G.R. No.

169207               March 25, 2010

WPP MARKETING COMMUNICATIONS, INC., JOHN STEEDMAN, MARK WEBSTER, and

NOMINADA LANSANG, Petitioners,
vs.
JOCELYN M. GALERA, Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 169239

JOCELYN M. GALERA, Petitioner,
vs.
WPP MARKETING COMMUNICATIONS, INC., JOHN STEEDMAN, MARK WEBSTER, and
NOMINADA LANSANG, Respondents.

Corporation Law; Corporate Officers; Under Section 25 of the Corporation Code, the corporate
officers are the president, secretary, treasurer and such other officers as may be provided in the by-laws.
—Corporate officers are given such character either by the Corporation Code or by the corporation’s by-
laws. Under Section 25 of the Corporation Code, the corporate officers are the president, secretary,
treasurer and such other officers as may be provided in the by-laws. Other officers are sometimes created
by the charter or by-laws of a corporation, or the board of directors may be empowered under the by-laws
of a corporation to create additional offices as may be necessary.
Labor Law; Termination of Employment; Employer must furnish the worker sought to be dismissed
with two written notices before termination of employment can be legally effected; Failure to comply with
the requirements taints the dismissal with illegality.—The law further requires that the employer must
furnish the worker sought to be dismissed with two written notices before termination of employment can
be legally effected: (1) notice which apprises the employee of the particular acts or omissions for which
his dismissal is sought; and (2) the subsequent notice which informs the employee of the employer’s
decision to dismiss him. Failure to comply with the requirements taints the dismissal with illegality.
WPP’s acts clearly show that Galera’s dismissal did not comply with the two-notice rule.
Same; Labor Code; Recruitment; Employment Permit; The law and the rules are consistent in
stating that the employment permit must be acquired prior to employment.—This is Galera’s dilemma:
Galera worked in the Philippines without a proper work permit but now wants to claim employee’s
benefits under Philippine labor laws. The law and the rules are consistent in stating that the employment
permit must be acquired prior to employment. The Labor Code states: “Any alien seeking admission to
the Philippines for employment purposes and any domestic or foreign employer who desires to engage an
alien for employment in the Philippines shall obtain an employment permit from the Department of
Labor.”

DECISION

CARPIO, Acting C.J.:

The Case

G.R. Nos. 169207 and 169239 are petitions for review1 assailing the Decision2 promulgated on 14
April 2005 as well as the Resolution3 promulgated on 1 August 2005 of the Court of Appeals
(appellate court) in CA-G.R. SP No. 78721. The appellate court granted and gave due course to the
petition filed by Jocelyn M. Galera (Galera). The appellate court’s decision reversed and set aside
that of the National Labor Relations Commission (NLRC), and directed WPP Marketing
Communications, Inc. (WPP) to pay Galera backwages, separation pay, unpaid housing benefit,
unpaid personal and accident insurance benefits, cash value under the company’s pension plan, 30
days paid holiday benefit, moral damages, exemplary damages, 10% of the total judgment award as
attorney’s fees, and costs of the suit.

The Facts

The appellate court narrated the facts as follows:

Petitioner is Jocelyn Galera (GALERA), a [sic] American citizen who was recruited from the United
States of America by private respondent John Steedman, Chairman-WPP Worldwide and Chief
Executive Officer of Mindshare, Co., a corporation based in Hong Kong, China, to work in the
Philippines for private respondent WPP Marketing Communications, Inc. (WPP), a corporation
registered and operating under the laws of Philippines. GALERA accepted the offer and she signed
an Employment Contract entitled "Confirmation of Appointment and Statement of Terms and
Conditions" (Annex B to Petition for Certiorari). The relevant portions of the contract entered into
between the parties are as follows:

Particulars:
Name : Jocelyn M. Galera
Address : 163 Mediterranean Avenue
Hayward, CA 94544
Position : Managing Director
Mindshare Philippines
Annual Salary : Peso 3,924,000
Start Date : 1 September 1999
Commencement Date : 1 September 1999
(for continuous service)
Office : Mindshare Manila

6. Housing Allowance

The Company will provide suitable housing in Manila at a maximum cost (including
management fee and other associated costs) of Peso 576,000 per annum.

7. Other benefits.

The Company will provide you with a fully maintained company car and a driver.

The Company will continue to provide medical, health, life and personal accident insurance
plans, to an amount not exceeding Peso 300,000 per annum, in accordance with the terms
of the respective plans, as provided by JWT Manila.

The Company will reimburse you and your spouse one way business class air tickets from
USA to Manila and the related shipping and relocation cost not exceeding US$5,000
supported by proper documentation. If you leave the Company within one year, you will
reimburse the Company in full for all costs of the initial relocation as described therein.
 You will participate in the JWT Pension Plan under the terms of this plan, the Company
reserves the right to transfer this benefit to a Mindshare Pension Plan in the future, if so
required.

8. Holidays

You are entitled to 20 days paid holiday in addition to public holidays per calendar year to be
taken at times agreed with the Company. Carry-over of unused accrued holiday entitlement
into a new holiday year will not normally be allowed. No payment will be made for holidays
not taken. On termination of your employment, unless you have been summarily dismissed,
you will be entitled to receive payment for unused accrued holiday pay. Any holiday taken in
excess of your entitlement shall be deducted from your final salary payment.

9. Leave Due to Sickness or Injury

The maximum provision for sick leave is 15 working days per calendar year.

12. Invention/Know-How

Any discovery, invention, improvement in procedure, trademark, trade name, designs,

copyrights or get-ups made, discovered or created by you during the continuance of your
employment hereunder relating to the business of the Company shall belong to and shall be
the absolute property of the Company. If required to do so by the Company (whether during
or after the termination of your employment) you shall at the expense of the company
execute all instruments and do all things necessary to vest in ownership for all other rights,
title and interests (including any registered rights therein) in such discovery, invention,
improvement in procedure, trademark, trade name, design, copyright or get-up in the
Company (or its Nominee) absolutely and as sole beneficial owner.

14. Notice.

The first three months of your employment will be a trial period during which either you or the
Company may terminate your employment on one week’s notice. If at the end of that period,
the Company is satisfied with your performance, you will become a permanent employee.
Thereafter you will give Company and the Company will give you three months notice of
termination of employment. The above is always subject to the following: (1) the Company’s
right to terminate the contract of employment on no or short notice where you are in breach
of contract; (2) your employment will at any event cease without notice on your retirement
date when you are 60 years of age.

SIGNED JOCELYN M. GALERA 8-16-99

Date of Birth [sic] 12-25-55

Employment of GALERA with private respondent WPP became effective on September 1,

1999 solely on the instruction of the CEO and upon signing of the contract, without any further action
from the Board of Directors of private respondent WPP.

Four months had passed when private respondent WPP filed before the Bureau of Immigration an
application for petitioner GALERA to receive a working visa, wherein she was designated as Vice
President of WPP. Petitioner alleged that she was constrained to sign the application in order that
she could remain in the Philippines and retain her employment.
Then, on December 14, 2000, petitioner GALERA alleged she was verbally notified by private
respondent STEEDMAN that her services had been terminated from private respondent WPP. A
termination letter followed the next day.4

On 3 January 2001, Galera filed a complaint for illegal dismissal, holiday pay, service incentive leave
pay, 13th month pay, incentive plan, actual and moral damages, and attorney’s fees against WPP
and/or John Steedman (Steedman), Mark Webster (Webster) and Nominada Lansang (Lansang).
The case was docketed as NLRC NCR Case No. 30-01-00044-01.

The Labor Arbiter’s Ruling

In his Decision dated 31 January 2002, Labor Arbiter Edgardo M. Madriaga (Arbiter Madriaga) held
WPP, Steedman, Webster, and Lansang liable for illegal dismissal and damages. Arbiter Madriaga
stated that Galera was not only illegally dismissed but was also not accorded due process. Arbiter
Madriaga explained, thus:

[WPP] failed to observe the two-notice rule. [WPP] through respondent Steedman for a five (5)
minute meeting on December 14, 2000 where she was verbally told that as of that day, her
employment was being terminated. [WPP] did not give [Galera] an opportunity to defend herself and
explain her side. [Galera] was even prohibited from reporting for work that day and was told not to
report for work the next day as it would be awkward for her and respondent Steedman to be in the
same premises after her termination. [WPP] only served [Galera] her written notice of termination
only on 15 December 2001, one day after she was verbally apprised thereof.

The law mandates that the dismissal must be properly done otherwise, the termination is gravely
defective and may be declared unlawful as we hereby hold [Galera’s] dismissal to be illegal and
unlawful. Where there is no showing of a clear, valid and legal cause for the termination of
employment, the law considers the matter a case of illegal dismissal and the burden is on the
employer to prove that the termination was for a valid or authorized cause. The law mandates that
both the substantive and procedural aspects of due process should be observed. The facts clearly
show that respondents were remiss on both aspects. Perforce, the dismissal is void and unlawful.

xxxx

Considering the work performance and achievements of [Galera] for the year 2000, we do not find
any basis for the alleged claim of incompetence by herein respondents. Had [Galera] been really
incompetent, she would not have been able to generate enormous amounts [sic] of revenues and
business for [WPP]. She also appears to be well liked as a leader by her subordinates, who have
come forth in support of [Galera]. These facts remain undisputed by respondents.

A man’s job being a property right duly protected by our laws, an employer who deprives an
employee [of] the right to defend himself is liable for damages consistent with Article 32 of the Civil
Code. To allow an employer to terminate the employment of his worker based merely on allegations
without proof places the [employee] in an uncertain situation. The unflinching rule in illegal dismissal
cases is that the employer bears the burden of proof.

In the instant case, respondents have not been able to muster evidence to counter [Galera’s]
allegations. [Galera’s] allegations remain and stand absent proof from respondents rebutting them.
Hence, our finding of illegal dismissal against respondents who clearly have conspired in bad faith to
deprive [Galera] of her right to substantive and procedural due process.5
The dispositive portion of Arbiter Madriaga’s decision reads as follows:

WHEREFORE, premises considered, we hereby hold herein respondents liable for illegal dismissal
and damages, and award to [Galera], by virtue of her expatriate status, the following:

a. Reinstatement without loss of seniority rights.

b. Backwages amounting to $120,000 per year at ₱50.00 to US $1 exchange rate, 13th

month pay, transportation and housing benefits.

c. Remuneration for business acquisitions amounting to Two Million Eight Hundred Fifty
Thousand Pesos (₱2,850,000.00) and Media Plowback Incentive equivalent to Three Million
Pesos (₱3,000,000.00) or a total of not less than One Hundred Thousand US Dollars
($100,000.00).

d. US Tax Protection of up to 35% coverage equivalent to Thirty Eight Thousand US Dollars

($38,000).

e. Moral damages including implied defamation and punitive damages equivalent to Two
Million Dollars (US$2,000,000.00).

f. Exemplary damages equivalent to One Million Dollars ($1,000,000.00).

g. Attorney’s fees of 10% of the total award herein.

SO ORDERED.6

The Ruling of the NLRC

The First Division of the NLRC reversed the ruling of Arbiter Madriaga. In its Decision7 promulgated
on 19 February 2003, the NLRC stressed that Galera was WPP’s Vice-President, and therefore, a
corporate officer at the time she was removed by the Board of Directors on 14 December 2000. The
NLRC stated thus:

It matters not that her having been elected by the Board to an added position of being a member of
the Board of Directors did not take effect as her May 31, 2000 election to such added position was
conditioned to be effective upon approval by SEC of the Amended By-Laws, an approval which took
place only in February 21, 2001, i.e., after her removal on December 14, 2000. What counts is, at
the time of her removal, she continued to be WPP’s Vice-President, a corporate officer, on hold over
capacity.

Ms. Galera’s claim that she was not a corporate officer at the time of her removal because her May
31, 2000 election as Vice President for Media, under WPP’s Amended By-Laws, was subject to the
approval by the Securities and Exchange Commission and that the SEC approved the Amended By-
Laws only in February 2001. Such claim is unavailing. Even if Ms. Galera’s subsequent election as
Vice President for Media on May 31, 2000 was subject to approval by the SEC, she continued to
hold her previous position as Vice President under the December 31, 1999 election until such time
that her successor is duly elected and qualified. It is a basic principle in corporation law, which
principle is also embodied in WPP’s by-laws, that a corporate officer continues to hold his position as
such until his successor has been duly elected and qualified. When Ms. Galera was elected as Vice
President on December 31, 1999, she was supposed to have held that position until her successor
has been duly elected and qualified. The record shows that Ms. Galera was not replaced by anyone.
She continued to be Vice President of WPP with the same operational title of Managing Director for
Mindshare and continued to perform the same functions she was performing prior to her May 31,
2000 election.

In the recent case of Dily Dany Nacpil v. International Broadcasting Corp., the definition of corporate
officer for purposes of intra-corporate controversy was even broadened to include a
Comptroller/Assistant Manager who was appointed by the General Manager, and whose
appointment was later approved by the Board of Directors. In this case, the position of comptroller
was not even expressly mentioned in the By-Laws of the corporation, and yet, the Supreme Court
found him to be a corporate officer. The Court ruled that —

(since) petitioner’s appointment as comptroller required the approval and formal action of IBC’s
Board of Directors to become valid, it is clear therefore that petitioner is a corporate officer whose
dismissal may be the subject of a controversy cognizable by the SEC... Had the petitioner been an
ordinary employee, such board action would not have been required.

Such being the case, the imperatives of law require that we hold that the Arbiter below had no
jurisdiction over Galera’s case as, again, she was a corporate officer at the time of her removal.

WHEREFORE, the appeals of petitioner from the Decision of Labor Arbiter Edgardo Madriaga dated
January 31, 2002 and his Order dated March 21, 2002, respectively, are granted. The January 31,
2002 decision of the Labor Arbiter is set aside for being null and void and the temporary restraining
order we issued on April 24, 2002 is hereby made permanent. The complaint of Jocelyn Galera is
dismissed for lack of jurisdiction.

SO ORDERED.8

In its Resolution9 promulgated on 4 June 2003, the NLRC further stated:

We are fully convinced that this is indeed an intra-corporate dispute which is beyond the labor
arbiter’s jurisdiction. These consolidated cases clearly [involve] the relationship between a
corporation and its officer and is properly within the definition of an intra-corporate relationship
which, under P.D. No. 902-A, is within the jurisdiction of the SEC (now the commercial courts). Such
being the case, We are constrained to rule that the Labor Arbiter below had no jurisdiction over Ms.
Galera’s complaint for illegal dismissal.

WHEREFORE, the motion for reconsideration filed by Ms. Galera is hereby denied for lack of merit.
We reiterate our February 19, 2003 Decision setting aside the Labor Arbiter’s Decision dated
January 31, 2002 for being null and void.

SO ORDERED.10

Galera assailed the NLRC’s decision and resolution before the appellate court and raised a lone
assignment of error.

The National Labor Relations Commission acted with grave abuse of discretion amounting to lack or
excess of jurisdiction when it reversed the decision of the Labor Arbiter not on the merits but for
alleged lack of jurisdiction.11

The Decision of the Appellate Court

The appellate court reversed and set aside the decision of the NLRC. The appellate court ruled that
the NLRC’s dismissal of Galera’s appeal is not in accord with jurisprudence. A person could be
considered a "corporate officer" only if appointed as such by a corporation’s Board of Directors, or if
pursuant to the power given them by either the Articles of Incorporation or the By-Laws.12

The appellate court explained:

A corporation, through its board of directors, could only act in the manner and within the formalities,
if any, prescribed by its charter or by the general law. If the action of the Board is ultra vires such
is motu proprio void ab initio and without legal effect whatsoever. The by-laws of a corporation are its
own private laws which substantially have the same effect as the laws of the corporation. They are,
in effect, written into the charter. In this sense, they beome part of the fundamental law of the
corporation with which the corporation and its directors and officers must comply.

Even if petitioner GALERA had been appointed by the Board of Directors on December 31, 1999,
private respondent WPP’s By-Laws provided for only one Vice-President, a position already
occupied by private respondent Webster. The same defect also stains the Board of Directors’
appointment of petitioner GALERA as a Director of the corporation, because at that time the By-
Laws provided for only five directors. In addition, the By-laws only empowered the Board of Directors
to appoint a general manager and/or assistant general manager as corporate officers in addition to a
chairman, president, vice-president and treasurer. There is no mention of a corporate officer entitled
"Managing Director."

Hence, when the Board of Directors enacted the Resolutions of December 31, 1999 and May 31,
2000, it exceeded its authority under the By-Laws and are, therefore, ultra vires. Although private
respondent WPP sought to amend these defects by filing Amended By-Laws with the Securities and
Exchange Commission, they did not validate the ultra vires resolutions because the Amended By-
Laws did not take effect until February 16, 2001, when it was approved by the SEC. Since by-laws
operate only prospectively, they could not validate the ultra vires resolutions.13

The dispositive portion of the appellate court’s decision reads:

WHEREFORE, the petition is hereby GRANTED and GIVEN DUE COURSE. The assailed Decision
of the National Labor Relations Commission is hereby REVERSED and SET ASIDE and a new one
is entered DIRECTING private respondent WPP MARKETING COMMUNICATIONS, INC. to:

1. Pay [Galera] backwages at the peso equivalent of US$120,000.00 per annum plus three
months from her summary December 14, 2000 dismissal up to March 14, 2001 because
three months notice is required under the contract, plus 13th month pay, bonuses and
general increases to which she would have been normally entitled, had she not been
dismissed and had she not been forced to stop working, including US tax protection of up to
35% coverage which she had been enjoying as an expatriate;

2. Pay x x x GALERA the peso equivalent of US$185,000.00 separation pay (1 ½ years);

3. Pay x x x GALERA any unpaid housing benefit for the 18 ½ months of her employment in
the service to the Company as an expatriate in Manila, Philippines at the rate of ₱576,000
per year; unpaid personal and accident insurance benefits for premiums at the rate of
₱300,000.00 per year; whatever cash value in the JWT Pension Plan; and thirty days paid
holiday benefit under the contract for the 1 ½ calendar years with the Company;
 4. Pay x x x GALERA the reduced amount of PhP2,000,000.00 as moral damages;

5. Pay [Galera] the reduced amount of PhP1,000,000.00 as exemplary damages;

6. Pay [Galera] an amount equivalent to 10% of the judgment award as attorney’s fees;

7. Pay the cost of the suit.

SO ORDERED.14

Respondents filed a motion for reconsideration on 5 May 2005. Galera filed a motion for partial
reconsideration and/or clarification on the same date. The appellate court found no reason to revise
or reverse its previous decision and subsequently denied the motions in a Resolution promulgated
on 1 August 2005.15

The Issues

WPP, Steedman, Webster, and Lansang raised the following grounds in G.R. No. 169207:

I. The Court of Appeals seriously erred in ruling that the NLRC has jurisdiction over
[Galera’s] complaint because she was not an employee. [Galera] was a corporate officer of
WPP from the beginning of her term until her removal from office.

II. Assuming arguendo that the Court of Appeals correctly ruled that the NLRC has
jurisdiction over [Galera’s] complaint, it should have remanded the case to the Labor Arbiter
for reception of evidence on the merits of the case.

III. [Galera] is an alien, hence, can never attain a regular or permanent working status in the
Philippines.

IV. [Galera] is not entitled to recover backwages, other benefits and damages from WPP.16

On the other hand, in G.R. No. 169239, Galera raised the following grounds in support of her
petition:

The CA decision should be consistent with Article 279 of the Labor Code and applicable
jurisprudence, that full backwages and separation pay (when in lieu of reinstatement), should be
reckoned from time of dismissal up to time of reinstatement (or payment of separation pay, in case
separation instead of reinstatement is awarded).

Accordingly, petitioner Galera should be awarded full backwages and separation pay for the period
from 14 December 2000 until the finality of judgment by the respondents, or, at the very least, up to
the promulgation date of the CA decision.

The individual respondents Steedman, Webster and Lansang must be held solidarily liable with
respondent WPP for the wanton and summary dismissal of petitioner Galera, to be consistent with
law and jurisprudence as well as the specific finding of the CA of bad faith on the part of
respondents.17

This Court ordered the consolidation of G.R. Nos. 169207 and 169239 in a resolution dated 16
January 2006.18
 The Ruling of the Court

In its consolidated comment, the Office of the Solicitor General (OSG) recommended that (A) the
Decision dated 14 April 2005 of the appellate court finding (1) Galera to be a regular employee of
WPP; (2) the NLRC to have jurisdiction over the present case; and (3) WPP to have illegally
dismissed Galera, be affirmed; and (B) the case remanded to the Labor Arbiter for the computation
of the correct monetary award. Despite the OSG’s recommendations, we see that Galera’s failure to
seek an employment permit prior to her employment poses a serious problem in seeking relief
before this Court. Hence, we settle the various issues raised by the parties for the guidance of the
bench and bar.

Whether Galera is an Employee or a Corporate Officer

Galera, on the belief that she is an employee, filed her complaint before the Labor Arbiter. On the
other hand, WPP, Steedman, Webster and Lansang contend that Galera is a corporate officer;
hence, any controversy regarding her dismissal is under the jurisdiction of the Regional Trial Court.
We agree with Galera.

Corporate officers are given such character either by the Corporation Code or by the corporation’s
by-laws. Under Section 25 of the Corporation Code, the corporate officers are the president,
secretary, treasurer and such other officers as may be provided in the by-laws.19 Other officers are
sometimes created by the charter or by-laws of a corporation, or the board of directors may be
empowered under the by-laws of a corporation to create additional offices as may be necessary.

An examination of WPP’s by-laws resulted in a finding that Galera’s appointment as a corporate

officer (Vice-President with the operational title of Managing Director of Mindshare) during a special
meeting of WPP’s Board of Directors is an appointment to a non-existent corporate office. WPP’s by-
laws provided for only one Vice-President. At the time of Galera’s appointment on 31 December
1999, WPP already had one Vice-President in the person of Webster. Galera cannot be said to be a
director of WPP also because all five directorship positions provided in the by-laws are already
occupied. Finally, WPP cannot rely on its Amended By-Laws to support its argument that Galera is a
corporate officer. The Amended By-Laws provided for more than one Vice-President and for two
additional directors. Even though WPP’s stockholders voted for the amendment on 31 May 2000, the
SEC approved the amendments only on 16 February 2001. Galera was dismissed on 14 December
2000. WPP, Steedman, Webster, and Lansang did not present any evidence that Galera’s dismissal
took effect with the action of WPP’s Board of Directors.1avvphi1

The appellate court further justified that Galera was an employee and not a corporate officer by
subjecting WPP and Galera’s relationship to the four-fold test: (a) the selection and engagement of
the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to
control the employee with respect to the means and methods by which the work is to be
accomplished. The appellate court found:

x x x Sections 1 and 4 of the employment contract mandate where and how often she is to perform
her work; sections 3, 5, 6 and 7 show that wages she receives are completely controlled by x x x
WPP; and sections 10 and 11 clearly state that she is subject to the regular disciplinary procedures
of x x x WPP.

Another indicator that she was a regular employee and not a corporate officer is Section 14 of the
contract, which clearly states that she is a permanent employee — not a Vice-President or a
member of the Board of Directors.
xxxx

Another indication that the Employment Contract was one of regular employment is Section 12,
which states that the rights to any invention, discovery, improvement in procedure, trademark, or
copyright created or discovered by petitioner GALERA during her employment shall automatically
belong to private respondent WPP. Under Republic Act 8293, also known as the Intellectual
Property Code, this condition prevails if the creator of the work subject to the laws of patent or
copyright is an employee of the one entitled to the patent or copyright.

Another convincing indication that she was only a regular employee and not a corporate officer is the
disciplinary procedure under Sections 10 and 11 of the Employment Contract, which states that her
right of redress is through Mindshare’s Chief Executive Officer for the Asia-Pacific. This implies that
she was not under the disciplinary control of private respondent WPP’s Board of Directors (BOD),
which should have been the case if in fact she was a corporate officer because only the Board of
Directors could appoint and terminate such a corporate officer.

Although petitioner GALERA did sign the Alien Employment Permit from the Department of Labor
and Employment and the application for a 9(g) visa with the Bureau of Immigration – both of which
stated that she was private respondent’s WPP’ Vice President – these should not be considered
against her. Assurming arguendo that her appointment as Vice-President was a valid act, it must be
noted that these appointments occurred afater she was hired as a regular employee. After her
appointments, there was no appreciable change in her duties.20

Whether the Labor Arbiter and the NLRC

have jurisdiction over the present case

Galera being an employee, then the Labor Arbiter and the NLRC have jurisdiction over the present
case. Article 217 of the Labor Code provides:

Jurisdiction of Labor Arbiters and the Commission. — (a) Except as otherwise provided under this
Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide x x x the
following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving
the legality of strikes and lockouts;

6. Except claims for Employees Compensation, Social Security, Medicare and other
maternity benefits, all other claims, arising from employer-employee relations, including
those of persons in domestic or household service, involving an amount exceeding five
 thousand pesos (₱5,000.00) regardless of whether accompanied with a claim for
reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided
by Labor Arbiters.

(c) Cases arising from the interpretation of collective bargaining agreements and
those arising from the interpretation or enforcement of company personnel policies
shall be disposed of by the Labor Arbiter by referring the same to the grievance
machinery and voluntary arbitration as may be provided in said agreements.

In contrast, Section 5.2 of Republic Act No. 8799, or the Securities Regulation Code, states:

The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the courts of general jurisdiction or the appropriate Regional Trial
Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until
finally disposed.

The pertinent portions of Section 5 of Presidential Decree No. 902-A, mentioned above, states:

b) Controversies arising out of intra-corporate or partnership relations, between and among

stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the state insofar
as it concerns their individual franchise or right to exist as such entity;

c) Controversies in the election or appointments of directors, trustees, officers or managers

of such corporations, partnerships or associations.

Whether WPP illegally dismissed Galera

WPP’s dismissal of Galera lacked both substantive and procedural due process.

Apart from Steedman’s letter dated 15 December 2000 to Galera, WPP failed to prove any just or
authorized cause for Galera’s dismissal. Steedman’s letter to Galera reads:

The operations are currently in a shamble. There is lack of leadership and confidence in your
abilities from within, our agency partners and some clients.

Most of the staff I spoke with felt they got more guidance and direction from Minda than yourself. In
your role as Managing Director, that is just not acceptable.

I believe your priorities are mismanaged. The recent situation where you felt an internal strategy
meeting was more important than a new business pitch is a good example.
You failed to lead and advise on the two new business pitches. In both cases, those involved sort
(sic) Minda’s input. As I discussed with you back in July, my directive was for you to lead and review
all business pitches. It is obvious [that] confusion existed internally right up until the day of the pitch.

The quality output is still not to an acceptable standard, which was also part of my directive that you
needed to focus on back in July.

I do not believe you understand the basic skills and industry knowledge required to run a media
special operation.21

WPP, Steedman, Webster, and Lansang, however, failed to substantiate the allegations in
Steedman’s letter. Galera, on the other hand, presented documentary evidence22 in the form of
congratulatory letters, including one from Steedman, which contents are diametrically opposed to the
15 December 2000 letter.

The law further requires that the employer must furnish the worker sought to be dismissed with two
written notices before termination of employment can be legally effected: (1) notice which apprises
the employee of the particular acts or omissions for which his dismissal is sought; and (2) the
subsequent notice which informs the employee of the employer’s decision to dismiss him. Failure to
comply with the requirements taints the dismissal with illegality.23 WPP’s acts clearly show that
Galera’s dismissal did not comply with the two-notice rule.

Whether Galera is entitled to the monetary award

WPP, Steedman, Webster, and Lansang argue that Galera is not entitled to backwages because
she is an alien. They further state that there is no guarantee that the Bureau of Immigration and the
Department of Labor and Employment will continue to grant favorable rulings on the applications for
a 9(g) visa and an Alien Employment Permit after the expiry of the validity of Galera’s documents on
31 December 2000. WPP’s argument is a circular argument, and assumes what it attempts to prove.
Had WPP not dismissed Galera, there is no doubt in our minds that WPP would have taken action
for the approval of documents required for Galera’s continued employment.

This is Galera’s dilemma: Galera worked in the Philippines without a proper work permit but now
wants to claim employee’s benefits under Philippine labor laws.

Employment of GALERA with private respondent WPP became effective on September 1,

1999 solely on the instruction of the CEO and upon signing of the contract, without any further action
from the Board of Directors of private respondent WPP.

Four months had passed when private respondent WPP filed before the Bureau of
Immigration an application for petitioner GALERA to receive a working visa, wherein she was
designated as Vice President of WPP. Petitioner alleged that she was constrained to sign the
application in order that she could remain in the Philippines and retain her employment.24

The law and the rules are consistent in stating that the employment permit must be acquired prior to
employment. The Labor Code states: "Any alien seeking admission to the Philippines for
employment purposes and any domestic or foreign employer who desires to engage an alien for
employment in the Philippines shall obtain an employment permit from the Department of
Labor."25 Section 4, Rule XIV, Book 1 of the Implementing Rules and Regulations provides:
Employment permit required for entry. — No alien seeking employment, whether as a resident or
non-resident, may enter the Philippines without first securing an employment permit from the
Ministry. If an alien enters the country under a non-working visa and wishes to be employed
thereafter, he may only be allowed to be employed upon presentation of a duly approved
employment permit.

Galera cannot come to this Court with unclean hands. To grant Galera’s prayer is to sanction the
violation of the Philippine labor laws requiring aliens to secure work permits before their
employment. We hold that the status quo must prevail in the present case and we leave the parties
where they are. This ruling, however, does not bar Galera from seeking relief from other
jurisdictions.

WHEREFORE, we PARTIALLY GRANT the petitions in G.R. Nos. 169207 and 169239. We SET
ASIDE the Decision of the Court of Appeals promulgated on 14 April 2005 as well as the Resolution
promulgated on 1 August 2005 in CA-G.R. SP No. 78721.

SO ORDERED.
G.R. No. 85985 August 13, 1993

PHILIPPINE AIRLINES, INC. (PAL), petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ISABEL P. ORTIGUERRA
and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA), respondents.

Labor Laws; Company rules on discipline; Management prerogative not boundless.—PAL asserts

that when it revised its Code on March 15, 1985, there was no law which mandated the sharing of
responsibility therefor between employer and employee. Indeed, it was only on March 2, 1989, with the
approval of Republic Act No. 6715, amending Article 211 of the Labor Code, that the law explicitly
considered it a State policy “(t)o ensure the participation of workers in decision and policy-making
processes affecting their rights, duties and welfare.” However, even in the absence of said clear provision
of law, the exercise of management prerogatives was never considered boundless. Thus, in Cruz vs.
Medina (177 SCRA 565 [1989]), it was held that management’s prerogatives must be without abuse of
discretion.
Same; Same; Same; Line drawn between policies which are purely business-oriented and those
which affect rights of employees.—A close scrutiny of the objectionable provisions of the Code reveals
that they are not purely business-oriented nor do they concern the management aspect of the business of
the company as in the San Miguel case. The provisions of the Code clearly have repercusions on the
employees’ right to security of tenure. The implementation of the provisions may result in the deprivation
of an employee’s means of livelihood which, as correctly pointed out by the NLRC, is a property right
(Callanta vs. Carnation Philippines, Inc., 145 SCRA 268 [1986]). In view of these aspects of the case
which border on infringement of constitutional rights, we must uphold the constitutional requirements for
the protection of labor and the promotion of social justice, for these factors, according to Justice Isagani
Cruz, tilt “the scales of justice when there is doubt, in favor of the worker” ( Employees Association of the
Philippine American Life Insurance Company vs. NLRC, 199 SCRA 628 [1991] 635). Verily, a line must
be drawn between management prerogatives regarding business operations per se and those which affect
the rights of the employees. In treating the latter, management should see to it that its employees are at
least properly informed of its decisions or modes of action. xxx xxx.
Same; Same; Same; Employee’s right to participate in policymaking upheld.—Indeed, industrial
peace cannot be achieved if the employees are denied their just participation in the discussion of matters
affecting their rights. Thus, even before Article 211 of the Labor Code (P.D. 442) was amended by
Republic Act No. 6715, it was already declared a policy of the State: “(d) To promote the enlightenment
of workers concerning their rights and obligations . . . as employees.” This was, of course, amplified by
Republic Act No. 6715 when it decreed the “participation of workers in decision and policy making
processes affecting their rights, duties and welfare.” PAL’s position that it cannot be saddled with the
“obligation” of sharing management prerogatives as during the formulation of the Code, Republic Act
No. 6715 had not yet been enacted (Petitioner’s Memorandum, p. 44; Rollo, p. 212), cannot thus be
sustained. While such “obligation” was not yet founded in law when the Code was formulated, the
attainment of a harmonious labor-management relationship and the then already existing state policy of
enlightening workers concerning their rights as employees demand no less than the observance of
transparency in managerial moves affecting employees’ rights.

MELO, J.:

In the instant petition for certiorari, the Court is presented the issue of whether or not the formulation
of a Code of Discipline among employees is a shared responsibility of the employer and the
employees.
On March 15, 1985, the Philippine Airlines, Inc. (PAL) completely revised its 1966 Code of
Discipline. The Code was circulated among the employees and was immediately implemented, and
some employees were forthwith subjected to the disciplinary measures embodied therein.

Thus, on August 20, 1985, the Philippine Airlines Employees Association (PALEA) filed a complaint
before the National Labor Relations Commission (NLRC) for unfair labor practice (Case No. NCR-7-
2051-85) with the following remarks: "ULP with arbitrary implementation of PAL's Code of Discipline
without notice and prior discussion with Union by Management" (Rollo, p. 41). In its position paper,
PALEA contended that PAL, by its unilateral implementation of the Code, was guilty of unfair labor
practice, specifically Paragraphs E and G of Article 249 and Article 253 of the Labor Code. PALEA
alleged that copies of the Code had been circulated in limited numbers; that being penal in nature
the Code must conform with the requirements of sufficient publication, and that the Code was
arbitrary, oppressive, and prejudicial to the rights of the employees. It prayed that implementation of
the Code be held in abeyance; that PAL should discuss the substance of the Code with PALEA; that
employees dismissed under the Code be reinstated and their cases subjected to further hearing; and
that PAL be declared guilty of unfair labor practice and be ordered to pay damages (pp. 7-14,
Record.)

PAL filed a motion to dismiss the complaint, asserting its prerogative as an employer to prescibe
rules and regulations regarding employess' conduct in carrying out their duties and functions, and
alleging that by implementing the Code, it had not violated the collective bargaining agreement
(CBA) or any provision of the Labor Code. Assailing the complaint as unsupported by evidence, PAL
maintained that Article 253 of the Labor Code cited by PALEA reffered to the requirements for
negotiating a CBA which was inapplicable as indeed the current CBA had been negotiated.

In its reply to PAL's position paper, PALEA maintained that Article 249 (E) of the Labor Code was
violated when PAL unilaterally implemented the Code, and cited provisions of Articles IV and I of
Chapter II of the Code as defective for, respectively, running counter to the construction of penal
laws and making punishable any offense within PAL's contemplation. These provisions are the
following:

Sec. 2. Non-exclusivity. — This Code does not contain the entirety of the rules and
regulations of the company. Every employee is bound to comply with all applicable
rules, regulations, policies, procedures and standards, including standards of quality,
productivity and behaviour, as issued and promulgated by the company through its
duly authorized officials. Any violations thereof shall be punishable with a penalty to
be determined by the gravity and/or frequency of the offense.

Sec. 7. Cumulative Record. — An employee's record of offenses shall be cumulative.

The penalty for an offense shall be determined on the basis of his past record of
offenses of any nature or the absence thereof. The more habitual an offender has
been, the greater shall be the penalty for the latest offense. Thus, an employee may
be dismissed if the number of his past offenses warrants such penalty in the
judgment of management even if each offense considered separately may not
warrant dismissal. Habitual offenders or recidivists have no place in PAL. On the
other hand, due regard shall be given to the length of time between commission of
individual offenses to determine whether the employee's conduct may indicate
occasional lapses (which may nevertheless require sterner disciplinary action) or a
pattern of incorrigibility.

Labor Arbiter Isabel P. Ortiguerra handling the case called the parties to a conference but they failed
to appear at the scheduled date. Interpreting such failure as a waiver of the parties' right to present
evidence, the labor arbiter considered the case submitted for decision. On November 7, 1986, a
decision was rendered finding no bad faith on the part of PAL in adopting the Code and ruling that
no unfair labor practice had been committed. However, the arbiter held that PAL was "not totally fault
free" considering that while the issuance of rules and regulations governing the conduct of
employees is a "legitimate management prerogative" such rules and regulations must meet the test
of "reasonableness, propriety and fairness." She found Section 1 of the Code aforequoted as "an all
embracing and all encompassing provision that makes punishable any offense one can think of in
the company"; while Section 7, likewise quoted above, is "objectionable for it violates the rule
against double jeopardy thereby ushering in two or more punishment for the same misdemeanor."
(pp. 38-39, Rollo.)

The labor arbiter also found that PAL "failed to prove that the new Code was amply circulated."
Noting that PAL's assertion that it had furnished all its employees copies of the Code is unsupported
by documentary evidence, she stated that such "failure" on the part of PAL resulted in the imposition
of penalties on employees who thought all the while that the 1966 Code was still being followed.
Thus, the arbiter concluded that "(t)he phrase ignorance of the law excuses no one from
compliance . . . finds application only after it has been conclusively shown that the law was
circulated to all the parties concerned and efforts to disseminate information regarding the new law
have been exerted. (p. 39, Rollo.) She thereupon disposed:

WHEREFORE, premises considered, respondent PAL is hereby ordered as follows:

1. Furnish all employees with the new Code of Discipline;

2. Reconsider the cases of employees meted with penalties under the New Code of
Discipline and remand the same for further hearing; and

3. Discuss with PALEA the objectionable provisions specifically tackled in the body of
the decision.

All other claims of the complainant union (is) [are] hereby, dismissed for lack of merit.

SO ORDERED. (p. 40, Rollo.)

PAL appealed to the NLRC. On August 19, 1988, the NLRC through Commissioner Encarnacion,
with Presiding Commissioner Bonto-Perez and Commissioner Maglaya concurring, found no
evidence of unfair labor practice committed by PAL and affirmed the dismissal of PALEA's charge.
Nonetheless, the NLRC made the following observations:

Indeed, failure of management to discuss the provisions of a contemplated code of

discipline which shall govern the conduct of its employees would result in the erosion
and deterioration of an otherwise harmonious and smooth relationship between them
as did happen in the instant case. There is no dispute that adoption of rules of
conduct or discipline is a prerogative of management and is imperative and essential
if an industry, has to survive in a competitive world. But labor climate has
progressed, too. In the Philippine scene, at no time in our contemporary history is the
need for a cooperative, supportive and smooth relationship between labor and
management more keenly felt if we are to survive economically. Management can no
longer exclude labor in the deliberation and adoption of rules and regulations that will
affect them.
 The complainant union in this case has the right to feel isolated in the adoption of the
New Code of Discipline. The Code of Discipline involves security of tenure and loss
of employment — a property right! It is time that management realizes that to attain
effectiveness in its conduct rules, there should be candidness and openness by
Management and participation by the union, representing its members. In fact, our
Constitution has recognized the principle of "shared responsibility" between
employers and workers and has likewise recognized the right of workers to
participate in "policy and decision-making process affecting their rights . . ." The latter
provision was interpreted by the Constitutional Commissioners to mean participation
in "management"' (Record of the Constitutional Commission, Vol. II).

In a sense, participation by the union in the adoption of the code if conduct could
have accelerated and enhanced their feelings of belonging and would have resulted
in cooperation rather than resistance to the Code. In fact, labor-management
cooperation is now "the thing." (pp. 3-4, NLRC Decision ff. p. 149, Original Record.)

Respondent Commission thereupon disposed:

WHEREFORE, premises considered, we modify the appealed decision in the sense

that the New Code of Discipline should be reviewed and discussed with complainant
union, particularly the disputed provisions [.] (T)hereafter, respondent is directed to
furnish each employee with a copy of the appealed Code of Discipline. The pending
cases adverted to in the appealed decision if still in the arbitral level, should be
reconsidered by the respondent Philippine Air Lines. Other dispositions of the Labor
Arbiter are sustained.

SO ORDERED. (p. 5, NLRC Decision.)

PAL then filed the instant petition for certiorari charging public respondents with grave abuse of
discretion in: (a) directing PAL "to share its management prerogative of formulating a Code of
Discipline"; (b) engaging in quasi-judicial legislation in ordering PAL to share said prerogative with
the union; (c) deciding beyond the issue of unfair labor practice, and (d) requiring PAL to reconsider
pending cases still in the arbitral level (p. 7, Petition; p. 8, Rollo.)

As stated above, the Principal issue submitted for resolution in the instant petition is whether
management may be compelled to share with the union or its employees its prerogative of
formulating a code of discipline.

PAL asserts that when it revised its Code on March 15, 1985, there was no law which mandated the
sharing of responsibility therefor between employer and employee.

Indeed, it was only on March 2, 1989, with the approval of Republic Act No. 6715, amending Article
211 of the Labor Code, that the law explicitly considered it a State policy "(t)o ensure the
participation of workers in decision and policy-making processes affecting the rights, duties and
welfare." However, even in the absence of said clear provision of law, the exercise of management
prerogatives was never considered boundless. Thus, in Cruz vs. Medina (177 SCRA 565 [1989]) it
was held that management's prerogatives must be without abuse of discretion.

In San Miguel Brewery Sales Force Union (PTGWO) vs. Ople (170 SCRA 25 [1989]), we upheld the
company's right to implement a new system of distributing its products, but gave the following
caveat:
 So long as a company's management prerogatives are exercised in good faith for the
advancement of the employer's interest and not for the purpose of defeating or
circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold them.
(at p. 28.)

All this points to the conclusion that the exercise of managerial prerogatives is not unlimited. It is
circumscribed by limitations found in law, a collective bargaining agreement, or the general
principles of fair play and justice (University of Sto. Tomas vs. NLRC, 190 SCRA 758 [1990]).
Moreover, as enunciated in Abbott Laboratories (Phil.), vs. NLRC (154 713 [1987]), it must be duly
established that the prerogative being invoked is clearly a managerial one.

A close scrutiny of the objectionable provisions of the Code reveals that they are not purely
business-oriented nor do they concern the management aspect of the business of the company as in
the San Miguel case. The provisions of the Code clearly have repercusions on the employee's right
to security of tenure. The implementation of the provisions may result in the deprivation of an
employee's means of livelihood which, as correctly pointed out by the NLRC, is a property right
(Callanta, vs Carnation Philippines, Inc., 145 SCRA 268 [1986]). In view of these aspects of the case
which border on infringement of constitutional rights, we must uphold the constitutional requirements
for the protection of labor and the promotion of social justice, for these factors, according to Justice
Isagani Cruz, tilt "the scales of justice when there is doubt, in favor of the worker" (Employees
Association of the Philippine American Life Insurance Company vs. NLRC, 199 SCRA 628 [1991]
635).

Verily, a line must be drawn between management prerogatives regarding business operations per
se and those which affect the rights of the employees. In treating the latter, management should see
to it that its employees are at least properly informed of its decisions or modes action. PAL asserts
that all its employees have been furnished copies of the Code. Public respondents found to the
contrary, which finding, to say the least is entitled to great respect.

PAL posits the view that by signing the 1989-1991 collective bargaining agreement, on June 27,
1990, PALEA in effect, recognized PAL's "exclusive right to make and enforce company rules and
regulations to carry out the functions of management without having to discuss the same with
PALEA and much less, obtain the latter's conformity thereto" (pp. 11-12, Petitioner's Memorandum;
pp 180-181, Rollo.) Petitioner's view is based on the following provision of the agreement:

The Association recognizes the right of the Company to determine matters of

management it policy and Company operations and to direct its manpower.
Management of the Company includes the right to organize, plan, direct and control
operations, to hire, assign employees to work, transfer employees from one
department, to another, to promote, demote, discipline, suspend or discharge
employees for just cause; to lay-off employees for valid and legal causes, to
introduce new or improved methods or facilities or to change existing methods or
facilities and the right to make and enforce Company rules and regulations to carry
out the functions of management.

The exercise by management of its prerogative shall be done in a just reasonable,

humane and/or lawful manner.

Such provision in the collective bargaining agreement may not be interpreted as cession of
employees' rights to participate in the deliberation of matters which may affect their rights and the
formulation of policies relative thereto. And one such mater is the formulation of a code of discipline.
Indeed, industrial peace cannot be achieved if the employees are denied their just participation in
the discussion of matters affecting their rights. Thus, even before Article 211 of the labor Code (P.D.
442) was amended by Republic Act No. 6715, it was already declared a policy of the State, "(d) To
promote the enlightenment of workers concerning their rights and obligations . . . as employees."
This was, of course, amplified by Republic Act No 6715 when it decreed the "participation of workers
in decision and policy making processes affecting their rights, duties and welfare." PAL's position
that it cannot be saddled with the "obligation" of sharing management prerogatives as during the
formulation of the Code, Republic Act No. 6715 had not yet been enacted (Petitioner's
Memorandum, p. 44; Rollo, p. 212), cannot thus be sustained. While such "obligation" was not yet
founded in law when the Code was formulated, the attainment of a harmonious labor-management
relationship and the then already existing state policy of enlightening workers concerning their rights
as employees demand no less than the observance of transparency in managerial moves affecting
employees' rights.

Petitioner's assertion that it needed the implementation of a new Code of Discipline considering the
nature of its business cannot be overemphasized. In fact, its being a local monopoly in the business
demands the most stringent of measures to attain safe travel for its patrons. Nonetheless, whatever
disciplinary measures are adopted cannot be properly implemented in the absence of full
cooperation of the employees. Such cooperation cannot be attained if the employees are restive on
account, of their being left out in the determination of cardinal and fundamental matters affecting
their employment.

WHEREFORE, the petition is DISMISSED and the questioned decision AFFIRMED. No special
pronouncement is made as to costs.

SO ORDERED.
G.R. No. L-12582             January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-
appellees.

x---------------------------------------------------------x

G.R. No. L-12598             January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-
appellees.

Industrial Peace Act; Court of Industrial Relations; Certification proceeding.—The Industrial

Court can entertain a petition for certification if, after due hearing, the parties are found to have an 
employer-employee relationship.
Same; Allegation that union members constitute a proper bargaining unit.—The absence of an
express allegation that the members of a musicians' guild constitute a proper bargaining unit is not fatal in
a certification proceeding for the same is not a "litigation" in the sense in which this term is commonly
understood. It is a mere investigation which is nonadversary and fact-finding in character and whose
purpose is to ascertain the desires of the employees as to the matter of their representation.
Same; Discretion of court in certification -proceeding.—The Industrial Court enjoys a wide
discretion in determining the procedure necessary to insure the fair and free choice of bargaining
representatives by employees.
Same; Proper bargaining unit.—A registered labor union, whose members are musicians,
performing work in certain film companies which is distinct from the work of other employees of said
companies, constitutes a proper bargaining unit.
Same; Court of Industrial Relations; Discretion in determining bargaining unit.—The Industrial
Court has discretion to decide upon an appropriate unit for collective bargaining purposes. Its judgment in
this respect is entitled to almost complete finality, unless its action is arbitrary or capricious.
Same; Employer and employee.—Musicians, who supply the musical background for movie
productions, are employees of film companies under the facts stated in the decision. They work under the
supervision of the movie director who is an employee of the film company.
Same; Criterion for employer-employee relationship-—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. It may exist notwithstanding the intervention
of an alleged independent contractor who may hire and fire the workers.

CONCEPCION, J.:

Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review by certiorari of an
order of the Court of Industrial Relations in Case No. 306-MC thereof, certifying the Philippine
Musicians Guild (FFW), petitioner therein and respondent herein, as the sole and exclusive
bargaining agency of all musicians working with said companies, as well as with the Premiere
Productions, Inc., which has not appealed. The appeal of LVN Pictures, Inc., has been docketed as
G.R. No. L-12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc. Involving
as they do the same order, the two cases have been jointly heard in this Court, and will similarly be
disposed of.

In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as the
Guild, averred that it is a duly registered legitimate labor organization; that LVN Pictures, Inc.,
Sampaguita Pictures, Inc., and Premiere Productions, Inc. are corporations, duly organized under
the Philippine laws, engaged in the making of motion pictures and in the processing and distribution
thereof; that said companies employ musicians for the purpose of making music recordings for title
music, background music, musical numbers, finale music and other incidental music, without which a
motion picture is incomplete; that ninety-five (95%) percent of all the musicians playing for the
musical recordings of said companies are members of the Guild; and that the same has no
knowledge of the existence of any other legitimate labor organization representing musicians in said
companies. Premised upon these allegations, the Guild prayed that it be certified as the sole and
exclusive bargaining agency for all musicians working in the aforementioned companies. In their
respective answers, the latter denied that they have any musicians as employees, and alleged that
the musical numbers in the filing of the companies are furnished by independent contractors. The
lower court, however, rejected this pretense and sustained the theory of the Guild, with the result
already adverted to. A reconsideration of the order complained of having been denied by the
Court en banc, LVN Pictures, inc., and Sampaguita Pictures, Inc., filed these petitions for review
for certiorari.

Apart from impugning the conclusion of the lower court on the status of the Guild members as
alleged employees of the film companies, the LVN Pictures, Inc., maintains that a petition for
certification cannot be entertained when the existence of employer-employee relationship between
the parties is contested. However, this claim is neither borne out by any legal provision nor
supported by any authority. So long as, after due hearing, the parties are found to bear said
relationship, as in the case at bar, it is proper to pass upon the merits of the petition for certification.

It is next urged that a certification is improper in the present case, because, "(a) the petition does not
allege and no evidence was presented that the alleged musicians-employees of the respondents
constitute a proper bargaining unit, and (b) said alleged musicians-employees represent a majority
of the other numerous employees of the film companies constituting a proper bargaining unit under
section 12 (a) of Republic Act No. 875."

The absence of an express allegation that the members of the Guild constitute a proper bargaining
unit is fatal proceeding, for the same is not a "litigation" in the sense in which this term is commonly
understood, but a mere investigation of a non-adversary, fact finding character, in which the
investigating agency plays the part of a disinterested investigator seeking merely to ascertain the
desires of employees as to the matter of their representation. In connection therewith, the court
enjoys a wide discretion in determining the procedure necessary to insure the fair and free choice of
bargaining representatives by employees.1 Moreover, it is alleged in the petition that the Guild it a
duly registered legitimate labor organization and that ninety-five (95%) percent of the musicians
playing for all the musical recordings of the film companies involved in these cases are members of
the Guild. Although, in its answer, the LVN Pictures, Inc. denied both allegations, it appears that, at
the hearing in the lower court it was merely the status of the musicians as its employees that the film
companies really contested. Besides, the substantial difference between the work performed by said
musicians and that of other persons who participate in the production of a film, and the peculiar
circumstances under which the services of that former are engaged and rendered, suffice to show
that they constitute a proper bargaining unit. At this juncture, it should be noted that the action of the
lower court in deciding upon an appropriate unit for collective bargaining purposes is discretionary
(N.L.R.B. v. May Dept. Store Co., 66 Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this
respect is entitled to almost complete finality, unless its action is arbitrary or capricious (Marshall
Field & Co. v. N.L.R.B. [C.C.A. 19431, 135 F. 2d. 891), which is far from being so in the cases at
bar.

Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for the
musicians working in the aforesaid film companies. It does not intend to represent the other
employees therein. Hence, it was not necessary for the Guild to allege that its members constitute a
majority of all the employees of said film companies, including those who are not musicians. The real
issue in these cases, is whether or not the musicians in question are employees of the film
companies. In this connection the lower court had the following to say:

As a normal and usual course of procedure employed by the companies when a picture is to
be made, the producer invariably chooses, from the musical directors, one who will furnish
the musical background for a film. A price is agreed upon verbally between the producer and
musical director for the cost of furnishing such musical background. Thus, the musical
director may compose his own music specially written for or adapted to the picture. He
engages his own men and pays the corresponding compensation of the musicians under
him.

When the music is ready for recording, the musicians are summoned through 'call slips' in
the name of the film company (Exh 'D'), which show the name of the musician, his musical
instrument, and the date, time and place where he will be picked up by the truck of the film
company. The film company provides the studio for the use of the musicians for that
particular recording. The musicians are also provided transportation to and from the studio
by the company. Similarly, the company furnishes them meals at dinner time.

During the recording sessions, the motion picture director, who is an employee of the
company, supervises the recording of the musicians and tells what to do in every detail. He
solely directs the performance of the musicians before the camera as director, he supervises
the performance of all the action, including the musicians who appear in the scenes so that
in the actual performance to be shown on the screen, the musical director's intervention has
stopped.

And even in the recording sessions and during the actual shooting of a scene, the
technicians, soundmen and other employees of the company assist in the operation. Hence,
the work of the musicians is an integral part of the entire motion picture since they not only
furnish the music but are also called upon to appear in the finished picture.

The question to be determined next is what legal relationship exits between the musicians
and the company in the light of the foregoing facts.

We are thus called upon to apply R.A. Act 875. which is substantially the same as and
patterned after the Wagner Act substantially the same as a Act and the Taft-Hartley Law of
the United States. Hence, reference to decisions of American Courts on these laws on the
point-at-issue is called for.

Statutes are to be construed in the light of purposes achieved and the evils sought to be
remedied. (U.S. vs. American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .

In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the
United States Supreme Court said the Wagner Act was designed to avert the 'substantial
obstruction to the free flow of commerce which results from strikes and other forms of
industrial unrest by eliminating the causes of the unrest. Strikes and industrial unrest result
from the refusal of employers' to bargain collectively and the inability of workers to bargain
successfully for improvement in their working conditions. Hence, the purposes of the Act are
to encourage collective bargaining and to remedy the workers' inability to bargaining power,
by protecting the exercise of full freedom of association and designation of representatives of
their own choosing, for the purpose of negotiating the terms and conditions of their
employment.'

The mischief at which the Act is aimed and the remedies it offers are not confined exclusively
to 'employees' within the traditional legal distinctions, separating them from 'independent
contractor'. Myriad forms of service relationship, with infinite and subtle variations in the term
of employment, blanket the nation's economy. Some are within this Act, others beyond its
coverage. Large numbers will fall clearly on one side or on the other, by whatever test may
be applied. Inequality of bargaining power in controversies of their wages, hours and working
conditions may characterize the status of one group as of the other. The former, when acting
alone may be as helpless in dealing with the employer as dependent on his daily wage and
as unable to resist arbitrary and unfair treatment as the latter.'

To eliminate the causes of labor dispute and industrial strike, Congress thought it necessary
to create a balance of forces in certain types of economic relationship. Congress recognized
those economic relationships cannot be fitted neatly into the containers designated as
'employee' and 'employer'. Employers and employees not in proximate relationship may be
drawn into common controversies by economic forces and that the very dispute sought to be
avoided might involve 'employees' who are at times brought into an economic relationship
with 'employers', who are not their 'employers'. In this light, the language of the Act's
definition of 'employee' or 'employer' should be determined broadly in doubtful situations, by
underlying economic facts rather than technically and exclusively established legal
classifications. (NLRB vs. Blount, 131 F [2d] 585.)

In other words, the scope of the term 'employee' must be understood with reference to the
purposes of the Act and the facts involved in the economic relationship. Where all the
conditions of relation require protection, protection ought to be given .

By declaring a worker an employee of the person for whom he works and by recognizing and
protecting his rights as such, we eliminate the cause of industrial unrest and consequently
we promote industrial peace, because we enable him to negotiate an agreement which will
settle disputes regarding conditions of employment, through the process of collective
bargaining.

The statutory definition of the word 'employee' is of wide scope. As used in the Act, the term
embraces 'any employee' that is all employees in the conventional as well in the legal sense
expect those excluded by express provision. (Connor Lumber Co., 11 NLRB 776.).

It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of industrial
unrest by protecting the exercise of their right to self-organization for the purpose of
collective bargaining. (b) To promote sound stable industrial peace and the advancement of
the general welfare, and the best interests of employers and employees by the settlement of
issues respecting terms and conditions of employment through the process of collective
bargaining between employers and representatives of their employees.

The primary consideration is whether the declared policy and purpose of the Act can be
effectuated by securing for the individual worker the rights and protection guaranteed by the
 Act. The matter is not conclusively determined by a contract which purports to establish the
status of the worker, not as an employee.

The work of the musical director and musicians is a functional and integral part of the
enterprise performed at the same studio substantially under the direction and control of the
company.

In other words, to determine whether a person who performs work for another is the latter's
employee or an independent contractor, the National Labor Relations relies on 'the right to
control' test. Under this test an employer-employee relationship exist where the person for
whom the services are performed reserves the right to control not only the end to be
achieved, but also the manner and means to be used in reaching the end. (United Insurance
Company, 108, NLRB No. 115.).

Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.

'We find that the independent contractors and persons working under them are
employees' within the meaning of Section 2 (3) of its Act. However, we are of the
opinion that the independent contractors have sufficient authority over the persons
working under their immediate supervision to warrant their exclusion from the
unit. We shall include in the unit the employees working under the supervision of the
independent contractors, but exclude the contractors.'

'Notwithstanding that the employees are called independent contractors', the Board will hold
them to be employees under the Act where the extent of the employer's control over them
indicates that the relationship is in reality one of employment. (John Hancock Insurance Co.,
2375-D, 1940, Teller, Labor Dispute Collective Bargaining, Vol.).

The right of control of the film company over the musicians is shown (1) by calling the
musicians through 'call slips' in 'the name of the company; (2) by arranging schedules in its
studio for recording sessions; (3) by furnishing transportation and meals to musicians; and
(4) by supervising and directing in detail, through the motion picture director, the
performance of the musicians before the camera, in order to suit the music they are playing
to the picture which is being flashed on the screen.

Thus, in the application of Philippine statutes and pertinent decisions of the United States
Courts on the matter to the facts established in this case, we cannot but conclude that to
effectuate the policies of the Act and by virtue of the 'right of control' test, the members of the
Philippine Musicians Guild are employees of the three film companies and, therefore, entitled
to right of collective bargaining under Republic Act No. 875.

In view of the fact that the three (3) film companies did not question the union's majority, the
Philippine Musicians Guild is hereby declared as the sole collective bargaining
representative for all the musicians employed by the film companies."

We are fully in agreement with the foregoing conclusion and the reasons given in support thereof.
Both are substantially in line with the spirit of our decision in Maligaya Ship Watchmen Agency vs.
Associated Watchmen and Security Union, L-12214-17 (May 28, 1958). In fact, the contention of the
employers in the Maligaya cases, to the effect that they had dealt with independent contractors, was
stronger than that of the film companies in these cases. The third parties with whom the
management and the workers contracted in the Maligaya cases were agencies registered with the
Bureau of Commerce and duly licensed by the City of Manila to engage in the business of supplying
watchmen to steamship companies, with permits to engage in said business issued by the City
Mayor and the Collector of Customs. In the cases at bar, the musical directors with whom the film
companies claim to have dealt with had nothing comparable to the business standing of said
watchmen agencies. In this respect, the status of said musical directors is analogous to that of the
alleged independent contractor in Caro vs. Rilloraza, L-9569 (September 30, 1957), with the
particularity that the Caro case involved the enforcement of the liability of an employer under the
Workmen's Compensation Act, whereas the cases before us are merely concerned with the right of
the Guild to represent the musicians as a collective bargaining unit. Hence, there is less reason to
be legalistic and technical in these cases, than in the Caro case.

Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut Product
Co., Inc vs. CIR (46 Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos Vda. de
Geronimo, L-6968 (November 29, 1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa
Vda. de Cruz vs. The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the theory of said
petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is authority for herein
respondents-appellees. It was held that, although engaged as piece-workers, under the "pakiao"
system, the "parers" and "shellers" in the case were, not independent contractor, but employees of
said company, because "the requirement imposed on the 'parers' to the effect that 'the nuts are
pared whole or that there is not much meat wasted,' in effect limits or controls the means or details
by which said workers are to accomplish their services" — as in the cases before us.

The nature of the relation between the parties was not settled in the Viana case, the same having
been remanded to the Workmen's Compensation Commission for further evidence.

The case of the Philippine Manufacturing Co. involved a contract between said company and Eliano
Garcia, who undertook to paint a tank of the former. Garcia, in turn engaged the services of Arcadio
Geronimo, a laborer, who fell while painting the tank and died in consequence of the injuries thus
sustained by him. Inasmuch as the company was engaged in the manufacture of soap, vegetable
lard, cooking oil and margarine, it was held that the connection between its business and the
painting aforementioned was purely casual; that Eliano Garcia was an independent contractor; that
Geronimo was not an employee of the company; and that the latter was not bound, therefore, to pay
the compensation provided in the Workmen's Compensation Act. Unlike the Philippine
Manufacturing case, the relation between the business of herein petitioners-appellants and the work
of the musicians is not casual. As held in the order appealed from which, in this respect, is not
contested by herein petitioners-appellants — "the work of the musicians is an integral part of the
entire motion picture." Indeed, one can hardly find modern films without music therein. Hence, in
the Caro case (supra), the owner and operator of buildings for rent was held bound to pay the
indemnity prescribed in the Workmen's Compensation Act for the injury suffered by a carpenter while
working as such in one of said buildings even though his services had been allegedly engaged by a
third party who had directly contracted with said owner. In other words, the repair work had not
merely a casual connection with the business of said owner. It was a necessary incident thereof, just
as music is in the production of motion pictures.

The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs materially
from the present cases. It involved the interpretation of Republic Act No. 660, which amends the law
creating and establishing the Government Service Insurance System. No labor law was sought to be
construed in that case. In act, the same was originally heard in the Court of First Instance of Manila,
the decision of which was, on appeal, affirmed by the Supreme Court. The meaning or scope if the
term "employee," as used in the Industrial Peace Act (Republic Act No. 875), was not touched
therein. Moreover, the subject matter of said case was a contract between the management of the
Manila Hotel, on the one hand, and Tirso Cruz, on the other, whereby the latter greed to furnish the
former the services of his orchestra, consisting of 15 musicians, including Tirso Cruz, "from 7:30
p.m. to closing time daily." In the language of this court in that case, "what pieces the orchestra shall
play, and how the music shall be arranged or directed, the intervals and other details — such are left
to the leader's discretion."

This is not situation obtaining in the case at bar. The musical directors above referred to
have no such control over the musicians involved in the present case. Said musical directors control
neither the music to be played, nor the musicians playing it. The film companies summon the
musicians to work, through the musical directors. The film companies, through the musical directors,
fix the date, the time and the place of work. The film companies, not the musical directors, provide
the transportation to and from the studio. The film companies furnish meal at dinner time.

What is more — in the language of the order appealed from — "during the recording sessions, the
motion picture director who is an employee of the company" — not the musical director —
"supervises the recording of the musicians and tells them what to do in every detail". The motion
picture director — not the musical director — "solely directs and performance of the musicians
before the camera". The motion picture director "supervises the performance of all the
actors, including the musicians who appear in the scenes, so that in the actual performance to be
shown in the screen, the musical director's intervention has stopped." Or, as testified to in the lower
court, "the movie director tells the musical director what to do; tells the music to be cut or tells
additional music in this part or he eliminates the entire music he does not (want) or he may want
more drums or move violin or piano, as the case may be". The movie director "directly controls the
activities of the musicians." He "says he wants more drums and the drummer plays more" or "if he
wants more violin or he does not like that.".

It is well settled that "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 . . . ." (Alabama Highway Express Co., Express Co., v. Local
612, 108S. 2d. 350.) The decisive nature of said control over the "means to be used", is illustrated in
the case of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp. 1197, 1199-1201), in
which, by reason of said control, the employer-employee relationship was held to exist between the
management and the workers, notwithstanding the intervention of an alleged independent
contractor, who had, and exercise, the power to hire and fire said workers. The aforementioned
control over the means to be used" in reading the desired end is possessed and exercised by the
film companies over the musicians in the cases before us.

WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners herein. It is
so ordered.
G.R. No. L-32245 May 25, 1979

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

Labor Law; Court of Industrial Relations; Employer-employee relationships; Control test, its

concept, and application to determine existence of employer-employee relationship.—While this Court
upholds the control test 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.” 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. Considering the finding by the Hearing
Examiner that the establishment of Dy Keh Beng is “engaged in the manufacture of baskets known
as kaing,” 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.
Same; Same; Same; Non-application of piece-work basis to worker where employer possesses
complete freedom of control over worker; “Pakyaw system” taken judicial notice of by Court.—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 respondents (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 “Sunripe 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.
Same; Same; Findings of Facts; Conclusiveness of factual findings of the Court of Industrial
Relations on the Supreme Court when supported by substantial evidence.—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.
Same; Same; Award of Backwages; Formula for payment employed where employees dismissed
from service for a long time until their reinstatement.—Nevertheless, considering that about eighteen (18)
years have already elapsed from the time the complainants were dismissed, 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.” The formula calls 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. Considering there are no such circumstances in this case,
there is no reason why the Court should not apply the above-mentioned formula in this instance.

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   as having been committed by the Court of Industrial
2

Relations:

I 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:

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,   by dismissing on September 28 and 29, 1960, respectively, Carlos N. Solano and Ricardo
3

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. 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.  The issue therefore centered on whether there existed an employee employer relation
4

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,   respectively, and that except in the event of illness, their work with the establishment was
5

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

(3) 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   is referred to as
8

shall include any employee and shag 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.   Moreover, it is
10

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   under which an employer-employee relationship exists
11

"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, " 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.   Considering the finding by the Hearing Examiner that the establishment of Dy Keh Beng is
12

"engaged in the manufacture of baskets known as kaing,   it is natural to expect that those working
13

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.

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,   and that the decision being appealed ordered the payment of
15

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."   The formula cans for fixing the award of backwages
16

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.   Considering there are no such circumstances in this case,
17

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.

SO ORDERED.
G.R. No. 129315               October 2, 2000

OSIAS I. CORPORAL, SR., PEDRO TOLENTINO, MANUEL CAPARAS, ELPIDIO LACAP,

SIMPLICIO PEDELOS, PATRICIA NAS, and TERESITA FLORES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LAO ENTENG COMPANY, INC. and/or
TRINIDAD LAO ONG, respondents.

DECISION

QUISUMBING, J.:

This special civil action for certiorari seeks the review of the Resolution dated October 17, 1996 of
public respondent National Labor Relations Commission (First Division), in NLRC NCR Case No.
1 

00-04-03163-95, and the Resolution dated March 5, 1997 denying the motion for reconsideration.
The aforecited October 17th Resolution affirmed the Decision dated September 28, 1996 of Labor
Arbiter Potenciano S. Cañizares dismissing the petitioners' complaint for illegal dismissal and
declaring that petitioners are not regular employees of private respondent Lao Enteng Company,
Inc..

The records of the case show that the five male petitioners, namely, Osias I. Corporal, Sr., Pedro
Tolentino, Manuel Caparas, Elpidio Lacap, and Simplicio Pedelos worked as barbers, while the two
female petitioners, Teresita Flores and Patricia Nas worked as manicurists in New Look Barber
Shop located at 651 P. Paterno Street, Quiapo, Manila owned by private respondent Lao Enteng Co.
Inc.. Petitioner Nas alleged that she also worked as watcher and marketer of private respondent.

Petitioners claim that at the start of their employment with the New Look Barber Shop, it was a single
proprietorship owned and managed by Mr. Vicente Lao. In or about January 1982, the children of
Vicente Lao organized a corporation which was registered with the Securities and Exchange
Commission as Lao Enteng Co. Inc. with Trinidad Ong as President of the said corporation. Upon its
incorporation, the respondent company took over the assets, equipment, and properties of the New
Look Barber Shop and continued the business. All the petitioners were allowed to continue working
with the new company until April 15, 1995 when respondent Trinidad Ong informed them that the
building wherein the New Look Barber Shop was located had been sold and that their services were
no longer needed. 2

On April 28, 1995, petitioners filed with the Arbitration Branch of the NLRC, a complaint for illegal
dismissal, illegal deduction, separation pay, non-payment of 13th month pay, and salary differentials.
Only petitioner Nas asked for payment of salary differentials as she alleged that she was paid a daily
wage of P25.00 throughout her period of employment. The petitioners also sought the refund of the
P1.00 that the respondent company collected from each of them daily as salary of the sweeper of
the barber shop.

Private respondent in its position paper averred that the petitioners were joint venture partners and
were receiving fifty percent commission of the amount charged to customers. Thus, there was no
employer-employee relationship between them and petitioners. And assuming arguendo, that there
was an employer-employee relationship, still petitioners are not entitled to separation pay because
the cessation of operations of the barber shop was due to serious business losses.
Respondent Trinidad Lao Ong, President of respondent Lao Enteng Co. Inc., specifically stated in
her affidavit dated September 06, 1995 that Lao Enteng Company, Inc. did not take over the
management of the New Look Barber Shop, that after the death Lao Enteng petitioner were verbally
informed time and again that the partnership may fold up anytime because nobody in the family had
the time to be at the barber shop to look after their interest; that New Look Barber Shop had always
been a joint venture partnership and the operation and management of the barber shop was left
entirely to petitioners; that her father's contribution to the joint venture included the place of
business, payment for utilities including electricity, water, etc. while petitioners as industrial partners,
supplied the labor; and that the barber shop was allowed to remain open up to April 1995 by the
children because they wanted to give the partners a chance at making it work. Eventually, they were
forced to close the barber shop because they continued to lose money while petitioners earned from
it. Trinidad also added that private respondents had no control over petitioners who were free to
come and go as they wished. Admittedly too by petitioners they received fifty percent to sixty percent
of the gross paid by customers. Trinidad explained that some of the petitioners were allowed to
register with the Social Security System as employees of Lao Enteng Company, Inc. only as an act
of accommodation. All the SSS contributions were made by petitioners. Moreover, Osias Corporal,
Elpidio Lacap and Teresita Flores were not among those registered with the Social Security System.
Lastly, Trinidad avers that without any employee-employer relationship petitioners claim for 13th
month pay and separation pay have no basis in fact and in law. 3

In a Decision dated September 28, 1995, Labor Arbiter Potenciano S. Cañizares, Jr. ordered the
dismissal of the complaint on the basis of his findings that the complainants and the respondents
were engaged in a joint venture and that there existed no employer-employee relation between
them. The Labor Arbiter also found that the barber shop was closed due to serious business losses
or financial reverses and consequently declared that the law does not compel the establishment to
pay separation pay to whoever were its employees. 4

On appeal, NLRC affirmed the said findings of the Labor Arbiter and dismissed the complaint for
want of merit, ratiocinating thus:

Indeed, complainants failed to show the existence of employer-employee relationship under the
fourway test established by the Supreme Court. It is a common practice in the Barber Shop industry
that barbers supply their own scissors and razors and they split their earnings with the owner of the
barber shop. The only capital of the owner is the place of work whereas the barbers provide the skill
and expertise in servicing customers. The only control exercised by the owner of the barber shop is
to ascertain the number of customers serviced by the barber in order to determine the sharing of
profits. The barbers maybe characterized as independent contractors because they are under the
control of the barber shop owner only with respect to the result of the work, but not with respect to
the details or manner of performance. The barbers are engaged in an independent calling requiring
special skills available to the public at large.
5

Its motion for reconsideration denied in the Resolution dated March 5, 1997, petitioners filed the
6 

instant petition assigning that the NLRC committed grave abuse of discretion in:

I. ARBITRARILY DISREGARDING SUBSTANTIAL EVIDENCE PROVING THAT

PETITIONERS WERE EMPLOYEES OF RESPONDENT COMPANY IN RULING THAT
PETITIONERS WERE INDEPENDENT CONTRACTORS.

II. NOT HOLDING THAT PETITIONERS WERE ILLEGALLY DISMISSED AND IN NOT
AWARDING THEIR MONEY CLAIMS. 7
Petitioners principally argue that public respondent NLRC gravely erred in declaring that the
petitioners were independent contractors. They contend that they were employees of the respondent
company and cannot be considered as independent contractors because they did not carry on an
independent business. They did not cut hair, manicure, and do their work in their own manner and
method. They insist they were not free from the control and direction of private respondents in all
matters, and their services were engaged by the respondent company to attend to its customers in
its barber shop. Petitioners also stated that, individually or collectively, they do not have substantial
capital nor investments in tools, equipments, work premises and other materials necessary in the
conduct of the barber shop. What the barbers owned were merely combs, scissors, and razors,
while the manicurists owned only nail cutters, nail polishes, nippers and cuticle removers. By no
standard can these be considered "substantial capital" necessary to operate a barbers shop.

Finally, petitioners fault the NLRC for arbitrarily disregarding substantial evidence on record showing
that petitioners Pedro Tolentino, Manuel Caparas, Simplicio Pedelos, and Patricia Nas were
registered with the Social Security System as regular employees of the respondent company. The
SSS employment records in common show that the employer's ID No. of Vicente Lao/Barber and
Pawn Shop was 03-0606200-1 and that of the respondent company was 03-8740074-7. All the
foregoing entries in the SSS employment records were painstakingly detailed by the petitioners in
their position paper and in their memorandum appeal but were arbitrarily ignored first by the Labor
Arbiter and then by the respondent NLRC which did not even mention said employment records in
its questioned decision.

We found petition is impressed with merit.

In our view, this case is an exception to the general rule that findings of facts of the NLRC are to be
accorded respect and finality on appeal. We have long settled that this Court will not uphold
erroneous conclusions unsupported by substantial evidence. We must also stress that where the
8 

findings of the NLRC contradict those of the labor arbiter, the Court, in the exercise of its equity
jurisdiction, may look into the records of the case and reexamine the questioned findings. 9

The issues raised by petitioners boil down to whether or not an employer-employee relationship
existed between petitioners and private respondent Lao Enteng Company, Inc. The Labor Arbiter
has concluded that the petitioners and respondent company were engaged in a joint venture. The
NLRC concluded that the petitioners were independent contractors.

The Labor Arbiter's findings that the parties were engaged in a joint venture is unsupported by any
documentary evidence. It should be noted that aside from the self-serving affidavit of Trinidad Lao
Ong, there were no other evidentiary documents, nor written partnership agreements presented. We
have ruled that even the sharing of proceeds for every job of petitioners in the barber shop does not
mean they were not employees of the respondent company. 10

Petitioner aver that NLRC was wrong when it concluded that petitioners were independent
contractors simply because they supplied their own working implements, shared in the earnings of
the barber shop with the owner and chose the manner of performing their work. They stressed that
as far as the result of their work was concerned the barber shop owner controlled them.

An independent contractor is one who undertakes "job contracting", i.e., a person who (a) carries on
an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the
results thereof, and (b) has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of the
business.11

Juxtaposing this provision vis-à-vis the facts of this case, we are convinced that petitioners are not
"independent contractors". They did not carry on an independent business. Neither did they
undertake cutting hair and manicuring nails, on their own as their responsibility, and in their own
manner and method. The services of the petitioners were engaged by the respondent company to
attend to the needs of its customers in its barber shop. More importantly, the petitioners, individually
or collectively, did not have a substantial capital or investment in the form of tools, equipment, work
premises and other materials which are necessary in the conduct of the business of the respondent
company. What the petitioners owned were only combs, scissors, razors, nail cutters, nail polishes,
the nippers - nothing else. By no standard can these be considered substantial capital necessary to
operate a barber shop. From the records, it can be gleaned that petitioners were not given work
assignments in any place other than at the work premises of the New Look Barber Shop owned by
the respondent company. Also, petitioners were required to observe rules and regulations of the
respondent company pertaining, among other things, observance of daily attendance, job
performance, and regularity of job output. The nature of work performed by were clearly directly
related to private respondent's business of operating barber shops. Respondent company did not
dispute that it owned and operated three (3) barber shops. Hence, petitioners were not independent
contractors.

Did an employee-employer relationship exist between petitioners and private respondent? The
following elements must be present for an employer-employee relationship to exist: (1) the selection
and engagement of the workers; (2) power of dismissal; (3) the payment of wages by whatever
means; and (4) the power to control the worker's conduct, with the latter assuming primacy in the
overall consideration. Records of the case show that the late Vicente Lao engaged the services of
the petitioners to work as barbers and manicurists in the New Look Barber Shop, then a single
proprietorship owned by him; that in January 1982, his children organized a corporation which they
registered with the Securities and Exchange Commission as Lao Enteng Company, Inc.; that upon
its incorporation, it took over the assets, equipment, and properties of the New Look Barber Shop
and continued the business; that the respondent company retained the services of all the petitioners
and continuously paid their wages. Clearly, all three elements exist in petitioners' and private
respondent's working arrangements.

Private respondent claims it had no control over petitioners.  The power to control refers to the
1âwphi1

existence of the power and not necessarily to the actual exercise thereof, nor is it essential for the
employer to actually supervise the performance of duties of the employee. It is enough that the
employer has the right to wield that power. As to the "control test", the following facts indubitably
12 

reveal that respondent company wielded control over the work performance of petitioners, in that: (1)
they worked in the barber shop owned and operated by the respondents; (2) they were required to
report daily and observe definite hours of work; (3) they were not free to accept other employment
elsewhere but devoted their full time working in the New Look Barber Shop for all the fifteen (15)
years they have worked until April 15, 1995; (4) that some have worked with respondents as early as
in the 1960's; (5) that petitioner Patricia Nas was instructed by the respondents to watch the other
six (6) petitioners in their daily task. Certainly, respondent company was clothed with the power to
dismiss any or all of them for just and valid cause. Petitioners were unarguably performing work
necessary and desirable in the business of the respondent company.

While it is no longer true that membership to SSS is predicated on the existence of an employee-
employer relationship since the policy is now to encourage even the self-employed dressmakers,
manicurists and jeepney drivers to become SSS members, we could not agree with private
respondents that petitioners were registered with the Social Security System as their employees only
as an accommodation. As we have earlier mentioned private respondent showed no proof to their
claim that petitioners were the ones who solely paid all SSS contributions. It is unlikely that
respondents would report certain persons as their workers, pay their SSS premium as well as their
wages if it were not true that they were indeed their employees. 13

Finally, we agree with the labor arbiter that there was sufficient evidence that the barber shop was
closed due to serious business losses and respondent company closed its barber shop because the
building where the barber shop was located was sold. An employer may adopt policies or changes
or adjustments in its operations to insure profit to itself or protect investment of its stockholders. In
the exercise of such management prerogative, the employer may merge or consolidate its business
with another, or sell or dispose all or substantially all of its assets and properties which may bring
about the dismissal or termination of its employees in the process. 14

Prescinding from the above, we hold that the seven petitioners are employees of the private
respondent company; as such, they are to be accorded the benefits provided under the Labor Code,
specifically Article 283 which mandates the grant of separation pay in case of closure or cessation of
employer's business which is equivalent to one (1) month pay for every year of service. Likewise,
15 

they are entitled to the protection of minimum wage statutes. Hence, the separation pay due them
may be computed on the basis of the minimum wage prevailing at the time their services were
terminated by the respondent company. The same is true with respect to the 13th month pay. The
Revised Guidelines on the Implementation of the 13th Month Pay Law states that "all rank and file
employees are now entitled to a 13th month pay regardless of the amount of basic salary that they
receive in a month. Such employees are entitled to the benefit regardless of their designation or
employment status, and irrespective of the method by which their wages are paid, provided that they
have worked for at least one (1) month during a calendar year" and so all the seven (7) petitioners
who were not paid their 13th month pay must be paid accordingly. 16

Anent the other claims of the petitioners, such as the P10,000.00 as penalty for non-compliance with
procedural process; P10,000.00 as moral damages; refund of P1.00 per day paid to the sweeper;
salary differentials for petitioner Nas; attorney's fees), we find them without basis.

IN VIEW WHEREOF, the petition is GRANTED. The public respondent's Decision dated October 17,
1996 and Resolution dated March 05, 1997 are SET ASIDE. Private respondents are hereby
ordered to pay, severally and jointly, the seven (7) petitioners their (1) 13th month pay and (2)
separation pay equivalent to one month pay for every year of service, to be computed at the then
prevailing minimum wage at the time of their actual termination which was April 15, 1995.

Costs against private respondents.

SO ORDERED.
G.R. No. 179652               March 6, 2012

PEOPLE'S BROADCASTING SERVICE (BOMBO RADYO PHILS., INC.), Petitioner,

vs.
THE SECRETARY OF THE DEPARTMENT OF LABOR AND EMPLOYMENT, THE REGIONAL
DIRECTOR, DOLE REGION VII, and JANDELEON JUEZAN, Respondents.

RESOLUTION

VELASCO, JR., J.:

In a Petition for Certiorari under Rule 65, petitioner People’s Broadcasting Service, Inc. (Bombo
Radyo Phils., Inc.) questioned the Decision and Resolution of the Court of Appeals (CA) dated
October 26, 2006 and June 26, 2007, respectively, in C.A. G.R. CEB-SP No. 00855.

Private respondent Jandeleon Juezan filed a complaint against petitioner with the Department of
Labor and Employment (DOLE) Regional Office No. VII, Cebu City, for illegal deduction,
nonpayment of service incentive leave, 13th month pay, premium pay for holiday and rest day and
illegal diminution of benefits, delayed payment of wages and noncoverage of SSS, PAG-IBIG and
Philhealth. After the conduct of summary investigations, and after the parties submitted their position
1 

papers, the DOLE Regional Director found that private respondent was an employee of petitioner,
and was entitled to his money claims. Petitioner sought reconsideration of the Director’s Order, but
2 

failed. The Acting DOLE Secretary dismissed petitioner’s appeal on the ground that petitioner
submitted a Deed of Assignment of Bank Deposit instead of posting a cash or surety bond. When
the matter was brought before the CA, where petitioner claimed that it had been denied due process,
it was held that petitioner was accorded due process as it had been given the opportunity to be
heard, and that the DOLE Secretary had jurisdiction over the matter, as the jurisdictional limitation
imposed by Article 129 of the Labor Code on the power of the DOLE Secretary under Art. 128(b) of
the Code had been repealed by Republic Act No. (RA) 7730. 3

In the Decision of this Court, the CA Decision was reversed and set aside, and the complaint against
petitioner was dismissed. The dispositive portion of the Decision reads as follows:

WHEREFORE, the petition is GRANTED. The Decision dated 26 October 2006 and the Resolution
dated 26 June 2007 of the Court of Appeals in C.A. G.R. CEB-SP No. 00855
are REVERSED and SET ASIDE. The Order of the then Acting Secretary of the Department of
Labor and Employment dated 27 January 2005 denying petitioner’s appeal, and the Orders of the
Director, DOLE Regional Office No. VII, dated 24 May 2004 and 27 February 2004, respectively,
are ANNULLED. The complaint against petitioner is DISMISSED. 4

The Court found that there was no employer-employee relationship between petitioner and private
respondent. It was held that while the DOLE may make a determination of the existence of an
employer-employee relationship, this function could not be co-extensive with the visitorial and
enforcement power provided in Art. 128(b) of the Labor Code, as amended by RA 7730. The
National Labor Relations Commission (NLRC) was held to be the primary agency in determining the
existence of an employer-employee relationship. This was the interpretation of the Court of the
clause "in cases where the relationship of employer-employee still exists" in Art. 128(b).
5

From this Decision, the Public Attorney’s Office (PAO) filed a Motion for Clarification of Decision
(with Leave of Court). The PAO sought to clarify as to when the visitorial and enforcement power of
the DOLE be not considered as co-extensive with the power to determine the existence of an
employer-employee relationship. In its Comment, the DOLE sought clarification as well, as to the
6  7 

extent of its visitorial and enforcement power under the Labor Code, as amended.

The Court treated the Motion for Clarification as a second motion for reconsideration, granting said
motion and reinstating the petition. It is apparent that there is a need to delineate the jurisdiction of
8 

the DOLE Secretary vis-à-vis that of the NLRC.

Under Art. 129 of the Labor Code, the power of the DOLE and its duly authorized hearing officers to
hear and decide any matter involving the recovery of wages and other monetary claims and benefits
was qualified by the proviso that the complaint not include a claim for reinstatement, or that the
aggregate money claims not exceed PhP 5,000. RA 7730, or an Act Further Strengthening the
Visitorial and Enforcement Powers of the Secretary of Labor, did away with the PhP 5,000 limitation,
allowing the DOLE Secretary to exercise its visitorial and enforcement power for claims beyond PhP
5,000. The only qualification to this expanded power of the DOLE was only that there still be an
existing employer-employee relationship.

It is conceded that if there is no employer-employee relationship, whether it has been terminated or it

has not existed from the start, the DOLE has no jurisdiction. Under Art. 128(b) of the Labor Code, as
amended by RA 7730, the first sentence reads, "Notwithstanding the provisions of Articles 129 and
217 of this Code to the contrary, and in cases where the relationship of employer-employee still
exists, the Secretary of Labor and Employment or his duly authorized representatives shall have the
power to issue compliance orders to give effect to the labor standards provisions of this Code and
other labor legislation based on the findings of labor employment and enforcement officers or
industrial safety engineers made in the course of inspection." It is clear and beyond debate that an
employer-employee relationship must exist for the exercise of the visitorial and enforcement power
of the DOLE. The question now arises, may the DOLE make a determination of whether or not an
employer-employee relationship exists, and if so, to what extent?

The first portion of the question must be answered in the affirmative.

The prior decision of this Court in the present case accepts such answer, but places a limitation
upon the power of the DOLE, that is, the determination of the existence of an employer-employee
relationship cannot be co-extensive with the visitorial and enforcement power of the DOLE. But even
in conceding the power of the DOLE to determine the existence of an employer-employee
relationship, the Court held that the determination of the existence of an employer-employee
relationship is still primarily within the power of the NLRC, that any finding by the DOLE is merely
preliminary.

This conclusion must be revisited.

No limitation in the law was placed upon the power of the DOLE to determine the existence of an
employer-employee relationship. No procedure was laid down where the DOLE would only make a
preliminary finding, that the power was primarily held by the NLRC. The law did not say that the
DOLE would first seek the NLRC’s determination of the existence of an employer-employee
relationship, or that should the existence of the employer-employee relationship be disputed, the
DOLE would refer the matter to the NLRC. The DOLE must have the power to determine whether or
not an employer-employee relationship exists, and from there to decide whether or not to issue
compliance orders in accordance with Art. 128(b) of the Labor Code, as amended by RA 7730.

The DOLE, in determining the existence of an employer-employee relationship, has a ready set of
guidelines to follow, the same guide the courts themselves use. 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; (4) the employer’s power to control the
employee’s conduct. The use of this test is not solely limited to the NLRC. The DOLE Secretary, or
9 

his or her representatives, can utilize the same test, even in the course of inspection, making use of
the same evidence that would have been presented before the NLRC.

The determination of the existence of an employer-employee relationship by the DOLE must be

respected. The expanded visitorial and enforcement power of the DOLE granted by RA 7730 would
be rendered nugatory if the alleged employer could, by the simple expedient of disputing the
employer-employee relationship, force the referral of the matter to the NLRC. The Court issued the
declaration that at least a prima facie showing of the absence of an employer-employee relationship
be made to oust the DOLE of jurisdiction. But it is precisely the DOLE that will be faced with that
evidence, and it is the DOLE that will weigh it, to see if the same does successfully refute the
existence of an employer-employee relationship.

If the DOLE makes a finding that there is an existing employer-employee relationship, it takes
cognizance of the matter, to the exclusion of the NLRC. The DOLE would have no jurisdiction only if
the employer-employee relationship has already been terminated, or it appears, upon review, that no
employer-employee relationship existed in the first place.

The Court, in limiting the power of the DOLE, gave the rationale that such limitation would eliminate
the prospect of competing conclusions between the DOLE and the NLRC. The prospect of
competing conclusions could just as well have been eliminated by according respect to the DOLE
findings, to the exclusion of the NLRC, and this We believe is the more prudent course of action to
take.

This is not to say that the determination by the DOLE is beyond question or review.  Suffice it to say,
1avvphi1

there are judicial remedies such as a petition for certiorari under Rule 65 that may be availed of,
should a party wish to dispute the findings of the DOLE.

It must also be remembered that the power of the DOLE to determine the existence of an employer-
employee relationship need not necessarily result in an affirmative finding. The DOLE may well
make the determination that no employer-employee relationship exists, thus divesting itself of
jurisdiction over the case. It must not be precluded from being able to reach its own conclusions, not
by the parties, and certainly not by this Court.

Under Art. 128(b) of the Labor Code, as amended by RA 7730, the DOLE is fully empowered to
make a determination as to the existence of an employer-employee relationship in the exercise of its
visitorial and enforcement power, subject to judicial review, not review by the NLRC.

There is a view that despite Art. 128(b) of the Labor Code, as amended by RA 7730, there is still a
threshold amount set by Arts. 129 and 217 of the Labor Code when money claims are involved, i.e.,
that if it is for PhP 5,000 and below, the jurisdiction is with the regional director of the DOLE, under
Art. 129, and if the amount involved exceeds PhP 5,000, the jurisdiction is with the labor arbiter,
under Art. 217. The view states that despite the wording of Art. 128(b), this would only apply in the
course of regular inspections undertaken by the DOLE, as differentiated from cases under Arts. 129
and 217, which originate from complaints. There are several cases, however, where the Court has
ruled that Art. 128(b) has been amended to expand the powers of the DOLE Secretary and his duly
authorized representatives by RA 7730. In these cases, the Court resolved that the DOLE had the
jurisdiction, despite the amount of the money claims involved. Furthermore, in these cases, the
inspection held by the DOLE regional director was prompted specifically by a complaint. Therefore,
the initiation of a case through a complaint does not divest the DOLE Secretary or his duly
authorized representative of jurisdiction under Art. 128(b).

To recapitulate, if a complaint is brought before the DOLE to give effect to the labor standards
provisions of the Labor Code or other labor legislation, and there is a finding by the DOLE that there
is an existing employer-employee relationship, the DOLE exercises jurisdiction to the exclusion of
the NLRC. If the DOLE finds that there is no employer-employee relationship, the jurisdiction is
properly with the NLRC. If a complaint is filed with the DOLE, and it is accompanied by a claim for
reinstatement, the jurisdiction is properly with the Labor Arbiter, under Art. 217(3) of the Labor Code,
which provides that the Labor Arbiter has original and exclusive jurisdiction over those cases
involving wages, rates of pay, hours of work, and other terms and conditions of employment, if
accompanied by a claim for reinstatement. If a complaint is filed with the NLRC, and there is still an
existing employer-employee relationship, the jurisdiction is properly with the DOLE. The findings of
the DOLE, however, may still be questioned through a petition for certiorari under Rule 65 of the
Rules of Court.

In the present case, the finding of the DOLE Regional Director that there was an employer-employee
relationship has been subjected to review by this Court, with the finding being that there was no
employer-employee relationship between petitioner and private respondent, based on the evidence
presented. Private respondent presented self-serving allegations as well as self-defeating
evidence. The findings of the Regional Director were not based on substantial evidence, and private
10 

respondent failed to prove the existence of an employer-employee relationship. The DOLE had no
jurisdiction over the case, as there was no employer-employee relationship present. Thus, the
dismissal of the complaint against petitioner is proper.

WHEREFORE, the Decision of this Court in G.R. No. 179652 is hereby AFFIRMED, with the
MODIFICATION that in the exercise of the DOLE’s visitorial and enforcement power, the Labor
Secretary or the latter’s authorized representative shall have the power to determine the existence of
an employer-employee relationship, to the exclusion of the NLRC.

SO ORDERED.
G.R. No. 138051             June 10, 2004

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

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari1 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. Manager4

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 Arbiter5 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

xxx

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 Constitution53 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.

SO ORDERED.
G.R. No. 74246 January 26, 1989

MARIWASA MANUFACTURING, INC., and ANGEL T. DAZO, petitioners,

vs.
HON. VICENTE LEOGARDO, JR., in his capacity as Deputy Minister of Ministry of Labor and
Employment judgment, and JOAQUIN A. DEQUILA, respondents.

Cruz, Agabin, Atienza & Alday for petitioners.

The Solicitor General of public respondent.

Norberto M. Alensuela, Sr. for private respondent.

NARVASA, J.:

There is no dispute about the facts in this case, and the only question for the Court is whether or not,
Article 282 of the Labor Code notwithstanding, probationary employment may validly be extended
beyond the prescribed six-month period by agreement of the employer and the employee.

Private respondent Joaquin A. Dequila (or Dequilla) was hired on probation by petitioner Mariwasa
Manufacturing, Inc. (hereafter, Mariwasa only) as a general utility worker on January 10, 1979. Upon
the expiration of the probationary period of six months, Dequila was informed by his employer that
his work had proved unsatisfactory and had failed to meet the required standards. To give him a
chance to improve his performance and qualify for regular employment, instead of dispensing with
his service then and there, with his written consent Mariwasa extended his probation period for
another three months from July 10 to October 9, 1979. His performance, however, did not improve
and on that account Mariwasa terminated his employment at the end of the extended period.  1

Dequila thereupon filed with the Ministry of Labor against Mariwasa and its Vice-President for
Administration, Angel T. Dazo, a complaint for illegal dismissal and violation of Presidential Decrees
Nos. 928 and 1389.  His complaint was dismissed after hearing by Director Francisco L. Estrella,
2

Director of the Ministry's National Capital Region, who ruled that the termination of Dequila's
employment was in the circumstances justified and rejected his money claims for insufficiency of
evidence.   On appeal to the Office of the Minister, however, said disposition was reversed.
3

Respondent Deputy Minister Vicente Leogardo, Jr. held that Dequila was already a regular
employee at the time of his dismissal, therefore, could not have been lawfully dismissed for failure to
meet company standards as a probationary worker. He was ordered reinstated to his former position
without loss of seniority and with full back wages from the date of his dismissal until actually
reinstated.   This last order appears later to have been amended so as to direct payment of Dequila's
4

back wages from the date of his dismissal to December 20, 1982 only.  5

Mariwasa and Dazo, now petitioners, thereafter be sought this Court to review Hon. Leogardo's
decision on certiorari and prohibition, urging its reversal for having been rendered with grave abuse
of discretion and/or without or in excess of jurisdiction. 
6

The petition, as well as the parties' comments subsequently submitted all underscore the fact that
the threshold issue here is, as first above stated, the legal one of whether employer and employee
may by agreement extend the probationary period of employment beyond the six months prescribed
in Art. 282 of the Labor Code, which provides that:

Art. 282. Probationary Employment. — Probationary employment shall not exceed

six (6) months from the date the employee started working, unless it is covered by an
apprenticeship agreement stipulating a longer period. The services of an employee
who has been engaged on a probationary basis may be terminated for a just cause
or when he fails to qualify as a regular employee in accordance with reasonable
standards made known by the employer to the employee at the time of his
engagement. An employee who is allowed to work after probationary period shall be
considered a regular employee.'

The Court agrees with the Solicitor General, who takes the same position as the petitioners, that
such an extension may lawfully be covenanted, notwithstanding the seemingly restrictive language
of the cited provision. Buiser vs. Leogardo, Jr .   recognized agreements stipulating longer
7

probationary periods as constituting lawful exceptions to the statutory prescription limiting such
periods to six months, when it upheld as valid an employment contract between an employer and
two of its employees that provided for an eigthteen-month probation period. This Court there held:

'It is petitioners' submission that probationary employment cannot exceed six (6)
months, the only exception being apprenticeship and learnership agreements as
provided in the Labor Code; that the Policy Instruction of the Minister of Labor and
Employment nor any agreement of the parties could prevail over this mandatory
requirement of the law; that this six months prescription of the Labor Code was
mandated to give further efficacy to the constitutionally-guaranteed security of tenure
of workers; and that the law does not allow any discretion on the part of the Minister
of Labor and Employment to extend the probationary period for a longer period
except in the aforecited instances. Finally, petitioners maintain that since they are
regular employees, they can only be removed or dismissed for any of the just and
valid causes enumerated under Article 283. of the Labor Code.

We reject petitioners' contentions. They have no basis in law.

Generally, the probationary period of employment is limited to six (6) months. The
exception to this general rule is when the parties to an employment contract may
agree otherwise, such as when the same is established by company policy or when
the same is required by the nature of work to be performed by the employee. In the
latter case, there is recognition of the exercise of managerial prerogatives in
requiring a longer period of probationary employment, such as in the present case
where the probationary period was set for eighteen (18) months, i.e. from May, 1980
to October, 1981 inclusive, especially where the employee must learn a particular
kind of work such as selling, or when the job requires certain qualifications, skills
experience or training.

xxx

We therefore, hold and rule that the probationary employment of petitioners set to
eighteen (18) months is legal and valid and that the Regional Director and the
Deputy Minister of Labor and Employment committed no abuse of discretion in ruling
accordingly.
The single difference between Buiser and the present case: that in the former involved an eighteen-
month probationary period stipulated in the original contract of employment, whereas the latter refers
to an extension agreed upon at or prior to the expiration of the statutory six-month period, is hardly
such as to warrant or even suggest a different ruling here. In both cases the parties' agreements in
fact resulted in extensions of the period prescribed by law. That in this case the inability of the
probationer to make the grade became apparent only at or about the end of the six-month period,
hence an extension could not have been pre-arranged as was done in Buiser assumes no adverse
significance, given the lack, as pointed out by the Solicitor General, of any indication that the
extension to which Dequila gave his agreement was a mere stratagem of petitioners to avoid the
legal consequences of a probationary period satisfactorily completed.

For aught that appears of record, the extension of Dequila's probation was ex gratia, an act of
liberality on the part of his employer affording him a second chance to make good after having
initially failed to prove his worth as an employee. Such an act cannot now unjustly be turned against
said employer's account to compel it to keep on its payroll one who could not perform according to
its work standards. The law, surely, was never meant to produce such an inequitable result.

By voluntarily agreeing to an extension of the probationary period, Dequila in effect waived any
benefit attaching to the completion of said period if he still failed to make the grade during the period
of extension. The Court finds nothing in the law which by any fair interpretation prohibits such a
waiver. And no public policy protecting the employee and the security of his tenure is served by
prescribing voluntary agreements which, by reasonably extending the period of probation, actually
improve and further a probationary employee's prospects of demonstrating his fitness for regular
employment.

Having reached the foregoing conclusions, the Court finds it unnecessary to consider and pass upon
the additional issue raised in the Supplemental Petition   that the back wages adjudged in favor of
8

private respondent Dequila were erroneously computed.

WHEREFORE, the petition is granted. The orders of the public respondent complained of are
reversed and set aside. Private respondent's complaint against petitioners for illegal dismissal and
violation of Presidential Decrees 928 and 1389 is dismissed for lack of merit, without pronouncement
as to costs.

SO ORDERED.
G.R. No. 192571               July 23, 2013

ABBOTT LABORATORIES, PHILIPPINES, CECILLE A. TERRIBLE, EDWIN D. FEIST, MARIA

OLIVIA T. YABUTMISA, TERESITA C. BERNARDO, AND ALLAN G. ALMAZAR, Petitioners,
vs.
PEARLIE ANN F. ALCARAZ, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated December 10,2009 and
Resolution3 dated June 9, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 101045 which
pronounced that the National Labor Relations Commission (NLRC) did not gravely abuse its
discretion when it ruled that respondent Pearlie Ann F. Alcaraz (Alcaraz) was illegally dismissed
from her employment.

The Facts

On June 27, 2004, petitioner Abbott Laboratories, Philippines (Abbott) caused the publication in a
major broadsheet newspaper of its need for a Medical and Regulatory Affairs Manager (Regulatory
Affairs Manager) who would: (a) be responsible for drug safety surveillance operations, staffing, and
budget; (b) lead the development and implementation of standard operating procedures/policies for
drug safety surveillance and vigilance; and (c) act as the primary interface with internal and external
customers regarding safety operations and queries.4 Alcaraz - who was then a Regulatory Affairs
and Information Manager at Aventis Pasteur Philippines, Incorporated (another pharmaceutical
company like Abbott) – showed interest and submitted her application on October 4, 2004.5

On December 7, 2004, Abbott formally offered Alcaraz the abovementioned position which was an
item under the company’s Hospira Affiliate Local Surveillance Unit (ALSU) department.6 In Abbott’s
offer sheet.7 it was stated that Alcaraz was to be employed on a probationary basis.8 Later that day,
she accepted the said offer and received an electronic mail (e-mail) from Abbott’s Recruitment
Officer, petitioner Teresita C. Bernardo (Bernardo), confirming the same. Attached to Bernardo’s e-
mail were Abbott’s organizational chart and a job description of Alcaraz’s work.9

On February 12, 2005, Alcaraz signed an employment contract which stated, inter alia, that she was
to be placed on probation for a period of six (6) months beginning February 15, 2005 to August 14,
2005. The said contract was also signed by Abbott’s General Manager, petitioner Edwin Feist
(Feist):10

PROBATIONARY EMPLOYMENT

Dear Pearl,

After having successfully passed the pre-employment requirements, you are hereby appointed as
follows:

Position Title : Regulatory Affairs Manager

Department : Hospira
The terms of your employment are:

Nature of Employment : Probationary

Effectivity : February 15, 2005 to August 14, 2005

Basic Salary : ₱110,000.00/ month

It is understood that you agree to abide by all existing policies, rules and regulations of the company,
as well as those, which may be hereinafter promulgated.

Unless renewed, probationary appointment expires on the date indicated subject to earlier
termination by the Company for any justifiable reason.

If you agree to the terms and conditions of your employment, please signify your conformity below
and return a copy to HRD.

Welcome to Abbott!

Very truly yours,

Sgd.
EDWIN D. FEIST
General Manager

CONFORME:

Sgd.
PEARLIE ANN FERRER-ALCARAZ

During Alcaraz’s pre-employment orientation, petitioner Allan G. Almazar (Almazar), Hospira’s

Country Transition Manager, briefed her on her duties and responsibilities as Regulatory Affairs
Manager, stating that: (a) she will handle the staff of Hospira ALSU and will directly report to
Almazar on matters regarding Hopira’s local operations, operational budget, and performance
evaluation of the Hospira ALSU Staff who are on probationary status; (b) she must implement
Abbott’s Code of Good Corporate Conduct (Code of Conduct), office policies on human resources
and finance, and ensure that Abbott will hire people who are fit in the organizational discipline; (c)
petitioner Kelly Walsh (Walsh), Manager of the Literature Drug Surveillance Drug Safety of Hospira,
will be her immediate supervisor; (d) she should always coordinate with Abbott’s human resource
officers in the management and discipline of the staff; (e) Hospira ALSU will spin off from Abbott in
early 2006 and will be officially incorporated and known as Hospira, Philippines. In the interim,
Hospira ALSU operations will still be under Abbott’s management, excluding the technical aspects of
the operations which is under the control and supervision of Walsh; and (f) the processing of
information and/or raw material data subject of Hospira ALSU operations will be strictly confined and
controlled under the computer system and network being maintained and operated from the United
States. For this purpose, all those involved in Hospira ALSU are required to use two identification
cards: one, to identify them as Abbott’s employees and another, to identify them as Hospira
employees.11

On March 3, 2005, petitioner Maria Olivia T. Yabut-Misa (Misa), Abbott’s Human Resources (HR)
Director, sent Alcaraz an e-mail which contained an explanation of the procedure for evaluating the
performance of probationary employees and further indicated that Abbott had only one evaluation
system for all of its employees. Alcaraz was also given copies of Abbott’s Code of Conduct and
Probationary Performance Standards and Evaluation (PPSE) and Performance Excellence
Orientation Modules (Performance Modules) which she had to apply in line with her task of
evaluating the Hospira ALSU staff.12

Abbott’s PPSE procedure mandates that the job performance of a probationary employee should be
formally reviewed and discussed with the employee at least twice: first on the third month and
second on the fifth month from the date of employment. The necessary Performance Improvement
Plan should also be made during the third-month review in case of a gap between the employee’s
performance and the standards set. These performance standards should be discussed in detail with
the employee within the first two (2) weeks on the job. It was equally required that a signed copy of
the PPSE form must be submitted to Abbott’s Human Resources Department (HRD) and shall serve
as documentation of the employee’s performance during his/her probationary period. This shall form
the basis for recommending the confirmation or termination of the probationary employment.13

During the course of her employment, Alcaraz noticed that some of the staff had disciplinary
problems. Thus, she would reprimand them for their unprofessional behavior such as non-
observance of the dress code, moonlighting, and disrespect of Abbott officers. However, Alcaraz’s
method of management was considered by Walsh to be "too strict."14 Alcaraz approached Misa to
discuss these concerns and was told to "lie low" and let Walsh handle the matter. Misa even assured
her that Abbott’s HRD would support her in all her management decisions.15

On April 12, 2005, Alcaraz received an e-mail from Misa requesting immediate action on the staff’s
performance evaluation as their probationary periods were about to end. This Alcaraz eventually
submitted.16

On April 20, 2005, Alcaraz had a meeting with petitioner Cecille Terrible (Terrible), Abbott’s former
HR Director, to discuss certain issues regarding staff performance standards. In the course thereof,
Alcaraz accidentally saw a printed copy of an e-mail sent by Walsh to some staff members which
essentially contained queries regarding the former’s job performance. Alcaraz asked if Walsh’s
action was the normal process of evaluation. Terrible said that it was not.17

On May 16, 2005, Alcaraz was called to a meeting with Walsh and Terrible where she was informed
that she failed to meet the regularization standards for the position of Regulatory Affairs
Manager.18 Thereafter, Walsh and Terrible requested Alcaraz to tender her resignation, else they be
forced to terminate her services. She was also told that, regardless of her choice, she should no
longer report for work and was asked to surrender her office identification cards. She requested to
be given one week to decide on the same, but to no avail.19

On May 17, 2005, Alcaraz told her administrative assistant, Claude Gonzales (Gonzales), that she
would be on leave for that day. However, Gonzales told her that Walsh and Terrible already
announced to the whole Hospira ALSU staff that Alcaraz already resigned due to health reasons.20

On May 23, 2005, Walsh, Almazar, and Bernardo personally handed to Alcaraz a letter stating that
her services had been terminated effective May 19, 2005.21 The letter detailed the reasons for
Alcaraz’s termination – particularly, that Alcaraz: (a) did not manage her time effectively; (b) failed to
gain the trust of her staff and to build an effective rapport with them; (c) failed to train her staff
effectively; and (d) was not able to obtain the knowledge and ability to make sound judgments on
case processing and article review which were necessary for the proper performance of her
duties.22 On May 27, 2005, Alcaraz received another copy of the said termination letter via registered
mail.23
Alcaraz felt that she was unjustly terminated from her employment and thus, filed a complaint for
illegal dismissal and damages against Abbott and its officers, namely, Misa, Bernardo, Almazar,
Walsh, Terrible, and Feist.24 She claimed that she should have already been considered as a regular
and not a probationary employee given Abbott’s failure to inform her of the reasonable standards for
her regularization upon her engagement as required under Article 29525 of the Labor Code. In this
relation, she contended that while her employment contract stated that she was to be engaged on a
probationary status, the same did not indicate the standards on which her regularization would be
based.26 She further averred that the individual petitioners maliciously connived to illegally dismiss
her when: (a) they threatened her with termination; (b) she was ordered not to enter company
premises even if she was still an employee thereof; and (c) they publicly announced that she already
resigned in order to humiliate her.27

On the contrary, petitioners maintained that Alcaraz was validly terminated from her probationary
employment given her failure to satisfy the prescribed standards for her regularization which were
made known to her at the time of her engagement.28

The LA Ruling

In a Decision dated March 30, 2006,29 the LA dismissed Alcaraz’s complaint for lack of merit.

The LA rejected Alcaraz’s argument that she was not informed of the reasonable standards to
qualify as a regular employee considering her admissions that she was briefed by Almazar on her
work during her pre-employment orientation meeting30 and that she received copies of Abbott’s Code
of Conduct and Performance Modules which were used for evaluating all types of Abbott
employees.31 As Alcaraz was unable to meet the standards set by Abbott as per her performance
evaluation, the LA ruled that the termination of her probationary employment was justified.32 Lastly,
the LA found that there was no evidence to conclude that Abbott’s officers and employees acted in
bad faith in terminating Alcaraz’s employment.33

Displeased with the LA’s ruling, Alcaraz filed an appeal with the National Labor Relations
Commission (NLRC).

The NLRC Ruling

On September 15, 2006, the NLRC rendered a Decision,34 annulling and setting aside the LA’s
ruling, the dispositive portion of which reads:

WHEREFORE, the Decision of the Labor Arbiter dated 31 March 2006 [sic] is hereby reversed,
annulled and set aside and judgment is hereby rendered:

1. Finding respondents Abbot [sic] and individual respondents to have committed illegal
dismissal;

2. Respondents are ordered to immediately reinstate complainant to her former position

without loss of seniority rights immediately upon receipt hereof;

3. To jointly and severally pay complainant backwages computed from 16 May 2005 until
finality of this decision. As of the date hereof the backwages is computed at

a. Backwages for 15 months - PhP 1,650,000.00

 b. 13th month pay - 110,000.00
TOTAL PhP 1,760,000.00

4. Respondents are ordered to pay complainant moral damages of ₱50,000.00 and

exemplary damages of ₱50,000.00.

5. Respondents are also ordered to pay attorney’s fees of 10% of the total award.

6. All other claims are dismissed for lack of merit.

SO ORDERED.35

The NLRC reversed the findings of the LA and ruled that there was no evidence showing that
Alcaraz had been apprised of her probationary status and the requirements which she should have
complied with in order to be a regular employee.36 It held that Alcaraz’s receipt of her job description
and Abbott’s Code of Conduct and Performance Modules was not equivalent to her being actually
informed of the performance standards upon which she should have been evaluated on.37 It further
observed that Abbott did not comply with its own standard operating procedure in evaluating
probationary employees.38 The NLRC was also not convinced that Alcaraz was terminated for a valid
cause given that petitioners’ allegation of Alcaraz’s "poor performance" remained unsubstantiated.39

Petitioners filed a motion for reconsideration which was denied by the NLRC in a Resolution dated
July 31, 2007.40

Aggrieved, petitioners filed with the CA a Petition for Certiorari with Prayer for Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction, docketed as CA G.R. SP No.
101045 (First CA Petition), alleging grave abuse of discretion on the part of NLRC when it ruled that
Alcaraz was illegally dismissed.41

Pending resolution of the First CA Petition, Alcaraz moved for the execution of the NLRC’s Decision
before the LA, which petitioners strongly opposed. The LA denied the said motion in an Order dated
July 8, 2008 which was, however, eventually reversed on appeal by the NLRC.42 Due to the
foregoing, petitioners filed another Petition for Certiorari with the CA, docketed as CA G.R. SP No.
111318 (Second CA Petition), assailing the propriety of the execution of the NLRC decision.43

The CA Ruling

With regard to the First CA Petition, the CA, in a Decision44 dated December 10, 2009, affirmed the
ruling of the NLRC and held that the latter did not commit any grave abuse of discretion in finding
that Alcaraz was illegally dismissed.

It observed that Alcaraz was not apprised at the start of her employment of the reasonable
standards under which she could qualify as a regular employee.45 This was based on its examination
of the employment contract which showed that the same did not contain any standard of
performance or any stipulation that Alcaraz shall undergo a performance evaluation before she could
qualify as a regular employee.46 It also found that Abbott was unable to prove that there was any
reasonable ground to terminate Alcaraz’s employment.47 Abbott moved for the reconsideration of the
aforementioned ruling which was, however, denied by the CA in a Resolution48 dated June 9, 2010.
The CA likewise denied the Second CA Petition in a Resolution dated May 18, 2010 (May 18, 2010
Resolution) and ruled that the NLRC was correct in upholding the execution of the NLRC
Decision.49 Thus, petitioners filed a motion for reconsideration.

While the petitioners’ motion for reconsideration of the CA’s May 18, 2010 Resolution was pending,
Alcaraz again moved for the issuance of a writ of execution before the LA. On June 7, 2010,
petitioners received the LA’s order granting Alcaraz’s motion for execution which they in turn
appealed to the NLRC – through a Memorandum of Appeal dated June 16, 2010 (June 16, 2010
Memorandum of Appeal ) – on the ground that the implementation of the LA’s order would render its
motion for reconsideration moot and academic.50

Meanwhile, petitioners’ motion for reconsideration of the CA’s May 18, 2010 Resolution in the
Second CA Petition was denied via a Resolution dated October 4, 2010.51 This attained finality on
January 10, 2011 for petitioners’ failure to timely appeal the same.52 Hence, as it stands, only the
issues in the First CA petition are left to be resolved.

Incidentally, in her Comment dated November 15, 2010, Alcaraz also alleges that petitioners were
guilty of forum shopping when they filed the Second CA Petition pending the resolution of their
motion for reconsideration of the CA’s December 10, 2009 Decision i.e., the decision in the First CA
Petition.53 She also contends that petitioners have not complied with the certification requirement
under Section 5, Rule 7 of the Rules of Court when they failed to disclose in the instant petition the
filing of the June 16, 2010 Memorandum of Appeal filed before the NLRC.54

The Issues Before the Court

The following issues have been raised for the Court’s resolution: (a) whether or not petitioners are
guilty of forum shopping and have violated the certification requirement under Section 5, Rule 7 of
the Rules of Court; (b) whether or not Alcaraz was sufficiently informed of the reasonable standards
to qualify her as a regular employee; (c) whether or not Alcaraz was validly terminated from her
employment; and (d) whether or not the individual petitioners herein are liable.

The Court’s Ruling

A. Forum Shopping and

Violation of Section 5, Rule 7
of the Rules of Court.

At the outset, it is noteworthy to mention that the prohibition against forum shopping is different from
a violation of the certification requirement under Section 5, Rule 7 of the Rules of Court. In Sps. Ong
v. CA,55 the Court explained that:

x x x The distinction between the prohibition against forum shopping and the certification
requirement should by now be too elementary to be misunderstood. To reiterate, compliance with
the certification against forum shopping is separate from and independent of the avoidance of the
act of forum shopping itself. There is a difference in the treatment between failure to comply with the
certification requirement and violation of the prohibition against forum shopping not only in terms of
imposable sanctions but also in the manner of enforcing them. The former constitutes sufficient
cause for the dismissal without prejudice to the filing of the complaint or initiatory pleading upon
motion and after hearing, while the latter is a ground for summary dismissal thereof and for direct
contempt. x x x. 56
As to the first, forum shopping takes place when a litigant files multiple suits involving the same
parties, either simultaneously or successively, to secure a favorable judgment. It exists where the
elements of litis pendentia are present, namely: (a) identity of parties, or at least such parties who
represent the same interests in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (c) the identity with respect to the two preceding
particulars in the two (2) cases is such that any judgment that may be rendered in the pending case,
regardless of which party is successful, would amount to res judicata in the other case.57

In this case, records show that, except for the element of identity of parties, the elements of forum
shopping do not exist. Evidently, the First CA Petition was instituted to question the ruling of the
NLRC that Alcaraz was illegally dismissed. On the other hand, the Second CA Petition pertains to
the propriety of the enforcement of the judgment award pending the resolution of the First CA
Petition and the finality of the decision in the labor dispute between Alcaraz and the petitioners.
Based on the foregoing, a judgment in the Second CA Petition will not constitute res judicata insofar
as the First CA Petition is concerned. Thus, considering that the two petitions clearly cover different
subject matters and causes of action, there exists no forum shopping.

As to the second, Alcaraz further imputes that the petitioners violated the certification requirement
under Section 5, Rule 7 of the Rules of Court58 by not disclosing the fact that it filed the June 16,
2010 Memorandum of Appeal before the NLRC in the instant petition.

In this regard, Section 5(b), Rule 7 of the Rules of Court requires that a plaintiff who files a case
should provide a complete statement of the present status of any pending case if the latter involves
the same issues as the one that was filed. If there is no such similar pending case, Section 5(a) of
the same rule provides that the plaintiff is obliged to declare under oath that to the best of his
knowledge, no such other action or claim is pending.

Records show that the issues raised in the instant petition and those in the June 16, 2010
Memorandum of Appeal filed with the NLRC likewise cover different subject matters and causes of
action. In this case, the validity of Alcaraz’s dismissal is at issue whereas in the said Memorandum
of Appeal, the propriety of the issuance of a writ of execution was in question.

Thus, given the dissimilar issues, petitioners did not have to disclose in the present petition the filing
of their June 16, 2010 Memorandum of Appeal with the NLRC. In any event, considering that the
issue on the propriety of the issuance of a writ of execution had been resolved in the Second CA
Petition – which in fact had already attained finality – the matter of disclosing the June 16, 2010
Memorandum of Appeal is now moot and academic.

Having settled the foregoing procedural matter, the Court now proceeds to resolve the substantive
issues.

B. Probationary employment;
grounds for termination.

A probationary employee, like a regular employee, enjoys security of tenure. However, in cases of
probationary employment, aside from just or authorized causes of termination, an additional ground
is provided under Article 295 of the Labor Code, i.e., the probationary employee may also be
terminated for failure to qualify as a regular employee in accordance with the reasonable standards
made known by the employer to the employee at the time of the engagement.59 Thus, the services of
an employee who has been engaged on probationary basis may be terminated for any of the
following: (a) a just or (b) an authorized cause; and (c) when he fails to qualify as a regular employee
in accordance with reasonable standards prescribed by the employer.60
Corollary thereto, Section 6(d), Rule I, Book VI of the Implementing Rules of the Labor Code
provides that if the employer fails to inform the probationary employee of the reasonable standards
upon which the regularization would be based on at the time of the engagement, then the said
employee shall be deemed a regular employee, viz.:

(d) In all cases of probationary employment, the employer shall make known to the employee the
standards under which he will qualify as a regular employee at the time of his engagement. Where
no standards are made known to the employee at that time, he shall be deemed a regular employee.

In other words, the employer is made to comply with two (2) requirements when dealing with a
probationary employee: first, the employer must communicate the regularization standards to the
probationary employee; and second, the employer must make such communication at the time of the
probationary employee’s engagement. If the employer fails to comply with either, the employee is
deemed as a regular and not a probationary employee.

Keeping with these rules, an employer is deemed to have made known the standards that would
qualify a probationary employee to be a regular employee when it has exerted reasonable efforts to
apprise the employee of what he is expected to do or accomplish during the trial period of probation.
This goes without saying that the employee is sufficiently made aware of his probationary status as
well as the length of time of the probation.

The exception to the foregoing is when the job is self-descriptive in nature, for instance, in the case
of maids, cooks, drivers, or messengers.61 Also, in Aberdeen Court, Inc. v. Agustin,62 it has been held
that the rule on notifying a probationary employee of the standards of regularization should not be
used to exculpate an employee who acts in a manner contrary to basic knowledge and common
sense in regard to which there is no need to spell out a policy or standard to be met. In the same
light, an employee’s failure to perform the duties and responsibilities which have been clearly made
known to him constitutes a justifiable basis for a probationary employee’s non-regularization.

In this case, petitioners contend that Alcaraz was terminated because she failed to qualify as a
regular employee according to Abbott’s standards which were made known to her at the time of her
engagement. Contrarily, Alcaraz claims that Abbott never apprised her of these standards and thus,
maintains that she is a regular and not a mere probationary employee.

The Court finds petitioners’ assertions to be well-taken.

A punctilious examination of the records reveals that Abbott had indeed complied with the above-
stated requirements. This conclusion is largely impelled by the fact that Abbott clearly conveyed to
Alcaraz her duties and responsibilities as Regulatory Affairs Manager prior to, during the time of her
engagement, and the incipient stages of her employment. On this score, the Court finds it apt to
detail not only the incidents which point out to the efforts made by Abbott but also those
circumstances which would show that Alcaraz was well-apprised of her employer’s expectations that
would, in turn, determine her regularization:

(a) On June 27, 2004, Abbott caused the publication in a major broadsheet newspaper of its
need for a Regulatory Affairs Manager, indicating therein the job description for as well as
the duties and responsibilities attendant to the aforesaid position; this prompted Alcaraz to
submit her application to Abbott on October 4, 2004;

(b) In Abbott’s December 7, 2004 offer sheet, it was stated that Alcaraz was to be employed
on a probationary status;
 (c) On February 12, 2005, Alcaraz signed an employment contract which specifically stated,
inter alia, that she was to be placed on probation for a period of six (6) months beginning
February 15, 2005 to August 14, 2005;

(d) On the day Alcaraz accepted Abbott’s employment offer, Bernardo sent her copies of
Abbott’s organizational structure and her job description through e-mail;

(e) Alcaraz was made to undergo a pre-employment orientation where Almazar informed her
that she had to implement Abbott’s Code of Conduct and office policies on human resources
and finance and that she would be reporting directly to Walsh;

(f) Alcaraz was also required to undergo a training program as part of her orientation;

(g) Alcaraz received copies of Abbott’s Code of Conduct and Performance Modules from
Misa who explained to her the procedure for evaluating the performance of probationary
employees; she was further notified that Abbott had only one evaluation system for all of its
employees; and

(h) Moreover, Alcaraz had previously worked for another pharmaceutical company and had
admitted to have an "extensive training and background" to acquire the necessary skills for
her job.63

Considering the totality of the above-stated circumstances, it cannot, therefore, be doubted that
Alcaraz was well-aware that her regularization would depend on her ability and capacity to fulfill the
requirements of her position as Regulatory Affairs Manager and that her failure to perform such
would give Abbott a valid cause to terminate her probationary employment.

Verily, basic knowledge and common sense dictate that the adequate performance of one’s duties
is, by and of itself, an inherent and implied standard for a probationary employee to be regularized;
such is a regularization standard which need not be literally spelled out or mapped into technical
indicators in every case. In this regard, it must be observed that the assessment of adequate duty
performance is in the nature of a management prerogative which when reasonably exercised – as
Abbott did in this case – should be respected. This is especially true of a managerial employee like
Alcaraz who was tasked with the vital responsibility of handling the personnel and important matters
of her department.

In fine, the Court rules that Alcaraz’s status as a probationary employee and her consequent
dismissal must stand. Consequently, in holding that Alcaraz was illegally dismissed due to her status
as a regular and not a probationary employee, the Court finds that the NLRC committed a grave
abuse of discretion.

To elucidate, records show that the NLRC based its decision on the premise that Alcaraz’s receipt of
her job description and Abbott’s Code of Conduct and Performance Modules was not equivalent to
being actually informed of the performance standards upon which she should have been evaluated
on.64 It, however, overlooked the legal implication of the other attendant circumstances as detailed
herein which should have warranted a contrary finding that Alcaraz was indeed a probationary and
not a regular employee – more particularly the fact that she was well-aware of her duties and
responsibilities and that her failure to adequately perform the same would lead to her non-
regularization and eventually, her termination.
Accordingly, by affirming the NLRC’s pronouncement which is tainted with grave abuse of discretion,
the CA committed a reversible error which, perforce, necessitates the reversal of its decision.

C. Probationary employment;
termination procedure.

A different procedure is applied when terminating a probationary employee; the usual two-notice rule
does not govern.65 Section 2, Rule I, Book VI of the Implementing Rules of the Labor Code states
that "if the termination is brought about by the x x x failure of an employee to meet the standards of
the employer in case of probationary employment, it shall be sufficient that a written notice is served
the employee, within a reasonable time from the effective date of termination."

As the records show, Alcaraz's dismissal was effected through a letter dated May 19, 2005 which
she received on May 23, 2005 and again on May 27, 2005. Stated therein were the reasons for her
termination, i.e., that after proper evaluation, Abbott determined that she failed to meet the
reasonable standards for her regularization considering her lack of time and people management
and decision-making skills, which are necessary in the performance of her functions as Regulatory
Affairs Manager.66 Undeniably, this written notice sufficiently meets the criteria set forth above,
thereby legitimizing the cause and manner of Alcaraz’s dismissal as a probationary employee under
the parameters set by the Labor Code.67

D. Employer’s violation of
company policy and
procedure.

Nonetheless, despite the existence of a sufficient ground to terminate Alcaraz’s employment and
Abbott’s compliance with the Labor Code termination procedure, it is readily apparent that Abbott
breached its contractual obligation to Alcaraz when it failed to abide by its own procedure in
evaluating the performance of a probationary employee.

Veritably, a company policy partakes of the nature of an implied contract between the employer and
employee. In Parts Depot, Inc. v. Beiswenger,68 it has been held that:

Employer statements of policy . . . can give rise to contractual rights in employees without evidence
that the parties mutually agreed that the policy statements would create contractual rights in the
employee, and, hence, although the statement of policy is signed by neither party, can be unilaterally
amended by the employer without notice to the employee, and contains no reference to a specific
employee, his job description or compensation, and although no reference was made to the policy
statement in pre-employment interviews and the employee does not learn of its existence until after
his hiring. Toussaint, 292 N.W .2d at 892. The principle is akin to estoppel. Once an employer
establishes an express personnel policy and the employee continues to work while the policy
remains in effect, the policy is deemed an implied contract for so long as it remains in effect. If the
employer unilaterally changes the policy, the terms of the implied contract are also thereby
changed.  (Emphasis and underscoring supplied.)
1âwphi1

Hence, given such nature, company personnel policies create an obligation on the part of both the
employee and the employer to abide by the same.

Records show that Abbott’s PPSE procedure mandates, inter alia, that the job performance of a
probationary employee should be formally reviewed and discussed with the employee at least twice:
first on the third month and second on the fifth month from the date of employment. Abbott is also
required to come up with a Performance Improvement Plan during the third month review to bridge
the gap between the employee’s performance and the standards set, if any.69 In addition, a signed
copy of the PPSE form should be submitted to Abbott’s HRD as the same would serve as basis for
recommending the confirmation or termination of the probationary employment.70

In this case, it is apparent that Abbott failed to follow the above-stated procedure in evaluating
Alcaraz. For one, there lies a hiatus of evidence that a signed copy of Alcaraz’s PPSE form was
submitted to the HRD. It was not even shown that a PPSE form was completed to formally assess
her performance. Neither was the performance evaluation discussed with her during the third and
fifth months of her employment. Nor did Abbott come up with the necessary Performance
Improvement Plan to properly gauge Alcaraz’s performance with the set company standards.

While it is Abbott’s management prerogative to promulgate its own company rules and even
subsequently amend them, this right equally demands that when it does create its own policies and
thereafter notify its employee of the same, it accords upon itself the obligation to faithfully implement
them. Indeed, a contrary interpretation would entail a disharmonious relationship in the work place
for the laborer should never be mired by the uncertainty of flimsy rules in which the latter’s labor
rights and duties would, to some extent, depend.

In this light, while there lies due cause to terminate Alcaraz’s probationary employment for her failure
to meet the standards required for her regularization, and while it must be further pointed out that
Abbott had satisfied its statutory duty to serve a written notice of termination, the fact that it violated
its own company procedure renders the termination of Alcaraz’s employment procedurally infirm,
warranting the payment of nominal damages. A further exposition is apropos.

Case law has settled that an employer who terminates an employee for a valid cause but does so
through invalid procedure is liable to pay the latter nominal damages.

In Agabon v. NLRC (Agabon),71 the Court pronounced that where the dismissal is for a just cause,
the lack of statutory due process should not nullify the dismissal, or render it illegal, or ineffectual.
However, the employer should indemnify the employee for the violation of his statutory rights.72 Thus,
in Agabon, the employer was ordered to pay the employee nominal damages in the amount of
₱30,000.00.73

Proceeding from the same ratio, the Court modified Agabon in the case of Jaka Food Processing
Corporation v. Pacot (Jaka)74 where it created a distinction between procedurally defective
dismissals due to a just cause, on one hand, and those due to an authorized cause, on the other.

It was explained that if the dismissal is based on a just cause under Article 282 of the Labor Code
(now Article 296) but the employer failed to comply with the notice requirement, the sanction to be
imposed upon him should be tempered because the dismissal process was, in effect, initiated by an
act imputable to the employee; if the dismissal is based on an authorized cause under Article 283
(now Article 297) but the employer failed to comply with the notice requirement, the sanction should
be stiffer because the dismissal process was initiated by the employer’s exercise of his management
prerogative.75 Hence, in Jaka, where the employee was dismissed for an authorized cause of
retrenchment76 – as contradistinguished from the employee in Agabon who was dismissed for a just
cause of neglect of duty77 – the Court ordered the employer to pay the employee nominal damages
at the higher amount of ₱50,000.00.

Evidently, the sanctions imposed in both Agabon and Jaka proceed from the necessity to deter
employers from future violations of the statutory due process rights of employees.78 In similar regard,
the Court deems it proper to apply the same principle to the case at bar for the reason that an
employer’s contractual breach of its own company procedure – albeit not statutory in source – has
the parallel effect of violating the laborer’s rights. Suffice it to state, the contract is the law between
the parties and thus, breaches of the same impel recompense to vindicate a right that has been
violated. Consequently, while the Court is wont to uphold the dismissal of Alcaraz because a valid
cause exists, the payment of nominal damages on account of Abbott’s contractual breach is
warranted in accordance with Article 2221 of the Civil Code.79

Anent the proper amount of damages to be awarded, the Court observes that Alcaraz’s dismissal
proceeded from her failure to comply with the standards required for her regularization. As such, it is
undeniable that the dismissal process was, in effect, initiated by an act imputable to the employee,
akin to dismissals due to just causes under Article 296 of the Labor Code. Therefore, the Court
deems it appropriate to fix the amount of nominal damages at the amount of ₱30,000.00, consistent
with its rulings in both Agabon and Jaka.

E. Liability of individual
petitioners as corporate
officers.

It is hornbook principle that personal liability of corporate directors, trustees or officers attaches only
when: (a) they assent to a patently unlawful act of the corporation, or when they are guilty of bad
faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in
damages to the corporation, its stockholders or other persons; (b) they consent to the issuance of
watered down stocks or when, having knowledge of such issuance, do not forthwith file with the
corporate secretary their written objection; (c) they agree to hold themselves personally and
solidarily liable with the corporation; or (d) they are made by specific provision of law personally
answerable for their corporate action.80

In this case, Alcaraz alleges that the individual petitioners acted in bad faith with regard to the
supposed crude manner by which her probationary employment was terminated and thus, should be
held liable together with Abbott. In the same vein, she further attributes the loss of some of her
remaining belongings to them.81

Alcaraz’s contention fails to persuade.

A judicious perusal of the records show that other than her unfounded assertions on the matter,
there is no evidence to support the fact that the individual petitioners herein, in their capacity as
Abbott’s officers and employees, acted in bad faith or were motivated by ill will in terminating

Alcaraz’s services. The fact that Alcaraz was made to resign and not allowed to enter the workplace
does not necessarily indicate bad faith on Abbott’s part since a sufficient ground existed for the latter
to actually proceed with her termination. On the alleged loss of her personal belongings, records are
bereft of any showing that the same could be attributed to Abbott or any of its officers. It is a well-
settled rule that bad faith cannot be presumed and he who alleges bad faith has the onus of proving
it. All told, since Alcaraz failed to prove any malicious act on the part of Abbott or any of its officers,
the Court finds the award of moral or exemplary damages unwarranted.

WHEREFORE, the petition is GRANTED. The Decision dated December 10, 2009 and Resolution
dated June 9, 2010 of the Court of Appeals in CA-G.R. SP No. 101045 are hereby REVERSED and
SET ASIDE. Accordingly, the Decision dated March 30, 2006 of the Labor Arbiter is REINSTATED
with the MODIFICATION that petitioner Abbott Laboratories, Philippines be ORDERED to pay
respondent Pearlie Ann F. Alcaraz nominal damages in the amount of ₱30,000.00 on account of its
breach of its own company procedure.
SO ORDERED.
G.R. No. 164156             September 26, 2006

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
MARLYN NAZARENO, MERLOU GERZON, JENNIFER DEIPARINE, and JOSEPHINE
LERASAN, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-
G.R. SP No. 76582 and the Resolution denying the motion for reconsideration thereof. The CA
affirmed the Decision2 and Resolution3 of the National Labor Relations Commission (NLRC) in NLRC
Case No. V-000762-2001 (RAB Case No. VII-10-1661-2001) which likewise affirmed, with
modification, the decision of the Labor Arbiter declaring the respondents Marlyn Nazareno, Merlou
Gerzon, Jennifer Deiparine and Josephine Lerasan as regular employees.

The Antecedents

Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is engaged in the broadcasting business

and owns a network of television and radio stations, whose operations revolve around the broadcast,
transmission, and relay of telecommunication signals. It sells and deals in or otherwise utilizes the
airtime it generates from its radio and television operations. It has a franchise as a broadcasting
company, and was likewise issued a license and authority to operate by the National
Telecommunications Commission.

Petitioner employed respondents Nazareno, Gerzon, Deiparine, and Lerasan as production

assistants (PAs) on different dates. They were assigned at the news and public affairs, for various
radio programs in the Cebu Broadcasting Station, with a monthly compensation of P4,000. They
were issued ABS-CBN employees’ identification cards and were required to work for a minimum of
eight hours a day, including Sundays and holidays. They were made to perform the following tasks
and duties:

a) Prepare, arrange airing of commercial broadcasting based on the daily operations log and digicart
of respondent ABS-CBN;

b) Coordinate, arrange personalities for air interviews;

c) Coordinate, prepare schedule of reporters for scheduled news reporting and lead-in or incoming
reports;

d) Facilitate, prepare and arrange airtime schedule for public service announcement and complaints;

e) Assist, anchor program interview, etc; and

f) Record, log clerical reports, man based control radio.4

Their respective working hours were as follows:

Name Time No. of Hours

1. Marlene Nazareno 4:30 A.M.-8:00 A.M. 7 ½

8:00 A.M.-12:00 noon

2. Jennifer Deiparine 4:30 A.M.-12:00M.N. (sic) 7 ½

3. Joy Sanchez 1:00 P.M.-10:00 P.M.(Sunday) 9 hrs.

9:00 A.M.-6:00 P.M. (WF) 9 hrs.

4. Merlou Gerzon 9:00 A.M.-6:00 P.M. 9 hrs.5

The PAs were under the control and supervision of Assistant Station Manager Dante J. Luzon, and
News Manager Leo Lastimosa.

On December 19, 1996, petitioner and the ABS-CBN Rank-and-File Employees executed a
Collective Bargaining Agreement (CBA) to be effective during the period from December 11, 1996 to
December 11, 1999. However, since petitioner refused to recognize PAs as part of the bargaining
unit, respondents were not included to the CBA.6

On July 20, 2000, petitioner, through Dante Luzon, issued a Memorandum informing the PAs that
effective August 1, 2000, they would be assigned to non-drama programs, and that the DYAB studio
operations would be handled by the studio technician. Thus, their revised schedule and other
assignments would be as follows:

Monday – Saturday

4:30 A.M. – 8:00 A.M. – Marlene Nazareno.

Miss Nazareno will then be assigned at the Research Dept.

From 8:00 A.M. to 12:00

4:30 P.M. – 12:00 MN – Jennifer Deiparine

Sunday

5:00 A.M. – 1:00 P.M. – Jennifer Deiparine

1:00 P.M. – 10:00 P.M. – Joy Sanchez

Respondent Gerzon was assigned as the full-time PA of the TV News Department reporting directly
to Leo Lastimosa.

On October 12, 2000, respondents filed a Complaint for Recognition of Regular Employment Status,
Underpayment of Overtime Pay, Holiday Pay, Premium Pay, Service Incentive Pay, Sick Leave Pay,
and 13th Month Pay with Damages against the petitioner before the NLRC. The Labor Arbiter
directed the parties to submit their respective position papers. Upon respondents’ failure to file their
position papers within the reglementary period, Labor Arbiter Jose G. Gutierrez issued an Order
dated April 30, 2001, dismissing the complaint without prejudice for lack of interest to pursue the
case. Respondents received a copy of the Order on May 16, 2001.7 Instead of re-filing their
complaint with the NLRC within 10 days from May 16, 2001, they filed, on June 11, 2001, an Earnest
Motion to Refile Complaint with Motion to Admit Position Paper and Motion to Submit Case For
Resolution.8 The Labor Arbiter granted this motion in an Order dated June 18, 2001, and forthwith
admitted the position paper of the complainants. Respondents made the following allegations:

1. Complainants were engaged by respondent ABS-CBN as regular and full-time employees for a
continuous period of more than five (5) years with a monthly salary rate of Four Thousand
(P4,000.00) pesos beginning 1995 up until the filing of this complaint on November 20, 2000.

Machine copies of complainants’ ABS-CBN Employee’s Identification Card and salary vouchers are
hereto attached as follows, thus:

I. Jennifer Deiparine:

Exhibit "A" - ABS-CBN Employee’s Identification Card

Exhibit "B", - ABS-CBN Salary Voucher from Nov.

Exhibit "B-1" & 1999 to July 2000 at P4,000.00

Exhibit "B-2"

Date employed: September 15, 1995

Length of service: 5 years & nine (9) months

II. Merlou Gerzon - ABS-CBN Employee’s Identification Card

Exhibit "C"

Exhibit "D"

Exhibit "D-1" &

Exhibit "D-2" - ABS-CBN Salary Voucher from March

1999 to January 2001 at P4,000.00

Date employed: September 1, 1995

Length of service: 5 years & 10 months

III. Marlene Nazareno

Exhibit "E" - ABS-CBN Employee’s Identification Card

Exhibit "E" - ABS-CBN Salary Voucher from Nov.

Exhibit "E-1" & 1999 to December 2000

Exhibit :E-2"

Date employed: April 17, 1996

Length of service: 5 years and one (1) month

IV. Joy Sanchez Lerasan

Exhibit "F" - ABS-CBN Employee’s Identification Card

Exhibit "F-1" - ABS-CBN Salary Voucher from Aug.

Exhibit "F-2" & 2000 to Jan. 2001

Exhibit "F-3"

Exhibit "F-4" - Certification dated July 6, 2000

Acknowledging regular status of

Complainant Joy Sanchez Lerasan

Signed by ABS-CBN Administrative

Officer May Kima Hife

Date employed: April 15, 1998

Length of service: 3 yrs. and one (1) month9

Respondents insisted that they belonged to a "work pool" from which petitioner chose persons to be
given specific assignments at its discretion, and were thus under its direct supervision and control
regardless of nomenclature. They prayed that judgment be rendered in their favor, thus:

WHEREFORE, premises considered, this Honorable Arbiter is most respectfully prayed, to issue an
order compelling defendants to pay complainants the following:

1. One Hundred Thousand Pesos (P100,000.00) each

and by way of moral damages;

2. Minimum wage differential;

3. Thirteenth month pay differential;

4. Unpaid service incentive leave benefits;

5. Sick leave;

6. Holiday pay;

7. Premium pay;

8. Overtime pay;

9. Night shift differential.

Complainants further pray of this Arbiter to declare them regular and permanent employees of
respondent ABS-CBN as a condition precedent for their admission into the existing union and
collective bargaining unit of respondent company where they may as such acquire or otherwise
perform their obligations thereto or enjoy the benefits due therefrom.

Complainants pray for such other reliefs as are just and equitable under the premises.10

For its part, petitioner alleged in its position paper that the respondents were PAs who basically
assist in the conduct of a particular program ran by an anchor or talent. Among their duties include
monitoring and receiving incoming calls from listeners and field reporters and calls of news sources;
generally, they perform leg work for the anchors during a program or a particular production. They
are considered in the industry as "program employees" in that, as distinguished from regular or
station employees, they are basically engaged by the station for a particular or specific program
broadcasted by the radio station. Petitioner asserted that as PAs, the complainants were issued
talent information sheets which are updated from time to time, and are thus made the basis to
determine the programs to which they shall later be called on to assist. The program assignments of
complainants were as follows:

a. Complainant Nazareno assists in the programs:

1) Nagbagang Balita (early morning edition)

2) Infor Hayupan

3) Arangkada (morning edition)

4) Nagbagang Balita (mid-day edition)

b. Complainant Deiparine assists in the programs:

1) Unzanith

2) Serbisyo de Arevalo

3) Arangkada (evening edition)

4) Balitang K (local version)

5) Abante Subu
6) Pangutana Lang

c. Complainant Gerzon assists in the program:

1) On Mondays and Tuesdays:

(a) Unzanith

(b) Serbisyo de Arevalo

(c) Arangkada (evening edition)

(d) Balitang K (local version)

(e) Abante Sugbu

(f) Pangutana Lang

2) On Thursdays

Nagbagang Balita

3) On Saturdays

(a) Nagbagang Balita

(b) Info Hayupan

(c) Arangkada (morning edition)

(d) Nagbagang Balita (mid-day edition)

4) On Sundays:

(a) Siesta Serenata

(b) Sunday Chismisan

(c) Timbangan sa Hustisya

(d) Sayri ang Lungsod

(e) Haranahan11

Petitioner maintained that PAs, reporters, anchors and talents occasionally "sideline" for other
programs they produce, such as drama talents in other productions. As program employees, a PA’s
engagement is coterminous with the completion of the program, and may be extended/renewed
provided that the program is on-going; a PA may also be assigned to new programs upon the
cancellation of one program and the commencement of another. As such program employees, their
compensation is computed on a program basis, a fixed amount for performance services irrespective
 of the time consumed. At any rate, petitioner claimed, as the payroll will show, respondents were
paid all salaries and benefits due them under the law.12

Petitioner also alleged that the Labor Arbiter had no jurisdiction to involve the CBA and interpret the
same, especially since respondents were not covered by the bargaining unit.

On July 30, 2001, the Labor Arbiter rendered judgment in favor of the respondents, and declared
that they were regular employees of petitioner; as such, they were awarded monetary benefits. The
fallo of the decision reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered declaring the
complainants regular employees of the respondent ABS-CBN Broadcasting Corporation and
directing the same respondent to pay complainants as follows:

I - Merlou A. Gerzon P12,025.00

II - Marlyn Nazareno 12,025.00

III - Jennifer Deiparine 12,025.00

IV - Josephine Sanchez Lerazan 12,025.00

_________

P48,100.00

plus ten (10%) percent Attorney’s Fees or a TOTAL aggregate amount of PESOS: FIFTY TWO
THOUSAND NINE HUNDRED TEN (P52,910.00).

Respondent Veneranda C. Sy is absolved from any liability.

SO ORDERED.13

However, the Labor Arbiter did not award money benefits as provided in the CBA on his belief that
he had no jurisdiction to interpret and apply the agreement, as the same was within the jurisdiction of
the Voluntary Arbitrator as provided in Article 261 of the Labor Code.

Respondents’ counsel received a copy of the decision on August 29, 2001. Respondent Nazareno
received her copy on August 27, 2001, while the other respondents received theirs on September 8,
2001. Respondents signed and filed their Appeal Memorandum on September 18, 2001.

For its part, petitioner filed a motion for reconsideration, which the Labor Arbiter denied and
considered as an appeal, conformably with Section 5, Rule V, of the NLRC Rules of Procedure.
Petitioner forthwith appealed the decision to the NLRC, while respondents filed a partial appeal.

In its appeal, petitioner alleged the following:

1. That the Labor Arbiter erred in reviving or re-opening this case which had long been dismissed
without prejudice for more than thirty (30) calendar days;
2. That the Labor Arbiter erred in depriving the respondent of its Constitutional right to due process
of law;

3. That the Labor Arbiter erred in denying respondent’s Motion for Reconsideration on an
interlocutory order on the ground that the same is a prohibited pleading;

4. That the Labor Arbiter erred when he ruled that the complainants are regular employees of the
respondent;

5. That the Labor Arbiter erred when he ruled that the complainants are entitled to 13th month pay,
service incentive leave pay and salary differential; and

6. That the Labor Arbiter erred when he ruled that complainants are entitled to attorney’s fees.14

On November 14, 2002, the NLRC rendered judgment modifying the decision of the Labor Arbiter.
The fallo of the decision reads:

WHEREFORE, premises considered, the decision of Labor Arbiter Jose G. Gutierrez dated 30 July
2001 is SET ASIDE and VACATED and a new one is entered ORDERING respondent ABS-CBN
Broadcasting Corporation, as follows:

1. To pay complainants of their wage differentials and other benefits arising from the CBA as of 30
September 2002 in the aggregate amount of Two Million Five Hundred, Sixty-One Thousand Nine
Hundred Forty-Eight Pesos and 22/100 (P2,561,948.22), broken down as follows:

a. Deiparine, Jennifer - P 716,113.49

b. Gerzon, Merlou - 716,113.49

c. Nazareno, Marlyn - 716,113.49

d. Lerazan, Josephine Sanchez - 413,607.75

Total - P 2,561,948.22

2. To deliver to the complainants Two Hundred Thirty-Three (233) sacks of rice as of 30 September
2002 representing their rice subsidy in the CBA, broken down as follows:

a. Deiparine, Jennifer - 60 Sacks

b. Gerzon, Merlou - 60 Sacks

c. Nazareno, Marlyn - 60 Sacks

d. Lerazan, Josephine Sanchez - 53 Sacks

Total 233 Sacks; and

3. To grant to the complainants all the benefits of the CBA after 30 September 2002.
SO ORDERED.15

The NLRC declared that the Labor Arbiter acted conformably with the Labor Code when it granted
respondents’ motion to refile the complaint and admit their position paper. Although respondents
were not parties to the CBA between petitioner and the ABS-CBN Rank-and-File Employees Union,
the NLRC nevertheless granted and computed respondents’ monetary benefits based on the 1999
CBA, which was effective until September 2002. The NLRC also ruled that the Labor Arbiter had
jurisdiction over the complaint of respondents because they acted in their individual capacities and
not as members of the union. Their claim for monetary benefits was within the context of Article
217(6) of the Labor Code. The validity of respondents’ claim does not depend upon the interpretation
of the CBA.

The NLRC ruled that respondents were entitled to the benefits under the CBA because they were
regular employees who contributed to the profits of petitioner through their labor. The NLRC cited
the ruling of this Court in New Pacific Timber & Supply Company v. National Labor Relations
Commission.16

Petitioner filed a motion for reconsideration, which the NLRC denied.

Petitioner thus filed a petition for certiorari under Rule 65 of the Rules of Court before the CA, raising
both procedural and substantive issues, as follows: (a) whether the NLRC acted without jurisdiction
in admitting the appeal of respondents; (b) whether the NLRC committed palpable error in
scrutinizing the reopening and revival of the complaint of respondents with the Labor Arbiter upon
due notice despite the lapse of 10 days from their receipt of the July 30, 2001 Order of the Labor
Arbiter; (c) whether respondents were regular employees; (d) whether the NLRC acted without
jurisdiction in entertaining and resolving the claim of the respondents under the CBA instead of
referring the same to the Voluntary Arbitrators as provided in the CBA; and (e) whether the NLRC
acted with grave abuse of discretion when it awarded monetary benefits to respondents under the
CBA although they are not members of the appropriate bargaining unit.

On February 10, 2004, the CA rendered judgment dismissing the petition. It held that the perfection
of an appeal shall be upon the expiration of the last day to appeal by all parties, should there be
several parties to a case. Since respondents received their copies of the decision on September 8,
2001 (except respondent Nazareno who received her copy of the decision on August 27, 2001), they
had until September 18, 2001 within which to file their Appeal Memorandum. Moreover, the CA
declared that respondents’ failure to submit their position paper on time is not a ground to strike out
the paper from the records, much less dismiss a complaint.

Anent the substantive issues, the appellate court stated that respondents are not mere project
employees, but regular employees who perform tasks necessary and desirable in the usual trade
and business of petitioner and not just its project employees. Moreover, the CA added, the award of
benefits accorded to rank-and-file employees under the 1996-1999 CBA is a necessary
consequence of the NLRC ruling that respondents, as PAs, are regular employees.

Finding no merit in petitioner’s motion for reconsideration, the CA denied the same in a
Resolution17 dated June 16, 2004.

Petitioner thus filed the instant petition for review on certiorari and raises the following assignments
of error:
1. THE HONORABLE COURT OF APPEALS ACTED WITHOUT JURISDICTION AND GRAVELY
ERRED IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION
NOTWITHSTANDING THE PATENT NULLITY OF THE LATTER’S DECISION AND RESOLUTION.

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE NLRC FINDING RESPONDENTS REGULAR EMPLOYEES.

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE NLRC AWARDING CBA BENEFITS TO RESPONDENTS.18

Considering that the assignments of error are interrelated, the Court shall resolve them
simultaneously.

Petitioner asserts that the appellate court committed palpable and serious error of law when it
affirmed the rulings of the NLRC, and entertained respondents’ appeal from the decision of the
Labor Arbiter despite the admitted lapse of the reglementary period within which to perfect the same.
Petitioner likewise maintains that the 10-day period to appeal must be reckoned from receipt of a
party’s counsel, not from the time the party learns of the decision, that is, notice to counsel is notice
to party and not the other way around. Finally, petitioner argues that the reopening of a complaint
which the Labor Arbiter has dismissed without prejudice is a clear violation of Section 1, Rule V of
the NLRC Rules; such order of dismissal had already attained finality and can no longer be set
aside.

Respondents, on the other hand, allege that their late appeal is a non-issue because it was
petitioner’s own timely appeal that empowered the NLRC to reopen the case. They assert that
although the appeal was filed 10 days late, it may still be given due course in the interest of
substantial justice as an exception to the general rule that the negligence of a counsel binds the
client. On the issue of the late filing of their position paper, they maintain that this is not a ground to
strike it out from the records or dismiss the complaint.

We find no merit in the petition.

We agree with petitioner’s contention that the perfection of an appeal within the statutory or
reglementary period is not only mandatory, but also jurisdictional; failure to do so renders the
assailed decision final and executory and deprives the appellate court or body of the legal authority
to alter the final judgment, much less entertain the appeal. However, this Court has time and again
ruled that in exceptional cases, a belated appeal may be given due course if greater injustice may
occur if an appeal is not given due course than if the reglementary period to appeal were strictly
followed.19 The Court resorted to this extraordinary measure even at the expense of sacrificing order
and efficiency if only to serve the greater principles of substantial justice and equity.20

In the case at bar, the NLRC did not commit a grave abuse of its discretion in giving Article 22321 of
the Labor Code a liberal application to prevent the miscarriage of justice. Technicality should not be
allowed to stand in the way of equitably and completely resolving the rights and obligations of the
parties.22 We have held in a catena of cases that technical rules are not binding in labor cases and
are not to be applied strictly if the result would be detrimental to the workingman.23

Admittedly, respondents failed to perfect their appeal from the decision of the Labor Arbiter within
the reglementary period therefor. However, petitioner perfected its appeal within the period, and
since petitioner had filed a timely appeal, the NLRC acquired jurisdiction over the case to give due
course to its appeal and render the decision of November 14, 2002. Case law is that the party who
failed to appeal from the decision of the Labor Arbiter to the NLRC can still participate in a separate
appeal timely filed by the adverse party as the situation is considered to be of greater benefit to both
parties.24

We find no merit in petitioner’s contention that the Labor Arbiter abused his discretion when he
admitted respondents’ position paper which had been belatedly filed. It bears stressing that the
Labor Arbiter is mandated by law to use every reasonable means to ascertain the facts in each case
speedily and objectively, without technicalities of law or procedure, all in the interest of due
process.25 Indeed, as stressed by the appellate court, respondents’ failure to submit a position paper
on time is not a ground for striking out the paper from the records, much less for dismissing a
complaint.26 Likewise, there is simply no truth to petitioner’s assertion that it was denied due process
when the Labor Arbiter admitted respondents’ position paper without requiring it to file a comment
before admitting said position paper. The essence of due process in administrative proceedings is
simply an opportunity to explain one’s side or an opportunity to seek reconsideration of the action or
ruling complained of. Obviously, there is nothing in the records that would suggest that petitioner had
absolute lack of opportunity to be heard.27 Petitioner had the right to file a motion for reconsideration
of the Labor Arbiter’s admission of respondents’ position paper, and even file a Reply thereto. In
fact, petitioner filed its position paper on April 2, 2001. It must be stressed that Article 280 of the
Labor Code was encoded in our statute books to hinder the circumvention by unscrupulous
employers of the employees’ right to security of tenure by indiscriminately and absolutely ruling out
all written and oral agreements inharmonious with the concept of regular employment defined
therein.28

We quote with approval the following pronouncement of the NLRC:

The complainants, on the other hand, contend that respondents assailed the Labor Arbiter’s order
dated 18 June 2001 as violative of the NLRC Rules of Procedure and as such is violative of their
right to procedural due process. That while suggesting that an Order be instead issued by the Labor
Arbiter for complainants to refile this case, respondents impliedly submit that there is not any
substantial damage or prejudice upon the refiling, even so, respondents’ suggestion acknowledges
complainants right to prosecute this case, albeit with the burden of repeating the same procedure,
thus, entailing additional time, efforts, litigation cost and precious time for the Arbiter to repeat the
same process twice. Respondent’s suggestion, betrays its notion of prolonging, rather than
promoting the early resolution of the case.

Although the Labor Arbiter in his Order dated 18 June 2001 which revived and re-opened the
dismissed case without prejudice beyond the ten (10) day reglementary period had inadvertently
failed to follow Section 16, Rule V, Rules Procedure of the NLRC which states:

"A party may file a motion to revive or re-open a case dismissed without prejudice within ten (10)
calendar days from receipt of notice of the order dismissing the same; otherwise, his only remedy
shall be to re-file the case in the arbitration branch of origin."

the same is not a serious flaw that had prejudiced the respondents’ right to due process. The case
can still be refiled because it has not yet prescribed. Anyway, Article 221 of the Labor Code
provides:

"In any proceedings before the Commission or any of the Labor Arbiters, the rules of evidence
prevailing in courts of law or equity shall not be controlling and it is the spirit and intention of this
Code that the Commission and its members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process."
The admission by the Labor Arbiter of the complainants’ Position Paper and Supplemental
Manifestation which were belatedly filed just only shows that he acted within his discretion as he is
enjoined by law to use every reasonable means to ascertain the facts in each case speedily and
objectively, without regard to technicalities of law or procedure, all in the interest of due process.
Indeed, the failure to submit a position paper on time is not a ground for striking out the paper from
the records, much less for dismissing a complaint in the case of the complainant. (University of
Immaculate Conception vs. UIC Teaching and Non-Teaching Personnel Employees, G.R. No.
144702, July 31, 2001).

"In admitting the respondents’ position paper albeit late, the Labor Arbiter acted within her discretion.
In fact, she is enjoined by law to use every reasonable means to ascertain the facts in each case
speedily and objectively, without technicalities of law or procedure, all in the interest of due process".
(Panlilio vs. NLRC, 281 SCRA 53).

The respondents were given by the Labor Arbiter the opportunity to submit position paper. In fact,
the respondents had filed their position paper on 2 April 2001. What is material in the compliance of
due process is the fact that the parties are given the opportunities to submit position papers.

"Due process requirements are satisfied where the parties are given the opportunities to submit
position papers". (Laurence vs. NLRC, 205 SCRA 737).

Thus, the respondent was not deprived of its Constitutional right to due process of law.29

We reject, as barren of factual basis, petitioner’s contention that respondents are considered as its
talents, hence, not regular employees of the broadcasting company. Petitioner’s claim that the
functions performed by the respondents are not at all necessary, desirable, or even vital to its trade
or business is belied by the evidence on record.

Case law is that this Court has always accorded respect and finality to the findings of fact of the CA,
particularly if they coincide with those of the Labor Arbiter and the National Labor Relations
Commission, when supported by substantial evidence.30 The question of whether respondents are
regular or project employees or independent contractors is essentially factual in nature; nonetheless,
the Court is constrained to resolve it due to its tremendous effects to the legions of production
assistants working in the Philippine broadcasting industry.

We agree with respondents’ contention that where a person has rendered at least one year of
service, regardless of the nature of the activity performed, or where the work is continuous or
intermittent, the employment is considered regular as long as the activity exists, the reason being
that a customary appointment is not indispensable before one may be formally declared as having
attained regular status. Article 280 of the Labor Code provides:

ART. 280. REGULAR AND CASUAL EMPLOYMENT.—The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall
be deemed to be regular where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for the duration of the season.

In Universal Robina Corporation v. Catapang,31 the Court reiterated the test in determining whether
one is a regular employee:
The primary standard, therefore, of determining regular employment is the reasonable connection
between the particular activity performed by the employee in relation to the usual trade or business
of the employer. The test is whether the former is usually necessary or desirable in the usual
business or trade of the employer. The connection can be determined by considering the nature of
work performed and its relation to the scheme of the particular business or trade in its entirety. Also,
if the employee has been performing the job for at least a year, even if the performance is not
continuous and merely intermittent, the law deems repeated and continuing need for its performance
as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence,
the employment is considered regular, but only with respect to such activity and while such activity
exists.32

As elaborated by this Court in Magsalin v. National Organization of Working Men:33

Even while the language of law might have been more definitive, the clarity of its spirit and intent,
i.e., to ensure a "regular" worker’s security of tenure, however, can hardly be doubted. In
determining whether an employment should be considered regular or non-regular, the applicable test
is the reasonable connection between the particular activity performed by the employee in relation to
the usual business or trade of the employer. The standard, supplied by the law itself, is whether the
work undertaken is necessary or desirable in the usual business or trade of the employer, a fact that
can be assessed by looking into the nature of the services rendered and its relation to the general
scheme under which the business or trade is pursued in the usual course. It is distinguished from a
specific undertaking that is divorced from the normal activities required in carrying on the particular
business or trade. But, although the work to be performed is only for a specific project or seasonal,
where a person thus engaged has been performing the job for at least one year, even if the
performance is not continuous or is merely intermittent, the law deems the repeated and continuing
need for its performance as being sufficient to indicate the necessity or desirability of that activity to
the business or trade of the employer. The employment of such person is also then deemed to be
regular with respect to such activity and while such activity exists.34

Not considered regular employees are "project employees," the completion or termination of which is
more or less determinable at the time of employment, such as those employed in connection with a
particular construction project, and "seasonal employees" whose employment by its nature is only
desirable for a limited period of time. Even then, any employee who has rendered at least one year
of service, whether continuous or intermittent, is deemed regular with respect to the activity
performed and while such activity actually exists.

It is of no moment that petitioner hired respondents as "talents." The fact that respondents received
pre-agreed "talent fees" instead of salaries, that they did not observe the required office hours, and
that they were permitted to join other productions during their free time are not conclusive of the
nature of their employment. Respondents cannot be considered "talents" because they are not
actors or actresses or radio specialists or mere clerks or utility employees. They are regular
employees who perform several different duties under the control and direction of ABS-CBN
executives and supervisors.

Thus, there are two kinds of regular employees under the law: (1) those engaged to perform
activities which are necessary or desirable in the usual business or trade of the employer; and (2)
those casual employees who have rendered at least one year of service, whether continuous or
broken, with respect to the activities in which they are employed.35

The law overrides such conditions which are prejudicial to the interest of the worker whose weak
bargaining situation necessitates the succor of the State. What determines whether a certain
employment is regular or otherwise is not the will or word of the employer, to which the worker
oftentimes acquiesces, much less the procedure of hiring the employee or the manner of paying the
salary or the actual time spent at work. It is the character of the activities performed in relation to the
particular trade or business taking into account all the circumstances, and in some cases the length
of time of its performance and its continued existence.36 It is obvious that one year after they were
employed by petitioner, respondents became regular employees by operation of law.37

Additionally, respondents cannot be considered as project or program employees because no

evidence was presented to show that the duration and scope of the project were determined or
specified at the time of their engagement. Under existing jurisprudence, project could refer to two
distinguishable types of activities. First, a project may refer to a particular job or undertaking that is
within the regular or usual business of the employer, but which is distinct and separate, and
identifiable as such, from the other undertakings of the company. Such job or undertaking begins
and ends at determined or determinable times. Second, the term project may also refer to a
particular job or undertaking that is not within the regular business of the employer. Such a job or
undertaking must also be identifiably separate and distinct from the ordinary or regular business
operations of the employer. The job or undertaking also begins and ends at determined or
determinable times.38

The principal test is whether or not the project employees were assigned to carry out a specific
project or undertaking, the duration and scope of which were specified at the time the employees
were engaged for that project.39

In this case, it is undisputed that respondents had continuously performed the same activities for an
average of five years. Their assigned tasks are necessary or desirable in the usual business or trade
of the petitioner. The persisting need for their services is sufficient evidence of the necessity and
indispensability of such services to petitioner’s business or trade.40 While length of time may not be a
sole controlling test for project employment, it can be a strong factor to determine whether the
employee was hired for a specific undertaking or in fact tasked to perform functions which are vital,
necessary and indispensable to the usual trade or business of the employer.41 We note further that
petitioner did not report the termination of respondents’ employment in the particular "project" to the
Department of Labor and Employment Regional Office having jurisdiction over the workplace within
30 days following the date of their separation from work, using the prescribed form on employees’
termination/ dismissals/suspensions.42

As gleaned from the records of this case, petitioner itself is not certain how to categorize
respondents. In its earlier pleadings, petitioner classified respondents as program employees, and in
later pleadings, independent contractors. Program employees, or project employees, are different
from independent contractors because in the case of the latter, no employer-employee relationship
exists.

Petitioner’s reliance on the ruling of this Court in Sonza v. ABS-CBN Broadcasting Corporation43 is
misplaced. In that case, the Court explained why Jose Sonza, a well-known television and radio
personality, was an independent contractor and not a regular employee:

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 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.

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.

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.44

In the case at bar, however, the employer-employee relationship between petitioner and
respondents has been proven.

First. In the selection and engagement of respondents, no peculiar or unique skill, talent or celebrity
status was required from them because they were merely hired through petitioner’s personnel
department just like any ordinary employee.

Second. The so-called "talent fees" of respondents correspond to wages given as a result of an
employer-employee relationship. Respondents did not have the power to bargain for huge talent
fees, a circumstance negating independent contractual relationship.
Third. Petitioner could always discharge respondents should it find their work unsatisfactory, and
respondents are highly dependent on the petitioner for continued work.

Fourth. The degree of control and supervision exercised by petitioner over respondents through its
supervisors negates the allegation that respondents are independent contractors.

The presumption is that when the work done is an integral part of the regular business of the
employer and when the worker, relative to the employer, does not furnish an independent business
or professional service, such work is a regular employment of such employee and not an
independent contractor.45 The Court will peruse beyond any such agreement to examine the facts
that typify the parties’ actual relationship.46

It follows then that respondents are entitled to the benefits provided for in the existing CBA between
petitioner and its rank-and-file employees. As regular employees, respondents are entitled to the
benefits granted to all other regular employees of petitioner under the CBA.47 We quote with approval
the ruling of the appellate court, that the reason why production assistants were excluded from the
CBA is precisely because they were erroneously classified and treated as project employees by
petitioner:

x x x The award in favor of private respondents of the benefits accorded to rank-and-file employees
of ABS-CBN under the 1996-1999 CBA is a necessary consequence of public respondent’s ruling
that private respondents as production assistants of petitioner are regular employees. The monetary
award is not considered as claims involving the interpretation or implementation of the collective
bargaining agreement. The reason why production assistants were excluded from the said
agreement is precisely because they were classified and treated as project employees by petitioner.

As earlier stated, it is not the will or word of the employer which determines the nature of
employment of an employee but the nature of the activities performed by such employee in relation
to the particular business or trade of the employer. Considering that We have clearly found that
private respondents are regular employees of petitioner, their exclusion from the said CBA on the
misplaced belief of the parties to the said agreement that they are project employees, is therefore
not proper. Finding said private respondents as regular employees and not as mere project
employees, they must be accorded the benefits due under the said Collective Bargaining
Agreement.

A collective bargaining agreement is a contract entered into by the union representing the
employees and the employer. However, even the non-member employees are entitled to the
benefits of the contract. To accord its benefits only to members of the union without any valid reason
would constitute undue discrimination against non-members. A collective bargaining agreement is
binding on all employees of the company. Therefore, whatever benefits are given to the other
employees of ABS-CBN must likewise be accorded to private respondents who were regular
employees of petitioner.48

Besides, only talent-artists were excluded from the CBA and not production assistants who are
regular employees of the respondents. Moreover, under Article 1702 of the New Civil Code: "In case
of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and
decent living of the laborer."

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 76582 are AFFIRMED. Costs
against petitioner.
SO ORDERED.
G.R. No. 122653 December 12, 1997

PURE FOODS CORPORATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, RODOLFO CORDOVA, VIOLETA CRUSIS, ET
AL., * respondents.

DAVIDE, JR., J.:

The crux of this petition for certiorari is the issue of whether employees hired for a definite period
and whose services are necessary and desirable in the usual business or trade of the employer are
regular employees.

The private respondents (numbering 906) were hired by petitioner Pure Foods Corporation to work
for a fixed period of five months at its tuna cannery plant in Tambler, General Santos City. After the
expiration of their respective contracts of employment in June and July 1991, their services were
terminated. They forthwith executed a "Release and Quitclaim" stating that they had no claim
whatsoever against the petitioner.

On 29 July 1991, the private respondents filed before the National Labor Relations Commission
(NLRC) Sub-Regional Arbitration Branch No. XI, General Santos City, a complaint for illegal
dismissal against the petitioner and its plant manager, Marciano Aganon.   This case was docketed
1

as RAB-11-08-50284-91.

On 23 December 1992, Labor Arbiter Arturo P. Aponesto handed down a decision   dismissing the
2

complaint on the ground that the private respondents were mere contractual workers, and not
regular employees; hence, they could not avail of the law on security of tenure. The termination of
their services by reason of the expiration of their contracts of employment was, therefore, justified.
He pointed out that earlier he had dismissed a case entitled "Lakas ng Anak-Pawis-NOWM v. Pure
Foods Corp." (Case No. RAB-11-02-00088-88) because the complainants therein were not regular
employees of Pure Foods, as their contracts of employment were for a fixed period of five months.
Moreover, in another case involving the same contractual workers of Pure Foods (Case No. R-196-
ROXI-MED-UR-55-89), then Secretary of Labor Ruben Torres held, in a Resolution dated 30 April
1990, that the said contractual workers were not regular employees.

The Labor Arbiter also observed that an order for private respondents' reinstatement would result in
the reemployment of more than 10,000 former contractual employees of the petitioner. Beside, by
executing a "Release and Quitclaim," the private respondents had waived and relinquished whatever
right they might have against the petitioner.

The private respondents appealed from the decision to the National Labor Relations Commission
(NLRC), Fifth Division, in Cagayan de Oro City, which docketed the case as NLRC CA No. M-
001323-93.

On 28 October 1994, the NLRC affirmed the Labor Arbiter's decision.   However, on private
3

respondents' motion for reconsideration, the NLRC rendered another decision on 30 January
1995   vacating and setting aside its decision of 28 October 1994 and holding that the private
4

respondent and their co-complainants were regular employees. It declared that the contract of
employment for five months was a "clandestine scheme employed by [the petitioner] to stifle [private
respondents'] right to security of tenure" and should therefore be struck down and disregarded for
being contrary to law, public policy, and morals. Hence, their dismissal on account of the expiration
of their respective contracts was illegal.

Accordingly, the NLRC ordered the petitioner to reinstate the private respondents to their former
position without loss of seniority rights and other privileges, with full back wages; and in case their
reinstatement would no longer be feasible, the petitioner should pay them separation pay equivalent
to one-month pay or one-half-month pay for every year of service, whichever is higher, with back
wages and 10% of the monetary award as attorney's fees.

Its motion for reconsideration having been denied,   the petitioner came to this Court contending that
5

respondent NLRC committed grave abuse of discretion amounting to lack of jurisdiction in reversing
the decision of the Labor Arbiter.

The petitioner submits that the private respondents are now estopped from questioning their
separation from petitioner's employ in view of their express conformity with the five-month duration of
their employment contracts. Besides, they fell within the exception provided in Article 280 of the
Labor Code which reads: "[E]xcept where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of the
engagement of the employee." Moreover, the first paragraph of the said article must be read and
interpreted in conjunction with the proviso in the second paragraph, which reads: "Provided that any
employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the activity in which he is
employed . . ." In the instant case, the private respondents were employed for a period of five
months only. In any event, private respondents' prayer for reinstatement is well within the purview of
the "Release and Quitclaim" they had executed wherein they unconditionally released the petitioner
from any and all other claims which might have arisen from their past employment with the
petitioner.

In its Comment, the Office of the Solicitor General (OSG) advances the argument that the private
respondents were regular employees, since they performed activities necessary and desirable in the
business or trade of the petitioner. The period of employment stipulated in the contracts of
employment was null and void for being contrary to law and public policy, as its purpose was to
circumvent the law on security of tenure. The expiration of the contract did not, therefore, justify the
termination of their employment.

The OSG further maintains that the ruling of the then Secretary of Labor and Employment in LAP-
NOWM v. Pure Foods Corporation is not binding on this Court; neither is that ruling controlling, as
the said case involved certification election and not the issue of the nature of private respondents'
employment. It also considers private respondents' quitclaim as ineffective to bar the enforcement
for the full measure of their legal rights.

The private respondents, on the other hand, argue that contracts with a specific period of
employment may be given legal effect provided, however, that they are not intended to circumvent
the constitutional guarantee on security of tenure. They submit that the practice of the petitioner in
hiring workers to work for a fixed duration of five months only to replace them with other workers of
the same employment duration was apparently to prevent the regularization of these so-called
"casuals," which is a clear circumvention of the law on security of tenure.

We find the petition devoid of merit.

Article 280 of the Labor Code defines regular and casual employment as follows:

Art. 280. Regular and Casual Employment. — The provisions of written agreement to
the contrary notwithstanding and regardless of the oral argument of the parties, an
employment shall be deemed to be regular where the employee has been engaged
to perform activities which are usually necessary or desirable in the usual business
or trade of the employer, except where the employment has been fixed for a specific
project or undertaking the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the
season.

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

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

Thus, the two kinds of regular employees are (1) those who are engaged to perform activities which
are necessary or desirable in the usual business or trade of the employer; and (2) those casual
employees who have rendered at least one year of service, whether continuous or broken, with
respect to the activity in which they are employed. 6

In the instant case, the private respondents' activities consisted in the receiving, skinning, loining,
packing, and casing-up of tuna fish which were then exported by the petitioner. Indisputably, they
were performing activities which were necessary and desirable in petitioner's business or trade.

Contrary to petitioner's submission, the private respondents could not be regarded as having been
hired for a specific project or undertaking. The term "specific project or undertaking" under Article
280 of the Labor Code contemplates an activity which is not commonly or habitually performed or
such type of work which is not done on a daily basis but only for a specific duration of time or until
completion; the services employed are then necessary and desirable in the employer's usual
business only for the period of time it takes to complete the project. 7

The fact that the petitioner repeatedly and continuously hired workers to do the same kind of work as
that performed by those whose contracts had expired negates petitioner's contention that those
workers were hired for a specific project or undertaking only.

Now on the validity of private respondents' five-month contracts of employment. In the leading case
of Brent School, Inc. v. Zamora,   which was reaffirmed in numerous subsequent cases,   this Court
8 9

has upheld the legality of fixed-term employment. It ruled that the decisive determinant in term
employment should not be the activities that the employee is called upon to perform but the day
certain agreed upon by the parties for the commencement and termination of their employment
relationship. But, this Court went on to say that where from the circumstances it is apparent that the
periods have been imposed to preclude acquisition of tenurial security by the employee, they should
be struck down or disregarded as contrary to public policy and morals.

Brent also laid down the criteria under which term employment cannot be said to be in circumvention
of the law on security of tenure:
1) The fixed period of employment was knowingly and voluntarily agreed upon by the parties without
any force, duress, or improper pressure being brought to bear upon the employee and absent any
other circumstances vitiating his consent; or

2) It satisfactorily appears that the employer and the employee dealt with each other on more or less
equal terms with no moral dominance exercised by the former over the latter.  10

None of these criteria had been met in the present case. As pointed out by the private respondents:

[I]t could not be supposed that private respondents and all other so-called "casual"
workers of [the petitioner] KNOWINGLY and VOLUNTARILY agreed to the 5-month
employment contract. Cannery workers are never on equal terms with their
employers. Almost always, they agree to any terms of an employment contract just to
get employed considering that it is difficult to find work given their ordinary
qualifications. Their freedom to contract is empty and hollow because theirs is the
freedom to starve if they refuse to work as casual or contractual workers. Indeed, to
the unemployed, security of tenure has no value. It could not then be said that
petitioner and private respondents "dealt with each other on more or less equal terms
with no moral dominance whatever being exercised by the former over the latter.  10

The petitioner does not deny or rebut private respondents' averments (1) that the main bulk of its
workforce consisted of its so-called "casual" employees; (2) that as of July 1991, "casual" workers
numbered 1,835; and regular employee, 263; (3) that the company hired "casual" every month for
the duration of five months, after which their services were terminated and they were replaced by
other "casual" employees on the same five-month duration; and (4) that these "casual" employees
were actually doing work that were necessary and desirable in petitioner's usual business.

As a matter of fact, the petitioner even stated in its position paper submitted to the Labor Arbiter that,
according to its records, the previous employees of the company hired on a five-month basis
numbered about 10,000 as of July 1990. This confirms private respondents' allegation that it was
really the practice of the company to hire workers on a uniformly fixed contract basis and replace
them upon the expiration of their contracts with other workers on the same employment duration.

This scheme of the petitioner was apparently designed to prevent the private respondents and the
other "casual" employees from attaining the status of a regular employee. It was a clear
circumvention of the employees' right to security of tenure and to other benefits like minimum wage,
cost-of-living allowance, sick leave, holiday pay, and 13th month pay.   Indeed, the petitioner
11

succeeded in evading the application of labor laws. Also, it saved itself from the trouble or burden of
establishing a just cause for terminating employees by the simple expedient of refusing to renew the
employment contracts.

The five-month period specified in private respondents' employment contracts having been imposed
precisely to circumvent the constitutional guarantee on security of tenure should, therefore, be struck
down or disregarded as contrary to public policy or morals.   To uphold the contractual arrangement
12

between the petitioner and the private respondents would, in effect, permit the former to avoid hiring
permanent or regular employees by simply hiring them on a temporary or casual basis, thereby
violating the employees' security of tenure in their jobs. 
13

The execution by the private respondents of a "Release and Quitclaim" did not preclude them from
questioning the termination of their services. Generally, quitclaims by laborers are frowned upon as
contrary to public policy and are held to be ineffective to bar recovery for the full measure of the
workers' rights.   The reason for the rule is that the employer and the employee do not stand on the
14

same footing.  15

Notably, the private respondents lost not time in filing a complaint for illegal dismissal. This act is
hardly expected from employees who voluntarily and freely consented to their dismissal.  16

The NLRC was, thus, correct in finding that the private respondents were regular employees and
that they were illegally dismissed from their jobs. Under Article 279 of the Labor Code and the recent
jurisprudence,   the legal consequence of illegal dismissal is reinstatement without loss of seniority
17

rights and other privileges, with full back wages computed from the time of dismissal up to the time
of actual reinstatement, without deducting the earnings derived elsewhere pending the resolution of
the case.

However, since reinstatement is no longer possible because the petitioner's tuna cannery plant had,
admittedly, been close in November 1994,   the proper award is separation pay equivalent to one
18

month pay or one-half month pay for every year of service, whichever is higher, to be computed from
the commencement of their employment up to the closure of the tuna cannery plant. The amount of
back wages must be computed from the time the private respondents were dismissed until the time
petitioner's cannery plant ceased operation.  19

WHEREFORE, for lack of merit, the instant petition is DISMISSED and the challenged decision of 30
January 1995 of the National Labor Relations Commission in NLRC CA No. N-001323-93 is hereby
AFFIRMED subject to the above modification on the computation of the separation pay and back
wages.

SO ORDERED.