[1]

G.R. No. 227734, August 09, 2017

ROMEO ALBA, Petitioner, v. CONRADO G. ESPINOSA, ET AL., Respondents.

Labor Law; Regular Employees; The presence of the first element is beyond dispute. Alba himself
admitted that he was the one who selected and engaged the workers that comprised his pool of semi-
skilled and skilled workers, for placement in his several construction projects obtained from various
clients. It was equally significant that Alba determined to which projects the respondents were to be
assigned, or whether they would be assigned at all.—The presence of the first element is beyond dispute.
Alba himself admitted that he was the one who selected and engaged the workers that comprised his pool
of semi-skilled and skilled workers, for placement in his several construction projects obtained from
various clients. It was equally significant that Alba determined to which projects the respondents were to
be assigned, or whether they would be assigned at all. As it established Alba’s power to select and
engage, the circumstance likewise rendered concomitant the power of Alba to dismiss any of the
respondents. Notwithstanding the length of time that his workers had been working for his projects, he
could opt to simply drop them off any assignment, effectively dismissing them from
employment, albeit with necessary consequences if the dismissal was proved to be illegal.

Same; Same; Control Test; Specifically on the “control test,” this power to control is oft-repeated
in jurisprudence as the most important and crucial among the four (4) tests.—Specifically on the
“control test,” this power to control is oft-repeated in jurisprudence as the most important and crucial
among the four tests. The Court explained in Gapayao v. Fulo, et al.,  698 SCRA 485 (2013): In Legend
Hotel Manila v. Realuyo, the Court held that “the power of the employer to control the work of the
employee is considered the most significant determinant of the existence of an employer-employee
relationship. This is the so-called control test and is premised on whether the person for whom the
services are performed reserves the right to control both the end achieved and the manner and means
used to achieve that end.” 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 by the employee. It is enough that the former has a right to wield
the power.

Same; Independent Contractors; Time and again, the Supreme Court (SC) has emphasized that
“the test 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.’”—Even Alba’s allegation that the respondents were
independent contractors was not amply substantiated. Time and again, the Court has emphasized that
“the test 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.’” The Court has explained Alba’s exercise of control
over the respondents. For a worker to be deemed an independent contractor, it is further necessary to
establish several indicators. In Television and Production Exponents, Inc. and/or Tuviera v. Servaña, 542
SCRA 578 (2008), the Court explained: Aside from possessing substantial capital or investment, a
legitimate job contractor or subcontractor carries on a distinct and independent business and undertakes
to perform the job, work or service on its own account and under its own responsibility according to its
manner and method, and free from the control and direction of the principal in all matters connected with
the performance of the work except as to the results thereof. “It is the burden of the employer to prove
that a person whose services it pays for is an independent contractor rather than a regular employee with
or without a fixed term.” Undeniably, Alba failed to discharge this burden.

Same; Regular Employees; Project Employees; Work Pool; The mere fact that the respondents
worked on projects that were time-bound did not automatically characterize them as project employees.
The nature of their work was determinative, as the Supreme Court (SC) considers its ruling in  D.M.
Consunji, Inc., et al. v. Jamin,  670 SCRA 235 (2012), that “[o]nce a project or work pool employee has
been: (1) continuously, as opposed to intermittently, rehired by the same employer for the same tasks or
nature of tasks; and (2) these  tasks are vital, necessary and indispensable to the usual business or trade
of the employer, then the employee must be deemed a regular employee.”—As the Court affirms the
finding of illegal dismissal, it underscores the fact that the respondents were regular employees, and not
project employees as Alba asserts. The mere fact that the respondents worked on projects that were time-
bound did not automatically characterize them as project employees. The nature of their work was
determinative, as the Court considers its ruling in D.M. Consunji, Inc., et al. v. Jamin, 670 SCRA 235
(2012), that “[o]nce a project or work pool employee has been: (1) continuously, as opposed to
intermittently, rehired by the same employer for the same tasks or nature of tasks; and (2) these tasks are
vital, necessary and indispensable to the usual business or trade of the employer, then the employee must
be deemed a regular employee.” As construction workers, the respondents performed tasks that were
crucial and necessary in Alba’s business. Their work was the core of his trade. His enterprise could not
have thrived through the years without their service. The fact that the respondents had been engaged to
work for long periods of time, and across several construction projects, further substantiate the finding
that their work was vital in the business. Most respondents were separately employed beginning way
back to the 1990s to 2006. One employee, Samuel, even began working for Alba in 1982. “[A]n
employment ceases to be coterminous with specific projects when the employee is continuously rehired
due to the demands of the employer’s business and reengaged for many more projects without
interruption.”

Same; Service Incentive Leave; Article 95 of the Labor Code provides that “[e]very employee who
has rendered at least one (1) year of service shall be entitled to a yearly Service Incentive Leave (SIL) of
five (5) days with pay.”—Article 95 of the Labor Code provides that “[e]very employee who has
rendered at least one year of service shall be entitled to a yearly [SIL] of five days with pay.” On the
other hand, the respondents derive their right to the 13th month pay from Presidential Decree No. 851,
otherwise known as the 13th Month Pay Law, as amended. After the respondents alleged nonpayment of
the 13th month and SIL pays, it became incumbent upon Alba to prove payment of the statutory
monetary benefits when he opted to deny further liability therefor. Instead of doing so, however, Alba
could only harp on his argument that the respondents, in the first place, could not be considered as his
employees.

Same; Attorney’s Fees; Attorney’s fees in labor cases are sanctioned “when the employee is
illegally dismissed in bad faith and is compelled to litigate or incur expenses to protect his rights by
reason of the unjustified acts of his employer.”—Attorney’s fees in labor cases are sanctioned “when the
employee is illegally dismissed in bad faith and is compelled to litigate or incur expenses to protect his
rights by reason of the unjustified acts of his employer.”
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
    Ferdinand Mark C. Ronquillo  for petitioner.
    Cabrera & Associates Law Offices for respondents.

DECISION

REYES, JR., J.:

This resolves the Petition for Review on Certiorari1 filed under Rule 45 of the Rules of Court by
petitioner Romeo Alba (Alba) to assail the Decision 2 dated July 14, 2016 and Resolution 3 dated
October 17, 2016 of the Court of Appeals (CA) in CA-G.R. SP No. 144043, wherein the CA
affirmed the Decision4 dated November 27, 2015 of the National Labor Relations Commission
(NLRC) in NLRC LAC No. 09-002460-15 that declared Alba guilty of illegal dismissal and liable
for monetary claims.
The Antecedents

The case stems from two complaints for illegal dismissal and monetary claims filed against
Alba Construction and its owner, Alba, by herein respondents with the Arbitration Branch of the
NLRC. The first labor complaint, docketed as NLRC NCR Case No. 06-07959-14, 5 was filed by
Conrado Gabe Espinosa (Conrado), Eusebio Mojica, Jaime Ocfemia, Jr. (Jaime, Jr.), Remy
Diama, Ross Florencio, Jr., Gerry U. Milo, Rodolfo Benoza, Rolando Benoza, Marcelino
Macindo, Nikko Benosa, Felix Taperla, Landirico Taperla, Arturo Nebrida, Jr. and Bongbong
Delumpines.6 The second complaint, docketed as NLRC NCR Case No. 06-07960-14, 7 was
filed by Nilo Abrencillo (Nilo), Freddie Abrencillo, Robert Manimtiin, Ronaldo Hernandez, Jr.,
William Janer, Ronie Tuparan, Samuel Nabas (Samuel), Eufrecino B. Jemina, Ruben Caleza,
Hermel Caringal, Phamer Mandeoya, Alexander Barbacena, Roily Abrencillo, Rene Barbacena,
Jr., Jolito Cabillo and Roger Nebrida. 8

It was alleged by the respondents that on various dates, Alba hired them as construction
workers for his projects in several residential villages within Metro Manila and nearby
provinces. The respondents were Alba's regular employees who were paid different wage rates
that ranged from P350.00 to P500.00 a day, but were deprived of some statutorily-mandated
benefits such as their overtime pay, 13th month pay, holiday pay, and service incentive leave
(SIL) pay.9 On different dates in 2013, some of the respondents 10 confronted Alba regarding
their benefits, but such action eventually resulted in their dismissal. 11

In 2014, the other respondents again questioned Alba for his non-payment of their benefits.
Alba still took it against them and began treating them harshly, as he would shout at them while
at the job site, and would find scheming ways to extend their working hours. The foregoing
prompted these respondents to seek the assistance of media personality Raffy Tulfo (Tulfo) in
his Radyo Singko Program. As he addressed the respondents' dilemma, Tulfo personally called
Alba, who was reminded to pay the respondents their full benefits. The action, however, proved
to create more harm than good for the respondents because when they reported back for work
the following day, they were informed of their dismissal. 12 Feeling aggrieved, all the
respondents filed their complaints for illegal dismissal and monetary claims with the NLRC. The
two complaints were later consolidated before the Labor Arbiter (LA).

For his defense, Alba argued that the respondents could not be deemed his regular employees.
He claimed to be a mere taker of small-scale construction projects for house repairs and
renovations. In the construction industry, he was deemed a mere mamamakyaw, who would
pool a team of skilled and semi-skilled carpenters and masons for specific projects that usually
lasted from one to two weeks. The respondents were paid daily wages ranging from P600.00 to
P1,000.00, depending on their skill, and could take on projects with their own clients after
Alba's projects had terminated.13 For succeeding projects, Alba would only take in construction
workers who were still available for the duration of the new work.14

As he denied any liability for the respondents' claims, Alba likewise presented certifications
from clients indicating that the latter directly paid the salaries of the workers provided by Alba
for the projects. He also argued that the respondents used their own tools at work, and
received instructions from either the architect or foreman engaged by the project owner. 15

The respondents were displeased by Alba's explanations. To disprove Alba's claim that he was
a mere mamamakyaw, they presented gate passes, issued by the villages where Alba had
construction projects, which indicated that Alba was a "contractor." 16

Ruling of the LA

The LA dismissed the complaints via a Decision17 dated July 31, 2015.

For the LA, no employer-employee relationship existed between Alba and the respondents. The
LA referred to the following circumstances affecting the parties' payment of wages and the
element of control, and which negated the claim that the respondents should be deemed
employees of Alba: first, the wages of the respondents were paid directly by the project
owners; second, the respondents applied their own methodology and used their own tools and
equipment as they discharged their work; and third, the respondents obtained their work
instructions from architects or the foreman directly hired by the owners or clients. 18 The
supposed gate passes issued by village representatives did not qualify as substantial evidence
to show that Alba was indeed a contractor.19

The LA's decision ended with the following dispositive portion:chanRoblesvirtualLawlibrary

WHEREFORE, this Labor Arbitration Branch resolves to DISMISS the complaint for lack of
merit.

SO ORDERED.20

Dissatisfied, the respondents appealed to the NLRC.

Ruling of the NLRC

The respondents' appeal was partly granted by the NLRC. On November 27, 2015, the NLRC
rendered its Decision21 that ended with the following decretal portion:
WHEREFORE, premises considered, this instant Appeal is PARTLY GRANTED. The assailed
Decision dated 31 July 2015 is AFFIRMED with respect to [respondents] CONRADO GABE
ESPINOSA, and JAIME OCFEMIA, JR. The same assailed Decision is REVERSED AND SET
ASIDE with respect to the remaining [respondents]. [Alba and Alba Construction] are hereby
ordered to:

1. Reinstate the remaining [respondents] and pay full backwages computed from the time
of their dismissal up to the time of actual reinstatement. In case reinstatement is no
longer possible due to strained relations between the parties, [Alba and Alba
Construction] shall be liable for separation pay in lieu of reinstatement equivalent to one
month salary for every year of service reckoned from the [respondents'] respective time
of employment to the finality of this decision;

2. Pay the remaining [respondents] moral and exemplary damages in the total amount of
P200,000.00;

3. Pay the remaining [respondents] their 13 th month pay computed from the last three
years;

4. Pay the remaining [respondents], excluding Nilo Abrencillo, [SIL] benefits computed
from their respective date[s] of employment; and

5. Pay attorney's fees equivalent to 10 percent of the final judgment award.

The monetary awards are as follows:

xxxx

                                                          P 14,459,613.28
 
ADD: Moral and Exemplary Damages             200,000.00
TOTAL                                                1[4],659,613.28
PLUS: 10% ATTORNEY'S FEES                  1.465,961.33

 TOTAL AWARD                                P16,125,574.61

SO ORDERED.22

The NLRC justified the dismissal of Jaime, Jr.'s complaint by citing sufficient evidence that Alba
engaged him as an independent contractor, specifically as excavation contractor. 23 Conrado's
complaint, on the other hand, was dismissed given his admission that he was employed as
a tanod in Barangay Almanza Dos, Las Piñas City.24

As to the remaining respondents, the NLRC rejected the LA's finding on the lack of employer-
employee relationship. The association between Alba and the respondents was established
after Alba readily proclaimed that the respondents were part of his pool of workers. Alba had
the power to determine who would remain in or be terminated from his projects. He also
admitted that he paid the respondents their wages on a daily basis.

The claim that the respondents used their own methods and tools for the construction remained
unsubstantiated by convincing evidence. On the contrary, it was established that Alba
exercised his authority at the respondents' job sites. The four-fold test in determining the
existence of an employer-employee relationship was duly satisfied, particularly: (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 on the means and methods by
which the work is accomplished. 25 Their employment was deemed regular given that they had
been continuously rehired for Alba's projects for several years. More importantly, they
performed tasks which were necessary and indispensable to the usual business or trade of
Alba.26

The NLRC also addressed the evidentiary weight of the documents that were considered by the
LA. By the gate passes that formed part of the respondents' evidence, it was shown that even
the management of the villages that issued them recognized Alba to be the employer of the
respondents. On the other hand, the certifications presented by Alba were either unsigned,
defective or proven to contain false statements.27

In the end, Alba was declared liable for illegal dismissal given his failure to allocate further work
assignments to the respondents. It did not appear that the termination was founded on any just
or valid cause, and neither was it established that Alba duly satisfied the demands of due
process for an employee's termination. 28 The illegally dismissed employees were declared
entitled to reinstatement and backwages, plus moral damages, exemplary damages and
attorney's fees.29

As regards the other monetary claims, the NLRC ordered the payment of 13 th month pay and
SIL pay, in view of Alba's failure to prove that the said benefits had been paid to his employees.
Nilo, however, was declared not entitled to SIL pay because he worked as a personal driver
who, pursuant to Article 82 of the Labor Code, was not entitled to the benefit. 30

Undaunted, Alba sought relief with the CA through a Petition for Certiorari,31 as he imputed
grave abuse of discretion upon the NLRC and reiterated the arguments that he presented
during the proceedings with the LA.

Ruling of the CA
On July 14, 2016, the CA rendered its Decision 32 dismissing Alba's petition. The CA reiterated
the satisfaction of the four-fold test that is considered in finding employer-employee
relationship. The appellate court likewise assessed the nature of work that the respondents
were required to accomplish, vis-a-vis the type of Alba's business, which prompted the CA to
also affirm the finding that the illegally dismissed respondents were regular employees.

The dispositive portion of the CA decision provides:

WHEREFORE, premises considered, the instant Petition for Certiorari is hereby DISMISSED.

SO ORDERED.33
Alba moved to reconsider, but his motion was denied by the CA in its Resolution 34 dated
October 17, 2016. Hence, this petition.

The Present Petition

Alba restates the same grounds cited in his petition for certiorari with the CA. Specifically
assailed are the finding of employer-employee relationship, and the ruling that the respondents
were regular employees illegally dismissed by Alba from employment. Alba likewise disputes
the order upon him to pay the monetary claims totalling P16,125,574.61.

Issue: W/N respodents are petitioner’s employee

Held: Yeah.

Ruling of the Court

At the outset, the Court explains that it shall no longer delve on the correctness of the NLRC's
and CA's ruling to, first, dismiss the complaints of Conrado and Jaime, Jr. for illegal dismissal
and monetary claims, and, second, deny Nilo of his claim for SIL pay. The NLRC's
pronouncements thereon did not appear to have been assailed by said parties, making the
pronouncements on the matter already final. Moreover, the Court's disposition in this case
needs to be confined to the issues that are assailed in the petition. Hence, the Court's further
reference to, or use of, the term "respondents" shall be limited by these qualifications.

Upon review, the Court finds no cogent reason to disturb the ruling of the CA that affirmed the
decision of the NLRC.

The respondents were regular employees of Alba

Contrary to Alba's contention, the existence of an employer-employee relationship between him

and the respondents was sufficiently established. The Court reiterates its ruling in South East
International Rattan, Inc., et al. v. Coming 35 on the established measure for such determination,
particularly to ascertain the existence of an employer-employee relationship[,] jurisprudence
has invariably adhered to the four-fold test, to wit: (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, or the so-called "control test." In resolving the issue of whether such
relationship exists in a given case, substantial evidence - that amount of relevant evidence
which a reasonable mind might accept as adequate to justify a conclusion - is sufficient.
Although no particular form of evidence is required to prove the existence of the relationship,
and any competent and relevant evidence to prove the relationship may be admitted, a finding
that the relationship exists must nonetheless rest on substantial evidence. 36 (Citations omitted)
Alba's relationship with the respondents satisfies the four-fold test.

The presence of the first element is beyond dispute. Alba himself admitted that he was the one
who selected and engaged the workers that comprised his pool of semi-skilled and skilled
workers, for placement in his several construction projects obtained from various clients . It was
equally significant that Alba determined to which projects the respondents were to be assigned,
or whether they would be assigned at all. As it established Alba's power to select and engage,
the circumstance likewise rendered concomitant the power of Alba to dismiss any of the
respondents. Notwithstanding the length of time that his workers had been working for his
projects, he could opt to simply drop them off any assignment, effectively dismissing them from
employment, albeit with necessary consequences if the dismissal was proved to be illegal.

Alba's payment of the respondents' wages was likewise established by his plain admission. As
the LA cited in its decision, "[Alba] would pay the [respondents] a daily fee ranging from
[P]600.00 to [P]1,000.00. They were also given bonuses from savings that [Alba and Alba
Construction] made."37 As against this statement from Alba and the certifications that he later
presented to dispute his direct payment of the wages, the latter deserves nil consideration. The
evidentiary weight of the supposed certifications on this issue even remained questionable.
While the documents appeared to have been subscribed before a Notary Public, the
requirements for a valid notarization were not satisfied because proof of each affiant's identity
was not indicated in the jurat. Taken in light of Alba's declaration, it could be reasonably
deduced that the arrangement on his clients' direct payment of the workers' wages was by a
mere concession between Alba and the clients in order to facilitate payment, yet it was still Alba
who ultimately bore liability for the payment of the wages.

Specifically on the "control test," this power to control is oft-repeated in jurisprudence as the
most important and crucial among the four tests. 38 The Court explained in Gapayao v. Fulo, et
al.:39

In Legend Hotel Manila v. Realuyo, the Court held that "the power of the employer to control
the work of the employee is considered the most significant determinant of the existence of an
employer-employee relationship. This is the so-called control test and is premised on whether
the person for whom the services are performed reserves the right to control both the end
achieved and the manner and means used to achieve that end." 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 by the employee. It is enough that the former has a right to wield the power. 40 (Citations
omitted)
From the records, it is clear that Alba possessed this power to control, and had in fact freely
exercised it over the respondents. Alba failed to satisfactorily rebut the respondents' direct
assertions that Alba frequented the work sites, and would reprimand his workers whom he
believed were idle or sluggish. He even controlled the time when they had to stay at
work.41 The respondents relied upon instructions coming from Alba, as their work was for
projects obtained by the latter. He controlled the results of the work that the respondents had to
perform, along with the means and methods by which to accomplish them. His control was not
negated by any instructions that came from a foreman or an architect, as directives that came
from them, if there were at all, were understandably limited. The respondents worked for Alba
who held the project, and the latter was the one who exercised authority over them.

Even Alba's allegation that the respondents were independent contractors was not amply
substantiated. Time and again, the Court has emphasized that "the test 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.'"42 The Court has explained Alba's exercise
of control over the respondents. For a worker to be deemed an independent contractor, it is
further necessary to establish several indicators. In Television and Production Exponents, Inc.
and/or Tuviera v. Servaña,43 the Court explained:

Aside from possessing substantial capital or investment, a legitimate job contractor or

subcontractor carries on a distinct and independent business and undertakes to perform the
job, work or service on its own account and under its own responsibility according to its manner
and method, and free from the control and direction of the principal in all matters connected
with the performance of the work except as to the results thereof. x x x. 44 (Citation omitted)

"It is the burden of the employer to prove that a person whose services it pays for is an
independent contractor rather than a regular employee with or without a fixed
term."45 Undeniably, Alba failed to discharge this burden.

As the Court affirms the finding of illegal dismissal, it underscores the fact that the respondents
were regular employees, and not project employees as Alba asserts. The mere fact that the
respondents worked on projects that were time-bound did not automatically characterize them
as project employees. The nature of their work was determinative, as the Court considers its
ruling in DM. Consunji, Inc., et al. v. Jamin 46 that "[o]nce a project or work pool employee has
been: (1) continuously, as opposed to intermittently, rehired by the same employer for the same
tasks or nature of tasks; and (2) these tasks are vital, necessary and indispensable to the usual
business or trade of the employer, then the employee must be deemed a regular employee." 47

As construction workers, the respondents performed tasks that were crucial and necessary in
Alba's business. Their work was the core of his trade. His enterprise could not have thrived
through the years without their service. The fact that the respondents had been engaged to
work for long periods of time, and across several construction projects, further substantiate the
finding that their work was vital in the business. Most respondents were separately employed
beginning way back to the 1990s to 2006. 48 One employee, Samuel, even began working for
Alba in 1982.49 "[A]n employment ceases to be co-terminus with specific projects when the
employee is continuously rehired due to the demands of the employer's business and re-
engaged for many more projects without interruption."50

Given the respondents' regular employment, their employment could not have been validly
terminated by Alba without just or valid cause, and without affording them their right to due
process. In cases affecting an employee's dismissal, the burden is on the employer to prove
that the dismissal was legal, a matter that in this case, Alba miserably failed to establish. There
were no adequate explanations from Alba as to why the respondents had ceased obtaining
assignments in his construction projects. In view of the illegal dismissal, the respondents were
rightfully entitled to the ordered reinstatement and award of backwages, or separation pay in
case of strained relations.51

Alba is liable for the payment of the other monetary claims

The awards of 13th month pay, SIL pay, moral and exemplary damages, and attorney's fees are
sustained.

Article 95 of the Labor Code provides that "[e]very employee who has rendered at least one
year of service shall be entitled to a yearly [SIL] of five days with pay." On the other hand, the
respondents derive their right to the 13 th month pay from Presidential Decree No. 851,
otherwise known as the 13th Month Pay Law, as amended.

After the respondents alleged non-payment of the 13 th month and SIL pays, it became
incumbent upon Alba to prove payment of the statutory monetary benefits when he opted to
deny further liability therefor. Instead of doing so, however, Alba could only harp on his
argument that the respondents, in the first place, could not be considered as his employees.

The award of P200,000.00 as total moral and exemplary damages for the respondents is
reasonable under the circumstances. When it declared such award, the NLRC aptly referred to
the dismissal as a retaliatory action by Alba after his employees had asked for their benefits as
employees. The NLRC sufficiently explained:

A dismissed employee is entitled to moral damages when the dismissal is attended by bad faith
or fraud; or constitutes an act oppressive to labor; or is done in a manner contrary to good
morals, good customs or public policy. Exemplary damages, on the other hand, may be
awarded if the dismissal is effected in a wanton, oppressive or malevolent manner. Dismissing
the [respondents] as an act of retaliation and after they requested to be given their rightful
benefits as employees constitute an act oppressive to labor and displays x x x wanton exercise
of authority.52
Finally, attorney's fees in labor cases are sanctioned "when the employee is illegally dismissed
in bad faith and is compelled to litigate or incur expenses to protect his rights by reason of the
unjustified acts of his employer." 53

WHEREFORE, the petition is DENIED. The Decision dated July 14, 2016 and Resolution dated
October 17, 2016 of the Court of Appeals in CA-G.R. SP No. 144043 are AFFIRMED.

[2]G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.

Tirol & Tirol for petitioner.

Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

Labor Relations;  Employer-Employee Relationship;  Independent Contractor;  Control Test;  Not

every form of control over the conduct of the party hired in relation to the service rendered establishes
employer-employee relationship.—It is true that the “control test” expressed in the following
pronouncement of the Court in the 1956 case of Viana vs. Alejo Al-Lagadan: “x x x In determining the
existence of employer-employee relationship, the following elements are generally 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 conduct—although the latter is the most important element (35
Am. Jur. 445). x x x,” has been followed and applied in later cases, some fairly recent. Indeed, it is
without question a valid test of the character of a contract or agreement to render service. It should,
however, be obvious that not every form of control that the hiring party reserves to himself over the
conduct of the party hired in relation to the services rendered may be accorded the effect of establishing
an employer-employee relationship between them in the legal or technical sense of the term. A line must
be drawn somewhere, if the recognized distinction between an employee and an individual contractor is
not to vanish altogether.

Same; Same; Same; Same; Same; When an insurance agent is free to adopt his own selling

methods or is free to sell insurance at his own time, he is an independent contractor.—Logically, the line
should be drawn between rules that merely serve as guidelines towards the achievement of the mutually
desired result without dictating the means or methods to be employed in attaining it, and those that
control or fix the methodology and bind or restrict the party hired to the use of such means. The first,
which aim only to promote the result, create no employer-employee relationship unlike the second,
which address both the result and the means used to achieve it. The distinction acquires particular
relevance in the case of an enterprise affected with public interest, as is the business of insurance, and is
on that account subject to regulation by the State with respect, not only to the relations between insurer
and insured but also to the internal affairs of the insurance company. Rules and regulations governing the
conduct of the business are provided for in the Insurance Code and enforced by the Insurance
Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of rules
to guide its commission agents in selling its policies that they may not run afoul of the law and what it
requires or prohibits. Of such a character are the rules which prescribe the qualifications of persons who
may be insured, subject insurance applications to processing and approval by the Company, and also
reserve to the Company the determination of the premiums to be paid and the schedules of payment.
None of these really invades the agent’s contractual prerogative to adopt his own selling methods or to
sell insurance at his own time and convenience, hence cannot justifiably be said to establish an employer-
employee relationship between him and the Company.

Same; Same; Same; An independent contractor’s claim for unpaid commission should be litigated

in an ordinary civil suit.—The Court, therefore, rules that under the contract invoked by him, Basiao was
not an employee of the petitioner, but a commission agent, an independent contractor whose claim for
unpaid commissions should have been litigated in an ordinary civil action. The Labor Arbiter erred in
taking cognizance of, and adjudicating, said claim, being without jurisdiction to do so, as did the
respondent NLRC in affirming the Arbiter’s decision. This conclusion renders it unnecessary and
premature to consider Basiao’s claim for commissions on its merits.

PETITION for certiorari and prohibition to review the resolution of the National Labor Relations
Commissions.
The facts are stated in the opinion of the Court.
     Tirol & Tirol for petitioner.
     Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

NARVASA, J.:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and
Melecio T. Basiao entered into a contract 1 by which:

1. Basiao was "authorized to solicit within the Philippines applications for

insurance policies and annuities in accordance with the existing rules and
regulations" of the Company;

2. he would receive "compensation, in the form of commissions ... as provided

in the Schedule of Commissions" of the contract to "constitute a part of the
consideration of ... (said) agreement;" and

3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as
all its circulars ... and those which may from time to time be promulgated by
it, ..." were made part of said contract.

The contract also contained, among others, provisions governing the relations of the parties,
the duties of the Agent, the acts prohibited to him, and the modes of termination of the
agreement, viz.:

RELATION WITH THE COMPANY. The Agent shall be free to exercise his own
judgment as to time, place and means of soliciting insurance. Nothing herein
contained shall therefore be construed to create the relationship of employee
and employer between the Agent and the Company. However, the Agent shall
observe and conform to all rules and regulations which the Company may from
time to time prescribe.

ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving,

directly or indirectly, rebates in any form, or from making any misrepresentation
or over-selling, and, in general, from doing or committing acts prohibited in the
Agent's Manual and in circulars of the Office of the Insurance Commissioner.

TERMINATION. The Company may terminate the contract at will, without any
previous notice to the Agent, for or on account of ... (explicitly specified causes).
...

Either party may terminate this contract by giving to the other notice in writing to
that effect. It shall become ipso facto cancelled if the Insurance Commissioner
should revoke a Certificate of Authority previously issued or should the Agent
fail to renew his existing Certificate of Authority upon its expiration. The Agent
shall not have any right to any commission on renewal of premiums that may be
paid after the termination of this agreement for any cause whatsoever, except
when the termination is due to disability or death in line of service. As to
commission corresponding to any balance of the first year's premiums
 remaining unpaid at the termination of this agreement, the Agent shall be
entitled to it if the balance of the first year premium is paid, less actual cost of
collection, unless the termination is due to a violation of this contract, involving
criminal liability or breach of trust.

ASSIGNMENT. No Assignment of the Agency herein created or of commissions

or other compensations shall be valid without the prior consent in writing of the
Company. ...

Some four years later, in April 1972, the parties entered into another contract — an Agency
Manager's Contract — and to implement his end of it Basiao organized an agency or office to
which he gave the name M. Basiao and Associates, while concurrently fulfilling his
commitments under the first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a
reconsideration, Basiao sued the Company in a civil action and this, he was later to claim,
prompted the latter to terminate also his engagement under the first contract and to stop
payment of his commissions starting April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and
its president. Without contesting the termination of the first contract, the complaint sought to
recover commissions allegedly unpaid thereunder, plus attorney's fees. The respondents
disputed the Ministry's jurisdiction over Basiao's claim, asserting that he was not the
Company's employee, but an independent contractor and that the Company had no obligation
to him for unpaid commissions under the terms and conditions of his contract. 5

The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the
underwriting agreement had established an employer-employee relationship between him and
the Company, and this conferred jurisdiction on the Ministry of Labor to adjudicate his claim.
Said official's decision directed payment of his unpaid commissions "... equivalent to the
balance of the first year's premium remaining unpaid, at the time of his termination, of all the
insurance policies solicited by ... (him) in favor of the respondent company ..." plus 10%
attorney's fees. 6

This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission. 7 Hence, the present petition for certiorari and prohibition.

ISSUE: W/N BASIAO IS AN EMPLOYEE OF INSULAR

HELD: AFFIRMATIVE

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the
Company's employee by virtue of the contract invoked by him, thereby placing his claim for
unpaid commissions within the original and exclusive jurisdiction of the Labor Arbiter under the
provisions of Section 217 of the Labor Code, 8 or, contrarily, as the Company would have it,
that under said contract Basiao's status was that of an independent contractor whose claim
was thus cognizable, not by the Labor Arbiter in a labor case, but by the regular courts in an
ordinary civil action.

CONTENTION OF PETITIONER
The Company's thesis, that no employer-employee relation in the legal and generally accepted
sense existed between it and Basiao, is drawn from the terms of the contract they had entered
into, which, either expressly or by necessary implication, made Basiao the master of his own
time and selling methods, left to his judgment the time, place and means of soliciting insurance,
set no accomplishment quotas and compensated him on the basis of results obtained. He was
not bound to observe any schedule of working hours or report to any regular station; he could
seek and work on his prospects anywhere and at anytime he chose to, and was free to adopt
the selling methods he deemed most effective.

CONTENTION OF PRIVATE RESPONDENT

Without denying that the above were indeed the expressed implicit conditions of Basiao's
contract with the Company, the respondents contend that they do not constitute the decisive
determinant of the nature of his engagement, invoking precedents to the effect that the critical
feature distinguishing the status of an employee from that of an independent contractor
is control, that is, whether or not the party who engages the services of another has the power
to control the latter's conduct in rendering such services. Pursuing the argument, the
respondents draw attention to the provisions of Basiao's contract obliging him to "... observe
and conform to all rules and regulations which the Company may from time to time prescribe
...," as well as to the fact that the Company prescribed the qualifications of applicants for
insurance, processed their applications and determined the amounts of insurance cover to be
issued as indicative of the control, which made Basiao, in legal contemplation, an employee of
the Company. 9

It is true that the "control test" expressed in the following pronouncement of the Court in the
1956 case of Viana vs. Alejo Al-Lagadan10

... In determining the existence of employer-employee relationship, the following

elements are generally 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 employees' conduct — although the latter is the most
important element (35 Am. Jur. 445). ...

SUPREME COURT:

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question
a valid test of the character of a contract or agreement to render service. It should, however, be
obvious that not every form of control that the hiring party reserves to himself over the conduct
of the party hired in relation to the services rendered may be accorded the effect of establishing
an employer-employee relationship between them in the legal or technical sense of the term. A
line must be drawn somewhere, if the recognized distinction between an employee and an
individual contractor is not to vanish altogether. Realistically, it would be a rare contract of
service that gives untrammelled freedom to the party hired and eschews any intervention
whatsoever in his performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the result and the
means used to achieve it. The distinction acquires particular relevance in the case of an
enterprise affected with public interest, as is the business of insurance, and is on that account
subject to regulation by the State with respect, not only to the relations between insurer and
insured but also to the internal affairs of the insurance company. 12 Rules and regulations
governing the conduct of the business are provided for in the Insurance Code and enforced by
the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to
promulgate a set of rules to guide its commission agents in selling its policies that they may not
run afoul of the law and what it requires or prohibits. Of such a character are the rules which
prescribe the qualifications of persons who may be insured, subject insurance applications to
processing and approval by the Company, and also reserve to the Company the determination
of the premiums to be paid and the schedules of payment. None of these really invades the
agent's contractual prerogative to adopt his own selling methods or to sell insurance at his own
time and convenience, hence cannot justifiably be said to establish an employer-employee
relationship between him and the company.

There is no dearth of authority holding persons similarly placed as respondent Basiao to be

independent contractors, instead of employees of the parties for whom they worked. In Mafinco
Trading Corporation vs. Ople, 13 the Court ruled that a person engaged to sell soft drinks for
another, using a truck supplied by the latter, but with the right to employ his own workers, sell
according to his own methods subject only to prearranged routes, observing no working hours
fixed by the other party and obliged to secure his own licenses and defray his own selling
expenses, all in consideration of a peddler's discount given by the other party for at least 250
cases of soft drinks sold daily, was not an employee but an independent contractor.

In Investment Planning Corporation of the Philippines us. Social Security System 14 a case
almost on all fours with the present one, this Court held that there was no employer-employee
relationship between a commission agent and an investment company, but that the former was
an independent contractor where said agent and others similarly placed were: (a) paid
compensation in the form of commissions based on percentages of their sales, any balance of
commissions earned being payable to their legal representatives in the event of death or
registration; (b) required to put up performance bonds; (c) subject to a set of rules and
regulations governing the performance of their duties under the agreement with the company
and termination of their services for certain causes; (d) not required to report for work at any
time, nor to devote their time exclusively to working for the company nor to submit a record of
their activities, and who, finally, shouldered their own selling and transportation expenses.

More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller
to buy and sell rice and palay without compensation except a certain percentage of what he
was able to buy or sell, did work at his own pleasure without any supervision or control on the
part of his principal and relied on his own resources in the performance of his work, was a plain
commission agent, an independent contractor and not an employee.

RE: Rules and regulations

The respondents limit themselves to pointing out that Basiao's contract with the Company
bound him to observe and conform to such rules and regulations as the latter might from time
to time prescribe. No showing has been made that any such rules or regulations were in fact
promulgated, much less that any rules existed or were issued which effectively controlled or
restricted his choice of methods — or the methods themselves — of selling insurance . Absent
such showing, the Court will not speculate that any exceptions or qualifications were imposed
on the express provision of the contract leaving Basiao "... free to exercise his own judgment as
to the time, place and means of soliciting insurance."

The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with
the Company for twenty-five years. Whatever this is meant to imply, the obvious reply would be
that what is germane here is Basiao's status under the contract of July 2, 1968, not the length
of his relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not an
employee of the petitioner, but a commission agent, an independent contractor whose claim for
unpaid commissions should have been litigated in an ordinary civil action. The Labor Arbiter
erred in taking cognizance of, and adjudicating, said claim, being without jurisdiction to do so,
as did the respondent NLRC in affirming the Arbiter's decision. This conclusion renders it
unnecessary and premature to consider Basiao's claim for commissions on its merits.

WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set
aside, and that complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83
is dismissed. No pronouncement as to costs.
[3] G.R. No. L-32245 May 25, 1979

DY KEH BENG, petitioner,
vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET
AL., respondents.

A. M Sikat for petitioner.

D. A. Hernandez for respondents.

DE CASTRO, J.:

Petitioner Dy Keh Beng seeks a review by certiorari of the decision of the Court of Industrial
Relations dated March 23, 1970 in Case No. 3019-ULP and the Court's Resolution en banc of
June 10, 1970 affirming said decision. The Court of Industrial Relations in that case found Dy
Keh Beng guilty of the unfair labor practice acts alleged and order him to

reinstate Carlos Solano and Ricardo Tudla to their former jobs with backwages
from their respective dates of dismissal until fully reinstated without loss to their
right of seniority and of such other rights already acquired by them and/or
allowed by law. 1

Now, Dy Keh Beng assigns the following errors 2 as having been committed by the Court of
Industrial Relations:

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS

SOLANO AND TUDLA WERE EMPLOYEES OF PETITIONERS.

II

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS

SOLANO AND TUDLA WERE DISMISSED FROM THEIR EMPLOYMENT BY
PETITIONER.

III

RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES

ADDUCED BY COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC) A
PATTERN OF DISCRIMINATION BY THE PETITIONER HEREIN.

IV

RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF

UNFAIR LABOR PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE
COMPLAINT.
V

RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE

RESPONDENTS TO THEIR FORMER JOBS WITH BACKWAGES FROM
THEIR RESPECTIVE DATES OF DISMISSALS UNTIL FINALLY REINSTATED
WITHOUT LOSS TO THEIR RIGHT OF SENIORITY AND OF SUCH OTHER
RIGHTS ALREADY ACQUIRED BY THEM AND/OR ALLOWED BY LAW.

The facts as found by the Hearing Examiner are as follows:

Facts :

A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a basket factory,
for discriminatory acts within the meaning of Section 4(a), sub-paragraph (1) and (4). Republic
Act No. 875, 3 by dismissing on September 28 and 29, 1960, respectively, Carlos N. Solano
and Ricardo Tudla for their union activities. After preliminary investigation was conducted, a
case was filed in the Court of Industrial Relations for in behalf of the International Labor and
Marine Union of the Philippines and two of its members, Solano and Tudla In his answer, Dy
Keh Beng contended that he did not know Tudla and that Solano was not his employee
because the latter came to the establishment only when there was work which he did
on pakiaw basis, each piece of work being done under a separate contract. Moreover, Dy Keh
Beng countered with a special defense of simple extortion committed by the head of the labor
union, Bienvenido Onayan.

After trial, the Hearing Examiner prepared a report which was subsequently adopted in toto by
the Court of Industrial Relations. *found that * An employee-employer relationship was found to
have existed between Dy Keh Beng and complainants Tudla and Solano, although Solano was
admitted to have worked on piece basis.4 The issue therefore centered on whether there
existed an employee employer relation between petitioner Dy Keh Beng and the respondents
Solano and Tudla .

According to the Hearing Examiner, the evidence for the complainant Union tended to show
that Solano and Tudla became employees of Dy Keh Beng from May 2, 1953 and July 15,
1955, 5 respectively, and that except in the event of illness, their work with the establishment
was continuous although their services were compensated on piece basis. Evidence likewise
showed that at times the establishment had eight (8) workers and never less than five (5);
including the complainants, and that complainants used to receive ?5.00 a day. sometimes
less. 6

According to Dy Keh Beng, however, Solano was not his employee for the following reasons:

(1) Solano never stayed long enought at Dy's establishment;

(2) Solano had to leave as soon as he was through with the order given him by
Dy;

(4) When there were no orders needing his services there was nothing for him
to do;

(5) When orders came to the shop that his regular workers could not fill it was
then that Dy went to his address in Caloocan and fetched him for these orders;
and
 (6) Solano's work with Dy's establishment was not continuous. , 7

According to petitioner, these facts show that respondents Solano and Tudla are only piece
workers, not employees under Republic Act 875, where an employee 8 is referred to as

shall include any employee and shall not be limited to the employee of a
particular employer unless the Act explicitly states otherwise and shall include
any individual whose work has ceased as a consequence of, or in connection
with any current labor dispute or because of any unfair labor practice and who
has not obtained any other substantially equivalent and regular employment.

while an employer 9

includes any person acting in the interest of an employer, directly or indirectly

but shall not include any labor organization (otherwise than when acting as an
employer) or anyone acting in the capacity of officer or agent of such labor
organization.

Petitioner really anchors his contention of the non-existence of employee-employer relationship

on the control test. He points to the case of Madrigal Shipping Co., Inc. v. Nieves Baens del
Rosario, et al., L-13130, October 31, 1959, where the Court ruled that:

The test ... of the existence of employee and employer relationship is whether
there is an understanding between the parties that one is to render personal
services to or for the benefit of the other and recognition by them of the right of
one to order and control the other in the performance of the work and to direct
the manner and method of its performance.

Petitioner contends that the private respondents "did not meet the control test in the fight of
the ... definition of the terms employer and employee, because there was no evidence to show
that petitioner had the right to direct the manner and method of respondent's work. 10 Moreover,
it is argued that petitioner's evidence showed that "Solano worked on a pakiaw basis" and that
he stayed in the establishment only when there was work.

While this Court upholds the control test 11 under which an employer-employee relationship
exists "where the person for whom the services are performed reserves a right to control not
only the end to be achieved but also the means to be used in reaching such end, "

SC:

it finds no merit with petitioner's arguments as stated above. It should be borne in mind that the
control test calls merely for the existence of the right to control the manner of doing the work,
not the actual exercise of the right. 12 Considering the finding by the Hearing Examiner that the
establishment of Dy Keh Beng is "engaged in the manufacture of baskets known as kaing, 13 it
is natural to expect that those working under Dy would have to observe, among others, Dy's
requirements of size and quality of the kaing. Some control would necessarily be exercised by
Dy as the making of the kaing would be subject to Dy's specifications. Parenthetically, since the
work on the baskets is done at Dy's establishments, it can be inferred that the proprietor Dy
could easily exercise control on the men he employed.

*Re: the contention that the “pakyaw basis” negates the existence of eer*
As to the contention that Solano was not an employee because he worked on piece basis, this
Court agrees with the Hearing Examiner that

circumstances 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.

At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief Justice Ricardo
Paras who penned the decision in "Sunrise Coconut Products Co. v. Court of Industrial
Relations" (83 Phil..518, 523), opined that

judicial notice of the fact that the so-called "pakyaw" system mentioned in this
case as generally practiced in our country, is, in fact, a labor contract -between
employers and employees, between capitalists and laborers.

Insofar as the other assignments of errors are concerned, there is no showing that the Court of
Industrial Relations abused its discretion when it concluded that the findings of fact made by
the Hearing Examiner were supported by evidence on the record. Section 6, Republic Act 875
provides that in unfair labor practice cases, the factual findings of the Court of Industrial
Relations are conclusive on the Supreme Court, if supported by substantial evidence. This
provision has been put into effect in a long line of decisions where the Supreme Court did not
reverse the findings of fact of the Court of Industrial Relations when they were supported by
substantial evidence. 14

Nevertheless, considering that about eighteen (18) years have already elapsed from the time
the complainants were dismissed, 15 and that the decision being appealed ordered the payment
of backwages to the employees from their respective dates of dismissal until finally reinstated, it
is fitting to apply in this connection the formula for backwages worked out by Justice Claudio
Teehankee in "cases not terminated sooner." 16 The formula cans for fixing the award of
backwages without qualification and deduction to three years, "subject to deduction where
there are mitigating circumstances in favor of the employer but subject to increase by way of
exemplary damages where there are aggravating circumstances. 17 Considering there are no
such circumstances in this case, there is no reason why the Court should not apply the
abovementioned formula in this instance.

WHEREFORE; the award of backwages granted by the Court of Industrial Relations is herein
modified to an award of backwages for three years without qualification and deduction at the
respective rates of compensation the employees concerned were receiving at the time of
dismissal. The execution of this award is entrusted to the National Labor Relations
Commission. Costs against petitioner.
[4]

G.R. No. 138051             June 10, 2004

JOSE Y. SONZA, petitioner,
vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

Labor Law;  Labor Code;  Employer-Employee Relationship; Existence of an employer-employee

relationship is a question of fact; Appellate courts accord the factual findings of the Labor Arbiter and
the NLRC not only respect but also finality when supported by substantial evidence; Court does not
substitute its own judgment for that of the tribunal in determining where the weight of evidence lies or
what evidence is credible.—The existence of an employer-employee relationship is a question of fact.
Appellate courts accord the factual findings of the Labor Arbiter and the NLRC not only respect but also
finality when supported by substantial evidence. Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion. A party cannot prove the absence of
substantial evidence by simply pointing out that there is contrary evidence on record, direct or
circumstantial. The Court does not substitute its own judgment for that of the tribunal in determining
where the weight of evidence lies or what evidence is credible.

Same; Same; Same; Essential Elements of an Employer-Employee Relationship; The so-called

“control test” is the most important element.—Case law has consistently held that the elements of an
employer-employee 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 on the means
and methods by which the work is accomplished. The last element, the so-called “ control test,” is the
most important element.

Same; Same; Same; Independent Contractor;  The specific selection and hiring of SONZA,

because of his unique skills, talent and celebrity status not possessed by ordinary employees, is a
circumstance indicative but not conclusive of independent contractual relationship; The method of
selecting and engaging SONZA does not conclusively determine his status.—Independent contractors
often present themselves to possess unique skills, expertise or talent to distinguish them from ordinary
employees. The specific selection and hiring of SONZA, because of his unique skills, talent and
celebrity status not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of
an independent contractual relationship. If SONZA did not possess such unique skills, talent and
celebrity status, ABS-CBN would not have entered into the Agreement with SONZA but would have
hired him through its personnel department just like any other employee. In any event, the method of
selecting and engaging SONZA does not conclusively determine his status. We must consider all the
circumstances of the relationship, with the control test being the most important element.

Same; Same; Same; Same; Whatever benefits SONZA enjoyed arose from contract and not

because of an employer-employee relationship.—All the talent fees and benefits paid to SONZA were
the result of negotiations that led to the Agreement. If SONZA were ABS-CBN’s employee, there would
be no need for the parties to stipulate on benefits such as “SSS, Medicare, x x x and 13th month pay”
which the law automatically incorporates into every employer-employee contract. Whatever benefits
SONZA enjoyed arose from contract and not because of an employer-employee relationship.

Same; Same; Same; Same; The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.—SONZA’s talent fees, amounting to P317,000 monthly in the second and third year, are so
huge and out of the ordinary that they indicate more an independent contractual relationship rather than
an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such huge
talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary
employees is a circumstance indicative, but not conclusive, of an independent contractual relationship.

Same; Same; Same; Same; The greater the supervision and control the hirer exercises, the more
likely the worker is deemed an employee; The less control the hirer exercises, the more likely the worker
is considered an independent contractor; Applying the control test, SONZA is not an employee but an
independent contractor.—Applying the control test to the present case, we find that SONZA is not an
employee but an independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor. This test is based on the extent of control the
hirer exercises over a worker. The greater the supervision and control the hirer exercises, the more likely
the worker is deemed an employee. The converse holds true as well—the less control the hirer exercises,
the more likely the worker is considered an independent contractor.

Same; Same; Same; Same; ABS-CBN did not exercise control over the means and methods of
performance of SONZA’s work.—We find that ABS-CBN was not involved in the actual performance
that produced the finished product of SONZA’s work. ABS-CBN did not instruct SONZA how to
perform his job. ABS-CBN merely reserved the right to modify the program format and airtime schedule
“for more effective programming.” ABS-CBN’s sole concern was the quality of the shows and their
standing in the ratings. Clearly, ABS-CBN did not exercise control over the means and methods of
performance of SONZA’s work.

Same; Same; Same; Same; A radio broadcast specialist who works under minimal supervision is

an independent contractor.—A radio broadcast specialist who works under minimal supervision is an
independent contractor. SONZA’s work as television and radio program host required special skills and
talent, which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any
supervision and control over how SONZA utilized his skills and talent in his shows.

Same; Same; Same; Same; In the broadcast industry, exclusivity is not necessarily the same as

control.—Being an exclusive talent does not by itself mean that SONZA is an employee of ABS-CBN.
Even an independent contractor can validly provide his services exclusively to the hiring party. In the
broadcast industry, exclusivity is not necessarily the same as control.

Same; Same; Same; Same; Policy Instruction No. 40 is a mere issuance which does not have the
force and effect of law.—SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor
Blas Ople on 8 January 1979 finally settled the status of workers in the broadcast industry. Under this
policy, the types of employees in the broadcast industry are the station and program employees. Policy
Instruction No. 40 is a mere executive issuance which does not have the force and effect of law. There is
no legal presumption that Policy Instruction No. 40 determines SONZA’s status. A mere executive
issuance cannot exclude independent contractors from the class of service providers to the broadcast
industry. The classification of workers in the broadcast industry into only two groups under Policy
Instruction No. 40 is not binding on this Court, especially when the classification has no basis either in
law or in fact.

Same; Same; Same; Same; The right of labor to security of tenure as guaranteed in the

Constitution arises only if there is an employer-employee relationship under labor laws; Not every
performance of services for a fee creates an employer-employee relationship.—The right of labor to
security of tenure as guaranteed in the Constitution arises only if there is an employer-employee
relationship under labor laws. Not every performance of services for a fee creates an employer-employee
relationship. To hold that every person who renders services to another for a fee is an employee—to give
meaning to the security of tenure clause—will lead to absurd results.
 Same; Same; Labor Arbiter;  The Labor Arbiter can decide a case based solely on the position
papers and the supporting documents without a formal trial; The holding of a formal hearing or trial is
something that the parties cannot demand as a matter of right; Subject to the requirements of due
process, the technicalities of law and the rules obtaining in the courts of law do not strictly apply in
proceedings before a Labor Arbiter.—The Labor Arbiter can decide a case based solely on the position
papers and the supporting documents without a formal trial. The holding of a formal hearing or trial is
something that the parties cannot demand as a matter of right. If the Labor Arbiter is confident that he
can rely on the documents before him, he cannot be faulted for not conducting a formal trial, unless
under the particular circumstances of the case, the documents alone are insufficient. The proceedings
before a Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the techni
calities of law and the rules obtaining in the courts of law do not strictly apply in proceedings before a
Labor Arbiter.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Theodore O. Te for petitioner.
     Abello,  Concepcion,  Regala and Cruz for respondent ABS-CBN.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari 1 assailing the 26 March 1999 Decision2 of
the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza
("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations
Commission ("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case for lack of
jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an

Agreement ("Agreement") with the Mel and Jay Management and Development Corporation
("MJMDC"). ABS-CBN was represented by its corporate officers while MJMDC was
represented by SONZA, as President and General Manager, and Carmela Tiangco
("TIANGCO"), as EVP and Treasurer. Referred to in the Agreement as "AGENT," MJMDC
agreed to provide SONZA’s services exclusively to ABS-CBN as talent for radio and television.
The Agreement listed the services SONZA would render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays. 3

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first
year and ₱317,000 for the second and third year of the Agreement. ABS-CBN would pay the
talent fees on the 10th and 25th days of the month.
On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which
reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered
into by your goodself on behalf of ABS-CBN with our company relative to our
talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events
concerning his programs and career. We consider these acts of the station
violative of the Agreement and the station as in breach thereof. In this
connection, we hereby serve notice of rescission of said Agreement at our
instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the

remaining amount stipulated in paragraph 7 of the Agreement but reserves the
right to seek recovery of the other benefits under said Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.)
JOSE Y. SONZA
President and Gen. Manager 4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor
and Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN
did not pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing
bonus, travel allowance and amounts due under the Employees Stock Option Plan ("ESOP").

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July
1996.

Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at
PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new
account with the same bank where ABS-CBN deposited SONZA’s talent fees and other
payments due him under the Agreement.

In his Order dated 2 December 1996, the Labor Arbiter 5 denied the motion to dismiss and
directed the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is
sufficient enough as to confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon the causes of
action asserted is a matter to be resolved only after and as a result of a hearing. Thus,
the respondent’s plea of lack of employer-employee relationship may be pleaded only
as a matter of defense. It behooves upon it the duty to prove that there really is no
employer-employee relationship between it and the complainant.
The Labor Arbiter then considered the case submitted for resolution. The parties submitted
their position papers on 24 February 1997.

On 11 March 1997, SONZA filed a Reply to Respondent’s Position Paper with Motion to
Expunge Respondent’s Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits
of ABS-CBN’s witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in
their affidavits that the prevailing practice in the television and broadcast industry is to treat
talents like SONZA as independent contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:

xxx

While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of
the contract of a talent," it stands to reason that a "talent" as above-described cannot
be considered as an employee by reason of the peculiar circumstances surrounding the
engagement of his services.

It must be noted that complainant was engaged by respondent by reason of his peculiar

skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee, he
was free to perform the services he undertook to render in accordance with his own
style. The benefits conferred to complainant under the May 1994 Agreement are
certainly very much higher than those generally given to employees. For one,
complainant Sonza’s monthly talent fees amount to a staggering ₱317,000. Moreover,
his engagement as a talent was covered by a specific contract. Likewise, he was not
bound to render eight (8) hours of work per day as he worked only for such number of
hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits
normally given to an employee is inconsequential. Whatever benefits complainant
enjoyed arose from specific agreement by the parties and not by reason of employer-
employee relationship. As correctly put by the respondent, "All these benefits are
merely talent fees and other contractual benefits and should not be deemed as
‘salaries, wages and/or other remuneration’ accorded to an employee, notwithstanding
the nomenclature appended to these benefits. Apropos to this is the rule that the term
or nomenclature given to a stipulated benefit is not controlling, but the intent of the
parties to the Agreement conferring such benefit."

The fact that complainant was made subject to respondent’s Rules and Regulations,
likewise, does not detract from the absence of employer-employee relationship. As held
by the Supreme Court, "The line should be drawn between rules that merely serve as
guidelines towards the achievement of the mutually desired result without dictating the
means or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The first,
which aim only to promote the result, create no employer-employee relationship unlike
the second, which address both the result and the means to achieve it." (Insular Life
Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989).

x x x (Emphasis supplied)7
SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming
the Labor Arbiter’s decision. SONZA filed a motion for reconsideration, which the NLRC denied
in its Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals
rendered a Decision dismissing the case.8

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship
existed between SONZA and ABS-CBN. Adopting the NLRC’s decision, the appellate court
quoted the following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract
merely as an agent of complainant Sonza, the principal. By all indication and as the law
puts it, the act of the agent is the act of the principal itself. This fact is made particularly
true in this case, as admittedly MJMDC ‘is a management company devoted exclusively
to managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C.
Tiangco.’ (Opposition to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza
and MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions
of the May 1994 Agreement which specifically referred to MJMDC as the ‘AGENT’. As a
matter of fact, when complainant herein unilaterally rescinded said May 1994
Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr. Sonza,
who himself signed the same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that
historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is
only in the May 1994 Agreement, which is the latest Agreement executed between
ABS-CBN and Mr. Sonza, that MJMDC figured in the said Agreement as the agent of
Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere ‘labor-only’ contractor of ABS-

CBN such that there exist[s] employer-employee relationship between the latter and Mr.
Sonza. On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-
CBN, but of the talent/contractor Mr. Sonza, as expressly admitted by the latter and
MJMDC in the May 1994 Agreement.

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs
to the regular courts, the same being in the nature of an action for alleged breach of
contractual obligation on the part of respondent-appellee. As squarely apparent from
complainant-appellant’s Position Paper, his claims for compensation for services, ‘13th
month pay’, signing bonus and travel allowance against respondent-appellee are not
based on the Labor Code but rather on the provisions of the May 1994 Agreement,
while his claims for proceeds under Stock Purchase Agreement are based on the latter.
A portion of the Position Paper of complainant-appellant bears perusal:
 ‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter
contractually bound itself to pay complainant a signing bonus consisting of
shares of stocks…with FIVE HUNDRED THOUSAND PESOS (₱500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an

amount not lower than the amount he was receiving prior to effectivity of (the)
Agreement’.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a

commutable travel benefit amounting to at least One Hundred Fifty Thousand
Pesos (₱150,000.00) per year.’

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that

his contractual relations with ABS-CBN are founded on the New Civil Code, rather than
the Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant
served upon the latter a ‘notice of rescission’ of Agreement with the station, per his
letter dated April 1, 1996, which asserted that instead of referring to unpaid employee
benefits, ‘he is waiving and renouncing recovery of the remaining amount stipulated in
paragraph 7 of the Agreement but reserves the right to such recovery of the other
benefits under said Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to
Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement
and/or the Stock Purchase Agreement by respondent-appellee that complainant-
appellant filed his complaint. Complainant-appellant’s claims being anchored on the
alleged breach of contract on the part of respondent-appellee, the same can be
resolved by reference to civil law and not to labor law. Consequently, they are within the
realm of civil law and, thus, lie with the regular courts. As held in the case of Dai-Chi
Electronics Manufacturing vs. Villarama, 238 SCRA 267, 21 November 1994, an action
for breach of contractual obligation is intrinsically a civil dispute.9 (Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between
SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to
resolve.10 A special civil action for certiorari extends only to issues of want or excess of
jurisdiction of the NLRC.11 Such action cannot cover an inquiry into the correctness of the
evaluation of the evidence which served as basis of the NLRC’s conclusion. 12 The Court of
Appeals added that it could not re-examine the parties’ evidence and substitute the factual
findings of the NLRC with its own.13

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S

DECISION AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE
RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE
WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO
SUPPORT SUCH A FINDING.14

The Court’s Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals
affirming the NLRC ruling which upheld the Labor Arbiter’s dismissal of the case for lack of
jurisdiction.

The present controversy is one of first impression. Although Philippine labor laws and
jurisprudence define clearly the elements of an employer-employee relationship, this is the first
time that the Court will resolve the nature of the relationship between a television and radio
station and one of its "talents." There is no case law stating that a radio and television program
host is an employee of the broadcast station. The instant case involves big names in the
broadcast industry, namely Jose "Jay" Sonza, a known television and radio personality, and
ABS-CBN, one of the biggest television and radio networks in the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an
employee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no
jurisdiction because SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts

accord the factual findings of the Labor Arbiter and the NLRC not only respect but also finality
when supported by substantial evidence. 15 Substantial evidence means such relevant evidence
as a reasonable mind might accept as adequate to support a conclusion. 16 A party cannot
prove the absence of substantial evidence by simply pointing out that there is contrary evidence
on record, direct or circumstantial. The Court does not substitute its own judgment for that of
the tribunal in determining where the weight of evidence lies or what evidence is credible. 17

SONZA maintains that all essential elements of an employer-employee relationship are present
in this case. Case law has consistently held that the elements of an employer-employee
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 on the means
and methods by which the work is accomplished. 18 The last element, the so-called "control
test", is the most important element.19

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’s services to co-host its television and radio programs because of
SONZA’s peculiar skills, talent and celebrity status. SONZA contends that the "discretion used
by respondent in specifically selecting and hiring complainant over other broadcasters of
possibly similar experience and qualification as complainant belies respondent’s claim of
independent contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent
to distinguish them from ordinary employees. The specific selection and hiring of
SONZA, because of his unique skills, talent and celebrity status not possessed by ordinary
employees, is a circumstance indicative, but not conclusive, of an independent contractual
relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN
would not have entered into the Agreement with SONZA but would have hired him through its
personnel department just like any other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine
his status. We must consider all the circumstances of the relationship, with the control test
being the most important element.
B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to
MJMDC. SONZA asserts that this mode of fee payment shows that he was an employee of
ABS-CBN. SONZA also points out that ABS-CBN granted him benefits and privileges "which he
would not have enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBN’s employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay" 20 which the law
automatically incorporates into every employer-employee contract. 21 Whatever benefits SONZA
enjoyed arose from contract and not because of an employer-employee relationship. 22

SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge
and out of the ordinary that they indicate more an independent contractual relationship rather
than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent
fees precisely because of SONZA’s unique skills, talent and celebrity status not possessed by
ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to
demand and receive such huge talent fees for his services. The power to bargain talent fees
way above the salary scales of ordinary employees is a circumstance indicative, but not
conclusive, of an independent contractual relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn
over any talent fee accruing under the Agreement.

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship.
SONZA failed to show that ABS-CBN could terminate his services on grounds other than
breach of contract, such as retrenchment to prevent losses as provided under labor laws. 23

During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as
"AGENT and Jay Sonza shall faithfully and completely perform each condition of this
Agreement."24 Even if it suffered severe business losses, ABS-CBN could not retrench SONZA
because ABS-CBN remained obligated to pay SONZA’s talent fees during the life of the
Agreement. This circumstance indicates an independent contractual relationship between
SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still
paid him his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to
continue paying SONZA’s talent fees during the remaining life of the Agreement even if ABS-
CBN cancelled SONZA’s programs through no fault of SONZA.25

SONZA assails the Labor Arbiter’s interpretation of his rescission of the Agreement as an
admission that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true
that complainant was really an employee, he would merely resign, instead." SONZA did
actually resign from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement.
SONZA’s letter clearly bears this out. 26 However, the manner by which SONZA terminated his
relationship with ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or
resigned from work does not determine his status as employee or independent contractor.
D. Power of Control

Since there is no local precedent on whether a radio and television program host is an
employee or an independent contractor, we refer to foreign case law in analyzing the present
case. The United States Court of Appeals, First Circuit, recently held in Alberty-Vélez v.
Corporación De Puerto Rico Para La Difusión Pública ("WIPR") 27 that a television program host
is an independent contractor. We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television

actress is a skilled position requiring talent and training not available on-the-job. x x x In
this regard, Alberty possesses a master’s degree in public communications and
journalism; is trained in dance, singing, and modeling; taught with the drama
department at the University of Puerto Rico; and acted in several theater and television
productions prior to her affiliation with "Desde Mi Pueblo." Second, Alberty provided the
"tools and instrumentalities" necessary for her to perform. Specifically, she provided, or
obtained sponsors to provide, the costumes, jewelry, and other image-related supplies
and services necessary for her appearance. Alberty disputes that this factor favors
independent contractor status because WIPR provided the "equipment necessary to
tape the show." Alberty’s argument is misplaced. The equipment necessary for Alberty
to conduct her job as host of "Desde Mi Pueblo" related to her appearance on the
show. Others provided equipment for filming and producing the show, but these were
not the primary tools that Alberty used to perform her particular function. If we accepted
this argument, independent contractors could never work on collaborative projects
because other individuals often provide the equipment required for different aspects of
the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming "Desde Mi
Pueblo." Alberty’s contracts with WIPR specifically provided that WIPR hired her
"professional services as Hostess for the Program Desde Mi Pueblo." There is no
evidence that WIPR assigned Alberty tasks in addition to work related to these tapings.
x x x28 (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor. 29 This test is based on the extent
of control the hirer exercises over a worker. The greater the supervision and control the hirer
exercises, the more likely the worker is deemed an employee. The converse holds true as well
– the less control the hirer exercises, the more likely the worker is considered an independent
contractor.30

First, SONZA contends that ABS-CBN exercised control over the means and methods of his
work.

SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host

the "Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his
work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on
television, and sounded on radio were outside ABS-CBN’s control. SONZA did not have to
render eight hours of work per day. The Agreement required SONZA to attend only rehearsals
and tapings of the shows, as well as pre- and post-production staff meetings. 31 ABS-CBN could
not dictate the contents of SONZA’s script. However, the Agreement prohibited SONZA from
criticizing in his shows ABS-CBN or its interests. 32 The clear implication is that SONZA had a
free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its
interests.
We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work. 33 ABS-CBN did not instruct SONZA how to perform his job. ABS-
CBN merely reserved the right to modify the program format and airtime schedule "for more
effective programming."34 ABS-CBN’s sole concern was the quality of the shows and their
standing in the ratings. Clearly, ABS-CBN did not exercise control over the means and methods
of performance of SONZA’s work. SONZA claims that ABS-CBN’s power not to broadcast his
shows proves ABS-CBN’s power over the means and methods of the performance of his work.
Although ABS-CBN did have the option not to broadcast SONZA’s show, ABS-CBN was still
obligated to pay SONZA’s talent fees... Thus, even if ABS-CBN was completely dissatisfied
with the means and methods of SONZA’s performance of his work, or even with the quality or
product of his work, ABS-CBN could not dismiss or even discipline SONZA. All that ABS-CBN
could do is not to broadcast SONZA’s show but ABS-CBN must still pay his talent fees in full. 35

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation
to continue paying in full SONZA’s talent fees, did not amount to control over the means and
methods of the performance of SONZA’s work. ABS-CBN could not terminate or discipline
SONZA even if the means and methods of performance of his work - how he delivered his lines
and appeared on television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s
control was limited only to the result of SONZA’s work, whether to broadcast the final product or
not. In either case, ABS-CBN must still pay SONZA’s talent fees in full until the expiry of the
Agreement. In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals
ruled that vaudeville performers were independent contractors although the management
reserved the right to delete objectionable features in their shows. Since the management did
not have control over the manner of performance of the skills of the artists, it could only control
the result of the work by deleting objectionable features. 37

SONZA further contends that ABS-CBN exercised control over his work by supplying all
equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to
broadcast the "Mel & Jay" programs. However, the equipment, crew and airtime are not the
"tools and instrumentalities" SONZA needed to perform his job. What SONZA principally
needed were his talent or skills and the costumes necessary for his appearance. 38 Even though
ABS-CBN provided SONZA with the place of work and the necessary equipment, SONZA was
still an independent contractor since ABS-CBN did not supervise and control his work. ABS-
CBN’s sole concern was for SONZA to display his talent during the airing of the programs. 39

A radio broadcast specialist who works under minimal supervision is an independent

contractor.40 SONZA’s work as television and radio program host required special skills and
talent, which SONZA admittedly possesses. The records do not show that ABS-CBN exercised
any supervision and control over how SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN

subjected him to its rules and standards of performance. SONZA claims that this indicates
ABS-CBN’s control "not only [over] his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance
"covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the
rules and standards of performance prescribed for employees of ABS-CBN. The code of
conduct imposed on SONZA under the Agreement refers to the "Television and Radio Code of
the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the
COMPANY (ABS-CBN) as its Code of Ethics." 42 The KBP code applies to broadcasters, not to
employees of radio and television stations. Broadcasters are not necessarily employees of
radio and television stations. Clearly, the rules and standards of performance referred to in the
Agreement are those applicable to talents and not to employees of ABS-CBN.
In any event, not all rules imposed by the hiring party on the hired party indicate that the latter
is an employee of the former. 43 In this case, SONZA failed to show that these rules controlled
his performance. We find that these general rules are merely guidelines towards the
achievement of the mutually desired result, which are top-rating television and radio programs
that comply with standards of the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other
party in relation to the services being rendered may be accorded the effect of establishing an
employer-employee relationship. The facts of this case fall squarely with the case of Insular Life
Assurance Co., Ltd. vs. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines
towards the achievement of the mutually desired result without dictating the means or
methods to be employed in attaining it, and those that control or fix the methodology
and bind or restrict the party hired to the use of such means. The first, which aim only to
promote the result, create no employer-employee relationship unlike the second, which
address both the result and the means used to achieve it.44

The Vaughan case also held that one could still be an independent contractor although the
hirer reserved certain supervision to insure the attainment of the desired result. The hirer,
however, must not deprive the one hired from performing his services according to his own
initiative.45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form
of control which ABS-CBN exercised over him.

This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an
employee of ABS-CBN. Even an independent contractor can validly provide his services
exclusively to the hiring party. In the broadcast industry, exclusivity is not necessarily the same
as control.

The hiring of exclusive talents is a widespread and accepted practice in the entertainment
industry.46 This practice is not designed to control the means and methods of work of the talent,
but simply to protect the investment of the broadcast station. The broadcast station normally
spends substantial amounts of money, time and effort "in building up its talents as well as the
programs they appear in and thus expects that said talents remain exclusive with the station for
a commensurate period of time."47 Normally, a much higher fee is paid to talents who agree to
work exclusively for a particular radio or television station. In short, the huge talent fees partially
compensates for exclusivity, as in the present case.

MJMDC as Agent of SONZA

SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which contracted out
his services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an
employee of ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN
is his employer. In a labor-only contract, there are three parties involved: (1) the "labor-only"
contractor; (2) the employee who is ostensibly under the employ of the "labor-only" contractor;
and (3) the principal who is deemed the real employer. Under this scheme, the "labor-only"
contractor is the agent of the principal. The law makes the principal responsible to the
employees of the "labor-only contractor" as if the principal itself directly hired or employed the
employees.48 These circumstances are not present in this case.
There are essentially only two parties involved under the Agreement, namely, SONZA and
ABS-CBN. MJMDC merely acted as SONZA’s agent. The Agreement expressly states that
MJMDC acted as the "AGENT" of SONZA. The records do not show that MJMDC acted as
ABS-CBN’s agent. MJMDC, which stands for Mel and Jay Management and Development
Corporation, is a corporation organized and owned by SONZA and TIANGCO. The President
and General Manager of MJMDC is SONZA himself. It is absurd to hold that MJMDC, which is
owned, controlled, headed and managed by SONZA, acted as agent of ABS-CBN in entering
into the Agreement with SONZA, who himself is represented by MJMDC. That would make
MJMDC the agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the

careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other
business, not even job contracting. MJMDC does not have any other function apart from acting
as agent of SONZA or TIANGCO to promote their careers in the broadcast and television
industry.49

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8
January 1979 finally settled the status of workers in the broadcast industry. Under this policy,
the types of employees in the broadcast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect
of law. There is no legal presumption that Policy Instruction No. 40 determines SONZA’s status.
A mere executive issuance cannot exclude independent contractors from the class of service
providers to the broadcast industry. The classification of workers in the broadcast industry into
only two groups under Policy Instruction No. 40 is not binding on this Court, especially when
the classification has no basis either in law or in fact.

Affidavits of ABS-CBN’s Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and
Rolando Cruz without giving his counsel the opportunity to cross-examine these witnesses.
SONZA brands these witnesses as incompetent to attest on the prevailing practice in the radio
and television industry. SONZA views the affidavits of these witnesses as misleading and
irrelevant.

While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from
denying or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether
to conduct a formal (trial-type) hearing after the submission of the position papers of the
parties, thus:

Section 3. Submission of Position Papers/Memorandum

These verified position papers shall cover only those claims and causes of action raised
in the complaint excluding those that may have been amicably settled, and shall be
accompanied by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latter’s direct testimony. x x x

Section 4. Determination of Necessity of Hearing. – Immediately after the submission of

the parties of their position papers/memorandum, the Labor Arbiter shall motu propio
determine whether there is need for a formal trial or hearing. At this stage, he may, at
 his discretion and for the purpose of making such determination, ask clarificatory
questions to further elicit facts or information, including but not limited to the subpoena
of relevant documentary evidence, if any from any party or witness.50

The Labor Arbiter can decide a case based solely on the position papers and the supporting
documents without a formal trial. 51 The holding of a formal hearing or trial is something that the
parties cannot demand as a matter of right. 52 If the Labor Arbiter is confident that he can rely on
the documents before him, he cannot be faulted for not conducting a formal trial, unless under
the particular circumstances of the case, the documents alone are insufficient. The proceedings
before a Labor Arbiter are non-litigious in nature. Subject to the requirements of due process,
the technicalities of law and the rules obtaining in the courts of law do not strictly apply in
proceedings before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment
industries to treat talents like SONZA as independent contractors. SONZA argues that if such
practice exists, it is void for violating the right of labor to security of tenure. The right of labor to
security of tenure as guaranteed in the Constitution 53 arises only if there is an employer-
employee relationship under labor laws. Not every performance of services for a fee creates an
employer-employee relationship. To hold that every person who renders services to another for
a fee is an employee - to give meaning to the security of tenure clause - will lead to absurd
results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
independent contractors. The right to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to render his services
without any one controlling the means and methods by which he performs his art or craft. This
Court will not interpret the right of labor to security of tenure to compel artists and talents to
render their services only as employees. If radio and television program hosts can render their
services only as employees, the station owners and managers can dictate to the radio and
television hosts what they say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters

The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716, 55 as
amended by Republic Act No. 8241, 56 treats talents, television and radio broadcasters
differently. Under the NIRC, these professionals are subject to the 10% value-added tax
("VAT") on services they render. Exempted from the VAT are those under an employer-
employee relationship.57 This different tax treatment accorded to talents and broadcasters
bolters our conclusion that they are independent contractors, provided all the basic elements of
a contractual relationship are present as in this case.

Nature of SONZA’s Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay,
service incentive leave, signing bonus, travel allowance, and amounts due under the Employee
Stock Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals
that SONZA’s claims are all based on the May 1994 Agreement and stock option plan, and not
on the Labor Code. Clearly, the present case does not call for an application of the Labor Code
provisions but an interpretation and implementation of the May 1994 Agreement. In effect,
SONZA’s cause of action is for breach of contract which is intrinsically a civil dispute cognizable
by the regular courts.58

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26

March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.
[4]

G.R. No. 146530            January 17, 2005

PEDRO CHAVEZ, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING, INC. and ALVIN
LEE, Plant Manager, respondents.

Labor Law; Elements of an employer-employee relationship.—The elements to determine the

existence of an employment relationship are: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the employer’s power to control the employee’s
conduct. The most important element 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. All the four
elements are present in this case.

Same; Same; Benefits; Wages; Definition of Wages.—Wages are defined as “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 calcu lating 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 service rendered or to be rendered.” That the petitioner was paid on a per trip
basis is not significant. This is merely a method of computing compensation and not a basis for
determining the existence or absence of employer-employee relationship. One may be paid on the basis
of results or time expended on the work, and may or may not acquire an employment status, depending
on whether the elements of an employer-employee relationship are present or not.  In this case, it cannot
be gainsaid that the petitioner received compensation from the respondent company for the services that
he rendered to the latter.

Same; Same; Same; Same; Under the Rules Implementing the Labor Code, every employer is
required to pay his employees by means of payroll.—Under the Rules Implementing the Labor Code,
every employer is required to pay his employees by means of payroll. The payroll should show, among
other things, the employee’s rate of pay, deductions made, and the amount actually paid to the employee.
Interestingly, the respondents did not present the payroll to support their claim that the petitioner was not
their employee, raising speculations whether this omission proves that its presentation would be adverse
to their case.
Same; Same; Dismissals; Respondent’s power to dismiss the petitioner was inherent in the fact that
they engaged the services of the petitioner as truck driver.—The respondents’ power to dismiss the
petitioner was inherent in the fact that they engaged the services of the petitioner as truck driver. They
exercised this power by terminating the petitioner’s services albeit in the guise of “severance of
contractual relation” due allegedly to the latter’s breach of his contractual obligation.

Same; Same; Same; While an independent contractor enjoys independence and freedom from the
control and supervision of his principal, an employee is subject to the employer’s power to control the
means and methods by which the employee’s work is to be performed and accomplished. —Of the four
elements of the employer-employee relationship, the “control test” is the most important. Compared to an
employee, an independent contractor is one who carries on a distinct and independent business and
undertakes to perform the job, work, or service on its own account and under its own responsibility
according to its own manner and method, free from the control and direction of the principal in all
matters connected with the performance of the work except as to the results thereof. Hence, while an
independent contractor enjoys independence and freedom from the control and supervision of his
principal, an employee is subject to the employer’s power to control the means and methods by which the
employee’s work is to be performed and accomplished.
 Same; Same; Same; The employment status of a person is defined and prescribed by law and not
by what the parties say it should be.—It bears stressing that the existence of an employer-employee
relationship cannot be negated by expressly repudiating it in a contract and providing therein that the
employee is an independent contractor when, as in this case, the facts clearly show otherwise. Indeed, the
employment status of a person is defined and prescribed by law and not by what the parties say it should
be.

Same; Same; Same; Abandonment; As a rule, the employer bears the burden to prove that the
dismissal was for a valid and just cause; Factors to constitute abandonment; A charge of abandonment
is totally inconsistent with the immediate filing of a complaint for illegal dismissal more so when it
includes a prayer for reinstatement.—As a rule, the employer bears the burden to prove that the
dismissal was for a valid and just cause. In this case, the respondents failed to prove any such cause for
the petitioner’s dismissal. They insinuated that the petitioner abandoned his job. To constitute
abandonment, these two factors must concur: (1) the failure to report for work or absence without valid
or justifiable reason; and (2) a clear intention to sever employer-employee relationship. Obviously, the
petitioner did not intend to sever his relationship with the respondent company for at the time that he
allegedly abandoned his job, the petitioner just filed a complaint for regularization, which was forthwith
amended to one for illegal dismissal. A charge of abandonment is totally inconsistent with the immediate
filing of a complaint for illegal dismissal, more so when it includes a prayer for reinstatement.

Same; Same; Same; The negligence, to warrant removal from service, should not merely be gross
but also habitual.—Neither can the respondents’ claim that the petitioner was guilty of gross negligence
in the proper maintenance of the truck constitute a valid and just cause for his dismissal. Gross
negligence implies a want or absence of or failure to exercise slight care or diligence, or the entire
absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid
them. The negligence, to warrant removal from service, should not merely be gross but also habitual.
The single and isolated act of the petitioner’s negligence in the proper maintenance of the truck alleged
by the respondents does not amount to “gross and habitual neglect” warranting his dismissal.

Same; Same; Same; The lack of a valid and just cause in terminating the services of the petitioner
renders his dismissal illegal.—The lack of a valid and just cause in terminating the services of the
petitioner renders his dismissal illegal. Under Article 279 of the Labor Code, an employee who is
unjustly dismissed is entitled to reinstatement, without loss of seniority rights and other privileges, and to
the payment of full backwages, inclusive of allowances, and other benefits or their monetary equivalent,
computed from the time his compensation was withheld from him up to the time of his actual
reinstatement.

PETITION for review on certiorari of a decision of the Court of Appeals.

   The facts are stated in the opinion of the Court.
  Danilo S. Capuli for petitioner.
  Tan, Acut & Lopez for private respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari of the Resolution 1 dated December 15,
2000 of the Court of Appeals (CA) reversing its Decision dated April 28, 2000 in CA-G.R. SP
No. 52485. The assailed resolution reinstated the Decision dated July 10, 1998 of the National
Labor Relations Commission (NLRC), dismissing the complaint for illegal dismissal filed by
herein petitioner Pedro Chavez. The said NLRC decision similarly reversed its earlier Decision
dated January 27, 1998 which, affirming that of the Labor Arbiter, ruled that the petitioner had
been illegally dismissed by respondents Supreme Packaging, Inc. and Mr. Alvin Lee.
The case stemmed from the following facts:

The respondent company, Supreme Packaging, Inc., is in the business of manufacturing

cartons and other packaging materials for export and distribution. It engaged the services of the
petitioner, Pedro Chavez, as truck driver on October 25, 1984. As such, the petitioner was
tasked to deliver the respondent company’s products from its factory in Mariveles, Bataan, to its
various customers, mostly in Metro Manila. The respondent company furnished the petitioner
with a truck. Most of the petitioner’s delivery trips were made at nighttime, commencing at 6:00
p.m. from Mariveles, and returning thereto in the afternoon two or three days after. The
deliveries were made in accordance with the routing slips issued by respondent company
indicating the order, time and urgency of delivery. Initially, the petitioner was paid the sum of
₱350.00 per trip. This was later adjusted to ₱480.00 per trip and, at the time of his alleged
dismissal, the petitioner was receiving ₱900.00 per trip.

Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent company’s
plant manager, his (the petitioner’s) desire to avail himself of the benefits that the regular
employees were receiving such as overtime pay, nightshift differential pay, and 13th month
pay, among others. Although he promised to extend these benefits to the petitioner, respondent
Lee failed to actually do so.

On February 20, 1995, the petitioner filed a complaint for regularization with the Regional
Arbitration Branch No. III of the NLRC in San Fernando, Pampanga. Before the case could be
heard, respondent company terminated the services of the petitioner. Consequently, on May
25, 1995, the petitioner filed an amended complaint against the respondents for illegal
dismissal, unfair labor practice and non-payment of overtime pay, nightshift differential pay,
13th month pay, among others. The case was docketed as NLRC Case No. RAB-III-02-6181-
95.

The respondents, for their part, denied the existence of an employer-employee relationship
between the respondent company and the petitioner. They averred that the petitioner was an
independent contractor as evidenced by the contract of service which he and the respondent
company entered into. The said contract provided as follows:

That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to hire and
the Contractor [referring to Pedro Chavez], by nature of their specialized line or service jobs,
accepts the services to be rendered to the Principal, under the following terms and covenants
heretofore mentioned:

1. That the inland transport delivery/hauling activities to be performed by the contractor

to the principal, shall only cover travel route from Mariveles to Metro Manila. Otherwise,
any change to this travel route shall be subject to further agreement by the parties
concerned.

2. That the payment to be made by the Principal for any hauling or delivery transport
services fully rendered by the Contractor shall be on a per trip basis depending on the
size or classification of the truck being used in the transport service, to wit:

a) If the hauling or delivery service shall require a truck of six wheeler, the
payment on a per trip basis from Mariveles to Metro Manila shall be THREE
HUNDRED PESOS (₱300.00) and EFFECTIVE December 15, 1984.
 b) If the hauling or delivery service require a truck of ten wheeler, the payment
on a per trip basis, following the same route mentioned, shall be THREE
HUNDRED FIFTY (₱350.00) Pesos and Effective December 15, 1984.

3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at least
two (2) helpers;

4. The Contractor shall exercise direct control and shall be responsible to the Principal
for the cost of any damage to, loss of any goods, cargoes, finished products or the like,
while the same are in transit, or due to reckless [sic] of its men utilized for the purpose
above mentioned;

5. That the Contractor shall have absolute control and disciplinary power over its men
working for him subject to this agreement, and that the Contractor shall hold the
Principal free and harmless from any liability or claim that may arise by virtue of the
Contractor’s non-compliance to the existing provisions of the Minimum Wage Law, the
Employees Compensation Act, the Social Security System Act, or any other such law or
decree that may hereafter be enacted, it being clearly understood that any truck drivers,
helpers or men working with and for the Contractor, are not employees who will be
indemnified by the Principal for any such claim, including damages incurred in
connection therewith;

6. This contract shall take effect immediately upon the signing by the parties, subject to
renewal on a year-to-year basis.2

This contract of service was dated December 12, 1984. It was subsequently renewed twice, on
July 10, 1989 and September 28, 1992. Except for the rates to be paid to the petitioner, the
terms of the contracts were substantially the same. The relationship of the respondent
company and the petitioner was allegedly governed by this contract of service.

The respondents insisted that the petitioner had the sole control over the means and methods
by which his work was accomplished. He paid the wages of his helpers and exercised control
over them. As such, the petitioner was not entitled to regularization because he was not an
employee of the respondent company. The respondents, likewise, maintained that they did not
dismiss the petitioner. Rather, the severance of his contractual relation with the respondent
company was due to his violation of the terms and conditions of their contract. The petitioner
allegedly failed to observe the minimum degree of diligence in the proper maintenance of the
truck he was using, thereby exposing respondent company to unnecessary significant
expenses of overhauling the said truck.

After the parties had filed their respective pleadings, the Labor Arbiter rendered the Decision
dated February 3, 1997, finding the respondents guilty of illegal dismissal. The Labor Arbiter
declared that the petitioner was a regular employee of the respondent company as he was
performing a service that was necessary and desirable to the latter’s business. Moreover, it
was noted that the petitioner had discharged his duties as truck driver for the respondent
company for a continuous and uninterrupted period of more than ten years.

The contract of service invoked by the respondents was declared null and void as it constituted
a circumvention of the constitutional provision affording full protection to labor and security of
tenure. The Labor Arbiter found that the petitioner’s dismissal was anchored on his insistent
demand to be regularized. Hence, for lack of a valid and just cause therefor and for their failure
to observe the due process requirements, the respondents were found guilty of illegal
dismissal. The dispositive portion of the Labor Arbiter’s decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent
SUPREME PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with business address
at BEPZ, Mariveles, Bataan guilty of illegal dismissal, ordering said respondent to pay
complainant his separation pay equivalent to one (1) month pay per year of service based on
the average monthly pay of ₱10,800.00 in lieu of reinstatement as his reinstatement back to
work will not do any good between the parties as the employment relationship has already
become strained and full backwages from the time his compensation was withheld on February
23, 1995 up to January 31, 1997 (cut-off date) until compliance, otherwise, his backwages shall
continue to run. Also to pay complainant his 13th month pay, night shift differential pay and
service incentive leave pay hereunder computed as follows:

a) Backwages ………………….. ₱248,400.00

b) Separation Pay ………….…... ₱140,400.00

c) 13th month pay ………….……₱ 10,800.00

d) Service Incentive Leave Pay .. 2,040.00

TOTAL ₱401,640.00

Respondent is also ordered to pay ten (10%) of the amount due the complainant as attorney’s
fees.

SO ORDERED.3

NLRC

The respondents seasonably interposed an appeal with the NLRC. However, the appeal was
dismissed by the NLRC in its Decision 4 dated January 27, 1998, as it affirmed in toto the
decision of the Labor Arbiter. In the said decision, the NLRC characterized the contract of
service between the respondent company and the petitioner as a "scheme" that was resorted to
by the respondents who, taking advantage of the petitioner’s unfamiliarity with the English
language and/or legal niceties, wanted to evade the effects and implications of his becoming a
regularized employee.5

The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC. Acting
thereon, the NLRC rendered another Decision 6 dated July 10, 1998, reversing its earlier
decision and, this time, holding that no employer-employee relationship existed between the
respondent company and the petitioner. In reconsidering its earlier decision, the NLRC stated
that the respondents did not exercise control over the means and methods by which the
petitioner accomplished his delivery services. It upheld the validity of the contract of service as
it pointed out that said contract was silent as to the time by which the petitioner was to make
the deliveries and that the petitioner could hire his own helpers whose wages would be paid
from his own account. These factors indicated that the petitioner was an independent
contractor, not an employee of the respondent company.

The NLRC ruled that the contract of service was not intended to circumvent Article 280 of the
Labor Code on the regularization of employees. Said contract, including the fixed period of
employment contained therein, having been knowingly and voluntarily entered into by the
parties thereto was declared valid citing Brent School, Inc. v. Zamora.7 The NLRC, thus,
dismissed the petitioner’s complaint for illegal dismissal.
The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied by the
NLRC in its Resolution dated September 7, 1998. He then filed with this Court a petition for
certiorari, which was referred to the CA following the ruling in St. Martin Funeral Home v.
NLRC .8

The appellate court rendered the Decision dated April 28, 2000, reversing the July 10, 1998
Decision of the NLRC and reinstating the decision of the Labor Arbiter. In the said decision, the
CA ruled that the petitioner was a regular employee of the respondent company because as its
truck driver, he performed a service that was indispensable to the latter’s business. Further, he
had been the respondent company’s truck driver for ten continuous years. The CA also
reasoned that the petitioner could not be considered an independent contractor since he had
no substantial capital in the form of tools and machinery. In fact, the truck that he drove
belonged to the respondent company. The CA also observed that the routing slips that the
respondent company issued to the petitioner showed that it exercised control over the latter.
The routing slips indicated the chronological order and priority of delivery, the urgency of
certain deliveries and the time when the goods were to be delivered to the customers.

The CA, likewise, disbelieved the respondents’ claim that the petitioner abandoned his job
noting that he just filed a complaint for regularization. This actuation of the petitioner negated
the respondents’ allegation that he abandoned his job. The CA held that the respondents failed
to discharge their burden to show that the petitioner’s dismissal was for a valid and just cause.
Accordingly, the respondents were declared guilty of illegal dismissal and the decision of the
Labor Arbiter was reinstated.

In its April 28, 2000 Decision, the CA denounced the contract of service between the
respondent company and the petitioner in this wise:

In summation, we rule that with the proliferation of contracts seeking to prevent workers from
attaining the status of regular employment, it is but necessary for the courts to scrutinize with
extreme caution their legality and justness. Where from the circumstances it is apparent that a
contract has been entered into to preclude acquisition of tenurial security by the employee, they
should be struck down and disregarded as contrary to public policy and morals. In this case,
the "contract of service" is just another attempt to exploit the unwitting employee and deprive
him of the protection of the Labor Code by making it appear that the stipulations of the parties
were governed by the Civil Code as in ordinary transactions. 9

However, on motion for reconsideration by the respondents, the CA made a complete turn
around as it rendered the assailed Resolution dated December 15, 2000 upholding the contract
of service between the petitioner and the respondent company. In reconsidering its decision,
the CA explained that the extent of control exercised by the respondents over the petitioner
was only with respect to the result but not to the means and methods used by him. The CA
cited the following circumstances: (1) the respondents had no say on how the goods were to be
delivered to the customers; (2) the petitioner had the right to employ workers who would be
under his direct control; and (3) the petitioner had no working time.

The fact that the petitioner had been with the respondent company for more than ten years
was, according to the CA, of no moment because his status was determined not by the length
of service but by the contract of service. This contract, not being contrary to morals, good
customs, public order or public policy, should be given the force and effect of law as between
the respondent company and the petitioner. Consequently, the CA reinstated the July 10, 1998
Decision of the NLRC dismissing the petitioner’s complaint for illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000
Resolution of the appellate court alleging that:

(A)

THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO

EXCESS OF JURISDICTION IN GIVING MORE CONSIDERATION TO THE "CONTRACT OF
SERVICE" ENTERED INTO BY PETITIONER AND PRIVATE RESPONDENT THAN ARTICLE 280
OF THE LABOR CODE OF THE PHILIPPINES WHICH CATEGORICALLY DEFINES A REGULAR
EMPLOYMENT NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE CONTRARY AND
REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;

(B)

THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO

EXCESS OF JURISDICTION IN REVERSING ITS OWN FINDINGS THAT PETITIONER IS A
REGULAR EMPLOYEE AND IN HOLDING THAT THERE EXISTED NO EMPLOYER-EMPLOYEE
RELATIONSHIP BETWEEN PRIVATE RESPONDENT AND PETITIONER IN AS MUCH AS THE
"CONTROL TEST" WHICH IS CONSIDERED THE MOST ESSENTIAL CRITERION IN
DETERMINING THE EXISTENCE OF SAID RELATIONSHIP IS NOT PRESENT. 10

The threshold issue that needs to be resolved is whether there existed an employer-employee
relationship between the respondent company and the petitioner. We rule in the affirmative.

The elements to determine the existence of an employment relationship are: (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and
(4) the employer’s power to control the employee’s conduct. 11 The most important element 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. 12 All the four elements are
present in this case.

First. Undeniably, it was the respondents who engaged the services of the petitioner without the
intervention of a third party.

Second. Wages are defined as "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 service rendered or to be rendered." 13 That the petitioner was paid on a per trip basis is
not significant. This is merely a method of computing compensation and not a basis for
determining the existence or absence of employer-employee relationship. One may be paid on
the basis of results or time expended on the work, and may or may not acquire an employment
status, depending on whether the elements of an employer-employee relationship are present
or not.14 In this case, it cannot be gainsaid that the petitioner received compensation from the
respondent company for the services that he rendered to the latter.

Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his
employees by means of payroll. 15 The payroll should show, among other things, the employee’s
rate of pay, deductions made, and the amount actually paid to the employee. Interestingly, the
respondents did not present the payroll to support their claim that the petitioner was not their
employee, raising speculations whether this omission proves that its presentation would be
adverse to their case.16
Third. The respondents’ power to dismiss the petitioner was inherent in the fact that they
engaged the services of the petitioner as truck driver. They exercised this power by terminating
the petitioner’s services albeit in the guise of "severance of contractual relation" due allegedly
to the latter’s breach of his contractual obligation.

Fourth. As earlier opined, of the four elements of the employer-employee relationship, the
"control test" is the most important. Compared to an employee, an independent contractor is
one who carries on a distinct and independent business and undertakes to perform the job,
work, or service on its own account and under its own responsibility according to its own
manner and method, free from the control and direction of the principal in all matters connected
with the performance of the work except as to the results thereof. 17 Hence, while an
independent contractor enjoys independence and freedom from the control and supervision of
his principal, an employee is subject to the employer’s power to control the means and
methods by which the employee’s work is to be performed and accomplished. 18

Although the respondents denied that they exercised control over the manner and methods by
which the petitioner accomplished his work, a careful review of the records shows that the latter
performed his work as truck driver under the respondents’ supervision and control. Their right
of control was manifested by the following attendant circumstances:

1. The truck driven by the petitioner belonged to respondent company;

2. There was an express instruction from the respondents that the truck shall be used
exclusively to deliver respondent company’s goods; 19

3. Respondents directed the petitioner, after completion of each delivery, to park the
truck in either of two specific places only, to wit: at its office in Metro Manila at 2320
Osmeña Street, Makati City or at BEPZ, Mariveles, Bataan; 20 and

4. Respondents determined how, where and when the petitioner would perform his task
by issuing to him gate passes and routing slips. 21

a. The routing slips indicated on the column REMARKS, the chronological order
and priority of delivery such as 1st drop, 2nd drop, 3rd drop, etc. This meant
that the petitioner had to deliver the same according to the order of priority
indicated therein.

b. The routing slips, likewise, showed whether the goods were to be delivered
urgently or not by the word RUSH printed thereon.

c. The routing slips also indicated the exact time as to when the goods were to
be delivered to the customers as, for example, the words "tomorrow morning"
was written on slip no. 2776.

These circumstances, to the Court’s mind, prove that the respondents exercised control over
the means and methods by which the petitioner accomplished his work as truck driver of the
respondent company. On the other hand, the Court is hard put to believe the respondents’
allegation that the petitioner was an independent contractor engaged in providing delivery or
hauling services when he did not even own the truck used for such services. Evidently, he did
not possess substantial capitalization or investment in the form of tools, machinery and work
premises. Moreover, the petitioner performed the delivery services exclusively for the
respondent company for a continuous and uninterrupted period of ten years.
The contract of service to the contrary notwithstanding, the factual circumstances earlier
discussed indubitably establish the existence of an employer-employee relationship between
the respondent company and the petitioner. It bears stressing that the existence of an
employer-employee relationship cannot be negated by expressly repudiating it in a contract and
providing therein that the employee is an independent contractor when, as in this case, the
facts clearly show otherwise. Indeed, the employment status of a person is defined and
prescribed by law and not by what the parties say it should be. 22

Having established that there existed an employer-employee relationship between the

respondent company and the petitioner, the Court shall now determine whether the
respondents validly dismissed the petitioner.

As a rule, the employer bears the burden to prove that the dismissal was for a valid and just
cause.23 In this case, the respondents failed to prove any such cause for the petitioner’s
dismissal. They insinuated that the petitioner abandoned his job. To constitute abandonment,
these two factors must concur: (1) the failure to report for work or absence without valid or
justifiable reason; and (2) a clear intention to sever employer-employee
relationship.24 Obviously, the petitioner did not intend to sever his relationship with the
respondent company for at the time that he allegedly abandoned his job, the petitioner just filed
a complaint for regularization, which was forthwith amended to one for illegal dismissal. A
charge of abandonment is totally inconsistent with the immediate filing of a complaint for illegal
dismissal, more so when it includes a prayer for reinstatement. 25

Neither can the respondents’ claim that the petitioner was guilty of gross negligence in the
proper maintenance of the truck constitute a valid and just cause for his dismissal. Gross
negligence implies a want or absence of or failure to exercise slight care or diligence, or the
entire absence of care. It evinces a thoughtless disregard of consequences without exerting
any effort to avoid them. 26 The negligence, to warrant removal from service, should not merely
be gross but also habitual.27 The single and isolated act of the petitioner’s negligence in the
proper maintenance of the truck alleged by the respondents does not amount to "gross and
habitual neglect" warranting his dismissal.

The Court agrees with the following findings and conclusion of the Labor Arbiter:

… As against the gratuitous allegation of the respondent that complainant was not dismissed
from the service but due to complainant’s breach of their contractual relation, i.e., his violation
of the terms and conditions of the contract, we are very much inclined to believe complainant’s
story that his dismissal from the service was anchored on his insistent demand that he be
considered a regular employee. Because complainant in his right senses will not just abandon
for that reason alone his work especially so that it is only his job where he depends chiefly his
existence and support for his family if he was not aggrieved by the respondent when he was
told that his services as driver will be terminated on February 23, 1995. 28

Thus, the lack of a valid and just cause in terminating the services of the petitioner renders his
dismissal illegal. Under Article 279 of the Labor Code, an employee who is unjustly dismissed
is entitled to reinstatement, without loss of seniority rights and other privileges, and to the
payment of full backwages, inclusive of allowances, and other benefits or their monetary
equivalent, computed from the time his compensation was withheld from him up to the time of
his actual reinstatement.29 However, as found by the Labor Arbiter, the circumstances obtaining
in this case do not warrant the petitioner’s reinstatement. A more equitable disposition, as held
by the Labor Arbiter, would be an award of separation pay equivalent to one month for every
year of service from the time of his illegal dismissal up to the finality of this judgment in addition
to his full backwages, allowances and other benefits.
WHEREFORE, the instant petition is GRANTED. The Resolution dated December 15, 2000 of the
Court of Appeals reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is
REVERSED and SET ASIDE. The Decision dated February 3, 1997 of the Labor Arbiter in NLRC
Case No. RAB-III-02-6181-5, finding the respondents guilty of illegally terminating the employment
of petitioner Pedro Chavez, is REINSTATED.

SO ORDERED.
[6] G.R. No. 156367             May 16, 2005

AUTO BUS TRANSPORT SYSTEMS, INC., petitioner,

vs.
ANTONIO BAUTISTA, respondent.

Labor Law;  Service Incentive Leave; Field Personnel; Words and Phrases;  The phrase “other
employees whose performance is unsupervised by the employer” in Section 1(D), Rule V, Book III of the
Implementing Rules and Regulations of the Labor Code 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; Employees
engaged on task or contract basis or paid on purely commission basis are not automatically exempted
from the grant of service incentive leave, unless, they fall under the classification of field personnel.”—A
careful perusal of said provisions of law will result in the conclusion that the grant of service incentive
leave has been delimited by the Implementing Rules and Regulations of the 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. Hence,
employees engaged on task or contract basis or paid on purely commission basis are not automatically
exempted from the grant of service incentive leave, unless, they fall under the classification of field
personnel.

Same; Same; Same; Same; What must be ascertained in order to resolve the issue of propriety of

the grant of service incentive leave to a bus driver-conductor is whether or not he is a field personnel;
According to the Labor Code, “field personnel” shall refer to nonagricultural 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.—Petitioner’s
contention that respondent is not entitled to the grant of service incentive leave just because he was paid
on purely commission basis is misplaced. What must be ascertained in order to resolve the issue of
propriety of the grant of service incentive leave to respondent is whether or not he is a field personnel.
According to Article 82 of the Labor Code, “field personnel” shall refer 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.
This definition is further elaborated in the Bureau of Working Conditions (BWC), Advisory Opinion to
Philippine Technical-Clerical Commercial Employees Association which states that: As a general rule,
[field personnel] are those whose performance of their job/service is not supervised by the employer or
his representative, the workplace being away from the principal office and whose hours and days of work
cannot be determined with reasonable certainty; hence, they are paid specific amount for rendering
specific service or performing specific work. If required to be at specific places at specific times,
employees including drivers cannot be said to be field personnel despite the fact that they are performing
work away from the principal office of the employee.

Same; Same; Same; Same; The definition of a “field personnel” is not merely concerned with the

location where the employee regularly performs his duties but also with the fact that the employee’s
performance is unsupervised by the employer—in order to conclude whether an employee is a field
employee, it is also necessary to ascertain if actual hours of work in the field can be determined with
reasonable certainty by the employer.—At this point, it is necessary to stress that the definition of a
“field personnel” is not merely concerned with the location where the employee regularly performs his
duties but also with the fact that the employee’s performance is unsupervised by the employer. As
discussed above, field personnel are those who regularly perform their duties away from the principal
place of business of the employer and whose actual hours of work in the field cannot be determined with
reasonable certainty. Thus, in order to conclude whether an employee is a field employee, it is also
necessary to ascertain if actual hours of work in the field can be determined with reasonable certainty by
the employer. In so doing, an inquiry must be made as to whether or not the employee’s time and
performance are constantly supervised by the employer.

Same; Same; Same; Same; Bus Drivers and Conductors;  A bus driver-conductor, not being a

field personnel but a regular employee who performs tasks usually necessary and desirable to the usual
trade of the company’s business, is entitled to the grant of service incentive leave.—As observed by the
Labor Arbiter and concurred in by the Court of Appeals: It is of judicial notice that along the routes that
are plied by these bus companies, there are its inspectors assigned at strategic places who board the bus
and inspect the passengers, the punched tickets, and the conductor’s reports. There is also the mandatory
once-a-week car barn or shop day, where the bus is regularly checked as to its mechanical, electrical, and
hydraulic aspects, whether or not there are problems thereon as reported by the driver and/or conductor.
They too, must be at specific place as [sic] specified time, as they generally observe prompt departure
and arrival from their point of origin to their point of destination. In each and every depot, there is always
the Dispatcher whose function is precisely to see to it that the bus and its crew leave the premises at
specific times and arrive at the estimated proper time. These, are present in the case at bar. The driver,
the complainant herein, was therefore under constant supervision while in the performance of this work.
He cannot be considered a field personnel. We agree in the above disquisition. Therefore, as correctly
concluded by the appellate court, respondent is not a field personnel but a regular employee who
performs tasks usually necessary and desirable to the usual trade of petitioner’s business. Accordingly,
respondent is entitled to the grant of service incentive leave.

Same; Same; Prescription;  In the computation of the three-year prescriptive period, a

determination must be made as to the period when the act constituting a violation of the workers’ right
to the benefits being claimed was committed.—It is settled jurisprudence that a cause of action has three
elements, to wit, (1) a right in favor of the plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right;
and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or
constituting a breach of the obligation of the defendant to the plaintiff. To properly construe Article 291
of the Labor Code, it is essential to ascertain the time when the third element of a cause of action
transpired. Stated differently, in the computation of the three-year prescriptive period, a determination
must be made as to the period when the act constituting a violation of the workers’ right to the benefits
being claimed was committed. For if the cause of action accrued more than three (3) years before the
filing of the money claim, said cause of action has already prescribed in accordance with Article 291.

Same; Same; Same; It is essential to recognize that the service incentive leave is a curious animal
in relation to other benefits granted by law to every employee; If the employee entitled to service
incentive leave does not use or commute the same, he is entitled upon his resignation or separation from
work to the commutation of his accrued service incentive leave.—It is essential at this point, however, to
recognize that the service incentive leave is a curious animal in relation to other benefits granted by the
law to every employee. In the case of service incentive leave, the employee may choose to either use his
leave credits or commute it to its monetary equivalent if not exhausted at the end of the year.
Furthermore, if the employee entitled to service incentive leave does not use or commute the same, he is
entitled upon his resignation or separation from work to the commutation of his accrued service incentive
leave. As enunciated by the Court in Fernandez v. NLRC: The clear policy of the Labor Code is to grant
service incentive leave pay to workers in all establishments, subject to a few exceptions. Section 2, Rule
V, Book III of the Implementing Rules and Regulations provides that “[e]very employee who has
rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with
pay.” Service incentive leave is a right which accrues to every employee who has served “within 12
months, whether continuous or broken reckoned from the date the employee started working, including
authorized absences and paid regular holidays unless the working days in the establishment as a matter of
practice or policy, or that provided in the employment contracts, is less than 12 months, in which case
said period shall be considered as one year.” It is also “commutable to its money equiva lent if not used
or exhausted at the end of the year.” In other words, an employee who has served for one year is entitled
to it. He may use it as leave days or he may collect its monetary value. To limit the award to three years,
as the solicitor general recommends, is to unduly restrict such right.

Same; Same; Same; With regard to service incentive leave, the three-year prescriptive period

commences, not at the end of the year when the employee becomes entitled to the commutation of his
service incentive leave, but from the time when the employer refuses to pay its monetary equivalent after
demand or commutation or upon termination of the employee’s services, as the case may be.—
Correspondingly, it can be conscientiously deduced that the cause of action of an entitled employee to
claim his service incentive leave pay accrues from the moment the employer refuses to remunerate its
monetary equivalent if the employee did not make use of said leave credits but instead chose to avail of
its commutation. Accordingly, if the employee wishes to accumulate his leave credits and opts for its
commutation upon his resignation or separation from employment, his cause of action to claim the whole
amount of his accumulated service incentive leave shall arise when the employer fails to pay such
amount at the time of his resignation or separation from employment. Applying Article 291 of the Labor
Code in light of this peculiarity of the service incentive leave, we can conclude that the three (3)-year
prescriptive period commences, not at the end of the year when the employee becomes entitled to the
commutation of his service incentive leave, but from the time when the employer refuses to pay its
monetary equivalent after demand of commutation or upon termination of the employee’s services, as the
case may be.

Same; Same; Same; Social Justice;  The Court’s construal of Art. 291 of the Labor Code, vis-à-vis
the rules on service incentive leave, is in keeping with the rudimentary principle that in the
implementation and interpretation of the provisions of the Labor Code and its implementing regulations,
the workingman’s welfare should be the primordial and paramount consideration.—The above construal
of Art. 291, vis-à-vis the rules on service incentive leave, is in keeping with the rudimentary principle
that in the implementation and interpretation of the provisions of the Labor Code and its implementing
regulations, the workingman’s welfare should be the primordial and paramount consideration. The policy
is to extend the applicabil ity of the decree to a greater number of employees who can avail of the
benefits under the law, which is in consonance with the avowed policy of the State to give maximum aid
and protection to labor.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Edmundo A. Cruz for petitioner.
     Joseph D. Sagampud, Jr. for private respondent.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari assailing the Decision1 and Resolution2 of the

Court of Appeals affirming the Decision 3 of the National Labor Relations Commission (NLRC).
The NLRC ruling modified the Decision of the Labor Arbiter (finding respondent entitled to the
award of 13th month pay and service incentive leave pay) by deleting the award of 13 th month
pay to respondent.
THE FACTS

Since 24 May 1995, respondent Antonio Bautista has been employed by petitioner Auto Bus
Transport Systems, Inc. (Autobus), as driver-conductor with travel routes Manila-Tuguegarao
via Baguio, Baguio- Tuguegarao via Manila and Manila-Tabuk via Baguio. Respondent was
paid on commission basis, seven percent (7%) of the total gross income per travel, on a twice a
month basis.

On 03 January 2000, while respondent was driving Autobus No. 114 along Sta. Fe, Nueva
Vizcaya, the bus he was driving accidentally bumped the rear portion of Autobus No. 124, as
the latter vehicle suddenly stopped at a sharp curve without giving any warning.

Respondent averred that the accident happened because he was compelled by the
management to go back to Roxas, Isabela, although he had not slept for almost twenty-four
(24) hours, as he had just arrived in Manila from Roxas, Isabela. Respondent further alleged
that he was not allowed to work until he fully paid the amount of P75,551.50, representing thirty
percent (30%) of the cost of repair of the damaged buses and that despite respondent’s pleas
for reconsideration, the same was ignored by management. After a month, management sent
him a letter of termination.

Thus, on 02 February 2000, respondent instituted a Complaint for Illegal Dismissal with Money
Claims for nonpayment of 13th month pay and service incentive leave pay against Autobus.

Petitioner, on the other hand, maintained that respondent’s employment was replete with
offenses involving reckless imprudence, gross negligence, and dishonesty. To support its
claim, petitioner presented copies of letters, memos, irregularity reports, and warrants of arrest
pertaining to several incidents wherein respondent was involved.

Furthermore, petitioner avers that in the exercise of its management prerogative, respondent’s
employment was terminated only after the latter was provided with an opportunity to explain his
side regarding the accident on 03 January 2000.

On 29 September 2000, based on the pleadings and supporting evidence presented by the
parties, Labor Arbiter Monroe C. Tabingan promulgated a Decision,4 the dispositive portion of
which reads:

WHEREFORE, all premises considered, it is hereby found that the complaint for Illegal
Dismissal has no leg to stand on. It is hereby ordered DISMISSED, as it is hereby
DISMISSED.

However, still based on the above-discussed premises, the respondent must pay to the
complainant the following:

a. his 13th month pay from the date of his hiring to the date of his dismissal,
presently computed at P78,117.87;

b. his service incentive leave pay for all the years he had been in service with
the respondent, presently computed at P13,788.05.

All other claims of both complainant and respondent are hereby dismissed for lack of
merit.5
Not satisfied with the decision of the Labor Arbiter, petitioner appealed the decision to the
NLRC which rendered its decision on 28 September 2001, the decretal portion of which reads:

[T]he Rules and Regulations Implementing Presidential Decree No. 851, particularly
Sec. 3 provides:

"Section 3. Employers covered. – The Decree shall apply to all employers

except to:

xxx       xxx       xxx

e) employers of those who are paid on purely commission, boundary, or task

basis, performing a specific work, irrespective of the time consumed in the
performance thereof. xxx."

Records show that complainant, in his position paper, admitted that he was paid on a
commission basis.

In view of the foregoing, we deem it just and equitable to modify the assailed Decision
by deleting the award of 13th month pay to the complainant.

WHEREFORE, the Decision dated 29 September 2000 is MODIFIED by deleting the

award of 13th month pay. The other findings are AFFIRMED.6

In other words, the award of service incentive leave pay was maintained. Petitioner thus sought
a reconsideration of this aspect, which was subsequently denied in a Resolution by the NLRC
dated 31 October 2001.

Displeased with only the partial grant of its appeal to the NLRC, petitioner sought the review of
said decision with the Court of Appeals which was subsequently denied by the appellate court
in a Decision dated 06 May 2002, the dispositive portion of which reads:

WHEREFORE, premises considered, the Petition is DISMISSED for lack of merit; and

the assailed Decision of respondent Commission in NLRC NCR CA No. 026584-2000 is
hereby AFFIRMED in toto. No costs.7

Hence, the instant petition.

ISSUES

1. Whether or not respondent is entitled to service incentive leave;

2. Whether or not the three (3)-year prescriptive period provided under Article 291 of the Labor
Code, as amended, is applicable to respondent’s claim of service incentive leave pay.

RULING OF THE COURT

The disposition of the first issue revolves around the proper interpretation of Article 95 of the
Labor Code vis-à-vis Section 1(D), Rule V, Book III of the Implementing Rules and Regulations
of the Labor Code which provides:

Art. 95. RIGHT TO SERVICE INCENTIVE LEAVE

(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.

Book III, Rule V: SERVICE INCENTIVE LEAVE

SECTION 1. Coverage. – This rule shall apply to all employees except:

(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; .
..

A careful perusal of said provisions of law will result in the conclusion that the grant of service
incentive leave has been delimited by the Implementing Rules and Regulations of the 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."8

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. 9 Hence, employees engaged on task or contract basis or paid
on purely commission basis are not automatically exempted from the grant of service incentive
leave, unless, they fall under the classification of field personnel.

Therefore, petitioner’s contention that respondent is not entitled to the grant of service incentive
leave just because he was paid on purely commission basis is misplaced. What must be
ascertained in order to resolve the issue of propriety of the grant of service incentive leave to
respondent is whether or not he is a field personnel.

According to Article 82 of the Labor Code, "field personnel" shall refer 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. This definition is further elaborated in the Bureau of Working
Conditions (BWC), Advisory Opinion to Philippine Technical-Clerical Commercial Employees
Association10 which states that:
 As a general rule, [field personnel] are those whose performance of their job/service is
not supervised by the employer or his representative, the workplace being away from
the principal office and whose hours and days of work cannot be determined with
reasonable certainty; hence, they are paid specific amount for rendering specific
service or performing specific work. If required to be at specific places at specific times,
employees including drivers cannot be said to be field personnel despite the fact that
they are performing work away from the principal office of the employee. [Emphasis
ours]

To this discussion by the BWC, the petitioner differs and postulates that under said advisory
opinion, no employee would ever be considered a field personnel because every employer, in
one way or another, exercises control over his employees. Petitioner further argues that the
only criterion that should be considered is the nature of work of the employee in that, if the
employee’s job requires that he works away from the principal office like that of a messenger or
a bus driver, then he is inevitably a field personnel.

We are not persuaded. At this point, it is necessary to stress that the definition of a "field
personnel" is not merely concerned with the location where the employee regularly performs his
duties but also with the fact that the employee’s performance is unsupervised by the employer.
As discussed above, field personnel are those who regularly perform their duties away from the
principal place of business of the employer and whose actual hours of work in the field cannot
be determined with reasonable certainty. Thus, in order to conclude whether an employee is a
field employee, it is also necessary to ascertain if actual hours of work in the field can be
determined with reasonable certainty by the employer. In so doing, an inquiry must be made as
to whether or not the employee’s time and performance are constantly supervised by the
employer.

As observed by the Labor Arbiter and concurred in by the Court of Appeals:

It is of judicial notice that along the routes that are plied by these bus companies, there
are its inspectors assigned at strategic places who board the bus and inspect the
passengers, the punched tickets, and the conductor’s reports. There is also the
mandatory once-a-week car barn or shop day, where the bus is regularly checked as to
its mechanical, electrical, and hydraulic aspects, whether or not there are problems
thereon as reported by the driver and/or conductor. They too, must be at specific place
as [sic] specified time, as they generally observe prompt departure and arrival from
their point of origin to their point of destination. In each and every depot, there is always
the Dispatcher whose function is precisely to see to it that the bus and its crew leave
the premises at specific times and arrive at the estimated proper time. These, are
present in the case at bar. The driver, the complainant herein, was therefore under
constant supervision while in the performance of this work. He cannot be considered a
field personnel.11

We agree in the above disquisition. Therefore, as correctly concluded by the appellate court,
respondent is not a field personnel but a regular employee who performs tasks usually
necessary and desirable to the usual trade of petitioner’s business. Accordingly, respondent is
entitled to the grant of service incentive leave.

The question now that must be addressed is up to what amount of service incentive leave pay
respondent is entitled to.
The response to this query inevitably leads us to the correlative issue of whether or not the
three (3)-year prescriptive period under Article 291 of the Labor Code is applicable to
respondent’s claim of service incentive leave pay.

Article 291 of the Labor Code states that all money claims arising from employer-employee
relationship shall be filed within three (3) years from the time the cause of action accrued;
otherwise, they shall be forever barred.

In the application of this section of the Labor Code, the pivotal question to be answered is when
does the cause of action for money claims accrue in order to determine the reckoning date of
the three-year prescriptive period.

It is settled jurisprudence that a cause of action has three elements, to wit, (1) a right in favor of
the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation
on the part of the named defendant to respect or not to violate such right; and (3) an act or
omission on the part of such defendant violative of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff. 12

To properly construe Article 291 of the Labor Code, it is essential to ascertain the time when
the third element of a cause of action transpired. Stated differently, in the computation of the
three-year prescriptive period, a determination must be made as to the period when the act
constituting a violation of the workers’ right to the benefits being claimed was committed. For if
the cause of action accrued more than three (3) years before the filing of the money claim, said
cause of action has already prescribed in accordance with Article 291. 13

Consequently, in cases of nonpayment of allowances and other monetary benefits, if it is

established that the benefits being claimed have been withheld from the employee for a period
longer than three (3) years, the amount pertaining to the period beyond the three-year
prescriptive period is therefore barred by prescription. The amount that can only be demanded
by the aggrieved employee shall be limited to the amount of the benefits withheld within three
(3) years before the filing of the complaint. 14

It is essential at this point, however, to recognize that the service incentive leave is a curious
animal in relation to other benefits granted by the law to every employee. In the case of service
incentive leave, the employee may choose to either use his leave credits or commute it to its
monetary equivalent if not exhausted at the end of the year. 15 Furthermore, if the employee
entitled to service incentive leave does not use or commute the same, he is entitled upon his
resignation or separation from work to the commutation of his accrued service incentive leave.
As enunciated by the Court in Fernandez v. NLRC:16

The clear policy of the Labor Code is to grant service incentive leave pay to workers in
all establishments, subject to a few exceptions. Section 2, Rule V, Book III of the
Implementing Rules and Regulations provides that "[e]very employee who has
rendered at least one year of service shall be entitled to a yearly service incentive leave
of five days with pay." Service incentive leave is a right which accrues to every
employee who has served "within 12 months, whether continuous or broken reckoned
from the date the employee started working, including authorized absences and paid
regular holidays unless the working days in the establishment as a matter of practice or
policy, or that provided in the employment contracts, is less than 12 months, in which
case said period shall be considered as one year." It is also "commutable to its money
equivalent if not used or exhausted at the end of the year." In other words, an employee
who has served for one year is entitled to it. He may use it as leave days or he may
 collect its monetary value. To limit the award to three years, as the solicitor general
recommends, is to unduly restrict such right. 17 [Italics supplied]

Correspondingly, it can be conscientiously deduced that the cause of action of an entitled

employee to claim his service incentive leave pay accrues from the moment the employer
refuses to remunerate its monetary equivalent if the employee did not make use of said leave
credits but instead chose to avail of its commutation. Accordingly, if the employee wishes to
accumulate his leave credits and opts for its commutation upon his resignation or separation
from employment, his cause of action to claim the whole amount of his accumulated service
incentive leave shall arise when the employer fails to pay such amount at the time of his
resignation or separation from employment.

Applying Article 291 of the Labor Code in light of this peculiarity of the service incentive leave,
we can conclude that the three (3)-year prescriptive period commences, not at the end of the
year when the employee becomes entitled to the commutation of his service incentive leave,
but from the time when the employer refuses to pay its monetary equivalent after demand of
commutation or upon termination of the employee’s services, as the case may be.

The above construal of Art. 291, vis-à-vis the rules on service incentive leave, is in keeping with
the rudimentary principle that in the implementation and interpretation of the provisions of the
Labor Code and its implementing regulations, the workingman’s welfare should be the
primordial and paramount consideration. 18 The policy is to extend the applicability of the decree
to a greater number of employees who can avail of the benefits under the law, which is in
consonance with the avowed policy of the State to give maximum aid and protection to labor. 19

In the case at bar, respondent had not made use of his service incentive leave nor demanded
for its commutation until his employment was terminated by petitioner. Neither did petitioner
compensate his accumulated service incentive leave pay at the time of his dismissal. It was
only upon his filing of a complaint for illegal dismissal, one month from the time of his dismissal,
that respondent demanded from his former employer commutation of his accumulated leave
credits. His cause of action to claim the payment of his accumulated service incentive leave
thus accrued from the time when his employer dismissed him and failed to pay his accumulated
leave credits.

Therefore, the prescriptive period with respect to his claim for service incentive leave pay only
commenced from the time the employer failed to compensate his accumulated service
incentive leave pay at the time of his dismissal. Since respondent had filed his money claim
after only one month from the time of his dismissal, necessarily, his money claim was filed
within the prescriptive period provided for by Article 291 of the Labor Code.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The assailed
Decision of the Court of Appeals in CA-G.R. SP. No. 68395 is hereby AFFIRMED. No Costs.

SO ORDERED.
[7]

G.R. No. 146073            January 13, 2003

JERRY E. ACEDERA, ANTONIO PARILLA, AND OTHERS LISTED IN ANNEX

"A,"1, petitioners-appellants,
vs.
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. (ICTSI), NATIONAL LABOR
RELATIONS COMMISSION and HON. COURT OF APPEALS, respondents-appellees.

Remedial Law; Action;  Party;  A labor union is one such party authorized to represent its members
under Article 242(a) of the Labor Code which provides that a union may act as the representative of its
members for the purpose of collective bargaining.—A labor union is one such party authorized to
represent its members under Article 242(a) of the Labor Code which provides that a union may act as the
representative of its members for the purpose of collective bargaining. This authority includes the power
to represent its members for the purpose of enforcing the provisions of the CBA. That APCWU acted in
a representative capacity “for and in behalf of its Union members and other employees similarly
situated,” the title of the case filed by it at the Labor Arbiter’s Office so expressly states.

Same; Same; Same; A person whose interests are already represented will not be permitted to do
the same except when there is suggestion of fraud or collusion or that the representative will not act in
good faith for the protection of all interests represented by himo.—While a party acting in a
representative capacity, such as a union, may be permitted to intervene in a case, ordinarily, a person
whose interests are already represented will not be permitted to do the same except when there is a
suggestion of fraud or collusion or that the representative will not act in good faith for the protection of
all interests represented by him.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Gilbert P. Lorenzo for petitioners.
     Jimeneo, Jalandoni and Cope Law Offices for private respondents.

CARPIO-MORALES, J.:

For consideration is the petition for review on certiorari assailing the decision of the Court of
Appeals affirming that of the National Labor Relations Commission (NLRC) which affirmed the
decision of the Labor Arbiter denying herein petitioners-appellants’ Complaint-in-Intervention
with Motion for Intervention.

The antecedent facts are as follows:

Petitioners-appellants Jerry Acedera, et al. are employees of herein private respondent

International Container Terminal Services, Inc. (ICTSI) and are officers/members of Associated
Port Checkers & Workers Union-International Container Terminal Services, Inc. Local Chapter
(APCWU-ICTSI), a labor organization duly registered as a local affiliate of the Associated Port
Checkers & Workers Union (APCWU).
When ICTSI started its operations in 1988, it determined the rate of pay of its employees by
using 304 days, the number of days of work of the employees in a year, as divisor. 2

On September 28, 1990, ICTSI entered into its first Collective Bargaining Agreement (CBA)
with APCWU with a term of five years effective until September 28, 1995. 3 The CBA was
renegotiated and thereafter renewed through a second CBA that took effect on September 29,
1995, effective for another five years.4 Both CBAs contained an identically-worded provision on
hours and days of work reading:

Article IX

Regular Hours of Work and Days of Labor

Section 1. The regular working days in a week shall be five (5) days on any day from
Monday to Sunday, as may be scheduled by the COMPANY, upon seven (7) days prior
notice unless any of this day is declared a special holiday. 5 (Italics omitted)

In accordance with the above-quoted provision of the CBA, the employees’ work week was
reduced to five days or a total of 250 days a year. ICTSI, however, continued using the 304-day
divisor in computing the wages of the employees. 6

On November 10, 1990, the Regional Tripartite Wage and Productivity Board (RTWPB) in the
National Capital Region decreed a P17.00 daily wage increase for all workers and employees
receiving P125.00 per day or lower in the National Capital Region.7 The then president of
APCWU, together with some union members, thus requested the ICTSI’s Human Resource
Department/Personnel Manager to compute the actual monthly increase in the employees’
wages by multiplying the RTWPB mandated increase by 365 days and dividing the product by
12 months.8

Heeding the proposal and following the implementation of the new wage order, ICTSI stopped
using 304 days as divisor and started using 365 days in determining the daily wage of its
employees and other consequential compensation, even if the employees’ work week
consisted of only five days as agreed upon in the CBA. 9

In early 1997, ICTSI went on a retrenchment program and laid off its on-call employees. 10 This
prompted the APCWU-ICTSI to file a notice of strike which included as cause of action not only
the retrenchment of the employees but also ICTSI’s use of 365 days as divisor in the
computation of wages.11 The dispute respecting the retrenchment was resolved by a
compromise settlement12 while that respecting the computation of wages was referred to the
Labor Arbiter.13

On February 26, 1997, APCWU, on behalf of its members and other employees similarly
situated, filed with the Labor Arbiter a complaint against ICTSI which was dismissed for
APCWU’s failure to file its position paper. 14 Upon the demand of herein petitioners-appellants,
APCWU filed a motion to revive the case which was granted. APCWU thereupon filed its
position paper on August 22, 1997.15

On December 8, 1997, petitioners-appellants filed with the Labor Arbiter a Complaint-in-

Intervention with Motion to Intervene.16 In the petition at bar, they justified their move to
intervene in this wise:
 [S]hould the union succeed in prosecuting the case and in getting a favorable reward it
is actually they that would benefit from the decision. On the other hand, should the
union fail to prove its case, or to prosecute the case diligently, the individual workers or
members of the union would suffer great and immeasurable loss. … [t]hey wanted to
insure by their intervention that the case would thereafter be prosecuted with all due
diligence and would not again be dismissed for lack of interest to prosecute on the part
of the union.17

The Labor Arbiter rendered a decision, the dispositive portion of which reads:

WHEREFORE, decision is hereby rendered declaring that the correct divisor in

computing the daily wage and other labor standard benefits of the employees of
respondent ICTSI who are members of complainant Union as well as the other
employees similarly situated is two hundred fifty (250) days such that said respondent
is hereby ordered to pay the employees concerned the differentials representing the
underpayment of said salaries and other benefits reckoned three (3) years back from
February 26, 1997, the date of filing of this complaint or computed from February 27
1994 until paid, but for purposes of appeal, the salary differentials are temporarily
computed for one year in the amount of Four Hundred Sixty Eight Thousand Forty
Pesos (P468,040.00).18

In the same decision, the Labor Arbiter denied petitioners-appellants’ Complaint-in-Intervention

with Motion for Intervention upon a finding that they are already well represented by APCWU. 19

On appeal, the NLRC reversed the decision of the Labor Arbiter and dismissed APCWU’s
complaint for lack of merit. 20 The denial of petitioners-appellants’ intervention was, however,
affirmed.21

Unsatisfied with the decision of the NLRC, APCWU filed a petition for certiorari with the Court
of Appeals while petitioners-appellants filed theirs with this Court which referred the petition 22 to
the Court of Appeals.

The Court of Appeals dismissed APCWU’s petition on the following grounds: failure to allege
when its motion for reconsideration of the NLRC decision was filed, failure to attach the
necessary appendices to the petition, and failure to file its motion for extension to file its petition
within the reglementary period.23

As for petitioners-appellants’ petition for certiorari, it was dismissed by the Court of Appeals in
this wise:

It is clear from the records that herein petitioners, claiming to be employees of

respondent ICTSI, are already well represented by its employees union, APCWU, in the
petition before this Court (CA-G.R. SP. No. 53266) although the same has been
dismissed. The present petition is, therefore a superfluity that deserves to be
dismissed. Furthermore, only Acedera signed the Certificate of non-forum shopping. On
this score alone, this petition should likewise be dismissed. We find that the same has
no merit considering that herein petitioners have not presented any meritorious
argument that would justify the reversal of the Decision of the NLRC.

Article IX of the CBA provides:

Regular Hours of Work and Days of Labor

 "Section 1. The regular working days in a week shall be five (5) days on any
day from Monday to Sunday, as may be scheduled by the COMPANY, upon
seven (7) days prior notice unless any of this day is declared a special holiday."

This provision categorically states the required number of working days an employee is
expected to work for a week. It does not, however, indicate the manner in which an
employee’s salary is to be computed. In fact, nothing in the CBA makes any referral to
any divisor which should be the basis for determining the salary. The NLRC, therefore,
correctly ruled that" xxx the absence of any express or specific provision in the CBA
that 250 days should be used as divisor altogether makes the position of the Union
untenable."

xxx

Considering that herein petitioners themselves requested that 365 days be used as the
divisor in computing their wage increase and later did not raise or object to the same
during the negotiations of the new CBA, they are clearly estopped to now complain of
such computation only because they no longer benefit from it. Indeed, the 365 divisor
for the past seven (7) years has already become practice and law between the
company and its employees.24 (Emphasis supplied)

xxx

Hence, the present petition of petitioners-appellants who fault the Court of Appeals as follows:

. . . in rejecting the CBA of the parties as the source of the divisor to determine the
workers’ daily rate totally disregarded the applicable landmark decisions of the
Honorable Supreme Court on the matter.

II

. . . [IN] disregard[ING] applicable decisions of this Honorable Court when it ruled that
the petitioners-appellants are already in estoppel.

III

. . . in ruling that [w/n] the petitioners-appellants have no legal right to intervene in and
pursue this case and that their intervention is a superfluity.

IV

. . . in holding, although merely as an obiter dictum, that only petitioner Jerry Acedera
signed the certificate of non-forum shopping. 25

The third assigned error respecting petitioners-appellants’ right to intervene shall first be
passed upon, it being determinative of their right to raise the other assigned errors.

Petitioners-appellants anchor their right to intervene on Rule 19 of the 1997 Rules of Civil
Procedure, Section 1 of which reads:
 Section 1. Who may intervene.- A person who has legal interest in the matter in
litigation, or in the success of either of the parties, or an interest against both, or is so
situated to be adversely affected by a distribution or other disposition of property in the
custody of the court or of an officer thereof may, with leave of court, be allowed to
intervene in the action. The court shall consider whether or not the intervention will
unduly delay or prejudice the adjudication of the rights of the original parties, and
whether or not the intervenor’s right may be fully protected in a separate proceeding.

They stress that they have complied with the requisites for intervention because (1) they are
the ones who stand to gain or lose by the direct legal operation and effect of any judgment that
may be rendered in this case, (2) no undue delay or prejudice would result from their
intervention since their Complaint-in-Intervention with Motion for Intervention was filed while the
Labor Arbiter was still hearing the case and before any decision thereon was rendered, and (3)
it was not possible for them to file a separate case as they would be guilty of forum shopping
because the only forum available for them was the Labor Arbiter. 26

Petitioners-appellants, however, failed to consider, in addition to the rule on intervention, the

rule on representation, thusly:

Sec. 3. Representatives as parties.- Where the action is allowed to be prosecuted or

defended by a representative or someone acting in a fiduciary capacity, the beneficiary
shall be included in the title of the case and shall be deemed to be the real party in
interest. A representative may be a trustee of an express trust, a guardian, an executor
or administrator, or a party authorized by law or these Rules. . . 27 (Emphasis supplied)

A labor union is one such party authorized to represent its members under Article 242(a) of the
Labor Code which provides that a union may act as the representative of its members for the
purpose of collective bargaining. This authority includes the power to represent its members for
the purpose of enforcing the provisions of the CBA. That APCWU acted in a representative
capacity "for and in behalf of its Union members and other employees similarly situated," the
title of the case filed by it at the Labor Arbiter’s Office so expressly states.

While a party acting in a representative capacity, such as a union, may be permitted to

intervene in a case, ordinarily, a person whose interests are already represented will not be
permitted to do the same28 except when there is a suggestion of fraud or collusion or that the
representative will not act in good faith for the protection of all interests represented by him. 29

Petitioners-appellants cite the dismissal of the case filed by ICTSI, first by the Labor Arbiter,
and later by the Court of Appeals.30 The dismissal of the case does not, however, by itself show
the existence of fraud or collusion or a lack of good faith on the part of APCWU. There must be
clear and convincing evidence of fraud or collusion or lack of good faith independently of the
dismissal. This, petitioners-appellants failed to proffer.

Petitioners-appellants likewise express their fear that APCWU would not prosecute the case
diligently because of its "sweetheart relationship" with ICTSI. 31 There is nothing on record,
however, to support this alleged relationship which allegation surfaces as a mere afterthought
because it was never raised early on. It was raised only in petitioners-appellants’ reply to
ICTSI’s comment in the petition at bar, the last pleading submitted to this Court, which was filed
on June 20, 2001 or more than 42 months after petitioners-appellants filed their Complaint-in-
Intervention with Motion to Intervene with the Labor Arbiter.

To reiterate, for a member of a class to be permitted to intervene in a representative action,

fraud or collusion or lack of good faith on the part of the representative must be proven. It must
be based on facts borne on record. Mere assertions, as what petitioners-appellants proffer, do
not suffice.

The foregoing discussion leaves it unnecessary to discuss the other assigned errors.

WHEREFORE, the present petition is hereby denied.

[8]

G.R. No. 146775               January 30, 2002

SAN MIGUEL CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS-FORMER THIRTEENTH DIVISION, HON.
UNDERSECRETARY JOSE M. ESPAÑOL, JR., Hon. CRESENCIANO B. TRAJANO, and
HON. REGIONAL DIRECTOR ALLAN M. MACARAYA, respondents.

Actions;  Appeals;  Pleadings and Practice;  The appeal from a final disposition of the Court of
Appeals is a petition for review under Rule 45 and not a special civil action under Rule 65 of the 1997
Rules of Civil Procedure.—At the outset, petitioner came to this Court via a petition for certiorari under
Rule 65 instead of an appeal under Rule 45 of the 1997 Rules of Civil Procedure. In National Irrigation
Administration vs. Court of Appeals, the Court declared: x x x (S)ince the Court of Appeals had
jurisdiction over the petition under Rule 65, any alleged errors committed by it in the exercise of its
jurisdiction would be errors of judgment which are reviewable by timely appeal and not by a special civil
action of certiorari. If the aggrieved party fails to do so within the reglementary period, and the decision
accordingly becomes final and executory, he cannot avail himself of the writ of certiorari, his
predicament being the effect of his deliberate inaction. The appeal from a final disposition of the Court of
Appeals is a petition for review under Rule 45 and not a special civil action under Rule 65 of the Rules of
Court, now Rule 45 and Rule 65, respectively, of the 1997 Rules of Civil Procedure. Rule 45 is clear that
decisions, final orders or resolutions of the Court of Appeals in any case, i.e.,regardless of the nature of
the action or proceeding involved, may be appealed to this Court by filing a petition for review, which
would be but a continuation of the appellate process over the original case. Under Rule 45 the
reglementary period to appeal is fifteen (15) days from notice of judgment or denial of motion for
reconsideration.

Labor Law;  Holiday Pay; Code of Muslim Personal Laws (Presidential Decree No. 1083); Muslim
holidays are provided under Articles 169 and 170, Title I, Book V, of Presidential Decree 1083.—
Muslim holidays are provided under Articles 169 and 170, Title I, Book V, of Presidential Decree No.
1083, otherwise known as the Code of Muslim Personal Laws, which states: Art. 169. Official Muslim
holidays.—The following are hereby recognized as legal Muslim holidays: (a) ‘Amun Jadid (New Year),
which falls on the first day of the first lunar month of Muharram; (b) Maulid-un-Nabi(Birthday of the
Prophet Muhammad), which falls on the twelfth day of the third lunar month of Rabi-ul-
Awwal; (c) Lailatul Isra Wal Mi’raj (Nocturnal Journey and Ascension of the Prophet Muhammad),
which falls on the twenty-seventh day of the seventh lunar month of Rajab; (d) ‘Id-ul-Fitr (Hari Raya
Puasa), which falls on the first day of the tenth lunar month of Shawwal,commemorating the end of the
fasting season; and (e) ‘Id-ul-Adha (Hari Raya Haji), which falls on the tenth day of the twelfth lunar
month of Dhu I-Hijja.

Same; Same; Same; There should be no distinction between Muslims and non-Muslims as regards

payment of benefits for Muslim holidays.—Petitioner asserts that Article 3(3) of Presidential Decree No.
1083 provides that “(t)he provisions of this Code shall be applicable only to Muslims x x x.” However,
there should be no distinction between Muslims and non-Muslims as regards payment of benefits for
Muslim holidays. The Court of Appeals did not err in sustaining Undersecretary Español who stated:
Assuming arguendo that the respondent’s position is correct, then by the same token, Muslims
throughout the Philippines are also not entitled to holiday pays on Christian holidays declared by law as
regular holidays. We must remind the respondent-appellant that wages and other emoluments granted by
law to the working man are determined on the basis of the criteria laid down by laws and certainly not on
the basis of the worker’s faith or religion. At any rate, Article 3(3) of Presidential Decree No. 1083 also
declares that “x x x nothing herein shall be construed to operate to the prejudice of a non-Muslim.”
PETITION for review on certiorari of a decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Estenzo, Jamora and Solon for petitioner.
     The Solicitor General for respondents.

DECISION

KAPUNAN, J.:

Assailed in the petition before us are the decision, promulgated on 08 May 2000, and the
resolution, promulgated on 18 October 2000, of the Court of Appeals in CA G.R. SP-53269.

The facts of the case are as follows:

On 17 October 1992, the Department of Labor and Employment (DOLE), Iligan District Office,
conducted a routine inspection in the premises of San Miguel Corporation (SMC) in Sta.
Filomena, Iligan City. In the course of the inspection, it was discovered that there was
underpayment by SMC of regular Muslim holiday pay to its employees. DOLE sent a copy of
the inspection result to SMC and it was received by and explained to its personnel officer Elena
dela Puerta.1 SMC contested the findings and DOLE conducted summary hearings on 19
November 1992, 28 May 1993 and 4 and 5 October 1993. Still, SMC failed to submit proof that
it was paying regular Muslim holiday pay to its employees. Hence, Alan M. Macaraya, Director
IV of DOLE Iligan District Office issued a compliance order, dated 17 December 1993, directing
SMC to consider Muslim holidays as regular holidays and to pay both its Muslim and non-
Muslim employees holiday pay within thirty (30) days from the receipt of the order.

SMC appealed to the DOLE main office in Manila but its appeal was dismissed for having been
filed late. The dismissal of the appeal for late filing was later on reconsidered in the order of 17
July 1998 after it was found that the appeal was filed within the reglementary period. However,
the appeal was still dismissed for lack of merit and the order of Director Macaraya was
affirmed.

SMC went to this Court for relief via a petition for certiorari, which this Court referred to the
Court of Appeals pursuant to St. Martin Funeral Homes vs. NLRC.2

The appellate court, in the now questioned decision, promulgated on 08 May 2000, ruled, as
follows:

WHEREFORE, the Order dated December 17, 1993 of Director Macaraya and Order dated
July 17, 1998 of Undersecretary Español, Jr. is hereby MODIFIED with regards the payment of
Muslim holiday pay from 200% to 150% of the employee's basic salary. Let this case be
remanded to the Regional Director for the proper computation of the said holiday pay.

SO ORDERED.3

Its motion for reconsideration having been denied for lack of merit, SMC filed a petition
for certiorari before this Court, alleging that:

PUBLIC RESPONDENTS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF

DISCRETION WHEN THEY GRANTED MUSLIM HOLIDAY PAY TO NON-MUSLIM
EMPLOYEES OF SMC-ILICOCO AND ORDERING SMC TO PAY THE SAME RETROACTIVE
FOR ONE (1) YEAR FROM THE DATE OF THE PROMULGATION OF THE COMPLIANCE
ORDER ISSUED ON DECEMBER 17, 1993, IT BEING CONTRARY TO THE PROVISIONS,
INTENT AND PURPOSE OF P.D. 1083 AND PREVAILING JURISPRUDENCE.

THE ISSUANCE OF THE COMPLIANCE ORDER WAS TAINTED WITH GRAVE ABUSE OF
DISCRETION IN THAT SAN MIGUEL CORPORATION WAS NOT ACCORDED DUE
PROCESS OF LAW; HENCE, THE ASSAILED COMPLIANCE ORDER AND ALL
SUBSEQUENT ORDERS, DECISION AND RESOLUTION OF PUBLIC RESPONDENTS
WERE ALL ISSUED WITH GRAVE ABUSE OF DISCRETION AND ARE VOID AB INITIO.

THE HON. COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT

DECLARED THAT REGIONAL DIRECTOR MACARAYA, UNDERSECRETARY TRAJANO
AND UNDERSECRETARY ESPAÑOL, JR., WHO ALL LIKEWISE ACTED WITH GRAVE
ABUSE OF DISCRETION AND WITHOUT OR IN EXCESS OF THEIR JURISDICTION, HAVE
JURISDICTION IN ISSUING THE ASSAILED COMPLIANCE ORDER AND SUBSEQUENT
ORDERS, WHEN IN FACT THEY HAVE NO JURISDICTION OR HAS LOST JURISDICTION
OVER THE HEREIN LABOR STANDARD CASE.4

At the outset, petitioner came to this Court via a petition for certiorari under Rule 65 instead of
an appeal under Rule 45 of the 1997 Rules of Civil Procedure. In National Irrigation
Administration vs. Court of Appeals,5 the Court declared:

x x x (S)ince the Court of Appeals had jurisdiction over the petition under Rule 65, any alleged
errors committed by it in the exercise of its jurisdiction would be errors of judgment which are
reviewable by timely appeal and not by a special civil action of certiorari. If the aggrieved party
fails to do so within the reglementary period, and the decision accordingly becomes final and
executory, he cannot avail himself of the writ of certiorari, his predicament being the effect of
his deliberate inaction.

The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45
and not a special civil action under Rule 65 of the Rules of Court, now Rule 45 and Rule 65,
respectively, of the 1997 Rules of Civil Procedure. Rule 45 is clear that decisions, final orders
or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or
proceeding involved, may be appealed to this Court by filing a petition for review, which would
be but a continuation of the appellate process over the original case. Under Rule 45 the
reglementary period to appeal is fifteen (15) days from notice of judgment or denial of motion
for reconsideration.

xxx

For the writ of certiorari under Rule 65 of the Rules of Court to issue, a petitioner must show
that he has no plain, speedy and adequate remedy in the ordinary course of law against its
perceived grievance. A remedy is considered "plain, speedy and adequate" if it will promptly
relieve the petitioner from the injurious effects of the judgment and the acts of the lower court or
agency. In this case, appeal was not only available but also a speedy and adequate remedy. 6

Well-settled is the rule that certiorari cannot be availed of as a substitute for a lost appeal. 7 For
failure of petitioner to file a timely appeal, the questioned decision of the Court of Appeals had
already become final and executory.

In any event, the Court finds no reason to reverse the decision of the Court of Appeals.
Muslim holidays are provided under Articles 169 and 170, Title I, Book V, of Presidential
Decree No. 1083,8 otherwise known as the Code of Muslim Personal Laws, which states:

Art. 169. Official Muslim holidays. - The following are hereby recognized as legal Muslim
holidays:

(a) ‘Amun Jadīd (New Year), which falls on the first day of the first lunar month
of Muharram;

(b) Maulid-un-Nabī (Birthday of the Prophet Muhammad), which falls on the twelfth day

of the third lunar month of Rabi-ul-Awwal;

(c) Lailatul Isrā Wal Mi’rāj (Nocturnal Journey and Ascension of the Prophet

Muhammad), which falls on the twenty-seventh day of the seventh lunar month
of Rajab;

(d) ‘Īd-ul-Fitr (Hari Raya Puasa), which falls on the first day of the tenth lunar month
of Shawwal, commemorating the end of the fasting season; and

(e) ‘Īd-ūl-Adhā (Hari Raya Haji),which falls on the tenth day of the twelfth lunar month
of Dhū’l-Hijja.

Art. 170. Provinces and cities where officially observed. - (1) Muslim holidays shall be officially
observed in the Provinces of Basilan, Lanao del Norte, Lanao del Sur, Maguindanao, North
Cotabato, Iligan, Marawi, Pagadian, and Zamboanga and in such other Muslim provinces and
cities as may hereafter be created;

(2) Upon proclamation by the President of the Philippines, Muslim holidays may also be
officially observed in other provinces and cities.

The foregoing provisions should be read in conjunction with Article 94 of the Labor Code, which
provides:

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 ten (10) workers;

(b) The employer may require an employee to work on any holiday but such employee
shall be paid a compensation equivalent to twice his regular rate; x x x.

Petitioner asserts that Article 3(3) of Presidential Decree No. 1083 provides that "(t)he
provisions of this Code shall be applicable only to Muslims x x x." However, there should be no
distinction between Muslims and non-Muslims as regards payment of benefits for Muslim
holidays. The Court of Appeals did not err in sustaining Undersecretary Español who stated:

Assuming arguendo that the respondent’s position is correct, then by the same token, Muslims
throughout the Philippines are also not entitled to holiday pays on Christian holidays declared
by law as regular holidays. We must remind the respondent-appellant that wages and other
emoluments granted by law to the working man are determined on the basis of the criteria laid
down by laws and certainly not on the basis of the worker’s faith or religion.
At any rate, Article 3(3) of Presidential Decree No. 1083 also declares that "x x x nothing herein
shall be construed to operate to the prejudice of a non-Muslim."

In addition, the 1999 Handbook on Workers’ Statutory Benefits, approved by then DOLE

Secretary Bienvenido E. Laguesma on 14 December 1999 categorically stated:

Considering that all private corporations, offices, agencies, and entities or establishments
operating within the designated Muslim provinces and cities are required to observe Muslim
holidays, both Muslim and Christians working within the Muslim areas may not report for work
on the days designated by law as Muslim holidays.9

On the question regarding the jurisdiction of the Regional Director Allan M. Macaraya, Article
128, Section B of the Labor Code, as amended by Republic Act No. 7730, provides:

"Article 128. Visitorial and enforcement power. -

xxx

(b) Notwithstanding the provisions of Article 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 the inspection. The Secretary or his duly authorized
representative 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.

xxx

In the case before us, Regional Director Macaraya acted as the duly authorized representative
of the Secretary of Labor and Employment and it was within his power to issue the compliance
order to SMC. In addition, the Court agrees with the Solicitor General that the petitioner did not
deny that it was not paying Muslim holiday pay to its non-Muslim employees. Indeed, petitioner
merely contends that its non-Muslim employees are not entitled to Muslim holiday pay. Hence,
the issue could be resolved even without documentary proofs. In any case, there was no
indication that Regional Director Macaraya failed to consider any documentary proof presented
by SMC in the course of the inspection.

Anent the allegation that petitioner was not accorded due process, we sustain the Court of
Appeals in finding that SMC was furnished a copy of the inspection order and it was received
by and explained to its Personnel Officer. Further, a series of summary hearings were
conducted by DOLE on 19 November 1992, 28 May 1993 and 4 and 5 October 1993. Thus,
SMC could not claim that it was not given an opportunity to defend itself.

Finally, as regards the allegation that the issue on Muslim holiday pay was already resolved in
NLRC CA No. M-000915-92 (Napoleon E. Fernan vs. San Miguel Corporation Beer Division
and Leopoldo Zaldarriaga),10 the Court notes that the case was primarily for illegal dismissal
and the claim for benefits was only incidental to the main case. In that case, the NLRC
Cagayan de Oro City declared, in passing:
We also deny the claims for Muslim holiday pay for lack of factual and legal
basis.1âwphi1 Muslim holidays are legally observed within the area of jurisdiction of the present
Autonomous Region for Muslim Mindanao (ARMM), particularly in the provinces of
Maguindanao, Lanao del Sur, Sulu and Tawi-Tawi.1âwphi1 It is only upon Presidential
Proclamation that Muslim holidays may be officially observed outside the Autonomous Region
and generally extends to Muslims to enable them the observe said holidays. 11

The decision has no consequence to issues before us, and as aptly declared by
Undersecretary Español, it "can never be a benchmark nor a guideline to the present case x x
x."12

WHEREFORE, in view of the foregoing, the petition is DISMISSED.

[9]

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:

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:

P.55 per
Rice ration day
40 per
Housing facility 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., 85 per
equivalent to at least 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, 1952; so that the parties had intended to be regulated by their
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.

Petitioner also argues that to allow the deductions of the facilities 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.
[10]

G.R. No. 118506 April 18, 1997

NORMA MABEZA, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, PETER NG/HOTEL
SUPREME, respondents.

Labor Law;  Illegal Dismissals;  Evidence;  In termination cases, the employer bears the burden of
proof to show that the dismissal is for just cause.—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.

Same; Same; Abandonment; For abandonment to arise, there must be concurrence of two things:

1) lack of intention to work; and 2) the presence of overt acts signifying the employee’s intention not to
work.—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; and 2) the presence of
overt acts signifying the employee’s intention not to work.

Same; Same; Same; Absence Without Leave; 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.—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, 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.

Same; Same; Loss of Confidence;  Loss of confidence as a just cause for dismissal was never
intended to provide employers with a blank check for terminating their employees—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.—Loss of confidence as a just cause for dismissal was never 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.
 Same; Same; Same; Hotels;  An ordinary chambermaid does not fall under the two classes of
employees for which loss of confidence, if ably supported by evidence, would normally apply.—
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.

Same; Same; Same; Loss of confidence should not be simulated in order to justify what would

otherwise be, under the provisions of law, an illegal dismissal.—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.”

Same; Same; Same; Suspicious delay in the employer’s filing of qualified theft charges against an

employee long after the latter exposed the former’s scheme (to avoid its obligations as employer under
the Labor Code) by her act of filing illegal dismissal charges against the said employer would hardly
warrant serious consideration of loss of confidence as a valid ground for dismissal.—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.

Same; Same; Unfair Labor Practices;  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 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 em-ployer’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.

Same; Same; Administrative Law;  The Supreme Court does not normally overturn findings and
conclusions of quasi-judicial agencies when the same are ably supported by the evidence on record. The
blatant one-sidedness of the decision of the Arbiter simply raises the suspicion that something more than
the facts, the law and jurisprudence may have influenced it.—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 the face of reason and logic, we will not hesitate to set aside 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.
 Same; Same; Hotels;  Meals and Lodging;  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, viz, a) proof must be shown that such facilities are customarily
furnished by the trade, b) the provision of deductible facilities must be voluntarily accepted in writing by
the employee, and, c) facilities must be charged at fair and reasonable value.—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. 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
wages. 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.

Same; Same; Same; Same; Words and Phrases; “Facilities” and “Supplements,” Distinguished;

A benefit or privilege granted to an employee for the convenience of the employer is not a facility but a
supplement.—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. 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.

Same; Same; Prescription;  Money claims arising out of employer-employee relationship prescribe

in three (3) years.—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.

Same; Same; Reinstatement;  Separation Pay; Strained Relations; Separation pay equivalent to

one month’s salary for every year of continuous service is proper instead of reinstatement granted to
illegally dismissed employee owing to the strained relations between her and her employer, since
allowing the former to return to her job would only subject her to possible harassment and future
embarrassment.—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.

Same; Same; Backwages; An illegally dismissed employee awarded separation pay in lieu of

reinstatement is entitled to full backwages, from the time of illegal dismissal up to the date of the
promulgation of the Supreme Court decision, without qualification or deduction.—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, petitioner is entitled to full back-wages from the time of
her illegal dismissal up to the date of promulgation of this decision without qualification or deduction.

Same; Same; Due Process; The dismissal of an employee without the benefit of notice and hearing
prior to her termination violates the constitutional right to due process.—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
circumstances, 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.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.

     Tenefrancia, Agranzamendez, Liceralde & Associatesfor petitioner.
     Romeo M. Rome for private respondent.

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 prosecutor's office of the City of Baguio against petitioner on
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.

Issue : W/N Mabeza was illegally Dismissed

W/N there was underpayment of wages

1. Abandonment :

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.

Loss of Confidence:

Loss of confidence as a just cause for dismissal was never 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 the face of reason and logic, we
will not hesitate to set aside 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.

RE: payment of wages below minimum wage

Argument of private respondent:

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 promulgation of this decision pursuant to our ruling in Bustamante
vs. NLRC. 34

5) P1,000.00.

[11]

G.R. Nos. 174040-41               September 22, 2010

INSULAR HOTEL EMPLOYEES UNION-NFL, Petitioner,

vs.
WATERFRONT INSULAR HOTEL DAVAO, Respondent.

Labor Law; Labor Unions; Mediation; Only a certified or duly recognized bargaining agent may
file a notice or request for preventive mediation.—It is clear that only a certified or duly recognized
bargaining agent may file a notice or request for preventive mediation. It is curious that even Cullo
himself admitted, in a number of pleadings, that the case was filed not by the Union but by individual
members thereof. Clearly, therefore, the NCMB had no jurisdiction to entertain the notice filed before it.

Same; Same; Same; Jurisdiction; Estoppel; A party cannot be estopped in raising the jurisdictional
issue, because it is basic that the issue of jurisdiction may be raised at any stage of the proceedings, even
on appeal, and is not lost by waiver or by estoppel.—Even though respondent signed a Submission
Agreement, it had, however, immediately manifested its desire to withdraw from the proceedings after it
became apparent that the Union had no part in the complaint. As a matter of fact, only four days had
lapsed after the signing of the Submission Agreement when respondent called the attention of AVA
Olvida in a “Manifestation with Motion for a Second Preliminary Conference” that the persons who filed
the instant complaint in the name of Insular Hotel Employees Union-NFL had no authority to represent
the Union. Respondent cannot be estopped in raising the jurisdictional issue, because it is basic that the
issue of jurisdiction may be raised at any stage of the proceedings, even on appeal, and is not lost by
waiver or by estoppel.

Same; Same; Same; Estoppel; Estoppel is the exception rather than the rule—estoppel, being in the
nature of a forfeiture, is not favored by law.—In Figueroa v. People, 558 SCRA 63 (2008), this Court
explained that estoppel is the exception rather than the rule, to wit: Applying the said doctrine to the
instant case, the petitioner is in no way estopped by laches in assailing the jurisdiction of the RTC,
considering that he raised the lack thereof in his appeal before the appellate court. At that time, no
considerable period had yet elapsed for laches to attach. True, delay alone, though unreasonable, will not
sustain the defense of “estoppel by laches” unless it further appears that the party, knowing his rights,
has not sought to enforce them until the condition of the party pleading laches has in good faith become
so changed that he cannot be restored to his former state, if the rights be then enforced, due to loss of
evidence, change of title, intervention of equities, and other causes. In applying the principle of estoppel
by laches in the exceptional case of Sibonghanoy, the Court therein considered the patent and revolting
inequity and unfairness of having the judgment creditors go up their Calvary once more after more or
less 15 years.The same, however, does not obtain in the instant case. We note at this point that estoppel,
being in the nature of a forfeiture, is not favored by law. It is to be applied rarely—only from necessity,
and only in extraordinary circumstances. The doctrine must be applied with great care and the equity
must be strong in its favor.When misapplied, the doctrine of estoppel may be a most effective weapon for
the accomplishment of injustice. x x x.

Same; Same; Mere affiliation does not divest the local union of its own personality, neither does it
give the mother federation the license to act independently of the local union.—If the individual
members of the Union have no authority to file the case, does the federation to which the local union is
affiliated have the standing to do so? On this note, Coastal Subic Bay Terminal, Inc. v. Department of
Labor and Employment, 507 SCRA 300 (2006), is enlightening, thus: x x x A local union does not owe
its existence to the federation with which it is affiliated. It is a separate and distinct voluntary association
owing its creation to the will of its members. Mere affiliation does not divest the local union of its
own personality, neither does it give the mother federation the license to act independently of the
local union. It only gives rise to a contract of agency, where the former acts in representation of the
latter. Hence, local unions are considered principals while the federation is deemed to be merely their
agent. x x x Based on the foregoing, this Court agrees with approval with the disquisition of the CA
when it ruled that NFL had no authority to file the complaint in behalf of the individual employees.

Same; Same; Diminution of Benefits; The prohibition against elimination or diminution of benefits
set out in Article 100 of the Labor Code is specifically concerned with benefits already enjoyed at the
time of the promulgation of the Labor Code—Article 100 does not, in other words, purport to apply to
situations arising after the promulgation date of the Labor Code.—On this note, Apex Mining Company,
Inc. v. NLRC, 206 SCRA 497 (1992), is instructive, to wit: Clearly, the prohibition against elimination or
diminution of benefits set out in Article 100 of the Labor Code is specifically concerned with benefits
already enjoyed at the time of the promulgation of the Labor Code. Article 100 does not, in other words,
purport to apply to situations arising after the promulgation date of the Labor Code x x x.

Same; Same; Same; A labor union is not prohibited from offering and agreeing to reduce wages
and benefits of the employees—the right to free collective bargaining includes the right to suspend it.—
Even assuming arguendo that Article 100 applies to the case at bar, this Court agrees with respondent
that the same does not prohibit a union from offering and agreeing to reduce wages and benefits of the
employees. In Rivera v. Espiritu, 374 SCRA 351 (2002), this Court ruled that the right to free collective
bargaining, after all, includes the right to suspend it.

Same; Same; Same; The signing of the individual “Reconfirmation of Employment” by the
employees may be deemed an implied ratification by the Union members of a Memorandum of
Agreement with the employer.—This Court is not unmindful of the fact that DIHFEU-NFL’s Constitution
and By-Laws specifically provides that “the results of the collective bargaining negotiations shall be
subject to ratification and approval by majority vote of the Union members at a meeting convened, or by
plebiscite held for such special purpose.” Accordingly, it is undisputed that the MOA was not subject to
ratification by the general membership of the Union. The question to be resolved then is, does the non-
ratification of the MOA in accordance with the Union’s constitution prove fatal to the validity thereof? It
must be remembered that after the MOA was signed, the members of the Union individually signed
contracts denominated as “Reconfirmation of Employment.” Cullo did not dispute the fact that of the 87
members of the Union, who signed and accepted the “Reconfirmation of Employment,” 71 are the
respondent employees in the case at bar. Moreover, it bears to stress that all the employees were assisted
by Rojas, DIHFEU-NFL’s president, who even co-signed each contract. Stipulated in each
Reconfirmation of Employ ment were the new salary and benefits scheme. In addition, it bears to stress
that specific provisions of the new contract also made reference to the MOA. Thus, the individual
members of the union cannot feign knowledge of the execution of the MOA. Each contract was freely
entered into and there is no indication that the same was attended by fraud, misrepresentation or duress.
To this Court’s mind, the signing of the individual “Reconfirmation of Employment” should, therefore,
be deemed an implied ratification by the Union members of the MOA.

Same; Social Justice; Even if our laws endeavor to give life to the constitutional policy on social
justice and on the protection of labor, it does not mean that every labor dispute will be decided in favor
of the workers—management has rights which are also entitled to respect and enforcement in the interest
of fair play.—While the scales of justice usually tilt in favor of labor, the peculiar circumstances herein
prevent this Court from applying the same in the instant petition. Even if our laws endeavor to give life to
the constitutional policy on social justice and on the protection of labor, it does not mean that every labor
dispute will be decided in favor of the workers. The law also recognizes that management has rights
which are also entitled to respect and enforcement in the interest of fair play.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
   The facts are stated in the opinion of the Court.
  Danilo A. Cullo for petitioner.
  Geraldine V. Quimosing-Tiu for respondent.

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari,1 under Rule 45 of the Rules of Court,
seeking to set aside the Decision 2 dated October 11, 2005, and the Resolution 3 dated July 13,
2006 of the Court of Appeals (CA) in consolidated labor cases docketed as CA-G.R. SP No.
83831 and CA-G.R. SP No. 83657. Said Decision reversed the Decision 4 dated the April 5,
2004 of the Accredited Voluntary Arbitrator Rosalina L. Montejo (AVA Montejo).

The facts of the case, as culled from the records, are as follows:

On November 6, 2000, respondent Waterfront Insular Hotel Davao (respondent) sent the
Department of Labor and Employment (DOLE), Region XI, Davao City, a Notice of Suspension
of Operations5 notifying the same that it will suspend its operations for a period of six months
due to severe and serious business losses. In said notice, respondent assured the DOLE that if
the company could not resume its operations within the six-month period, the company would
pay the affected employees all the benefits legally due to them.

During the period of the suspension, Domy R. Rojas (Rojas), the President of Davao Insular
Hotel Free Employees Union (DIHFEU-NFL), the recognized labor organization in Waterfront
Davao, sent respondent a number of letters asking management to reconsider its decision.

In a letter6 dated November 8, 2000, Rojas intimated that the members of the Union were
determined to keep their jobs and that they believed they too had to help respondent, thus:

xxxx

Sir, we are determined to keep our jobs and push the Hotel up from sinking. We believe that we
have to help in this (sic) critical times. Initially, we intend to suspend the re-negotiations of our
CBA. We could talk further on possible adjustments on economic benefits, the details of which
we are hoping to discuss with you or any of your emissaries. x x x7

In another letter8 dated November 10, 2000, Rojas reiterated the Union's desire to help
respondent, to wit:

We would like to thank you for giving us the opportunity to meet [with] your representatives in
order for us to air our sentiments and extend our helping hands for a possible reconsideration
of the company's decision.

The talks have enabled us to initially come up with a suggestion of solving the high cost on
payroll.

We propose that 25 years and above be paid their due retirement benefits and put their length
of service to zero without loss of status of employment with a minimum hiring rate.
Thru this scheme, the company would be able to save a substantial amount and reduce greatly
the payroll costs without affecting the finance of the families of the employees because they will
still have a job from where they could get their income.

Moreover, we are also open to a possible reduction of some economic benefits as our gesture
of sincere desire to help.

We are looking forward to a more fruitful round of talks in order to save the hotel. 9

In another letter10 dated November 20, 2000, Rojas sent respondent more proposals as a form
of the Union's gesture of their intention to help the company, thus:

1) Suspension of [the] CBA for ten years, No strike no lock-out shall be enforced.

2) Pay all the employees their benefits due, and put the length of service to zero with a
minimum hiring rate. Payment of benefits may be on a staggered basis or as available.

3) Night premium and holiday pays shall be according to law. Overtime hours rendered
shall be offsetted as practiced.

4) Reduce the sick leaves and vacation leaves to 15 days/15days.

5) Emergency leave and birthday off are hereby waived.

6) Duty meal allowance is fixed at ₱30.00 only. No more midnight snacks and double
meal allowance. The cook drinks be stopped as practiced.

7) We will shoulder 50% of the group health insurance and family medical allowance be
reduced to 1,500.00 instead of 3,000.00.

8) The practice of bringing home our uniforms for laundry be continued.

9) Fixed manning shall be implemented, the rest of manpower requirements maybe

sourced thru WAP and casual hiring. Manpower for fixed manning shall be 145 rank-
and-file union members.

10) Union will cooperate fully on strict implementation of house rules in order to attain
desired productivity and discipline. The union will not tolerate problem members.

11) The union in its desire to be of utmost service would adopt multi-tasking for the
hotel to be more competitive.

It is understood that with the suspension of the CBA renegotiations, the same existing CBA
shall be adopted and that all provisions therein shall remain enforced except for those
mentioned in this proposal.

These proposals shall automatically supersede the affected provisions of the CBA. 11

In a handwritten letter 12 dated November 25, 2000, Rojas once again appealed to respondent
for it to consider their proposals and to re-open the hotel. In said letter, Rojas stated that
manpower for fixed manning shall be one hundred (100) rank-and-file Union members instead
of the one hundred forty-five (145) originally proposed.

Finally, sometime in January 2001, DIHFEU-NFL, through Rojas, submitted to respondent a

Manifesto13 concretizing their earlier proposals.

After series of negotiations, respondent and DIHFEU-NFL, represented by its President, Rojas,
and Vice-Presidents, Exequiel J. Varela Jr. and Avelino C. Bation, Jr., signed a Memorandum
of Agreement14 (MOA) wherein respondent agreed to re-open the hotel subject to certain
concessions offered by DIHFEU-NFL in its Manifesto.

Accordingly, respondent downsized its manpower structure to 100 rank-and-file employees as

set forth in the terms of the MOA. Moreover, as agreed upon in the MOA, a new pay scale was
also prepared by respondent.

The retained employees individually signed a "Reconfirmation of Employment" 15 which

embodied the new terms and conditions of their continued employment. Each employee was
assisted by Rojas who also signed the document.

On June 15, 2001, respondent resumed its business operations.

On August 22, 2002, Darius Joves (Joves) and Debbie Planas, claiming to be local officers of
the National Federation of Labor (NFL), filed a Notice of Mediation 16 before the National
Conciliation and Mediation Board (NCMB), Region XI, Davao City. In said Notice, it was stated
that the Union involved was "DARIUS JOVES/DEBBIE PLANAS ET. AL, National Federation of
Labor." The issue raised in said Notice was the "Diminution of wages and other benefits
through unlawful Memorandum of Agreement."

On August 29, 2002, the NCMB called Joves and respondent to a conference to explore the
possibility of settling the conflict. In the said conference, respondent and petitioner Insular Hotel
Employees Union-NFL (IHEU-NFL), represented by Joves, signed a Submission
Agreement17 wherein they chose AVA Alfredo C. Olvida (AVA Olvida) to act as voluntary
arbitrator. Submitted for the resolution of AVA Olvida was the determination of whether or not
there was a diminution of wages and other benefits through an unlawful MOA. In support of his
authority to file the complaint, Joves, assisted by Atty. Danilo Cullo (Cullo), presented several
Special Powers of Attorney (SPA) which were, however, undated and unnotarized.

On September 2, 2002, respondent filed with the NCMB a Manifestation with Motion for a
Second Preliminary Conference,18 raising the following grounds:

1) The persons who filed the instant complaint in the name of the Insular Hotel
Employees Union-NFL have no authority to represent the Union;

2) The individuals who executed the special powers of attorney in favor of the person
who filed the instant complaint have no standing to cause the filing of the instant
complaint; and

3) The existence of an intra-union dispute renders the filing of the instant case
premature.19

On September 16, 2002, a second preliminary conference was conducted in the NCMB, where
Cullo denied any existence of an intra-union dispute among the members of the union. Cullo,
however, confirmed that the case was filed not by the IHEU-NFL but by the NFL. When asked
to present his authority from NFL, Cullo admitted that the case was, in fact, filed by individual
employees named in the SPAs. The hearing officer directed both parties to elevate the
aforementioned issues to AVA Olvida.20

The case was docketed as Case No. AC-220-RB-11-09-022-02 and referred to AVA Olvida.
Respondent again raised its objections, specifically arguing that the persons who signed the
complaint were not the authorized representatives of the Union indicated in the Submission
Agreement nor were they parties to the MOA. AVA Olvida directed respondent to file a formal
motion to withdraw its submission to voluntary arbitration.

On October 16, 2002, respondent filed its Motion to Withdraw. 21 Cullo then filed an
Opposition22 where the same was captioned:

NATIONAL FEDERATION OF LABOR

And 79 Individual Employees, Union Members,
Complainants,

-versus-

Waterfront Insular Hotel Davao,

Respondent.

In said Opposition, Cullo reiterated that the complainants were not representing IHEU-NFL, to
wit:

xxxx

2. Respondent must have been lost when it said that the individuals who executed the
SPA have no standing to represent the union nor to assail the validity of Memorandum
of Agreement (MOA). What is correct is that the individual complainants are not
representing the union but filing the complaint through their appointed attorneys-in-fact
to assert their individual rights as workers who are entitled to the benefits granted by
law and stipulated in the collective bargaining agreement. 23

On November 11, 2002, AVA Olvida issued a Resolution 24 denying respondent's Motion to
Withdraw. On December 16, 2002, respondent filed a Motion for Reconsideration 25 where it
stressed that the Submission Agreement was void because the Union did not consent thereto.
Respondent pointed out that the Union had not issued any resolution duly authorizing the
individual employees or NFL to file the notice of mediation with the NCMB.

Cullo filed a Comment/Opposition26 to respondent's Motion for Reconsideration. Again, Cullo

admitted that the case was not initiated by the IHEU-NFL, to wit:

The case was initiated by complainants by filling up Revised Form No. 1 of the NCMB duly
furnishing respondent, copy of which is hereto attached as Annex "A" for reference and
consideration of the Honorable Voluntary Arbitrator. There is no mention there of Insular Hotel
Employees Union, but only National Federation of Labor (NFL). The one appearing at the
Submission Agreement was only a matter of filling up the blanks particularly on the question
there of Union; which was filled up with Insular Hotel Employees Union-NFL. There is nothing
there that indicates that it is a complainant as the case is initiated by the individual workers and
National Federation of Labor, not by the local union. The local union was not included as party-
complainant considering that it was a party to the assailed MOA.27

On March 18, 2003, AVA Olvida issued a Resolution 28 denying respondent's Motion for
Reconsideration. He, however, ruled that respondent was correct when it raised its objection to
NFL as proper party-complainant, thus:

Anent to the real complainant in this instant voluntary arbitration case, the respondent is correct
when it raised objection to the National Federation of Labor (NFL) and as proper party-
complainants.

The proper party-complainant is INSULAR HOTEL EMPLOYEES UNION-NFL, the recognized

and incumbent bargaining agent of the rank-and-file employees of the respondent hotel. In the
submission agreement of the parties dated August 29, 2002, the party complainant written is
INSULAR HOTEL EMPLOYEES UNION-NFL and not the NATIONAL FEDERATION OF
LABOR and 79 other members.

However, since the NFL is the mother federation of the local union, and signatory to the
existing CBA, it can represent the union, the officers, the members or union and officers or
members, as the case may be, in all stages of proceedings in courts or administrative bodies
provided that the issue of the case will involve labor-management relationship like in the case
at bar.

The dispositive portion of the March 18, 2003 Resolution of AVA Olvida reads:

WHEREFORE, premises considered, the motion for reconsideration filed by respondent is

DENIED. The resolution dated November 11, 2002 is modified in so far as the party-
complainant is concerned; thus, instead of "National Federation of Labor and 79 individual
employees, union members," shall be "Insular Hotel Employees Union-NFL et. al., as stated in
the joint submission agreement dated August 29, 2002. Respondent is directed to comply with
the decision of this Arbitrator dated November 11, 2002,

No further motion of the same nature shall be entertained. 29

On May 9, 2003, respondent filed its Position Paper Ad Cautelam, 30 where it declared, among
others, that the same was without prejudice to its earlier objections against the jurisdiction of
the NCMB and AVA Olvida and the standing of the persons who filed the notice of mediation.

Cullo, now using the caption "Insular Hotel Employees Union-NFL, Complainant," filed a

Comment31 dated June 5, 2003. On June 23, 2003, respondent filed its Reply. 32

Later, respondent filed a Motion for Inhibition 33 alleging AVA Olvida's bias and prejudice
towards the cause of the employees. In an Order 34 dated July 25, 2003, AVA Olvida voluntarily
inhibited himself out of "delicadeza" and ordered the remand of the case to the NCMB.

On August 12, 2003, the NCMB issued a Notice requiring the parties to appear before the
conciliator for the selection of a new voluntary arbitrator.

In a letter35 dated August 19, 2003 addressed to the NCMB, respondent reiterated its position
that the individual union members have no standing to file the notice of mediation before the
NCMB. Respondent stressed that the complaint should have been filed by the Union.
On September 12, 2003, the NCMB sent both parties a Notice 36 asking them to appear before it
for the selection of the new voluntary arbitrator. Respondent, however, maintained its stand that
the NCMB had no jurisdiction over the case. Consequently, at the instance of Cullo, the NCMB
approved ex parte the selection of AVA Montejo as the new voluntary arbitrator.

On April 5, 2004, AVA Montejo rendered a Decision 37 ruling in favor of Cullo, the dispositive
portion of which reads:

WHEREOF, in view of the all the foregoing, judgment is hereby rendered:

1. Declaring the Memorandum of Agreement in question as invalid as it is contrary to

law and public policy;

2. Declaring that there is a diminution of the wages and other benefits of the Union
members and officers under the said invalid MOA.

3. Ordering respondent management to immediately reinstate the workers wage rates

and other benefits that they were receiving and enjoying before the signing of the
invalid MOA;

4. Ordering the management respondent to pay attorney’s fees in an amount equivalent

to ten percent (10%) of whatever total amount that the workers union may receive
representing individual wage differentials.

As to the other claims of the Union regarding diminution of other benefits, this accredited
voluntary arbitrator is of the opinion that she has no authority to entertain, particularly as to the
computation thereof.

SO ORDERED.38

Both parties appealed the Decision of AVA Montejo to the CA. Cullo only assailed the Decision
in so far as it did not categorically order respondent to pay the covered workers their
differentials in wages reckoned from the effectivity of the MOA up to the actual reinstatement of
the reduced wages and benefits. Cullos' petition was docketed as CA-G.R. SP No. 83831.
Respondent, for its part, questioned among others the jurisdiction of the NCMB. Respondent
maintained that the MOA it had entered into with the officers of the Union was valid.
Respondent's petition was docketed as CA-G.R. SP No. 83657. Both cases were consolidated
by the CA.

On October 11, 2005, the CA rendered a Decision 39 ruling in favor of respondent, the
dispositive portion of which reads:

WHEREFORE, premises considered, the petition for review in CA-G.R. SP No. 83657 is
hereby GRANTED, while the petition in CA-G.R. SP No. 83831 is DENIED. Consequently, the
assailed Decision dated April 5, 2004 rendered by AVA Rosalina L. Montejo is hereby
REVERSED and a new one entered declaring the Memorandum of Agreement dated May 8,
2001 VALID and ENFORCEABLE. Parties are DIRECTED to comply with the terms and
conditions thereof.

SO ORDERED.40
Aggrieved, Cullo filed a Motion for Reconsideration, which was, however, denied by the CA in a
Resolution41 dated July 13, 2006.

Hence, herein petition, with Cullo raising the following issues for this Court's resolution, to wit:

I.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS

ERRORS IN FINDING THAT THE ACCREDITED VOLUNTARY ARBITRATOR HAS NO
JURISDICTION OVER THE CASE SIMPLY BECAUSE THE NOTICE OF MEDIATION DOES
NOT MENTION THE NAME OF THE LOCAL UNION BUT ONLY THE AFFILIATE
FEDERATION THEREBY DISREGARDING THE SUBMISSION AGREEMENT DULY SIGNED
BY THE PARTIES AND THEIR LEGAL COUNSELS THAT MENTIONS THE NAME OF THE
LOCAL UNION.

II.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS

ERROR BY DISREGARDING THE PROVISIONS OF THE CBA SIMPLY BECAUSE IT
BELIEVED THE UNPROVEN ALLEGATIONS OF RESPONDENT HOTEL THAT IT WAS
SUFFERING FROM FINANCIAL CRISIS.

III.

THE HONORABLE COURT OF APPEALS MUST HAVE SERIOUSLY ERRED IN

CONCLUDING THAT ARTICLE 100 OF THE LABOR CODE APPLIES ONLY TO BENEFITS
ENJOYED PRIOR TO THE ADOPTION OF THE LABOR CODE WHICH, IN EFFECT,
ALLOWS THE DIMINUTION OF THE BENEFITS ENJOYED BY EMPLOYEES FROM ITS
ADOPTION HENCEFORTH.42

The petition is not meritorious.

Anent the first error raised, Cullo argues that the CA erred when it overlooked the fact that
before the case was submitted to voluntary arbitration, the parties signed a Submission
Agreement which mentioned the name of the local union and not only NFL. Cullo, thus,
contends that the CA committed error when it ruled that the voluntary arbitrator had no
jurisdiction over the case simply because the Notice of Mediation did not state the name of the
local union thereby disregarding the Submission Agreement which states the names of local
union as Insular Hotel Employees Union-NFL.43

In its Memorandum,44 respondent maintains its position that the NCMB and Voluntary
Arbitrators had no jurisdiction over the complaint. Respondent, however, now also contends
that IHEU-NFL is a non-entity since it is DIHFEU-NFL which is considered by the DOLE as the
only registered union in Waterfront Davao. 45 Respondent argues that the Submission
Agreement does not name the local union DIHFEU-NFL and that it had timely withdrawn its
consent to arbitrate by filing a motion to withdraw.

A review of the development of the case shows that there has been much confusion as to the
identity of the party which filed the case against respondent. In the Notice of Mediation 46 filed
before the NCMB, it stated that the union involved was "DARIUS JOVES/DEBBIE PLANAS ET.
AL., National Federation of Labor." In the Submission Agreement, 47 however, it stated that the
union involved was "INSULAR HOTEL EMPLOYEES UNION-NFL."
Furthermore, a perusal of the records would reveal that after signing the Submission
Agreement, respondent persistently questioned the authority and standing of the individual
employees to file the complaint. Cullo then clarified in subsequent documents captioned as
"National Federation of Labor and 79 Individual Employees, Union Members, Complainants"
that the individual complainants are not representing the union, but filing the complaint through
their appointed attorneys-in-fact.48 AVA Olvida, however, in a Resolution dated March 18, 2003,
agreed with respondent that the proper party-complainant should be INSULAR HOTEL
EMPLOYEES UNION-NFL, to wit:

x x x In the submission agreement of the parties dated August 29, 2002, the party complainant
written is INSULAR HOTEL EMPLOYEES UNION-NFL and not the NATIONAL FEDERATION
OF LABOR and 79 other members.49

The dispositive portion of the Resolution dated March 18, 2003 of AVA Olvida reads:

WHEREFORE, premises considered, the motion for reconsideration filed by respondent is

DENIED. The resolution dated November 11, 2002, is modified in so far as the party
complainant is concerned, thus, instead of "National Federation of Labor and 79 individual
employees, union members," shall be "Insular Hotel Employees Union-NFL et. al., as stated in
the joint submission agreement dated August 29, 2002. Respondent is directed to comply with
the decision of this Arbitrator dated November 11, 2002. 50

After the March 18, 2003 Resolution of AVA Olvida, Cullo adopted "Insular Hotel Employees
Union-NFL et. al., Complainant" as the caption in all his subsequent pleadings. Respondent,
however, was still adamant that neither Cullo nor the individual employees had authority to file
the case in behalf of the Union.

While it is undisputed that a submission agreement was signed by respondent and "IHEU-
NFL," then represented by Joves and Cullo, this Court finds that there are two circumstances
which affect its validity: first, the Notice of Mediation was filed by a party who had no authority
to do so; second, that respondent had persistently voiced out its objection questioning the
authority of Joves, Cullo and the individual members of the Union to file the complaint before
the NCMB.

Procedurally, the first step to submit a case for mediation is to file a notice of preventive
mediation with the NCMB. It is only after this step that a submission agreement may be entered
into by the parties concerned.

Section 3, Rule IV of the NCMB Manual of Procedure provides who may file a notice of
preventive mediation, to wit:

Who may file a notice or declare a strike or lockout or request preventive mediation. -

Any certified or duly recognized bargaining representative may file a notice or declare a strike
or request for preventive mediation in cases of bargaining deadlocks and unfair labor practices.
The employer may file a notice or declare a lockout or request for preventive mediation in the
same cases. In the absence of a certified or duly recognized bargaining representative, any
legitimate labor organization in the establishment may file a notice, request preventive
mediation or declare a strike, but only on grounds of unfair labor practice.

From the foregoing, it is clear that only a certified or duly recognized bargaining agent may file
a notice or request for preventive mediation. It is curious that even Cullo himself admitted, in a
number of pleadings, that the case was filed not by the Union but by individual members
thereof. Clearly, therefore, the NCMB had no jurisdiction to entertain the notice filed before it.

Even though respondent signed a Submission Agreement, it had, however, immediately

manifested its desire to withdraw from the proceedings after it became apparent that the Union
had no part in the complaint. As a matter of fact, only four days had lapsed after the signing of
the Submission Agreement when respondent called the attention of AVA Olvida in a
"Manifestation with Motion for a Second Preliminary Conference" 51 that the persons who filed
the instant complaint in the name of Insular Hotel Employees Union-NFL had no authority to
represent the Union. Respondent cannot be estopped in raising the jurisdictional issue,
because it is basic that the issue of jurisdiction may be raised at any stage of the proceedings,
even on appeal, and is not lost by waiver or by estoppel.

In Figueroa v. People,52 this Court explained that estoppel is the exception rather than the rule,
to wit:

Applying the said doctrine to the instant case, the petitioner is in no way estopped by laches in
assailing the jurisdiction of the RTC, considering that he raised the lack thereof in his appeal
before the appellate court. At that time, no considerable period had yet elapsed for laches to
attach. True, delay alone, though unreasonable, will not sustain the defense of "estoppel by
laches" unless it further appears that the party, knowing his rights, has not sought to enforce
them until the condition of the party pleading laches has in good faith become so changed that
he cannot be restored to his former state, if the rights be then enforced, due to loss of
evidence, change of title, intervention of equities, and other causes. In applying the principle of
estoppel by laches in the exceptional case of Sibonghanoy, the Court therein considered the
patent and revolting inequity and unfairness of having the judgment creditors go up their
Calvary once more after more or less 15 years.The same, however, does not obtain in the
instant case.

We note at this point that estoppel, being in the nature of a forfeiture, is not favored by law. It is
to be applied rarely—only from necessity, and only in extraordinary circumstances. The
doctrine must be applied with great care and the equity must be strong in its favor.When
misapplied, the doctrine of estoppel may be a most effective weapon for the accomplishment of
injustice. x x x (Italics supplied.)53

The question to be resolved then is, do the individual members of the Union have the requisite
standing to question the MOA before the NCMB? On this note, Tabigue v. International Copra
Export Corporation (INTERCO)54 is instructive:

Respecting petitioners’ thesis that unsettled grievances should be referred to voluntary

arbitration as called for in the CBA, the same does not lie.The pertinent portion of the CBA
reads:

In case of any dispute arising from the interpretation or implementation of this Agreement or
any matter affecting the relations of Labor and Management, the UNION and the COMPANY
agree to exhaust all possibilities of conciliation through the grievance machinery. The
committee shall resolve all problems submitted to it within fifteen (15) days after the problems
ha[ve] been discussed by the members. If the dispute or grievance cannot be settled by the
Committee, or if the committee failed to act on the matter within the period of fifteen (15) days
herein stipulated, the UNION and the COMPANY agree to submit the issue to Voluntary
Arbitration. Selection of the arbitrator shall be made within seven (7) days from the date of
notification by the aggrieved party. The Arbitrator shall be selected by lottery from four (4)
qualified individuals nominated by in equal numbers by both parties taken from the list of
Arbitrators prepared by the National Conciliation and Mediation Board (NCMB). If the Company
and the Union representatives within ten (10) days fail to agree on the Arbitrator, the NCMB
shall name the Arbitrator. The decision of the Arbitrator shall be final and binding upon the
parties. However, the Arbitrator shall not have the authority to change any provisions of the
Agreement.The cost of arbitration shall be borne equally by the parties.

Petitioners have not, however, been duly authorized to represent the union. Apropos is this
Court’s pronouncement in Atlas Farms, Inc. v. National Labor Relations Commission, viz:

x x x Pursuant to Article 260 of the Labor Code, the parties to a CBA shall name or designate
their respective representatives to the grievance machinery and if the grievance is unsettled in
that level, it shall automatically be referred to the voluntary arbitrators designated in advance by
parties to a CBA. Consequently, only disputes involving the union and the company  shall be
referred to the grievance machinery or voluntary arbitrators. (Emphasis and underscoring
supplied.)55

If the individual members of the Union have no authority to file the case, does the federation to
which the local union is affiliated have the standing to do so? On this note, Coastal Subic Bay
Terminal, Inc. v. Department of Labor and Employment56 is enlightening, thus:

x x x A local union does not owe its existence to the federation with which it is affiliated. It is a
separate and distinct voluntary association owing its creation to the will of its members. Mere
affiliation does not divest the local union of its own personality, neither does it give the mother
federation the license to act independently of the local union. It only gives rise to a contract of
agency, where the former acts in representation of the latter. Hence, local unions are
considered principals while the federation is deemed to be merely their agent. x x x 57

Based on the foregoing, this Court agrees with approval with the disquisition of the CA when it
ruled that NFL had no authority to file the complaint in behalf of the individual employees, to wit:

Anent the first issue, We hold that the voluntary arbitrator had no jurisdiction over the case.
Waterfront contents that the Notice of Mediation does not mention the name of the Union but
merely referred to the National Federation of Labor (NFL) with which the Union is affiliated. In
the subsequent pleadings, NFL's legal counsel even confirmed that the case was not filed by
the union but by NFL and the individual employees named in the SPAs which were not even
dated nor notarized.

Even granting that petitioner Union was affiliated with NFL, still the relationship between that of
the local union and the labor federation or national union with which the former was affiliated is
generally understood to be that of agency, where the local is the principal and the federation
the agency. Being merely an agent of the local union, NFL should have presented its authority
to file the Notice of Mediation. While We commend NFL's zealousness in protecting the rights
of lowly workers, We cannot, however, allow it to go beyond what it is empowered to do.

As provided under the NCMB Manual of Procedures, only a certified or duly recognized
bargaining representative and an employer may file a notice of mediation, declare a strike or
lockout or request preventive mediation. The Collective Bargaining Agreement (CBA), on the
other, recognizes that DIHFEU-NFL is the exclusive bargaining representative of all permanent
employees. The inclusion of the word "NFL" after the name of the local union merely stresses
that the local union is NFL's affiliate. It does not, however, mean that the local union cannot
stand on its own. The local union owes its creation and continued existence to the will of its
members and not to the federation to which it belongs. The spring cannot rise higher than its
source, so to speak.58
In its Memorandum, respondent contends that IHEU-NFL is a non-entity and that DIHFEU-NFL
is the only recognized bargaining unit in their establishment. While the resolution of the said
argument is already moot and academic given the discussion above, this Court shall address
the same nevertheless.

While the November 16, 2006 Certification 59 of the DOLE clearly states that "IHEU-NFL" is not
a registered labor organization, this Court finds that respondent is estopped from questioning
the same as it did not raise the said issue in the proceedings before the NCMB and the
Voluntary Arbitrators. A perusal of the records reveals that the main theory posed by
respondent was whether or not the individual employees had the authority to file the complaint
notwithstanding the apparent non-participation of the union. Respondent never put in issue the
fact that DIHFEU-NFL was not the same as IHEU-NFL. Consequently, it is already too late in
the day to assert the same.

Anent the second issue raised by Cullo, the same is again without merit.

Cullo contends that respondent was not really suffering from serious losses as found by the
CA. Cullo anchors his position on the denial by the Wage Board of respondent's petition for
exemption from Wage Order No. RTWPB-X1-08 on the ground that it is a distressed
establishment.60 In said denial, the Board ruled:

A careful analysis of applicant's audited financial statements showed that during the period
ending December 31, 1999, it registered retained earnings amounting to
₱8,661,260.00. Applicant's interim financial statements for the quarter ending June 30, 2000
cannot be considered, as the same was not audited. Accordingly, this Board finds that applicant
is not qualified for exemption as a distressed establishment pursuant to the aforecited criteria. 61

In its Decision, the CA held that upholding the validity of the MOA would mean the continuance
of the hotel's operation and financial viability, to wit:

x x x We cannot close Our eyes to the impending financial distress that an employer may suffer
should the terms of employment under the said CBA continue.

If indeed We are to tilt the balance of justice to labor, then We would be inclined to favor for the
nonce petitioner Waterfront. To uphold the validity of the MOA would mean the continuance of
the hotel's operation and financial viability. Otherwise, the eventual permanent closure of the
hotel would only result to prejudice of the employees, as a consequence thereof, will
necessarily lose their jobs.62

In its petition before the CA, respondent submitted its audited financial statements 63 which
show that for the years 1998, 1999, until September 30, 2000, its total operating losses
amounted to ₱48,409,385.00. Based on the foregoing, the CA was not without basis when it
declared that respondent was suffering from impending financial distress. While the Wage
Board denied respondent's petition for exemption, this Court notes that the denial was partly
due to the fact that the June 2000 financial statements then submitted by respondent were not
audited. Cullo did not question nor discredit the accuracy and authenticity of respondent's
audited financial statements. This Court, therefore, has no reason to question the veracity of
the contents thereof. Moreover, it bears to point out that respondent's audited financial
statements covering the years 2001 to 2005 show that it still continues to suffer losses. 64

Finally, anent the last issue raised by Cullo, the same is without merit.
Cullo argues that the CA must have erred in concluding that Article 100 of the Labor Code
applies only to benefits already enjoyed at the time of the promulgation of the Labor Code.

Article 100 of the Labor Code provides:

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 the promulgation of this Code.

On this note, Apex Mining Company, Inc. v. NLRC65 is instructive, to wit:

Clearly, the prohibition against elimination or diminution of benefits set out in Article 100 of the
Labor Code is specifically concerned with benefits already enjoyed at the time of the
promulgation of the Labor Code. Article 100 does not, in other words, purport to apply to
situations arising after the promulgation date of the Labor Code x x x.66

Even assuming arguendo that Article 100 applies to the case at bar, this Court agrees with
respondent that the same does not prohibit a union from offering and agreeing to reduce wages
and benefits of the employees. In Rivera v. Espiritu,67 this Court ruled that the right to free
collective bargaining, after all, includes the right to suspend it, thus:

A CBA is "a contract executed upon request of either the employer or the exclusive bargaining
representative incorporating the agreement reached after negotiations with respect to wages,
hours of work and all other terms and conditions of employment, including proposals for
adjusting any grievances or questions arising under such agreement." The primary purpose of
a CBA is the stabilization of labor-management relations in order to create a climate of a sound
and stable industrial peace. In construing a CBA, the courts must be practical and realistic and
give due consideration to the context in which it is negotiated and the purpose which it is
intended to serve.

The assailed PAL-PALEA agreement was the result of voluntary collective bargaining
negotiations undertaken in the light of the severe financial situation faced by the employer, with
the peculiar and unique intention of not merely promoting industrial peace at PAL, but
preventing the latter’s closure. We find no conflict between said agreement and Article 253-A of
the Labor Code. Article 253-A has a two-fold purpose. One is to promote industrial stability and
predictability. Inasmuch as the agreement sought to promote industrial peace at PAL during its
rehabilitation, said agreement satisfies the first purpose of Article 253-A.1awphi1 The other is to
assign specific timetables wherein negotiations become a matter of right and requirement.
Nothing in Article 253-A, prohibits the parties from waiving or suspending the mandatory
timetables and agreeing on the remedies to enforce the same.

In the instant case, it was PALEA, as the exclusive bargaining agent of PAL’s ground
employees, that voluntarily entered into the CBA with PAL. It was also PALEA that voluntarily
opted for the 10-year suspension of the CBA. Either case was the union’s exercise of its right to
collective bargaining. The right to free collective bargaining, after all, includes the right to
suspend it.68

Lastly, this Court is not unmindful of the fact that DIHFEU-NFL's Constitution and By-Laws
specifically provides that "the results of the collective bargaining negotiations shall be subject to
ratification and approval by majority vote of the Union members at a meeting convened, or by
plebiscite held for such special purpose." 69 Accordingly, it is undisputed that the MOA was not
subject to ratification by the general membership of the Union. The question to be resolved
then is, does the non-ratification of the MOA in accordance with the Union's constitution prove
fatal to the validity thereof?

It must be remembered that after the MOA was signed, the members of the Union individually
signed contracts denominated as "Reconfirmation of Employment." 70 Cullo did not dispute the
fact that of the 87 members of the Union, who signed and accepted the "Reconfirmation of
Employment," 71 are the respondent employees in the case at bar. Moreover, it bears to stress
that all the employees were assisted by Rojas, DIHFEU-NFL's president, who even co-signed
each contract.

Stipulated in each Reconfirmation of Employment were the new salary and benefits scheme. In
addition, it bears to stress that specific provisions of the new contract also made reference to
the MOA. Thus, the individual members of the union cannot feign knowledge of the execution
of the MOA. Each contract was freely entered into and there is no indication that the same was
attended by fraud, misrepresentation or duress. To this Court's mind, the signing of the
individual "Reconfirmation of Employment" should, therefore, be deemed an implied ratification
by the Union members of the MOA.

In Planters Products, Inc. v. NLRC,71 this Court refrained from declaring a CBA invalid
notwithstanding that the same was not ratified in view of the fact that the employees had
enjoyed benefits under it, thus:

Under Article 231 of the Labor Code and Sec. 1, Rule IX, Book V of the Implementing Rules,
the parties to a collective [bargaining] agreement are required to furnish copies of the
appropriate Regional Office with accompanying proof of ratification by the majority of all the
workers in a bargaining unit. This was not done in the case at bar. But we do not declare the
1984-1987 CBA invalid or void considering that the employees have enjoyed benefits from it.
They cannot receive benefits under provisions favorable to them and later insist that the CBA is
void simply because other provisions turn out not to the liking of certain employees. x x x.
Moreover, the two CBAs prior to the 1984-1987 CBA were not also formally ratified, yet the
employees are basing their present claims on these CBAs. It is iniquitous to receive benefits
from a CBA and later on disclaim its validity.72

Applied to the case at bar, while the terms of the MOA undoubtedly reduced the salaries and
certain benefits previously enjoyed by the members of the Union, it cannot escape this Court's
attention that it was the execution of the MOA which paved the way for the re-opening of the
hotel, notwithstanding its financial distress. More importantly, the execution of the MOA allowed
respondents to keep their jobs. It would certainly be iniquitous for the members of the Union to
sign new contracts prompting the re-opening of the hotel only to later on renege on their
agreement on the fact of the non-ratification of the MOA.

In addition, it bears to point out that Rojas did not act unilaterally when he negotiated with
respondent's management. The Constitution and By-Laws of DIHFEU-NFL clearly provide that
the president is authorized to represent the union on all occasions and in all matters in which
representation of the union may be agreed or required. 73 Furthermore, Rojas was properly
authorized under a Board of Directors Resolution 74 to negotiate with respondent, the pertinent
portions of which read:
SECRETARY's CERTIFICATE

I, MA. SOCORRO LISETTE B. IBARRA, x x x, do hereby certify that, at a meeting of the Board
of Directors of the DIHFEU-NFL, on 28 Feb. 2001 with a quorum duly constituted, the following
resolutions were unanimously approved:

RESOLVED, as it is hereby resolved that the Manifesto dated 25 Feb. 2001 be approved
ratified and adopted;

RESOLVED, FURTHER, that Mr. Domy R. Rojas, the president of the DIHFEU-NFL, be hereby
authorized to negotiate with Waterfront Insular Hotel Davao and to work for the latter's
acceptance of the proposals contained in DIHFEU-NFL Manifesto; and

RESOLVED, FINALLY, that Mr. Domy R. Rojas is hereby authorized to sign any and all
documents to implement, and carry into effect, his foregoing authority.75

Withal, while the scales of justice usually tilt in favor of labor, the peculiar circumstances herein
prevent this Court from applying the same in the instant petition. Even if our laws endeavor to
give life to the constitutional policy on social justice and on the protection of labor, it does not
mean that every labor dispute will be decided in favor of the workers. The law also recognizes
that management has rights which are also entitled to respect and enforcement in the interest
of fair play.76

WHEREFORE, premises considered, the petition is DENIED. The Decision dated October 11,
2005, and the Resolution dated July 13, 2006 of the Court of Appeals in consolidated labor
cases docketed as CA-G.R. SP No. 83831 and CA-G.R. SP No. 83657, are AFFIRMED.

[11]
 G.R. No. 155059. April 29, 2005

AMERICAN WIRE AND CABLE DAILY RATED EMPLOYEES UNION, Petitioner,

vs.
AMERICAN WIRE AND CABLE CO., INC. and THE COURT OF APPEALS, Respondents.

Labor Law;  Bonuses; Words and Phrases;  A bonus is an amount granted and paid to an employee
for his industry and loyalty which contributed to the success of the employer’s business and made
possible the realization of profits—it is an act of generosity granted by an enlightened employer to spur
the employee to greater efforts for the success of the business and realization of bigger profits.—In the
case of Producers Bank of the Philippines v. NLRC we have characterized what a bonus is, viz.: A bonus
is an amount granted and paid to an employee for his industry and loyalty which contributed to the
success of the employer’s business and made possible the realization of profits. It is an act of generosity
granted by an enlightened employer to spur the employee to greater efforts for the success of the business
and realization of bigger profits. The granting of a bonus is a management prerogative, something given
in addition to what is ordinarily received by or strictly due the recipient. Thus, a bonus is not a
demandable and enforceable obligation, except when it is made part of the wage, salary or compensation
of the employee.

Same; Same; The grant of benefits given above what is strictly due to the employees is a
management prerogative which benefits, whenever management sees necessary, may be withdrawn,
unless they have been made a part of the wage or salary or compensation of the employees. —Based on
the foregoing pronouncement, it is obvious that the benefits/entitlements subjects of the instant case are
all bonuses which were given by the private respondent out of its generosity and munificence. The
additional 35% premium pay for work done during selected days of the Holy Week and Christmas
season, the holding of Christmas parties with raffle, and the cash incentives given together with the
service awards are all in excess of what the law requires each employer to give its employees. Since they
are above what is strictly due to the members of petitioner-union, the granting of the same was a
management prerogative, which, whenever management sees necessary, may be withdrawn, unless they
have been made a part of the wage or salary or compensation of the employees.

Same; Same; For a bonus to be enforceable, it must have been promised by the employer and
expressly agreed upon by the parties, or it must have had a fixed amount and had been a long and
regular practice on the part of the employer.—For a bonus to be enforceable, it must have been promised
by the employer and expressly agreed upon by the parties, or it must have had a fixed amount and had
been a long and regular practice on the part of the employer. The benefits/entitlements in question were
never subjects of any express agreement between the parties. They were never incorporated in the
Collective Bargaining Agreement (CBA). As observed by the Volun tary Arbitrator, the records reveal
that these benefits/entitlements have not been subjects of any express agreement between the union and
the company, and have not yet been incorporated in the CBA. In fact, the petitioner has not denied
having made proposals with the private respondent for the service award and the additional 35%
premium pay to be made part of the CBA.

Same; Same; Words and Phrases;  To be considered a “regular practice,” the giving of the bonus
should have been done over a long period of time, and must be shown to have been consistent and
deliberate—the downtrend in the grant of these bonuses over the years demonstrates that there is
nothing consistent about it.—The Christmas parties and its incidental benefits, and the giving of cash
incentive together with the service award cannot be said to have fixed amounts. What is clear from the
records is that over the years, there had been a downtrend in the amount given as service award. There
was also a downtrend with respect to the holding of the Christmas parties in the sense that its location
changed from paid venues to one which was free of charge, evidently to cut costs. Also, the grant of
these two aforementioned bonuses cannot be considered to have been the private respondent’s long and
regular practice. To be considered a “regular practice,” the giving of the bonus should have been done
over a long period of time, and must be shown to have been consistent and deliberate. The downtrend in
the grant of these two bonuses over the years demonstrates that there is nothing consistent about it.

Same; Same; To hold that an employer should be forced to distribute bonuses which it granted out
of kindness is to penalize him for his past generosity.—The additional 35% premium pay for work
rendered during selected days of the Holy Week and Christmas season cannot be held to have ripened
into a company practice that the petitioners herein have a right to demand. Aside from the general
averment of the petitioner that this benefit had been granted by the private respondent since time
immemorial, there had been no evidence adduced that it had been a regular practice. As propitiously
observed by the Court of Appeals: . . . [N]otwithstanding that the subject 35% premium pay was
deliberately given and the same was in excess of that provided by the law, the same however did not
ripen into a company practice on account of the fact that it was only granted for two (2) years and with
the express reservation from respondent corporation’s owner that it cannot continue to grant the same in
view of the company’s current financial situation. To hold that an employer should be forced to distribute
bonuses which it granted out of kindness is to penalize him for his past generosity.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.

     Honorato O. Victoria for petitioner.
     Emiterio Manibong for respondent.

DECISION

CHICO-NAZARIO, J.:

Before Us is a special civil action for certiorari, assailing the Decision1 of the Special Eighth
Division of the Court of Appeals dated 06 March 2002. Said Decision upheld the Decision 2 and
Order3 of Voluntary Arbitrator Angel A. Ancheta of the National Conciliation and Mediation
Board (NCMB) dated 25 September 2001 and 05 November 2001, respectively, which declared
the private respondent herein not guilty of violating Article 100 of the Labor Code, as amended.
Assailed likewise, is the Resolution 4 of the Court of Appeals dated 12 July 2002, which denied
the motion for reconsideration of the petitioner, for lack of merit.

THE FACTS

The facts of this case are quite simple and not in dispute.

American Wire and Cable Co., Inc., is a corporation engaged in the manufacture of wires and
cables. There are two unions in this company, the American Wire and Cable Monthly-Rated
Employees Union (Monthly-Rated Union) and the American Wire and Cable Daily-Rated
Employees Union (Daily-Rated Union).

On 16 February 2001, an original action was filed before the NCMB of the Department of Labor
and Employment (DOLE) by the two unions for voluntary arbitration. They alleged that the
private respondent, without valid cause, suddenly and unilaterally withdrew and denied certain
benefits and entitlements which they have long enjoyed. These are the following:

a. Service Award;

b. 35% premium pay of an employee’s basic pay for the work rendered during Holy Monday,
Holy Tuesday, Holy Wednesday, December 23, 26, 27, 28 and 29;
c. Christmas Party; and

d. Promotional Increase.

A promotional increase was asked by the petitioner for fifteen (15) of its members who were
given or assigned new job classifications. According to petitioner, the new job classifications
were in the nature of a promotion, necessitating the grant of an increase in the salaries of the
said 15 members.

On 21 June 2001, a Submission Agreement was filed by the parties before the Office for
Voluntary Arbitration. Assigned as Voluntary Arbitrator was Angel A. Ancheta.

On 04 July 2001, the parties simultaneously filed their respective position papers with the Office
of the Voluntary Arbitrator, NCMB, and DOLE.

On 25 September 2001, a Decision 5 was rendered by Voluntary Arbitrator Angel A. Ancheta in

favor of the private respondent. The dispositive portion of the said Decision is quoted
hereunder:

WHEREFORE, with all the foregoing considerations, it is hereby declared that the Company is
not guilty of violating Article 100 of the Labor Code, as amended, or specifically for withdrawing
the service award, Christmas party and 35% premium for work rendered during Holy Week and
Christmas season and for not granting any promotional increase to the alleged fifteen (15)
Daily-Rated Union Members in the absence of a promotion. The Company however, is directed
to grant the service award to deserving employees in amounts and extent at its discretion, in
consultation with the Unions on grounds of equity and fairness.6

A motion for reconsideration was filed by both unions 7 where they alleged that the Voluntary
Arbitrator manifestly erred in finding that the company did not violate Article 100 of the Labor
Code, as amended, when it unilaterally withdrew the subject benefits, and when no promotional
increase was granted to the affected employees.

On 05 November 2001, an Order 8 was issued by Voluntary Arbitrator Angel A. Ancheta. Part of
the Order is quoted hereunder:

Considering that the issues raised in the instant case were meticulously evaluated and
length[i]ly discussed and explained based on the pleadings and documentary evidenc[e]
adduced by the contending parties, we find no cogent reason to change, modify, or disturb said
decision.

WHEREFORE, let the instant MOTION[S] FOR RECONSIDERATION be, as they are hereby,
denied for lack of merit. Our decision dated 25 September 2001 is affirmed "en toto." 9

An appeal under Rule 43 of the 1997 Rules on Civil Procedure was made by the Daily-Rated
Union before the Court of Appeals 10 and docketed as CA-G.R. SP No. 68182. The petitioner
averred that Voluntary Arbitrator Angel A. Ancheta erred in finding that the company did not
violate Article 100 of the Labor Code, as amended, when the subject benefits were unilaterally
withdrawn. Further, they assert, the Voluntary Arbitrator erred in adopting the company’s
unaudited Revenues and Profitability Analysis for the years 1996-2000 in justifying the latter’s
withdrawal of the questioned benefits. 11
On 06 March 2002, a Decision in favor of herein respondent company was promulgated by the
Special Eighth Division of the Court of Appeals in CA-G.R. SP No. 68182. The decretal portion
of the decision reads:

WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE
and accordingly DISMISSED, for lack of merit. The Decision of Voluntary Arbitrator Angel A.
Ancheta dated September 25, 2001 and his Order dated November 5, 2001 in VA Case No.
AAA-10-6-4-2001 are hereby AFFIRMED and UPHELD.12

A motion for reconsideration13 was filed by the petitioner, contending that the Court of Appeals
misappreciated the facts of the case, and that it committed serious error when it ruled that the
unaudited financial statement bears no importance in the instant case.

The Court of Appeals denied the motion in its Resolution dated 12 July 2002 14 because it did
not present any new matter which had not been considered in arriving at the decision. The
dispositive portion of the Resolution states:

WHEREFORE, the motion for reconsideration is hereby DENIED for lack of merit.15

Dissatisfied with the court a quo’s ruling, petitioner instituted the instant special civil action
for certiorari,16 citing grave abuse of discretion amounting to lack of jurisdiction.

ASSIGNMENT OF ERRORS

The petitioner assigns as errors the following:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPANY DID NOT VIOLATE
ARTICLE 100 OF THE LABOR CODE, AS AMENDED, WHEN IT UNILATERALLY
WITHDREW THE BENEFITS OF THE MEMBERS OF PETITIONER UNION, TO WIT: 1) 35%
PREMIUM PAY; 2) CHRISTMAS PARTY AND ITS INCIDENTAL BENEFITS; AND 3)
SERVICE AWARD, WHICH IN TRUTH AND IN FACT SAID BENEFITS/ENTITLEMENTS
HAVE BEEN GIVEN THEM SINCE TIME IMMEMORIAL, AS A MATTER OF LONG
ESTABLISHED COMPANY PRACTICE, WITH THE FURTHER FACT THAT THE SAME NOT
BEING DEPENDENT ON PROFITS.

II

THE COURT OF APPEALS ERRED WHEN IT JUST ACCEPTED HOOK, LINE AND SINKER,
THE RESPONDENT COMPANY’S SELF SERVING AND UNAUDITED REVENUES AND
PROFITABILITY ANALYSIS FOR THE YEARS 1996-2000 WHICH THEY SUBMITTED TO
FALSELY JUSTIFY THEIR UNLAWFUL ACT OF UNILATERALLY AND SUDDENLY
WITHDRAWING OR DENYING FROM THE PETITIONER THE SUBJECT
BENEFITS/ENTITLEMENTS.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE YEARLY SERVICE
AWARD IS NOT DEPENDENT ON PROFIT BUT ON SERVICE AND THUS, CANNOT BE
UNILATERALLY WITHDRAWN BY RESPONDENT COMPANY.
ISSUE

Synthesized, the solitary issue that must be addressed by this Court is whether or not private
respondent is guilty of violating Article 100 of the Labor Code, as amended, when the
benefits/entitlements given to the members of petitioner union were withdrawn.

THE COURT’S RULING

Before we address the sole issue presented in the instant case, it is best to first discuss a
matter which was raised by the private respondent in its Comment. The private respondent
contends that this case should have been dismissed outright because of petitioner’s error in the
mode of appeal. According to it, the petitioner should have elevated the instant case to this
Court through a petition for review on certiorari under Rule 45, and not through a special civil
action for certiorari under Rule 65, of the 1997 Rules on Civil Procedure. 17

Assuming arguendo that the mode of appeal taken by the petitioner is improper, there is no

question that the Supreme Court has the discretion to dismiss it if it is defective. However,
sound policy dictates that it is far better to dispose the case on the merits, rather than on
technicality.18

The Supreme Court may brush aside the procedural barrier and take cognizance of the petition
as it raises an issue of paramount importance. The Court shall resolve the solitary issue on the
merits for future guidance of the bench and bar.19

With that out of the way, we shall now resolve whether or not the respondent company is guilty
of violating Article 100 of the Labor Code, as amended.

Article 100 of the Labor Code provides:

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.

The petitioner submits that the withdrawal of the private respondent of the 35% premium pay
for selected days during the Holy Week and Christmas season, the holding of the Christmas
Party and its incidental benefits, and the giving of service awards violated Article 100 of the
Labor Code. The grant of these benefits was a customary practice that can no longer be
unilaterally withdrawn by private respondent without the tacit consent of the petitioner. The
benefits in question were given by the respondent to the petitioner consistently, deliberately,
and unconditionally since time immemorial. The benefits/entitlements were not given to
petitioner due to an error in interpretation, or a construction of a difficult question of law, but
simply, the grant has been a practice over a long period of time. As such, it cannot be
withdrawn from the petitioner at respondent’s whim and caprice, and without the consent of the
former. The benefits given by the respondent cannot be considered as a "bonus" as they are
not founded on profit. Even assuming that it can be treated as a "bonus," the grant of the same,
by reason of its long and regular concession, may be regarded as part of regular
compensation.20

With respect to the fifteen (15) employees who are members of petitioner union that were given
new job classifications, it asserts that a promotional increase in their salaries was in order.
Salary adjustment is a must due to their promotion.21
On respondent company’s Revenues and Profitability Analysis for the years 1996-2000, the
petitioner insists that since the former was unaudited, it should not have justified the company’s
sudden withdrawal of the benefits/entitlements. The normal and/or legal method for establishing
profit and loss of a company is through a financial statement audited by an independent
auditor.22

The petitioner cites our ruling in the case of Saballa v. NLRC,23 where we held that financial
statements audited by independent auditors constitute the normal method of proof of the profit
and loss performance of the company. Our ruling in the case of Bogo-Medellin Sugarcane
Planters Association, Inc., et al. v. NLRC, et al.24 was likewise invoked. In this case, we held:

… The Court has previously ruled that financial statements audited by independent external
auditors constitute the normal method of proof of the profit and loss performance of a company.

On the matter of the withdrawal of the service award, the petitioner argues that it is the
employee’s length of service which is taken as a factor in the grant of this benefit, and not
whether the company acquired profit or not.25

In answer to all these, the respondent corporation avers that the grant of all subject benefits
has not ripened into practice that the employees concerned can claim a demandable right over
them. The grant of these benefits was conditional based upon the financial performance of the
company and that conditions/circumstances that existed before have indeed substantially
changed thereby justifying the discontinuance of said grants. The company’s financial
performance was affected by the recent political turmoil and instability that led the entire nation
to a bleeding economy. Hence, it only necessarily follows that the company’s financial situation
at present is already very much different from where it was three or four years ago. 26

On the subject of the unaudited financial statement presented by the private respondent, the
latter contends that the cases cited by the petitioner indeed uniformly ruled that financial
statements audited by independent external auditors constitute the normal method of proof of
the profit and loss performance of a company. However, these cases do not require that the
only legal method to ascertain profit and loss is through an audited financial statement. The
cases only provide that an audited financial statement is the normal method. 27

The respondent company likewise asseverates that the 15 members of petitioner union were
not actually promoted. There was only a realignment of positions. 28

From the foregoing contentions, it appears that for the Court to resolve the issue presented, it is
critical that a determination must be first made on whether the benefits/entitlements are in the
nature of a bonus or not, and assuming they are so, whether they are demandable and
enforceable obligations.

In the case of Producers Bank of the Philippines v. NLRC 29 we have characterized what a
bonus is, viz:

A bonus is an amount granted and paid to an employee for his industry and loyalty which
contributed to the success of the employer’s business and made possible the realization of
profits. It is an act of generosity granted by an enlightened employer to spur the employee to
greater efforts for the success of the business and realization of bigger profits. The granting of
a bonus is a management prerogative, something given in addition to what is ordinarily
received by or strictly due the recipient. Thus, a bonus is not a demandable and enforceable
obligation, except when it is made part of the wage, salary or compensation of the employee.
Based on the foregoing pronouncement, it is obvious that the benefits/entitlements subjects of
the instant case are all bonuses which were given by the private respondent out of its
generosity and munificence. The additional 35% premium pay for work done during selected
days of the Holy Week and Christmas season, the holding of Christmas parties with raffle, and
the cash incentives given together with the service awards are all in excess of what the law
requires each employer to give its employees. Since they are above what is strictly due to the
members of petitioner-union, the granting of the same was a management prerogative, which,
whenever management sees necessary, may be withdrawn, unless they have been made a
part of the wage or salary or compensation of the employees.

The consequential question therefore that needs to be settled is if the subject

benefits/entitlements, which are bonuses, are demandable or not. Stated another way, can
these bonuses be considered part of the wage or salary or compensation making them
enforceable obligations?

The Court does not believe so.

For a bonus to be enforceable, it must have been promised by the employer and expressly
agreed upon by the parties,30 or it must have had a fixed amount 31 and had been a long and
regular practice on the part of the employer. 32

The benefits/entitlements in question were never subjects of any express agreement between
the parties. They were never incorporated in the Collective Bargaining Agreement (CBA). As
observed by the Voluntary Arbitrator, the records reveal that these benefits/entitlements have
not been subjects of any express agreement between the union and the company, and have
not yet been incorporated in the CBA. In fact, the petitioner has not denied having made
proposals with the private respondent for the service award and the additional 35% premium
pay to be made part of the CBA.33

The Christmas parties and its incidental benefits, and the giving of cash incentive together with
the service award cannot be said to have fixed amounts. What is clear from the records is that
over the years, there had been a downtrend in the amount given as service award. 34 There was
also a downtrend with respect to the holding of the Christmas parties in the sense that its
location changed from paid venues to one which was free of charge, 35 evidently to cut costs.
Also, the grant of these two aforementioned bonuses cannot be considered to have been the
private respondent’s long and regular practice. To be considered a "regular practice," the giving
of the bonus should have been done over a long period of time, and must be shown to have
been consistent and deliberate.36 The downtrend in the grant of these two bonuses over the
years demonstrates that there is nothing consistent about it. Further, as held by the Court of
Appeals:

Anent the Christmas party and raffle of prizes, We agree with the Voluntary Arbitrator that the
same was merely sponsored by the respondent corporation out of generosity and that the same
is dependent on the financial performance of the company for a particular year… 37

The additional 35% premium pay for work rendered during selected days of the Holy Week and
Christmas season cannot be held to have ripened into a company practice that the petitioner
herein have a right to demand. Aside from the general averment of the petitioner that this
benefit had been granted by the private respondent since time immemorial, there had been no
evidence adduced that it had been a regular practice. As propitiously observed by the Court of
Appeals:
. . . [N]otwithstanding that the subject 35% premium pay was deliberately given and the same
was in excess of that provided by the law, the same however did not ripen into a company
practice on account of the fact that it was only granted for two (2) years and with the express
reservation from respondent corporation’s owner that it cannot continue to rant the same in
view of the company’s current financial situation. 38

To hold that an employer should be forced to distribute bonuses which it granted out of
kindness is to penalize him for his past generosity. 39

Having thus ruled that the additional 35% premium pay for work rendered during selected days
of the Holy Week and Christmas season, the holding of Christmas parties with its incidental
benefits, and the grant of cash incentive together with the service award are all bonuses which
are neither demandable nor enforceable obligations of the private respondent, it is not
necessary anymore to delve into the Revenues and Profitability Analysis for the years 1996-
2000 submitted by the private respondent.

On the alleged promotion of 15 members of the petitioner union that should warrant an
increase in their salaries, the factual finding of the Voluntary Arbitrator is revealing, viz:

… Considering that the Union was unable to adduce proof that a promotion indeed occur[ed]
with respect to the 15 employees, the Daily Rated Union’s claim for promotional increase
likewise fall[s] there being no promotion established under the records at hand. 40

WHEREFORE, in view of all the foregoing, the assailed Decision and Resolution of the Court of
Appeals dated 06 March 2002 and 12 July 2002, respectively, which affirmed and upheld the
decision of the Voluntary Arbitrator, are hereby AFFIRMED. No pronouncement as to costs.

[12]

G.R. No. 123938 May 21, 1998

LABOR CONGRESS OF THE PHILIPPINES (LCP) for and in behalf of its members, ANA
MARIE OCAMPO, MARY INTAL, ANNABEL CARESO, MARLENE MELQIADES, IRENE
JACINTO, NANCY GARCIA, IMELDA SARMIENTO, LENITA VIRAY, GINA JACINTO,
ROSEMARIE DEL ROSARIO, CATHERINE ASPURNA, WINNIE PENA, VIVIAN BAA, EMILY
LAGMAN, LILIAN MARFIL, NANCY DERACO, JANET DERACO, MELODY JACINTO,
CAROLYN DIZON, IMELDA MANALOTO, NORY VIRAY, ELIZA SALAZAR, GIGI
MANALOTO, JOSEFINA BASILIO, MARY ANN MAYATI, ZENAIDA GARCIA, MERLY
CANLAS, ERLINDA MANALANG, ANGELINA QUIAMBAO, LANIE GARCIA, ELVIRA
PIEDRA, LOURDES PANLILIO, LUISA PANLILIO, LERIZA PANLILIO, ALMA CASTRO,
ALDA DAVID, MYRA T. OLALIA, MARIFE PINLAC, NENITA DE GUZMAN, JULIE GACAD,
EVELYN MANALO, NORA PATIO, JANETH CARREON, ROWENA MENDOZA, ROWENA
MANALO, LENY GARCIA, FELISISIMA PATIO, SUSANA SALOMON, JOYDEE
LANSANGAN, REMEDIOS AGUAS, JEANIE LANSANGAN, ELIZABETH MERCADO,
JOSELYN MANALESE, BERNADETH RALAR, LOLITA ESPIRITU, AGNES SALAS,
VIRGINIA MENDIOLA, GLENDA SALITA, JANETH RALAR, ERLINDA BASILIO, CORA
PATIO, ANTONIA CALMA, AGNES CARESO, GEMMA BONUS, MARITESS OCAMPO,
LIBERTY GELISANGA, JANETH MANARANG, AMALIA DELA CRUZ, EVA CUEVAS,
TERESA MANIAGO, ARCELY PEREZ, LOIDA BIE, ROSITA CANLAS, ANALIZA
ESGUERRA, LAILA MANIAGO, JOSIE MANABAT, ROSARIO DIMATULAC, NYMPA
TUAZON, DAIZY TUASON, ERLINDA NAVARRO, EMILY MANARANG, EMELITA
CAYANAN, MERCY CAYANAN, LUZVIMINDA CAYANAN, ANABEL MANALO, SONIA
DIZON, ERNA CANLAS, MARIAN BENEDICTA, DOLORES DOLETIN, JULIE DAVID,
GRACE VILLANUEVA, VIRGINIA MAGBAG, CORAZON RILLION, PRECY MANALILI,
ELENA RONOZ, IMELDA MENDOZA, EDNA CANLAS and ANGELA CANLAS, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, EMPIRE FOOD PRODUCTS, its
Proprietor/President & Manager, MR. GONZALO KEHYENG and MRS. EVELYN
KEHYENG, respondents.

Labor Law; Dismissals;  Abandonment;  Burden of proving the existence of just cause for
dismissing an employee, such as abandonment, rests on the employer.—It may likewise be stressed that
the burden of proving the existence of just cause for dismissing an employee, such as abandonment, rests
on the employer, a burden private respondents failed to discharge.
Same; Same; Private respondents violated the rights of petitioners to security of tenure and
constitutional right to due process in not even serving them with a written notice of such termination.—
Private respondents, moreover, in considering petitioners’ employment to have been terminated by
abandonment, violated their rights to security of tenure and constitutional right to due process in not even
serving them with a written notice of such termination. Section 2, Rule XIV, Book V of the Omnibus
Rules Implementing the Labor Code provides: SEC. 2. Notice of Dismissal.—Any employer who seeks
to dismiss a worker shall furnish him a written notice stating the particular acts or omission constituting
the grounds for his dismissal. In cases of abandonment of work, the notice shall be served at the worker’s
last known address.

Same; Same; Benefits;  Petitioners are therefore entitled to reinstatement with full backwages

pursuant to Article 279 of the Labor Code, as amended by R.A. No. 6715.—Petitioners are therefore
entitled to reinstatement with full back wages pursuant to Article 279 of the Labor Code, as amended by
R.A. No. 6715. Nevertheless, the records disclose that taking into account the number of employees
involved, the length of time that has lapsed since their dismissal, and the perceptible resentment and
enmity between petitioners and private respondents which necessarily strained their relationship,
reinstatement would be impractical and hardly promotive of the best interests of the parties. In lieu of
reinstatement then, separation pay at the rate of one month for every year of service, with a fraction of at
least six (6) months of service considered as one (1) year, is in order.

Same; Same; Same; While petitioners’ mode of compensation was on a “per piece basis” the

status and nature of their employment was that of regular employees.—As to the other benefits, namely,
holiday pay, premium pay, 13th month pay and service incentive leave which the labor arbiter failed to
rule on but which petitioners prayed for in their complaint, we hold that petitioners are so entitled to
these benefits. Three (3) factors lead us to conclude that petitioners, although piece-rate workers, were
regular employees of private respondents. First, as to the nature of petitioners’ tasks, their job of
repacking snack food was necessary or desirable in the usual business of private respondents, who were
engaged in the manufacture and selling of such food products; second, petitioners worked for private
respondents throughout the year, their employment not having been dependent on a specific project or
season; and third, the length of time that petitioners worked for private respondents. Thus, while
petitioners’ mode of compensation was on a “per piece basis,” the status and nature of their employment
was that of regular employees.
Same; Same; Same; Petitioners are beyond the ambit of exempted persons and are therefore
entitled to overtime pay.—As to overtime pay, the rules, however, are different. According to Sec. 2(e),
Rule I, Book III of the Implementing Rules, workers who are paid by results including those who are
paid on piece-work, takay, pakiao, or task basis, if their output rates are in accordance with the standards
prescribed under Sec. 8, Rule VII, Book III, of these regulations, or where such rates have been fixed by
the Secretary of Labor in accordance with the aforesaid section, are not entitled to receive overtime pay.
Here, private respondents did not allege adherence to the standards set forth in Sec. 8 nor with the rates
prescribed by the Secretary of Labor. As such, petitioners are beyond the ambit of exempted persons and
are therefore entitled to overtime pay. Once more, the National Labor Relations Commission would be in
a better position to determine the exact amounts owed petitioners, if any.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.
     Armando San Antonio for petitioners.
     Ronald Dylan P. Concepcion and Jesus E.V. Tadiquefor private respondents.

DAVIDE, JR., J.:

In this special civil action for certiorari under Rule 65, petitioners seek to reverse the 29 March
1995 resolution 1 of the National Labor Relations Commission (NLRC) in NLRC RAB III Case
No. 01-1964-91 which affirmed the Decision 2 of Labor Arbiter Ariel C. Santos dismissing their
complaint for utter lack of merit.

The antecedents of this case, as summarized by the Office of the Solicitor General in its
Manifestation and Motion in Lieu of Comment, 3 are as follows:

The 99 persons named as petitioners in this proceeding were rank-and-file

employees of respondent Empire Food Products, which hired them on various
dates (Paragraph 1, Annex "A" of Petition, Annex "B;" Page 2, Annex "F" of
Petition).

Petitioners filed against private respondents a complaint for payment of money

claim[s] and for violation of labor standard[s] laws (NLRC Case No. RAB-111-
10-1817-90). They also filed a petition for direct certification of petitioner Labor
Congress of the Philippines as their bargaining representative (Case No.
R0300-9010-RU-005).

On October 23, 1990, petitioners represented by LCP President Benigno B.

Navarro, Sr. and private respondents Gonzalo Kehyeng and Evelyn Kehyeng in
behalf of Empire Food Products, Inc. entered into a Memorandum of Agreement
which provided, among others, the following:

1. That in connection with the pending Petition for Direct Certification filed by
the Labor Congress with the DOLE, Management of the Empire Food Products
has no objection [to] the direct certification of the LCP Labor Congress and is
now recognizing the Labor Congress of the Philippines (LCP) and its Local
Chapter as the SOLE and EXCLUSIVE Bargaining Agent and Representative
for all rank and file employees of the Empire Food Products regarding
"WAGES, HOURS Of WORK, AND OTHER TERMS AND CONDITIONS OF
EMPLOYMENT;"

2. That with regards [sic] to NLRC CASE NO. RAB-III-10-1817-90 pending with
the NLRC parties jointly and mutually agreed that the issues thereof, shall be
discussed by the parties and resolve[d] during the negotiation of the Collective
Bargaining Agreement;

3. That Management of the Empire Food Products shall make the proper
adjustment of the Employees Wages within fifteen (15) days from the signing of
this Agreement and further agreed to register all the employees with the SSS;

4. That Employer, Empire Food Products thru its Management agreed to deduct
thru payroll deduction UNION DUES and other Assessment[s] upon submission
by the LCP Labor Congress individual Check-Off Authorization[s] signed by the
Union Members indicating the amount to be deducted and further agreed all
deduction[s] made representing Union Dues and Assessment[s] shall be
remitted immediately to the LCP Labor Congress Treasurer or authorized
representative within three (3) or five (5) days upon deductions [sic], Union dues
not deducted during the period due, shall be refunded or reimbursed by the
Employer/Management. Employer/Management further agreed to deduct Union
dues from non-union members the same amount deducted from union
members without need of individual Check-Off Authorizations [for] Agency Fee;

5. That in consideration [of] the foregoing covenant, parties jointly and mutually
agreed that NLRC CASE NO. RAB-III-10-1817-90 shall be considered
provisionally withdrawn from the Calendar of the National Labor Relations
Commission (NLRC), while the Petition for direct certification of the LCP Labor
Congress parties jointly move for the direct certification of the LCP Labor
Congress;

6. That parties jointly and mutually agreed that upon signing of this Agreement,
no Harassments [sic], Threats, Interferences [sic] of their respective rights
under the law, no Vengeance or Revenge by each partner nor any act of ULP
which might disrupt the operations of the business;

7. Parties jointly and mutually agreed that pending negotiations or formalization

of the propose[d] CBA, this Memorandum of Agreement shall govern the parties
in the exercise of their respective rights involving the Management of the
business and the terms and condition[s] of employment, and whatever problems
and grievances may arise by and between the parties shall be resolved by
them, thru the most cordial and good harmonious relationship by
communicating the other party in writing indicating said grievances before
taking any action to another forum or government agencies;

8. That parties [to] this Memorandum of Agreement jointly and mutually agreed
to respect, abide and comply with all the terms and conditions hereof. Further
agreed that violation by the parties of any provision herein shall constitute an
act of ULP. (Annex "A" of Petition).
 In an Order dated October 24, 1990, Mediator Arbiter Antonio Cortez approved
the memorandum of agreement and certified LCP "as the sole and exclusive
bargaining agent among the rank-and-file employee of Empire Food Products
for purposes of collective bargaining with respect to wages, hours of work and
other terms and conditions of employment" (Annex "B" of Petition).

On November 9, 1990, petitioners through LCP President Navarro submitted to

private respondents a proposal for collective bargaining (Annex "C" of Petition).

On January 23, 1991, petitioners filed a complaint docketed as NLRC Case No.
RAB-III-01-1964-91 against private respondents for:

a. Unfair Labor Practice by way of Illegal Lockout and/or Dismissal;

b. Union busting thru Harassments [sic], threats, and interfering with the rights
of employees to self-organization;

c. Violation of the Memorandum of Agreement dated October 23, 1990;

d. Underpayment of Wages in violation of R.A. No. 6640 and R.A. No. 6727,
such as Wages promulgated by the Regional Wage Board;

e. Actual, Moral and Exemplary Damages. (Annex "D" of Petition)

After the submission by the parties of their respective position papers and
presentation of testimonial evidence, Labor Arbiter Ariel C. Santos absolved
private respondents of the charges of unfair labor practice, union busting,
violation of the memorandum of agreement, underpayment of wages and
denied petitioners' prayer for actual, moral and exemplary damages. Labor
Arbiter Santos, however, directed the reinstatement of the individual
complainants:

The undersigned Labor Arbiter is not oblivious to the fact that

respondents have violated a cardinal rule in every establishment
that a payroll and other papers evidencing hours of work,
payments, etc. shall always be maintained and subjected to
inspection and visitation by personnel of the Department of
Labor and Employment. As such penalty, respondents should
not escape liability for this technicality, hence, it is proper that all
individual complainants except those who resigned and
executed quitclaim[s] and releases prior to the filing of this
complaint should be reinstated to their former position[s] with
the admonition to respondents that any harassment,
intimidation, coercion or any form of threat as a result of this
immediately executory reinstatement shall be dealt with
accordingly.

SO ORDERED. (Annex "G" of petition)

On appeal, the National Labor Relations Commission vacated the Decision dated April 14,
1972 [sic] and remanded the case to the Labor Arbiter for further proceedings for the following
reasons:
 The Labor Arbiter, through his decision, noted that ". . . complainant did not
present any single witness while respondent presented four (4) witnesses in the
persons of Gonzalo Kehyeng, Orlando Cairo, Evelyn Kehyeng and Elvira
Bulagan . . ." (p. 183, Records), that ". . . complainant before the National Labor
Relations Commission must prove with definiteness and clarity the offense
charged. . . ." (Record, p. 183); that ". . . complainant failed to specify under
what provision of the Labor Code particularly Art. 248 did respondents violate
so as to constitute unfair labor practice . . ." (Record, p. 183); that "complainants
failed to present any witness who may describe in what manner respondents
have committed unfair labor practice . . ." (Record, p. 185); that ". . .
complainant LCP failed to present anyone of the so-called 99 complainants in
order to testify who committed the threats and intimidation . . ." (Record, p.
185).

Upon review of the minutes of the proceedings on record, however, it appears

that complainant presented witnesses, namely, BENIGNO NAVARRO, JR. (28
February 1991, RECORD, p. 91; 8 March 1991, RECORD, p. 92, who adopted
its POSITION PAPER AND CONSOLIDATED AFFIDAVIT, as Exhibit "A" and
the annexes thereto as Exhibit "B", "B-1" to "B-9", inclusive. Minutes of the
proceedings on record show that complainant further presented other
witnesses, namely: ERLINDA BASILIO (13 March 1991, RECORD,
p. 93; LOURDES PANTILLO, MARIFE PINLAC, LENIE GARCIA (16 April 1991,
Record, p. 96, see back portion thereof ; 2 May 1991, Record, p. 102; 16 May
1991, Record, p. 103, 11 June 1991, Record, p. 105). Formal offer of
Documentary and Testimonial Evidence was made by complainant on June 24,
1991 (Record, p. 106-109)

The Labor Arbiter must have overlooked the testimonies of some of the
individual complainants which are now on record. Other individual complainants
should have been summoned with the end in view of receiving their testimonies.
The complainants should be afforded the time and opportunity to fully
substantiate their claims against the respondents. Judgment should be
rendered only based on the conflicting positions of the parties. The Labor
Arbiter is called upon to consider and pass upon the issues of fact and law
raised by the parties.

Toward this end, therefore, it is Our considered view [that] the case should be
remanded to the Labor Arbiter of origin for further proceedings. (Annex "H" of
Petition)

In a Decision dated July 27, 1994, Labor Arbiter Santos made the following determination:

Complainants failed to present with definiteness and clarity the particular act or
acts constitutive of unfair labor practice.

It is to be borne in mind that a declaration of unfair labor practice connotes a

finding of prima facie evidence of probability that a criminal offense may have
been committed so as to warrant the filing of a criminal information before the
regular court. Hence, evidence which is more than a scintilla is required in order
to declare respondents/employers guilty of unfair labor practice. Failing in this
regard is fatal to the cause of complainants. Besides, even the charge of illegal
lockout has no leg to stand on because of the testimony of respondents through
their guard Orlando Cairo (TSN, July 31, 1991 hearing; p. 5-35) that on January
 21, 1991, complainants refused and failed to report for work, hence guilty of
abandoning their post without permission from respondents. As a result of
complainants['] failure to report for work, the cheese curls ready for repacking
were all spoiled to the prejudice of respondents. Under cross-examination,
complainants failed to rebut the authenticity of respondents' witness testimony.

As regards the issue of harassments [sic], threats and interference with the
rights of employees to self-organization which is actually an ingredient of unfair
labor practice, complainants failed to specify what type of threats or intimidation
was committed and who committed the same. What are the acts or utterances
constitutive of harassments [sic] being complained of? These are the specifics
which should have been proven with definiteness and clarity by complainants
who chose to rely heavily on its position paper through generalizations to prove
their case.

Insofar as violation of [the] Memorandum of Agreement dated October 23, 1990

is concerned, both parties agreed that:

2 — That with regards [sic] to the NLRC Case No. RAB III-10-
1817-90 pending with the NLRC, parties jointly and mutually
agreed that the issues thereof shall be discussed by the parties
and resolve[d] during the negotiation of the CBA.

The aforequoted provision does not speak of [an] obligation on the part of
respondents but on a resolutory condition that may occur or may not happen.
This cannot be made the basis of an imposition of an obligation over which the
National Labor Relations Commission has exclusive jurisdiction thereof.

Anent the charge that there was underpayment of wages, the evidence points to
the contrary. The enumeration of complainants' wages in their consolidated
Affidavits of merit and position paper which implies underpayment has no leg to
stand on in the light of the fact that complainants' admission that they are piece
workers or paid on a pakiao [basis] i.e. a certain amount for every thousand
pieces of cheese curls or other products repacked. The only limitation for piece
workers or pakiao workers is that they should receive compensation no less
than the minimum wage for an eight (8) hour work [sic]. And compliance
therewith was satisfactorily explained by respondent Gonzalo Kehyeng in his
testimony (TSN, p. 12-30) during the July 31, 1991 hearing. On cross-
examination, complainants failed to rebut or deny Gonzalo Kehyeng's testimony
that complainants have been even receiving more than the minimum wage for
an average workers [sic]. Certainly, a lazy worker earns less than the minimum
wage but the same cannot be attributable to respondents but to the lazy
workers.

Finally, the claim for moral and exemplary damages has no leg to stand on
when no malice, bad faith or fraud was ever proven to have been perpetuated
by respondents.

WHEREFORE, premises considered, the complaint is hereby DISMISSED for

utter lack of merit. (Annex "I" of Petition). 4

On appeal, the NLRC, in its Resolution dated 29 March 1995, 5 affirmed in toto the decision of
Labor Arbiter Santos. In so doing, the NLRC sustained the Labor Arbiter's findings that: (a)
there was a dearth of evidence to prove the existence of unfair labor practice and union busting
on the part of private respondents; (b) the agreement of 23 October 1990 could not be made
the basis of an obligation within the ambit of the NLRC's jurisdiction, as the provisions thereof,
particularly Section 2, spoke of a resolutory condition which could or could not happen; (c) the
claims for underpayment of wages were without basis as complainants were
admittedly "pakiao" workers and paid on the basis of their output subject to the lone limitation
that the payment conformed to the minimum wage rate for an eight-hour workday; and (d)
petitioners were not underpaid.

Their motion for reconsideration having been denied by the NLRC in its Resolution of 31
October 1995, 6 petitioners filed the instant special civil action for certiorari raising the following
issues:

WHETHER OR NOT THE PUBLIC RESPONDENT NATIONAL LABOR

RELATIONS COMMISSION GRAVELY ABUSED ITS DISCRETION WHEN IT
DISREGARDED OR IGNORED NOT ONLY THE EVIDENCE FAVORABLE TO
HEREIN PETITIONERS, APPLICABLE JURISPRUDENCE BUT ALSO ITS
OWN DECISIONS AND THAT OF THIS HONORABLE HIGHEST TRIBUNAL
WHICH [WAS] TANTAMOUNT NOT ONLY TO THE DEPRIVATION OF
PETITIONERS' RIGHT TO DUE PROCESS BUT WOULD RESULT [IN]
MANIFEST INJUSTICE.

II

WHETHER OR NOT THE PUBLIC RESPONDENT GRAVELY ABUSED ITS

DISCRETION WHEN IT DEPRIVED THE PETITIONERS OF THEIR
CONSTITUTIONAL RIGHT TO SELF-ORGANIZATION, SECURITY OF
TENURE, PROTECTION TO LABOR, JUST AND HUMANE CONDITIONS OF
WORK AND DUE PROCESS.

III

WHETHER OR NOT THE PETITIONERS WERE ILLEGALLY EASED OUT

[OF] OR CONSTRUCTIVELY DISMISSED FROM THEIR ONLY MEANS OF
LIVELIHOOD.

IV

WHETHER OR NOT PETITIONERS SHOULD BE REINSTATED FROM THE

DATE OF THEIR DISMISSAL UP TO THE TIME OF THEIR
REINSTATEMENT, WITH BACKWAGES, STATUTORY BENEFITS,
DAMAGES AND ATTORNEY'S FEES. 7

We required respondents to file their respective Comments.

In their Manifestation and Comment, private respondents asserted that the petition was filed out
of time. As petitioners admitted in their Notice to File Petition for Review on Certiorari that they
received a copy of the resolution (denying their motion for reconsideration) on 13 December
1995, they had only until 29 December 1995 to file the petition. Having failed to do so, the
NLRC thus already entered judgment in private respondents' favor.
In their Reply, petitioners averred that Mr. Navarro, a non-lawyer who filed the notice to file a
petition for review on their behalf, mistook which reglementary period to apply. Instead of using
the "reasonable time" criterion for certiorari under Rule 65, he used the 15-day period for
petitions for review on certiorari under Rule 45. They hastened to add that such was a mere
technicality which should not bar their petition from being decided on the merits in furtherance
of substantial justice, especially considering that respondents neither denied nor contradicted
the facts and issues raised in the petition.

In its Manifestation and Motion in Lieu of Comment, the Office of the Solicitor General (OSG)
sided with petitioners. It pointed out that the Labor Arbiter, in finding that petitioners abandoned
their jobs, relied solely on the testimony of Security Guard Rolando Cairo that petitioners
refused to work on 21 January 1991, resulting in the spoilage of cheese curls ready for
repacking. However, the OSG argued, this refusal to report for work for a single day did not
constitute abandonment, which pertains to a clear, deliberate and unjustified refusal to resume
employment, and not mere absence. In fact, the OSG stressed, two days after allegedly
abandoning their work, petitioners filed a complaint for, inter alia, illegal lockout or illegal
dismissal. Finally, the OSG questioned the lack of explanation on the part of Labor Arbiter
Santos as to why he abandoned his original decision to reinstate petitioners.

In view of the stand of the OSG, we resolved to require the NLRC to file its own Comment.

In its Comment, the NLRC invokes the general rule that factual findings of an administrative
agency bind a reviewing court and asserts that this case does not fall under the exceptions.
The NLRC further argues that grave abuse of discretion may not be imputed to it, as it affirmed
the factual findings and legal conclusions of the Labor Arbiter only after carefully reviewing,
weighing and evaluating the evidence in support thereof, as well as the pertinent provisions of
law and jurisprudence.

In their Reply, petitioners claim that the decisions of the NLRC and the Labor Arbiter were not
supported by substantial evidence; that abandonment was not proved; and that much credit
was given to self-serving statements of Gonzalo Kehyeng, owner of Empire Foods, as to
payment of just wages.

On 7 July 1997, we gave due course to the petition and required the parties to file their
respective memoranda. However, only petitioners and private respondents filed their
memoranda, with the NLRC merely adopting its Comment as its Memorandum.

We find for petitioners.

Invocation of the general rule that factual findings of the NLRC bind this Court is unavailing
under the circumstances. Initially, we are unable to discern any compelling reason justifying the
Labor Arbiter's volte face from his 14 April 1992 decision reinstating petitioners to his
diametrically opposed 27 July 1994 decision, when in both instances, he had before him
substantially the same evidence. Neither do we find the 29 March 1995 NLRC resolution to
have sufficiently discussed the facts so as to comply with the standard of substantial evidence.
For one thing, the NLRC confessed its reluctance to inquire into the veracity of the Labor
Arbiter's factual findings, staunchly declaring that it was "not about to substitute [its] judgment
on matters that are within the province of the trier of facts." Yet, in the 21 July 1992 NLRC
resolution, 8 it chastised the Labor Arbiter for his errors both in judgment and procedure; for
which reason it remanded the records of the case to the Labor Arbiter for compliance with the
pronouncements therein.
What cannot escape from our attention is that the Labor Arbiter did not heed the observations
and pronouncements of the NLRC in its resolution of 21 July 1992, neither did he understand
the purpose of the remand of the records to him. In said resolution, the NLRC summarized the
grounds for the appeal to be:

1. that there is a prima facie evidence of abuse of discretion and acts of gross

incompetence committed by the Labor Arbiter in rendering the decision.

2. that the Labor Arbiter in rendering the decision committed serious errors in
the findings of facts.

After which, the NLRC observed and found:

Complainant alleged that the Labor Arbiter disregarded the testimonies of the
99 complainants who submitted their Consolidated Affidavit of Merit and
Position Paper which was adopted as direct testimonies during the hearing and
cross-examined by respondents' counsel.

The Labor Arbiter, through his decision, noted that ". . . complainant did not
present any single witness while respondent presented four (4) witnesses in the
persons of Gonzalo Kehyeng, Orlando Cairo, Evelyn Kehyeng and Elvira
Bulagan . . ." (Records, p. 183), that ". . . complainant before the National Labor
Relations Commission must prove with definiteness and clarity the offense
charged. . . ." (Record, p. 183; that ". . . complainant failed to specify under what
provision of the Labor Code particularly Art. 248 did respondents violate so as
to constitute unfair labor practice . . ." (Record, p. 183); that "complainants failed
to present any witness who may describe in what manner respondents have
committed unfair labor practice . . ." (Record, p. 185); that ". . . complainant a
[sic] LCP failed to present anyone of the so called 99 complainants in order to
testify who committed the threats and intimidation . . ." (Record, p.185).

Upon review of the minutes of the proceedings on record, however, it appears

that complainant presented witnesses, namely BENIGNO NAVARRO, JR. (28
February 1991, RECORD, p. 91; 8 March 1991, RECORD, p. 92), who adopted
its POSITION PAPER AND CONSOLIDATED AFFIDAVIT as Exhibit A and the
annexes thereto as Exhibit B, B-1 to B-9, inclusive. Minutes of the proceedings
on record show that complainant further presented other witnesses, namely:
ERLINDA BASILIO (13 March 1991, RECORD, p. 93; LOURDES PANTILLO,
MARIFE PINLAC, LENI GARCIA (16 April 1991, Record, p. 96, see back
portion thereof; 2 May 1991, Record, p. 102; 16 May 1991, Record, p. 103; 11
June 1991, Record, p. 105). Formal offer of Documentary and Testimonial
Evidence was made by the complainant on June 24, 1991 (Record, p.106-109).

The Labor Arbiter must have overlooked the testimonies of some of the
individual complainants which are now on record. Other individual complainants
should have been summoned with the end in view of receiving their testimonies.
The complainants should [have been] afforded the time and opportunity to fully
substantiate their claims against the respondents. Judgment should [have been]
rendered only based on the conflicting positions of the parties. The Labor
Arbiter is called upon to consider and pass upon the issues of fact and law
raised by the parties.
 Toward this end, therefore, it is Our considered view the case should be
remanded to the Labor Arbiter of origin for further proceedings.

Further, We take note that the decision does not contain a dispositive portion or
fallo. Such being the case, it may be well said that the decision does not resolve
the issues at hand. On another plane, there is no portion of the decision which
could be carried out by way of execution.

It may be argued that the last paragraph of the decision may be categorized as
the dispositive portion thereof:

x x x           x x x          x x x

The undersigned Labor Arbiter is not oblivious [to] the fact that
respondents have violated a cardinal rule in every establishment
that a payroll and other papers evidencing hour[s] of work,
payment, etc. shall always be maintained and subjected to
inspection and visitation by personnel of the Department of
Labor and Employment. As such penalty, respondents should
not escape liability for this technicality, hence, it is proper that all
the individual complainants except those who resigned and
executed quitclaim[s] and release[s] prior to the filing of this
complaint should be reinstated to their former position with the
admonition to respondents that any harassment, intimidation,
coercion or any form of threat as a result of this immediately
executory reinstatement shall be dealt with accordingly.

SO ORDERED.

It is Our considered view that even assuming arguendo that the respondents
failed to maintain their payroll and other papers evidencing hours of work,
payment etc., such circumstance, standing alone, does not warrant the directive
to reinstate complainants to their former positions. It is [a] well settled rule that
there must be a finding of illegal dismissal before reinstatement be mandated.

In this regard, the LABOR ARBITER is hereby directed to include in his

clarificatory decision, after receiving evidence, considering and resolving the
same, the requisite dispositive portion. 9

Apparently, the Labor Arbiter perceived that if not for petitioners, he would not have fallen
victim to this stinging rebuke at the hands of the NLRC. Thus does it appear to us that the
Labor Arbiter, in concluding in his 27 July 1994 Decision that petitioners abandoned their work,
was moved by, at worst, spite, or at best, lackadaisically glossed over petitioner's evidence. On
this score, we find the following observations of the OSG most persuasive:

In finding that petitioner employees abandoned their work, the Labor Arbiter and
the NLRC relied on the testimony of Security Guard Rolando Cairo that on
January 21, 1991, petitioners refused to work. As a result of their failure to work,
the cheese curls ready for repacking on said date were spoiled.

The failure to work for one day, which resulted in the spoilage of cheese curls
does not amount to abandonment of work. In fact two (2) days after the reported
abandonment of work or on January 23, 1991, petitioners filed a complaint for,
among others, unfair labor practice, illegal lockout and/or illegal dismissal. In
several cases, this Honorable Court held that "one could not possibly abandon
his work and shortly thereafter vigorously pursue his complaint for illegal
dismissal (De Ysasi III v. NLRC, 231 SCRA 173; Ranara v. NLRC, 212 SCRA
631; Dagupan Bus Co. v. NLRC, 191 SCRA 328; Atlas Consolidated Mining
and Development Corp. v. NLRC, 190 SCRA 505; Hua Bee Shirt Factory v.
NLRC, 186 SCRA 586; Mabaylan v. NLRC, 203 SCRA 570 and Flexo
Manufacturing v. NLRC, 135 SCRA 145). In Atlas Consolidated, supra, this
Honorable Court explicitly stated:

It would be illogical for Caballo, to abandon his work and then

immediately file an action seeking for his reinstatement. We can
not believe that Caballo, who had worked for Atlas for two years
and ten months, would simply walk away from his job unmindful
of the consequence of his act. i.e. the forfeiture of his accrued
employment benefits. In opting to finally to [sic] contest the
legality of his dismissal instead of just claiming his separation
pay and other benefits, which he actually did but which proved
to be futile after all, ably supports his sincere intention to return
to work, thus negating Atlas' stand that he had abandoned his
job.

In De Ysasi III v. NLRC (supra), this Honorable Court stressed that it is the
clear, deliberate and unjustified refusal to resume employment and not mere
absence that constitutes abandonment. The absence of petitioner employees
for one day on January 21, 1991 as testified [to] by Security Guard Orlando
Cairo did not constitute abandonment.

In his first decision, Labor Arbiter Santos expressly directed the reinstatement of
the petitioner employees and admonished the private respondents that "any
harassment, intimidation, coercion or any form of threat as a result of this
immediately executory reinstatement shall be dealt with accordingly.

In his second decision, Labor Arbiter Santos did not state why he was
abandoning his previous decision directing the reinstatement of petitioner
employees.

By directing in his first decision the reinstatement of petitioner employees, the

Labor Arbiter impliedly held that they did not abandon their work but were not
allowed to work without just cause.

That petitioner employees are "pakyao" or piece workers does not imply that
they are not regular employees entitled to reinstatement. Private respondent
Empire Food Products, Inc. is a food and fruit processing company. In Tabas
v. California Manufacturing Co., Inc. (169 SCRA 497), this Honorable Court held
that the work of merchandisers of processed food, who coordinate with grocery
stores and other outlets for the sale of the processed food is necessary in the
day-to-day operation[s] of the company. With more reason, the work of
processed food repackers is necessary in the day-to-day operation[s] of
respondent Empire Food Products. 10
It may likewise be stressed that the burden of proving the existence of just cause for dismissing
an employee, such as abandonment, rests on the employer, 11 a burden private respondents
failed to discharge.

Private respondents, moreover, in considering petitioners' employment to have been

terminated by abandonment, violated their rights to security of tenure and constitutional right to
due process in not even serving them with a written notice of such termination. 12 Section 2,
Rule XIV, Book V of the Omnibus Rules Implementing the Labor Code provides:

Sec. 2. Notice of Dismissal — Any employer who seeks to dismiss a worker

shall furnish him a written notice stating the particular acts or omission
constituting the grounds for his dismissal. In cases of abandonment of work, the
notice shall be served at the worker's last known address.

Petitioners are therefore entitled to reinstatement with full back wages pursuant to Article 279 of
the Labor Code, as amended by R.A. No. 6715. Nevertheless, the records disclose that taking
into account the number of employees involved, the length of time that has lapsed since their
dismissal, and the perceptible resentment and enmity between petitioners and private
respondents which necessarily strained their relationship, reinstatement would be impractical
and hardly promotive of the best interests of the parties. In lieu of reinstatement then,
separation pay at the rate of one month for every year of service, with a fraction of at least six
(6) months of service considered as one (1) year, is in order. 13

That being said, the amount of back wages to which each petitioner is entitled, however, cannot
be fully settled at this time. Petitioners, as piece-rate workers having been paid by the
piece, 14 there is need to determine the varying degrees of production and days worked by each
worker. Clearly, this issue is best left to the National Labor Relations Commission.

As to the other benefits, namely, holiday pay, premium pay, 13th month pay and service
incentive leave which the labor arbiter failed to rule on but which petitioners prayed for in their
complaint, 15 we hold that petitioners are so entitled to these benefits. Three (3) factors lead us
to conclude that petitioners, although piece-rate workers, were regular employees of private
respondents. First, as to the nature of petitioners' tasks, their job of repacking snack food was
necessary or desirable in the usual business of private respondents, who were engaged in the
manufacture and selling of such food products; second, petitioners worked for private
respondents throughout the year, their employment not having been dependent on a specific
project or season; and third, the length of time 16 that petitioners worked for private
respondents. Thus, while petitioners' mode of compensation was on a "per piece basis," the
status and nature of their employment was that of regular employees.

The Rules Implementing the Labor Code exclude certain employees from receiving benefits
such as nighttime pay, holiday pay, service incentive leave 17 and 13th month pay, 18 inter alia,
"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." Plainly, petitioners as piece-rate workers do not fall within this group.
As mentioned earlier, not only did petitioners labor under the control of private respondents as
their employer, likewise did petitioners toil throughout the year with the fulfillment of their quota
as supposed basis for compensation. Further, in Section 8 (b), Rule IV, Book III which we quote
hereunder, piece workers are specifically mentioned as being entitled to holiday pay.

Sec. 8. Holiday pay of certain employees. —

 (b) Where a covered employee is paid by results or output, such as
payment on piece work, his holiday pay shall not be less than his
average daily earnings for the last seven (7) actual working days
preceding the regular holiday: Provided, however, that in no case shall
the holiday pay be less than the applicable statutory minimum wage
rate.

In addition, the Revised Guidelines on the Implementation of the 13th Month Pay Law, in view
of the modifications to P.D. No. 851 19 by Memorandum Order No. 28, clearly exclude the
employer of piece rate workers from those exempted from paying 13th month pay, to wit:

2. EXEMPTED EMPLOYERS

The following employers are still not covered by P.D. No. 851:

d. Employers of those who are paid on purely commission, boundary or task

basis, and those who are paid a fixed amount for performing specific work,
irrespective of the time consumed in the performance thereof, except where
the workers are paid on piece-rate basis in which case the employer shall
grant the required 13th month pay to such workers. (emphasis supplied)

The Revised Guidelines as well as the Rules and Regulations identify those workers
who fall under the piece-rate category as those who are paid a standard amount for
every piece or unit of work produced that is more or less regularly replicated, without
regard to the time spent in producing the same. 20

As to overtime pay, the rules, however, are different. According to Sec. 2(e), Rule I, Book III of
the Implementing Rules, workers who are paid by results including those who are paid on
piece-work, takay, pakiao, or task basis, if their output rates are in accordance with the
standards prescribed under Sec. 8, Rule VII, Book III, of these regulations, or where such rates
have been fixed by the Secretary of Labor in accordance with the aforesaid section, are not
entitled to receive overtime pay. Here, private respondents did not allege adherence to the
standards set forth in Sec. 8 nor with the rates prescribed by the Secretary of Labor. As such,
petitioners are beyond the ambit of exempted persons and are therefore entitled to overtime
pay. Once more, the National Labor Relations Commission would be in a better position to
determine the exact amounts owed petitioners, if any.

As to the claim that private respondents violated petitioners' right to self-organization, the
evidence on record does not support this claim. Petitioners relied almost entirely on
documentary evidence which, per se, did not prove any wrongdoing on private respondents'
part. For example, petitioners presented their complaint 21 to prove the violation of labor laws
committed by private respondents. The complaint, however, is merely "the pleading alleging the
plaintiff's cause or causes of action." 22 Its contents are merely allegations, the verity of which
shall have to be proved during the trial. They likewise offered their Consolidated Affidavit of
Merit and Position Paper 23 which, like the offer of their Complaint, was a tautological exercise,
and did not help nor prove their cause. In like manner, the petition for certification
election 24 and the subsequent order of certification 25 merely proved that petitioners sought and
acquired the status of bargaining agent for all rank-and-file employees. Finally, the existence of
the memorandum of agreement 26 offered to substantiate private respondents' non-compliance
therewith, did not prove either compliance or non-compliance, absent evidence of concrete,
overt acts in contravention of the provisions of the memorandum.
IN VIEW WHEREOF, the instant petition is hereby GRANTED. The Resolution of the National
Labor Relations Commission of 29 March 1995 and the Decision of the Labor Arbiter of 27 July
1994 in NLRC Case No. RAB-III-01-1964-91 are hereby SET ASIDE, and another is hereby
rendered:

1. DECLARING petitioners to have been illegally dismissed by private respondents, thus

entitled to full back wages and other privileges, and separation pay in lieu of
reinstatement at the rate of one month's salary for every year of service with a fraction of
six months of service considered as one year;

2. REMANDING the records of this case to the National Labor Relations Commission for
its determination of the back wages and other benefits and separation pay, taking into
account the foregoing observations; and

3. DIRECTING the National Labor Relations Commission to resolve the referred issues
within sixty (60) days from its receipt of a copy of this decision and of the records of the
case and to submit to this Court a report of its compliance hereof within ten (10) days
from the rendition of its resolution.

Costs against private respondents.