paid the amounts of US$583.33 and US$933.33,
respectively. Further examination by the Solicitor General
shows that petitioner Maximo Rosello was also overpaid in the
amount of US$420.00.
Hence, with respect to petitioners Cagampan and Vicera, the
NLRC decision must be modified correspondingly.
As regards the question of overtime pay, the NLRC cannot be
faulted for disallowing the payment of said pay because it merely
straightened out the distorted interpretation asserted by
petitioners and defined the correct interpretation of the provision
on overtime pay embodied in the contract conformably with
settled doctrines on the matter. Notably, the NLRC ruling on the
disallowance of overtime pay is ably supported by the fact that
petitioners never produced any proof of actual performance of
overtime work.
Petitioners have conveniently adopted the view that the
"guaranteed or fixed overtime pay of 30% of the basic salary per
month" embodied in their employment contract should be
awarded to them as part of a "package benefit." They have
theorized that even without sufficient evidence of actual
Page 40 of 191
rendition of overtime work, they would automatically be entitled
40
to overtime pay. Their theory is erroneous for being illogical and
unrealistic. Their thinking even runs counter to the intention
behind the provision. The contract provision means that the
fixed overtime pay of 30% would be the basis for computing the
overtime pay if and when overtime work would be rendered.
Simply, stated, the rendition of overtime work and the
submission of sufficient proof that said work was actually
performed are conditions to be satisfied before a seaman could
be entitled to overtime pay which should be computed on the
basis of 30% of the basic monthly salary. In short, the contract
provision guarantees the right to overtime pay but the
entitlement to such benefit must first be established.
Realistically speaking, a seaman, by the very nature of his job,
stays on board a ship or vessel beyond the regular eight-hour
work schedule. For the employer to give him overtime pay for
the extra hours when he might be sleeping or attending to his
personal chores or even just lulling away his time would be
extremely unfair and unreasonable.
We already resolved the question of overtime pay of a worker
aboard a vessel in the case of National Shipyards and Steel
Corporation v. CIR (3 SCRA 890). We ruled:
We can not agree with the Court below that respondent
Malondras should be paid overtime compensation for every hour
in excess of the regular working hours that he was on board his
vessel or barge each day, irrespective of whether or not he
actually put in work during those hours. Seamen are required to
stay on board their vessels by the very nature of their duties, and
it is for this reason that, in addition to their regular compensation,
they are given free living quarters and subsistence allowances
when required to be on board. It could not have been the
purpose of our law to require their employers to pay them
overtime even when they are not actually working; otherwise,
every sailor on board a vessel would be entitled to overtime for
sixteen hours each day, even if he spent all those hours resting
or sleeping in his bunk, after his regular tour of duty. The correct
criterion in determining whether or not sailors are entitled to
overtime pay is not, therefore, whether they were on board and
can not leave ship beyond the regular eight working hours a day,
but whether they actually rendered service in excess of said
number of hours. (Emphasis supplied)
The aforequoted ruling is a reiteration of Our resolution in Luzon
Stevedoring Co., Inc. vs. Luzon Marine Department Union, et al.
(G.R. No. 9265, April 29, 1957).
WHEREFORE, the decision of the NLRC is hereby AFFIRMED
with the modification that petitioners Cagampan and Vicera are
awarded their leave pay according to the terms of the contract.
SO ORDERED.
G.R. No. 121004 January 28, 1998
ROMEO LAGATIC, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, CITYLAND DEVELOPMENT
CORPORATION, STEPHEN ROXAS, JESUS GO, GRACE
LIUSON, and ANDREW LIUSON, respondents.
ROMERO, J.:
Petitioner seeks, in this petition for certiorari under Rule 65, the
reversal of the resolution of the National Labor Relations
Commission dated May 12, 1995, affirming the February 17,
1994, decision of Labor Arbiter Ricardo C. Nora finding that
petitioner had been validly dismissed by private respondent
Cityland Development Corporation (hereafter referred to as
Cityland) and that petitioner was not entitled to separation pay,
premium pay and overtime pay.
The facts of the case are as follows:
Petitioner Romeo Lagatic was employed in May 1986 by
Cityland, first as a probationary sales agent, and later on as a
marketing specialist. He was tasked with soliciting sales for the
company, with the corresponding duties of accepting call-ins,
referrals, and making client calls and cold calls. Cold calls refer
to the practice of prospecting for clients through the telephone
directory. Cityland, believing that the same is an effective and
cost-efficient method of finding clients, requires all its marketing
specialists to make cold calls. The number of cold calls depends
on the sales generated by each: more sales mean less cold
calls. Likewise, in order to assess cold calls made by the sales
staff, as well as to determine the results thereof, Cityland
requires the submission of daily progress reports on the same.
On October 22, 1991, Cityland issued a written reprimand to
petitioner for his failure to submit cold call reports for September
10, October 1 and 10, 1991. This notwithstanding, petitioner
again failed to submit cold call reports for September 2, 5, 8, 10,
11, 12, 15, 17, 18, 19, 20, 22, and 28, as well as for October 6,
8, 9, 10, 12, 13 and 14, 1992. Petitioner was required to explain
his inaction, with a warning that further non-compliance would
result in his termination from the company. In a reply dated
October 18, 1992, petitioner claimed that the same was an
honest omission brought about by his concentration on other
aspects of his job. Cityland found said excuse inadequate and,
on November 9, 1992, suspended him for three days, with a
similar warning.
Notwithstanding the aforesaid suspension and warning,
petitioner again failed to submit cold call reports for February 5,
6, 8, 10 and 12, 1993. He was verbally reminded to submit the
same and was even given up to February 17, 1993 to do so.
Instead of complying with said directive, petitioner, on February
16, 1993, wrote a note, "TO HELL WITH COLD CALLS! WHO
CARES?" and exhibited the same to his co-employees. To
worsen matters, he left the same lying on his desk where
everyone could see it.
On February 23, 1993, petitioner received a memorandum
requiring him to explain why Cityland should not make good its
previous warning for his failure to submit cold call reports, as
well as for issuing the written statement aforementioned. On
February 24, 1993, he sent a letter-reply alleging that his failure
to submit cold call reports should trot be deemed as gross
insubordination. He denied any knowledge of the damaging
statement, "TO HELL WITH COLD CALLS!"
Finding petitioner guilty of gross insubordination, Cityland
served a notice of dismissal upon him on February 26, 1993.
Aggrieved by such dismissal, petitioner filed a complaint against
Cityland for illegal dismissal, illegal deduction, underpayment,
overtime and rest day pay, damages and attorney's fees. The
labor arbiter dismissed the petition for lack of merit. On appeal,
the same was affirmed by the NLRC; hence the present
recourse.
Petitioner raises the following issues:
1. WHETHER OR NOT RESPONDENT NLRC
GRAVELY ABUSED ITS DISCRETION 1N NOT FINDING
THAT PETITIONER WAS ILLEGALLY DISMISSED;
Page 41 of 191
41
2. WHETHER OR NOT RESPONDENT NLRC
GRAVELY ABUSED ITS DISCRETION IN RULING THAT
PETITIONER IS NOT ENTITLED TO SALARY
DIFFERENTIALS, BACKWAGES, SEPARATION PAY,
OVERTIME PAY, REST DAY PAY, UNPAID COMMISSIONS,
MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S
FEES.
The petition lacks merit.
To constitute a valid dismissal from employment, two requisites
must be met, namely: (1) the employee must be afforded due
process, and (2) the dismissal must be for a valid cause.1 In the
case at bar, petitioner contends that his termination was illegal
on both substantive and procedural aspects. It is his submission
that the failure to submit a few cold calls does not qualify as
willful disobedience, as, in his experience, cold calls are one of
the least effective means of soliciting sales. He thus asserts that
a couple of cold call reports need not be accorded such
tremendous significance as to warrant his dismissal for failure to
submit them on time.
These arguments are specious. Petitioner loses sight of the fact
that "(e)xcept as provided for, or limited by, special laws, an
employer is free to regulate, according to his discretion and
judgment, all aspects of employment."2 Employers may, thus,
make reasonable rules and regulations for the government of
their employees, and when employees, with knowledge of an
established rule, enter the service, the rule becomes a part of
the contract of employment.3 It is also generally recognized that
company policies and regulations, unless shown to be grossly
oppressive or contrary to law, are generally valid and binding on
the parties and must be complied with.4 "Corollarily, an
employee may be validly dismissed for violation of a reasonable
company rule or regulation adopted for the conduct of the
company business. An employer cannot rationally be expected
to retain the employment of a person whose . . . lack of regard
for his employer's rules . . . has so plainly and completely been
bared."5 Petitioner's continued infraction of company policy
requiring cold call reports, as evidenced by the 28 instances of
non-submission of aforesaid reports, justifies his dismissal. He
cannot be allowed to arrogate unto himself the privilege of
setting company policy on the effectivity of solicitation methods.
To do so would be to sanction oppression and the self-
destruction of the employer.
Moreover, petitioner made it worse for himself when he wrote
the statement, "TO HELL WITH COLD CALLS! WHO CARES?"
When required to explain, he merely denied ally knowledge of
the same. Cityland, on the other hand, submitted the affidavits
of his co-employees attesting to his authorship of the same.
Petitioner's only defense is denial. The rule, however, is that
denial, if unsubstantiated by clear and convincing evidence, is
negative and self-serving evidence which has no weight in law.6
More telling, petitioner, while making much capital out of his lack
of opportunity to confront the affiants, never, in all of his
pleadings, categorically denied writing the same. He only denied
knowledge of the allegation that he issued such a statement.
Based on the foregoing, we find petitioner guilty of willful
disobedience. Willful disobedience requires the concurrence of
at least two requisites: the employee's assailed conduct must
have been willful or intentional, the willfulness being
characterized by a wrongful and perverse attitude; and the order
violated must have been reasonable, lawful, made known to the
employee and must pertain to the duties which he had been
engaged to discharge.7
Petitioner's failure to comply with Cityland's policy of requiring (CN) less AMOUNTS RECEIVED (AR)

42
cold call reports is clearly willful, given the 28 instances of his
failure to do so, despite a previous reprimand and suspension.
More than that, his written statement shows his open defiance
= (CE - CN) - AR where CE = Monthly
and disobedience to lawful rules and regulations of the
Sales Volume x
company. Likewise, said company policy of requiring cold calls
and the concomitant reports thereon is clearly reasonable and Commission Rate (CR)
lawful, sufficiently known to petitioner, and in connection with the
duties which he had been engaged to discharge. There is, thus, AR = Monthly Compensation/.75
just cause for his dismissal.
CR = 4.5%

On the procedural aspect, petitioner claims that he was denied

due process. Well settled is the dictum that the twin
requirements of notice and hearing constitute the elements of
due process in the dismissal of employees. Thus, the employer
must furnish the employee with two written notices before the
termination of employment can be effected. The first apprises
the employee of the particular acts or omissions for which his
dismissal is sought; the second informs him of the employer's
decision to dismiss him.8
Under said formula, an increase in salary would entail an
increase in AR, thus diminishing the amount of commissions that
petitioner would receive. Petitioner construes the same as
violative of the non-diminution of benefits clause embodied in
the wage orders applicable to petitioner. Inasmuch as Cityland
has paid petitioner commissions based on a higher AR each
time there has been a wage increase, the difference between
the original AR and the subsequent ARs have been viewed by
petitioner as illegal deductions, to wit:

In the case at bar, petitioner was notified of the charges against

him in a memorandum dated February 19, 1993, which he Wage Order
received on February 23, 1993. He submitted a letter-reply
thereto on February 24, 1993, wherein he asked that his failure
to submit cold call reports be not interpreted as gross Date of Effectivity
insubordination.9 He was given notice of his termination on
February 26, 1993. This chronology of events clearly show that
petitioner was served with the required written notices.
Amount of Increase

Nonetheless, petitioner contends that he has not been given the

benefit of an effective hearing. He alleges that he was not Corresponding Increase in Quota (AR)
adequately informed of the results of the investigation
conducted by the company, nor was he able to confront the
affiants who attested to his writing the statement, "TO HELL
Duration Up To 2/26/93
WITH COLD CALLS!" While we have held that in dismissing
employees, the employee must be afforded ample opportunity
to be heard, "ample opportunity" connoting every kind of
assistance that management must afford the employee to Total
enable him to prepare adequately for his defense, 10 it is also
true that 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 be conducted.11 Petitioner had an RA 6640
opportunity to be heard as he submitted a letter-reply to the
charge. He, however, adduced no other evidence on his behalf.
In fact, he admitted his failure to submit cold call reports, praying 1/1/88
that the same be not considered as gross insubordination. As
held by this Court in Bernardo vs. NLRC,12 there is no necessity
for a formal hearing where an employee admits responsibility for
an alleged misconduct. As to the written statement, "TO HELL P265.75
WITH COLD CALLS!," petitioner merely denied knowledge of
the same. He failed to submit controverting evidence thereon
although the memorandum of February 19, 1993, clearly P 353.33
charged that he had shown said statement to several sales
personnel. Denials are weak forms of defenses, particularly
when they are not substantiated by clear and convincing
evidence. Given the foregoing, we hold that petitioner's X
constitutional right to due process has not been violated.

62 mos.
As regards the second issue, petitioner contends that he is
entitled to amounts illegally deducted from his commissions, to
unpaid overtime, rest day and holiday premiums, to moral and P 2 1,906.46
exemplary damages, as well as attorney's fees and costs.

RA 6727
Petitioner anchors his claim for illegal deductions of
commissions on Cityland's formula for determining
commissions, viz:
7/1/89

COMMISSIONS = Credits Earned (CE) less

CUMULATIVE NEGATIVE 780.75
Page 42 of 191
 means that the difference would be credited to his CN for the

43
next month. Clearly, the purpose of the same is to encourage
1,040.00 sales personnel to accelerate their sales in order for them to
earn commissions.

X
Additionally, there is no law which requires employers to pay
commissions, and when they do so, as stated in the letter-
44 mos. opinion of the Department of Labor and Employment dated
February 19, 1993, "there is no law which prescribes a method
for computing commissions. The determination of the amount of
commissions is the result of collective bargaining negotiations,
45,760.00 individual employment contracts or established employer
practice." 14 Since the formula for the computation of
commissions was presented to and accepted by petitioner, such
NCR 01 prescribed formula is in order. As to the allegation that said
formula diminishes the benefits being received by petitioner
whenever there is a wage increase, it must be noted that his
commissions are not meant to be in a fixed amount. In fact, there
11/1/90 was no assurance that he would receive any commission at all.
Non-diminution of benefits, as applied here, merely means that
the company may not remove the privilege of sales personnel to
earn a commission, not that they are entitled to a fixed amount
785.75
thereof.

1,046.67
With respect to petitioner's claims for overtime pay, rest day pay
and holiday premiums, Cityland maintains that Saturday and
Sunday call-ins were voluntary activities on the part of sales
X personnel who wanted to realize more sales and thereby earn
more commissions. It is their contention that sales personnel
were clamoring for the "privilege" to attend Saturday and
Sunday call-ins, as well as to entertain walk-in clients at project
28 mos. sites during weekends, that Cityland had to stagger the
schedule of sales employees to give everyone a chance to do
so. But simultaneously, Cityland claims that the same were
29,306.76 optional because call-ins and walk-ins were not scheduled every
weekend. If there really were a clamor on the part of sales staff
to "voluntarily" work on weekends, so much so that Cityland
needed to schedule them, how come no call-ins or walk-ins were
NCR 01-A scheduled on some weekends?

Grand Total In addition to the above, the labor arbiter and the NLRC
sanctioned respondent's practice of offsetting rest day or holiday
work with equivalent time on regular workdays on the ground
P 96,973.2213 that the same is authorized by Department Order 21, Series of
1990. As correctly pointed out by petitioner, said D.O. was
misapplied in this case. The D.O. involves the shortening of the
workweek from six days to five days but with prolonged hours
Petitioner even goes as far as to claim that with the use of on those five days. Under this scheme, non-payment of overtime
Cityland's formula, he is indebted to the company in the amount premiums was allowed in exchange for longer weekends for
of P1,410.00, illustrated as follows: employees. In the instant case, petitioner's workweek was never
compressed. Instead, he claims payment for work over and
above his normal 5 1/2 days of work in a week. Applying by
Petitioner' s Basic Salary = P 4,230.00 analogy the principle that overtime cannot be offset by
undertime, to allow off-setting would prejudice the worker. He
would be deprived of the additional pay for the rest day work he
has rendered and which is utilized to offset his equivalent time
= 4,230.00/.75 off on regular workdays. To allow Cityland to do so would be to
circumvent the law on payment of premiums for rest day and
holiday work.
A.R. = 5,640.00

Notwithstanding the foregoing discussion, petitioner failed to

Petitioner's Basic Salary — AR = P 1,410.00
While it is true that an increase in salary would cause an
increase in AR, with the same being deducted from credits
earned, thus lessening his commissions, the fact remains that
petitioner still receives his basic salary without deductions.
Petitioner's argument that he is indebted to respondent by
P1,410.00 is fallacious as his basic salary remains the same and
he continues to receive the same, regardless of his collections.
The failure to attain a CE equivalent to the AR of P5,640.00 only
Page 43 of 191
show his entitlement to overtime and rest day pay due, to the
lack of sufficient evidence as to the number of days and hours
when he rendered overtime and rest day work. Entitlement to
overtime pay must first be established by proof that said
overtime work was actually performed, before an employee may
avail of said benefit. 15 To support his allegations, petitioner
submitted in evidence minutes of meetings wherein he was
assigned to work on weekends and holidays at Cityland's
housing projects. Suffice it to say that said minutes do not prove
that petitioner actually worked on said dates. It is a basic rule in
evidence that each party must prove his affirmative allegations.
16 This petitioner failed to do. He explains his failure to submit
more concrete evidence as being due to the decision rendered
by the labor arbiter without resolving his motion for the
production and inspection of documents in the control of
Cityland. Petitioner conveniently forgets that on January 27,
1994, he agreed to submit the case for decision based on the
records available to the labor arbiter. This amounted to an
abandonment of above-said motion, which was then pending
resolution.
Lastly, with the finding that petitioner's dismissal was for a just
and valid cause, his claims for moral and exemplary damages,
as well as attorney's fees, must fail.
WHEREFORE, premises considered, the assailed Resolution is
AFFIRMED and this petition is hereby DISMISSED for lack of
merit. Costs against petitioner.
SO ORDERED.
G.R. No. L-30279 July 30, 1982
PHILIPPINE NATIONAL BANK, petitioner, vs. PHILIPPINE
NATIONAL BANK EMPLOYEES ASSOCIATION (PEMA) and
COURT OF INDUSTRIAL RELATIONS, respondents.
Conrado E. Medina, Edgardo M. Magtalas and Nestor Kalaw for
petitioner.
Leon O. Ty, Gesmundo Fernandez & Zulueta, Oliver B.
Gesmundo and Israel Bocobo for respondents.
BARREDO, J.:
Appeal by the Philippine National Bank from the decision of the
trial court of the Court of Industrial Relations in Case No. IPA-53
dated August 5, 1967 and affirmed en banc by said court on
January 15, 1968.
This case started on January 28, 1965 in consequence of the
certification of the President of the Philippines of an industrial
dispute between the Philippine National Bank Employees
Association (PEMA, for short), on the one hand, and the
Philippine National Bank (PNB, for short), on the other, which
arose from no more than the alleged failure of the PNB to comply
with its commitment of organizing a Committee on Personnel
Affairs to take charge of screening and deliberating on the
promotion of employees covered by the collective bargaining
agreement then in force between the said parties. On January
28, 1965, the Industrial Court issued an order aimed at settling
the dispute temporarily between the parties, which was certified
by the President. Pertinent portions of the order read thus:
xxx xxx xxx
1. That in order to settle the strike and for the employees to
return to work immediately starting January 29, 1965, the
Committee on Personnel Affairs is hereby created to start
functioning on February 1, 1965;
xxx xxx xxx
f. That in return for this concession, an injunction against future
strikes or lockouts shall be issued by the Court to last for a period
of six months but which shall terminate even before that period
Page 44 of 191
should all disputes of the parties be already resolved; (Page 84,
44
Record.)
According to the very decision now on appeal, "on May 22, 1965,
petitioner (private respondent herein) filed another pleading
submitting to this Court for determination certain matters which
it claims cannot be resolved by the parties, which are as follows:
First Cause of Action
a. In a Resolution No. 1162 dated September 16, 1957, the
Respondent's Board of Directors approved a revision of the
computation of overtime pay retroactive as of July 1, 1954, and
authorized a recomputation of the regular one- hour and extra
overtime already rendered by all officers and employees of the
Respondent Bank.
The details of the benefits involved in said Resolution are
contained in a Memorandum of the Respondent Bank dated
September 18, 1957.
b. Since the grant of the benefits in question, the employees of
the Respondent, represented by the petitioner, have always
considered them to be a part of their salaries and/or fringe
benefits; nevertheless, the Respondent, in 1963, without just
cause, withdrew said benefits and in spite of repeated demands
refused, and still refuses to reinstate the same up to the present.
Second Cause of Action
c. After the promulgation of the Decision in National Waterworks
and Sewerage Authority vs. NAWASA Consolidated Unions, et
al. G.R. No. L-18938, Aug. 31, 1964, the Petitioner has
repeatedly requested Respondent that the cost of living
allowance and longevity pay be taken into account in the
computation of overtime pay, effective as of the grant of said
benefits on January 1, 1958, in accordance with the ruling in said
Decision of the Supreme Court.
d. Until now Respondent has not taken any concrete steps
toward the payment of the differential overtime and nighttime
pays arising from the cost of living allowance and longevity pay.
xxx xxx xxx
Respondent in its answer of June 7, 1965 took exception to this
mentioned petition on several grounds, namely, (1) the said
alleged causes of action were not disputes existing between the
parties, (2) the same are mere money claims and therefore not
within this Court's jurisdiction, and (3) that the parties have not
so stipulated under the collective bargaining agreement
between them, or the same is premature as the pertinent
collective bargaining agreement has not yet expired." (Pp. 84-
86, Record.) 1
Resolving the issues of jurisdiction and prematurity thus raised
by PNB, the court held:
As to the first ground, it is well to note that this Court in its Order
of January 28, 1965 has enjoined the parties not to strike or
lockout for a period of six (6) months starting from said date. In
a very definite sense the labor disputes between the parties With respect to ground three of the answer on which objection

45
have been given a specific period for the settlement of their is based, on C.A. 444, as amended, Section 6 thereof, provides
differences. The fact that thereafter the question of the manner as follows:
of payment of overtime pay is being put in issue, appears to
indicate that this was a part of the labor dispute. If we are to
consider that this question, particularly the second cause of
'Any agreement or contract between the employer and the
action, has in fact existed as early as 1958, shows the necessity
laborer or employee contrary to the provisions of this Act shall
of resolving the same now. And the same would indeed be an
be null and void ab initio'.
existing issue considering that the present certification came
only in 1965.

The instant action is partially subject to the provisions of

Commonwealth Act 444, as amended. Even if, the parties have
It is further to be noted that the presidential certification has not
stipulated to the extent that overtime will not be paid, the same
limited specific areas of the labor dispute embraced within the
will not be binding. More so under the present circumstances,
said certification. It speaks of the existence of a labor dispute
where the only question is the correctness of the computation of
between the parties and of a strike declared by the PEMA, for
the overtime payments.
which the Court has been requested to take immediate steps in
the exercise of its powers under the law.

While the Court notes that the first cause of action has become
moot and academic in view of the compliance by respondent,
Even on the assumption that the present issue is not one
hence there is no further need to resolve the same (t.s.n., pp. 5-
embraced by the presidential certification or it is an issue
7, August 16, 1965), the settlement of said first cause of action
presented by one party on a cause arising subsequent to the
further strengthens the view that the second cause of action is
certification, the same would still be subject to the jurisdiction of
indeed an existing dispute between the parties. Both causes of
this Court. In "Apo Cement Workers Union versus Cebu
fiction involve overtime questions. Both stem from dates well
Portland Cement", Case No. 11 IPA (G.R. No. L-12451, July 10,
beyond and before the presidential certification of the present
1957), the Court en banc (where this Sala has taken an opposite
proceedings. If respondent has been fit to take steps to expedite
view) upheld its jurisdiction under the circumstances just
and resolve, without court intervention, the first cause of action,
enumerated. It would seem that this question has been further
it cannot deny the existence of the second cause of action as
settled by our Supreme Court in "National Waterworks &
the first and second appear to be interrelated matters. (Pp. 86-
Sewerage Authority vs. NAWASA Consolidated Unions, et al."
89, Record)
(supra), which we quote in part:

And We agree that the foregoing holding is well taken. It would

xxx xxx xxx
4. Petitioner's claim that the issue of overtime compensation not
having been raised in the original case but merely dragged into
it by intervenors, respondent Court cannot take cognizance
thereof under Section 1, Rule 13 of the Rules of Court.
xxx xxx xxx
... The fact that the question of overtime payment is not included
in the principal case in the sense that it is not one of the items
of dispute certified to by the President is of no moment, for it
comes within the sound discretion of the Court of Industrial
Relations. Moreover, in labor disputes technicalities of
procedure should as much as possible be avoided not only in
the interest of labor but to avoid multiplicity of action. This claim
has no merit.
xxx xxx xxx
As to the objection posed that the issues are mere money
claims, there appears to be no ground for the same. In the first
place, although the same involves a claim for additional
compensation it is also a part of the labor dispute existing
between the parties and subject to the compulsory arbitration
powers of the Court, pursuant to Section 10 of Rep. Act No. 875.
In the second place, on the basis of the so-called PRISCO
doctrine (G.R. No. L- 13806, May 23,.1960), there is an existing
and current employer-employee relationship between the
respondent and the members of petitioner union, for whom the
additional overtime compensation is claimed.
be more worthwhile to proceed to the basic issues immediately
than to add anything more of Our own discourse to the
sufficiently based disposition of the court a quo of the above-
mentioned preliminary questions.
After discussing the pros and cons on the issue involved in the
second cause of action as to whether or not the cost-of-living
allowance otherwise denominated as equity pay and longevity
pay granted by the bank, the first beginning January 1, 1958 and
the latter effective July 1, 1961, should be included in the
computation of overtime-pay, the court granted the demands of
PE MA, except the additional rate of work for night pay, and
rendered the following judgment:
WHEREFORE, in view of the foregoing, this Court hereby
promulgates the following:
1. The respondent Philippine National Bank is hereby
required to pay overtime and nighttime rates to its employees
from January 28, 1962; and such overtime compensation shall
be based on the sum total of the employee's basic salary or
wage plus cost of living allowance and longevity pay under the
following schedule:
'a. Overtime services rendered shall be paid at the rate of time
and one-third, but overtime work performed between 6:00 P.M.
and 6- .00 A.M. shall be paid at the rate of 150% or 50% beyond
the regular rate;
'b. The rate for work performed in the night shift, or during the
period from 6:00 P.M. to 6:00 A.M. shall be compensated at the
rate of 150% or 50% beyond the regular rate, provided the work
performed involved a definite night shift and not merely a
continuation by way of overtime of the regular and established
hours of the respondent Bank.

Page 45 of 191

2. The Chief of the Examining Division of the Court or any
of his duly designated representatives is hereby ordered to
compute the overtime rates due each employee of the
respondent Bank from January 28, 1962, in accordance with the
above determination; and to complete the same within a period
of sixty (60) days from receipt of this Order. However,
considering that the Philippine National Bank is a government
depository, and renders and performs functions distinct and
unique; and, while it may be a banking institution, its relationship
with other government agencies and the public is such that it
has no basis for comparison with other banking institutions
organized under the corporation law or special charter. To
require it to pay immediately the liability after the exact amount
shall have been determined by the Court Examiner and duly
approved by the Court, as in other cases, would work undue
hardship to the whole government machinery, not to mention the
outstanding foreign liabilities and outside commitments, if any.
Moreover, the records show that this case was initiated long
before the taking over of the incumbent bank officials.
Accordingly, the Court feels that the payment shall be subject to
the negotiations by the parties as to time, amount, and duration.
The Court may intervene in said negotiations for the purpose of
settling once and for all this case to maintain industrial peace
pursuant to Section 13 of Commonwealth Act 103, as amended,
if desired, however by the parties.
After all this is not an unfair labor practice case.
SO ORDERED. (Pp. 98-100, Record.)
In connection with the above decision, two interesting points
appear at once to be of determinative relevance:
The first is that in upholding its jurisdiction to take cognizance of
the demand in question about cost-of-living allowance and
longevity pay, the Industrial Court carefully noted that it was not
resolving a petition for declaratory relief in the light of the
decision of this Court in NAWASA vs. NAWASA Consolidated
Unions, G.R. No. L- 18938, August 31, 1964, 11 SCRA 766.
Thus the decision under review states:
Incidentally, the present action is not one for declaratory relief
as to the applicability of a judicial decision to the herein parties.
A careful perusal of the pleadings indicates that what is being
sought is the payment of differential overtime and nighttime pay
based on existing law and jurisprudence. The cause of action is
not anchored on any decision of any court but on provisions of
the law which have been in effect at the time of the occurrence
of the cause of the action in relation to a labor dispute. Hence,
this is not a petition for declaratory relief. (Pp. 94-95, Record.)
The second refers to a subsequent decision of the same
Industrial Court in Shell Oil Workers Union vs. Shell Co., et al.,
Case No. 2410-V and Shell & Affiliates Supervisors Union vs.
Shell Company of the Philippines, et al., Case No. 2411- V, in
which the court made an explanatory discourse of its
understanding of the NAWASA ruling, supra, and on that basis
rejected the claim of the workers. In brief, it held that (1)
NAWASA does not apply where the collective bargaining
agreement does not provide for the method of computation of
overtime pay herein insisted upon by private respondent PEMA
and (2) the fact-situation in the Shell cases differed from that of
NAWASA, since the sole and definite ratio decidendi in
Page 46 of 191
NAWASA was merely that inasmuch as Republic Act 1880
46
merely fixed a 40-hour 5-day work for all workers, laborers and
employees including government-owned corporations like
NAWASA, the weekly pay of NAWASA workers working more
than five days a week should remain intact; with overtime pay in
excess of eight hours work and 25 % additional compensation
on Sundays. There was no pronouncement at all therein
regarding the basis of the computation of overtime pay in regard
to bonuses and other fringe benefits.
For being commendably lucid and comprehensive, We deem it
justified to quote from that Shell decision:
The main issue:
The Unions appear to have read the NAWASA case very
broadly. They would want it held that in view of the said ruling of
the Supreme Court, employers and employees must, even in the
face of existing bargaining contracts providing otherwise,
determine the daily and hourly rates of employees in this
manner: Add to basic pay all the money value of all fringe
benefits agreed upon or already received by the workers
individually and overtime pay shall be computed thus —
Basic yearly Rate plus Value of all Fringe Benefits divided by
number of days worked during the year equals daily wage; Daily
wage divided by 8 equals hourly rate. Hourly rate plus premium
rate equals hourly overtime rate.
The NAWASA case must be viewed to determine whether it is
that broad. NAWASA case must be understood in its setting.
The words used by the Supreme Court in its reasoning should
not be disengaged from the fact-situation with which it was
confronted and the specific question which it was there required
to decide. Above all care should be taken not to lose sight of the
truth that the facts obtaining, the issue settled, and the law
applied in the said case, and these, though extractable from the
records thereof as material in the resolution herein, were, as
they are, primarily declarative of the rights and liabilities of the
parties involved therein.
Recourse to the records of the NAWASA case shows that the
fact- situation, as far as can be materially connected with the
instant case, is as follows:
In view of the enactment of Rep. Act 1880, providing that the
legal hours of work for government employees, (including those
in government-owned or controlled corporations) shall be eight
(8) hours a day for five (5) days a week or forty (40) hours a
week, its implementation by NAWASA was disputed by the
Union. The workers affected were those who, for a period of
three (3) months prior to or immediately preceding the
implementation of Rep. Act 1880, were working seven (7) days
a week and were continuously receiving 25% Sunday differential
pay. The manner of computing or determining the daily rate of
monthly salaried employees.
And the Supreme Court, specifically laid out the issue to be
decided, as it did decide, in the NAWASA, as follows:
7. and 8. How is a daily wage of a weekly employee computed
in the light of Republic Act 1880?'(G.R. L-18938)
Resolving the above issue, it was held;

According to petitioner, the daily wage should be computed
exclusively on the basic wage without including the automatic
increase of 25% corresponding to the Sunday differential. To
include said Sunday differential would be to increase the basic
pay which is not contemplated by said Act. Respondent court
disagrees with this manner of computation. lt holds that Republic
Act 1880 requires that the basic weekly wage and the basic
monthly salary should not be diminished notwithstanding the
reduction in the number of working days a week. If the automatic
increase corresponding to the salary differential should not be
included there would be a diminution of the weekly wage of the
laborer concerned. Of course, this should only benefit those who
have been working seven days a week and had been regularly
receiving 25% additional compensation for Sunday work before
the effectivity of the Act.
It is thus necessary to analyze the Court's rationale in the said
NAWASA case, 'in the light of Rep. Act 1880', and the 'specific
corollaries' discussed preparatory to arriving at a final
conclusion on the main issue. What was required to be done, by
way of implementing R. A. 1880? The statute directs that
working hours and days of government employees (including
those of government owned and controlled proprietary
corporations) shall be reduced to five days-forty hours a week.
But, the same law carried the specific proviso, designed to guard
against diminution of salaries or earnings of affected employees.
The Supreme Court itself clearly spelled this out in the following
language: 'It is evident that Republic Act 1880 does not intend
to raise the wages of the employees over what they are actually
receiving. Rather, its purpose is to limit the working days in a
week to five days, or to 40 hours without however permitting any
reduction in the weekly or daily wage of the compensation which
was previously received. ...
If the object of the law was to keep intact, (not either to increase
it or decrease it) it is but natural that the Court should concern
itself, as it did, with the corollary, what is the weekly wage of
worker who, prior to R.A. 1880, had been working seven (7)
days a week and regularly receiving differential payments for
work on Sundays or at night? It seems clear that the Court was
only concerned in implementing correctly R.A. 1880 by ensuring
that in diminishing the working days and hours of workers in one
week, no diminution should result in the worker's weekly or daily
wage. And, the conclusion reached by the Supreme Court was
to affirm or recognize the correctness of the action taken by the
industrial court including such differential pay in computing the
weekly wages of these employees and laborers who worked
seven days a week and were continuously receiving 25%
Sunday differential for a period of three months immediately
preceding the implementation of R.A. 1880.' Nothing was said
about adding the money value of some other bonuses or
allowances or money value of other fringe benefits, received
outside the week or at some other periods. That was not within
the scope of the issue before the Court. in fact, the limited
application of the decision is expressed in the decision itself. The
resolution of this particular issue was for the benefit of only a
segment of the NAWASA employees. Said the Court 'Of course,
this should only benefit those who have been working seven
days a week and had been regularly receiving 25% additional
compensation for Sunday work before the effectivity of the Act.'
Unions make capital of the following pronouncement of the
Supreme Court in the NAWASA case:
It has been held that for purposes of computing overtime
compensation a regular wage includes all payments which the
parties have agreed shall be received during the work week,
including piece-work wages, differential payments for working at
undesirable times, such as at night or on Sundays and holidays,
and the cost of board and lodging customarily furnished the
employee (Walling v. Yangerman-Reynolds Hardwook Co., 325
Page 47 of 191
U.S. 419; Walling v. Harischfeger Corp. 325 U.S. 427). The
47
'Regular rate of pay also ordinarily includes incentive bonus or
profit- sharing payments made in addition to the normal basic
pay (56 C.J.S., pp. 704-705), and it was also held that the higher
rate for night, Sunday and holiday work is just as much as
regular rate as the lower rate for daytime work. The higher rate
is merely an inducement to accept employment at times which
are not at desirable form a workman's standpoint (International
L. Ass'n. Wise 50 F. Supp. 26, affirmed C.C.A. Carbunao v.
National Terminals Corp. 139 F. 853).
But this paragraph in the decision appears to have been used
and cited by the Court to sustain the action of the court a quo:
that it was correct to include the 25% Sunday premium for the
purpose of setting the weekly wage of specified workers whose
weekly earnings before the passage of R.A. 1880 would be
diminished, if said premium pay regularly received for three
months were not included. It is significant that the citations
therein used by the Supreme Court are excerpts from American
decisions whose legislation on overtime is at variance with the
law in this jurisdiction in this respect: the U.S. legislation
considers work in excess of forty hours a week as overtime;
whereas, what is generally considered overtime in the
Philippines is work in excess 'of the regular 8-hours a day. It is
understandably material to refer to precedents in the U.S. for
purposes of computing weekly wages under a 40- hour a week
rule, since the particular issue involved in NAWASA is the
conversion of prior weekly regular earnings into daily rates
without allowing diminution or addition.
No rule of universal application to other cases may, therefore,
be justifiably extracted from the NAWASA case. Let it be enough
that in arriving at just solution and correct application of R.A.
1880, an inference was drawn from other decisions that a
regular wage includes payments 'agreed by the parties to be
received during the week.' But to use this analogy in another
fact- situation would unmitigatingly stretch its value as basis for
legal reasoning, for analogies are not perfect and can bring a
collapse if stretched far beyond their logical and reasoned
efficacy. Neither would it be far to ascribe to the Supreme
Court's citation of foreign jurisprudence, which was used for
purposes of analogy, the force of statute law, for this would be
the consequence if it were allowed to be used as authority for all
fact-situations, even if different from the NAWASA case. This,
because courts do not legislate. All they do is apply the law.
The above discussions impel the objective analyst to reject the
proposition that the NAWASA decision is an embracing and can
be used with the authority of a statute's effects on existing
contracts.
It appears that the answer to dispute lies, not in the text of the
NAWASA case but in the terms and conditions and practice in
the implementation of, the agreement, an area which makes
resolution of the issue dependent on the relation of the terms
and conditions of the contract to the phraseology and purpose
of the Eight-Hour Labor Law (Act 444).
The more we read the NAWASA case, the more we are
convinced that the overtime computation set therein cannot
apply to the cases at bar. For to do so would lead to unjust
results, inequities between and among the employees
themselves and absurd situations. To apply the NAWASA
computation would require a different formula for each and
every employee, would require reference to and continued use
of individual earnings in the past, thus multiplying the
administrative difficulties of the Company. It would be
cumbersome and tedious a process to compute overtime pay
and this may again cause delays in payments, which in turn
could lead to serious disputes. To apply this mode of
computation would retard and stifle the growth of unions
themselves as Companies would be irresistibly drawn into
denying, new and additional fringe benefits, if not those already
existing, for fear of bloating their overhead expenses through
overtime which, by reason of being unfixed, becomes instead a
veritable source of irritant in labor relations.
One other reason why application of the NAWASA case should
be rejected is that this Court is not prepared to accept that it can
lay down a less cumbersome formula for a company-wide
overtime pay other than that which is already provided in the
collective bargaining agreement. Courts cannot make contracts
for the parties themselves.
Commonwealth Act 444 prescribes that overtime work shall be
paid 'at the same rate as their regular wages or salary, plus at
least twenty-five per centum additional' (Secs. 4 & 5). The law
did not define what is a 'regular wage or salary'. What the law
emphasized by way of repeated expression is that in addition to
'regular wage', there must be paid an additional 25% of that
'regular wage' to constitute overtime rate of pay. The parties
were thus allowed to agree on what shag be mutually
considered regular pay from or upon which a 25% premium shall
be based and added to make up overtime compensation. This
the parties did by agreeing and accepting for a very long period
to a basic hourly rate to which a premium shall be added for
purposes of overtime.
Also significant is the fact that Commonwealth Act 444 merely
sets a minimum, a least premium rate for purposes of overtime.
In this case, the parties agreed to premium rates four (4) or even
six (6) times than that fixed by the Act. Far from being against
the law, therefore, the agreement provided for rates
'commensurate with the Company's reputation of being among
the leading employers in the Philippines' (Art. 1, Sec. 2, Coll.
Barg. Agreement) at the same time that the Company is
maintained in a competitive position in the market Coll. Barg.
Agreement, lbid).
Since the agreed rates are way above prevailing statutory
wages and premiums, fixed by themselves bona fide through
negotiations favored by law, there appears no compelling
reason nor basis for declaring the same illegal. A basic principle
forming an important foundation of R.A. 875 is the
encouragement given to parties to resort to peaceful settlement
of industrial problems through collective bargaining. It behooves
this Court, therefore, to help develop respect for those
agreements which do not exhibit features of illegality This is the
only way to build confidence in the democratic process of
collective bargaining. Parties cannot be permitted to avoid the
implications and ramifications of the agreement.
Although this Court has gone very far in resolving an doubts and
in giving great weight to evidence and presumptions in favor of
labor, it may not go as far as reconstruct the law to fit particular
cases." (Pp. 174-181, Record)
Proof of the correctness of the aforequoted considerations, the
appeal of the workers from the Industrial Court's decision did not
prosper. Affirming the appealed decision, We held:
The theory, therefore, of the petitioners is to the effect that,
notwithstanding the terms and conditions of their existing
collective bargaining agreement with respondent Shell
Company, particularly Exhibit 'A-l' for the Petitioners and Exhibit
'l-A' for the Respondent (which is Appendix 'B' of the Collective
Bargaining Agreement of the parties), considering the ruling in
the NAWASA case, a recomputation should be made of their
basic wage by adding the money value of the fringe benefits
Page 48 of 191
enjoyed by them from whence the premium rates agreed upon
48
shall be computed in order to arrive at the correct computation
of their overtime compensation from the Company. On the other
hand, respondent Shell Company maintains that the NAWASA
case should not be utilized as the basis for the alteration of their
mode of computing overtime rate of pay as set forth in their
collective Bargaining Agreement. It insists that their collective
bargaining agreement should be the law between them.
After a careful and thorough re-examination of the NAWASA
case, supra, and a minute examination of the facts and the
evidence of the case now before Us, We rule that the NAWASA
case is not in point and, therefore, is inapplicable to the case at
bar.
The ruling of this Court in the NAWASA case contemplates the
regularity and continuity of the benefits enjoyed by the
employees or workers (for at least three (3) months) as the
condition precedent before such additional payments or benefits
are taken into account. This is evident in the aforequoted ruling
of this Court in the NAWASA case as well as in the hereinbelow
cited authorities, to wit:
The 'regular rate' of pay on the basis of which overtime must be
computed must reflect an payments which parties have agreed
shall be received regularly during the work week, exclusive of
overtime payments.' Walling v. Garlock Packing Co. C.C.A.N.Y.,
159 F. 2d 44, 45. (Page 289, WORDS And PHRASES,
Permanent Edition, Vol. 36A; Italics supplied); and
As a general rule the words 'regular rate' mean the hourly rate
actually paid for the normal, non-overtime work week, and an
employee's regular compensation is the compensation which
regularly and actually reaches him, ... .' (56 C.J.S. 704;
Emphasis supplied).
Even in the definition of wage under the Minimum Wage Law,
the words 'customarily furnished' are used in referring to the
additional payments or benefits, thus, -
'Wage' paid to any employee shag mean the remuneration or
earnings, however designated, capable of being expressed in
terms of money, whether fixed or ascertained on a time, task,
piece, commission basis, or other method of calculating the
same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to
be done or for services rendered or to be rendered, and includes
the fair and reasonable value, as determined by the Secretary
of Labor, of board, lodging or other facilities customarily
furnished by the employer to the employee.' (Sec. 2 (g), R.A. No.
602).
Having been stipulated by the parties that ... the Tin Factory
Incentive Pay has ceased in view of the closure of the factory in
May 1966 the fringe benefits as described show that they are
occasionally not regularly enjoyed and that not all employees
are entitled to them', herein petitioners failed to meet the test
laid down by this Court in the NAWASA case. Further, the
collective bargaining agreement resorted to by the parties being
in accordance with R.A. 875, with its provision on overtime pay
far way beyond the premium rate provided for in Sections 4 and
5 of Commonwealth Act 444, the same should govern their
relationship. Since this is their contract entered into by them
pursuant to bargaining negotiations under existing laws, they
are bound to respect it. It is the duty of this Court to see to it that
contracts between parties, not tainted with infirmity or irregularity
or illegality, be strictly complied with by the parties themselves.
This is the only way by which unity and order can be properly
attained in our society.
It should be noted in passing that Commonwealth Act 444
prescribes only a minimum of at least 25% in addition to the
regular wage or salary of an employee to constitute his overtime
rate of pay, whereas, under Appendix 'B', (Exhs. 'A-l', Petitioners
and 'l-A', Respondent) of the Collective Bargaining Agreement
of the parties, the premium rate of overtime pay is as high as
l50% on regular working days up to 250 % on Sundays and
recognized national holidays. (Shell Oil Workers Union vs. Shell
Company of the Philippines, G.R. No. L-30658-59, March 31,
1976, 70 SCRA 242-243.)
In the instant case, on May 22, 1965 PEMA alleged in the court
below the following cause of action as amended on June 7,
1965:
Since the start of the giving of cost of living allowance and
longevity pay and reiterated, after the promulgation of the
Decision in National Waterworks and Sewerage Authority vs.
NAWASA Consolidated Unions et al., G.R. No. L-18938, August
31, 1964, the petitioner has repeatedly requested respondent
that the cost of living allowance and longevity pay be taken into
account in the computation of overtime pay, effective as of the
grant of said benefits on January 1, 1958, in accordance with
the ruling in said Decision of the Supreme Court. (Page 14,
PNB's Brief.)
To be sure, there could be some plausibility in PNB's pose
regarding the jurisdiction of the Industrial Court over the above
cause of action. But, as We have already stated, We agree with
the broader view adopted by the court a quo on said point, and
We find that it is in the best interests of an concerned that this
almost 25-year dispute be settled once and for all without the
need of going through other forums only for the matter to
ultimately come back to this Court probably years later, taking
particular note as We do, in this regard, of the cases cited on
pages 9-10 of PEMA's original memo, as follows:
Realizing its error before in not considering the present case a
certified labor dispute, the Bank now concedes that the case at
bar 'belongs to compulsory arbitration'. Hence, the lawful
powers of the CIR over the same. However, the Bank says
'overtime differential is but a money claim, (and) respondent
court does not have jurisdiction to take cognizance of the same'.
But this is not a pure money claim (pp. 10-11, Opposition)
because other factors are involved - certification by the
President, the matter may likely cause a strike, the dispute
concerns national interest and comes within the CIR's injunction
against striking, and the employer-employee relationship
between the Bank and the employees has not been severed.
Besides, 'money claim' is embraced within the term
'compensation' and therefore falls squarely under the jurisdiction
of the CIR in the exercise of its arbitration power (Sec. 4, CA
103; Please see also Republic vs. CIR, L- 21303, Sept. 23/68;
Makalintal J., NWSA Case, L-26894-96, Feb. 28/69; Fernando,
J.).
What confers jurisdiction on the Industrial Court, says Justice
J.B.L. Reyes, is not the form or manner of certification by the
President, but the referral to said court of the industrial dispute
between the employer and the employees. (Liberation
Steamship vs. CIR, etc., L-25389 & 25390, June 27/68).
Page 49 of 191
In Phil. Postal Savings Bank, et al. vs. CIR, et al., L-24572, Dec.
49
20/67, this Honorable Court, speaking through Chief Justice
Concepcion, held that the certification of the issue 'as a dispute
affecting an industry indispensable to the national interest'
leaves 'no room for doubt on the jurisdiction of the CIR to settle
such dispute.'
Relatedly, however, it is to be noted that it is clear from the
holding of the Industrial Court's decision We have earlier quoted,
"the cause of action (here) is not on any decision of any court
but on the provisions of the law which have been in effect at the
time of the occurrence of the cause of action in relation to a labor
dispute". Viewed from such perspective laid by the lower court
itself, it can hardly be said that it indeed exercised purely its
power of arbitration, which means laying down the terms and
conditions that should govern the relationship between the
employer and employees of an enterprise following its own
appreciation of the relevant circumstances rather empirically.
More accurately understood, the court in fact indulged in an
interpretation of the applicable law, namely, CA 444, in the light
of its own impression of the opinion of this Court in NAWASA
and based its decision thereon.
Accordingly, upon the fact-situation of this case hereunder to be
set forth, the fundamental question for Us to decide is whether
or not the decision under appeal is in accordance with that law
and the cited jurisprudence. In brief, as PEMA posits, is
NAWASA four-square with this case? And even assuming, for a
while, that in a sense what is before Us is an arbitration decision,
private respondent itself admits in its above-mentioned
memorandum that this Court is not without power and authority
to determine whether or not such arbitration decision is against
the law or jurisprudence or constitutes a grave abuse of
discretion. Thus, in PEMA's memorandum, it makes the
observation that "(F)urthermore, in the Shell cases, the unions
are using the NAWASA decision as a source of right for
recomputation, while in the PNB, the Union merely cites the
NAWASA doctrine, not as a source of right, but as a legal
authority or reference by both parties so the Union demand may
be granted. " (Motion to Dismiss, p. 3.)
Obviously, therefore, the polestar to which Our mental vision
must be focused in order that We may arrive at a correct legal
and equitable determination of this controversy and, in the
process make NAWASA better understood as We believe it
should be, is none other than Sections 3 and 4 of Com. Act No.
444, the Eight Hour Labor Law, which pertinently provide thus:
SEC. 3. Work may be performed beyond eight hours a day in
case of actual or impending emergencies caused by serious
accidents, fire, flood, typhoon, earthquake, epidemic, or other
disaster or calamity in order to prevent loss to life and property
or imminent danger to public safety; or in case of urgent work to
be performed on the machines, equipment, or installations in
order to avoid a serious loss which the employer would
otherwise suffer, or some other just cause of a similar nature;
but in all such cases the laborers and employees shall be
entitled to receive compensation for the overtime work
performed at the same rate as their regular wages or salary, plus
at least twenty-five per centum additional.
In case of national emergency the Government is empowered
to establish rules and regulations for the operation of the plants
and factories and to determine the wages to be paid the
laborers.
xxx xxx xxx
SEC. 4. No person, firm, or corporation, business establishment
or place or center of labor shall compel an employee or laborer
to work during Sundays and legal holidays, unless he is paid an
additional sum of at least twenty-five per centum of his regular
remuneration: Provided, however, that this prohibition shall not
apply to public utilities performing some public service such as
supplying gas, electricity, power, water, or providing means of
transportation or communication.
The vital question is, what does "regular wage or salary" mean
or connote in the light of the demand of PEMA?
In Our considered opinion, the answer to such question lies in
the basic rationale of overtime pay. Why is a laborer or
employee who works beyond the regular hours of work entitled
to extra compensation called in this enlightened time, overtime
pay? Verily, there can be no other reason than that he is made
to work longer than what is commensurate with his agreed
compensation for the statutorily fixed or voluntarily agreed hours
of labor he is supposed to do. When he thus spends additional
time to his work, the effect upon him is multi-faceted: he puts in
more effort, physical and/or mental; he is delayed in going home
to his family to enjoy the comforts thereof; he might have no time
for relaxation, amusement or sports; he might miss important
pre-arranged engagements; etc., etc. It is thus the additional
work, labor or service employed and the adverse effects just
mentioned of his longer stay in his place of work that justify and
is the real reason for the extra compensation that he called
overtime pay.
Overtime work is actually the lengthening of hours developed to
the interests of the employer and the requirements of his
enterprise. It follows that the wage or salary to be received must
likewise be increased, and more than that, a special additional
amount must be added to serve either as encouragement or
inducement or to make up fop the things he loses which We
have already referred to. And on this score, it must always be
borne in mind that wage is indisputably intended as payment for
work done or services rendered. Thus, in the definition of wage
for purposes of the Minimum Wage Law, Republic Act No. 602,
it is stated:
'Wage' paid to any employee shall mean the remuneration or
earnings, however designated, capable of being expressed in
terms of money, whether fixed or ascertained on a time task,
piece, commission basis or other method of calculating the
same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to
be done or for services rendered or to be rendered and includes
the fair and reasonable value as determined by the Secretary of
Labor, of board, lodging or other facilities customarily furnished
by the employer to the employee. 'Fair and reasonable value'
shall not include a profit to the employer which reduces the wage
received by the employee below the minimum wage applicable
to the employee under this Act, nor shall any transaction
between an employer or any person affiliated with the employer
and the employee of the employer include any profit to the
employer or affiliated person which reduces the employee's
wage below the wage applicable to the employee under this Act.'
2 (Emphasis supplied).
As can be seen, wage under said law, in whatever means or
form it is given to the worker, is "for work done or to be done or
for services rendered or to be rendered" and logically "includes
(only) the fair and reasonable value as determined by the
Secretary of Labor, of board, lodging or other facilities
customarily furnished by the employer to the employee".
Indeed, for the purpose of avoiding any misunderstanding or
misinterpretation of the word "wage" used in the law and to
Page 50 of 191
differentiate it from "supplement", the Wage Administration
50
Service to implement the Minimum Wage Law, defined the latter
as:
extra remuneration or benefits received by wage earners from
their employers and include but are not restricted to pay for
vacation and holidays not worked; paid sick leave or maternity
leave; overtime rate in excess of what is required by law;
pension, retirement, and death benefits; profit-sharing, family
allowances; Christmas, war risk and cost-of-living bonuses; or
other bonuses other than those paid as a reward for extra output
or time spent on the job. (Emphasis ours).
In these times when humane and dignified treatment of labor is
steadily becoming universally an obsession of society, we, in our
country, have reached a point in employer- employee
relationship wherein employers themselves realize the
indispensability of at least making the compensation of workers
equal to the worth of their efforts as much as this case can be
statistically determined. Thus, in order to meet the effects of
uncertain economic conditions affecting adversely the living
conditions of wage earners, employers, whenever the financial
conditions of the enterprise permit, grant them what has been
called as cost-of-living allowance. In other words, instead of
leaving the workers to assume the risks of or drift by themselves
amidst the cross -currents of country-wide economic dislocation,
employers try their best to help them tide over the hardships and
difficulties of the situation. Sometimes, such allowances are
voluntarily agreed upon in collective bargaining agreements. At
other times, it is imposed by the government as in the instances
of Presidential Decrees Nos. 525, 928, 1123, 1389, 1614, 1678,
1751 and 1790; Letters of Instructions No. 1056 and Wage
Order No. 1. Notably, Presidential Decree No. 1751 increased
the statutory wage at all levels by P400 in addition to integrating
the mandatory emergency living allowances under Presidential
Decree No. 525 and Presidential Decree No. 1123 into the basic
pay of all covered workers.
Going over these laws, one readily notices two distinctive
features: First, it is evidently gratifying that the government, in
keeping with the humanitarian trend of the times, always makes
every effort to keep wages abreast with increased cost of living
conditions, doing it as soon as the necessity for it arises.
However, obviously, in order not to overdo things, except when
otherwise provided, it spares from such obligation employers
who by mutual agreement with their workers are already paying
what the corresponding law provides (See Sec. 4 of P.D. No.
525; Section 2 of P.D. No. 851 until P.D. 1684 abolished all
exemptions under P.D. No. 525, P.D. No. 1123, P.D. No. 851
and P.D. No. 928 among distressed employers who even
though given sufficient lapse of time to make the necessary
adjustment have not done so.)3
In the case at bar, as already related earlier, the cost-of-living
allowance began to be granted in 1958 and the longevity pay in
1981. In other words, they were granted by PNB upon realizing
the difficult plight of its labor force in the face of the unusual
inflationary situation in the economy of the country, which,
however acute, was nevertheless expected to improve. There
was thus evident an inherently contingent character in said
allowances. They were not intended to be regular, much less
permanent additional part of the compensation of the employees
and workers. To such effect were the testimonies of the
witnesses at the trial. For instance, Mr. Ladislao Yuzon declared:
ATTORNEY GESMUNDO
Questioning ....
Q. Calling your attention to paragraph No. 1, entitled
monthly living allowance, which has been marked as Exhibit 'A-
l', will you kindly tell us the history of this benefit- monthly living
allowance, why the same has been granted?
A. Well, in view of the increasing standard of living, we
decided to demand from management in our set of demands ...
included in our set of demands in 1957-1958 a monthly living
allowance in addition to our basic salary. This benefit was
agreed upon and granted to take effect as of January 1, 1958.
That was the first time it was enjoyed by the employees of the
Philippine National Bank. It started on a lesser amount but year
after year we have been demanding for increases on this living
allowance until we have attained the present amount of P 1
50.00 a month, starting with P40.00 when it was first granted.
The same is still being enjoyed by the employees on a much
higher amount. There were a few variations to that. (t. t.s.n., pp.
18-19, Hearing of August 16, 1965)
which testimony was affirmed by Mr. Panfilo Domingo, on cross-
examination by counsel for the respondent, reading as follows:
ATTORNEY GESMUNDO:
Q. Do you recall Mr. Domingo, that in denying the cost of
living allowance and longevity pay for incorporation with the
basic salary, the reason given by the management was that as
according to you, it will mean an added cost and ' furthermore it
will increase the contribution of the Philippine National Bank to
the GSIS, is that correct?
A. This is one of the reasons, of the objections for the
inclusion of the living allowance and longevity pay to form part
of the basic pay, I mean among others, because the basic
reason why management would object is the cost of living
allowance is temporary in nature, the philosophy behind the
grant of this benefit, Nonetheless, it was the understanding if I
recall right that in the event that cost of living should go down
then there should be a corresponding decrease in the cost of
living allowance being granted I have to mention this because
this is the fundamental philosophy in the grant of cost of living
allowance. (Pp. 19-20, Record.)
Much less were they dependent on extra or special work done
or service rendered by the corresponding recipient. Rather, they
were based on the needs of their families as the conditions of
the economy warranted. Such is the inexorable import of the
pertinent provisions of the collective bargaining agreement:
MONTHLY LIVING ALLOWANCE
All employees of the Bank shall be granted a monthly living
allowance of P140, plus P10 for each minor dependent child
below 21 years of age, but in no case shall the total allowance
exceed P200 or 25% of the monthly salary, whichever is higher,
subject to the following conditions:
a) That this new basic allowance shall be applicable to all
employees, irrespective of their civil status;
b) That a widow or widower shall also enjoy the basic
allowance of P140 a month, plus the additional benefit of P10
for each minor dependent child but not to exceed P200 or 25%
of basic salary whichever is higher.
Page 51 of 191
51
c) That in case the husband and wife are both employees
in the Bank both shall enjoy this new basic monthly living
allowance of P140 but only one of spouses shall be entitled to
claim the additional benefit of P10 for each minor legitimate or
acknowledged child. (Pp. 30-31, PNB's memo.)
So also with the longevity pay; manifestly, this was not based on
the daily or monthly amount of work done or service rendered it
was more of a gratuity for their loyalty, or their having been in
the bank's employment for consideration periods of time.
Indeed, with particular reference to the longevity pay, the then
existing collective bargaining contract expressly provided: "...
That this benefit shall not form part of the basic salaries of the
officers so affected."
PEMA may contend that the express exclusion of the longevity
pay, means that the cost-of-living allowance was not intended to
be excluded. Considering, however, the contingent nature of the
allowances and their lack of relation to work done or service
rendered, which in a sense may be otherwise in respect to
longevity pay PEMA's contention is untenable. The rule of
exclusio unius, exclusio alterius would not apply here, if only
because in the very nature of the two benefits in question,
considerations and conclusions as to one of them could be non-
sequitur as to the other.
Withal, there is the indisputable significant fact that after 1958,
everytime a collective bargaining agreement was being entered
into, the union always demanded the integration of the cost-of-
living allowances and longevity pay, and as many times, upon
opposition of the bank, no stipulation to such effect has ever
been included in any of said agreements. And the express
exclusion of longevity pay was continued to be maintained.
On this point, the respondent court held that under its broad
jurisdiction, it was within the ambit of its authority to provide for
what the parties could not agree upon. We are not persuaded to
view the matter that way. We are not convinced that the
government, thru the Industrial Court, then, could impose upon
the parties in an employer-employee conflict, terms and
conditions which are inconsistent with the existing law and
jurisprudence, particularly where the remedy is sought by the
actors more on such legal basis and not purely on the court's
arbitration powers.
As pointed out earlier in this opinion, Our task here is two-fold:
First, reviewing the decision under scrutiny as based on law and
jurisprudence, the question is whether or not the rulings therein
are correct. And second, reading such judgment as an
arbitration decision, did the court a quo gravely abuse its
discretion in holding, as it did, that cost-of-living allowance and
longevity pay should be included in the computation of overtime
pay?
In regard to the first question, We have already pointed out to
start with, that as far as longevity pay is concerned, it is beyond
question that the same cannot be included in the computation of
overtime pay for the very simple reason that the contrary is
expressly stipulated in the collective bargaining agreement and,
as should be the case, it is settled that the terms and conditions
of a collective bargaining agreement constitute the law between
the parties. (Mactan Workers Union vs. Aboitiz, 45 SCRA 577.
See also Shell Oil Workers Union et al. vs. Shell Company of
the Philippines, supra) The contention of PEMA that the express
provision in the collective bargaining agreement that "this benefit
(longevity pay) shall not form part of the basic salaries of the
officers so affected" cannot imply the same Idea insofar as the
computation of the overtime pay is concerned defies the rules of
logic and mathematics. If the basic pay cannot be deemed
increased, how could the overtime pay be based on any
increased amount at all?
However, the matter of the cost-of-living allowance has to be
examined from another perspective, namely, that while PEMA
had been always demanding for its integration into the basic
pay, it never succeeded in getting the conformity of PNB thereto,
and so, all collective bargaining agreements entered -4 into
periodically by the said parties did not provide therefor. And it
would appear that PEMA took the non-agreement of the bank in
good grace, for the record does not show that any remedial
measure was ever taken by it in connection therewith. In other
words, the parties seemed to be mutually satisfied that the
matter could be better left for settlement on the bargaining table
sooner or later, pursuant to the spirit of free bargaining
underlying Republic Act 875, the Industrial Peace Act then in
force. Or, as observed by PEMA in its memorandum, (page 23),
the parties "agreed to let the question remain open-pending
decision of authorities that would justify the demand of the
Union." Indeed, on pages 23-24 of said memorandum, the
following position of PEMA is stated thus:
Thus the following proceeding took place at the Court a quo:
ATTY. GESMUNDO:
That is our position, Your Honor, because apparently there was
an understanding reached between the parties as to their having
to wait for authorities and considering that the issue or one of
the issues then involved in the NAWASA case pending in the
CIR supports the stand of the union, that the principle
enunciated in connection with that issue is applicable to this
case.
xxx xxx xxx
Q. Do we understand from you, Mister Yuson, that it was
because of the management asking you for authorities in
allowing the integration of the cost of living allowance with your
basic salary and your failure to produce at the time such
authorities that the union then did not bring any case to the
Court?
A. Well, in the first place, it is not really my Idea to be
bringing matters to the Court during my time but I would much
prefer that we agree on the issue. Well, insofar as you said that
the management was asking me, welt I would say that they were
invoking (on) authorities that we can show in order to become
as a basis for granting or for agreeing with us although we were
aware of the existence of a pending case which is very closely
similar to our demand, yet we decided to wait until this case
should be decided by the Court so that we can avail of the
decision to present to management as what they are asking for.
(t.s.n., pp. 31-32, 35-36, Aug. 28,1965.)
Now, to complete proper understanding of the character of the
controversy before Us, and lest it be felt by those concerned that
We have overlooked a point precisely related to the matter
touched in the above immediately preceding paragraph, it
should be relevant to quote a portion of the "Stipulation of Facts"
of the parties hereto:
1. This particular demand was among those submitted by
Petitioner-Union in the current collective bargaining negotiations
Page 52 of 191
to the Respondent Bank. However, since this case was already
52
filed in court on May 22, 1965, the parties agreed not to include
this particular demand in the discussion, leaving the matter to
the discretion and final judicial determination of the courts of
justice." (Page 81, Rec.)
In fine, what the parties commonly desire is for this Court to
construe CA 444 in the light of NAWASA, considering the fact-
situation of the instant case.
In this respect, it is Our considered opinion, after mature
deliberation, that notwithstanding the portions of the NAWASA's
opinion relied upon by PEMA, there is nothing in CA 444 that
could justify its posture that cost-of-living allowance should be
added to the regular wage in computing overtime pay.
After all, what was said in NAWASA that could be controlling
here? True, it is there stated that "for purposes of computing
overtime compensation, regular wage includes all payments
which the parties have agreed shall be received during the work
week, including - differential payments for working at
undesirable times, such as at night and the board and lodging
customarily furnished the employee. ... The 'regular rate' of pay
also ordinarily includes incentive bonus or profit-sharing
payments made in addition to the normal basic pay (56 C.J.S.,
pp. 704-705), and it was also held that the higher rate for night,
Sunday and holiday work is just as much a regular rate as the
lower rate for daytime work. The higher rate is merely an
inducement to accept employment at times which are not as
desirable from a workmen's standpoint (International L. Ass'n
vs. National Terminals Corp. C.C. Wise, 50 F. Supp. 26, affirmed
C.C.A. Carbunoa v. National Terminals Corp. 139 F. 2d 853)."
(11 SCRA, p. 783)
But nowhere did NAWASA refer to extra, temporary and
contingent compensation unrelated to work done or service
rendered, which as explained earlier is the very nature of cost-
of- living allowance. Withal, in strict sense, what We have just
quoted from NAWASA was obiter dictum, since the only issue
before the Court there was whether or not "in computing the
daily wage, (whether) the addition compensation for Sunday
should be included. " (See No. 7 of Record)
In any event, as stressed by Us in the Shell cases, the basis of
computation of overtime pay beyond that required by CA 444
must be the collective bargaining agreement, 4 for, to reiterate
Our postulation therein and in Bisig ng Manggagawa, supra, it is
not for the court to impose upon the parties anything beyond
what they have agreed upon which is not tainted with illegality.
On the other hand, where the parties fail to come to an
agreement, on a matter not legally required, the court abuses its
discretion when it obliges any 6f them to do more than what is
legally obliged.
Doctrinally, We hold that, in the absence of any specific
provision on the matter in a collective bargaining agreement,
what are decisive in determining the basis for the computation
of overtime pay are two very germane considerations, namely,
(1) whether or not the additional pay is for extra work done or
service rendered and (2) whether or not the same is intended to
be permanent and regular, not contingent nor temporary and
given only to remedy a situation which can change any time. We
reiterate, overtime pay is for extra effort beyond that
contemplated in the employment contract, hence when
additional pay is given for any other purpose, it is illogical to
include the same in the basis for the computation of overtime
pay. This holding supersedes NAWASA.
Having arrived at the foregoing conclusions, We deem it
unnecessary to discuss any of the other issues raised by the
parties.
WHEREFORE, judgment is hereby rendered reversing the
decision appealed from, without costs.
G.R. No. L-44169 December 3, 1985
ROSARIO A. GAA, petitioner, vs. THE HONORABLE COURT
OF APPEALS, EUROPHIL INDUSTRIES CORPORATION,
and CESAR R. ROXAS, Deputy Sheriff of Manila,
respondents.
Federico C. Alikpala and Federico Y. Alikpala, Jr. for petitioner.
Borbe and Palma for private respondent.
PATAJO, J.:
This is a petition for review on certiorari of the decision of the
Court of Appeals promulgated on March 30, 1976, affirming the
decision of the Court of First Instance of Manila.
It appears that respondent Europhil Industries Corporation was
formerly one of the tenants in Trinity Building at T.M. Kalaw
Street, Manila, while petitioner Rosario A. Gaa was then the
building administrator. On December 12, 1973, Europhil
Industries commenced an action (Civil Case No. 92744) in the
Court of First Instance of Manila for damages against petitioner
"for having perpetrated certain acts that Europhil Industries
considered a trespass upon its rights, namely, cutting of its
electricity, and removing its name from the building directory and
gate passes of its officials and employees" (p. 87 Rollo). On
June 28, 1974, said court rendered judgment in favor of
respondent Europhil Industries, ordering petitioner to pay the
former the sum of P10,000.00 as actual damages, P5,000.00 as
moral damages, P5,000.00 as exemplary damages and to pay
the costs.
The said decision having become final and executory, a writ of
garnishment was issued pursuant to which Deputy Sheriff Cesar
A. Roxas on August 1, 1975 served a Notice of Garnishment
upon El Grande Hotel, where petitioner was then employed,
garnishing her "salary, commission and/or remuneration."
Petitioner then filed with the Court of First Instance of Manila a
motion to lift said garnishment on the ground that her "salaries,
commission and, or remuneration are exempted from execution
under Article 1708 of the New Civil Code. Said motion was
denied by the lower Court in an order dated November 7, 1975.
A motion for reconsideration of said order was likewise denied,
and on January 26, 1976 petitioner filed with the Court of
Appeals a petition for certiorari against filed with the Court of
Appeals a petition for certiorari against said order of November
7, 1975.
On March 30, 1976, the Court of Appeals dismissed the petition
for certiorari. In dismissing the petition, the Court of Appeals held
that petitioner is not a mere laborer as contemplated under
Article 1708 as the term laborer does not apply to one who holds
a managerial or supervisory position like that of petitioner, but
only to those "laborers occupying the lower strata." It also held
that the term "wages" means the pay given" as hire or reward to
artisans, mechanics, domestics or menial servants, and laborers
employed in manufactories, agriculture, mines, and other
manual occupation and usually employed to distinguish the
sums paid to persons hired to perform manual labor, skilled or
unskilled, paid at stated times, and measured by the day, week,
month, or season," citing 67 C.J. 285, which is the ordinary
acceptation of the said term, and that "wages" in Spanish is
"jornal" and one who receives a wage is a "jornalero."
Page 53 of 191
53
In the present petition for review on certiorari of the aforesaid
decision of the Court of Appeals, petitioner questions the
correctness of the interpretation of the then Court of Appeals of
Article 1708 of the New Civil Code which reads as follows:
ART. 1708. The laborer's wage shall not be subject to execution
or attachment, except for debts incurred for food, shelter,
clothing and medical attendance.
It is beyond dispute that petitioner is not an ordinary or rank and
file laborer but "a responsibly place employee," of El Grande
Hotel, "responsible for planning, directing, controlling, and
coordinating the activities of all housekeeping personnel" (p. 95,
Rollo) so as to ensure the cleanliness, maintenance and
orderliness of all guest rooms, function rooms, public areas, and
the surroundings of the hotel. Considering the importance of
petitioner's function in El Grande Hotel, it is undeniable that
petitioner is occupying a position equivalent to that of a
managerial or supervisory position.
In its broadest sense, the word "laborer" includes everyone who
performs any kind of mental or physical labor, but as commonly
and customarily used and understood, it only applies to one
engaged in some form of manual or physical labor. That is the
sense in which the courts generally apply the term as applied in
exemption acts, since persons of that class usually look to the
reward of a day's labor for immediate or present support and so
are more in need of the exemption than are other. (22 Am. Jur.
22 citing Briscoe vs. Montgomery, 93 Ga 602, 20 SE 40; Miller
vs. Dugas, 77 Ga 4 Am St Rep 192; State ex rel I.X.L. Grocery
vs. Land, 108 La 512, 32 So 433; Wildner vs. Ferguson, 42 Minn
112, 43 NW 793; 6 LRA 338; Anno 102 Am St Rep. 84.
In Oliver vs. Macon Hardware Co., 98 Ga 249 SE 403, it was
held that in determining whether a particular laborer or
employee is really a "laborer," the character of the word he does
must be taken into consideration. He must be classified not
according to the arbitrary designation given to his calling, but
with reference to the character of the service required of him by
his employer.
In Wildner vs. Ferguson, 42 Minn 112, 43 NW 793, the Court
also held that all men who earn compensation by labor or work
of any kind, whether of the head or hands, including judges,
laywers, bankers, merchants, officers of corporations, and the
like, are in some sense "laboring men." But they are not
"laboring men" in the popular sense of the term, when used to
refer to a must presume, the legislature used the term. The
Court further held in said case:
There are many cases holding that contractors, consulting or
assistant engineers, agents, superintendents, secretaries of
corporations and livery stable keepers, do not come within the
meaning of the term. (Powell v. Eldred, 39 Mich, 554, Atkin v.
Wasson, 25 N.Y. 482; Short v. Medberry, 29 Hun. 39; Dean v.
De Wolf, 16 Hun. 186; Krausen v. Buckel, 17 Hun. 463; Ericson
v. Brown, 39 Barb. 390; Coffin v. Reynolds, 37 N.Y. 640; Brusie
v. Griffith, 34 Cal. 306; Dave v. Nunan, 62 Cal. 400).
Thus, in Jones vs. Avery, 50 Mich, 326, 15 N.W. Rep. 494, it
was held that a traveling salesman, selling by sample, did not
come within the meaning of a constitutional provision making
stockholders of a corporation liable for "labor debts" of the
corporation.
In Kline vs. Russell 113 Ga. 1085, 39 SE 477, citing Oliver vs.
Macon Hardware Co., supra, it was held that a laborer, within
the statute exempting from garnishment the wages of a
"laborer," is one whose work depends on mere physical power
to perform ordinary manual labor, and not one engaged in
services consisting mainly of work requiring mental skill or
business capacity, and involving the exercise of intellectual
faculties.
So, also in Wakefield vs. Fargo, 90 N.Y. 213, the Court, in
construing an act making stockholders in a corporation liable for
debts due "laborers, servants and apprentices" for services
performed for the corporation, held that a "laborer" is one who
performs menial or manual services and usually looks to the
reward of a day's labor or services for immediate or present
support. And in Weymouth vs. Sanborn, 43 N.H. 173, 80 Am.
Dec. 144, it was held that "laborer" is a term ordinarily employed
to denote one who subsists by physical toil in contradistinction
to those who subsists by professional skill. And in Consolidated
Tank Line Co. vs. Hunt, 83 Iowa, 6, 32 Am. St. Rep. 285, 43
N.W. 1057, 12 L.R.A. 476, it was stated that "laborers" are those
persons who earn a livelihood by their own manual labor.
Article 1708 used the word "wages" and not "salary" in relation
to "laborer" when it declared what are to be exempted from
attachment and execution. The term "wages" as distinguished
from "salary", applies to the compensation for manual labor,
skilled or unskilled, paid at stated times, and measured by the
day, week, month, or season, while "salary" denotes a higher
degree of employment, or a superior grade of services, and
implies a position of office: by contrast, the term wages "
indicates considerable pay for a lower and less responsible
character of employment, while "salary" is suggestive of a larger
and more important service (35 Am. Jur. 496).
The distinction between wages and salary was adverted to in
Bell vs. Indian Livestock Co. (Tex. Sup.), 11 S.W. 344, wherein
it was said: "'Wages' are the compensation given to a hired
person for service, and the same is true of 'salary'. The words
seem to be synonymous, convertible terms, though we believe
that use and general acceptation have given to the word 'salary'
a significance somewhat different from the word 'wages' in this:
that the former is understood to relate to position of office, to be
the compensation given for official or other service, as
distinguished from 'wages', the compensation for labor."
Annotation 102 Am. St. Rep. 81, 95.
We do not think that the legislature intended the exemption in
Article 1708 of the New Civil Code to operate in favor of any but
those who are laboring men or women in the sense that their
work is manual. Persons belonging to this class usually look to
the reward of a day's labor for immediate or present support,
and such persons are more in need of the exemption than any
others. Petitioner Rosario A. Gaa is definitely not within that
class.
We find, therefore, and so hold that the Trial Court did not err in
denying in its order of November 7, 1975 the motion of petitioner
to lift the notice of garnishment against her salaries, commission
and other remuneration from El Grande Hotel since said
salaries, Commission and other remuneration due her from the
El Grande Hotel do not constitute wages due a laborer which,
under Article 1708 of the Civil Code, are not subject to execution
or attachment.
IN VIEW OF THE FOREGOING, We find the present petition to
be without merit and hereby AFFIRM the decision of the Court
of Appeals, with costs against petitioner.
Page 54 of 191
SO ORDERED.
54
G.R. No. 118506 April 18, 1997
NORMA MABEZA, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, PETER NG/HOTEL SUPREME,
respondents.
KAPUNAN, J.:
This petition seeking the nullification of a resolution of public
respondent National Labor Relations Commission dated April
28, 1994 vividly illustrates why courts should be ever vigilant in
the preservation of the constitutionally enshrined rights of the
working class. Without the protection accorded by our laws and
the tempering of courts, the natural and historical inclination of
capital to ride roughshod over the rights of labor would run
unabated.
The facts of the case at bar, culled from the conflicting versions
of petitioner and private respondent, are illustrative.
Petitioner Norma Mabeza contends that around the first week of
May, 1991, she and her co-employees at the Hotel Supreme in
Baguio City were asked by the hotel's management to sign an
instrument attesting to the latter's compliance with minimum
wage and other labor standard provisions of law. 1 The
instrument provides: 2
JOINT AFFIDAVIT
We, SYLVIA IGANA, HERMINIGILDO AQUINO, EVELYN
OGOY, MACARIA JUGUETA, ADELAIDA NONOG, NORMA
MABEZA, JONATHAN PICART and JOSE DIZON, all of legal
ages (sic), Filipinos and residents of Baguio City, under oath,
depose and say:
1. That we are employees of Mr. Peter L. Ng of his Hotel
Supreme situated at No. 416 Magsaysay Ave., Baguio City.
2. That the said Hotel is separately operated from the
Ivy's Grill and Restaurant;
3. That we are all (8) employees in the hotel and assigned
in each respective shifts;
4. That we have no complaints against the management
of the Hotel Supreme as we are paid accordingly and that we
are treated well.
5. That we are executing this affidavit voluntarily without
any force or intimidation and for the purpose of informing the
authorities concerned and to dispute the alleged report of the
Labor Inspector of the Department of Labor and Employment
conducted on the said establishment on February 2, 1991.
IN WITNESS WHEREOF, we have hereunto set our hands this
7th day of May, 1991 at Baguio City, Philippines.
(Sgd.) (Sgd.) (Sgd.)
SYLVIA IGAMA HERMINIGILDO AQUINO EVELYN OGOY
(Sgd.) (Sgd.) (Sgd.)
MACARIA JUGUETA ADELAIDA NONOG NORMA
MABEZA.
(Sgd.) (Sgd.)
JONATHAN PICART JOSE DIZON
SUBSCRIBED AND SWORN to before me this 7th day of May,
1991, at Baguio City, Philippines.
Asst. City Prosecutor
Petitioner signed the affidavit but refused to go to the City
Prosecutor's Office to swear to the veracity and contents of the
affidavit as instructed by management. The affidavit was
nevertheless submitted on the same day to the Regional Office
of the Department of Labor and Employment in Baguio City.
As gleaned from the affidavit, the same was drawn by
management for the sole purpose of refuting findings of the
Labor Inspector of DOLE (in an inspection of respondent's
establishment on February 2, 1991) apparently adverse to the
private respondent. 3
After she refused to proceed to the City Prosecutor's Office —
on the same day the affidavit was submitted to the Cordillera
Regional Office of DOLE — petitioner avers that she was
ordered by the hotel management to turn over the keys to her
living quarters and to remove her belongings from the hotel
premises. 4 According to her, respondent strongly chided her for
refusing to proceed to the City Prosecutor's Office to attest to
the affidavit. 5 She thereafter reluctantly filed a leave of absence
from her job which was denied by management. When she
attempted to return to work on May 10, 1991, the hotel's cashier,
Margarita Choy, informed her that she should not report to work
and, instead, continue with her unofficial leave of absence.
Consequently, on May 13, 1991, three days after her attempt to
return to work, petitioner filed a complaint for illegal dismissal
before the Arbitration Branch of the National Labor Relations
Commission — CAR Baguio City. In addition to her complaint
for illegal dismissal, she alleged underpayment of wages, non-
payment of holiday pay, service incentive leave pay, 13th month
pay, night differential and other benefits. The complaint was
docketed as NLRC Case No. RAB-CAR-05-0198-91 and
assigned to Labor Arbiter Felipe P. Pati.
Responding to the allegations made in support of petitioner's
complaint for illegal dismissal, private respondent Peter Ng
alleged before Labor Arbiter Pati that petitioner "surreptitiously
left (her job) without notice to the management" 6 and that she
actually abandoned her work. He maintained that there was no
basis for the money claims for underpayment and other benefits
as these were paid in the form of facilities to petitioner and the
hotel's other employee. 7 Pointing to the Affidavit of May 7,
1991, the private respondent asserted that his employees
actually have no problems with management. In a supplemental
answer submitted eleven (11) months after the original
complaint for illegal dismissal was filed, private respondent
raised a new ground, loss of confidence, which was supported
by a criminal complaint for Qualified Theft he filed before the
Page 55 of 191
prosecutor's office of the City of Baguio against petitioner on
55
July 4, 1991. 8
On May 14, 1993, Labor Arbiter Pati rendered a decision
dismissing petitioner's complaint on the ground of loss of
confidence. His disquisitions in support of his conclusion read
as follows:
It appears from the evidence of respondent that complainant
carted away or stole one (1) blanket, 1 piece bedsheet, 1 piece
thermos, 2 pieces towel (Exhibits "9", "9-A," "9-B," "9-C" and
"10" pages 12-14 TSN, December 1, 1992).
In fact, this was the reason why respondent Peter Ng lodged a
criminal complaint against complainant for qualified theft and
perjury. The fiscal's office finding a prima facie evidence that
complainant committed the crime of qualified theft issued a
resolution for its filing in court but dismissing the charge of
perjury (Exhibit "4" for respondent and Exhibit "B-7" for
complainant). As a consequence, complainant was charged in
court for the said crime (Exhibit "5" for respondent and Exhibit
"B-6" for the complainant).
With these pieces of evidence, complainant committed serious
misconduct against her employer which is one of the just and
valid grounds for an employer to terminate an employee (Article
282 of the Labor Code as amended). 9
On April 28, 1994, respondent NLRC promulgated its assailed
Resolution 10 — affirming the Labor Arbiter's decision. The
resolution substantially incorporated the findings of the Labor
Arbiter. 11 Unsatisfied, petitioner instituted the instant special
civil action for certiorari under Rule 65 of the Rules of Court on
the following grounds: 12
1. WITH ALL DUE RESPECT, THE HONORABLE
NATIONAL LABOR RELATIONS COMMISSION COMMITTED
A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE
ABUSE OF DISCRETION IN ITS FAILURE TO CONSIDER
THAT THE ALLEGED LOSS OF CONFIDENCE IS A FALSE
CAUSE AND AN AFTERTHOUGHT ON THE PART OF THE
RESPONDENT-EMPLOYER TO JUSTIFY, ALBEIT
ILLEGALLY, THE DISMISSAL OF THE COMPLAINANT FROM
HER EMPLOYMENT;
2. WITH ALL DUE RESPECT, THE HONORABLE
NATIONAL LABOR RELATIONS COMMISSION COMMITTED
A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE
ABUSE OF DISCRETION IN ADOPTING THE RULING OF
THE LABOR ARBITER THAT THERE WAS NO
UNDERPAYMENT OF WAGES AND BENEFITS ON THE
BASIS OF EXHIBIT "8" (AN UNDATED SUMMARY OF
COMPUTATION PREPARED BY ALLEGEDLY BY
RESPONDENT'S EXTERNAL ACCOUNTANT) WHICH IS
TOTALLY INADMISSIBLE AS AN EVIDENCE TO PROVE
PAYMENT OF WAGES AND BENEFITS;
3. WITH ALL DUE RESPECT, THE HONORABLE
NATIONAL LABOR RELATIONS COMMISSION COMMITTED
A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE
ABUSE OF DISCRETION IN FAILING TO CONSIDER THE
EVIDENCE ADDUCED BEFORE THE LABOR ARBITER AS
CONSTITUTING UNFAIR LABOR PRACTICE COMMITTED
BY THE RESPONDENT.
The Solicitor General, in a Manifestation in lieu of Comment
dated August 8, 1995 rejects private respondent's principal
claims and defenses and urges this Court to set aside the public
respondent's assailed resolution. 13
We agree.
It is settled that in termination cases the employer bears the
burden of proof to show that the dismissal is for just cause, the
failure of which would mean that the dismissal is not justified and
the employee is entitled to reinstatement. 14
In the case at bar, the private respondent initially claimed that
petitioner abandoned her job when she failed to return to work
on May 8, 1991. Additionally, in order to strengthen his
contention that there existed sufficient cause for the termination
of petitioner, he belatedly included a complaint for loss of
confidence, supporting this with charges that petitioner had
stolen a blanket, a bedsheet and two towels from the hotel. 15
Appended to his last complaint was a suit for qualified theft filed
with the Baguio City prosecutor's office.
From the evidence on record, it is crystal clear that the
circumstances upon which private respondent anchored his
claim that petitioner "abandoned" her job were not enough to
constitute just cause to sanction the termination of her services
under Article 283 of the Labor Code. For abandonment to arise,
there must be concurrence of two things: 1) lack of intention to
work; 16 and 2) the presence of overt acts signifying the
employee's intention not to work. 17
In the instant case, respondent does not dispute the fact that
petitioner tried to file a leave of absence when she learned that
the hotel management was displeased with her refusal to attest
to the affidavit. The fact that she made this attempt clearly
indicates not an intention to abandon but an intention to return
to work after the period of her leave of absence, had it been
granted, shall have expired.
Furthermore, while absence from work for a prolonged period
may suggest abandonment in certain instances, mere absence
of one or two days would not be enough to sustain such a claim.
The overt act (absence) ought
to unerringly point to the fact that the employee has no intention
to return to work, 18 which is patently not the case here. In fact,
several days after she had been advised to take an informal
leave, petitioner tried to resume working with the hotel, to no
avail. It was only after she had been repeatedly rebuffed that
she filed a case for illegal dismissal. These acts militate against
the private respondent's claim that petitioner abandoned her job.
As the Solicitor General in his manifestation observed:
Petitioner's absence on that day should not be construed as
abandonment of her job. She did not report because the cashier
told her not to report anymore, and that private respondent Ng
did not want to see her in the hotel premises. But two days later
or on the 10th of May, after realizing that she had to clarify her
employment status, she again reported for work. However, she
was prevented from working by private respondents. 19
We now come to the second cause raised by private respondent
to support his contention that petitioner was validly dismissed
from her job.
Page 56 of 191
Loss of confidence as a just cause for dismissal was never
56
intended to provide employers with a blank check for terminating
their employees. Such a vague, all-encompassing pretext as
loss of confidence, if unqualifiedly given the seal of approval by
this Court, could readily reduce to barren form the words of the
constitutional guarantee of security of tenure. Having this in
mind, loss 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.
Evidently, an ordinary chambermaid who has to sign out for linen
and other hotel property from the property custodian each day
and who has to account for each and every towel or bedsheet
utilized by the hotel's guests at the end of her shift would not fall
under any of these two classes of employees for which loss of
confidence, if ably supported by evidence, would normally apply.
Illustrating this distinction, this Court in Marina Port Services,
Inc. vs. NLRC, 20 has stated that:
To be sure, every employee must enjoy some degree of trust
and confidence from the employer as that is one reason why he
was employed in the first place. One certainly does not employ
a person he distrusts. Indeed, even the lowly janitor must enjoy
that trust and confidence in some measure if only because he is
the one who opens the office in the morning and closes it at night
and in this sense is entrusted with the care or protection of the
employer's property. The keys he holds are the symbol of that
trust and confidence.
By the same token, the security guard must also be considered
as enjoying the trust and confidence of his employer, whose
property he is safeguarding. Like the janitor, he has access to
this property. He too, is charged with its care and protection.
Notably, however, and like the janitor again, he is entrusted only
with the physical task of protecting that property. The employer's
trust and confidence in him is limited to that ministerial function.
He is not entrusted, in the Labor Arbiter's words, with the duties
of safekeeping and safeguarding company policies,
management instructions, and company secrets such as
operation devices. He is not privy to these confidential matters,
which are shared only in the higher echelons of management. It
is the persons on such levels who, because they discharge
these sensitive duties, may be considered holding positions of
trust and confidence. The security guard does not belong in such
category. 21
More importantly, we have repeatedly held that loss of
confidence should not be simulated in order to justify what would
otherwise be, under the provisions of law, an illegal dismissal.
"It should not be used as a subterfuge for causes which are
illegal, improper and unjustified. It must be genuine, not a mere
afterthought to justify an earlier action taken in bad faith." 22
In the case at bar, the suspicious delay in private respondent's
filing of qualified theft charges against petitioner long after the
latter exposed the hotel's scheme (to avoid its obligations as
employer under the Labor Code) by her act of filing illegal
dismissal charges against the private respondent would hardly
warrant serious consideration of loss of confidence as a valid
ground for dismissal. Notably, the Solicitor General has himself
taken a position opposite the public respondent and has
observed that:

If petitioner had really committed the acts charged against her
by private respondents (stealing supplies of respondent hotel),
private respondents should have confronted her before
dismissing her on that ground. Private respondents did not do
so. In fact, private respondent Ng did not raise the matter when
petitioner went to see him on May 9, 1991, and handed him her
application for leave. It took private respondents 52 days or up
to July 4, 1991 before finally deciding to file a criminal complaint
against petitioner, in an obvious attempt to build a case against
her.
The manipulations of private respondents should not be
countenanced. 23
Clearly, the efforts to justify petitioner's dismissal — on top of
the private respondent's scheme of inducing his employees to
sign an affidavit absolving him from possible violations of the
Labor Code — taints with evident bad faith and deliberate malice
petitioner's summary termination from employment.
Having said this, we turn to the important question of whether or
not the dismissal by the private respondent of petitioner
constitutes an unfair labor practice.
The answer in this case must inevitably be in the affirmative.
The pivotal question in any case where unfair labor practice on
the part of the employer is alleged is whether or not the employer
has exerted pressure, in the form of restraint, interference or
coercion, against his employee's right to institute concerted
action for better terms and conditions of employment. Without
doubt, the act of compelling employees to sign an instrument
indicating that the employer observed labor standards
provisions of law when he might have not, together with the act
of terminating or coercing those who refuse to cooperate with
the employer's scheme constitutes unfair labor practice. The first
act clearly preempts the right of the hotel's workers to seek
better terms and conditions of employment through concerted
action.
We agree with the Solicitor General's observation in his
manifestation that "[t]his actuation . . . is analogous to the
situation envisaged in paragraph (f) of Article 248 of the Labor
Code" 24 which distinctly makes it an unfair labor practice "to
dismiss, discharge or otherwise prejudice or discriminate
against an employee for having given or being about to give
testimony" 25 under the Labor Code. For in not giving positive
testimony in favor of her employer, petitioner had reserved not
only her right to dispute the claim and proffer evidence in support
thereof but also to work for better terms and conditions of
employment.
For refusing to cooperate with the private respondent's scheme,
petitioner was obviously held up as an example to all of the
hotel's employees, that they could only cause trouble to
management at great personal inconvenience. Implicit in the act
of petitioner's termination and the subsequent filing of charges
against her was the warning that they would not only be deprived
of their means of livelihood, but also possibly, their personal
liberty.
This Court does not normally overturn findings and conclusions
of quasi-judicial agencies when the same are ably supported by
the evidence on record. However, where such conclusions are
based on a misperception of facts or where they patently fly in
Page 57 of 191
the face of reason and logic, we will not hesitate to set aside
57
those conclusions. Going into the issue of petitioner's money
claims, we find one more salient reason in this case to set things
right: the labor arbiter's evaluation of the money claims in this
case incredibly ignores existing law and jurisprudence on the
matter. Its blatant one-sidedness simply raises the suspicion
that something more than the facts, the law and jurisprudence
may have influenced the decision at the level of the Arbiter.
Labor Arbiter Pati accepted hook, line and sinker the private
respondent's bare claim that the reason the monetary benefits
received by petitioner between 1981 to 1987 were less than
minimum wage was because petitioner did not factor in the
meals, lodging, electric consumption and water she received
during the period in her computations. 26 Granting that meals
and lodging were provided and indeed constituted facilities,
such facilities could not be deducted without the employer
complying first with certain legal requirements. Without
satisfying these requirements, the employer simply cannot
deduct the value from the employee's ages. First, proof must be
shown that such facilities are customarily furnished by the trade.
Second, the provision of deductible facilities must be voluntarily
accepted in writing by the employee. Finally, facilities must be
charged at fair and reasonable value. 27
These requirements were not met in the instant case. Private
respondent "failed to present any company policy or guideline to
show that the meal and lodging . . . (are) part of the salary;" 28
he failed to provide proof of the employee's written authorization;
and, he failed to show how he arrived at the valuations. 29
Curiously, in the case at bench, the only valuations relied upon
by the labor arbiter in his decision were figures furnished by the
private respondent's own accountant, without corroborative
evidence. On the pretext that records prior to the July 16, 1990
earthquake were lost or destroyed, respondent failed to produce
payroll records, receipts and other relevant documents, where
he could have, as has been pointed out in the Solicitor General's
manifestation, "secured certified copies thereof from the nearest
regional office of the Department of Labor, the SSS or the BIR."
30
More significantly, the food and lodging, or the electricity and
water consumed by the petitioner were not facilities but
supplements. A benefit or privilege granted to an employee for
the convenience of the employer is not a facility. The criterion in
making a distinction between the two not so much lies in the kind
(food, lodging) but the purpose. 31 Considering, therefore, that
hotel workers are required to work different shifts and are
expected to be available at various odd hours, their ready
availability is a necessary matter in the operations of a small
hotel, such as the private respondent's hotel.
It is therefore evident that petitioner is entitled to the payment of
the deficiency in her wages equivalent to the full wage applicable
from May 13, 1988 up to the date of her illegal dismissal.
Additionally, petitioner is entitled to payment of service incentive
leave pay, emergency cost of living allowance, night differential
pay, and 13th month pay for the periods alleged by the petitioner
as the private respondent has never been able to adduce proof
that petitioner was paid the aforestated benefits.
However, the claims covering the period of October 1987 up to
the time of filing the case on May 13, 1988 are barred by
prescription as P.D. 442 (as amended) and its implementing
rules limit all money claims arising out of employer-employee
relationship to three (3) years from the time the cause of action
accrues. 32
We depart from the settled rule that an employee who is unjustly
dismissed from work normally should be reinstated without loss
of seniority rights and other privileges. Owing to the strained
relations between petitioner and private respondent, allowing
the former to return to her job would only subject her to possible
harassment and future embarrassment. In the instant case,
separation pay equivalent to one month's salary for every year
of continuous service with the private respondent would be
proper, starting with her job at the Belfront Hotel.
In addition to separation pay, backwages are in order. Pursuant
to R.A. 6715 and our decision in Osmalik Bustamante, et al. vs.
National Labor Relations Commission, 33 petitioner is entitled to
full backwages from the time of her illegal dismissal up to the
date of promulgation of this decision without qualification or
deduction.
Finally, in dismissal cases, the law requires that the employer
must furnish the employee sought to be terminated from
employment with two written notices before the same may be
legally effected. The first is a written notice containing a
statement of the cause(s) for dismissal; the second is a notice
informing the employee of the employer's decision to terminate
him stating the basis of the dismissal. During the process
leading to the second notice, the employer must give the
employee ample opportunity to be heard and defend himself,
with the assistance of counsel if he so desires.
Given the seriousness of the second cause (qualified theft) of
the petitioner's dismissal, it is noteworthy that the private
respondent never even bothered to inform petitioner of the
charges against her. Neither was petitioner given the
opportunity to explain the loss of the articles. It was only almost
two months after petitioner had filed a complaint for illegal
dismissal, as an afterthought, that the loss was reported to the
police and added as a supplemental answer to petitioner's
complaint. Clearly, the dismissal of petitioner without the benefit
of notice and hearing prior to her termination violated her
constitutional right to due process. Under the circumstance an
award of One Thousand Pesos (P1,000.00) on top of payment
of the deficiency in wages and benefits for the period aforestated
would be proper.
WHEREFORE, premises considered, the RESOLUTION of the
National Labor Relations Commission dated April 24, 1994 is
REVERSED and SET ASIDE, with costs. For clarity, the
economic benefits due the petitioner are hereby summarized as
follows:
1) Deficiency wages and the applicable ECOLA from May
13, 1988 up to the date of petitioner's illegal dismissal;
2) Service incentive leave pay; night differential pay and
13th month pay for the same period;
3) Separation pay equal to one month's salary for every
year of petitioner's continuous service with the private
respondent starting with her job at the Belfront Hotel;
4) Full backwages, without qualification or deduction,
from the date of petitioner's illegal dismissal up to the date of
Page 58 of 191
promulgation of this decision pursuant to our ruling in
58
Bustamante vs. NLRC. 34
5) P1,000.00.
ORDERED.
G.R. No. L-7349 July 19, 1955
ATOK-BIG WEDGE MUTUAL BENEFIT ASSOCIATION,
petitioner, vs. ATOK-BIG WEDGE MINING COMPANY,
INCORPORATED, respondents.
Pablo C. Sanidad for petitioner.
Roxas and Sarmiento for respondents.
REYES, J. B. L., J.:
On September 4, 1950, the petitioner labor union, the Atok-Big
Wedge Mutual Benefit Association, submitted to the Atok-Big
Wedge Mining Co., Inc. (respondent herein) several demands,
among which was an increase of P0.50 in daily wage. The
matter was referred by the mining company to the Court of
Industrial Relations for arbitration and settlement (Case No.
523-V). In the course of conciliatory measures taken by the
Court, some of the demands were granted, and others (including
the demand for increased wages) rejected, and so, hearings
proceeded and evidence submitted on the latter. On July 14,
1951, the Court rendered a decision (Record, pp. 25-32) fixing
the minimum wage at P2.65 a day with the rice ration, or P3.20
without rice ration; denying the deduction from such minimum
wage, of the value of housing facilities furnished by the company
to the laborers, as well as the efficiency bonus given to them by
the company; and ordered that the award be made effective
retroactively from the date of the demand, September 4, 1950,
as agreed by the parties. From this decision, the mining
company appealed to this Court (G.R. No. L-5276).
Subsequently, an urgent petition was presented in Court on
October 15, 1952 by the Atok-Big Wedge Mining Company for
authority to stop operations and lay off employees and laborers,
for the reason that due to the heavy losses, increased taxes,
high cost of materials, negligible quantity of ore deposits, and
the enforcement of the Minimum Wage Law, the continued
operation of the company would lead to its immediate
bankruptcy and collapse (Rec. pp. 100-109). To avert the
closure of the company and the consequent lay-off of hundreds
of laborers and employees, the Court, instead of hearing the
petition on the merits, convened the parties for voluntary
conciliation and mediation. After lengthy discussions and
exchange of views, the parties on October 29, 1952 reached an
agreement effective from August 4, 1952 to December 31, 1954
(Rec. pp. 18-23). The Agreement in part provides:
I
That the petitioner, Atok-Big Wedge Mining Company,
Incorporated, agrees to abide by whatever decision that the
Supreme Court may render with respect to Case No. 523-V
(G.R. 5276) and Case No. 523-1 (10) (G.R. 5594).
xxx xxx xxx
III

xxx xxx xxx
That the petitioner, Atok-Big Wedge Mining Company,
Incorporated, and the respondent, Atok-Big Wedge Mutual
Benefit Association, agree that the following facilities heretofore
given or actually being given by the petitioner to its workers and
laborers, and which constitute as part of their wages, be valued
as follows:
Rice ration
P.55 per day
Housing facility
40 per day
All other facilities such as recreation facilities, medical treatment
to dependents of laborers, school facilities, rice ration during off-
days, water, light, fuel, etc., equivalent to at least
85 per day
It is understood that the said amount of facilities valued at the
abovementioned prices, may be charged in full or partially by the
Atok-Big Wedge Mining Company, Inc., against laborer or
employee, as it may see fit pursuant to the exigencies of its
operation.
The agreement was submitted to the Court for approval and on
December 26, 1952, was approved by the Court in an order
giving it effect as an award or decision in the case (Rec., p. 24).
Later, Case No. G.R. No. L-5276 was decided by this Court
(promulgated March 3, 1953), affirming the decision of the Court
of Industrial Relations fixing the minimum cash wage of the
laborers and employees of the Atok-Big Wedge Mining Co. at
P3.20 cash, without rice ration, or P2.65, with rice ration. On
June 13, 1953, the labor union presented to the Court a petition
for the enforcement of the terms of the agreement of October
29, 1952, as allegedly modified by the decision of this Court in
G.R. No. L-5276 and the provisions of the Minimum Wage Law,
which has since taken effect, praying for the payment of the
minimum cash wage of P3.45 a day with rice ration, or P4.00
without rice ration, and the payment of differential pay from
August 4, 1952, when the award became effective. The mining
company opposed the petition claiming that the Agreement of
October 29, 1952 was entered into by the parties with the end in
view that the company's cost of production be not increased in
any way, so that it was intended to supersede whatever decision
the Supreme Court would render in G.R. No. L-5276 and the
provisions of the Minimum Wage Law with respect to the
minimum cash wage payable to the laborers and employees.
Sustaining the opposition, the Court of Industrial Relations, in an
order issued on September 22, 1953 (Rec. pp. 44-49), denied
the petition, upon the ground that when the Agreement of the
parties of October 29, 1952 was entered into by them, they
already knew the decision of said Court (although subject to
appeal to the Supreme Court) fixing the minimum cash wage at
P3.20 without rice ration, or P2.65 with rice ration, as well as the
provisions of the Minimum Wage Law requiring the payment of
P4 minimum daily wage in the provinces effective August 4,
Page 59 of 191
1952; so that the parties had intended to be regulated by their
59
Agreement of October 29, 1952. On the same day, the Court
issued another order (Rec. pp. 50-55), denying the claim of the
labor union for payment of an additional 50 per cent based on
the basic wage of P4 for work on Sundays and holidays, holding
that the payments being made by the company were within the
requirements of the law. Its motion for the reconsideration of
both orders having been denied, the labor union filed this petition
for review by certiorari.
The first issue submitted to us arises from an apparent
contradiction in the Agreement of October 29, 1952. By
paragraph III thereof, the parties by common consent evaluated
the facilities furnished by the Company to its laborers (rice
rations, housing, recreation, medical treatment, water, light, fuel,
etc.) at P1.80 per day, and authorized the company to have such
value "charge in full or partially — against any laborer or
employee as it may see fit"; while in paragraph I, the Company
agreed to abide by the decision of this Court (pending at the time
the agreement was had) in G.R. No. L-5594; and as rendered,
the decision was to the effect that the Company could deduct
from the minimum wage only the value of the rice ration.
It is contended by the petitioner union that the two provisions
should be harmonized by holding paragraph III (deduction of all
facilities) to be merely provisional, effective only while this Court
had not rendered its decision in G.R. No. L-5594; and that the
terms of said paragraph should be deemed superseded by the
decision from the time the latter became final, some four or five
months after the agreement was entered into; in consequence,
(it is claimed), the laborers became entitled by virtue of said
decision to the prevailing P4.00 minimum wage with no other
deduction than that of the rice ration, or a net cash wage of
P3.45.
This contention, in our opinion, is untenable. The intention of the
parties could not have been to make the arrangement in
paragraph III a merely provisional arrangement pending the
decision of the Supreme Court for "this agreement" was
expressly made retroactive and effective as of August 4, 1952,
and to be in force up to and including December 31, 1954" (Par.
IV). When concluded on October 29, 1952, neither party could
anticipate the date when the decision of the Supreme Court
would be rendered; nor is any reason shown why the parties
should desire to limit the effects of the decision to the period
1952-1954 if it was to supersede the agreement of October 29,
1952.
To ascertain the true import of paragraph I of said Agreement
providing that the respondent company agreed to abide by
whatever decision the Supreme Court would render in G.R. No.
L-5276, it is important to remember that, as shown by the
records, the agreement was prompted by an urgent petition filed
by the respondent mining company to close operations and lay-
off laborers because of heavy losses and the full enforcement of
the Minimum Wage Law in the provinces, requiring it to pay its
laborers the minimum wage of P4; to avoid such eventuality,
through the mediation of the Court of Industrial Relations, a
compromise was reached whereby it was agreed that the
company would pay the minimum wage fixed by the law, but the
facilities then being received by the laborers would be evaluated
and charged as part of the wage, but without in any way
reducing the P2.00 cash portion of their wages which they were
receiving prior to the agreement (hearing of Oct. 28, 1952, CIR,
t.s.n. 47). In other words, while it was the objective of the parties
to comply with the requirements of the Minimum Wage Law, it
was also deemed important that the mining company should not
have to increase the cash wages it was then paying its laborers,
so that its cost of production would not also be increased, in
order to prevent its closure and the lay-off of employees and
laborers. And as found by the Court below in the order appealed
from (which finding is conclusive upon us), "it is this eventuality
that the parties did not like to happen, when they have executed
the said agreement" (Rec. p. 49). Accordingly, after said
agreement was entered into, the Company started paying its
laborers a basic cash or "take-home" wage of P2.20 (Rec. p. 9),
representing the difference between P4 (minimum wage) and
P1.80 (value of all facilities).
With this background, the provision to abide by our decision in
G.R. No. L-5276 can only be interpreted thus: That the company
agreed to pay whatever award this Court would make in said
case from the date fixed by the decision (which was that of the
original demand, September 4, 1950) up to August 3, 1952 (the
day previous to the effectivity of the Compromise Agreement)
and from August 4, 1954 to December 31, 1954, they are to be
bound by their agreement of October 29, 1952.
This means that during the first period (September 4, 1950 to
August 3, 1952), only rice rations given to the laborers are to be
regarded as forming part of their wage and deductible therefrom.
The minimum wage was then fixed (by the Court of Industrial
Relations, and affirmed by this Court) at P3.20 without rice
ration, or P2.65 with rice ration. Since the respondent company
had been paying its laborers the basic cash or "take-home"
wage of P2 prior to said decision and up to August 3, 1952, the
laborers are entitled to a differential pay of P0.65 per working
day from September 4, 1950 (the date of the effectivity of the
award in G.R. L-5276) up to August 3, 1952.
From August 4, 1952, the date when the Agreement of the
parties of October 29, 1952 became effective (which was also
the date when the Minimum Wage Law became fully
enforceable in the provinces), the laborers should be paid a
minimum wage of P4 a day. From this amount, the respondent
mining company is given the right to charge each laborer "in full
or partially", the facilities enumerated in par. III of the
Agreement; i.e., rice ration at P0.55 per day, housing facility at
P0.40 per day, and other facilities "constitute part of his wages".
It appears that the company had actually been paying its
laborers the minimum wage of P2.20 since August 4, 1952;
hence they are not entitled to any differential pay from this date.
Petitioner argues that to allow the deductions stipulated in the
Agreement of October 29, 1952 from the minimum daily wage
of P4 would be a waiver of the minimum wage fixed by the law
and hence null and void, since Republic Act No. 602, section 20,
provides that "no agreement or contract, oral or written, to
accept a lower wage or less than any other under this Act, shall
be valid". An agreement to deduct certain facilities received by
the laborers from their employer is not a waiver of the minimum
wage fixed by the law. Wage, as defined by section 2 of Republic
Act No. 602, "includes the fair and reasonable value as
determined by the Secretary of Labor, of board, lodging, or other
facilities customarily furnished by the employer to the
employee." Thus, the law permits the deduction of such facilities
from the laborer's minimum wage of P4, as long as their value
is "fair and reasonable". It is not here claimed that the valuations
fixed in the Agreement of October 29, 1952 are not fair and
reasonable. On the contrary, the agreement expressly states
that such valuations:
"have been arrived at after careful study and deliberation by both
representatives of both parties, with the assistance of their
respective counsels, and in the presence of the Honorable
Presiding Judge of the Court of Industrial Relations" (Rec. p. 2).
Neither is it claimed that the parties, with the aid of the Court of
Industrial Relations in a dispute pending before it, may not fix by
agreement the valuation of such facilities, without referring the
matter to the Department of Labor.
Page 60 of 191
Petitioner also argues that to allow the deductions of the facilities
60
appearing in the Agreement referred to, would be contrary to the
mandate of section 19 of the law, that "nothing in this Act . . .
justify an employer . . . in reducing supplements furnished on the
date of enactment.
The meaning of the term "supplements" has been fixed by the
Code of Rules and Regulations promulgated by the Wage
Administration Office to implement the Minimum Wage Law (Ch.
1, [c]), as:
extra renumeration or benefits received by wage earners from
their employees and include but are not restricted to pay for
vacation and holidays not worked; paid sick leave or maternity
leave; overtime rate in excess of what is required by law; sick,
pension, retirement, and death benefits; profit-sharing; family
allowances; Christmas, war risk and cost-of-living bonuses; or
other bonuses other than those paid as a reward for extra output
or time spent on the job.
"Supplements", therefore, constitute extra renumeration or
special privileges or benefits given to or received by the laborers
over and above their ordinary earnings or wages. Facilities, on
the other hand, are items of expense necessary for the laborer's
and his family's existence and subsistence, so that by express
provision of the law (sec. 2 [g]) they form part of the wage and
when furnished by the employer are deductible therefrom since
if they are not so furnished, the laborer would spend and pay for
them just the same. It is thus clear that the facilities mentioned
in the agreement of October 29, 1952 do not come within the
term "supplements" as used in Art. 19 of the Minimum Wage
Law.
For the above reasons, we find the appeal from the Order of the
Court a quo of September 22, 1953 denying the motion of the
petitioner labor union for the payment of the minimum wage of
P3.45 per day plus rice ration, or P4 without rice ration, to be
unmeritorious and untenable.
The second question involved herein relates to the additional
compensation that should be paid by the respondent company
to its laborers for work rendered on Sundays and holidays. It is
admitted that the respondent company is paying an additional
compensation of 50 per cent based on the basic "cash portion"
of the laborer's wage of P2.20 per day; i.e., P1.10 additional
compensation for each Sunday or holiday's work. Petitioner
union insists, however, that this 50 per cent additional
compensation should be computed on the minimum wage of
P400 and not on the "cash portion" of the laborer's wage of
P2.20, under the provisions of the Agreement of October 29,
1952 and the Minimum Wage Law.
SEC. 4. Commonwealth Act No. 444 (otherwise known as the
Eight Hour Labor Law) provides:
No person, firm, or corporations, business establishment or
place or center of labor shall compel an employee or laborer to
work during Sundays and holidays, unless he is paid an
additional sum of at least twenty-five per centum of his regular
renumeration:
The minimum legal additional compensation for work on
Sundays and legal holidays is, therefore, 25 per cent of the
laborer's regular renumeration. Under the Minimum Wage Law,
this minimum additional compensation is P1 a day (25 per cent
of P4, the minimum daily wage).

While the respondent company computes the additional
compensation given to its laborers for work on Sundays and
holidays on the "cash portion" of their wages of P2.20, it is giving
them 50 per cent thereof, or P1.10 a day. Considering that the
minimum additional compensation fixed by the law is P1 (25 per
cent of P4), the compensation being paid by the respondent
company to its laborers is even higher than such minimum legal
additional compensation. We, therefore, see no error in the
holding of the Court a quo that the respondent company has not
violated the law with respect to the payment of additional
compensation for work rendered by its laborers on Sundays and
legal holidays.
Finding no reason to sustain the present petition for review, the
same is, therefore, dismissed, with costs against the petitioner
Atok-Big Wedge Mutual Benefit Association.
G.R. No. L-12444 February 28, 1963
STATES MARINE CORPORATION and ROYAL LINE, INC.,
petitioners, vs. CEBU SEAMEN'S ASSOCIATION, INC.,
respondent.
Pedro B. Uy Calderon for petitioners.
Gaudioso C. Villagonzalo for respondent.
PAREDES, J.:
Petitioners States Marine Corporation and Royal Line, Inc. were
engaged in the business of marine coastwise transportation,
employing therein several steamships of Philippine registry.
They had a collective bargaining contract with the respondent
Cebu Seamen's Association, Inc. On September 12, 1952, the
respondent union filed with the Court of Industrial Relations
(CIR), a petition (Case No. 740-V) against the States Marine
Corporation, later amended on May 4, 1953, by including as
party respondent, the petitioner Royal Line, Inc. The Union
alleged that the officers and men working on board the
petitioners' vessels have not been paid their sick leave, vacation
leave and overtime pay; that the petitioners threatened or
coerced them to accept a reduction of salaries, observed by
other shipowners; that after the Minimum Wage Law had taken
effect, the petitioners required their employees on board their
vessels, to pay the sum of P.40 for every meal, while the
masters and officers were not required to pay their meals and
that because Captain Carlos Asensi had refused to yield to the
general reduction of salaries, the petitioners dismissed said
captain who now claims for reinstatement and the payment of
back wages from December 25, 1952, at the rate of P540.00,
monthly.
The petitioners' shipping companies, answering, averred that
very much below 30 of the men and officers in their employ were
members of the respondent union; that the work on board a
vessel is one of comparative ease; that petitioners have suffered
financial losses in the operation of their vessels and that there is
no law which provides for the payment of sick leave or vacation
leave to employees or workers of private firms; that as regards
the claim for overtime pay, the petitioners have always observed
the provisions of Comm. Act No. 444, (Eight-Hour Labor Law),
notwithstanding the fact that it does not apply to those who
provide means of transportation; that the shipowners and
operators in Cebu were paying the salaries of their officers and
men, depending upon the margin of profits they could realize
and other factors or circumstances of the business; that in
enacting Rep. Act No. 602 (Minimum Wage Law), the Congress
had in mind that the amount of P.40 per meal, furnished the
employees should be deducted from the daily wages; that
Captain Asensi was not dismissed for alleged union activities,
but with the expiration of the terms of the contract between said
officer and the petitioners, his services were terminated.
Page 61 of 191
61
A decision was rendered on February 21, 1957 in favor of the
respondent union. The motion for reconsideration thereof,
having been denied, the companies filed the present writ of
certiorari, to resolve legal question involved. Always bearing in
mind the deep-rooted principle that the factual findings of the
Court of Industrial Relations should not be disturbed, if
supported by substantial evidence, the different issues are taken
up, in the order they are raised in the brief for the petitioners.
1. First assignment of error. — The respondent court erred in
holding that it had jurisdiction over case No. 740-V,
notwithstanding the fact that those who had dispute with the
petitioners, were less than thirty (30) in number.
The CIR made a finding that at the time of the filing of the petition
in case No. 740-V, respondent Union had more than thirty
members actually working with the companies, and the court
declared itself with jurisdiction to take cognizance of the case.
Against this order, the herein petitioners did not file a motion for
reconsideration or a petition for certiorari. The finding of fact
made by the CIR became final and conclusive, which We are
not now authorized to alter or modify. It is axiomatic that once
the CIR had acquired jurisdiction over a case, it continues to
have that jurisdiction, until the case is terminated (Manila Hotel
Emp. Association v. Manila Hotel Company, et al., 40 O.G. No.
6, p. 3027). It was abundantly shown that there were 56
members who signed Exhibits A, A-I to A-8, and that 103
members of the Union are listed in Exhibits B, B-1 to B-35, F, F-
1 and K-2 to K-3. So that at the time of the filing of the petition,
the respondent union had a total membership of 159, working
with the herein petitioners, who were presumed interested in or
would be benefited by the outcome of the case (NAMARCO v.
CIR, L-17804, Jan. 1963). Annex D, (Order of the CIR, dated
March 8, 1954), likewise belies the contention of herein
petitioner in this regard. The fact that only 7 claimed for overtime
pay and only 7 witnesses testified, does not warrant the
conclusion that the employees who had some dispute with the
present petitioners were less than 30. The ruling of the CIR, with
respect to the question of jurisdiction is, therefore, correct.
2. Second assignment of error. — The CIR erred in holding, that
inasmuch as in the shipping articles, the herein petitioners have
bound themselves to supply the crew with provisions and with
such "daily subsistence as shall be mutually agreed upon"
between the master and the crew, no deductions for meals could
be made by the aforesaid petitioners from their wages or
salaries.
3. Third assignment of error. — The CIR erred in holding that
inasmuch as with regard to meals furnished to crew members of
a vessel, section 3(f) of Act No. 602 is the general rule, which
section 19 thereof is the exception, the cost of said meals may
not be legally deducted from the wages or salaries of the
aforesaid crew members by the herein petitioners.
4. Fourth assignment of error. — The CIR erred in declaring that
the deduction for costs of meals from the wages or salaries after
August 4, 1951, is illegal and same should be reimbursed to the
employee concerned, in spite of said section 3, par. (f) of Act
No. 602.
It was shown by substantial evidence, that since the beginning
of the operation of the petitioner's business, all the crew of their
vessels have been signing "shipping articles" in which are stated
opposite their names, the salaries or wages they would receive.
All seamen, whether members of the crew or deck officers or
engineers, have been furnished free meals by the ship owners
or operators. All the shipping articles signed by the master and
the crew members, contained, among others, a stipulation, that
"in consideration of which services to be duly performed, the
said master hereby agrees to pay to the said crew, as wages,
the sums against their names respectively expressed in the
contract; and to supply them with provisions as provided herein
..." (Sec. 8, par. [b], shipping articles), and during the duration of
the contract "the master of the vessel will provide each member
of the crew such daily subsistence as shall be mutually agreed
daily upon between said master and crew; or, in lieu of such
subsistence the crew may reserve the right to demand at the
time of execution of these articles that adequate daily rations be
furnished each member of the crew." (Sec. 8, par. [e], shipping
articles). It is, therefore, apparent that, aside from the payment
of the respective salaries or wages, set opposite the names of
the crew members, the petitioners bound themselves to supply
the crew with ship's provisions, daily subsistence or daily
rations, which include food.
This was the situation before August 4, 1951, when the Minimum
Wage Law became effective. After this date, however, the
companies began deducting the cost of meals from the wages
or salaries of crew members; but no such deductions were made
from the salaries of the deck officers and engineers in all the
boats of the petitioners. Under the existing laws, therefore, the
query converges on the legality of such deductions. While the
petitioners herein contend that the deductions are legal and
should not be reimbursed to the respondent union, the latter,
however, claims that same are illegal and reimbursement should
be made.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this Honorable
Court, without prejudice to the parties adducing other evidence
to prove their case not covered by this stipulation of facts.
1äwphï1.ñët
We hold that such deductions are not authorized. In the
coastwise business of transportation of passengers and freight,
the men who compose the complement of a vessel are provided
with free meals by the shipowners, operators or agents,
because they hold on to their work and duties, regardless of "the
stress and strain concomitant of a bad weather, unmindful of the
dangers that lurk ahead in the midst of the high seas."
Section 3, par. f, of the Minimum Wage Law, (R.A. No. 602),
provides as follows —
(f) Until and unless investigations by the Secretary of Labor on
his initiative or on petition of any interested party result in a
different determination of the fair and reasonable value, the
furnishing of meals shall be valued at not more than thirty
centavos per meal for agricultural employees and not more than
forty centavos for any other employees covered by this Act, and
the furnishing of housing shall be valued at not more than twenty
centavos daily for agricultural workers and not more than forty
centavos daily for other employees covered by this Act.
Petitioners maintain, in view of the above provisions, that in
fixing the minimum wage of employees, Congress took into
account the meals furnished by employers and that in fixing the
rate of forty centavos per meal, the lawmakers had in mind that
the latter amount should be deducted from the daily wage,
otherwise, no rate for meals should have been provided.
However, section 19, same law, states —
Page 62 of 191
SEC. 19. Relations to other labor laws and practices.— Nothing
62
in this Act shall deprive an employee of the right to seek fair
wages, shorter working hours and better working conditions nor
justify an employer in violating any other labor law applicable to
his employees, in reducing the wage now paid to any of his
employees in excess of the minimum wage established under
this Act, or in reducing supplements furnished on the date of
enactment.
At first blush, it would appear that there exists a contradiction
between the provisions of section 3(f) and section 19 of Rep. Act
No. 602; but from a careful examination of the same, it is evident
that Section 3(f) constitutes the general rule, while section 19 is
the exception. In other words, if there are no supplements given,
within the meaning and contemplation of section 19, but merely
facilities, section 3(f) governs. There is no conflict; the two
provisions could, as they should be harmonized. And even if
there is such a conflict, the respondent CIR should resolve the
same in favor of the safety and decent living laborers (Art. 1702,
new Civil Code)..
It is argued that the food or meals given to the deck officers,
marine engineers and unlicensed crew members in question,
were mere "facilities" which should be deducted from wages,
and not "supplements" which, according to said section 19,
should not be deducted from such wages, because it is provided
therein: "Nothing in this Act shall deprive an employee of the
right to such fair wage ... or in reducing supplements furnished
on the date of enactment." In the case of Atok-Big Wedge Assn.
v. Atok-Big Wedge Co., L-7349, July 19, 1955; 51 O.G. 3432,
the two terms are defined as follows —
"Supplements", therefore, constitute extra remuneration or
special privileges or benefits given to or received by the laborers
over and above their ordinary earnings or wages. "Facilities", on
the other hand, are items of expense necessary for the laborer's
and his family's existence and subsistence so that by express
provision of law (Sec. 2[g]), they form part of the wage and when
furnished by the employer are deductible therefrom, since if they
are not so furnished, the laborer would spend and pay for them
just the same.
In short, the benefit or privilege given to the employee which
constitutes an extra remuneration above and over his basic or
ordinary earning or wage, is supplement; and when said benefit
or privilege is part of the laborers' basic wages, it is a facility.
The criterion is not so much with the kind of the benefit or item
(food, lodging, bonus or sick leave) given, but its purpose.
Considering, therefore, as definitely found by the respondent
court that the meals were freely given to crew members prior to
August 4, 1951, while they were on the high seas "not as part of
their wages but as a necessary matter in the maintenance of the
health and efficiency of the crew personnel during the voyage",
the deductions therein made for the meals given after August 4,
1951, should be returned to them, and the operator of the
coastwise vessels affected should continue giving the same
benefit..
In the case of Cebu Autobus Company v. United Cebu Autobus
Employees Assn., L-9742, Oct. 27, 1955, the company used to
pay to its drivers and conductors, who were assigned outside of
the City limits, aside from their regular salary, a certain
percentage of their daily wage, as allowance for food. Upon the
effectivity of the Minimum Wage Law, however, that privilege
was stopped by the company. The order CIR to the company to
continue granting this privilege, was upheld by this Court.
The shipping companies argue that the furnishing of meals to
the crew before the effectivity of Rep. Act No. 602, is of no
moment, because such circumstance was already taken into
consideration by Congress, when it stated that "wage" includes
the fair and reasonable value of boards customarily furnished by
the employer to the employees. If We are to follow the theory of
the herein petitioners, then a crew member, who used to receive
a monthly wage of P100.00, before August 4, 1951, with no
deduction for meals, after said date, would receive only P86.00
monthly (after deducting the cost of his meals at P.40 per meal),
which would be very much less than the P122.00 monthly
minimum wage, fixed in accordance with the Minimum Wage
Law. Instead of benefiting him, the law will adversely affect said
crew member. Such interpretation does not conform with the
avowed intention of Congress in enacting the said law.
One should not overlook a fact fully established, that only
unlicensed crew members were made to pay for their meals or
food, while the deck officers and marine engineers receiving
higher pay and provided with better victuals, were not. This
pictures in no uncertain terms, a great and unjust discrimination
obtaining in the present case (Pambujan Sur United Mine
Workers v. CIR, et al., L-7177, May 31, 1955).
Fifth, Sixth and Seventh assignments of error.— The CIR erred
in holding that Severino Pepito, a boatsman, had rendered
overtime work, notwithstanding the provisions of section 1, of
C.A. No. 444; in basing its finding ofthe alleged overtime, on the
uncorroborated testimony of said Severino Pepito; and in
ordering the herein petitioners to pay him. Severino Pepito was
found by the CIR to have worked overtime and had not been
paid for such services. Severino Pepito categorically stated that
he worked during the late hours of the evening and during the
early hours of the day when the boat docks and unloads. Aside
from the above, he did other jobs such as removing rusts and
cleaning the vessel, which overtime work totalled to 6 hours a
day, and of which he has not been paid as yet. This statement
was not rebutted by the petitioners. Nobody working with him on
the same boat "M/V Adriana" contrawise. The testimonies of
boatswains of other vessels(M/V Iruna and M/V Princesa), are
incompetent and unreliable. And considering the established
fact that the work of Severino Pepito was continuous, and during
the time he was not working, he could not leave and could not
completely rest, because of the place and nature of his work, the
provisions of sec. 1, of Comm. Act No. 444, which states "When
the work is not continuous, the time during which the laborer is
not working and can leave his working place and can rest
completely shall not be counted", find no application in his case.
8. Eighth assignment of error.— The CIR erred in ordering
petitioners to reinstate Capt. Carlos Asensi to his former
position, considering the fact that said officer had been
employed since January 9, 1953, as captain of a vessel
belonging to another shipping firm in the City of Cebu.
The CIR held —
Finding that the claims of Captain Carlos Asensi for back
salaries from the time of his alleged lay-off on March 20, 1952,
is not supported by the evidence on record, the same is hereby
dismissed. Considering, however, that Captain Asensi had been
laid-off for a long time and that his failure to report for work is not
sufficient cause for his absolute dismissal, respondents are
hereby ordered to reinstate him to his former job without back
salary but under the same terms and conditions of employment
existing prior to his lay-off, without loss of seniority and other
benefits already acquired by him prior to March 20, 1952. This
Court is empowered to reduce the punishment meted out to an
erring employee (Standard Vacuum Oil Co., Inc. v. Katipunan
Labor Union, G.R. No. L-9666, Jan. 30, 1957). This step taken
is in consonance with section 12 of Comm. Act 103, as
amended." (p. 16, Decision, Annex 'G').
Page 63 of 191
The ruling is in conformity with the evidence, law and equity.
63
Ninth and Tenth assignments of error. — The CIR erred in
denying a duly verified motion for new trial, and in overruling
petitioner's motion for reconsideration.
The motion for new trial, supported by an affidavit, states that
the movants have a good and valid defense and the same is
based on three orders of the WAS (Wage Administration
Service), dated November 6, 1956. It is alleged that they would
inevitably affect the defense of the petitioners. The motion for
new trial is without merit. Having the said wage Orders in their
possession, while the case was pending decision, it was not
explained why the proper move was not taken to introduce them
before the decision was promulgated. The said wage orders,
dealing as they do, with the evaluation of meals and facilities,
are irrelevant to the present issue, it having been found and held
that the meals or food in question are not facilities but
supplements. The original petition in the CIR having been filed
on Sept. 12, 1952, the WAS could have intervened in the
manner provided by law to express its views on the matter. At
any rate, the admission of the three wage orders have not
altered the decision reached in this case.
IN VIEW HEREOF, the petition is dismissed, with costs against
the petitioners.
G.R. No. L-58870 December 18, 1987
CEBU INSTITUTE OF TECHNOLOGY (CIT), petitioner, vs.
HON. BLAS OPLE, in his capacity as Minister, Ministry of
Labor and Employment, JULIUS ABELLA, ARSENIO
ABELLANA, RODRIGO ALIWALAS, ZOSIMO ALMOCERA,
GERONIDES ANCOG, GREGORIO ASIA, ROGER
BAJARIAS, BERNARDO BALATAYO, JR., BASILIO
CABALLES, DEMOCRITO TEVES, VOLTAIRE DELA
CERNA, ROBERTO COBARRUBIAS, VILMA GOMEZ CHUA,
RUBEN GALLITO, EDGARDO CONCEPCION, VICTOR
COQUILLA, JOSE DAKOYKOY, PATERNO WONG, EVELYN
LACAYA, RODRIGO GONZALES, JEOGINA GOZO, MIGUEL
CABALLES, CONSUELO JAVELOSA, QUILIANO LASCO,
FRANKLIN LAUTA, JUSTINIANA LARGO, RONALD LICUPA,
ALAN MILANO, MARIA MONSANTO, REYNALDO NOYNAY,
RAMON PARADELA, NATALIO PLAZA, LUZPURA
QUIROGA, NOE RODIS, COSMENIA SAAVEDRA,
LEONARDO SAGARIO, LETICIA SERRA, SIEGFREDO
TABANAG, LUCINO TAMAOSO, DANILO TERANTE, HELEN
CALVO TORRES, ERNESTO VILLANUEVA, DOLORES
VILLONDO, EDWARD YAP, ROWENA VIVARES, DOLORES
SANANAM, RODRIGO BACALSO, YOLANDA TABLANTE,
ROMERO BALATUCAN, CARMELITA LADOT, PANFILO
CANETE, EMMANUEL CHAVEZ, JR., SERGIO GALIDO,
ANGEL COLLERA, ZOSIMO CUNANAN, RENE BURT
LLANTO, GIL BATAYOLA, VICENTE DELANTE,
CANDELARIO DE DIOS, JOSE MA. ESTELLA, NECITA
TRINIDAD, ROTELLO ILUMBA, TEODORICO JAYME,
RAYMUNDO ABSIN, RUDY MANEJA, REYNA RAMOS,
ANASTACIA BLANCO, FE DELMUNDO, ELNORA
MONTERA, MORRISON MONTESCLAROS, ELEAZAR
PANIAMOGAN, BERNARDO PILAPIL, RODOLFO POL,
DEMOSTHENES REDOBLE, PACHECO ROMERO, DELLO
SABANAL, SARAH SALINAS, RENATO SOLATORIO,
EDUARDO TABLANTE, EMMANUEL TAN, FELICISIMO
TESALUNA, JOSE VERALLO, JR., MAGDALENO
VERGARA, ESMERALDA ABARQUEZ, MAC ARTHUR
DACUYCUY ACOMPANADA, TRINIDAD ADLAWAN, FE
ELIZORDO ALCANTARA, REOSEBELLA AMPER, ZENAIDA
BACALSO, ELIZA BADANA, GEORGIA BAS, ERLINDA
BURIAS, ELDEFONSO BURIAS, CORAZON CASENAS,
REGINO CASTANEDA, GEORGE CATADA, CARMENCITA
G. CHAVEZ, LORETIA CUNANAN, FLORES DELFIN,
TERESITA ESPINO, ELVIE GALANZA, AMADEA GALELA,
TERESITA. JUNTILLA, LEONARDA KAPUNGAN,
ADORACION LANAWAN, LINDA LAYAO, GERARDO
LAYSON, VIRGILIO LIBETARIO, RAYMOND PAUL
LOGARTA, NORMA LUCERO, ANATOLIA MENDEZ,
ELIODORO MENDEZ, JUDALINE MONTE, ELMA OCAMPO,
ESTEFA OLIVARES, GEORGE ORAIS, CRISPINA PALANG,
GRETA PEGARIDO, MELBA QUIACHON, REMEDIOS
QUIROS, VIRGINIA RANCES, EDNA DELOS REYES,
VICENTE TAN, EMERGENCIA ROSELL, JULIETA TATING,
MERCIA TECARRO, FELISA VERGARA, WEMINA
VILLACIN, MACRINA YBARSABAL, MILAGROS CATALAN,
JULIETA AQUINDE, SONIA ARTIAGA, MA. TERESITA
OBANDO, ASUNCION ABAYAN, ESTHER CARREON,
ECHEVARRE, BUENAFE SAMSON, CONCEPCION
GONZALES, VITALIANA VENERACION, LEONCIA
ABELLAR, REYNITA VILLACARLOS. respondents.
No. L-68345 December 18, 1987
DIVINE WORD COLLEGE OF LEGAZPI, petitioner, vs. The
Honorable Deputy Minister of Labor and Employment,
VICENTE LEOGARDO, JR., the HONORABLE REGIONAL
DIRECTOR (Regional Office No. 5) of the Ministry of Labor
& Employment GERARDO S. CASTILLO, CECILIA MANUEL
and other alleged complainants, respondents.
Nos. L-69224-5 December 18, 1987
FAR EASTERN UNIVERSITY EMPLOYEES LABOR UNION,
petitioner, vs. FAR EASTERN UNIVERSITY and the
NATIONAL LABOR RELATIONS COMMISSION,
respondents.
No. 70832 December 18, 1987
GREGORIO T. FABROS, ROGELIO B. DE GUZMAN,
CRESENCIANO ESPINO, JOSE RAMOS SUNGA, BAYLON
BANEZ FERNANDO ELESTERIO, ISMAEL TABO, AMABLE
TUIBEO CELSO TUBAY, RAFAEL HERNANDEZ,
GERONIMO JASARENO, MEL BALTAZAR, MA. LOURDES
PASCUAL, T. DEL ROSARIO ACADEMY TEACHERS and
EMPLOYEES ASSOCIATION, DENNIS MONTE, BECKY
TORRES, LOIDA VELASCO, ROMLY NERY, DAISY N.
AMPIG, PATRICIO DOLORES, ROGELIO RAMIREZ, and
NILDA L. SEVILLA, petitioners, vs. The HON. JAIME C.
LAYA, in his capacity as Minister of Education, Culture and
Sports, respondents.
No. L-76524 December 18, 1987
JASMIN BISCOCHO, ROWENA MARIANO, AGNES
GALLEGO, MA. ANA ORDENES, ISABEL DE LEON,
LUZVIMINDA FIDEL, MARIQUIT REYES, SOTERA ORTIZ,
ANGELINA ROXAS, BITUIN DE PANO, ELIZABETH ORDEN,
APOLLO ORDEN, GUILLERMA CERCANO, IMELDA
CARINGAL, EFREN BATIFORA, ROSIE VALDEZ, DELIA
QUILATEZ, FELIX RODRIGUEZ, OSCAR RODRIGUEZ,
JOVITA CEREZO, JOSEFINA BONDOC, BELEN POSADAS,
DOLORES PALMA, ANTONINA CRUS, CONRADO
BANAYAT, TERESITA LORBES, and CORAZON MIRANDA,
petitioners, vs. THE HONORABLE AUGUSTO SANCHEZ, in
his capacity as Minister of Labor and Employment,
ESPIRITU SANTO PAROCHIAL SCHOOL AND ESPIRITU
SANTO PAROCHIAL SCHOOL FACULTY ASSOCIATION,
respondents.
No. 76596 December 18, 1987
RICARDO C. VALMONTE and CORAZON BADIOLA,
petitioners, vs. THE HONORABLE AUGUSTO SANCHEZ, in
his capacity as Minister of Labor and Employment,
ESPIRITU SANTO PAROCHIAL SCHOOL FACULTY
Page 64 of 191
ASSOCIATION, and ESPIRITU SANTO PAROCHIAL
64
SCHOOL, respondents.
CORTES, J.:
Six cases involving various private schools, their teachers and
non-teaching school personnel, and even parents with children
studying in said schools, as well as the then Minister of Labor
and Employment, his Deputy, the National Labor Relations
Commission, and the then Minister of Education, Culture and
Sports, have been consolidated in this single Decision in order
to dispose of uniformly the common legal issue raised therein,
namely, the allocation of the incremental proceeds of authorized
tuition fee increases of private schools provided for in section 3
(a) of Presidential Decree No. 451, and thereafter, under the
Education Act of 1982 (Batas Pambansa Blg. 232).
Specifically, the common problem presented by these cases
requires an interpretation of section 3(a) of Pres. Decree No.
451 which states:
SEC. 3. Limitations. — The increase in tuition or other school
fees or other charges as well as the new fees or charges
authorized under the next preceding section shall be subject to
the following conditions;
(a) That no increase in tuition or other school fees or
charges shall be approved unless sixty (60%) per centum of the
proceeds is allocated for increase in salaries or wages of the
members of the faculty and all other employees of the school
concerned, and the balance for institutional development,
student assistance and extension services, and return to
investments: Provided That in no case shall the return to
investments exceed twelve (12%) per centum of the incremental
proceeds;
xxx xxx xxx
In addition, there is also a need for a pronouncement on the
effect of the subsequent enactment of B.P. Blg. 232 which
provides for the allocation of tuition fee increases in section 42
thereof.
In a nutshell, the present controversy was precipitated by the
claims of some school personnel for allowances and other
benefits and the refusal of the private schools concerned to pay
said allowances and benefits on the ground that said items
should be deemed included in the salary increases they had
paid out of the 60% portion of the proceeds from tuition fee
increases provided for in section 3 (a) of Pres. Decree No. 451.
The interpretation and construction of laws being a matter of
judicial power and duty [Marbury v. Madison, 1 Cranch 137
(1803); Endencia v. David, 93 Phil. 696 (1953)], this Court has
been called upon to resolve the controversy.
In the process of reading and at times, having to decipher, the
numerous pleadings filed in the six cases, the Court found that
the main issue has been approached by the parties from almost
diametrical points, thereby bringing into focus three sub-issues:
first, whether or not allowances and other fringe benefits of
faculty members and other school employees may be charged
against the 60% portion of the tuition fee increases provided for
in section 3(a) of Pres. Dec. No. 451: second, whether or not the
same items may be charged against said portion under the
provisions of B.P. Blg. 232: and, third, whether or not schools
and their employees may enter into a collective bargaining
agreement allocating more than 60% of said incremental
proceeds for salary increases and other benefits of said
employees. After these sub-issues have been resolved, the
Court will tackle the other incidents attending the individual
cases, seriatim.
The factual antecedents that brought these cases before this
Tribunal are as follows:
I.. FACTUAL BACKGROUND OF EACH CASE
A.
CEBU INSTITUTE OF TECHNOLOGY CASE
This case originated from a Complaint filed with the Regional
Office No. VII of the Ministry of Labor on February 11, 1981
against petitioner Cebu Institute of Technology (CIT) by private
respondents, Panfilo Canete, et al., teachers of CIT, for non-
payment of: a) cost of living allowances (COLA) under Pres.
Dec. Nos. 525, 1123, 1614, 1678 and 1713, b) thirteenth (13th)
month pay differentials and c) service incentive leave. By virtue
of an Order issued by the then Deputy Minister of Labor Carmelo
C. Noriel, a labor-management committee composed of one
representative each from the Ministry of Labor and Employment
(MOLE), the Minister of Education, Culture and Sports (MECS),
and two representatives each from CIT and from the teachers
was created. Said committee was to ascertain compliance with
the legal requirements for the payment of COLA, thirteenth
(13th) month pay and service incentive leave [Rollo, p. 84].
The position taken by CIT during the conference held by the
labor management committee was that it had paid the
allowances mandated by various decrees but the same had
been integrated in the teacher's hourly rate. It alleged that the
payment of COLA by way of salary increases is in line with Pres.
Dec. No. 451. It also claimed in its position paper that it had paid
thirteenth month pay to its employees and that it was exempt
from the payment of service incentive leave to its teachers who
were employed on contract basis [Rollo, pp. 85-86].
After the report and recommendation of the committee, herein
public respondent, then Minister of Labor and Employment
issued the assailed Order dated September 29, 1981 and held
that the basic hourly rate designated in the Teachers' Program
is regarded as the basic hourly rate of teachers exclusive of the
COLA, and that COLA should not be taken from the 60%
incremental proceeds of the approved increase in tuition fee.
The dispositive portion of the Order reads:
PREMISES CONSIDERED, CIT is hereby ordered to pay its
teaching staff the following:
1) COLA under P.D.'s 525 and 1123 from February 1978
up to 1981;
2) COLA under P.D.'s l6l4,1634,1678 and l7l3;and
3) Service incentive leave from l978 upto l981.
CIT is further directed to integrate into the basic salaries of its
teachers and (sic) COLA under P.D.'s 525 and 1123 starting on
Page 65 of 191
January 1981, pursuant to P.D. 1751. For purposes of
65
integration, the hourly rate shown in its Teachers' Program for
school year 198182 shall be considered as the basic hourly rate.
SO ORDERED.
Petitioner assails the aforesaid Order in this Special Civil Action
of certiorari with Preliminary Injunction and/or Restraining Order.
The Court issued a Temporary Restraining Order on December
7, 1981 against the enforcement of the questioned Order of the
Minister of Labor and Employment.
B.
DIVINE WORD COLLEGE OF LEGAZPI CASE
Upon a complaint filed by ten faculty members for alleged non-
compliance by herein petitioner Divine Word College of Legazpi
with, among others, Pres. Dec. No. 451, i.e., allowances were
charged to the 60% incremental proceeds of tuition fee increase,
the Labor Regulation Section of Regional Office No. V (Legazpi
City) of the Ministry of Labor and Employment conducted an
inspection of the employment records of said school. On the
basis of the report on the special inspection that the school did
not comply with Pres. Dec. No. 451, herein respondent Regional
Director issued an Order dated May 30, 1983, requiring
compliance by the Divine Word College. The latter filed a
Memorandum of Appeal from said Order which the Regional
Director treated as a Motion for Reconsideration. Upon failure of
the school to comply with the aforesaid Order, another Order
(August 2, 1983) was issued by herein respondent Regional
Director requiring herein petitioner to pay the faculty members-
complainants (herein private respondents) the amounts
indicated therein or the total sum of Six Hundred Seventeen
Thousand Nine Hundred Sixty Seven Pesos and Seventy Seven
Centavos (P 617,967.77). Petitioner's Motion for
Reconsideration of the Order was denied.
On appeal, the respondent Deputy Minister of Labor and
Employment affirmed the Order of the Regional Director, viz:
xxx xxx xxx
Coming now to the substantial merit of the case, we share the
view that the emergency allowances due the complainants
under the several presidential decrees (PD's 525, 1123, etc.)
cannot be charged by the respondent against the 60% of the
incremental proceeds from increase in tuition fees authorized
under PD 451, not only because as per decision of the Supreme
Court (UE vs. UE Faculty Association, et. al., G.R. No. 57387,
September 30, 1982) said allowances whether mandated by law
or secured by collective bargaining should be taken only from
the return to investment referred to in the decree if the school
has no other resources to grant the allowances but not from the
60% incremental proceeds, but also because to hold otherwise
would, to our mind, inevitably result in the loss of one benefit due
the complainants-that is the salary or wage increase granted
them by PD 451.
In other words, we believe that by paying the complainants'
allowances out of the 60% incremental proceeds intended for
their salary increase they are practically being deprived of one
benefit-their share in the 60% incremental proceeds in terms of
salary or wage increase.

WHEREFORE, for the reasons abovestated, the Order
appealed from is hereby AFFIRMED, and the appeal
DISMISSED, for lack of merit.
SO ORDERED.
(Annex "K " to Petition; Rollo, p. 108, 110).
This special civil action of certiorari and Prohibition with
Preliminary Injunction questions the interpretation of, and
application by the respondent Deputy Minister, of the provisions
of Pres. Dec. No. 45 1, as set forth in the assailed Order.
On March 25, 1985, after considering the allegations, issues and
arguments adduced in the Petition as well as the Comment
thereon of the public respondent and dispensing with the private
respondents' Comment, the Court resolved to dismiss the
Petition for lack of merit (Rollo, p. 198). On April 26, 1985,
petitioner filed a Motion for Reconsideration with Motion to
Consider the Case En Banc. On June 26, 1985 the First Division
of the Court referred the case to the Court En Banc for
consolidation with G.R. No. 70832, entitled "Gregorio T. Fabros,
et al vs. Hon. Jaime C. Laya, etc. " since it involves the same
issue on the application of 60% incremental proceeds of
authorized tuition fee increases [Rollo, p. 235]. The Court EN
BANC resolved to accept the case. (Resolution of July 16,
1985). These cases were further consolidated with other cases
involving the same issues.
C.
FAR EASTERN UNIVERSITY CASE
On December 17, 1978, petitioner Union filed with the Ministry
of Labor and Employment a complaint against respondent
University for non-payment of legal holiday pay and under-
payment of the thirteenth (13th) month pay. On July 7, 1979,
while the case was pending, the Union President, in his personal
capacity, filed another complaint for violation of Pres. Dec. No.
451 against the same respondent.
The two cases were forthwith consolidated and jointly heard and
tried. On March 10, 1980, Labor Arbiter Ruben A. Aquino
promulgated a decision the dispositive portion of which is quoted
hereunder:
RESPONSIVE TO THE FOREGOING, respondent is hereby
directed, within ten (10) days from receipt hereof, to:
1. To (sic) pay the paid legal holidays that it withdrew
since January 14, 1976 up to the present; and
2. Pay the 13th month pay differential of complainant's for
the covered period December 16, 1975 to December 17, 1978,
date of filing of complaint for non-payment of legal holiday pay
and under payment of the 13th month pay, and thereafter.
Barred forever are money claims beyond three (3) years from
the time the course (sic) of action occurred. Respondent's
formula on transportation allowance which was deducted from
Page 66 of 191
the 13th month pay is thus subject to this prescriptive period, for
66
purposes of computation of differentials for the 13th month pay.
The claim under PD 451 is hereby dismissed for lack of merit.
SO ORDERED.
(Annex " E " to Petition; Rollo, p. 55, 65-66).
Both parties appealed the decision of the Labor Arbiter. On
September 18, 1984, the respondent Commission disposed of
the appeal in the following manner:
RESPONSIVE TO THE FOREGOING, the Decision of Labor
Arbiter Ruben A. Aquino in the instant case dated March 10,
1980 is hereby Modified in the sense that complainant's claims
for legal holiday pay and 13th month pay are likewise dismissed
for lack of merit and the dismissal of the claim under P.D. 451 is
hereby Affirmed en (sic) toto.
(Annex "A" to Petition: Rollo, p. 24, 35).
Petitioner's Motion for Reconsideration dated September 29,
1984 was denied for lack of merit on November 8, 1984. Before
this Court is the petition on certiorari filed by the Union assailing
the abovementioned decision of the Commissioner.
D.
FABROS CASE
This petition is in the nature of a class suit brought by petitioners
in behalf of the faculty members and other employees of more
than 4000 private schools nationwide. Petitioners seek to enjoin
the implementation of paragraphs 7 to 7.5 of MECS Order No.
5, series of 1985 on the ground that the said order is null and
void for being contrary to Pres. Dec. No. 451 and the rulings of
the Supreme Court in the cases of University of the East v. UE
Faculty Association [G.R. No. L-57387, September 20, 1982,
117 SCRA 5541, University of Pangasinan Faculty Union v.
University of Pangasinan and NLRC [G.R. No. 63122, February
20, 1984, 127 SCRA 691 ], St. Louis University Faculty Club v.
NLRC and St. Louis University [G.R. No. 65585, September 28,
1984, 132 SCRA 380].
On September 11, 1982, Batas Pambansa Blg. 232 (Education
Act of 1982) was signed into law. On the matter of tuition and
other school fees of private schools, section 42 of said law
provides as follows:
Sec. 42. Tuition and other School Fees. — Each private School
shall determine its rate of tuition and other school fees or
charges. The rates and charges adopted by schools pursuant to
this provision shall be collectible, and their application or use
authorized subject to rules and regulations promulgated by the
Ministry of Education, Culture and Sports. (Emphasis supplied).
Invoking section 42 of B.P. Blg. 232, among others, as its legal
basis, the then Minister of Education Jaime C. Laya
promulgated on April 1, 1985 the disputed MECS Order No. 25,
s. 1985 entitled Rules and Regulations To Implement the
Provisions of B.P. Blg. 232. The Education Act of 1982, Relative
to Student Fees for School Year 1985-1986. The relevant
portions of said Order are quoted hereunder:
7. Application or Use of Tuition and
Other School Fees or Charges.
7.1. The proceeds from tuition fees and other school
charges as well as other income of each school shall be treated
as an institutional fund which shall be administered and
managed for the support of school purposes strictly: Provided,
That for the purpose of generating additional financial resources
or income for the operational support and maintenance of each
school two or more schools may pool their institutional funds, in
whole or in part, subject to the prior approval of their respective
governing boards.
7.2. Tuition fees shag be used to cover the general
expenses of operating the school in order to allow it to meet the
minimum standards required by the Ministry or any other higher
standard, to which the school aspires. They may be used to
meet the costs of operation for maintaining or improving the
quality of instruction/training/research through improved
facilities and through the payment of adequate and competitive
compensation for its faculty and support personnel, including
compliance with mandated increases in personnel
compensation and/or allowance.
7.3. Tuition fees shag be used to cover minimum and
necessary costs including the following: (a) compensation of
school personnel such as teaching or academic staff, school
administrators, academic non-teaching personnel, and non-
academic personnel, (b) maintenance and operating expenses,
including power and utilities, rentals, depreciation, office
supplies; and (c) interest expenses and installment payments on
school debts.
7.4. Not less than sixty (60) percent of the incremental
tuition proceeds shall be used for salaries or wages, allowances
and fringe benefits of faculty and support staff, including cost of
living allowance, imputed costs of contributed services,
thirteenth (13th) month pay, retirement fund contributions, social
security, medicare, unpaid school personnel claims and
payments as may be prescribed by mandated wage orders.
collective bargaining agreements and voluntary employer
practices, Provided That increases in fees specifically
authorized for the purposes listed in paragraph 4.3.3 hereof
shall be used entirely for those purposes. (Italics supplied).
7.5. Other student fees and charges as may be approved,
including registration, library, laboratory, athletic, application,
testing fees and charges shall be used exclusively for the
indicated purposes, including (a) the acquisition and
maintenance of equipment, furniture and fixtures, and buildings,
(b) the payment of debt amortization and interest charges on
debt incurred for school laboratory, athletic, or other purposes,
and (c) personal services and maintenance and operating
expenses incurred to operate the facilities or services for which
fees and charges are collected.
The Petition prayed for the issuance of a temporary restraining
order which was granted by this Court after hearing. The
dispositive portion of the resolution dated May 28, 1985 reads
as follows:
Page 67 of 191
67
After due consideration of the allegations of the petition dated
May 22, 1985 and the arguments of the parties, the Court
Resolved to ISSUE, effective immediately and continuing until
further orders from this Court, a TEMPORARY RESTRAINING
ORDER enjoining the respondent from enforcing or
implementing paragraphs 7.4 to 7.5 of MECS Order No. 25, s.
1985, which provide for the use and application of sixty per
centum (60%) of the increases in tuition and other school fees
or charges authorized by public respondent for the school year
1985-1986 in a manner inconsistent with section 3(a), P.D. No.
451, (which allocates such 60% of the increases exclusively "for
increases in salaries or wages of the members of the faculty and
other employees of the school concerned.") and directing
accordingly that such 60% of the authorized increases shall be
held in escrow by the respective colleges and universities, i.e.,
shall be kept intact and not disbursed for any purpose pending
the Court's resolution of the issue of the validity of the
aforementioned MECS Order in question.
(Rollo, p. 21).
In the same resolution, the Philippine Association of Colleges
and Universities (PACU) was impleaded as respondent.
Subsequent to the issuance of this resolution, four (4) schools,
represented in this petition, moved for the lifting of the temporary
restraining order as to them. In separate resolutions, this Court
granted their prayers.
Ateneo de Manila University, De La Sale University (Taft
Avenue) and De La Salle University-South, through their
respective counsels, manifested that for the school year 1985-
1986, tuition fee increase was approved by the MECS and that
on the basis of Pres. Dec. No. 451, 60% of the tuition fee
increases shall answer for salary increase. However, a
budgeted salary increase, exclusive of living allowances and
other benefits, was approved for the same school year which
when computed amounts to more than the 60%.
This Court granted the motions in separate resolutions lifting the
temporary restraining order with respect to these schools in
order that they may proceed with the implementation of the
general salary increase for their employees.
In the case of St. Louis University, its Faculty Club,
Administrative Personnel Association and the University itself
joined in a petition seeking for leave that 49% of the increase in
tuition and other fees for school year 1985-1986 be released.
Petitioners manifested that the remaining balance shall continue
to be held in escrow by the University.
In a resolution dated January 28, 1986, the Court resolved as
follows:
Accordingly, the Temporary Restraining Order issued by this
Court on May 28, 1985 is hereby ordered LIFTED with respect
to Saint Louis University of Baguio City in order that it may
proceed immediately with the implementation of salary
increases for its employees.
D.
BISCOCHO CASE Pursuant to the said order, private respondent Union agreed to

68
incorporate in their proposed collective bargaining agreement
(CBA) with the School the following:
The Espiritu Santo Parochial School and the Espiritu Santo
Parochial School Faculty Association were parties to a labor
dispute which arose from a deadlock in collective bargaining. 2) The Union and School Administration will incorporate
The parties entered into conciliation proceedings. The union the following in their CBA -
went on strike after efforts at the conciliation failed.
Subsequently, a return to work agreement was forged between
the parties and both agreed to submit their labor dispute to the
1) The computation of the tuition fee increase shall be
jurisdiction of the Minister of Labor.
gross to gross from which the corresponding percentage of 90%
will be taken. The resulting amount will be divided among 141.5
employees for 1985-86 and 132.5 employees for 1986-87.
In the exercise of his power to assume jurisdiction, the Ministry
of Labor and Employment issued an Order dated April 14, 1986
which provides for the following:
1/2 of the resulting increase will be added to basic and divided
by 13.3 to arrive at monthly increase in basic. The other 1/2 will
be divided by 12.3 to arrive at monthly increase in living
IN CONSIDERATION OF ALL THE FOREGOING, the Ministry allowance.
hereby declares the strike staged by the Union to be legal and
orders the following:
xxx xxx xxx

a) the School to submit the pertinent record of

employment of Romualdo Noriego to the Research and
4) xxx
Information Division of the NLRC for computation of his
underpayment of wages and for the parties to abide by the said
computation;
Upon request/demand of the Union, School win deduct from
backwages of managerial employees and others outside the
bargaining unit what Union win charge its own members in the
b) the School to submit all pertinent record of collections
form of attorney's fees, special assessment and union
of tuition fee increases for school year (sic) 1982-1983, 1983-
dues/agency fee.
1984 and 1984-1985 to the Research and Information Division
of the NLRC for proper computation and for equal distribution of
the amount to all employees and teachers during the
abovementioned school year (sic) as their salary adjustment 5) The signing of the CBA and payment of backwages
under P.D. 461; and others shall be on November 26, 1986 at the Espiritu Santo
Parochial School Library.

c) the parties to wait for the final resolution of the illegal

dismissal (case) docketed as NLRC NCR Case No. 5-1450-85 (Rollo, pp. 3-4).
and to abide by the said resolution;

The herein petitioners, Jasmin Biscocho and 26 others, all

d) to furnish the MECS a copy of this order for them to
issue the guidelines in the implementation of PRODED
Program;
e) the parties to execute a collective bargaining
agreement with an economic package equivalent to 90% of the
proceeds from tuition fee increases for school year 1985-1986
and another 90% for school year 1986-1987 and 85% for school
year 1987-1988. The amount aforementioned shall be divided
equally to all members of the bargaining unit as their respective
salary adjustments. Such other benefits being enjoyed by the
members of the bargaining unit prior to the negotiation of the
CBA shall remain the same and shall not be reduced.
f) the School to deduct the amount equivalent to ten (10%) per
cent of the backwages payable to all members of the bargaining
unit as negotiation fee and to deliver the same to the Union
Treasurer for proper disposition (Emphasis supplied).
employees and faculty members of the respondent School, filed
the present petition for prohibition to restrain the implementation
of the April 14, 1986 Order of respondent Labor Minister as well
as the agreements arrived at pursuant thereto. They contend
that said Order and agreements affect their rights to the 60%
incremental proceeds under Pres. Dec. No. 451 which provide
for the exclusive application of the 60% incremental proceeds to
basic salary.
Acting on the petitioners' prayer, this Court immediately issued
a temporary restraining order on November 25, 1986 ". . .
enjoining the respondents from enforcing, implementing and
proceeding with the questioned order of April 14, 1986 and
collective bargaining agreement executed between respondents
Union and the School Administration in pursuance thereof."
[Rollo, p. 20].
F.

SO ORDERED. VALMONTE CASE

(Rollo, pp. 16-17) This Petition was filed by parents with children studying at
respondent school, Espiritu Santo Parochial School to nullify the
Order dated April 14, 1986 issued by public respondent, then

Page 68 of 191
Minister of Labor and Employment, specifically paragraphs (e)
and (f) thereof, quoted in the Biscocho case.
The award contained in the said Order is the result of the
assumption of jurisdiction by the public respondent over a labor
dispute involving the private respondents school and faculty
association. The latter had earlier filed a notice of strike because
of a bargaining deadlock on the demands of its members for
additional economic benefits. After numerous conciliation
conferences held while the union was on strike, the parties
voluntarily agreed that the public respondent shall assume
jurisdiction over all the disputes between them. As to the subject
matter of the instant case, the public respondent found that the
latest proposals of the respondent school was to give 85% of the
proceeds from tuition fee increases for the school years to be
divided among the teachers and employees as salary
adjustments. What the respondent faculty association offered to
accept was a package of 95% for school year 1985-1986, 90%
for school year 1986- 1987. The respondent school offered to
strike the middle of the two positions, hence the Order
complained of by the petitioners [See Annex "A", Petition; Rollo,
pp. 9, 14-15; Comment of the Respondent Faculty Association:
Rollo, p. 26].
II. RESOLUTION OF THE COMMON LEGAL ISSUE
This long-drawn controversy has sadly placed on the balance
diverse interests, opposed yet intertwined, and all deserving,
and demanding, the protection of the State. On one arm of the
balance hang the economic survival of private schools and the
private school system, undeniably performing a complementary
role in the State's efforts to maintain an adequate educational
system in the country. Perched precariously on the other arm of
the same balance is the much-needed financial uplift of
schoolteachers, extolled for all times as the molders of the minds
of youth, hence of every nation's future. Ranged with them with
needs and claims as insistent are other school personnel. And
then, anxiously waiting at the sidelines, is the interest of the
public at large, and of the State, in the continued availability to
all who desire it, high-standard education consistent with
national goals, at a reasonable and affordable price.
Amidst these opposing forces the task at hand becomes
saddled with the resultant implications that the interpretation of
the law would bear upon such varied interests. But this Court
can not go beyond what the legislature has laid down. Its duty is
to say what the law is as enacted by the lawmaking body. That
is not the same as saying what the law should be or what is the
correct rule in a given set of circumstances. It is not the province
of the judiciary to look into the wisdom of the law nor to question
the policies adopted by the legislative branch. Nor is it the
business of this Tribunal to remedy every unjust situation that
may arise from the application of a particular law. It is for the
legislature to enact remedial legislation if that be necessary in
the premises. But as always, with apt judicial caution and cold
neutrality, the Court must carry out the delicate function of
interpreting the law, guided by the Constitution and existing
legislation and mindful of settled jurisprudence. The Court's
function is therefore limited, and accordingly, must confine itself
to the judicial task of saying what the law is, as enacted by the
lawmaking body.
FIRST SUB-ISSUE
A. Whether or not allowances and other fringe benefits of
employees may be charged against the 60% portion of the
incremental proceeds provided for in sec. 3(a) of Pres. Dec. No.
451.
Page 69 of 191
1. Arguments raised in the Cebu Institute of Technology
69
case
In maintaining its position that the salary increases it had paid to
its employees should be considered to have included the COLA,
Cebu Institute of Technology (CIT) makes reference to Pres.
Dec. No. 451 and its Implementing Rules. The line of reasoning
of the petitioner appears to be based on the major premise that
under said decree and rules, 60% of the incremental proceeds
from tuition fee increases may be applied to salaries, allowances
and other benefits of teachers and other school personnel. In
support of this major premise, petitioner cites various
implementing rules and regulations of the then Minister of
Education, Culture and Sports, to the effect that 60% of the
incremental proceeds may be applied to salaries, allowances
and other benefits for members of the faculty and other school
personnel [Petition citing Implementing Rules and Regulations
of Pres. Dec. No. 451 of various dates; Rollo, pp. 318-320].
Petitioner concludes that the salary increases it had granted the
CIT teachers out of the 60% portion of the incremental proceeds
of its tuition fee increases from 1974-1980 pursuant to Pres.
Dec. No. 451 and the MECS implementing rules and regulations
must be deemed to have included the COLA payable to said
employees for those years [Rollo, pp. 911].
With leave of Court, the Philippine Association of Colleges and
Universities, filed its Memorandum as Intervenor in support of
the proposition that schools may pay the COLA to faculty
members and other employees out of the 60% of the increase
in tuition fees. In addition to the arguments already set forth in
the memorandum of the petitioner CIT, intervenor PACU attacks
the Decision of this Court in University of the East v. University
of the East Faculty Association et. all G.R. No. 57387 as "not
doctrinal" and inapplicable to the CIT case. The Court held in
the UE case, which was promulgated on September 30, 1982,
during the pendency of these cases, that:
... allowances and benefits should be chargeable to the return
to investment referred to in Sec. 3(a), if the schools should
happen to have no other resources than incremental proceeds
of authorized tuition fee increases ... (See Dispositive Portion of
the Decision)
Intervenor PACU alleges that the aforecited U.E. decision does
not categorically rule that COLA and other fringe benefits should
not be charged against the 60% incremental proceeds of the
authorized tuition fee increase.
The Solicitor General, on the other hand, argues in support of
the Order of the public respondent that Pres. Dec. No. 451
allocates the 60% proceeds of tuition fee increases exclusively
for salary increases of teachers and non- teaching supportive
personnel of the school concerned, and that the Decree does
not provide that said salary increases would take the place of
the COLA [Rollo, p. 244-245]. He cites as authority for this
stance, two (2) memoranda of the then President dated June 6,
1978 and March 30, 1979 both of which provide that the 60%
incremental proceeds of tuition fee increases "shall be allocated
for the increase in the salaries of teachers and supportive
personnel. " Anent the U.E. case, the Solicitor General states
that the Supreme Court in deciding said case took note of the
stand of the Office of the President that the 60% incremental
proceeds shall be solely applied to salaries of faculty members
and employees.
On August 7, 1986, considering the supervening events,
including the change of administration, that have transpired
during the pendency of these cases, the Court required the
Solicitor General to state whether or not he maintains the action
and position taken by his predecessor-in-office. In his
Compliance with said Resolution, the Solicitor General
Manifested the position that:
a. If the tuition fee increase was collected during the
effectivity oil Presidential Decree No. 451, 60% thereof shall
answer exclusively for salary increase of school personnel.
Other employment benefits shall be covered by the 12%
allocated for return of investment, this is in accordance with the
ruling of this Honorable Court in University of the East vs. U.E.
Faculty Association, et. al (117 SCRA 554), ... and reiterated in
University of Pangasinan Faculty Union v. University of
Pangasinan, et. al. (127 SCRA 691) and St. Louis Faculty Club
u. NLRC (132 SCRA 380).
b. If the salary increase was collected during the
effectivity of Batas Pambansa Blg. (sic) 232, 60% thereof shall
answer not only for salary increase of school personnel but also
for other employment benefits.
(Rollo, at pp. 513-514)
2. Arguments raised in the Divine Word College Case
Petitioner Divine Word College of Legazpi (DWC) advances the
theory that the COLA, 13th month pay and other personnel
benefits decreed by law, must be deemed chargeable against
the 60% portion allocated for increase of salaries or wages of
faculty and all other school employees. In support of this stance,
petitioner points out that said personnel benefits are not
included in the enumeration of the items for which the balance
(less 60%) or 40% portion of the incremental proceeds may be
alloted under section 3(a) of Pres. Dec. No. 451 [Rollo, pp. 29-
30. Petitioner likewise cites the interpretation of the respondent
Minister of Education, Culture and Sports embodied in the
Implementing Rules and Regulations of P.D. 451, DEC
Issuance, May 13, 1987; Rollo, p. 30], that the 60% incremental
proceeds of authorized tuition fee increases may be applied to
increases in emoluments and/or benefits for members of faculty,
including staff and administrative employees of the school as the
valid interpretation of the law, as against that made by the
respondent Deputy Minister of Labor in the assailed Order. If the
latter interpretation is upheld, petitioner would go as far as
questioning the constitutionality of Pres. Dec. No. 451 upon the
ground that the same discriminates against the petitioner and
other private schools as a class of employers. According to the
petitioner, the discrimination takes the form of requiring said
class of employers to give 60% of their profits to their employees
in addition to the COLA mandated by law, while other employers
have to contend only with salary increases and COLA [Petition;
Rollo, p. 46].
With regard to the Decision of this Court in the U.E. case,
petitioner claims exemption therefrom upon the ground that the
Court's interpretation of a law cannot be applied retroactively to
parties who have relied upon the previous administrative
interpretation which has not been declared invalid or
unconstitutional [Petition; Rollo, pp. 50-51 1. Petitioner further
argues on this point that if the court had intended to invalidate
the MECS interpretation of the Decree, it should have positively
stated so in the Decision [Petition; Rollo, p. 50].
The Comment of the public respondents cite as settled
jurisprudence applicable to the case at bar, the ruling of this
Court in the U.E. case, supra, which was reiterated in the
subsequent cases of University of Pangasinan Faculty Union v.
University of Pangasinan et all and St. Louis Faculty Club v.
NLRC, et al.
Page 70 of 191
70
Public respondents Deputy Minister of Labor and Employment
and Regional Director of the MOLE (Region V) likewise attack
the validity of the Revised Implementing Rules and Regulations
of Pres. Dec. No. 451 cited by the petitioner insofar as said rules
direct the allotment of the 60% of incremental proceeds from
tuition fee hikes for retirement plan, faculty development and
allowances. They argue that said rules and regulations were
invalid for having been promulgated in excess of the rule-making
authority of the then Minister of Education under Pres. Dec. No.
451 which mandates that the 60% of incremental proceeds from
tuition fee hikes should be allotted solely for salary increases
[Comment; Rollo, pp. 184-185]. Finally, with respect to the issue
on the allege unconstitutionality of Pres. Dec. No. 451, the public
respondents posit that a legislation (such as Pres. Dec. No. 451)
which affects a particular class does not infringe the
constitutional guarantee of equal protection of the law as long
as it applies uniformly and without discrimination to everyone of
that class [Comment; Rollo, p. 14].
3. Arguments raised in the Far Eastern University case
It is the petitioner's contention that in respect of Pres. Dec. No.
451, the decision of the NLRC is a defiance of the rulings of this
Court in the cases of University of the East v. U.E. Faculty,
Association et al. and of University of Pangasinan Faculty Union
v. University of Pangasinan and NLRC (supra). The Union
submits that monetary benefits, other than increases in basic
salary, are not chargeable to the 60% incremental proceeds.
The respondent University in its Comment dated June 13, 1982
refers to Article 97(f) of the Labor Code which provides a
definition of the term "wages" to support its position that "salaries
or wages" as used in Pres. Dec. No. 451 should be interpreted
to include other benefits in terms of money.
As mentioned in the Cebu Institute of Technology case, the
Solicitor General filed its Compliance with this Court's resolution
dated August 7, 1986 requiring him to manifest whether public
respondents maintain the position they have taken in these
consolidated cases. The resolution of September 25, 1986
required petitioners to Comment on said Compliance.
The Comment dated December 6, 1986 was received by this
Court after petitioner Union was required to show cause why no
disciplinary action should be taken against them for failure to
comply earlier. The Union agreed with the position taken by the
Solicitor General that under Pres. Dec. No. 451, 60% of the
tuition fee increases, shall answer exclusively for salary
increase. However, it expressed disagreement with the opinion
that during the effectivity of B.P. Blg. 232, the 60% ncremental
proceeds shall answer not only for salary increases but also for
other employment benefits. The Union argues that whereas
"Pres. Dec. No. 451 is a law on a particular subject, viz.,
increase of tuition fee by educational institutions and how such
increase shall be allocated B.P. Blg. 232 is not a law on a
particular subject of increase of tuition fee . . . ; at most it is a
general legislation on tuition fee as it touches on such subject in
general, " [Comment on Compliance; Rollo, p. 376], Suppletory
to its argument that B.P. Blg. 232 did not impliedly repeal Pres.
Dec. No. 451, the Union also invokes the principle that a special
or particular law cannot be repealed by a general law.
RESOLUTION OF THE FIRST SUB-ISSUE
This Court has consistently held, beginning with the University
of the East case, that if the schools have no resources other
than those derived from tuition fee increases, allowances and
benefits should be charged against the proceeds of tuition fee
increases which the law allows for return on investments under
section 3(a) of Pres. Dec. No. 451, therefore, not against the
60% portion allocated for increases in salaries and wages (See
117 SCRA at 571). This ruling was reiterated in the University of
Pangasinan case and in the Saint Louis University case.
There is no cogent reason to reverse the Court's ruling in the
aforecited cases. Section 3(a) of Pres. Dec. No. 451 imposes
among the conditions for the approval of tuition fee increases,
the allocation of 60% per cent of the incremental proceeds
thereof for increases in salaries or wages of school personnel
and not for any other item such as allowances or other fringe
benefits. As aptly put by the Court in University of Pangasinan
Faculty Union v. University of Pangasinan, supra:
... The sixty (60%) percent incremental proceeds from the tuition
increase are to be devoted entirely to wage or salary increases
which means increases in basic salary. The law cannot be
construed to include allowances which are benefits over and
above the basic salaries of the employees. To charge such
benefits to the 60% incremental proceeds would be to reduce
the increase in basic salary provided by law, an increase
intended also to help the teachers and other workers tide
themselves and their families over these difficult economic
times. [Italics supplied] (127 SCRA 691, 702).
This interpretation of the law is consistent with the legislative
intent expressed in the Decree itself, i.e., to alleviate the sad
plight of private schools and that of their personnel wrought by
slump in enrollment and increasing operational costs on the part
of the schools, and the increasing costs of living on the part of
the personnel (Preamble, Pres. Dec. No. 451). While coming to
the aid of the private school system by simplifying the procedure
for increasing tuition fees, the Decree imposes as a condition for
the approval of any such increase in fees, the allocation of 60%
of the incremental proceeds thereof, to increases in salaries or
wages of school personnel. This condition makes for a quid pro
quo of the approval of any tuition fee hike by a school, thereby
assuring the school personnel concerned, of a share in its
proceeds. The condition having been imposed to attain one of
the main objectives of the Decree, which is to help the school
personnel cope with the increasing costs of living, the same
cannot be interpreted in a sense that would diminish the benefit
granted said personnel.
In the light of existing laws which exclude allowances from the
basic salary or wage in the computation of the amount of
retirement and other benefits payable to an employee, this Court
will not adopt a different meaning of the terms "salaries or
wages" to mean the opposite, i.e. to include allowances in the
concept of salaries or wages.
As to the alleged implementing rules and regulations
promulgated by the then MECS to the effect that allowances and
other benefits may be charged against the 60% portion of the
proceeds of tuition fee increases provided for in Section 3(a) of
Pres. Dec. No. 45 1, suffice it to say that these were issued ultra
vires, and therefore not binding upon this Court.
The rule-making authority granted by Pres. Dec. No. 451 is
confined to the implementation of the Decree and to the
imposition of limitations upon the approval of tuition fee
increases, to wit:
SEC. 4. Rules and Regulations. — The Secretary of Education
and Culture is hereby authorized, empowered and directed to
Page 71 of 191
issue the requisite rules and regulations for the effective
71
implementation of this Decree. He may, in addition to the
requirements and limitations provided for under Sections 2 and
3 hereof, impose other requirements and limitations as he may
deem proper and reasonable.
The power does not allow the inclusion of other items in addition
to those for which 60% of the proceeds of tuition fee increases
are allocated under Section 3(a) of the Decree.
Rules and regulations promulgated in accordance with the
power conferred by law would have the force and effect of law
[Victorias Milling Company, Inc. v. Social Security Commission,
114 Phil. 555 (1962)] if the same are germane to the subjects of
the legislation and if they conform with the standards prescribed
by the same law [People v. Maceren, G.R. No. L-32166, October
18, 1977, 79 SCRA 450]. Since the implementing rules and
regulations cited by the private schools adds allowances and
other benefits to the items included in the allocation of 60% of
the proceeds of tuition fee increases expressly provided for by
law, the same were issued in excess of the rule-making authority
of said agency, and therefore without binding effect upon the
courts. At best the same may be treated as administrative
interpretations of the law and as such, they may be set aside by
this Court in the final determination of what the law means.
SECOND SUB-ISSUE
B. Whether or not allowances and other fringe benefits
may be charged against the 60% portion of the incremental
proceeds of tuition fee increases upon the effectivity of the
Education Act of 1982 (B.P. Blg. 232).
1. Arguments raised in the Fabros case
In assailing MECS Order No. 25, s. 1985, petitioners argue that
the matter of allocating the proceeds from tuition fee increases
is still governed by Pres. Dec. No. 451. It is their opinion that
section 42 of B.P. Blg. 232 did not repeal Pres. Dec. No. 451 for
the following reasons: first, there is no conflict between section
42 of B.P. Blg. 232 and section 3(a) of Pres. Dec. No. 451 or
any semblance of inconsistency to deduce a case of a repeal by
implication: second, Pres. Dec. No. 451 is a specific law upon a
particular subject-the purposes and distribution of the
incremental proceeds of tuition fee increases, while B.P. Blg.
232 is a general law on the educational system; as such, a
specific law is not repealed by a subsequent general law in the
absence of a clear intention; and third, Pres. Dec. No. 451 is still
the only law on the subject of tuition fee increases there being
no prescription or provision in section 42 of B.P. Blg. 232 or
elsewhere in the law. They furthermore aver that the disputed
MECS Order which imposed additional burdens against the 60%
incremental proceeds of tuition fee increases are not provided
in either Pres. Dec. No. 451 or B.P. Blg. 232. The logical result
as intimated by petitioners is that the inclusion of paragraph 7.4
and related paragraphs 7 to 7.3 and 7.5 in the questioned MECS
order contravenes the statutory authority granted to the public
respondent, and the same are therefore, void.
Respondent PACU takes the contrary view contending that
MECS Order No. 25, s. 1985, complies with the mandate of
section 42 of B.P. Blg. 232 which law had already repealed Pres.
Dec. No. 451. PACU notes that the University of the East case
invoked by petitioners is not applicable because the issue in that
case does not involve the effect of B.P. Blg. 232 on Pres. Dec.
No. 451.
The Solicitor General, representing the public respondent, after The Court after comparing section 42 of B.P. Blg. 232 and Pres.

72
giving a summary of the matters raised by petitioner and Dec. No. 451, particularly section 3(a) thereof, finds evident
respondent PACU, points out that the decisive issue in this case irreconcilable differences.
is whether B.P. Big. 232 has repealed Pres. Dec. No. 451
because on the answer to this question depends the validity of
MECS Order No. 25, s. 1985. Public respondent holds the view
Under Pres. Dec. No. 451, the authority to regulate the
consistent with that of PACU on the matter of B.P. Blg. 232
imposition of tuition and other school fees or charges by private
having repealed Pres. Dec. No. 451. To support this contention,
schools is lodged with the Secretary of Education and Culture
the Solicitor General compared the respective provisions of the
(Sec. 1), where section 42 of B.P. Blg. 232 liberalized the
two laws to show the inconsistency and incompatibility which
procedure by empowering each private school to determine its
would result in a repeal by implication.
rate of tuition and other school fees or charges.

RESOLUTION OF THE SECOND SUB-ISSUE

On the matter of tuition fee increases section 42 of B.P. Blg. 232
provides:
Pres. Dec. No. 451 provides that 60% of the incremental
proceeds of tuition fee increases shall be applied or used to
augment the salaries and wages of members of the faculty and
other employees of the school, while B.P. Blg. 232 provides that
the increment shall be applied or used in accordance with the
regulations promulgated by the MECS.

SEC. 42. Tuition and Other School Fees. — Each

private school shall determine its rate of tuition and other school
fees or charges. The rates and charges adopted by schools
pursuant to this provision shall be collectible and their
application or use authorized, subject to rules and regulations
promulgated by the Ministry of Education, Culture and Sports.
(Emphasis supplied).
The enactment of B.P. Blg. 232 and the subsequent issuance of
MECS Order No. 25, s. 1985 revived the old controversy on the
application and use of the incremental proceeds from tuition fee
increases. As can be gleaned from the pleadings and arguments
of the parties in these cases, one side, composed of the
teachers and other employees of the private schools, insist on
the applicability of section 3(a) of Pres. Dec. No. 451 as
interpreted arid applied in the University of the East, University
of Pangasinan and St Louis University cases, while the private
schools uphold the view that the matter of allocating the
incremental proceeds from tuition fee increases is governed by
section 42 of B.P. Blg. 232 as implemented by the MECS Rules
and Regulations. As stated, the latter's argument is premised on
the allegation that B.P. Blg. 232 impliedly repealed Pres. Dec.
No. 451.
On the second sub-issue, therefore, this Court upholds the view
taken by the Solicitor General in the Fabros case, that the
decisive issue is whether B.P. Blg. 232 has repealed Pres. Dec.
No. 451.
A closer look at these differences leads the Court to resolve the
question in favor of repeal. As pointed out by the Solicitor
General, three aspects of the disputed provisions of law support
the above conclusion. First, the legislative authority under Pres.
Dec. No. 451 retained the power to apportion the incremental
proceeds of the tuition fee increases; such power is delegated
to the Ministry of Education and Culture under B.P. Blg. 232.
Second, Pres. Dec. No. 451 limits the application or use of the
increment to salary or wage increase, institutional development,
student assistance and extension services and return on
investment, whereas B.P. Blg. 232 gives the MECS discretion
to determine the application or use of the increments. Third, the
extent of the application or use of the increment under Pres.
Dec. No. 451 is fixed at the pre-determined percentage
allocations; 60% for wage and salary increases, 12% for return
in investment and the balance of 28% to institutional
development, student assistance and extension services, while
under B.P. Blg. 232, the extent of the allocation or use of the
increment is likewise left to the discretion of the MECS.
The legislative intent to depart from the statutory limitations
under Pres. Dec. No. 451 is apparent in the second sentence of
section 42 of B.P. Blg. 232. Pres. Dec. No. 451 and section 42
of B.P. Blg. 232 which cover the same subject matter, are so
clearly inconsistent and incompatible with each other that there
is no other conclusion but that the latter repeals the former in
accordance with section 72 of B.P. Blg. 232 to wit:

Sec. 72. Repealing clause. — All laws or parts thereof

inconsistent with any provision of this Act shall be deemed
In recognition of the vital role of private schools in the country's
repealed or modified, as the case may be.
educational system, the government has provided measures to
regulate their activities. As early as March 10, 1917, the power
to inspect private schools, to regulate their activities, to give
them official permits to operate under certain conditions and to Opinion No. 16 of the Ministry of Justice dated January 29, 1985,
revoke such permits for cause was granted to the then Secretary quoted below, supports the above conclusion:
of Public Instruction by Act No. 2706 as amended by Act No.
3075 and Commonwealth Act No. 180. Republic Act No. 6139,
enacted on August 31, 1970, provided for the regulation of
Both P.D. No. 451 and B.P. Blg. 232 deal with the imposition of
tuition and other fees charged by private schools in order to
tuition and other school fees or charges and their use and
discourage the collection of exorbitant and unreasonable fees.
application, although the latter is broader in scope as it covers
In an effort to simplify the "cumbersome and time consuming"
other aspects of the education system. We note substantial
procedure prescribed under Rep. Act No. 6139 and "to alleviate
differences or inconsistencies between the provisions of the two
the sad plight of private schools," Pres. Dec. No. 451 was
laws. P.D. No. 451 prescribes certain limitations in the increase
enacted on May 11, 1974. While this later statute was being
of tuition and other school fees and their application, whereas
implemented, the legislative body envisioned a comprehensive
the latter law, B.P. Blg. 232 s silent on the matter. Under P.D.
legislation which would introduce changes and chart directions
451, rates of tuition/school fees need prior approval of the
in the educational system, hence, the enactment of B.P. Blg.
Secretary of Education, Culture (now Minister of Education,
232. What then was the effect of B.P. Blg. 232 on Pres. Dec. No.
Culture and Sports), who also determines the reasonable rates
451?
for new school fees, whereas under B.P. Blg. 232, each private
school determines its rate of tuition and other school fees or
charges. P.D. No. 451 authorizes the Secretary of Education
and Culture to issue requisite rules and regulations to implement

Page 72 of 191
the said Decree and for that purpose, he is empowered to
impose other requirements and limitations as he may deem
proper and reasonable in addition to the limitations prescribed
by the Decree for increases in tuition fees and school charges,
particularly, the limitations imposed in the allocation of increases
in fees and charges, whereas under B.P. Blg. 232, the collection
and application or use of rates and charges adopted by the
school are subject to rules and regulations promulgated by the
Ministry of Education, Culture and Sports without any mention
of the statutory limitations on the application or use of the fees
or charges. The authority granted to private schools to
determine its rates of tuition and unconditional authority vested
in the Ministry of Education, Culture and Sports to determine by
rules and regulations the collection and application or use of
tuition or fees rates and charges under B.P. Big. 232 constitute
substantial and irreconcilable incompatibility with the provisions
of P.D. No. 451, which should be for that reason deemed to have
been abrogated by the subsequent legislation.
Moreover, B.P. Blg. 232 is a comprehensive legislation dealing
with the establishment and maintenance of an integrated system
of education and as such, covers the entire subject matter of the
earlier law, P.D. No. 451. The omission of the limitations or
conditions imposed in P.D. No. 451 for increases in tuition fees
and school charges is an indication of a legislative intent to do
away with the said limitations or conditions. (Crawford, supra, p.
674). It has also been said that —
an act which purports to set out in full all that it intends to contain,
operates as a repeal of anything omitted which was contained
in the old act and not included in the amendatory act." (People
vs. Almuete 69 SCRA 410; People vs. Adillo 68 SCRA 90)
(Ministry of Justice, Op. No. 16, s. 1985).
Having concluded that under B.P. Big. 232 the collection and
application or use of tuition and other school fees are subject
only to the limitations under the rules and regulations issued by
the Ministry, the crucial point now shifts to the said implementing
rules.
The guidelines and regulations on tuition and other school fees
issued after the enactment of B.P. Blg. 232 consistently permit
the charging of allowances and other benefits against the 60%
incremental proceeds. Such was the tenor in the MECS Order
No. 23, s. 1983; MECS Order No. 15, s. 1984; MECS Order No.
25, s. 1985; MECS Order No. 22, s. 1986; and DECS Order No.
37, s. 1987. The pertinent portion of the latest order reads thus:
In any case of increase at least sixty percent (60%) of the
incremental proceeds should be allocated for increases in or
provisions for salaries or wages, allowances and fringe benefits
of faculty and other staff, including accruals to cost of living
allowance, 13th month pay, social security, medicare and
retirement contribution and increases as may be provided in
mandated wage orders, collective bargaining agreements or
voluntary employer practices.
The validity of these orders, particularly MECS Order No. 25, s.
1985, is attacked on the ground that the additional burdens
charged against ". . . the 60% of the proceeds of the increases
in tuition fees constitute both as [sic] an excess of statutory
authority and as (sic) a substantial impairment of the accrued,
existing and protected rights and benefits of the members of
faculty and non-academic personnel of private schools."
Memorandum for Petitioners, Rollo, p. 1911. Petitioners alleged
that these additional burdens under the MECS Order are not
provided in the law itself, either in section 42 of B.P. Blg. 232 or
section 3(a) of Pres. Dec. No. 451, except increases in salaries
in the latter provision.
Page 73 of 191
73
Section 42 of B.P. Blg. 232 grants to the Minister of Education
(now Secretary of Education) rule-making authority to fill in the
details on the application or use of tuition fees and other school
charges. In the same vein is section 70 of the same law which
states:
SEC. 70. Rule-making Authority. — The Minister of Education,
Culture and Sports charged with the administration and
enforcement of this Act, shall promulgate the necessary
implementing rules and regulations.
Contrary to the petitioners' insistence that the questioned rules
and regulations contravene the statutory authority granted to the
Minister of Education, this Court finds that there was a valid
exercise of rule-making authority.
The statutory grant of rule-making power to administrative
agencies like the Secretary of Education is a valid exception to
the rule on non-delegation of legislative power provided two
conditions concur, namely: 1) the statute is complete in itself,
setting forth the policy to be executed by the agency, and 2) said
statute fixes a standard to which the latter must conform [Vigan
Electric Light Co., Inc. v. Public Service Commission, G.R. No.
L-19850, January 30, 1964, and Pelaez v. Auditor General, G.
R. No. L-23825, December 24, 1965].
The Education Act of 1982 is "an act providing for the
establishment and maintenance of an integrated system for
education " with the following basic policy:
It is the policy of the State to establish and maintain a complete,
adequate and integrated system of education relevant to the
goals of national development. Toward this end, the government
shall ensure, within the context of a free and democratic system,
maximum contribution of the educational system to the
attainment of the following national development goals:
1. To achieve and maintain an accelerating rate of
economic development and social progress;
2. To assure the maximum participation of all the people
in the attainment and enjoyment of the benefits of such growth;
and
3. To achieve and strengthen national unity and
consciousness and preserve, develop and promote desirable
cultural, moral and spiritual values in a changing world.
The State shall promote the right of every individual to relevant
quality education, regardless of sex, age, creed, socioeconomic
status, physical and mental conditions, racial or ethnic origin,
political or other affiliation. The State shall therefore promote
and maintain equality of access to education as well as the
enjoyment of the benefits of education by all its citizens.
The State shall promote the right of the nation's cultural
communities in the exercise of their right to develop themselves
within the context of their cultures, customs, traditions, interests
and belief, and recognizes education as an instrument for their
maximum participation in national development and in ensuring
their involvement in achieving national unity. (Section 3,
Declaration of Basic Policy).

With the foregoing basic policy as well as, specific policies
clearly set forth in its various provisions, the Act is complete in
itself and does not leave any part of the policy-making, a strictly
legislative function, to any administrative agency.
Coming now to the presence or absence of standards to guide
the Minister of Education in the exercise of rule-making power,
the pronouncement in Edu v. Ericta [G.R. No. L-32096, October
24, 1970, 35 SCRA 481, 497] is relevant:
The standard may be either expressed or implied. If the former,
the non-delegation objection is easily met. The standard though
does not have to be spelled out specifically. It could be implied
from the policy and purpose of the act considered as a whole. In
the Reflector Law, clearly the legislative objective is public
safety. What is sought to be attained as in Calalang v. Williams
is "safe transit upon the roads." (Italics supplied).
Thus, in the recent case of Tablarin et al. v. Hon. Gutierrez, et
al. (G.R. No. 78164, July 31, 1987], the Court held that the
necessary standards are set forth in Section 1 of the 1959
Medical Act, i.e., "the standardization and regulation of medical
education" as well as in other provisions of the Act. Similarly, the
standards to be complied with by Minister of Education in this
case may be found in the various policies set forth in the
Education Act of 1982.
MECS Order No. 25, s. 1985 touches upon the economic
relationship between some members and elements of the
educational community, i.e., the private schools and their faculty
and support staff. In prescribing the minimum percentage of
tuition fee increments to be applied to the salaries, allowances
and fringe benefits of the faculty and support staff, the Act
affects the economic status and the living and working
conditions of school personnel, as well as the funding of the
private schools.
The policies and objectives on the welfare and interests of the
various members of the educational community are found in
section 5 of B.P. Blg. 232. which states:
SEC. 5. Declaration of Policy and Objectives. — It is likewise
declared government policy to foster, at all times, a spirit of
shared purposes and cooperation among the members and
elements of the educational community, and between the
community and other sectors of society, in the realization that
only in such an atmosphere can the true goals and objectives of
education be fulfilled.
Moreover, the State shall:
1. Aid and support the natural right and duty of parents in
the rearing of the youth through the educational system.
2. Promote and safeguard the welfare and interests of the
students by defining their rights and obligations, according them
privileges, and encouraging the establishment of sound
relationships between them and the other members of the
school community.
3. Promote the social and economic status of an school
personnel, uphold their rights, define their obligations, and
Page 74 of 191
improve their living and working conditions and career
74
prospects.
4. Extend support to promote the viability of those
institutions through which parents, students and school
personnel seek to attain their educational goals.
On the other hand, the policy on the funding of schools in
general, are laid down in section 33:
SEC. 33. Declaration of Policy. — It is hereby declared to be a
policy of the State that the national government shall contribute
to the financial support of educational programs pursuant to the
goals of education as declared in the Constitution. Towards this
end, the government shall:
1. Adopt measures to broaden access to education
through financial assistance and other forms of incentives to
schools, teachers, pupils and students; and
2. Encourage and stimulate private support to education
through, inter alia, fiscal and other assistance measures.
Given the abovementioned policies and objectives, there are
sufficient standards to guide the Minister of Education in
promulgating rules and regulations to implement the provisions
of the Education Act of 1982, As in the Ericta and Tablarin
cases, there is sufficient compliance with the requirements of
the non-delegation principle.
THIRD SUB-ISSUE
C. Whether or not schools and their employees may enter
into a collective bargaining agreement allocating more than 60%
of said incremental proceeds for salary increases and other
benefits of said employees.
1. Arguments raised in the Biscocho and Valmonte cases
Assailed by the petitioners in the Biscocho and the Valmonte
cases is the Order of the respondent Minister of Labor directing
the execution of a CBA between the school and the respondent
Espiritu Santo Parochial School Faculty Association which
provides for an economic package equivalent to 90% of the
proceeds of tuition fee increases for school year 1985-1986,
another 90% for school year 1986-1987 and 85% for school year
1987-1988. Pursuant to said Order, petitioners in the Biscocho
case alleged that the parties had agreed to incorporate in their
CBA a provision which allocates one-half (1/2) of the 90%
portion of the proceeds or 45% to increases in the monthly basic
salaries and the other one-half (1/2) or 45% to increases in
monthly living allowance.
The petitioners in the two cases seek the nullification of the
MOLE Order for exactly opposite reasons. In the Biscocho case,
the controversy springs from what petitioners perceive to be a
diminution of the benefits to be received by the school
employees insofar as the CBA allocates only 45% for salary
increases instead of 60%, which petitioners claim to be the
portion set aside by Pres. Dec. No. 451 for that purpose.
Parenthetically, the case questions the allocation of the
remaining 45% of the 90% economic package under the CBA,
to allowances. Stripped down to its essentials, the question is
whether or not the 90% portion of the proceeds of tuition fee
increases alloted for the economic package may be allocated for
both salary increases and allowances.
On the other hand, petitioners in the Valmonte case believe that
the MOLE cannot order the execution of a CBA which would
allocate more than 60% of the proceeds of tuition fee increases
for salary increases of school employees. Furthermore,
petitioners question the authority of the then Minister of Labor
and Employment to issue the aforequoted Order insofar as this
allocates the tuition fee increases of the respondent private
school. According to them, only the Minister of Education,
Culture and Sports has the authority to promulgate rules and
regulations on the use of tuition fees and increases thereto,
pursuant to the provisions of B.P. Blg. 232. They further argue
that the assailed Order collides with the provisions of Pres. Dec.
No. 451 insofar as it allocates 90% of the tuition fee increases
for salary adjustments of the members of the bargaining unit
which exceeds the 60% of the said increases allocated by the
Decree for the same purpose.
Before delving further into the questions raised, this Court notes
that in the Valmonte case, respondent Minister and respondent
Faculty Association raise a procedural objection to the filing of
the Petition: the standing of the petitioners to bring this suit. Both
respondents decry the petitioners' lack of the interest required in
Rule 65 of the Rules of Court for the filing of the Petition for
certiorari and Prohibition, since the latter do not appear to be in
any way aggrieved by the enforcement of the Order. Petitioners-
parents did not even participate in the proceedings below which
led to the issuance of the assailed Order.
This Court finds merit in the respondents' objection. Under Rule
65 of the Rules of Court (Secs. 1 and 2), only a person aggrieved
by the act or proceeding in question may file a petition for
certiorari and/or prohibition. The Valmonte petition fails to
indicate how the petitioners would be aggrieved by the assailed
Order. It appears that the petitioners are not parties and never
at any time intervened in the conciliation conferences and
arbitration proceedings before the respondent Minister. The
parties therein, who stand to be directly affected by the Order of
the respondent Minister, do not contest the validity of said Order.
The petition does not even state that petitioners act as
representative of the parents' association in the School or in
behalf of other parents similarly situated.
If indeed, petitioners Valmonte and Badiola are aggrieved by the
said Order, they should have intervened and moved for a
reconsideration of respondent Minister's Order before filing the
instant petition. Petitioners failed to show that the case falls
under any one of the recognized exceptions to the rule that a
motion for reconsideration should first be availed of before filing
a petition for certiorari and prohibition.
In view of the foregoing, the resolution of the third sub-issue will
be based mainly on the arguments raised in the Biscocho case.
RESOLUTION OF THE THIRD SUB-ISSUE
The Biscocho case involves the issue on the allocation of the
incremental proceeds of the tuition fee increases applied for by
the respondent Espiritu Santo Parochial School for school years
1985-1986, 1986-1987, and 1987-1988. With the repeal of Pres.
Dec. No. 451 by B.P. Blg. 232, the allocation of the proceeds of
any authorized tuition fee increase must be governed by specific
rules and regulations issued by the Minister (now Secretary) of
Education pursuant to his broadened rule making authority
Page 75 of 191
under section 42 of the new law. Thus, insofar as the proceeds
75
of the authorized tuition fee increases for school year 1985-1986
are concerned, the allocation must conform with the pertinent
section of MECS Order No. 25, s. 1985, to wit:
7. Application or Use of Tuition and Other School Fees or
Charges.
xxx xxx xxx
7.4. Not less than sixty (60) percent of the incremental
tuition proceeds shall be used for salaries or wages, allowances
and fringe benefits of faculty and support staff, including cost of
living allowance, imputed costs of contributed services,
thirteenth (13th) month pay, retirement fund contributions, social
security, medicare, unpaid school personnel claims, and
payments as may be prescribed by mandated wage orders,
collective bargaining agreements and voluntary employer
practices: Provided, That increases in fees specifically
authorized for the purposes fisted in paragraph 4.3.3 hereof
shall be used entirely for those purposes.
xxx xxx xxx
With regard to the proceeds of the tuition fee increases for
school year 1986-1987, the applicable rules are those embodied
in MECS Order No. 22, s. 1986 which made reference to MECS
Order No. 25, s. 1985, the pertinent portion of which is quoted
above.
Finally, as to the proceeds of the tuition fee increases for school
year 1987- 1988, DECS Order No. 37, s. 1987 must apply:
c. Allocation of lncremental Proceeds
(1) In any case of increase at least sixty percent (60%) of
the incremental proceeds should be allocated for increases in or
provisions for salaries or wages, allowances and fringe benefits
of faculty and other staff, including accruals to cost of living
allowance, 13th month pay, social security, medicare and
retirement contributions and increases as may be provided in
mandated wage orders, collective bargaining agreements or
voluntary employer practices.
(2) Provided, that in all cases of increase the allocation of
the incremental proceeds shall be without prejudice to the
Supreme Court cases on the interpretation and applicability of
existing legislations on tuition and other fees especially on the
allocation and use of any incremental proceeds of tuition and
other fees increases. (Emphasis supplied).
xxx xxx xxx
Based on the aforequoted MECS and DECS rules and
regulations which implement BP Blg. 232, the 60% portion of the
proceeds of tuition fee increases may now be allotted for both
salaries and allowances and other benefits. The 60% figure is,
however, a minimum which means that schools and their
employees may agree on a larger portion, or in this case, as
much as 90% for salaries and allowances and other benefits.
This is not in anyway to allow diminution or loss of the portion
allotted for institutional development of the school concerned.
Thus, paragraph 7.5 of MECS Order No. 25, series of 1985
specifically provides that other student fees and charges like
registration, library, laboratory or athletic fees shall be used
exclusively for the purposes indicated.
III RESOLUTION OF THE SPECIFIC ISSUES
CEBU INSTITUTE OF TECHNOLOGY CASE
Petitioner assigns three other errors in the petition for certiorari:
1 their employment; hence, they are not entitled to the said benefit
RESPONDENT MINISTER OF THE MINISTRY OF LABOR
AND EMPLOYMENT COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO A DENIAL OF DUE PROCESS
OF LAW IN DIRECTLY ISSUING THE ORDER DATED
SEPTEMBER 29,1981 WITHOUT CONDUCTING A FORMAL
INVESTIGATION AND ARBITRATION PROCEEDINGS.
2
PUBLIC RESPONDENT ERRED IN NOT DECLARING THAT
PETITIONER IS EXEMPTED AND/OR NOT OBLIGED TO PAY
SERVICE INCENTIVE LEAVE.
3
PUBLIC RESPONDENT ERRED IN NOT DECLARING THAT
PRIVATE RESPONDENTS' CLAIMS FOR COLA AND
SERVICE INCENTIVE LEAVE ARE FULLY BARRED BY
LACHES AND/OR EXTINGUISHED BY PRESCRIPTION.
1. Petitioner assails the Order of the Minister of Labor on
the ground that the same was issued without the benefit of a
hearing and was merely based on the report of the labor
management committee which is allegedly without power to
pass upon the issues raised. On this premise, petitioner claims
that it was denied its right to due process.
Petitioner's contention is without merit. The Labor Management
Committee was empowered to investigate the complaint against
the petitioner for non-payment of the cost of living allowance,
13th month pay and service incentive leave from 1974-1981
[Annex "F"; Rollo, p. 37]. In the committee, petitioner was
represented by its counsel, registrar and assistant accountant
and in the conferences that were held, the representatives of the
petitioner were present. Furthermore, the petitioner's position
paper submitted to the committee reflects that in all the
deliberations, it was never denied the right to present evidence
and be heard on all the issues raised, particularly to demonstrate
that it had complied with the various COLA, 13th month pay and
service incentive leave decrees. The evidence presented during
the conferences and the position paper of the parties were made
the basis of the committee's report and recommendation which
in turn became the basis of the order of the Minister of Labor
directing the petitioner to pay the complainants their COLA and
service incentive leave benefits.
It could not therefore be contended that the petitioner was
deprived of his right to be heard when it appears on the record
Page 76 of 191
that it was permitted to ventilate its side of the issues. There was
76
sufficient compliance with the requirements of due process. In
the face of the well- settled principle that administrative agencies
are not strictly bound by the technical rules of procedure, this
Court dismisses the petitioner's claim that formal investigative
and arbitration proceedings should be conducted. "While a day
in court is a matter of right in judicial proceedings, in
administrative proceedings it is otherwise since they rest upon
different principles." [Cornejo v. Gabriel and Provincial Board of
Rizal, 41 Phil. 188 (1920); Tajonera v. Lamaroza, G.R. Nos. L-
48907 and L-49035, December 19,1981, 110 SCRA 438].
2. Going now to the matter of service incentive leave
benefits, petitioner claims that private respondents are engaged
by the school on a contract basis as shown by the individual
teachers contract which defines the nature, scope and period of
according to Rule V of the Implementing Rules and Regulations
of the Labor Code to wit:
Sec. 1. Coverage. — This rule [on Service Incentive Leave]
shall apply to all employees, except:
xxx xxx xxx
(d) Field personnel and other employees whose
performance is unsupervised by the employer including those
who are engaged on task or contract basis, purely commission
basis, or those who are paid in a fixed amount for performing
work irrespective of the time consumed in the performance
thereof; (MOLE Rules and Regulations, Rule V, Book III)
The phrase "those who are engaged on task or contract basis"
should however, be related with "field personnel " applying the
rule on ejusdem generis that general and unlimited terms are
restrained and limited by the particular terms that they follow,
[Vera v. Cuevas, G.R. No. L-33693, May 31, 1979, 90 SCRA
379]. Clearly, petitioner's teaching personnel cannot be deemed
field personnel which refers "to non-agricultural employees who
regularly perform their duties away from the principal place of
business or branch office of the employer and whose actual
hours of work in the field cannot be determined with reasonable
certainty. [Par. 3, Article 82, Labor Code of the Philippines].
Petitioner's claim that private respondents are not entitled to the
service incentive leave benefit cannot therefore be sustained.
3. As a last ditch effort to bar private respondents'claims,
petitioner asserts that the same are barred by laches and/or
extinguished by prescription according to Article 291 of the
Labor Code which provides:
Art. 291. Money claims. — All money claims arising from
employer-employee , relations accruing during the effectivity of
this Code shall be filed within three (3) years from the time the
cause of action accrued; otherwise, they shall be forever barred.
All money claims accruing prior to the effectivity of this Code
shall be filed with the appropriate entities established under this
Code within one (1) year from the date of effectivity, and shall
be processed or determined in accordance with implementing
rules and regulations of the Code; otherwise, they shall be
forever barred.
xxx xxx xxx

Considering that the complaint alleging non-payment of benefits
was filed only on February 11, 1981, petitioner argues that
prescription has already set in.
From the aforequoted provision, it is not fully accurate to
conclude that the entire claims for COLA and service incentive
leave are no longer recoverable. This Court finds no reason to
disturb the following pronouncement of the Minister of Labor:
xxx xxx xxx
Simply stated, claims for COLA under P.D. 525, which took
effect on August 1, 1974, for the months of August, September
and October 1974 must be filed within one (1) year from
November 1, 1974, otherwise they shall be considered
prescribed; claims under the same decree that accrued on or
after November 1, 1974 should be initiated within three (3) years
from the date of accrual thereof, otherwise the same shall be
deemed extinguished. Although this particular claim was filed on
February 11, 1981, petitioners herein are entitled to COLA under
P.D. 525 from February 1978 up to the present since the COLA
that accrued in February 1978 has not yet prescribed at the time
that the claim was filed in February 1981. In the same vein,
petitioners herein should be granted COLA under P.D. 1123
from February 1978 up to 1981 inasmuch as said decree
became effective only on May 11, 1977. Further, petitioners are
entitled to the full amount of COLA provided under P.D.'s 1614,
1634, 1678 and 1713. It must be pointed out that the earliest of
the just cited four (4) decrees, i.e., P.D. 1614, just took effect on
April 1, 1979. Thus, the prescriptive period under Art. 292 of the
Labor Code, as amended, does not as yet apply to money
claims under the just mentioned decrees.
DIVINE WORD COLLEGE CASE
In assailing the disputed Order, petitioner contends that the
public respondents acted with grave and patent abuse of
discretion amounting to lack of jurisdiction in that:
1. The Regional Director has no jurisdiction over money
claims arising from employer-employee relationship; and
2. The Regional Director and Deputy Minister of Labor
adopted the report of the Labor Standards Division without
affording the petitioner the opportunity to be heard.
1. Petitioner school claims that the case at bar is a money
claim and should therefore be within the original and exclusive
jurisdiction of the Labor Arbiter pursuant to article 217 of the
Labor Code, as amended.
It appears from the record, however, that the original complaint
filed by ten (10) faculty members of the Divine Word College
was for non-compliance with Pres. Dec. No. 451 and with Labor
Code provisions on service incentive leave, holiday and rest day
pay and which complaint specifically prayed that an inspection
of the College be conducted.
Contrary to the petitioner's protestation of lack of jurisdiction, the
Secretary of Labor or his duly authorized representatives (which
includes Regional Directors) are accorded the power to
investigate complaints for non- compliance with labor laws,
Page 77 of 191
particularly those which deal with labor standards such as
77
payment of wages and other forms of compensation, working
hours, industrial safety, etc. This is provided for in article 128 of
the Labor Code, as amended:
Art. 128. Visitorial and enforcement power. —
(a) The Secretary of Labor or his duly authorized
representatives including labor regulation officers, shall have
access to employers' records and premises at any time of the
day or night, whenever work is being undertaken therein, and
the right to copy therefrom, to question any employee and
investigate any fact, condition or matter which may be necessary
to determine violations or which may aid in the enforcement of
this Code and of any labor law, wage order or rules and
regulations issued pursuant thereto.
(b) The Secretary of Labor or his duly authorized
representatives shall have the power to order and administer,
after due notice and hearing, compliance with the labor
standards provisions of this Code based on the findings of labor
regulation officers or industrial safety engineers made in the
course of inspection, and to issue writs of execution to the
appropriate authority for the enforcement of their order, except
in cases where the employer contests the findings of the labor
regulations officer and raises issues which cannot be resolved
without considering evidentiary matters that are not verifiable in
the normal course of inspection. (Emphasis supplied).
Furthermore, Policy Instruction No. 6 which deals with the
distribution of jurisdiction over labor cases restates inter alia that
"(L)abor standards cases arising from violation of labor
standards laws discovered in the course of inspection or
complaints where employer-employee relations still exist" are
under the exclusive original jurisdiction of the Regional Director.
Even assuming that respondent Regional Director was without
jurisdiction to entertain the case at bar, petitioner is now barred
at this stage to claim lack of jurisdiction having actively
participated in the proceedings below. Petitioner never
questioned the jurisdiction of the respondent Regional Director.
2. The petitioner claims that it was never afforded the
opportunity to be heard and was therefore denied due process.
There is no dispute that an inspection of the College was
conducted after a complaint by some faculty members was filed
with the Regional Office of the Ministry of Labor and
Employment. A report was submitted on the basis of the findings
contained therein. Petitioner was furnished a copy of said report
to which it filed a comment. Finding this to be without merit, the
Regional Director issued an order giving petitioner ten (10) days
to manifest its compliance with the findings, otherwise, another
would be issued to enforce payment. Petitioner appealed but
instead of resolving the memorandum of appeal, which the
Regional Director treated as a motion for reconsideration, said
Director issued another Order dated August 2, 1983 directing
the payment of the employees' share in the sixty (60%) percent
incremental proceeds. Petitioner moved for a reconsideration of
the latest order which the Regional Director, however, denied,
thereby elevating the case to the Office of the Minister of Labor
and Employment.
The foregoing facts demonstrate that petitioner had the
opportunity to refute the report on the inspection conducted. It
submitted a comment thereto, which was in effect its position
paper. The arguments therein and evidence attached thereto
were considered by respondent Regional Director in the order In the case at bar, the 13th month pay is paid in the following

78
issued subsequently. They, therefore, had ample opportunity to manner:
present their side of the controversy.

FOR REGULAR EMPLOYEES:

What due process contemplates is not merely the existence of
an actual hearing. The "right to be heard" focuses more on the
substance rather than the form. In the case at bar, petitioner was
Transportation Allowance (TA)
actually heard through the pleadings that it filed with the
Regional Office V. As it itself admitted in its petition that it was
afforded the right to be heard on appeal [See Rollo, p. 581,
petitioner cannot therefore insist that it was denied due process. 50% of basic for the first year of service plus additional 5% every
year thereafter but not to exceed 100% of basic salary

FAR EASTERN UNIVERSITY CASE

Christmas Bonus (CB)

Two other issues are raised in this petition, to wit:

50% of basic salary for the first year of service plus additional
5% every year thereafter but not to exceed 100% of basic salary.
1

For employees who have served the University for more than 10
years, the University pays them emoluments equivalent to the
WHETHER OR NOT 'TRANSPORTATION ALLOWANCE'
14 months salaries.
SHOULD BE CONSIDERED AS 'EQUIVALENT TO 13TH-
MONTH PAY UNDER PRES. DEC. NO. 851.

13th Month Pay Formula:

2

Monthly Rate x No. of

WHETHER OR NOT LEGAL HOLIDAY PAY BENEFIT COULD
BE VALIDLY WITHDRAWN AFTER BEING PRACTICED
CONTINUOUSLY FOR EIGHT (8) MONTHS. months served for the year

1. The issue on the thirteenth (13th) month pay involves Less TA/CB = 13th Mo. pay
an interpretation of the provisions of Pres. Dec. No. 851 which
requires all employers "to pay all their employees receiving a
basic salary of not more than Pl,000 a month, regardless of the
nature of the employment, a 13th- month pay" (Sec. 1). 12 months
However, "employer[s] already paying their employees a 13th-
month pay or its equivalent are not covered" (Sec. 2). (Emphasis
supplied) FOR CASUAL EMPLOYEES:

The Rules and Regulations Implementing Pres. Dec. No. 851 13th Month Pay Formula:
provide the following:

Add salaries from 16 December of previous year to 15th

SEC. 3. Employees. — The Decree shall apply to all employers December of present year [and] divide by 12 months = 13th Mo.
except to: ... Pay (Rollo, pp. 60, 72).

c) Employers already paying their employees 13th-month The University's answer to the Union's claim of underpayment
or more in a calendar year or its equivalent at the time of this of the 13th month pay is that the "transportation allowance" paid
issuance; ... to its employees partakes the nature of a mid-year bonus which
under section 2 of Pres. Dec. No. 851 and section 3(c) of the
Implementing Rules and Regulations is equivalent to the 13th
xxx xxx xxx month pay,

The term "its equivalent" as used in paragraph (c) hereof shall
include Christmas bonus, mid-year bonus, profit-sharing
payments and other cash bonuses amounting to not less than
1/12th of the basic salary but shall not include cash and stock
dividends, cost of living allowances and all other allowances
regularly enjoyed by the employer, as well as non-monetary
benefits. Where an employer pays less than 1/1 2th of the
employees basic salary, the employer shall pay the difference.
The Labor Arbiter ordered FEU to pay the 13th month pay
differentials of the complainants reasoning that:
CLEARLY, transportation allowance cannot be considered as
equivalent" of 13th month pay as it is neither a Christmas bonus,
mid-year bonus, profit sharing payment, or other cash bonuses,
pursuant to paragraphs (c) and (e), Section 3 of PD 851. The
regularity of its payment further cements this proposition.

Page 78 of 191

PERFORCE, complainants are underpaid of their 13th month
pay in an amount equivalent to 50% of their basic salary for the
lst year of service, plus additional 5% every year thereafter but
not to exceed 100% of their basic salary which, per respondent's
formula, corresponds to their transportation allowance. (Rollo, p.
61).
On appeal, the Third Division of the National Labor Relations
Commission reversed the Labor Arbiter's ruling by dismissing
the complainant's claim for underpayment of the 13th month pay
for lack of merit. The NLRC ruled that:
From the above findings and conclusion, it is clear that insofar
as employees with ten (10) years of service or more are
concerned, they receive the equivalent of one (1) month pay for
Christmas bonus and another one (1) month pay as
transportation allowance or a total of fourteen (14) months
salary in a year. Obviously, this group of employees are fully
paid of their 13th month pay and are not therefore subject to the
instant claim. As it is only those with less than ten (10) years of
service are included or encompassed by the Labor Arbiter's
resolution on this particular issue. With this clarification, we shall
now proceed to discuss the crux of the controversy, that is, the
determination of whether or not the so designated
"transportation allowance" being paid to the employees should
be considered among those deemed equivalent to 13th month
pay. As adverted earlier, the Labor Arbiter opined that it cannot
be so considered as the equivalent of 13th month pay.
xxx xxx xxx
In passing upon the issue, we deemed it best to delve deeper
into the nature and intendment of the transportation allowances
as designated by both the complainants and the respondent.
Complainants claim that the transportation allowance they enjoy
has always been called and termed allowance and never as
bonus since the time the same was given to them. They assert
that it simply was intended as an allowance and not a bonus. It
would appear however that complainants do not dispute
respondent's stand that transportation allowance is being paid
only every March of each year as distinguished from other
allowances that are being paid on a monthly basis or on a
bimonthly basis; that the amount of transportation allowance to
be paid is dependent on the length of service of the employee
concerned (i.e. 50% basic in the first year and additional 5% for
each succeeding years, etc.); that the said method of computing
the amount of the transportation allowance to be paid the
complainants is Identical to that used in determining Christmas
bonus (respondent's exhibit 8) that the reason behind said
transportation allowance is to financially assist employees in
meeting their tax obligations as the same become due on or
about the month of March of each year.
xxx xxx xxx
We are inclined to believe and so hold that by the manner by
which said transportation allowance is being paid (only once a
year) as well as the method in determining the amount to be paid
(similar to Christmas bonus) and considering further the reason
behind said payment (easing the burden of taxpayer-employee),
the said transportation allowance given out by respondent while
designating as such, partakes the nature of a mid-year bonus. It
bears to note in passing that in providing for transportation
allowance, respondent was not compelled by law nor by the
CBA (Annex "A" of respondent's Appeal) as nowhere in the CBA
nor in the Labor Code can be found any provision on
transportation allowance. It was therefore a benefit that
stemmed out purely from the voluntary act and generosity of the
Page 79 of 191
respondent FEU. Moreover, said transportation allowance is
79
only being paid once a year. On the other hand, regular
allowances not considered as 13th month pay equivalent under
P.D. 851, to our mind, refer to those paid on regular intervals
and catering for specific employees' needs and requirements
that recur on a regular basis. Verily, if the intendment behind the
disputed transportation allowance is to answer for the daily
recurring transportation expenses of the employees, the same
should have been paid to employees on regular periodic
intervals. All indications, as we see it, point out to conclusion that
the disputed transportation allowance, while dominated as such
apparently for lack of better term, is in fact a form of bonus doled
out by the respondent during the month of March every year.
Hence, we hold that it is one of those that can very well be
considered as equivalent to the 13th month pay (Rollo, pp. 73,
74, 75, 76).
This Court sustains the aforequoted view of public respondent.
The benefit herein designated as "transportation allowance" is a
form of bonus equivalent to the 13th month pay. Nevertheless,
where this does not amount to 1/12 of the employees basic
salary, the employer shall pay the difference.
The evident intention of the law was to grant an additional
income in the form of a 13th month pay to employees not already
receiving the same. This Court ruled in National Federation of
Sugar Workers (NFSW) v. Ovejera [G.R. No. 59743, May 31,
1982, 114 SCRA 354].
Otherwise put, the intention was to grant some relief — not to all
workers — but only to the unfortunate ones not actually paid a
13th month salary or what amounts to it, by whatever name
called: but it was not envisioned that a double burden would be
imposed on the employer already paying his employees a 13th
month pay or its equivalent — whether out of pure generosity or
on the basis of a binding agreement and, in the latter case,
regardless of the conditional character of the grant (such as
making the payment dependent on profit), so long as there is
actual payment. Otherwise, what was conceived to be a 13th
month salary would in effect become a 14th or possibly 15th
month pay.
xxx xxx xxx
Pragmatic considerations also weigh heavily in favor of crediting
both voluntary and contractual bonuses for the purpose of
determining liability for the 13th month pay. To require
employers (already giving their employees a 13th month salary
or its equivalent) to give a second 13th month pay would be
unfair and productive of undesirable results. To the employer
who had acceded and is already bound to give bonuses to his
employees, the additional burden of a 13th month pay would
amount to a penalty for his munificence or liberality. The
probable reaction of one so circumstanced would be to withdraw
the bonuses or resist further voluntary grants for fear that if and
when a law is passed giving the same benefits, his prior
concessions might not be given due credit; and this negative
attitude would have an adverse impact on the employees
(pp.369,370).
The case of Dole Philippines, Inc. v. Leogardo [G.R. No. 60018,
October 23, 1982, 117 SCRA 938 (1982)], citing the ruling in the
above case also pointed out that:
To hold otherwise would be to impose an unreasonable and
undue burden upon those employers who had demonstrated
their sensitivity and concern for the welfare of their employees. As used in the Rule, the term 'holiday' shall exclusively refer to:

A contrary stance would indeed create an absurd situation
whereby an employer who started giving his employees the 13th
month pay only because of the unmistakable force of the law
would be in a far better position than another who, by his own
magnanimity or by mutual agreement, had long been extending
his employees the benefits contemplated under PD No. 851, by
whatever nomenclature these benefits have come to be known.
Indeed, PD No. 851, a legislation benevolent in its purpose,
never intended to bring about such oppressive situation. (p. 944)
2. Presidential Decree No. 570-A was issued on
November 1, 1974 amending certain articles of Presidential
Decree No. 442 (Labor Code of the Philippines promulgated on
May 1, 1974 which took effect six months thereafter). Section 28
thereof provides that:
Section 28. A new provision is hereby substituted in lieu of the
original provision of Article 258 of the same Code to read as
follows:
80
New Year's Day, Maundy Thursday, Good Friday, the ninth of
April, the first of May, the twelfth of June, the fourth of July, the
thirtieth of November, the twenty-fifth and thirtieth of December
and the day designated by law for a general election or national
referendum or plebiscite (MOLE Rules and Reg. Book III, Rule
IV, sec. 2 (1976).
After one week, on February 23, 1976, the Minister of Labor
issued Policy Instruction No. 9, to clarify further the right to
holiday pay, thus:
The Rules Implementing PD 850 have clarified the policy in the
implementation of the ten (10) paid legal holidays. Before PD
850. the number of working days a year in a firm was considered
important in determining entitlement to the benefit. Thus, where
an employee was working for at least 313 days, he was definitely
already paid. If he was working for less than 313, there was no
certainty whether the ten (10) paid legal holidays were already
paid to him or not.

Art. 258. Right to holiday pay- The ten (10) paid legal holidays law, to start with, is intended to
benefit principally daily employees. In the case of monthly, only
those whose monthly salary did not yet include payment for the
ten (10) paid legal holidays are entitled to the benefit.
(a) Every worker shall be paid his regular holidays, except
in retail and service establishments regularly employing less
than ten (10) workers;
Under the rules implementing PD 850, this policy has been fully
clarified to eliminate controversies on the entitlement of monthly
paid employees. The new determining rule is this: If the monthly
(b) The term "holiday" as used in this Chapter, shall
paid employee is receiving not less than P 240, the maximum
include: New Year's day, Maundy Thursday, Good Friday, the
monthly minimum wage, and his monthly pay is uniform from
ninth of April, the first of May, the twelfth of June, the fourth of
January to December, he is presumed to be already paid the ten
July, the thirtieth of November, the twenty fifth and thirtieth of
(10) paid legal holidays. However, if deductions are made from
December and the day designated by law for holding a general
his monthly salary on account of holidays in months where they
election.
occur, then he is entitled to the ten (10) legal holidays.

(c) When employer may require work on holidays. The

These new interpretations must be uniformly and consistently
employer may require an employee to work on any holiday but
upheld.
such employee shall be paid a compensation equivalent twice
his regular rate.

This issuance shall take effect immediately.

Presidential Decree No. 850 issued on December 16, 1975 also
amending certain articles of Pres. Dec. No. 442 adopted the
aforequoted provision. Two months later, on February 16, 1976, In the meantime, respondent University paid its employees
the Rules and Regulations Implementing the Labor Code, as holiday pay for the following days:
amended, was released the pertinent portion of which states
that:
DATE HOLIDAYS PAID

Section 2. Status of employees paid by the month. —

Employees who are uniformly paid by the month, irrespective of
June 9, 1975 for the previous nine legal holidays
the number of working days therein, with a salary of not less
than the statutory or established minimum wage shall be
presumed to be paid for all days in the month whether worked
or not. August, 1975 for the previous June 12 and July 4

For this purpose, the monthly minimum wage shall not be less Jan. 14, 1976 or the previous Nov. 30, Dec. 25
than the statutory minimum wage multiplied by 365 days divided
by twelve.
and 30 and Jan. 1

(e) Section 3. Holiday Pay. — Every employer shall pay

his employees their regular daily wage for any unworked regular
holiday. After January 14, 1976, however, the University ceased paying
the holiday pay allegedly by reason of Policy Instruction No. 9.
Specifically, the University claimed that the monthly salary of its
employees was, as of 1976, more than P 240.00 without
deductions from their monthly salary on account of holidays in
Page 80 of 191
months where they occurred and that therefore, by virtue of pay, they in fact amended them by enlarging the scope of their

81
Policy Instruction No. 9, they were no longer entitled to the ten exclusion.
paid legal holidays.

xxx xxx xxx

Petitioners, upon the other hand, contend that Policy Instruction
No. 9 could not have possibly been the reason that prompted
the University to withdraw such benefits from its faculty and
It is elementary in the rules of statutory construction that when
employees because said implementing rule was issued only on
the language of the law is clear and unequivocal the law must
April 23, 1976 or four months later.
be taken to mean exactly what it says. In the case at bar, the
provisions of the Labor Code on the entitlement to the benefits
of holiday pay are clear and explicit — it provides for both the
The Labor Arbiter ruled in favor of the complainant Union for the coverage of and exclusion from the benefits. In Policy Instruction
reason that ". . . the payment of the 10-paid legal holiday benefits No. 9, the then Secretary of Labor went as far as to categorically
from June 8, 1975 up to January 14, 1976 is considered an state that the benefit is principally intended for daily paid
employer practice that can no longer be withdrawn." [Decision; employees, when the law clearly states that every worker shall
Rollo, p. 59]. be paid their regular holiday pay. This is a flagrant violation of
the mandatory directive of Article 4 of the Labor Code, which
states that "All doubts in the implementation and interpretation
of the provisions of this Code, including its implementing rules
As in the case of the 13th month pay, the NLRC reversed the
and regulations, shall be resolved in favor of labor. " Moreover,
Labor Arbiter's ruling. The NLRC held that:
it shall always be presumed that the legislature intended to enact
a valid and permanent statute which would have the most
beneficial effect that its language permits (Orlosky vs. Haskell,
Apparently, Arbiter Ruben Aquino concluded that payment by 155 A. 112). (pp. 673-4).
the respondent of the legal holiday pay preceded the effectivity
of the Rules and Regulations Implementing P.D. 850 and which
rules took effect on February 16, 1976. Hence, his conclusion
BISCOCHO CASE
that the payment of the legal holiday pay stemmed out from
company practice and not from law. Tracing back, however, the
payments made by respondent of said holiday pay will show
that, if ever, the same was made pursuant to P.D. 570-A which At issue also in this petition is whether the 60% incremental
took effect on November 1, 1974. Noteworthy is the undisputed proceeds may be subjected to attorney's fees, negotiation fees,
fact that respondent first paid its employees legal holiday pay in agency fees and the like.
June 1975 corresponding to nine (9) legal holidays. It bears to
note that from the time of the effectivity of P.D. 570-A which was
in November of 1974 up to June of 1975, the time respondent
The Court notes the fact that there are two classes of employees
first paid legal holiday pay for nine (9) legal holidays, there, were
among the petitioners: (1) those who are members of the
indeed more or less nine legal holidays that transpired to wit:
bargaining unit and (2) those who are not members of the
November 30, 1974, December 25, 1974, December 30, 1974,
bargaining unit. The first class may be further subdivided into
January 1, 1975, February 27, 1975 (Referendum Day), Maundy
two: those who are members of the collective bargaining agent
Thursday of 1975, Good Friday of 1975, April 9, 1975 and finally,
and those who are not.
May 1st of 1975. We are therefore inclined to lend credence to
respondent's claim that the payment of legal holiday pay was in
fact made pursuant to law, P.D. 570-A in particular, it is not one
that arose out of company practice or policy. It is clear that the questioned Order of the respondent Minister
applies only to members of the bargaining unit. The CBA
prepared pursuant to said Order, however, covered employees
who are not members of the bargaining unit, although said CBA
Finding that said payment was made based on an honest
had not yet been signed at the time this petition was filed on
although erroneous interpretation of law, which interpretation
November 24, 1986. Assuming it was signed thereafter, the
was later on corrected by the issuance (sic) of Policy Instruction
inclusion of employees outside the bargaining unit should be
No. 9 and which issuance prompted respondent to withdraw the
nullified as this does not conform to said order which directed
holiday pay benefits extended to the employees who were paid
private respondents to execute a CBA covering only members
on a regular monthly basis, and finding further that under Policy
of the bargaining unit.
Instructions No. 9, said subject employees are deemed paid
their holiday pay as they were paid on a monthly basis at a wage
rate presumably above the statutory minimum, we believe and
so hold that the withdrawal of said holiday pay benefit was valid Being outside the coverage of respondent Minister's order, and
and justifiable under the circumstances (Rollo, pp. 33-4). thus, not entitled to the economic package involved therein,
employees who are non- members of the bargaining unit should
not be assessed negotiation fees, attorney's fees, agency fees
and the like, for the simple reason that the resulting collective
This Court cannot sustain the foregoing decision of public
bargaining agreement does not apply to them. It should be clear,
respondent. Said decision relied on Section 2, Rule IV, Book Ill
however, that while non-members of the bargaining unit are not
of the implementing rules and on Policy Instruction No. 9 which
entitled to the economic package provided by said order, they
were declared by this Court to be null and void in Insular Bank
are, in lieu thereof, still entitled to their share in the 60%
of Asia and America Employee's Union (IBAAEU) v. Inciong
incremental proceeds of increases in tuition or other school fees
(G.R. No. 52415, October 23, 1984, 132 SCRA 6631. In
or charges.
disposing of the issue at hand, this Court reiterates the ruling in
that case, to wit:

As far as assessment of fees against employees of the collective

bargaining unit who are not members of the collective
WE agree with the petitioner's contention that Section 2, Rule
bargaining agent is concerned, Article 249 of the Labor Code,
IV, Book Ill of the implementing rules and Policy Instruction No.
as amended by B.P. Blg. 70, provides the rule:
9 issued by the then Secretary of Labor are nun and void since
in the guise of clarifying the Labor Code's provision on holiday

Page 81 of 191
Art. 249. Unfair labor practices of employers.-
xxx xxx xxx
(e) ... Employees of an appropriate collective bargaining
unit who are not members of the recognized collective
bargaining agent may be assessed a reasonable fee equivalent
to the dues and other fees paid by members of the recognized
collective bargaining agent, if such non- union members accept
the benefits under the collective agreement . . .
Employees of the collective bargaining unit who are not
members of the collective bargaining agent have to pay the
foregoing fees if they accept the benefits under the collective
bargaining agreement and if such fees are not unreasonable.
Petitioners who are members of the bargaining unit failed to
show that the equivalent of ten (10%) percent of their
backwages sought to be deducted is unreasonable.
WHEREFORE, the Court rules:
CEBU INSTITUTE OF TECHNOLOGY CASE
In G.R. No. 58870, the Order of respondent Minister of Labor
and Employment dated September 29, 1981 is SUSTAINED
insofar as it ordered petitioner Cebu Institute of Technology to
pay its teaching staff the following:
(1) Cost of living allowance under Pres. Dec.Nos.525 and
1123 from February 1978 up to 1981;
(2) Cost of living allowance under Pres. Dec. Nos. 1614,
1634, 1678 and 1713; and
(3) Service incentive leave due them from 1978.
The Temporary Restraining Order issued by this Court on
December 7, 1981 is hereby LIFTED and SET ASIDE. No costs.
DIVINE WORD COLLEGE CASE
The petition in G.R. No. 68345 is DENIED for lack of merit. The
questioned Orders of respondent Deputy Minister of Labor and
Employment, dated December 19, 1983 and July 4, 1984 are
SUSTAINED insofar as said Orders denied the payment of the
emergency cost of living allowances of private respondents
faculty teachers of the Divine Word College of Legazpi out of the
sixty (60%) incremental proceeds of tuition and other school fee
increases collected during the effectivity of Pres. Dec. No. 451.
The Rules and Regulations implementing Pres. Dec. No. 451
are hereby declared invalid for being ultra vires No costs.
FAR EASTERN UNIVERSITY CASE
The Decision of public respondent National Labor Relations
Commission dated September 18, 1984 is REVERSED insofar
as it affirmed in toto the dismissal of petitioner Far Eastern
Page 82 of 191
University Employee Labor Union's claim under Pres. Dec. No.
82
451 and its claim for payment of holiday pay. Private respondent
Far Eastern University is therefore ordered to pay its employees
the following:
(1) Their sixty (60) percent share in the increases in tuition
and other school fees or charges which shall be allocated
exclusively for increase in salaries or wages if the tuition or other
school fee increase was collected during the effectivity of Pres.
Dec. No. 451;
(2) Their claim for holiday pay which was withdrawn since
January 14, 1976 up to the present.
The Decision of respondent National Labor Relations
Commission, however, is SUSTAINED insofar as it denied
petitioner's claim for thirteenth (1 3th month pay. No costs.
FABROS CASE
In G.R. No. 70832, the Petition for certiorari and Prohibition is
DISMISSED. MECS Order No. 25. s. 1985, particularly
paragraphs 7.0 to 7.5 thereof, which provide for the use and
application of sixty (60%) percent of the increases in tuition and
other school fees or charges, having been issued pursuant to
B.P. Blg. 232 which repealed Pres. Dec. No. 451, is hereby
declared VALID. The Temporary Restraining Order issued by
this Court dated May 29, 1985 is LIFTED and SET ASIDE. No
costs.
BISCOCHO CASE
The assailed portions of the Order of the Minister of Labor and
Employment dated April 14, 1986 are AFFIRMED. The
collective bargaining agreement prepared pursuant thereto
should, however, be MODIFIED to cover only members of the
bargaining unit. Only petitioners who are members of the
collective bargaining unit, if they accept the benefits under the
resulting collective bargaining agreement, shall be charged ten
(10%) percent of the payable backwages as negotiation fees.
The Temporary Restraining Order dated November 25, 1986 is
LIFTED and SET ASIDE. No costs.
VALMONTE CASE
The petition in G.R. No. 76596 is DISMISSED for lack of merit.
Effective September 1, 1982, the application and use of the
proceeds from increases in tuition fees and other schools fees
or charges shall be governed by section 42 of B.P. Blg. 232 as
implemented by the Rules and Regulations issued by the then
Ministry, now Department of Education, Culture and Sports. SO
ORDERED.
G.R. No. 120592 March 14, 1997
TRADERS ROYAL BANK EMPLOYEES UNION-
INDEPENDENT, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and EMMANUEL NOEL A. CRUZ,
respondents.
REGALADO, J.:
Petitioner Traders Royal Bank Employees Union and private ten (10%) per cent of the P175,794.32 awarded by the Supreme

83
respondent Atty. Emmanuel Noel A. Cruz, head of the E.N.A. Court to the members of the former.
Cruz and Associates law firm, entered into a retainer agreement
on February 26, 1987 whereby the former obligated itself to pay
the latter a monthly retainer fee of P3,000.00 in consideration of
This constrained petitioner to file an appeal with the NLRC on
the law firm's undertaking to render the services enumerated in
December 27, 1991, seeking a reversal of that order. 16
their contract.1 Parenthetically, said retainer agreement was
terminated by the union on April 4, 1990.2

On October 19, 1994, the First Division of the NLRC

promulgated a resolution affirming the order of the labor arbiter.
During the existence of that agreement, petitioner union referred
17 The motion for reconsideration filed by petitioner was denied
to private respondent the claims of its members for holiday, mid-
by the NLRC in a resolution dated May 23, 1995, 18 hence the
year and year-end bonuses against their employer, Traders
petition at bar.
Royal Bank (TRB). After the appropriate complaint was filed by
private respondent, the case was certified by the Secretary of
Labor to the National Labor Relations Commission (NLRC) on
March 24, 1987 and docketed as NLRC-NCR Certified Case No. Petitioner maintains that the NLRC committed grave abuse of
0466.3 discretion amounting to lack of jurisdiction in upholding the
award of attorney's fees in the amount of P17,574.43, or ten
percent (10%) of the P175,794.32 granted as holiday pay
differential to its members, in violation of the retainer agreement;
On September 2, 1988, the NLRC rendered a decision in the
and that the challenged resolution of the NLRC is null and void,
foregoing case in favor of the employees, awarding them holiday
19 for the reasons hereunder stated.
pay differential, mid-year bonus differential, and year-end bonus
differential.4 The NLRC, acting on a motion for the issuance of
a writ of execution filed by private respondent as counsel for
petitioner union, raffled the case to Labor Arbiter Oswald Although petitioner union concedes that the NLRC has
Lorenzo.5 jurisdiction to decide claims for attorney's fees, it contends that
the award for attorney's fees should have been incorporated in
the main case and not after the Supreme Court had already
reviewed and passed upon the decision of the NLRC. Since the
However, pending the hearing of the application for the writ of
claim for attorney's fees by private respondent was neither taken
execution, TRB challenged the decision of the NLRC before the
up nor approved by the Supreme Court, no attorney's fees
Supreme Court. The Court, in its decision promulgated on
should have been allowed by the NLRC.
August 30, 1990,6 modified the decision of the NLRC by deleting
the award of mid-year and year-end bonus differentials while
affirming the award of holiday pay differential.7
Thus, petitioner posits that the NLRC acted without jurisdiction
in making the award of attorney's fees, as said act constituted a
modification of a final and executory judgment of the Supreme
The bank voluntarily complied with such final judgment and
Court which did not award attorney's fees. It then cited decisions
determined the holiday pay differential to be in the amount of
of the Court declaring that a decision which has become final
P175,794.32. Petitioner never contested the amount thus found
and executory can no longer be altered or modified even by the
by TRB.8 The latter duly paid its concerned employees their
court which rendered the same.
respective entitlement in said sum through their payroll.9

On the other hand, private respondent maintains that his motion

After private respondent received the above decision of the
to determine attorney's fees was just an incident of the main
Supreme Court on September 18, 1990, 10 he notified the
case where petitioner was awarded its money claims. The grant
petitioner union, the TRB management and the NLRC of his right
of attorney's fees was the consequence of his exercise of his
to exercise and enforce his attorney's lien over the award of
attorney's lien. Such lien resulted from and corresponds to the
holiday pay differential through a letter dated October 8, 1990.
services he rendered in the action wherein the favorable
11
judgment was obtained. To include the award of the attorney's
fees in the main case presupposes that the fees will be paid by
TRB to the adverse party. All that the non-inclusion of attorney's
Thereafter, on July 2, 1991, private respondent filed a motion fees in the award means is that the Supreme Court did not order
before Labor Arbiter Lorenzo for the determination of his TRB to pay the opposing party attorney's fees in the concept of
attorney's fees, praying that ten percent (10%) of the total award damages. He is not therefore precluded from filing his motion to
for holiday pay differential computed by TRB at P175,794.32, or have his own professional fees adjudicated.
the amount of P17,579.43, be declared as his attorney's fees,
and that petitioner union be ordered to pay and remit said
amount to him. 12
In view of the substance of the arguments submitted by
petitioner and private respondent on this score, it appears
necessary to explain and consequently clarify the nature of the
The TRB management manifested before the labor arbiter that attorney's fees subject of this petition, in order to dissipate the
they did not wish to oppose or comment on private respondent's apparent confusion between and the conflicting views of the
motion as the claim was directed against the union, 13 while parties.
petitioner union filed a comment and opposition to said motion
on July 15, 1991. 14 After considering the position of the parties,
the labor arbiter issued an order 15 on November 26, 1991
There are two commonly accepted concepts of attorney's fees,
granting the motion of private respondent, as follows:
the so-called ordinary and extraordinary. 20 In its ordinary
concept, an attorney's fee is the reasonable compensation paid
to a lawyer by his client for the legal services he has rendered
WHEREFORE, premises considered, it is hereby ordered that to the latter. The basis of this compensation is the fact of his
the TRADERS ROYAL BANK EMPLOYEES UNION with offices employment by and his agreement with the client.
at Kanlaon Towers, Roxas Boulevard is hereby ordered (sic) to
pay without delay the attorney's fees due the movant law firm,
E.N.A. CRUZ and ASSOCIATES the amount of P17,574.43 or
Page 83 of 191
In its extraordinary concept, an attorney's fee is an indemnity for
damages ordered by the court to be paid by the losing party in
a litigation. The basis of this is any of the cases provided by law
where such award can be made, such as those authorized in
Article 2208, Civil Code, and is payable not to the lawyer but to
the client, unless they have agreed that the award shall pertain
to the lawyer as additional compensation or as part thereof.
It is the first type of attorney's fees which private respondent
demanded before the labor arbiter. Also, the present
controversy stems from petitioner's apparent misperception that
the NLRC has jurisdiction over claims for attorney's fees only
before its judgment is reviewed and ruled upon by the Supreme
Court, and that thereafter the former may no longer entertain
claims for attorney's fees.
It will be noted that no claim for attorney's fees was filed by
private respondent before the NLRC when it acted on the money
claims of petitioner, nor before the Supreme Court when it
reviewed the decision of the NLRC. It was only after the High
Tribunal modified the judgment of the NLRC awarding the
differentials that private respondent filed his claim before the
NLRC for a percentage thereof as attorney's fees.
It would obviously have been impossible, if not improper, for the
NLRC in the first instance and for the Supreme Court thereafter
to make an award for attorney's fees when no claim therefor was
pending before them. Courts generally rule only on issues and
claims presented to them for adjudication. Accordingly, when
the labor arbiter ordered the payment of attorney's fees, he did
not in any way modify the judgment of the Supreme Court.
As an adjunctive episode of the action for the recovery of bonus
differentials in NLRC-NCR Certified Case No. 0466, private
respondent's present claim for attorney's fees may be filed
before the NLRC even though or, better stated, especially after
its earlier decision had been reviewed and partially affirmed. It
is well settled that a claim for attorney's fees may be asserted
either in the very action in which the services of a lawyer had
been rendered or in a separate action. 21
With respect to the first situation, the remedy for recovering
attorney's fees as an incident of the main action may be availed
of only when something is due to the client. 22 Attorney's fees
cannot be determined until after the main litigation has been
decided and the subject of the recovery is at the disposition of
the court. The issue over attorney's fees only arises when
something has been recovered from which the fee is to be paid.
23
While a claim for attorney's fees may be filed before the
judgment is rendered, the determination as to the propriety of
the fees or as to the amount thereof will have to be held in
abeyance until the main case from which the lawyer's claim for
attorney's fees may arise has become final. Otherwise, the
determination to be made by the courts will be premature. 24 Of
course, a petition for attorney's fees may be filed before the
judgment in favor of the client is satisfied or the proceeds thereof
delivered to the client. 25
It is apparent from the foregoing discussion that a lawyer has
two options as to when to file his claim for professional fees.
Hence, private respondent was well within his rights when he
made his claim and waited for the finality of the judgment for
holiday pay differential, instead of filing it ahead of the award's
complete resolution. To declare that a lawyer may file a claim for
fees in the same action only before the judgment is reviewed by
a higher tribunal would deprive him of his aforestated options
Page 84 of 191
and render ineffective the foregoing pronouncements of this
84
Court.
Assailing the rulings of the labor arbiter and the NLRC, petitioner
union insists that it is not guilty of unjust enrichment because all
attorney's fees due to private respondent were covered by the
retainer fee of P3,000.00 which it has been regularly paying to
private respondent under their retainer agreement. To be
entitled to the additional attorney's fees as provided in Part D
(Special Billings) of the agreement, it avers that there must be a
separate mutual agreement between the union and the law firm
prior to the performance of the additional services by the latter.
Since there was no agreement as to the payment of the
additional attorney's fees, then it is considered waived.
En contra, private respondent contends that a retainer fee is not
the attorney's fees contemplated for and commensurate to the
services he rendered to petitioner. He asserts that although
there was no express agreement as to the amount of his fees
for services rendered in the case for recovery of differential pay,
Article 111 of the Labor Code supplants this omission by
providing for an award of ten percent (10%) of a money
judgment in a labor case as attorney's fees.
It is elementary that an attorney is entitled to have and receive
a just and reasonable compensation for services performed at
the special instance and request of his client. As long as the
lawyer was in good faith and honestly trying to represent and
serve the interests of the client, he should have a reasonable
compensation for such services. 26 It will thus be appropriate,
at this juncture, to determine if private respondent is entitled to
an additional remuneration under the retainer agreement 27
entered into by him and petitioner.
The parties subscribed therein to the following stipulations:
xxx xxx xxx
The Law Firm shall handle cases and extend legal services
under the parameters of the following terms and conditions:
A. GENERAL SERVICES
1. Assurance that an Associate of the Law Firm shall be
designated and be available on a day-to-day basis depending
on the Union's needs;
2. Legal consultation, advice and render opinion on any
actual and/or anticipatory situation confronting any matter within
the client's normal course of business;
3. Proper documentation and notarization of any or all
transactions entered into by the Union in its day-to-day course
of business;
4. Review all contracts, deeds, agreements or any other
legal document to which the union is a party signatory thereto
but prepared or caused to be prepared by any other third party;
5. Represent the Union in any case wherein the Union is
a party litigant in any court of law or quasi-judicial body subject
to certain fees as qualified hereinafter;
6. Lia(i)se with and/or follow-up any pending application
or any papers with any government agency and/or any private
institution which is directly related to any legal matter referred to
the Law Firm.
B. SPECIAL LEGAL SERVICES
1. Documentation of any contract and other legal
instrument/documents arising and/or required by your Union
which do not fall under the category of its ordinary course of
business activity but requires a special, exhaustive or detailed
study and preparation;
2. Conduct or undertake researches and/or studies on
special projects of the Union;
3. Render active and actual participation or assistance in
conference table negotiations with TRB management or any
other third person(s), juridical or natural, wherein the presence
of counsel is not for mere consultation except CBA negotiations
which shall be subject to a specific agreement (pursuant to PD
1391 and in relation to BP 130 & 227);
4. Preparation of Position Paper(s), Memoranda or any
other pleading for and in behalf of the Union;
5. Prosecution or defense of any case instituted by or
against the Union; and,
6. Represent any member of the Union in any proceeding
provided that the particular member must give his/her assent
and that prior consent be granted by the principal officers.
Further, the member must conform to the rules and policies of
the Law Firm.
C. FEE STRUCTURE
In consideration of our commitment to render the services
enumerated above when required or necessary, your Union
shall pay a monthly retainer fee of THREE THOUSAND PESOS
(PHP 3,000.00), payable in advance on or before the fifth day of
every month.
An Appearance Fee which shall be negotiable on a case-to-case
basis.
Any and all Attorney's Fees collected from the adverse party by
virtue of a successful litigation shall belong exclusively to the
Law Firm.
It is further understood that the foregoing shall be without
prejudice to our claim for reimbursement of all out-of-pocket
expenses covering filing fees, transportation, publication costs,
expenses covering reproduction or authentication of documents
Page 85 of 191
related to any matter referred to the Law Firm or that which
85
redound to the benefit of the Union.
D. SPECIAL BILLINGS
In the event that the Union avails of the services duly
enumerated in Title B, the Union shall pay the Law Firm an
amount mutually agreed upon PRIOR to the performance of
such services. The sum agreed upon shall be based on actual
time and effort spent by the counsel in relation to the importance
and magnitude of the matter referred to by the Union. However,
charges may be WAIVED by the Law Firm if it finds that time
and efforts expended on the particular services are
inconsequential but such right of waiver is duly reserved for the
Law Firm.
xxx xxx xxx
The provisions of the above contract are clear and need no
further interpretation; all that is required to be done in the instant
controversy is its application. The P3,000.00 which petitioner
pays monthly to private respondent does not cover the services
the latter actually rendered before the labor arbiter and the
NLRC in behalf of the former. As stipulated in Part C of the
agreement, the monthly fee is intended merely as a
consideration for the law firm's commitment to render the
services enumerated in Part A (General Services) and Part B
(Special Legal Services) of the retainer agreement.
The difference between a compensation for a commitment to
render legal services and a remuneration for legal services
actually rendered can better be appreciated with a discussion of
the two kinds of retainer fees a client may pay his lawyer. These
are a general retainer, or a retaining fee, and a special
retainer. 28
A general retainer, or retaining fee, is the fee paid to a lawyer to
secure his future services as general counsel for any ordinary
legal problem that may arise in the routinary business of the
client and referred to him for legal action. The future services of
the lawyer are secured and committed to the retaining client. For
this, the client pays the lawyer a fixed retainer fee which could
be monthly or otherwise, depending upon their arrangement.
The fees are paid whether or not there are cases referred to the
lawyer. The reason for the remuneration is that the lawyer is
deprived of the opportunity of rendering services for a fee to the
opposing party or other parties. In fine, it is a compensation for
lost opportunities.
A special retainer is a fee for a specific case handled or special
service rendered by the lawyer for a client. A client may have
several cases demanding special or individual attention. If for
every case there is a separate and independent contract for
attorney's fees, each fee is considered a special retainer.
As to the first kind of fee, the Court has had the occasion to
expound on its concept in Hilado vs. David 29 in this wise:
There is in legal practice what is called a "retaining fee," the
purpose of which stems from the realization that the attorney is
disabled from acting as counsel for the other side after he has
given professional advice to the opposite party, even if he should
decline to perform the contemplated services on behalf of the
latter. It is to prevent undue hardship on the attorney resulting
from the rigid observance of the rule that a separate and
independent fee for consultation and advice was conceived and
authorized. "A retaining fee is a preliminary fee given to an
attorney or counsel to insure and secure his future services, and
induce him to act for the client. It is intended to remunerate
counsel for being deprived, by being retained by one party, of
the opportunity of rendering services to the other and of
receiving pay from him, and the payment of such fee, in the
absence of an express understanding to the contrary, is neither
made nor received in payment of the services contemplated; its
payment has no relation to the obligation of the client to pay his
attorney for the services for which he has retained him to
perform." (Emphasis supplied).
Evidently, the P3,000.00 monthly fee provided in the retainer
agreement between the union and the law firm refers to a
general retainer, or a retaining fee, as said monthly fee covers
only the law firm's pledge, or as expressly stated therein, its
"commitment to render the legal services enumerated." The fee
is not payment for private respondent's execution or
performance of the services listed in the contract, subject to
some particular qualifications or permutations stated there.
Generally speaking, where the employment of an attorney is
under an express valid contract fixing the compensation for the
attorney, such contract is conclusive as to the amount of
compensation. 30 We cannot, however, apply the foregoing rule
in the instant petition and treat the fixed fee of P3,000.00 as full
and sufficient consideration for private respondent's services, as
petitioner would have it.
We have already shown that the P3,000.00 is independent and
different from the compensation which private respondent
should receive in payment for his services. While petitioner and
private respondent were able to fix a fee for the latter's promise
to extend services, they were not able to come into agreement
as to the law firm's actual performance of services in favor of the
union. Hence, the retainer agreement cannot control the
measure of remuneration for private respondent's services.
We, therefore, cannot favorably consider the suggestion of
petitioner that private respondent had already waived his right
to charge additional fees because of their failure to come to an
agreement as to its payment.
Firstly, there is no showing that private respondent
unequivocally opted to waive the additional charges in
consonance with Part D of the agreement. Secondly, the prompt
actions taken by private respondent, i.e., serving notice of
charging lien and filing of motion to determine attorney's fees,
belie any intention on his part to renounce his right to
compensation for prosecuting the labor case instituted by the
union. And, lastly, to adopt such theory of petitioner may
frustrate private respondent's right to attorney's fees, as the
former may simply and unreasonably refuse to enter into any
special agreement with the latter and conveniently claim later
that the law firm had relinquished its right because of the
absence of the same.
The fact that petitioner and private respondent failed to reach a
meeting of the minds with regard to the payment of professional
fees for special services will not absolve the former of civil
liability for the corresponding remuneration therefor in favor of
the latter.
Obligations do not emanate only from contracts. 31 One of the
sources of extra-contractual obligations found in our Civil Code
is the quasi-contract premised on the Roman maxim that nemo
Page 86 of 191
cum alterius detrimento locupletari protest. As embodied in our
86
law, 32 certain lawful, voluntary and unilateral acts give rise to
the juridical relation of quasi-contract to the end that no one shall
be unjustly enriched or benefited at the expense of another.
A quasi-contract between the parties in the case at bar arose
from private respondent's lawful, voluntary and unilateral
prosecution of petitioner's cause without awaiting the latter's
consent and approval. Petitioner cannot deny that it did benefit
from private respondent's efforts as the law firm was able to
obtain an award of holiday pay differential in favor of the union.
It cannot even hide behind the cloak of the monthly retainer of
P3,000.00 paid to private respondent because, as demonstrated
earlier, private respondent's actual rendition of legal services is
not compensable merely by said amount.
Private respondent is entitled to an additional remuneration for
pursuing legal action in the interest of petitioner before the labor
arbiter and the NLRC, on top of the P3,000.00 retainer fee he
received monthly from petitioner. The law firm's services are
decidedly worth more than such basic fee in the retainer
agreement. Thus, in Part C thereof on "Fee Structure," it is even
provided that all attorney's fees collected from the adverse party
by virtue of a successful litigation shall belong exclusively to
private respondent, aside from petitioner's liability for
appearance fees and reimbursement of the items of costs and
expenses enumerated therein.
A quasi-contract is based on the presumed will or intent of the
obligor dictated by equity and by the principles of absolute
justice. Some of these principles are: (1) It is presumed that a
person agrees to that which will benefit him; (2) Nobody wants
to enrich himself unjustly at the expense of another; and (3) We
must do unto others what we want them to do unto us under the
same circumstances. 33
As early as 1903, we allowed the payment of reasonable
professional fees to an interpreter, notwithstanding the lack of
understanding with his client as to his remuneration, on the basis
of quasi-contract. 34 Hence, it is not necessary that the parties
agree on a definite fee for the special services rendered by
private respondent in order that petitioner may be obligated to
pay compensation to the former. Equity and fair play dictate that
petitioner should pay the same after it accepted, availed itself of,
and benefited from private respondent's services.
We are not unaware of the old ruling that a person who had no
knowledge of, nor consented to, or protested against the
lawyer's representation may not be held liable for attorney's fees
even though he benefited from the lawyer's services. 35 But this
doctrine may not be applied in the present case as petitioner did
not object to private respondent's appearance before the NLRC
in the case for differentials.
Viewed from another aspect, since it is claimed that petitioner
obtained respondent's legal services and assistance regarding
its claims against the bank, only they did not enter into a special
contract regarding the compensation therefor, there is at least
the innominate contract of facio ut des (I do that you may give).
36 This rule of law, likewise founded on the principle against
unjust enrichment, would also warrant payment for the services
of private respondent which proved beneficial to petitioner's
members. In any case, whether there is an agreement or not,
the courts can fix a reasonable compensation which lawyers
should receive for their professional services. 37 However, the
value of private respondent's legal services should not be
established on the basis of Article 111 of the Labor Code alone.
Said article provides:
Art. 111. Attorney's fees. — (a) In cases of unlawful withholding
of wages the culpable party may be assessed attorney's fees
equivalent to ten percent of the amount of the wages recovered.
xxx xxx xxx
The implementing provision 38 of the foregoing article further
states:
Sec. 11. Attorney's fees. — Attorney's fees in any judicial or
administrative proceedings for the recovery of wages shall not
exceed 10% of the amount awarded. The fees may be deducted
from the total amount due the winning party.
In the first place, the fees mentioned here are the extraordinary
attorney's fees recoverable as indemnity for damages sustained
by and payable to the prevailing part. In the second place, the
ten percent (10%) attorney's fees provided for in Article 111 of
the Labor Code and Section 11, Rule VIII, Book III of the
Implementing Rules is the maximum of the award that may thus
be granted. 39 Article 111 thus fixes only the limit on the amount
of attorney's fees the victorious party may recover in any judicial
or administrative proceedings and it does not even prevent the
NLRC from fixing an amount lower than the ten percent (10%)
ceiling prescribed by the article when circumstances warrant it.
40
The measure of compensation for private respondent's services
as against his client should properly be addressed by the rule of
quantum meruit long adopted in this jurisdiction. Quantum
meruit, meaning "as much as he deserves," is used as the basis
for determining the lawyer's professional fees in the absence of
a contract, 41 but recoverable by him from his client.
Where a lawyer is employed without a price for his services
being agreed upon, the courts shall fix the amount on quantum
meruit basis. In such a case, he would be entitled to receive
what he merits for his services. 42
It is essential for the proper operation of the principle that there
is an acceptance of the benefits by one sought to be charged for
the services rendered under circumstances as reasonably to
notify him that the lawyer performing the task was expecting to
be paid compensation therefor. The doctrine of quantum meruit
is a device to prevent undue enrichment based on the equitable
postulate that it is unjust for a person to retain benefit without
paying for it. 43
Over the years and through numerous decisions, this Court has
laid down guidelines in ascertaining the real worth of a lawyer's
services. These factors are now codified in Rule 20.01, Canon
20 of the Code of Professional Responsibility and should be
considered in fixing a reasonable compensation for services
rendered by a lawyer on the basis of quantum meruit. These are:
(a) the time spent and the extent of services rendered or
required; (b) the novelty and difficulty of the questions involved;
(c) the importance of the subject matter; (d) the skill demanded;
(e) the probability of losing other employment as a result of
acceptance of the proffered case; (f) the customary charges for
similar services and the schedule of fees of the IBP chapter to
which the lawyer belongs; (g) the amount involved in the
controversy and the benefits resulting to the client from the
services; (h) the contingency or certainty of compensation; (i)
the character of the employment, whether occasional or
established; and (j) the professional standing of the lawyer.
Page 87 of 191
Here, then, is the flaw we find in the award for attorney's fees in
87
favor of private respondent. Instead of adopting the above
guidelines, the labor arbiter forthwith but erroneously set the
amount of attorney's fees on the basis of Article 111 of the Labor
Code. He completely relied on the operation of Article 111 when
he fixed the amount of attorney's fees at P17,574.43. 44
Observe the conclusion stated in his order. 45
xxx xxx xxx
FIRST. Art. 111 of the Labor Code, as amended, clearly
declares movant's right to a ten (10%) per cent of the award due
its client. In addition, this right to ten (10%) per cent attorney's
fees is supplemented by Sec. 111, Rule VIII, Book III of the
Omnibus Rules Implementing the Labor Code, as amended.
xxx xxx xxx
As already stated, Article 111 of the Labor Code regulates the
amount recoverable as attorney's fees in the nature of damages
sustained by and awarded to the prevailing party. It may not be
used therefore, as the lone standard in fixing the exact amount
payable to the lawyer by his client for the legal services he
rendered. Also, while it limits the maximum allowable amount of
attorney's fees, it does not direct the instantaneous and
automatic award of attorney's fees in such maximum limit.
It, therefore, behooves the adjudicator in questions and
circumstances similar to those in the case at bar, involving a
conflict between lawyer and client, to observe the above
guidelines in cases calling for the operation of the principles of
quasi-contract and quantum meruit, and to conduct a hearing for
the proper determination of attorney's fees. The criteria found in
the Code of Professional Responsibility are to be considered,
and not disregarded, in assessing the proper amount. Here, the
records do not reveal that the parties were duly heard by the
labor arbiter on the matter and for the resolution of private
respondent's fees.
It is axiomatic that the reasonableness of attorney's fees is a
question of fact. 46 Ordinarily, therefore, we would have
remanded this case for further reception of evidence as to the
extent and value of the services rendered by private respondent
to petitioner. However, so as not to needlessly prolong the
resolution of a comparatively simple controversy, we deem it just
and equitable to fix in the present recourse a reasonable amount
of attorney's fees in favor of private respondent. For that
purpose, we have duly taken into account the accepted
guidelines therefor and so much of the pertinent data as are
extant in the records of this case which are assistive in that
regard. On such premises and in the exercise of our sound
discretion, we hold that the amount of P10,000.00 is a
reasonable and fair compensation for the legal services
rendered by private respondent to petitioner before the labor
arbiter and the NLRC.
WHEREFORE, the impugned resolution of respondent National
Labor Relations Commission affirming the order of the labor
arbiter is MODIFIED, and petitioner is hereby ORDERED to pay
the amount of TEN THOUSAND PESOS (P10,000.00) as
attorney's fees to private respondent for the latter's legal
services rendered to the former.
SO ORDERED.
G.R. No. 75289 August 31, 1989
KAMAYA POINT HOTEL, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, FEDERATION OF FREE
WORKERS and MEMIA QUIAMBAO, respondents.
FERNAN, C.J.:
This petition for review on certiorari filed by herein petitioner
Kamaya Point Hotel seeks to set aside the decision 1 of the
National Labor Relations Commission dated June 25, 1986 in
NLRC Case No. RAB III-4-1191-83 which affirmed with
modification the decision of the Labor Arbiter dated May 31,
1984.
Respondent Memia Quiambao with thirty others who are
members of private respondent Federation of Free Workers
(FFW) were employed by petitioner as hotel crew. On the basis
of the profitability of the company's business operations,
management granted a 14th month pay to its employees starting
in 1979. In January 1982, operations ceased to give way to the
hotel's conversion into a training center for Libyan scholars.
However, due to technical and financing problems, the Libyans
pre-terminated the program on July 7, 1982, leaving petitioner
without any business, aside from the fact that it was not paid for
the use of the hotel premises and in addition had to undertake
repairs of the premises damaged by the Libyan students. All in
all petitioner allegedly suffered losses amounting to P2 million.
Although petitioner reopened the hotel premises to the public, it
was not able to pick-up its lost patronage. In a couple of months
it effected a retrenchment program until finally on January 7,
1984, it totally closed its business. 2
On April 18, 1983, private respondent Federation of Free
Workers (FFW); a legitimate labor organization, filed with the
Ministry of Labor and Employment, Bataan Provincial Office,
Bataan Export Processing Zone, Mariveles, Bataan, a complaint
against petitioner for illegal suspension, violation of the CBA and
non-payment of the 14th month pay. 3 Records however show
that the case was submitted for decision on the sole issue of
alleged non-payment of the 14th month pay for the year 1982 .4
After the hearing, Executive Labor Arbiter Francisco M. Jose, Jr.
rendered a decision dated May 31, 1984, the dispositive portion
of which reads:
WHEREFORE, IN VIEW OF ALL THE FOREGOING, judgment
is hereby rendered:
1. Ordering the respondent Kamaya Point Hotel to pay
the 14th month pay for 1982 of all its rank and file employees;
2. Ordering the same respondent to pay the monetary
equivalent of the benefits mentioned in Section 6 of Article XII
and Sections I and 2 of Article XII of the then existing Collective
Bargaining Agreement which will expire on 1 July 1984. 5
On appeal, the National Labor Relations Commission (NLRC) in
its decision dated June 25, 1986 set aside the award of
monetary benefits under the CBA but affirmed the grant of the
14th month pay adopting the Labor Arbiter's reasoning, thus:
xxx xxx xxx
Page 88 of 191
88
We agree with respondent that there is no law granting a 14th
month pay. We likewise agree with respondent that there is no
provision in the Collective Bargaining Agreement granting a 14th
month pay. Despite all these, however, we believe that
individual complainants herein are still entitled to the 14th month
pay for 1982 because to our mind, the granting of this 14th
month pay has already ripened into a company practice which
respondent company cannot withdraw unilaterally. This 14th
month pay is now an existing benefit which cannot be withdrawn
without violating article 100 of the Labor Code. To allow its
withdrawal now would certainly amount to a diminution of
existing benefits which complainants are presently enjoying.
Premised on the above, the individual complainants are entitled
to the 14th month pay for 1982 and respondent should pay the
same. (Emphasis supplied) 6
Before this Court, petitioner now seeks to reverse the decision
of the NLRC arguing that the latter tribunal committed grave
abuse of discretion when it adopted the Labor Arbiter's decision
saying that the 14th month pay cannot be withdrawn without
violating Article 100 of the Labor Code which states:
Prohibition against elimination or diminution of benefits.-
Nothing in this Book shall be construed to eliminate or in any
way diminish supplements, or other employee benefits being
enjoyed at the time of promulgation of this Code.
We find it difficult to comprehend why the NLRC and the Labor
Arbiter, despite their admission that the 14th month pay has no
contractual or legal basis, still chose to rule in favor of private
respondents. It is patently obvious that Article 100 is clearly
without applicability. The date of effectivity of the Labor Code is
May 1, 1974. In the case at bar, petitioner extended its 14th
month pay beginning 1979 until 1981. What is demanded is
payment of the 14th month pay for 1982. Indubitably from these
facts alone, Article 100 of the Labor Code cannot apply.
Moreover, there is no law that mandates the payment of the 14th
month pay. This is emphasized in the grant of exemption under
Presidential Decree 851 (13th Month Pay Law) which states:
"Employers already paying their employees a 13th month pay or
its equivalent are not covered by this Decree." Necessarily then,
only the 13th month pay is mandated. Having enjoyed the
additional income in the form of the 13th month pay, private
respondents' insistence on the 14th month pay for 1982 is
already an unwarranted expansion of the liberality of the law.
Also contractually, as gleaned from the collective bargaining
agreement between management and the union, there is no
stipulation as to such extra remuneration. Evidently, this
omission is an acknowledgment that such benefit is entirely
contilagent or dependent on the profitability of the company's
operations.
Verily, a 14th month pay is a misnomer because it is basically a
bonus and, therefore, gratuitous in nature. The granting of the
14th month pay is a management prerogative which cannot be
forced upon the employer. It is something given in addition to
what is ordinarily received by or strictly due the recipient. It is a
gratuity to which the recipient has no right to make a demand. 7
This Court is not prepared to compel petitioner to grant the 14th
month pay solely because it has allegedly ripened into a
company practice" as the labor arbiter has put it. Having lost its
catering business derived from Libyan students, Kamaya Hotel
should not be penalized for its previous liberality.

An employer may not be obliged to assume a "double burden"
of paying the 13th month pay in addition to bonuses or other
benefits aside from the employee's basic salaries or wages. 8
Restated differently, we rule that an employer may not be
obliged to assume the onerous burden of granting bonuses or
other benefits aside from the employee's basic salaries or
wages 8 in addition to the required 13th month pay.
WHEREFORE, the petition is hereby GRANTED. The portion of
the decision of the National Labor Relations Commission dated
June 25, 1986 ordering the payment of 14th month pay to private
respondents is set aside.
SO ORDERED.
G.R. No. 146408 February 29, 2008
PHILIPPINE AIRLINES, INC., petitioner, vs. ENRIQUE
LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO
OLIVEROS, RICHARD GONCER, NONILON PILAPIL,
AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL
GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN,
RAMEL BERNARDES, LORENZO BUTANAS, BENSON
CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL,
ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON
TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES,
BENEDICTO AUXTERO, EDUARDO MAGDADARAUG,
NELSON M. DULCE, and ALLAN BENTUZAL, respondents.
DECISION
CARPIO MORALES, J.:
Petitioner Philippine Airlines as Owner, and Synergy Services
Corporation (Synergy) as Contractor, entered into an
Agreement1 on July 15, 1991 whereby Synergy undertook to
"provide loading, unloading, delivery of baggage and cargo and
other related services to and from [petitioner]'s aircraft at the
Mactan Station."2
The Agreement specified the following "Scope of Services" of
Contractor Synergy:
1.2 CONTRACTOR shall furnish all the necessary capital,
workers, loading, unloading and delivery materials, facilities,
supplies, equipment and tools for the satisfactory performance
and execution of the following services (the Work):
a. Loading and unloading of baggage and cargo to and from the
aircraft;
b. Delivering of baggage from the ramp to the baggage claim
area;
c. Picking up of baggage from the baggage sorting area to the
designated parked aircraft;
d. Delivering of cargo unloaded from the flight to cargo terminal;
e. Other related jobs (but not janitorial functions) as may be
required and necessary;
Page 89 of 191
89
CONTRACTOR shall perform and execute the aforementioned
Work at the following areas located at Mactan Station, to wit:
a. Ramp Area
b. Baggage Claim Area
c. Cargo Terminal Area, and
d. Baggage Sorting Area3 (Underscoring supplied)
And it expressly provided that Synergy was "an independent
contractor and . . . that there w[ould] be no employer-employee
relationship between CONTRACTOR and/or its employees on
the one hand, and OWNER, on the other."4
On the duration of the Agreement, Section 10 thereof provided:
10. 1 Should at any time OWNER find the services herein
undertaken by CONTRACTOR to be unsatisfactory, it shall
notify CONTRACTOR who shall have fifteen (15) days from
such notice within which to improve the services. If
CONTRACTOR fails to improve the services under this
Agreement according to OWNER'S specifications and
standards, OWNER shall have the right to terminate this
Agreement immediately and without advance notice.
10.2 Should CONTRACTOR fail to improve the services within
the period stated above or should CONTRACTOR breach the
terms of this Agreement and fail or refuse to perform the Work
in such a manner as will be consistent with the achievement of
the result therein contracted for or in any other way fail to comply
strictly with any terms of this Agreement, OWNER at its option,
shall have the right to terminate this Agreement and to make
other arrangements for having said Work performed and
pursuant thereto shall retain so much of the money held on the
Agreement as is necessary to cover the OWNER's costs and
damages, without prejudice to the right of OWNER to seek
resort to the bond furnished by CONTRACTOR should the
money in OWNER's possession be insufficient.
x x x x (Underscoring supplied)
Except for respondent Benedicto Auxtero (Auxtero), the rest of
the respondents, who appear to have been assigned by Synergy
to petitioner following the execution of the July 15, 1991
Agreement, filed on March 3, 1992 complaints before the NLRC
Regional Office VII at Cebu City against petitioner, Synergy and
their respective officials for underpayment, non-payment of
premium pay for holidays, premium pay for rest days, service
incentive leave pay, 13th month pay and allowances, and for
regularization of employment status with petitioner, they
claiming to be "performing duties for the benefit of [petitioner]
since their job is directly connected with [its] business x x x."5
Respondent Auxtero had initially filed a complaint against
petitioner and Synergy and their respective officials for
regularization of his employment status. Later alleging that he
was, without valid ground, verbally dismissed, he filed a
complaint against petitioner and Synergy and their respective
officials for illegal dismissal and reinstatement with full
backwages.6
The complaints of respondents were consolidated.
By Decision7 of August 29, 1994, Labor Arbiter Dominador
Almirante found Synergy an independent contractor and
dismissed respondents' complaint for regularization against
petitioner, but granted their money claims. The fallo of the
decision reads:
WHEREFORE, foregoing premises considered, judgment is
hereby rendered as follows:
(1) Ordering respondents PAL and Synergy jointly and severally
to pay all the complainants herein their 13th month pay and
service incentive leave benefits;
xxxx
(3) Ordering respondent Synergy to pay complainant Benedicto
Auxtero a financial assistance in the amount of P5,000.00.
The awards hereinabove enumerated in the aggregate total
amount of THREE HUNDRED TWENTY-TWO THOUSAND
THREE HUNDRED FIFTY NINE PESOS AND EIGHTY SEVEN
CENTAVOS (P322,359.87) are computed in detail by our Fiscal
Examiner which computation is hereto attached to form part of
this decision.
The rest of the claims are hereby ordered dismissed for lack of
merit.8 (Underscoring supplied)
On appeal by respondents, the NLRC, Fourth Division, Cebu
City, vacated and set aside the decision of the Labor Arbiter by
Decision9 of January 5, 1996, the fallo of which reads:
WHEREFORE, the Decision of the Labor Arbiter Dominador A.
Almirante, dated August 29, 1994, is hereby VACATED and
SET ASIDE and judgment is hereby rendered:
1. Declaring respondent Synergy Services Corporation to be a
'labor-only' contractor;
2. Ordering respondent Philippine Airlines to accept, as its
regular employees, all the complainants, . . . and to give each of
them the salaries, allowances and other employment benefits
and privileges of a regular employee under the Collective
Bargaining Agreement subsisting during the period of their
employment;
xxxx
4. Declaring the dismissal of complainant Benedicto Auxtero to
be illegal and ordering his reinstatement as helper or utility man
with respondent Philippine Airlines, with full backwages,
Page 90 of 191
allowances and other benefits and privileges from the time of his
90
dismissal up to his actual reinstatement; and
5. Dismissing the appeal of respondent Synergy Services
Corporation, for lack of merit.10 (Emphasis and underscoring
supplied)
Only petitioner assailed the NLRC decision via petition for
certiorari before this Court.
By Resolution11 of January 25, 1999, this Court referred the
case to the Court of Appeals for appropriate action and
disposition, conformably with St. Martin Funeral Homes v.
National Labor Relations Commission which was promulgated
on September 16, 1998.
The appellate court, by Decision of September 29, 2000,
affirmed the Decision of the NLRC.12 Petitioner's motion for
reconsideration having been denied by Resolution of December
21, 2000,13 the present petition was filed, faulting the appellate
court
I.
. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS
COMMISSION DECISION WHICH IMPOSED THE
RELATIONSHIP OF EMPLOYER-EMPLOYEE BETWEEN
PETITIONER AND THE RESPONDENTS HEREIN.
II.
. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR
RELATIONS COMMISSION ORDERING THE
REINSTATEMENT OF RESPONDENT AUXTERO DESPITE
THE ABSENCE [OF] ANY FACTUAL FINDING IN THE
DECISION THAT PETITIONER ILLEGALLY TERMINATED HIS
EMPLOYMENT.
III.
. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND
GRAVE ERROR IN UPHOLDING THE DECISION OF THE
NATIONAL LABOR RELATIONS COMMISSION WHICH
COMPELLED THE PETITIONER TO EMPLOY THE
RESPONDENTS AS REGULAR EMPLOYEES DESPITE THE
FACT THAT THEIR SERVICES ARE IN EXCESS OF
PETITIONER COMPANY'S OPERATIONAL
REQUIREMENTS.14 (Underscoring supplied)
Petitioner argues that the law does not prohibit an employer from
engaging an independent contractor, like Synergy, which has
substantial capital in carrying on an independent business of
contracting, to perform specific jobs.
Petitioner further argues that its contracting out to Synergy
various services like janitorial, aircraft cleaning, baggage-
handling, etc., which are directly related to its business, does not
make respondents its employees.
Petitioner furthermore argues that none of the four (4) elements Section 3. Trilateral relationship in contracting arrangements. In

of an employer-employee relationship between petitioner and
respondents, viz: selection and engagement of an employee,
payment of wages, power of dismissal, and the power to control
employee's conduct, is present in the case.15
Finally, petitioner avers that reinstatement of respondents had
been rendered impossible because it had reduced its personnel
due to heavy losses as it had in fact terminated its service
agreement with Synergy effective June 30, 199816 as a cost-
saving measure.
91
legitimate contracting, there exists a trilateral relationship under
which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and
a contract of employment between the contractor or
subcontractor and its workers. Hence, there are three parties
involved in these arrangements, the principal which decides to
farm out a job or service to a contractor or subcontractor, the
contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work or
service, and the contractual workers engaged by the contractor
or subcontractor to accomplish the job, work or service.
(Emphasis and underscoring supplied)

The decision of the case hinges on a determination of whether

Section 5. Prohibition against labor-only contracting. Labor-only
Synergy is a mere job-only contractor or a legitimate contractor.
contracting is hereby declared prohibited. For this purpose,
If Synergy is found to be a mere job-only contractor,
labor-only contracting shall refer to an arrangement where the
respondents could be considered as regular employees of
contractor or subcontractor merely recruits, supplies or places
petitioner as Synergy would then be a mere agent of petitioner
workers to perform a job, work or service for a principal, and any
in which case respondents would be entitled to all the benefits
of the following elements are [sic] present:
granted to petitioner's regular employees; otherwise, if Synergy
is found to be a legitimate contractor, respondents' claims
against petitioner must fail as they would then be considered
employees of Synergy. (i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
The statutory basis of legitimate contracting or subcontracting is
which are directly related to the main business of the principal;
provided in Article 106 of the Labor Code which reads:
OR

ART. 106. CONTRACTOR OR SUBCONTRACTOR. -

(ii) The contractor does not exercise the right to control over the
Whenever an employer enters into a contract with another
performance of the work of the contractual employee.
person for the performance of the former's work, the employees
(Emphasis, underscoring and capitalization supplied)
of the contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.

"Substantial capital or investment" and the "right to control" are

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 may, by appropriate regulations, restrict
or prohibit the contracting out of labor to protect the rights of
workers established under the 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.
defined in the same Section 5 of the Department Order as
follows:
"Substantial capital or investment" refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises,
actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work or service
contracted out.
The "right to control" shall refer to the right reserved to the
person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end.
(Emphasis and underscoring supplied)

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 workers recruited and placed
by such person are performing activities which are directly
related to the principal business of such employer. In 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. (Emphasis, capitalization and
underscoring supplied)
Legitimate contracting and labor-only contracting are defined in
Department Order (D.O.) No. 18-02, Series of 2002 (Rules
Implementing Articles 106 to 109 of the Labor Code, as
amended) as follows:
From the records of the case, it is gathered that the work
performed by almost all of the respondents - loading and
unloading of baggage and cargo of passengers - is directly
related to the main business of petitioner. And the equipment
used by respondents as station loaders, such as trailers and
conveyors, are owned by petitioner.17
Petitioner asserts, however, that mere compliance with
substantial capital requirement suffices for Synergy to be
considered a legitimate contractor, citing Neri v. National Labor
Relations Commission.18 Petitioner's reliance on said case is
misplaced.
In Neri, the Labor Arbiter and the NLRC both determined that
Building Care Corporation had a capital stock of P1 million fully
subscribed and paid for.19 The corporation's status as

Page 91 of 191
independent contractor had in fact been previously confirmed in
an earlier case20 by this Court which found it to be serving,
among others, a university, an international bank, a big local
bank, a hospital center, government agencies, etc."
In stark contrast to the case at bar, while petitioner steadfastly
asserted before the Labor Arbiter and the NLRC that Synergy
has a substantial capital to engage in legitimate contracting, it
failed to present evidence thereon. As the NLRC held:
The decision of the Labor Arbiter merely mentioned on page 5
of his decision that respondent SYNERGY has substantial
capital, but there is no showing in the records as to how much is
that capital. Neither had respondents shown that SYNERGY has
such substantial capital. x x x21 (Underscoring supplied)
It was only after the appellate court rendered its challenged
Decision of September 29, 2002 when petitioner, in its Motion
for Reconsideration of the decision, sought to prove, for the first
time, Synergy's substantial capitalization by attaching
photocopies of Synergy's financial statements, e.g., balance
sheets, statements of income and retained earnings, marked as
"Annexes 'A' - 'A-4.'"22
More significantly, however, is that respondents worked
alongside petitioner's regular employees who were performing
identical work.23 As San Miguel Corporation v. Aballa24 and
Dole Philippines, Inc. v. Esteva, et al.25 teach, such is an
indicium of labor-only contracting.
For labor-only contracting to exist, Section 5 of D.O. No. 18-02
which requires any of two elements to be present is, for
convenience, re-quoted:
(i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal,
OR
(ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
(Emphasis and CAPITALIZATION supplied)
Even if only one of the two elements is present then, there is
labor-only contracting.
The control test element under the immediately-quoted
paragraph (ii), which was not present in the old Implementing
Rules (Department Order No. 10, Series of 1997),26 echoes the
prevailing jurisprudential trend27 elevating such element as a
primary determinant of employer-employee relationship in job
contracting agreements.
One who claims to be an independent contractor has to prove
that he contracted to do the work according to his own methods
and without being subject to the employer's control except only
as to the results.28
While petitioner claimed that it was Synergy's supervisors who
actually supervised respondents, it failed to present evidence
Page 92 of 191
thereon. It did not even identify who were the Synergy
92
supervisors assigned at the workplace.
Even the parties' Agreement does not lend support to
petitioner's claim, thus:
Section 6. Qualified and Experienced Worker: Owner's Right to
Dismiss Workers.
CONTRACTOR shall employ capable and experienced workers
and foremen to carry out the loading, unloading and delivery
Work as well as provide all equipment, loading, unloading and
delivery equipment, materials, supplies and tools necessary for
the performance of the Work. CONTRACTOR shall upon
OWNER'S request furnish the latter with information regarding
the qualifications of the former's workers, to prove their
capability and experience. Contractor shall require all its
workers, employees, suppliers and visitors to comply with
OWNER'S rules, regulations, procedures and directives relative
to the safety and security of OWNER'S premises, properties and
operations. For this purpose, CONTRACTOR shall furnish its
employees and workers identification cards to be countersigned
by OWNER and uniforms to be approved by OWNER. OWNER
may require CONTRACTOR to dismiss immediately and prohibit
entry into OWNER'S premises of any person employed therein
by CONTRACTOR who in OWNER'S opinion is incompetent or
misconducts himself or does not comply with OWNER'S
reasonable instructions and requests regarding security, safety
and other matters and such person shall not again be employed
to perform the services hereunder without OWNER'S
permission.29 (Underscoring partly in the original and partly
supplied; emphasis supplied)
Petitioner in fact admitted that it fixes the work schedule of
respondents as their work was dependent on the frequency of
plane arrivals.30 And as the NLRC found, petitioner's managers
and supervisors approved respondents' weekly work
assignments and respondents and other regular PAL
employees were all referred to as "station attendants" of the
cargo operation and airfreight services of petitioner.31
Respondents having performed tasks which are usually
necessary and desirable in the air transportation business of
petitioner, they should be deemed its regular employees and
Synergy as a labor-only contractor.32
The express provision in the Agreement that Synergy was an
independent contractor and there would be "no employer-
employee relationship between [Synergy] and/or its employees
on one hand, and [petitioner] on the other hand" is not legally
binding and conclusive as contractual provisions are not valid
determinants of the existence of such relationship. For it is the
totality of the facts and surrounding circumstances of the case33
which is determinative of the parties' relationship.
Respecting the dismissal on November 15, 199234 of Auxtero,
a regular employee of petitioner who had been working as utility
man/helper since November 1988, it is not legally justified for
want of just or authorized cause therefor and for non-compliance
with procedural due process. Petitioner's claim that he
abandoned his work does not persuade.35 The elements of
abandonment being (1) the failure to report for work or absence
without valid or justifiable reason, and (2) a clear intention to
sever the employer-employee relationship manifested by some
overt acts,36 the onus probandi lies with petitioner which,
however, failed to discharge the same.
Auxtero, having been declared to be a regular employee of
petitioner, and found to be illegally dismissed from employment,
should be entitled to salary differential37 from the time he
rendered one year of service until his dismissal, reinstatement
plus backwages until the finality of this decision.38 In view,
however, of the long period of time39 that had elapsed since his
dismissal on November 15, 1992, it would be appropriate to
award separation pay of one (1) month salary for each year of
service, in lieu of reinstatement.40
As regards the remaining respondents, the Court affirms the
ruling of both the NLRC and the appellate court, ordering
petitioner to accept them as its regular employees and to give
each of them the salaries, allowances and other employment
benefits and privileges of a regular employee under the pertinent
Collective Bargaining Agreement.
Petitioner claims, however, that it has become impossible for it
to comply with the orders of the NLRC and the Court of Appeals,
for during the pendency of this case, it was forced to reduce its
personnel due to heavy losses caused by economic crisis and
the pilots' strike of June 5, 1998.41 Hence, there are no
available positions where respondents could be placed.
And petitioner informs that "the employment contracts of all if not
most of the respondents . . . were terminated by Synergy
effective 30 June 1998 when petitioner terminated its contract
with Synergy."42
Other than its bare allegations, petitioner presented nothing to
substantiate its impossibility of compliance. In fact, petitioner
waived this defense by failing to raise it in its Memorandum filed
on June 14, 1999 before the Court of Appeals.43 Further, the
notice of termination in 1998 was in disregard of a subsisting
temporary restraining order44 to preserve the status quo, issued
by this Court in 1996 before it referred the case to the Court of
Appeals in January 1999. So as to thwart the attempt to subvert
the implementation of the assailed decision, respondents are
deemed to be continuously employed by petitioner, for purposes
of computing the wages and benefits due respondents.
Finally, it must be stressed that respondents, having been
declared to be regular employees of petitioner, Synergy being a
mere agent of the latter, had acquired security of tenure. As
such, they could only be dismissed by petitioner, the real
employer, on the basis of just or authorized cause, and with
observance of procedural due process.
WHEREFORE, the Court of Appeals Decision of September 29,
2000 is AFFIRMED with MODIFICATION.
Petitioner PHILIPPINE AIRLINES, INC. is ordered to:
(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO,
ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER,
NONILON PILAPIL, AQUILINO YBANEZ, BERNABE
SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR.,
ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO
BUTANAS, BENSON CARESUSA, JEFFREY LLENOS,
ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R.
LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO,
CHERRIE ALEGRES, EDUARDO MAGDADARAUG, NELSON
M. DULCE and ALLAN BENTUZAL as its regular employees in
their same or substantially equivalent positions, and pay the
wages and benefits due them as regular employees plus salary
differential corresponding to the difference between the wages
Page 93 of 191
and benefits given them and those granted to petitioner's other
93
regular employees of the same rank; and
(b) pay respondent BENEDICTO AUXTERO salary differential;
backwages from the time of his dismissal until the finality of this
decision; and separation pay, in lieu of reinstatement, equivalent
to one (1) month pay for every year of service until the finality of
this decision.
There being no data from which this Court may determine the
monetary liabilities of petitioner, the case is REMANDED to the
Labor Arbiter solely for that purpose.
SO ORDERED.
G.R. No. 149011 June 28, 2005
SAN MIGUEL CORPORATION, petitioner vs. PROSPERO A.
ABALLA, BONNY J. ABARING, EDWIN M. ADLA-ON, ALVIN
C. ALCALDE, CELANIO D. ARROLLADO, EDDIE A.
ARROLLADO, REYNALDO T. ASONG, RENE A. ASPERA,
JOEL D. BALATERIA, JOSEPH D. BALATERIA, JOSE
JOLLEN BALLADOS, WILFREDO B. BASAS, EDWIN E.
BEATINGO, SONNY V. BERONDO, CHRISTOPHER D.
BRIONES, MARLON D. BRIONES, JOEL C. BOOC, ENRIQUE
CABALIDA, DIOSCORO R. CAHINOD, ERNESTO P.
CAHINOD, RENANTE S. CAHINOD, RUDERICK R.
CALIXTON, RONILO C. CALVEZ, PANCHO CAÑETE, JUNNY
CASTEL, JUDY S. CELESTE, ROMEO CHUA, DANILO
COBRA, ARMANDO C. DEDOYCO, JOEY R. DELA CRUZ,
JOHN D. DELFIN, RENELITO P. DEON, ARNEL C. DE
PEDRO, ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE
A. DESPI, SR., VICTOR A. DESPI, ROLANDO L. DINGLE,
ANTONIO D. DOLORFINO, LARRY DUMA-OP, NOEL
DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA,
ROMMEL ESTREBOR, RIC E. GALPO, MANSUETO GILLE,
MAXIMO L. HILA-US, GERARDO J. JIMENEZ, ROBERTLY Y.
HOFILEÑA, ROBERTO HOFILEÑA, VICENTE INDENCIO,
JONATHAN T. INVENTOR, PETER PAUL T. INVENTOR,
JOEBERT G. LAGARTO, RENATO LAMINA, ALVIN LAS
POBRES, ALBERT LAS POBRES, LEONARD
LEMONCHITO, JERRY LIM, JOSE COLLY S. LUCERO,
ROBERTO E. MARTIL, HERNANDO MATILLANO, VICENTE
M. MATILLANO, TANNY C. MENDOZA, WILLIAM P.
NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO,
ROBERTO G. OTERO, BIENVENIDO C. PAROCHILIN,
REYNALDO C. PAROCHILIN, RICKY PALANOG, BERNIE O.
PILLO, ALBERTO O. PILLO, JOE-MARIE S. PUGNA, EDWIN
G. RIBON, RAUL A. RUBIO, HENRY S. SAMILLANO, EDGAR
SANTIAGO, ROLAND B. SANTILLANA, ROLDAN V. SAYAM,
JOSEPH S. SAYSON, RENE SUARNABA, ELMAR
TABLIGAN, JERRY D. TALITE, OSCAR TALITE, WINIFREDO
TALITE, CAMILO N. TEMPOROSA, JOSE TEMPOROSA,
RANDY TINGALA, TRISTAN A. TINGSON, ROGELIO
TOMESA, DIONISE A. TORMIS, ADELINO C. UNTAL, FELIX
T. UNTAL, RONILO E. VISTA, JOAN C. VIYO and JOSE
JOFER C. VIYO and the COURT OF APPEALS, respondents.
DECISION
CARPIO-MORALES, J.:
Petitioner San Miguel Corporation (SMC), represented by its
Assistant Vice President and Visayas Area Manager for
Aquaculture Operations Leopoldo S. Titular, and Sunflower
Multi-Purpose Cooperative (Sunflower), represented by the
Chairman of its Board of Directors Roy G. Asong, entered into a
one-year Contract of Services1 commencing on January 1,
1993, to be renewed on a month to month basis until terminated
by either party. The pertinent provisions of the contract read:
1. The cooperative agrees and undertakes to perform and/or
provide for the company, on a non-exclusive basis for a period
of one year the following services for the Bacolod Shrimp
Processing Plant:
A. Messengerial/Janitorial
B. Shrimp Harvesting/Receiving
C. Sanitation/Washing/Cold Storage2
2. To carry out the undertaking specified in the immediately
preceding paragraph, the cooperative shall employ the
necessary personnel and provide adequate equipment,
materials, tools and apparatus, to efficiently, fully and speedily
accomplish the work and services undertaken by the
cooperative. xxx
3. In consideration of the above undertaking the company
expressly agrees to pay the cooperative the following rates per
activity:
A. Messengerial/Janitorial Monthly Fixed Service Charge of:
Nineteen Thousand Five Hundred Pesos Only (P19,500.00)
B. Harvesting/Shrimp Receiving. – Piece rate of P0.34/kg. Or
P100.00 minimum per person/activity whichever is higher, with
provisions as follows:
P25.00 Fixed Fee per person
Additional meal allowance P15.00 every meal time in case
harvest duration exceeds one meal.
This will be pre-set every harvest based on harvest plan
approved by the Senior Buyer.
C. Sanitation/Washing and Cold Storage P125.00/person for 3
shifts.
One-half of the payment for all services rendered shall be
payable on the fifteenth and the other half, on the end of each
month. The cooperative shall pay taxes, fees, dues and other
impositions that shall become due as a result of this contract.
The cooperative shall have the entire charge, control and
supervision of the work and services herein agreed upon. xxx
4. There is no employer-employee relationship between the
company and the cooperative, or the cooperative and any of its
members, or the company and any members of the cooperative.
The cooperative is an association of self-employed members,
an independent contractor, and an entrepreneur. It is subject to
the control and direction of the company only as to the result to
be accomplished by the work or services herein specified, and
not as to the work herein contracted. The cooperative and its
members recognize that it is taking a business risk in accepting
Page 94 of 191
a fixed service fee to provide the services contracted for and its
94
realization of profit or loss from its undertaking, in relation to all
its other undertakings, will depend on how efficiently it deploys
and fields its members and how they perform the work and
manage its operations.
5. The cooperative shall, whenever possible, maintain and keep
under its control the premises where the work under this contract
shall be performed.
6. The cooperative shall have exclusive discretion in the
selection, engagement and discharge of its member-workers or
otherwise in the direction and control thereof. The determination
of the wages, salaries and compensation of the member-
workers of the cooperative shall be within its full control. It is
further understood that the cooperative is an independent
contractor, and as such, the cooperative agrees to comply with
all the requirements of all pertinent laws and ordinances, rules
and regulations. Although it is understood and agreed between
the parties hereto that the cooperative, in the performance of its
obligations, is subject to the control or direction of the company
merely as a (sic) result to be accomplished by the work or
services herein specified, and not as to the means and methods
of accomplishing such result, the cooperative hereby warrants
that it will perform such work or services in such manner as will
be consistent with the achievement of the result herein
contracted for.
xxx
8. The cooperative undertakes to pay the wages or salaries of
its member-workers, as well as all benefits, premiums and
protection in accordance with the provisions of the labor code,
cooperative code and other applicable laws and decrees and the
rules and regulations promulgated by competent authorities,
assuming all responsibility therefor.
The cooperative further undertakes to submit to the company
within the first ten (10) days of every month, a statement made,
signed and sworn to by its duly authorized representative before
a notary public or other officer authorized by law to administer
oaths, to the effect that the cooperative has paid all wages or
salaries due to its employees or personnel for services rendered
by them during the month immediately preceding, including
overtime, if any, and that such payments were all in accordance
with the requirements of law.
xxx
12. Unless sooner terminated for the reasons stated in
paragraph 9 this contract shall be for a period of one (1) year
commencing on January 1, 1993. Thereafter, this Contract will
be deemed renewed on a month-to-month basis until terminated
by either party by sending a written notice to the other at least
thirty (30) days prior to the intended date of termination.
xxx3 (Underscoring supplied)
Pursuant to the contract, Sunflower engaged private
respondents to, as they did, render services at SMC’s Bacolod
Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract
was deemed renewed by the parties every month after its
expiration on January 1, 1994 and private respondents
continued to perform their tasks until September 11, 1995.

In July 1995, private respondents filed a complaint before the
NLRC, Regional Arbitration Branch No. VI, Bacolod City,
praying to be declared as regular employees of SMC, with
claims for recovery of all benefits and privileges enjoyed by SMC
rank and file employees.
Private respondents subsequently filed on September 25, 1995
an Amended Complaint4 to include illegal dismissal as
additional cause of action following SMC’s closure of its Bacolod
Shrimp Processing Plant on September 15, 19955 which
resulted in the termination of their services.
SMC filed a Motion for Leave to File Attached Third Party
Complaint6 dated November 27, 1995 to implead Sunflower as
Third Party Defendant which was, by Order7 of December 11,
1995, granted by Labor Arbiter Ray Alan T. Drilon.
In the meantime, on September 30, 1996, SMC filed before the
Regional Office at Iloilo City of the Department of Labor and
Employment (DOLE) a Notice of Closure8 of its aquaculture
operations effective on even date, citing serious business
losses.
By Decision of September 23, 1997, Labor Arbiter Drilon
dismissed private respondents’ complaint for lack of merit,
ratiocinating as follows:
We sustain the stand of the respondent SMC that it could
properly exercise its management prerogative to contract out
the preparation and processing aspects of its aquaculture
operations. Judicial notice has already been taken regarding the
general practice adopted in government and private institutions
and industries of hiring independent contractors to perform
special services. xxx
xxx
Indeed, the law allows job contracting. Job contracting is
permissible under the Labor Code under specific conditions and
we do not see how this activity could not be legally undertaken
by an independent service cooperative like the third-party
respondent herein.
There is no basis to the demand for regularization simply on the
theory that complainants performed activities which are
necessary and desirable in the business of respondent. It has
been held that the definition of regular employees as those who
perform activities which are necessary and desirable for the
business of the employer is not always determinative because
any agreement may provide for one (1) party to render services
for and in behalf of another for a consideration even without
being hired as an employee.
The charge of the complainants that third-party respondent is a
mere labor-only contractor is a sweeping generalization and
completely unsubstantiated. xxx In the absence of clear and
convincing evidence showing that third-party respondent acted
merely as a labor only contractor, we are firmly convinced of the
legitimacy and the integrity of its service contract with
respondent SMC.
Page 95 of 191
In the same vein, the closure of the Bacolod Shrimp Processing
95
Plant was a management decision purely dictated by economic
factors which was (sic) mainly serious business losses. The law
recognizes the right of the employer to close his business or
cease his operations for bonafide reasons, as much as it
recognizes the right of the employer to terminate the
employment of any employee due to closure or cessation of
business operations, unless the closing is for the purpose of
circumventing the provisions of the law on security of tenure.
The decision of respondent SMC to close its Bacolod Shrimp
Processing Plant, due to serious business losses which has (sic)
clearly been established, is a management prerogative which
could hardly be interfered with.
xxx The closure did affect the regular employees and workers of
the Bacolod Processing Plant, who were accordingly terminated
following the legal requisites prescribed by law. The closure,
however, in so far as the complainants are concerned, resulted
in the termination of SMC’s service contract with their
cooperative xxx9 (Underscoring supplied)
Private respondents appealed to the NLRC.
By Decision of December 29, 1998, the NLRC dismissed the
appeal for lack of merit, it finding that third party respondent
Sunflower was an independent contractor in light of its
observation that "[i]n all the activities of private respondents,
they were under the actual direction, control and supervision of
third party respondent Sunflower, as well as the payment of
wages, and power of dismissal."10
Private respondents’ Motion for Reconsideration11 having been
denied by the NLRC for lack of merit by Resolution of September
10, 1999, they filed a petition for certiorari12 before the Court of
Appeals (CA).
Before the CA, SMC filed a Motion to Dismiss13 private
respondents’ petition for non-compliance with the Rules on Civil
Procedure and failure to show grave abuse of discretion on the
part of the NLRC.
SMC subsequently filed its Comment14 to the petition on March
30, 2000.
By Decision of February 7, 2001, the appellate court reversed
the NLRC decision and accordingly found for private
respondents, disposing as follows:
WHEREFORE, the petition is GRANTED. Accordingly,
judgment is hereby RENDERED: (1) REVERSING and
SETTING ASIDE both the 29 December 1998 decision and 10
September 1999 resolution of the National Labor Relations
Commission (NLRC), Fourth Division, Cebu City in NLRC Case
No. V-0361-97 as well as the 23 September 1997 decision of
the labor arbiter in RAB Case No. 06-07-10316-95; (2)
ORDERING the respondent, San Miguel Corporation, to
GRANT petitioners: (a) separation pay in accordance with the
computation given to the regular SMC employees working at its
Bacolod Shrimp Processing Plant with full backwages, inclusive
of allowances and other benefits or their monetary equivalent,
from 11 September 1995, the time their actual compensation
was withheld from them, up to the time of the finality of this
decision; (b) differentials pays (sic) effective as of and from the
time petitioners acquired regular employment status pursuant to
the disquisition mentioned above, and all such other and further
benefits as provided by applicable collective bargaining
agreement(s) or other relations, or by law, beginning such time
up to their termination from employment on 11 September 1995;
and ORDERING private respondent SMC to PAY unto the
petitioners attorney’s fees equivalent to ten (10%) percent of the
total award.
No pronouncement as to costs.
SO ORDERED.15 (Underscoring supplied)
Justifying its reversal of the findings of the labor arbiter and the
NLRC, the appellate court reasoned:
Although the terms of the non-exclusive contract of service
between SMC and [Sunflower] showed a clear intent to abstain
from establishing an employer-employee relationship between
SMC and [Sunflower] or the latter’s members, the extent to
which the parties successfully realized this intent in the light of
the applicable law is the controlling factor in determining the real
and actual relationship between or among the parties.
xxx
With respect to the power to control petitioners’ conduct, it
appears that petitioners were under the direct control and
supervision of SMC supervisors both as to the manner they
performed their functions and as to the end results thereof. It
was only after petitioners lodged a complaint to have their status
declared as regular employees of SMC that certain members of
[Sunflower] began to countersign petitioners’ daily time records
to make it appear that they (petitioners) were under the control
and supervision of [Sunflower] team leaders (rollo, pp. 523-527).
xxx
Even without these instances indicative of control by SMC over
the petitioners, it is safe to assume that SMC would never have
allowed the petitioners to work within its premises, using its own
facilities, equipment and tools, alongside SMC employees
discharging similar or identical activities unless it exercised a
substantial degree of control and supervision over the
petitioners not only as to the manner they performed their
functions but also as to the end results of such functions.
xxx
xxx it becomes apparent that [Sunflower] and the petitioners do
not qualify as independent contractors. [Sunflower] and the
petitioners did not have substantial capital or investment in the
form of tools, equipment, implements, work premises, et cetera
necessary to actually perform the service under their own
account, responsibility, and method. The only "work premises"
maintained by [Sunflower] was a small office within the confines
of a small "carinderia" or refreshment parlor owned by the
mother of its chair, Roy Asong; the only equipment it owned was
a typewriter (rollo, pp. 525-525) and, the only assets it provided
SMC were the bare bodies of its members, the petitioners herein
(rollo, p. 523).
In addition, as shown earlier, petitioners, who worked inside the
premises of SMC, were under the control and supervision of
SMC both as to the manner and method in discharging their
functions and as to the results thereof.
Page 96 of 191
Besides, it should be taken into account that the activities
96
undertaken by the petitioners as cleaners, janitors, messengers
and shrimp harvesters, packers and handlers were directly
related to the aquaculture business of SMC (See Guarin vs.
NLRC, 198 SCRA 267, 273). This is confirmed by the renewal
of the service contract from January 1993 to September 1995, a
period of close to three (3) years.
Moreover, the petitioners here numbering ninety seven (97), by
itself, is a considerable workforce and raises the suspicion that
the non-exclusive service contract between SMC and
[Sunflower] was "designed to evade the obligations inherent in
an employer-employee relationship" (See Rhone-Poulenc
Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).
Equally suspicious is the fact that the notary public who signed
the by-laws of [Sunflower] and its [Sunflower] retained counsel
are both partners of the local counsel of SMC (rollo, p. 9).
xxx
With these observations, no other logical conclusion can be
reached except that [Sunflower] acted as an agent of SMC,
facilitating the manpower requirements of the latter, the real
employer of the petitioners. We simply cannot allow these two
entities through the convenience of a non-exclusive service
contract to stipulate on the existence of employer-employee
relation. Such existence is a question of law which cannot be
made the subject of agreement to the detriment of the petitioners
(Tabas vs. California Manufacturing, Inc., 169 SCRA 497, 500).
xxx
There being a finding of "labor-only" contracting, liability must be
shouldered either by SMC or [Sunflower] or shared by both (See
Tabas vs. California Manufacturing, Inc., supra, p. 502). SMC
however should be held solely liable for [Sunflower] became
non-existent with the closure of the aquaculture business of
SMC.
Furthermore, since the closure of the aquaculture operations of
SMC appears to be valid, reinstatement is no longer feasible.
Consistent with the pronouncement in Bustamante, et al., vs.
NLRC, G.R. No. 111651, 28 November 1996, petitioners are
thus entitled to separation pay (in the computation similar to
those given to regular SMC employees at its Bacolod Shrimp
Processing Plant) "with full backwages, inclusive of allowances
and other benefits or their monetary equivalent, from the time
their actual compensation was withheld from them" up to the
time of the finality of this decision. This is without prejudice to
differentials pays (sic) effective as of and from the time
petitioners acquired regular employment status pursuant to the
discussion mentioned above, and all such other and further
benefits as provided by applicable collective bargaining
agreement(s) or other relations, or by law, beginning such time
up to their termination from employment on 11 September
1995.16 (Emphasis and underscoring supplied)
SMC’s Motion for Reconsideration17 having been denied for
lack of merit by Resolution of July 11, 2001, it comes before this
Court via the present petition for review on certiorari assigning
to the CA the following errors:
I

THE COURT OF APPEALS GRAVELY ERRED IN GIVING
DUE COURSE AND GRANTING RESPONDENTS’ PATENTLY
DEFECTIVE PETITION FOR CERTIORARI. IN DOING SO,
THE COURT OF APPEALS DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS.
II
THE COURT OF APPEALS GRAVELY ERRED IN
RECOGNIZING ALL THE RESPONDENTS AS
COMPLAINANTS IN THE CASE BEFORE THE LABOR
ARBITER. IN DOING SO, THE COURT OF APPEALS
DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH
LAW OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT.
III
THE COURT OF APPEALS GRAVELY ERRED IN FINDING
THAT RESPONDENTS ARE EMPLOYEES OF SMC.
IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT
FINDNG (sic) THAT RESPONDENTS ARE NOT ENTITLED TO
ANY RELIEF. THE CLOSURE OF THE BACOLOD SHRIMP
PROCESSING PLANT WAS DUE TO SERIOUS BUSINESS
LOSSES.18 (Underscoring supplied)
SMC bewails the failure of the appellate court to outrightly
dismiss the petition for certiorari as only three out of the ninety
seven named petitioners signed the verification and certification
against forum-shopping.
While the general rule is that the certificate of non-forum
shopping must be signed by all the plaintiffs or petitioners in a
case and the signature of only one of them is insufficient,19 this
Court has stressed that the rules on forum shopping, which were
designed to promote and facilitate the orderly administration of
justice, should not be interpreted with such absolute literalness
as to subvert its own ultimate and legitimate objective.20 Strict
compliance with the provisions regarding the certificate of non-
forum shopping merely underscores its mandatory nature in that
the certification cannot be altogether dispensed with or its
requirements completely disregarded.21 It does not, however,
thereby interdict substantial compliance with its provisions under
justifiable circumstances.22
Thus in the recent case of HLC Construction and Development
Corporation v. Emily Homes Subdivision Homeowners
Association,23 this Court held:
Respondents (who were plaintiffs in the trial court) filed the
complaint against petitioners as a group, represented by their
homeowners’ association president who was likewise one of the
plaintiffs, Mr. Samaon M. Buat. Respondents raised one cause
of action which was the breach of contractual obligations and
payment of damages. They shared a common interest in the
subject matter of the case, being the aggrieved residents of the
poorly constructed and developed Emily Homes Subdivision.
Due to the collective nature of the case, there was no doubt that
Page 97 of 191
Mr. Samaon M. Buat could validly sign the certificate of non-
97
forum shopping in behalf of all his co-plaintiffs. In cases
therefore where it is highly impractical to require all the plaintiffs
to sign the certificate of non-forum shopping, it is sufficient, in
order not to defeat the ends of justice, for one of the plaintiffs,
acting as representative, to sign the certificate provided that xxx
the plaintiffs share a common interest in the subject matter of
the case or filed the case as a "collective," raising only one
common cause of action or defense.24 (Emphasis and
underscoring supplied)
Given the collective nature of the petition filed before the
appellate court by herein private respondents, raising one
common cause of action against SMC, the execution by private
respondents Winifredo Talite, Renelito Deon and Jose
Temporosa in behalf of all the other private respondents of the
certificate of non-forum shopping constitutes substantial
compliance with the Rules.25 That the three indeed represented
their co-petitioners before the appellate court is, as it correctly
found, "subsequently proven to be true as shown by the
signatures of the majority of the petitioners appearing in their
memorandum filed before Us."26
Additionally, the merits of the substantive aspects of the case
may also be deemed as "special circumstance" or "compelling
reason" to take cognizance of a petition although the certification
against forum shopping was not executed and signed by all of
the petitioners.27
SMC goes on to argue that the petition filed before the CA is
fatally defective as it was not accompanied by "copies of all
pleadings and documents relevant and pertinent thereto" in
contravention of Section 1, Rule 65 of the Rules of Court.28
This Court is not persuaded. The records show that private
respondents appended the following documents to their petition
before the appellate court: the September 23, 1997 Decision of
the Labor Arbiter,29 their Notice of Appeal with Appeal
Memorandum dated October 16, 1997 filed before the NLRC,30
the December 29, 1998 NLRC D E C I S I O N,31 their Motion
for Reconsideration dated March 26, 1999 filed with the
NLRC32 and the September 10, 1999 NLRC Resolution.33
It bears stressing at any rate that it is the appellate court which
ultimately determines if the supporting documents are sufficient
to make out a prima facie case.34 It discerns whether on the
basis of what have been submitted it could already judiciously
determine the merits of the petition.35 In the case at bar, the CA
found that the petition was adequately supported by relevant
and pertinent documents.
At all events, this Court has allowed a liberal construction of the
rule on the accomplishment of a certificate of non-forum
shopping in the following cases: (1) where a rigid application will
result in manifest failure or miscarriage of justice; (2) where the
interest of substantial justice will be served; (3) where the
resolution of the motion is addressed solely to the sound and
judicious discretion of the court; and (4) where the injustice to
the adverse party is not commensurate with the degree of his
thoughtlessness in not complying with the procedure
prescribed.36
Rules of procedure should indeed be viewed as mere tools
designed to facilitate the attainment of justice. Their strict and
rigid application, which would result in technicalities that tend to
frustrate rather than promote substantial justice, must always be
eschewed.37

SMC further argues that the appellate court exceeded its
jurisdiction in reversing the decisions of the labor arbiter and the
NLRC as "findings of facts of quasi-judicial bodies like the NLRC
are accorded great respect and finality," and that this principle
acquires greater weight and application in the case at bar as the
labor arbiter and the NLRC have the same factual findings.
The general rule, no doubt, is that findings of facts of an
administrative agency which has acquired expertise in the
particular field of its endeavor are accorded great weight on
appeal.38 The rule is not absolute and admits of certain well-
recognized exceptions, however. Thus, when the findings of fact
of the labor arbiter and the NLRC are not supported by
substantial evidence or their judgment was based on a
misapprehension of facts, the appellate court may make an
independent evaluation of the facts of the case.39
SMC further faults the appellate court in giving due course to
private respondents’ petition despite the fact that the complaint
filed before the labor arbiter was signed and verified only by
private respondent Winifredo Talite; that private respondents’
position paper40 was verified by only six41 out of the ninety
seven complainants; and that their Joint-Affidavit42 was
executed only by twelve43 of the complainants.
Specifically with respect to the Joint-Affidavit of private
respondents, SMC asserts that it should not have been
considered by the appellate court in establishing the claims of
those who did not sign the same, citing this Court’s ruling in
Southern Cotabato Development and Construction, Inc. v.
NLRC.44
SMC’s position does not lie.
A perusal of the complaint shows that the ninety seven
complainants were being represented by their counsel of choice.
Thus the first sentence of their complaint alleges: "xxx
complainants, by counsel and unto this Honorable Office
respectfully state xxx." And the complaint was signed by Atty.
Jose Max S. Ortiz as "counsel for the complainants." Following
Section 6, Rule III of the 1990 Rules of Procedure of the NLRC,
now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz is
presumed to be properly authorized by private respondents in
filing the complaint.
That the verification wherein it is manifested that private
respondent Talite was one of the complainants and was causing
the preparation of the complaint "with the authority of my co-
complainants" indubitably shows that Talite was representing
the rest of his co-complainants in signing the verification in
accordance with Section 7, Rule III of the 1990 NLRC Rules,
now Section 8, Rule 3 of the 1999 NLRC Rules, which states:
Section 7. Authority to bind party. – Attorneys and other
representatives of parties shall have authority to bind their
clients in all matters of procedure; but they cannot, without a
special power of attorney or express consent, enter into a
compromise agreement with the opposing party in full or partial
discharge of a client’s claim. (Underscoring supplied)
As regards private respondents’ position paper which bore the
signatures of only six of them, appended to it was an
Authority/Confirmation of Authority45 signed by the ninety one
others conferring authority to their counsel "to file RAB Case No.
06-07-10316-95, entitled Winifredo Talite et al. v. San Miguel
Page 98 of 191
Corporation presently pending before the sala of Labor Arbiter
98
Ray Alan Drilon at the NLRC Regional Arbitration Branch No. VI
in Bacolod City" and appointing him as their retained counsel to
represent them in the said case.
That there has been substantial compliance with the
requirement on verification of position papers under Section 3,
Rule V of the 1990 NLRC Rules of Procedure46 is not difficult
to appreciate in light of the provision of Section 7, Rule V of the
1990 NLRC Rules, now Section 9, Rule V of the 1999 NLRC
Rules which reads:
Section 7. Nature of Proceedings. – The proceedings before a
Labor Arbiter shall be non-litigious in nature. Subject to the
requirements of due process, the technicalities of law and
procedure and the rules obtaining in the courts of law shall not
strictly apply thereto. The Labor Arbiter may avail himself of all
reasonable means to ascertain the facts of the controversy
speedily, including ocular inspection and examination of well-
informed persons. (underscoring supplied)
As regards private respondents’ Joint-Affidavit which is being
assailed in view of the failure of some complainants to affix their
signatures thereon, this Court quotes with approval the
appellate court’s ratiocinations:
A perusal of the Southern Cotabato Development Case would
reveal that movant did not quote the whole text of paragraph 5
on page 865 of 280 SCRA. The whole paragraph reads:
"Clearly then, as to those who opted to move for the dismissal
of their complaints, or did not submit their affidavits nor appear
during trial and in whose favor no other independent evidence
was adduced, no award for back wages could have been validly
and properly made for want of factual basis. There is no showing
at all that any of the affidavits of the thirty-four (34) complainants
were offered as evidence for those who did not submit their
affidavits, or that such affidavits had any bearing at all on the
rights and interest of the latter. In the same vein, private
respondent’s position paper was not of any help to these
delinquent complainants.
The implication is that as long as the affidavits of the
complainants were offered as evidence for those who did not
submit theirs, or the affidavits were material and relevant to the
rights and interest of the latter, such affidavits may be sufficient
to establish the claims of those who did not give their affidavits.
Here, a reading of the joint affidavit signed by twelve (12) of the
ninety-seven (97) complainants (petitioners herein) would
readily reveal that the affidavit was offered as evidence not only
for the signatories therein but for all of the complainants. (These
ninety-seven (97) individuals were previously identified during
the mandatory conference as the only complainants in the
proceedings before the labor arbiter) Moreover, the affidavit
touched on the common interest of all of the complainants as it
supported their claim of the existence of an employer-employee
relationship between them and respondent SMC. Thus, the said
affidavit was enough to prove the claims of the rest of the
complainants.47 (Emphasis supplied, underscoring in the
original)
In any event, SMC is reminded that the rules of evidence
prevailing in courts of law or equity do not control proceedings
before the Labor Arbiter. So Article 221 of the Labor Code
enjoins:

ART. 221. Technical rules not binding and prior resort to
amicable settlement. – In any proceeding before the
Commission or any of the Labor Arbiters, the rules of evidence
prevailing in courts of law or equity shall not be controlling and
it is the spirit and intention of this Code that the Commission and
its members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case speedily
and objectively and without regard to technicalities of law or
procedure, all in the interest of due process. xxx
As such, their application may be relaxed to serve the demands
of substantial justice.48
On the merits, the petition just the same fails.
SMC insists that private respondents are the employees of
Sunflower, an independent contractor. On the other hand,
private respondents assert that Sunflower is a labor-only
contractor.
Article 106 of the Labor Code provides:
ART. 106. Contractor or subcontracting. – Whenever an
employer enters into a contract with another person for the
performance of the former’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 may, by appropriate regulations, restrict
or prohibit the contracting out of labor to protect the rights of
workers established under the 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 workers recruited and placed
by such person are performing activities which are directly
related to the principal business of such employer. In 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.
Rule VIII-A, Book III of the Omnibus Rules Implementing the
Labor Code, as amended by Department Order No. 18,
distinguishes between legitimate and labor-only contracting:
Section 3. Trilateral Relationship in Contracting Arrangements.
In legitimate contracting, there exists a trilateral relationship
Page 99 of 191
under which there is a contract for a specific job, work or service
99
between the principal and the contractor or subcontractor, and
a contract of employment between the contractor or
subcontractor and its workers. Hence, there are three parties
involved in these arrangements, the principal which decides to
farm out a job or service to a contractor or subcontractor, the
contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work or
service, and the contractual workers engaged by the contractor
or subcontractor to accomplish the job, work or service.
Section 5. Prohibition against labor-only contracting. Labor-only
contracting Sis hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any
of the following elements are present:
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal,
or
ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to the
application of Article 248 (c) of the Labor Code, as amended.
"Substantial capital or investment" refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises,
actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work or service
contracted out.
The "right to control" shall refer to the right reserved to the
person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end.
The test to determine the existence of independent
contractorship is whether one claiming to be an independent
contractor has contracted to do the work according to his own
methods and without being subject to the control of the
employer, except only as to the results of the work.49
In legitimate labor contracting, the law creates an employer-
employee relationship for a limited purpose, i.e., to ensure that
the employees are paid their wages. The principal employer
becomes jointly and severally liable with the job contractor, only
for the payment of the employees’ wages whenever the
contractor fails to pay the same. Other than that, the principal
employer is not responsible for any claim made by the
employees.50
In labor-only contracting, the statute creates an employer-
employee relationship for a comprehensive purpose: to prevent
a circumvention of labor laws. The contractor is considered
merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if
such employees had been directly employed by the principal
employer.51

The Contract of Services between SMC and Sunflower shows
that the parties clearly disavowed the existence of an employer-
employee relationship between SMC and private respondents.
The language of a contract is not, however, determinative of the
parties’ relationship; rather it is the totality of the facts and
surrounding circumstances of the case.52 A party cannot
dictate, by the mere expedient of a unilateral declaration in a
contract, the character of its business, i.e., whether as labor-only
contractor or job contractor, it being crucial that its character be
measured in terms of and determined by the criteria set by
statute.53
SMC argues that Sunflower could not have been issued a
certificate of registration as a cooperative if it had no substantial
capital.54
While indeed Sunflower was issued Certificate of Registration
No. IL0-87555 on February 10, 1992 by the Cooperative
Development Authority, this merely shows that it had at least
₱2,000.00 in paid-up share capital as mandated by Section 5 of
Article 1456 of Republic Act No. 6938, otherwise known as the
Cooperative Code, which amount cannot be considered
substantial capitalization.
What appears is that Sunflower does not have substantial
capitalization or investment in the form of tools, equipment,
machineries, work premises and other materials to qualify it as
an independent contractor.
On the other hand, it is gathered that the lot, building,
machineries and all other working tools utilized by private
respondents in carrying out their tasks were owned and
provided by SMC. Consider the following uncontroverted
allegations of private respondents in the Joint Affidavit:
[Sunflower], during the existence of its service contract with
respondent SMC, did not own a single machinery, equipment,
or working tool used in the processing plant. Everything was
owned and provided by respondent SMC. The lot, the building,
and working facilities are owned by respondent SMC. The
machineries and equipments (sic) like washer machine, oven or
cooking machine, sizer machine, freezer, storage, and chilling
tanks, push carts, hydrolic (sic) jack, tables, and chairs were all
owned by respondent SMC. All the boxes, trays, molding pan
used in the processing are also owned by respondent SMC. The
gloves and boots used by the complainants were also owned by
respondent SMC. Even the mops, electric floor cleaners, brush,
hoose (sic), soaps, floor waxes, chlorine, liquid stain removers,
lysol and the like used by the complainants assigned as cleaners
were all owned and provided by respondent SMC.
Simply stated, third-party respondent did not own even a small
capital in the form of tools, machineries, or facilities used in said
prawn processing
xxx
The alleged office of [Sunflower] is found within the confines of
a small "carinderia" or "refreshment" (sic) owned by the mother
of the Cooperative Chairman Roy Asong.
xxx In said . . . office, the only equipment used and owned by
[Sunflower] was a typewriter. 57
Page 100 of 191
100
And from the job description provided by SMC itself, the work
assigned to private respondents was directly related to the
aquaculture operations of SMC. Undoubtedly, the nature of the
work performed by private respondents in shrimp harvesting,
receiving and packing formed an integral part of the shrimp
processing operations of SMC. As for janitorial and
messengerial services, that they are considered directly related
to the principal business of the employer58 has been
jurisprudentially recognized.
Furthermore, Sunflower did not carry on an independent
business or undertake the performance of its service contract
according to its own manner and method, free from the control
and supervision of its principal, SMC, its apparent role having
been merely to recruit persons to work for SMC.
Thus, it is gathered from the evidence adduced by private
respondents before the labor arbiter that their daily time records
were signed by SMC supervisors Ike Puentebella, Joemel Haro,
Joemari Raca, Erwin Tumonong, Edison Arguello, and Stephen
Palabrica, which fact shows that SMC exercised the power of
control and supervision over its employees.59 And control of the
premises in which private respondents worked was by SMC.
These tend to disprove the independence of the contractor.60
More. Private respondents had been working in the aqua
processing plant inside the SMC compound alongside regular
SMC shrimp processing workers performing identical jobs under
the same SMC supervisors.61 This circumstance is another
indicium of the existence of a labor-only contractorship.62
And as private respondents alleged in their Joint Affidavit which
did not escape the observation of the CA, no showing to the
contrary having been proffered by SMC, Sunflower did not cater
to clients other than SMC,63 and with the closure of SMC’s
Bacolod Shrimp Processing Plant, Sunflower likewise ceased to
exist. This Court’s ruling in San Miguel Corporation v. MAERC
Integrated Services, Inc.64 is thus instructive.
xxx Nor do we believe MAERC to have an independent
business. Not only was it set up to specifically meet the pressing
needs of SMC which was then having labor problems in its
segregation division, none of its workers was also ever assigned
to any other establishment, thus convincing us that it was
created solely to service the needs of SMC. Naturally, with the
severance of relationship between MAERC and SMC followed
MAERC’s cessation of operations, the loss of jobs for the whole
MAERC workforce and the resulting actions instituted by the
workers.65 (Underscoring supplied)
All the foregoing considerations affirm by more than substantial
evidence the existence of an employer-employee relationship
between SMC and private respondents.
Since private respondents who were engaged in shrimp
processing performed tasks usually necessary or desirable in
the aquaculture business of SMC, they should be deemed
regular employees of the latter66 and as such are entitled to all
the benefits and rights appurtenant to regular employment.67
They should thus be awarded differential pay corresponding to
the difference between the wages and benefits given them and
those accorded SMC’s other regular employees.1awphi1.zw+
Respecting the private respondents who were tasked with
janitorial and messengerial duties, this Court quotes with
approval the appellate court’s ruling thereon:
Those performing janitorial and messengerial services however
acquired regular status only after rendering one-year service
pursuant to Article 280 of the Labor Code. Although janitorial
and messengerial services are considered directly related to the
aquaculture business of SMC, they are deemed unnecessary in
the conduct of its principal business; hence, the distinction (See
Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-
137 and Philippine Bank of Communications v. NLRC, supra, p.
359).68
The law of course provides for two kinds of regular employees,
namely: (1) those who are engaged to perform activities which
are usually necessary or desirable in the usual business or trade
of the employer; and (2) those who have rendered at least one
year of service, whether continuous or broken, with respect to
the activity in which they are employed.69
As for those of private respondents who were engaged in
janitorial and messengerial tasks, they fall under the second
category and are thus entitled to differential pay and benefits
extended to other SMC regular employees from the day
immediately following their first year of service.70
Regarding the closure of SMC’s aquaculture operations and the
consequent termination of private respondents, Article 283 of
the Labor Code provides:
ART. 283. 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 Department 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 to 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. (Underscoring supplied)
In the case at bar, a particular department under the SMC group
of companies was closed allegedly due to serious business
reverses. This constitutes retrenchment by, and not closure of,
the enterprise or the company itself as SMC has not totally
ceased operations but is still very much an on-going and highly
viable business concern.71
Retrenchment is a management prerogative consistently
recognized and affirmed by this Court. It is, however, subject to
faithful compliance with the substantive and procedural
requirements laid down by law and jurisprudence.72
For retrenchment to be considered valid the following
substantial requirements must be met: (a) the losses expected
should be substantial and not merely de minimis in extent; (b)
Page 101 of 191
the substantial losses apprehended must be reasonably
101
imminent such as can be perceived objectively and in good faith
by the employer; (c) the retrenchment must be reasonably
necessary and likely to effectively prevent the expected losses;
and (d) the alleged losses, if already incurred, and the expected
imminent losses sought to be forestalled, must be proved by
sufficient and convincing evidence.73
In the discharge of these requirements, it is the employer who
has the onus, being in the nature of an affirmative defense.74
Normally, the condition of business losses is shown by audited
financial documents like yearly balance sheets, profit and loss
statements and annual income tax returns. The financial
statements must be prepared and signed by independent
auditors failing which they can be assailed as self-serving
documents.75
In the case at bar, company losses were duly established by
financial documents audited by Joaquin Cunanan & Co.
showing that the aquaculture operations of SMC’s Agribusiness
Division accumulated losses amounting to ₱145,848,172.00 in
1992 resulting in the closure of its Calatrava Aquaculture Center
in Negros Occidental, ₱11,393,071.00 in 1993 and
₱80,325,608.00 in 1994 which led to the closure of its San
Fernando Shrimp Processing Plant in Pampanga and the
Bacolod Shrimp Processing Plant in 1995.
SMC has thus proven substantial business reverses justifying
retrenchment of its employees.
For termination due to retrenchment to be valid, however, the
law requires that written notices of the intended retrenchment be
served by the employer on the worker and on the DOLE at least
one (1) month before the actual date of the retrenchment,76 in
order to give employees some time to prepare for the eventual
loss of their jobs, as well as to give DOLE the opportunity to
ascertain the verity of the alleged cause of termination.77
Private respondents, however, were merely verbally informed
on September 10, 1995 by SMC Prawn Manager Ponciano
Capay that effective the following day or on September 11,
1995, they were no longer to report for work as SMC would be
closing its operations.78
Where the dismissal is based on an authorized cause under
Article 283 of the Labor Code but the employer failed to comply
with the notice requirement, the sanction should be stiff as the
dismissal process was initiated by the employer’s exercise of his
management prerogative, as opposed to a dismissal based on
a just cause under Article 282 with the same procedural infirmity
where the sanction to be imposed upon the employer should be
tempered as the dismissal process was, in effect, initiated by an
act imputable to the employee.79
In light of the factual circumstances of the case at bar, this Court
awards ₱50,000.00 to each private respondent as nominal
damages.
The grant of separation pay as an incidence of termination of
employment due to retrenchment to prevent losses is a statutory
obligation on the part of the employer and a demandable right
on the part of the employee. Private respondents should thus be
awarded separation pay equivalent to at least one (1) month pay
or to at least one-half month pay for every year of service,
whichever is higher, as mandated by Article 283 of the Labor GENERAL SERVICES and/or OFELIA P. LANDRITO,

102
Code or the separation pay awarded by SMC to other regular Respondents.
SMC employees that were terminated as a result of the
retrenchment, depending on which is most beneficial to private DECISION
respondents.
CHICO-NAZARIO, J.:

Considering that private respondents were not illegally

Before this Court is a Petition for Review on Certiorari under
dismissed, however, no backwages need be awarded. It is well
Rule 45 of the 1997 Revised Rules of Civil Procedure seeking
settled that backwages may be granted only when there is a
to reverse and set aside (1) the Decision1 of the Court of
finding of illegal dismissal.80 The appellate court thus erred in
Appeals in CA-G.R. SP No. 50806, dated 24 April 2000, which
awarding backwages to private respondents upon the authority
modified the Decision2 of the National Labor Relations
of Bustamante v. NLRC,81 what was involved in that case being
Commission (NLRC), dated 30 January 1996 in NLRC NCR CA
one of illegal dismissal.
No. 001737-91 (NLRC NCR Case No. 00-09-04432-89), and
thereby held the petitioner solidarily liable with the private
respondents for the satisfaction of the separation pay of the
With respect to attorney’s fees, in actions for recovery of wages latter’s employees; and (2) the Resolution3 of the appellate
or where an employee was forced to litigate and thus incurred court, dated 27 September 2000, in the same case which denied
expenses to protect his rights and interests,82 a maximum of the petitioner’s Motion for Reconsideration.
ten percent (10%) of the total monetary award83 by way of
attorney’s fees is justifiable under Article 111 of the Labor
Code,84 Section 8, Rule VIII, Book III of its Implementing
Petitioner Meralco Industrial Engineering Services Corporation
Rules,85 and paragraph 7, Article 2208 of the Civil Code.86
(MIESCOR) is a corporation duly organized and existing under
Although an express finding of facts and law is still necessary to
the laws of the Republic of the Philippines and a client of private
prove the merit of the award, there need not be any showing that
respondents. Private respondent Ofelia P. Landrito General
the employer acted maliciously or in bad faith when it withheld
Services (OPLGS) is a business firm engaged in providing and
the wages. There need only be a showing that the lawful wages
rendering general services, such as janitorial and maintenance
were not paid accordingly, as in this case.87
work to its clients, while private respondent Ofelia P. Landrito is
the Proprietor and General Manager of OPLGS.

Absent any evidence showing that Sunflower has been

dissolved in accordance with law, pursuant to Rule VIII-A,
The factual milieu of the present case is as follows:
Section 1988 of the Omnibus Rules Implementing the Labor
Code, Sunflower is held solidarily liable with SMC for all the
rightful claims of private respondents.
On 7 November 1984, petitioner and private respondents
executed Contract Order No. 166-84,4 whereby the latter would
supply the petitioner janitorial services, which include labor,
WHEREFORE, the petition is DENIED. The assailed Decision
materials, tools and equipment, as well as supervision of its
dated February 7, 2001 and Resolution dated July 11, 2001 of
assigned employees, at petitioner’s Rockwell Thermal Plant in
the Court of Appeals are AFFIRMED with MODIFICATION.
Makati City. Pursuant thereto, private respondents assigned
their 49 employees as janitors to petitioner’s Rockwell Thermal
Plant with a daily wage of ₱51.50 per employee.
Petitioner San Miguel Corporation and Sunflower Multi-Purpose
Cooperative are hereby ORDERED to jointly and severally pay
each private respondent differential pay from the time they
On 20 September 1989, however, the aforesaid 49 employees
became regular employees up to the date of their termination;
(complainants) lodged a Complaint for illegal deduction,
separation pay equivalent to at least one (1) month pay or to at
underpayment, non-payment of overtime pay, legal holiday pay,
least one-half month pay for every year of service, whichever is
premium pay for holiday and rest day and night differentials5
higher, as mandated by Article 283 of the Labor Code or the
against the private respondents before the Labor Arbiter. The
separation pay awarded by SMC to other regular SMC
case was docketed as NLRC NCR Case No. 00-09-04432-89.
employees that were terminated as a result of the retrenchment,
depending on which is most beneficial to private respondents;
and ten percent (10%) attorney’s fees based on the herein
modified award. In view of the enactment of Republic Act No. 6727,6 the contract
between the petitioner and the private respondents was
amended7 for the 10th time on 3 November 1989 to increase
the minimum daily wage per employee from ₱63.55 to ₱89.00
Petitioner San Miguel Corporation is further ORDERED to pay
or ₱2,670.00 per month. Two months thereafter, or on 2 January
each private respondent the amount of ₱50,000.00,
1990,8 petitioner sent a letter to private respondents informing
representing nominal damages for non-compliance with
them that effective at the close of business hours on 31 January
statutory due process.
1990, petitioner was terminating Contract Order No. 166-84.
Accordingly, at the end of the business hours on 31 January
1990, the complainants were pulled out from their work at the
The award of backwages is DELETED. petitioner’s Rockwell Thermal Plant. Thus, on 27 February 1990,
complainants amended their Complaint to include the charge of
illegal dismissal and to implead the petitioner as a party
respondent therein.
SO ORDERED.

Since the parties failed to settle amicably before the Labor

G.R. No. 145402 March 14, 2008
Arbiter, they submitted their respective position papers and
MERALCO INDUSTRIAL ENGINEERING SERVICES other pleadings together with their documentary evidence.
CORPORATION, Petitioner, vs. NATIONAL LABOR Thereafter, a Decision was rendered by the Labor Arbiter on 26
RELATIONS COMMISSION, OFELIA P. LANDRITO March 1991, dismissing the Complaint against the petitioner for
lack of merit, but ordering the private respondents to pay the
complainants the total amount of ₱487,287.07 representing
Page 102 of 191
unpaid wages, separation pay and overtime pay; as well as
attorney’s fees in an amount equivalent to 10% of the award or
₱48,728.70. All other claims of the complainants against the
private respondents were dismissed. 9
Feeling aggrieved, private respondents appealed the aforesaid
Decision to the NLRC. Private respondents alleged, among
other things, that: (1) 48 of the 49 complainants had executed
affidavits of desistance and they had never attended any
hearing nor given any authority to anyone to file a case on their
behalf; (2) the Labor Arbiter erred in not conducting a full-blown
hearing on the case; (3) there is only one complainant in that
case who submitted a position paper on his own; (4) the
complainants were not constructively dismissed when they were
not given assignments within a period of six months, but had
abandoned their jobs when they failed to report to another place
of assignment; and (5) the petitioner, being the principal, was
solidarily liable with the private respondents for failure to make
an adjustment on the wages of the complainants.10 On 28 May
1993, the NLRC issued a Resolution11 affirming the Decision of
the Labor Arbiter dated 26 March 1991 with the modification that
the petitioner was solidarily liable with the private respondents,
ratiocinating thus:
We, however, disagree with the dismissal of the case against
[herein petitioner]. Under Art. 10712 of the Labor Code of the
Philippines, [herein petitioner] is considered an indirect
employer and can be held solidarily liable with [private
respondents] as an independent contractor. Under Art. 109,13
for purposes of determining the extent of its liability, [herein
petitioner] is considered a direct employer, hence, it is solidarily
liable for complainant’s (sic) wage differentials and unpaid
overtime. We find this situation obtaining in this case in view of
the failure of [private respondents] to pay in full the labor
standard benefits of complainants, in which case liability is
limited thereto and does not extend to the establishment of
employer-employee relations.14 [Emphasis supplied].
Both private respondents and petitioner separately moved for
reconsideration of the aforesaid Resolution of the NLRC. In their
Motion for Reconsideration, private respondents reiterated that
the complainants abandoned their work, so that private
respondents should not be liable for separation pay; and that
petitioner, not private respondents, should be liable for
complainants’ other monetary claims, i.e., for wage differentials
and unpaid overtime. The petitioner, in its own Motion for
Reconsideration, asked that it be excluded from liability. It
averred that private respondents should be solely responsible
for their acts as it sufficiently paid private respondents all the
benefits due the complainants.
On 30 July 1993, the NLRC issued an Order15 noting that based
on the records of the case, the judgment award in the amount of
₱487,287.07 was secured by a surety bond posted by the
private respondents;16 hence, there was no longer any
impediment to the satisfaction of the complainants’ claims.
Resultantly, the NLRC denied the private respondents’ Motion
for Reconsideration. The NLRC likewise directed the Labor
Arbiter to enforce the monetary award against the private
respondents’ surety bond and to determine who should finally
shoulder the liability therefor.17
Alleging grave abuse of discretion of the NLRC in its issuance
of the Resolution and Order dated 28 May 1993 and 30 July
1993, respectively, private respondents filed before this Court a
Petition for Certiorari with prayer for the issuance of a writ of
preliminary injunction. The same was docketed as G.R. No.
111506 entitled Ofelia Landrito General Services v. National
Labor Relations Commission. The said Petition suspended the
proceedings before the Labor Arbiter.
Page 103 of 191
On 23 May 1994, however, this Court issued a Resolution18
103
dismissing G.R. No. 111506 for failure of private respondents to
sufficiently show that the NLRC had committed grave abuse of
discretion in rendering its questioned judgment. This Court’s
Resolution in G.R. No. 111506 became final and executory on
25 July 1994.19
As a consequence thereof, the proceedings before the Labor
Arbiter resumed with respect to the determination of who should
finally shoulder the liability for the monetary awards granted to
the complainants, in accordance with the NLRC Order dated 30
July 1993.
On 5 October 1994, the Labor Arbiter issued an Order,20 which
reads:
As can be gleaned from the Resolution dated [28 May 1993],
there is that necessity of clarifying the respective liabilities of
[herein petitioner] and [herein private respondents] insofar as
the judgment award in the total sum of ₱487,287.07 is
concerned.
The judgment award in the total sum of ₱487,287.07 as
contained in the Decision dated [26 March 1991] consists of
three (3) parts, as follows: First, the judgment award on the
underpayment; Second, the judgment award on separation pay;
and Third, the judgment award on the overtime pay.
The question now is: Which of these awards is [petitioner]
solidarily liable with [private respondents]?
An examination of the record elicits the finding that [petitioner] is
solidarily liable with [private respondents] on the judgment
awards on the underpayment and on the non-payment of the
overtime pay. xxx. This joint and several liability of the contractor
[private respondents] and the principal [petitioner] is mandated
by the Labor Code to assure compliance of the provisions
therein, including the statutory minimum wage (Art. 99,21 Labor
Code). The contractor-agency is made liable by virtue of his
status as direct employer. The principal, on the other hand, is
made the indirect employer of the contractor-agency’s
employees for purposes of paying the employees their wages
should the contractor-agency be unable to pay them. This joint
and several liability facilitates, if not guarantees, payment of the
workers performance of any work, task, job or project, thus
giving the workers ample protection as mandated by the 1987
Constitution.
In sum, the complainants may enforce the judgment award on
underpayment and the non-payment of overtime pay against
either [private respondents] and/or [petitioner].
However, in view of the finding in the Decision that [petitioner]
had adjusted its contract price for the janitorial services it
contracted with [private respondents] conforming to the
provisions of Republic Act No. 6727, should the complainants
enforce the judgment on the underpayment and on the non-
payment of the overtime pay aginst (sic) [petitioner], the latter
can seek reimbursement from the former [meaning (private
respondents)], but should the judgment award on the
underpayment and on the non-payment of the overtime pay be
enforced against [private respondents], the latter cannot seek
reimbursement against [petitioner].
The judgment award on separation pay is the sole liability of
[private respondents].
WHEREFORE, [petitioner] is jointly and severally liable with
[private respondents] in the judgment award on underpayment
and on the non-payment of overtime pay. Should the
complainants enforce the above judgment award against
[petitioner], the latter can seek reimbursement against [private
respondents], but should the aforementioned judgment award
be enforced against [private respondents], the latter cannot seek
reimbursement from the [petitioner].
The judgment award on the payment of separation pay is the
sole liability of [private respondents].
Let an alias writ of execution be issued. [Emphasis supplied].
Again, both the private respondents and the petitioner appealed
the afore-quoted Order of the Labor Arbiter to the NLRC. On 25
April 1995, the NLRC issued a Resolution22 affirming the Order
dated 5 October 1994 of the Labor Arbiter and dismissing both
appeals for non-posting of the appeal or surety bond and/or for
utter lack of merit.23 When the private respondents and the
petitioner moved for reconsideration, however, it was granted by
the NLRC in its Order24 dated 27 July 1995. The NLRC thus set
aside its Resolution dated 25 April 1995, and directed the private
respondents and the petitioner to each post an appeal bond in
the amount of ₱487,287.62 to perfect their respective
appeals.25 Both parties complied.26
On 30 January 1996, the NLRC rendered a Decision modifying
the Order of the Labor Arbiter dated 5 October 1994, the
dispositive portion of which reads:
WHEREFORE, the [21 November 1994] appeal of [herein
petitioner] is hereby granted. The [5 October 1994] Order of
Labor Arbiter Donato G. Quinto, Jr., is modified to the extent that
it still held [petitioner] as "jointly and severally liable with [herein
private respondents] in the judgment award on underpayment
and on the non-payment of overtime pay," our directive being
that the Arbiter should now satisfy said labor-standards award,
as well as that of the separation pay, exclusively through the
surety bond posted by [private respondents].27 [Emphasis
supplied].
Dissatisfied, private respondents moved for the reconsideration
of the foregoing Decision, but it was denied by the NLRC in an
Order28 dated 30 October 1996. This NLRC Order dated 30
October 1996 became final and executory on 29 November
1996.
On 4 December 1996, private respondents filed a Petition for
Certiorari29 before this Court assailing the Decision and the
Order of the NLRC dated 30 January 1996 and 30 October
1996, respectively. On 9 December 1998, this Court issued a
Resolution30 referring the case to the Court of Appeals
conformably with its ruling in St. Martin Funeral Home v.
National Labor Relations Commission.31 The case was
docketed before the appellate court as CA-G.R. SP No. 50806.
The Petition made a sole assignment of error, to wit:
THE HONORABLE COMMISSION GRAVELY ERRED AND
GRAVELY ABUSED ITS DISCRETION IN FINDING THAT THE
Page 104 of 191
ULTIMATE LIABILITY SHOULD FALL ON THE [HEREIN
104
PRIVATE RESPONDENTS] ALONE, WITHOUT
REIMBURSEMENT FROM THE [HEREIN PETITIONER], IN
ORDER TO SATISFY THE MONETARY AWARDS OF THE
[THEREIN COMPLAINANTS].32
After due proceedings, the Court of Appeals rendered the
assailed Decision on 24 April 2000, modifying the Decision of
the NLRC dated 30 January 1996 and holding the petitioner
solidarily liable with the private respondents for the satisfaction
of the laborers’ separation pay. According to the Court of
Appeals:
The [NLRC] adjudged the payment of separation pay to be the
sole responsibility of [herein private respondents] because (1)
there is no employer-employee relationship between [herein
petitioner] and the forty-nine (49) [therein complainants]; (2) the
payment of separation pay is not a labor standard benefit. We
disagree.
Again, We quote Article 109 of the Labor Code, as amended,
viz:
"The provisions of existing laws to the contrary notwithstanding,
every employer or indirect employer shall be held responsible
with his contractor or subcontractor for any violation of any
provision of this Code…"
The abovementioned statute speaks of "any violation of any
provision of this Code." Thus, the existence or non-existence of
employer-employee relationship and whether or not the violation
is one of labor standards is immaterial because said provision
of law does not make any distinction at all and, therefore, this
Court should also refrain from making any distinction.
Concomitantly, [herein petitioner] should be jointly and severally
liable with [private respondents] for the payment of wage
differentials, overtime pay and separation pay of the [therein
complainants]. The joint and several liability imposed to
[petitioner] is, again, without prejudice to a claim for
reimbursement by [petitioner] against [private respondents] for
reasons already discusses (sic).
WHEREFORE, premises studiedly considered, the assailed 30
January 1996 decision of [the NLRC] is hereby modified insofar
as [petitioner] should be held solidarily liable with [the private
respondents] for the satisfaction of the laborers’ separation pay.
No pronouncement as to costs.33 [Emphasis supplied].
The petitioner filed a Motion for Reconsideration of the aforesaid
Decision but it was denied by the Court of Appeals in a
Resolution dated 27 September 2000.
Petitioner now comes before this Court via a Petition for Review
on Certiorari, docketed as G.R. No. 145402, raising the sole
issue of "whether or not the Honorable Court of Appeals
palpably erred when it went beyond the issues of the case as it
modified the factual findings of the Labor Arbiter which attained
finality after it was affirmed by Public Respondent NLRC and by
the Supreme Court which can no longer be disturbed as it
became the law of the case."34
Petitioner argues that in the assailed Decision dated 24 April
2000, the Court of Appeals found that the sole issue for its
resolution was whether the ultimate liability to pay the monetary
awards in favor of the 49 employees falls on the private
respondents without reimbursement from the petitioner. Hence,
the appellate court should have limited itself to determining the
right of private respondents to still seek reimbursement from
petitioner for the monetary awards on the unpaid wages and
overtime pay of the complainants.
According to petitioner, the NLRC, in its Resolution dated 28
May 1993, already found that petitioner had fully complied with
its salary obligations to the complainants. Petitioner invokes the
same NLRC Resolution to support its claim that it was not liable
to share with the private respondents in the payment of
separation pay to complainants. When private respondents
questioned the said NLRC Resolution in a Petition for Certiorari
with this Court, docketed as G.R. No. 111506, this Court found
that the NLRC did not commit grave abuse of discretion in the
issuance thereof and accordingly dismissed private
respondents’ Petition. Said NLRC Resolution, therefore, has
since become final and executory and can no longer be
disturbed for it now constitutes the law of the case.
Assuming for the sake of argument that the Court of Appeals
can still take cognizance of the issue of petitioner’s liability for
complainants’ separation pay, petitioner asserts that the
appellate court seriously erred in concluding that it is jointly and
solidarily liable with private respondents for the payment thereof.
The payment of separation pay should be the sole responsibility
of the private respondents because there was no employer-
employee relationship between the petitioner and the
complainants, and the payment of separation pay is not a labor
standards benefit.
Law of the case has been defined as the opinion delivered on a
former appeal. It is a term applied to an established rule that
when an appellate court passes on a question and remands the
case to the lower court for further proceedings, the question
there settled becomes the law of the case upon subsequent
appeal. It means that whatever is once irrevocably established
as the controlling legal rule or decision between the same
parties in the same case continues to be the law of the case,
whether correct on general principles or not, so long as the facts
on which such decision was predicated continue to be the facts
of the case before the court.35 Indeed, courts must adhere
thereto, whether the legal principles laid down were "correct on
general principles or not" or "whether the question is right or
wrong" because public policy, judicial orderliness and economy
require such stability in the final judgments of courts or tribunals
of competent jurisdiction.36
Petitioner’s application of the law of the case principle to the
case at bar as regards its liability for payment of separation pay
is misplaced.
The only matters settled in the 23 May 1994 Resolution of this
Court in G.R. No. 111506, which can be regarded as the law of
the case, were (1) both the petitioner and the private
respondents were jointly and solidarily liable for the judgment
awards due the complainants; and (2) the said judgment awards
shall be enforced against the surety bond posted by the private
respondents. However, the issue as regards the liability of the
petitioner for payment of separation pay was yet to be resolved
because precisely, the NLRC, in its Order dated 30 July 1993,
still directed the Labor Arbiter to make a determination on who
should finally shoulder the monetary awards granted to the
complainants. And it was only after G.R. No. 111506 was
dismissed by this Court that the Labor Arbiter promulgated his
Decision dated 5 October 1994, wherein he clarified the
respective liabilities of the petitioner and the private respondents
for the judgment awards. In his 5 October 1994 Decision, the
Labor Arbiter explained that the solidary liability of the petitioner
was limited to the monetary awards for wage underpayment and
non-payment of overtime pay due the complainants, and it did
Page 105 of 191
not, in any way, extend to the payment of separation pay as the
105
same was the sole liability of the private respondents.
Nonetheless, this Court finds the present Petition meritorious.
The Court of Appeals indeed erred when it ruled that the
petitioner was jointly and solidarily liable with the private
respondents as regards the payment of separation pay.
The appellate court used as basis Article 109 of the Labor Code,
as amended, in holding the petitioner solidarily liable with the
private respondents for the payment of separation pay:
ART. 109. Solidary Liability. - The provisions of existing laws to
the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code. For
purposes of determining the extent of their civil liability under this
Chapter, they shall be considered as direct employers.
[Emphasis supplied].1avvphi1
However, the afore-quoted provision must be read in
conjunction with Articles 106 and 107 of the Labor Code, as
amended.
Article 107 of the Labor Code, as amended, defines an indirect
employer as "any person, partnership, association or
corporation which, not being an employer, contracts with an
independent contractor for the performance of any work, task,
job or project." To ensure that the contractor’s employees are
paid their appropriate wages, Article 106 of the Labor Code, as
amended, provides:
ART. 106. CONTRACTOR OR SUBCONTRACTOR. – x x x.
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.
[Emphasis supplied].
Taken together, an indirect employer (as defined by Article 107)
can only be held solidarily liable with the independent contractor
or subcontractor (as provided under Article 109) in the event that
the latter fails to pay the wages of its employees (as described
in Article 106).
Hence, while it is true that the petitioner was the indirect
employer of the complainants, it cannot be held liable in the
same way as the employer in every respect. The petitioner may
be considered an indirect employer only for purposes of unpaid
wages. As this Court succinctly explained in Philippine Airlines,
Inc. v. National Labor Relations Commission37:
While USSI is an independent contractor under the security
service agreement and PAL may be considered an indirect
employer, that status did not make PAL the employer of the
security guards in every respect. As correctly posited by the
Office of the Solicitor General, PAL may be considered an
indirect employer only for purposes of unpaid wages since
Article 106, which is applicable to the situation contemplated in
Section 107, speaks of wages. The concept of indirect employer
only relates or refers to the liability for unpaid wages. Read
together, Articles 106 and 109 simply mean that the party with
whom an independent contractor deals is solidarily liable with
the latter for unpaid wages, and only to that extent and for that
purpose that the latter is considered a direct employer. The term
"wage" is defined in Article 97(f) of the Labor Code as "the
remuneration of earnings, however designated, capable of
being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other
method of calculating the unwritten contract of employment for
work done or to be done, or for services rendered or to be
rendered and includes the fair and reasonable value, as
determined by the Secretary of Labor, of board, lodging, or other
facilities customarily furnished by the employer to the
employee."
Further, there is no question that private respondents are
operating as an independent contractor and that the
complainants were their employees. There was no employer-
employee relationship that existed between the petitioner and
the complainants and, thus, the former could not have dismissed
the latter from employment. Only private respondents, as the
complainants’ employer, can terminate their services, and
should it be done illegally, be held liable therefor. The only
instance when the principal can also be held liable with the
independent contractor or subcontractor for the backwages and
separation pay of the latter’s employees is when there is proof
that the principal conspired with the independent contractor or
subcontractor in the illegal dismissal of the employees, thus:
The liability arising from an illegal dismissal is unlike an order to
pay the statutory minimum wage, because the workers’ right to
such wage is derived from law. The proposition that payment of
back wages and separation pay should be covered by Article
109, which holds an indirect employer solidarily responsible with
his contractor or subcontractor for "any violation of any provision
of this Code," would have been tenable if there were proof -
there was none in this case - that the principal/employer had
conspired with the contractor in the acts giving rise to the illegal
dismissal. 38
It is the established fact of conspiracy that will tie the principal or
indirect employer to the illegal dismissal of the contractor or
subcontractor’s employees. In the present case, there is no
allegation, much less proof presented, that the petitioner
conspired with private respondents in the illegal dismissal of the
latter’s employees; hence, it cannot be held liable for the same.
Neither can the liability for the separation pay of the
complainants be extended to the petitioner based on contract.
Contract Order No. 166-84 executed between the petitioner and
the private respondents contains no provision for separation pay
in the event that the petitioner terminates the same. It is basic
that a contract is the law between the parties and the stipulations
therein, provided that they are not contrary to law, morals, good
customs, public order or public policy, shall be binding as
between the parties.39 Hence, if the contract does not provide
for such a liability, this Court cannot just read the same into the
contract without possibly violating the intention of the parties.
It is also worth noting that although the issue in CA-G.R. SP No.
50806 pertains to private respondents’ right to reimbursement
from petitioner for the "monetary awards" in favor of the
complainants, they limited their arguments to the monetary
awards for underpayment of wages and non-payment of
overtime pay, and were conspicuously silent on the monetary
award for separation pay. Thus, private respondents’ sole
liability for the separation pay of their employees should have
been deemed settled and already beyond the power of the Court
Page 106 of 191
of Appeals to resolve, since it was an issue never raised before
106
it.40
Although petitioner is not liable for complainants’ separation
pay, the Court conforms to the consistent findings in the
proceedings below that the petitioner is solidarily liable with the
private respondents for the judgment awards for underpayment
of wages and non-payment of overtime pay.
In this case, however, private respondents had already posted
a surety bond in an amount sufficient to cover all the judgment
awards due the complainants, including those for underpayment
of wages and non-payment of overtime pay. The joint and
several liability of the principal with the contractor and
subcontractor were enacted to ensure compliance with the
provisions of the Labor Code, principally those on statutory
minimum wage. This liability facilitates, if not guarantees,
payment of the workers’ compensation, thus, giving the workers
ample protection as mandated by the 1987 Constitution.41 With
private respondents’ surety bond, it can therefore be said that
the purpose of the Labor Code provision on the solidary liability
of the indirect employer is already accomplished since the
interest of the complainants are already adequately protected.
Consequently, it will be futile to continuously hold the petitioner
jointly and solidarily liable with the private respondents for the
judgment awards for underpayment of wages and non-payment
of overtime pay.
But while this Court had previously ruled that the indirect
employer can recover whatever amount it had paid to the
employees in accordance with the terms of the service contract
between itself and the contractor,42 the said ruling cannot be
applied in reverse to this case as to allow the private
respondents (the independent contractor), who paid for the
judgment awards in full, to recover from the petitioner (the
indirect employer).
Private respondents have nothing more to recover from
petitioner.
Petitioner had already handed over to private respondent the
wages and other benefits of the complainants. Records reveal
that it had complied with complainants’ salary increases in
accordance with the minimum wage set by Republic Act No.
6727 by faithfully adjusting the contract price for the janitorial
services it contracted with private respondents. 43 This is a
finding of fact made by the Labor Arbiter,44 untouched by the
NLRC45 and explicitly affirmed by the Court of Appeals,46 and
which should already bind this Court.
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.47
Having already received from petitioner the correct amount of
wages and benefits, but having failed to turn them over to the
complainants, private respondents should now solely bear the
liability for the underpayment of wages and non-payment of the
overtime pay.
WHEREFORE, premises considered, the instant Petition is
hereby GRANTED. The Decision and Resolution of the Court of
Appeals dated 24 April 2000 and 27 September 2000,
respectively, in CA-G.R. SP No. 50806, are hereby REVERSED
AND SET ASIDE. The Decision dated 30 January 1996 of the
National Labor Relations Commission in NLRC NCR CA No.
001737-91 (NLRC NCR Case No. 00-09-04432-89) is hereby
REINSTATED. No costs.
SO ORDERED.
G.R. No. 145271 July 14, 2005
MANILA ELECTRIC COMPANY, Petitioner, vs. ROGELIO
BENAMIRA, ERNIE DE SAGUN1, DIOSDADO YOGARE,
FRANCISCO MORO2, OSCAR LAGONOY3, Rolando Beni,
Alex Beni, Raul4 Guia, Armed Security & Detective Agency,
Inc., (ASDAI) and Advance FORCES Security &
INVESTIGATION Services, Inc., (AFSISI), Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of
the Rules of Court assailing the Decision,5 dated September 27,
2000, of the Court of Appeals (CA) in CA-G.R. SP No. 50520
which declared petitioner Manila Electric Company (MERALCO)
as the direct employer of individual respondents Rogelio
Benamira, Ernie De Sagun, Diosdado Yogare, Francisco Moro,
Oscar Lagonoy, Rolando Beni, Alex Beni and Raul De Guia
(individual respondents for brevity).
The factual background of the case is as follows:
The individual respondents are licensed security guards
formerly employed by People’s Security, Inc. (PSI) and
deployed as such at MERALCO’s head office in Ortigas Avenue,
Pasig, Metro Manila.
On November 30, 1990, the security service agreement
between PSI and MERALCO was terminated.
Immediately thereafter, fifty-six of PSI’s security guards,
including herein eight individual respondents, filed a complaint
for unpaid monetary benefits against PSI and MERALCO,
docketed as NLRC-NCR Case No. 05-02746-90.
Meanwhile, the security service agreement between respondent
Armed Security & Detective Agency, Inc., (ASDAI) and
MERALCO took effect on December 1, 1990. In the agreement,
ASDAI was designated as the AGENCY while MERALCO was
designated as the COMPANY. The pertinent terms and
conditions of the agreement are as follows:
1. The AGENCY shall initially provide the COMPANY with TWO
HUNDRED TWENTY (220) licensed, uniformed, bonded and
armed security guards to be assigned at the COMPANY’s
"MERALCO CENTER," complete with nightsticks, flashlights,
raincoats, and other paraphernalias to work on eight (8) hours
duty. The COMPANY shall determine the number of security
guards in accordance with its needs and the areas of
responsibility assigned to each, and shall have the option to
increase or decrease the number of guards at any time provided
the AGENCY is notified within twenty four (24) hours of the
Page 107 of 191
contemplated reduction or increase of the guards in which case
107
the cost or consideration shall be adjusted accordingly.
2. The COMPANY shall furnish the AGENCY copies of written
specific instruction to be followed or implemented by the latter’s
personnel in the discharge of their duties and responsibilities
and the AGENCY shall be responsible for the faithful
compliance therewith by its personnel together with such
general and specific orders which shall be issued from time to
time.
3. For and in consideration of the services to be rendered by the
AGENCY to the COMPANY, the COMPANY during the term of
this contract shall pay the AGENCY the amount of THREE
THOUSAND EIGHT HUNDRED PESOS (₱3,800.00) a month
per guard, FOUR THOUSAND PESOS (₱4,000.00) for the Shift
Leader and FOUR THOUSAND TWO HUNDRED PESOS
(₱4,200.00) for the Detachment Commander for eight (8) hours
work/day, Saturdays, Sundays and Holidays included, payable
semi-monthly.
xxx
5. The AGENCY shall assume the responsibility for the proper
and efficient performance of duties by the security guards
employed by it and it shall be solely responsible for any act of
said security guards during their watch hours, the COMPANY
being specifically released from any and all liability to third
parties arising from the acts or omission of the security guards
of the AGENCY.
6. The AGENCY also agrees to hold the COMPANY entirely free
from any liability, cause or causes of action or claims which may
be filed by said security guards by reason of their employment
with the AGENCY pursuant to this Agreement or under the
provisions of the Labor Code, the Social Security Act, and other
laws, decrees or social legislations now enacted or which
hereafter may be enacted.
7. Discipline and Administration of the security guards shall
conform with the rules and regulations of the AGENCY, and the
COMPANY reserves the right to require without explanation the
replacement of any guard whose behavior, conduct or
appearance is not satisfactory to the COMPANY and that the
AGENCY cannot pull-out any security guard from the
COMPANY without the consent of the latter.
8. The AGENCY shall conduct inspections through its duly
authorized inspector at least two (2) times a week of guards
assigned to all COMPANY installations secured by the
AGENCY located in the Metropolitan Manila area and at least
once a week of the COMPANY’s installations located outside of
the Metropolitan Manila area and to further submit its inspection
reports to the COMPANY. Likewise, the COMPANY shall have
the right at all times to inspect the guards of the AGENCY
assigned to the COMPANY.
9. The said security guards shall be hired by the AGENCY and
this contract shall not be deemed in any way to constitute a
contract of employment between the COMPANY and any of the
security guards hired by the AGENCY but merely as a contract
specifying the conditions and manner under which the AGENCY
shall render services to the COMPANY.
10. Nothing herein contained shall be understood to make the On the other hand, MERALCO denied liability on the ground of

security guards under this Agreement, employees of the
COMPANY, it being clearly understood that such security
guards shall be considered as they are, employees of the
AGENCY alone, so that the AGENCY shall be responsible for
compliance with all pertinent labor laws and regulations included
but not limited to the Labor Code, Social Security Act, and all
other applicable laws and regulations including that providing for
a withholding tax on income.
108
lack of employer-employee relationship with individual
respondents. It averred that the individual respondents are the
employees of the security agencies it contracted for security
services; and that it has no existing liability for the individual
respondents’ claims since said security agencies have been
fully paid for their services per their respective security service
agreement.

xxx
13. This contract shall take effect on the 1st day of December,
1990 and shall continue from year to year unless sooner
terminated by the COMPANY for cause or otherwise terminated
by either party without cause upon thirty (30) days written notice
by one party to the other.6
For its part, AFSISI asserted that: it is not liable for illegal
dismissal since it did not absorb or hire the individual
respondents, the latter were merely hold-over guards from
ASDAI; it is not obliged to employ or absorb the security guards
of the agency it replaced since there is no provision in its security
service agreement with MERALCO or in law requiring it to
absorb and hire the guards of ASDAI as it has its own guards
duly trained to service its various clients.

On January 3, 1994, after the submission of their respective

evidence and position papers, Labor Arbiter Pablo C. Espiritu,
Subsequently, the individual respondents were absorbed by
Jr. rendered a Decision holding ASDAI and MERALCO jointly
ASDAI and retained at MERALCO’s head office.
and solidarily liable to the monetary claims of individual
respondents and dismissing the complaint against AFSISI. The
dispositive portion of the decision reads as follows:
On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered
a decision in NLRC-NCR Case No. 05-02746-90 in favor of the
former PSI security guards, including the individual
WHEREFORE, conformably with the above premises, judgment
respondents.
is hereby rendered:

Less than a month later, or on July 21, 1992, the individual

1. Declaring ASDAI as the employer of the complainants and as
respondents filed another complaint for unpaid monetary
such complainants should be reinstated as regular security
benefits, this time against ASDAI and MERALCO, docketed as
guards of ASDAI without loss of seniority rights, privileges and
NLRC-NCR Case No. 00-07-03953-92.
benefits and for ASDAI to immediately post the complainants as
security guards with their clients. The complaint against AFSISI
is Dismissed for lack of merit.
On July 25, 1992, the security service agreement between
respondent Advance Forces Security & Investigation Services,
Inc. (AFSISI) and MERALCO took effect, terminating the
2. Ordering both respondents, ASDAI and MERALCO to jointly
previous security service agreement with ASDAI.7 Except as to
and solidarily pay complainants monetary claims
the number of security guards,8 the amount to be paid the
(underpayment of actual regular hours and overtime hours
agency,9 and the effectivity of the agreement,10 the terms and
rendered, and premium pay for holiday and rest day) in the
conditions were substantially identical with the security service
following amounts:
agreement with ASDAI.

NAME OVERTIME DIFFERENTIALS AND PREMIUM PAY

On July 29, 1992, the individual respondents amended their
FOR HOLIDAY & REST DAY
complaint to implead AFSISI as party respondent. On August
11, 1992 they again amended their complaint to allege that
AFSISI terminated their services on August 6, 1992 without
notice and just cause and therefore guilty of illegal dismissal. 1. Rogelio Benamira

The individual respondents alleged that: MERALCO and ASDAI P14,615.75

never paid their overtime pay, service incentive leave pay,
premium pay for Sundays and Holidays, ₱50.00 monthly
uniform allowance and underpaid their 13th month pay; on July
2. Ernie De Sagun
24, 1992, when the security service agreement of ASDAI was
terminated and AFSISI took over the security functions of the
former on July 25, 1992, respondent security guard Benamira
was no longer given any work assignment when AFSISI learned 21,164.31
that the former has a pending case against PSI, in effect,
dismissing him from the service without just cause; and, the rest
of the individual respondents were absorbed by AFSISI but were
not given any assignments, thereby dismissing them from the 3. Diosdado Yogare
service without just cause.

7,108.77
ASDAI denied in general terms any liability for the claims of the
individual respondents, claiming that there is nothing due them
in connection with their services. 4. Francisco Maro

Page 108 of 191

26,567.11
5. Oscar Lagonay
18,863.36
6. Rolando Beni
21,834.12
7. Alex Beni
21,648.80
8. Ruel De Guia
14,200.33
3. Ordering Respondents ASDAI and MERALCO to jointly and
solidarily pay complainants 10% attorney’s fees in the amount
of ₱14,600.25 based on the total monetary award due to the
complainants in the amount of ₱146,002.55.
All other claims of the complainants are hereby DISMISSED for
lack of merit.
The counter-claim of respondent AFSISI for damages is hereby
dismissed for want of substantial evidence to justify the grant of
damages.
SO ORDERED.11
All the parties, except AFSISI, appealed to the National Labor
Relations Commission (NLRC).
Individual respondents’ partial appeal assailed solely the Labor
Arbiter’s declaration that ASDAI is their employer. They insisted
that AFSISI is the party liable for their illegal dismissal and
should be the party directed to reinstate them.
For its part, MERALCO attributed grave abuse of discretion on
the part of the Labor Arbiter in failing to consider the absence of
employer-employee relationship between MERALCO and
individual respondents.
On the other hand, ASDAI took exception from the Labor
Arbiter’s finding that it is the employer of the individual
respondents and therefore liable for the latter’s unpaid monetary
benefits.
On April 10, 1995, the NLRC affirmed in toto the decision of the
Labor Arbiter.12 On April 19, 1995, the individual respondents
Page 109 of 191
filed a motion for partial reconsideration but it was denied by the
109
NLRC in a Resolution dated May 23, 1995.13
On August 11, 1995, the individual respondents filed a petition
for certiorari before us, docketed as G.R. No. 121232.14 They
insisted that they were absorbed by AFSISI and the latter
effected their termination without notice and just cause.
After the submission of the responsive pleadings and
memoranda, we referred the petition, in accordance with St.
Martin Funeral Homes vs. NLRC,15 to the CA which, on
September 27, 2000, modified the decision of the NLRC by
declaring MERALCO as the direct employer of the individual
respondents.
The CA held that: MERALCO changed the security agency
manning its premises three times while engaging the services of
the same people, the individual respondents; MERALCO
employed a scheme of hiring guards through an agency and
periodically entering into service contract with one agency after
another in order to evade the security of tenure of individual
respondents; individual respondents are regular employees of
MERALCO since their services as security guards are usually
necessary or desirable in the usual business or trade of
MERALCO and they have been in the service of MERALCO for
no less than six years; an employer-employee relationship
exists between MERALCO and the individual respondents
because: (a) MERALCO had the final say in the selection and
hiring of the guards, as when its advice was proved to have
carried weight in AFSISI’s decision not to absorb the individual
respondents into its workforce; (b) MERALCO paid the wages
of individual respondents through ASDAI and AFSISI; (c)
MERALCO’s discretion on matters of dismissal of guards was
given great weight and even finality since the record shows that
the individual respondents were replaced upon the advice of
MERALCO; and, (d) MERALCO has the right, at any time, to
inspect the guards, to require without explanation the
replacement of any guard whose behavior, conduct or
appearance is not satisfactory and ASDAI and AFSISI cannot
pull out any security guard from MERALCO without the latter’s
consent; and, a labor-only contract existed between ASDAI and
AFSISI and MERALCO, such that MERALCO is guilty of illegal
dismissal without just cause and liable for reinstatement of
individual respondents to its workforce.
The dispositive portion of the CA’s Decision reads as follows:
WHEREFORE, in view of the foregoing premises, the
Resolution subject of this petition is hereby AFFIRMED with
MODIFICATION in the sense that MERALCO is declared the
employer of the petitioners. Accordingly, private respondent
MERALCO is hereby ordered as follows:
1. To reinstate petitioners into MERALCO’s work force as
regular security guards without loss of seniority rights and other
privileges; and
2. To pay the petitioners’ full backwages, inclusive of
allowances, and other benefits or their monetary equivalent
computed from the time their compensation was withheld from
them up to the time of their actual reinstatement, for which the
Labor Arbiter Pablo C. Espiritu, Jr. is hereby directed to
undertake the necessary computation and enforcement thereof.
With respect to the rest of the dispositive portion of the assailed
Resolution which affirmed the decision of the Labor Arbiter
Pablo C. Espiritu, Jr., particularly the joint and solidary liabilities
of both ASDAI and MERALCO to the petitioners, the same are
hereby AFFIRMED.
SO ORDERED.16
Hence, the present petition for review on certiorari, filed by
MERALCO, anchored on the following grounds:
A. THE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR AND GRAVE ABUSE OF DISCRETION
IN HOLDING THAT AN EMPLOYER-EMPLOYEE
RELATIONSHIP EXISTS BETWEEN PETITIONER MERALCO
AND INDIVIDUAL RESPONDENTS.
B. THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT INDIVIDUAL
RESPONDENTS ARE REGULAR EMPLOYEES OF
PETITIONER MERALCO.
C. THE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR IN ALLOWING INDIVIDUAL
RESPONDENTS TO RAISE FOR THE FIRST TIME ON
APPEAL, THE ISSUE THAT PETITIONER WAS THEIR
DIRECT EMPLOYER.
D. THE COURT OF APPEALS COMMITTED SERIOUS
ERROR IN FINDING THAT PETITIONER MERALCO IS
GUILTY OF ILLEGAL DISMISSAL.
E. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT INDIVIDUAL RESPONDENTS ARE ENTITLED TO
REINSTATEMENT INTO PETITIONER’S WORKFORCE.
F. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT
FINDING THAT PETITIONER MERALCO IS ENTITLED TO
REIMBURSEMENT FROM RESPONDENT ASDAI FOR THE
MONETARY CLAIMS PETITIONER PAID TO INDIVIDUAL
RESPONDENTS PURSUANT TO THE SECURITY SERVICE
AGREEMENT.17
Anent the first ground, MERALCO submits that the elements of
"four-fold" test to determine the existence of an employer-
employee relation, namely: (1) the power to hire, (2) the
payment of wages, (3) the power to dismiss, and (4) the power
to control, are not present in the instant case.
Regarding the power to hire, MERALCO contends that the
records are bereft of any evidence that shows that it participated
in or influenced the decision of PSI and ASDAI to hire or absorb
the individual respondents.
As to the payment of wages, MERALCO maintains that the
individual respondents received their wages from their agency.
With regard to the power to dismiss, MERALCO argues that the
security service agreement clearly provided that the discipline
and administration of the security guards shall conform to the
rules and regulations of the agency.
Page 110 of 191
Concerning the power of control, MERALCO asserts that there
110
is no evidence that individual respondents were subjected to its
control as to the manner or method by which they conduct or
perform their work of guarding of MERALCO’s premises.
Furthermore, MERALCO insists that ASDAI and AFSISI are not
labor-only contractors since they have their own equipment,
machineries and work premises which are necessary in the
conduct of their business and the duties performed by the
security guards are not necessary in the conduct of MERALCO’s
principal business.
With respect to the second ground, MERALCO argues that the
individual respondents cannot be considered as regular
employees as the duties performed by them as security guards
are not necessary in the conduct of MERALCO’s principal
business which is the distribution of electricity.
As regards the third ground, MERALCO argues that it was
denied due process when the individual respondents raised for
the first time in the CA the issue that MERALCO is their direct
employer since the individual respondents have always
considered themselves as employees of AFSISI and nowhere in
the Labor Arbiter or the NLRC did they raise the argument that
MERALCO is their direct employer.
Regarding the fourth ground, MERALCO asserts that it is not
guilty of illegal dismissal because it had no direct hand or
participation in the termination of the employment of individual
respondents, who even insisted in their petition for certiorari in
the CA that it was AFSISI which terminated their employment.
As to the fifth ground, MERALCO maintains that the individual
respondents are not entitled to reinstatement into its workforce
because no employer-employee relationship exists between it
and the individual respondents.
With regard to the sixth ground, MERALCO asserts that since it
is not the direct employer of the individual respondents, it has a
right of reimbursement from ASDAI for the full amount it may
pay to the individual respondents under Articles 106 and 107 of
the Labor Code.
In contrast, the individual respondents maintain that the CA aptly
found that all the elements in employer-employee relationship
exist between them and MERALCO and there is no cogent
reason to deviate from such factual findings.
For its part, ASDAI contends that the instant petition raises
factual matters beyond the jurisdiction of this Court to resolve
since only questions of law may be raised in a petition for review
on certiorari. It submits that while the rule admits of exceptions,
MERALCO failed to establish that the present case falls under
any of the exceptions.
On the other hand, AFSISI avers that there is no employer-
employee relationship between MERALCO and the security
guards of any of the security agencies under contract with
MERALCO.
It is a settled rule that in the exercise of the Supreme Court’s
power of review, the Court is not a trier of facts and does not
normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the case
considering that the findings of facts of the CA are conclusive
and binding on the Court. However, jurisprudence has
recognized several exceptions in which factual issues may be
resolved by this Court, to wit:
(1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition
as well as in the petitioner’s main and reply briefs are not
disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court
of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would
justify a different conclusion.18
In the present case, the existence of an employer-employee
relationship is a question of fact which is well within the province
of the CA. Nonetheless, given the reality that the CA’s findings
are at odds to those of the NLRC, the Court is constrained to
look deeper into the attendant circumstances obtaining in the
present case, as appearing on record.
At the outset, we note that the individual respondents never
alleged in their complaint in the Labor Arbiter, in their appeal in
the NLRC and even in their petition for certiorari in the CA that
MERALCO was their employer. They have always advanced the
theory that AFSISI is their employer. A perusal of the records
shows it was only in their Memorandum in the CA that this thesis
was presented and discussed for the first time. We cannot
ignore the fact that this position of individual respondents runs
contrary to their earlier submission in their pleadings filed in the
Labor Arbiter, NLRC and even in the petition for certiorari in the
CA that AFSISI is their employer and liable for their termination.
As the object of the pleadings is to draw the lines of battle, so to
speak, between the litigants and to indicate fairly the nature of
the claims or defenses of both parties, a party cannot
subsequently take a position contrary to, or inconsistent, with his
pleadings.19
Moreover, it is a fundamental rule of procedure that higher
courts are precluded from entertaining matters neither alleged
in the pleadings nor raised during the proceedings below, but
ventilated for the first time only in a motion for reconsideration
or on appeal.20 The individual respondents are bound by their
submissions that AFSISI is their employer and they should not
be permitted to change their theory. Such a change of theory
cannot be tolerated on appeal, not due to the strict application
of procedural rules but as a matter of fairness. A change of
theory on appeal is objectionable because it is contrary to the
rules of fair play, justice and due process.21
Thus, the CA should not have considered the new theory offered
by the individual respondents in their memorandum.
The present petition for review on certiorari is far from novel and,
in fact, not without precedence. We have ruled in Social Security
System vs. Court of Appeals22 that:
Page 111 of 191
...The guards or watchmen render their services to private
111
respondent by allowing themselves to be assigned by said
respondent, which furnishes them arms and ammunition, to
guard and protect the properties and interests of private
respondent's clients, thus enabling that respondent to fulfill its
contractual obligations. Who the clients will be, and under what
terms and conditions the services will be rendered, are matters
determined not by the guards or watchmen, but by private
respondent. On the other hand, the client companies have no
hand in selecting who among the guards or watchmen shall be
assigned to them. It is private respondent that issues
assignment orders and instructions and exercises control and
supervision over the guards or watchmen, so much so that if, for
one reason or another, the client is dissatisfied with the services
of a particular guard, the client cannot himself terminate the
services of such guard, but has to notify private respondent,
which either substitutes him with another or metes out to him
disciplinary measures. That in the course of a watchman's
assignment the client conceivably issues instructions to him,
does not in the least detract from the fact that private respondent
is the employer of said watchman, for in legal contemplation
such instructions carry no more weight than mere requests, the
privity of contract being between the client and private
respondent, not between the client and the guard or watchman.
Corollarily, such giving out of instructions inevitably spring from
the client's right predicated on the contract for services entered
into by it with private respondent.
In the matter of compensation, there can be no question at all
that the guards or watchmen receive compensation from private
respondent and not from the companies or establishments
whose premises they are guarding. The fee contracted for to be
paid by the client is admittedly not equal to the salary of a guard
or watchman; such fee is arrived at independently of the salary
to which the guard or watchman is entitled under his
arrangements with private respondent.23
and reiterated in American President Lines vs. Clave,24 thus:
In the light of the foregoing standards, We fail to see how the
complaining watchmen of the Marine Security Agency can be
considered as employees of the petitioner. It is the agency that
recruits, hires, and assigns the work of its watchmen. Hence, a
watchman can not perform any security service for the
petitioner's vessels unless the agency first accepts him as its
watchman. With respect to his wages, the amount to be paid to
a security guard is beyond the power of the petitioner to
determine. Certainly, the lump sum amount paid by the
petitioner to the agency in consideration of the latter's service is
much more than the wages of any one watchman. In point of
fact, it is the agency that quantifies and pays the wages to which
a watchman is entitled.
Neither does the petitioner have any power to dismiss the
security guards. In fact, We fail to see any evidence in the record
that it wielded such a power. It is true that it may request the
agency to change a particular guard. But this, precisely, is proof
that the power lies in the hands of the agency.
Since the petitioner has to deal with the agency, and not the
individual watchmen, on matters pertaining to the contracted
task, it stands to reason that the petitioner does not exercise any
power over the watchmen's conduct. Always, the agency stands
between the petitioner and the watchmen; and it is the agency
that is answerable to the petitioner for the conduct of its
guards.25
In this case, the terms and conditions embodied in the security
service agreement between MERALCO and ASDAI expressly
recognized ASDAI as the employer of individual respondents.

Under the security service agreement, it was ASDAI which (a)
selected, engaged or hired and discharged the security guards;
(b) assigned them to MERALCO according to the number
agreed upon; (c) provided the uniform, firearms and
ammunition, nightsticks, flashlights, raincoats and other
paraphernalia of the security guards; (d) paid them salaries or
wages; and, (e) disciplined and supervised them or principally
controlled their conduct. The agreement even explicitly provided
that "[n]othing herein contained shall be understood to make the
security guards under this Agreement, employees of the
COMPANY, it being clearly understood that such security
guards shall be considered as they are, employees of the
AGENCY alone." Clearly, the individual respondents are the
employees of ASDAI.
As to the provision in the agreement that MERALCO reserved
the right to seek replacement of any guard whose behavior,
conduct or appearance is not satisfactory, such merely confirms
that the power to discipline lies with the agency. It is a standard
stipulation in security service agreements that the client may
request the replacement of the guards to it. Service-oriented
enterprises, such as the business of providing security services,
generally adhere to the business adage that "the customer or
client is always right" and, thus, must satisfy the interests,
conform to the needs, and cater to the reasonable impositions
of its clients.
Neither is the stipulation that the agency cannot pull out any
security guard from MERALCO without its consent an indication
of control. It is simply a security clause designed to prevent the
agency from unilaterally removing its security guards from their
assigned posts at MERALCO’s premises to the latter’s
detriment.
The clause that MERALCO has the right at all times to inspect
the guards of the agency detailed in its premises is likewise not
indicative of control as it is not a unilateral right. The agreement
provides that the agency is principally mandated to conduct
inspections, without prejudice to MERALCO’s right to conduct
its own inspections.
Needless to stress, for the power of control to be present, the
person for whom the services are rendered must reserve the
right to direct not only the end to be achieved but also the means
for reaching such end.26 Not all rules imposed by the hiring
party on the hired party indicate that the latter is an employee of
the former.27 Rules which serve as general guidelines towards
the achievement of the mutually desired result are not indicative
of the power of control.28
Verily, the security service agreements in the present case
provided that all specific instructions by MERALCO relating to
the discharge by the security guards of their duties shall be
directed to the agency and not directly to the individual
respondents. The individual respondents failed to show that the
rules of MERALCO controlled their performance.
Moreover, ASDAI and AFSISI are not "labor-only" contractors.
There is "labor only" contract when the person acting as
contractor is considered merely as an agent or intermediary of
the principal who is responsible to the workers in the same
manner and to the same extent as if they had been directly
employed by him. On the other hand, "job (independent)
contracting" is present if the following conditions are met: (a) the
contractor carries on an independent business and undertakes
the contract work on his own account under his own
responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all
Page 112 of 191
matters connected with the performance of the work except to
112
the result thereof; and (b) the contractor has substantial capital
or investments in the form of tools, equipment, machineries,
work premises and other materials which are necessary in the
conduct of his business.29 Given the above distinction and the
provisions of the security service agreements entered into by
petitioner with ASDAI and AFSISI, we are convinced that ASDAI
and AFSISI were engaged in job contracting.
The individual respondents can not be considered as regular
employees of the MERALCO for, although security services are
necessary and desirable to the business of MERALCO, it is not
directly related to its principal business and may even be
considered unnecessary in the conduct of MERALCO’s principal
business, which is the distribution of electricity.
Furthermore, the fact that the individual respondents filed their
claim for unpaid monetary benefits against ASDAI is a clear
indication that the individual respondents acknowledge that
ASDAI is their employer.
We cannot give credence to individual respondents’ insistence
that they were absorbed by AFSISI when MERALCO’s security
service agreement with ASDAI was terminated. The individual
respondents failed to present any evidence to confirm that
AFSISI absorbed them into its workforce. Thus, respondent
Benamira was not retained in his post at MERALCO since July
25, 1992 due to the termination of the security service
agreement of MERALCO with ASDAI. As for the rest of the
individual respondents, they retained their post only as "hold-
over" guards until the security guards of AFSISI took over their
post on August 6, 1992.30
In the present case, respondent Benamira has been "off-detail"
for seventeen days while the rest of the individual respondents
have only been "off- detail" for five days when they amended
their complaint on August 11, 1992 to include the charge of
illegal dismissal. The inclusion of the charge of illegal dismissal
then was premature. Nonetheless, bearing in mind that ASDAI
simply stopped giving the individual respondents any
assignment and their inactivity clearly persisted beyond the six-
month period allowed by Article 28631 of the Labor Code, the
individual respondents were, in effect, constructively dismissed
by ASDAI from employment, hence, they should be reinstated.
The fact that there is no actual and direct employer-employee
relationship between MERALCO and the individual respondents
does not exonerate MERALCO from liability as to the monetary
claims of the individual respondents. When MERALCO
contracted for security services with ASDAI as the security
agency that hired individual respondents to work as guards for
it, MERALCO became an indirect employer of individual
respondents pursuant to Article 107 of the Labor Code, which
reads:
ART. 107. Indirect employer - The provisions of the immediately
preceding Article shall likewise apply to any person, partnership,
association or corporation which, not being an employer,
contracts with an independent contractor for the performance of
any work, task, job or project.
When ASDAI as contractor failed to pay the individual
respondents, MERALCO as principal becomes jointly and
severally liable for the individual respondents’ wages, under
Articles 106 and 109 of the Labor Code, which provide:
ART. 106. Contractor or subcontractor. - Whenever an employer
enters into a contract with another person for the performance
of the former[‘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. xxx
ART. 109. Solidary liability - The provisions of existing laws to
the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code. For
purpose of determining the extent of their civil liability under this
Chapter, they shall be considered as direct employers.
ASDAI is held liable by virtue of its status as direct employer,
while MERALCO is deemed the indirect employer of the
individual respondents for the purpose of paying their wages in
the event of failure of ASDAI to pay them. This statutory scheme
gives the workers the ample protection
consonant with labor and social justice provisions of the 1987
Constitution.32
However, as held in Mariveles Shipyard Corp. vs. Court of
Appeals,33 the solidary liability of MERALCO with that of ASDAI
does not preclude the application of Article 1217 of the Civil
Code on the right of reimbursement from his co-debtor by the
one who paid,34 which provides:
ART. 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary debtors offer
to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only
the share which corresponds to each, with the interest for the
payment already made. If the payment is made before the debt
is due, no interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-debtors, in
proportion to the debt of each.
ASDAI may not seek exculpation by claiming that MERALCO’s
payments to it were inadequate for the individual respondents’
lawful compensation. As an employer, ASDAI is charged with
knowledge of labor laws and the adequacy of the compensation
that it demands for contractual services is its principal concern
and not any other’s.35
WHEREFORE, the present petition is GRANTED. The assailed
Decision, dated September 27, 2000, of the CA is REVERSED
and SET ASIDE. The Decision of the Labor Arbiter dated
January 3, 1994 and the Resolution of the NLRC dated April 10,
1995 are AFFIRMED with the MODIFICATION that the joint and
solidary liability of ASDAI and MERALCO to pay individual
respondents’ monetary claims for underpayment of actual
regular hours and overtime hours rendered, and premium pay
Page 113 of 191
for holiday and rest day, as well as attorney’s fees, shall be
113
without prejudice to MERALCO’s right of reimbursement from
ASDAI.
SO ORDERED.
G.R. No. 161115 November 30, 2006
DOLE PHILIPPINES, INC., Petitioner, vs. MEDEL ESTEVA,
HENRY SILVA, GILBERT CABILAO, LORENZO GAQUIT,
DANIEL PABLO, EDWIN CAMILO, BENJAMIN SAKILAN,
RICHARD PENUELA, ARMANDO PORRAS, EDUARDO
FALDAS, NILO DONDOYANO, MIGUEL DIAZ, ROMEL
BAJO, ARTEMIO TENERIFE, EDDIE LINAO, JERRY LIGTAS,
SAMUEL RAVAL, WILFREDO BLANDO, LORENZO
MONTERO, JR., JAIME TESIPAO, GEORGE DERAL,
ERNESTO ISRAEL, JR., AGAPITO ESTOLOGA, JOVITO
DAGUIO, ARSENIO LEONCIO, MARLON BLANDO, JOSE
OTELO CASPILLO, ARNOLD LIZADA, JERRY
DEYPALUBOS, STEVEN MADULA, ROGELIO CABULAO,
JR., ALVIN COMPOC, EUGENIO BRITANA, RONNIE
GUELOS, EMMANUEL JIMENA, GERMAN JAVA, JESUS
MEJICA, JOEL INVENTADO, DOMINGO JABULGO, RAMIL
ENAD, RAYMUNDO YAMON, RITCHIE MELENDRES,
JACQUEL ORGE, RAMON BARCELONA, ERWIN ESPIA,
NESTOR DELIDELI, JR., ALLAN GANE, ROMEO PORRAS,
RITCHIE BOCOG, JOSELITO ACEBES, DANNY TORRES,
JIMMY NAVARRO, RALPH PEREZ, SONNY SESE, RONALD
RODRIQUES, ROBERTO ALLANEC, ERNIE GIGANTANA,
NELSON SAMSON, REDANTE DAVILA, EDDIE BUSLIG,
ALLAN PINEDA, JESUS BELGERA, VICENTE LABISTE,
CARMENCITA FELISILDA, GEORGE DERLA, RUBEN
TORMON, NEIL TAJALE, ORLANDO ESPENILLA, RITCHEL
MANEJAR, JOEL QUINTANA, ERWIN ALDE, JOEL
CATALAN, ELMER TIZON, ALLAN ESPADA, EUGENE
BRETANA, RAMIL ENAD, RENE INGALLA, STEVEN
MADULLA, RANDY REBUTAZO, NEIL BAGATILLA,
ARSENIO LEONCIO, ROLANDO VILLEGAS and JUSLIUS
TESIPAO, herein represented by MEDEL ESTEVA,
Authorized Representative, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under
Rule 45 of the revised Rules of Civil Procedure seeking the
reversal of the Decision,1 dated 20 May 2002, and the Amended
Decision,2 dated 27 November 2003, both rendered by the
Court of Appeals in CA-G.R. SP No. 63405, which declared
herein petitioner Dole Philippines, Inc. as the employer of herein
respondents, Medel Esteva and 86 others; found petitioner
guilty of illegal dismissal; and ordered petitioner to reinstate
respondents to their former positions and to pay the latter
backwages.
The antecedent facts of the case are recounted as follows:
Petitioner is a corporation duly organized and existing in
accordance with Philippine laws, engaged principally in the
production and processing of pineapple for the export market.3
Its plantation is located in Polomolok, South Cotabato.4
Respondents are members of the Cannery Multi-Purpose
Cooperative (CAMPCO). CAMPCO was organized in
accordance with Republic Act No. 6938, otherwise known as the
Cooperative Code of the Philippines, and duly-registered with
the Cooperative Development Authority (CDA) on 6 January
1993.5 Members of CAMPCO live in communities surrounding
petitioner’s plantation and are relatives of petitioner’s
employees.
On 17 August 1993, petitioner and CAMPCO entered into a
Service Contract.6 The Service Contract referred to petitioner
as "the Company," while CAMPCO was "the Contractor."
Relevant portions thereof read as follows –
1. That the amount of this contract shall be or shall not exceed
TWO HUNDRED TWENTY THOUSAND ONLY (₱220,000.00)
PESOS, terms and conditions of payment shall be on a per job
basis as specified in the attached schedule of rates; the
CONTRACTOR shall perform the following services for the
COMPANY;
1.1 Assist the COMPANY in its daily operations;
1.2 Perform odd jobs as may be assigned.
2. That both parties shall observe the following terms and
conditions as stipulated, to wit:
2.1 CONTRACTOR must carry on an independent legitimate
business, and must comply with all the pertinent laws of the
government both local and national;
2.2 CONTRACTOR must provide all hand tools and equipment
necessary in the performance of their work.
However, the COMPANY may allow the use of its fixed
equipment as a casual facility in the performance of the contract;
2.3 CONTRACTOR must comply with the attached scope of
work, specifications, and GMP and safety practices of the
company;
2.4 CONTRACTOR must undertake the contract work under the
following manner:
a. on his own account;
b. under his own responsibility;
c. according to his manner and method, free from the control
and direction of the company in all matters connected with the
performance of the work except as to the result thereof;
3. CONTRACTOR must pay the prescribed minimum wage,
remit SSS/MEDICARE premiums to proper government
agencies, and submit copies of payroll and proof of
SSS/MEDICARE remittances to the COMPANY;
4. This contract shall be for a specific period of Six (6) months
from July 1 to December 31, 1993; x x x.
Page 114 of 191
Pursuant to the foregoing Service Contract, CAMPCO members
114
rendered services to petitioner. The number of CAMPCO
members that report for work and the type of service they
performed depended on the needs of petitioner at any given
time. Although the Service Contract specifically stated that it
shall only be for a period of six months, i.e., from 1 July to 31
December 1993, the parties had apparently extended or
renewed the same for the succeeding years without executing
another written contract. It was under these circumstances that
respondents came to work for petitioner.
Investigation by DOLE
Concomitantly, the Sangguniang Bayan of Polomolok, South
Cotabato, passed Resolution No. 64, on 5 May 1993, addressed
to then Secretary Ma. Nieves R. Confessor of the Department
of Labor and Employment (DOLE), calling her attention to the
worsening working conditions of the petitioner’s workers and the
organization of contractual workers into several cooperatives to
replace the individual labor-only contractors that used to supply
workers to the petitioner. Acting on the said Resolution, the
DOLE Regional Office No. XI in Davao City organized a Task
Force that conducted an investigation into the alleged labor-only
contracting activities of the cooperatives in Polomolok.7
On 24 May 1993, the Senior Legal Officer of petitioner wrote a
letter addressed to Director Henry M. Parel of DOLE Regional
Office No. XI, supposedly to correct the misinformation that
petitioner was involved in labor-only contracting, whether with a
cooperative or any private contractor. He further stated in the
letter that petitioner was not hiring cooperative members to
replace the regular workers who were separated from service
due to redundancy; that the cooperatives were formed by the
immediate dependents and relatives of the permanent workers
of petitioner; that these cooperatives were registered with the
CDA; and that these cooperatives were authorized by their
respective constitutions and by-laws to engage in the job
contracting business.8
The Task Force submitted a report on 3 June 1993 identifying
six cooperatives that were engaged in labor-only contracting,
one of which was CAMPCO. The DOLE Regional Office No. XI
held a conference on 18 August 1993 wherein the
representatives of the cooperatives named by the Task Force
were given the opportunity to explain the nature of their activities
in relation to petitioner. Subsequently, the cooperatives were
required to submit their position papers and other supporting
documents, which they did on 30 August 1993. Petitioner
likewise submitted its position paper on 15 September 1993.9
On 19 October 1993, Director Parel of DOLE Regional Office
No. XI issued an Order10 in which he made the following
findings –
Records submitted to this Office show that the six (6)
aforementioned cooperatives are all duly registered with the
Cooperative Development Authority (CDA). These cooperatives
were also found engaging in different activities with DOLE
PHILIPPINES, INC. a company engaged in the production of
pineapple and export of pineapple products. Incidentally, some
of these cooperatives were also found engaging in activities
which are directly related to the principal business or operations
of the company. This is true in the case of the THREE (3)
Cooperatives, namely; Adventurer’s Multi Purpose Cooperative,
Human Resource Multi Purpose Cooperative and Cannery Multi
Purpose Cooperative.
From the foregoing findings and evaluation of the activities of
Adventurer’s Multi Purpose Cooperative, Human Resource Multi
Purpose Cooperative and Cannery Multi Purpose Cooperative,
this Office finds and so holds that they are engaging in Labor
Only Contracting Activities as defined under Section 9, Rule VIII,
Book III of the rules implementing the Labor Code of the
Philippines, as amended which we quote:
"Section 9 Labor Only Contracting – a) Any person who
undertakes to supply workers to an employer shall be deemed
to be engaged in labor-only contracting where such person:
1) Does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises and other
materials; and
2) The workers recruited and placed by such person are
performing activities which are directly related to the principal
business or operation of the employer to which workers are
habitually employed.
b) Labor-only contracting as defined herein is hereby prohibited
and the person acting as contractor shall be considered merely
as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if
the latter were directly employed by him."
WHEREFORE, premises considered, ADVENTURER’S MULTI
PURPOSE COOPERATIVE, HUMAN RESOURCE MULTI
PURPOSE COOPERATIVE and CANNERY MULTI PURPOSE
COOPERATIVE are hereby declared to be engaged in labor
only contracting which is a prohibited activity. The same
cooperatives are therefore ordered to cease and desist from
further engaging in such activities.
The three (3) other cooperatives, namely Polomolok Skilled
Workers Multi Purpose Cooperative, Unified Engineering and
Manpower Service Multi Purpose Cooperative and Tibud sa
Katibawasan Multi Purpose Cooperative whose activities may
not be directly related to the principal business of DOLE
Philippines, Inc. are also advised not to engage in labor only
contracting with the company.
All the six cooperatives involved appealed the afore-quoted
Order to the Office of the DOLE Secretary, raising the sole issue
that DOLE Regional Director Director Parel committed serious
error of law in directing the cooperatives to cease and desist
from engaging in labor-only contracting. On 15 September 1994,
DOLE Undersecretary Cresencio B. Trajano, by the authority of
the DOLE Secretary, issued an Order11 dismissing the appeal
on the basis of the following ratiocination –
The appeal is devoid of merit.
The Regional Director has jurisdiction to issue a cease and
desist order as provided by Art. 106 of the Labor Code, as
amended, to wit:
"Art. 106. Contractor or subcontractor. x x x
xxxx
Page 115 of 191
115
The Secretary of Labor may, by appropriate regulations, restrict
or prohibit the contracting out 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 (Emphasis supplied)
There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the forms of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed
by such person are performing activities which are directly
related to the principal business of the employer. In such cases,
the person or the 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."
in relation to Article 128(b) of the Labor Code, as amended by
Republic Act No. 7730, which reads:
"Art. 128. Visitorial and Enforcement Power.
b) Notwithstanding the provisions of Articles 129 and 217 of this
Code to the contrary, and in cases where the relationship of
employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have
the power to issue compliance orders to give effect to the labor
standards provisions of this Code and other labor legislation
based on the findings of labor employment and enforcement
officers or industrial safety engineers made in the course of
inspection. The Secretary or his duly authorized representatives
shall issue writs of execution to the appropriate authority for the
enforcement of their orders, except in cases where the employer
contests the findings of the labor employment and enforcement
officer and raises issues supported by documentary proof which
were not considered in the course of inspection.
An order issued by the duly authorized representative of the
Secretary of Labor and Employment under this article may be
appealed to the latter. In case said order involves a monetary
award, an appeal by the employer may be perfected only upon
the posting of a cash bond issued by a reputable bonding
company duly accredited by the Secretary of Labor and
Employment in the amount equivalent to the monetary award in
the order appealed from."
The records reveal that in the course of the inspection of the
premises of Dolefil, it was found out that the activities of the
members of the [cooperatives] are necessary and desirable in
the principal business of the former; and that they do not have
the necessary investment in the form of tools and equipments.
It is worthy to note that the cooperatives did not deny that they
do not have enough capital in the form of tools and equipment.
Under the circumstances, it could not be denied that the
[cooperatives] are considered as labor-only contractors in
relation to the business operation of DOLEFIL, INC.
Thus, Section 9, Rule VIII, Book III of the Omnibus Rules
Implementing the Labor Code, provides that:
"Sec. 9. Labor-only contracting. – (a) Any person who
undertakes to supply workers to an employer shall be deemed
to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form
of tools, equipment, machineries, work premises and other
materials; and
(2) The workers recruited and placed by such person are
performing activities which are directly related to the principal
business or operations of the employer in which workers are
habitually employed.
(b) Labor-only contracting as defined herein is hereby prohibited
and the person acting as a contractor shall be considered merely
as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if
the latter were directly employed by him.
x x x x"
Violation of the afore-quoted provision is considered a labor
standards violation and thus, within the visitorial and
enforcement powers of the Secretary of Labor and Employment
(Art. 128).
The Regional Director’s authority to issue a cease and desist
order emanates from Rule I, Section 3 of the Rules on
Disposition of Labor Standard Cases in the Regional Offices, to
wit:
"Section 3. Authorized representative of the Secretary of Labor
and Employment. – The Regional Directors shall be the duly
authorized representatives of the Secretary of Labor and
Employment in the administration and enforcement of the labor
standards within their respective territorial jurisdiction."
The power granted under Article 106 of the Labor Code to the
Secretary of Labor and Employment to restrict or prohibit the
contracting out of labor to protect the rights of workers
established under the Code is delegated to the Regional
Directors by virtue of the above-quoted provision.
The reason why "labor-only" contracting is prohibited under the
Labor Code is that it encourages circumvention of the provisions
of the Labor Code on the workers’ right to security of tenure and
to self-organization.
WHEREFORE, the respondents’ Appeal is hereby DISMISSED
for lack of merit. The Order of the Regional Director, Regional
Office No. XI, Davao City, is AFFIRMED.
After the motion for reconsideration of the foregoing Order was
denied, no further motion was filed by the parties, and the Order,
dated 15 September 1994, of DOLE Undersecretary Trajano
became final and executory. A Writ of Execution12 was issued
by DOLE Regional Office No. XI only on 27 July 1999, years
after the issuance of the order subject of the writ. The DOLE
Regional Office No. XI was informed that CAMPCO and two
other cooperatives "continued to operate at DOLE Philippines,
Inc. despite the cease and desist Order" it had issued. It
therefore commanded the Sheriff to proceed to the premises of
Page 116 of 191
CAMPCO and the two other cooperatives and implement its
116
Order dated 19 October 1993.
Respondent’s Complaint before the NLRC
Respondents started working for petitioner at various times in
the years 1993 and 1994, by virtue of the Service Contract
executed between CAMPCO and petitioner. All of the
respondents had already rendered more than one year of
service to petitioner. While some of the respondents were still
working for petitioner, others were put on "stay home status" on
varying dates in the years 1994, 1995, and 1996 and were no
longer furnished with work thereafter. Together, respondents
filed a Complaint,13 on 19 December 1996, with the National
Labor Relations Commission (NLRC), for illegal dismissal,
regularization, wage differentials, damages and attorney’s fees.
In their Position Paper,14 respondents reiterated and
expounded on the allegations they previously made in their
Complaint –
Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged
the services of the [herein respondents] through Cannery Multi-
purpose Cooperative. A cooperative which was organized
through the initiative of Dolefil in order to fill in the vacuum
created as a result of the dismissal of the regular employees of
Dolefil sometime in 1990 to 1993.
The [respondents] were assigned at the Industrial Department
of respondent Dolefil. All tools, implements and machineries
used in performing their task such as: can processing attendant,
feeder of canned pineapple at pineapple processing, nata de
coco processing attendant, fruit cocktail processing attendant,
and etc. were provided by Dolefil. The cooperative does not
have substantial capital and does not provide the [respondents]
with the necessary tools to effectively perform their assigned
task as the same are being provided by Dolefil.
The training and instructions received by the [respondents] were
provided by Dolefil. Before any of the [respondents] will be
allowed to work, he has to undergo and pass the training
prescribed by Dolefil. As a matter of fact, the trainers are
employees of Dolefil.
The [respondents] perform their assigned task inside the
premises of Dolefil. At the job site, they were given specific task
and assignment by Dolefil’s supervisors assigned to supervise
the works and efficiency of the complainants. Just like the
regular employees of Dolefil, [respondents] were subjected to
the same rules and regulations observe [sic] inside company
premises and to some extent the rules applied to the
[respondents] by the company through its officers are even
stricter.
The functions performed by the [respondents] are the same
functions discharged by the regular employees of Dolefil. In fact,
at the job site, the [respondents] were mixed with the regular
workers of Dolefil. There is no difference in so far as the job
performed by the regular workers of Dolefil and that of the
[respondents].
Some of the [respondents] were deprived of their employment
under the scheme of "stay home status" where they were
advised to literally stay home and wait for further instruction to
report anew for work. However, they remained in this condition
for more than six months. Hence, they were constructively or
illegally dismissed.
Respondents thus argued that they should be considered
regular employees of petitioner given that: (1) they were
performing jobs that were usually necessary and desirable in the
usual business of petitioner; (2) petitioner exercised control over
respondents, not only as to the results, but also as to the manner
by which they performed their assigned tasks; and (3)
CAMPCO, a labor-only contractor, was merely a conduit of
petitioner. As regular employees of petitioner, respondents
asserted that they were entitled to security of tenure and those
placed on "stay home status" for more than six months had been
constructively and illegally dismissed. Respondents further
claimed entitlement to wage differential, moral damages, and
attorney’s fees.
In their Supplemental Position Paper,15 respondents presented,
in support of their Complaint, the Orders of DOLE Regional
Director Parel, dated 19 October 1993, and DOLE
Undersecretary Trajano, dated 15 September 1994, finding that
CAMPCO was a labor-only contractor and directing CAMPCO
to cease and desist from any further labor-only contracting
activities.
Petitioner, in its Position Paper16 filed before the NLRC, denied
that respondents were its employees.
Petitioner explained that it found the need to engage external
services to augment its regular workforce, which was affected
by peaks in operation, work backlogs, absenteeism, and
excessive leaves. It used to engage the services of individual
workers for definite periods specified in their employment
contracts and never exceeding one year. However, such an
arrangement became the subject of a labor case,17 in which
petitioner was accused of preventing the regularization of such
workers. The Labor Arbiter who heard the case, rendered his
Decision18 on 24 June 1994 declaring that these workers fell
squarely within the concept of seasonal workers as envisaged
by Article 280 of the Labor Code, as amended, who were hired
by petitioner in good faith and in consonance with sound
business practice; and consequently, dismissing the complaint
against petitioner. The NLRC, in its Resolution,19 dated 14
March 1995, affirmed in toto the Labor Arbiter’s Decision and
further found that the workers were validly and legally engaged
by petitioner for "term employment," wherein the parties agreed
to a fixed period of employment, knowingly and voluntarily,
without any force, duress or improper pressure being brought to
bear upon the employees and absent any other circumstance
vitiating their consent. The said NLRC Resolution became final
and executory on 18 June 1996. Despite the favorable ruling of
both the Labor Arbiter and the NLRC, petitioner decided to
discontinue such employment arrangement. Yet, the problem of
petitioner as to shortage of workforce due to the peaks in
operation, work backlogs, absenteeism, and excessive leaves,
persisted. Petitioner then found a solution in the engagement of
cooperatives such as CAMPCO to provide the necessary
additional services.
Petitioner contended that respondents were owners-members
of CAMPCO; that CAMPCO was a duly-organized and
registered cooperative which had already grown into a multi-
million enterprise; that CAMPCO was engaged in legitimate job-
contracting with its own owners-members rendering the contract
work; that under the express terms and conditions of the Service
Contract executed between petitioner (the principal) and
CAMPCO (the contractor), the latter shall undertake the contract
work on its own account, under its own responsibility, and
according to its own manner and method free from the control
and direction of the petitioner in all matters connected with the
performance of the work, except as to the result thereof; and
Page 117 of 191
since CAMPCO held itself out to petitioner as a legitimate job
117
contractor, respondents, as owners-members of CAMPCO,
were estopped from denying or refuting the same.
Petitioner further averred that Department Order No. 10,
amending the rules implementing Books III and VI of the Labor
Code, as amended, promulgated by the DOLE on 30 May 1997,
explicitly recognized the arrangement between petitioner and
CAMPCO as permissible contracting and subcontracting, to wit
–
Section 6. Permissible contracting and subcontracting. –
Subject to the conditions set forth in Section 3(d) and (e) and
Section 5 hereof, the principal may engage the services of a
contractor or subcontractor for the performance of any of the
following;
(a) Works or services temporarily or occasionally needed to
meet abnormal increase in the demand of products or services,
provided that the normal production capacity or regular
workforce of the principal cannot reasonably cope with such
demands;
(b) Works or services temporarily or occasionally needed by the
principal for undertakings requiring expert or highly technical
personnel to improve the management or operations of an
enterprise;
(c) Services temporarily needed for the introduction or
promotion of new products, only for the duration of the
introductory or promotional period;
(d) Works or services not directly related or not integral to the
main business or operation of the principal, including casual
work, janitorial, security, landscaping, and messengerial
services, and work not related to manufacturing processes in
manufacturing establishments;
(e) Services involving the public display of manufacturer’s
products which does not involve the act of selling or issuance of
receipts or invoices;
(f) Specialized works involving the use of some particular,
unusual, or peculiar skills, expertise, tools or equipment the
performance of which is beyond the competence of the regular
workforce or production capacity of the principal; and
(g) Unless a reliever system is in place among the regular
workforce, substitute services for absent regular employees,
provided that the period of service shall be coextensive with the
period of absence and the same is made clear to the substitute
employee at the time of engagement. The phrase "absent
regular employees" includes those who are serving suspensions
or other disciplinary measures not amounting to termination of
employment meted out by the principal, but excludes those on
strike where all the formal requisites for the legality of the strike
have been prima facie complied with based on the records filed
with the National Conciliation and Mediation Board.
According to petitioner, the services rendered by CAMPCO
constituted permissible job contracting under the afore-quoted
paragraphs (a), (c), and (g), Section 6 of DOLE Department
Order No. 10, series of 1997.

After the parties had submitted their respective Position Papers,
the Labor Arbiter promulgated its Decision20 on 11 June 1999,
ruling entirely in favor of petitioner, ratiocinating thus –
After judicious review of the facts, narrated and supporting
documents adduced by both parties, the undersigned finds [and]
holds that CAMPCO is not engaged in labor-only contracting.
Had it not been for the issuance of Department Order No. 10
that took effect on June 22, 1997 which in the contemplation of
Law is much later compared to the Order promulgated by the
Undersecretary Cresencio Trajano of Department of [L]abor and
Employment, the undersigned could safely declared [sic]
otherwise. However, owing to the principle observed and
followed in legal practice that the later law or jurisprudence
controls, the reliance to Secretary Trajano’s order is overturned.
Labor-only contracting as amended by Department [O]rder No.
10 is defined in this wise:
"Labor-only contracting is prohibited under this Rule is an
arrangement where the contractor or subcontractor merely
recruits, supplied [sic] or places workers to perform a job, work
or service for a principal, and the following elements are present:
i) The contractor or sub-contractor does not have substantial
capital or investment to actually perform the job, work, or service
under its own account & responsibility, and
ii) The employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are
directly related to the main business of the principal."
Verification of the records reveals that per Annexes "J" and "K"
of [herein petitioner DolePhil’s] position paper, which are the
yearly audited Financial Statement and Balance Sheet of
CAMPCO shows [sic] that it has more than substantial capital or
investment in order to qualify as a legitimate job contractor.
We likewise recognize the validity of the contract entered into
and between CAMPCO and [petitioner] for the former to assists
[sic] the latter in its operations and in the performance of odd
jobs – such as the augmentation of regular manning particularly
during peaks in operation, work back logs, absenteeism and
excessive leave availment of respondent’s regular employees.
The rule is well-settled that labor laws discourage interference
with an employer’s judgment in the conduct of his business.
Even as the law is solicitors [sic] of the welfare of the employees,
it must also protect the right of an employer to exercise what are
clearly management prerogatives. The free will of management
to conduct its own business affairs to achieve its purpose cannot
be denied (Yuco Chemical Industries vs. Ministry of [L]abor, GR
No. 75656, May 28, 1990).
CAMPCO being engaged in legitimate contracting, cannot
therefore declared [sic] as guilty of labor-only contracting which
[herein respondents] want us to believe.
The second issue is likewise answered in the negative. The
reason is plain and simple[,] section 12 of Department [O]rder
No. 10 states:
Page 118 of 191
118
"Section 12. Employee-employer relationship. Except in cases
provided for in Section 13, 14, 15 & 17, the contractor or
subcontractor shall be considered the employer of the
contractual employee for purposes of enforcing the provisions
of the Code."
The Resolution of NLRC 5th division, promulgated on March 14,
1 1995 [sic] categorically declares:
"Judging from the very nature of the terms and conditions of their
hiring, the Commission finds the complainants to have been
engaged to perform work, although necessary or desirable to
the business of respondent company, for a definite period or
what is community called TERM EMPLOYMENT. It is clear from
the evidence and record that the nature of the business and
operation of respondent company has its peaks and valleys and
therefore, it is not difficult to discern, inclement weather, or high
availment by regular workers of earned leave credits, additional
workers categorized as casuals, or temporary, are needed to
meet the exigencies." (Underlining in the original)
The validity of fixed-period employment has been consistently
upheld by the Supreme [C]ourt in a long line of cases, the
leading case of which is Brent School, Inc. vs. Zamora & Alegre,
GR No. 48494, February 5, 1990. Thus at the end of the contract
the employer-employee relationship is terminated. It behooves
upon us to rule that herein complainants cannot be declared
regular rank and file employees of the [petitioner] company.
Anent the third issue, [respondents] dismally failed to provide us
the exact figures needed for the computation of their wage
differentials. To simply alleged [sic] that one is underpaid of his
wages is not enough. No bill of particulars was submitted.
Moreover, the Order of RTWPB Region XI, Davao City dated
February 21, 1996 exempts [petitioner] company from
complying Wage Order No. 04 [sic] in so far as such exemption
applies only to workers who are not covered by the Collective
Bargaining Agreement, for the period January 1 to December
31, 1995,. [sic] In so far as [respondents] were not privies to the
CBA, they were the workers referred to by RTWPB’s Order.
[H]ence, [respondents’] claims for wage differentials are hereby
dismissed for lack of factual basis.
We find no further necessity in delving into the issues raised by
[respondents] regarding moral damages and attorney’s fees for
being moot and academic because of the findings that
CAMPCO does not engaged [sic] in labor-only contracting and
that [respondents] cannot be declared as regular employees of
[petitioner].
WHEREFORE, premises considered, judgment is hereby
rendered in the above-entitled case, dismissing the complaint
for lack of merit.
Respondents appealed the Labor Arbiter’s Decision to the
NLRC, reiterating their position that they should be recognized
as regular employees of the petitioner since CAMPCO was a
mere labor-only contractor, as already declared in the previous
Orders of DOLE Regional Director Parel, dated 19 October
1993, and DOLE Undersecretary Trajano, dated 15 September
1994, which already became final and executory. The NLRC, in
its Resolution,21 dated 29 February 2000, dismissed the appeal
and affirmed the Labor Arbiter’s Decision, reasoning as follows
–
We find no merit in the appeal.
The concept of conclusiveness of judgment under the principle
of "res judicata" means that where between the first case
wherein judgment is rendered and the second case wherein
such judgment is invoked, there is identity of parties, but there
is no identity of cause of action, the judgment is conclusive in
the second case, only as to those matters actually and directly
controverted and determined and not as to matters merely
involved therein (Viray, etc. vs. Marinas, et al., 49 SCRA 44).
There is no denying that the order of the Department of Labor
and Employment, Regional Office No. XI in case No. RI100-
9310-RI-355, which the complainants perceive to have sealed
the status of CAMPCO as labor-only contractor, proceeded from
the visitorial and enforcement power of the Department
Secretary under Article 128 of the Labor Code. Acting on reports
that the cooperatives, including CAMPCO, that operated and
offered services at [herein petitioner] company were engaging
in labor-only contracting activities, that Office conducted a
routinary inspection over the records of said cooperatives and
consequently, found the latter to be engaging in labor-only
contracting activities. This being so, [petitioner] company was
not a real party-in-interest in said case, but the cooperatives
concerned. Therefore, there is no identity of parties between
said case and the present case which means that the afore-said
ruling of the DOLE is not binding and conclusive upon
[petitioner] company.
It is not correct, however, to say, as the Labor Arbiter did, that
the afore-said ruling of the Department of Labor and
Employment has been overturned by Department Order No. 10.
It is a basic principle that "once a judgment becomes final it
cannot be disturbed, except for clerical errors or when
supervening events render its execution impossible or unjust"
(Sampaguita Garmens [sic] Corp. vs. NLRC, G. R. No. 102406,
June 7, 1994). Verily, the subsequent issuance of Department
Order No. 10 cannot be construed as supervening event that
would render the execution of said judgment impossible or
unjust. Department Order No. 10 refers to the ramification of
some provisions of the Rules Implementing Articles 106 and 109
of the Labor Code, without substantially changing the definition
of "labor-only" or "job’ contracting.
Well-settled is the rule that to qualify as an independent job
contractor, one has either substantial capital "or" investment in
the form of tools, equipment and machineries necessary to carry
out his business (see Virginia Neri, et al. vs. NLRC, et al., G.R.
Nos. 97008-89, July 23, 1993). CAMPCO has admittedly a paid-
up capital of P4,562,470.25 and this is more than enough to
qualify it as an independent job contractor, as aptly held by the
Labor Arbiter.
WHEREFORE, the appeal is DISMISSED for lack of merit and
the appealed decision is AFFIRMED.
Petition for Certiorari with the Court of Appeals
Refusing to concede defeat, respondents filed with the Court of
Appeals a Petition for Certiorari under Rule 65 of the revised
Rules of Civil Procedure, asserting that the NLRC acted without
or in excess of its jurisdiction and with grave abuse of discretion
amounting to lack of jurisdiction when, in its Resolution, dated
29 February 2000, it (1) ruled that CAMPCO was a bona fide
independent job contractor with substantial capital,
notwithstanding the fact that at the time of its organization and
registration with CDA, it only had a paid-up capital of ₱6,600.00;
and (2) refused to apply the doctrine of res judicata against
petitioner. The Court of Appeals, in its Decision,22 dated 20 May
2002, granted due course to respondents’ Petition, and set
Page 119 of 191
aside the assailed NLRC Decision. Pertinent portions of the
119
Court of Appeals Decision are reproduced below –
In the case at bench, it was established during the proceedings
before the [NLRC] that CAMPCO has a substantial capital.
However, having a substantial capital does not per se qualify
CAMPCO as a job contractor. In order to be considered an
independent contractor it is not enough to show substantial
capitalization or investment in the form of tools, equipment,
machinery and work premises. The conjunction "and," in
defining what a job contractor is, means that aside from having
a substantial capital or investment in the form of tools,
equipment, machineries, work premise, and other materials
which are necessary in the conduct of his business, the
contractor must be able to prove that it also carries on an
independent business and undertakes the contract work on his
own account under his own responsibility according to his own
manner and method, free from the control and direction of his
employer or principal in all matters connected with the
performance of the work except as to the results thereof. [Herein
petitioner DolePhil] has failed to prove, except for the substantial
capital requirement, that CAMPCO has met the other
requirements. It was not established that CAMPCO is engaged
or carries on an independent business. In the performance of
the respective tasks of workers deployed by CAMPCO with
[petitioner], it was not established that CAMPCO undertook the
contract of work it entered with [petitioner] under its own account
and its own responsibility. It is [petitioner] who provides the
procedures to be followed by the workers in the performance of
their assigned work. The workers deployed by CAMPCO to
[petitioner] performed activities which are directly related to the
principal business or operations of the employer in which
workers are habitually employed since [petitioner] admitted that
these workers were engaged to perform the job of other regular
employees who cannot report for work.
Moreover, [NLRC] likewise gravely erred in not giving weight to
the Order dated 19 October 1993 issued by the Office of the
Secretary of the Department of Labor and Employment, through
Undersecretary Cresencio Trajano, which affirmed the findings
of the Department of Labor and Employment Regional Office,
Region XI, Davao City that Cannery Multi-Purpose Cooperative
is one of the cooperatives engaged in labor-only contracting
activities.
In the exercise of the visitorial and enforcement power of the
Department of Labor and Employment, an investigation was
conducted among the cooperatives organized and existing in
Polomolok, South Cotabato, relative to labor-only contracting
activities. One of the cooperatives investigated was Cannery
Multi-Purpose Cooperative. After the investigation, the
Department of Labor and Employment, Regional Office No. XI,
Davao City, through its Regional Director, issued the Order
dated 19 October 1993, stating:
"WHEREFORE, premises considered, ADVENTURER’S MULTI
PURPOSE COOPERATIVE, HUMAN RESOURCE MULTI
PURPOSE SKILLED COOPERATIVE and CANNERY MULTI
PURPOSE COOPERATIVE are hereby declared to be engaged
in labor only contracting which is a prohibited activity. The same
cooperatives are therefore ordered to cease and desist from
further engaging in such activities.
xxxx
SO ORDERED."
Cannery Multi Purpose Cooperative, together with the other Considering that [CAMPCO] is not a job contractor, but one

cooperatives declared as engaged in labor-only contracting
activity, appeal the above-findings to the Secretary of the
Department of Labor and Employment. Their appeal was
dismissed for lack of merit as follows:: [sic]
120
engaged in labor-only contracting, CAMPCO serves only as an
agent of [petitioner] pursuant to par. (b) of Sec. 9, Rule VIII, Book
III of the Implementing Rules and Regulations of the Labor
Code, stating,

xxxx xxxx

[NLRC] held that CAMPCO, being not a real party-in interest in However, the Court cannot declare that [herein respondents] are
the above-case, the said ruling is not binding and conclusive regular employees of [petitioner]. x x x
upon [petitioner]. This Court, however, finds the contrary.

xxxx
CAMPCO was one of the cooperatives investigated by the
Department of Labor and Employment, Regional Office No. XI,
Davao City, pursuant to Article 128 of the Labor Code. It was
In the case at bench, although [respondents] were engaged to
one of the appellants before the Secretary of the Department of
perform activities which are usually necessary or desirable in the
Labor questioning the decision of the Regional Director of
usual business or trade of private respondent, it is apparent,
DOLE, Regional Office No. XI, Davao City. This Court noted that
however, that their services were engaged by [petitioner] only
in the proceedings therein, and as mentioned in the decision
for a definite period. [Petitioner’s] nature of business and
rendered by Undersecretary Cresencio B. Trajano of the
operation has its peaks. In order to meet the demands during
Department of Labor and Employment, Manila, regarding the
peak seasons they necessarily have to engage the services of
cooperatives’ appeal thereto, the parties therein, including
workers to work only for a particular season. In the case of
Cannery Multi-Purpose Cooperative, submitted to the said office
[respondents], when they were deployed by CAMPCO with
their position papers and Articles of Cooperatives and
[petitioner] and were assigned by the latter at its cannery
Certification of Registrations [sic] on 30 August 1993. This is a
department, they were aware that they will be working only for a
clear indicia that CAMPCO participated in the proceedings
certain duration, and this was made known to them at the time
therein. [NLRC], therefore, committed grave abuse of discretion
they were employed, and they agreed to the same.
amounting to lack or excess of jurisdiction when it held that
CAMPCO was never a party to the said case.

[Petitioner] invokes Section 6 of Department Order No. 10,
series of 1997, issued by the Department of Labor and
Employment which took effect on 22 June 1997. The said
section identified the circumstances which are permissible job
contracting, to wit:
xxxx
[Petitioner’s] main contention is based on the decisions
rendered by the labor arbiter and [NLRC] which are both
anchored on Department Order No. 10 issued by the
Department of Labor and Employment. The said department
order provided for several flexible working relations between a
principal, a contractor or subcontractor and the workers
recruited by the latter and deployed to the former. In the case at
bench, [petitioner] posits that the engagement of [petitioner] of
the workers deployed by CAMPCO was pursuant to D.O. No.
10, Series of 1997.
xxxx
The non-rehiring of some of the petitioners who were allegedly
put on a "floating status’ is an indication that their services were
no longer needed. They attained their "floating status" only after
they have finished their contract of employment, or after the
duration of the season that they were employed. The decision
of [petitioner] in not rehiring them means that their services were
no longer needed due to the end of the season for which they
were hired. And this Court reiterates that at the time they were
deployed to [petitioner’s] cannery division, they knew that the
services they have to render or the work they will perform are
seasonal in nature and consequently their employment is only
for the duration of the season.
ACCORDINGLY, in view of the foregoing, the instant petition for
certiorari is hereby GRANTED DUE COURSE. The decision
dated 29 February 2000 and Resolution dated 19 December
2000 rendered by [NLRC] are hereby SET ASIDE. In place
thereof, it is hereby rendered that:

However, on 8 May 2001, the Department of Labor and

1. Cannery Multi-Purpose Cooperative is a labor-only contractor
Employment issued Department Order No. 3, series of 2001,
as defined under the Labor Code of the Philippines and its
revoking Department Order No. 10, series of 1997. The said
implementing rules and regulations; and that
department order took effect on 29 May 2001.

2. DOLE Philippines Incorporated is merely an agent or

xxxx
intermediary of Cannery Multi-Purpose Cooperative.

Under Department Order No. 3, series of 2001, some

All other claims of [respondents] are hereby DENIED for lack of
contracting and outsourcing arrangements are no longer
basis.
legitimate modes of employment relation. Having revoked
Department Order No. 10, series of 1997, [petitioner] can no
longer support its argument by relying on the revoked
department order. Both petitioner and respondents filed their respective Motions
for Reconsideration of the foregoing Decision, dated 20 May
2002, prompting the Court of Appeals to promulgate an

Page 120 of 191

Amended Decision on 27 November 2003, in which it ruled in [respondents] amounted to illegal dismissal of the latter. We

121
this wise: thus, correct our earlier ruling that the herein petitioners are
seasonal workers. They are regular employees within the
contemplation of Article 280 of the Labor Code and thus cannot
be dismissed except for just or authorized cause. The Labor
This court examined again the documentary evidence submitted
Code provides that when there is a finding of illegal dismissal,
by the [herein petitioner] and we rule not to disturb our findings
the effect is that the employee dismissed shall be reinstated to
in our Decision dated May 20, 2002. It is our opinion that there
his former position without loss of seniority rights with
was no competent evidence submitted that would show that
backwages from the date of his dismissal up to his actual
CAMPCO is engaged to perform a specific and special job or
reinstatement.
service which is one of the strong indicators that an entity is an
independent contractor. The articles of cooperation and by-laws
of CAMPCO do not show that it is engaged in performing a
specific and special job or service. What is clear is that it is a This court however, finds no basis for the award of damages and
multi-purpose cooperative organized under RA No. 6938, attorney’s fees in favor of the petitioners.
nothing more, nothing less.

WHEREFORE, the Decision dated May 20, 2002 rendered by

As can be gleaned from the contract that CAMPCO entered into this Court is hereby AMENDED as follows:
with the [petitioner], the undertaking of CAMPCO is to provide
[petitioner] with workforce by assisting the company in its daily
operations and perform odd jobs as may be assigned. It is our
1) [Petitioner] DOLE PHILIPPINES is hereby declared the
opinion that CAMPCO merely acted as recruitment agency for
employer of the [respondents].
[petitioner]. CAMPCO by supplying manpower only, clearly
conducted itself as ‘labor-only" contractor. As can be gleaned
from the service contract, the work performed by the [herein
respondents] are directly related to the main business of the 2) [Petitioner] DOLE PHILIPPINES is hereby declared guilty of
[petitioner]. Clearly, the requisites of "labor-only" contracting are illegal dismissal and ordered to immediately reinstate the
present in the case at bench. [respondents] to their former position without loss of seniority
rights and other benefits, and to pay each of the [respondents]
backwages from the date of the filing of illegal dismissal on
December 19, 1996 up to actual reinstatement, the same to be
In view of the above ruling, we find it unnecessary to discuss
computed by the labor arbiter.
whether the Order of Undersecretary Trajano finding that
CAMPCO is a "labor-only" contractor is a determining factor or
constitutes res judicata in the case at bench. Our findings that
CAMPCO is a "labor-only" contractor is based on the evidence 3) The claims for damages and attorney’s fees are hereby
presented vis-à-vis the rulings of the Supreme Court on the denied for lack of merit.
matter.

No costs.23
Since, the argument that the [petitioner] is the real employer of
the [respondents], the next question that must be answered is –
what is the nature of the employment of the petitioners?
The Petition at Bar

xxxx
Aggrieved by the Decision, dated 20 May 2002, and the
Amended Decision, dated 27 November 2003, of the Court of
Appeals, petitioner filed the instant Petition for Review on
The afore-quoted [Article 280 of the Labor Code, as amended] Certiorari under Rule 45 of the revised Rules of Civil Procedure,
provides for two kinds of employment, namely: (1) regular (2) in which it made the following assignment of errors –
casual. In our Decision, we ruled that the [respondents] while
performing work necessary and desirable to the business of the
[petitioner] are seasonal employees as their services were
engaged by the [petitioner] for a definite period or only during I.
peak season.

THE COURT OF APPEALS HAS DEPARTED FROM THE

In the most recent case of Hacienda Fatima v. National
Federation of Sugarcane Workers Food and General Trade, the
Supreme Court ruled that for employees to be excluded from
those classified as regular employees, it is not enough that they
perform work or services that are seasonal in nature. They must
have also been employed only for the duration of one season. It
is undisputed that the [respondents’] services were engaged by
the [petitioner] since 1993 and 1994. The instant complaint was
filed in 1996 when the [respondents] were placed on floating
status. Evidently, [petitioner] employed the [respondents] for
more than one season. Therefore, the general rule on regular
employment is applicable. The herein petitioners who performed
their jobs in the workplace of the [petitioner] every season for
several years, are considered the latter’s regular employees for
having performed works necessary and desirable to the
business of the [petitioner]. The [petitioner’s] eventual refusal to
use their services—even if they were ready, able and willing to
perform their usual duties whenever these were available—and
hiring other workers to perform the tasks originally assigned to
Page 121 of 191
USUAL COURSE OF JUDCIAL PROCEEDINGS WHEN IT
MADE ITS OWN FACTUAL FINDINGS AND DISREGARDED
THE UNIFORM AND CONSISTENT FACTUAL FINDINGS OF
THE LABOR ARBITER AND THE NLRC, WHICH MUST BE
ACCORDED GREAT WEIGHT, RESPECT AND EVEN
FINALITY. IN SO DOING, THE COURT OF APPEALS
EXCEEDED ITS AUTHORITY ON CERTIORARI UNDER RULE
65 OF THE RULES OF COURT.
II.
THE COURT OF APPEALS HAS DECIDED A QUESTION OF
SUBSTANCE IN A WAY NOT IN ACCORD WITH THE
CONSTITUTION, LAW, APPLICABLE RULES AND
REGULATIONS AND DECISIONS OF THE SUPREME COURT
IN NOT HOLDING THAT DEPARTMENT ORDER NO. 10,
SERIES OF 1997 IS THE APPLICABLE REGULATION IN THIS
CASE. IN GIVING RETROACTIVE APPLICATION TO
DEPARTMENT ORDER NO. 3, SERIES OF 2001, THE COURT
OF APPEALS VIOLATED THE CONSTITUTIONAL
PROVISION AGAINST IMPAIRMENT OF CONTRACTS AND
DEPRIVED PETITIONER OF THE DUE PROCESS OF THE
LAW.
III.
THE COURT OF APPEALS HAS DETERMINED A QUESTION
OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN GIVING WEIGHT TO THE ORDER
DATED 19 OCTOBER 1993 ISSUED BY THE OFFICE OF
SECRETARY OF LABOR, WHICH AFFIRMED THE FINDINGS
OF THE DOLE REGIONAL OFFICE (REGION XI, DAVAO
CITY) THAT CAMPCO IS ONE OF THE COOPERATIVES
ENGAGED IN LABOR-ONLY CONTRACTING ACTIVITIES.
IV.
THE COURT OF APPEALS HAS DETERMINED A QUESTION
OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN NOT RULING THAT RESPONDENTS,
BY ACTIVELY REPRESENTING THEMSELVES AND
WARRANTING THAT THEY ARE ENGAGED IN LEGITIMATE
JOB CONTRACTING, ARE BARRED BY THE EQUITABLE
PRINCIPLE OF ESTOPPEL FROM ASSERTING THAT THEY
ARE REGULAR EMPLOYEES OF PETITIONER.
V.
THE COURT OF APPEALS HAS DETERMINED A QUESTION
OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN RULING THAT CAMPCO IS ENGAGED
IN THE PROHIBITED ACT OF "LABOR-ONLY
CONTRACTING" DESPITE THERE BEING SUBSTANTIAL
EVIDENCE TO THE CONTRARY.
VI.
THE COURT OF APPEALS HAS DETERMINED A QUESTION
OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN RULING THAT PETITIONER IS THE
EMPLOYER OF RESPONDENTS AND THAT PETITIONER IS
GUILTY OF ILLEGAL DISMISSAL.24
This Court’s Ruling
I material or decisive of the controversy; and the Court of Appeals
Anent the first assignment of error, petitioner argues that judicial
review under Rule 65 of the revised Rules of Civil Procedure is
limited only to issues concerning want or excess or jurisdiction
or grave abuse of discretion. The special civil action for certiorari
is a remedy designed to correct errors of jurisdiction and not
mere errors of judgment. It is the contention of petitioner that the
NLRC properly assumed jurisdiction over the parties and subject
matter of the instant case. The errors assigned by the
respondents in their Petition for Certiorari before the Court of
Appeals do not pertain to the jurisdiction of the NLRC; they are
rather errors of judgment supposedly committed by the the
NLRC, in its Resolution, dated 29 February 2000, and are thus
Page 122 of 191
not the proper subject of a petition for certiorari. Petitioner also
122
posits that the Petition for Certiorari filed by respondents with
the Court of Appeals raised questions of fact that would
necessitate a review by the appellate court of the evidence
presented by the parties before the Labor Arbiter and the NLRC,
and that questions of fact are not a fit subject for a special civil
action for certiorari.
It has long been settled in the landmark case of St. Martin
Funeral Home v. NLRC,25 that the mode for judicial review over
decisions of the NLRC is by a petition for certiorari under Rule
65 of the revised Rules of Civil Procedure. The different modes
of appeal, namely, writ of error (Rule 41), petition for review
(Rules 42 and 43), and petition for review on certiorari (Rule 45),
cannot be availed of because there is no provision on appellate
review of NLRC decisions in the Labor Code, as amended.26
Although the same case recognizes that both the Court of
Appeals and the Supreme Court have original jurisdiction over
such petitions, it has chosen to impose the strict observance of
the hierarchy of courts. Hence, a petition for certiorari of a
decision or resolution of the NLRC should first be filed with the
Court of Appeals; direct resort to the Supreme Court shall not
be allowed unless the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling
circumstances justify an availment of a remedy within and calling
for the exercise by the Supreme Court of its primary jurisdiction.
The extent of judicial review by certiorari of decisions or
resolutions of the NLRC, as exercised previously by the
Supreme Court and, now, by the Court of Appeals, is described
in Zarate v. Olegario,27 thus –
The rule is settled that the original and exclusive jurisdiction of
this Court to review a decision of respondent NLRC (or
Executive Labor Arbiter as in this case) in a petition for certiorari
under Rule 65 does not normally include an inquiry into the
correctness of its evaluation of the evidence. Errors of judgment,
as distinguished from errors of jurisdiction, are not within the
province of a special civil action for certiorari, which is merely
confined to issues of jurisdiction or grave abuse of discretion. It
is thus incumbent upon petitioner to satisfactorily establish that
respondent Commission or executive labor arbiter acted
capriciously and whimsically in total disregard of evidence
material to or even decisive of the controversy, in order that the
extraordinary writ of certiorari will lie. By grave abuse of
discretion is meant such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction, and it must be
shown that the discretion was exercised arbitrarily or
despotically. For certiorari to lie, there must be capricious,
arbitrary and whimsical exercise of power, the very antithesis of
the judicial prerogative in accordance with centuries of both civil
law and common law traditions.
The Court of Appeals, therefore, can grant the Petition for
Certiorari if it finds that the NLRC, in its assailed decision or
resolution, committed grave abuse of discretion by capriciously,
whimsically, or arbitrarily disregarding evidence which is
can not make this determination without looking into the
evidence presented by the parties. Necessarily, the appellate
court can only evaluate the materiality or significance of the
evidence, which is alleged to have been capriciously,
whimsically, or arbitrarily disregarded by the NLRC, in relation
to all other evidence on record.
As this Court elucidated in Garcia v. National Labor Relations
Commission28 --
[I]n Ong v. People, we ruled that certiorari can be properly
resorted to where the factual findings complained of are not
supported by the evidence on record. Earlier, in Gutib v. Court retroactive application, then the general rule should be followed,

123
of Appeals, we emphasized thus: and the said orders should be applied only prospectively.

[I]t has been said that a wide breadth of discretion is granted a Which now brings this Court to the question as to what was the
court of justice in certiorari proceedings. The cases in which prevailing rule on labor-only contracting from 1993 to 1996, the
certiorari will issue cannot be defined, because to do so would period when the occurrences subject of the Complaint before
be to destroy its comprehensiveness and usefulness. So wide is the NLRC took place.
the discretion of the court that authority is not wanting to show
that certiorari is more discretionary than either prohibition or
mandamus. In the exercise of our superintending control over
Article 106 of the Labor Code, as amended, permits legitimate
inferior courts, we are to be guided by all the circumstances of
job contracting, but prohibits labor-only contracting. The said
each particular case "as the ends of justice may require." So it
provision reads –
is that the writ will be granted where necessary to prevent a
substantial wrong or to do substantial justice.

ART. 106. Contractor or subcontractor. – Whenever an

employer enters into a contract with another person for the
And in another case of recent vintage, we further held:
performance of the former’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 review of an NLRC decision through a special civil action
for certiorari, resolution is confined only to issues of jurisdiction
and grave abuse of discretion on the part of the labor tribunal.
In the event that the contractor or subcontractor fails to pay the
Hence, the Court refrains from reviewing factual assessments of
wages of his employees in accordance with this Code, the
lower courts and agencies exercising adjudicative functions,
employer shall be jointly and severally liable with his contractor
such as the NLRC. Occasionally, however, the Court is
or subcontractor to such employees to the extent of the work
constrained to delve into factual matters where, as in the instant
performed under the contract, in the same manner and extent
case, the findings of the NLRC contradict those of the Labor
that he is liable to employees directly employed by him.
Arbiter.

The Secretary of Labor may, by appropriate regulations, restrict

In this instance, the Court in the exercise of its equity jurisdiction
or prohibit the contracting out of labor to protect the rights of
may look into the records of the case and re-examine the
workers established under this Code. In so prohibiting or
questioned findings. As a corollary, this Court is clothed with
restricting, he may make appropriate distinctions between labor-
ample authority to review matters, even if they are not assigned
only contracting and job contracting as well as differentiations
as errors in their appeal, if it finds that their consideration is
within these types of contracting and determine who among the
necessary to arrive at a just decision of the case. The same
parties involved shall be considered the employer for purposes
principles are now necessarily adhered to and are applied by the
of this Code, to prevent any violation or circumvention of any
Court of Appeals in its expanded jurisdiction over labor cases
provision of this Code.
elevated through a petition for certiorari; thus, we see no error
on its part when it made anew a factual determination of the
matters and on that basis reversed the ruling of the NLRC.
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
II
premises, among others, and the workers recruited and placed
by such persons are performing activities which are directly
related to the principal business of such employer. In such
The second assignment of error delves into the significance and cases, the person or intermediary shall be considered merely as
application to the case at bar of the two department orders an agent of the employer who shall be responsible to the
issued by DOLE. Department Order No. 10, series of 1997, workers in the same manner and extent as if the latter were
amended the implementing rules of Books III and VI of the Labor directly employed by him.
Code, as amended. Under this particular DOLE department
order, the arrangement between petitioner and CAMPCO would
qualify as permissible contracting. Department Order No. 3,
To implement the foregoing provision of the Labor Code, as
series of 2001, revoked Department Order No. 10, series of
amended, Sections 8 and 9, Rule VIII, Book III of the
1997, and reiterated the prohibition on labor-only contracting.
implementing rules, in force since 1976 and prior to their
amendment by DOLE Department Order No. 10, series of 1997,
provided as follows –
Attention is called to the fact that the acts complained of by the
respondents occurred well before the issuance of the two DOLE
department orders in 1997 and 2001. The Service Contract
Sec. 8. Job contracting. – There is job contracting permissible
between DOLE and CAMPCO was executed on 17 August
under the Code if the following conditions are met;
1993. Respondents started working for petitioner sometime in
1993 and 1994. While some of them continued to work for
petitioner, at least until the filing of the Complaint, others were
put on "stay home status" at various times in 1994, 1995, and (1) The contractor carries on an independent business and
1996. Respondents filed their Complaint with the NLRC on 19 undertakes the contract work on his own account under his own
December 1996. responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all
matters connected with the performance of the work except as
to the results thereof; and
A basic rule observed in this jurisdiction is that no statute,
decree, ordinance, rule or regulation shall be given retrospective
effect unless explicitly stated.29 Since there is no provision at
all in the DOLE department orders that expressly allowed their

Page 123 of 191

(2) The contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises, and other
materials which are necessary in the conduct of his business.
Sec. 9. Labor-only contracting. – (a) Any person who undertakes
to supply workers to an employer shall be deemed to be
engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form
of tools, equipment, machineries, work premises and other
materials; and
(2) The workers recruited and placed by such persons are
performing activities which are directly related to the principal
business or operations of the employer in which workers are
habitually employed.
(b) Labor-only contracting as defined herein is hereby prohibited
and the person acting as contractor shall be considered merely
as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if
the latter were directly employed by him.
(c) For cases not falling under this Article, the Secretary of Labor
shall determine through appropriate orders whether or not the
contracting out of labor is permissible in the light of the
circumstances of each case and after considering the operating
needs of the employer and the rights of the workers involved. In
such case, he may prescribe conditions and restrictions to
insure the protection and welfare of the workers.
Since these statutory and regulatory provisions were the ones
in force during the years in question, then it was in consideration
of the same that DOLE Regional Director Parel and DOLE
Undesrsecretary Trajano issued their Orders on 19 September
1993 and 15 September 1994, respectively, both finding that
CAMPCO was engaged in labor-only contracting. Petitioner, in
its third assignment of error, questions the weight that the Court
of Appeals gave these orders in its Decision, dated 20 May
2002, and Amended Decision, dated 27 November 2003.
III
The Orders of DOLE Regional Director Parel, dated 19
September 1993, and of DOLE Undersecretary Trajano, dated
15 September 1994, were issued pursuant to the visitorial and
enforcement power conferred by the Labor Code, as amended,
on the DOLE Secretary and his duly authorized representatives,
to wit –
ART. 128. Visitorial and enforcement power. – (a) The Secretary
of Labor or his duly authorized representatives, including labor
regulation officers, shall have access to employer’s records and
premises at any time of the day or night whenever work is being
undertaken therein, and the right to copy therefrom, to question
any employee and investigate any fact, condition or matter
which may be necessary to determine violations or which may
aid in the enforcement of this Code and of any labor law, wage
order or rules and regulations pursuant thereto.
(b) Notwithstanding the provisions of Articles 129 and 217 of this
Code to the contrary, and in cases where the relationship of
employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have
Page 124 of 191
the power to issue compliance orders to give effect to the labor
124
standards provisions of this Code and other labor legislation
based on the findings of labor employment and enforcement
officers or industrial safety engineers made in the course of
inspection. The Secretary or his duly authorized representatives
shall issue writs of execution to the appropriate authority for the
enforcement of their orders, except in cases where the employer
contests the findings of the labor employment and enforcement
officer and raises issues supported by documentary proofs
which were not considered in the course of inspection.
An order issued by the duly authorized representative of the
Secretary of Labor and Employment under this article may be
appealed to the latter. In case said order involves a monetary
award, an appeal by the employer may be perfected only upon
the posting of a cash or surety bond issued by a reputable
bonding company duly accredited by the Secretary of Labor and
Employment in the amount equivalent to the monetary award in
the order appealed from. (Emphasis supplied.)
Before Regional Director Parel issued his Order, dated 19
September 1993, a Task Force investigated the operations of
cooperatives in Polomolok, South Cotabato, and submitted a
report identifying six cooperatives that were engaged in labor-
only contracting, one of which was CAMPCO. In a conference
before the DOLE Regional Office, the cooperatives named by
the Task Force were given the opportunity to explain the nature
of their activities in relation to petitioner; and, the cooperatives,
as well as petitioner, submitted to the DOLE Regional Office
their position papers and other supporting documents to refute
the findings of the Task Force. It was only after these procedural
steps did Regional Director Parel issued his Order finding that
three cooperatives, including CAMPCO, were indeed engaged
in labor-only contracting and were directed to cease and desist
from further engaging in such activities. On appeal, DOLE
Undersecretary Trajano, by authority of the DOLE Secretary,
affirmed Regional Director Parel’s Order. Upon denial of the
Motion for Reconsideration filed by the cooperatives, and no
further appeal taken therefrom, the Order of DOLE
Undersecretary Trajano, dated 15 September 1994, became
final and executory.
Petitioner avers that the foregoing Orders of the authorized
representatives of the DOLE Secretary do not constitute res
judicata in the case filed before the NLRC. This Court, however,
believes otherwise and finds that the final and executory Orders
of the DOLE Secretary or his authorized representatives should
bind the NLRC.
It is obvious that the visitorial and enforcement power granted to
the DOLE Secretary is in the nature of a quasi-judicial power.
Quasi-judicial power has been described by this Court in the
following manner –
Quasi-judicial or administrative adjudicatory power on the other
hand is the power of the administrative agency to adjudicate the
rights of persons before it. It is the power to hear and determine
questions of fact to which the legislative policy is to apply and to
decide in accordance with the standards laid down by the law
itself in enforcing and administering the same law. The
administrative body exercises its quasi-judicial power when it
performs in a judicial manner an act which is essentially of an
executive or administrative nature, where the power to act in
such manner is incidental to or reasonably necessary for the
performance of the executive or administrative duty entrusted to
it. In carrying out their quasi-judicial functions the administrative
officers or bodies are required to investigate facts or ascertain
the existence of facts, hold hearings, weigh evidence, and draw
conclusions from them as basis for their official action and
exercise of discretion in a judicial nature. Since rights of specific
persons are affected it is elementary that in the proper exercise
of quasi-judicial power due process must be observed in the
conduct of the proceedings.30 (Emphasis supplied.)
The DOLE Secretary, under Article 106 of the Labor Code, as
amended, exercise quasi-judicial power, at least, to the extent
necessary to determine violations of labor standards provisions
of the Code and other labor legislation. He can issue compliance
orders and writs of execution for the enforcement of his orders.
As evidence of the importance and binding effect of the
compliance orders of the DOLE Secretary, Article 128 of the
Labor Code, as amended, further provides –
ART. 128. Visitorial and enforcement power. –
xxxx
(d) It shall be unlawful for any person or entity to obstruct,
impede, delay or otherwise render ineffective the orders of the
Secretary of Labor or his duly authorized representatives issued
pursuant to the authority granted under this article, and no
inferior court or entity shall issue temporary or permanent
injunction or restraining order or otherwise assume jurisdiction
over any case involving the enforcement orders issued in
accordance with this article.
The Orders of DOLE Regional Director Parel, dated 19
September 1993, and of DOLE Undersecretary Trajano, dated
15 September 1994, consistently found that CAMPCO was
engaging in labor-only contracting. Such finding constitutes res
judicata in the case filed by the respondents with the NLRC.
It is well-established in this jurisdiction that the decisions and
orders of administrative agencies, rendered pursuant to their
quasi-judicial authority, have upon their finality, the force and
binding effect of a final judgment within the purview of the
doctrine of res judicata. The rule of res judicata, which forbids
the reopening of a matter once judicially determined by
competent authority, applies as well to the judicial and quasi-
judicial acts of public, executive or administrative officers and
boards acting within their jurisdiction as to the judgments of
courts having general judicial powers. The orderly
administration of justice requires that the judgments or
resolutions of a court or quasi-judicial body must reach a point
of finality set by the law, rules and regulations, so as to write finis
to disputes once and for all. This is a fundamental principle in
the Philippine justice system, without which there would be no
end to litigations.31
Res judicata has dual aspects, "bar by prior judgment" and
"conclusiveness of judgment." This Court has previously
clarified the difference between the two –
Section 49, Rule 39 of the Revised Rules of Court lays down the
dual aspects of res judicata in actions in personam. to wit:
"Effect of judgment. - The effect of a judgment or final order
rendered by a court or judge of the Philippines, having
jurisdiction to pronounce the judgment or order, may be as
follows:
xxxx
Page 125 of 191
(b) In other cases the judgment or order is, with respect to the
125
matter directly adjudged or as to any other matter that could
have been raised in relation thereto, conclusive between the
parties and their successors in interest by title subsequent to the
commencement of the action or special proceeding, litigating for
the same thing and under the same title and in the same
capacity;
(c) In any other litigation between the same parties or their
successors in interest, that only is deemed to have been
adjudged in a former judgment which appears upon its face to
have been so adjudged, or which was actually and necessarily
included therein or necessary thereto."
Section 49(b) enunciates the first concept of res judicata known
as "bar by prior judgment," whereas, Section 49(c) is referred to
as "conclusiveness of judgment."
There is "bar by former judgment" when, between the first case
where the judgment was rendered, and the second case where
such judgment is invoked, there is identity of parties, subject
matter and cause of action. When the three identities are
present, the judgment on the merits rendered in the first
constitutes an absolute bar to the subsequent action. But where
between the first case wherein Judgment is rendered and the
second case wherein such judgment is invoked, there is only
identity of parties but there is no identity of cause of action, the
judgment is conclusive in the second case, only as to those
matters actually and directly controverted and determined, and
not as to matters merely involved therein. This is what is termed
"conclusiveness of judgment."
The second concept of res judicata, conclusiveness of
judgment, is the one applicable to the case at bar.
The same parties who participated in the proceedings before the
DOLE Regional Office are the same parties involved in the case
filed before the NLRC. CAMPCO, on behalf of its members,
attended the conference before the DOLE Regional Office;
submitted its position paper; filed an appeal with the DOLE
Secretary of the Order of DOLE Regional Director Parel; and
moved for reconsideration of the subsequent Order of DOLE
Undersecretary Trajano. Petitioner, although not expressly
named as a respondent in the DOLE investigation, was a
necessary party thereto, considering that CAMPCO was
rendering services to petitioner solely. Moreover, petitioner
participated in the proceedings before the DOLE Regional
Office, intervening in the matter through a letter sent by its
Senior Legal Officer, dated 24 May 1993, and submitting its own
position paper.
While the causes of action in the proceedings before the DOLE
and the NLRC differ, they are, in fact, very closely related. The
DOLE Regional Office conducted an investigation to determine
whether CAMPCO was violating labor laws, particularly, those
on labor-only contracting. Subsequently, it ruled that CAMPCO
was indeed engaging in labor-only contracting activities, and
thereafter ordered to cease and desist from doing so.
Respondents came before the NLRC alleging illegal dismissal
by the petitioner of those respondents who were put on "stay
home status," and seeking regularization of respondents who
were still working for petitioner. The basis of their claims against
petitioner rests on the argument that CAMPCO was a labor-only
contractor and, thus, merely an agent or intermediary of
petitioner, who should be considered as respondents’ real
employer. The matter of whether CAMPCO was a labor-only
contractor was already settled and determined in the DOLE
proceedings, which should be conclusive and binding upon the
NLRC. What were left for the determination of the NLRC were
the issues on whether there was illegal dismissal and whether has been inequitable, unfair, dishonest, fraudulent, or deceitful

126
respondents should be regularized. as to the controversy in issue.34

This Court also notes that CAMPCO and DOLE still continued
with their Service Contract despite the explicit cease and desist
orders rendered by authorized DOLE officials. There is no other
way to look at it except that CAMPCO and DOLE acted in
complete defiance and disregard of the visitorial and
enforcement power of the DOLE Secretary and his authorized
representatives under Article 128 of the Labor Code, as
amended. For the NLRC to ignore the findings of DOLE
Regional Director Parel and DOLE Undersecretary Trajano is an
unmistakable and serious undermining of the DOLE officials’
authority.
IV
In petitioner’s fourth assignment of error, it points out that the
Court of Appeals erred in not holding respondents estopped
from asserting that they were regular employees of petitioner
since respondents, as owners-members of CAMPCO, actively
represented themselves and warranted that they were engaged
in legitimate job contracting.
This Court cannot sustain petitioner’s argument.
Petitioner does not come before this Court with clean hands. It
is not an innocent party in this controversy.
Petitioner itself admitted that it encouraged and even helped the
establishment of CAMPCO and the other cooperatives in
Polomolok, South Cotabato. These cooperatives were
established precisely to render services to petitioner. It is highly
implausible that the petitioner was lured into entering into the
Service Contract with CAMPCO in 1993 on the latter’s
misrepresentation and false warranty that it was an independent
job contractor. Even if it is conceded that petitioner was indeed
defrauded into believing that CAMPCO was an independent
contractor, then the DOLE proceedings should have placed it on
guard. Remember that petitioner participated in the proceedings
before the DOLE Regional Office, it cannot now claim ignorance
thereof. Furthermore, even after the issuance of the cease and
desist order on CAMPCO, petitioner still continued with its
prohibited service arrangement with the said cooperative. If
petitioner was truly defrauded by CAMPCO and its members
into believing that the cooperative was an independent job
contractor, the more logical recourse of petitioner was to have
the Service Contract voided in the light of the explicit findings of
the DOLE officials that CAMPCO was engaging in labor-only
contracting. Instead, petitioner still carried on its Service
Contract with CAMPCO for several more years thereafter.

It is true that CAMPCO is a cooperative composed of its V

members, including respondents. Nonetheless, it cannot be
denied that a cooperative, as soon as it is registered with the
CDA, attains a juridical personality of its own,32 separate and
As previously discussed, the finding of the duly authorized
distinct from its members; much in the same way that a
representatives of the DOLE Secretary that CAMPCO was a
corporation has a juridical personality separate and distinct from
labor-only contractor is already conclusive. This Court cannot
its stockholders, known as the doctrine of corporate fiction. The
deviate from said finding.
protection afforded by this doctrine is not absolute, but the
exception thereto which necessitates the piercing of the
corporate veil can only be made under specified circumstances.
In Traders Royal Bank v. Court of Appeals,33 this Court ruled This Court, though, still notes that even an independent review
that – of the evidence on record, in consideration of the proper labor
statutes and regulations, would result in the same conclusion:
that CAMPCO was engaged in prohibited activities of labor-only
contracting.
Petitioner cannot put up the excuse of piercing the veil of
corporate entity, as this is merely an equitable remedy, and
maybe awarded only in cases when the corporate fiction is used
to defeat public convenience, justify wrong, protect fraud or The existence of an independent and permissible contractor
defend crime or where a corporation is a mere alter ego or relationship is generally established by the following criteria:
business conduit of a person. whether or not the contractor is carrying on an independent
business; the nature and extent of the work; the skill required;
the term and duration of the relationship; the right to assign the
performance of a specified piece of work; the control and
Piercing the veil of corporate entity requires the court to see
supervision of the work to another; the employer's power with
through the protective shroud which exempts its stockholders
respect to the hiring, firing and payment of the contractor's
from liabilities that ordinarily, they could be subject to, or
workers; the control of the premises; the duty to supply the
distinguishes one corporation from a seemingly separate one,
premises tools, appliances, materials and labor; and the mode,
were it not for the existing corporate fiction. But to do this, the
manner and terms of payment.35
court must be sure that the corporate fiction was misused, to
such an extent that injustice, fraud, or crime was committed
upon another, disregarding, thus, his, her, or its rights. It is the
corporate entity which the law aims to protect by this doctrine. While there is present in the relationship of petitioner and
CAMPCO some factors suggestive of an independent contractor
relationship (i.e., CAMPCO chose who among its members
should be sent to work for petitioner; petitioner paid CAMPCO
Using the above-mentioned guidelines, is petitioner entitled to a
the wages of the members, plus a percentage thereof as
piercing of the "cooperative identity" of CAMPCO? This Court
administrative charge; CAMPCO paid the wages of the
thinks not.
members who rendered service to petitioner), many other
factors are present which would indicate a labor-only contracting
arrangement between petitioner and CAMPCO.36
It bears to emphasize that the piercing of the corporate veil is an
equitable remedy, and among the maxims of equity are: (1) he
who seeks equity must do equity, and (2) he who comes into
First, although petitioner touts the multi-million pesos assets of
equity must come with clean hands. Hence, a litigant may be
CAMPCO, it does well to remember that such were amassed in
denied relief by a court of equity on the ground that his conduct
the years following its establishment. In 1993, when CAMPCO
Page 126 of 191
was established and the Service Contract between petitioner
and CAMPCO was entered into, CAMPCO only had ₱6,600.00
paid-up capital, which could hardly be considered substantial.37
It only managed to increase its capitalization and assets in the
succeeding years by continually and defiantly engaging in what
had been declared by authorized DOLE officials as labor-only
contracting.
Second, CAMPCO did not carry out an independent business
from petitioner. It was precisely established to render services
to petitioner to augment its workforce during peak seasons.
Petitioner was its only client. Even as CAMPCO had its own
office and office equipment, these were mainly used for
administrative purposes; the tools, machineries, and equipment
actually used by CAMPCO members when rendering services
to the petitioner belonged to the latter.
Third, petitioner exercised control over the CAMPCO members,
including respondents. Petitioner attempts to refute control by
alleging the presence of a CAMPCO supervisor in the work
premises. Yet, the mere presence within the premises of a
supervisor from the cooperative did not necessarily mean that
CAMPCO had control over its members. Section 8(1), Rule VIII,
Book III of the implementing rules of the Labor Code, as
amended, required for permissible job contracting that the
contractor undertakes the contract work on his account, under
his own responsibility, according to his own manner and
method, free from the control and direction of his employer or
principal in all matters connected with the performance of the
work except as to the results thereof. As alleged by the
respondents, and unrebutted by petitioner, CAMPCO members,
before working for the petitioner, had to undergo instructions
and pass the training provided by petitioner’s personnel. It was
petitioner who determined and prepared the work assignments
of the CAMPCO members. CAMPCO members worked within
petitioner’s plantation and processing plants alongside regular
employees performing identical jobs, a circumstance recognized
as an indicium of a labor-only contractorship.38
Fourth, CAMPCO was not engaged to perform a specific and
special job or service. In the Service Contract of 1993, CAMPCO
agreed to assist petitioner in its daily operations, and perform
odd jobs as may be assigned. CAMPCO complied with this
venture by assigning members to petitioner. Apart from that, no
other particular job, work or service was required from
CAMPCO, and it is apparent, with such an arrangement, that
CAMPCO merely acted as a recruitment agency for petitioner.
Since the undertaking of CAMPCO did not involve the
performance of a specific job, but rather the supply of manpower
only, CAMPCO clearly conducted itself as a labor-only
contractor.39
Lastly, CAMPCO members, including respondents, performed
activities directly related to the principal business of petitioner.
They worked as can processing attendant, feeder of canned
pineapple and pineapple processing, nata de coco processing
attendant, fruit cocktail processing attendant, and etc., functions
which were, not only directly related, but were very vital to
petitioner’s business of production and processing of pineapple
products for export.
The findings enumerated in the preceding paragraphs only
support what DOLE Regional Director Parel and DOLE
Undersecretary Trajano had long before conclusively
established, that CAMPCO was a mere labor-only contractor.
VI
Page 127 of 191
The declaration that CAMPCO is indeed engaged in the
127
prohibited activities of labor-only contracting, then consequently,
an employer-employee relationship is deemed to exist between
petitioner and respondents, since CAMPCO shall be considered
as a mere agent or intermediary of petitioner.
Since respondents are now recognized as employees of
petitioner, this Court is tasked to determine the nature of their
employment. In consideration of all the attendant circumstances
in this case, this Court concludes that respondents are regular
employees of petitioner.
Article 280 of the Labor Code, as amended, reads –
ART. 280. 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 and
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
determined at the time of engagement of the employee or where
the work or services 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 its 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.
This Court expounded on the afore-quoted provision, thus –
The primary standard, therefore, of determining a regular
employment is the reasonable connection between the
particular activity performed by the employee in relation to the
usual business or trade of the employer. The test is whether the
former is usually necessary or desirable in the usual business or
trade of the employer. The connection can be determined by
considering the nature of the work performed and its relation to
the scheme of the particular business or trade in its entirety.
Also, if the employee has been performing the job for at least
one year, even if her performance is not continuous or merely
intermittent, the law deems the repeated and continuing need
for its performance as sufficient evidence of the necessity if not
indispensability of the activity to the business. Hence, the
employment is also considered regular, but only with respect to
such activity and while such activity exists.40
In the instant Petition, petitioner is engaged in the manufacture
and production of pineapple products for export.1âwphi1
Respondents rendered services as processing attendant, feeder
of canned pineapple and pineapple processing, nata de coco
processing attendant, fruit cocktail processing attendant, and
etc., functions they performed alongside regular employees of
the petitioner. There is no doubt that the activities performed by
respondents are necessary or desirable to the usual business of
petitioner.
Petitioner likewise want this Court to believe that respondents’
employment was dependent on the peaks in operation, work
backlogs, absenteeism, and excessive leaves. However,
bearing in mind that respondents all claimed to have worked for
petitioner for over a year, a claim which petitioner failed to rebut,
then respondent’s continued employment clearly demonstrates
the continuing necessity and indispensability of respondents’ AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR.,

employment to the business of petitioner.
Neither can this Court apply herein the ruling of the NLRC in the
previous case involving petitioner and the individual workers
they used to hire before the advent of the cooperatives, to the
effect that the employment of these individual workers were not
regular, but rather, were valid "term employments," wherein the
employer and employee knowingly and voluntarily agreed to
employment for only a limited or specified period of time. The
difference between that case and the one presently before this
Court is that the members of CAMPCO, including respondents,
were not informed, at the time of their engagement, that their
employment shall only be for a limited or specified period of time.
There is absence of proof that the respondents were aware and
had knowingly and voluntarily agreed to such term employment.
Petitioner did not enter into individual contracts with the
CAMPCO members, but executed a Service Contract with
CAMPCO alone. Although the Service Contract of 1993 stated
that it shall be for a specific period, from 1 July to 31 December
1993, petitioner and CAMPCO continued the service
arrangement beyond 1993. Since there was no written renewal
of the Service Contract,41 there was no further indication that
the engagement by petitioner of the services of CAMPCO
members was for another definite or specified period only.
128
ARNEL ENDAYA, ROBERTO ENRIQUEZ, NESTOR
BAQUILA, EDGARDO QUIAMBAO, SANTOS BACALSO,
SAMSON BASCO, ALADINO GREGORO, JR., EDWIN
GARCIA, ARMANDO VILLAR, EMIL TAWAT, MARIO P.
LIONGSON, CRESENTE J. GARCIA, FERNANDO
MACABENTE, MELECIO CASAPAO, REYNALDO
JACABAN, FERDINAND SALVO, ALSTANDO MONTOS,
RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY,
LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, WILLIE
ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL
BILLONES, ALLAN BALTAZAR, NOLI GABUYO,
EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL DULAY,
TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES,
ANTONIO DACUNA, RENATO DELA CRUZ, ROMEO
VIERNES, JR., ELAIS BASEO, WILFREDO TORRES,
MELCHOR CARDANO, MARIANO NARANIAN, JOHN
SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO,
GERMAN N. GUEVARRA, GILBERT Y. MIRANDA,
RODOLFO C. TOLEDO, ARNOLD D. LASTONA, PHILIP M.
LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ,
FRED P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR.,
ROLANDO J. DE ANDRES, ARTUZ BUSTENERA, ROBERTO
B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN,
ALEJANDRINO ABATON, and ORLANDO S. BALANGUE,
Petitioners, vs. PROCTER & GAMBLE PHILS., INC., and
PROMM-GEM INC., Respondents.

Respondents, as regular employees of petitioner, are entitled to
security of tenure. They could only be removed based on just
and authorized causes as provided for in the Labor Code, as
amended, and after they are accorded procedural due process.
Therefore, petitioner’s acts of placing some of the respondents
on "stay home status" and not giving them work assignments for
more than six months were already tantamount to constructive
and illegal dismissal.42
DECISION
DEL CASTILLO, J.:
Labor laws expressly prohibit "labor-only" contracting. To
prevent its circumvention, the Labor Code establishes an
employer-employee relationship between the employer and the
employees of the ‘labor-only’ contractor.

In summary, this Court finds that CAMPCO was a labor-only
contractor and, thus, petitioner is the real employer of the
respondents, with CAMPCO acting only as the agent or
intermediary of petitioner. Due to the nature of their work and
length of their service, respondents should be considered as
regular employees of petitioner. Petitioner constructively
dismissed a number of the respondents by placing them on "stay
home status" for over six months, and was therefore guilty of
illegal dismissal. Petitioner must accord respondents the status
of regular employees, and reinstate the respondents who it
constructively and illegally dismissed, to their previous positions,
without loss of seniority rights and other benefits, and pay these
respondents’ backwages from the date of filing of the Complaint
with the NLRC on 19 December 1996 up to actual reinstatement.
The instant petition for review assails the March 21, 2003
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No.
52082 and its October 20, 2003 Resolution2 denying the
motions for reconsideration separately filed by petitioners and
respondent Procter & Gamble Phils. Inc. (P&G). The appellate
court affirmed the July 27, 1998 Decision of the National Labor
Relations Commission (NLRC), which in turn affirmed the
November 29, 1996 Decision3 of the Labor Arbiter. All these
decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and
Promotions Services (SAPS) to be legitimate independent
contractors and the employers of the petitioners.
Factual Antecedents

WHEREFORE, in view of the foregoing, the instant Petition is

Petitioners worked as merchandisers of P&G from various
DENIED and the Amended Decision, dated 27 November 2003,
dates, allegedly starting as early as 1982 or as late as June
rendered by the Court of Appeals in CA-G.R. SP No. 63405 is
1991, to either May 5, 1992 or March 11, 1993, more specifically
AFFIRMED.
as follows:

Costs against the petitioner.

1avvphi1

Name Date Employed Date Dismissed

SO ORDERED.
1. Joeb M. Aliviado November, 1985 May 5, 1992

2. Arthur Corpuz 1988 March 11, 1993

G.R. No. 160506 March 9, 2010
3. Eric Aliviado 1985 March 11, 1993
JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO,
MONCHITO AMPELOQUIO, ABRAHAM BASMAYOR, 4. Monchito Ampeloquio September, 1988 March
11, 1993
JONATHAN MATEO, LORENZO PLATON, JOSE
FERNANDO GUTIERREZ, ESTANISLAO BUENAVENTURA, 5. Abraham Basmayor[, Jr.] 1987 March 11, 1993
LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO, JULIO
REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, 6. Jonathan Mateo May, 1988 March 11, 1993
ERNESTO CALANAO, ROLANDO ROMASANTA, RHUEL
7. Lorenzo Platon 1985 March 11, 1993
Page 128 of 191
8. Jose Fernando Gutierrez 1988 May 5, 1992 52. Tadeo Duran[o] 1988 May 5, 1992

129
9. Estanislao Buenaventura June, 1988 March 53. Joseph Banico 1988 March 11, 1993
11, 1993
54. Albert Leynes 1990 May 5, 1992
10. Lope Salonga 1982 March 11, 1993
55. Antonio Dacu[m]a 1990 May 5, 1992
11. Franz David 1989 March 11, 1993
56. Renato dela Cruz 1982
12. Nestor Ignacio 1982 March 11, 1993
57. Romeo Viernes, Jr. 1986
13. Julio Rey 1989 May 5, 1992
58. El[ia]s Bas[c]o 1989
14. Ruben [Vasquez], Jr. 1985 May 5, 1992
59. Wilfredo Torres 1986 May 5, 1992
15. Maximino Pascual 1990 May 5, 1992
60. Melchor Carda[ñ]o 1991 May 5, 1992
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
61. [Marino] [Maranion] 1989 May 5, 1992
17. Rolando Romasanta 1983 March 11, 1993
62. John Sumergido 1987 May 5, 1992
18. [Roehl] Agoo 1988 March 11, 1993
63. Roberto Rosales May, 1987 May 5, 1992
19. Bonifacio Ortega 1988 March 11, 1993
64. Gerry [G]. Gatpo November, 1990 March 11, 1993
20. Arsenio Soriano, Jr. 1985 March 11, 1993
65. German N. Guevara May, 1990 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993
66. Gilbert Y. Miranda June, 1991 March 11, 1993
22. Roberto Enriquez December, 1988 March 11, 1993
67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992
68. Arnold D. [Laspoña] June 1991 March 11, 1993
24. Ed[g]ardo Quiambao 1989 March 11, 1993
69. Philip M. Loza March 5, 1992 March 11, 1993
25. Santos Bacalso 1990 March 11, 1993
70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993
26. Samson Basco 1984 March 11, 1993
71. Orlando P. Jimenez November 6, 1992 March
27. Aladino Gregor[e], Jr. 1980 May 5, 1992 11, 1993

28. Edwin Garcia 1987 May 5, 1992 72. Fred P. Jimenez September, 1991 March 11, 1993

29. Armando Villar 1990 May 5, 1992 73. Restituto C. Pamintuan, Jr. March 5, 1992 March
11, 1993
30. Emil Tawat 1988 March 11, 1993
74. Rolando J. de Andres June, 1991 March 11, 1993
31. Mario P. Liongson 1991 May 5, 1992
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993
32. Cresente J. Garcia 1984 March 11, 1993
76. Roberto B. Cruz May 4, 1990 March 11, 1993
33. Fernando Macabent[a] 1990 May 5, 1992
77. Rosedy O. Yordan June, 1991 May 5, 1992
34. Melecio Casapao 1987 March 11, 1993
78. Dennis Dacasin May. 1990 May 5, 1992
35. Reynaldo Jacaban 1990 May 5, 1992
79. Alejandrino Abaton 1988 May 5, 1992
36. Ferdinand Salvo 1985 May 5, 1992
80. Orlando S. Balangue March, 1989 March 11, 19934
37. Alstando Montos 1984 March 11, 1993
They all individually signed employment contracts with either
38. Rainer N. Salvador 1984 May 5, 1992 Promm-Gem or SAPS for periods of more or less five months at
a time.5 They were assigned at different outlets, supermarkets
39. Ramil Reyes 1984 March 11, 1993
and stores where they handled all the products of P&G. They
40. Pedro G. Roy 1987 received their wages from Promm-Gem or SAPS.6

41. Leonardo [F]. Talledo 1985 March 11, 1993

42. Enrique [F]. Talledo 1988 March 11, 1993 SAPS and Promm-Gem imposed disciplinary measures on
erring merchandisers for reasons such as habitual absenteeism,
43. Willie Ortiz 1987 May 5, 1992 dishonesty or changing day-off without prior notice.7

44. Ernesto Soyosa 1988 May 5, 1992

45. Romeo Vasquez 1985 March 11, 1993 P&G is principally engaged in the manufacture and production
of different consumer and health products, which it sells on a
46. Joel Billones 1987 March 11, 1993 wholesale basis to various supermarkets and distributors.8 To
enhance consumer awareness and acceptance of the products,
47. Allan Baltazar 1989 March 11, 1993 P&G entered into contracts with Promm-Gem and SAPS for the
48. Noli Gabuyo 1991 March 11, 1993 promotion and merchandising of its products.9

49. Emmanuel E. Laban 1987 May 5, 1992

50. Ramir[o] E. [Pita] 1990 May 5, 1992 In December 1991, petitioners filed a complaint10 against P&G
for regularization, service incentive leave pay and other benefits
51. Raul Dulay 1988 May 5, 1992 with damages. The complaint was later amended11 to include
the matter of their subsequent dismissal.
Page 129 of 191

Ruling of the Labor Arbiter
On November 29, 1996, the Labor Arbiter dismissed the
complaint for lack of merit and ruled that there was no employer-
employee relationship between petitioners and P&G. He found
that the selection and engagement of the petitioners, the
payment of their wages, the power of dismissal and control with
respect to the means and methods by which their work was
accomplished, were all done and exercised by Promm-
Gem/SAPS. He further found that Promm-Gem and SAPS were
legitimate independent job contractors. The dispositive portion
of his Decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered Dismissing the above-entitled cases against
respondent Procter & Gamble (Phils.), Inc. for lack of merit.
SO ORDERED.12
Ruling of the NLRC
Appealing to the NLRC, petitioners disputed the Labor Arbiter’s
findings. On July 27, 1998, the NLRC rendered a Decision13
disposing as follows:
WHEREFORE, premises considered, the appeal of
complainants is hereby DISMISSED and the decision appealed
from AFFIRMED.
SO ORDERED.14
Petitioners filed a motion for reconsideration but the motion was
denied in the November 19, 1998 Resolution.15
Ruling of the Court of Appeals
Petitioners then filed a petition for certiorari with the CA, alleging
grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the Labor Arbiter and the NLRC.
However, said petition was also denied by the CA which
disposed as follows:
WHEREFORE, the decision of the National Labor Relations
Commission dated July 27, 1998 is AFFIRMED with the
MODIFICATION that respondent Procter & Gamble Phils., Inc.
is ordered to pay service incentive leave pay to petitioners.
SO ORDERED.16
Petitioners filed a motion for reconsideration but the motion was
also denied. Hence, this petition.
Issues
Page 130 of 191
Petitioners now come before us raising the following issues:
130
I.
WHETHER X X X THE HONORABLE COURT OF APPEALS
HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID
NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED
WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING
THE QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE
PETITIONERS WERE ABLE TO PROVE AND ESTABLISH
THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS
THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY
DISMISSED BY THE FORMER.
II.
WHETHER X X X THE HONORABLE COURT OF APPEALS
HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT DID
NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD
ACTED WITH GRAVE ABUSE OF DISCRETION WHEN THE
LATTER DID NOT FIND THE PRIVATE RESPONDENTS
LIABLE TO THE PETITIONERS FOR PAYMENT OF ACTUAL,
MORAL AND EXEMPLARY DAMAGES AS WELL AS
LITIGATION COSTS AND ATTORNEY’S FEES.17
Simply stated, the issues are: (1) whether P&G is the employer
of petitioners; (2) whether petitioners were illegally dismissed;
and (3) whether petitioners are entitled for payment of actual,
moral and exemplary damages as well as litigation costs and
attorney’s fees.
Petitioners’ Arguments
Petitioners insist that they are employees of P&G. They claim
that they were recruited by the salesmen of P&G and were
engaged to undertake merchandising chores for P&G long
before the existence of Promm-Gem and/or SAPS. They further
claim that when the latter had its so-called re-alignment
program, petitioners were instructed to fill up application forms
and report to the agencies which P&G created.18
Petitioners further claim that P&G instigated their dismissal from
work as can be gleaned from its letter19 to SAPS dated
February 24, 1993, informing the latter that their Merchandising
Services Contract will no longer be renewed.
Petitioners further assert that Promm-Gem and SAPS are labor-
only contractors providing services of manpower to their client.
They claim that the contractors have neither substantial capital
nor tools and equipment to undertake independent labor
contracting. Petitioners insist that since they had been engaged
to perform activities which are necessary or desirable in the
usual business or trade of P&G, then they are its regular
employees.20
Respondents’ Arguments
On the other hand, P&G points out that the instant petition raises
only questions of fact and should thus be thrown out as the Court
is not a trier of facts. It argues that findings of facts of the NLRC,
particularly where the NLRC and the Labor Arbiter are in
agreement, are deemed binding and conclusive on the Supreme
Court.
P&G further argues that there is no employment relationship
between it and petitioners. It was Promm-Gem or SAPS that (1)
selected petitioners and engaged their services; (2) paid their
salaries; (3) wielded the power of dismissal; and (4) had the
power of control over their conduct of work.
P&G also contends that the Labor Code neither defines nor
limits which services or activities may be validly outsourced.
Thus, an employer can farm out any of its activities to an
independent contractor, regardless of whether such activity is
peripheral or core in nature. It insists that the determination of
whether to engage the services of a job contractor or to engage
in direct hiring is within the ambit of management prerogative.
At this juncture, it is worth mentioning that on January 29, 2007,
we deemed as waived the filing of the Comment of Promm-Gem
on the petition.21 Also, although SAPS was impleaded as a
party in the proceedings before the Labor Arbiter and the NLRC,
it was no longer impleaded as a party in the proceedings before
the CA.22 Hence, our pronouncements with regard to SAPS are
only for the purpose of determining the obligations of P&G, if
any.
Our Ruling
The petition has merit.
As a rule, the Court refrains from reviewing factual assessments
of lower courts and agencies exercising adjudicative functions,
such as the NLRC. Occasionally, however, the Court is
constrained to wade into factual matters when there is
insufficient or insubstantial evidence on record to support those
factual findings; or when too much is concluded, inferred or
deduced from the bare or incomplete facts appearing on
record.23 In the present case, we find the need to review the
records to ascertain the facts.
Labor-only contracting and job contracting
In order to resolve the issue of whether P&G is the employer of
petitioners, it is necessary to first determine whether Promm-
Gem and SAPS are labor-only contractors or legitimate job
contractors.
The pertinent Labor Code provision on the matter states:
ART. 106. Contractor or subcontractor. – Whenever an
employer enters into a contract with another person for the
performance of the former’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.
Page 131 of 191
131
The Secretary of Labor may, by appropriate regulations, restrict
or prohibit the contracting out 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 workers recruited and placed
by such person are performing activities which are directly
related to the principal business of such employer. In 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. (Emphasis and underscoring
supplied.)
Rule VIII-A, Book III of the Omnibus Rules Implementing the
Labor Code, as amended by Department Order No. 18-02,24
distinguishes between legitimate and labor-only contracting:
xxxx
Section 3. Trilateral Relationship in Contracting Arrangements.
In legitimate contracting, there exists a trilateral relationship
under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and
a contract of employment between the contractor or
subcontractor and its workers. Hence, there are three parties
involved in these arrangements, the principal which decides to
farm out a job or service to a contractor or subcontractor, the
contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work or
service, and the contractual workers engaged by the contractor
or subcontractor to accomplish the job[,] work or service.
xxxx
Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any
of the following elements are present:
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal;
or
ii) [T]he contractor does not exercise the right to control over the
performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to the
application of Article 248 (c) of the Labor Code, as amended.
"Substantial capital or investment" refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises,
actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work or service
contracted out.
The "right to control" shall refer to the right reserved to the
person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end.
x x x x (Underscoring supplied.)
Clearly, the law and its implementing rules allow contracting
arrangements for the performance of specific jobs, works or
services. Indeed, it is management prerogative to farm out any
of its activities, regardless of whether such activity is peripheral
or core in nature. However, in order for such outsourcing to be
valid, it must be made to an independent contractor because the
current labor rules expressly prohibit labor-only contracting.
To emphasize, there is labor-only contracting when the
contractor or sub-contractor merely recruits, supplies or places
workers to perform a job, work or service for a principal25 and
any of the following elements are present:
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal;
or
ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
(Underscoring supplied)
In the instant case, the financial statements26 of Promm-Gem
show that it
has authorized capital stock of ₱1 million and a paid-in capital,
or capital available for operations, of ₱500,000.00 as of 1990.27
It also has long term assets worth ₱432,895.28 and current
assets of ₱719,042.32. Promm-Gem has also proven that it
maintained its own warehouse and office space with a floor area
of 870 square meters.28 It also had under its name three
registered vehicles which were used for its
promotional/merchandising business.29 Promm-Gem also has
other clients30 aside from P&G.31 Under the circumstances, we
find that Promm-Gem has substantial investment which relates
to the work to be performed. These factors negate the existence
of the element specified in Section 5(i) of DOLE Department
Order No. 18-02.
The records also show that Promm-Gem supplied its
complainant-workers with the relevant materials, such as
markers, tapes, liners and cutters, necessary for them to
perform their work. Promm-Gem also issued uniforms to them.
It is also relevant to mention that Promm-Gem already
considered the complainants working under it as its regular, not
merely contractual or project, employees.32 This circumstance
negates the existence of element (ii) as stated in Section 5 of
DOLE Department Order No. 18-02, which speaks of
contractual employees. This, furthermore, negates – on the part
Page 132 of 191
of Promm-Gem – bad faith and intent to circumvent labor laws
132
which factors have often been tipping points that lead the Court
to strike down the employment practice or agreement concerned
as contrary to public policy, morals, good customs or public
order.33
Under the circumstances, Promm-Gem cannot be considered
as a labor-only contractor. We find that it is a legitimate
independent contractor.
On the other hand, the Articles of Incorporation of SAPS shows
that it has a paid-in capital of only ₱31,250.00. There is no other
evidence presented to show how much its working capital and
assets are. Furthermore, there is no showing of substantial
investment in tools, equipment or other assets.
In Vinoya v. National Labor Relations Commission,34 the Court
held that "[w]ith the current economic atmosphere in the country,
the paid-in capitalization of PMCI amounting to ₱75,000.00
cannot be considered as substantial capital and, as such, PMCI
cannot qualify as an independent contractor."35 Applying the
same rationale to the present case, it is clear that SAPS – having
a paid-in capital of only ₱31,250 - has no substantial capital.
SAPS’ lack of substantial capital is underlined by the records36
which show that its payroll for its merchandisers alone for one
month would already total ₱44,561.00. It had 6-month contracts
with P&G.37 Yet SAPS failed to show that it could complete the
6-month contracts using its own capital and investment. Its
capital is not even sufficient for one month’s payroll. SAPS failed
to show that its paid-in capital of ₱31,250.00 is sufficient for the
period required for it to generate its needed revenue to sustain
its operations independently. Substantial capital refers to
capitalization used in the performance or completion of the job,
work or service contracted out. In the present case, SAPS has
failed to show substantial capital.
Furthermore, the petitioners have been charged with the
merchandising and promotion of the products of P&G, an activity
that has already been considered by the Court as doubtlessly
directly related to the manufacturing business,38 which is the
principal business of P&G. Considering that SAPS has no
substantial capital or investment and the workers it recruited are
performing activities which are directly related to the principal
business of P&G, we find that the former is engaged in "labor-
only contracting".
"Where ‘labor-only’ contracting exists, the Labor Code itself
establishes an employer-employee relationship between the
employer and the employees of the ‘labor-only’ contractor."39
The statute establishes this relationship for a comprehensive
purpose: to prevent a circumvention of labor laws. The
contractor is considered merely an agent of the principal
employer and the latter is responsible to the employees of the
labor-only contractor as if such employees had been directly
employed by the principal employer.40
Consequently, the following petitioners, having been recruited
and supplied by SAPS41 -- which engaged in labor-only
contracting -- are considered as the employees of P&G: Arthur
Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham
Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao
Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr.,
Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio
Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo
Quiambao, Santos Bacalso, Samson Basco, Alstando Montos,
Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique
F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry
Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo,
Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon,
Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan,
Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B.
Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat,
Cresente J. Garcia, Melencio Casapao, Romeo Vasquez,
Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
Dacasin.
The following petitioners, having worked under, and been
dismissed by Promm-Gem, are considered the employees of
Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido,
Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo,
Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa,
Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr.,
Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando
Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila,
Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales,
Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion,
Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb
Aliviado.42
Termination of services
We now discuss the issue of whether petitioners were illegally
dismissed. In cases of regular employment, the employer shall
not terminate the services of an employee except for a just43 or
authorized44 cause.
In the instant case, the termination letters given by Promm-Gem
to its employees uniformly specified the cause of dismissal as
grave misconduct and breach of trust, as follows:
xxxx
This informs you that effective May 5, 1992, your employment
with our company, Promm-Gem, Inc. has been terminated. We
find your expressed admission, that you considered yourself as
an employee of Procter & Gamble Phils., Inc…. and assailing
the integrity of the Company as legitimate and independent
promotion firm, is deemed as an act of disloyalty prejudicial to
the interests of our Company: serious misconduct and breach of
trust reposed upon you as employee of our Company which
[co]nstitute just cause for the termination of your employment.
x x x x45
Misconduct has been defined as improper or wrong conduct; the
transgression of some established and definite rule of action, a
forbidden act, a dereliction of duty, unlawful in character
implying wrongful intent and not mere error of judgment. The
misconduct to be serious must be of such grave and aggravated
character and not merely trivial and unimportant.46 To be a just
cause for dismissal, such misconduct (a) must be serious; (b)
must relate to the performance of the employee’s duties; and (c)
must show that the employee has become unfit to continue
working for the employer.47
In other words, in order to constitute serious misconduct which
will warrant the dismissal of an employee under paragraph (a)
of Article 282 of the Labor Code, it is not sufficient that the act
or conduct complained of has violated some established rules
or policies. It is equally important and required that the act or
conduct must have been performed with wrongful intent.48 In
the instant case, petitioners-employees of Promm-Gem may
have committed an error of judgment in claiming to be
employees of P&G, but it cannot be said that they were
motivated by any wrongful intent in doing so. As such, we find
Page 133 of 191
them guilty of only simple misconduct for assailing the integrity
133
of Promm-Gem as a legitimate and independent promotion firm.
A misconduct which is not serious or grave, as that existing in
the instant case, cannot be a valid basis for dismissing an
employee.
Meanwhile, loss of trust and confidence, as a ground for
dismissal, must be based on the willful breach of the trust
reposed in the employee by his employer. Ordinary breach will
not suffice. A breach of trust is willful if it is done intentionally,
knowingly and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly,
heedlessly or inadvertently.49
Loss of trust and confidence, as a cause for termination of
employment, is premised on the fact that the employee
concerned holds a position of responsibility or of trust and
confidence. As such, he must be invested with confidence on
delicate matters, such as custody, handling or care and
protection of the property and assets of the employer. And, in
order to constitute a just cause for dismissal, the act complained
of must be work-related and must show that the employee is
unfit to continue to work for the employer.50 In the instant case,
the petitioners-employees of Promm-Gem have not been shown
to be occupying positions of responsibility or of trust and
confidence. Neither is there any evidence to show that they are
unfit to continue to work as merchandisers for Promm-Gem.
All told, we find no valid cause for the dismissal of petitioners-
employees of Promm-Gem.
While Promm-Gem had complied with the procedural aspect of
due process in terminating the employment of petitioners-
employees, i.e., giving two notices and in between such notices,
an opportunity for the employees to answer and rebut the
charges against them, it failed to comply with the substantive
aspect of due process as the acts complained of neither
constitute serious misconduct nor breach of trust. Hence, the
dismissal is illegal.
With regard to the petitioners placed with P&G by SAPS, they
were given no written notice of dismissal. The records show that
upon receipt by SAPS of P&G’s letter terminating their
"Merchandising Services Contact" effective March 11, 1993,
they in turn verbally informed the concerned petitioners not to
report for work anymore. The concerned petitioners related their
dismissal as follows:
xxxx
5. On March 11, 1993, we were called to a meeting at SAPS
office. We were told by Mr. Saturnino A. Ponce that we should
already stop working immediately because that was the order of
Procter and Gamble. According to him he could not do otherwise
because Procter and Gamble was the one paying us. To prove
that Procter and Gamble was the one responsible in our
dismissal, he showed to us the letter51 dated February 24,
1993, x x x
February 24, 1993
Sales and Promotions Services
Armon’s Bldg., 142 Kamias Road,
Quezon City

Attention: Mr. Saturnino A. Ponce
President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February 1993, this
formally informs you that we will not be renewing our
Merchandising Services Contract with your agency.
Please immediately undertake efforts to ensure that your
services to the Company will terminate effective close of
business hours of 11 March 1993.
This is without prejudice to whatever obligations you may have
to the company under the abovementioned contract.
Very truly yours,
(Sgd.)
EMMANUEL M. NON
Sales Merchandising III
6. On March 12, 1993, we reported to our respective outlet
assignments. But, we were no longer allowed to work and we
were refused entrance by the security guards posted. According
to the security guards, all merchandisers of Procter and Gamble
under S[APS] who filed a case in the Dept. of Labor are already
dismissed as per letter of Procter and Gamble dated February
25, 1993. x x x521avvphi1
Neither SAPS nor P&G dispute the existence of these
circumstances. Parenthetically, unlike Promm-Gem which
dismissed its employees for grave misconduct and breach of
trust due to disloyalty, SAPS dismissed its employees upon the
initiation of P&G. It is evident that SAPS does not carry on its
own business because the termination of its contract with P&G
automatically meant for it also the termination of its employees’
services. It is obvious from its act that SAPS had no other clients
and had no intention of seeking other clients in order to further
its merchandising business. From all indications SAPS, existed
to cater solely to the need of P&G for the supply of employees
in the latter’s merchandising concerns only. Under the
circumstances prevailing in the instant case, we cannot consider
SAPS as an independent contractor.
Going back to the matter of dismissal, it must be emphasized
that the onus probandi to prove the lawfulness of the dismissal
rests with the employer.53 In termination cases, the burden of
proof rests upon the employer to show that the dismissal is for
just and valid cause.54 In the instant case, P&G failed to
discharge the burden of proving the legality and validity of the
dismissals of those petitioners who are considered its
employees. Hence, the dismissals necessarily were not justified
and are therefore illegal.
Damages
Page 134 of 191
We now go to the issue of whether petitioners are entitled to
134
damages. Moral
and exemplary damages are recoverable where the dismissal of
an employee was attended by bad faith or fraud or constituted
an act oppressive to labor or was done in a manner contrary to
morals, good customs or public policy.55
With regard to the employees of Promm-Gem, there being no
evidence of bad faith, fraud or any oppressive act on the part of
the latter, we find no support for the award of damages.
As for P&G, the records show that it dismissed its employees
through SAPS in a manner oppressive to labor. The sudden and
peremptory barring of the concerned petitioners from work, and
from admission to the work place, after just a one-day verbal
notice, and for no valid cause bellows oppression and utter
disregard of the right to due process of the concerned
petitioners. Hence, an award of moral damages is called for.
Attorney’s fees may likewise be awarded to the concerned
petitioners who were illegally dismissed in bad faith and were
compelled to litigate or incur expenses to protect their rights by
reason of the oppressive acts56 of P&G.
Lastly, under Article 279 of the Labor Code, an employee who
is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges, inclusive of
allowances, and other benefits or their monetary equivalent from
the time the compensation was withheld up to the time of actual
reinstatement.57 Hence, all the petitioners, having been illegally
dismissed are entitled to reinstatement without loss of seniority
rights and with full back wages and other benefits from the time
of their illegal dismissal up to the time of their actual
reinstatement.
WHEREFORE, the petition is GRANTED. The Decision dated
March 21, 2003 of the Court of Appeals in CA-G.R. SP No.
52082 and the Resolution dated October 20, 2003 are
REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and
Promm-Gem, Inc. are ORDERED to reinstate their respective
employees immediately without loss of seniority rights and with
full backwages and other benefits from the time of their illegal
dismissal up to the time of their actual reinstatement. Procter &
Gamble Phils., Inc. is further ORDERED to pay each of those
petitioners considered as its employees, namely Arthur Corpuz,
Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr.,
Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura,
Lope Salonga, Franz David, Nestor Ignacio, Rolando
Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano,
Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao,
Santos Bacalso, Samson Basco, Alstando Montos, Rainer N.
Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F.
Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry
Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo,
Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon,
Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan,
Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B.
Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat,
Cresente J. Garcia, Melencio Casapao, Romeo Vasquez,
Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
Dacasin, ₱25,000.00 as moral damages plus ten percent of the
total sum as and for attorney’s fees.
Let this case be REMANDED to the Labor Arbiter for the
computation, within 30 days from receipt of this Decision, of
petitioners’ backwages and other benefits; and ten percent of
the total sum as and for attorney’s fees as stated above; and for
immediate execution.
SO ORDERED.
G.R. No. 186965 December 23, 2009
TEMIC AUTOMOTIVE PHILIPPINES, INC., Petitioner, vs.
TEMIC AUTOMOTIVE PHILIPPINES, INC. EMPLOYEES
UNION-FFW, Respondent.
DECISION
BRION, J.:
We resolve the present petition for review on certiorari[1] filed
by Temic Automotive Philippines Inc. (petitioner) to challenge
the decision2 and resolution3 of the Court of Appeals (CA) in
CA-G.R. SP No. 99029.4
The Antecedents
The petitioner is a corporation engaged in the manufacture of
electronic brake systems and comfort body electronics for
automotive vehicles. Respondent Temic Automotive
Philippines, Inc. Employees Union-FFW (union) is the exclusive
bargaining agent of the petitioner's rank-and-file employees. On
May 6, 2005, the petitioner and the union executed a collective
bargaining agreement (CBA) for the period January 1, 2005 to
December 31, 2009.
The petitioner is composed of several departments, one of
which is the warehouse department consisting of two
warehouses - the electronic braking system and the comfort
body electronics. These warehouses are further divided into four
sections - receiving section, raw materials warehouse section,
indirect warehouse section and finished goods section. The
union members are regular rank-and-file employees working in
these sections as clerks, material handlers, system encoders
and general clerks. Their functions are interrelated and include:
receiving and recording of incoming deliveries, raw materials
and spare parts; checking and booking-in deliveries, raw
materials and spare parts with the use of the petitioner's system
application processing; generating bar codes and sticking these
on boxes and automotive parts; and issuing or releasing spare
parts and materials as may be needed at the production area,
and piling them up by means of the company's equipment
(forklift or jacklift).
By practice established since 1998, the petitioner contracts out
some of the work in the warehouse department, specifically
those in the receiving and finished goods sections, to three
independent service providers or forwarders (forwarders),
namely: Diversified Cargo Services, Inc. (Diversified), Airfreight
2100 (Airfreight) and Kuehne & Nagel, Inc. (KNI). These
forwarders also have their own employees who hold the
positions of clerk, material handler, system encoder and general
clerk. The regular employees of the petitioner and those of the
forwarders share the same work area and use the same
equipment, tools and computers all belonging to the petitioner.
This outsourcing arrangement gave rise to a union grievance on
the issue of the scope and coverage of the collective bargaining
unit, specifically to the question of "whether or not the functions
of the forwarders’ employees are functions being performed by
the regular rank-and-file employees covered by the bargaining
unit."5 The union thus demanded that the forwarders'
Page 135 of 191
employees be absorbed into the petitioner's regular employee
135
force and be given positions within the bargaining unit. The
petitioner, on the other hand, on the premise that the contracting
arrangement with the forwarders is a valid exercise of its
management prerogative, posited that the union's position is a
violation of its management prerogative to determine who to hire
and what to contract out, and that the regular rank-and-file
employees and their forwarders’ employees serving as its
clerks, material handlers, system encoders and general clerks
do not have the same functions as regular company employees.
The union and the petitioner failed to resolve the dispute at the
grievance machinery level, thus necessitating recourse to
voluntary arbitration. The parties chose Atty. Roberto A. Padilla
as their voluntary arbitrator. Their voluntary arbitration
submission agreement delineated the issues to be resolved as
follows:
1. Whether or not the company validly contracted out or
outsourced the services involving forwarding, packing, loading
and clerical activities related thereto; and
2. Whether or not the functions of the forwarders' employees are
functions being performed by regular rank-and-file employees
covered by the bargaining unit.6
To support its position, the union submitted in evidence a copy
of the complete manpower complement of the petitioner's
warehouse department as of January 3, 20077 showing that
there were at the time 19 regular company employees and 26
forwarder employees. It also presented the affidavits8 of
Edgardo P. Usog, Antonio A. Muzones, Endrico B. Dumolong,
Salvador R. Vargas and Harley J. Noval, regular employees of
the petitioner, who deposed that they and the forwarders’
employees assigned at the warehouse department were
performing the same functions. The union also presented the
affidavits of Ramil V. Barit9 (Barit), Jonathan G. Prevendido10
(Prevendido) and Eduardo H. Enano11 (Enano), employees of
forwarder KNI, who described their work at the warehouse
department.
In its submission,12 the petitioner invoked the exercise of its
management prerogative and its authority under this prerogative
to contract out to independent service providers the forwarding,
packing, loading of raw materials and/or finished goods and all
support and ancillary services (such as clerical activities) for
greater economy and efficiency in its operations. It argued that
in Meralco v. Quisumbing13 this Court explicitly recognized that
the contracting out of work is an employer proprietary right in the
exercise of its inherent management prerogative.
The forwarders, the petitioners alleged, are all highly reputable
freight forwarding companies providing total logistics services
such as customs brokerage that includes the preparation and
processing of import and export documentation, cargo handling,
transport (air, land or sea), delivery and trucking; and they have
substantial capital and are fully equipped with the technical
knowledge, facilities, equipment, materials, tools and manpower
to service the company's forwarding, packing and loading
requirements. Additionally, the petitioner argued that the union
is not in a position to question its business judgment, for even
their CBA expressly recognizes its prerogative to have exclusive
control of the management of all functions and facilities in the
company, including the exclusive right to plan or control
operations and introduce new or improved systems, procedures
and methods.
The petitioner maintained that the services rendered by the
forwarders’ employees are not the same as the functions
undertaken by regular rank-and-file employees covered by the
bargaining unit; therefore, the union’s demand that the
forwarders’ employees be assimilated as regular company
employees and absorbed by the collective bargaining unit has
no basis; what the union asks constitutes an unlawful
interference in the company's prerogative to choose who to hire
as employees. It pointed out that the union could not, and never
did, assert that the contracting-out of work to the service
providers was in violation of the CBA or prohibited by law.
The petitioner explained that its regular employees' clerical and
material handling tasks are not identical with those done by the
service providers; the clerical work rendered by the contractors
are recording and documentation tasks ancillary to or supportive
of the contracted services of forwarding, packing and loading;
on the other hand, the company employees assigned as general
clerks prepare inventory reports relating to its shipments in
general to ensure that the recording of inventory is consistent
with the company's general system; company employees
assigned as material handlers essentially assist in counter-
checking and reporting activities to ensure that the contractors'
services comply with company standards.
The petitioner submitted in evidence the affidavits of Antonio
Gregorio14 (Gregorio), its warehouse manager, and Ma. Maja
Bawar15 (Bawar), its section head.
The Voluntary Arbitration Decision
In his decision of May 1, 2007,16 the voluntary arbitrator defined
forwarding as a universally accepted and normal business
practice or activity, and ruled that the company validly
contracted out its forwarding services. The voluntary arbitrator
observed that exporters, in utilizing forwarders as travel agents
of cargo, mitigate the confusion and delays associated with
international trade logistics; the company need not deal with
many of the details involved in the export of goods; and given
the years of experience and constant attention to detail provided
by the forwarders, it may be a good investment for the company.
He found that the outsourcing of forwarding work is expressly
allowed by the rules implementing the Labor Code.17
At the same time, however, the voluntary arbitrator found that
the petitioner went beyond the limits of the legally allowable
contracting out because the forwarders' employees encroached
upon the functions of the petitioner's regular rank-and-file
workers. He opined that the forwarders' personnel serving as
clerks, material handlers, system encoders and general clerks
perform "functions [that] are being performed by regular rank-
and-file employees covered by the bargaining unit." He also
noted that the forwarders' employees perform their jobs in the
company warehouse together with the petitioner's employees,
use the same company tools and equipment and work under the
same company supervisors – indicators that the petitioner
exercises supervision and control over all the employees in the
warehouse department. For these reasons, he declared the
forwarders’ employees serving as clerks, material handlers,
system encoders and general clerks to be "employees of the
company who are entitled to all the rights and privileges of
regular employees of the company including security of
tenure."18
The petitioner sought relief from the CA through a petition for
review under Rule 43 of the Rules of Court invoking questions
of facts and law.19 It specifically questioned the ruling that the
company did not validly contract out the services performed by
the forwarders’ clerks, material handlers, system encoders and
general clerks, and claimed that the voluntary arbitrator acted in
Page 136 of 191
excess of his authority when he ruled that they should be
136
considered regular employees of the company.
The CA Decision
In its decision of October 28, 2008,20 the CA fully affirmed the
voluntary arbitrator’s decision and dismissed the petition for lack
of merit. The discussion essentially focused on three points.
First, that decisions of voluntary arbitrators on matters of fact
and law, acting within the scope of their authority, are conclusive
and constitute res adjudicata on the theory that the parties
agreed that the voluntary arbitrator’s decision shall be final.
Second, that the petitioner has the right to enter into the
forwarding agreements, but these agreements should be limited
to forwarding services; the petitioner failed to present clear and
convincing proof of the delineation of functions and duties
between company and forwarder employees engaged as clerks,
material handlers, system encoders and general clerks; thus,
they should be considered regular company employees. Third,
on the extent of the voluntary arbitrator's authority, the CA
acknowledged that the arbitrator can only decide questions
agreed upon and submitted by the parties, but maintained that
the arbitrator also has the power to rule on consequential issues
that would finally settle the dispute. On this basis, the CA
justified the ruling on the employment status of the forwarders'
clerks, material handlers, system encoders and general clerks
as a necessary consequence that ties up the loose ends of the
submitted issues for a final settlement of the dispute.
The CA denied the petitioner’s motion for reconsideration, giving
way to the present petition.
The Petition
The petition questions as a preliminary issue the CA ruling that
decisions of voluntary arbitrators are conclusive and constitute
res adjudicata on the facts and law ruled upon.
Expectedly, it cites as error the voluntary arbitrator’s and the
CA’s rulings that: (a) the forwarders’ employees undertaking the
functions of clerks, material handlers, system encoders and
general clerks exercise the functions of regular company
employees and are subject to the company’s control; and (b) the
functions of the forwarders’ employees are beyond the limits of
what the law allows for a forwarding agreement.
The petitioner reiterates that there are distinctions between the
work of the forwarders’ employees and that of the regular
company employees. The receiving, unloading, recording or
documenting of materials the forwarders’ employees undertake
form part of the contracted forwarding services. The similarity of
these activities to those performed by the company's regular
employees does not necessarily lead to the conclusion that the
forwarders’ employees should be absorbed by the company as
its regular employees. No proof was ever presented by the union
that the company exercised supervision and control over the
forwarders' employees. The contracted services and even the
work performed by the regular employees in the warehouse
department are also not usually necessary and desirable in the
manufacture of automotive electronics which is the company’s
main business. It adds that as held in Philippine Global
Communications, Inc. v. De Vera,[21] management can contract
out even services that are usually necessary or desirable in the
employer's business.
On the issue of jurisdiction, the petitioner argues that the
voluntary arbitrator neither had jurisdiction nor basis to declare
the forwarders' personnel as regular employees of the company
because the matter was not among the issues submitted by the
parties for arbitration; in voluntary arbitration, it is the parties’
submission of the issues that confers jurisdiction on the
voluntary arbitrator. The petitioner finally argues that the
forwarders and their employees were not parties to the voluntary
arbitration case and thus cannot be bound by the voluntary
arbitrator’s decision.
The Case for the Union
In its comment,22 the union takes exception to the petitioner's
position that the contracting out of services involving forwarding
and ancillary activities is a valid exercise of management
prerogative. It posits that the exercise of management
prerogative is not an absolute right, but is subject to the limitation
provided for by law, contract, existing practice, as well as the
general principles of justice and fair play. It submits that both the
law and the parties' CBA prohibit the petitioner from contracting
out to forwarders the functions of regular employees, especially
when the contracting out will amount to a violation of the
employees' security of tenure, of the CBA provision on the
coverage of the bargaining unit, or of the law on regular
employment.
The union disputes the petitioner's claim that there is a
distinction between the work being performed by the regular
employees and that of the forwarders' employees. It insists that
the functions being assigned, delegated to and performed by
employees of the forwarders are also those assigned, delegated
to and being performed by the regular rank-and-file employees
covered by the bargaining unit.
On the jurisdictional issue, the union submits that while the
submitted issue is "whether or not the functions of the
forwarders' employees are functions being performed by the
regular rank-and-file employees covered by the bargaining unit,"
the ruling of the voluntary arbitrator was a necessary
consequence of his finding that the forwarders' employees were
performing functions similar to those being performed by the
regular employees of the petitioner. It maintains that it is within
the power of the voluntary arbitrator to rule on the issue since it
is inherently connected to, or a consequence of, the main issues
resolved in the case.
The Court's Ruling
We find the petition meritorious.
Underlying Jurisdictional Issues
As submitted by the parties, the first issue is "whether or not the
company validly contracted out or outsourced the services
involving forwarding, packing, loading and clerical activities
related thereto." However, the forwarders, with whom the
petitioner had written contracts for these services, were never
made parties (and could not have been parties to the voluntary
arbitration except with their consent) so that the various
forwarders’ agreements could not have been validly impugned
through voluntary arbitration and declared invalid as against the
forwarders.
The second submitted issue is "whether or not the functions of
the forwarders’ employees are functions being performed by
regular rank-and-file employees covered by the bargaining unit."
Page 137 of 191
While this submission is couched in general terms, the issue as
137
discussed by the parties is limited to the forwarders’ employees
undertaking services as clerks, material handlers, system
encoders and general clerks, which functions are allegedly the
same functions undertaken by regular rank-and-file company
employees covered by the bargaining unit. Either way, however,
the issue poses jurisdictional problems as the forwarders’
employees are not parties to the case and the union has no
authority to speak for them.
From this perspective, the voluntary arbitration submission
covers matters affecting third parties who are not parties to the
voluntary arbitration and over whom the voluntary arbitrator has
no jurisdiction; thus, the voluntary arbitration ruling cannot bind
them.23 While they may voluntarily join the voluntary arbitration
process as parties, no such voluntary submission appears in the
record and we cannot presume that one exists. Thus, the
voluntary arbitration process and ruling can only be recognized
as valid between its immediate parties as a case arising from
their collective bargaining agreement. This limited scope, of
course, poses no problem as the forwarders and their
employees are not indispensable parties and the case is not
mooted by their absence. Our ruling will fully bind the immediate
parties and shall fully apply to, and clarify the terms of, their
relationship, particularly the interpretation and enforcement of
the CBA provisions pertinent to the arbitrated issues.
Validity of the Contracting Out
The voluntary arbitration decision itself established, without
objection from the parties, the description of the work of
forwarding as a basic premise for its ruling. We similarly find the
description acceptable and thus adopt it as our own starting
point in considering the nature of the service contracted out
when the petitioner entered into its forwarding agreements with
Diversified, Airfreight and KNI. To quote the voluntary arbitration
decision:
As forwarders they act as travel agents for cargo. They
specialize in arranging transport and completing required
shipping documentation of respondent's company's finished
products. They provide custom crating and packing designed for
specific needs of respondent company. These freight forwarders
are actually acting as agents for the company in moving cargo
to an overseas destination. These agents are familiar with the
import rules and regulations, the methods of shipping, and the
documents related to foreign trade. They recommend the
packing methods that will protect the merchandise during transit.
Freight forwarders can also reserve for the company the
necessary space on a vessel, aircraft, train or truck.
They also prepare the bill of lading and any special required
documentation. Freight forwarders can also make arrangement
with customs brokers overseas that the goods comply with
customs export documentation regulations. They have the
expertise that allows them to prepare and process the
documentation and perform related activities pertaining to
international shipments. As an analogy, freight forwarders have
been called travel agents for freight.24
Significantly, both the voluntary arbitrator and the CA
recognized that the petitioner was within its right in entering the
forwarding agreements with the forwarders as an exercise of its
management prerogative. The petitioner's declared objective for
the arrangement is to achieve greater economy and efficiency
in its operations – a universally accepted business objective and
standard that the union has never questioned. In Meralco v.
Quisumbing,25 we joined this universal recognition of
outsourcing as a legitimate activity when we held that a
company can determine in its best judgment whether it should
contract out a part of its work for as long as the employer is warehouse manager Gregorio28 and Section Head Bawar29

138
motivated by good faith; the contracting is not for purposes of discussed below.
circumventing the law; and does not involve or be the result of
malicious or arbitrary action.
From the perspective of the union in the present case, we note
that the forwarding agreements were already in place when the
While the voluntary arbitrator and the CA saw nothing irregular current CBA was signed.30 In this sense, the union accepted
in the contracting out as a whole, they held otherwise for the the forwarding arrangement, albeit implicitly, when it signed the
ancillary or support services involving clerical work, materials CBA with the company. Thereby, the union agreed, again
handling and documentation. They held these to be the same as implicitly by its silence and acceptance, that jobs related to the
the workplace activities undertaken by regular company rank- contracted forwarding activities are not regular company
and-file employees covered by the bargaining unit who work activities and are not to be undertaken by regular employees
under company control; hence, they concluded that the falling within the scope of the bargaining unit but by the
forwarders’ employees should be considered as regular forwarders’ employees. Thus, the skills requirements and job
company employees. content between forwarders’ jobs and bargaining unit jobs may
be the same, and they may even work on the same company
products, but their work for different purposes and for different
entities completely distinguish and separate forwarder and
Our own examination of the agreement shows that the
company employees from one another. A clerical job, therefore,
forwarding arrangement complies with the requirements of
if undertaken by a forwarders’ employee in support of forwarding
Article 10626 of the Labor Code and its implementing rules.27
activities, is not a CBA-covered undertaking or a regular
To reiterate, no evidence or argument questions the company’s
company activity.
basic objective of achieving "greater economy and efficiency of
operations." This, to our mind, goes a long way to negate the
presence of bad faith. The forwarding arrangement has been in
place since 1998 and no evidence has been presented showing The best evidence supporting this conclusion can be found in
that any regular employee has been dismissed or displaced by the CBA itself, Article 1, Sections 1, 2, 3 and 4 (VII) of which
the forwarders’ employees since then. No evidence likewise provide:
stands before us showing that the outsourcing has resulted in a
reduction of work hours or the splitting of the bargaining unit –
effects that under the implementing rules of Article 106 of the
Section 1. Recognition and Bargaining Unit. – Upon the union’s
Labor Code can make a contracting arrangement illegal. The
representation and showing of continued majority status among
other requirements of Article 106, on the other hand, are simply
the employees covered by the bargaining unit as already
not material to the present petition. Thus, on the whole, we see
appropriately constituted, the company recognizes the union as
no evidence or argument effectively showing that the
the sole and exclusive collective bargaining representative of all
outsourcing of the forwarding activities violate our labor laws,
its regular rank-and-file employees, except those excluded from
regulations, and the parties’ CBA, specifically that it interfered
the bargaining unit as hereinafter enumerated in Sections 2 and
with, restrained or coerced employees in the exercise of their
3 of this Article, for purposes of collective bargaining in respect
rights to self-organization as provided in Section 6, par. (f) of the
to their rates of pay and other terms and condition of
implementing rules. The only exception, of course, is what the
employment for the duration of this Agreement.
union now submits as a voluntary arbitration issue – i.e., the
failure to recognize certain forwarder employees as regular
company employees and the effect of this failure on the CBA’s
scope of coverage – which issue we fully discuss below. Section 2. Exclusions. The following employment categories are
expressly excluded from the bargaining unit and from the scope
of this Agreement: executives, managers, supervisors and those
employees exercising any of the attributes of a managerial
The job of forwarding, as we earlier described, consists not only
employee; Accounting Department, Controlling Department,
of a single activity but of several services that complement one
Human Resources Department and IT Department employees,
another and can best be viewed as one whole process involving
department secretaries, the drivers and personnel assigned to
a package of services. These services include packing, loading,
the Office of the General Manager and the Office of the
materials handling and support clerical activities, all of which are
Commercial Affairs and Treasury, probationary, temporary and
directed at the transport of company goods, usually to foreign
casual employees, security guards, and other categories of
destinations.
employees declared by law to be eligible for union membership.

It is in the appreciation of these forwarder services as one whole

Section 3. Additional Exclusions. Employees within the
package of inter-related services that we discern a basic
bargaining unit heretofore defined, who are promoted or
misunderstanding that results in the error of equating the
transferred to an excluded employment category as herein
functions of the forwarders’ employees with those of regular
before enumerated, shall automatically be considered as
rank-and-file employees of the company. A clerical job, for
resigned and/or disqualified from membership in the UNION and
example, may similarly involve typing and paper pushing
automatically removed from the bargaining unit.
activities and may be done on the same company products that
the forwarders’ employees and company employees may work
on, but these similarities do not necessarily mean that all these
employees work for the company. The regular company Section 4. Definitions – x x x
employees, to be sure, work for the company under its
supervision and control, but forwarder employees work for the
forwarder in the forwarder’s own operation that is itself a
contracted work from the company. The company controls its VII. A regular employee is one who having satisfactorily
employees in the means, method and results of their work, in undergone the probationary period of employment and passed
the same manner that the forwarder controls its own employees the company’s full requirement for regular employees, such as,
in the means, manner and results of their work. Complications but not limited to physical fitness, proficiency, acceptable
and confusion result because the company at the same time conduct and good moral character, received an appointment as
controls the forwarder in the results of the latter’s work, without a regular employee duly signed by the authorized official of the
controlling however the means and manner of the forwarder COMPANY.
employees’ work. This interaction is best exemplified by the
adduced evidence, particularly the affidavits of petitioner’s
[Emphasis supplied.]
Page 138 of 191

When these CBA provisions were put in place, the forwarding
agreements had been in place so that the forwarders’
employees were never considered as company employees who
would be part of the bargaining unit. To be precise, the
forwarders’ employees and their positions were not part of the
appropriate bargaining unit "as already constituted." In fact,
even now, the union implicitly recognizes forwarding as a whole
as a legitimate non-company activity by simply claiming as part
of their unit the forwarders’ employees undertaking allied
support activities.
At this point, the union cannot simply turn around and claim
through voluntary arbitration the contrary position that some
forwarder employees should be regular employees and should
be part of its bargaining unit because they undertake regular
company functions. What the union wants is a function of
negotiations, or perhaps an appropriate action before the
National Labor Relations Commission impleading the proper
parties, but not a voluntary arbitration that does not implead the
affected parties. The union must not forget, too, that before the
inclusion of the forwarders’ employees in the bargaining unit can
be considered, these employees must first be proven to be
regular company employees. As already mentioned, the union
does not even have the personality to make this claim for these
forwarders’ employees. This is the impenetrable wall that the
union cannot, for now, pass through using the voluntary
arbitration proceedings now before us on appeal.
Significantly, the evidence presented does not also prove the
union’s point that forwarder employees undertake company
rather than the forwarders' activities. We say this mindful that
forwarding includes a whole range of activities that may
duplicate company activities in terms of the exact character and
content of the job done and even of the skills required, but
cannot be legitimately labeled as company activities because
they properly pertain to forwarding that the company has
contracted out.
The union’s own evidence, in fact, speaks against the point the
union wishes to prove. Specifically, the affidavits of forwarder
KNI employees Barit, Prevendido, and Enano, submitted in
evidence by the union, confirm that the work they were doing
was predominantly related to forwarding or the shipment or
transport of the petitioner’s finished goods to overseas
destinations, particularly to Germany and the United States of
America (USA).lavvphil
Barit31 deposed that on August 2, 2004 he started working at
the petitioner's CBE finished goods area as an employee of
forwarder Emery Transnational Air Cargo Group; on the same
date, he was absorbed by KNI and was assigned the same task
of a loader; his actual work involved: making of inventories of
CBE finished products in the warehouse; double checking of the
finished products he inventoried and those received by the other
personnel of KNI; securing from his superior the delivery note
and print-out indicating the model and the quantity of products
to be exported to Germany; and preparing the loading form and
then referring it to his co-workers from the forwarders who
gather the goods to be transported to Germany based on the
model and quantity needed; with the use of the computer,
printing the airway bill which serves as cargo ticket for the airline
and posted on every box of finished products before loading on
the van of goods bound for Germany; preparing the gate pass
for the van. He explained that other products to be shipped to
the USA, via sea transport, are picked up by the other
forwarders and brought to their warehouse in Parañaque.
Prevendido,32 also a loader, stated that his actual work involved
loading into the container van finished CBE products bound for
Germany; when there is a build up for the E.K. Express
Page 139 of 191
(Emirates Airlines), he is sent by the petitioner to the airlines to
139
load the finished products and check if they are in good
condition; although the inspection and checking of loaded
finished products should be done by a company supervisor or
clerk, he is asked to do them because he is already there in the
area; he also conducts an inventory of finished goods in the
finished goods area, prepares loading form schedule and
generates the airway bill and is asked by his supervisor to call
up KNI for the airway bill number.
Enano,33 for his part, stated that on November 11, 1998, he was
absorbed by KNI after initially working in 1996 for a janitorial
service agency which had a contract with the petitioner, he was
also a loader and assigned at the finished goods section in the
warehouse department; his actual work involved preparing the
gate pass for finished products of the petitioner to be released;
loading the finished products on the truck and calling up KNI (Air
Freight Department) to check on the volume of the petitioner's
products for export; making inventories of the remaining finished
products and doing other tasks related to the export of the
petitioner's products, which he claimed are supposed to be done
by the company's finished goods supervisor; and monitoring of
KNI's trucking sub-contractor who handled the transport
component of KNI's arrangement with the petitioner.
The essential nature of the outsourced services is not
substantially altered by the claim of the three KNI employees
that they occasionally do work that pertains to the company’s
finished goods supervisor or a company employee such as the
inspection of goods to be shipped and inventory of finished
goods. This was clarified by petitioner’s warehouse manager
Gregorio34 and Section Head Bawar35 in their respective
affidavits. They explained that the three KNI employees do not
conduct inventory of finished goods; rather, as part of the
contract, KNI personnel have to count the boxes of finished
products they load into the trucks to ensure that the quantity
corresponds with the entries made in the loading form; included
in the contracted service is the preparation of transport
documents like the airway bill; the airway bill is prepared in the
office and a KNI employee calls for the airway bill number, a
sticker label is then printed; and that the use of the company
forklift is necessary for the loading of the finished goods into the
truck.
Thus, even on the evidentiary side, the union’s case must fail.
In light of these conclusions, we see no need to dwell on the
issue of the voluntary arbitrator’s authority to rule on issues not
expressly submitted but which arise as a consequence of the
voluntary arbitrator’s findings on the submitted issues.
WHEREFORE, premises considered, we hereby NULLIFY and
SET ASIDE the assailed Court of Appeals Decision in CA-G.R.
SP No. 99029 dated October 28, 2008, together with the
Voluntary Arbitrator’s Decision of May 1, 2007 declaring the
employees of forwarders Diversified Cargo Services, Inc.,
Airfreight 2100 and Kuehne & Nagel, Inc., presently designated
and functioning as clerks, material handlers, system or data
encoders and general clerks, to be regular company employees.
No costs.
SO ORDERED.
G.R. No. 148132 January 28, 2008
SMART COMMUNICATIONS, INC., petitioner, vs. REGINA M.
ASTORGA, respondent.
x---------------------------------------------------x
G.R. No. 151079 January 28, 2008
SMART COMMUNICATIONS, INC., petitioner, vs. REGINA M.
ASTORGA, respondent.
x---------------------------------------------------x
G.R. No. 151372 January 28, 2008
REGINA M. ASTORGA, petitioner, vs. SMART
COMMUNICATIONS, INC. and ANN MARGARET V.
SANTIAGO, respondents.
DECISION
NACHURA, J.:
For the resolution of the Court are three consolidated petitions
for review on certiorari under Rule 45 of the Rules of Court. G.R.
No. 148132 assails the February 28, 2000 Decision1 and the
May 7, 2001 Resolution2 of the Court of Appeals (CA) in CA-
G.R. SP. No. 53831. G.R. Nos. 151079 and 151372 question
the June 11, 2001 Decision3 and the December 18, 2001
Resolution4 in CA-G.R. SP. No. 57065.
Regina M. Astorga (Astorga) was employed by respondent
Smart Communications, Incorporated (SMART) on May 8, 1997
as District Sales Manager of the Corporate Sales Marketing
Group/ Fixed Services Division (CSMG/FSD). She was
receiving a monthly salary of P33,650.00. As District Sales
Manager, Astorga enjoyed additional benefits, namely, annual
performance incentive equivalent to 30% of her annual gross
salary, a group life and hospitalization insurance coverage, and
a car plan in the amount of P455,000.00.5
In February 1998, SMART launched an organizational
realignment to achieve more efficient operations. This was
made known to the employees on February 27, 1998.6 Part of
the reorganization was the outsourcing of the marketing and
sales force. Thus, SMART entered into a joint venture
agreement with NTT of Japan, and formed SMART-NTT
Multimedia, Incorporated (SNMI). Since SNMI was formed to do
the sales and marketing work, SMART abolished the
CSMG/FSD, Astorga’s division.
To soften the blow of the realignment, SNMI agreed to absorb
the CSMG personnel who would be recommended by SMART.
SMART then conducted a performance evaluation of CSMG
personnel and those who garnered the highest ratings were
favorably recommended to SNMI. Astorga landed last in the
performance evaluation, thus, she was not recommended by
SMART. SMART, nonetheless, offered her a supervisory
position in the Customer Care Department, but she refused the
offer because the position carried lower salary rank and rate.
Despite the abolition of the CSMG/FSD, Astorga continued
reporting for work. But on March 3, 1998, SMART issued a
memorandum advising Astorga of the termination of her
employment on ground of redundancy, effective April 3, 1998.
Astorga received it on March 16, 1998.7
The termination of her employment prompted Astorga to file a
Complaint8 for illegal dismissal, non-payment of salaries and
other benefits with prayer for moral and exemplary damages
against SMART and Ann Margaret V. Santiago (Santiago). She
claimed that abolishing CSMG and, consequently, terminating
her employment was illegal for it violated her right to security of
tenure. She also posited that it was illegal for an employer, like
SMART, to contract out services which will displace the
employees, especially if the contractor is an in-house agency.9
Page 140 of 191
140
SMART responded that there was valid termination. It argued
that Astorga was dismissed by reason of redundancy, which is
an authorized cause for termination of employment, and the
dismissal was effected in accordance with the requirements of
the Labor Code. The redundancy of Astorga’s position was the
result of the abolition of CSMG and the creation of a specialized
and more technically equipped SNMI, which is a valid and
legitimate exercise of management prerogative.10
In the meantime, on May 18, 1998, SMART sent a letter to
Astorga demanding that she pay the current market value of the
Honda Civic Sedan which was given to her under the company’s
car plan program, or to surrender the same to the company for
proper disposition.11 Astorga, however, failed and refused to do
either, thus prompting SMART to file a suit for replevin with the
Regional Trial Court of Makati (RTC) on August 10, 1998. The
case was docketed as Civil Case No. 98-1936 and was raffled
to Branch 57.12
Astorga moved to dismiss the complaint on grounds of (i) lack
of jurisdiction; (ii) failure to state a cause of action; (iii) litis
pendentia; and (iv) forum-shopping. Astorga posited that the
regular courts have no jurisdiction over the complaint because
the subject thereof pertains to a benefit arising from an
employment contract; hence, jurisdiction over the same is
vested in the labor tribunal and not in regular courts.13
Pending resolution of Astorga’s motion to dismiss the replevin
case, the Labor Arbiter rendered a Decision14 dated August 20,
1998, declaring Astorga’s dismissal from employment illegal.
While recognizing SMART’s right to abolish any of its
departments, the Labor Arbiter held that such right should be
exercised in good faith and for causes beyond its control. The
Arbiter found the abolition of CSMG done neither in good faith
nor for causes beyond the control of SMART, but a ploy to
terminate Astorga’s employment. The Arbiter also ruled that
contracting out the functions performed by Astorga to an in-
house agency like SNMI was illegal, citing Section 7(e), Rule
VIII-A of the Rules Implementing the Labor Code.
Accordingly, the Labor Arbiter ordered:
WHEREFORE, judgment is hereby rendered declaring the
dismissal of [Astorga] to be illegal and unjust. [SMART and
Santiago] are hereby ordered to:
1. Reinstate [Astorga] to [her] former position or to a
substantially equivalent position, without loss of seniority rights
and other privileges, with full backwages, inclusive of
allowances and other benefits from the time of [her] dismissal to
the date of reinstatement, which computed as of this date, are
as follows:
(a)
Astorga
BACKWAGES; (P33,650.00 x 4 months)
= P134,600.00
UNPAID SALARIES (February 15, 1998-April 3, 1998 under a car plan privilege arrangement. The car is registered in

141
the name of the plaintiff. Recovery thereof via replevin suit is
allowed by Rule 60 of the 1997 Rules of Civil Procedure, which
is undoubtedly within the jurisdiction of the Regional Trial Court.
February 15-28, 1998

In the Complaint, plaintiff claims to be the owner of the company

= P 16,823.00
car and despite demand, defendant refused to return said car.
This is clearly sufficient statement of plaintiff’s cause of action.

March 1-31, [1998]

Neither is there forum shopping. The element of litis penden[t]ia
does not appear to exist because the judgment in the labor
= P 33,650.00 dispute will not constitute res judicata to bar the filing of this
case.

April 1-3, 1998

WHEREFORE, the Motion to Dismiss is hereby denied for lack
of merit.
= P 3,882.69

SO ORDERED.17
CAR MAINTENANCE ALLOWANCE

(P2,000.00 x 4) Astorga filed a motion for reconsideration, but the RTC denied it
on June 18, 1999.18

= P 8,000.00
Astorga elevated the denial of her motion via certiorari to the CA,
which, in its February 28, 2000 Decision,19 reversed the RTC
FUEL ALLOWANCE ruling. Granting the petition and, consequently, dismissing the
replevin case, the CA held that the case is intertwined with
(300 liters/mo. x 4 mos. at P12.04/liter) Astorga’s complaint for illegal dismissal; thus, it is the labor
tribunal that has rightful jurisdiction over the complaint.
SMART’s motion for reconsideration having been denied,20 it
elevated the case to this Court, now docketed as G.R. No.
= P 14,457.83 148132.

TOTAL Meanwhile, SMART also appealed the unfavorable ruling of the

Labor Arbiter in the illegal dismissal case to the National Labor
Relations Commission (NLRC). In its September 27, 1999
= P211,415.52 Decision,21 the NLRC sustained Astorga’s dismissal. Reversing
the Labor Arbiter, the NLRC declared the abolition of CSMG and
the creation of SNMI to do the sales and marketing services for
SMART a valid organizational action. It overruled the Labor
xxxx Arbiter’s ruling that SNMI is an in-house agency, holding that it
lacked legal basis. It also declared that contracting,
subcontracting and streamlining of operations for the purpose of
3. Jointly and severally pay moral damages in the amount of increasing efficiency are allowed under the law. The NLRC
P500,000.00 x x x and exemplary damages in the amount of further found erroneous the Labor Arbiter’s disquisition that
P300,000.00. x x x redundancy to be valid must be impelled by economic reasons,
and upheld the redundancy measures undertaken by SMART.

4. Jointly and severally pay 10% of the amount due as attorney’s

fees. The NLRC disposed, thus:

SO ORDERED.15 WHEREFORE, the Decision of the Labor Arbiter is hereby

Subsequently, on March 29, 1999, the RTC issued an Order16
denying Astorga’s motion to dismiss the replevin case. In so
ruling, the RTC ratiocinated that:
reversed and set aside. [Astorga] is further ordered to
immediately return the company vehicle assigned to her. [Smart
and Santiago] are hereby ordered to pay the final wages of
[Astorga] after [she] had submitted the required supporting
papers therefor.

SO ORDERED.22
Assessing the [submission] of the parties, the Court finds no
merit in the motion to dismiss.
Astorga filed a motion for reconsideration, but the NLRC denied
it on December 21, 1999.23
As correctly pointed out, this case is to enforce a right of
possession over a company car assigned to the defendant

Page 141 of 191

Astorga then went to the CA via certiorari. On June 11, 2001,
the CA rendered a Decision24 affirming with modification the
resolutions of the NLRC. In gist, the CA agreed with the NLRC
that the reorganization undertaken by SMART resulting in the
abolition of CSMG was a legitimate exercise of management
prerogative. It rejected Astorga’s posturing that her non-
absorption into SNMI was tainted with bad faith. However, the
CA found that SMART failed to comply with the mandatory one-
month notice prior to the intended termination. Accordingly, the
CA imposed a penalty equivalent to Astorga’s one-month salary
for this non-compliance. The CA also set aside the NLRC’s order
for the return of the company vehicle holding that this issue is
not essentially a labor concern, but is civil in nature, and thus,
within the competence of the regular court to decide. It added
that the matter had not been fully ventilated before the NLRC,
but in the regular court.
Astorga filed a motion for reconsideration, while SMART sought
partial reconsideration, of the Decision. On December 18, 2001,
the CA resolved the motions, viz.:
WHEREFORE, [Astorga’s] motion for reconsideration is hereby
PARTIALLY GRANTED. [Smart] is hereby ordered to pay
[Astorga] her backwages from 15 February 1998 to 06
November 1998. [Smart’s] motion for reconsideration is
outrightly DENIED.
SO ORDERED.25
Astorga and SMART came to us with their respective petitions
for review assailing the CA ruling, docketed as G.R Nos. 151079
and 151372. On February 27, 2002, this Court ordered the
consolidation of these petitions with G.R. No. 148132.26
In her Memorandum, Astorga argues:
I
THE COURT OF APPEALS ERRED IN UPHOLDING THE
VALIDITY OF ASTORGA’S DISMISSAL DESPITE THE FACT
THAT HER DISMISSAL WAS EFFECTED IN CLEAR
VIOLATION OF THE CONSTITUTIONAL RIGHT TO
SECURITY OF TENURE, CONSIDERING THAT THERE WAS
NO GENUINE GROUND FOR HER DISMISSAL.
II
SMART’S REFUSAL TO REINSTATE ASTORGA DURING
THE PENDENCY OF THE APPEAL AS REQUIRED BY
ARTICLE 223 OF THE LABOR CODE, ENTITLES ASTORGA
TO HER SALARIES DURING THE PENDENCY OF THE
APPEAL.
III
THE COURT OF APPEALS WAS CORRECT IN HOLDING
THAT THE REGIONAL TRIAL COURT HAS NO
JURISDICTION OVER THE COMPLAINT FOR RECOVERY
OF A CAR WHICH ASTORGA ACQUIRED AS PART OF HER
EMPLOYEE (sic) BENEFIT.27
Page 142 of 191
On the other hand, Smart in its Memoranda raises the following
142
issues:
I
WHETHER THE HONORABLE COURT OF APPEALS HAS
DECIDED A QUESTION OF SUBSTANCE IN A WAY
PROBABLY NOT IN ACCORD WITH LAW OR WITH
APPLICABLE DECISION OF THE HONORABLE SUPREME
COURT AND HAS SO FAR DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE
POWER OF SUPERVISION WHEN IT RULED THAT SMART
DID NOT COMPLY WITH THE NOTICE REQUIREMENTS
PRIOR TO TERMINATING ASTORGA ON THE GROUND OF
REDUNDANCY.
II
WHETHER THE NOTICES GIVEN BY SMART TO ASTORGA
AND THE DEPARTMENT OF LABOR AND EMPLOYMENT
ARE SUBSTANTIAL COMPLIANCE WITH THE NOTICE
REQUIREMENTS BEFORE TERMINATION.
III
WHETHER THE RULE ENUNCIATED IN SERRANO VS.
NATIONAL LABOR RELATIONS COMMISSION FINDS
APPLICATION IN THE CASE AT BAR CONSIDERING THAT
IN THE SERRANO CASE THERE WAS ABSOLUTELY NO
NOTICE AT ALL.28
IV
WHETHER THE HONORABLE COURT OF APPEALS HAS
DECIDED A QUESTION OF SUBSTANCE IN A WAY
PROBABLY NOT IN ACCORD WITH LAW OR WITH
APPLICABLE DECISION[S] OF THE HONORABLE SUPREME
COURT AND HAS SO FAR DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE
POWER OF SUPERVISION WHEN IT RULED THAT THE
REGIONAL TRIAL COURT DOES NOT HAVE JURISDICTION
OVER THE COMPLAINT FOR REPLEVIN FILED BY SMART
TO RECOVER ITS OWN COMPANY VEHICLE FROM A
FORMER EMPLOYEE WHO WAS LEGALLY DISMISSED.
V
WHETHER THE HONORABLE COURT OF APPEALS HAS
FAILED TO APPRECIATE THAT THE SUBJECT OF THE
REPLEVIN CASE IS NOT THE ENFORCEMENT OF A CAR
PLAN PRIVILEGE BUT SIMPLY THE RECOVERY OF A
COMPANY CAR.
VI
WHETHER THE HONORABLE COURT OF APPEALS HAS
FAILED TO APPRECIATE THAT ASTORGA CAN NO
LONGER BE CONSIDERED AS AN EMPLOYEE OF SMART
UNDER THE LABOR CODE.29

The Court shall first deal with the propriety of dismissing the
replevin case filed with the RTC of Makati City allegedly for lack
of jurisdiction, which is the issue raised in G.R. No. 148132.
Replevin is an action whereby the owner or person entitled to
repossession of goods or chattels may recover those goods or
chattels from one who has wrongfully distrained or taken, or who
wrongfully detains such goods or chattels. It is designed to
permit one having right to possession to recover property in
specie from one who has wrongfully taken or detained the
property.30 The term may refer either to the action itself, for the
recovery of personalty, or to the provisional remedy traditionally
associated with it, by which possession of the property may be
obtained by the plaintiff and retained during the pendency of the
action.31
That the action commenced by SMART against Astorga in the
RTC of Makati City was one for replevin hardly admits of doubt.
In reversing the RTC ruling and consequently dismissing the
case for lack of jurisdiction, the CA made the following
disquisition, viz.:
[I]t is plain to see that the vehicle was issued to [Astorga] by
[Smart] as part of the employment package. We doubt that
[SMART] would extend [to Astorga] the same car plan privilege
were it not for her employment as district sales manager of the
company. Furthermore, there is no civil contract for a loan
between [Astorga] and [Smart]. Consequently, We find that the
car plan privilege is a benefit arising out of employer-employee
relationship. Thus, the claim for such falls squarely within the
original and exclusive jurisdiction of the labor arbiters and the
NLRC.32
We do not agree. Contrary to the CA’s ratiocination, the RTC
rightfully assumed jurisdiction over the suit and acted well within
its discretion in denying Astorga’s motion to dismiss. SMART’s
demand for payment of the market value of the car or, in the
alternative, the surrender of the car, is not a labor, but a civil,
dispute. It involves the relationship of debtor and creditor rather
than employee-employer relations.33 As such, the dispute falls
within the jurisdiction of the regular courts.
In Basaya, Jr. v. Militante,34 this Court, in upholding the
jurisdiction of the RTC over the replevin suit, explained:
Replevin is a possessory action, the gist of which is the right of
possession in the plaintiff. The primary relief sought therein is
the return of the property in specie wrongfully detained by
another person. It is an ordinary statutory proceeding to
adjudicate rights to the title or possession of personal property.
The question of whether or not a party has the right of
possession over the property involved and if so, whether or not
the adverse party has wrongfully taken and detained said
property as to require its return to plaintiff, is outside the pale of
competence of a labor tribunal and beyond the field of
specialization of Labor Arbiters.
xxxx
The labor dispute involved is not intertwined with the issue in the
Replevin Case. The respective issues raised in each forum can
be resolved independently on the other. In fact in 18 November
Page 143 of 191
1986, the NLRC in the case before it had issued an Injunctive
143
Writ enjoining the petitioners from blocking the free ingress and
egress to the Vessel and ordering the petitioners to disembark
and vacate. That aspect of the controversy is properly settled
under the Labor Code. So also with petitioners’ right to picket.
But the determination of the question of who has the better right
to take possession of the Vessel and whether petitioners can
deprive the Charterer, as the legal possessor of the Vessel, of
that right to possess in addressed to the competence of Civil
Courts.
In thus ruling, this Court is not sanctioning split jurisdiction but
defining avenues of jurisdiction as laid down by pertinent laws.
The CA, therefore, committed reversible error when it
overturned the RTC ruling and ordered the dismissal of the
replevin case for lack of jurisdiction.
Having resolved that issue, we proceed to rule on the validity of
Astorga’s dismissal.
Astorga was terminated due to redundancy, which is one of the
authorized causes for the dismissal of an employee. The nature
of redundancy as an authorized cause for dismissal is explained
in the leading case of Wiltshire File Co., Inc. v. National Labor
Relations Commission,35 viz:
x x x redundancy in an employer’s personnel force necessarily
or even ordinarily refers to duplication of work. That no other
person was holding the same position that private respondent
held prior to termination of his services does not show that his
position had not become redundant. Indeed, in any well
organized business enterprise, it would be surprising to find
duplication of work and two (2) or more people doing the work
of one person. We believe that redundancy, for purposes of the
Labor Code, exists where the services of an employee are in
excess of what is reasonably demanded by the actual
requirements of the enterprise. Succinctly put, a position is
redundant where it is superfluous, and superfluity of a position
or positions may be the outcome of a number of factors, such as
overhiring of workers, decreased volume of business, or
dropping of a particular product line or service activity previously
manufactured or undertaken by the enterprise.
The characterization of an employee’s services as superfluous
or no longer necessary and, therefore, properly terminable, is an
exercise of business judgment on the part of the employer. The
wisdom and soundness of such characterization or decision is
not subject to discretionary review provided, of course, that a
violation of law or arbitrary or malicious action is not shown.36
Astorga claims that the termination of her employment was
illegal and tainted with bad faith. She asserts that the
reorganization was done in order to get rid of her. But except for
her barefaced allegation, no convincing evidence was offered to
prove it. This Court finds it extremely difficult to believe that
SMART would enter into a joint venture agreement with NTT,
form SNMI and abolish CSMG/FSD simply for the sole purpose
of easing out a particular employee, such as Astorga. Moreover,
Astorga never denied that SMART offered her a supervisory
position in the Customer Care Department, but she refused the
offer because the position carried a lower salary rank and rate.
If indeed SMART simply wanted to get rid of her, it would not
have offered her a position in any department in the enterprise.
Astorga also states that the justification advanced by SMART is
not true because there was no compelling economic reason for
redundancy. But contrary to her claim, an employer is not
precluded from adopting a new policy conducive to a more
economical and effective management even if it is not
experiencing economic reverses. Neither does the law require
that the employer should suffer financial losses before he can
terminate the services of the employee on the ground of
redundancy. 37
We agree with the CA that the organizational realignment
introduced by SMART, which culminated in the abolition of
CSMG/FSD and termination of Astorga’s employment was an
honest effort to make SMART’s sales and marketing
departments more efficient and competitive. As the CA had
taken pains to elucidate:
x x x a careful and assiduous review of the records will yield no
other conclusion than that the reorganization undertaken by
SMART is for no purpose other than its declared objective – as
a labor and cost savings device. Indeed, this Court finds no fault
in SMART’s decision to outsource the corporate sales market to
SNMI in order to attain greater productivity. [Astorga] belonged
to the Sales Marketing Group under the Fixed Services Division
(CSMG/FSD), a distinct sales force of SMART in charge of
selling SMART’s telecommunications services to the corporate
market. SMART, to ensure it can respond quickly, efficiently and
flexibly to its customer’s requirement, abolished CSMG/FSD
and shortly thereafter assigned its functions to newly-created
SNMI Multimedia Incorporated, a joint venture company of
SMART and NTT of Japan, for the reason that CSMG/FSD does
not have the necessary technical expertise required for the
value added services. By transferring the duties of CSMG/FSD
to SNMI, SMART has created a more competent and
specialized organization to perform the work required for
corporate accounts. It is also relieved SMART of all
administrative costs – management, time and money-needed in
maintaining the CSMG/FSD. The determination to outsource the
duties of the CSMG/FSD to SNMI was, to Our mind, a sound
business judgment based on relevant criteria and is therefore a
legitimate exercise of management prerogative.
Indeed, out of our concern for those lesser circumstanced in life,
this Court has inclined towards the worker and upheld his cause
in most of his conflicts with his employer. This favored treatment
is consonant with the social justice policy of the Constitution. But
while tilting the scales of justice in favor of workers, the
fundamental law also guarantees the right of the employer to
reasonable returns for his investment.38 In this light, we must
acknowledge the prerogative of the employer to adopt such
measures as will promote greater efficiency, reduce overhead
costs and enhance prospects of economic gains, albeit always
within the framework of existing laws. Accordingly, we sustain
the reorganization and redundancy program undertaken by
SMART.
However, as aptly found by the CA, SMART failed to comply
with the mandated one (1) month notice prior to termination. The
record is clear that Astorga received the notice of termination
only on March 16, 199839 or less than a month prior to its
effectivity on April 3, 1998. Likewise, the Department of Labor
and Employment was notified of the redundancy program only
on March 6, 1998.40
Article 283 of the Labor Code clearly provides:
Art. 283. 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
Page 144 of 191
provisions of this Title, by serving a written notice on the workers
144
and the Ministry of Labor and Employment at least one (1)
month before the intended date thereof x x x.
SMART’s assertion that Astorga cannot complain of lack of
notice because the organizational realignment was made known
to all the employees as early as February 1998 fails to persuade.
Astorga’s actual knowledge of the reorganization cannot replace
the formal and written notice required by the law. In the written
notice, the employees are informed of the specific date of the
termination, at least a month prior to the effectivity of such
termination, to give them sufficient time to find other suitable
employment or to make whatever arrangements are needed to
cushion the impact of termination. In this case, notwithstanding
Astorga’s knowledge of the reorganization, she remained
uncertain about the status of her employment until SMART gave
her formal notice of termination. But such notice was received
by Astorga barely two (2) weeks before the effective date of
termination, a period very much shorter than that required by
law.
Be that as it may, this procedural infirmity would not render the
termination of Astorga’s employment illegal. The validity of
termination can exist independently of the procedural infirmity of
the dismissal.41 In DAP Corporation v. CA,42 we found the
dismissal of the employees therein valid and for authorized
cause even if the employer failed to comply with the notice
requirement under Article 283 of the Labor Code. This Court
upheld the dismissal, but held the employer liable for non-
compliance with the procedural requirements.
The CA, therefore, committed no reversible error in sustaining
Astorga’s dismissal and at the same time, awarding indemnity
for violation of Astorga's statutory rights.
However, we find the need to modify, by increasing, the
indemnity awarded by the CA to Astorga, as a sanction on
SMART for non-compliance with the one-month mandatory
notice requirement, in light of our ruling in Jaka Food Processing
Corporation v. Pacot,43 viz.:
[I]f the dismissal is based on a just cause under Article 282 but
the employer failed to comply with the notice requirement, the
sanction to be imposed upon him should be tempered because
the dismissal process was, in effect, initiated by an act imputable
to the employee, and (2) if the dismissal is based on an
authorized cause under Article 283 but the employer failed to
comply with the notice requirement, the sanction should be
stiffer because the dismissal process was initiated by the
employer’s exercise of his management prerogative.
We deem it proper to increase the amount of the penalty on
SMART to P50,000.00.
As provided in Article 283 of the Labor Code, Astorga is,
likewise, entitled to separation pay equivalent to at least one (1)
month salary or to at least one (1) month’s pay for every year of
service, whichever is higher. The records show that Astorga’s
length of service is less than a year. She is, therefore, also
entitled to separation pay equivalent to one (1) month pay.
Finally, we note that Astorga claimed non-payment of wages
from February 15, 1998. This assertion was never rebutted by
SMART in the proceedings a quo. No proof of payment was
presented by SMART to disprove the allegation. It is settled that
in labor cases, the burden of proving payment of monetary
claims rests on the employer.44 SMART failed to discharge the
onus probandi. Accordingly, it must be held liable for Astorga’s
salary from February 15, 1998 until the effective date of her
termination, on April 3, 1998.
However, the award of backwages to Astorga by the CA should
be deleted for lack of basis. Backwages is a relief given to an
illegally dismissed employee. Thus, before backwages may be
granted, there must be a finding of unjust or illegal dismissal
from work.45 The Labor Arbiter ruled that Astorga was illegally
dismissed. But on appeal, the NLRC reversed the Labor
Arbiter’s ruling and categorically declared Astorga’s dismissal
valid. This ruling was affirmed by the CA in its assailed Decision.
Since Astorga’s dismissal is for an authorized cause, she is not
entitled to backwages. The CA’s award of backwages is totally
inconsistent with its finding of valid dismissal.
WHEREFORE, the petition of SMART docketed as G.R. No.
148132 is GRANTED. The February 28, 2000 Decision and the
May 7, 2001 Resolution of the Court of Appeals in CA-G.R. SP.
No. 53831 are SET ASIDE. The Regional Trial Court of Makati
City, Branch 57 is DIRECTED to proceed with the trial of Civil
Case No. 98-1936 and render its Decision with reasonable
dispatch.
On the other hand, the petitions of SMART and Astorga
docketed as G.R. Nos. 151079 and 151372 are DENIED. The
June 11, 2001 Decision and the December 18, 2001 Resolution
in CA-G.R. SP. No. 57065, are AFFIRMED with
MODIFICATION. Astorga is declared validly dismissed.
However, SMART is ordered to pay Astorga P50,000.00 as
indemnity for its non-compliance with procedural due process,
her separation pay equivalent to one (1) month pay, and her
salary from February 15, 1998 until the effective date of her
termination on April 3, 1998. The award of backwages is
DELETED for lack of basis.
SO ORDERED.
G.R. No. 179546 February 13, 2009
COCA-COLA BOTTLERS PHILS., INC., Petitioner, vs. ALAN
M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR.,
ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T.
ARVIN, GIL H. FRANCISCO, and EDWIN M. GOLEZ,
Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the
Rules of Court, assailing the Decision1 dated 19 February 2007,
promulgated by the Court of Appeals in CA-G.R. SP No. 85320,
reversing the Resolution2 rendered on 30 October 2003 by the
National Labor Relations Commission (NLRC) in NLRC NCR
CA No. 036494-03. The Court of Appeals, in its assailed
Decision, declared that respondents Alan M. Agito, Regolo S.
Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr., Dempster P.
Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M. Golez
were regular employees of petitioner Coca-Cola Bottlers Phils.,
Inc; and that Interserve Management & Manpower Resources,
Inc. (Interserve) was a labor-only contractor, whose presence
was intended merely to preclude respondents from acquiring
tenurial security.
Petitioner is a domestic corporation duly registered with the
Securities and Exchange Commission (SEC) and engaged in
manufacturing, bottling and distributing soft drink beverages and
other allied products.
Page 145 of 191
145
On 15 April 2002, respondents filed before the NLRC two
complaints against petitioner, Interserve, Peerless Integrated
Services, Inc., Better Builders, Inc., and Excellent Partners, Inc.
for reinstatement with backwages, regularization, nonpayment
of 13th month pay, and damages. The two cases, docketed as
NLRC NCR Case No. 04-02345-2002 and NLRC NCR Case No.
05-03137-02, were consolidated.
Respondents alleged in their Position Paper that they were
salesmen assigned at the Lagro Sales Office of petitioner. They
had been in the employ of petitioner for years, but were not
regularized. Their employment was terminated on 8 April 2002
without just cause and due process. However, they failed to
state the reason/s for filing a complaint against Interserve;
Peerless Integrated Services, Inc.; Better Builders, Inc.; and
Excellent Partners, Inc.3
Petitioner filed its Position Paper (with Motion to Dismiss),4
where it averred that respondents were employees of Interserve
who were tasked to perform contracted services in accordance
with the provisions of the Contract of Services5 executed
between petitioner and Interserve on 23 March 2002. Said
Contract between petitioner and Interserve, covering the period
of 1 April 2002 to 30 September 2002, constituted legitimate job
contracting, given that the latter was a bona fide independent
contractor with substantial capital or investment in the form of
tools, equipment, and machinery necessary in the conduct of its
business.
To prove the status of Interserve as an independent contractor,
petitioner presented the following pieces of evidence: (1) the
Articles of Incorporation of Interserve;6 (2) the Certificate of
Registration of Interserve with the Bureau of Internal Revenue;7
(3) the Income Tax Return, with Audited Financial Statements,
of Interserve for 2001;8 and (4) the Certificate of Registration of
Interserve as an independent job contractor, issued by the
Department of Labor and Employment (DOLE).9
As a result, petitioner asserted that respondents were
employees of Interserve, since it was the latter which hired them,
paid their wages, and supervised their work, as proven by: (1)
respondents’ Personal Data Files in the records of Interserve;10
(2) respondents’ Contract of Temporary Employment with
Interserve;11 and (3) the payroll records of Interserve.12
Petitioner, thus, sought the dismissal of respondents’ complaint
against it on the ground that the Labor Arbiter did not acquire
jurisdiction over the same in the absence of an employer-
employee relationship between petitioner and the
respondents.13
In a Decision dated 28 May 2003, the Labor Arbiter found that
respondents were employees of Interserve and not of petitioner.
She reasoned that the standard put forth in Article 280 of the
Labor Code for determining regular employment (i.e., that the
employee is performing activities that are necessary and
desirable in the usual business of the employer) was not
determinative of the issue of whether an employer-employee
relationship existed between petitioner and respondents. While
respondents performed activities that were necessary and
desirable in the usual business or trade of petitioner, the Labor
Arbiter underscored that respondents’ functions were not
indispensable to the principal business of petitioner, which was
manufacturing and bottling soft drink beverages and similar
products.
The Labor Arbiter placed considerable weight on the fact that
Interserve was registered with the DOLE as an independent job
contractor, with total assets amounting to ₱1,439,785.00 as of
31 December 2001. It was Interserve that kept and maintained
respondents’ employee records, including their Personal Data
Sheets; Contracts of Employment; and remittances to the Social
Securities System (SSS), Medicare and Pag-ibig Fund, thus,
further supporting the Labor Arbiter’s finding that respondents
were employees of Interserve. She ruled that the circulars, rules
and regulations which petitioner issued from time to time to
respondents were not indicative of control as to make the latter
its employees.
Nevertheless, the Labor Arbiter directed Interserve to pay
respondents their pro-rated 13th month benefits for the period
of January 2002 until April 2002.14
In the end, the Labor Arbiter decreed:
WHEREFORE, judgment is hereby rendered finding that [herein
respondents] are employees of [herein petitioner] INTERSERVE
MANAGEMENT & MANPOWER RESOURCES, INC.
Concomitantly, respondent Interserve is further ordered to pay
[respondents] their pro-rated 13th month pay.
The complaints against COCA-COLA BOTTLERS PHILS., INC.
is DISMISMMED for lack of merit.
In like manner the complaints against PEERLESS
INTEGRATED SERVICES, INC., BETTER BUILDING INC. and
EXCELLENT PARTNERS COOPERATIVE are DISMISSED for
failure of complainants to pursue against them.
Other claims are dismissed for lack of merit.
The computation of the Computation and Examination Unit, this
Commission if (sic) made part of this Decision. 15
Unsatisfied with the foregoing Decision of the Labor Arbiter,
respondents filed an appeal with the NLRC, docketed as NLRC
NCR CA No. 036494-03.
In their Memorandum of Appeal,16 respondents maintained that
contrary to the finding of the Labor Arbiter, their work was
indispensable to the principal business of petitioner.
Respondents supported their claim with copies of the Delivery
Agreement17 between petitioner and TRMD Incorporated,
stating that petitioner was "engaged in the manufacture,
distribution and sale of soft drinks and other related products
with various plants and sales offices and warehouses located all
over the Philippines." Moreover, petitioner supplied the tools and
equipment used by respondents in their jobs such as forklifts,
pallet, etc. Respondents were also required to work in the
warehouses, sales offices, and plants of petitioner.
Respondents pointed out that, in contrast, Interserve did not
own trucks, pallets cartillas, or any other equipment necessary
in the sale of Coca-Cola products.
Respondents further averred in their Memorandum of Appeal
that petitioner exercised control over workers supplied by
various contractors. Respondents cited as an example the case
of Raul Arenajo (Arenajo), who, just like them, worked for
petitioner, but was made to appear as an employee of the
contractor Peerless Integrated Services, Inc. As proof of control
Page 146 of 191
by petitioner, respondents submitted copies of: (1) a
146
Memorandum18 dated 11 August 1998 issued by Vicente Dy
(Dy), a supervisor of petitioner, addressed to Arenajo,
suspending the latter from work until he explained his
disrespectful acts toward the supervisor who caught him
sleeping during work hours; (2) a Memorandum19 dated 12
August 1998 again issued by Dy to Arenajo, informing the latter
that the company had taken a more lenient and tolerant position
regarding his offense despite having found cause for his
dismissal; (3) Memorandum20 issued by Dy to the personnel of
Peerless Integrated Services, Inc., requiring the latter to present
their timely request for leave or medical certificates for their
absences; (4) Personnel Workers Schedules, 21 prepared by
RB Chua, another supervisor of petitioner; (5) Daily Sales
Monitoring Report prepared by petitioner;22 and (6) the
Conventional Route System Proposed Set-up of petitioner. 23
The NLRC, in a Resolution dated 30 October 2003, affirmed the
Labor Arbiter’s Decision dated 28 May 2003 and pronounced
that no employer-employee relationship existed between
petitioner and respondents. It reiterated the findings of the Labor
Arbiter that Interserve was an independent contractor as
evidenced by its substantial assets and registration with the
DOLE. In addition, it was Interserve which hired and paid
respondents’ wages, as well as paid and remitted their SSS,
Medicare, and Pag-ibig contributions. Respondents likewise
failed to convince the NLRC that the instructions issued and
trainings conducted by petitioner proved that petitioner
exercised control over respondents as their employer.24 The
dispositive part of the NLRC Resolution states:25
WHEREFORE, the instant appeal is hereby DISMISSED for
lack of merit. However, respondent Interserve Management &
Manpower Resources, Inc., is hereby ordered to pay the [herein
respondents] their pro-rated 13th month pay.
Aggrieved once more, respondents sought recourse with the
Court of Appeals by filing a Petition for Certiorari under Rule 65,
docketed as CA-G.R. SP No. 85320.
The Court of Appeals promulgated its Decision on 9 February
2007, reversing the NLRC Resolution dated 30 October 2003.
The appellate court ruled that Interserve was a labor-only
contractor, with insufficient capital and investments for the
services which it was contracted to perform. With only
₱510,000.00 invested in its service vehicles and ₱200,000.00 in
its machineries and equipment, Interserve would be hard-
pressed to meet the demands of daily soft drink deliveries of
petitioner in the Lagro area. The Court Appeals concluded that
the respondents used the equipment, tools, and facilities of
petitioner in the day-to-day sales operations.
Additionally, the Court of Appeals determined that petitioner had
effective control over the means and method of respondents’
work as evidenced by the Daily Sales Monitoring Report, the
Conventional Route System Proposed Set-up, and the
memoranda issued by the supervisor of petitioner addressed to
workers, who, like respondents, were supposedly supplied by
contractors. The appellate court deemed that the respondents,
who were tasked to deliver, distribute, and sell Coca-Cola
products, carried out functions directly related and necessary to
the main business of petitioner. The appellate court finally noted
that certain provisions of the Contract of Service between
petitioner and Interserve suggested that the latter’s undertaking
did not involve a specific job, but rather the supply of manpower.
The decretal portion of the Decision of the Court of Appeals
reads:26
WHEREFORE, the petition is GRANTED. The assailed
Resolutions of public respondent NLRC are REVERSED and
SET ASIDE. The case is remanded to the NLRC for further
proceedings.
Petitioner filed a Motion for Reconsideration, which the Court of
Appeals denied in a Resolution, dated 31 August 2007.27
Hence, the present Petition, in which the following issues are
raised28:
I
WHETHER OR NOT THE COURT OF APPEALS ACTED IN
ACCORDANCE WITH EVIDENCE ON RECORD,
APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE
WHEN IT RULED THAT INTERSERVE IS A LABOR-ONLY
CONTRACTOR;
II
WHETHER OR NOT THE COURT OF APPEALS ACTED IN
ACCORDANCE WITH APPLICABLE LAWS AND
ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED
THAT RESPONDENTS PERFORMED WORK NECESSARY
AND DESIRABLE TO THE BUSINESS OF [PETITIONER];
III
WHETHER OR NOT THE COURT OF APPEALS COMMITTED
SERIOUS ERROR WHEN IT DECLARED THAT
RESPONDENTS WERE EMPLOYEES OF [PETITIONER],
EVEN ABSENT THE FOUR ELEMENTS INDICATIVE OF AN
EMPLOYMENT RELATIONSHIP; AND
IV
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY
ERRED WHEN IT CONCLUDED THAT INTERSERVE WAS
ENGAGED BY [PETITIONER] TO SUPPLY MANPOWER
ONLY.
The Court ascertains that the fundamental issue in this case is
whether Interserve is a legitimate job contractor. Only by
resolving such issue will the Court be able to determine whether
an employer-employee relationship exists between petitioner
and the respondents. To settle the same issue, however, the
Court must necessarily review the factual findings of the Court
of Appeals and look into the evidence presented by the parties
on record.
As a general rule, factual findings of the Court of Appeals are
binding upon the Supreme Court. One exception to this rule is
when the factual findings of the former are contrary to those of
the trial court, or the lower administrative body, as the case may
be. This Court is obliged to resolve an issue of fact herein due
to the incongruent findings of the Labor Arbiter and the NLRC
and those of the Court of Appeals. 29
Page 147 of 191
The relations which may arise in a situation, where there is an
147
employer, a contractor, and employees of the contractor, are
identified and distinguished under Article 106 of the Labor Code:
Article 106. Contractor or subcontractor. - Whenever an
employer enters into a contract with another person for the
performance of the former’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 may, by appropriate regulations, restrict
or prohibit the contracting out of labor to protect the rights of
workers established under this Code. In so prohibiting or
restriction, 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 employee does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed
by such persons are performing activities which are directly
related to the principal business of such employer. In 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.
The afore-quoted provision recognizes two possible relations
among the parties: (1) the permitted legitimate job contract, or
(2) the prohibited labor-only contracting.
A legitimate job contract, wherein an employer enters into a
contract with a job contractor for the performance of the former’s
work, is permitted by law. Thus, the employer-employee
relationship between the job contractor and his employees is
maintained. In legitimate job contracting, the law creates an
employer-employee relationship between the employer and the
contractor’s employees only for a limited purpose, i.e., to ensure
that the employees are paid their wages. The employer
becomes jointly and severally liable with the job contractor only
for the payment of the employees’ wages whenever the
contractor fails to pay the same. Other than that, the employer
is not responsible for any claim made by the contractor’s
employees.30
On the other hand, labor-only contracting is an arrangement
wherein the contractor merely acts as an agent in recruiting and
supplying the principal employer with workers for the purpose of
circumventing labor law provisions setting down the rights of
employees. It is not condoned by law. A finding by the
appropriate authorities that a contractor is a "labor-only"
contractor establishes an employer-employee relationship
between the principal employer and the contractor’s employees
and the former becomes solidarily liable for all the rightful claims
of the employees. 31
Section 5 of the Rules Implementing Articles 106-109 of the
Labor Code, as amended, provides the guidelines in
determining whether labor-only contracting exists:
Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies, or places
workers to perform a job, work or service for a principal, and any
of the following elements are [is] present:
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work, or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal;
or
ii) The contractor does not exercise the right to control the
performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to the
application of Article 248(C) of the Labor Code, as amended.
"Substantial capital or investment" refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises,
actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work, or service
contracted out.
The "right to control" shall refer to the right reversed to the
person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end.
(Emphasis supplied.)
When there is labor-only contracting, Section 7 of the same
implementing rules, describes the consequences thereof:
Section 7. Existence of an employer-employee relationship.—
The contractor or subcontractor shall be considered the
employer of the contractual employee for purposes of enforcing
the provisions of the Labor Code and other social legislation.
The principal, however, shall be solidarily liable with the
contractor in the event of any violation of any provision of the
Labor Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual
employee in any of the following case, as declared by a
competent authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within the
prohibitions provided in Section 6 (Prohibitions) hereof.
According to the foregoing provision, labor-only contracting
would give rise to: (1) the creation of an employer-employee
relationship between the principal and the employees of the
contractor or sub-contractor; and (2) the solidary liability of the
Page 148 of 191
principal and the contractor to the employees in the event of any
148
violation of the Labor Code.
Petitioner argues that there could not have been labor-only
contracting, since respondents did not perform activities that
were indispensable to petitioner’s principal business. And, even
assuming that they did, such fact alone does not establish an
employer-employee relationship between petitioner and the
respondents, since respondents were unable to show that
petitioner exercised the power to select and hire them, pay their
wages, dismiss them, and control their conduct.
The argument of petitioner is untenable.
The law clearly establishes an employer-employee relationship
between the principal employer and the contractor’s employee
upon a finding that the contractor is engaged in "labor-only"
contracting. Article 106 of the Labor Code categorically states:
"There is ‘labor-only’ contracting where the person supplying
workers to an employee does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed
by such persons are performing activities which are directly
related to the principal business of such employer." Thus,
performing activities directly related to the principal business of
the employer is only one of the two indicators that "labor-only"
contracting exists; the other is lack of substantial capital or
investment. The Court finds that both indicators exist in the case
at bar.
Respondents worked for petitioner as salesmen, with the
exception of respondent Gil Francisco whose job was
designated as leadman. In the Delivery Agreement32 between
petitioner and TRMD Incorporated, it is stated that petitioner is
engaged in the manufacture, distribution and sale of softdrinks
and other related products. The work of respondents,
constituting distribution and sale of Coca-Cola products, is
clearly indispensable to the principal business of petitioner. The
repeated re-hiring of some of the respondents supports this
finding.33 Petitioner also does not contradict respondents’
allegations that the former has Sales Departments and Sales
Offices in its various offices, plants, and warehouses; and that
petitioner hires Regional Sales Supervisors and District Sales
Supervisors who supervise and control the salesmen and sales
route helpers.34
As to the supposed substantial capital and investment required
of an independent job contractor, petitioner calls the attention of
the Court to the authorized capital stock of Interserve amounting
to ₱2,000,000.00.35 It cites as authority Filipinas Synthetic Fiber
Corp. v. National Labor Relations Commission36 and Frondozo
v. National Labor Relations Commission,37 where the
contractors’ authorized capital stock of ₱1,600,000.00 and
₱2,000,000.00, respectively, were considered substantial for the
purpose of concluding that they were legitimate job contractors.
Petitioner also refers to Neri v. National Labor Relations
Commission38 where it was held that a contractor ceases to be
a labor-only contractor by having substantial capital alone,
without investment in tools and equipment.
This Court is unconvinced.
At the outset, the Court clarifies that although Interserve has an
authorized capital stock amounting to ₱2,000,000.00, only
₱625,000.00 thereof was paid up as of 31 December 2001. The
Court does not set an absolute figure for what it considers
substantial capital for an independent job contractor, but it
measures the same against the type of work which the
contractor is obligated to perform for the principal. However, this bank, a big local bank, a hospital center, government agencies,

149
is rendered impossible in this case since the Contract between etc." Furthermore, there were only two (2) complainants in that
petitioner and Interserve does not even specify the work or the case who were not only selected and hired by the contractor
project that needs to be performed or completed by the latter’s before being assigned to work in the Cagayan de Oro branch of
employees, and uses the dubious phrase "tasks and activities FEBTC but the Court also found that the contractor maintained
that are considered contractible under existing laws and effective supervision and control over them.
regulations." Even in its pleadings, petitioner carefully sidesteps
identifying or describing the exact nature of the services that
Interserve was obligated to render to petitioner. The importance
Thus, in San Miguel Corporation, the investment of MAERC, the
of identifying with particularity the work or task which Interserve
contractor therein, in the form of buildings, tools, and equipment
was supposed to accomplish for petitioner becomes even more
of more than ₱4,000,000.00 did not impress the Court, which
evident, considering that the Articles of Incorporation of
still declared MAERC to be a labor-only contractor. In another
Interserve states that its primary purpose is to operate, conduct,
case, Dole Philippines, Inc. v. Esteva,42 the Court did not
and maintain the business of janitorial and allied services.39 But
recognize the contractor therein as a legitimate job contractor,
respondents were hired as salesmen and leadman for petitioner.
despite its paid-up capital of over ₱4,000,000.00, in the absence
The Court cannot, under such ambiguous circumstances, make
of substantial investment in tools and equipment used in the
a reasonable determination if Interserve had substantial capital
services it was rendering.
or investment to undertake the job it was contracting with
petitioner.

Insisting that Interserve had substantial investment, petitioner

assails, for being purely speculative, the finding of the Court of
Petitioner cannot seek refuge in Neri v. National Labor Relations
Appeals that the service vehicles and equipment of Interserve,
Commission. Unlike in Neri, petitioner was unable to prove in
with the values of ₱510,000.00 and ₱200,000.00, respectively,
the instant case that Interserve had substantial capitalization to
could not have met the demands of the Coca-Cola deliveries in
be an independent job contractor. In San Miguel Corporation v.
the Lagro area.
MAERC Integrated Services, Inc.,40 therein petitioner San
Miguel Corporation similarly invoked Neri, but was rebuffed by
the Court based on the following ratiocination41 :
Yet again, petitioner fails to persuade.

Petitioner also ascribes as error the failure of the Court of

Appeals to apply the ruling in Neri v. NLRC. In that case, it was The contractor, not the employee, has the burden of proof that
held that the law did not require one to possess both substantial it has the substantial capital, investment, and tool to engage in
capital and investment in the form of tools, equipment, job contracting.43 Although not the contractor itself (since
machinery, work premises, among others, to be considered a Interserve no longer appealed the judgment against it by the
job contractor. The second condition to establish permissible job Labor Arbiter), said burden of proof herein falls upon petitioner
contracting was sufficiently met if one possessed either who is invoking the supposed status of Interserve as an
attribute. independent job contractor. Noticeably, petitioner failed to
submit evidence to establish that the service vehicles and
equipment of Interserve, valued at ₱510,000.00 and
₱200,000.00, respectively, were sufficient to carry out its service
Accordingly, petitioner alleged that the appellate court and the
contract with petitioner. Certainly, petitioner could have simply
NLRC erred when they declared MAERC a labor-only contractor
provided the courts with records showing the deliveries that
despite the finding that MAERC had investments amounting to
were undertaken by Interserve for the Lagro area, the type and
₱4,608,080.00 consisting of buildings, machinery and
number of equipment necessary for such task, and the valuation
equipment.
of such equipment. Absent evidence which a legally compliant
company could have easily provided, the Court will not presume
that Interserve had sufficient investment in service vehicles and
However, in Vinoya v. NLRC, we clarified that it was not enough equipment, especially since respondents’ allegation – that they
to show substantial capitalization or investment in the form of were using equipment, such as forklifts and pallets belonging to
tools, equipment, machinery and work premises, etc., to be petitioner, to carry out their jobs – was uncontroverted.
considered an independent contractor. In fact, jurisprudential
holdings were to the effect that in determining the existence of
an independent contractor relationship, several factors may be
In sum, Interserve did not have substantial capital or investment
considered, such as, but not necessarily confined to, whether
in the form of tools, equipment, machineries, and work premises;
the contractor was carrying on an independent business; the
and respondents, its supposed employees, performed work
nature and extent of the work; the skill required; the term and
which was directly related to the principal business of petitioner.
duration of the relationship; the right to assign the performance
It is, thus, evident that Interserve falls under the definition of a
of specified pieces of work; the control and supervision of the
"labor-only" contractor, under Article 106 of the Labor Code; as
workers; the power of the employer with respect to the hiring,
well as Section 5(i) of the Rules Implementing Articles 106-109
firing and payment of the workers of the contractor; the control
of the Labor Code, as amended.
of the premises; the duty to supply premises, tools, appliances,
materials and labor; and the mode, manner and terms of
payment.
The Court, however, does not stop at this finding. It is also
apparent that Interserve is a labor-only contractor under Section
5(ii)44 of the Rules Implementing Articles 106-109 of the Labor
In Neri, the Court considered not only the fact that respondent
Code, as amended, since it did not exercise the right to control
Building Care Corporation (BCC) had substantial capitalization
the performance of the work of respondents.
but noted that BBC carried on an independent business and
performed its contract according to its own manner and method,
free from the control and supervision of its principal in all matters
except as to the results thereof. The Court likewise mentioned The lack of control of Interserve over the respondents can be
that the employees of BCC were engaged to perform specific gleaned from the Contract of Services between Interserve (as
special services for their principal. The status of BCC had also the CONTRACTOR) and petitioner (as the CLIENT), pertinent
been passed upon by the Court in a previous case where it was portions of which are reproduced below:
found to be a qualified job contractor because it was a "big firm
which services among others, a university, an international

Page 149 of 191

WHEREAS, the CONTRACTOR is engaged in the business,
among others, of performing and/or undertaking, managing for
consideration, varied projects, jobs and other related
management-oriented services;
WHEREAS, the CONTRACTOR warrants that it has the
necessary capital, expertise, technical know-how and a team of
professional management group and personnel to undertake
and assume the responsibility to carry out the above mentioned
project and services;
WHEREAS, the CLIENT is desirous of utilizing the services and
facilities of the CONTRACTOR for emergency needs, rush jobs,
peak product loads, temporary, seasonal and other special
project requirements the extent that the available work of the
CLIENT can properly be done by an independent
CONTRACTOR permissible under existing laws and
regulations;
WHEREAS, the CONTRACTOR has offered to perform specific
jobs/works at the CLIENT as stated heretofore, under the terms
and conditions herein stated, and the CLIENT has accepted the
offer.
NOW THEREFORE, for and in consideration of the foregoing
premises and of the mutual covenants and stipulations
hereinafter set forth, the parties have hereto have stated and the
CLIENT has accepted the offer:
1. The CONTRACTOR agrees and undertakes to perform
and/or provide for the CLIENT, on a non-exclusive basis for
tasks or activities that are considered contractible under existing
laws and regulations, as may be needed by the CLIENT from
time to time.
2. To carry out the undertakings specified in the immediately
preceding paragraph, the CONTRACTOR shall employ the
necessary personnel like Route Helpers, Salesmen, Drivers,
Clericals, Encoders & PD who are at least Technical/Vocational
courses graduates provided with adequate uniforms and
appropriate identification cards, who are warranted by the
CONTRACTOR to be so trained as to efficiently, fully and
speedily accomplish the work and services undertaken herein
by the CONTRACTOR. The CONTRACTOR represents that its
personnel shall be in such number as will be sufficient to cope
with the requirements of the services and work herein
undertaken and that such personnel shall be physically fit, of
good moral character and has not been convicted of any crime.
The CLIENT, however, may request for the replacement of the
CONTRACTOR’S personnel if from its judgment, the jobs or the
projects being done could not be completed within the time
specified or that the quality of the desired result is not being
achieved.
3. It is agreed and understood that the CONTRACTOR’S
personnel will comply with CLIENT, CLIENT’S policies, rules
and regulations and will be subjected on-the-spot search by
CLIENT, CLIENT’S duly authorized guards or security men on
duty every time the assigned personnel enter and leave the
premises during the entire duration of this agreement.
4. The CONTRACTOR further warrants to make available at
times relievers and/or replacements to ensure continuous and
uninterrupted service as in the case of absences of any
personnel above mentioned, and to exercise the necessary and
due supervision over the work of its personnel.45
Page 150 of 191
150
Paragraph 3 of the Contract specified that the personnel of
contractor Interserve, which included the respondents, would
comply with "CLIENT" as well as "CLIENT’s policies, rules and
regulations." It even required Interserve personnel to subject
themselves to on-the-spot searches by petitioner or its duly
authorized guards or security men on duty every time the said
personnel entered and left the premises of petitioner. Said
paragraph explicitly established the control of petitioner over the
conduct of respondents. Although under paragraph 4 of the
same Contract, Interserve warranted that it would exercise the
necessary and due supervision of the work of its personnel,
there is a dearth of evidence to demonstrate the extent or
degree of supervision exercised by Interserve over respondents
or the manner in which it was actually exercised. There is even
no showing that Interserve had representatives who supervised
respondents’ work while they were in the premises of petitioner.
Also significant was the right of petitioner under paragraph 2 of
the Contract to "request the replacement of the
CONTRACTOR’S personnel." True, this right was conveniently
qualified by the phrase "if from its judgment, the jobs or the
projects being done could not be completed within the time
specified or that the quality of the desired result is not being
achieved," but such qualification was rendered meaningless by
the fact that the Contract did not stipulate what work or job the
personnel needed to complete, the time for its completion, or the
results desired. The said provision left a gap which could enable
petitioner to demand the removal or replacement of any
employee in the guise of his or her inability to complete a project
in time or to deliver the desired result. The power to recommend
penalties or dismiss workers is the strongest indication of a
company’s right of control as direct employer.461avvphil.zw+
Paragraph 4 of the same Contract, in which Interserve
warranted to petitioner that the former would provide relievers
and replacements in case of absences of its personnel, raises
another red flag. An independent job contractor, who is
answerable to the principal only for the results of a certain work,
job, or service need not guarantee to said principal the daily
attendance of the workers assigned to the latter. An
independent job contractor would surely have the discretion
over the pace at which the work is performed, the number of
employees required to complete the same, and the work
schedule which its employees need to follow.
As the Court previously observed, the Contract of Services
between Interserve and petitioner did not identify the work
needed to be performed and the final result required to be
accomplished. Instead, the Contract specified the type of
workers Interserve must provide petitioner ("Route Helpers,
Salesmen, Drivers, Clericals, Encoders & PD") and their
qualifications (technical/vocational course graduates, physically
fit, of good moral character, and have not been convicted of any
crime). The Contract also states that, "to carry out the
undertakings specified in the immediately preceding paragraph,
the CONTRACTOR shall employ the necessary personnel,"
thus, acknowledging that Interserve did not yet have in its
employ the personnel needed by petitioner and would still pick
out such personnel based on the criteria provided by petitioner.
In other words, Interserve did not obligate itself to perform an
identifiable job, work, or service for petitioner, but merely bound
itself to provide the latter with specific types of employees.
These contractual provisions strongly indicated that Interserve
was merely a recruiting and manpower agency providing
petitioner with workers performing tasks directly related to the
latter’s principal business.
The certification issued by the DOLE stating that Interserve is
an independent job contractor does not sway this Court to take
it at face value, since the primary purpose stated in the Articles
of Incorporation47 of Interserve is misleading. According to its
Articles of Incorporation, the principal business of Interserve is
to provide janitorial and allied services. The delivery and
distribution of Coca-Cola products, the work for which
respondents were employed and assigned to petitioner, were in
no way allied to janitorial services. While the DOLE may have
found that the capital and/or investments in tools and equipment
of Interserve were sufficient for an independent contractor for
janitorial services, this does not mean that such capital and/or
investments were likewise sufficient to maintain an independent
contracting business for the delivery and distribution of Coca-
Cola products.
With the finding that Interserve was engaged in prohibited labor-
only contracting, petitioner shall be deemed the true employer
of respondents. As regular employees of petitioner, respondents
cannot be dismissed except for just or authorized causes, none
of which were alleged or proven to exist in this case, the only
defense of petitioner against the charge of illegal dismissal
being that respondents were not its employees. Records also
failed to show that petitioner afforded respondents the twin
requirements of procedural due process, i.e., notice and
hearing, prior to their dismissal. Respondents were not served
notices informing them of the particular acts for which their
dismissal was sought. Nor were they required to give their side
regarding the charges made against them. Certainly, the
respondents’ dismissal was not carried out in accordance with
law and, therefore, illegal.48
Given that respondents were illegally dismissed by petitioner,
they are entitled to reinstatement, full backwages, inclusive of
allowances, and to their other benefits or the monetary
equivalents thereof computed from the time their compensations
were withheld from them up to the time of their actual
reinstatement, as mandated under Article 279 of the Labor
Code,.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED.
The Court AFFIRMS WITH MODIFICATION the Decision dated
19 February 2007 of the Court of Appeals in CA-G.R. SP No.
85320. The Court DECLARES that respondents were illegally
dismissed and, accordingly, ORDERS petitioner to reinstate
them without loss of seniority rights, and to pay them full back
wages computed from the time their compensation was withheld
up to their actual reinstatement. Costs against the petitioner.
SO ORDERED.
G.R. No. 175501 October 4, 2010
MANILA WATER COMPANY, INC., Petitioner, vs. JOSE J.
DALUMPINES, EMMANUEL CAPIT, ROMEO B.
CASTOLONE, MELITANTE CASTRO, NONITO FERNANDEZ,
ARNULFO JAMISON, ARTHUR LAVISTE, ESTEBAN
LEGARTO, SUSANO MIRANDA, RAMON C. REYES, JOSE
SIERRA, BENJAMIN TALAVERA, MOISES ZAPATERO,
EDGAR PAMORAGA, BERNARDO S. MEDINA, MELENCIO
M. BAONGUIS, JR., JOSE AGUILAR, ANGEL C. GARCIA,
JOSE TEODY P. VELASCO, AUGUSTUS J. TANDOC,
ROBERTO DAGDAG, MIGUEL LOPEZ, GEORGE CABRERA,
ARMAN BORROMEO, RONITO R. FRIAS, ANTONIO
VERGARA, RANDY CORTIGUERRA, and FIRST CLASSIC
COURIER SERVICES, INC., Respondents.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule
45 of the Rules of Court, assailing the Decision1 dated
Page 151 of 191
September 12, 2006 and the Resolution2 dated November 17,
151
2006 of the Court of Appeals (CA) in CA-G.R. SP No. 94909.
The facts of the case are as follows:
By virtue of Republic Act No. 8041, otherwise known as the
"National Water Crisis Act of 1995," the Metropolitan
Waterworks and Sewerage System (MWSS) was given the
authority to enter into concession agreements allowing the
private sector in its operations. Petitioner Manila Water
Company, Inc. (Manila Water) was one of two private
concessionaires contracted by the MWSS to manage the water
distribution system in the east zone of Metro Manila. The east
service area included the following towns and cities:
Mandaluyong, Marikina, Pasig, Pateros, San Juan, Taguig,
Makati, parts of Quezon City and Manila, Angono, Antipolo,
Baras, Binangonan, Cainta, Cardona, Jala-Jala, Morong, Pililla,
Rodriguez, Tanay, Taytay, Teresa, and San Mateo.3
Under the concession agreement, Manila Water undertook to
absorb the regular employees of MWSS listed by the latter
effective August 1, 1997. Individual respondents, with the
exception of Moises Zapatero (Zapatero) and Edgar Pamoraga
(Pamoraga), were among the one hundred twenty-one (121)
employees not included in the list of employees to be absorbed
by Manila Water. Nevertheless, Manila Water engaged their
services without written contract from August 1, 1997 to August
31, 1997.4
On September 1, 1997, individual respondents signed a three
(3)-month contract to perform collection services on commission
basis for Manila Water’s branches in the east zone.5
On November 21, 1997, before the expiration of the contract of
services, the 121 bill collectors formed a corporation duly
registered with the Securities and Exchange Commission (SEC)
as the "Association Collector’s Group, Inc." (ACGI). ACGI was
one of the entities engaged by Manila Water for its courier
service. However, Manila Water contracted ACGI for collection
services only in its Balara Branch.6
In December 1997, Manila Water entered into a service
agreement with respondent First Classic Courier Services, Inc.
(FCCSI) also for its courier needs. The service agreements
between Manila Water and FCCSI covered the periods 1997 to
1999 and 2000 to 2002.7 Earlier, in a memorandum dated
November 28, 1997, FCCSI gave a deadline for the bill
collectors who were members of ACGI to submit applications
and letters of intent to transfer to FCCSI. The individual
respondents in this case were among the bill collectors who
joined FCCSI and were hired effective December 1, 1997.8
On various dates between May and October 2002, individual
respondents were terminated from employment. Manila Water
no longer renewed its contract with FCCSI because it decided
to implement a "collectorless" scheme whereby Manila Water
customers would instead remit payments through "Bayad
Centers."9 The aggrieved bill collectors individually filed
complaints for illegal dismissal, unfair labor practice, damages,
and attorney’s fees, with prayer for reinstatement and
backwages against petitioner Manila Water and respondent
FCCSI. The complaints were consolidated and jointly heard.10
Respondent bill collectors alleged that their employment under
Manila Water had four (4) stages: (a) from August 1, 1997 to
August 31, 1997; (b) from September 1, 1997 to November 30,
1997; (c) in November 1997 when FCCSI was incorporated; and
(d) after November 1977 when FCCSI came in. While in MWSS,
and thereafter in Manila Water and FCCSI, respondent bill
collectors were made to perform the following functions: (1)
delivery of bills to customers; (2) collection of payments from
customers; and (3) delivery of disconnection notice to
customers. They were also allowed to effect disconnection and
were given tools for this purpose.11
Respondent bill collectors averred that when Manila Water
issued their individual contracts of service for three months in
September 1997, there was already an attempt to make it
appear that respondent bill collectors were not its employees but
independent contractors. Respondent bill collectors stressed
that they could not qualify as independent contractors because
they did not have an independent business of their own, tools,
equipment, and capitalization, but were purely dependent on the
wages they earned from Manila Water, which was termed as
"commission."12
Respondent bill collectors alleged that Manila Water had
complete supervision over their work and their collections, which
they had to remit daily to the former. They also maintained that
the incorporation of ACGI did not mean that they were not
employees of Manila Water. Furthermore, they alleged that they
suffered injustice when Manila Water imposed upon them the
work set-up that caused them to be emotionally depressed
because those who were not assigned to the Balara Branch
under Manila Water’s contract with ACGI were forced to join
FCCSI to retain their employment. They argued that the entry of
FCCSI did not change the employer-employee relationship of
respondent bill collectors with Manila Water.13
Respondent bill collectors insisted that they remained
employees of Manila Water even after the entry of FCCSI. The
latter did not qualify as a legitimate labor contractor since it had
no substantial capital. FCCSI only had a paid-up capital of one
hundred thousand pesos (₱100,000.00), out of the four hundred
thousand pesos (₱400,000.00) authorized capital. FCCSI relied
mainly on what Manila Water would pay, from which it deducted
an agency fee, and it had no other clients on collection. They
were forced to transfer to FCCSI when their service contracts
with Manila Water was about to expire on November 30, 1997.
FCCSI was engaged in labor-only contracting which is
prohibited by law.14
Respondent bill collectors averred that even under the four-fold
test of employer-employee relationship, it appeared that Manila
Water was their true employer based on the following
circumstances: (1) it was Manila Water who engaged their
services as bill collectors when it took over the operations of the
east zone from MWSS on August 1, 1997; (2) it was Manila
Water which paid their wages in the form of commissions every
fifteenth (15th) and thirtieth (30th) day of each month; (3) Manila
Water exercised the power of dismissal over them as bill
collectors as evidenced by the instances surrounding their
termination as set forth in their respective affidavits, and by the
individual clearances issued to them not by FCCSI but by Manila
Water, stating that the same was "issued in connection with his
termination of contract as Contract Collector of Manila Water
Company"; and (4) their work as bill collectors was clearly
related to the principal business of Manila Water.15
Respondent FCCSI, on the other hand, claimed that it is an
independent contractor engaged in the business of providing
messengerial or courier services, and it fulfills the criteria set
forth under Department Order No. 10, Series of 1997.16 It was
issued a certificate of registration by the Department of Labor
and Employment (DOLE) as an independent contractor. It was
incorporated and registered with the SEC in November 1995. It
was duly registered with the Department of Transportation and
Communication (DOTC) and the Office of the Mayor of Makati
Page 152 of 191
City for authority to operate. It has sufficient capital in the form
152
of tools, equipment, and machinery as attested to by the Postal
Regulation Committee of the DOTC after conducting an ocular
inspection. It provides similar services to Philippine Long
Distance Telephone Company, Smart Telecommunications,
Inc., and Home Cable, Inc. Under the terms and conditions of its
service agreement with Manila Water, FCCSI has the power to
hire, assign, discipline, or dismiss its own employees, as well as
control the means and methods of accomplishing the assigned
tasks, and it pays the wages of the employees.17
The termination of employment of respondent bill collectors
upon the expiration of FCCSI’s contract with Manila Water did
not mean the automatic termination or suspension of the
employer-employee relationship between FCCSI and
respondent bill collectors. Their termination after their six (6)
month floating status, which was allowed by law, was due to the
non-renewal of FCCSI’s agreement with Manila Water and its
inability to enter into a similar contract requiring the skills of
respondent bill collectors.18
Petitioner Manila Water, for its part, denied that there was an
employer-employee relationship between its company and
respondent bill collectors. Based on the agreement between
FCCSI and Manila Water, respondent bill collectors are the
employees of the former, as it is the former that has the right to
select/hire, discipline, supervise, and control. FCCSI has a
separate and distinct legal personality from Manila Water, and it
was duly registered as an independent contractor before the
DOLE.19
Petitioner further claimed that individual service contracts
signed by respondent bill collectors for a 3-month period with
Manila Water were valid and legal. The fact that the duration of
the engagement was stated on the face of the contract dispels
any bad faith on the part of the company. Fixed term contracts
are allowed by law. Furthermore, respondent bill collectors’
allegation that the incorporation of ACGI was made as a
condition of their continued employment was unfounded. They
transferred to FCCSI on their own volition.20
Petitioner Manila Water also averred that, under its
organizational structure, there was no regular plantilla position
of bill collector, which was the main reason why respondent bill
collectors were not included in the list of MWSS employees
absorbed by the company. The company’s out-sourcing of
courier needs to an independent contractor was valid and legal.
On September 27, 2004, the Labor Arbiter (LA) rendered a
decision,21 the dispositive portion of which reads:
WHEREFORE, premises considered, the complaints against
respondent Manila Water Company, Inc. is dismissed for lack of
jurisdiction due to want of employer-employee relationship.
Respondent First Classic Courier Services is hereby ordered to
pay complainants separation pay equivalent to one (1) month
pay for every year of service, to wit:
1. JOSE P. DALUMPINES - - - - - - - - ₱36,400.00
2. SUSANO MIRANDA - - - - - - - - - ₱36,400.00
3. EDGAR PAMORAGA - - - - - - - - - ₱29,120.00
4. ARTHUR G. LAVISTI - - - - - - - - - ₱36,400.00
5. BENJAMIN TALAVERA, JR. - - - - ₱36,400.00
6. JOSE S.A. SIERRA - - - - - - - - - - - ₱36,400.00
7. MELITANTE D. CASTRO - - - - - - ₱36,400.00 SO ORDERED.25

153
8. BERNARDO S. MEDINA - - - - - - - ₱36,400.00

9. MELENCIO BAONGUIS - - - - - - - ₱36,400.00 Petitioner Manila Water and respondent bill collectors filed a
motion for reconsideration. However, the CA denied their
10. NONITO V. FERNANDEZ - - - - - - ₱36,400.00 respective motions for reconsideration in a Resolution dated
November 17, 2006.
11. LEGARTO ESTEBAN - - - - - - - - - ₱36,400.00

12. ROMEO B. CASTALONE - - - - - - ₱36,400.00

Hence, this petition.
13. RAMON C. REYES - - - - - - - - - - - ₱36,400.00

14. MOISES L. ZAPATERO - - - - - - - - ₱29,120.00

15. JOSE T. AGUILAR - - - - - - - - - - -
16. ARNULFO T. JAMISON - - - - - - -
17. ANGEL C. GARCIA - - - - - - - - - - -
18. JOSE TEODY P. VELASCO - - - - -
19. AUGUSTUS J. TANDOC - - - - - - -
Petitioner Manila Water presented the following issues for
₱36,400.00
resolution, whether the CA erred (1) in ruling that an
₱36,400.00 employment relationship exists between respondent bill
collectors and petitioner Manila Water; (2) in its application of
₱36,400.00 Manila Water Company, Inc. v. Peña26 to the instant case; and
(3) in ruling that respondent FCCSI is not a bona fide
₱36,400.00 independent contractor.27
₱36,400.00

20. EMMANUEL L. CAPIT - - - - - - - - ₱36,400.00 The petition is bereft of merit.

21. WILLIAM AGANON - - - - - - - - - - ₱87,360.00

22. ROBERTO S. DAGDAG - - - - - - - -
23 MIGUEL J. LOPEZ - - - - - - - - - - - -
24. GEORGE CABRERA - - - - - - - - - -
25. BORROMEO ARMAN - - - - - - - - -
26. RONITO R. FRIAS - - - - - - - - - - - -
₱36,400.00 In this case, the LA, the NLRC, and the CA reached different
conclusions of law albeit agreeing on the same set of facts. It
₱36,400.00 was in their interpretation and appreciation of the evidence that
₱36,400.00 they differed. The CA ruled that respondent FCCSI was a labor-
only contractor and that respondent bill collectors are
₱36,400.00 employees of petitioner Manila Water, while the LA and the
NLRC ruled otherwise.
₱36,400.00

27. ANTONIO A. VERGARA - - - - - - - ₱36,400.00

28. RANDY T. CORTIGUERRA - - - - -
TOTAL - - - - - - - ₱1,055,600.00
SO ORDERED.22
"Contracting" or "subcontracting" refers to an arrangement
₱36,400.00 whereby a principal agrees to put out or farm out with a
contractor or subcontractor the performance or completion of a
specific job, work, or service within a definite or predetermined
period, regardless of whether such job, work, or service is to be
performed or completed within or outside the premises of the
principal.28

Respondent bill collectors and FCCSI filed their separate

appeals with the National Labor Relations Commission (NLRC).
On March 15, 2006, the NLRC rendered a decision23 affirming
in toto the decision of the LA. Respondent bill collectors filed a
motion for reconsideration, but the same was denied in a
resolution24 dated April 28, 2006.
Disgruntled, respondent bill collectors filed a petition for
certiorari under Rule 65 of the Rules of Court before the CA. On
September 12, 2006, the CA rendered a Decision, the
dispositive portion of which reads:
Contracting and subcontracting arrangements are expressly
allowed by law but are subject to regulation for the promotion of
employment and the observance of the rights of workers to just
and humane conditions of work, security of tenure, self-
organization, and collective bargaining.29 In legitimate
contracting, the trilateral relationship between the parties in
these arrangements involves the principal which decides to farm
out a job or service to a contractor or subcontractor, which has
the capacity to independently undertake the performance of the
job, work, or service, and the contractual workers engaged by
the contractor or subcontractor to accomplish the job, work, or
service.30

WHEREFORE, premises considered, the present petition is

hereby GIVEN DUE COURSE and the writ prayed for
accordingly GRANTED. Consequently, the assailed Decision
dated March 15, 2006 and Resolution dated April 28, 2006 of
the National Labor Relations Commission are hereby
ANNULED and SET ASIDE. A new judgment is hereby entered
(a) declaring the petitioners as employees of private respondent
Manila Water Company, Inc., and their termination as bill
collectors as illegal; and (b) ordering private respondent Manila
Water Company, Inc. to pay the petitioners separation pay
equivalent to one (1) month for every year of service. In addition,
private respondent Manila Water Company, Inc. is liable to pay
ten percent (10%) of the total amount awarded as attorney’s
fees.
No pronouncement as to costs.
Job contracting is permissible only if the following conditions are
met: 1) the contractor carries on an independent business and
undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all
matters connected with the performance of the work except as
to the results thereof; and 2) the contractor has substantial
capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are
necessary in the conduct of the business.31
On the other hand, the Labor Code expressly prohibits "labor-
only" contracting. Article 106 of the Code provides that 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 workers recruited and placed by such person are

Page 153 of 191

performing activities which are directly related to the principal
business of the employer. In 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 to the same extent as if the latter were directly
employed by him.32
Department Order No. 18-02, Series of 2002, enunciates that
labor-only contracting refers to an arrangement where the
contractor or subcontractor merely recruits, supplies, or places
workers to perform a job, work, or service for a principal, and
any of the following elements are present: (i) the contractor or
subcontractor does not have substantial capital or investment
which relates to the job, work, or service to be performed and
the employees recruited, supplied, or placed by such contractor
or subcontractor are performing activities which are directly
related to the main business of the principal; or (ii) the contractor
does not exercise the right to control the performance of the
work of the contractual employee.33
"Substantial capital or investment" refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries, and work premises,
actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work, or service
contracted out. The "right to control" refers to the right reserved
to the person for whom the services of the contractual workers
are performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end.34
In the instant case, the CA found that FCCSI is a labor-only
contractor. Based on the factual findings of the CA, FCCSI does
not have substantial capital or investment to qualify as an
independent contractor, viz.:
FCCSI was incorporated on November 14, 1995, with an
authorized capital stock of ₱400,000.00, of which only
₱100,000.00 is actually paid-in. Going by the pronouncement in
Peña, such capitalization can hardly be considered substantial.
FCCSI and Manila Water make much of the 17 April 1997 letter
of Postal Regulation Committee Chairman Francisco V.
Ontalan, Jr. to DOTC Secretary Arturo T. Enrile recommending
the renewal and/or extension of authority to FCCSI to operate
private messengerial delivery services, which states in part:
"Ocular inspection conducted on its office premises and
evaluation of the documents submitted, the firm during the six
(6) months operation has generated employment to thirty six
(36) messengers, and four (4) office personnel.
"The office equipt [sic] with modern facilities such as computers,
printers, electric typewriter, working table, telephone lines,
airconditioning unit, pigeon holes, working tables and delivery
vehicles such as a Suzuki van and three (3) motorcycles. The
firm’s audited financial statement for the period ending 31
December 1996 [shows] that it earned a net income of
₱253,000.00. x x x."
The above document only proves that FCCSI has no sufficient
investment in the form of tools, equipment and machinery to
undertake contract services for Manila Water involving a fleet of
around 100 collectors assigned to several branches and
covering the service area of Manila Water customers spread out
in several cities/towns of the East Zone. The only rational
conclusion is that it is Manila Water that provides most if not all
the logistics and equipment including service vehicles in the
performance of the contracted service, notwithstanding that the
contract between FCCSI and Manila Water states that it is the
Page 154 of 191
Contractor which shall furnish at its own expense all materials,
154
tools and equipment needed to perform the tasks of collectors.
Moreover, it must be emphasized that petitioners who are
"trained collectors" performed tasks that cannot be simply
categorized as "messengerial." In fact, these are the very
functions they were already discharging even before they joined
FCCSI which "invited" or "solicited" their placement just about
the expiration of their three (3)-month contract with Manila Water
on November 28, 1997. The Agreement between FCCSI and
Manila Water provides that FCCSI shall "field the required
number of trained collectors to the following Customer Relations
Branch Office": Cubao, España, San Juan-Mandaluyong,
Marikina, Pasig, Taguig-Pateros and Makati.351avvphi1
As correctly ruled by the CA, FCCSI’s capitalization may not be
considered substantial considering that it had close to a hundred
collectors covering the east zone service area of Manila Water
customers. The allegation in the position paper of FCCSI that it
serves other companies’ courier needs does not "cure" the fact
that it has insufficient capitalization to qualify as independent
contractor. Neither did FCCSI prove its allegation by substantial
evidence other than by their self-serving declarations. What is
evident is that it was Manila Water that provided the equipment
and service vehicles needed in the performance of the
contracted service, even if the contract between FCCSI and
Manila Water stated that it was the Contractor which shall
furnish at its own expense all materials, tools, and equipment
needed to perform the tasks of collectors.
Based on the four-fold test of employer-employee relationship,
Manila Water emerges as the employer of respondent
collectors. The elements to determine the existence of an
employment relationship are: (a) the selection and engagement
of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the
employee's conduct. The most important of these elements is
the employer's control of the employee's conduct, not only as to
the result of the work to be done, but also as to the means and
methods to accomplish it.36
The factual circumstances in the instant case are essentially the
same as those cited in Manila Water Company, Inc. v. Hermiño
Peña.37 In that case, 121 bill collectors, headed by Peña, filed
a complaint for illegal dismissal against Manila Water. The bill
collectors formed ACGI which was registered with the SEC.
Manila Water, in opposing the claim of the bill collectors, claimed
that there was no employer-employee relationship with the
latter. It averred that the bill collectors were employees of ACGI,
a separate entity engaged in collection services, an independent
contractor which entered into a service contract for the collection
of Manila Water’s accounts. The Court ruled that ACGI was not
an independent contractor but was engaged in labor-only
contracting, and as such, is considered merely an agent of
Manila Water.38
The Court ratiocinated that: First, ACGI does not have
substantial capitalization or investment in the form of tools,
equipment, machineries, work premises, and other materials to
qualify as an independent contractor. Second, the work of the
bill collectors was directly related to the principal business or
operation of Manila Water. Being in the business of providing
water to the consumers in the east zone, the collection of the
charges by the bill collectors for the company can only be
categorized as related to, and in the pursuit of, the latter's
business. Lastly, ACGI did not carry on an independent
business or undertake the performance of its service contract in
its own manner and using its own methods, free from the control
and supervision of its principal, Manila Water. Since ACGI is
obviously a labor-only contractor, the workers it supplied are
considered employees of the principal. Furthermore, the
activities performed by the bill collectors were necessary or
desirable to Manila Water's principal trade or business; thus,
they are regular employees of the latter. Since Manila Water
failed to comply with the requirements of termination under the
Labor Code, the dismissal of the bill collectors was tainted with
illegality.39
The similarity between the instant case and Peña is very
evident. First, the work set-up between the respondent
contractor FCCSI and respondent bill collectors is the same as
in Peña. Respondent bill collectors were individually hired by the
contractor, but were under the direct control and supervision of
the concessionaire. Second, they performed the same function
of courier and bill collection services. Third, the element of
control exercised by Manila Water over respondent bill
collectors is essentially the same as in Peña, manifested in the
following circumstances, viz.: (a) respondent bill collectors
reported daily to the branch offices of Manila Water to remit their
collections with the specified monthly targets and comply with
the collection reporting procedures prescribed by the latter; (b)
respondent bill collectors, except for Pamoraga and Zapatero,
were among the 121 collectors who incorporated ACGI; (c)
Manila Water continued to pay their wages in the form of
commissions even after the employees alleged transfer to
FCCSI. Manila Water paid the respondent bill collectors their
individual commissions, and the lump sum paid by Manila Water
to FCCSI merely represented the agency fee; and (d) the
certification or individual clearances issued by Manila Water to
respondent bill collectors upon the termination of the service
contract with FCCSI. The certification stated that respondents
were contract collectors of Manila Water and not of FCCSI.
Thus, this Court agrees with the findings of the CA that if,
indeed, FCCSI was the true employer of the bill collectors, it
should have been the one to issue the certification or individual
clearances.
It should be remembered that the control test merely calls for the
existence of the right to control, and not necessarily the exercise
thereof. It is not essential that the employer actually supervises
the performance of duties of the employee. It is enough that the
former has a right to wield the power.40
Respondent bill collectors are, therefore, employees of
petitioner Manila Water. It cannot be denied that the tasks
performed by respondent bill collectors are directly related to the
principal business or trade of Manila Water. Payments made by
the subscribers are the lifeblood of the company, and the
respondent bill collectors are the ones who collect these
payments.
The primary standard of determining regular employment is the
reasonable connection between the particular activity performed
by the employee in relation to the usual business or trade of the
employer. In this case, the connection is obvious when we
consider the nature of the work performed and its relation to the
scheme of the particular business or trade in its entirety. Finally,
the repeated and continuing need for the performance of the job
is sufficient evidence of the necessity, if not indispensability of
the activity to the business.41
WHEREFORE, in view of the foregoing, the Decision dated
September 12, 2006 and the Resolution dated November 17,
2006 of the Court of Appeals in CA-G.R. SP No. 94909 are
hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 186091 December 15, 2010
Page 155 of 191
EMMANUEL BABAS, DANILO T. BANAG, ARTURO V.
155
VILLARIN, SR., EDWIN JAVIER, SANDI BERMEO, REX
ALLESA, MAXIMO SORIANO, JR., ARSENIO ESTORQUE,
and FELIXBERTO ANAJAO, Petitioners, vs. LORENZO
SHIPPING CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V.
Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, Maximo
Soriano, Jr., Arsenio Estorque, and Felixberto Anajao appeal by
certiorari under Rule 45 of the Rules of Court the October 10,
2008 Decision1 of the Court of Appeals (CA) in CA-G.R. SP. No.
103804, and the January 21, 2009 Resolution,2 denying its
reconsideration.
Respondent Lorenzo Shipping Corporation (LSC) is a duly
organized domestic corporation engaged in the shipping
industry; it owns several equipment necessary for its business.
On September 29, 1997, LSC entered into a General Equipment
Maintenance Repair and Management Services Agreement3
(Agreement) with Best Manpower Services, Inc. (BMSI). Under
the Agreement, BMSI undertook to provide maintenance and
repair services to LSC’s container vans, heavy equipment,
trailer chassis, and generator sets. BMSI further undertook to
provide checkers to inspect all containers received for loading
to and/or unloading from its vessels.
Simultaneous with the execution of the Agreement, LSC leased
its equipment, tools, and tractors to BMSI.4 The period of lease
was coterminous with the Agreement.
BMSI then hired petitioners on various dates to work at LSC as
checkers, welders, utility men, clerks, forklift operators, motor
pool and machine shop workers, technicians, trailer drivers, and
mechanics. Six years later, or on May 1, 2003, LSC entered into
another contract with BMSI, this time, a service contract.5
In September 2003, petitioners filed with the Labor Arbiter (LA)
a complaint for regularization against LSC and BMSI. On
October 1, 2003, LSC terminated the Agreement, effective
October 31, 2003. Consequently, petitioners lost their
employment.
BMSI asserted that it is an independent contractor. It averred
that it was willing to regularize petitioners; however, some of
them lacked the requisite qualifications for the job. BMSI was
willing to reassign petitioners who were willing to accept
reassignment. BMSI denied petitioners’ claim for underpayment
of wages and non-payment of 13th month pay and other
benefits.
LSC, on the other hand, averred that petitioners were
employees of BMSI and were assigned to LSC by virtue of the
Agreement. BMSI is an independent job contractor with
substantial capital or investment in the form of tools, equipment,
and machinery necessary in the conduct of its business. The
Agreement between LSC and BMSI constituted legitimate job
contracting. Thus, petitioners were employees of BMSI and not
of LSC.
After due proceedings, the LA rendered a decision6 dismissing
petitioners’ complaint. The LA found that petitioners were
employees of BMSI. It was BMSI which hired petitioners, paid
their wages, and exercised control over them.

Petitioners appealed to the National Labor Relations
Commission (NLRC), arguing that BMSI was engaged in labor-
only contracting. They insisted that their employer was LSC.
On January 16, 2008, the NLRC promulgated its decision.7
Reversing the LA, the NLRC held:
We find from the records of this case that respondent BMSI is
not engaged in legitimate job contracting.
First, respondent BMSI has no equipment, no office premises,
no capital and no investments as shown in the Agreement itself
which states:
xxxx
VI. RENTAL OF EQUIPMENT
[6.01.] That the CLIENT has several forklifts and truck tractor,
and has offered to the CONTRACTOR the use of the same by
way of lease, the monthly rental of which shall be deducted from
the total monthly billings of the CONTRACTOR for the services
covered by this Agreement.
6.02. That the CONTRACTOR has agreed to rent the CLIENT’s
forklifts and truck tractor.
6.03. The parties herein have agreed to execute a Contract of
Lease for the forklifts and truck tractor that will be rented by the
CONTRACTOR. (p. 389, Records)
True enough, parties signed a Lease Contract (p. 392, Records)
wherein respondent BMSI leased several excess equipment of
LSC to enable it to discharge its obligation under the Agreement.
So without the equipment which respondent BMSI leased from
respondent LSC, the former would not be able to perform its
commitments in the Agreement.
In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme
Court held:
x x x. The phrase "substantial capital and investment in the form
of tools, equipment, machineries, work premises, and other
materials which are necessary in the conduct of his business,"
in the Implementing Rules clearly contemplates tools,
equipment, etc., which are directly related to the service it is
being contracted to render. One who does not have an
independent business for undertaking the job contracted for is
just an agent of the employer. (underscoring ours)
Second, respondent BMSI has no independent business or
activity or job to perform in respondent LSC free from the control
of respondent LSC except as to the results thereof. In view of
the absence of such independent business or activity or job to
be performed by respondent BMSI in respondent LSC
[petitioners] performed work that was necessary and desirable
to the main business of respondent LSC. Respondents were not
able to refute the allegations of [petitioners] that they performed
the same work that the regular workers of LSC performed and
Page 156 of 191
they stood side by side with regular employees of respondent
156
LSC performing the same work. Necessarily, the control on the
manner and method of doing the work was exercised by
respondent LSC and not by respondent BMSI since the latter
had no business of its own to perform in respondent LSC.
Lastly, respondent BMSI has no other client but respondent
LSC. If respondent BMSI were a going concern, it would have
other clients to which to assign [petitioners] after its Agreement
with LSC expired. Since there is only one client, respondent
LSC, it is easy to conclude that respondent BMSI is a mere
supplier of labor.
After concluding that respondent BMSI is engaged in prohibited
labor-only contracting, respondent LSC became the employer of
[petitioners] pursuant to DO 18-02.
[Petitioners] therefore should be reinstated to their former
positions or equivalent positions in respondent LSC as regular
employees with full backwages and other benefits without loss
of seniority rights from October 31, 2003, when they lost their
jobs, until actual reinstatement (Vinoya v. NLRC, 324 SCRA
469). If reinstatement is not feasible, [petitioners] then should be
paid separation pay of one month pay for every year of service
or a fraction of six months to be considered as one year, in
addition to full backwages.
Concerning [petitioners’] prayer to be paid wage differentials
and benefits under the CBA, We have no doubt that [petitioners]
would be entitled to them if they are covered by the said CBA.
For this purpose, [petitioners] should first enlist themselves as
union members if they so desire, or pay agency fee.
Furthermore, only [petitioners] who signed the appeal
memorandum are covered by this Decision. As regards the other
complainants who did not sign the appeal, the Decision of the
Labor Arbiter dismissing this case became final and executory.8
The NLRC disposed thus:
WHEREFORE, the appeal of [petitioners] is GRANTED. The
Decision of the Labor Arbiter is hereby REVERSED, and a NEW
ONE rendered finding respondent Best Manpower Services, Inc.
is engaged in prohibited labor-only-contracting and finding
respondent Lorenzo Shipping Corp. as the employer of the
following [petitioners]:
1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
7. Arsenio Estorque

8. Maximo N. Soriano, Jr.
9. Sandi G. Bermeo
Consequently, respondent Lorenzo Shipping Corp. is ordered to
reinstate [petitioners] to their former positions as regular
employees and pay their wage differentials and benefits under
the CBA.
If reinstatement is not feasible, both respondents Lorenzo
Shipping Corp. and Best Manpower Services are adjudged
jointly and solidarily to pay [petitioners] separation pay of one
month for every year of service, a fraction of six months to be
considered as one year.
In addition, respondent LSC and BMSI are solidarily liable to pay
[petitioners’] full backwages from October 31, 2003 until actual
reinstatement or, if reinstatement is not feasible, until finality of
this Decision.
Respondent LSC and respondent BMSI are likewise adjudged
to be solidarily liable for attorney’s fees equivalent to ten (10%)
of the total monetary award.
xxxx
SO ORDERED.9
LSC went to the CA via certiorari. On October 10, 2008, the CA
rendered the now challenged Decision,10 reversing the NLRC.
In holding that BMSI was an independent contractor, the CA
relied on the provisions of the Agreement, wherein BMSI
warranted that it is an independent contractor, with adequate
capital, expertise, knowledge, equipment, and personnel
necessary for the services rendered to LSC. According to the
CA, the fact that BMSI entered into a contract of lease with LSC
did not ipso facto make BMSI a labor-only contractor; on the
contrary, it proved that BMSI had substantial capital. The CA
was of the view that the law only required substantial capital or
investment. Since BMSI had substantial capital, as shown by its
ability to pay rents to LSC, then it qualified as an independent
contractor. It added that even under the control test, BMSI would
be the real employer of petitioners, since it had assumed the
entire charge and control of petitioners’ services. The CA further
held that BMSI’s Certificate of Registration as an independent
contractor was sufficient proof that it was an independent
contractor. Hence, the CA absolved LSC from liability and
instead held BMSI as employer of petitioners.
The fallo of the CA Decision reads:
WHEREFORE, premises considered, the instant petition is
GRANTED and the assailed decision and resolution of public
respondent NLRC are REVERSED and SET ASIDE.
Consequently, the decision of the Labor Arbiter dated
September 29, 2004 is REINSTATED.
SO ORDERED.11
Page 157 of 191
Petitioners filed a motion for reconsideration, but the CA denied
157
it on January 21, 2009.12
Hence, this appeal by petitioners, positing that:
THE HONORABLE COURT OF APPEALS ERRED IN
IGNORING THE CLEAR EVIDENCE OF RECORD THAT
RESPONDENT WAS ENGAGED IN LABOR-ONLY
CONTRACTING TO DEFEAT PETITIONERS’ RIGHT TO
SECURITY OF TENURE.13
Before resolving the petition, we note that only seven (7) of the
nine petitioners signed the Verification and Certification.14
Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao
(Anajao) did not sign the Verification and Certification, because
they could no longer be located by their co-petitioners.15
In Toyota Motor Phils. Corp. Workers Association (TMPCWA),
et al. v. National Labor Relations Commission,16 citing Loquias
v. Office of the Ombudsman,17 we stated that the petition
satisfies the formal requirements only with regard to the
petitioner who signed the petition, but not his co-petitioner who
did not sign nor authorize the other petitioner to sign it on his
behalf. Thus, the petition can be given due course only as to the
parties who signed it. The other petitioners who did not sign the
verification and certificate against forum shopping cannot be
recognized as petitioners and have no legal standing before the
Court. The petition should be dismissed outright with respect to
the non-conforming petitioners.
Thus, we dismiss the petition insofar as petitioners Soriano and
Anajao are concerned.
Petitioners vigorously insist that they were employees of LSC;
and that BMSI is not an independent contractor, but a labor-only
contractor. LSC, on the other hand, maintains that BMSI is an
independent contractor, with adequate capital and investment.
LSC capitalizes on the ratiocination made by the CA.
In declaring BMSI as an independent contractor, the CA, in the
challenged Decision, heavily relied on the provisions of the
Agreement, wherein BMSI declared that it was an independent
contractor, with substantial capital and investment.
De Los Santos v. NLRC18 instructed us that the character of the
business, i.e., whether as labor-only contractor or as job
contractor, should
be measured in terms of, and determined by, the criteria set by
statute. The parties cannot dictate by the mere expedience of a
unilateral declaration in a contract the character of their
business.
In San Miguel Corporation v. Vicente B. Semillano, Nelson
Mondejas, Jovito Remada, Alilgilan Multi-Purpose Coop
(AMPCO), and Merlyn N. Policarpio,19 this Court explained:
Despite the fact that the service contracts contain stipulations
which are earmarks of independent contractorship, they do not
make it legally so. The language of a contract is neither
determinative nor conclusive of the relationship between the
parties. Petitioner SMC and AMPCO cannot dictate, by a
declaration in a contract, the character of AMPCO's business, contracted to render. What is clear was that the equipment used

that is, whether as labor-only contractor, or job contractor.
AMPCO's character should be measured in terms of, and
determined by, the criteria set by statute.
158
by BMSI were owned by, and merely rented from, LSC.
In Mandaue Galleon Trade, Inc. v. Andales,23 we held:

Thus, in distinguishing between prohibited labor-only

contracting and permissible job contracting, the totality of the
The law casts the burden on the contractor to prove that it has
facts and the surrounding circumstances of the case are to be
substantial capital, investment, tools, etc. Employees, on the
considered.
other hand, need not prove that the contractor does not have
substantial capital, investment, and tools to engage in job-
contracting.
Labor-only contracting, a prohibited act, is an arrangement
where the contractor or subcontractor merely recruits, supplies,
or places workers to perform a job, work, or service for a
Third, petitioners performed activities which were directly related
principal. In labor-only contracting, the following elements are
to the main business of LSC. The work of petitioners as
present: (a) the contractor or subcontractor does not have
checkers, welders, utility men, drivers, and mechanics could
substantial capital or investment to actually perform the job,
only be characterized as part of, or at least clearly related to,
work, or service under its own account and responsibility; and
and in the pursuit of, LSC’s business. Logically, when petitioners
(b) the employees recruited, supplied, or placed by such
were assigned by BMSI to LSC, BMSI acted merely as a labor-
contractor or subcontractor perform activities which are directly
only contractor.
related to the main business of the principal.20

Lastly, as found by the NLRC, BMSI had no other client except

On the other hand, permissible job contracting or subcontracting
for LSC, and neither BMSI nor LSC refuted this finding, thereby
refers to an arrangement whereby a principal agrees to put out
bolstering the NLRC finding that BMSI is a labor-only contractor.
or farm out with the contractor or subcontractor the performance
or completion of a specific job, work, or service within a definite
or predetermined period, regardless of whether such job, work,
or service is to be performed or completed within or outside the The CA erred in considering BMSI’s Certificate of Registration
premises of the principal. 21 as sufficient proof that it is an independent contractor. In San
Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas,
Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO), and
Merlyn N. Policarpio,24 we held that a Certificate of Registration
A person is considered engaged in legitimate job contracting or
issued by the Department of Labor and Employment is not
subcontracting if the following conditions concur:
conclusive evidence of such status. The fact of registration
simply prevents the legal presumption of being a mere labor-
only contractor from arising.251avvphi1
(a) The contractor carries on a distinct and independent
business and undertakes the contract work on his account under
his own responsibility according to his own manner and method,
Indubitably, BMSI can only be classified as a labor-only
free from the control and direction of his employer or principal in
contractor. The CA, therefore, erred when it ruled otherwise.
all matters connected with the performance of his work except
Consequently, the workers that BMSI supplied to LSC became
as to the results thereof;
regular employees of the latter.26 Having gained regular status,
petitioners were entitled to security of tenure and could only be
dismissed for just or authorized causes and after they had been
(b) The contractor has substantial capital or investment; and accorded due process.

(c) The agreement between the principal and the contractor or
subcontractor assures the contractual employees' entitlement to
all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure, and
social welfare benefits.22
Petitioners lost their employment when LSC terminated its
Agreement with BMSI. However, the termination of LSC’s
Agreement with BMSI cannot be considered a just or an
authorized cause for petitioners’ dismissal. In Almeda v. Asahi
Glass Philippines. Inc. v. Asahi Glass Philippines, Inc.,27 this
Court declared:

Given the above standards, we sustain the petitioners’

contention that BMSI is engaged in labor-only contracting. The sole reason given for the dismissal of petitioners by SSASI
was the termination of its service contract with respondent. But
since SSASI was a labor-only contractor, and petitioners were
to be deemed the employees of respondent, then the said
First, petitioners worked at LSC’s premises, and nowhere else.
reason would not constitute a just or authorized cause for
Other than the provisions of the Agreement, there was no
petitioners’ dismissal. It would then appear that petitioners were
showing that it was BMSI which established petitioners’ working
summarily dismissed based on the aforecited reason, without
procedure and methods, which supervised petitioners in their
compliance with the procedural due process for notice and
work, or which evaluated the same. There was absolute lack of
hearing.
evidence that BMSI exercised control over them or their work,
except for the fact that petitioners were hired by BMSI.

Herein petitioners, having been unjustly dismissed from work,

are entitled to reinstatement without loss of seniority rights and
Second, LSC was unable to present proof that BMSI had
other privileges and to full back wages, inclusive of allowances,
substantial capital. The record before us is bereft of any proof
and to other benefits or their monetary equivalents computed
pertaining to the contractor’s capitalization, nor to its investment
from the time compensation was withheld up to the time of actual
in tools, equipment, or implements actually used in the
reinstatement. Their earnings elsewhere during the periods of
performance or completion of the job, work, or service that it was
their illegal dismissal shall not be deducted therefrom.

Page 158 of 191


Accordingly, we hold that the NLRC committed no grave abuse
of discretion in its decision. Conversely, the CA committed a
reversible error when it set aside the NLRC ruling.
WHEREFORE, the petition is GRANTED. The Decision and the
Resolution of the Court of Appeals in CA-G.R. SP. No. 103804
are REVERSED and SET ASIDE. Petitioners Emmanuel Babas,
Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi
Bermeo, Rex Allesa, and Arsenio Estorque are declared regular
employees of Lorenzo Shipping Corporation. Further, LSC is
ordered to reinstate the seven petitioners to their former position
without loss of seniority rights and other privileges, and to pay
full backwages, inclusive of allowances, and other benefits or
their monetary equivalent, computed from the time
compensation was withheld up to the time of actual
reinstatement.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 169704 November 17, 2010
ALBERT TENG, doing business under the firm name
ALBERT TENG FISH TRADING, and EMILIA TENG-CHUA,
Petitioners, vs. ALFREDO S. PAHAGAC, EDDIE D. NIPA,
ORLANDO P. LAYESE, HERNAN Y. BADILLES and ROGER
S. PAHAGAC, Respondents.
DECISION
BRION, J.:
Before this Court is a Petition for Review on Certiorari1 filed by
petitioners Albert Teng Fish Trading, its owner Albert Teng, and
its manager Emilia Teng-Chua, to reverse and set aside the
September 21, 2004 decision2 and the September 1, 2005
resolution3 of the Court of Appeals (CA) in CA-G.R. SP No.
78783. The CA reversed the decision of the Voluntary Arbitrator
(VA), National Conciliation and Mediation Board (NCMB),
Region IX, Zamboanga City, and declared that there exists an
employer-employee relationship between Teng and
respondents Hernan Badilles, Orlando Layese, Eddie Nipa,
Alfredo Pahagac, and Roger Pahagac (collectively, respondent
workers). It also found that Teng illegally dismissed the
respondent workers from their employment.
BACKGROUND FACTS
Albert Teng Fish Trading is engaged in deep sea fishing and, for
this purpose, owns boats (basnig), equipment, and other fishing
paraphernalia. As owner of the business, Teng claims that he
customarily enters into joint venture agreements with master
fishermen (maestros) who are skilled and are experts in deep
sea fishing; they take charge of the management of each fishing
venture, including the hiring of the members of its complement.
He avers that the maestros hired the respondent workers as
checkers to determine the volume of the fish caught in every
fishing voyage.4
On February 20, 2003, the respondent workers filed a complaint
for illegal dismissal against Albert Teng Fish Trading, Teng, and
Chua before the NCMB, Region Branch No. IX, Zamboanga
City.
Page 159 of 191
The respondent workers alleged that Teng hired them, without
159
any written employment contract, to serve as his "eyes and ears"
aboard the fishing boats; to classify the fish caught by bañera;
to report to Teng via radio communication the classes and
volume of each catch; to receive instructions from him as to
where and when to unload the catch; to prepare the list of the
provisions requested by the maestro and the mechanic for his
approval; and, to procure the items as approved by him.5 They
also claimed that they received regular monthly salaries, 13th
month pay, Christmas bonus, and incentives in the form of
shares in the total volume of fish caught.
They asserted that sometime in September 2002, Teng
expressed his doubts on the correct volume of fish caught in
every fishing voyage.6 In December 2002, Teng informed them
that their services had been terminated.7
In his defense, Teng maintained that he did not have any hand
in hiring the respondent workers; the maestros, rather than he,
invited them to join the venture. According to him, his role was
clearly limited to the provision of the necessary capital, tools and
equipment, consisting of basnig, gears, fuel, food, and other
supplies.8
The VA rendered a decision9 in Teng’s favor and declared that
no employer-employee relationship existed between Teng and
the respondent workers. The dispositive portion of the VA’s May
30, 2003 decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the instant complaint for lack of merit.
It follows also, that all other claims are likewise dismissed for
lack of merit.10
The respondent workers received the VA’s decision on June 12,
2003.11 They filed a motion for reconsideration, which was
denied in an order dated June 27, 2003 and which they received
on July 8, 2003.12 The VA reasoned out that Section 6, Rule VII
of the 1989 Procedural Guidelines in the Conduct of Voluntary
Arbitration Proceedings (1989 Procedural Guidelines) does not
provide the remedy of a motion for reconsideration to the party
adversely affected by the VA’s order or decision.13 The order
states:
Under Executive Order No. 126, as amended by Executive
Order No. 251, and in order to implement Article 260-262 (b) of
the Labor Code, as amended by R.A. No. 6715, otherwise
known as the Procedural Guidelines in the Conduct of Voluntary
Arbitration Proceedings, inter alia:
An award or the Decision of the Voluntary Arbitrators becomes
final and executory after ten (10) calendar days from receipt of
copies of the award or decision by the parties (Sec. 6, Rule VII).
Moreover, the above-mentioned guidelines do not provide the
remedy of a motion for reconsideration to the party adversely
affected by the order or decision of voluntary arbitrators.14
On July 21, 2003, the respondent-workers elevated the case to
the CA. In its decision of September 21, 2004, the CA reversed
the VA’s decision after finding sufficient evidence showing the
existence of employer-employee relationship:

WHEREFORE, premises considered, the petition is granted.
The questioned decision of the Voluntary Arbitrator dated May
30, 2003 is hereby REVERSED and SET ASIDE by ordering
private respondent to pay separation pay with backwages and
other monetary benefits. For this purpose, the case is
REMANDED to the Voluntary Arbitrator for the computation of
petitioner’s backwages and other monetary benefits. No
pronouncement as to costs.
SO ORDERED.15
Teng moved to reconsider the CA’s decision, but the CA denied
the motion in its resolution of September 1, 2005.16 He,
thereafter, filed the present Petition for Review on Certiorari
under Rule 45 of the Rules of Court, claiming that:
a. the VA’s decision is not subject to a motion for
reconsideration; and
b. no employer-employee relationship existed between Teng
and the respondent workers.
Teng contends that the VA’s decision is not subject to a motion
for reconsideration in the absence of any specific provision
allowing this recourse under Article 262-A of the Labor Code.17
He cites the 1989 Procedural Guidelines, which, as the VA
declared, does not provide the remedy of a motion for
reconsideration.18 He claims that after the lapse of 10 days from
its receipt, the VA’s decision becomes final and executory
unless an appeal is taken.19 He argues that when the
respondent workers received the VA’s decision on June 12,
2003,20 they had 10 days, or until June 22, 2003, to file an
appeal. As the respondent workers opted instead to move for
reconsideration, the 10-day period to appeal continued to run;
thus, the VA’s decision had already become final and executory
by the time they assailed it before the CA on July 21, 2003.21
Teng further insists that the VA was correct in ruling that there
was no employer-employee relationship between him and the
respondent workers. What he entered into was a joint venture
agreement with the maestros, where Teng’s role was only to
provide basnig, gears, nets, and other tools and equipment for
every fishing voyage.22
THE COURT’S RULING
We resolve to deny the petition for lack of merit.
Article 262-A of the Labor Code does not prohibit the filing of a
motion for reconsideration.
On March 21, 1989, Republic Act No. 671523 took effect,
amending, among others, Article 263 of the Labor Code which
was originally worded as:
Art. 263 x x x Voluntary arbitration awards or decisions shall be
final, unappealable, and executory.
As amended, Article 263 is now Article 262-A, which states:
Page 160 of 191
160
Art. 262-A. x x x [T]he award or decision x x x shall contain the
facts and the law on which it is based. It shall be final and
executory after ten (10) calendar days from receipt of the copy
of the award or decision by the parties.
Notably, Article 262-A deleted the word "unappealable" from
Article 263. The deliberate selection of the language in the
amendatory act differing from that of the original act indicates
that the legislature intended a change in the law, and the court
should endeavor to give effect to such intent.24 We recognized
the intent of the change of phraseology in Imperial Textile Mills,
Inc. v. Sampang,25 where we ruled that:
It is true that the present rule [Art. 262-A] makes the voluntary
arbitration award final and executory after ten calendar days
from receipt of the copy of the award or decision by the parties.
Presumably, the decision may still be reconsidered by the
Voluntary Arbitrator on the basis of a motion for reconsideration
duly filed during that period.26
In Coca-Cola Bottlers Phil., Inc., Sales Force Union-PTGWO-
Balais v. Coca-Cola Bottlers Philippines, Inc.,27 we likewise
ruled that the VA’s decision may still be reconsidered on the
basis of a motion for reconsideration seasonably filed within 10
days from receipt thereof.28 The seasonable filing of a motion
for reconsideration is a mandatory requirement to forestall the
finality of such decision.29 We further cited the 1989 Procedural
Guidelines which implemented Article 262-A, viz:30
[U]nder Section 6, Rule VII of the same guidelines implementing
Article 262-A of the Labor Code, this Decision, as a matter of
course, would become final and executory after ten (10)
calendar days from receipt of copies of the decision by the
parties x x x unless, in the meantime, a motion for
reconsideration or a petition for review to the Court of Appeals
under Rule 43 of the Rules of Court is filed within the same 10-
day period. 31
These rulings fully establish that the absence of a categorical
language in Article 262-A does not preclude the filing of a motion
for reconsideration of the VA’s decision within the 10-day period.
Teng’s allegation that the VA’s decision had become final and
executory by the time the respondent workers filed an appeal
with the CA thus fails. We consequently rule that the respondent
workers seasonably filed a motion for reconsideration of the
VA’s judgment, and the VA erred in denying the motion because
no motion for reconsideration is allowed.
The Court notes that despite our interpretation that Article 262-
A does not preclude the filing of a motion for reconsideration of
the VA’s decision, a contrary provision can be found in Section
7, Rule XIX of the Department of Labor’s Department Order
(DO) No. 40, series of 2003:32
Rule XIX
Section 7. Finality of Award/Decision. – The decision, order,
resolution or award of the voluntary arbitrator or panel of
voluntary arbitrators shall be final and executory after ten (10)
calendar days from receipt of the copy of the award or decision
by the parties and it shall not be subject of a motion for
reconsideration.
Presumably on the basis of DO 40-03, the 1989 Procedural remedy will be supplied by the courts even though the matter is

161
Guidelines was revised in 2005 (2005 Procedural within the proper jurisdiction of a court.43
Guidelines),33 whose pertinent provisions provide that:

There exists an employer-employee relationship between Teng

Rule VII – DECISIONS and the respondent workers.

Section 6. Finality of Decisions. – The decision of the Voluntary We agree with the CA’s finding that sufficient evidence exists
Arbitrator shall be final and executory after ten (10) calendar indicating the existence of an employer-employee relationship
days from receipt of the copy of the decision by the parties. between Teng and the respondent workers.

Section 7. Motions for Reconsideration. – The decision of the
Voluntary Arbitrator is not subject of a Motion for
Reconsideration.
We are surprised that neither the VA nor Teng cited DO 40-03
and the 2005 Procedural Guidelines as authorities for their
cause, considering that these were the governing rules while the
case was pending and these directly and fully supported their
theory. Had they done so, their reliance on the provisions would
have nevertheless been unavailing for reasons we shall now
discuss.
In the exercise of its power to promulgate implementing rules
and regulations, an implementing agency, such as the
Department of Labor,34 is restricted from going beyond the
terms of the law it seeks to implement; it should neither modify
nor improve the law. The agency formulating the rules and
guidelines cannot exceed the statutory authority granted to it by
the legislature.35
By allowing a 10-day period, the obvious intent of Congress in
amending Article 263 to Article 262-A is to provide an
opportunity for the party adversely affected by the VA’s decision
to seek recourse via a motion for reconsideration or a petition
for review under Rule 43 of the Rules of Court filed with the CA.
Indeed, a motion for reconsideration is the more appropriate
remedy in line with the doctrine of exhaustion of administrative
remedies. For this reason, an appeal from administrative
agencies to the CA via Rule 43 of the Rules of Court requires
exhaustion of available remedies36 as a condition precedent to
a petition under that Rule.
While Teng alleged that it was the maestros who hired the
respondent workers, it was his company that issued to the
respondent workers identification cards (IDs) bearing their
names as employees and Teng’s signature as the employer.
Generally, in a business establishment, IDs are issued to
identify the holder as a bona fide employee of the issuing entity.
For the 13 years that the respondent workers worked for Teng,
they received wages on a regular basis, in addition to their
shares in the fish caught.44 The worksheet showed that the
respondent workers received uniform amounts within a given
year, which amounts annually increased until the termination of
their employment in 2002.45 Teng’s claim that the amounts
received by the respondent workers are mere commissions is
incredulous, as it would mean that the fish caught throughout
the year is uniform and increases in number each year.
More importantly, the element of control – which we have ruled
in a number of cases to be a strong indicator of the existence of
an employer-employee relationship – is present in this case.
Teng not only owned the tools and equipment, he directed how
the respondent workers were to perform their job as checkers;
they, in fact, acted as Teng’s eyes and ears in every fishing
expedition.
Teng cannot hide behind his argument that the respondent
workers were hired by the maestros. To consider the respondent
workers as employees of the maestros would mean that Teng
committed impermissible labor-only contracting. As a policy, the
Labor Code prohibits labor-only contracting:

ART. 106. Contractor or Subcontractor – x x x The Secretary of

The requirement that administrative remedies be exhausted is Labor and Employment may, by appropriate regulations, restrict
based on the doctrine that in providing for a remedy before an or prohibit the contracting-out of labor.
administrative agency, every opportunity must be given to the
agency to resolve the matter and to exhaust all opportunities for
a resolution under the given remedy before bringing an action
xxxx
in, or resorting to, the courts of justice.37 Where Congress has
not clearly required exhaustion, sound judicial discretion
governs,38 guided by congressional intent.39
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
By disallowing reconsideration of the VA’s decision, Section 7,
premises, among others, and the workers recruited and placed
Rule XIX of DO 40-03 and Section 7 of the 2005 Procedural
by such persons are performing activities which are directly
Guidelines went directly against the legislative intent behind
related to the principal business of such employer. In such
Article 262-A of the Labor Code. These rules deny the VA the
cases, the person or intermediary shall be considered merely as
chance to correct himself40 and compel the courts of justice to
an agent of the employer who shall be responsible to the
prematurely intervene with the action of an administrative
workers in the same manner and extent as if the latter were
agency entrusted with the adjudication of controversies coming
directly employed by him.
under its special knowledge, training and specific field of
expertise. In this era of clogged court dockets, the need for
specialized administrative agencies with the special knowledge,
experience and capability to hear and determine promptly Section 5 of the DO No. 18-02,46 which implements Article 106
disputes on technical matters or intricate questions of facts, of the Labor Code, provides:
subject to judicial review, is indispensable.41 In Industrial
Enterprises, Inc. v. Court of Appeals,42 we ruled that relief must
first be obtained in an administrative proceeding before a

Page 161 of 191

Section 5. Prohibition against labor-only contracting. – Labor-
only contracting is hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any
of the following elements are present:
(i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal;
or
(ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
In the present case, the maestros did not have any substantial
capital or investment.1avvphi1 Teng admitted that he solely
provided the capital and equipment, while the maestros supplied
the workers. The power of control over the respondent workers
was lodged not with the maestros but with Teng. As checkers,
the respondent workers’ main tasks were to count and classify
the fish caught and report them to Teng. They performed tasks
that were necessary and desirable in Teng’s fishing business.
Taken together, these incidents confirm the existence of a labor-
only contracting which is prohibited in our jurisdiction, as it is
considered to be the employer’s attempt to evade obligations
afforded by law to employees.
Accordingly, we hold that employer-employee ties exist between
Teng and the respondent workers. A finding that the maestros
are labor-only contractors is equivalent to a finding that an
employer-employee relationship exists between Teng and the
respondent workers. As regular employees, the respondent
workers are entitled to all the benefits and rights appurtenant to
regular employment.
The dismissal of an employee, which the employer must
validate, has a twofold requirement: one is substantive, the other
is procedural.47 Not only must the dismissal be for a just or an
authorized cause, as provided by law; the rudimentary
requirements of due process – the opportunity to be heard and
to defend oneself – must be observed as well.48 The employer
has the burden of proving that the dismissal was for a just cause;
failure to show this, as in the present case, would necessarily
mean that the dismissal was unjustified and, therefore, illegal.49
The respondent worker’s allegation that Teng summarily
dismissed them on suspicion that they were not reporting to him
the correct volume of the fish caught in each fishing voyage was
never denied by Teng. Unsubstantiated suspicion is not a just
cause to terminate one’s employment under Article 28250 of the
Labor Code. To allow an employer to dismiss an employee
based on mere allegations and generalities would place the
employee at the mercy of his employer, and would emasculate
the right to security of tenure.51 For his failure to comply with
the Labor Code’s substantive requirement on termination of
employment, we declare that Teng illegally dismissed the
respondent workers.
WHEREFORE, we DENY the petition and AFFIRM the
September 21, 2004 decision and the September 1, 2005
resolution of the Court of Appeals in CA-G.R. SP No. 78783.
Costs against the petitioners.
SO ORDERED.
Page 162 of 191
G.R. Nos. 169295-96 November 20, 2006
162
REMINGTON INDUSTRIAL SALES CORPORATION,
Petitioner, vs. ERLINDA CASTANEDA, Respondent.
DECISION
PUNO, J.:
Before this Court is the Petition for Review on Certiorari1 filed
by Remington Industrial Sales Corporation to reverse and set
aside the Decision2 of the Fourth Division of the Court of
Appeals in CA-G.R. SP Nos. 64577 and 68477, dated January
31, 2005, which dismissed petitioner’s consolidated petitions for
certiorari, and its subsequent Resolution,3 dated August 11,
2005, which denied petitioner’s motion for reconsideration.
The antecedent facts of the case, as narrated by the Court of
Appeals, are as follows:
The present controversy began when private respondent,
Erlinda Castaneda ("Erlinda") instituted on March 2, 1998 a
complaint for illegal dismissal, underpayment of wages, non-
payment of overtime services, non-payment of service incentive
leave pay and non-payment of 13th month pay against
Remington before the NLRC, National Capital Region, Quezon
City. The complaint impleaded Mr. Antonio Tan in his capacity
as the Managing Director of Remington.
Erlinda alleged that she started working in August 1983 as
company cook with a salary of Php 4,000.00 for Remington, a
corporation engaged in the trading business; that she worked for
six (6) days a week, starting as early as 6:00 a.m. because she
had to do the marketing and would end at around 5:30 p.m., or
even later, after most of the employees, if not all, had left the
company premises; that she continuously worked with
Remington until she was unceremoniously prevented from
reporting for work when Remington transferred to a new site in
Edsa, Caloocan City. She averred that she reported for work at
the new site in Caloocan City on January 15, 1998, only to be
informed that Remington no longer needed her services. Erlinda
believed that her dismissal was illegal because she was not
given the notices required by law; hence, she filed her complaint
for reinstatement without loss of seniority rights, salary
differentials, service incentive leave pay, 13th month pay and
10% attorney’s fees.
Remington denied that it dismissed Erlinda illegally. It posited
that Erlinda was a domestic helper, not a regular employee;
Erlinda worked as a cook and this job had nothing to do with
Remington’s business of trading in construction or hardware
materials, steel plates and wire rope products. It also contended
that contrary to Erlinda’s allegations that the (sic) she worked for
eight (8) hours a day, Erlinda’s duty was merely to cook lunch
and "merienda", after which her time was hers to spend as she
pleased. Remington also maintained that it did not exercise any
degree of control and/or supervision over Erlinda’s work as her
only concern was to ensure that the employees’ lunch and
"merienda" were available and served at the designated time.
Remington likewise belied Erlinda’s assertion that her work
extended beyond 5:00 p.m. as she could only leave after all the
employees had gone. The truth, according to Remington, is that
Erlinda did not have to punch any time card in the way that other
employees of Remington did; she was free to roam around the
company premises, read magazines, and to even nap when not
doing her assigned chores. Remington averred that the illegal
dismissal complaint lacked factual and legal bases. Allegedly, it
was Erlinda who refused to report for work when Remington
moved to a new location in Caloocan City.
In a Decision4 dated January 19, 1999, the labor arbiter
dismissed the complaint and ruled that the respondent was a
domestic helper under the personal service of Antonio Tan,
finding that her work as a cook was not usually necessary and
desirable in the ordinary course of trade and business of the
petitioner corporation, which operated as a trading company,
and that the latter did not exercise control over her functions. On
the issue of illegal dismissal, the labor arbiter found that it was
the respondent who refused to go with the family of Antonio Tan
when the corporation transferred office and that, therefore,
respondent could not have been illegally dismissed.
Upon appeal, the National Labor Relations Commission (NLRC)
rendered a Decision,5 dated November 23, 2000, reversing the
labor arbiter, ruling, viz:
We are not inclined to uphold the declaration below that
complainant is a domestic helper of the family of Antonio Tan.
There was no allegation by respondent that complainant had
ever worked in the residence of Mr. Tan. What is clear from the
facts narrated by the parties is that complainant continuously did
her job as a cook in the office of respondent serving the needed
food for lunch and merienda of the employees. Thus, her work
as cook inured not for the benefit of the family members of Mr.
Tan but solely for the individual employees of respondent.
Complainant as an employee of respondent company is even
bolstered by no less than the certification dated May 23, 1997
issued by the corporate secretary of the company certifying that
complainant is their bonafide employee. This is a solid evidence
which the Labor Arbiter simply brushed aside. But, such error
would not be committed here as it would be at the height of
injustice if we are to declare that complainant is a domestic
helper.
Complainant’s work schedule and being paid a monthly salary
of ₱4,000.00 are clear indication that she is a company
employee who had been employed to cater to the food needed
by the employees which were being provided by respondent to
form part of the benefit granted them.
With regard to the issue of illegal dismissal, we believe that there
is more reason to believe that complainant was not dismissed
because allegedly she was the one who refused to work in the
new office of respondent. However, complainant’s refusal to join
the workforce due to poor eyesight could not be considered
abandonment of work or voluntary resignation from
employment.
Under the Labor Code as amended, an employee who reaches
the age of sixty years old (60 years) has the option to retire or to
separate from the service with payment of separation
pay/retirement benefit.
In this case, we notice that complainant was already 60 years
old at the time she filed the complaint praying for separation pay
or retirement benefit and some money claims.
Based on Article 287 of the Labor Code as amended,
complainant is entitled to be paid her separation pay/retirement
benefit equivalent to one-half (1/2) month for every year of
service. The amount of separation pay would be based on the
prescribed minimum wage at the time of dismissal since she was
then underpaid. In as much as complainant is underpaid of her
wages, it behooves that she should be paid her salary
differential for the last three years prior to separation/retirement.
Page 163 of 191
163
xxx xxx xxx
WHEREFORE, premises considered, the assailed decision is
hereby, SET ASIDE, and a new one is hereby entered ordering
respondents to pay complainant the following:
1. Salary differential - ₱12,021.12 2. Service Incentive Leave
Pay - 2,650.00 3. 13th Month Pay differential - 1,001.76 4.
Separation Pay/retirement benefit - 36,075.00
Total - ₱51,747.88
SO ORDERED.
Petitioner moved to reconsider this decision but the NLRC
denied the motion. This denial of its motion prompted petitioner
to file a Petition for Certiorari6 with the Court of Appeals,
docketed as CA-G.R. SP No. 64577, on May 4, 2001, imputing
grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the NLRC in (1) reversing in toto the
decision of the labor arbiter, and (2) awarding in favor of
respondent salary differential, service incentive leave pay, 13th
month pay differential and separation benefits in the total sum
of ₱51,747.88.
While the petition was pending with the Court of Appeals, the
NLRC rendered another Decision7 in the same case on August
29, 2001. How and why another decision was rendered is
explained in that decision as follows:
On May 17, 2001, complainant filed a Manifestation praying for
a resolution of her Motion for Reconsideration and, in support
thereof, alleges that, sometime December 18, 2000, she mailed
her Manifestation and Motion for Reconsideration registered as
Registered Certificate No. 188844; and that the said mail was
received by the NLRC, through a certain Roland Hernandez, on
December 26, 2000. Certifications to this effect was issued by
the Postmaster of the Sta. Mesa Post Office bearing the date
May 11, 2001 (Annexes A and B, Complainant’s Manifestation).
Evidence in support of complainant’s having actually filed a
Motion for Reconsideration within the reglementary period
having been sufficiently established, a determination of its
merits is thus, in order.
On the merits, the NLRC found respondent’s motion for
reconsideration meritorious leading to the issuance of its second
decision with the following dispositive portion:
WHEREFORE, premises considered, the decision dated
November 23, 2000, is MODIFIED by increasing the award of
retirement pay due the complainant in the total amount of SIXTY
TWO THOUSAND FOUR HUNDRED THIRTY-SEVEN and
50/100 (₱62,437.50). All other monetary relief so adjudged
therein are maintained and likewise made payable to the
complainant.
SO ORDERED.
Petitioner challenged the second decision of the NLRC,
including the resolution denying its motion for reconsideration,
through a second Petition for Certiorari8 filed with the Court of
Appeals, docketed as CA-G.R. SP No. 68477 and dated
January 8, 2002, this time imputing grave abuse of discretion
amounting to lack of or excess of jurisdiction on the part of the
NLRC in (1) issuing the second decision despite losing its
jurisdiction due to the pendency of the first petition for certiorari
with the Court of Appeals, and (2) assuming it still had
jurisdiction to issue the second decision notwithstanding the
pendency of the first petition for certiorari with the Court of
Appeals, that its second decision has no basis in law since
respondent’s motion for reconsideration, which was made the
basis of the second decision, was not filed under oath in violation
of Section 14, Rule VII9 of the New Rules of Procedure of the
NLRC and that it contained no certification as to why
respondent’s motion for reconsideration was not decided on
time as also required by Section 10, Rule VI10 and Section 15,
Rule VII11 of the aforementioned rules.
Upon petitioner’s motion, the Court of Appeals ordered the
consolidation of the two (2) petitions, on January 24, 2002,
pursuant to Section 7, par. b(3), Rule 3 of the Revised Rules of
the Court of Appeals. It summarized the principal issues raised
in the consolidated petitions as follows:
1. Whether respondent is petitioner’s regular employee or a
domestic helper;
2. Whether respondent was illegally dismissed; and
3. Whether the second NLRC decision promulgated during the
pendency of the first petition for certiorari has basis in law.
On January 31, 2005, the Court of Appeals dismissed the
consolidated petitions for lack of merit, finding no grave abuse
of discretion on the part of the NLRC in issuing the assailed
decisions.
On the first issue, it upheld the ruling of the NLRC that
respondent was a regular employee of the petitioner since the
former worked at the company premises and catered not only to
the personal comfort and enjoyment of Mr. Tan and his family,
but also to that of the employees of the latter. It agreed that
petitioner enjoys the prerogative to control respondent’s conduct
in undertaking her assigned work, particularly the nature and
situs of her work in relation to the petitioner’s workforce, thereby
establishing the existence of an employer-employee relationship
between them.
On the issue of illegal dismissal, it ruled that respondent has
attained the status of a regular employee in her service with the
company. It noted that the NLRC found that no less than the
company’s corporate secretary certified that respondent is a
bonafide company employee and that she had a fixed schedule
and routine of work and was paid a monthly salary of ₱4,000.00;
that she served with petitioner for 15 years starting in 1983,
buying and cooking food served to company employees at lunch
and merienda; and that this work was usually necessary and
desirable in the regular business of the petitioner. It held that as
a regular employee, she enjoys the constitutionally guaranteed
right to security of tenure and that petitioner failed to discharge
the burden of proving that her dismissal on January 15, 1998
was for a just or authorized cause and that the manner of
dismissal complied with the requirements under the law.
Page 164 of 191
Finally, on petitioner’s other arguments relating to the alleged
164
irregularity of the second NLRC decision, i.e., the fact that
respondent’s motion for reconsideration was not under oath and
had no certification explaining why it was not resolved within the
prescribed period, it held that such violations relate to
procedural and non-jurisdictional matters that cannot assume
primacy over the substantive merits of the case and that they do
not constitute grave abuse of discretion amounting to lack or
excess of jurisdiction that would nullify the second NLRC
decision.
The Court of Appeals denied petitioner’s contention that the
NLRC lost its jurisdiction to issue the second decision when it
received the order indicating the Court of Appeals’ initial action
on the first petition for certiorari that it filed. It ruled that the
NLRC’s action of issuing a decision in installments was not
prohibited by its own rules and that the need for a second
decision was justified by the fact that respondent’s own motion
for reconsideration remained unresolved in the first decision.
Furthermore, it held that under Section 7, Rule 65 of the Revised
Rules of Court,12 the filing of a petition for certiorari does not
interrupt the course of the principal case unless a temporary
restraining order or a writ of preliminary injunction has been
issued against the public respondent from further proceeding
with the case.
From this decision, petitioner filed a motion for reconsideration
on February 22, 2005, which the Court of Appeals denied
through a resolution dated August 11, 2005.
Hence, the present petition for review.
The petitioner raises the following errors of law: (1) the Court of
Appeals erred in affirming the NLRC’s ruling that the respondent
was petitioner’s regular employee and not a domestic helper; (2)
the Court of Appeals erred in holding that petitioner was guilty
of illegal dismissal; and (3) the Court of Appeals erred when it
held that the issuance of the second NLRC decision is proper.
The petition must fail. We affirm that respondent was a regular
employee of the petitioner and that the latter was guilty of illegal
dismissal.
Before going into the substantive merits of the present
controversy, we shall first resolve the propriety of the issuance
of the second NLRC decision.
The petitioner contends that the respondent’s motion for
reconsideration, upon which the second NLRC decision was
based, was not under oath and did not contain a certification as
to why it was not decided on time as required under the New
Rules of Procedure of the NLRC.13 Furthermore, the former
also raises for the first time the contention that respondent’s
motion was filed beyond the ten (10)-calendar day period
required under the same Rules,14 since the latter received a
copy of the first NLRC decision on December 6, 2000, and
respondent filed her motion only on December 18, 2000. Thus,
according to petitioner, the respondent’s motion for
reconsideration was a mere scrap of paper and the second
NLRC decision has no basis in law.
We do not agree.
It is well-settled that the application of technical rules of
procedure may be relaxed to serve the demands of substantial
justice, particularly in labor cases.15 Labor cases must be
decided according to justice and equity and the substantial
merits of the controversy.16 Rules of procedure are but mere
tools designed to facilitate the attainment of justice.17 Their
strict and rigid application, which would result in technicalities
that tend to frustrate rather than promote substantial justice,
must always be avoided.18
This Court has consistently held that the requirement of
verification is formal, and not jurisdictional. Such requirement is
merely a condition affecting the form of the pleading, non-
compliance with which does not necessarily render it fatally
defective. Verification is simply intended to secure an assurance
that the allegations in the pleading are true and correct and not
the product of the imagination or a matter of speculation, and
that the pleading is filed in good faith.19 The court may order the
correction of the pleading if verification is lacking or act on the
pleading although it is not verified, if the attending
circumstances are such that strict compliance with the rules may
be dispensed with in order that the ends of justice may thereby
be served.20
Anent the argument that respondent’s motion for
reconsideration, on which the NLRC’s second decision was
based, was filed out of time, such issue was only brought up for
the first time in the instant petition where no new issues may be
raised by a party in his pleadings without offending the right to
due process of the opposing party.
Nonetheless, the petitioner asserts that the respondent received
a copy of the NLRC’s first decision on December 6, 2000, and
the motion for reconsideration was filed only on December 18,
2000, or two (2) days beyond the ten (10)-calendar day period
requirement under the New Rules of Procedure of the NLRC and
should not be allowed.21
This contention must fail.
Under Article 22322 of the Labor Code, the decision of the
NLRC shall be final and executory after ten (10) calendar days
from the receipt thereof by the parties.
While it is an established rule that the perfection of an appeal in
the manner and within the period prescribed by law is not only
mandatory but jurisdictional, and failure to perfect an appeal has
the effect of rendering the judgment final and executory, it is
equally settled that the NLRC may disregard the procedural
lapse where there is an acceptable reason to excuse tardiness
in the taking of the appeal.23 Among the acceptable reasons
recognized by this Court are (a) counsel's reliance on the
footnote of the notice of the decision of the Labor Arbiter that
"the aggrieved party may appeal. . . within ten (10) working
days";24 (b) fundamental consideration of substantial justice;25
(c) prevention of miscarriage of justice or of unjust enrichment,
as where the tardy appeal is from a decision granting separation
pay which was already granted in an earlier final decision;26 and
(d) special circumstances of the case combined with its legal
merits27 or the amount and the issue involved.28
We hold that the particular circumstances in the case at bar, in
accordance with substantial justice, call for a liberalization of the
application of this rule. Notably, respondent’s last day for filing
her motion for reconsideration fell on December 16, 2000, which
was a Saturday. In a number of cases,29 we have ruled that if
the tenth day for perfecting an appeal fell on a Saturday, the
appeal shall be made on the next working day. The reason for
this ruling is that on Saturdays, the office of the NLRC and
certain post offices are closed. With all the more reason should
Page 165 of 191
this doctrine apply to respondent’s filing of the motion for
165
reconsideration of her cause, which the NLRC itself found to be
impressed with merit. Indeed, technicality should not be
permitted to stand in the way of equitably and completely
resolving the rights and obligations of the parties for the ends of
justice are reached not only through the speedy disposal of
cases but, more importantly, through a meticulous and
comprehensive evaluation of the merits of a case.
Finally, as to petitioner’s argument that the NLRC had already
lost its jurisdiction to decide the case when it filed its petition for
certiorari with the Court of Appeals upon the denial of its motion
for reconsideration, suffice it to state that under Section 7 of Rule
6530 of the Revised Rules of Court, the petition shall not
interrupt the course of the principal case unless a temporary
restraining order or a writ of preliminary injunction has been
issued against the public respondent from further proceeding
with the case. Thus, the mere pendency of a special civil action
for certiorari, in connection with a pending case in a lower court,
does not interrupt the course of the latter if there is no writ of
injunction.31 Clearly, there was no grave abuse of discretion on
the part of the NLRC in issuing its second decision which
modified the first, especially since it failed to consider the
respondent’s motion for reconsideration when it issued its first
decision.
Having resolved the procedural matters, we shall now delve into
the merits of the petition to determine whether respondent is a
domestic helper or a regular employee of the petitioner, and
whether the latter is guilty of illegal dismissal.
Petitioner relies heavily on the affidavit of a certain Mr. Antonio
Tan and contends that respondent is the latter’s domestic helper
and not a regular employee of the company since Mr. Tan has
a separate and distinct personality from the petitioner. It
maintains that it did not exercise control and supervision over
her functions; and that it operates as a trading company and
does not engage in the restaurant business, and therefore
respondent’s work as a cook, which was not usually necessary
or desirable to its usual line of business or trade, could not make
her its regular employee.
This contention fails to impress.
In Apex Mining Company, Inc. v. NLRC,32 this Court held that a
househelper in the staff houses of an industrial company was a
regular employee of the said firm. We ratiocinated that:
Under Rule XIII, Section 1(b), Book 3 of the Labor Code, as
amended, the terms "househelper" or "domestic servant" are
defined as follows:
"The term ‘househelper’ as used herein is synonymous to the
term ‘domestic servant’ and shall refer to any person, whether
male or female, who renders services in and about the
employer’s home and which services are usually necessary or
desirable for the maintenance and enjoyment thereof, and
ministers exclusively to the personal comfort and enjoyment of
the employer’s family."
The foregoing definition clearly contemplates such househelper
or domestic servant who is employed in the employer’s home to
minister exclusively to the personal comfort and enjoyment of
the employer’s family. Such definition covers family drivers,
domestic servants, laundry women, yayas, gardeners,
houseboys and similar househelps.

xxx xxx xxx
The criteria is the personal comfort and enjoyment of the family
of the employer in the home of said employer. While it may be
true that the nature of the work of a househelper, domestic
servant or laundrywoman in a home or in a company staffhouse
may be similar in nature, the difference in their circumstances is
that in the former instance they are actually serving the family
while in the latter case, whether it is a corporation or a single
proprietorship engaged in business or industry or any other
agricultural or similar pursuit, service is being rendered in the
staffhouses or within the premises of the business of the
employer. In such instance, they are employees of the company
or employer in the business concerned entitled to the privileges
of a regular employee.
Petitioner contends that it is only when the househelper or
domestic servant is assigned to certain aspects of the business
of the employer that such househelper or domestic servant may
be considered as such an employee. The Court finds no merit in
making any such distinction. The mere fact that the househelper
or domestic servant is working within the premises of the
business of the employer and in relation to or in connection with
its business, as in its staffhouses for its guest or even for its
officers and employees, warrants the conclusion that such
househelper or domestic servant is and should be considered
as a regular employee of the employer and not as a mere family
househelper or domestic servant as contemplated in Rule XIII,
Section 1(b), Book 3 of the Labor Code, as amended.
In the case at bar, the petitioner itself admits in its position
paper33 that respondent worked at the company premises and
her duty was to cook and prepare its employees’ lunch and
merienda. Clearly, the situs, as well as the nature of
respondent’s work as a cook, who caters not only to the needs
of Mr. Tan and his family but also to that of the petitioner’s
employees, makes her fall squarely within the definition of a
regular employee under the doctrine enunciated in the Apex
Mining case. That she works within company premises, and that
she does not cater exclusively to the personal comfort of Mr. Tan
and his family, is reflective of the existence of the petitioner’s
right of control over her functions, which is the primary indicator
of the existence of an employer-employee relationship.
Moreover, it is wrong to say that if the work is not directly related
to the employer's business, then the person performing such
work could not be considered an employee of the latter. The
determination of the existence of an employer-employee
relationship is defined by law according to the facts of each
case, regardless of the nature of the activities involved.34
Indeed, it would be the height of injustice if we were to hold that
despite the fact that respondent was made to cook lunch and
merienda for the petitioner’s employees, which work ultimately
redounded to the benefit of the petitioner corporation, she was
merely a domestic worker of the family of Mr. Tan.
We note the findings of the NLRC, affirmed by the Court of
Appeals, that no less than the company’s corporate secretary
has certified that respondent is a bonafide company
employee;35 she had a fixed schedule and routine of work and
was paid a monthly salary of ₱4,000.00;36 she served with the
company for 15 years starting in 1983, buying and cooking food
served to company employees at lunch and merienda, and that
this service was a regular feature of employment with the
company.37
Page 166 of 191
Indubitably, the Court of Appeals, as well as the NLRC, correctly
166
held that based on the given circumstances, the respondent is a
regular employee of the petitioner.1âwphi1
Having determined that the respondent is petitioner’s regular
employee, we now proceed to ascertain the legality of her
dismissal from employment.
Petitioner contends that there was abandonment on
respondent’s part when she refused to report for work when the
corporation transferred to a new location in Caloocan City,
claiming that her poor eyesight would make long distance travel
a problem. Thus, it cannot be held guilty of illegal dismissal.
On the other hand, the respondent claims that when the
petitioner relocated, she was no longer called for duty and that
when she tried to report for work, she was told that her services
were no longer needed. She contends that the petitioner
dismissed her without a just or authorized cause and that she
was not given prior notice, hence rendering the dismissal illegal.
We rule for the respondent.
As a regular employee, respondent enjoys the right to security
of tenure under Article 27938 of the Labor Code and may only
be dismissed for a just39 or authorized40 cause, otherwise the
dismissal becomes illegal and the employee becomes entitled
to reinstatement and full backwages computed from the time
compensation was withheld up to the time of actual
reinstatement.
Abandonment is the deliberate and unjustified refusal of an
employee to resume his employment.41 It is a form of neglect
of duty; hence, a just cause for termination of employment by
the employer under Article 282 of the Labor Code, which
enumerates the just causes for termination by the employer.42
For a valid finding of abandonment, these two factors should be
present: (1) the failure to report for work or absence without valid
or justifiable reason; and (2) a clear intention to sever employer-
employee relationship, with the second as the more
determinative factor which is manifested by overt acts from
which it may be deduced that the employee has no more
intention to work.43 The intent to discontinue the employment
must be shown by clear proof that it was deliberate and
unjustified.44 This, the petitioner failed to do in the case at bar.
Alongside the petitioner’s contention that it was the respondent
who quit her employment and refused to return to work, greater
stock may be taken of the respondent’s immediate filing of her
complaint with the NLRC. Indeed, an employee who loses no
time in protesting her layoff cannot by any reasoning be said to
have abandoned her work, for it is well-settled that the filing of
an employee of a complaint for illegal dismissal with a prayer for
reinstatement is proof enough of her desire to return to work,
thus, negating the employer’s charge of abandonment.45
In termination cases, the burden of proof rests upon the
employer to show that the dismissal is for a just and valid cause;
failure to do so would necessarily mean that the dismissal was
illegal.46 The employer’s case succeeds or fails on the strength
of its evidence and not on the weakness of the employee’s
defense.47 If doubt exists between the evidence presented by
the employer and the employee, the scales of justice must be
tilted in favor of the latter.48
IN VIEW WHEREOF, the petition is DENIED for lack of merit.
The assailed Decision dated January 31, 2005, and the
Resolution dated August 11, 2005, of the Court of Appeals in
CA-G.R. SP Nos. 64577 and 68477 are AFFIRMED. Costs
against petitioner.
SO ORDERED.
G.R. No. 114337 September 29, 1995
NITTO ENTERPRISES, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and ROBERTO CAPILI,
respondents.
KAPUNAN, J.:
This petition for certiorari under Rule 65 of the Rules of Court
seeking to annul the decision1 rendered by public respondent
National Labor Relations Commission, which reversed the
decision of the Labor Arbiter.
Briefly, the facts of the case are as follows:
Petitioner Nitto Enterprises, a company engaged in the sale of
glass and aluminum products, hired Roberto Capili sometime in
May 1990 as an apprentice machinist, molder and core maker
as evidenced by an apprenticeship agreement2 for a period of
six (6) months from May 28, 1990 to November 28, 1990 with a
daily wage rate of P66.75 which was 75% of the applicable
minimum wage.
At around 1:00 p.m. of August 2, 1990, Roberto Capili who was
handling a piece of glass which he was working on, accidentally
hit and injured the leg of an office secretary who was treated at
a nearby hospital.
Later that same day, after office hours, private respondent
entered a workshop within the office premises which was not his
work station. There, he operated one of the power press
machines without authority and in the process injured his left
thumb. Petitioner spent the amount of P1,023.04 to cover the
medication of private respondent.
The following day, Roberto Capili was asked to resign in a letter3
which reads:
August 2, 1990
Wala siyang tanggap ng utos mula sa superbisor at wala siyang
experiensa kung papaano gamitin and "TOOL" sa pagbuhat ng
salamin, sarili niyang desisyon ang paggamit ng tool at may
disgrasya at nadamay pa ang isang sekretarya ng kompanya.
Sa araw ding ito limang (5) minute ang nakakalipas mula alas-
singko ng hapon siya ay pumasok sa shop na hindi naman
sakop ng kanyang trabaho. Pinakialaman at kinalikot ang
makina at nadisgrasya niya ang kanyang sariling kamay.
Nakagastos ang kompanya ng mga sumusunod:
Page 167 of 191
Emergency and doctor fee P715.00
167
Medecines (sic) and others 317.04
Bibigyan siya ng kompanya ng Siyam na araw na libreng sahod
hanggang matanggal ang tahi ng kanyang kamay.
Tatanggapin niya ang sahod niyang anim na araw, mula ika-30
ng Hulyo at ika-4 ng Agosto, 1990.
Ang kompanya ang magbabayad ng lahat ng gastos pagtanggal
ng tahi ng kanyang kamay, pagkatapos ng siyam na araw mula
ika-2 ng Agosto.
Sa lahat ng nakasulat sa itaas, hinihingi ng kompanya ang
kanyang resignasyon, kasama ng kanyang comfirmasyon at
pag-ayon na ang lahat sa itaas ay totoo.
Naiintindihan ko ang lahat ng nakasulat sa itaas, at ang lahat ng
ito ay aking pagkakasala sa hindi pagsunod sa alintuntunin ng
kompanya.
(Sgd.) Roberto Capili
Roberto Capili
On August 3, 1990 private respondent executed a Quitclaim and
Release in favor of petitioner for and in consideration of the sum
of P1,912.79.4
Three days after, or on August 6, 1990, private respondent
formally filed before the NLRC Arbitration Branch, National
Capital Region a complaint for illegal dismissal and payment of
other monetary benefits.
On October 9, 1991, the Labor Arbiter rendered his decision
finding the termination of private respondent as valid and
dismissing the money claim for lack of merit. The dispositive
portion of the ruling reads:
WHEREFORE, premises considered, the termination is valid
and for cause, and the money claims dismissed for lack of merit.
The respondent however is ordered to pay the complainant the
amount of P500.00 as financial assistance.
SO ORDERED.5
Labor Arbiter Patricio P. Libo-on gave two reasons for ruling that
the dismissal of Roberto Capilian was valid. First, private
respondent who was hired as an apprentice violated the terms
of their agreement when he acted with gross negligence
resulting in the injury not only to himself but also to his fellow
worker. Second, private respondent had shown that "he does
not have the proper attitude in employment particularly the
handling of machines without authority and proper training.6
 168
On July 26, 1993, the National Labor Relations Commission I
issued an order reversing the decision of the Labor Arbiter, the
dispositive portion of which reads:
WHETHER OR NOT PUBLIC RESPONDENT NLRC
COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING
WHEREFORE, the appealed decision is hereby set aside. The THAT PRIVATE RESPONDENT WAS NOT AN APPRENTICE.
respondent is hereby directed to reinstate complainant to his
work last performed with backwages computed from the time his
wages were withheld up to the time he is actually reinstated. The
II
Arbiter of origin is hereby directed to further hear complainant's
money claims and to dispose them on the basis of law and
evidence obtaining.
WHETHER OR NOT PUBLIC RESPONDENT NLRC
COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING
THAT PETITIONER HAD NOT ADEQUATELY PROVEN THE
SO ORDERED.7
EXISTENCE OF A VALID CAUSE IN TERMINATING THE
SERVICE OF PRIVATE RESPONDENT.

The NLRC declared that private respondent was a regular

employee of petitioner by ruling thus:
We find no merit in the petition.

As correctly pointed out by the complainant, we cannot

Petitioner assails the NLRC's finding that private respondent
understand how an apprenticeship agreement filed with the
Roberto Capili cannot plainly be considered an apprentice since
Department of Labor only on June 7, 1990 could be validly used
no apprenticeship program had yet been filed and approved at
by the Labor Arbiter as basis to conclude that the complainant
the time the agreement was executed.
was hired by respondent as a plain "apprentice" on May 28,
1990. Clearly, therefore, the complainant was respondent's
regular employee under Article 280 of the Labor Code, as early
as May 28,1990, who thus enjoyed the security of tenure Petitioner further insists that the mere signing of the
guaranteed in Section 3, Article XIII of our 1987 Constitution. apprenticeship agreement already established an employer-
apprentice relationship.

The complainant being for illegal dismissal (among others) it

then behooves upon respondent, pursuant to Art. 227(b) and as Petitioner's argument is erroneous.
ruled in Edwin Gesulgon vs. NLRC, et al. (G.R. No. 90349,
March 5, 1993, 3rd Div., Feliciano, J.) to prove that the dismissal
of complainant was for a valid cause. Absent such proof, we
cannot but rule that the complainant was illegally dismissed.8 The law is clear on this matter. Article 61 of the Labor Code
provides:

On January 28, 1994, Labor Arbiter Libo-on called for a

conference at which only private respondent's representative
was present.
On April 22, 1994, a Writ of Execution was issued, which reads:
NOW, THEREFORE, finding merit in [private respondent's]
Motion for Issuance of the Writ, you are hereby commanded to
proceed to the premises of [petitioner] Nitto Enterprises and
Jovy Foster located at No. l 74 Araneta Avenue, Portero,
Malabon, Metro Manila or at any other places where their
properties are located and effect the reinstatement of herein
[private respondent] to his work last performed or at the option
of the respondent by payroll reinstatement.
You are also to collect the amount of P122,690.85 representing
his backwages as called for in the dispositive portion, and turn
over such amount to this Office for proper disposition.
Contents of apprenticeship agreement. — Apprenticeship
agreements, including the main rates of apprentices, shall
conform to the rules issued by the Minister of Labor and
Employment. The period of apprenticeship shall not exceed six
months. Apprenticeship agreements providing for wage rates
below the legal minimum wage, which in no case shall start
below 75% per cent of the applicable minimum wage, may be
entered into only in accordance with apprenticeship program
duly approved by the Minister of Labor and Employment. The
Ministry shall develop standard model programs of
apprenticeship. (emphasis supplied)
In the case at bench, the apprenticeship agreement between
petitioner and private respondent was executed on May 28,
1990 allegedly employing the latter as an apprentice in the trade
of "care maker/molder." On the same date, an apprenticeship
program was prepared by petitioner and submitted to the
Department of Labor and Employment. However, the
apprenticeship Agreement was filed only on June 7, 1990.
Notwithstanding the absence of approval by the Department of
Labor and Employment, the apprenticeship agreement was
enforced the day it was signed.

Petitioner filed a motion for reconsideration but the same was

denied.
Based on the evidence before us, petitioner did not comply with
the requirements of the law. It is mandated that apprenticeship
agreements entered into by the employer and apprentice shall
Hence, the instant petition — for certiorari. be entered only in accordance with the apprenticeship program
duly approved by the Minister of Labor and Employment.

The issues raised before us are the following:

Page 168 of 191
Prior approval by the Department of Labor and Employment of
the proposed apprenticeship program is, therefore, a condition
sine quo non before an apprenticeship agreement can be validly
entered into.
The act of filing the proposed apprenticeship program with the
Department of Labor and Employment is a preliminary step
towards its final approval and does not instantaneously give rise
to an employer-apprentice relationship.
Article 57 of the Labor Code provides that the State aims to
"establish a national apprenticeship program through the
participation of employers, workers and government and non-
government agencies" and "to establish apprenticeship
standards for the protection of apprentices." To translate such
objectives into existence, prior approval of the DOLE to any
apprenticeship program has to be secured as a condition sine
qua non before any such apprenticeship agreement can be fully
enforced. The role of the DOLE in apprenticeship programs and
agreements cannot be debased.
Hence, since the apprenticeship agreement between petitioner
and private respondent has no force and effect in the absence
of a valid apprenticeship program duly approved by the DOLE,
private respondent's assertion that he was hired not as an
apprentice but as a delivery boy ("kargador" or "pahinante")
deserves credence. He should rightly be considered as a regular
employee of petitioner as defined by Article 280 of the Labor
Code:
Art. 280. 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
determined at the time of the engagement of the employee or
where the work or services 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. (Emphasis
supplied)
and pursuant to the constitutional mandate to "protect the rights
of workers and promote their welfare."9
Petitioner further argues that, there is a valid cause for the
dismissal of private respondent.
There is an abundance of cases wherein the Court ruled that the
twin requirements of due process, substantive and procedural,
must be complied with, before valid dismissal exists. 10 Without
which, the dismissal becomes void.
The twin requirements of notice and hearing constitute the
essential elements of due process. This simply means that the
employer shall afford the worker ample opportunity to be heard
Page 169 of 191
and to defend himself with the assistance of his representative,
169
if he so desires.
Ample opportunity connotes every kind of assistance that
management must accord the employee to enable him to
prepare adequately for his defense including legal
representation. 11
As held in the case of Pepsi-Cola Bottling Co., Inc. v. NLRC: 12
The law requires that the employer must furnish the worker
sought to be dismissed with two (2) written notices before
termination of employee can be legally effected: (1) notice which
apprises the employee of the particular acts or omissions for
which his dismissal is sought; and (2) the subsequent notice
which informs the employee of the employer's decision to
dismiss him (Sec. 13, BP 130; Sec. 2-6 Rule XIV, Book V, Rules
and Regulations Implementing the Labor Code as amended).
Failure to comply with the requirements taints the dismissal with
illegality. This procedure is mandatory, in the absence of which,
any judgment reached by management is void and in existent
(Tingson, Jr. vs. NLRC, 185 SCRA 498 [1990]; National Service
Corp. vs. NLRC, 168 SCRA 122; Ruffy vs. NLRC. 182 SCRA
365 [1990]).
The fact is private respondent filed a case of illegal dismissal
with the Labor Arbiter only three days after he was made to sign
a Quitclaim, a clear indication that such resignation was not
voluntary and deliberate.
Private respondent averred that he was actually employed by
petitioner as a delivery boy ("kargador" or "pahinante").
He further asserted that petitioner "strong-armed" him into
signing the aforementioned resignation letter and quitclaim
without explaining to him the contents thereof. Petitioner made
it clear to him that anyway, he did not have a choice. 13
Petitioner cannot disguise the summary dismissal of private
respondent by orchestrating the latter's alleged resignation and
subsequent execution of a Quitclaim and Release. A judicious
examination of both events belies any spontaneity on private
respondent's part.
WHEREFORE, finding no abuse of discretion committed by
public respondent National Labor Relations Commission, the
appealed decision is hereby AFFIRMED.
SO ORDERED.
G.R. Nos. 173254-55 & 173263 January 13, 2016
DIAMOND FARMS, INC., Petitioner, vs. SOUTHERN
PHILIPPINES FEDERATION OF LABOR (SPFL)-WORKERS
SOLIDARITY OF DARBMUPCO/DIAMOND-SPFL, DIAMOND
FARMS AGRARIAN REFORM BENEFICIARIES MULTI-
PURPOSE COOPERATIVE (DARBMUPCO), VOLTER
LOPEZ, RUEL ROMERO, PATRICIO CAPRECHO, REY
DIMACALI, ELESIO EMANEL, VICTOR SINGSON, NILDA
DIMACALI, PREMITIVO* DIAZ, RUDY VISTAL, ROGER
MONTERO, JOSISIMO GOMEZ and MANUEL MOSQUERA,
Respondents.
DECISION
JARDELEZA, J.: On April 20, 1996, DARBMUPCO and DFI executed a

170
"Supplemental to Memorandum Agreement" ("SMA").19 The
SMA stated that DFI shall take care of the labor cost arising from
the packaging operation, cable maintenance, irrigation pump
We resolve in this Petition for Review1 under Rule 45 of the
and irrigation maintenance that the workers of DARBMUPCO
Rules of Court, the issue of who among Diamond Farms, Inc.
shall conduct for DFI’s account under the BPPA.20
("DFI"), Diamond Farms Agrarian Reform Beneficiaries Multi-
Purpose Cooperative ("DARBMUPCO") and the individual
contractors2 ("respondent-contractors") is the employer of the
400 employees ("respondent-workers"). From the start, DARBMUPCO was hampered by lack of
manpower to undertake the agricultural operation under the
BPPA because some of its members were not willing to work.21
Hence, to assist DARBMUPCO in meeting its production
DFI challenges the March 31, 2006 Decision3 and May 30, 2006
obligations under the BPPA, DFI engaged the services of the
Resolution4 of the Court Appeals, Special Twenty-Second
respondent-contractors, who in turn recruited the respondent-
Division, Cagayan De Oro City for being contrary to law and
workers.22
jurisprudence. The Decision dismissed DFI’s Petition for
Certiorari in C.A.-G.R. SP Nos. 53806 and 61607 and granted
DARBMUPCO’s Petition for Certiorari in C.A.-G.R. SP No.
59958. It declared DFI as the statutory employer of the The engagement of the respondent-workers, as will be seen
respondent-workers. below, started a series of labor disputes among DARBMUPCO,
DFI and the respondent-contractors.

The Facts
C.A. G.R. SP No. 53806

DFI owns an 800-hectare banana plantation ("original

plantation") in Alejal, Carmen, Davao.5 Pursuant to Republic Act On February 10, 1997, respondent Southern Philippines
No. 6657 or the Comprehensive Agrarian Reform Law of 1988 Federation of Labor ("SPFL")—a legitimate labor organization
("CARL"), commercial farms shall be subject to compulsory with a local chapter in the awarded plantation—filed a petition
acquisition and distribution,6 thus the original plantation was for certification election in the Office of the Med-Arbiter in Davao
covered by the law. However, the Department of Agrarian City.23 SPFL filed the petition on behalf of some 400 workers
Reform ("DAR") granted DFI a deferment privilege to continue (the respondent-workers in this petition) "jointly employed by
agricultural operations until 1998.7 Due to adverse marketing DFI and DARBMUPCO" working in the awarded plantation.
problems and observance of the so-called "lay-follow" or the
resting of a parcel of land for a certain period of time after
exhaustive utilization, DFI closed some areas of operation in the
DARBMUPCO and DFI denied that they are the employers of
original plantation and laid off its employees.8 These employees
the respondent-workers. They claimed, instead, that the
petitioned the DAR for the cancellation of DFI’s deferment
respondent-workers are the employees of the respondent-
privilege alleging that DFI already abandoned its area of
contractors.24
operations.9 The DAR Regional Director recalled DFI’s
deferment privilege resulting in the original plantation’s
automatic compulsory acquisition and distribution under the
CARL.10 DFI filed a motion for reconsideration which was In an Order dated May 14, 1997,25 the Med-Arbiter granted the
denied. It then appealed to the DAR Secretary.11 petition for certification election. It directed the conduct of
certification election and declared that DARBMUPCO was the
employer of the respondent-workers. The Order stated that
"whether the said workers/employees were hired by
In the meantime, to minimize losses, DFI offered to give up its
independent contractors is of no moment. What is material is
rights and interest over the original plantation in favor of the
that they were hired purposely to work on the 689.88 hectares
government by way of a Voluntary Offer to Sell.12 The DAR
banana plantation [the awarded plantation] now owned and
accepted DFI’s offer to sell the original plantation. However, out
operated by DARBMUPCO."26
of the total 800 hectares, the DAR only approved the disposition
of 689.88 hectares. Hence, the original plantation was split into
two: 689.88 hectares were sold to the government ("awarded
plantation") and the remaining 200 hectares, more or less, were DARBMUPCO appealed to the Secretary of Labor and
retained by DFI ("managed area").13 The managed area is Employment ("SOLE"). In a Resolution dated February 18,
subject to the outcome of the appeal on the cancellation of the 1999,27 the SOLE modified the decision of the Med-Arbiter. The
deferment privilege before the DAR Secretary. SOLE held that DFI, through its manager and personnel,
supervised and directed the performance of the work of the
respondentcontractors. The SOLE thus declared DFI as the
employer of the respondent-workers.28
On January 1, 1996, the awarded plantation was turned over to
qualified agrarian reform beneficiaries ("ARBs") under the
CARL. These ARBs are the same farmers who were working in
the original plantation. They subsequently organized DFI filed a motion for reconsideration which the SOLE denied in
themselves into a multi-purpose cooperative named a Resolution dated May 4, 1999.29
"DARBMUPCO," which is one of the respondents in this case.14

On March 27, 1996, DARBMUPCO entered into a Banana
Production and Purchase Agreement ("BPPA")15 with DFI.16
Under the BPPA, DARBMUPCO and its members as owners of
the awarded plantation, agreed to grow and cultivate only high
grade quality exportable bananas to be sold exclusively to
DFI.17 The BPPA is effective for 10 years.18
On June 11, 1999, DFI elevated the case to the Court of Appeals
("CA") via a Petition for Certiorari30 under Rule 65 of the Rules
of Court. The case was raffled to the CA’s former Twelfth
Division and was docketed as C.A.-G.R. SP No. 53806.
C.A.-G.R. SP. No. 59958

Page 170 of 191

Meanwhile, on June 20, 199731 and September 15, 1997,32
SPFL, together with more than 300 workers, filed a case for
underpayment of wages, non-payment of 13th month pay and
service incentive leave pay and attorney’s fees against DFI,
DARBMUPCO and the respondent-contractors before the
National Labor Relations Commission ("NLRC") in Davao City.
DARBMUPCO averred that it is not the employer of respondent-
workers; neither is DFI. It asserted that the money claims should
be directed against the true employer—the respondent-
contractors.33
In a Decision dated January 22, 1999,34 the Labor Arbiter ("LA")
held that the respondent-contractors are "labor-only
contractors." The LA gave credence to the affidavits of the other
contractors35 of DFI (who are not party-respondents in this
petition) asserting that DFI engaged their services, and
supervised and paid their laborers. The affidavits also stated
that the contractors had no dealings with DARBMUPCO, except
that their work is done in the awarded plantation.36
The LA held that, under the law, DFI is deemed as the statutory
employer of all the respondent-workers.37 The LA dismissed
the case against DARBMUPCO and the respondent-
contractors.38
DFI appealed to the NLRC. In a Resolution dated May 24,
1999,39 the NLRC Fifth Division modified the Decision of the LA
and declared that DARBMUPCO and DFI are the statutory
employers of the workers rendering services in the awarded
plantation and the managed area, respectively.40 It adjudged
DFI and DARBMUPCO as solidarily liable with the respondent-
contractors for the monetary claims of the workers, in proportion
to their net planted area.41
DARBMUPCO filed a motion for reconsideration which was
denied.42 It filed a second motion for reconsideration in the
NLRC, which was also denied for lack of merit and for being
barred under the NLRC Rules of Procedure.43 Hence,
DARBMUPCO elevated the case to the CA by way of a Petition
for Certiorari.44 The case was docketed as C.A.-G.R. SP. No.
59958.
The former Eleventh Division of the CA consolidated C.A. G.R.
SP. No. 59958 and C.A.-G.R. SP No. 53806 in a Resolution
dated January 27, 2001.45
C.A.-G.R. SP No. 61607
Pursuant to the May 4, 1999 Resolution of the SOLE approving
the conduct of certification election, the Department of Labor
and Employment ("DOLE") conducted a certification election on
October 1, 1999.46 On even date, DFI filed an election protest47
before the Med-Arbiter arguing that the certification election was
premature due to the pendency of a petition for certiorari before
the CA assailing the February 18, 1999 and May 4, 1999
Resolutions of the SOLE (previously discussed in C.A.-G.R. SP
No. 53806).
In an Order dated December 15, 1999,48 the Med-Arbiter
denied DFI’s election protest, and certified SPFL-Workers
Solidarity of DARBMUPCO/DIAMOND-SPFL ("WSD-SPFL") as
the exclusive bargaining representative of the respondent-
workers. DFI filed a Motion for Reconsideration49 which the
Med-Arbiter treated as an appeal, and which the latter elevated
to the SOLE.
Page 171 of 191
In a Resolution dated July 18, 2000,50 the SOLE dismissed the
171
appeal. The Resolution stated that the May 4, 1999 Resolution
directing the conduct of certification election is already final and
executory on June 4, 1999. It pointed out that the filing of the
petition for certiorari before the CA assailing the February 18,
1999 and May 4, 1999 Resolutions does not stay the conduct of
the certification election because the CA did not issue a
restraining order.51 DFI filed a Motion for Reconsideration but
the motion was denied.52
On October 27, 2000, DFI filed a Petition for Certiorari53 before
the CA, docketed as C.A.-G.R. SP No. 61607.
In a Resolution dated August 2, 2005,54 the CA Twenty-Third
Division consolidated C.A.-G.R. SP No. 61607 with C.A.-G.R.
SP. No. 59958 and C.A. G.R. SP No. 53806.
The Assailed CA Decision and Resolution
The CA was confronted with two issues:55
(1) "Whether DFI or DARBMUPCO is the statutory employer of
the [respondent-workers] in these petitions; and
(2) Whether or not a certification election may be conducted
pending the resolution of the petition for certiorari filed before
this Court, the main issue of which is the identity of the employer
of the [respondent-workers] in these petitions."
On the first issue, the CA agreed with the ruling of the SOLE56
that DFI is the statutory employer of the respondent-workers. It
noted that the DFI hired the respondent-contractors, who in turn
procured their own men to work in the land owned by
DARBMUPCO. Further, DFI admitted that the respondent-
contractors worked under the direction and supervision of DFI’s
managers and personnel. DFI also paid for the respondent-
contractors’ services.57 The CA said that the fact that the
respondent-workers worked in the land owned by
DARBMUPCO is immaterial. "Ownership of the land is not one
of the four (4) elements generally considered to establish
employer-employee relationship."58
The CA also ruled that DFI is the true employer of the
respondent-workers because the respondent-contractors are
not independent contractors.59 The CA stressed that in its
pleadings before the Med-Arbiter, the SOLE, and the CA, DFI
revealed that DARBMUPCO lacks manpower to fulfill the
production requirements under the BPPA. This impelled DFI to
hire contractors to supply labor enabling DARBMUPCO to meet
its quota. The CA observed that while the various agencies
involved in the consolidated petitions sometimes differ as to who
the statutory employer of the respondent-workers is, they are
uniform in finding that the respondent-contractors are labor-only
contractors.60
On the second issue, the CA reiterated the ruling of the SOLE61
that absent an injunction from the CA, the pendency of a petition
for certiorari does not stay the holding of the certification
election.62 The challenged Resolution of the SOLE is already
final and executory as evidenced by an Entry of Judgment dated
July 14, 1999; hence, the merits of the case can no longer be
reviewed.63
The CA thus held in its Decision dated March 31, 2006:

WHEREFORE, premises considered, this Court hereby
ORDERS:
(1) the DISMISSAL of the petitions in C.A.-G.R. SP No. 53806
and C.A.-G.R. SP No. 61607; and
(2) the GRANTING of the petition in C.A.-G.R. SP No. 59958
and the SETTING ASIDE of the assailed resolutions of the
NLRC dated 24 May 1999, 30 July 1999 and 26 June 2000,
respectively.
SO ORDERED.64
DFI filed a Motion for Reconsideration of the CA Decision which
was denied in a Resolution dated May 30, 2006.65
DFI is now before us by way of Petition for Review on Certiorari
praying that DARBMUPCO be declared the true employer of the
respondent-workers.
DARBMUPCO filed a Comment66 maintaining that under the
control test, DFI is the true employer of the respondent-workers.
Respondent-contractors filed a Verified Explanation and
Memorandum67 asserting that they were labor-only contractors;
hence, they are merely agents of the true employer of the
respondent-workers.
SPFL did not file any comment or memorandum on behalf of the
respondent-workers.68
The Issue
The issue before this Court is who among DFI, DARBMUPCO
and the respondent-contractors is the employer of the
respondent-workers.
Our Ruling
We deny the petition.
This case involves job contracting, a labor arrangement
expressly allowed by law. Contracting or subcontracting is an
arrangement whereby a principal (or employer) agrees to put out
or farm out with a contractor or subcontractor the performance
or completion of a specific job, work or service within a definite
or predetermined period, regardless of whether such job, work
or service is to be performed or completed within or outside the
premises of the principal.69 It involves a trilateral relationship
among the principal or employer, the contractor or
subcontractor, and the workers engaged by the contractor or
subcontractor.70
Article 106 of the Labor Code of the Philippines71 (Labor Code)
explains the relations which may arise between an employer, a
contractor, and the contractor’s employees,72 thus:
Page 172 of 191
172
ART. 106. Contractor or subcontracting. − Whenever an
employer enters into a contract with another person for the
performance of the formers 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 out 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 workers recruited and placed
by such person are performing activities which are directly
related to the principal business of such employer. In 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.
The Omnibus Rules Implementing the Labor Code73
distinguishes between permissible job contracting (or
independent contractorship) and labor-only contracting. Job
contracting is permissible under the Code if the following
conditions are met:
(a) The contractor carries on an independent business and
undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all
matters connected with the performance of the work except as
to the results thereof; and
(b) The contractor has substantial capital or investment in the
form of tools, equipment, machineries, work premises, and other
materials which are necessary in the conduct of his business.74
In contrast, job contracting shall be deemed as labor-only
contracting, an arrangement prohibited by law, if a person who
undertakes to supply workers to an employer:
(1) Does not have substantial capital or investment in the form
of tools, equipment, machineries, work premises and other
materials; and
(2) The workers recruited and placed by such person are
performing activities which are directly related to the principal
business or operations of the employer in which workers are
habitually employed.75

As a general rule, a contractor is presumed to be a labor-only
contractor, unless such contractor overcomes the burden of
proving that it has the substantial capital, investment, tools and
the like.76
Based on the conditions for permissible job contracting, we rule
that respondent-contractors are labor-only contractors.
There is no evidence showing that respondent-contractors are
independent contractors. The respondent-contractors, DFI, and
DARBMUPCO did not offer any proof that respondent-
contractors were not engaged in labor-only contracting. In this
regard, we cite our ruling in Caro v. Rilloraza,77 thus:
"In regard to the first assignment of error, the defendant
company pretends to show through Venancio Nasol's own
testimony that he was an independent contractor who undertook
to construct a railway line between Maropadlusan and
Mantalisay, but as far as the record shows, Nasol did not testify
that the defendant company had no control over him as to the
manner or methods he employed in pursuing his work. On the
contrary, he stated that he was not bonded, and that he only
depended upon the Manila Railroad for money to be paid to his
laborers. As stated by counsel for the plaintiffs, the word
‘independent contractor’ means 'one who exercises
independent employment and contracts to do a piece of work
according to his own methods and without being subject to
control of his employer except as to result of the work.'
Furthermore, if the employer claims that the workmen is an
independent contractor, for whose acts he is not responsible,
the burden is on him to show his independence.
Tested by these definitions and by the fact that the defendant
has presented practically no evidence to determine whether
Venancio Nasol was in reality an independent contractor or not,
we are inclined to think that he is nothing but an intermediary
between the defendant and certain laborers. It is indeed difficult
to find that Nasol is an independent contractor; a person who
possesses no capital or money of his own to pay his obligations
to them, who files no bond to answer for any fulfillment of his
contract with his employer and specially subject to the control
and supervision of his employer, falls short of the requisites or
conditions necessary for the common and independent
contractor."78 (Citations omitted; emphasis supplied.)
To support its argument that respondent-contractors are the
employers of respondent-workers, and not merely labor-only
contractors, DFI should have presented proof showing that
respondent-contractors carry on an independent business and
have sufficient capitalization. The record, however, is bereft of
showing of even an attempt on the part of DFI to substantiate its
argument.
DFI cannot cite the May 24, 1999 Resolution of the NLRC as
basis that respondent-contractors are independent contractors.
Nowhere in the NLRC Resolution does it say that the
respondent-contractors are independent contractors. On the
contrary, the NLRC declared that "it was not clearly established
on record that said [respondent-]contractors are independent,
xxx."79
Further, respondent-contractors admit, and even insist that they
are engaged in labor-only contracting. As will be seen below,
respondent-contractors made the admissions and declarations
on two occasions: first was in their Formal Appearance of
Counsel and Motion for Exclusion of Individual Party-
Page 173 of 191
Respondents filed before the LA; and second was in their
173
Verified Explanation and Memorandum filed before this Court.
Before the LA, respondent-contractors categorically stated that
they are "labor-only" contractors who have been engaged by
DFI and DARBMUPCO.80 They admitted that they do not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials, and they
recruited workers to perform activities directly related to the
principal operations of their employer.81
Before this Court, respondents-contractors again admitted that
they are labor-only contractors. They narrated that:
1. Herein respondents, Voltaire Lopez, Jr., et al., were
commissioned and contracted by petitioner, Diamond Farms,
Inc. (DFI) to recruit farm workers, who are the complaining
[respondent-workers] (as represented by Southern Philippines
Federation of Labor (SPFL) in this appeal by certiorari), in order
to perform specific farm activities, such as pruning, deleafing,
fertilizer application, bud inject, stem spray, drainage, bagging,
etc., on banana plantation lands awarded to private respondent,
Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose
Cooperative (DARBMUPCO) and on banana planted lands
owned and managed by petitioner, DFI.
2. All farm tools, implements and equipment necessary to
performance of such farm activities were supplied by petitioner
DFI to respondents Voltaire Lopez, Jr., et. al. as well as to
respondents-SPFL, et. al. Herein respondents Voltaire Lopez,
Jr. et. al. had no adequate capital to acquire or purchase such
tools, implements, equipment, etc.
3. Herein respondents Voltaire Lopez, Jr., et. al. As well as
respondents-SPFL, et. al. were being directly supervised,
controlled and managed by petitioner DFI farm managers and
supervisors, specifically on work assignments and performance
targets. DFI managers and supervisors, at their sole discretion
and prerogative, could directly hire and terminate any or all of
the respondents-SPFL, et. al., including any or all of the herein
respondents Voltaire Lopez, Jr., et. al.
4. Attendance/Time sheets of respondents-SPFL, et. al. were
being prepared by herein respondents Voltaire Lopez, Jr., et. al.,
and correspondingly submitted to petitioner DFI. Payment of
wages to respondents-SPFL, et. al. were being paid for by
petitioner DFI thru herein respondents Voltaire Lopez, [Jr.], et.
al. The latter were also receiving their wages/salaries from
petitioner DFI for monitoring/leading/recruiting the respondents-
SPFL, et. al.
5. No monies were being paid directly by private respondent
DARBMUPCO to respondents-SPFL, et al., nor to herein
respondents Voltaire Lopez, [Jr.], et. al. Nor did respondent
DARBMUPCO directly intervene much less supervise any or all
of [the] respondents-SPFL, et. al. including herein respondents
Voltaire Lopez, Jr., et. al.82 (Emphasis supplied.)
The foregoing admissions are legally binding on respondent-
contractors.83 Judicial admissions made by parties in the
pleadings, or in the course of the trial or other proceedings in the
same case are conclusive and so does not require further
evidence to prove them.84 Here, the respondent-contractors
voluntarily pleaded that they are labor-only contractors; hence,
these admissions bind them.
A finding that a contractor is a labor-only contractor is equivalent
to a declaration that there is an employer-employee relationship
between the principal, and the workers of the labor-only
contractor; the labor-only contractor is deemed only as the agent
of the principal.85 Thus, in this case, respondent-contractors are
the labor-only contractors and either DFI or DARBMUPCO is
their principal.
We hold that DFI is the principal.
Under Article 106 of the Labor Code, a principal or employer
refers to the person who enters into an agreement with a job
contractor, either for the performance of a specified work or for
the supply of manpower.86 In this regard, we quote with
approval the findings of the CA, to wit:
The records show that it is DFI which hired the individual
[respondent-contractors] who in turn hired their own men to work
in the 689.88 hectares land of DARBMUPCO as well as in the
managed area of the plantation. DFI admits [that] these
[respondent-contractors] worked under the direction and
supervision of the DFI managers and personnel. DFI paid the
[respondent-contractors] for the services rendered in the
plantation and the [respondent-contractors] in turn pay their
workers after they [respondent-contractors] received payment
from DFI. xxx DARBMUPCO did not have anything to do with
the hiring, supervision and payment of the wages of the workers-
respondents thru the contractors-respondents. xxx87
(Emphasis supplied.)
DFI does not deny that it engaged the services of the
respondent-contractors. It does not dispute the claims of
respondent-contractors that they sent their billing to DFI for
payment; and that DFI’s managers and personnel are in close
consultation with the respondent-contractors.88
DFI cannot argue that DARBMUPCO is the principal of the
respondent-contractors because it (DARBMUPCO) owns the
awarded plantation where respondent-contractors and
respondent-workers were working;89 and therefore
DARBMUPCO is the ultimate beneficiary of the employment of
the respondent-workers.90
That DARBMUPCO owns the awarded plantation where the
respondent-contractors and respondent-workers were working
is immaterial. This does not change the situation of the parties.
As correctly found by the CA, DFI, as the principal, hired the
respondent-contractors and the latter, in turn, engaged the
services of the respondent-workers.91 This was also the
unanimous finding of the SOLE,92 the LA,93 and the NLRC.94
Factual findings of the NLRC, when they coincide with the LA
and affirmed by the CA are accorded with great weight and
respect and even finality by this Court.95
Alilin v. Petron Corporation96 is applicable. In that case, this
Court ruled that the presence of the power of control on the part
of the principal over the workers of the contractor, under the
facts, prove the employer-employee relationship between the
former and the latter, thus:
[A] finding that a contractor is a ‘labor-only’ contractor is
equivalent to declaring that there is an employer-employee
relationship between the principal and the employees of the
supposed contractor." In this case, the employer-employee
relationship between Petron and petitioners becomes all the
more apparent due to the presence of the power of control on
the part of the former over the latter.
Page 174 of 191
174
It was held in Orozco v. The Fifth Division of the Hon. Court of
Appeals that:
This Court has constantly adhered to the "four-fold test" to
determine whether there exists an employer-employee
relationship between the parties.1âwphi1 The four elements of
an employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the
power of dismissal; and (d) the power to control the employee’s
conduct.
Of these four elements, it is the power to control which is the
most crucial and most determinative factor, so important, in fact,
that, the other elements may even be disregarded.
Hence, the facts that petitioners were hired by Romeo or his
father and that their salaries were paid by them do not detract
from the conclusion that there exists an employer-employee
relationship between the parties due to Petron’s power of control
over the petitioners. One manifestation of the power of control is
the power to transfer employees from one work assignment to
another. Here, Petron could order petitioners to do work outside
of their regular "maintenance/utility" job. Also, petitioners were
required to report for work everyday at the bulk plant, observe
an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear proper
uniform and safety helmets as prescribed by the safety and
security measures being implemented within the bulk plant. All
these imply control. In an industry where safety is of paramount
concern, control and supervision over sensitive operations, such
as those performed by the petitioners, are inevitable if not at all
necessary. Indeed, Petron deals with commodities that are
highly volatile and flammable which, if mishandled or not
properly attended to, may cause serious injuries and damage to
property and the environment. Naturally, supervision by Petron
is essential in every aspect of its product handling in order not
to compromise the integrity, quality and safety of the products
that it distributes to the consuming public.97 (Citations omitted;
emphasis supplied)
That DFI is the employer of the respondent-workers is bolstered
by the CA’s finding that DFI exercises control over the
respondent-workers.98 DFI, through its manager and
supervisors provides for the work assignments and performance
targets of the respondent-workers. The managers and
supervisors also have the power to directly hire and terminate
the respondent-workers.99 Evidently, DFI wields control over
the respondent-workers.
Neither can DFI argue that it is only the purchaser of the
bananas produced in the awarded plantation under the
BPPA,100 and that under the terms of the BPPA, no employer-
employee relationship exists between DFI and the respondent-
workers,101 to wit:
UNDERTAKING OF THE FIRST PARTY
xxx
3. THE FIRST PARTY [DARBMUPCO] shall be responsible for
the proper conduct, safety, benefits and general welfare of its
members working in the plantation and specifically render free
and harmless the SECOND PARTY [DFI] of any expense,
liability or claims arising therefrom. It is clearly recognized by the
FIRST PARTY that its members and other personnel utilized in
the performance of its function under this agreement are not
employees of the SECOND PARTY.102 (Emphasis supplied)
In labor-only contracting, it is the law which creates an employer-
employee relationship between the principal and the workers of
the labor-only contractor.103
Inasmuch as it is the law that forms the employment ties, the
stipulation in the BPPA that respondent-workers are not
employees of DFI is not controlling, as the proven facts show
otherwise. The law prevails over the stipulations of the parties.
Thus, in Tabas v. California Manufacturing Co., Inc.,104 we held
that:
The existence of an employer-employees relation is a question
of law and being such, it cannot be made the subject of
agreement.1âwphi1 Hence, the fact that the manpower supply
agreement between Livi and California had specifically
designated the former as the petitioners' employer and had
absolved the latter from any liability as an employer, will not
erase either party's obligations as an employer, if an employer-
employee relation otherwise exists between the workers and
either firm. xxx105 (Emphasis supplied.)
Clearly, DFI is the true employer of the respondent-workers;
respondent-contractors are only agents of DFI. Under Article
106 of the Labor Code, DFI shall be solidarily liable with the
respondent-contractors for the rightful claims of the respondent-
workers, to the same manner and extent as if the latter are
directly employed by DFI.106
WHEREFORE, the petition is DENIED for lack of merit. The
March 31, 2006 Decision and the May 30, 2006 Resolution of
the Court of Appeals in C.A.-G.R. SP Nos. 53806, 61607 and
59958 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 208451 February 3, 2016
MANILA MEMORIAL PARK CEMETERY, INC., Petitioner, vs.
EZARD D. LLUZ, NORMAN CORRAL, ERWIN FUGABAN,
VALDIMAR BALISI, EMILIO FABON, JOHN MARK
APLICADOR, MICHAEL CURIOSO, JUNLIN ESPARES, GA
VINO FARINAS, and WARD TRADING AND SERVICES,
Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 assailing the Decision2
dated 21 January 2013 and the Resolution3 dated 17 July 2013
of the Court of Appeals (CA) in CA-G.R. SP No. 119237.
The Facts
On 23 February 2006, petitioner Manila Memorial Park
Cemetery, Inc. (Manila Memorial) entered into a Contract of
Services with respondent Ward Trading and Services (Ward
Trading). The Contract of Services provided that Ward Trading,
Page 175 of 191
as an independent contractor, will render interment and
175
exhumation services and other related work to Manila Memorial
in order to supplement operations at Manila Memorial Park,
Parañaque City.
Among those assigned by Ward Trading to perform services at
the Manila Memorial Park were respondents Ezard Lluz,
Norman Corral, Erwin Fugaban, Valdimar Balisi, Emilio Fabon,
John Mark Aplicador, Michael Curioso, Junlin Espares, and
Gavino Farinas (respondents). They worked six days a week for
eight hours daily and were paid P250 per day.
On 26 June 2007, respondents filed a Complaint4 for
regularization and Collective Bargaining Agreement benefits
against Manila Memorial; Enrique B. Lagdameo, Manila
Memorial’s Executive Vice-President and Director in Charge for
Overall Operations, and Ward Trading. On 6 August 2007,
respondents filed an amended complaint to include illegal
dismissal, underpayment of 13th month pay, and payment of
attorney’s fees.
Respondents alleged that they asked Manila Memorial to
consider them as regular workers within the appropriate
bargaining unit established in the collective bargaining
agreement by Manila Memorial and its union, the Manila
Memorial Park Free Workers Union (MMP Union). Manila
Memorial refused the request since respondents were employed
by Ward Trading, an independent labor contractor. Thereafter,
respondents joined the MMP Union. The MMP Union, on behalf
of respondents, sought their regularization which Manila
Memorial again declined. Respondents then filed the complaint.
Subsequently, respondents were dismissed by Manila
Memorial. Thus, respondents amended the complaint to include
the prayer for their reinstatement and payment of back wages.
Meanwhile, Manila Memorial sought the dismissal of the
complaint for lack of jurisdiction since there was no employer-
employee relationship. Manila Memorial argued that
respondents were the employees of Ward Trading.
In a Decision5 dated 29 March 2010, the Labor Arbiter
dismissed the complaint for failing to prove the existence of an
employer-employee relationship. The dispositive portion of the
Decision states:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the above-entitled case for complainants’
lack of employer-employee relationship with respondent Manila
Memorial Park Cemetery, Inc.
SO ORDERED.6
Respondents appealed7 to the NLRC. In a Decision8 dated 30
September 2010, the NLRC reversed the Labor Arbiter’s
findings. The NLRC ruled that Ward Trading was a labor-only
contractor and an agent of Manila Memorial. The dispositive
portion of the Decision states:
WHEREFORE, premises considered, complainants’ appeal is
GRANTED. The assailed Decision of Labor Arbiter Geobel A.
Bartolabac dated March 29, 2010 is MODIFIED. It is hereby
declared that complainants were regular employees of
respondent Manila Memorial Park Cemetery, Inc. and entitled to
the benefits provided for under the CBA between the latter and
the Manila Memorial Park Free Workers Union.

Respondent Manila Memorial Park Cemetery, Inc. is ordered to
pay wage differentials to complainants as follows:
1. Ezard D. Lluz – P43,982.79
2. Norman Corral – P29,765.67
3. Erwin Fugaban – P28,634.67
4. Valdimar Balisi – P20,310.33
5. Emilio Fabon – P43,982.79
6. John Mark Aplicador – P43,982.79
7. Michael Curioso – P43,982.79
8. Ju[n]lin Espares – P43,982.79
9. Gavino Farinas – P43,982.79
SO ORDERED.9
Manila Memorial filed a Motion for Reconsideration which was
denied in a Resolution10 dated 31 January 2011.
Thereafter, Manila Memorial filed an appeal with the CA. In a
Decision dated 21 January 2013, the CA affirmed the ruling of
the NLRC. The CA found the existence of an employer-
employee relationship between Manila Memorial and
respondents. The dispositive portion of the Decision states:
WHEREFORE, in view of the foregoing, the instant Petition for
Certiorari is DENIED. The Decision, dated September 30, 2010
and the Resolution, dated January 31, 2011, rendered by the
National Labor Relations Commission (NLRC) in NLRC LAC No.
06-001267-10 are AFFIRMED.
SO ORDERED.11
Manila Memorial then filed a Motion for Reconsideration which
was denied by the CA in a Resolution dated 17 July 2013.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not an employer-
employee relationship exists between Manila Memorial and
Page 176 of 191
respondents for the latter to be entitled to their claim for wages
176
and other benefits.
The Court’s Ruling
The petition lacks merit.
Manila Memorial contends that Ward Trading has total assets in
excess of P1.4 million, according to Ward Trading’s financial
statements for the year 2006, proving that it has sufficient
capitalization to qualify as a legitimate independent contractor.
Manila Memorial insists that nowhere is it provided in the
Contract of Services that Manila Memorial controls the manner
and means by which respondents accomplish the results of their
work. Manila Memorial states that the company only wants its
contractors and the latter’s employees to abide by company
rules and regulations.
Respondents, on the other hand, assert that they are regular
employees of Manila Memorial since Ward Trading cannot
qualify as an independent contractor but should be treated as a
mere labor-only contractor. Respondents state that (1) there is
enough proof that Ward Trading does not have substantial
capital, investment, tools and the like; (2) the workers recruited
and placed by the alleged contractors performed activities that
were related to Manila Memorial’s business; and (3) Ward
Trading does not exercise the right to control the performance
of the work of the contractual employees.
As a general rule, factual findings of the CA are binding upon
this Court. One exception to this rule is when the factual findings
of the former are contrary to those of the trial court, or the lower
administrative body, as the case may be. This Court is obliged
to resolve an issue of fact due to the conflicting findings of the
Labor Arbiter on one hand, and the NLRC and the CA on the
other.
In order to determine whether there exists an employer-
employee relationship between Manila Memorial and
respondents, relevant provisions of the labor law and rules must
first be reviewed. Article 106 of the Labor Code states:
Art. 106. Contractor or subcontractor. Whenever an employer
enters into a contract with another person for the performance
of the former’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-out 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 workers recruited and placed
by such person are performing activities which are directly
related to the principal business of such employer. In 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. (Emphasis supplied)
Sections 3, 5 and 7 of Department Order No. 18-0212
distinguish between legitimate and labor-only contracting and
assume the existence of an employer-employee relationship if
found to be engaged in labor-only contracting. The provisions
state:
xxxx
Section 3. Trilateral Relationship in Contracting Arrangements.
In legitimate contracting, there exists a trilateral relationship
under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and
a contract of employment between the contractor or
subcontractor and its workers. Hence, there are three parties
involved in these arrangements, the principal which decides to
farm out a job or service to a contractor or subcontractor, the
contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work or
service, and the contractual workers engaged by the contractor
or subcontractor to accomplish the job, work or service.
xxxx
Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any
of the following elements are present:
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal;
or
ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to the
application of Article 248 (c) of the Labor Code, as amended.
"Substantial capital or investment" refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises,
actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work or service
contracted out.
Page 177 of 191
The "right to control" shall refer to the right reserved to the
177
person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end.
xxxx
Section 7. Existence of an employer-employee relationship. –
The contractor or subcontractor shall be considered the
employer of the contractual employee for purposes of enforcing
the provisions of the Labor Code and other social legislation.
The principal, however, shall be solidarily liable with the
contractor in the event of any violation of any provision of the
Labor Code, including the failure to pay wages.
The principal shall be deemed the employer of the contractual
employee in any of the following cases as declared by a
competent authority:
(a) where there is labor-only contracting; or
(b) where the contracting arrangement falls within the
prohibitions provided in Section 6 (Prohibitions) hereof.isi
(Emphasis supplied)
It is clear from these provisions that contracting arrangements
for the performance of specific jobs or services under the law
and its implementing rules are allowed. However, contracting
must be made to a legitimate and independent job contractor
since labor rules expressly prohibit labor-only contracting.
Labor-only contracting exists when the contractor or
subcontractor merely recruits, supplies or places workers to
perform a job, work or service for a principal and any of the
following elements are present:
1) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to
be performed and the employees recruited, supplied or placed
by such contractor or subcontractor are performing activities
which are directly related to the main business of the principal;
or
2) The contractor does not exercise the right to control the
performance of the work of the contractual employee.13
In the present case, Manila Memorial entered into a Contract of
Services with Ward Trading, a single proprietorship owned by
Emmanuel Mayor Ward with business address in Las Piñas City
on 23 February 2006. In the Contract of Services, it was
provided that Ward Trading, as the contractor, had adequate
workers and substantial capital or investment in the form of
tools, equipment, machinery, work premises and other materials
which were necessary in the conduct of its business.
However, a closer look at the Contract of Services reveals that
Ward Trading does not have substantial capital or investment in
the form of tools, equipment, machinery, work premises and
other materials since it is Manila Memorial which owns the
equipment used in the performance of work needed for
interment and exhumation services. The pertinent provision in
the Contract of Services which shows that Manila Memorial
owns the equipment states:
The COMPANY shall [sell] to the contractor the COMPANY
owned equipment in the amount of ONE MILLION FOUR
HUNDRED THOUSAND PESOS ONLY (Php 1,400,000.00)
payable in two (2) years or a monthly payment of FIFTY EIGHT
THOUSAND THREE HUNDRED THIRTY FIVE PESOS ONLY
(Php 58,335.00) to be deducted from the CONTRACTOR’s
billing.14
Just by looking at the provision, it seems that the sale was a
regular business transaction between two parties. However,
Manila Memorial did not present any evidence to show that the
sale actually pushed through or that payments were made by
Ward Trading to prove an ordinary arms length transaction. We
agree with the NLRC in its findings:
While the above-cited provision of the Contract of Service
implies that respondent MMPCI would sell subject equipment to
Ward at some future time, the former failed to present any
contract of sale as proof that, indeed, it actually sold said
equipment to Ward. Likewise, respondent MMPCI failed to
present any "CONTRACTOR’s billing" wherein the purported
monthly installment of P58,335.00 had been deducted, to prove
that Ward truly paid the same as they fell due. In a contract to
sell, title is retained by the vendor until full payment of the price.
Moreover, the Contract of Service provides that:
"5. The COMPANY reserves the right to rent all or any of the
CONTRACTOR’s equipment in the event the COMPANY
requires the use of said equipment. x x x."
This provision is clear proof that Ward does not have an
absolute right to use or enjoy subject equipment, considering
that its right to do so is subject to respondent MMPCI’s use
thereof at any time the latter requires it. Such provision is
contrary to Article 428 of the Civil Code, which provides that
"The owner has the right to enjoy and dispose of a thing, without
other limitation than those established by law." It is plain to see
that Ward is not the owner of the equipment worth
P1,400,000.00 that is being actually and directly used in the
performance of the services contracted out.
Further, the Service Contract states that:
"For its part, the COMPANY agrees to provide the following:
a) Area to store CONTRACTOR’s equipment and materials
b) Office space for CONTRACTOR’s staff and personnel"
This provision is clear proof that even the work premises actually
and directly used by Ward in the performance of the services
contracted out is owned by respondent MMPCI.15
Also, the difference in the value of the equipment in the total
amount of P1,400,000.00 can be glaringly seen in Ward
Trading’s financial statements for the year 2006 when compared
to its 2005 financial statements. It is significant to note that these
Page 178 of 191
financial statements were submitted by Manila Memorial without
178
any certification that these financial statements were actually
audited by an independent certified public accountant. Ward
Trading’s Balance Sheet16 as of 31 December 2005 showed
that it had assets in the amount of P441,178.50 and property
and equipment with a net book value of P86,026.50 totaling
P534,705. A year later, Ward Trading’s Balance Sheet17 ending
in 31 December 2006 showed that it had assets in the amount
of P57,084.70 and property and equipment with a net book value
of P1,426,468 totaling P1,491,052.70. Ward Trading, in its
Income Statements18 for the years 2005 and 2006, only earned
a net income of P53,800 in the year ending 2005 and
P68,141.50 in 2006. Obviously, Ward Trading could not have
raised a substantial capital of P1,400,000.00 from its income
alone without the inclusion of the equipment owned and
allegedly sold by Manila Memorial to Ward Trading after they
signed the Contract of Services on 23 February 2006.
Further, the records show that Manila Memorial and Enrique B.
Lagdameo admitted that respondents performed various
interment services at its Sucat, Parañaque branch which were
directly related to Manila Memorial’s business of developing,
selling and maintaining memorial parks and interment functions.
Manila Memorial even retained the right to control the
performance of the work of the employees concerned. As
correctly observed by the CA:
A perusal of the Service Contract would reveal that respondent
Ward is still subject to petitioner’s control as it specifically
provides that although Ward shall be in charge of the
supervision over individual respondents, the exercise of its
supervisory function is heavily dependent upon the needs of
petitioner Memorial Park, particularly:
"It is also agreed that:
a) The CONTRACTOR’s supervisor will conduct a regular
inspection of grave sites/areas being dug to ensure compliance
with the COMPANY’s interment schedules and other related
ceremonies.
b) The CONTRACTOR will provide enough manpower during
peak interment days including Sundays and Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in
coordination with the COMPANY’s schedule of interment
operation.
d) The CONTRACTOR shall be responsible for any damage
done to lawn/s and/or structure/s resulting from its operation,
which must be restored to its/their original condition without
delay and at the expense of CONTRACTOR."
The contract further provides that petitioner has the option to
take over the functions of Ward’s personnel if it finds any part or
aspect of the work or service provided to be unsatisfactory, thus:
"6.1 It is hereby expressly agreed and understood that, at any
time during the effectivity of this CONTRACT and its sole
determination, the COMPANY may take over the performance
of any of the functions mentioned in Paragraph I above, in any
of the following cases:
xxx

c. If the COMPANY finds the performance of the
CONTRACTOR in any part or aspect of the grave digging works
or other services provided by it to be unsatisfactory."
It is obvious that the aforementioned provision leaves
respondent Ward at the mercy of petitioner Memorial Park as
the contract states that the latter may take over if it finds any part
of the services to be below its expectations, including the
manner of its performance. x x x.19
The NLRC also found that Ward Trading’s business documents
fell short of sound business practices. The relevant portion in the
NLRC’s Decision states:
It is also worth noting that while Ward has a Certificate of
Business Name Registration issued by the Department of Trade
and Industry on October 24, 2003 and valid up to October 24,
2008, the same expressly states that it is not a license to engage
in any kind of business, and that it is valid only at the place
indicated therein, which is Las Piñas City. Hence, the same is
not valid in Parañaque City, where Ward assigned complainants
to perform interment services it contracted with respondent
MMPCI. It is also noted that the Permit, which was issued to
Ward by the Office of the Mayor of Las Piñas City on October
28, 2003, was valid only up to December 31, 2003. Likewise, the
Sanitary Permit to Operate, which was issued to Ward by the
Office of the City Health Officer of the Las Piñas City Health
Office on October 28, 2003, expired on December 31, 2003.
While respondents MMPCI and Lagdameo were able to present
copies of the above-mentioned documents, they failed to
present any proof that Ward is duly registered as [a] contractor
with the Department of Labor and Employment.20
Section 11 of Department Order No. 18-02, which mandates
registration of contractors or subcontractors with the DOLE,
states:
Section 11. Registration of Contractors or Subcontractors. –
Consistent with authority of the Secretary of Labor and
Employment to restrict or prohibit the contracting out of labor
through appropriate regulations, a registration system to govern
contracting arrangements and to be implemented by the
Regional Office is hereby established.
The Registration of contractors and subcontractors shall be
necessary for purposes of establishing an effective labor market
information and monitoring.
Failure to register shall give rise to the presumption that the
contractor is engaged in labor-only contracting.1âwphi1
For failing to register as a contractor, a presumption arises that
one is engaged in labor-only contracting unless the contractor
overcomes the burden of proving that it has substantial capital,
investment, tools and the like.21
In this case, however, Manila Memorial failed to adduce
evidence to prove that Ward Trading had any substantial capital,
investment or assets to perform the work contracted for. Thus,
the presumption that Ward Trading is a labor-only contractor
stands. Consequently, Manila Memorial is deemed the employer
of respondents. As regular employees of Manila Memorial,
Page 179 of 191
respondents are entitled to their claims for wages and other
179
benefits as awarded by the NLRC and affirmed by the CA.
WHEREFORE, we DENY the petition. We AFFIRM the Decision
dated 21 January 2013 and the Resolution dated 1 7 July 2013
of the Court of Appeals in CA-G.R. SP No. 119237.
SO ORDERED.
G.R. No. 145561 June 15, 2005
HONDA PHILS., INC., petitioner, vs. SAMAHAN NG
MALAYANG MANGGAGAWA SA HONDA, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review under Rule 45 seeks the reversal of the
Court of Appeals’ decision1 dated September 14, 20002 and its
resolution3 dated October 18, 2000, in CA-G.R. SP No. 59052.
The appellate court affirmed the decision dated May 2, 2000
rendered by the Voluntary Arbitrator who ruled that petitioner
Honda Philippines, Inc.’s (Honda) pro-rated payment of the 13th
and 14th month pay and financial assistance to its employees
was invalid.
As found by the Court of Appeals, the case stems from the
Collective Bargaining Agreement (CBA) forged between
petitioner Honda and respondent union Samahan ng Malayang
Manggagawa sa Honda (respondent union) which contained the
following provisions:
Section 3. 13th Month Pay
The COMPANY shall maintain the present practice in the
implementation [of] the 13th month pay.
Section 6. 14th Month Pay
The COMPANY shall grant a 14th Month Pay, computed on the
same basis as computation of 13th Month Pay.
Section 7. The COMPANY agrees to continue the practice of
granting, in its discretion, financial assistance to covered
employees in December of each year, of not less than 100% of
basic pay.
This CBA is effective until year 2000. In the latter part of 1998,
the parties started re-negotiations for the fourth and fifth years
of their CBA. When the talks between the parties bogged down,
respondent union filed a Notice of Strike on the ground of
bargaining deadlock. Thereafter, Honda filed a Notice of
Lockout. On March 31, 1999, then Department of Labor and
Employment (DOLE) Secretary Laguesma assumed jurisdiction
over the labor dispute and ordered the parties to cease and
desist from committing acts that would aggravate the situation.
Both parties complied accordingly.
On May 11, 1999, however, respondent union filed a second
Notice of Strike on the ground of unfair labor practice alleging
that Honda illegally contracted out work to the detriment of the
workers. Respondent union went on strike and picketed the
premises of Honda on May 19, 1999. On June 16, 1999, DOLE
Acting Secretary Felicisimo Joson, Jr. assumed jurisdiction over
the case and certified the same to the National Labor Relations
Commission (NLRC) for compulsory arbitration. The striking
employees were ordered to return to work and the management
accepted them back under the same terms prior to the strike
staged.
On November 22, 1999, the management of Honda issued a
memorandum4 announcing its new computation of the 13th and
14th month pay to be granted to all its employees whereby the
thirty-one (31)-day long strike shall be considered unworked
days for purposes of computing said benefits. As per the
company’s new formula, the amount equivalent to 1/12 of the
employees’ basic salary shall be deducted from these bonuses,
with a commitment however that in the event that the strike is
declared legal, Honda shall pay the amount deducted.
Respondent union opposed the pro-rated computation of the
bonuses in a letter dated November 25, 1999. Honda sought the
opinion of the Bureau of Working Conditions (BWC) on the
issue. In a letter dated January 4, 2000,5 the BWC agreed with
the pro-rata payment of the 13th month pay as proposed by
Honda.
The matter was brought before the Grievance Machinery in
accordance with the parties’ existing CBA but when the issue
remained unresolved, it was submitted for voluntary arbitration.
In his decision6 dated May 2, 2000, Voluntary Arbitrator
Herminigildo C. Javen invalidated Honda’s computation, to wit:
WHEREFORE, in view of all foregoing premises being duly
considered and evaluated, it is hereby ruled that the Company’s
implementation of pro-rated 13th Month pay, 14th Month pay
and Financial Assistance [is] invalid. The Company is thus
ordered to compute each provision in full month basic pay and
pay the amounts in question within ten (10) days after this
Decision shall have become final and executory.
The three (3) days Suspension of the twenty one (21)
employees is hereby affirmed.
SO ORDERED.7
Honda’s Motion for Partial Reconsideration was denied in a
resolution dated May 22, 2000. Thus, a petition was filed with
the Court of Appeals, however, the petition was dismissed for
lack of merit.
Hence, the instant petition for review on the sole issue of
whether the pro-rated computation of the 13th month pay and
the other bonuses in question is valid and lawful.
The petition lacks merit.
A collective bargaining agreement refers to the negotiated
contract between a legitimate labor organization and the
employer concerning wages, hours of work and all other terms
and conditions of employment in a bargaining unit.8 As in all
contracts, the parties in a CBA may establish such stipulations,
clauses, terms and conditions as they may deem convenient
provided these are not contrary to law, morals, good customs,
Page 180 of 191
public order or public policy.9 Thus, where the CBA is clear and
180
unambiguous, it becomes the law between the parties and
compliance therewith is mandated by the express policy of the
law.10
In some instances, however, the provisions of a CBA may
become contentious, as in this case. Honda wanted to
implement a pro-rated computation of the benefits based on the
"no work, no pay" rule. According to the company, the phrase
"present practice" as mentioned in the CBA refers to the manner
and requisites with respect to the payment of the bonuses, i.e.,
50% to be given in May and the other 50% in December of each
year. Respondent union, however, insists that the CBA
provisions relating to the implementation of the 13th month pay
necessarily relate to the computation of the same.
We agree with the findings of the arbitrator that the assailed CBA
provisions are far from being unequivocal. A cursory reading of
the provisions will show that they did not state categorically
whether the computation of the 13th month pay, 14th month pay
and the financial assistance would be based on one full month’s
basic salary of the employees, or pro-rated based on the
compensation actually received. The arbitrator thus properly
resolved the ambiguity in favor of labor as mandated by Article
1702 of the Civil Code.11 The Court of Appeals affirmed the
arbitrator’s finding and added that the computation of the 13th
month pay should be based on the length of service and not on
the actual wage earned by the worker.
We uphold the rulings of the arbitrator and the Court of Appeals.
Factual findings of labor officials, who are deemed to have
acquired expertise in matters within their respective jurisdiction,
are generally accorded not only respect but even finality, and
bind us when supported by substantial evidence. It is not our
function to assess and evaluate the evidence all over again,
particularly where the findings of both the arbiter and the Court
of Appeals coincide.12
Presidential Decree No. 851, otherwise known as the 13th
Month Pay Law, which required all employers to pay their
employees a 13th month pay, was issued to protect the level of
real wages from the ravages of worldwide inflation. It was
enacted on December 16, 1975 after it was noted that there had
been no increase in the minimum wage since 1970 and the
Christmas season was an opportune time for society to show its
concern for the plight of the working masses so that they may
properly celebrate Christmas and New Year.13
Under the Revised Guidelines on the Implementation of the 13th
month pay issued on November 16, 1987, the salary ceiling of
P1,000.00 under P.D. No. 851 was removed. It further provided
that the minimum 13th month pay required by law shall not be
less than one-twelfth (1/12) of the total basic salary earned by
an employee within a calendar year. The guidelines pertinently
provides:
The "basic salary" of an employee for the purpose of computing
the 13th month pay shall include all remunerations or earnings
paid by his employer for services rendered but does not include
allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary, such as the cash
equivalent of unused vacation and sick leave credits, overtime
premium, night differential and holiday pay, and cost-of-living
allowances.14 (Emphasis supplied)
For employees receiving regular wage, we have interpreted
"basic salary" to mean, not the amount actually received by an
employee, but 1/12 of their standard monthly wage multiplied by
their length of service within a given calendar year. Thus, we no longer be withdrawn, reduced, diminished, discontinued or

exclude from the computation of "basic salary" payments for
sick, vacation and maternity leaves, night differentials, regular
holiday pay and premiums for work done on rest days and
special holidays.15 In Hagonoy Rural Bank v. NLRC,16 St.
Michael Academy v. NLRC,17 Consolidated Food Corporation
v. NLRC,18 and similar cases, the 13th month pay due an
employee was computed based on the employee’s basic
monthly wage multiplied by the number of months worked in a
calendar year prior to separation from employment.
The revised guidelines also provided for a pro-ration of this
benefit only in cases of resignation or separation from work. As
the rules state, under these circumstances, an employee is
entitled to a pay in proportion to the length of time he worked
during the year, reckoned from the time he started working
during the calendar year.19 The Court of Appeals thus held that:
Considering the foregoing, the computation of the 13th month
pay should be based on the length of service and not on the
actual wage earned by the worker. In the present case, there
being no gap in the service of the workers during the calendar
year in question, the computation of the 13th month pay should
not be pro-rated but should be given in full.20 (Emphasis
supplied)
181
eliminated. Furthermore, in Sevilla Trading Company v.
Semana,24 we stated:
With regard to the length of time the company practice should
have been exercised to constitute voluntary employer practice
which cannot be unilaterally withdrawn by the employer, we hold
that jurisprudence has not laid down any rule requiring a specific
minimum number of years. In the above quoted case of Davao
Fruits Corporation vs. Associated Labor Unions, the company
practice lasted for six (6) years. In another case, Davao
Integrated Port Stevedoring Services vs. Abarquez, the
employer, for three (3) years and nine (9) months, approved the
commutation to cash of the unenjoyed portion of the sick leave
with pay benefits of its intermittent workers. While in Tiangco vs.
Leogardo, Jr. the employer carried on the practice of giving a
fixed monthly emergency allowance from November 1976 to
February 1980, or three (3) years and four (4) months. In all
these cases, this Court held that the grant of these benefits has
ripened into company practice or policy which cannot be
peremptorily withdrawn. In the case at bar, petitioner Sevilla
Trading kept the practice of including non-basic benefits such as
paid leaves for unused sick leave and vacation leave in the
computation of their 13th-month pay for at least two (2) years.
This, we rule likewise constitutes voluntary employer practice
which cannot be unilaterally withdrawn by the employer without
violating Art. 100 of the Labor Code.25 (Emphasis supplied)

More importantly, it has not been refuted that Honda has not
Lastly, the foregoing interpretation of law and jurisprudence is
implemented any pro-rating of the 13th month pay before the
more in keeping with the underlying principle for the grant of this
instant case. Honda did not adduce evidence to show that the
benefit. It is primarily given to alleviate the plight of workers and
13th month, 14th month and financial assistance benefits were
to help them cope with the exorbitant increases in the cost of
previously subject to deductions or pro-rating or that these were
living. To allow the pro-ration of the 13th month pay in this case
dependent upon the company’s financial standing. As held by
is to undermine the wisdom behind the law and the mandate that
the Voluntary Arbitrator:
the workingman’s welfare should be the primordial and
paramount consideration.26 What is more, the factual milieu of
this case is such that to rule otherwise inevitably results to
The Company (Honda) explicitly accepted that it was the strike dissuasion, if not a deterrent, for workers from the free exercise
held that prompt[ed] them to adopt a pro-rata computation, aside of their constitutional rights to self-organization and to strike in
[from] being in [a] state of rehabilitation due to 227M substantial accordance with law.27
losses in 1997, 114M in 1998 and 215M lost of sales in 1999
due to strike. This is an implicit acceptance that prior to the
strike, a full month basic pay computation was the "present
WHEREFORE, the instant petition is DENIED. The decision and
practice" intended to be maintained in the CBA.21
the resolution of the Court of Appeals dated September 14, 2000
and October 18, 2000, respectively, in CA-G.R. SP No. 59052,
affirming the decision rendered by the Voluntary Arbitrator on
The memorandum dated November 22, 1999 which Honda May 2, 2000, are hereby AFFIRMED in toto.
issued shows that it was the first time a pro-rating scheme was
to be implemented in the company. It was a convenient
coincidence for the company that the work stoppage held by the
SO ORDERED.
employees lasted for thirty-one (31) days or exactly one month.
This enabled them to devise a formula using 11/12 of the total
annual salary as base amount for computation instead of the
entire amount for a 12-month period. G.R. No. L-49774 February 24, 1981

SAN MIGUEL CORPORATION (CAGAYAN COCA-COLA

PLANT), petitioner, vs. Hon. AMADO G. INCIONG, Deputy
That a full month payment of the 13th month pay is the Minister of Labor and CAGAYAN COCA-COLA FREE
established practice at Honda is further bolstered by the WORKERS UNION, respondents.
affidavits executed by Feliteo Bautista and Edgardo Cruzada.
Both attested that when they were absent from work due to DE CASTRO, J.:
motorcycle accidents, and after they have exhausted all their
leave credits and were no longer receiving their monthly salary
from Honda, they still received the full amount of their 13th
Petition for certiorari and prohibition, with preliminary injunction
month, 14th month and financial assistance pay.22
to review the Order 1 dated December 19, 1978 rendered by the
Deputy Minister of Labor in STF ROX Case No. 009-77
docketed as "Cagayan Coca-Cola Free Workers Union vs.
The case of Davao Fruits Corporation v. Associated Labor Cagayan Coca-Cola Plant, San Miguel Corporation, " which
Unions, et al.23 presented an example of a voluntary act of the denied herein petitioner's motion for reconsideration and
employer that has ripened into a company practice. In that case, ordered the immediate execution of a prior Order 2 dated June
the employer, from 1975 to 1981, freely and continuously 7, 1978.
included in the computation of the 13th month pay those items
that were expressly excluded by the law. We have held that this
act, which was favorable to the employees though not
On January 3, 1977, Cagayan Coca-Cola Free Workers Union,
conforming to law, has ripened into a practice and therefore can
private respondent herein, filed a complaint against San Miguel
Page 181 of 191
Corporation (Cagayan Coca-Cola Plant), petitioner herein, regardless of the nature of the employment, a 13th-month pay

182
alleging failure or refusal of the latter to include in the not later than December 24 of every year.
computation of 13th- month pay such items as sick, vacation or
maternity leaves, premium for work done on rest days and
special holidays, including pay for regular holidays and night
Section 2 of the Rules and Regulations for the implementation
differentials.
of Presidential Decree 851 provides:

An Order 3 dated February 15, 1977 was issued by Regional

a) Thirteenth-month pay shall mean one twelfth (1/12) of
Office No. X where the complaint was filed requiring herein
the basic salary of an employee within a calendar year
petitioner San Miguel Corporation (Cagayan Coca-Cola Plant)
"to pay the difference of whatever earnings and the amount
actually received as 13th month pay excluding overtime
premium and emergency cost of living allowance. " b) Basic salary shall include all remunerations on
earnings paid by an employer to an employee for services
rendered but may not include cost-of-living allowances granted
pursuant to Presidential Decree No. 525 or Letter of Instructions
Herein petitioner appealed from that Order to the Minister of
No. 174, profit sharing payments and all allowances and
Labor in whose behalf the Deputy Minister of Labor Amado G.
monetary benefits which are not considered or integrated as part
Inciong issued an Order 4 dated June 7, 1978 affirming the
of the regular or basic salary of the employee at the time of the
Order of Regional Office No. X and dismissing the appeal for
promulgation of the Decree on December 16, 1975.
lack of merit. Petitioner's motion for reconsideration having been
denied, it filed the instant petition.

Under Presidential Decree 851 and its implementing rules, the

basic salary of an employee is used as the basis in the
On February 14, 1979, this Court issued a Temporary
determination of his 13th-month pay. Any compensations or
Restraining Order 5 enjoining respondents from enforcing the
remunerations which are deemed not part of the basic pay is
Order dated December 19, 1978.
excluded as basis in the computation of the mandatory bonus.

The crux of the present controversy is whether or not in the

Under the Rules and Regulations Implementing Presidential
computation of the 13th-month pay under Presidential Decree
Decree 851, the following compensations are deemed not part
851, payments for sick, vacation or maternity leaves, premium
of the basic salary:
for work done on rest days and special holidays, including pay
for regular holidays and night differentials should be considered.

a) Cost-of-living allowances granted pursuant to

Public respondent's consistent stand on the matter since the
effectivity of Presidential Decree 851 is that "payments for sick
leave, vacation leave, and maternity benefits, as well as salaries
paid to employees for work performed on rest days, special and
regular holidays are included in the computation of the 13th-
month pay. 6 On its part, private respondent cited innumerable
past rulings, opinions and decisions rendered by then Acting
Labor Secretary Amado G. Inciong to the effect that, "in
computing the mandatory bonus, the basis is the total gross
basic salary paid by the employer during the calendar year.
Such gross basic salary includes: (1) regular salary or wage; (2)
payments for sick, vacation and maternity leaves; (3) premium
for work performed on rest days or holidays: (4) holiday pay for
worked or unworked regular holiday; and (5) emergency
allowance if given in the form of a wage adjustment." 7
Petitioner, on the other hand, assails as erroneous the aforesaid
order, ruling and opinions, vigorously contends that Presidential
Decree 851 speaks only of basic salary as basis for the
determination of the 13th-month pay; submits that payments for
sick, vacation, or maternity leaves, night differential pay, as well
as premium paid for work performed on rest days, special and
regular holidays do not form part of the basic salary; and
concludes that the inclusion of those payments in the
computation of the 13th-month pay is clearly not sanctioned by
Presidential Decree 851.
The Court finds petitioner's contention meritorious.
Presidential Decree 525 and Letter of Instructions No. 174;
b) Profit sharing payments;
c) All allowances and monetary benefits which are not
considered or integrated as part of the regular basic salary of tile
employee at the time of the promulgation of the Decree on
December 16, 1975.
Under a later set of Supplementary Rules and Regulations
Implementing Presidential Decree 851 issued by the then Labor
Secretary Blas Ople, overtime pay, earnings and other
remunerations are excluded as part of the basic salary and in
the computation of the 13th-month pay.
The exclusion of cost-of-living allowances under Presidential
Decree 525 and Letter of Instructions No. 174, and profit sharing
payments indicate the intention to strip basic salary of other
payments which are properly considered as "fringe" benefits.
Likewise, the catch-all exclusionary phrase "all allowances and
monetary benefits which are not considered or integrated as part
of the basic salary" shows also the intention to strip basic salary
of any and all additions which may be in the form of allowances
or "fringe" benefits.

Moreover, the Supplementary Rules and Regulations

The provision in dispute is Section 1 of Presidential Decree 851 Implementing Presidential Decree 851 is even more emphatic in
and provides: declaring that earnings and other remunerations which are not
part of the basic salary shall not be included in the computation
of the 13th-month pay.

All employers are hereby required to pay all their employees

receiving a basic salary of not more than Pl,000 a month,

Page 182 of 191

While doubt may have been created by the prior Rules and
Regulations Implementing Presidential Decree 851 which
defines basic salary to include all remunerations or earnings
paid by an employer to an employee, this cloud is dissipated in
the later and more controlling Supplementary Rules and
Regulations which categorically, exclude from the definition of
basic salary earnings and other remunerations paid by employer
to an employee. A cursory perusal of the two sets of Rules
indicates that what has hitherto been the subject of a broad
inclusion is now a subject of broad exclusion. The
Supplementary rules and Regulations cure the seeming
tendency of the former rules to include all remunerations and
earnings within the definition of basic salary.
The all-embracing phrase "earnings and other renumeration"
which are deemed not part of the basic salary includes within its
meaning payments for sick, vacation, or maternity leaves.
Maternity premium for works performed on rest days and special
holidays pays for regular holidays and night differentials. As
such they are deemed not part of the basic salary and shall not
be considered in the computation of the 13th-month they, were
not so excluded, it is hard to find any "earnings and other
remunerations" expressly excluded in the computation of the
13th-month pay. Then the exclusionary provision would prove to
be Idle and with no purpose.
This conclusion finds strong support under the Labor Code of
the Philippines. To cite a few provisions:
Art. 87. — overtime work. Work may be performed beyond
eight hours a day provided what the employee is paid for the
overtime work, additional compensation equivalent to his regular
wage plus at least twenty-five (25%) percent thereof.
It is clear that overtime pay is an additional compensation other
than and added to the regular wage or basic salary, for reason
of which such is categorically excluded from the definition of
basic salary under the Supplementary Rules and Regulations
Implementing Presidential Decree 851.
In Article 93 of the same Code, paragraph
c) work performed on any special holiday shall be paid an
additional compensation of at least thirty percent (30%) of the
regular wage of the employee.
It is likewise clear that prernium for special holiday which is at
least 30% of the regular wage is an additional compensation
other than and added to the regular wage or basic salary. For
similar reason it shall not be considered in the computation of
the 13th- month pay.
WHEREFORE, the Orders of the Deputy Labor Minister dated
June 7, 1978 and December 19, 1978 are hereby set aside and
a new one entered as above indicated. The Temporary
Restraining Order issued by this Court on February 14, 1979 is
hereby made permanent. No pronouncement as to costs.
SO ORDERED.
G.R. No. 85073 August 24, 1993
DAVAO FRUITS CORPORATION, petitioner, vs.
ASSOCIATED LABOR UNIONS (ALU) for in behalf of all the
Page 183 of 191
rank-and-file workers/employees of DAVAO FRUITS
183
CORPORATION and NATIONAL LABOR RELATIONS
COMMISSION, respondents.
Dominguez & Paderna Law Offices for petitioners.
The Solicitor General for public respondents.
QUIASON, J.:
This is a petition for certiorari to set aside the resolution of the
National Labor Relations Commission (NLRC), dismissing for
lack of merit petitioner's appeal from the decision of the Labor
Arbiter in NLRC Case No. 1791-MC-X1-82.
On December 28, 1982 respondent Associated Labor Unions
(ALU), for and in behalf of all the rank-and-file workers and
employees of petitioner, filed a complaint (NLRC Case No.
1791-MC-XI-82) before the Ministry of Labor and Employment,
Regional Arbitration Branch XI, Davao City, against petitioner,
for "Payment of the Thirteenth-Month Pay Differentials."
Respondent ALU sought to recover from petitioner the thirteenth
month pay differential for 1982 of its rank-and-file employees,
equivalent to their sick, vacation and maternity leaves, premium
for work done on rest days and special holidays, and pay for
regular holidays which petitioner, allegedly in disregard of
company practice since 1975, excluded from the computation of
the thirteenth month pay for 1982.
In its answer, petitioner claimed that it erroneously included
items subject of the complaint in the computation of the
thirteenth month pay for the years prior to 1982, upon a doubtful
and difficult question of law. According to petitioner, this mistake
was discovered only in 1981 after the promulgation of the
Supreme Court decision in the case of San Miguel Corporation
v. Inciong (103 SCRA 139).
A decision was rendered on March 7, 1984 by Labor Arbiter
Pedro C. Ramos, in favor of respondent ALU. The dispositive
portion of the decision reads as follows:
WHEREFORE, in view of all the foregoing considerations,
judgment is hereby rendered ordering respondent to pay the
1982 — 13th month pay differential to all its rank-and-file
workers/employees herein represented by complainant Union
(Rollo, p. 32).
Petitioner appealed the decision of the Labor Arbiter to the
NLRC, which affirmed the said decision accordingly dismissed
the appeal for lack of merit.
Petitioner elevated the matter to this Court in a petition for review
under Rule 45 of the Revised Rules of Court. This error
notwithstanding and in the interest of justice, this Court resolved
to treat the instant petition as a special civil action for certiorari
under Rule 65 of the Revised Rules of Court (P.D. No. 1391,
Sec. 5; Rules Implementing P.D. No. 1391, Rule II, Sec. 7;
Cando v. National Labor Relations Commission, 189 SCRA 666
[1990]: Pearl S. Buck Foundation, Inc. v. National Labor
Relations Commission, 182 SCRA 446 [1990]).
The crux of the present controversy is whether in the
computation of the thirteenth month pay given by employers to
their employees under P.D.
No. 851, payments for sick, vacation and maternity leaves,
premiums for work done on rest days and special holidays, and
pay for regular holidays may be excluded in the computation and
payment thereof, regardless of long-standing company practice.
Presidential Decree No. 851, promulgated on December 16,
1975, mandates all employers to pay their employees a
thirteenth month pay. How this pay shall be computed is set forth
in Section 2 of the "Rules and Regulations Implementing
Presidential Decree No. 851," thus:
SECTION 2. ...
(a) "Thirteenth month pay" shall mean one twelfth (1/12) of
the basic salary of an employee within a calendar year.
(b) "Basic Salary" shall include all renumerations or
earnings paid by an employer to an employee for services
rendered but may not include cost of living allowances granted
pursuant to Presidential Decree No. 525 or Letter of Instructions
No. 174, profit-sharing payments, and all allowances and
monetary benefits which are not considered or integrated as part
of the regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.
The Department of Labor and Employment issued on January
16, 1976 the "Supplementary Rules and Regulations
Implementing P.D. No. 851" which in paragraph 4 thereof further
defines the term "basic salary," thus:
4. Overtime pay, earnings and other renumerations which
are not part of the basic salary shall not be included in the
computation of the 13th month pay.
Clearly, the term "basic salary" includes renumerations or
earnings paid by the employer to employee, but excludes cost-
of-living allowances, profit-sharing payments, and all allowances
and monetary benefits which have not been considered as part
of the basic salary of the employee as of December 16, 1975.
The exclusion of cost-of-living allowances and profit sharing
payments shows the intention to strip "basic salary" of payments
which are otherwise considered as "fringe" benefits. This
intention is emphasized in the catch all phrase "all allowances
and monetary benefits which are not considered or integrated
as part of the basic salary." Basic salary, therefore does not
merely exclude the benefits expressly mentioned but all
payments which may be in the form of "fringe" benefits or
allowances (San Miguel Corporation v. Inciong, supra, at 143-
144). In fact, the Supplementary Rules and Regulations
Implementing P.D. No. 851 are very emphatic in declaring that
overtime pay, earnings and other renumerations shall be
excluded in computing the thirteenth month pay.
In other words, whatever compensation an employee receives
for an eight-hour work daily or the daily wage rate in the basic
salary. Any compensation or remuneration other than the daily
wage rate is excluded. It follows therefore, that payments for
sick, vacation and maternity leaves, premium for work done on
rest days special holidays, as well as pay for regular holidays,
are likewise excluded in computing the basic salary for the
purpose of determining the thirteen month pay.
Petitioner claims that the mistake in the interpretation of "basic
salary" was caused by the opinions, orders and rulings rendered
by then Acting Labor Secretary Amado C. Inciong, expressly
including the subject items in computing the thirteenth month
pay. The inclusion of these items is clearly not sanctioned under
Page 184 of 191
P.D. No. 851, the governing law and its implementing rules,
184
which speak only of "basis salary" as the basis for determining
the thirteenth month pay.
Moreover, whatever doubt arose in the interpretation of P.D. No.
851 was erased by the Supplementary Rules and Regulations
which clarified the definition of "basic salary."
As pointed out in San Miguel Corporation v. Inciong, (supra):
While doubt may have been created by the prior Rules and
Regulations and Implementing Presidential Decree 851 which
defines basic salary to include all remunerations or earnings
paid by an employer to an employee, this cloud is dissipated in
the later and more controlling Supplementary Rules and
Regulations which categorically, exclude from the definition of
basic salary earnings and other remunerations paid by employer
to an employee. A cursory perusal of the two sets of Rules
indicates that what has hitherto been the subject of broad
inclusion is now a subject of broad exclusion. The
Supplementary Rules and Regulations cure the seeming
tendency of the former rules to include all remunerations and
earnings within the definition of basic salary.
The all-embracing phrase "earnings and other remunerations
which are deemed not part of the basic salary includes within its
meaning payments for sick, vacation, or maternity leaves,
premium for work performed on rest days and special holidays,
pay for regular holidays and night differentials. As such they are
deemed not part of the basic salary and shall not be considered
in the computation of the 13th-month pay. If they were not so
excluded, it is hard to find any "earnings and other
remunerations" expressly excluded in computation of the 13th
month-pay. Then the exclusionary provision would prove to be
idle and with purpose.
The "Supplementary Rules and Regulations Implementing P.D.
No. 851," which put to rest all doubts in the computation of the
thirteenth month pay, was issued by the Secretary of Labor as
early as January 16, 1976, barely one month after the effectivity
of P.D. No. 851 and its Implementing Rules. And yet, petitioner
computed and paid the thirteenth month pay, without excluding
the subject items therein until 1981. Petitioner continued its
practice in December 1981, after promulgation of the afore-
quoted San Miguel decision on February 24, 1981, when
petitioner purportedly "discovered" its mistake.
From 1975 to 1981, petitioner had freely, voluntarily and
continuously included in the computation of its employees'
thirteenth month pay, the payments for sick, vacation and
maternity leaves, premiums for work done on rest days and
special holidays, and pay for regular holidays. The considerable
length of time the questioned items had been included by
petitioner indicates a unilateral and voluntary act on its part,
sufficient in itself to negate any claim of mistake.
A company practice favorable to the employees had indeed
been established and the payments made pursuant thereto,
ripened into benefits enjoyed by them. And any benefit and
supplement being enjoyed by the employees cannot be
reduced, diminished, discontinued or eliminated by the
employer, by virtue of Section 10 of the Rules and Regulations
Implementing P.D. No. 851, and Article 100 of the labor of the
Philippines, which prohibit the diminution or elimination by the
employer of the employees' existing benefits (Tiangco v.
Leogardo, Jr., 122 SCRA 267, [1983]).
Petitioner cannot invoke the principle of solutio indebiti which as
a civil law concept that is not applicable in Labor Law. Besides,
in solutio indebiti, the obligee is required to return to the obligor
whatever he received from the latter (Civil Code of the
Philippines, Arts. 2154 and 2155). Petitioner in the instant case,
does not demand the return of what it paid respondent ALU from
1975 until 1981; it merely wants to "rectify" the error it made over
these years by excluding unilaterally from the thirteenth month
pay in 1982 the items subject of litigation. Solutio indebiti,
therefore, is not applicable to the instant case.
WHEREFORE, finding no grave abuse of discretion on the part
of the NLRC, the petition is hereby DISMISSED, and the
questioned decision of respondent NLRC is AFFIRMED
accordingly.
G.R. No. 152456 April 28, 2004
SEVILLA TRADING COMPANY, petitioner, vs. A.V.A.
TOMAS E. SEMANA, SEVILLA TRADING WORKERS
UNION–SUPER, respondents.
DECISION
PUNO, J.:
On appeal is the Decision1 of the Court of Appeals in CA-G.R.
SP No. 63086 dated 27 November 2001 sustaining the
Decision2 of Accredited Voluntary Arbitrator Tomas E. Semana
dated 13 November 2000, as well as its subsequent Resolution3
dated 06 March 2002 denying petitioner’s Motion for
Reconsideration.
The facts of the case are as follows:
For two to three years prior to 1999, petitioner Sevilla Trading
Company (Sevilla Trading, for short), a domestic corporation
engaged in trading business, organized and existing under
Philippine laws, added to the base figure, in its computation of
the 13th-month pay of its employees, the amount of other
benefits received by the employees which are beyond the basic
pay. These benefits included:
(a) Overtime premium for regular overtime, legal and special
holidays;
(b) Legal holiday pay, premium pay for special holidays;
(c) Night premium;
(d) Bereavement leave pay;
(e) Union leave pay;
(f) Maternity leave pay;
(g) Paternity leave pay;
(h) Company vacation and sick leave pay; and
Page 185 of 191
185
(i) Cash conversion of unused company vacation and sick leave.
Petitioner claimed that it entrusted the preparation of the payroll
to its office staff, including the computation and payment of the
13th-month pay and other benefits. When it changed its person
in charge of the payroll in the process of computerizing its
payroll, and after audit was conducted, it allegedly discovered
the error of including non-basic pay or other benefits in the base
figure used in the computation of the 13th-month pay of its
employees. It cited the Rules and Regulations Implementing
P.D. No. 851 (13th-Month Pay Law), effective December 22,
1975, Sec. 2(b) which stated that:
"Basic salary" shall include all remunerations or earnings paid
by an employer to an employee for services rendered but may
not include cost-of-living allowances granted pursuant to P.D.
No. 525 or Letter of Instruction No. 174, profit-sharing payments,
and all allowances and monetary benefits which are not
considered or integrated as part of the regular or basic salary of
the employee at the time of the promulgation of the Decree on
December 16, 1975.
Petitioner then effected a change in the computation of the
thirteenth month pay, as follows:
13th-month pay = net basic pay
12 months
where:
net basic pay = gross pay – (non-basic pay or other
benefits)
Now excluded from the base figure used in the computation of
the thirteenth month pay are the following:
a) Overtime premium for regular overtime, legal and special
holidays;
b) Legal holiday pay, premium pay for special holidays;
c) Night premium;
d) Bereavement leave pay;
e) Union leave pay;
f) Maternity leave pay;
g) Paternity leave pay;
h) Company vacation and sick leave pay; and
i) Cash conversion of unused vacation/sick leave.
Hence, the new computation reduced the employees’ thirteenth
month pay. The daily piece-rate workers represented by private
respondent Sevilla Trading Workers Union – SUPER (Union, for
short), a duly organized and registered union, through the
Grievance Machinery in their Collective Bargaining Agreement,
contested the new computation and reduction of their thirteenth
month pay. The parties failed to resolve the issue.
On March 24, 2000, the parties submitted the issue of "whether
or not the exclusion of leaves and other related benefits in the
computation of 13th-month pay is valid" to respondent
Accredited Voluntary Arbitrator Tomas E. Semana (A.V.A.
Semana, for short) of the National Conciliation and Mediation
Board, for consideration and resolution.
The Union alleged that petitioner violated the rule prohibiting the
elimination or diminution of employees’ benefits as provided for
in Art. 100 of the Labor Code, as amended. They claimed that
paid leaves, like sick leave, vacation leave, paternity leave,
union leave, bereavement leave, holiday pay and other leaves
with pay in the CBA should be included in the base figure in the
computation of their 13th-month pay.
On the other hand, petitioner insisted that the computation of the
13th-month pay is based on basic salary, excluding benefits
such as leaves with pay, as per P.D. No. 851, as amended. It
maintained that, in adjusting its computation of the 13th-month
pay, it merely rectified the mistake its personnel committed in
the previous years.
A.V.A. Semana decided in favor of the Union. The dispositive
portion of his Decision reads as follows:
WHEREFORE, premises considered, this Voluntary Arbitrator
hereby declared that:
1. The company is hereby ordered to include sick leave and
vacation leave, paternity leave, union leave, bereavement leave
and other leave with pay in the CBA, premium for work done on
rest days and special holidays, and pay for regular holidays in
the computation of the 13th-month pay to all covered and
entitled employees;
2. The company is hereby ordered to pay corresponding
backwages to all covered and entitled employees arising from
the exclusion of said benefits in the computation of 13th-month
pay for the year 1999.
Petitioner received a copy of the Decision of the Arbitrator on
December 20, 2000. It filed before the Court of Appeals, a
"Manifestation and Motion for Time to File Petition for Certiorari"
on January 19, 2001. A month later, on February 19, 2001, it
filed its Petition for Certiorari under Rule 65 of the 1997 Rules of
Civil Procedure for the nullification of the Decision of the
Arbitrator. In addition to its earlier allegations, petitioner claimed
that assuming the old computation will be upheld, the reversal
to the old computation can only be made to the extent of
including non-basic benefits actually included by petitioner in the
base figure in the computation of their 13th-month pay in the
prior years. It must exclude those non-basic benefits which, in
the first place, were not included in the original computation. The
appellate court denied due course to, and dismissed the petition.
Hence, this appeal. Petitioner Sevilla Trading enumerates the
grounds of its appeal, as follows:
Page 186 of 191
186
1. THE DECISION OF THE RESPONDENT COURT TO
REVERT TO THE OLD COMPUTATION OF THE 13th-MONTH
PAY ON THE BASIS THAT THE OLD COMPUTATION HAD
RIPENED INTO PRACTICE IS WITHOUT LEGAL BASIS.
2. IF SUCH BE THE CASE, COMPANIES HAVE NO MEANS
TO CORRECT ERRORS IN COMPUTATION WHICH WILL
CAUSE GRAVE AND IRREPARABLE DAMAGE TO
EMPLOYERS.4
First, we uphold the Court of Appeals in ruling that the proper
remedy from the adverse decision of the arbitrator is a petition
for review under Rule 43 of the 1997 Rules of Civil Procedure,
not a petition for certiorari under Rule 65. Section 1 of Rule 43
states:
RULE 43
Appeals from the Court of Tax Appeals and
Quasi-Judicial Agencies to the Court of Appeals
SECTION 1. Scope. — This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of or authorized
by any quasi-judicial agency in the exercise of its quasi-judicial
functions. Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Securities
and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications
Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry
Arbitration Commission, and voluntary arbitrators authorized by
law. [Emphasis supplied.]
It is elementary that the special civil action of certiorari under
Rule 65 is not, and cannot be a substitute for an appeal, where
the latter remedy is available, as it was in this case. Petitioner
Sevilla Trading failed to file an appeal within the fifteen-day
reglementary period from its notice of the adverse decision of
A.V.A. Semana. It received a copy of the decision of A.V.A.
Semana on December 20, 2000, and should have filed its
appeal under Rule 43 of the 1997 Rules of Civil Procedure on or
before January 4, 2001. Instead, petitioner filed on January 19,
2001 a "Manifestation and Motion for Time to File Petition for
Certiorari," and on February 19, 2001, it filed a petition for
certiorari under Rule 65 of the 1997 Rules of Civil Procedure.
Clearly, petitioner Sevilla Trading had a remedy of appeal but
failed to use it.
A special civil action under Rule 65 of the Rules of Court will not
be a cure for failure to timely file a petition for review on certiorari
under Rule 45 (Rule 43, in the case at bar) of the Rules of Court.
Rule 65 is an independent action that cannot be availed of as a
substitute for the lost remedy of an ordinary appeal, including
that under Rule 45 (Rule 43, in the case at bar), especially if
such loss or lapse was occasioned by one’s own neglect or error
in the choice of remedies.5
Thus, the decision of A.V.A. Semana had become final and
executory when petitioner Sevilla Trading filed its petition for
certiorari on February 19, 2001. More particularly, the decision
of A.V.A. Semana became final and executory upon the lapse
of the fifteen-day reglementary period to appeal, or on January
5, 2001. Hence, the Court of Appeals is correct in holding that it
no longer had appellate jurisdiction to alter, or much less, nullify
the decision of A.V.A. Semana.
Even assuming that the present petition for certiorari under Rule
65 of the 1997 Rules of Civil Procedure is a proper action, we
still find no grave abuse of discretion amounting to lack or
excess of jurisdiction committed by A.V.A. Semana. "Grave
abuse of discretion" has been interpreted to mean "such
capricious and whimsical exercise of judgment as is equivalent
to lack of jurisdiction, or, in other words where the power is
exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it 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 or to act at all in contemplation of
law."6 We find nothing of that sort in the case at bar.
On the contrary, we find the decision of A.V.A. Semana to be
sound, valid, and in accord with law and jurisprudence. A.V.A.
Semana is correct in holding that petitioner’s stance of mistake
or error in the computation of the thirteenth month pay is
unmeritorious. Petitioner’s submission of financial statements
every year requires the services of a certified public accountant
to audit its finances. It is quite impossible to suggest that they
have discovered the alleged error in the payroll only in 1999.
This implies that in previous years it does not know its cost of
labor and operations. This is merely basic cost accounting. Also,
petitioner failed to adduce any other relevant evidence to
support its contention. Aside from its bare claim of mistake or
error in the computation of the thirteenth month pay, petitioner
merely appended to its petition a copy of the 1997-2002
Collective Bargaining Agreement and an alleged "corrected"
computation of the thirteenth month pay. There was no
explanation whatsoever why its inclusion of non-basic benefits
in the base figure in the computation of their 13th-month pay in
the prior years was made by mistake, despite the clarity of
statute and jurisprudence at that time.
The instant case needs to be distinguished from Globe Mackay
Cable and Radio Corp. vs. NLRC,7 which petitioner Sevilla
Trading invokes. In that case, this Court decided on the proper
computation of the cost-of-living allowance (COLA) for monthly-
paid employees. Petitioner Corporation, pursuant to Wage
Order No. 6 (effective 30 October 1984), increased the COLA of
its monthly-paid employees by multiplying the ₱3.00 daily COLA
by 22 days, which is the number of working days in the
company. The Union disagreed with the computation, claiming
that the daily COLA rate of ₱3.00 should be multiplied by 30
days, which has been the practice of the company for several
years. We upheld the contention of the petitioner corporation. To
answer the Union’s contention of company practice, we ruled
that:
Payment in full by Petitioner Corporation of the COLA before the
execution of the CBA in 1982 and in compliance with Wage
Orders Nos. 1 (26 March 1981) to 5 (11 June 1984), should not
be construed as constitutive of voluntary employer practice,
which cannot now be unilaterally withdrawn by petitioner. To be
considered as such, it should have been practiced over a long
period of time, and must be shown to have been consistent and
deliberate . . . The test of long practice has been enunciated
thus:
. . . Respondent Company agreed to continue giving holiday pay
knowing fully well that said employees are not covered by the
Page 187 of 191
law requiring payment of holiday pay." (Oceanic Pharmacal
187
Employees Union [FFW] vs. Inciong, 94 SCRA 270 [1979])
Moreover, before Wage Order No. 4, there was lack of
administrative guidelines for the implementation of the Wage
Orders. It was only when the Rules Implementing Wage Order
No. 4 were issued on 21 May 1984 that a formula for the
conversion of the daily allowance to its monthly equivalent was
laid down.
Absent clear administrative guidelines, Petitioner Corporation
cannot be faulted for erroneous application of the law . . .
In the above quoted case, the grant by the employer of benefits
through an erroneous application of the law due to absence of
clear administrative guidelines is not considered a voluntary act
which cannot be unilaterally discontinued. Such is not the case
now. In the case at bar, the Court of Appeals is correct when it
pointed out that as early as 1981, this Court has held in San
Miguel Corporation vs. Inciong8 that:
Under Presidential Decree 851 and its implementing rules, the
basic salary of an employee is used as the basis in the
determination of his 13th-month pay. Any compensations or
remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.
Under the Rules and Regulations Implementing Presidential
Decree 851, the following compensations are deemed not part
of the basic salary:
a) Cost-of-living allowances granted pursuant to Presidential
Decree 525 and Letter of Instruction No. 174;
b) Profit sharing payments;
c) All allowances and monetary benefits which are not
considered or integrated as part of the regular basic salary of
the employee at the time of the promulgation of the Decree on
December 16, 1975.
Under a later set of Supplementary Rules and Regulations
Implementing Presidential Decree 851 issued by the then Labor
Secretary Blas Ople, overtime pay, earnings and other
remunerations are excluded as part of the basic salary and in
the computation of the 13th-month pay.
The exclusion of cost-of-living allowances under Presidential
Decree 525 and Letter of Instruction No. 174 and profit sharing
payments indicate the intention to strip basic salary of other
payments which are properly considered as "fringe" benefits.
Likewise, the catch-all exclusionary phrase "all allowances and
monetary benefits which are not considered or integrated as part
of the basic salary" shows also the intention to strip basic salary
of any and all additions which may be in the form of allowances
or "fringe" benefits.
Moreover, the Supplementary Rules and Regulations
Implementing Presidential Decree 851 is even more empathic in
declaring that earnings and other remunerations which are not
part of the basic salary shall not be included in the computation
of the 13th-month pay.

While doubt may have been created by the prior Rules and
Regulations Implementing Presidential Decree 851 which
defines basic salary to include all remunerations or earnings
paid by an employer to an employee, this cloud is dissipated in
the later and more controlling Supplementary Rules and
Regulations which categorically, exclude from the definition of
basic salary earnings and other remunerations paid by employer
to an employee. A cursory perusal of the two sets of Rules
indicates that what has hitherto been the subject of a broad
inclusion is now a subject of broad exclusion. The
Supplementary Rules and Regulations cure the seeming
tendency of the former rules to include all remunerations and
earnings within the definition of basic salary.
The all-embracing phrase "earnings and other remunerations"
which are deemed not part of the basic salary includes within its
meaning payments for sick, vacation, or maternity leaves,
premium for works performed on rest days and special holidays,
pay for regular holidays and night differentials. As such they are
deemed not part of the basic salary and shall not be considered
in the computation of the 13th-month pay. If they were not so
excluded, it is hard to find any "earnings and other
remunerations" expressly excluded in the computation of the
13th-month pay. Then the exclusionary provision would prove to
be idle and with no purpose.
In the light of the clear ruling of this Court, there is, thus no
reason for any mistake in the construction or application of the
law. When petitioner Sevilla Trading still included over the years
non-basic benefits of its employees, such as maternity leave
pay, cash equivalent of unused vacation and sick leave, among
others in the computation of the 13th-month pay, this may only
be construed as a voluntary act on its part. Putting the blame on
the petitioner’s payroll personnel is inexcusable.
In Davao Fruits Corporation vs. Associated Labor Unions, we
likewise held that:9
The "Supplementary Rules and Regulations Implementing P.D.
No. 851" which put to rest all doubts in the computation of the
thirteenth month pay, was issued by the Secretary of Labor as
early as January 16, 1976, barely one month after the effectivity
of P.D. No. 851 and its Implementing Rules. And yet, petitioner
computed and paid the thirteenth month pay, without excluding
the subject items therein until 1981. Petitioner continued its
practice in December 1981, after promulgation of the
aforequoted San Miguel decision on February 24, 1981, when
petitioner purportedly "discovered" its mistake.
From 1975 to 1981, petitioner had freely, voluntarily and
continuously included in the computation of its employees’
thirteenth month pay, without the payments for sick, vacation
and maternity leave, premium for work done on rest days and
special holidays, and pay for regular holidays. The considerable
length of time the questioned items had been included by
petitioner indicates a unilateral and voluntary act on its part,
sufficient in itself to negate any claim of mistake.
A company practice favorable to the employees had indeed
been established and the payments made pursuant thereto,
ripened into benefits enjoyed by them. And any benefit and
supplement being enjoyed by the employees cannot be
reduced, diminished, discontinued or eliminated by the
employer, by virtue of Sec. 10 of the Rules and Regulations
Implementing P.D. No. 851, and Art. 100 of the Labor Code of
the Philippines which prohibit the diminution or elimination by
the employer of the employees’ existing benefits. [Tiangco vs.
Leogardo, Jr., 122 SCRA 267 (1983)]
Page 188 of 191
188
With regard to the length of time the company practice should
have been exercised to constitute voluntary employer practice
which cannot be unilaterally withdrawn by the employer, we hold
that jurisprudence has not laid down any rule requiring a specific
minimum number of years. In the above quoted case of Davao
Fruits Corporation vs. Associated Labor Unions,10 the company
practice lasted for six (6) years. In another case, Davao
Integrated Port Stevedoring Services vs. Abarquez,11 the
employer, for three (3) years and nine (9) months, approved the
commutation to cash of the unenjoyed portion of the sick leave
with pay benefits of its intermittent workers. While in Tiangco vs.
Leogardo, Jr.,12 the employer carried on the practice of giving
a fixed monthly emergency allowance from November 1976 to
February 1980, or three (3) years and four (4) months. In all
these cases, this Court held that the grant of these benefits has
ripened into company practice or policy which cannot be
peremptorily withdrawn. In the case at bar, petitioner Sevilla
Trading kept the practice of including non-basic benefits such as
paid leaves for unused sick leave and vacation leave in the
computation of their 13th-month pay for at least two (2) years.
This, we rule likewise constitutes voluntary employer practice
which cannot be unilaterally withdrawn by the employer without
violating Art. 100 of the Labor Code:
Art. 100. Prohibition against elimination or diminution of benefits.
– Nothing in this Book shall be construed to eliminate or in any
way diminish supplements, or other employee benefits being
enjoyed at the time of promulgation of this Code.
IN VIEW WHEREOF, the petition is DENIED. The Decision of
the Court of Appeals in CA-G.R. SP No. 63086 dated 27
November 2001 and its Resolution dated 06 March 2002 are
hereby AFFIRMED.
SO ORDERED.
G.R. No. 151966 July 8, 2005
JPL MARKETING PROMOTIONS, Petitioner, vs. COURT OF
APPEALS, NATIONAL LABOR RELATIONS COMMISSION,
NOEL GONZALES, RAMON ABESA III and FAUSTINO
ANINIPOT, Respondents.
DECISION
Tinga, J.:
This is a petition for review of the Decision1 of the Court of
Appeals in CA-G.R. SP No. 62631 dated 03 October 2001 and
its Resolution2 dated 25 January 2002 denying petitioner’s
Motion for Reconsideration, affirming the Resolution of the
National Labor Relations Commission (NLRC), Second Division,
dated 27 July 2000, awarding separation pay, service incentive
leave pay, and 13th month pay to private respondents.
JPL Marketing and Promotions (hereinafter referred to as "JPL")
is a domestic corporation engaged in the business of
recruitment and placement of workers. On the other hand,
private respondents Noel Gonzales, Ramon Abesa III and
Faustino Aninipot were employed by JPL as merchandisers on
separate dates and assigned at different establishments in Naga
City and Daet, Camarines Norte as attendants to the display of
California Marketing Corporation (CMC), one of petitioner’s
clients.
On 13 August 1996, JPL notified private respondents that CMC
would stop its direct merchandising activity in the Bicol Region,
Isabela, and Cagayan Valley effective 15 August 1996.3 They
were advised to wait for further notice as they would be
transferred to other clients. However, on 17 October 1996,4
private respondents Abesa and Gonzales filed before the
National Labor Relations Commission Regional Arbitration
Branch (NLRC) Sub V complaints for illegal dismissal, praying
for separation pay, 13th month pay, service incentive leave pay
and payment for moral damages.5 Aninipot filed a similar case
thereafter.
After the submission of pertinent pleadings by all of the parties
and after some clarificatory hearings, the complaints were
consolidated and submitted for resolution. Executive Labor
Arbiter Gelacio L. Rivera, Jr. dismissed the complaints for lack
of merit.6 The Labor Arbiter found that Gonzales and Abesa
applied with and were employed by the store where they were
originally assigned by JPL even before the lapse of the six (6)-
month period given by law to JPL to provide private respondents
a new assignment. Thus, they may be considered to have
unilaterally severed their relation with JPL, and cannot charge
JPL with illegal dismissal.7 The Labor Arbiter held that it was
incumbent upon private respondents to wait until they were
reassigned by JPL, and if after six months they were not
reassigned, they can file an action for separation pay but not for
illegal dismissal.8 The claims for 13th month pay and service
incentive leave pay was also denied since private respondents
were paid way above the applicable minimum wage during their
employment.9
Private respondents appealed to the NLRC. In its Resolution,10
the Second Division of the NLRC agreed with the Labor Arbiter’s
finding that when private respondents filed their complaints, the
six-month period had not yet expired, and that CMC’s decision
to stop its operations in the areas was beyond the control of JPL,
thus, they were not illegally dismissed. However, it found that
despite JPL’s effort to look for clients to which private
respondents may be reassigned it was unable to do so, and
hence they are entitled to separation pay.11 Setting aside the
Labor Arbiter’s decision, the NLRC ordered the payment of:
1. Separation pay, based on their last salary rate and counted
from the first day of their employment with the respondent JPL
up to the finality of this judgment;
2. Service Incentive Leave pay, and 13th month pay, computed
as in No.1 hereof.12
Aggrieved, JPL filed a petition for certiorari under Rule 65 of the
Rules of Court with the Court of Appeals, imputing grave abuse
of discretion on the part of the NLRC. It claimed that private
respondents are not by law entitled to separation pay, service
incentive leave pay and 13th month pay.
The Court of Appeals dismissed the petition and affirmed in toto
the NLRC resolution. While conceding that there was no illegal
dismissal, it justified the award of separation pay on the grounds
of equity and social justice.13 The Court of Appeals rejected
JPL’s argument that the difference in the amounts of private
respondents’ salaries and the minimum wage in the region
should be considered as payment for their service incentive
leave and 13th month pay.14 Notwithstanding the absence of a
contractual agreement on the grant of 13th month pay,
compliance with the same is mandatory under the law.
Moreover, JPL failed to show that it was exempt from paying
service incentive leave pay. JPL filed a motion for
reconsideration of the said resolution, but the same was denied
on 25 January 2002.15
Page 189 of 191
In the instant petition for review, JPL claims that the Court of
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Appeals committed reversible error in rendering the assailed
Decision and Resolution.16 The instant case does not fall under
any of the instances where separation pay is due, to wit:
installation of labor-saving devices, redundancy, retrenchment
or closing or cessation of business operation,17 or disease of
an employee whose continued employment is prejudicial to him
or co-employees,18 or illegal dismissal of an employee but
reinstatement is no longer feasible.19 Meanwhile, an employee
who voluntarily resigns is not entitled to separation unless
stipulated in the employment contract, or the collective
bargaining agreement, or is sanctioned by established practice
or policy of the employer.20 It argues that private respondents’
good record and length of service, as well as the social justice
precept, are not enough to warrant the award of separation pay.
Gonzales and Aninipot were employed by JPL for more than four
(4) years, while Abesa rendered his services for more than two
(2) years, hence, JPL claims that such short period could not
have shown their worth to JPL so as to reward them with
payment of separation pay.21
In addition, even assuming arguendo that private respondents
are entitled to the benefits awarded, the computation thereof
should only be from their first day of employment with JPL up to
15 August 1996, the date of termination of CMC’s contract, and
not up to the finality of the 27 July 2000 resolution of the
NLRC.22 To compute separation pay, 13th month pay, and
service incentive leave pay up to 27 July 2000 would negate the
findings of both the Court of Appeals and the NLRC that private
respondents were not unlawfully terminated.23 Additionally, it
would be erroneous to compute service incentive leave pay from
the first day of their employment up to the finality of the NLRC
resolution since an employee has to render at least one (1) year
of service before he is entitled to the same. Thus, service
incentive leave pay should be counted from the second year of
service.24
On the other hand, private respondents maintain that they are
entitled to the benefits being claimed as per the ruling of this
Court in Serrano v. NLRC, et al.25 They claim that their
dismissal, while not illegal, was tainted with bad faith.26 They
allege that they were deprived of due process because the
notice of termination was sent to them only two (2) days before
the actual termination.27 Likewise, the most that JPL offered to
them by way of settlement was the payment of separation pay
of seven (7) days for every year of service.28
Replying to private respondents’ allegations, JPL disagrees that
the notice it sent to them was a notice of actual termination. The
said memo merely notified them of the end of merchandising for
CMC, and that they will be transferred to other clients.29
Moreover, JPL is not bound to observe the thirty (30)-day notice
rule as there was no dismissal to speak of. JPL counters that it
was private respondents who acted in bad faith when they
sought employment with another establishment, without even
the courtesy of informing JPL that they were leaving for good,
much less tender their resignation.30 In addition, the offer of
seven (7) days per year of service as separation pay was merely
an act of magnanimity on its part, even if private respondents
are not entitled to a single centavo of separation pay.31
The case thus presents two major issues, to wit: whether or not
private respondents are entitled to separation pay, 13th month
pay and service incentive leave pay, and granting that they are
so entitled, what should be the reckoning point for computing
said awards.
Under Arts. 283 and 284 of the Labor Code, separation pay is
authorized only in cases of dismissals due to any of these
reasons: (a) installation of labor saving devices; (b) redundancy;
(c) retrenchment; (d) cessation of the employer's business; and
(e) when the employee is suffering from a disease and his
continued employment is prohibited by law or is prejudicial to his
health and to the health of his co-employees. However,
separation pay shall be allowed as a measure of social justice
in those cases where the employee is validly dismissed for
causes other than serious misconduct or those reflecting on his
moral character, but only when he was illegally dismissed.32 In
addition, Sec. 4(b), Rule I, Book VI of the Implementing Rules to
Implement the Labor Code provides for the payment of
separation pay to an employee entitled to reinstatement but the
establishment where he is to be reinstated has closed or has
ceased operations or his present position no longer exists at the
time of reinstatement for reasons not attributable to the
employer.
The common denominator of the instances where payment of
separation pay is warranted is that the employee was dismissed
by the employer.33 In the instant case, there was no dismissal
to speak of. Private respondents were simply not dismissed at
all, whether legally or illegally. What they received from JPL was
not a notice of termination of employment, but a memo informing
them of the termination of CMC’s contract with JPL. More
importantly, they were advised that they were to be reassigned.
At that time, there was no severance of employment to speak
of.
Furthermore, Art. 286 of the Labor Code allows the bona fide
suspension of the operation of a business or undertaking for a
period not exceeding six (6) months, wherein an
employee/employees are placed on the so-called "floating
status." When that "floating status" of an employee lasts for
more than six months, he may be considered to have been
illegally dismissed from the service. Thus, he is entitled to the
corresponding benefits for his separation, and this would apply
to suspension either of the entire business or of a specific
component thereof.34
As clearly borne out by the records of this case, private
respondents sought employment from other establishments
even before the expiration of the six (6)-month period provided
by law. As they admitted in their comment, all three of them
applied for and were employed by another establishment after
they received the notice from JPL.35 JPL did not terminate their
employment; they themselves severed their relations with JPL.
Thus, they are not entitled to separation pay.
The Court is not inclined in this case to award separation pay
even on the ground of compassionate justice. The Court of
Appeals relied on the cases36 wherein the Court awarded
separation pay to legally dismissed employees on the grounds
of equity and social consideration. Said cases involved
employees who were actually dismissed by their employers,
whether for cause or not. Clearly, the principle applies only when
the employee is dismissed by the employer, which is not the
case in this instance. In seeking and obtaining employment
elsewhere, private respondents effectively terminated their
employment with JPL.
In addition, the doctrine enunciated in the case of Serrano37
cited by private respondents has already been abandoned by
our ruling in Agabon v. National Labor Relations Commission.38
There we ruled that an employer is liable to pay indemnity in the
form of nominal damages to a dismissed employee if, in
effecting such dismissal, the employer failed to comply with the
requirements of due process. However, private respondents are
not entitled to the payment of damages considering that there
was no violation of due process in this case. JPL’s memo dated
13 August 1996 to private respondents is not a notice of
termination, but a mere note informing private respondents of
the termination of CMC’s contract and their re-assignment to
other clients. The thirty (30)-day notice rule does not apply.
Page 190 of 191
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Nonetheless, JPL cannot escape the payment of 13th month
pay and service incentive leave pay to private respondents. Said
benefits are mandated by law and should be given to employees
as a matter of right.
Presidential Decree No. 851, as amended, requires an employer
to pay its rank and file employees a 13th month pay not later
than 24 December of every year. However, employers not
paying their employees a 13th month pay or its equivalent are
not covered by said law.39 The term "its equivalent" was defined
by the law’s implementing guidelines as including Christmas
bonus, mid-year bonus, cash bonuses and other payment
amounting to not less than 1/12 of the basic salary but shall not
include cash and stock dividends, cost-of-living-allowances and
all other allowances regularly enjoyed by the employee, as well
as non-monetary benefits.40
On the other hand, service incentive leave, as provided in Art.
95 of the Labor Code, is a yearly leave benefit of five (5) days
with pay, enjoyed by an employee who has rendered at least
one year of service. Unless specifically excepted, all
establishments are required to grant service incentive leave to
their employees. The term "at least one year of service" shall
mean service within twelve (12) months, whether continuous or
broken reckoned from the date the employee started working.41
The Court has held in several instances that "service incentive
leave is clearly demandable after one year of service."42
Admittedly, private respondents were not given their 13th month
pay and service incentive leave pay while they were under the
employ of JPL. Instead, JPL provided salaries which were over
and above the minimum wage. The Court rules that the
difference between the minimum wage and the actual salary
received by private respondents cannot be deemed as their 13th
month pay and service incentive leave pay as such difference is
not equivalent to or of the same import as the said benefits
contemplated by law. Thus, as properly held by the Court of
Appeals and by the NLRC, private respondents are entitled to
the 13th month pay and service incentive leave pay.
However, the Court disagrees with the Court of Appeals’ ruling
that the 13th month pay and service incentive leave pay should
be computed from the start of employment up to the finality of
the NLRC resolution. While computation for the 13th month pay
should properly begin from the first day of employment, the
service incentive leave pay should start a year after
commencement of service, for it is only then that the employee
is entitled to said benefit. On the other hand, the computation for
both benefits should only be up to 15 August 1996, or the last
day that private respondents worked for JPL. To extend the
period to the date of finality of the NLRC resolution would negate
the absence of illegal dismissal, or to be more precise, the want
of dismissal in this case. Besides, it would be unfair to require
JPL to pay private respondents the said benefits beyond 15
August 1996 when they did not render any service to JPL
beyond that date. These benefits are given by law on the basis
of the service actually rendered by the employee, and in the
particular case of the service incentive leave, is granted as a
motivation for the employee to stay longer with the employer.
There is no cause for granting said incentive to one who has
already terminated his relationship with the employer.
The law in protecting the rights of the employees authorizes
neither oppression nor self-destruction of the employer. It should
be made clear that when the law tilts the scale of justice in favor
of labor, it is but recognition of the inherent economic inequality
between labor and management. The intent is to balance the
scale of justice; to put the two parties on relatively equal
positions. There may be cases where the circumstances warrant
favoring labor over the interests of management but never
should the scale be so tilted if the result is an injustice to the

191
employer. Justitia nemini neganda est (Justice is to be denied
to none).43

WHEREFORE, the petition is GRANTED IN PART. The

Decision and Resolution of the Court of Appeals in CA-G.R. SP
No. 62631 are hereby MODIFIED. The award of separation pay
is deleted. Petitioner is ordered to pay private respondents their
13th month pay commencing from the date of employment up to
15 August 1996, as well as service incentive leave pay from the
second year of employment up to 15 August 1996. No
pronouncement as to costs.

SO ORDERED.

Page 191 of 191