G.R. No.

167648             January 28, 2008

TELEVISION AND PRODUCTION EXPONENTS, INC. and/or ANTONIO P. TUVIERA, petitioners,

vs.
ROBERTO C. SERVAÑA, respondent.

DECISION

TINGA, J.:

This petition for review under Rule 45 assails the 21 December 2004 Decision1 and 8 April 2005 Resolution2 of the Court
of Appeals declaring Roberto Servaña (respondent) a regular employee of petitioner Television and Production
Exponents, Inc. (TAPE). The appellate court likewise ordered TAPE to pay nominal damages for its failure to observe
statutory due process in the termination of respondent’s employment for authorized cause.

TAPE is a domestic corporation engaged in the production of television programs, such as the long-running variety
program, "Eat Bulaga!". Its president is Antonio P. Tuviera (Tuviera). Respondent Roberto C. Servaña had served as a
security guard for TAPE from March 1987 until he was terminated on 3 March 2000.

Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE. He alleged that he was first
connected with Agro-Commercial Security Agency but was later on absorbed by TAPE as a regular company guard. He
was detailed at Broadway Centrum in Quezon City where "Eat Bulaga!" regularly staged its productions. On 2 March
2000, respondent received a memorandum informing him of his impending dismissal on account of TAPE’s decision to
contract the services of a professional security agency. At the time of his termination, respondent was receiving a monthly
salary of P6,000.00. He claimed that the holiday pay, unpaid vacation and sick leave benefits and other monetary
considerations were withheld from him. He further contended that his dismissal was undertaken without due process and
violative of existing labor laws, aggravated by nonpayment of separation pay.3

In a motion to dismiss which was treated as its position paper, TAPE countered that the labor arbiter had no jurisdiction
over the case in the absence of an employer-employee relationship between the parties. TAPE made the following
assertions: (1) that respondent was initially employed as a security guard for Radio Philippines Network (RPN-9); (2) that
he was tasked to assist TAPE during its live productions, specifically, to control the crowd; (3) that when RPN-9 severed
its relationship with the security agency, TAPE engaged respondent’s services, as part of the support group and thus a
talent, to provide security service to production staff, stars and guests of "Eat Bulaga!" as well as to control the audience
during the one-and-a-half hour noontime program; (4) that it was agreed that complainant would render his services until
such time that respondent company shall have engaged the services of a professional security agency; (5) that in 1995,
when his contract with RPN-9 expired, respondent was retained as a talent and a member of the support group, until such
time that TAPE shall have engaged the services of a professional security agency; (6) that respondent was not prevented
from seeking other employment, whether or not related to security services, before or after attending to his "Eat Bulaga!"
functions; (7) that sometime in late 1999, TAPE started negotiations for the engagement of a professional security
agency, the Sun Shield Security Agency; and (8) that on 2 March 2000, TAPE issued memoranda to all talents, whose
functions would be rendered redundant by the engagement of the security agency, informing them of the management’s
decision to terminate their services.4

TAPE averred that respondent was an independent contractor falling under the talent group category and was working
under a special arrangement which is recognized in the industry.5

Respondent for his part insisted that he was a regular employee having been engaged to perform an activity that is
necessary and desirable to TAPE’s business for thirteen (13) years.6

On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared respondent to be a regular employee of TAPE. The
Labor Arbiter relied on the nature of the work of respondent, which is securing and maintaining order in the studio, as
necessary and desirable in the usual business activity of TAPE. The Labor Arbiter also ruled that the termination was valid
on the ground of redundancy, and ordered the payment of respondent’s separation pay equivalent to one (1)-month pay
for every year of service. The dispositive portion of the decision reads:

WHEREFORE, complainant’s position is hereby declared redundant. Accordingly, respondents are hereby
ordered to pay complainant his separation pay computed at the rate of one (1) month pay for every year of service
or in the total amount of P78,000.00.7

On appeal, the National Labor Relations Commission (NLRC) in a Decision8 dated 22 April 2002 reversed the Labor
Arbiter and considered respondent a mere program employee, thus:

1
 We have scoured the records of this case and we find nothing to support the Labor Arbiter’s conclusion that
complainant was a regular employee.

xxxx

The primary standard to determine regularity of employment is the reasonable connection between the particular
activity performed by the employee in relation to the usual business or trade of the employer. This connection can
be determined by considering the nature and work performed and its relation to the scheme of the particular
business or trade in its entirety. x x x Respondent company is engaged in the business of production of television
shows. The records of this case also show that complainant was employed by respondent company beginning
1995 after respondent company transferred from RPN-9 to GMA-7, a fact which complainant does not dispute.
His last salary was P5,444.44 per month. In such industry, security services may not be deemed necessary and
desirable in the usual business of the employer. Even without the performance of such services on a regular
basis, respondent’s company’s business will not grind to a halt.

xxxx

Complainant was indubitably a program employee of respondent company. Unlike [a] regular employee, he did
not observe working hours x x x. He worked for other companies, such as M-Zet TV Production, Inc. at the same
time that he was working for respondent company. The foregoing indubitably shows that complainant-appellee
was a program employee. Otherwise, he would have two (2) employers at the same time.9

Respondent filed a motion for reconsideration but it was denied in a Resolution10 dated 28 June 2002.

Respondent filed a petition for certiorari with the Court of Appeals contending that the NLRC acted with grave abuse of
discretion amounting to lack or excess of jurisdiction when it reversed the decision of the Labor Arbiter. Respondent
asserted that he was a regular employee considering the nature and length of service rendered.11

Reversing the decision of the NLRC, the Court of Appeals found respondent to be a regular employee. We quote the
dispositive portion of the decision:

IN LIGHT OF THE FOREGOING, the petition is hereby GRANTED. The Decision dated 22 April 2002 of the
public respondent NLRC reversing the Decision of the Labor Arbiter and its Resolution dated 28 June 2002
denying petitioner’s motion for reconsideration are REVERSED and SET ASIDE. The Decision dated 29 June
2001 of the Labor Arbiter is REINSTATED with MODIFICATION in that private respondents are ordered to pay
jointly and severally petitioner the amount of P10,000.00 as nominal damages for non-compliance with the
statutory due process.

SO ORDERED.12

Finding TAPE’s motion for reconsideration without merit, the Court of Appeals issued a Resolution13 dated 8 April 2005
denying said motion.

TAPE filed the instant petition for review raising substantially the same grounds as those in its petition for certiorari before
the Court of Appeals. These matters may be summed up into one main issue: whether an employer-employee relationship
exists between TAPE and respondent.

On 27 September 2006, the Court gave due course to the petition and considered the case submitted for decision.14

At the outset, it bears emphasis that the existence of employer-employee relationship is ultimately a question of fact.
Generally, only questions of law are entertained in appeals by certiorari to the Supreme Court. This rule, however, is not
absolute. Among the several recognized exceptions is when the findings of the Court of Appeals and Labor Arbiters, on
one hand, and that of the NLRC, on the other, are conflicting,15 as obtaining in the case at bar.

Jurisprudence is abound with cases that recite the factors to be considered in determining the existence of employer-
employee relationship, namely: (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 method by which
the work is to be accomplished.16 The most important factor involves the control test. Under the control test, there is an
employer-employee relationship when the person for whom the services are performed reserves the right to control not
only the end achieved but also the manner and means used to achieve that end.17

In concluding that respondent was an employee of TAPE, the Court of Appeals applied the "four-fold test" in this wise:

2
 First. The selection and hiring of petitioner was done by private respondents. In fact, private respondents
themselves admitted having engaged the services of petitioner only in 1995 after TAPE severed its relations with
RPN Channel 9.

By informing petitioner through the Memorandum dated 2 March 2000, that his services will be terminated as
soon as the services of the newly hired security agency begins, private respondents in effect acknowledged
petitioner to be their employee. For the right to hire and fire is another important element of the employer-
employee relationship.

Second. Payment of wages is one of the four factors to be considered in determining the existence of employer-
employee relation. . . Payment as admitted by private respondents was given by them on a monthly basis at a
rate of P5,444.44.

Third. Of the four elements of the employer-employee relationship, the "control test" is the most important. x x x

The bundy cards representing the time petitioner had reported for work are evident proofs of private respondents’
control over petitioner more particularly with the time he is required to report for work during the noontime
program of "Eat Bulaga!" If it were not so, petitioner would be free to report for work anytime even not during the
noontime program of "Eat Bulaga!" from 11:30 a.m. to 1:00 p.m. and still gets his compensation for being a
"talent." Precisely, he is being paid for being the security of "Eat Bulaga!" during the above-mentioned period. The
daily time cards of petitioner are not just for mere record purposes as claimed by private respondents. It is a form
of control by the management of private respondent TAPE.18

TAPE asseverates that the Court of Appeals erred in applying the "four-fold test" in determining the existence of
employer-employee relationship between it and respondent. With respect to the elements of selection, wages and
dismissal, TAPE proffers the following arguments: that it never hired respondent, instead it was the latter who offered his
services as a talent to TAPE; that the Memorandum dated 2 March 2000 served on respondent was for the
discontinuance of the contract for security services and not a termination letter; and that the talent fees given to
respondent were the pre-agreed consideration for the services rendered and should not be construed as wages. Anent
the element of control, TAPE insists that it had no control over respondent in that he was free to employ means and
methods by which he is to control and manage the live audiences, as well as the safety of TAPE’s stars and guests.19

The position of TAPE is untenable. Respondent was first connected with Agro-Commercial Security Agency, which
assigned him to assist TAPE in its live productions. When the security agency’s contract with RPN-9 expired in 1995,
respondent was absorbed by TAPE or, in the latter’s language, "retained as talent." 20 Clearly, respondent was hired by
TAPE. Respondent presented his identification card21 to prove that he is indeed an employee of TAPE. It has been in held
that in a business establishment, an identification card is usually provided not just as a security measure but to mainly
identify the holder thereof as a bona fide employee of the firm who issues it.22

Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE prefers to designate such amount
as talent fees. Wages, as defined in the Labor Code, are remuneration or earnings, however designated, capable of being
expressed in terms of money, whether fixed or ascertained on a time, task, piece or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered. It is beyond dispute that respondent
received a fixed amount as monthly compensation for the services he rendered to TAPE.

The Memorandum informing respondent of the discontinuance of his service proves that TAPE had the power to dismiss
respondent.

Control is manifested in the bundy cards submitted by respondent in evidence. He was required to report daily and
observe definite work hours. To negate the element of control, TAPE presented a certification from M-Zet Productions to
prove that respondent also worked as a studio security guard for said company. Notably, the said certificate categorically
stated that respondent reported for work on Thursdays from 1992 to 1995. It can be recalled that during said period,
respondent was still working for RPN-9. As admitted by TAPE, it absorbed respondent in late 1995.23

TAPE further denies exercising control over respondent and maintains that the latter is an independent contractor.24 Aside
from possessing substantial capital or investment, a legitimate job contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the control and direction of the principal in all
matters connected with the performance of the work except as to the results thereof. 25 TAPE failed to establish that
respondent is an independent contractor. As found by the Court of Appeals:

3
 We find the annexes submitted by the private respondents insufficient to prove that herein petitioner is indeed an
independent contractor. None of the above conditions exist in the case at bar. Private respondents failed to show
that petitioner has substantial capital or investment to be qualified as an independent contractor. They likewise
failed to present a written contract which specifies the performance of a specified piece of work, the nature and
extent of the work and the term and duration of the relationship between herein petitioner and private respondent
TAPE.26

TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in classifying respondent as a program
employee and equating him to be an independent contractor.

Policy Instruction No. 40 defines program employees as—

x x x those whose skills, talents or services are engaged by the station for a particular or specific program or
undertaking and who are not required to observe normal working hours such that on some days they work for less
than eight (8) hours and on other days beyond the normal work hours observed by station employees and are
allowed to enter into employment contracts with other persons, stations, advertising agencies or sponsoring
companies. The engagement of program employees, including those hired by advertising or sponsoring
companies, shall be under a written contract specifying, among other things, the nature of the work to be
performed, rates of pay and the programs in which they will work. The contract shall be duly registered by the
station with the Broadcast Media Council within three (3) days from its consummation.27

TAPE failed to adduce any evidence to prove that it complied with the requirements laid down in the policy instruction. It
did not even present its contract with respondent. Neither did it comply with the contract-registration requirement.

Even granting arguendo that respondent is a program employee, stills, classifying him as an independent contractor is
misplaced. The Court of Appeals had this to say:

We cannot subscribe to private respondents’ conflicting theories. The theory of private respondents that petitioner
is an independent contractor runs counter to their very own allegation that petitioner is a talent or a program
employee. An independent contractor is not an employee of the employer, while a talent or program employee is
an employee. The only difference between a talent or program employee and a regular employee is the fact that a
regular employee is entitled to all the benefits that are being prayed for. This is the reason why private
respondents try to seek refuge under the concept of an independent contractor theory. For if petitioner were
indeed an independent contractor, private respondents will not be liable to pay the benefits prayed for in
petitioner’s complaint.28

More importantly, respondent had been continuously under the employ of TAPE from 1995 until his termination in March
2000, or for a span of 5 years. Regardless of whether or not respondent had been performing work that is necessary or
desirable to the usual business of TAPE, respondent is still considered a regular employee under Article 280 of the Labor
Code which 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 engagement of the employee or where the
work or service to be performed is seasonal in nature and 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.

As a regular employee, respondent cannot be terminated except for just cause or when authorized by law. 29 It is clear
from the tenor of the 2 March 2000 Memorandum that respondent’s termination was due to redundancy. Thus, the Court
of Appeals correctly disposed of this issue, viz:

Article 283 of the Labor Code provides that the employer may also terminate the employment of any employee
due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or
cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing
the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at
least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving

4
 devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his
one (1) month pay or to at least one (1) month pay for every year or service, whichever is higher.

xxxx

We uphold the finding of the Labor Arbiter that "complainant [herein petitioner] was terminated upon [the]
management’s option to professionalize the security services in its operations. x x x" However, [we] find that
although petitioner’s services [sic] was for an authorized cause, i.e., redundancy, private respondents failed to
prove that it complied with service of written notice to the Department of Labor and Employment at least one
month prior to the intended date of retrenchment. It bears stressing that although notice was served upon
petitioner through a Memorandum dated 2 March 2000, the effectivity of his dismissal is fifteen days from the start
of the agency’s take over which was on 3 March 2000. Petitioner’s services with private respondents were
severed less than the month requirement by the law.

Under prevailing jurisprudence the termination for an authorized cause requires payment of separation pay.
Procedurally, if the dismissal is based on authorized causes under Articles 283 and 284, the employer must give
the employee and the Deparment of Labor and Employment written notice 30 days prior to the effectivity of his
separation. Where the dismissal is for an authorized cause but due process was not observed, the dismissal
should be upheld. While the procedural infirmity cannot be cured, it should not invalidate the dismissal. However,
the employer should be liable for non-compliance with procedural requirements of due process.

xxxx

Under recent jurisprudence, the Supreme Court fixed the amount of P30,000.00 as nominal damages. The basis
of the violation of petitioners’ right to statutory due process by the private respondents warrants the payment of
indemnity in the form of nominal damages. The amount of such damages is addressed to the sound discretion of
the court, taking into account the relevant circumstances. We believe this form of damages would serve to deter
employer from future violations of the statutory due process rights of the employees. At the very least, it provides
a vindication or recognition of this fundamental right granted to the latter under the Labor Code and its
Implementing Rules. Considering the circumstances in the case at bench, we deem it proper to fix it
at P10,000.00.30

In sum, we find no reversible error committed by the Court of Appeals in its assailed decision.

However, with respect to the liability of petitioner Tuviera, president of TAPE, absent any showing that he acted with
malice or bad faith in terminating respondent, he cannot be held solidarily liable with TAPE. 31 Thus, the Court of Appeals
ruling on this point has to be modified.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that
only petitioner Television and Production Exponents, Inc. is liable to pay respondent the amount of P10,000.00 as nominal
damages for non-compliance with the statutory due process and petitioner Antonio P. Tuviera is accordingly absolved
from liability.

SO ORDERED.

5
G.R. Nos. 169295-96             November 20, 2006

REMINGTON INDUSTRIAL SALES CORPORATION, Petitioner,

vs.
ERLINDA CASTANEDA, Respondent.

DECISION

PUNO, J.:

Before this Court is the Petition for Review on Certiorari1 filed by Remington Industrial Sales Corporation to reverse and
set aside the Decision2 of the Fourth Division of the Court of Appeals in CA-G.R. SP Nos. 64577 and 68477, dated
January 31, 2005, which dismissed petitioner’s consolidated petitions for certiorari, and its subsequent Resolution, 3 dated
August 11, 2005, which denied petitioner’s motion for reconsideration.

The antecedent facts of the case, as narrated by the Court of Appeals, are as follows:

The present controversy began when private respondent, Erlinda Castaneda ("Erlinda") instituted on March 2, 1998 a
complaint for illegal dismissal, underpayment of wages, non-payment of overtime services, non-payment of service
incentive leave pay and non-payment of 13th month pay against Remington before the NLRC, National Capital Region,
Quezon City. The complaint impleaded Mr. Antonio Tan in his capacity as the Managing Director of Remington.

Erlinda alleged that she started working in August 1983 as company cook with a salary of Php 4,000.00 for Remington, a
corporation engaged in the trading business; that she worked for six (6) days a week, starting as early as 6:00 a.m.
because she had to do the marketing and would end at around 5:30 p.m., or even later, after most of the employees, if not
all, had left the company premises; that she continuously worked with Remington until she was unceremoniously
prevented from reporting for work when Remington transferred to a new site in Edsa, Caloocan City. She averred that she
reported for work at the new site in Caloocan City on January 15, 1998, only to be informed that Remington no longer
needed her services. Erlinda believed that her dismissal was illegal because she was not given the notices required by
law; hence, she filed her complaint for reinstatement without loss of seniority rights, salary differentials, service incentive
leave pay, 13th month pay and 10% attorney’s fees.

Remington denied that it dismissed Erlinda illegally. It posited that Erlinda was a domestic helper, not a regular employee;
Erlinda worked as a cook and this job had nothing to do with Remington’s business of trading in construction or hardware
materials, steel plates and wire rope products. It also contended that contrary to Erlinda’s allegations that the (sic) she
worked for eight (8) hours a day, Erlinda’s duty was merely to cook lunch and "merienda", after which her time was hers to
spend as she pleased. Remington also maintained that it did not exercise any degree of control and/or supervision over
Erlinda’s work as her only concern was to ensure that the employees’ lunch and "merienda" were available and served at
the designated time. Remington likewise belied Erlinda’s assertion that her work extended beyond 5:00 p.m. as she could
only leave after all the employees had gone. The truth, according to Remington, is that Erlinda did not have to punch any
time card in the way that other employees of Remington did; she was free to roam around the company premises, read
magazines, and to even nap when not doing her assigned chores. Remington averred that the illegal dismissal complaint
lacked factual and legal bases. Allegedly, it was Erlinda who refused to report for work when Remington moved to a new
location in Caloocan City.

In a Decision4 dated January 19, 1999, the labor arbiter dismissed the complaint and ruled that the respondent was a
domestic helper under the personal service of Antonio Tan, finding that her work as a cook was not usually necessary and
desirable in the ordinary course of trade and business of the petitioner corporation, which operated as a trading company,
and that the latter did not exercise control over her functions. On the issue of illegal dismissal, the labor arbiter found that
it was the respondent who refused to go with the family of Antonio Tan when the corporation transferred office and that,
therefore, respondent could not have been illegally dismissed.

Upon appeal, the National Labor Relations Commission (NLRC) rendered a Decision,5 dated November 23, 2000,
reversing the labor arbiter, ruling, viz:

We are not inclined to uphold the declaration below that complainant is a domestic helper of the family of Antonio Tan.
There was no allegation by respondent that complainant had ever worked in the residence of Mr. Tan. What is clear from
the facts narrated by the parties is that complainant continuously did her job as a cook in the office of respondent serving
the needed food for lunch and merienda of the employees. Thus, her work as cook inured not for the benefit of the family
members of Mr. Tan but solely for the individual employees of respondent.

6
Complainant as an employee of respondent company is even bolstered by no less than the certification dated May 23,
1997 issued by the corporate secretary of the company certifying that complainant is their bonafide employee. This is a
solid evidence which the Labor Arbiter simply brushed aside. But, such error would not be committed here as it would be
at the height of injustice if we are to declare that complainant is a domestic helper.

Complainant’s work schedule and being paid a monthly salary of ₱4,000.00 are clear indication that she is a company
employee who had been employed to cater to the food needed by the employees which were being provided by
respondent to form part of the benefit granted them.

With regard to the issue of illegal dismissal, we believe that there is more reason to believe that complainant was not
dismissed because allegedly she was the one who refused to work in the new office of respondent. However,
complainant’s refusal to join the workforce due to poor eyesight could not be considered abandonment of work or
voluntary resignation from employment.

Under the Labor Code as amended, an employee who reaches the age of sixty years old (60 years) has the option to
retire or to separate from the service with payment of separation pay/retirement benefit.

In this case, we notice that complainant was already 60 years old at the time she filed the complaint praying for separation
pay or retirement benefit and some money claims.

Based on Article 287 of the Labor Code as amended, complainant is entitled to be paid her separation pay/retirement
benefit equivalent to one-half (1/2) month for every year of service. The amount of separation pay would be based on the
prescribed minimum wage at the time of dismissal since she was then underpaid. In as much as complainant is underpaid
of her wages, it behooves that she should be paid her salary differential for the last three years prior to
separation/retirement.

x x x           x x x          x x x

WHEREFORE, premises considered, the assailed decision is hereby, SET ASIDE, and a new one is hereby entered
ordering respondents to pay complainant the following:

1. Salary differential - ₱12,021.12 2. Service Incentive Leave Pay - 2,650.00 3. 13th Month Pay differential - 1,001.76 4.
Separation Pay/retirement benefit - 36,075.00

Total - ₱51,747.88

SO ORDERED.

Petitioner moved to reconsider this decision but the NLRC denied the motion. This denial of its motion prompted petitioner
to file a Petition for Certiorari6 with the Court of Appeals, docketed as CA-G.R. SP No. 64577, on May 4, 2001, imputing
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the NLRC in (1) reversing in toto the
decision of the labor arbiter, and (2) awarding in favor of respondent salary differential, service incentive leave pay, 13th
month pay differential and separation benefits in the total sum of ₱51,747.88.

While the petition was pending with the Court of Appeals, the NLRC rendered another Decision7 in the same case on
August 29, 2001. How and why another decision was rendered is explained in that decision as follows:

On May 17, 2001, complainant filed a Manifestation praying for a resolution of her Motion for Reconsideration and, in
support thereof, alleges that, sometime December 18, 2000, she mailed her Manifestation and Motion for Reconsideration
registered as Registered Certificate No. 188844; and that the said mail was received by the NLRC, through a certain
Roland Hernandez, on December 26, 2000. Certifications to this effect was issued by the Postmaster of the Sta. Mesa
Post Office bearing the date May 11, 2001 (Annexes A and B, Complainant’s Manifestation).

Evidence in support of complainant’s having actually filed a Motion for Reconsideration within the reglementary period
having been sufficiently established, a determination of its merits is thus, in order.

On the merits, the NLRC found respondent’s motion for reconsideration meritorious leading to the issuance of its second
decision with the following dispositive portion:

WHEREFORE, premises considered, the decision dated November 23, 2000, is MODIFIED by increasing the award of
retirement pay due the complainant in the total amount of SIXTY TWO THOUSAND FOUR HUNDRED THIRTY-SEVEN

7
and 50/100 (₱62,437.50). All other monetary relief so adjudged therein are maintained and likewise made payable to the
complainant.

SO ORDERED.

Petitioner challenged the second decision of the NLRC, including the resolution denying its motion for reconsideration,
through a second Petition for Certiorari8 filed with the Court of Appeals, docketed as CA-G.R. SP No. 68477 and dated
January 8, 2002, this time imputing grave abuse of discretion amounting to lack of or excess of jurisdiction on the part of
the NLRC in (1) issuing the second decision despite losing its jurisdiction due to the pendency of the first petition for
certiorari with the Court of Appeals, and (2) assuming it still had jurisdiction to issue the second decision notwithstanding
the pendency of the first petition for certiorari with the Court of Appeals, that its second decision has no basis in law since
respondent’s motion for reconsideration, which was made the basis of the second decision, was not filed under oath in
violation of Section 14, Rule VII9 of the New Rules of Procedure of the NLRC and that it contained no certification as to
why respondent’s motion for reconsideration was not decided on time as also required by Section 10, Rule VI 10 and
Section 15, Rule VII11 of the aforementioned rules.

Upon petitioner’s motion, the Court of Appeals ordered the consolidation of the two (2) petitions, on January 24, 2002,
pursuant to Section 7, par. b(3), Rule 3 of the Revised Rules of the Court of Appeals. It summarized the principal issues
raised in the consolidated petitions as follows:

1. Whether respondent is petitioner’s regular employee or a domestic helper;

2. Whether respondent was illegally dismissed; and

3. Whether the second NLRC decision promulgated during the pendency of the first petition for certiorari has
basis in law.

On January 31, 2005, the Court of Appeals dismissed the consolidated petitions for lack of merit, finding no grave abuse
of discretion on the part of the NLRC in issuing the assailed decisions.

On the first issue, it upheld the ruling of the NLRC that respondent was a regular employee of the petitioner since the
former worked at the company premises and catered not only to the personal comfort and enjoyment of Mr. Tan and his
family, but also to that of the employees of the latter. It agreed that petitioner enjoys the prerogative to control
respondent’s conduct in undertaking her assigned work, particularly the nature and situs of her work in relation to the
petitioner’s workforce, thereby establishing the existence of an employer-employee relationship between them.

On the issue of illegal dismissal, it ruled that respondent has attained the status of a regular employee in her service with
the company. It noted that the NLRC found that no less than the company’s corporate secretary certified that respondent
is a bonafide company employee and that she had a fixed schedule and routine of work and was paid a monthly salary of
₱4,000.00; that she served with petitioner for 15 years starting in 1983, buying and cooking food served to company
employees at lunch and merienda; and that this work was usually necessary and desirable in the regular business of the
petitioner. It held that as a regular employee, she enjoys the constitutionally guaranteed right to security of tenure and that
petitioner failed to discharge the burden of proving that her dismissal on January 15, 1998 was for a just or authorized
cause and that the manner of dismissal complied with the requirements under the law.

Finally, on petitioner’s other arguments relating to the alleged irregularity of the second NLRC decision, i.e., the fact that
respondent’s motion for reconsideration was not under oath and had no certification explaining why it was not resolved
within the prescribed period, it held that such violations relate to procedural and non-jurisdictional matters that cannot
assume primacy over the substantive merits of the case and that they do not constitute grave abuse of discretion
amounting to lack or excess of jurisdiction that would nullify the second NLRC decision.

The Court of Appeals denied petitioner’s contention that the NLRC lost its jurisdiction to issue the second decision when it
received the order indicating the Court of Appeals’ initial action on the first petition for certiorari that it filed. It ruled that the
NLRC’s action of issuing a decision in installments was not prohibited by its own rules and that the need for a second
decision was justified by the fact that respondent’s own motion for reconsideration remained unresolved in the first
decision. Furthermore, it held that under Section 7, Rule 65 of the Revised Rules of Court, 12 the filing of a petition for
certiorari does not interrupt the course of the principal case unless a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent from further proceeding with the case.

From this decision, petitioner filed a motion for reconsideration on February 22, 2005, which the Court of Appeals denied
through a resolution dated August 11, 2005.

8
Hence, the present petition for review.

The petitioner raises the following errors of law: (1) the Court of Appeals erred in affirming the NLRC’s ruling that the
respondent was petitioner’s regular employee and not a domestic helper; (2) the Court of Appeals erred in holding that
petitioner was guilty of illegal dismissal; and (3) the Court of Appeals erred when it held that the issuance of the second
NLRC decision is proper.

The petition must fail. We affirm that respondent was a regular employee of the petitioner and that the latter was guilty of
illegal dismissal.

Before going into the substantive merits of the present controversy, we shall first resolve the propriety of the issuance of
the second NLRC decision.

The petitioner contends that the respondent’s motion for reconsideration, upon which the second NLRC decision was
based, was not under oath and did not contain a certification as to why it was not decided on time as required under the
New Rules of Procedure of the NLRC.13 Furthermore, the former also raises for the first time the contention that
respondent’s motion was filed beyond the ten (10)-calendar day period required under the same Rules, 14 since the latter
received a copy of the first NLRC decision on December 6, 2000, and respondent filed her motion only on December 18,
2000. Thus, according to petitioner, the respondent’s motion for reconsideration was a mere scrap of paper and the
second NLRC decision has no basis in law.

We do not agree.

It is well-settled that the application of technical rules of procedure may be relaxed to serve the demands of substantial
justice, particularly in labor cases.15 Labor cases must be decided according to justice and equity and the substantial
merits of the controversy.16 Rules of procedure are but mere tools designed to facilitate the attainment of justice.17 Their
strict and rigid application, which would result in technicalities that tend to frustrate rather than promote substantial justice,
must always be avoided.18

This Court has consistently held that the requirement of verification is formal, and not jurisdictional. Such requirement is
merely a condition affecting the form of the pleading, non-compliance with which does not necessarily render it fatally
defective. Verification is simply intended to secure an assurance that the allegations in the pleading are true and correct
and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith. 19 The court
may order the correction of the pleading if verification is lacking or act on the pleading although it is not verified, if the
attending circumstances are such that strict compliance with the rules may be dispensed with in order that the ends of
justice may thereby be served.20

Anent the argument that respondent’s motion for reconsideration, on which the NLRC’s second decision was based, was
filed out of time, such issue was only brought up for the first time in the instant petition where no new issues may be
raised by a party in his pleadings without offending the right to due process of the opposing party.

Nonetheless, the petitioner asserts that the respondent received a copy of the NLRC’s first decision on December 6,
2000, and the motion for reconsideration was filed only on December 18, 2000, or two (2) days beyond the ten (10)-
calendar day period requirement under the New Rules of Procedure of the NLRC and should not be allowed.21

This contention must fail.

Under Article 22322 of the Labor Code, the decision of the NLRC shall be final and executory after ten (10) calendar days
from the receipt thereof by the parties.

While it is an established rule that the perfection of an appeal in the manner and within the period prescribed by law is not
only mandatory but jurisdictional, and failure to perfect an appeal has the effect of rendering the judgment final and
executory, it is equally settled that the NLRC may disregard the procedural lapse where there is an acceptable reason to
excuse tardiness in the taking of the appeal. 23 Among the acceptable reasons recognized by this Court are (a) counsel's
reliance on the footnote of the notice of the decision of the Labor Arbiter that "the aggrieved party may appeal. . . within
ten (10) working days";24 (b) fundamental consideration of substantial justice;25 (c) prevention of miscarriage of justice or of
unjust enrichment, as where the tardy appeal is from a decision granting separation pay which was already granted in an
earlier final decision;26 and (d) special circumstances of the case combined with its legal merits27 or the amount and the
issue involved.28

We hold that the particular circumstances in the case at bar, in accordance with substantial justice, call for a liberalization
of the application of this rule. Notably, respondent’s last day for filing her motion for reconsideration fell on December 16,

9
2000, which was a Saturday. In a number of cases,29 we have ruled that if the tenth day for perfecting an appeal fell on a
Saturday, the appeal shall be made on the next working day. The reason for this ruling is that on Saturdays, the office of
the NLRC and certain post offices are closed. With all the more reason should this doctrine apply to respondent’s filing of
the motion for reconsideration of her cause, which the NLRC itself found to be impressed with merit. Indeed, technicality
should not be permitted to stand in the way of equitably and completely resolving the rights and obligations of the parties
for the ends of justice are reached not only through the speedy disposal of cases but, more importantly, through a
meticulous and comprehensive evaluation of the merits of a case.

Finally, as to petitioner’s argument that the NLRC had already lost its jurisdiction to decide the case when it filed its
petition for certiorari with the Court of Appeals upon the denial of its motion for reconsideration, suffice it to state that
under Section 7 of Rule 6530 of the Revised Rules of Court, the petition shall not interrupt the course of the principal case
unless a temporary restraining order or a writ of preliminary injunction has been issued against the public respondent from
further proceeding with the case. Thus, the mere pendency of a special civil action for certiorari, in connection with a
pending case in a lower court, does not interrupt the course of the latter if there is no writ of injunction. 31 Clearly, there was
no grave abuse of discretion on the part of the NLRC in issuing its second decision which modified the first, especially
since it failed to consider the respondent’s motion for reconsideration when it issued its first decision.

Having resolved the procedural matters, we shall now delve into the merits of the petition to determine whether
respondent is a domestic helper or a regular employee of the petitioner, and whether the latter is guilty of illegal dismissal.

Petitioner relies heavily on the affidavit of a certain Mr. Antonio Tan and contends that respondent is the latter’s domestic
helper and not a regular employee of the company since Mr. Tan has a separate and distinct personality from the
petitioner. It maintains that it did not exercise control and supervision over her functions; and that it operates as a trading
company and does not engage in the restaurant business, and therefore respondent’s work as a cook, which was not
usually necessary or desirable to its usual line of business or trade, could not make her its regular employee.

This contention fails to impress.

In Apex Mining Company, Inc. v. NLRC,32 this Court held that a househelper in the staff houses of an industrial company
was a regular employee of the said firm. We ratiocinated that:

Under Rule XIII, Section 1(b), Book 3 of the Labor Code, as amended, the terms "househelper" or "domestic servant" are
defined as follows:

"The term ‘househelper’ as used herein is synonymous to the term ‘domestic servant’ and shall refer to any person,
whether male or female, who renders services in and about the employer’s home and which services are usually
necessary or desirable for the maintenance and enjoyment thereof, and ministers exclusively to the personal comfort and
enjoyment of the employer’s family."

The foregoing definition clearly contemplates such househelper or domestic servant who is employed in the employer’s
home to minister exclusively to the personal comfort and enjoyment of the employer’s family. Such definition covers family
drivers, domestic servants, laundry women, yayas, gardeners, houseboys and similar househelps.

x x x           x x x          x x x

The criteria is the personal comfort and enjoyment of the family of the employer in the home of said employer. While it
may be true that the nature of the work of a househelper, domestic servant or laundrywoman in a home or in a company
staffhouse may be similar in nature, the difference in their circumstances is that in the former instance they are actually
serving the family while in the latter case, whether it is a corporation or a single proprietorship engaged in business or
industry or any other agricultural or similar pursuit, service is being rendered in the staffhouses or within the premises of
the business of the employer. In such instance, they are employees of the company or employer in the business
concerned entitled to the privileges of a regular employee.

Petitioner contends that it is only when the househelper or domestic servant is assigned to certain aspects of the business
of the employer that such househelper or domestic servant may be considered as such an employee. The Court finds no
merit in making any such distinction. The mere fact that the househelper or domestic servant is working within the
premises of the business of the employer and in relation to or in connection with its business, as in its staffhouses for its
guest or even for its officers and employees, warrants the conclusion that such househelper or domestic servant is and
should be considered as a regular employee of the employer and not as a mere family househelper or domestic servant
as contemplated in Rule XIII, Section 1(b), Book 3 of the Labor Code, as amended.

10
In the case at bar, the petitioner itself admits in its position paper 33 that respondent worked at the company premises and
her duty was to cook and prepare its employees’ lunch and merienda. Clearly, the situs, as well as the nature of
respondent’s work as a cook, who caters not only to the needs of Mr. Tan and his family but also to that of the petitioner’s
employees, makes her fall squarely within the definition of a regular employee under the doctrine enunciated in the Apex
Mining case. That she works within company premises, and that she does not cater exclusively to the personal comfort of
Mr. Tan and his family, is reflective of the existence of the petitioner’s right of control over her functions, which is the
primary indicator of the existence of an employer-employee relationship.

Moreover, it is wrong to say that if the work is not directly related to the employer's business, then the person performing
such work could not be considered an employee of the latter. The determination of the existence of an employer-
employee relationship is defined by law according to the facts of each case, regardless of the nature of the activities
involved.34 Indeed, it would be the height of injustice if we were to hold that despite the fact that respondent was made to
cook lunch and merienda for the petitioner’s employees, which work ultimately redounded to the benefit of the petitioner
corporation, she was merely a domestic worker of the family of Mr. Tan.

We note the findings of the NLRC, affirmed by the Court of Appeals, that no less than the company’s corporate secretary
has certified that respondent is a bonafide company employee;35 she had a fixed schedule and routine of work and was
paid a monthly salary of ₱4,000.00;36 she served with the company for 15 years starting in 1983, buying and cooking food
served to company employees at lunch and merienda, and that this service was a regular feature of employment with the
company.37

Indubitably, the Court of Appeals, as well as the NLRC, correctly held that based on the given circumstances, the
respondent is a regular employee of the petitioner.1âwphi1

Having determined that the respondent is petitioner’s regular employee, we now proceed to ascertain the legality of her
dismissal from employment.

Petitioner contends that there was abandonment on respondent’s part when she refused to report for work when the
corporation transferred to a new location in Caloocan City, claiming that her poor eyesight would make long distance
travel a problem. Thus, it cannot be held guilty of illegal dismissal.

On the other hand, the respondent claims that when the petitioner relocated, she was no longer called for duty and that
when she tried to report for work, she was told that her services were no longer needed. She contends that the petitioner
dismissed her without a just or authorized cause and that she was not given prior notice, hence rendering the dismissal
illegal.

We rule for the respondent.

As a regular employee, respondent enjoys the right to security of tenure under Article 27938 of the Labor Code and may
only be dismissed for a just39 or authorized40 cause, otherwise the dismissal becomes illegal and the employee becomes
entitled to reinstatement and full backwages computed from the time compensation was withheld up to the time of actual
reinstatement.

Abandonment is the deliberate and unjustified refusal of an employee to resume his employment.41 It is a form of neglect
of duty; hence, a just cause for termination of employment by the employer under Article 282 of the Labor Code, which
enumerates the just causes for termination by the employer. 42 For a valid finding of abandonment, these two factors
should be present: (1) the failure to report for work or absence without valid or justifiable reason; and (2) a clear intention
to sever employer-employee relationship, with the second as the more determinative factor which is manifested by overt
acts from which it may be deduced that the employee has no more intention to work.43 The intent to discontinue the
employment must be shown by clear proof that it was deliberate and unjustified.44 This, the petitioner failed to do in the
case at bar.

Alongside the petitioner’s contention that it was the respondent who quit her employment and refused to return to work,
greater stock may be taken of the respondent’s immediate filing of her complaint with the NLRC. Indeed, an employee
who loses no time in protesting her layoff cannot by any reasoning be said to have abandoned her work, for it is well-
settled that the filing of an employee of a complaint for illegal dismissal with a prayer for reinstatement is proof enough of
her desire to return to work, thus, negating the employer’s charge of abandonment.45

In termination cases, the burden of proof rests upon the employer to show that the dismissal is for a just and valid cause;
failure to do so would necessarily mean that the dismissal was illegal. 46 The employer’s case succeeds or fails on the
strength of its evidence and not on the weakness of the employee’s defense.47 If doubt exists between the evidence
presented by the employer and the employee, the scales of justice must be tilted in favor of the latter.48

11
IN VIEW WHEREOF, the petition is DENIED for lack of merit. The assailed Decision dated January 31, 2005, and the
Resolution dated August 11, 2005, of the Court of Appeals in CA-G.R. SP Nos. 64577 and 68477 are AFFIRMED. Costs
against petitioner. SO ORDERD.

[ GR NO. 157752, Mar 16, 2005 ]

SALLY MIGUEL v. JCT GROUP +

DECISION

493 Phil. 660

PANGANIBAN, J.:

Labor arbiters are required to state the factual and legal bases of their decisions.  They thereby conform to the
requirement of due process and fair play, because parties to the controversy are informed of why and how such decisions
were reached.  When no factual findings support the conclusions made in a labor decision, a remand of the case for
further proceedings may become necessary.

The Case

Before us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, challenging the October 15, 2002
Decision[2] and the March 21, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 51228.  The assailed
Decision disposed as follows:

"WHEREFORE, the petition is GIVEN DUE COURSE and the assailed decisions of the National Labor Relations
Commission and the labor arbiter are ANNULED and SET ASIDE.  Let this case be remanded to the Arbitration Branch of
the National Labor Relations Commission for further proceedings." [4]

The March 21, 2003 Resolution denied reconsideration.

The Facts

The facts are narrated by the CA as follows:

"For several years, Glorious Sun Garment Manufacturing Company (or 'Glorious Sun') was a garment exporter until it
folded up in October 1994.  Thereafter, De Soliel [sic][5] Apparel Manufacturing Corporation [or 'De Soleil'] and American
Inter-Fashion Corporation (or 'AIFC') took over Glorious Sun's manufacturing plant, facilities and equipment and absorbed
its employees, including the [petitioners].

"Following the 1986 EDSA Revolution, the Presidential Commission on Good Government (or 'PCGG') sequestered De
Soleil and AIFC and took over their assets and operations.

"On April 24, 1989, JCT Group, Inc. (or 'JCT') and De Soleil, thru its Officer-In-Charge and Head of the PCGG
Management Team, executed a Management and Operating Agreement (or 'MOA') for the purpose of servicing De
Soleil's export quota to ensure its rehabilitation and preserve its viability    and profitability.  The MOA, which was for a
period of one year commencing on May 1, 1989 and renewable yearly at the option of JCT, expired on May 1, 1990 as it
was not renewed.

"In July 1990, De Soleil ceased business operations, effectively terminating [petitioners'] employment.

"In April 1993, [petitioners] filed complaints for illegal dismissal and payment of backwages and other monetary claims
before the National Labor Relations Commission (or 'NLRC') Arbitration Branch against De Soleil, AIFC, PCGG, Glorious
Sun, JCT, Nemesio Co and Vicente Cuevas III (or 'Cuevas').  The cases were eventually consolidated.

"On May 26, 1993, JCT and Cuevas x x x filed a motion to dismiss founded on lack of jurisdiction over the subject matter
of the action because of the absence of [an] employer-employee relationship between them and [petitioners].

12
"Without resolving the motion to dismiss, Labor Arbiter Vladimir P.L. Sampang rendered a decision dated April 18, 1995
disposing as follows:
'WHEREFORE, judgment is hereby rendered:

'1)  Declaring [De Soleil, AIFC, PCGG, Glorious Sun, JCT, Nemesio Co and Cuevas] jointly and severally guilty of illegal
dismissal and to pay complainants backwages, separation pay, service incentive leave pay, 13th    month pay, unpaid
salaries as computed by the Research and Information Unit x  x  x;

'2) Declaring [De Soleil, AIFC, PCGG, Glorious Sun, JCT, Nemesio Co and Cuevas] liable for the payment of attorney's
fees equivalent to ten (10%) percent of the total awards or P3,691,743.06.

"The monetary award, inclusive of attorney's fees, aggregated P41,313,094.98 as per computation of the Research and
Information Unit.  Considering the amount involved, [Respondents JCT and Cuevas] and Glorious Sun filed separate
motions with the NLRC for reduction of the appeal bond in order to appeal the labor arbiter's decision.

"In an order dated September 20, 1995, the NLRC reduced the amount of the appeal bond to P5,000,000.00 [which
respondents and Glorious Sun were each required to submit].  [Respondents] filed a motion for reconsideration of said
order by way of further reduction of the bond to P500,000.00.  However, the motion was denied per order dated April 15,
1996.  [Respondents] elevated the matter to the Supreme Court via a petition for certiorari (G.R. No. 125749) but it was
denied per resolution dated September 2, 1996.  [Respondents' petition was denied with finality in a resolution dated
November 13, 1996.[6]]

"Meanwhile, on May 4, 1995, Glorious Sun and [respondents] appealed the labor arbiter's decision to the NLRC. 
[Petitioners] filed a motion to dismiss both appeals on the ground that the same were not perfected for failure to post a
bond as required [under] Art. 223 of the Labor Code.

"In a decision dated September 12, 1996, the NLRC modified the labor arbiter's decision by absolving Glorious Sun from
liability and dismissing [respondents'] appeal.  x x x

"Aggrieved, [respondents] instituted [a] special civil action for certiorari before the Supreme Court.  Conformably with the
pronouncement in St. Martin Funeral Home vs. NLRC (295 SCRA 494), however, the petition was referred to the [CA] for
appropriate action and disposition."[7]

Ruling of the Court of Appeals

The CA reversed the Decision of the NLRC and remanded the case to the labor arbiter for further proceedings.  The
appellate court ruled that the circumstances presented factual questions whose resolution had to precede that of the issue
of whether private respondents were liable to petitioners.  It found no factual basis for the ruling that JCT had become the
employer of petitioners after the cessation of operations of Glorious Sun.  Similarly, the Decisions of the NLRC and the
labor arbiter failed to explain the reason for holding Cuevas solidarily liable with AIF, De Soleil and JCT. [8]

Hence, this Petition.[9]

The Issue

Petitioners state the issues in this wise:

"1.       Whether or not, [the] Court of Appeals committed grave abuse of discretion amounting to lack or x x x excess of
jurisdiction in giving due course to x x x respondents' Petition despite the said x x x respondents' [failure] to perfect their
appeal with the National Labor Relations Commission.

"2.       Whether or not, [the] Court of Appeals committed grave abuse of discretion amounting to lack or x x x excess of
jurisdiction in giving due course to x x x respondents' Petition [when] the labor arbiter and the National Labor Relations
Commission did not commit grave abuse of discretion in rendering their respective decisions.

"3.       Whether or not, [the] Court of Appeals committed grave abuse of discretion amounting to lack or x x x excess of
jurisdiction in giving due course to x x x respondents' Petition despite the [fact that] x x x respondents failed to file a
motion for reconsideration [of] the September 12, 1996 Decision of the National Labor Relations Commission."[10]

The Court's Ruling

13
The Petition has no merit.

First Issue:
The NLRC's Grave Abuse of Discretion

As the second issue is intertwined with the first and the third issues, it will be resolved first.  Petitioners contend that the
CA should not have remanded the case for further proceedings, because the labor arbiter and the NLRC had committed
no grave abuse of discretion in their Decisions.[11]

We disagree.

Grave abuse of discretion implies such capricious and whimsical exercise of judgment as to be equivalent to lack or
excess of jurisdiction.  That is, power is arbitrarily or despotically exercised by reason of passion, prejudice, or personal
hostility; and caprice is so patent or so gross as to amount to an evasion of a positive duty, or to a virtual refusal to
perform the duty enjoined or to act at all in contemplation of law. [12]

No Findings of Fact

In the present factual milieu, the labor arbiter and the NLRC gravely abused their discretion when they ruled in favor of
herein petitioners without determining the existence of an employer-employee relationship between them and
respondents.  The Decisions were silent on why JCT and Cuevas were held liable.  The following observations of the
appellate court are in point:

"In finding for [petitioners], the labor arbiter considered them regular employees for the reason that 'they performed duties,
responsibilities and functions necessary and desirable to the business of garments manufacturing and exportation     x x x'
and 'had been also working x x x for more than one year at the time of the cessation of business operation.'

"Save for his conclusion that [petitioners] were regular employees, the labor arbiter made no determination whether there
was employer-employee relationship between [respondents] and [petitioners] and, if so, whether [respondents] assumed
the obligations of [petitioners'] previous employers.  There is no dispute that given the nature of their functions and length
of    services, [petitioners] were regular employees.  But the question is:  who was/were their employer/s?

"x x x  Moreover, it does not appear from the decisions of the NLRC and the labor arbiter that JCT x x x became the
employer of [petitioners] by virtue of its MOA with De Soleil.

x x x                               x x x                             x x x

"The NLRC decision is silent on the basis for its ruling that JCT became the employer of [petitioners] after Glorious Sun
ceased operations, save for its conclusion that petitioners 'were absorbed by, or their work continued under x x x JCT'. 
Similarly, the NLRC decision, just like that of the labor arbiter, does not state the reason for the decreed solidary liability of
Cuevas x x x with JCT, De Soleil and AIF.

"Moreover, the computation [of] the monetary award totaling P37,557,317.08 (exclusive of attorney's fees) covers a period
starting on [petitioners'] initial employment (with Glorious Sun), some dating back to 1978.  However, the NLRC made no
finding that JCT (on the supposition that it became [petitioners'] employer pursuant to the MOA dated April 24, 1989) had
assumed the obligations of petitioners' previous employers, i.e., Glorious Sun, AIF and De Soleil.

"Given the factual backdrop of the case, several nagging questions have not been resolved.  Among them: x x x Was
there [an] employer-employee relationship between JCT and [petitioners] and, if so, when should such relationship be
reckoned? x x x Why was Cuevas adjudged solidary liable with AIF, De Soleil and JCT?"[13]

The facts and the law on which decisions are based must be clearly and distinctly expressed. [14]  The failure of the labor
arbiter and the NLRC to express the basis for their Decisions was an evasion of their constitutional duty, an evasion that
constituted grave abuse of discretion.

Relevant to the present case is Saballa v. National Labor Relations Commission,[15] which explained how the decision of
an administrative body must be drawn:

"This Court has previously held that judges and arbiters should draw up their decisions and resolutions with due care, and
make certain that they truly and accurately reflect their conclusions and their final dispositions. x x x. The same thing goes
14
for the findings of fact made by the NLRC, as it is a settled rule that such findings are entitled to great respect and even
finality when supported by substantial evidence; otherwise, they shall be struck down for being whimsical and capricious
and arrived at with grave abuse of discretion.  It is a requirement of due process and fair play that the parties to a litigation
be informed of how it was decided, with an explanation of the factual and legal reasons that led to the conclusions of the
court.  A decision that does not clearly and distinctly state the facts and the law on which it is based leaves the parties in
the dark as to how it was reached and is especially prejudicial to the losing party, who is unable to pinpoint the possible
errors of the court for review by a higher tribunal." [16]

Remand for
Further Proceedings

Where a judgment fails to make findings of fact, the case may be remanded to the lower tribunal to enable it to determine
them.[17]  It is necessary to remand the present case for further proceedings, because the labor arbiter and the NLRC
failed to make the factual findings needed to resolve the controversy.

The defense of respondents is anchored on an alleged lack of employer-employee relationship with petitioners as
stipulated in the former's MOA with De Soleil. [18]  JCT further claims that any relationship with De Soleil and the latter's
employees was severed upon the termination of that Agreement.[19]  It is therefore imperative to determine the nature of
the MOA -- whether or not it partook only of a consultancy agreement, in which no employer-employee relationship
existed between respondents and petitioners.

The test for determining an employer-employee relationship hinges on resolving who has the power to select employees,
who pays for their wages, who has the power to dismiss them, and who exercises control in the methods and the results
by which the work is accomplished.[20]  The last factor, the "control test," is the most important.[21]  In resolving the status of
an MOA, the test for determining an employer-employee relationship has to be applied.[22]

Indeed, the only way to find out whether Respondents JCT and Cuevas are liable to petitioners is by remanding the case
to the lower court.  To uphold the Decisions of the labor arbiter and the NLRC at this stage would amount to depriving
respondents of property without due process.  In sum, the CA did not commit reversible error in finding grave abuse of
discretion on the part of the NLRC and the labor arbiter for their failure to state the facts upon which their conclusions had
been based.

Remand in Recognition of the

Policy Favoring Employees

To repeat, a decision with nothing to support it is a patent nullity.[23]  It should be struck down and set aside as void.[24]  
Acting with utmost regard for the rights of petitioners, however, the CA did not outrightly set aside the Decisions of the
NLRC and the labor arbiter.  Instead, the CA remanded the case for further proceedings to allow petitioners to prove their
claim of illegal dismissal.  The remand of the case, instead of the dismissal of the Complaint, was beneficial to petitioners
and was made in consideration of the policy to protect and promote the general welfare of employees.

Second Issue:
Alleged Procedural Infirmities

The first and the third issues raised by petitioners refer to alleged procedural infirmities.  They argue that because
respondents allegedly failed to post the appeal bond, the latter failed to perfect their appeal to the NLRC.[25]  Petitioners
also argue that because respondents also failed to file a motion for reconsideration of the NLRC's Decision, [26] the latter's
Petition for Certiorari filed with the CA should have been denied outright.

Posting of an
Appeal Bond

Article 223 of the Labor Code regulates the posting of an appeal bond.  The pertinent portion states as follows:

In case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of
a cash or surety bond issued by a reputable bonding company duly accredited by the Commission, in the amount
equivalent to the monetary award in the judgment appealed from.

This requirement is intended to discourage employers from using an appeal to delay or even evade their obligation to
satisfy their employees' just and lawful claims.[27]  Such a requirement has been relaxed in several cases, however,
following the rule that substantial justice is better served by allowing appeals on the merits. [28]  The policy of labor laws is
to liberally construe rules of procedure[29] and settle controversies according to their merits, not to dismiss them by reason
15
of technicalities.[30]

In the present case, the Decision of the labor arbiter is a patent nullity, because it failed to state the factual and legal
bases for its conclusions.  The award granted -- the basis for the appeal bond -- was a staggering P37,557,359.08, [31] for
which no factual findings against respondents had been made.  On April 26, 1995, the latter filed with the NLRC an Urgent
Motion for the Reduction of the Bond.  The Motion was later elevated to this Court, which decided on it with finality only on
November 13, 1996.  Under the circumstances, the CA did not err in liberally construing the provision of the law requiring
the filing of a bond and in holding that the NLRC should have given respondents ample time to post the appeal bond.

Filing of a Motion for

Reconsideration

The requirement of a motion for reconsideration, as a prerequisite to the filing of a petition for certiorari, is waived under
any of the following conditions: where the decision is a patent nullity, where the issue raised is one purely of law, or where
the questions raised are exactly the same as those already squarely presented to and passed upon by the court a quo.[32] 
Taken together, the circumstances of the present controversy place the case within the exceptions to the rule requiring a
motion for reconsideration.  As the Court has declared above, the NLRC Decision is a patent nullity and would, if
sustained, violate respondents' right to due process.

Final Observation

The Court observes that the CA made a finding that the Decisions of the labor arbiter and the NLRC had included a
monetary award for individuals who were not signatories to the Complaint.[33]  Those individuals are not parties to the case
and must thus be dropped therefrom.

The Arbitration Branch of the National Labor Relations Commission must determine whether there was an employer-
employee relationship between the JCT Group, Inc., and Vicente Cuevas on the one hand and, on the other, petitioners
who had signed the Complaint; and, if there was, when respondents' liability should commence and when it should end.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.  Costs against petitioners.

SO ORDERED.

16
[G.R. NO. 149793. April 15, 2005]

WACK WACK GOLF & COUNTRY CLUB, Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION, MARTINA
G. CAGASAN, CARMENCITA F. DOMINGUEZ, and BUSINESS STAFFING AND MANAGEMENT, INC., Respondents.

DECISION

CALLEJO, SR., J.:

This is a Petition for Review of the Resolution1 of the Court of Appeals (CA) in CA-G.R. SP No. 63658, dismissing the
petition for certiorari before it for being insufficient in form and the subsequent resolution denying the motion for
reconsideration thereof.

The undisputed antecedent facts are as follows:

On November 29, 1996, a fire destroyed a large portion of the main clubhouse of the Wack Wack Golf and Country Club
(Wack Wack), including its kitchen. In view of the reconstruction of the whole clubhouse complex, Wack Wack filed a
notice with the Department of Labor and Employment (DOLE) on April 14, 1997 that it was going to suspend the
operations of the Food and Beverage (F & B) Department one (1) month thereafter. Notices to 54 employees (out of a
complement of 85 employees in the department) were also sent out, informing them that they need not report for work
anymore after April 14, 1997 but that they would still be paid their salaries up to May 14, 1997. They were further told that
they would be informed once full operations in Wack Wack resume.

The Wack Wack Golf Employees Union branded the suspension of operations of the F & B Department as arbitrary,
discriminatory and constitutive of union-busting, so they filed a notice of strike with the DOLE's National Conciliation and
Mediation Board (NCMB). Several meetings between the officers of Wack Wack and the Union, headed by its President,
Crisanto Baluyot, Sr., and assisted by its counsel, Atty. Pedro T. De Quiroz, were held until the parties entered into an
amicable settlement. An Agreement2 was forged whereby a special separation benefit/retirement package for interested
Wack Wack employees, especially those in the F & B Department was offered. The terms and conditions thereof reads as
follows:

1. The UNION and the affected employees of F & B who are members of the UNION hereby agree to accept the special
separation benefit package agreed upon between the CLUB management on the one hand, and the UNION officers and
the UNION lawyer on the other, in the amount equivalent to one-and-one-half months salary for every year of service,
regardless of the number of years of service rendered. That, in addition, said employees shall also receive the other
benefits due them, namely, the cash equivalent of unused vacation and sick leave credits, proportionate 13th month pay;
and other benefits, if any, computed without premium;

2. That the affected F & B employees who have already signified intention to be separated from the service under the
special separation benefit package shall receive their separation pay as soon as possible;

3. That the same package shall, likewise, be made available to other employees who are members of the bargaining unit
and who may or may not be affected by future similar suspensions of operations. The UNION re-affirms and recognizes
that it is the sole prerogative of the management of the Club to suspend part or all of its operations as may be
necessitated by the exigencies of the situation and the general welfare of its membership. The closure of the West
Course, which is scheduled for conversion to an All-Weather Championship golf course, is cited as an example. It is,
however, agreed that if a sufficient number of employees, other than F & B employees, would apply for availment of the
package within the next two months, the Club may no longer go through the process of formally notifying the Department
of Labor. The processing and handling of benefits for these other employees shall be done over a transition period within
one year;

4. All qualified employees who may have been separated from the service under the above package shall be considered
under a priority basis for employment by concessionaires and/or contractors, and even by the Club upon full resumption
of operations, upon the recommendation of the UNION. The Club may even persuade an employee-applicant for
availment under the package to remain on his/her job, or be assigned to another position. 3

Respondent Carmencita F. Dominguez, who was then working in the Administrative Department of Wack Wack, was the
first to avail of the special separation package.4 Computed at 1' months for every year of service pursuant to the

17
Agreement, her separation pay amounted to P91,116.84, while economic benefits amounted to P6,327.53.5 On
September 18, 1997, Dominguez signed a Release and Quitclaim6 in favor of Wack Wack.

Respondent Martina B. Cagasan was Wack Wack's Personnel Officer who, likewise, volunteered to avail of the separation
package.7 On September 30, 1997, she received from Wack Wack the amount of P469,495.66 as separation pay and
other economic benefits amounting to P17,010.50.8 A Release and Quitclaim9 was signed on September 30, 1997.

The last one to avail of the separation package was Crisanto Baluyot, Sr. who, in a Letter10 dated January 16, 1998
addressed to Mr. Bienvenido Juan, Administrative Manager of Wack Wack, signified his willingness to avail of the said
early retirement package. The total amount of P688,290.3011 was received and the Release and Quitclaim 12 signed on
May 14, 1998.

On October 15, 1997, Wack Wack entered into a Management Contract13 with Business Staffing and Management, Inc.
(BSMI), a corporation engaged in the business as Management Service Consultant undertaking and managing for a fee
projects which are specialized and technical in character like marketing, promotions, merchandising, financial
management, operation management and the like.14 BSMI was to provide management services for Wack Wack in the
following operational areas:

1. Golf operations management;

2. Management and maintenance of building facilities;

3 .Management of food and beverage operation;

4. Management of materials and procurement functions;

5. To provide and undertake administrative and support services for the [said] projects.15

Pursuant to the Agreement, the retired employees of Wack Wack by reason of their experience were given priority by
BSMI in hiring. On October 21, 1997, respondents Cagasan and Dominguez filed their respective applications16 for
employment with BSMI. They were eventually hired by BSMI to their former positions in Wack Wack as project employees
and were issued probationary contracts.17

Aside from BSMI, Wack Wack also engaged several contractors which were assigned in various operating functions of the
club, to wit:

1. Skills and Talent Employment Promotion (STEP) whose 90 workers are designated as locker attendants, golf bag
attendants, nurses, messengers, technical support engineer, golf director, agriculturist, utilities and gardeners;

2. Marvel Manpower Agency - whose 19 employees are designated as sweepers, locker attendants, drive range
attendant, telephone operator, workers and secretaries;

3 City Service Corporation - contractor for janitorial services for the whole club;

4. Microstar Business and Management Services, Inc. whose 15 employees are designated in the Finance and
Accounting departments.18

Due to these various management service contracts, BSMI undertook an organizational analysis and manpower
evaluation to determine its efficacy, and to streamline its operations. In the course of its assessment, BSMI saw that the
positions of Cagasan and Dominguez were redundant. In the case of respondent Cagasan, her tasks as personnel officer
were likewise being taken cared of by the different management service contractors; on the other hand, Dominguez's
work as telephone operator was taken over by the personnel of the accounting department. Thus, in separate
Letters19 dated February 27, 1998, the services of Dominguez and Cagasan were terminated. With respect to Baluyot, he
applied for the position of Chief Porter on May 12, 1998. The position, however, was among those recommended to be
abolished by the BSMI, so he was offered the position of Caddie Master Aide with a starting salary of P5,500.00 a month.
Baluyot declined the offer. Pending Wack Wack's approval of the proposed abolition of the position of Chief Porter,
Baluyot was temporarily accepted to the position with a monthly salary of P12,000.00. In July 1998, Baluyot decided not to
accept the position of Caddie Master Aide; thus, BSMI continued with its plan to abolish the said position of Chief Porter
and Baluyot was dismissed from the service.

Thereafter, the three (3) employees filed their respective complaints with the National Labor Relations Commission
(NLRC) for illegal dismissal and damages against Wack Wack and BSMI.

18
The complainants averred that they were dismissed without cause. They accepted the separation package upon the
assurance that they would be given their former work and assignments once the Food and Beverage Department of Wack
Wack resumes its operations. On the other hand, the respondents therein alleged that the dismissal of the complainants
were made pursuant to a study and evaluation of the different jobs and positions and found them to be redundant.

In a Decision20 dated January 25, 2000, the Labor Arbiter found that the dismissal of Dominguez and Cagasan was for a
valid and authorized cause, and dismissed their complaints.

The position of personnel manager occupied by Martina Cagasan was redundated as it is allegedly not necessary,
because her functions will be taken over [by] the field superintendent and the company's personnel and operations
manager. The work of Carmencita Dominguez on the other hand as telephone operator will be taken over by the
accounting department personnel. Such move really are intended to streamline operations. While admittedly, they are still
necessary in the operations of Wack Wack, their jobs can be assigned to some other personnel, who will be performing
dual functions and does save Wack Wack money. This is feasible on account of the fact that they are functions pertaining
to administrative work.21

As to Baluyot, however, the Labor Arbiter found that while the position of chief porter had been abolished, the caddie
master aide had been created. Their functions were one and the same. The porters, upon instructions from the chief
porter, are the ones who bring down the golf bags of the players from the vehicle. The caddie master receives them and
counts the number of clubs inside the golf set. After the game, the same procedure is repeated before the golf sets are
loaded once more into the vehicle.22 The Labor Arbiter found that the dismissal of Baluyot as Chief Porter was unjustified
and can not be considered redundant in the case at bar. It was a means resorted to in order to unduly sever Baluyot's
relationship with BSMI without justifiable cause. The Labor Arbiter therefore found Baluyot's dismissal to be illegal. The
dispositive portion of the decision reads as follows:

CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered dismissing the complaints of Carmencita F.
Dominguez and Martina Cagasan for lack of merit. Finding Crisanto Baluyot's dismissal to be illegal. Consequently, he
should immediately be reinstated to his former position as Chief Porter or Caddie Master, and paid his backwages which,
as of December 31, 1999, has accumulated in the sum of P180,000.00 by BSMI.

All other claims are dismissed for lack of merit.23

Since Baluyot no longer appealed the decision, complainants Dominguez and Cagasan filed a Partial Appeal on the
ground of prima facie abuse of discretion on the part of the Labor Arbiter and serious errors in his findings of facts and
law. Their claims were anchored on the Agreement between the Union and management, that they were promised to be
rehired upon the full resumption of operations of Wack Wack. They asserted that Wack Wack and BSMI should not avoid
responsibility to their employment, by conniving with each other to render useless and meaningless the Agreement.

BSMI also appealed to the NLRC, alleging that the Labor Arbiter committed grave abuse of discretion in finding Baluyot's
dismissal to be illegal, when in fact his position as Chief Porter was abolished pursuant to a bona fide reorganization of
Wack Wack. It was not motivated by factors other than the promotion of the interest and welfare of the company.

On September 27, 2000, the NLRC rendered its Decision24 ordering Wack Wack to reinstate Carmencita F. Dominguez
and Martina Cagasan to their positions in respondent Wack Wack Golf & Country Club with full backwages and other
benefits from the date of their dismissal until actually reinstated. It anchored its ruling on the Agreement dated June 16,
1997 reached between the Union and Wack Wack, particularly Section 425 thereof. The NLRC directed Wack Wack to
reinstate the respondents and pay their backwages since "Business Staffing and Management, Inc. (BSMI) is a contractor
who [merely] supplies workers to respondent Wack Wack. It has nothing to do with the grievance of the complainants with
their employer, respondent Wack Wack."

Wack Wack and BSMI filed a motion for reconsideration which was denied in the Resolution26 dated December 15, 2000.

Wack Wack, now the petitioner, consequently filed a petition for certiorari with the Court of Appeals, docketed as CA-G.R.
SP No. 63658 alleging the following:

A. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF

JURISDICTION AND DENIAL OF DUE PROCESS IN HOLDING THAT RESPONDENTS CAGASAN AND DOMINGUEZ
HAVE REGAINED THEIR JOBS OR EMPLOYMENT PURSUANT TO THE AGREEMENT BETWEEN PETITIONER AND
WACK WACK GOLF EMPLOYEES UNION.

19
B. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION AND DENIAL OF DUE PROCESS IN RULING THAT RESPONDENT BSMI IS NOT AN INDEPENDENT
CONTRACTOR BUT A MERE SUPPLIER OF WORKERS TO THE PETITIONER.

C. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF

JURISDICTION AND DENIAL OF DUE PROCESS IN HOLDING PETITIONER LIABLE FOR THE REINSTATEMENT OF
RESPONDENTS CAGASAN AND DOMINGUEZ AND FOR THE PAYMENT OF THEIR SUPPOSED BACKWAGES
DESPITE THE ABSENCE OF EMPLOYER-EMPLOYEE RELATION BETWEEN THEM.27

Likewise, BSMI also assailed the resolutions of the NLRC and filed its own petition for certiorari with the CA, docketed as
CA-G.R. SP No. 63553.28 A perusal of the petition which is attached to the records reveal that BSMI ascribes grave abuse
of discretion on the part of the NLRC in ruling that: (a) the private respondents have regained their employment pursuant
to the Agreement between Wack Wack and the Wack Wack Golf Employees Union; (b) the dismissal of private
respondents was made pursuant to the petitioner's exercise of its management prerogatives; and (c) the petitioner (BSMI)
is liable for the reinstatement of private respondents and the payment of their backwages.29

On April 3, 2001, the CA (Twelfth Division) dismissed the petition on the ground that the petitioner therein failed to attach
an Affidavit of Service as required in Section 11, Rule 13 of the 1997 Rules of Civil Procedure. Moreover, the verification
and certification against forum shopping was insufficient for having been executed by the general manager who claimed
to be the duly-authorized representative of the petitioner, but did not show any proof of authority, i.e., a board resolution,
to the effect.

A motion for reconsideration was, consequently, filed appending thereto the requisite documents of proof of authority. It
asserted that in the interest of substantial justice, the CA should decide the case on its merits.

BSMI filed a Comment30 to the Motion for Reconsideration of the petitioner, also urging the CA to set aside technicalities
and to consider the legal issues involved: (a) whether or not there is a guaranty of employment in favor of the
complainants under the Agreement between the petitioner and the Union; (b) whether or not the termination of the
employment of the complainants, based on redundancy, is legal and valid; and (c) who are the parties liable for the
reinstatement of the complainants and the payment of backwages. It further added that it shares the view of the petitioner,
that the assailed resolutions of the NLRC are tainted with legal infirmities. For this reason, it was also constrained to file its
own Petition for Certiorari with the CA, docketed as CA-G.R. SP No. 63553 pending with the Special Fourth Division, just
to stress that there is no guaranty of perpetual employment in favor of the complainants.

On August 31, 2001, the CA denied petitioner's motion for reconsideration.

The petitioner is now before the Court, assailing the twin resolutions of the CA. It points out that BSMI has filed its petition
for certiorari before the CA one day late and yet, the Special Fourth Division admitted the petition in the interest of
substantial justice, and directed the respondents to file a comment thereon; 31 whereas, in the instant case, the mere lack
of proof of authority of Wack Wack's General Manager to sign the certificate of non-forum shopping was considered fatal
by the CA's Twelfth Division. It further asserts that its Petition for Certiorari is meritorious, considering that the NLRC
committed grave abuse of discretion in ordering Wack Wack to reinstate the respondents Cagasan and Dominguez, and
to pay their backwages when indubitable evidence shows that the said respondents were no longer employees of Wack
Wack when they filed their complaints with the Labor Arbiter.

There is merit in the petition.

In Novelty Philippines, Inc. v. Court of Appeals,32 the Court recognized the authority of the general manager to sue on
behalf of the corporation and to sign the requisite verification and certification of non-forum shopping. The general
manager is also one person who is in the best position to know the state of affairs of the corporation. It was also error for
the CA not to admit the requisite proof of authority when in the Novelty case, the Court ruled that the subsequent
submission of the requisite documents constituted substantial compliance with procedural rules. There is ample
jurisprudence holding that the subsequent and substantial compliance of an appellant may call for the relaxation of the
rules of procedure in the interest of justice.33 While it is true that rules of procedure are intended to promote rather than
frustrate the ends of justice, and while the swift unclogging of court dockets is a laudable objective, it nevertheless must
not be met at the expense of substantial justice.34 It was, therefore, reversible error for the CA to have dismissed the
petition for certiorari before it. The ordinary recourse for us to take is to remand the case to the CA for proper disposition
on the merits; however, considering that the records are now before us, we deem it necessary to resolve the instant case
in order to ensure harmony in the rulings and expediency.

Indeed, the merits of the case constitute special or compelling reasons for us to overlook the technical rules in this case.
With the dismissal of its petition for certiorari before the CA, the petitioner by virtue of the NLRC decision is compelled to

20
reinstate respondents Cagasan and Dominguez and pay their full backwages from the time of their dismissal until actual
reinstatement when the attendant circumstances, however, show that the respondents had no cause of action against the
petitioner for illegal dismissal and damages.

It must be recalled that said respondents availed of the special separation package offered by the petitioner. This special
separation package was thought of and agreed by the two parties (Wack Wack and the Union) after a series of
discussions and negotiations to avert any labor unrest due to the closure of Wack Wack. 35 Priority was given to the
employees of the F & B Department, but was, likewise, offered to the other employees who may wish to avail of the
separation package due to the reconstruction of Wack Wack. Respondents do not belong to the F & B Department and
yet, on their own volition opted to avail of the special separation package. The applications which were similarly worded
read as follows:

TO : WACK WACK GOLF & COUNTRY CLUB

BOARD OF DIRECTORS AND MANAGEMENT

Based on the information that the Club and the employees' Union have reached an agreement on a special separation
benefit package equivalent to one-and-one-half months salary for every year of service, regardless of the number of years
of service, for employees who have been affected and may be affected by ongoing as well as forthcoming Club
renovation, construction and related activities and reportedly even for those who may not be affected but wish to avail of
an early retirement under the above package arrangement, I hereby register my desire to be separated from the Club and
receive the benefits under the above stated package. 36

Thereafter, the respondents signed their respective release and quitclaims after receiving their money benefits.

It cannot be said that the respondents in the case at bar did not fully comprehend and realize the consequences of their
acts. Herein respondents are not unlettered persons who need special protection. They held responsible positions in the
petitioner-employer, so they presumably understood the contents of the documents they signed. There is no showing that
the execution thereof was tainted with deceit or coercion. Further, the respondents were paid hefty amounts of separation
pay indicating that their separation from the company was for a valuable consideration. Where the person making the
waiver has done so voluntarily, with a full understanding thereof, and the consideration for the quitclaim is credible and
reasonable, the transaction must be recognized as being a valid and binding undertaking. 37 As in contracts, these
quitclaims amount to a valid and binding compromise agreement between the parties which deserve to be respected.38

We reiterate what was stated in the case of Periquet v. NLRC 39 that:

Not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily entered into and
represents a reasonable settlement, it is binding on the parties and may not later be disowned simply because of a
change of mind. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person,
or the terms of settlement are unconscionable on its face, that the law will step in to annul the questionable transaction.
But where it is shown that the person making the waiver did so voluntarily, with full understanding of what he was doing,
and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as a valid and
binding undertaking. '40

When the respondents voluntarily signed their quitclaims and accepted the separation package offered by the petitioner,
they, thenceforth, already ceased to be employees of the petitioner. Nowhere does it appear in the Agreement that the
petitioner assured the respondents of continuous employment in Wack Wack. Qualified employees were given priority in
being hired by its concessionaires and/or contractors such as BSMI when it entered into a management contract with the
petitioner.

This brings us to the threshold issue on whether or not BSMI is an independent contractor or a labor-only contractor. The
NLRC posits that BSMI is merely a supplier of workers or a labor-only contractor; hence, the petitioner remains to be the
principal employer of the respondents and liable for their reinstatement and payment of backwages.

The ruling of the NLRC is wrong. 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, equipments, machineries, work premises and other materials which are necessary in the conduct of
the business. Jurisprudential holdings are to the effect that in determining the existence of an independent contractor
relationship, several factors may be considered, such as, but not necessarily confined to, whether or not the contractor is
carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the

21
relationship; the right to assign the performance of specified pieces of work; the control and supervision of the work to
another; the employer's power with respect to the hiring, firing, and payment of the contractor's workers; the control of the
premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of
payment.41

There is indubitable evidence showing that BSMI is an independent contractor, engaged in the management of projects,
business operations, functions, jobs and other kinds of business ventures, and has sufficient capital and resources to
undertake its principal business. It had provided management services to various industrial and commercial business
establishments. Its Articles of Incorporation proves its sufficient capitalization. In December 1993, Labor Secretary
Bienvenido Laguesma, in the case of In re Petition for Certification Election Among the Regular Rank-and-File Employees
Workers of Byron-Jackson (BJ) Services International Incorporated, Federation of Free Workers (FFW)-Byron Jackson
Services Employees Chapter,42 recognized BSMI as an independent contractor. As a legitimate job contractor, there can
be no doubt as to the existence of an employer-employee relationship between the contractor and the workers.43

BSMI admitted that it employed the respondents, giving the said retired employees some degree of priority merely
because of their work experience with the petitioner, and in order to have a smooth transition of operations.44 In
accordance with its own recruitment policies, the respondents were made to sign applications for employment, accepting
the condition that they were hired by BSMI as probationary employees only. Not being contrary to law, morals, good
custom, public policy and public order, these employment contracts, which the parties are bound are considered valid.
Unfortunately, after a study and evaluation of its personnel organization, BSMI was impelled to terminate the services of
the respondents on the ground of redundancy. This right to hire and fire is another element of the employer-employee
relationship45 which actually existed between the respondents and BSMI, and not with Wack Wack.

There being no employer-employee relationship between the petitioner and respondents Cagasan and Dominguez, the
latter have no cause of action for illegal dismissal and damages against the petitioner. Consequently, the petitioner cannot
be validly ordered to reinstate the respondents and pay them their claims for backwages.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals and the NLRC are SET ASIDE and
REVERSED. The complaints of respondents Cagasan and Dominguez are DISMISSED. No costs.

SO ORDERED.

22
PACIFIC CONSULTANTS INTERNATIONAL ASIA, INC. and JENS PETER HENRICHSEN, Petitioners, v. KLAUS K.
SCHONFELD, Respondent.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court of the Decision 1 of the Court
of Appeals (CA) in CA-G.R. SP No. 76563. The CA decision reversed the Resolution of the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 029319-01, which, in turn, affirmed the Decision of the Labor Arbiter in NLRC
NCR Case No. 30-12-04787-00 dismissing the complaint of respondent Klaus K. Schonfeld.

The antecedent facts are as follows:

Respondent is a Canadian citizen and was a resident of New Westminster, British Columbia, Canada. He had been a
consultant in the field of environmental engineering and water supply and sanitation. Pacicon Philippines, Inc. (PPI) is a
corporation duly established and incorporated in accordance with the laws of the Philippines. The primary purpose of PPI
was to engage in the business of providing specialty and technical services both in and out of the Philippines. 2 It is a
subsidiary of Pacific Consultants International of Japan (PCIJ). The president of PPI, Jens Peter Henrichsen, who was
also the director of PCIJ, was based in Tokyo, Japan. Henrichsen commuted from Japan to Manila and vice versa, as well
as in other countries where PCIJ had business.

In 1997, PCIJ decided to engage in consultancy services for water and sanitation in the Philippines. In October 1997,
respondent was employed by PCIJ, through Henrichsen, as Sector Manager of PPI in its Water and Sanitation
Department. However, PCIJ assigned him as PPI sector manager in the Philippines. His salary was to be paid partly by
PPI and PCIJ.

On January 7, 1998, Henrichsen transmitted a letter of employment to respondent in Canada, requesting him to accept
the same and affix his conformity thereto. Respondent made some revisions in the letter of employment and signed the
contract.3 He then sent a copy to Henrichsen. The letter of employment reads:

Mr. Klaus K. Schonfeld

II-365 Ginger Drive
New Westminster, B.C.
Canada V3L 5L5
Tokyo 7

January 1998

Dear Mr. Schonfeld,

Letter of Employment

This Letter of Employment with the attached General Conditions of Employment constitutes the agreement under which
you will be engaged by our Company on the terms and conditions defined hereunder. In case of any discrepancies or
contradictions between this Letter of Employment and the General Conditions of Employment, this Letter of Employment
will prevail.

You will, from the date of commencement, be ["seconded"] to our subsidiary Pacicon Philippines, Inc. in Manila,
hereinafter referred as Pacicon. Pacicon will provide you with a separate contract, which will define that part of the present
terms and conditions for which Pacicon is responsible. In case of any discrepancies or contradictions between the present
Letter of Employment and the contract with Pacicon Philippines, Inc. or in the case that Pacicon should not live up to its
obligations, this Letter of Employment will prevail.

1. Project Country: The Philippines with possible short-term assignments in other countries.

2. Duty Station: Manila, the Philippines.

23
3. Family Status: Married.

4. Position: Sector Manager, Water and Sanitation.

5. Commencement: 1st October 1997.

6. Remuneration: US$7,000.00 per month. The amount will be paid partly as a local salary (US$2,100.00 per month) by
Pacicon and partly as an offshore salary (US$4,900.00) by PCI to bank accounts to be nominated by you.

A performance related component corresponding to 17.6% of the total annual remuneration, subject to satisfactory
performance against agreed tasks and targets, paid offshore.

7. Accommodation: The company will provide partly furnished accommodation to a rent including association fees, taxes
and VAT not exceeding the Pesos equivalent of US$2,900.00 per month.

8. Transportation: Included for in the remuneration.

9. Leave Travels: You are entitled to two leave travels per year.

10. Shipment of Personal

Effects: The maximum allowance is US$4,000.00.

11. Mobilization

Travel: Mobilization travel will be from New Westminster, B.C., Canada.

This letter is send (sic) to you in duplicate; we kindly request you to sign and return one copy to us.

Yours sincerely,

Pacific Consultants International

Jens Peter Henrichsen

Above terms and conditions accepted

Date: 2 March 1998

(Sgd.)
Klaus Schonfeld

as annotated and initialed4

Section 21 of the General Conditions of Employment appended to the letter of employment reads:

21 Arbitration

Any question of interpretation, understanding or fulfillment of the conditions of employment, as well as any question
arising between the Employee and the Company which is in consequence of or connected with his employment with the
Company and which can not be settled amicably, is to be finally settled, binding to both parties through written
submissions, by the Court of Arbitration in London.5

Respondent arrived in the Philippines and assumed his position as PPI Sector Manager. He was accorded the status of a
resident alien.

As required by Rule XIV (Employment of Aliens) of the Omnibus Rules Implementing the Labor Code, PPI applied for an
Alien Employment Permit (Permit) for respondent before the Department of Labor and Employment (DOLE). It appended
respondent's contract of employment to the application.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

On February 26, 1999, the DOLE granted the application and issued the Permit to respondent. It reads:

24
Republic of the Philippines
Department of Labor & Employment
National Capital Region

ALIEN EMPLOYMENT PERMIT

ISSUED TO: SCHONFELD, KLAUS KURT

DATE OF BIRTH: January 11, 1942 NATIONALITY: Canadian

POSITION: VP - WATER & SANITATION

EMPLOYER: PACICON PHILIPPINES, INC.

ADDRESS: 27/F Rufino Pacific Towers Bldg., Ayala Ave., Makati City

PERMIT

ISSUED ON: February 26, 1999 SIGNATURE OF BEARER:

VALID UNTIL: January 7, 2000 (Sgd.)

APPROVED: BIENVENIDO S. LAGUESMA

By: MAXIMO B. ANITO

REGIONAL DIRECTOR

(Emphasis supplied)6

Respondent received his compensation from PPI for the following periods: February to June 1998, November to
December 1998, and January to August 1999. He was also reimbursed by PPI for the expenses he incurred in connection
with his work as sector manager. He reported for work in Manila except for occasional assignments abroad, and received
instructions from Henrichsen.7

On May 5, 1999, respondent received a letter from Henrichsen informing him that his employment had been terminated
effective August 4, 1999 for the reason that PCIJ and PPI had not been successful in the water and sanitation sector in
the Philippines.8 However, on July 24, 1999, Henrichsen, by electronic mail, 9 requested respondent to stay put in his job
after August 5, 1999, until such time that he would be able to report on certain projects and discuss all the opportunities
he had developed.10 Respondent continued his work with PPI until the end of business hours on October 1, 1999.

Respondent filed with PPI several money claims, including unpaid salary, leave pay, air fare from Manila to Canada, and
cost of shipment of goods to Canada. PPI partially settled some of his claims (US$5,635.99), but refused to pay the rest.

On December 5, 2000, respondent filed a Complaint 11 for Illegal Dismissal against petitioners PPI and Henrichsen with the
Labor Arbiter. It was docketed as NLRC-NCR Case No. 30-12-04787-00.

In his Complaint, respondent alleged that he was illegally dismissed; PPI had not notified the DOLE of its decision to close
one of its departments, which resulted in his dismissal; and they failed to notify him that his employment was terminated
after August 4, 1999. Respondent also claimed for separation pay and other unpaid benefits. He alleged that the company
acted in bad faith and disregarded his rights. He prayed for the following reliefs:

1. Judgment be rendered in his favor ordering the respondents to reinstate complainant to his former position without loss
of seniority and other privileges and benefits, and to pay his full backwages from the time compensation was with held
(sic) from him up to the time of his actual reinstatement. In the alternative, if reinstatement is no longer feasible,
respondents must pay the complainant full backwages, and separation pay equivalent to one month pay for every year of
service, or in the amount of US$16,400.00 as separation pay;

2. Judgment be rendered ordering the respondents to pay the outstanding monetary obligation to complainant in the
amount of US$10,131.76 representing the balance of unpaid salaries, leave pay, cost of his air travel and shipment of
goods from Manila to Canada; andcralawlibrary

25
3. Judgment be rendered ordering the respondent company to pay the complainant damages in the amount of no less
than US $10,000.00 and to pay 10% of the total monetary award as attorney's fees, and costs.

Other reliefs just and equitable under the premises are, likewise, prayed for.12 ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Petitioners filed a Motion to Dismiss the complaint on the following grounds: (1) the Labor Arbiter had no jurisdiction over
the subject matter; and (2) venue was improperly laid. It averred that respondent was a Canadian citizen, a transient
expatriate who had left the Philippines. He was employed and dismissed by PCIJ, a foreign corporation with principal
office in Tokyo, Japan. Since respondent's cause of action was based on his letter of employment executed in Tokyo,
Japan dated January 7, 1998, under the principle of lex loci contractus, the complaint should have been filed in Tokyo,
Japan. Petitioners claimed that respondent did not offer any justification for filing his complaint against PPI before the
NLRC in the Philippines. Moreover, under Section 12 of the General Conditions of Employment appended to the letter of
employment dated January 7, 1998, complainant and PCIJ had agreed that any employment-related dispute should be
brought before the London Court of Arbitration. Since even the Supreme Court had already ruled that such an agreement
on venue is valid, Philippine courts have no jurisdiction.13

Respondent opposed the Motion, contending that he was employed by PPI to work in the Philippines under contract
separate from his January 7, 1998 contract of employment with PCIJ. He insisted that his employer was PPI, a Philippine-
registered corporation; it is inconsequential that PPI is a wholly-owned subsidiary of PCIJ because the two corporations
have separate and distinct personalities; and he received orders and instructions from Henrichsen who was the president
of PPI. He further insisted that the principles of forum non conveniens and lex loci contractus do not apply, and that
although he is a Canadian citizen, Philippine Labor Laws apply in this case.

Respondent adduced in evidence the following contract of employment dated January 9, 1998 which he had entered into
with Henrichsen:

Mr. Klaus K. Schonfeld

II-365 Ginger Drive

New Westminster, B.C.
Canada V3L 5L5

Manila 9 January, 1998

Dear Mr. Schonfeld,

Letter of Employment

This Letter of Employment with the attached General Conditions of Employment constitutes the agreement, under which
you will be engaged by Pacicon Philippines, Inc. on the terms and conditions defined hereunder.

1. Project Country: The Philippines with possible assignments in other countries.

2. Duty Station: Manila, the Philippines.

3. Family Status: Married.

4. Position: Sector Manager - Water and Sanitation Sector.

5. Commencement: 1 January, 1998.

6. Remuneration: US$3,100.00 per month payable to a bank account to be nominated by you.

7. Accommodation: The company will provide partly furnished accommodation to a rent including association fees, taxes
and VAT not exceeding the Pesos equivalent of US$2300.00 per month.

8. Transportation: Included for in the remuneration.

9. Shipment of Personal The maximum allowance is US$2500.00 in Effects: connection with initial shipment of personal
effects from Canada.

10. Mobilization Travel: Mobilization travel will be from New Westminster, B.C., Canada.
26
This letter is send (sic) to you in duplicate; we kindly request you to sign and return one copy to us.

Yours sincerely,

Pacicon Philippines, Inc.

Jens Peter Henrichsen
President14

According to respondent, the material allegations of the complaint, not petitioners' defenses, determine which quasi-
judicial body has jurisdiction. Section 21 of the Arbitration Clause in the General Conditions of Employment does not
provide for an exclusive venue where the complaint against PPI for violation of the Philippine Labor Laws may be filed.
Respondent pointed out that PPI had adopted two inconsistent positions: it was first alleged that he should have filed his
complaint in Tokyo, Japan; and it later insisted that the complaint should have been filed in the London Court of
Arbitration.15

In their reply, petitioners claimed that respondent's employer was PCIJ, which had exercised supervision and control over
him, and not PPI. Respondent was dismissed by PPI via a letter of Henrichsen under the letterhead of PCIJ in
Japan.16 The letter of employment dated January 9, 1998 which respondent relies upon did not bear his (respondent's)
signature nor that of Henrichsen.

On August 2, 2001, the Labor Arbiter rendered a decision granting petitioners' Motion to Dismiss. The dispositive portion
reads:

WHEREFORE, finding merit in respondents' Motion to Dismiss, the same is hereby granted. The instant complaint filed by
the complainant is dismissed for lack of merit.

SO ORDERED.17

The Labor Arbiter found, among others, that the January 7, 1998 contract of employment between respondent and PCIJ
was controlling; the Philippines was only the "duty station" where Schonfeld was required to work under the General
Conditions of Employment. PCIJ remained respondent's employer despite his having been sent to the Philippines. Since
the parties had agreed that any differences regarding employer-employee relationship should be submitted to the
jurisdiction of the court of arbitration in London, this agreement is controlling.

On appeal, the NLRC agreed with the disquisitions of the Labor Arbiter and affirmed the latter's decision in toto.18

Respondent then filed a petition for certiorari under Rule 65 with the CA where he raised the following arguments:

WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION GRAVELY ABUSED
ITS DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT AFFIRMED THE LABOR
ARBITER'S DECISION CONSIDERING THAT:

A. PETITIONER'S TRUE EMPLOYER IS NOT PACIFIC CONSULTANTS INTERNATIONAL OF JAPAN BUT

RESPONDENT COMPANY, AND THEREFORE, THE LABOR ARBITER HAS JURISDICTION OVER THE INSTANT
CASE; AND

B. THE PROPER VENUE FOR THE PRESENT COMPLAINT IS THE ARBITRATION BRANCH OF THE NLRC AND NOT
THE COURT OF ARBITRATION IN LONDON.

II

WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION GRAVELY ABUSED
ITS DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT AFFIRMED THE DISMISSAL OF
THE COMPLAINT CONSIDERING THAT PETITIONER'S TERMINATION FROM EMPLOYMENT IS ILLEGAL:

A. THE CLOSURE OF RESPONDENT COMPANY'S WATER AND SANITATION SECTOR WAS NOT BONA FIDE.

B. ASSUMING ARGUENDO THAT THE CLOSURE OF RESPONDENT COMPANY'S WATER AND SANITATION
SECTOR WAS JUSTIFIABLE, PETITIONER'S DISMISSAL WAS INEFFECTUAL AS THE DEPARTMENT OF LABOR

27
AND EMPLOYMENT (DOLE) AND PETITIONER WAS NOT NOTIFIED THIRTY (30) DAYS BEFORE THE ALLEGED
CLOSURE.19

Respondent averred that the absence or existence of a written contract of employment is not decisive of whether he is an
employee of PPI. He maintained that PPI, through its president Henrichsen, directed his work/duties as Sector Manager of
PPI; proof of this was his letter-proposal to the Development Bank of the Philippines for PPI to provide consultancy
services for the Construction Supervision of the Water Supply and Sanitation component of the World Bank-Assisted LGU
Urban Water and Sanitation Project.20 He emphasized that as gleaned from Alien Employment Permit (AEP) No. M-
029908-5017 issued to him by DOLE on February 26, 1999, he is an employee of PPI. It was PPI president Henrichsen
who terminated his employment; PPI also paid his salary and reimbursed his expenses related to transactions abroad.
That PPI is a wholly-owned subsidiary of PCIJ is of no moment because the two corporations have separate and distinct
personalities.

The CA found the petition meritorious. Applying the four-fold test21 of determining an employer-employee relationship, the
CA declared that respondent was an employee of PPI. On the issue of venue, the appellate court declared that, even
under the January 7, 1998 contract of employment, the parties were not precluded from bringing a case related thereto in
other venues. While there was, indeed, an agreement that issues between the parties were to be resolved in the London
Court of Arbitration, the venue is not exclusive, since there is no stipulation that the complaint cannot be filed in any other
forum other than in the Philippines.

On November 25, 2004, the CA rendered its decision granting the petition, the decretal portion of which reads:

WHEREFORE, the petition is GRANTED in that the assailed Resolutions of the NLRC are hereby REVERSED and SET
ASIDE. Let this case be REMANDED to the Labor Arbiter a quo for disposition of the case on the merits.

SO ORDERED.22

A motion for the reconsideration of the above decision was filed by PPI and Henrichsen, which the appellate court denied
for lack of merit.23

In the present recourse, PPI and Henrichsen, as petitioners, raise the following issues:

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT AN EMPLOYMENT RELATIONSHIP EXISTED
BETWEEN PETITIONERS AND RESPONDENT DESPITE THE UNDISPUTED FACT THAT RESPONDENT, A
FOREIGN NATIONAL, WAS HIRED ABROAD BY A FOREIGN CORPORATION, EXECUTED HIS EMPLOYMENT
CONTRACT ABROAD, AND WAS MERELY "SECONDED" TO PETITIONERS SINCE HIS WORK ASSIGNMENT WAS
IN MANILA.

II

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE LABOR ARBITER A QUO HAS JURISDICTION
OVER RESPONDENT'S CLAIM DESPITE THE UNDISPUTED FACT THAT RESPONDENT, A FOREIGN NATIONAL,
WAS HIRED ABROAD BY A FOREIGN CORPORATION, EXECUTED HIS EMPLOYMENT CONTRACT ABROAD, AND
HAD AGREED THAT ANY DISPUTE BETWEEN THEM "SHALL BE FINALLY SETTLED BY THE COURT OF
ARBITRATION IN LONDON."24

Petitioners fault the CA for reversing the findings of the Labor Arbiter and the NLRC. Petitioners aver that the findings of
the Labor Arbiter, as affirmed by the NLRC, are conclusive on the CA. They maintain that it is not within the province of
the appellate court in a petition for certiorari to review the facts and evidence on record since there was no conflict in the
factual findings and conclusions of the lower tribunals. Petitioners assert that such findings and conclusions, having been
made by agencies with expertise on the subject matter, should be deemed binding and conclusive. They contend that it
was the PCIJ which employed respondent as an employee; it merely seconded him to petitioner PPI in the Philippines,
and assigned him to work in Manila as Sector Manager. Petitioner PPI, being a wholly-owned subsidiary of PCIJ, was
never the employer of respondent.

Petitioners assert that the January 9, 1998 letter of employment which respondent presented to prove his employment
with petitioner PPI is of doubtful authenticity since it was unsigned by the purported parties. They insist that PCIJ paid
respondent's salaries and only coursed the same through petitioner PPI. PPI, being its subsidiary, had supervision and
control over respondent's work, and had the responsibilities of monitoring the "daily administration" of respondent.

28
Respondent cannot rely on the pay slips, expenses claim forms, and reimbursement memoranda to prove that he was an
employee of petitioner PPI because these documents are of doubtful authenticity.

Petitioners further contend that, although Henrichsen was both a director of PCIJ and president of PPI, it was he who
signed the termination letter of respondent upon instructions of PCIJ. This is buttressed by the fact that PCIJ's letterhead
was used to inform him that his employment was terminated. Petitioners further assert that all work instructions came from
PCIJ and that petitioner PPI only served as a "conduit." Respondent's Alien Employment Permit stating that petitioner PPI
was his employer is but a necessary consequence of his being "seconded" thereto. It is not sufficient proof that petitioner
PPI is respondent's employer. The entry was only made to comply with the DOLE requirements.

There being no evidence that petitioner PPI is the employer of respondent, the Labor Arbiter has no jurisdiction over
respondent's complaint.

Petitioners aver that since respondent is a Canadian citizen, the CA erred in ignoring their claim that the principlesof
forum non conveniens and lex loci contractus are applicable. They also point out that the principal office, officers and staff
of PCIJ are stationed in Tokyo, Japan; and the contract of employment of respondent was executed in Tokyo, Japan.

Moreover, under Section 21 of the General Conditions for Employment incorporated in respondent's January 7, 1998
letter of employment, the dispute between respondent and PCIJ should be settled by the court of arbitration of London.
Petitioners claim that the words used therein are sufficient to show the exclusive and restrictive nature of the stipulation on
venue.

Petitioners insist that the U.S. Labor-Management Act applies only to U.S. workers and employers, while the Labor Code
of the Philippines applies only to Filipino employers and Philippine-based employers and their employees, not to PCIJ. In
fine, the jurisdictions of the NLRC and Labor Arbiter do not extend to foreign workers who executed employment
agreements with foreign employers abroad, although "seconded" to the Philippines.25

In his Comment,26 respondent maintains that petitioners raised factual issues in their petition which are proscribed under
Section 1, Rule 45 of the Rules of Court. The finding of the CA that he had been an employee of petitioner PPI and not of
PCIJ is buttressed by his documentary evidence which both the Labor Arbiter and the NLRC ignored; they erroneously
opted to dismiss his complaint on the basis of the letter of employment and Section 21 of the General Conditions of
Employment. In contrast, the CA took into account the evidence on record and applied case law correctly.

The petition is denied for lack of merit.

It must be stressed that in resolving a petition for certiorari, the CA is not proscribed from reviewing the evidence on
record. Under Section 9 of Batas Pambansa Blg. 129, as amended by R.A. No. 7902, the CA is empowered to pass upon
the evidence, if and when necessary, to resolve factual issues.27 If it appears that the Labor Arbiter and the NLRC
misappreciated the evidence to such an extent as to compel a contrary conclusion if such evidence had been properly
appreciated, the factual findings of such tribunals cannot be given great respect and finality.28

Inexplicably, the Labor Arbiter and the NLRC ignored the documentary evidence which respondent appended to his
pleadings showing that he was an employee of petitioner PPI; they merely focused on the January 7, 1998 letter of
employment and Section 21 of the General Conditions of Employment.

Petitioner PPI applied for the issuance of an AEP to respondent before the DOLE. In said application, PPI averred that
respondent is its employee. To show that this was the case, PPI appended a copy of respondent's employment contract.
The DOLE then granted the application of PPI and issued the permit.

It bears stressing that under the Omnibus Rules Implementing the Labor Code, one of the requirements for the issuance
of an employment permit is the employment contract. Section 5, Rule XIV (Employment of Aliens) of the Omnibus Rules
provides:

SECTION 1. Coverage. - This rule shall apply to all aliens employed or seeking employment in the Philippines and the
present or prospective employers.

SECTION 2. Submission of list. - All employers employing foreign nationals, whether resident or non-resident, shall
submit a list of nationals to the Bureau indicating their names, citizenship, foreign and local address, nature of
employment and status of stay in the Philippines.

SECTION 3. Registration of resident aliens. - All employed resident aliens shall register with the Bureau under such
guidelines as may be issued by it.

29
SECTION 4. 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.

SECTION 5. Requirements for employment permit applicants. - The application for an employment permit shall be
accompanied by the following:

(a) Curriculum vitae duly signed by the applicant indicating his educational background, his work experience and other
data showing that he possesses technical skills in his trade or profession.

(b) Contract of employment between the employer and the principal which shall embody the following, among others:

1. That the non-resident alien worker shall comply with all applicable laws and rules and regulations of the Philippines;

2. That the non-resident alien worker and the employer shall bind themselves to train at least two (2) Filipino understudies
for a period to be determined by the Minister; andcralawlibrary

3. That he shall not engage in any gainful employment other than that for which he was issued a permit.

(c) A designation by the employer of at least two (2) understudies for every alien worker. Such understudies must be the
most ranking regular employees in the section or department for which the expatriates are being hired to insure the actual
transfer of technology.

Under Section 6 of the Rule, the DOLE may issue an alien employment permit based only on the following:

(a) Compliance by the applicant and his employer with the requirements of Section 2 hereof;

(b) Report of the Bureau Director as to the availability or non-availability of any person in the Philippines who is competent
and willing to do the job for which the services of the applicant are desired;

(c) His assessment as to whether or not the employment of the applicant will redound to the national interest;

(d) Admissibility of the alien as certified by the Commission on Immigration and Deportation;

(e) The recommendation of the Board of Investments or other appropriate government agencies if the applicant will be
employed in preferred areas of investments or in accordance with the imperative of economic development.

Thus, as claimed by respondent, he had an employment contract with petitioner PPI; otherwise, petitioner PPI would not
have filed an application for a Permit with the DOLE. Petitioners are thus estopped from alleging that the PCIJ, not
petitioner PPI, had been the employer of respondent all along.

We agree with the conclusion of the CA that there was an employer-employee relationship between petitioner PPI and
respondent using the four-fold test. Jurisprudence is firmly settled that whenever the existence of an employment
relationship is in dispute, four elements constitute the reliable yardstick: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee's
conduct. It is the so-called "control test" which constitutes the most important index of the existence of the employer-
employee relationship that is, whether the employer controls or has reserved the right to control the employee not only as
to the result of the work to be done but also as to the means and methods by which the same is to be accomplished.
Stated otherwise, an employer-employee relationship exists where the person for whom the services are performed
reserves the right to control not only the end to be achieved but also the means to be used in reaching such end. 29 We
quote with approval the following ruling of the CA:

[T]here is, indeed, substantial evidence on record which would erase any doubt that the respondent company is the true
employer of petitioner. In the case at bar, the power to control and supervise petitioner's work performance devolved upon
the respondent company. Likewise, the power to terminate the employment relationship was exercised by the President of
the respondent company. It is not the letterhead used by the company in the termination letter which controls, but the
person who exercised the power to terminate the employee. It is also inconsequential if the second letter of employment
executed in the Philippines was not signed by the petitioner. An employer-employee relationship may indeed exist even in
the absence of a written contract, so long as the four elements mentioned in the Mafinco case are all present.30

30
The settled rule on stipulations regarding venue, as held by this Court in the vintage case of Philippine Banking
Corporation v. Tensuan,31 is that while they are considered valid and enforceable, venue stipulations in a contract do not,
as a rule, supersede the general rule set forth in Rule 4 of the Revised Rules of Court in the absence of qualifying or
restrictive words. They should be considered merely as an agreement or additional forum, not as limiting venue to the
specified place. They are not exclusive but, rather permissive. If the intention of the parties were to restrict venue, there
must be accompanying language clearly and categorically expressing their purpose and design that actions between them
be litigated only at the place named by them.32

In the instant case, no restrictive words like "only," "solely," "exclusively in this court," "in no other court save ',"
"particularly," "nowhere else but/except '," or words of equal import were stated in the contract. 33 It cannot be said that the
court of arbitration in London is an exclusive venue to bring forth any complaint arising out of the employment contract.

Petitioners contend that respondent should have filed his Complaint in his place of permanent residence, or where the
PCIJ holds its principal office, at the place where the contract of employment was signed, in London as stated in their
contract. By enumerating possible venues where respondent could have filed his complaint, however, petitioners
themselves admitted that the provision on venue in the employment contract is indeed merely permissive.

Petitioners' insistence on the application of the principle of forum non conveniens must be rejected. The bare fact that
respondent is a Canadian citizen and was a repatriate does not warrant the application of the principle for the following
reasons:

First. The Labor Code of the Philippines does not include forum non conveniens as a ground for the dismissal of the
complaint.34

Second. The propriety of dismissing a case based on this principle requires a factual determination; hence, it is properly
considered as defense.35

Third. In Bank of America, NT&SA, Bank of America International, Ltd. v. Court of Appeals,36 this Court held that:

x x x [a] Philippine Court may assume jurisdiction over the case if it chooses to do so; provided, that the following
requisites are met: (1) that the Philippine Court is one to which the parties may conveniently resort to; (2) that the
Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, (3) that the Philippine
Court has or is likely to have power to enforce its decision. x x x

Admittedly, all the foregoing requisites are present in this case.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 76563 is AFFIRMED.
This case is REMANDED to the Labor Arbiter for disposition of the case on the merits. Cost against petitioners.

SO ORDERED.

31
G.R. No. 146989             February 7, 2007

MELENCIO GABRIEL, represented by surviving spouse, FLORDELIZA V. GABRIEL, Petitioner,

vs.
NELSON BILON, ANGEL BRAZIL AND ERNESTO PAGAYGAY, Respondents.

DECISION

AZCUNA, J.:

This is a petition for review on certiorari1 assailing the Decision and Resolution of the Court of Appeals, respectively dated
August 4, 2000 and February 7, 2001, in CA-G.R. SP No. 52001 entitled "Nelson Bilon, et al. v. National Labor Relations
Commission, et al."

The challenged decision reversed and set aside the decision2 of the National Labor Relations Commission (NLRC)
dismissing respondents’ complaint for illegal dismissal and illegal deductions, and reinstating the decision of the Labor
Arbiter finding petitioner guilty of illegal dismissal but not of illegal deductions subject to the modification that respondents
be immediately reinstated to their former positions without loss of seniority rights and privileges instead of being paid
separation pay.

Petitioner, represented by his surviving spouse, Flordeliza V. Gabriel, was the owner-operator of a public transport
business, "Gabriel Jeepney," with a fleet of 54 jeepneys plying the Baclaran-Divisoria-Tondo route. Petitioner had a pool
of drivers, which included respondents, operating under a "boundary system" of ₱400 per day.

The facts3 are as follows:

On November 15, 1995, respondents filed their separate complaints for illegal dismissal, illegal deductions, and
separation pay against petitioner with the National Labor Relations Commission (NLRC). These were consolidated and
docketed as NLRC-NCR Case No. 00-11-07420-95.4

On December 15, 1995, the complaint was amended, impleading as party respondent the Bacoor Transport Service
Cooperative, Inc., as both parties are members of the cooperative.

Respondents alleged the following:

1) That they were regular drivers of Gabriel Jeepney, driving their respective units bearing Plate Nos. PHW 553,
NXU 155, and NWW 557, under a boundary system of ₱400 per day, plying Baclaran to Divisoria via Tondo, and
vice versa, since December 1990, November 1984 and November 1991, respectively, up to April 30,
1995,5 driving five days a week, with average daily earnings of ₱400;

2) That they were required/forced to pay additional ₱55.00 per day for the following: a) ₱20.00 police protection;
b) ₱20.00 washing; c) ₱10.00 deposit; and [d)] ₱5.00 garage fees;

3) That there is no law providing the operator to require the drivers to pay police protection, deposit, washing, and
garage fees.

4) That on April 30, 1995, petitioner told them not to drive anymore, and when they went to the garage to report
for work the next day, they were not given a unit to drive; and

32
 5) That the boundary drivers of passenger jeepneys are considered regular employees of the jeepney operators.
Being such, they are entitled to security of tenure. Petitioner, however, dismissed them without factual and legal
basis, and without due process.

On his part, petitioner contended that:

1) He does not remember if the respondents were ever under his employ as drivers of his passenger jeepneys.
Certain, however, is the fact that neither the respondents nor other drivers who worked for him were ever
dismissed by him. As a matter of fact, some of his former drivers just stopped reporting for work, either because
they found some other employment or drove for other operators, and like the respondents, the next time he heard
from them was when they started fabricating unfounded complaints against him;

2) He made sure that none of the jeepneys would stay idle even for a day so he could collect his earnings; hence,
it had been his practice to establish a pool of drivers. Had respondents manifested their desire to drive his units, it
would have been immaterial whether they were his former drivers or not. As long as they obtained the necessary
licenses and references, they would have been accommodated and placed on schedule;

3) While he was penalized or made to pay a certain amount in connection with similar complaints by other drivers
in a previous case before this, it was not because his culpability was established, but due to technicalities
involving oversight and negligence on his part by not participating in any stage of the investigation thereof; and

4) Respondents’ claim that certain amounts, as enumerated in the complaint, were deducted from their day’s
earnings is preposterous. Indeed, there were times when deductions were made from the day’s earnings of some
drivers, but such were installment payments for the amount previously advanced to them. Most drivers, when they
got involved in accidents or violations of traffic regulations, managed to settle them, and in the process they had
to spend some money, but most of the time they did not have the needed amount so they secured cash advances
from him, with the understanding that the same should be paid back by installments through deductions from their
daily earnings or boundary.

On the other hand, Bacoor Transport Service Cooperative, Inc. (BTSCI) declared that it should not be made a party to the
case because: 1) [I]t has nothing to do with the employment of its member-drivers. The matter is between the member-
operator and their respective member-drivers. The member-drivers’ tenure of employment, compensation, work
conditions, and other aspects of employment are matters of arrangement between them and the member-operators
concerned, and the BTSCI has nothing to do with it, as can be inferred from the Management Agreement between BTSCI
and the member-operators; and 2) [T]he amount allegedly deducted from respondents and the purpose for which they
were applied were matters that the cooperative was not aware of, and much less imposed on them.

On September 17, 1996, respondents filed a motion to re-raffle the case for the reason that the Labor Arbiter (Hon.
Roberto I. Santos) failed "to render his decision within thirty (30) calendar days, without extension, after the submission of
the case for decision."

On September 18, 1996, said Labor Arbiter inhibited himself from further handling the case due to "personal reasons."

On November 8, 1996, Labor Arbiter Ricardo C. Nora, to whom the case was re-raffled, ordered the parties to file their
respective memoranda within ten days, after which the case was deemed submitted for resolution.

On March 17, 1997, the Labor Arbiter (Hon. Ricardo C. Nora) handed down his decision, the dispositive portion of which
is worded as follows:

WHEREFORE, premises considered, judgment is hereby rendered declaring the illegality of [respondents’] dismissal and
ordering [petitioner] Melencio Gabriel to pay the [respondents] the total amount of ONE MILLION THIRTY FOUR
THOUSAND PESOS [₱1,034,000,] representing [respondents’] backwages and separation pay as follows:

1. Nelson Bilon

Backwages ₱ 284,800

Separation Pay 26,400 ₱ 321,200

2. Angel Brazil

Backwages ₱ 294,800

33
 Separation Pay 96,800 391,600

3. Ernesto Pagaygay

Backwages ₱ 294,800

Separation Pay 26,400 321,200

₱ 1,034,000

[Petitioner] Melencio Gabriel is likewise ordered to pay attorney’s fees equivalent to five percent (5%) of the judgment
award or the amount of ₱51,700 within ten (10) days from receipt of this Decision.

All other issues are dismissed for lack of merit.

SO ORDERED.6

Incidentally, on April 4, 1997, petitioner passed away. On April 18, 1997, a copy of the above decision was delivered
personally to petitioner’s house. According to respondents, petitioner’s surviving spouse, Flordeliza Gabriel, and their
daughter, after reading the contents of the decision and after they had spoken to their counsel, refused to receive the
same. Nevertheless, Bailiff Alfredo V. Estonactoc left a copy of the decision with petitioner’s wife and her daughter but
they both refused to sign and acknowledge receipt of the decision.7

The labor arbiter’s decision was subsequently served by registered mail at petitioner’s residence and the same was
received on May 28, 1997.

On May 16, 1997, counsel for petitioner filed an entry of appearance with motion to dismiss the case for the reason that
petitioner passed away last April 4, 1997.

On June 5, 1997, petitioner appealed the labor arbiter’s decision to the National Labor Relations Commission, First
Division, contending that the labor arbiter erred:

1. In holding that [petitioner] Gabriel dismissed the complainants, Arb. Nora committed a serious error in the
findings of fact which, if not corrected, would cause grave or irreparable damage or injury to [petitioner] Gabriel;

2. In holding that ‘strained relations’ already exist between the parties, justifying an award of separation pay in lieu
of reinstatement, Arb. Nora not only committed a serious error in the findings of fact, but he also abused his
discretion;

3. In computing the amount of backwages allegedly due [respondents] from 30 April 1995 to 15 March 1997, Arb.
Nora abused his discretion, considering that the case had been submitted for decision as early as 1 March 1996
and that the same should have been decided as early as 31 March 1996;

4. In using ‘₱400.00’ and ‘22 days’ as factors in computing the amount of backwages allegedly due [respondents],
Arb. Nora abused his discretion and committed a serious error in the findings of fact, considering that there was
no factual or evidentiary basis therefor;

5. In using ‘33.5 months’ as factor in the computation of the amount of backwages allegedly due [respondents],
Arb. Nora committed a serious error in the findings of fact[,] because even if it is assumed that backwages are
due from 30 April 1995 to 15 March 1997, the period between the two dates is only 22½ months, and not 33½
months as stated in the appealed decision; and

6. In not dismissing the case[,] despite notice of the death of [petitioner] Gabriel before final judgment, Arb. Nora
abused his discretion and committed a serious error of law.8

On July 3, 1997, respondents filed a motion to dismiss petitioner’s appeal on the ground that the "surety bond is defective"
and the appeal was "filed out of time," which move was opposed by petitioner.

Subsequently, on April 28, 1998, the NLRC promulgated its first decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the appealed decision is hereby reversed and set aside. The above-entitled case is
hereby dismissed for lack of employer-employee relationship.
34
SO ORDERED.9

Respondents filed a motion for reconsideration. They claimed that the decision did not discuss the issue of the timeliness
of the appeal. The lack of employer-employee relationship was mentioned in the dispositive portion, which issue was not
raised before the labor arbiter or discussed in the body of the questioned decision. In view of the issues raised by
respondents in their motion, the NLRC rendered its second decision on October 29, 1998. The pertinent portions are
hereby quoted thus:

… In the case at bar, [petitioner] Melencio Gabriel was not represented by counsel during the pendency of the case. A
decision was rendered by the Labor Arbiter a quo  on March 17, 1997 while Mr. Gabriel passed away on April 4, 1997
without having received a copy thereof during his lifetime. The decision was only served on April 18, 1997 when he was
no longer around to receive the same. His surviving spouse and daughter cannot automatically substitute themselves as
party respondents. Thus, when the bailiff tendered a copy of the decision to them, they were not in a position to receive
them. The requirement of leaving a copy at the party’s residence is not applicable in the instant case because this
presupposes that the party is still living and is just not available to receive the decision.

The preceding considered, the decision of the labor arbiter has not become final because there was no proper service of
copy thereof to [petitioner] ….

Undoubtedly, this case is for recovery of money which does not survive, and considering that the decision has not
become final, the case should have been dismissed and the appeal no longer entertained….

WHEREFORE, in view of the foregoing, the Decision of April 28, 1998 is set aside and vacated. Furthermore, the instant
case is dismissed and complainants are directed to pursue their claim against the proceedings for the settlement of the
estate of the deceased Melencio Gabriel.

SO ORDERED.10

Aggrieved by the decision of the NLRC, respondents elevated the case to the Court of Appeals (CA) by way of a petition
for certiorari. On August 4, 2000, the CA reversed the decisions of the NLRC:

Article 223 of the Labor Code categorically mandates that "an appeal by the employer may be perfected only  upon the
posting of a cash bond or surety bond x x x." It is beyond peradventure then that the non-compliance with the
above conditio sine qua non, plus the fact that the appeal was filed beyond the reglementary period, should have been
enough reasons to dismiss the appeal.

In any event, even conceding ex gratia  that such procedural infirmity [were] inexistent, this petition would still be tenable
based on substantive aspects.

The public respondent’s decision, dated April 28, 1998, is egregiously wrong insofar as it was anchored on the absence of
an employer-employee relationship. Well-settled is the rule that the boundary system used in jeepney and (taxi)
operations presupposes an employer-employee relationship (National Labor Union v. Dinglasan, 98 Phil. 649) ….

The NLRC ostensibly tried to redeem itself by vacating the decision April 28, 1998…. By so doing, however, it did not
actually resolve the matter definitively. It merely relieved itself of such burden by suggesting that the petitioners "pursue
their claim against the proceedings for the settlement of the estate of the deceased Melencio Gabriel…."

In the instant case, the decision (dated March 17, 1997) of the Labor Arbiter became final and executory on account of the
failure of the private respondent to perfect his appeal on time….

Thus, we disagree with the ratiocination of the NLRC that the death of the private respondent on April 4, 1997 ipso
facto negates recovery of the money claim against the successors-in-interest …. Rather, this situation comes within the
aegis of Section 3, Rule III of the NLRC Manual on Execution of Judgment, which provides:

SECTION 3. Execution in Case of Death of Party. – Where a party dies after the finality of the decision/entry of judgment
of order, execution thereon may issue or one already issued may be enforced in the following cases:

a) x x x ;

b) In case of death of the losing party, against his successor-in-interest, executor or administrator;

35
 c) In case of death of the losing party after execution is actually levied upon any of his property, the same may be
sold for the satisfaction thereof, and the sheriff making the sale shall account to his successor-in-interest,
executor or administrator for any surplus in his hands.

Notwithstanding the foregoing disquisition though, We are not entirely in accord with the labor arbiter’s decision awarding
separation pay in favor of the petitioners. In this regard, it [is] worth mentioning that in Kiamco v. NLRC,11 citing Globe-
Mackay Cable and Radio Corp. v. NLRC,12 the Supreme Court qualified the application of the "strained relations"
principle when it held --

"If in the wisdom of the Court, there may be a ground or grounds for the non-application of the above-cited provision (Art.
279, Labor Code) this should be by way of exception, such as when the reinstatement may be inadmissible due to
ensuing strained relations between the employer and employee.

In such cases, it should be proved that the employee concerned occupies a position where he enjoys the trust and
confidence of his employer, and that it is likely that if reinstated, an atmosphere of antipathy and antagonism may be
generated as to adversely affect the efficiency and productivity of the employee concerned x x x Obviously, the principle
of ‘strained relations’ cannot be applied indiscriminately. Otherwise, reinstatement can never be possible simply because
some hostility is invariably engendered between the parties as a result of litigation. That is human nature.

Besides, no strained relations should arise from a valid legal act of asserting one’s right; otherwise[,] an employee who
shall assert his right could be easily separated from the service by merely paying his separation pay on the pretext that his
relationship with his employer had already become strained."

Anent the award of backwages, the Labor Arbiter erred in computing the same from the date the petitioners were illegally
dismissed (i.e. April 30, 1995) up to March 15, 1997, that is two (2) days prior to the rendition of his decision (i.e. March
17, 1997).

WHEREFORE, premises considered, the petition is GRANTED, hereby REVERSING and SETTING ASIDE the assailed
decisions of the National Labor Relations Commission, dated April 28, 1998 ans October 29, 1998. Consequently, the
decision of the Labor Arbiter, dated March 17, 1997, is hereby REINSTATED, subject to the MODIFICATION that the
private respondent is ORDERED to immediately REINSTATE petitioners Nelson Bilon, Angel Brazil and Ernesto
Pagaygay to their former position without loss of seniority rights and privileges, with full backwages from the date of their
dismissal until their actual reinstatement. Costs against private respondent.

SO ORDERED.13

Petitioner filed a motion for reconsideration but the same was denied by the CA in a resolution dated February 7, 2001.

Hence, this petition raising the following issues:14

THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER’S APPEAL TO THE NATIONAL LABOR
RELATIONS COMMISSION WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED DEFECTS IN PETITIONER’S APPEAL BOND
WERE OF SUCH GRAVITY AS TO PREVENT THE APPEAL FROM BEING PERFECTED.

III

THE COURT OF APPEALS ERRED IN GRANTING RESPONDENTS’ PETITION FOR CERTIORARI DESPITE THE
FACT THAT THE SAME ASSAILED A DECISION WHICH HAD BEEN VACATED IN FAVOR OF A NEW ONE WHICH,
IN TURN, HAS SOLID LEGAL BASIS.

IV

36
THE COURT OF APPEALS ERRED IN APPLYING SECTION 3, RULE III, OF THE MANUAL ON EXECUTION OF
JUDGMENT OF THE NATIONAL LABOR RELATIONS COMMISSION WHICH, BY ITS OWN EXPRESS TERMS, IS NOT
APPLICABLE.

A resolution of the case requires a brief discussion of two issues which touch upon the procedural and substantial aspects
of the case thus: a) whether petitioner’s appeal was filed out of time; and b) whether the claim survives.

As regards the first issue, the Court considers the service of copy of the decision of the labor arbiter to have been validly
made on May 28, 1997 when it was received through registered mail. As correctly pointed out by petitioner’s wife, service
of a copy of the decision could not have been validly effected on April 18, 1997 because petitioner passed away on April
4, 1997.

Section 4, Rule III of the New Rules of Procedure of the NLRC provides:

SEC. 4. Service of Notices and Resolutions. – (a) Notices or summons and copies of orders, resolutions or decisions
shall be served on the parties to the case personally by the bailiff or authorized public officer within three (3) days from
receipt thereof or by registered mail; Provided, That where a party is represented by counsel or authorized representative,
service shall be made on such counsel or authorized representative; Provided further, That in cases of decision and final
awards, copies thereof shall be served on both parties and their counsel ….

For the purpose of computing the period of appeal, the same shall be counted from receipt of such decisions, awards or
orders by the counsel of record.

(b) The bailiff or officer personally serving the notice, order, resolution or decision shall submit his return within two (2)
days from date of service thereof, stating legibly in his return, his name, the names of the persons served and the date of
receipt which return shall be immediately attached and shall form part of the records of the case. If no service was
effected, the serving officer shall state the reason therefore in the return.

Section 6, Rule 13 of the Rules of Court which is suppletory to the NLRC Rules of Procedure states that: "[s]ervice of the
papers may be made by delivering personally a copy to the party or his counsel, or by leaving it in his office with his clerk
or with a person having charge thereof. If no person is found in his office, or his office is not known, or he has no office,
then by leaving the copy, between the hours of eight in the morning and six in the evening, at the party’s or counsel’s
residence, if known, with a person of sufficient age and discretion then residing therein."

The foregoing provisions contemplate a situation wherein the party to the action is alive upon the delivery of a copy of the
tribunal’s decision. In the present case, however, petitioner died before a copy of the labor arbiter’s decision was served
upon him. Hence, the above provisions do not apply. As aptly stated by the NLRC:

… In the case at bar, respondent Melencio Gabriel was not represented by counsel during the pendency of the case. A
decision was rendered by the Labor Arbiter a quo on March 17, 1997 while Mr. Gabriel passed away on April 4, 1997,
without having received a copy thereof during his lifetime. The decision was only served on April 18, 1997 when he was
no longer around to receive the same. His surviving spouse and daughter cannot automatically substitute themselves as
party respondents. Thus, when the bailiff tendered a copy of the decision to them, they were not in a position to receive
them. The requirement of leaving a copy at the party’s residence is not applicable in the instant case because this
presupposes that the party is still living and is not just available to receive the decision.

The preceding considered, the decision of the Labor Arbiter has not become final because there was no proper service of
copy thereof to party respondent….15

Thus, the appeal filed on behalf of petitioner on June 5, 1997 after receipt of a copy of the decision via registered mail on
May 28, 1997 was within the ten-day reglementary period prescribed under Section 223 of the Labor Code.

On the question whether petitioner’s surety bond was defective, Section 6, Rule VI of the New Rules of Procedure of the
NLRC provides:

SEC. 6. Bond. – In case the decision of a Labor Arbiter … involves monetary award, an appeal by the employer shall be
perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the
Commission or the Supreme Court in an amount equivalent to the monetary award, exclusive of moral and exemplary
damages and attorney’s fees.

The employer as well as counsel shall submit a joint declaration under oath attesting that the surety bond posted is
genuine and that it shall be in effect until final disposition of the case.

37
The Commission may, in meritorious cases and upon Motion of the Appellant, reduce the amount of the bond. (As
amended on Nov. 5, 1993).

The Court believes that petitioner was able to comply substantially with the requirements of the above Rule. As correctly
pointed out by the NLRC:

While we agree with complainants-appellees that the posting of the surety bond is jurisdictional, We do not believe that
the "defects" imputed to the surety bond posted for and in behalf of respondent-appellant Gabriel are of such character as
to affect the jurisdiction of this Commission to entertain the instant appeal.

It matters not that, by the terms of the bond posted, the "Liability of the surety herein shall expire on June 5, 1998 and this
bond shall be automatically cancelled ten (10) days after the expiration." After all, the bond is accompanied by the joint
declaration under oath of respondent-appellant’s surviving spouse and counsel attesting that the surety bond is genuine
and shall be in effect until the final disposition of the case.

Anent complainants-appellees contention that the surety bond posted is defective for being in the name of BTSCI which
did not appeal and for having been entered into by Mrs. Gabriel without BTSCI’s authority, the same has been rendered
moot and academic by the certification issued by Gil CJ. San Juan, Vice-President of the bonding company to the effect
that "Eastern Assurance and Surety Corporation Bond No. 2749 was posted for and on behalf appellant Melencio Gabriel
and/or his heirs" and that "(T)he name "Bacoor Transport Service Cooperative, Inc." was indicated in said bond due
merely in (sic) advertence."

At any rate, the Supreme Court has time and again ruled that while Article 223 of the Labor Code, as amended requiring a
cash or surety bond in the amount equivalent to the monetary award in the judgment appealed from for the appeal to be
perfected, may be considered a jurisdictional requirement, nevertheless, adhering to the principle that substantial justice is
better served by allowing the appeal on the merits threshed out by this Honorable Commission, the foregoing requirement
of the law should be given a liberal interpretation (Pantranco North Express, Inc. v. Sison, 149 SCRA 238; C.W. Tan Mfg.
v. NLRC, 170 SCRA 240; YBL v. NLRC, 190 SCRA 160; Rada v. NLRC, 205 SCRA 69; Star Angel Handicraft v. NLRC,
236 SCRA 580).16

On the other hand, with regard to the substantive aspect of the case, the Court agrees with the CA that an employer-
employee relationship existed between petitioner and respondents. In Martinez v. National Labor Relations
Commission,17 citing National Labor Union v. Dinglasan,18 the Court ruled that:

[T]he relationship between jeepney owners/operators and jeepney drivers under the boundary system is that of employer-
employee and not of lessor-lessee because in the lease of chattels the lessor loses complete control over the chattel
leased although the lessee cannot be reckless in the use thereof, otherwise he would be responsible for the damages to
the lessor. In the case of jeepney owners/operators and jeepney drivers, the former exercises supervision and control
over the latter. The fact that the drivers do not receive fixed wages but get only that in excess of the so-called "boundary"
[that] they pay to the owner/operator is not sufficient to withdraw the relationship between them from that of employer and
employee. Thus, private respondents were employees … because they had been engaged to perform activities which
were usually necessary or desirable in the usual business or trade of the employer.19

The same principle was reiterated in the case of Paguio Transport Corporation v. NLRC.20

The Court also agrees with the labor arbiter and the CA that respondents were illegally dismissed by petitioner.
Respondents were not accorded due process.21 Moreover, petitioner failed to show that the cause for termination falls
under any of the grounds enumerated in Article 282

(then Article 283)22 of the Labor Code.23 Consequently, respondents are entitled to reinstatement without loss of seniority
rights and other privileges and to their full backwages computed from the date of dismissal up to the time of their actual
reinstatement in accordance with Article 279 of the Labor Code.

Reinstatement is obtainable in this case because it has not been shown that there is an ensuing "strained relations"
between petitioner and respondents. This is pursuant to the principle laid down in Globe-Mackay Cable and Radio
Corporation v. NLRC24 as quoted earlier in the CA decision.

With regard to respondents’ monetary claim, the same shall be governed by Section 20 (then Section 21), Rule 3 of the
Rules of Court which provides:1awphi1.net

SEC. 20. Action on contractual money claims.  – When the action is for recovery of money arising from contract, express
or implied, and the defendant dies before entry of final judgment in the court in which the action was pending at the time of

38
such death, it shall not be dismissed but shall instead be allowed to continue until entry of final judgment. A favorable
judgment obtained by the plaintiff therein shall be enforced in the manner provided in these Rules for prosecuting claims
against the estate of a deceased person. (21a)

In relation to this, Section 5, Rule 86 of the Rules of Court states:

SEC. 5. Claims which must be filed under the notice. If not filed, barred ; exceptions. – All claims for money against the
decedent arising from contract, express or implied, whether the same be due, not due, or contingent, ... and judgment for
money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever, except
that they may be set forth as counterclaims in any action that the executor or administrator may bring against the
claimants….

Thus, in accordance with the above Rules, the money claims of respondents must be filed against the estate of petitioner
Melencio Gabriel.25

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated August 4, 2000 and
February 7, 2001, respectively, in CA-G.R. SP No. 52001 are AFFIRMED but with the MODIFICATION that the money
claims of respondents should be filed against the estate of Melencio Gabriel, within such reasonable time from the finality
of this Decision as the estate court may fix.

No costs.

SO ORDERED.

39
[G.R. NO. 157214 : June 7, 2005]

PHILIPPINE GLOBAL COMMUNICATIONS, INC., Petitioner, v. RICARDO DE VERA, Respondent.

DECISION

GARCIA, J.:

Before us is this appeal by way of a Petition for Review on Certiorari from the 12 September 2002 Decision1 and the 13
February 2003 Resolution2 of the Court of Appeals in CA-G.R. SP No. 65178, upholding the finding of illegal dismissal by
the National Labor Relations Commission against petitioner.

As culled from the records, the pertinent facts are:

Petitioner Philippine Global Communications, Inc. (PhilCom), is a corporation engaged in the business of communication
services and allied activities, while respondent Ricardo De Vera is a physician by profession whom petitioner enlisted to
attend to the medical needs of its employees. At the crux of the controversy is Dr. De Vera's status vis a vis petitioner
when the latter terminated his engagement.

It appears that on 15 May 1981, De Vera, via a letter dated 15 May 1981,3 offered his services to the petitioner, therein
proposing his plan of works required of a practitioner in industrial medicine, to include the following:

1. Application of preventive medicine including periodic check-up of employees;

2. Holding of clinic hours in the morning and afternoon for a total of five (5) hours daily for consultation services to
employees;

3. Management and treatment of employees that may necessitate hospitalization including emergency cases and
accidents;

4. Conduct pre-employment physical check-up of prospective employees with no additional medical fee;

5. Conduct home visits whenever necessary;

6. Attend to certain medical administrative function such as accomplishing medical forms, evaluating conditions of
employees applying for sick leave of absence and subsequently issuing proper certification, and all matters referred which
are medical in nature.

The parties agreed and formalized respondent's proposal in a document denominated as RETAINERSHIP
CONTRACT4 which will be for a period of one year subject to renewal, it being made clear therein that respondent will
cover "the retainership the Company previously had with Dr. K. Eulau" and that respondent's "retainer fee" will be at
P4,000.00 a month. Said contract was renewed yearly.5 The retainership arrangement went on from 1981 to 1994 with
changes in the retainer's fee. However, for the years 1995 and 1996, renewal of the contract was only made verbally.

The turning point in the parties' relationship surfaced in December 1996 when Philcom, thru a letter 6 bearing on the
subject boldly written as "TERMINATION - RETAINERSHIP CONTRACT", informed De Vera of its decision to discontinue
the latter's "retainer's contract with the Company effective at the close of business hours of December 31, 1996" because
management has decided that it would be more practical to provide medical services to its employees through accredited
hospitals near the company premises.

On 22 January 1997, De Vera filed a complaint for illegal dismissal before the National Labor Relations Commission
(NLRC), alleging that that he had been actually employed by Philcom as its company physician since 1981 and was
dismissed without due process. He averred that he was designated as a "company physician on retainer basis" for
reasons allegedly known only to Philcom. He likewise professed that since he was not conversant with labor laws, he did
not give much attention to the designation as anyway he worked on a full-time basis and was paid a basic monthly salary
plus fringe benefits, like any other regular employees of Philcom.
40
On 21 December 1998, Labor Arbiter Ramon Valentin C. Reyes came out with a decision7 dismissing De Vera's complaint
for lack of merit, on the rationale that as a "retained physician" under a valid contract mutually agreed upon by the parties,
De Vera was an "independent contractor" and that he "was not dismissed but rather his contract with [PHILCOM] ended
when said contract was not renewed after December 31, 1996".

On De Vera's appeal to the NLRC, the latter, in a decision 8 dated 23 October 2000, reversed (the word used is "modified")
that of the Labor Arbiter, on a finding that De Vera is Philcom's "regular employee" and accordingly directed the company
to reinstate him to his former position without loss of seniority rights and privileges and with full backwages from the date
of his dismissal until actual reinstatement. We quote the dispositive portion of the decision:

WHEREFORE, the assailed decision is modified in that respondent is ordered to reinstate complainant to his former
position without loss of seniority rights and privileges with full backwages from the date of his dismissal until his actual
reinstatement computed as follows:

Backwages:

a) Basic Salary
From Dec. 31, 1996 to Apr. 10, 2000 = 39.33 mos.
P44,400.00 x 39.33 mos. P1,750,185.00
13th Month Pay:
b) 145,848.75
1/12 of P1,750,185.00
Travelling allowance:
c) 39,330.00
P1,000.00 x 39.33 mos.

GRAND TOTAL P1,935,363.75

The decision stands in other aspects.

SO ORDERED.

With its motion for reconsideration having been denied by the NLRC in its order of 27 February 2001, 9 Philcom then went
to the Court of Appeals on a Petition for Certiorari, thereat docketed as CA-G.R. SP No. 65178, imputing grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of the NLRC when it reversed the findings of the labor
arbiter and awarded thirteenth month pay and traveling allowance to De Vera even as such award had no basis in fact
and in law.

On 12 September 2002, the Court of Appeals rendered a decision,10 modifying that of the NLRC by deleting the award of
traveling allowance, and ordering payment of separation pay to De Vera in lieu of reinstatement, thus:

WHEREFORE, premises considered, the assailed judgment of public respondent, dated 23 October 2000, is MODIFIED.
The award of traveling allowance is deleted as the same is hereby DELETED. Instead of reinstatement, private
respondent shall be paid separation pay computed at one (1) month salary for every year of service computed from the
time private respondent commenced his employment in 1981 up to the actual payment of the backwages and separation
pay. The awards of backwages and 13th month pay STAND.

SO ORDERED.

In time, Philcom filed a motion for reconsideration but was denied by the appellate court in its resolution of 13 February
2003.11

Hence, Philcom's present recourse on its main submission that -

THE COURT OF APPEALS ERRED IN SUSTAINING THE DECISION OF THE NATIONAL LABOR RELATIONS
COMMISSION AND RENDERING THE QUESTIONED DECISION AND RESOLUTION IN A WAY THAT IS NOT IN
ACCORD WITH THE FACTS AND APPLICABLE LAWS AND JURISPRUDENCE WHICH DISTINGUISH LEGITIMATE
JOB CONTRACTING AGREEMENTS FROM THE EMPLOYER-EMPLOYEE RELATIONSHIP.

We GRANT.

41
Under Rule 45 of the Rules of Court, only questions of law may be reviewed by this Court in decisions rendered by the
Court of Appeals. There are instances, however, where the Court departs from this rule and reviews findings of fact so
that substantial justice may be served. The exceptional instances are where:

"xxx xxx xxx (1) the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the inference
made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of
facts; (5) the findings of fact are conflicting; (6) the Court of Appeals went beyond the issues of the case and its findings
are contrary to the admissions of both appellant and appellees; (7) the findings of fact of the Court of Appeals are contrary
to those of the trial court; (8) said findings of facts are conclusions without citation of specific evidence on which they are
based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record."12

As we see it, the parties' respective submissions revolve on the primordial issue of whether an employer-employee
relationship exists between petitioner and respondent, the existence of which is, in itself, a question of fact13 well within the
province of the NLRC. Nonetheless, given the reality that the NLRC's findings are at odds with those of the labor arbiter,
the Court, consistent with its ruling in Jimenez v. National Labor Relations Commission,14 is constrained to look deeper
into the attendant circumstances obtaining in this case, as appearing on record.

In a long line of decisions,15 the Court, in determining the existence of an employer-employee relationship, has invariably
adhered to the four-fold test, to wit: [1] the selection and engagement of the employee; [2] the payment of wages; [3] the
power of dismissal; and [4] the power to control the employee's conduct, or the so-called "control test", considered to be
the most important element.

Applying the four-fold test to this case, we initially find that it was respondent himself who sets the parameters of what his
duties would be in offering his services to petitioner. This is borne by no less than his 15 May 1981 letter16 which, in full,
reads:

"May 15, 1981

Mrs. Adela L. Vicente

Vice President, Industrial Relations
PhilCom, Paseo de Roxas
Makati, Metro Manila

Madam:

I shall have the time and effort for the position of Company physician with your corporation if you deemed it necessary. I
have the necessary qualifications, training and experience required by such position and I am confident that I can serve
the best interests of your employees, medically.

My plan of works and targets shall cover the duties and responsibilities required of a practitioner in industrial medicine
which includes the following:

1. Application of preventive medicine including periodic check-up of employees;

2. Holding of clinic hours in the morning and afternoon for a total of five (5) hours daily for consultation services to
employees;

3. Management and treatment of employees that may necessitate hospitalization including emergency cases and
accidents;

4. Conduct pre-employment physical check-up of prospective employees with no additional medical fee;

5. Conduct home visits whenever necessary;

6. Attend to certain medical administrative functions such as accomplishing medical forms, evaluating conditions of
employees applying for sick leave of absence and subsequently issuing proper certification, and all matters referred which
are medical in nature.

On the subject of compensation for the services that I propose to render to the corporation, you may state an offer based
on your belief that I can very well qualify for the job having worked with your organization for sometime now.

42
I shall be very grateful for whatever kind attention you may extend on this matter and hoping that it will merit acceptance, I
remain

Very truly yours,

(signed)
RICARDO V. DE VERA, M.D."

Significantly, the foregoing letter was substantially the basis of the labor arbiter's finding that there existed no employer-
employee relationship between petitioner and respondent, in addition to the following factual settings:

The fact that the complainant was not considered an employee was recognized by the complainant himself in a signed
letter to the respondent dated April 21, 1982 attached as Annex G to the respondent's Reply and Rejoinder. Quoting the
pertinent portion of said letter:

'To carry out your memo effectively and to provide a systematic and workable time schedule which will serve the best
interests of both the present and absent employee, may I propose an extended two-hour service (1:00-3:00 P.M.) during
which period I can devote ample time to both groups depending upon the urgency of the situation. I shall readjust my
private schedule to be available for the herein proposed extended hours, should you consider this proposal.

As regards compensation for the additional time and services that I shall render to the employees, it is dependent on your
evaluation of the merit of my proposal and your confidence on my ability to carry out efficiently said proposal.'

The tenor of this letter indicates that the complainant was proposing to extend his time with the respondent and seeking
additional compensation for said extension. This shows that the respondent PHILCOM did not have control over the
schedule of the complainant as it [is] the complainant who is proposing his own schedule and asking to be paid for the
same. This is proof that the complainant understood that his relationship with the respondent PHILCOM was a retained
physician and not as an employee. If he were an employee he could not negotiate as to his hours of work.

The complainant is a Doctor of Medicine, and presumably, a well-educated person. Yet, the complainant, in his position
paper, is claiming that he is not conversant with the law and did not give much attention to his job title - on a 'retainer
basis'. But the same complainant admits in his affidavit that his service for the respondent was covered by a retainership
contract [which] was renewed every year from 1982 to 1994. Upon reading the contract dated September 6, 1982, signed
by the complainant himself (Annex 'C' of Respondent's Position Paper), it clearly states that is a retainership contract. The
retainer fee is indicated thereon and the duration of the contract for one year is also clearly indicated in paragraph 5 of the
Retainership Contract. The complainant cannot claim that he was unaware that the 'contract' was good only for one year,
as he signed the same without any objections. The complainant also accepted its renewal every year thereafter until
1994. As a literate person and educated person, the complainant cannot claim that he does not know what contract he
signed and that it was renewed on a year to year basis.17

The labor arbiter added the indicia, not disputed by respondent, that from the time he started to work with petitioner, he
never was included in its payroll; was never deducted any contribution for remittance to the Social Security System (SSS);
and was in fact subjected by petitioner to the ten (10%) percent withholding tax for his professional fee, in accordance
with the National Internal Revenue Code, matters which are simply inconsistent with an employer-employee relationship.
In the precise words of the labor arbiter:

"xxx xxx xxx After more than ten years of services to PHILCOM, the complainant would have noticed that no SSS
deductions were made on his remuneration or that the respondent was deducting the 10% tax for his fees and he surely
would have complained about them if he had considered himself an employee of PHILCOM. But he never raised those
issues. An ordinary employee would consider the SSS payments important and thus make sure they would be paid. The
complainant never bothered to ask the respondent to remit his SSS contributions. This clearly shows that the complainant
never considered himself an employee of PHILCOM and thus, respondent need not remit anything to the SSS in favor of
the complainant."18

Clearly, the elements of an employer-employee relationship are wanting in this case. We may add that the records are
replete with evidence showing that respondent had to bill petitioner for his monthly professional fees. 19 It simply runs
against the grain of common experience to imagine that an ordinary employee has yet to bill his employer to receive his
salary.

We note, too, that the power to terminate the parties' relationship was mutually vested on both. Either may terminate the
arrangement at will, with or without cause.20

43
Finally, remarkably absent from the parties' arrangement is the element of control, whereby the employer has reserved
the right to control the employee not only as to the result of the work done but also as to the means and methods by which
the same is to be accomplished.21

Here, petitioner had no control over the means and methods by which respondent went about performing his work at the
company premises. He could even embark in the private practice of his profession, not to mention the fact that
respondent's work hours and the additional compensation therefor were negotiated upon by the parties.22 In fine, the
parties themselves practically agreed on every terms and conditions of respondent's engagement, which thereby negates
the element of control in their relationship. For sure, respondent has never cited even a single instance when petitioner
interfered with his work.

Yet, despite the foregoing, all of which are extant on record, both the NLRC and the Court of Appeals ruled that
respondent is petitioner's regular employee at the time of his separation.

Partly says the appellate court in its assailed decision:

Be that as it may, it is admitted that private respondent's written 'retainer contract' was renewed annually from 1981 to
1994 and the alleged 'renewal' for 1995 and 1996, when it was allegedly terminated, was verbal.

Article 280 of the Labor code (sic) provides:

'The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreements of the
parties, an employment shall be deemed to be regular where the employee has been engaged to perform 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 (1) year of service, whether such is continuous or broken, shall be
considered a regular with respect to the activity in which he is employed and his employment shall continue while
such activity exists.'

Parenthetically, the position of company physician, in the case of petitioner, is usually necessary and desirable because
the need for medical attention of employees cannot be foreseen, hence, it is necessary to have a physician at hand. In
fact, the importance and desirability of a physician in a company premises is recognized by Art. 157 of the Labor Code,
which requires the presence of a physician depending on the number of employees and in the case at bench, in
petitioner's case, as found by public respondent, petitioner employs more than 500 employees.

Going back to Art. 280 of the Labor Code, it was made therein clear that the provisions of a written agreement to the
contrary notwithstanding or the existence of a mere oral agreement, if the employee is engaged in the usual business or
trade of the employer, more so, that he rendered service for at least one year, such employee shall be considered as
a regular employee. Private respondent herein has been with petitioner since 1981 and his employment was not for a
specific project or undertaking, the period of which was pre-determined and neither the work or service of private
respondent seasonal. (Emphasis by the CA itself).

We disagree to the foregoing ratiocination.

The appellate court's premise that regular employees are those who perform activities which are desirable and necessary
for the business of the employer is not determinative in this case. For, we take it that any agreement may provide that one
party shall render services for and in behalf of another, no matter how necessary for the latter's business, even without
being hired as an employee. This set-up is precisely true in the case of an independent contractorship as well as in an
agency agreement. Indeed, Article 280 of the Labor Code, quoted by the appellate court, is not the yardstick for
determining the existence of an employment relationship. As it is, the provision merely distinguishes between two (2)
kinds of employees, i.e., regular and casual. It does not apply where, as here, the very existence of an employment
relationship is in dispute.23

Buttressing his contention that he is a regular employee of petitioner, respondent invokes Article 157 of the Labor Code,
and argues that he satisfies all the requirements thereunder. The provision relied upon reads:

ART. 157. Emergency medical and dental services. - It shall be the duty of every employer to furnish his employees in any
locality with free medical and dental attendance and facilities consisting of:

44
(a) The services of a full-time registered nurse when the number of employees exceeds fifty (50) but not more than two
hundred (200) except when the employer does not maintain hazardous workplaces, in which case the services of a
graduate first-aider shall be provided for the protection of the workers, where no registered nurse is available. The
Secretary of Labor shall provide by appropriate regulations the services that shall be required where the number of
employees does not exceed fifty (50) and shall determine by appropriate order hazardous workplaces for purposes of this
Article;

(b) The services of a full-time registered nurse, a part-time physician and dentist, and an emergency clinic, when the
number of employees exceeds two hundred (200) but not more than three hundred (300); andcralawlibrary

(c) The services of a full-time physician, dentist and full-time registered nurse as well as a dental clinic, and an infirmary or
emergency hospital with one bed capacity for every one hundred (100) employees when the number of employees
exceeds three hundred (300).

In cases of hazardous workplaces, no employer shall engage the services of a physician or dentist who cannot stay in the
premises of the establishment for at least two (2) hours, in the case of those engaged on part-time basis, and not less
than eight (8) hours in the case of those employed on full-time basis. Where the undertaking is nonhazardous in nature,
the physician and dentist may be engaged on retained basis, subject to such regulations as the Secretary of Labor may
prescribe to insure immediate availability of medical and dental treatment and attendance in case of emergency.

Had only respondent read carefully the very statutory provision invoked by him, he would have noticed that in non-
hazardous workplaces, the employer may engage the services of a physician "on retained basis." As correctly observed
by the petitioner, while it is true that the provision requires employers to engage the services of medical practitioners in
certain establishments depending on the number of their employees, nothing is there in the law which says that medical
practitioners so engaged be actually hired as employees,24 adding that the law, as written, only requires the employer "to
retain", not employ, a part-time physician who needed to stay in the premises of the non-hazardous workplace for two (2)
hours.25

Respondent takes no issue on the fact that petitioner's business of telecommunications is not hazardous in nature. As
such, what applies here is the last paragraph of Article 157 which, to stress, provides that the employer may engage the
services of a physician and dentist "on retained basis", subject to such regulations as the Secretary of Labor may
prescribe. The successive "retainership" agreements of the parties definitely hue to the very statutory provision relied
upon by respondent.

Deeply embedded in our jurisprudence is the rule that courts may not construe a statute that is free from doubt. Where the
law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it
that the mandate is obeyed.26 As it is, Article 157 of the Labor Code clearly and unequivocally allows employers in non-
hazardous establishments to engage "on retained basis" the service of a dentist or physician. Nowhere does the law
provide that the physician or dentist so engaged thereby becomes a regular employee. The very phrase that they may be
engaged "on retained basis", revolts against the idea that this engagement gives rise to an employer-employee
relationship.

With the recognition of the fact that petitioner consistently engaged the services of respondent on a retainer basis, as
shown by their various "retainership contracts", so can petitioner put an end, with or without cause, to their retainership
agreement as therein provided.27

We note, however, that even as the contracts entered into by the parties invariably provide for a 60-day notice
requirement prior to termination, the same was not complied with by petitioner when it terminated on 17 December 1996
the verbally-renewed retainership agreement, effective at the close of business hours of 31 December 1996.

Be that as it may, the record shows, and this is admitted by both parties, 28 that execution of the NLRC decision had
already been made at the NLRC despite the pendency of the present recourse. For sure, accounts of petitioner had
already been garnished and released to respondent despite the previous Status Quo Order 29 issued by this Court. To all
intents and purposes, therefore, the 60-day notice requirement has become moot and academic if not waived by the
respondent himself.

WHEREFORE, the petition is GRANTED and the challenged decision of the Court of Appeals REVERSED and SET
ASIDE. The 21 December 1998 decision of the labor arbiter is REINSTATED.

No pronouncement as to costs.

SO ORDERED.

45
[G.R. NO. 154472 : June 30, 2005]

ALEXANDER R. LOPEZ, HERMINIO D. PEÑA, SALVADOR T. ABUEL, GEORGE F. CABRERA, JOEL M. CARREON,
DAMASO M. CERVANTEX, JR., RICARDO V. CUEVAS, ROBERTO S. DAGDAG, IRENEO V. DURAY, OMER S.
ESPIRIDION, MANOLO V. FORONDA, RONITO R. FRIAS, ANGEL C. GARCIA, VICTORINO A. ILAGAN, DENNIS S.
LEGADOS, MIGUEL J. LOPEZ, EMMANUEL R. MERILLO, EDGAR E. NATARTE, MAMERTO S. NEPOMUCENO,
MARVIN R. PADURA, ROMEO C. RAMILO, ALBERTO R. RAMOS, JR., RONALDO A. SARMIENTO, ARMANDO S.
SIONGCO, JOSE TEODY P. VELASCO, RICO P. VILLANUEVA, SAMUEL L. ZAPATERO, EDGARDO D. AGUDO,
ROBERTO A. ARAÑA, BENJAMIN ASUNCION, JULIAN C. BACOD, EDWIN N. BORROMEO, ALBERTO T.
BULAONG, DANIEL CADAÑOM, ROBERTO S. CAYETANO, ALFREDO C. CLAVIO, EDGARDO A. DABUET, NEIL
DAVID, ALEXANDER B. ESTORES, NOEL GUILLEN, RODOLFO MAGNO, REY MANLEGRO, ROMEO V. MORALES,
ROSAURO NADORA, EUGENIO M. ORITO, RONILO P. PAREDES, ADGARDO R. PINEDA, CARLITO SAMARTINO,
ARTURO C. SARAOS, JR., JOHNEL L. TORRIBIO, ANTONIO A. VERGARA, JIMMY C. UNGSON, NOEL D. AMOYO,
VIRGILIO L. AZARCON, RICARDO M. BROTONEL, EMERALDO C. CABAYA, JULIE G. CHAN, LUIS C. CLAVIO,
LUIS T. CANIZO, ERNESTO F. DAVID, EDGAR B. DE VERA, REYNALDO A. DUMLAO, ARTURO R. DYCHITAN,
ROMAN S. FAJARDO, BERNARDINO B. MACALDO, ROMEO D. MANASIS, JR., MARIO R. MANGALINDAN,
VICTORIANO C. MARTINEZ, LEONARDO D. MIRALLES, ROGELIO E. PACER, ROSENDO L. PANGILINAN, NOLI H.
POLINAG, DIOSDADO M. PUNZALAN, REYNALDO C. GATPO, CIRILO M. SANTOS, RAMON A. ZAMBRANA, PIO L.
ASTORGA, ROLANDO G. CAGALINGAN, ANGELITO A. CAUDAL, FRANCISCO S. DELOS SANTOS, CARLOS E.
LOMIBAO, ROMEO S. MALABANAN, LIBERATO B. MANGENTE, JULIAN M. MARTINEZ, BERNARDO S. MEDINA,
MELVIN R. MENDEZ, ALBERT C. MIRADOR, RENEE S. OCAMPO, DAVID J. PASCUA, AMORSOLO M. PILARTA,
ROLANDO C. REYES, GAVINO SAN GABRIEL, JR., PERCON F. SISON, PLARIDEL L. TANGLAO, RUBEN R.
TAÑEDO, JR., RENATO G. TARUC, RONALDO D.C. VENTURA, ANGEL L. VERTUCIO, ERWIN T. VIDAD, WILLIAM
M. AGANAON, ALEX P. MANABAT, FRANCISCO ALMONTE, RODRIGO C. ANTONIO, DOUGLAS R. AQUINO,
REMEGIO R. ATIENZA, ABRAHAM C. BALICANTE, MELENCIO M. BAGNGUIS, JR., GERARDO T. BULAONG,
MELITANTE I. CASTRO, MEDARDO S. CATACUTAN, VIRGILIO T. CATUBIG, JOSE S. CHIONG, NEL T.
COLOBONG, FELIPE C. COLLADO, RANDY T. CORTIGUERRA, ANTONIO D. DELA CRUZ, JESUS C. DINGLE,
EDGARDO N. GARCIA, CELSO Z. GOLFO, NONITO V. FERNANDEZ, LARRY HIDALGO, FRANCISCO B. JAO, JR.,
CARLOS P. LAGLIVA, RICO L. LARRACAS, PEDRO V. ABARIDES, RUDY S. AGUINALDO, REGINALD F.
ALCANTARA, SERAFIN ALCANTAR, JR., FELIX H. ALEJANDRO, MIGUEL ALTONAGA, JOSE T. AGUILAR,
PEDRO AGUILAR, JR., NOEL A. ALIPIO, WILLIAM A. ALMAZAR, REYNALDO S.D. ALVAREZ, FLORIZEL M.
AMBROCIO, JOSE A. ASPE, ROBERTO J. ARCEO, ERNESTO V. ARUTA, MILLARDO DL. ATENCIO, ERNESTO G.
AVELINO, WENCESLAO C. BABEJAS, ARNOLD F. BALINGIT, HEBERT F. BARCELON, MARLON D. BORROZO,
FLORENTINO BAS, JR., LEARNED A. BAUTISTA, ARMAN N. BORROMEO, CARLITO F. BARTOLO, CARLOS M.
CABERTO, ARTURO S. CAJUCOM, DIEGO CALDERON, JR., WILLIAM A. CAMPOS, JORGE CANONIGO, JR.,
ANGELITO M. CAPARAC, EMMANUEL L. CAPIT, LAURO S. CASTRO, TOMEO B. CASTALONE, VERZNEV S.
CATUBIG, ARMANDO CERVANTES, CALIXTO P. COLADA, JR., JONATHAN P. CORONEL, JOE NOEL P. CRUZ,
FRANCISCO CRUZ, JR., MARIANO B. CRUZ, JR., JOSE J. DALUMPINES, SANITO S. DE JESUS, JOSE G. DE
LEON, CRISANTO DE LOS REYES, EMMANUEL C. DE VERA, RODOLFO DE VERA, JR., HERMAN C. DE VILLAR,
IKE S. DELFIN, PEDRO E. DESIPEDA, ERAÑO A. DIONISIO, ALFREDO L. DUGAYO, REYNALDO V. DURAY,
EUGENIO C. ELEAZAR, RAFAEL U. ENCINA, ORLANDO C. ESCOLAR, ALLAN P. ESPINA, LAURO S. ESPINA,
ISRAEL F. FALLURIN, ORIEL A. FESTEJO, EDGARDO V. FIGUEROA, RALPH FLORES, FERDINAND B. FUGGAN,
NOEL Z. GABOT, EDUARDO M. GALANG, VICENTE D. GALLARDO, FRESCO B. GALO, ROSAURO G. GAMBOA,
MARIO S. GABRIEL, ROBERTO C. GAPASIN III, ROMUALDO GAPASIN, JR., DANILO C. GARCIA, RESTITUTO S.
GARCIA, NOEL B. GATDULA, BENJIE S. GERONIMO, ARTURO R. GLORIOSO, ISIDRO S. GOMED, JR., MEDEL P.
GREGORIO, REY T. HECHANOVA, VONREQUITO HERBUELA, CELSO F. IGNACIO, JR., CHARLIE S. IGNACIO,
ILDEFONSO F. ILDEFONSO, GAUDENICO M. INTAL, RIZALITO M. INTAL, RENATO HERRERO, BIENVENIDO L.
JAO, JR., FERDINAND P. LAGMAN, RENEIL M. LAREZA, ALMARIO M. LAXA, ARTHUR G. LEVISTE, ESTEBAN T.
LEGARTO, RAMON G. LIWANAG, ELISEO A. LU, RAYMUNDO LUSTICA, JR., FERNANDO D. MABANTA, NESTOR
F. MAGALLANES, EDWIN A. MAGPAYO, MICHAEL I. MAGRIA, ARIEL M. MALAPAD, RAMON O. MAMUCOD,
FERDINAND P. MANINGAS, RONALD D.R. MANUEL, ROLANDO F. MAPUE, CHITO C. MARCO, ERNESTO S.
46
MARCHAN, JOSEPH B. MARIANO, FRANCIS J. MARIMON, JOHN L. MARTEJA, JOSE E. MASE, JR., BERNARDO
S. MEDINA, JOEREY B. MERIDOR, SUSANO S. MIRANDA, EDGARDO C. MONTOYA, MARLON B. MORADA,
ROMEO R. DEL MUNDO, REYNALDO C. NAREDO, EDGARDO R. NEPOMUCENO, RODEL S. NEPOMUCENO,
ROMMEL NIYO, ROMULO P. OLARTE, GEORGE N. OLAVERE, EDUARDO ONG, MARIO S. PAGSANJAN, RENALD
C. PALAD, GAUDENCIO G. PEDROCHE, RONALDO DELA CRUZ PEREÑA, EDILBERTO C. PIÑGUL, ERNESTO
PINGUL, AGNESIO D. QUEBRAL, JAMES M. QUINTO, RICARDO R. RAMOS, GENEROSO REGALADO, JR.,
EDUARDO L. REYES, RAMON C. REYES, LARRY S. RECAMADAS, ANTONIO B. REDONDO, FEDERICO M.
RIVERA, ROBERTO I. ROCOMORA, FERNANDO P. RODRIGUEZ, HERNANDO S. RODRIGUEZ, ROMMEL D.
ROXAS, CHRISTOPHER R. RUSTIA, ARNULFO T. JAMISON, MARIO G. SAN PEDRO, ELMER B. SANTOS,
LEONARDO SEBASTIAN, JR., CARMENCITO M. SEXON, JOSE STA. ANA SIERRA, LLOYD Z. SINADJAN, RAMON
S. SISIO, RAMIRO M. SOLIS, MANUEL C. SUAREZ, BENJAMIN TALAVERA, JR., OSCAR U. TAN, RICARDO S.
TAN, AUGUSTUS V. TANDOC, ROBERTO L. TAÑEDO, ERNESTO R. TIBAY, CHARLIE P. TICSAY, REY DE VERE
TIONGCO, VIVENCIO B. TOLENTINO, OSMUNDO S. TORRES, HILARIO L. VALDEZ, LEONARDO C. VALDEZ,
PASTOR M. VALENCIA, EFREN VELASCO, EDMUNDO D. VICTA, FERDINAND VILLANUEVA, JOSE C.
VILLANUEVA, JOSE ROMMEL VILLAMOR, OLIVER P. VILLANUEVA, VICTOR P. ZAFARALLA, HORACIO L.
ZAPATERO, COENE C. ZAPITER, THE HEIRS OF ESTEBAN BALDOZA, RUBEN GALANG, FAUSTO S. CRUZ,
REYNALDO BORJA, CRISANTO CAGALINGAN and ADRIANO VICTORIA, Petitioners, v. METROPOLITAN
WATERWORKS AND SEWERAGE SYSTEM, Respondents.

DECISION

TINGA, J.:

Take not from the mouth of labor the bread it has earned.

-Thomas Jefferson

The constitutional protection to labor, a uniform feature of the last three Constitutions including the present one, is
outstanding in its uniqueness and as a mandate for judicial activism.

This petition asks for the review of the Court of Appeals' DECISION 1 in C.A.-G.R. SP NO. 55263 entitled Alexander R.
Lopez, et al. v. Metropolitan Waterworks and Sewerage System, which affirmed in toto the Civil Service Commission's
Resolutions2 denying petitioners' claim for severance, retirement and terminal leave pay.

By virtue of an Agreement,3 petitioners were engaged by the Metropolitan Waterworks and Sewerage System (MWSS) as
collectors-contractors, wherein the former agreed to collect from the concessionaires of MWSS, charges, fees,
assessments of rents for water, sewer and/or plumbing services which the MWSS bills from time to time.4

In 1997, MWSS entered into a Concession Agreement with Manila Water Service, Inc. and Benpress-Lyonnaise, wherein
the collection of bills was transferred to said private concessionaires, effectively terminating the contracts of service
between petitioners and MWSS. Regular employees of the MWSS, except those who had retired or opted to remain with
the latter, were absorbed by the concessionaires. Regular employees of the MWSS were paid their retirement benefits,
but not petitioners. Instead, they were refused said benefits, MWSS relying on a resolution5 of the Civil Service
Commission (CSC) that contract-collectors of the MWSS are not its employees and therefore not entitled to the benefits
due regular government employees.

Petitioners filed a complaint with the CSC. In its Resolution dated 1 July 1999,6 the CSC denied their claims, stating that
petitioners were engaged by MWSS through a contract of service, which explicitly provides that a bill collector-contractor
is not an MWSS employee.7 Relying on Part V of CSC Memorandum Circular No. 38, Series of 1993, the CSC stated that
contract services/job orders are not considered government services, which do not have to be submitted to the CSC for
approval, unlike contractual and plantilla appointments.8 Moreover, it found that petitioners were unable to show that they
have contractual appointments duly attested by the CSC.9 In addition, the CSC stated that petitioners, not being
permanent employees of MWSS and not included in the list .submitted to the concessionaire, are not entitled to
severance pay.10 Petitioners' claims for retirement benefits and terminal leave pay were likewise denied.

Petitioners sought reconsideration of the CSC Resolution, which was however denied by the CSC on 17 September
1999.11 According to the CSC, petitioners failed to present any proof that their appointments were contractual
appointments submitted to the CSC for its approval.12 The CSC held, thus:

WHEREFORE, the motion for Reconsideration of Alexander Lopez, et al. is hereby denied. Accordingly, CSC Resolution
No. 99-1384 dated July 1, 1999 stands. However, this is not without prejudice to whatever rights and benefits they may
have under the New Labor Code and other laws, if any.13

47
Aggrieved, petitioners filed a Petition for Review under Rule 43 of the Rules of Court with the Court of Appeals.14 In its
DECISION, the Court of Appeals narrowed down the issues presented by petitioners as follows: Whether or not the CSC
erred in finding that petitioners are not contractual employees of the government and, hence, are not entitled to retirement
and separation benefits.15

Affirming and generally reiterating the ruling of the CSC, the Court of Appeals held that the Agreement entered into by
petitioners and MWSS was clear and unambiguous, and should be read and interpreted according to its literal
sense.16 Hence, as per the terms of the agreement, petitioners were not MWSS employees. The Court of Appeals held
that no other evidence was adduced by petitioners to substantiate their claim that their papers were forwarded to the CSC
for attestation and approval.17 It added that in any event, as early as 26 June 1996, the CSC specifically stated that
"contract collectors are not MWSS employees and therefore not entitled to severance pay."18

The Court of Appeals held that petitioners are not similarly situated as the petitioner in the case of Chua  v. Civil Service
Commission19 since the contractual appointment was submitted to and approved by the CSC, while the former were
not.20 Further, petitioners do not have creditable service for purposes of retirement, since their services were not
supported by duly approved appointments.21 Lastly, the Court of Appeals held that petitioners were exempt from
compulsory membership in the GSIS. Having made no monthly contributions remitted to the said office, petitioners are not
entitled to the separation and/or retirement benefits that they are claiming.22

Petitioners now assert that the Court of Appeals rendered a decision not in accord with law and applicable jurisprudence,
based on misapprehension of facts, and/or contrary to the evidence on record.23

Petitioners allege that while their hiring was made to appear to be on contractual basis, the contracts evidencing such
hiring were submitted to and approved by the CSC. Later contracts, however, do not appear to have been submitted to
the CSC for approval. To support its claim, petitioners presented two (2) sample agreements,24 both stamped "approved"
and signed by CSC Regional Directors. While styled as individual contracts/agreements, petitioners insist that the same
were actually treated by the MWSS as appointment papers.25

Petitioners claim that they were employees of the MWSS, and that the latter exercised control over them. They cite as
manifestations of control the training requirements, the mandated procedures to be followed in making collections, MWSS'
close monitoring of their performance, as well as the latter's power to transfer collectors from one branch to another.26

Moreover, they add that with the nature and extent of their work at the MWSS, they served as collectors of MWSS
only.27 They stress that they have never provided collection services to customers as an independent business. In fact,
they applied individually and were hired by MWSS one by one.28 They were provided with uniforms and identification
cards, and received basic pay termed as "commissions" from which MWSS deducted withholding tax.29 The
"commissions" were determined or computed by MWSS and paid to the collectors by payroll every fifteenth (15th) and last
day of every month. In addition to the commission, collectors were given, among others, performance, mid-year and
anniversary bonuses, hazard pay, thirteenth (13th) month pay, traveling allowance, cash gift, meal allowance and
productivity pay.30

Petitioners claim that bill collectors were historically regarded as employees of National Waterworks and Sewerage
Authority (NAWASA), the forerunner of MWSS.31 They cite the case of National Waterworks and Sewerage Authority v.
NWSA Consolidated Labor Unions, et al., 32 wherein this Court supposedly declared the bill collectors of NAWASA as its
employees and the commissions received by said collectors as salary.33 Likewise, they claim that by MWSS' own acts,
petitioners were its employees. To support this contention, they point to the identification cards (I.D.s) and certifications of
employment issued by MWSS in their favor.34 There were also "Records of Appointment", which referred to the contract-
collectors as employees with corresponding service records.35

In view of the cited documents, petitioners assert that MWSS is estopped from denying their employment with the
agency.36 Should there be doubt as to their status as employees, petitioners invoke the rule of liberal construction in favor
of labor, and the constitutional policy of protection to labor.37

To further strengthen their case, petitioners refer to CSC Resolution 92-2008 dated 8 December 1992, which states in
part:

. . . . The fact that they were being hired directly and paid on commission basis by MWSS itself is indicative that they are
government employees and should be entitled to the incentive awards.

WHEREFORE, foregoing premises considered, the Commission resolves to rule that the Contractual-Collectors of the
Metropolitan Waterworks and Sewerage System (MWSS) are entitled to loyalty awards.38

48
The same resolution was made the basis of the MWSS' memorandum declaring contract-collectors government
employees or personnel entitled to salary increases pursuant to the Salary Standardization Law I & II.39

Thus, petitioners claim that by MWSS' and CSC's own acts and declarations, they were made to believe that they were
employees of MWSS and as such were government employees.40

Petitioners invoke the case of Chua v. Civil Service Commission, et al.41 wherein Chua, a co-terminus employee of the
National Irrigation Administration, sought to recover early retirement benefits but was denied the same. This Court, having
observed that Chua was hired and re-hired in four (4) successive projects during a span of fifteen (15) years, was deemed
a regular employee for purposes of retirement pay. Petitioners argue that in the same manner, in view of their
considerable length of service to MWSS, they are entitled to their claimed benefits.42

In addition to the retirement/separation/terminal leave pay prayed for, petitioners claim moral damages for the alleged
serious disturbance they suffered as a result of the denial of their claims. They also pray for the award of attorney's fees.43

For its part, the MWSS avers that the Court of Appeals did not err in sustaining the resolutions of the CSC denying
petitioners' claim for entitlement to severance, retirement and terminal leave pay.

MWSS denies the existence of employer-employee relationship between itself and petitioners. Citing CSC Memorandum
Circular No. 38 Series of 1993, MWSS avers that it has the authority to contract the services of another who is considered
not its employee.44 With respect to the matter of payment of wages, MWSS states that the commission given to petitioners
does not fall within the definition of compensation as provided in Presidential Degree No. 1146 (P.D. 1146), 45 or in the
definition of the term under the Revised Administrative Code either.46

It adds that the issuance of I.D.s., certificates of recognition and loyalty awards as well as the grounds for termination of
the Agreement could hardly be considered as control as the same had no relation to the means and methods to be
employed by petitioners in collecting payments for MWSS.47 As for the training and orientation undergone by petitioners,
MWSS claims that it is but logical for any entity which has contracted the services of another to orient the latter before
actual performance of the service, more so if the entity's function is impressed with public service. The fact that collectors
were given a regular time for remittance should likewise not be considered as a form of control. MWSS states that none of
these requirements invades the collector's prerogative to adopt their own method/strategy in the matter of collection.48

On the grant of thirteenth (13th) month pay and other benefits to petitioners, MWSS claims that these were mere acts of
benevolence and generosity.49

Pertinently, therefore, the issue to be resolved is whether or not petitioners were employees of the MWSS and,
consequently, entitled to the benefits they claim.

We find for the petitioners.

The Court has invariably affirmed that it will not hesitate to tilt the scales of justice to the labor class for no less than the
Constitution dictates that "the State . . . shall protect the rights of workers and promote their welfare." 50 It is committed to
this policy and has always been quick to rise to defense in the rights of labor, as in this case.51

Protection to labor, it has been said, extends to all of labor local and overseas, organized and unorganized, in the public
and private sectors.52 Besides, there is no reason not to apply this principle in favor of workers in the government. The
government, including government-owned and controlled corporations, as employers, should set the example in upholding
the rights and interests of the working class.

The MWSS is a government owned and controlled corporation with its own charter, Republic Act No. 6234.53 As such, it is
covered by the civil service54 and falls under the jurisdiction of the Civil Service Commission.55

CSC Memorandum Circular No. 38, Series of 1993, categorically made the distinction between contract of services/job
orders and contractual and plantilla appointment, declaring that services rendered under contracts of services and job
orders are non-government services which do not have to be submitted to the CSC for approval. This was followed by
CSC Memorandum Circular No. 4, Series of 1994, which allowed the crediting of services for purposes of retirement only
for such services supported by duly approved appointments. Subsequently, the CSC issued other resolutions applying the
above-mentioned circulars, stating that while some functions may have been contracted out by a government agency, the
persons contracted are not entitled to the benefits due to regular government employees.56

For purposes of determining the existence of employer-employee relationship, the Court has consistently adhered to the
four-fold test, namely: (1) whether the alleged employer has the power of selection and engagement of an employee; (2)

49
whether he has control of the employee with respect to the means and methods by which work is to be accomplished; (3)
whether he has the power to dismiss; and (4) whether the employee was paid wages.57 Of the four, the control test is the
most important element.

A review of the circumstances surrounding the case reveals that petitioners are employees of MWSS. Despite the obvious
attempt of MWSS to categorize petitioners as mere service providers, not employees, by entering into contracts for
services, its actuations show that they are its employees, pure and simple. MWSS wielded its power of selection when it
contracted with the individual petitioners, undertaking separate contracts or agreements. The same goes true for the
power to dismiss. Although termed as causes for termination of the Agreement, a review of the same shows that the
grounds indicated therein can similarly be grounds for termination of employment.

Under the Agreement, MWSS may terminate it if the "Collector-Contractor" does or fails to do any of the following:

Article VII - Duration, Termination and Penal Clauses.

....

(a) Fails to collect at least eighty percent (80%) of bills issued within three (3) months from commencement of this
Agreement or ninety percent (90%) within six (6) months after effectivity of this Agreement;

(b) Erases, alters, or changes any figure on the bills or remittance receipt for purposes of defrauding either the
concessioner or the MWSS. In case of termination of his services for any irregularity, there shall be no prejudice against
any criminal action for which he may be liable;

(c) Is discourteous, dishonest, arrogant  or his conduct is inimial [sic] to the good name or image of the MWSS;

(d) Fails to remit collections daily or to return uncollected bills daily; andcralawlibrary

(e) Fails to comply with any of the undertakings  as provided for in this Agreement, and the Manual of Procedures
mentioned in Article II hereof.58 (Emphasis Supplied)

On the other hand, the Labor Code enumerates the just causes for termination of employment, thus:

Art.282. Termination by Employer. 'An employer may terminate an employment for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in
connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;

(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of
his family or his duly authorized representative; andcralawlibrary

(e) Other causes analogous to the foregoing.

Obviously, failure to collect the payments of customers or remit the collections constitutes neglect of duty. Making
erasures, alterations or changing of figures in the fees or collection receipts amounts to fraud. Lack of courtesy,
dishonesty and arrogance are practically the same as misconduct.

On the issue of remuneration, MWSS claims that the compensation received by petitioners does not fall under the
definition of wages as provided in Section 2(i) of P.D. 1146, 59 which is "the basic pay or salary received by an employee,
pursuant to his employment appointments, excluding per diems, bonuses, overtime pay and allowances;" thus petitioners
are not its employees. This assertion, however, simply begs the question. The provision is a simple statement of meaning,
operating on the a priori  premise or presumption that the recipient is already classified as an employee, and does not lay
down any basis or standard for determining who are employees and who are not.

On the other hand, relevant and appropriate is the definition of wages in the Labor Code, namely, that it is the
remuneration, however designated, for work done or to be done, or for services rendered or to be rendered.60 The
"commissions" due petitioners were based on the bills collected as per the schedule indicated in
the Agreement.61 Significantly, MWSS granted petitioners benefits usually given to employees, to wit: COLA, meal,
50
emergency, and traveling allowances, hazard pay, cash gift, and other bonuses.62 In an unabashed bid to claim credit for
itself, MWSS professes that these additional benefits were its acts of benevolence and generosity. 63 We are not
impressed.

Petitioners rendered services to MWSS for which they were paid and given similar benefits due the other employees of
MWSS. It is hard to imagine that MWSS was simply moved by the spirit of benevolence and generosity when it granted
liberal benefits to petitioners. More so since MWSS is a government owned and controlled corporation created for the
"proper operation and maintenance of waterworks system to insure an uninterrupted and adequate supply and distribution
of potable water for domestic and other purposes and the proper operation and maintenance of sewerage systems."64 Its
main function is to provide basic services to the public. The disposition of MWSS' income is limited to the payment of its
contractual and statutory obligations, expansion and development, and for the enhancement of its efficient operation. 65 It
was not in a position to distribute hard-earned income of the State merely to give expression to its supposed altruistic
impulse, or to disburse funds not otherwise authorized by law or its charter. If MWSS was impelled by some force to give
the benefits to petitioners, it must have been the force of good business sense. Obviously, the additional benefits were
granted with the same motivation as good managers anywhere else have to foster a good working relationship with the
bill-collectors and incentivize them to raise the high level of their performance even higher.

Now the aspect of control. MWSS makes an issue out of the proviso in the Agreement that specifically denies the
existence of employer-employee relationship between it and petitioners. It is axiomatic that the existence of an employer-
employee relationship cannot be negated by expressly repudiating it in an agreement and providing therein that the
employee is "not an MWSS employee"66 when the terms of the agreement and the surrounding circumstances show
otherwise. The employment status of a person is defined and prescribed by law and not by what the parties say it should
be.67

In addition, the control test merely calls for the existence of the right to control, and not the exercise thereof. It is not
essential for the employer to actually supervise the performance of duties of the employee, it is enough that the former
has a right to wield the power.68 While petitioners were contract-collectors of MWSS, they were under the latter's direction
as to where and how to perform their collection and were even subject to disciplinary measures. Trainings were in fact
conducted to ensure that petitioners are conversant of the procedures of the MWSS.

Contrary to MWSS' assertion that petitioners were "free to adopt (their) own method/strategy in the matter of
collection",69 the Agreement clearly provided that the procedure and/or manner of the collection of bills to be followed shall
be in accordance with the provisions of the Manual of Procedures. Art. VI of the Agreement states:

Art. II - Procedure of Collection

The procedure and/or manner of the collection of bills to be followed shall be in accordance with Provisions of the Manual
of Procedures adopted on November 1, 1968, which is made an integral part of this Agreement as Annex "A." 70

Other manifestations of control are evident from the records. The power to transfer or reassign employees is a
management prerogative exclusively enjoyed by employers. In this case, MWSS had free reign over the transfer of bill
collectors from one branch to another.71 MWSS also monitored the performance of the petitioners and determined their
efficiency ratings.72

MWSS contends that petitioners were free to engage in other occupations and were not limited by the Agreement.  Suffice
it to say, however, that the control measures installed by MWSS were restrictive enough to limit or even render illusory the
other employment options of petitioners as their tasks took up most of their time, they being required to report and remit to
MWSS almost twice daily. Interestingly in that regard, under the Agreement petitioners were "allowed" to render overtime
work, and were given additional "incentive commission" for work so rendered as long as the same was
authorized.73 Verily, the need to secure MWSS' authorization before petitioners can render overtime work debunks its
claim that they were allowed to work as and when they please. All these indicate that MWSS controlled the working hours
of petitioners.

Furthermore, petitioners did not have their own offices nor their own supplies and equipment. MWSS provides them with
company stationeries, office space and equipment.74 Likewise, MWSS comported itself as the employer of petitioners,
providing them with I.D.s. and certifications which declared them as employees of MWSS. 75 It also deducted and remitted
petitioners' withholding taxes and Medicare contributions.76

Presaging and lending precedental lift to the present adjudication is the recent ruling in Manila Water Company, Inc. v.
Peña.77 In that case, Manila Water Company (Manila Water), a concessionaire of MWSS, individually hired some of the
former MWSS bill collectors to perform collection services for three (3) months. Subsequently, the bill collectors formed a
corporation, Association Collectors Group, Inc. (ACGI) which was contracted by Manila Water to collect charges. Later,

51
Manila Water asked the collectors to transfer to a newly formed corporation, First Classic Courier Services. Manila Water
later terminated its contract with ACGI, as a result of which collectors who opted to remain with ACGI became
unemployed. These bill collectors filed a complaint for illegal dismissal and money claims against Manila Water, claiming
that they were its employees since all the methods and procedures of their collection were controlled by the latter. On the
other hand, Manila Water contended that the bill collectors were employees of AGCI, an independent contractor.78

The Court ruled that the bill collectors were regular employees of Manila Water, debunking the latter's claim that they
worked for an independent contractor corporation, thus:

First, ACGI does not have substantial capitalization or investment in the form of tools, equipment, machineries, work
premises, and other materials, to qualify as an independent contractor. While it has an authorized capital stock
of P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be considered substantial capitalization. The 121
collectors subscribed to four shares each and paid only the amount of P625.00 in order to comply with the incorporation
requirements. Further, private respondents reported daily to the branch office of the petitioner because ACGI has no office
or work premises. In fact, the corporate address of ACGI was the residence of its president, Mr. Herminio D. Peña.
Moreover, in dealing with the consumers, private respondents used the receipts and identification cards issued by
petitioner.

Second, the work of the private respondents was directly related to the principal business or operation of the petitioner.
Being in the business of providing water to the consumers in the East Zone, the collection of the charges therefor by
private respondents for the petitioner can only be categorized as clearly related to, and in the pursuit of the latter's
business.

Lastly, ACGI did not carry on an independent business or undertake the performance of its service contract according to
its own manner and method, free from the control and supervision of its principal, petitioner. Prior to private respondents'
alleged employment with ACGI, they were already working for petitioner, subject to its rules and regulations in regard to
the manner and method of performing their tasks. This form of control and supervision never changed although they were
already under the seeming employ of ACGI. Petitioner issued memoranda regarding the billing methods and distribution
of books to the collectors; it required private respondents to report daily and to remit their collections on the same day to
the branch office or to deposit them with Bank of the Philippine Islands; it monitored strictly their attendance as when a
collector cannot perform his daily collection, he must notify petitioner or the branch office in the morning of the day that he
will be absent; and although it was ACGI which ultimately disciplined private respondents, the penalty to be imposed was
dictated by petitioner as shown in the letters it sent to ACGI specifying the penalties to be meted on the erring private
respondents. These are indications that ACGI was not left alone in the supervision and control of its alleged employees.
Consequently, it can be concluded that ACGI was not an independent contractor since it did not carry a distinct business
free from the control and supervision of petitioner.79

Even under the "four-fold test", the bill collectors proved to be employees of Manila Water. Thus, the Court held that:

Even the "four-fold test" will show that petitioner is the employer of private respondents. The elements to determine the
existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employer's power to control the employee's conduct. The most important
element is the employer's control of the employee's conduct, not only as to the result of the work to be done, but also as to
the means and methods to accomplish it.

We agree with the Labor Arbiter that in the three stages of private respondents' services with the petitioner, i.e., (1) from
August 1, 1997 to August 31, 1997; (2) from September 1, 1997 to November 30, 1997; and (3) from December 1, 1997
to February 8, 1999, the latter exercised control and supervision over the formers' conduct.

Petitioner contends that the employment of private respondents from August 1, 1997 to August 30, 1997 was only
temporary and done to accommodate their request to be absorbed since petitioner was still undergoing a transition period.
It was only when its business became settled that petitioner employed private respondents for a fixed term of three
months.

Although petitioner was not obliged to absorb the private respondents, by engaging their services, paying their wages in
the form of commission, subjecting them to its rules and imposing punishment in case of breach thereof, and controlling
not only the end result but the manner of achieving the same as well, an employment relationship existed between them.

Notably, private respondents performed activities which were necessary or desirable to its principal trade or business.
Thus, they were regular employees of petitioner, regardless of whether the engagement was merely an accommodation of
their request'.80 (Emphasis Ours)

52
In fine, the Court found that the so-called independent contractor did not have substantial capitalization or investment in
the form of tools, equipment, machineries, work premises and other material to qualify as an independent contractor.
Moreover, respondents therein reported daily to the Manila Water branch office and dealt with the consumers through
receipts and I.D.s. issued by the latter. Likewise, their work was directly related to and in the pursuit of Manila Water's
principal business. More importantly, the Court noted that ACGI did not carry a distinct business free from the control and
supervision of Manila Water.

The similarity between this case and the instant petition cannot be denied. For one, the respondents in said case are
petitioners in this case.81 Second, the work set-up was essentially the same. While the bill collectors were individually
hired, or eventually engaged through ACGI, they were under the direct control and supervision of the concessionaire,
much like the arrangement between herein petitioners and MWSS. Third, they performed the same vital function of
collection in both cases. Fourth, they worked exclusively for their employers. Hence, the bill collectors in the Manila
Water case were declared employees of Manila Water despite the existence of a sham labor contractor. In the present
case, petitioners were directly and individually hired by MWSS, the latter not resoting to the intermediary labor contractor
artifice, but a mere a scrap of paper impudently declaring the bill collectors to be not employees of MWSS. With greater
reason, therefore, should the actuality of the employer-employee relationship between MWSS and petitioners be
recognized.

The CSC, as well as the Court of Appeals, makes much of CSC Memorandum Circular No. 38, Series of 1993, which
distinguishes between contract of services/job services and contractual appointment. The Circular provides:

Contract of Services and Job Orders are different from Contractual appointment and Plantilla appointment of casual
employees, respectively, which are required to be submitted to CSC for approval.

Contracts of Services and Job Orders refer to employment described as follows:

1. The contract covers lump sum work or services such as janitorial, security or consultancy services where no employer-
employee relationship exist;

2. The job order covers piece of work or intermittent job of short duration not exceeding six months on a daily basis;

3. The contract of services and job orders are not covered by Civil Service Law, Rules and Regulations; [sic] but covered
by COA rules;

4. The employees involved in the contracts or job orders do not enjoy the benefits enjoined by government employees,
such as PERA, COLA and RATA.

5. As the services rendered under contracts of services and job orders are not considered government services, they do
not have to be submitted to the Civil Service Commission for approval.82

Clinging to its tenuous denial of petitioners' employee status, the CSC avers that contractual employees are those with
contractual appointment submitted to and attested by the CSC, unlike petitioners who failed to show that their
appointments were duly attested by the CSC. The Court recognizes the authority of the CSC in promulgating circulars and
memoranda concerning the civil service sector in line with its function as the central personnel agency of the
Government.83 Nevertheless, it cannot turn a blind eye to a rather haphazard application and interpretation by the CSC of
its own issuance, such as in this case.

A careful review of the above-quoted circular shows that the relationship defined by the Agreement cannot fall within the
purview of contract of services or job orders. Payments made by MWSS' subscribers are the lifeblood of the company.
Viewed in that context the work rendered by the petitioners is essential to the company's survival and growth. Alongside
its public service thrust, the MWSS is an income-generating entity for the Government. It relies for the most part on the bill
collections in order to sustain its operations. The task of collecting payments for the water supplied by the MWSS to its
consumers does not deserve to be compared with mere janitorial, security or even consultancy work. It is not intermittent
and seasonal, but rather continuous and increasing by reason of its indisputable essentiality. To lump petitioners with the
run-of-the-mill service providers is to ignore the vital role they perform for the MWSS. Rightly so, as clearly indicated in the
circular, employees involved in the contracts or job orders do not enjoy the benefits enjoyed by the petitioners which are
the same benefits given to government employees.

Petitioners are indeed regular employees of the MWSS. The primary standard of determining regular employment is the
reasonable connection between the particular activity performed by the employee in relation to the usual business or trade
of the employer. The connection can be determined by considering the nature of the work performed and its relation to the
scheme of the particular business or trade in its entirety. Likewise, the repeated and continuing need for the performance

53
of the job has been deemed sufficient evidence of the necessity, if not indispensability of the activity to the
business.84 Some of the petitioners had rendered more than two decades of service to the MWSS. The continuous and
repeated rehiring of these bill collectors indicate the necessity and desirability of their services, as well as the importance
of the role of bill collectors in the MWSS.

We agree with the CSC when it stated that the authority of government agencies to contract services is an authority
recognized under civil service rules.85 However, said authority cannot be used to circumvent the laws and deprive
employees of such agencies from receiving what is due them.

The CSC goes further to say that petitioners were unable to present proof that their appointments were contractual in
nature and submitted to the CSC for its approval, and that submission to and approval of the CSC are important as these
show that their services had been credited as government service.86 The point is of no moment. Petitioners were able to
attach only two of such Agreements which bore the stamp of approval by the CSC and these are simply inadequate to
prove that the other agreements were similarly approved. Even petitioners admit that subsequently
such Agreements were no longer submitted to the CSC for its approval. Still, the failure to submit the documents for
approval of the CSC cannot militate against the existence of employer-employee relationship between petitioners and
MWSS. MWSS cannot raise its own inaction to buttress its adverse position.

MWSS committed itself to pay severance and terminal leave pay to its regular employees.87 The guidelines88 thereof
states that regular employees who have rendered at least a year of service and not eligible for retirement are entitled to
severance pay equivalent to one (1) month basic pay for every full year of service. 89 In view of the Court's finding that
petitioners were employees of MWSS, the corresponding severance pay, in accordance with the guidelines, should be
given to them. Terminal leave pay are likewise due petitioners, provided they meet the requirements therefor.

However, petitioners in this case cannot avail of retirement benefits from the GSIS. When their services were engaged by
MWSS, they were not reported as its employees and hence no deductions were made against them for purpose of the
GSIS contributions. It would be unjust to grant petitioners retirement benefits when there was no remittance of the
employees' or the employer's share of contributions.

The case of Chua v. Civil Service Commission90 relied upon by petitioners is not in point. There was no question that
Chua was an employee, specifically a contractual/project employee of the National Irrigation Administration (NIA). The
CSC's denial of her request for early retirement benefits was based on the CSC's conclusion that contractual employees
are not covered by the Early Retirement Law.91 This Court held that co-terminus employees who have rendered years of
continuous service such as Chua -who was continuously hired and rehired for four (4) successive times in a span of
fifteen (15) years-should be included in the coverage of the Early Retirement Law as long as they comply with CSC
regulations promulgated for such purpose. Underlying this grant of retirement benefits to Chua is the finding that her work
with the NIA was recognized and accredited by the CSC as government service, that she paid her GSIS contributions
throughout her service, and the fact that she applied for the benefit within the prescribed period.92

The differences between Chua and petitioners are readily apparent. The ruling in Chua  concerns claims based on the
Early Retirement Law. On the other hand, this case involves bill collectors who were hired by virtue of individual
agreements, and who are now claiming payment of retirement, separation and terminal leave benefits. Petitioners'
services, admittedly, were not credited/recognized by the CSC. Likewise, the parties still dispute the nature of their
relationship when petitioners made the claim for the benefits, unlike in the case of Chua where there was no question as
to her status as an employee of the NIA. Moreover, unlike Chua, petitioners in this case did not give any contribution for
GSIS coverage, especially since retirement benefits come from the monthly contributions of GSIS members.

Petitioner's claim for damages and attorney's fees are similarly untenable. MWSS cannot be made liable for moral
damages for the "serious moral disturbance"93 petitioners allegedly suffered as a result of the denial of the requested
benefits because it was merely following the earlier resolution94 of the CSC. MWSS' adherence to the position of the CSC
is but logical. It is after all, the central personnel agency of the government, and its resolution at the time was valid and
binding on MWSS.

WHEREFORE, the petition is GRANTED IN PART. The DECISION of the Court of Appeals in C.A. G.R. SP No. 55263, as
well as the Civil Service Commission's Resolutions Nos. 991384 and 992074, are hereby REVERSED and SET ASIDE.
MWSS is ordered to pay terminal leave pay and separation pay and/or severance pay to each of herein petitioners on the
basis of remunerations/commissions, allowances and bonuses each were actually receiving at the time of termination of
their employment as contract collectors of MWSS. Let the case be remanded to the Civil Service Commission for the
computation of the above awards and the appropriate disposition in accordance with the pronouncements in this
DECISION .

No pronouncement as to costs.

54
SO ORDERED.

G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.

Tirol & Tirol for petitioner.

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

NARVASA, J.:

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

1. Basiao was "authorized to solicit within the Philippines applications for insurance policies and annuities
in accordance with the existing rules and regulations" of the Company;

2. he would receive "compensation, in the form of commissions ... as provided in the Schedule of
Commissions" of the contract to "constitute a part of the consideration of ... (said) agreement;" and

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

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

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

55
 ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or indirectly,
rebates in any form, or from making any misrepresentation or over-selling, and, in general, from doing or
committing acts prohibited in the Agent's Manual and in circulars of the Office of the Insurance
Commissioner.

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

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

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

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

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

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

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

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

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

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

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

Without denying that the above were indeed the expressed implicit conditions of Basiao's contract with the Company, the
respondents contend that they do not constitute the decisive determinant of the nature of his engagement, invoking
precedents to the effect that the critical feature distinguishing the status of an employee from that of an independent
contractor is control,  that is, whether or not the party who engages the services of another has the power to control the
latter's conduct in rendering such services. Pursuing the argument, the respondents draw attention to the provisions of

56
Basiao's contract obliging him to "... observe and conform to all rules and regulations which the Company may from time
to time prescribe ...," as well as to the fact that the Company prescribed the qualifications of applicants for insurance,
processed their applications and determined the amounts of insurance cover to be issued as indicative of the control,
which made Basiao, in legal contemplation, an employee of the Company. 9

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

... In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employees' conduct — although the latter is the most
important element (35 Am. Jur. 445). ...

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

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

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

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

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

The respondents limit themselves to pointing out that Basiao's contract with the Company bound him to observe and
conform to such rules and regulations as the latter might from time to time prescribe. No showing has been made that any
such rules or regulations were in fact promulgated, much less that any rules existed or were issued which effectively
57
controlled or restricted his choice of methods — or the methods themselves — of selling insurance. Absent such showing,
the Court will not speculate that any exceptions or qualifications were imposed on the express provision of the contract
leaving Basiao "... free to exercise his own judgment as to the time, place and means of soliciting insurance."

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

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

WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and that complaint of
private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No pronouncement as to costs.

SO ORDERED.

G.R. No. 167622             November 7, 2008

GREGORIO V. TONGKO, petitioner
vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, respondents.

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the reversal of the March 29, 2005 Decision1 of the Court of
Appeals (CA) in CA-G.R. SP No. 88253, entitled The Manufacturers Life Insurance Co. (Phils.), Inc. v. National Labor
Relations Commission and Gregorio V. Tongko. The assailed decision set aside the Decision dated September 27, 2004
and Resolution dated December 16, 2004 rendered by the National Labor Relations Commission (NLRC) in NLRC NCR
CA No. 040220-04.

The Facts

Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic corporation engaged in life insurance business.
Renato A. Vergel De Dios was, during the period material, its President and Chief Executive Officer. Gregorio V. Tongko
started his professional relationship with Manulife on July 1, 1977 by virtue of a Career Agent's Agreement 2 (Agreement)
he executed with Manulife.

In the Agreement, it is provided that:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be
construed or interpreted as creating an employer-employee relationship between the Company and the Agent.

xxxx

58
 a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products
offered by the Company, and collect, in exchange for provisional receipts issued by the Agent, money due or to
become due to the Company in respect of applications or policies obtained by or through the Agent or from
policyholders allotted by the Company to the Agent for servicing, subject to subsequent confirmation of receipt of
payment by the Company as evidenced by an Official Receipt issued by the Company directly to the policyholder.

xxxx

The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the
Agent by giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No
waiver, extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the
Company shall be construed for any previous failure to exercise its right under any provision of this Agreement.

Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other
party fifteen (15) days notice in writing. x x x

In 1983, Tongko was named as a Unit Manager in Manulife's Sales Agency Organization. In 1990, he became a Branch
Manager. As the CA found, Tongko's gross earnings from his work at Manulife, consisting of commissions, persistency
income, and management overrides, may be summarized as follows:

January to December 10, 2002 - P 865,096.07

2001 - 6,214,737.11

2000 - 8,003,180.38

1999 - 6,797,814.05

1998 - 4,805,166.34

1997 - 2,822,620.003

The problem started sometime in 2001, when Manulife instituted manpower development programs in the regional sales
management level. Relative thereto, De Dios addressed a letter dated November 6, 2001 4 to Tongko regarding an
October 18, 2001 Metro North Sales Managers Meeting. In the letter, De Dios stated:

The first step to transforming Manulife into a big league player has been very clear - to increase the number of
agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was run
when you first joined the organization. Since then, however, substantial changes have taken place in the
organization, as these have been influenced by developments both from within and without the company.

xxxx

The issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers'
meeting earlier last month when Kevin O'Connor, SVP - Agency, took to the floor to determine from our senior
agency leaders what more could be done to bolster manpower development. At earlier meetings, Kevin had
presented information where evidently, your Region was the lowest performer (on a per Manager basis) in terms
of recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.

While discussions, in general, were positive other than for certain comments from your end which were perceived
to be uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and
management, were on the same plane. As gleaned from some of your previous comments in prior meetings (both
in group and one-on-one), it was not clear that we were proceeding in the same direction.

Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent
meetings you reiterated certain views, the validity of which we challenged and subsequently found as having no
basis.

With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit
confused as to the directions the company was taking. For this reason, I sought a meeting with everyone in your
management team, including you, to clear the air, so to speak.

59
This note is intended to confirm the items that were discussed at the said Metro North Region's Sales Managers
meeting held at the 7/F Conference room last 18 October.

xxxx

Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of agents."

This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the
table before the rest of your Region's Sales Managers to verify its validity. As you must have noted, no Sales
Manager came forward on their own to confirm your statement and it took you to name Malou Samson as a
source of the same, an allegation that Malou herself denied at our meeting and in your very presence.

This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all
along, that these allegations were simply meant to muddle the issues surrounding the inability of your Region to
meet its agency development objectives!

Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn less."

xxxx

All the above notwithstanding, we had your own records checked and we found that you made a lot more money
in the Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you
probably will make more money in the Year 2001 compared to Year 2000. Obviously, your above statement about
making "less money" did not refer to you but the way you argued this point had us almost believing that you were
spouting the gospel of truth when you were not. x x x

xxxx

All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new
direction that we have been discussing these past few weeks, i.e., Manulife's goal to become a major agency-led
distribution company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have
never heard you proactively push for greater agency recruiting. You have not been proactive all these years when
it comes to agency growth.

xxxx

I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making
the following changes in the interim:

1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks
which can be easily delegated. This assistant should be so chosen as to complement your skills and help
you in the areas where you feel "may not be your cup of tea".

You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for
your health. The above could solve this problem.

xxxx

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch
(NSB) in autonomous fashion. x x x

I have decided to make this change so as to reduce your span of control and allow you to concentrate
more fully on overseeing the remaining groups under Metro North, your Central Unit and the rest of the
Sales Managers in Metro North. I will hold you solely responsible for meeting the objectives of these
remaining groups.

xxxx

The above changes can end at this point and they need not go any further. This, however, is entirely dependent
upon you. But you have to understand that meeting corporate objectives by everyone is primary and will not be
compromised. We are meeting tough challenges next year and I would want everybody on board. Any resistance
or holding back by anyone will be dealt with accordingly.
60
Subsequently, De Dios wrote Tongko another letter dated December 18, 2001,5 terminating Tongko's services, thus:

It would appear, however, that despite the series of meetings and communications, both one-on-one meetings
between yourself and SVP Kevin O'Connor, some of them with me, as well as group meetings with your Sales
Managers, all these efforts have failed in helping you align your directions with Management's avowed agency
growth policy.

xxxx

On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we
are now issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of
this letter.

Therefrom, Tongko filed a Complaint dated November 25, 2002 with the NLRC against Manulife for illegal dismissal. The
case, docketed as NLRC NCR Case No. 11-10330-02, was raffled to Labor Arbiter Marita V. Padolina.

In the Complaint, Tongko, in a bid to establish an employer-employee relationship, alleged that De Dios gave him specific
directives on how to manage his area of responsibility in the latter's letter dated November 6, 2001. He further claimed
that Manulife exercised control over him as follows:

Such control was certainly exercised by respondents over the herein complainant. It was Manulife who hired,
promoted and gave various assignments to him. It was the company who set objectives as regards productions,
recruitment, training programs and all activities pertaining to its business. Manulife prescribed a Code of Conduct
which would govern in minute detail all aspects of the work to be undertaken by employees, including the sales
process, the underwriting process, signatures, handling of money, policyholder service, confidentiality, legal and
regulatory requirements and grounds for termination of employment. The letter of Mr. De Dios dated 06 November
2001 left no doubt as to who was in control. The subsequent termination letter dated 18 December 2001 again
established in no uncertain terms the authority of the herein respondents to control the employees of Manulife.
Plainly, the respondents wielded control not only as to the ends to be achieved but the ways and means of
attaining such ends.6

Tongko bolstered his argument by citing Insular Life Assurance Co., Ltd. v. NLRC (4 th  Division)7 and Great Pacific Life
Assurance Corporation v. NLRC,8 which Tongko claimed to be similar to the instant case.

Tongko further claimed that his dismissal was without basis and that he was not afforded due process. He also cited the
Manulife Code of Conduct by which his actions were controlled by the company.

Manulife then filed a Position Paper with Motion to Dismiss dated February 27, 2003, 9 in which it alleged that Tongko is
not its employee, and that it did not exercise "control" over him. Thus, Manulife claimed that the NLRC has no jurisdiction
over the case.

In a Decision dated April 15, 2004, Labor Arbiter Marita V. Padolina dismissed the complaint for lack of an employer-
employee relationship. Padolina found that applying the four-fold test in determining the existence of an employer-
employee relationship, none was found in the instant case. The dispositive portion thereof states:

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the instant complaint for lack of
jurisdiction, there being no employer-employee relationship between the parties.

SO ORDERED.

Tongko appealed the arbiter's Decision to the NLRC which reversed the same and rendered a Decision dated September
27, 2004 finding Tongko to have been illegally dismissed.

The NLRC's First Division, while finding an employer-employee relationship between Manulife and Tongko applying the
four-fold test, held Manulife liable for illegal dismissal. It further stated that Manulife exercised control over Tongko as
evidenced by the letter dated November 6, 2001 of De Dios and wrote:

The above-mentioned letter shows the extent to which respondents controlled complainant's manner and means
of doing his work and achieving the goals set by respondents. The letter shows how respondents concerned
themselves with the manner complainant managed the Metro North Region as Regional Sales Manager, to the
point that respondents even had a say on how complainant interacted with other individuals in the Metro North

61
 Region. The letter is in fact replete with comments and criticisms on how complainant carried out his functions as
Regional Sales Manager.

More importantly, the letter contains an abundance of directives or orders that are intended to directly affect
complainant's authority and manner of carrying out his functions as Regional Sales Manager.10 x x x

Additionally, the First Division also ruled that:

Further evidence of [respondents'] control over complainant can be found in the records of the case. [These] are
the different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct, and
the Manulife Financial Code of Conduct Agreement, which serve as the foundations of the power of control
wielded by respondents over complainant that is further manifested in the different administrative and other tasks
that he is required to perform. These codes of conduct corroborate and reinforce the display of respondents'
power of control in their 06 November 2001 Letter to complainant.11

The fallo of the September 27, 2004 Decision reads:

WHEREFORE, premises considered, the appealed Decision is hereby reversed and set aside. We find
complainant to be a regular employee of respondent Manulife and that he was illegally dismissed from
employment by respondents.

In lieu of reinstatement, respondent Manulife is hereby ordered to pay complainant separation pay as above set
forth. Respondent Manulife is further ordered to pay complainant backwages from the time he was dismissed on
02 January 2002 up to the finality of this decision also as indicated above.

xxxx

All other claims are hereby dismissed for utter lack of merit.

From this Decision, Manulife filed a motion for reconsideration which was denied by the NLRC First Division in a
Resolution dated December 16, 2004.12

Thus, Manulife filed an appeal with the CA docketed as CA-G.R. SP No. 88253. Thereafter, the CA issued the assailed
Decision dated March 29, 2005, finding the absence of an employer-employee relationship between the parties and
deeming the NLRC with no jurisdiction over the case. The CA arrived at this conclusion while again applying the four-fold
test. The CA found that Manulife did not exercise control over Tongko that would render the latter an employee of
Manulife. The dispositive portion reads:

WHEREFORE, premises considered, the present petition is hereby GRANTED and the writ prayed for accordingly
GRANTED. The assailed Decision dated September 27, 2004 and Resolution dated December 16, 2004 of the
National Labor Relations Commission in NLRC NCR Case No. 00-11-10330-2002 (NLRC NCR CA No. 040220-
04) are hereby ANNULLED and SET ASIDE. The Decision dated April 15, 2004 of Labor Arbiter Marita V.
Padolina is hereby REINSTATED.

Hence, Tongko filed this petition and presented the following issues:

The Court of Appeals committed grave abuse of discretion in granting respondents' petition for certiorari.

The Court of Appeals committed grave abuse of discretion in annulling and setting aside the Decision dated
September 27, 2004 and Resolution dated December 16, 2004 in finding that there is no employer-employee
relationship between petitioner and respondent.

The Court of Appeals committed grave abuse of discretion in annulling and setting aside the Decision dated
September 27, 2004 and Resolution dated December 16, 2004 which found petitioner to have been illegally
dismissed and ordered his reinstatement with payment of backwages.13

62
Restated, the issues are: (1) Was there an employer-employee relationship between Manulife and Tongko? and (2) If yes,
was Manulife guilty of illegal dismissal?

The Court's Ruling

This petition is meritorious.

Tongko Was An Employee of Manulife

The basic issue of whether or not the NLRC has jurisdiction over the case resolves itself into the question of whether an
employer-employee relationship existed between Manulife and Tongko. If no employer-employee relationship existed
between the two parties, then jurisdiction over the case properly lies with the Regional Trial Court.

In the determination of whether an employer-employee relationship exists between two parties, this Court applies the four-
fold test to determine the existence of the elements of such relationship. In Pacific Consultants International Asia, Inc. v.
Schonfeld, the Court set out the elements of an employer-employee relationship, thus:

Jurisprudence is firmly settled that whenever the existence of an employment relationship is in dispute, four
elements constitute the reliable yardstick: (a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employer's power to control the employee's conduct. It is the so-
called "control test" which constitutes the most important index of the existence of the employer-employee
relationship that is, whether the employer controls or has reserved the right to control the employee not only as to
the result of the work to be done but also as to the means and methods by which the same is to be accomplished.
Stated otherwise, an employer-employee relationship exists where the person for whom the services are
performed reserves the right to control not only the end to be achieved but also the means to be used in reaching
such end.14

The NLRC, for its part, applied the four-fold test and found the existence of all the elements and declared Tongko an
employee of Manulife. The CA, on the other hand, found that the element of control as an indicator of the existence of an
employer-employee relationship was lacking in this case. The NLRC and the CA based their rulings on the same findings
of fact but differed in their interpretations.

The NLRC arrived at its conclusion, first, on the basis of the letter dated November 6, 2001 addressed by De Dios to
Tongko. According to the NLRC, the letter contained "an abundance of directives or orders that are intended to directly
affect complainant's authority and manner of carrying out his functions as Regional Sales Manager." It enumerated these
"directives" or "orders" as follows:

1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can
be easily delegated. x x x

xxxx

This assistant should be hired immediately.

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB)
in autonomous fashion x x x.

xxxx

I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully
on overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in
Metro North. x x x

3. Any resistance or holding back by anyone will be dealt with accordingly.

4. I have been straightforward in this my letter and I know that we can continue to work together… but it will have
to be on my terms. Anything else is unacceptable!

The NLRC further ruled that the different codes of conduct that were applicable to Tongko served as the foundations of
the power of control wielded by Manulife over Tongko that is further manifested in the different administrative and other
tasks that he was required to perform.

63
The NLRC also found that Tongko was required to render exclusive service to Manulife, further bolstering the existence of
an employer-employee relationship.

Finally, the NLRC ruled that Tongko was integrated into a management structure over which Manulife exercised control,
including the actions of its officers. The NLRC held that such integration added to the fact that Tongko did not have his
own agency belied Manulife's claim that Tongko was an independent contractor.

The CA, however, considered the finding of the existence of an employer-employee relationship by the NLRC as far too
sweeping having as its only basis the letter dated November 6, 2001 of De Dios. The CA did not concur with the NLRC's
ruling that the elements of control as pointed out by the NLRC are "sufficient indicia of control that negates independent
contractorship and conclusively establish an employer-employee relationship between"15 Tongko and Manulife. The CA
ruled that there is no employer-employee relationship between Tongko and Manulife.

An impasse appears to have been reached between the CA and the NLRC on the sole issue of control over an
employee's conduct. It bears clarifying that such control not only applies to the work or goal to be done but also to the
means and methods to accomplish it.16 In Sonza v. ABS-CBN Broadcasting Corporation, we explained that not all forms of
control would establish an employer-employee relationship, to wit:

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.17 (Emphasis supplied.)

We ruled in Insular Life Assurance Co., Ltd. v. NLRC (Insular) that:

It is, therefore, usual and expected for an insurance company to promulgate a set of rules to guide its commission
agents in selling its policies that they may not run afoul of the law and what it requires or prohibits. Of such a
character are the rules which prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the Company the determination of
the premiums to be paid and the schedules of payment. None of these really invades the agent's contractual
prerogative to adopt his own selling methods or to sell insurance at his own time and convenience, hence cannot
justifiably be said to establish an employer-employee relationship between him and the company.18

Hence, we ruled in Insular that no employer-employee relationship existed therein. However, such ruling was tempered
with the qualification that had there been evidence that the company promulgated rules or regulations that effectively
controlled or restricted an insurance agent's choice of methods or the methods themselves in selling insurance, an
employer-employee relationship would have existed. In other words, the Court in Insular in no way definitively held that
insurance agents are not employees of insurance companies, but rather made the same a case-to-case basis. We held:

The respondents limit themselves to pointing out that Basiao's contract with the Company bound him to observe
and conform to such rules and regulations as the latter might from time to time prescribe. No showing has been
made that any such rules or regulations were in fact promulgated, much less that any rules existed or
were issued which effectively controlled or restricted his choice of methods or the methods themselves
of selling insurance. Absent such showing, the Court will not speculate that any exceptions or
qualifications were imposed on the express provision of the contract leaving Basiao "... free to exercise
his own judgment as to the time, place and means of soliciting insurance." 19 (Emphasis supplied.)

There is no conflict between our rulings in Insular and in Great Pacific Life Assurance Corporation. We said in the latter
case:

[I]t cannot be gain said that Grepalife had control over private respondents' performance as well as the result of
their efforts. A cursory reading of their respective functions as enumerated in their contracts reveals that
the company practically dictates the manner by which their jobs are to be carried out. For instance, the
District Manager must properly account, record and document the company's funds spot-check and audit the work
of the zone supervisors, conserve the company's business in the district through ‘reinstatements', follow up the

64
 submission of weekly remittance reports of the debit agents and zone supervisors, preserve company property in
good condition, train understudies for the position of district manager, and maintain his quota of sales (the failure
of which is a ground for termination). On the other hand, a zone supervisor must direct and supervise the sales
activities of the debit agents under him, conserve company property through "reinstatements", undertake and
discharge the functions of absentee debit agents, spot-check the records of debit agents, and insure proper
documentation of sales and collections by the debit agents.20 (Emphasis supplied.)

Based on the foregoing cases, if the specific rules and regulations that are enforced against insurance agents or
managers are such that would directly affect the means and methods by which such agents or managers would achieve
the objectives set by the insurance company, they are employees of the insurance company.

In the instant case, Manulife had the power of control over Tongko that would make him its employee. Several factors
contribute to this conclusion.

In the Agreement dated July 1, 1977 executed between Tongko and Manulife, it is provided that:

The Agent hereby agrees to comply with all regulations and requirements of the Company as herein provided as
well as maintain a standard of knowledge and competency in the sale of the Company's products which satisfies
those set by the Company and sufficiently meets the volume of new business required of Production Club
membership.21

Under this provision, an agent of Manulife must comply with three (3) requirements: (1) compliance with the regulations
and requirements of the company; (2) maintenance of a level of knowledge of the company's products that is satisfactory
to the company; and (3) compliance with a quota of new businesses.

Among the company regulations of Manulife are the different codes of conduct such as the Agent Code of Conduct,
Manulife Financial Code of Conduct, and Manulife Financial Code of Conduct Agreement, which demonstrate the power
of control exercised by the company over Tongko. The fact that Tongko was obliged to obey and comply with the codes of
conduct was not disowned by respondents.

Thus, with the company regulations and requirements alone, the fact that Tongko was an employee of Manulife may
already be established. Certainly, these requirements controlled the means and methods by which Tongko was to achieve
the company's goals.

More importantly, Manulife's evidence establishes the fact that Tongko was tasked to perform administrative duties that
establishes his employment with Manulife.

In its Comment (Re: Petition for Review dated 15 April 2005) dated August 5, 2005, Manulife attached affidavits of its
agents purportedly to support its claim that Tongko, as a Regional Sales Manager, did not perform any administrative
functions. An examination of these affidavits would, however, prove the opposite.

In an Affidavit dated April 28, 2003,22 John D. Chua, a Regional Sales Manager of Manulife, stated:

4. On September 1, 1996, my services were engaged by Manulife as an Agency Regional Sales Manager
("RSM") for Metro South Region pursuant to an Agency Contract. As such RSM, I have the following functions:

1. Refer and recommend prospective agents to Manulife

2. Coach agents to become productive

3. Regularly meet with, and coordinate activities of agents affiliated to my region.

While Amada Toledo, a Branch Manager of Manulife, stated in her Affidavit dated April 29, 200323 that:

3. In January 1997, I was assigned as a Branch Manager ("BM") of Manulife for the Metro North Sector;

4. As such BM, I render the following services:

a. Refer and recommend prospective agents to Manulife;

b. Train and coordinate activities of other commission agents;

65
 c. Coordinate activities of Agency Managers who, in turn, train and coordinate activites of other
commission agents;

d. Achieve agreed production objectives in terms of Net Annualized Commissions and Case Count and
recruitment goals; and

e. Sell the various products of Manulife to my personal clients.

While Ma. Lourdes Samson, a Unit Manager of Manulife, stated in her Affidavit dated April 28, 200324 that:

3. In 1977, I was assigned as a Unit Manager ("UM") of North Peaks Unit, North Star Branch, Metro North Region;

4. As such UM, I render the following services:

a. To render or recommend prospective agents to be licensed, trained and contracted to sell Manulife
products and who will be part of my Unit;

b. To coordinate activities of the agents under my Unit in their daily, weekly and monthly selling activities,
making sure that their respective sales targets are met;

c. To conduct periodic training sessions for my agents to further enhance their sales skills.

d. To assist my agents with their sales activities by way of joint fieldwork, consultations and one-on- one
evaluation and analysis of particular accounts.

e. To provide opportunities to motivate my agents to succeed like conducting promos to increase sales
activities and encouraging them to be involved in company and industry activities.

f. To provide opportunities for professional growth to my agents by encouraging them to be a member of

the LUCAP (Life Underwriters Association of the Philippines).

A comparison of the above functions and those contained in the Agreement with those cited in Great Pacific Life
Assurance Corporation25 reveals a striking similarity that would more than support a similar finding as in that case. Thus,
there was an employer-employee relationship between the parties.

Additionally, it must be pointed out that the fact that Tongko was tasked with recruiting a certain number of agents, in
addition to his other administrative functions, leads to no other conclusion that he was an employee of Manulife.

In his letter dated November 6, 2001, De Dios harped on the direction of Manulife of becoming a major agency-led
distribution company whereby greater agency recruitment is required of the managers, including Tongko. De Dios made it
clear that agent recruitment has become the primary means by which Manulife intends to sell more policies. More
importantly, it is Tongko's alleged failure to follow this principle of recruitment that led to the termination of his employment
with Manulife. With this, it is inescapable that Tongko was an employee of Manulife.

Tongko Was Illegally Dismissed

In its Petition for Certiorari dated January 7, 200526 filed before the CA, Manulife argued that even if Tongko is considered
as its employee, his employment was validly terminated on the ground of gross and habitual neglect of duties, inefficiency,
as well as willful disobedience of the lawful orders of Manulife. Manulife stated:

In the instant case, private respondent, despite the written reminder from Mr. De Dios refused to shape up and
altogether disregarded the latter's advice resulting in his laggard performance clearly indicative of his willful
disobedience of the lawful orders of his superior. x x x

xxxx

As private respondent has patently failed to perform a very fundamental duty, and that is to yield obedience to all
reasonable rules, orders and instructions of the Company, as well as gross failure to reach at least minimum
quota, the termination of his engagement from Manulife is highly warranted and therefore, there is no illegal
dismissal to speak of.

66
It is readily evident from the above-quoted portions of Manulife's petition that it failed to cite a single iota of evidence to
support its claims. Manulife did not even point out which order or rule that Tongko disobeyed. More importantly, Manulife
did not point out the specific acts that Tongko was guilty of that would constitute gross and habitual neglect of duty or
disobedience. Manulife merely cited Tongko's alleged "laggard performance," without substantiating such claim, and
equated the same to disobedience and neglect of duty.

We cannot, therefore, accept Manulife's position.

In Quebec, Sr. v. National Labor Relations Commission, we ruled that:

When 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. This burden of proof appropriately lies on the shoulders of the employer and not on the
employee because a worker's job has some of the characteristics of property rights and is therefore within the
constitutional mantle of protection. No person shall be deprived of life, liberty or property without due process of
law, nor shall any person be denied the equal protection of the laws.

Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in explicit terms that the burden of proving the
validity of the termination of employment rests on the employer. Failure to discharge this evidential burden would
necessarily mean that the dismissal was not justified, and, therefore, illegal.27

We again ruled in Times Transportation Co., Inc. v. National Labor Relations Commission that:

The law mandates that the burden of proving the validity of the termination of employment rests with the
employer. Failure to discharge this evidentiary burden would necessarily mean that the dismissal was not justified,
and, therefore, illegal. Unsubstantiated suspicions, accusations and conclusions of employers do not provide for
legal justification for dismissing employees. In case of doubt, such cases should be resolved in favor of labor,
pursuant to the social justice policy of our labor laws and Constitution.28

This burden of proof was clarified in Community Rural Bank of San Isidro (N.E.), Inc. v. Paez to mean substantial
evidence, to wit:

The Labor Code provides that an employer may terminate the services of an employee for just cause and this
must be supported by substantial evidence. The settled rule in administrative and quasi-judicial proceedings is
that proof beyond reasonable doubt is not required in determining the legality of an employer's dismissal of an
employee, and not even a preponderance of evidence is necessary as substantial evidence is considered
sufficient. Substantial evidence is more than a mere scintilla of evidence or relevant evidence as a reasonable
mind might accept as adequate to support a conclusion, even if other minds, equally reasonable, might
conceivably opine otherwise.29

Here, Manulife failed to overcome such burden of proof. It must be reiterated that Manulife even failed to identify the
specific acts by which Tongko's employment was terminated much less support the same with substantial evidence. To
repeat, mere conjectures cannot work to deprive employees of their means of livelihood. Thus, it must be concluded that
Tongko was illegally dismissed.

Moreover, as to Manulife's failure to comply with the twin notice rule, it reasons that Tongko not being its employee is not
entitled to such notices. Since we have ruled that Tongko is its employee, however, Manulife clearly failed to afford
Tongko said notices. Thus, on this ground too, Manulife is guilty of illegal dismissal. In Quebec, Sr., we also stated:

Furthermore, not only does our legal system dictate that the reasons for dismissing a worker must be pertinently
substantiated, it also mandates that the manner of dismissal must be properly done, otherwise, the termination
itself is gravely defective and may be declared unlawful.30

For breach of the due process requirements, Manulife is liable to Tongko in the amount of PhP 30,000 as indemnity in the
form of nominal damages.31

Finally, Manulife raises the issue of the correctness of the computation of the award to Tongko made by the NLRC by
claiming that Songco v. National Labor Relations Commission 32 is inapplicable to the instant case, considering that
Songco was dismissed on the ground of retrenchment.

An examination of Songco reveals that it may be applied to the present case. In that case, Jose Songco was a salesman
of F.E. Zuellig (M), Inc. which terminated the services of Songco on the ground of retrenchment due to financial losses.

67
The issue raised to the Court, however, was whether commissions are considered as part of wages in order to determine
separation pay. Thus, the fact that Songco was dismissed due to retrenchment does not hamper the application thereof to
the instant case. What is pivotal is that we ruled in Songco that commissions are part of wages for the determination of
separation pay.

Article 279 of the Labor Code on security of tenure pertinently provides that:

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

In Triad Security & Allied Services, Inc. v. Ortega, Jr. (Triad), we thus stated that an illegally dismissed employee shall be
entitled to backwages and separation pay, if reinstatement is no longer viable:

As the law now stands, an illegally dismissed employee is entitled to two reliefs, namely: backwages and
reinstatement. These are separate and distinct from each other. However, separation pay is granted where
reinstatement is no longer feasible because of strained relations between the employee and the employer. In
effect, an illegally dismissed employee is entitled to either reinstatement, if viable, or separation pay if
reinstatement is no longer viable and backwages.33

Taking into consideration the cases of Songco and Triad, we find correct the computation of the NLRC that the monthly
gross wage of Tongko in 2001 was PhP 518,144.76. For having been illegally dismissed, Tongko is entitled to
reinstatement with full backwages under Art. 279 of the Labor Code. Due to the strained relationship between Manulife
and Tongko, reinstatement, however, is no longer advisable. Thus, Tongko will be entitled to backwages from January 2,
2002 (date of dismissal) up to the finality of this decision. Moreover, Manulife will pay Tongko separation pay of one (1)
month salary for every year of service that is from 1977 to 2001 amounting to PhP 12,435,474.24, considering that
reinstatement is not feasible. Tongko shall also be entitled to an award of attorney's fees in the amount of ten percent
(10%) of the aggregate amount of the above awards.

WHEREFORE, the petition is hereby GRANTED. The assailed March 29, 2005 Decision of the CA in CA-G.R. SP No.
88253 is REVERSED and SET ASIDE. The Decision dated September 27, 2004 of the NLRC is REINSTATED with the
following modifications:

Manulife shall pay Tongko the following:

(1) Full backwages, inclusive of allowances and other benefits or their monetary equivalent from January 2, 2002
up to the finality of this Decision;

(2) Separation pay of one (1) month salary for every year of service from 1977 up to 2001 amounting to PhP
12,435,474.24;

(3) Nominal damages of PhP 30,000 as indemnity for violation of the due process requirements; and

(4) Attorney's fees equivalent to ten percent (10%) of the aforementioned backwages and separation pay.

Costs against respondent Manulife.

SO ORDERED.

68
G.R. No. 167622               June 29, 2010

GREGORIO V. TONGKO, Petitioner,
vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, Respondents.

RESOLUTION

BRION, J.:

This resolves the Motion for Reconsideration1 dated December 3, 2008 filed by respondent The Manufacturers Life
Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November 7, 2008. In the assailed decision, we found
that an employer-employee relationship existed between Manulife and petitioner Gregorio Tongko and ordered Manulife
to pay Tongko backwages and separation pay for illegal dismissal.

The following facts have been stated in our Decision of November 7, 2008, now under reconsideration, but are repeated,
simply for purposes of clarity.

The contractual relationship between Tongko and Manulife had two basic phases. The first or initial phase began on July
1, 1977, under a Career Agent’s Agreement (Agreement) that provided:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be construed
or interpreted as creating an employer-employee relationship between the Company and the Agent.

xxxx

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products offered by the
Company, and collect, in exchange for provisional receipts issued by the Agent, money due to or become due to the
Company in respect of applications or policies obtained by or through the Agent or from policyholders allotted by the
Company to the Agent for servicing, subject to subsequent confirmation of receipt of payment by the Company as
evidenced by an Official Receipt issued by the Company directly to the policyholder.

69
xxxx

The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by
giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver,
extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company shall
be construed for any previous failure to exercise its right under any provision of this Agreement.

Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other party
fifteen (15) days notice in writing.2

Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to maintain a standard
of knowledge and competency in the sale of Manulife’s products, satisfactory to Manulife and sufficient to meet the
volume of the new business, required by his Production Club membership.3

The second phase started in 1983 when Tongko was named Unit Manager in Manulife’s Sales Agency Organization. In
1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a Regional Sales Manager.4

Tongko’s gross earnings consisted of commissions, persistency income, and management overrides. Since the
beginning, Tongko consistently declared himself self-employed in his income tax returns. Thus, under oath, he declared
his gross business income and deducted his business expenses to arrive at his taxable business income. Manulife
withheld the corresponding 10% tax on Tongko’s earnings.5

In 2001, Manulife instituted manpower development programs at the regional sales management level. Respondent
Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on concerns that were brought up during the
October 18, 2001 Metro North Sales Managers Meeting. De Dios wrote:

The first step to transforming Manulife into a big league player has been very clear – to increase the number of agents to
at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was run when you first joined
the organization. Since then, however, substantial changes have taken place in the organization, as these have been
influenced by developments both from within and without the company.

xxxx

The issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers’ meeting
earlier last month when Kevin O’Connor, SVP-Agency, took to the floor to determine from our senior agency leaders what
more could be done to bolster manpower development. At earlier meetings, Kevin had presented information where
evidently, your Region was the lowest performer (on a per Manager basis) in terms of recruiting in 2000 and, as of today,
continues to remain one of the laggards in this area.

While discussions, in general, were positive other than for certain comments from your end which were perceived to be
uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and management,
were on the same plane. As gleaned from some of your previous comments in prior meetings (both in group and one-on-
one), it was not clear that we were proceeding in the same direction.

Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent meetings
you reiterated certain views, the validity of which we challenged and subsequently found as having no basis.

With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit confused
as to the directions the company was taking. For this reason, I sought a meeting with everyone in your management
team, including you, to clear the air, so to speak.

This note is intended to confirm the items that were discussed at the said Metro North Region’s Sales Managers meeting
held at the 7/F Conference room last 18 October.

xxxx

Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of agents."

This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the table
before the rest of your Region’s Sales Managers to verify its validity. As you must have noted, no Sales Manager came
forward on their own to confirm your statement and it took you to name Malou Samson as a source of the same, an
allegation that Malou herself denied at our meeting and in your very presence.

70
This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all along,
that these allegations were simply meant to muddle the issues surrounding the inability of your Region to meet its agency
development objectives!

Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn less."

xxxx

All the above notwithstanding, we had your own records checked and we found that you made a lot more money in the
Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you probably will
make more money in the Year 2001 compared to Year 2000. Obviously, your above statement about making "less
money" did not refer to you but the way you argued this point had us almost believing that you were spouting the gospel of
truth when you were not. x x x

xxxx

All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new direction
that we have been discussing these past few weeks, i.e., Manulife’s goal to become a major agency-led distribution
company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have never heard you
proactively push for greater agency recruiting. You have not been proactive all these years when it comes to agency
growth.

xxxx

I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making the
following changes in the interim:

1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can be
easily delegated. This assistant should be so chosen as to complement your skills and help you in the areas where you
feel "may not be your cup of tea."

You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your health. The
above could solve this problem.

xxxx

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB) in
autonomous fashion. x x x

I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully on
overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in Metro North.
I will hold you solely responsible for meeting the objectives of these remaining groups.

xxxx

The above changes can end at this point and they need not go any further. This, however, is entirely dependent upon you.
But you have to understand that meeting corporate objectives by everyone is primary and will not be compromised. We
are meeting tough challenges next year, and I would want everybody on board. Any resistance or holding back by anyone
will be dealt with accordingly.6

Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongko’s services:

It would appear, however, that despite the series of meetings and communications, both one-on-one meetings between
yourself and SVP Kevin O’Connor, some of them with me, as well as group meetings with your Sales Managers, all these
efforts have failed in helping you align your directions with Management’s avowed agency growth policy.

xxxx

On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we are now
issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of this letter.7

71
Tongko responded by filing an illegal dismissal complaint with the National Labor Relations Commission (NLRC)
Arbitration Branch. He essentially alleged – despite the clear terms of the letter terminating his Agency Agreement – that
he was Manulife’s employee before he was illegally dismissed.8

Thus, the threshold issue is the existence of an employment relationship. A finding that none exists renders the question
of illegal dismissal moot; a finding that an employment relationship exists, on the other hand, necessarily leads to the
need to determine the validity of the termination of the relationship.

A. Tongko’s Case for Employment Relationship

Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding ₱50,000.00, regardless of
production levels attained and exclusive of commissions and bonuses. He also claimed that as Regional Sales Manager,
he was given a travel and entertainment allowance of ₱36,000.00 per year in addition to his overriding commissions; he
was tasked with numerous administrative functions and supervisory authority over Manulife’s employees, aside from
merely selling policies and recruiting agents for Manulife; and he recommended and recruited insurance agents subject to
vetting and approval by Manulife. He further alleges that he was assigned a definite place in the Manulife offices when he
was not in the field – at the 3rd Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts., Salcedo Village, Makati City
– for which he never paid any rental. Manulife provided the office equipment he used, including tables, chairs, computers
and printers (and even office stationery), and paid for the electricity, water and telephone bills. As Regional Sales
Manager, Tongko additionally asserts that he was required to follow at least three codes of conduct.9

B. Manulife’s Case – Agency Relationship with Tongko

Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid commissions of
varying amounts, computed based on the premium paid in full and actually received by Manulife on policies obtained
through an agent. As sales manager, Tongko was paid overriding sales commission derived from sales made by agents
under his unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10% tax from all
commissions Tongko received; Tongko even declared himself to be self-employed and consistently paid taxes as such—
i.e., he availed of tax deductions such as ordinary and necessary trade, business and professional expenses to which a
business is entitled.

Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was not its employee as
characterized in the four-fold test and our ruling in Carungcong v. National Labor Relations Commission.10

The Conflicting Rulings of the Lower Tribunals

The labor arbiter decreed that no employer-employee relationship existed between the parties. However, the NLRC
reversed the labor arbiter’s decision on appeal; it found the existence of an employer-employee relationship and
concluded that Tongko had been illegally dismissed. In the petition for certiorari with the Court of Appeals (CA), the
appellate court found that the NLRC gravely abused its discretion in its ruling and reverted to the labor arbiter’s decision
that no employer-employee relationship existed between Tongko and Manulife.

Our Decision of November 7, 2008

In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment relationship existed
between Tongko and Manulife. We concluded that Tongko is Manulife’s employee for the following reasons:

1. Our ruling in the first Insular11 case did not foreclose the possibility of an insurance agent becoming an
employee of an insurance company; if evidence exists showing that the company promulgated rules or
regulations that effectively controlled or restricted an insurance agent’s choice of methods or the methods
themselves in selling insurance, an employer-employee relationship would be present. The determination of the
existence of an employer-employee relationship is thus on a case-to-case basis depending on the evidence on
record.

2. Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown by the
following indicators:

2.1 Tongko undertook to comply with Manulife’s rules, regulations and other requirements, i.e., the
different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct,
and the Financial Code of Conduct Agreement;

72
 2.2 The various affidavits of Manulife’s insurance agents and managers, who occupied similar positions
as Tongko, showed that they performed administrative duties that established employment with
Manulife;12 and

2.3 Tongko was tasked to recruit some agents in addition to his other administrative functions. De Dios’
letter harped on the direction Manulife intended to take, viz., greater agency recruitment as the primary
means to sell more policies; Tongko’s alleged failure to follow this directive led to the termination of his
employment with Manulife.

The Motion for Reconsideration

Manulife disagreed with our Decision and filed the present motion for reconsideration on the following GROUNDS:

1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a) confining the review only to
the issue of "control" and utterly disregarding all the other issues that had been joined in this case; (b)
mischaracterizing the divergence of conclusions between the CA and the NLRC decisions as confined only to that
on "control"; (c) grossly failing to consider the findings and conclusions of the CA on the majority of the material
evidence, especially [Tongko’s] declaration in his income tax returns that he was a "business person" or "self-
employed"; and (d) allowing [Tongko] to repudiate his sworn statement in a public document.

2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency, distorts not only the
legal relationships of agencies to sell but also distributorship and franchising, and ignores the constitutional and
policy context of contract law vis-à-vis labor law.

3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the four-fold test
other than the "control" test, reverses well-settled doctrines of law on employer-employee relationships, and
grossly misapplies the "control test," by selecting, without basis, a few items of evidence to the exclusion of more
material evidence to support its conclusion that there is "control."

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and 9 of the
Civil Code, beyond the powers granted to this Court under Article VIII, Section 1 of the Constitution and
contravenes through judicial legislation, the constitutional prohibition against impairment of contracts under Article
III, Section 10 of the Constitution.

5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and reversible errors, which
should be corrected, in concluding that Respondent Manulife and Petitioner had an employer-employee
relationship, that Respondent Manulife illegally dismissed Petitioner, and for consequently ordering Respondent
Manulife to pay Petitioner backwages, separation pay, nominal damages and attorney’s fees.13

THE COURT’S RULING

A. The Insurance and the Civil Codes;

the Parties’ Intent and Established
Industry Practices

We cannot consider the present case purely from a labor law perspective, oblivious that the factual antecedents were set
in the insurance industry so that the Insurance Code primarily governs. Chapter IV, Title 1 of this Code is wholly devoted
to "Insurance Agents and Brokers" and specifically defines the agents and brokers relationship with the insurance
company and how they are governed by the Code and regulated by the Insurance Commission.

The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as agency is a civil law matter
governed by the Civil Code. Thus, at the very least, three sets of laws – namely, the Insurance Code, the Labor Code and
the Civil Code – have to be considered in looking at the present case. Not to be forgotten, too, is the Agreement (partly
reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted to govern their relationship for
purposes of selling the insurance the company offers. To forget these other laws is to take a myopic view of the present
case and to add to the uncertainties that now exist in considering the legal relationship between the insurance company
and its "agents."

The main issue of whether an agency or an employment relationship exists depends on the incidents of the relationship.
The Labor Code concept of "control" has to be compared and distinguished with the "control" that must necessarily exist
in a principal-agent relationship. The principal cannot but also have his or her say in directing the course of the principal-

73
agent relationship, especially in cases where the company-representative relationship in the insurance industry is an
agency.

a. The laws on insurance and agency

The business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can be in
the insurance business, who can act for and in behalf of an insurer, and how these parties shall conduct themselves in the
insurance business. Section 186 of the Insurance Code provides that "No person, partnership, or association of persons
shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the
business of insurance in the Philippines." Sections 299 and 300 of the Insurance Code on Insurance Agents and Brokers,
among other provisions, provide:

Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission
or other compensation to any person for services in obtaining insurance, unless such person shall have first procured
from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter
provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance
company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner x x x The Commissioner shall satisfy himself as to the competence and trustworthiness of the applicant
and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his
discretion.1avvphi1.net

Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or
transmits for a person other than himself an application for a policy or contract of insurance to or from such company or
offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section
and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is
subject.

The application for an insurance agent’s license requires a written examination, and the applicant must be of good moral
character and must not have been convicted of a crime involving moral turpitude. 14 The insurance agent who collects
premiums from an insured person for remittance to the insurance company does so in a fiduciary capacity, and an
insurance company which delivers an insurance policy or contract to an authorized agent is deemed to have authorized
the agent to receive payment on the company’s behalf. 15 Section 361 further prohibits the offer, negotiation, or collection
of any amount other than that specified in the policy and this covers any rebate from the premium or any special favor or
advantage in the dividends or benefit accruing from the policy.

Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must also act within the
parameters of the authority granted under the license and under the contract with the principal. Other than the need for a
license, the agent is limited in the way he offers and negotiates for the sale of the company’s insurance products, in his
collection activities, and in the delivery of the insurance contract or policy. Rules regarding the desired results (e.g., the
required volume to continue to qualify as a company agent, rules to check on the parameters on the authority given to the
agent, and rules to ensure that industry, legal and ethical rules are followed) are built-in elements of control specific to an
insurance agency and should not and cannot be read as elements of control that attend an employment relationship
governed by the Labor Code.

On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter." 16 While this is a very broad
definition that on its face may even encompass an employment relationship, the distinctions between agency and
employment are sufficiently established by law and jurisprudence.

Generally, the determinative element is the control exercised over the one rendering service. The employer controls the
employee both in the results and in the means and manner of achieving this result. The principal in an agency
relationship, on the other hand, also has the prerogative to exercise control over the agent in undertaking the assigned
task based on the parameters outlined in the pertinent laws.

Under the general law on agency as applied to insurance, an agency must be express in light of the need for a license
and for the designation by the insurance company. In the present case, the Agreement fully serves as grant of authority to
Tongko as Manulife’s insurance agent.17 This agreement is supplemented by the company’s agency practices and
usages, duly accepted by the agent in carrying out the agency.18 By authority of the Insurance Code, an insurance agency
is for compensation,19 a matter the Civil Code Rules on Agency presumes in the absence of proof to the contrary.20 Other

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than the compensation, the principal is bound to advance to, or to reimburse, the agent the agreed sums necessary for
the execution of the agency.21 By implication at least under Article 1994 of the Civil Code, the principal can appoint two or
more agents to carry out the same assigned tasks,22 based necessarily on the specific instructions and directives given to
them.

With particular relevance to the present case is the provision that "In the execution of the agency, the agent shall act in
accordance with the instructions of the principal."23 This provision is pertinent for purposes of the necessary control that
the principal exercises over the agent in undertaking the assigned task, and is an area where the instructions can intrude
into the labor law concept of control so that minute consideration of the facts is necessary. A related article is Article 1891
of the Civil Code which binds the agent to render an account of his transactions to the principal.

B. The Cited Case

The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the company rules and
regulations that an agent has to comply with are indicative of an employer-employee relationship.24 The Dissenting
Opinions of Justice Presbitero Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular Life Assurance Co. v.
National Labor Relations Commission (second Insular case)25 to support the view that Tongko is Manulife’s employee. On
the other hand, Manulife cites the Carungcong case and AFP Mutual Benefit Association, Inc. v. National Labor Relations
Commission (AFPMBAI case)26 to support its allegation that Tongko was not its employee.

A caveat has been given above with respect to the use of the rulings in the cited cases because none of them is on all
fours with the present case; the uniqueness of the factual situation of the present case prevents it from being directly and
readily cast in the mold of the cited cases. These cited cases are themselves different from one another; this difference
underscores the need to read and quote them in the context of their own factual situations.

The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and the second Insular
Life cases. A critical difference, however, exists as these cited cases dealt with the proper legal characterization of a
subsequent management contract that superseded the original agency contract between the insurance company and its
agent. Carungcong dealt with a subsequent Agreement making Carungcong a New Business Manager that clearly
superseded the Agreement designating Carungcong as an agent empowered to solicit applications for insurance. The
Grepalife case, on the other hand, dealt with the proper legal characterization of the appointment of the Ruiz brothers to
positions higher than their original position as insurance agents. Thus, after analyzing the duties and functions of the Ruiz
brothers, as these were enumerated in their contracts, we concluded that the company practically dictated the manner by
which the Ruiz brothers were to carry out their jobs. Finally, the second Insular Life case dealt with the implications of de
los Reyes’ appointment as acting unit manager which, like the subsequent contracts in the Carungcong and the Grepalife
cases, was clearly defined under a subsequent contract. In all these cited cases, a determination of the presence of the
Labor Code element of control was made on the basis of the stipulations of the subsequent contracts.

In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only contract or document
extant and submitted as evidence in the present case is the Agreement – a pure agency agreement in the Civil Code
context similar to the original contract in the first Insular Life case and the contract in the AFPMBAI case. And while
Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996,
no formal contract regarding these undertakings appears in the records of the case. Any such contract or agreement, had
there been any, could have at the very least provided the bases for properly ascertaining the juridical relationship
established between the parties.

These critical differences, particularly between the present case and the Grepalife and the second Insular Life cases,
should therefore immediately drive us to be more prudent and cautious in applying the rulings in these cases.

C. Analysis of the Evidence

c.1. The Agreement

The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined the parties’ relations
until the Agreement’s termination in 2001. This Agreement stood for more than two decades and, based on the records of
the case, was never modified or novated. It assumes primacy because it directly dealt with the nature of the parties’
relationship up to the very end; moreover, both parties never disputed its authenticity or the accuracy of its terms.

By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife, not as an employee. To be sure,
the Agreement’s legal characterization of the nature of the relationship cannot be conclusive and binding on the courts; as
the dissent clearly stated, the characterization of the juridical relationship the Agreement embodied is a matter of law that
is for the courts to determine. At the same time, though, the characterization the parties gave to their relationship in the

75
Agreement cannot simply be brushed aside because it embodies their intent at the time they entered the Agreement, and
they were governed by this understanding throughout their relationship. At the very least, the provision on the absence of
employer-employee relationship between the parties can be an aid in considering the Agreement and its implementation,
and in appreciating the other evidence on record.

The parties’ legal characterization of their intent, although not conclusive, is critical in this case because this intent is not
illegal or outside the contemplation of law, particularly of the Insurance and the Civil Codes. From this perspective, the
provisions of the Insurance Code cannot be disregarded as this Code (as heretofore already noted) expressly envisions a
principal-agent relationship between the insurance company and the insurance agent in the sale of insurance to the
public.1awph!1 For this reason, we can take judicial notice that as a matter of Insurance Code-based business practice,
an agency relationship prevails in the insurance industry for the purpose of selling insurance. The Agreement, by its
express terms, is in accordance with the Insurance Code model when it provided for a principal-agent relationship, and
thus cannot lightly be set aside nor simply be considered as an agreement that does not reflect the parties’ true intent.
This intent, incidentally, is reinforced by the system of compensation the Agreement provides, which likewise is in
accordance with the production-based sales commissions the Insurance Code provides.

Significantly, evidence shows that Tongko’s role as an insurance agent never changed during his relationship with
Manulife. If changes occurred at all, the changes did not appear to be in the nature of their core relationship. Tongko
essentially remained an agent, but moved up in this role through Manulife’s recognition that he could use other agents
approved by Manulife, but operating under his guidance and in whose commissions he had a share. For want of a better
term, Tongko perhaps could be labeled as a "lead agent" who guided under his wing other Manulife agents similarly
tasked with the selling of Manulife insurance.

Like Tongko, the evidence suggests that these other agents operated under their own agency agreements. Thus, if
Tongko’s compensation scheme changed at all during his relationship with Manulife, the change was solely for purposes
of crediting him with his share in the commissions the agents under his wing generated. As an agent who was recruiting
and guiding other insurance agents, Tongko likewise moved up in terms of the reimbursement of expenses he incurred in
the course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code. Thus, Tongko received
greater reimbursements for his expenses and was even allowed to use Manulife facilities in his interactions with the
agents, all of whom were, in the strict sense, Manulife agents approved and certified as such by Manulife with the
Insurance Commission.

That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable conclusion that
results from the reading of the Agreement (the only agreement on record in this case) and his continuing role thereunder
as sales agent, from the perspective of the Insurance and the Civil Codes and in light of what Tongko himself attested to
as his role as Regional Sales Manager. To be sure, this interpretation could have been contradicted if other agreements
had been submitted as evidence of the relationship between Manulife and Tongko on the latter’s expanded undertakings.
In the absence of any such evidence, however, this reading – based on the available evidence and the applicable
insurance and civil law provisions – must stand, subject only to objective and evidentiary Labor Code tests on the
existence of an employer-employee relationship.

In applying such Labor Code tests, however, the enforcement of the Agreement during the course of the parties’
relationship should be noted. From 1977 until the termination of the Agreement, Tongko’s occupation was to sell
Manulife’s insurance policies and products. Both parties acquiesced with the terms and conditions of the Agreement.
Tongko, for his part, accepted all the benefits flowing from the Agreement, particularly the generous commissions.

Evidence indicates that Tongko consistently clung to the view that he was an independent agent selling Manulife
insurance products since he invariably declared himself a business or self-employed person in his income tax
returns. This consistency with, and action made pursuant to the Agreement were pieces of evidence that were
never mentioned nor considered in our Decision of November 7, 2008. Had they been considered, they could, at the
very least, serve as Tongko’s admissions against his interest. Strictly speaking, Tongko’s tax returns cannot but be legally
significant because he certified under oath the amount he earned as gross business income, claimed business
deductions, leading to his net taxable income. This should be evidence of the first order that cannot be brushed aside by a
mere denial. Even on a layman’s view that is devoid of legal considerations, the extent of his annual income alone renders
his claimed employment status doubtful.27

Hand in hand with the concept of admission against interest in considering the tax returns, the concept of estoppel – a
legal and equitable concept28 – necessarily must come into play. Tongko’s previous admissions in several years of tax
returns as an independent agent, as against his belated claim that he was all along an employee, are too diametrically
opposed to be simply dismissed or ignored. Interestingly, Justice Velasco’s dissenting opinion states that Tongko was
forced to declare himself a business or self-employed person by Manulife’s persistent refusal to recognize him as its
employee.29 Regrettably, the dissent has shown no basis for this conclusion, an understandable omission since

76
no evidence in fact exists on this point in the records of the case. In fact, what the evidence shows is Tongko’s full
conformity with, and action as, an independent agent until his relationship with Manulife took a bad turn.

Another interesting point the dissent raised with respect to the Agreement is its conclusion that the Agreement negated
any employment relationship between Tongko and Manulife so that the commissions he earned as a sales agent should
not be considered in the determination of the backwages and separation pay that should be given to him. This part of the
dissent is correct although it went on to twist this conclusion by asserting that Tongko had dual roles in his relationship
with Manulife; he was an agent, not an employee, in so far as he sold insurance for Manulife, but was an employee in his
capacity as a manager. Thus, the dissent concluded that Tongko’s backwages should only be with respect to his role as
Manulife’s manager.

The conclusion with respect to Tongko’s employment as a manager is, of course, unacceptable for the legal, factual and
practical reasons discussed in this Resolution. In brief, the factual reason is grounded on the lack of evidentiary support
of the conclusion that Manulife exercised control over Tongko in the sense understood in the Labor Code. The legal
reason, partly based on the lack of factual basis, is the erroneous legal conclusion that Manulife controlled Tongko and
was thus its employee. The practical reason, on the other hand, is the havoc that the dissent’s unwarranted conclusion
would cause the insurance industry that, by the law’s own design, operated along the lines of principal-agent relationship
in the sale of insurance.

c.2. Other Evidence of Alleged Control

A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that Manulife ever exercised
means-and-manner control, even to a limited extent, over Tongko during his ascent in Manulife’s sales ladder. In 1983,
Tongko was appointed unit manager. Inexplicably, Tongko never bothered to present any evidence at all on what this
designation meant. This also holds true for Tongko’s appointment as branch manager in 1990, and as Regional Sales
Manager in 1996. The best evidence of control – the agreement or directive relating to Tongko’s duties and
responsibilities – was never introduced as part of the records of the case. The reality is, prior to de Dios’ letter, Manulife
had practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the agents under
his wing. As discussed below, the alleged directives covered by de Dios’ letter, heretofore quoted in full, were policy
directions and targeted results that the company wanted Tongko and the other sales groups to realign with in their own
selling activities. This is the reality that the parties’ presented evidence consistently tells us.

What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes on its agents in
the sale of insurance. The mere presentation of codes or of rules and regulations, however, is not per se indicative of
labor law control as the law and jurisprudence teach us.

As already recited above, the Insurance Code imposes obligations on both the insurance company and its agents in the
performance of their respective obligations under the Code, particularly on licenses and their renewals, on the
representations to be made to potential customers, the collection of premiums, on the delivery of insurance policies, on
the matter of compensation, and on measures to ensure ethical business practice in the industry.

The general law on agency, on the other hand, expressly allows the principal an element of control over the agent in a
manner consistent with an agency relationship. In this sense, these control measures cannot be read as indicative of labor
law control. Foremost among these are the directives that the principal may impose on the agent to achieve the assigned
tasks, to the extent that they do not involve the means and manner of undertaking these tasks. The law likewise obligates
the agent to render an account; in this sense, the principal may impose on the agent specific instructions on how an
account shall be made, particularly on the matter of expenses and reimbursements. To these extents, control can be
imposed through rules and regulations without intruding into the labor law concept of control for purposes of employment.

From jurisprudence, an important lesson that the first Insular Life case teaches us is that a commitment to abide by the
rules and regulations of an insurance company does not ipso facto make the insurance agent an employee. Neither do
guidelines somehow restrictive of the insurance agent’s conduct necessarily indicate "control" as this term is defined in
jurisprudence. Guidelines indicative of labor law "control," as the first Insular Life case tells us, should not merely
relate to the mutually desirable result intended by the contractual relationship; they must have the nature of
dictating the means or methods to be employed in attaining the result, or of fixing the methodology and of binding or
restricting the party hired to the use of these means. In fact, results-wise, the principal can impose production quotas and
can determine how many agents, with specific territories, ought to be employed to achieve the company’s objectives.
These are management policy decisions that the labor law element of control cannot reach. Our ruling in these respects in
the first Insular Life case was practically reiterated in Carungcong. Thus, as will be shown more fully below, Manulife’s
codes of conduct,30 all of which do not intrude into the insurance agents’ means and manner of conducting their sales and
only control them as to the desired results and Insurance Code norms, cannot be used as basis for a finding that the labor
law concept of control existed between Manulife and Tongko.

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The dissent considers the imposition of administrative and managerial functions on Tongko as indicative of labor law
control; thus, Tongko as manager, but not as insurance agent, became Manulife’s employee. It drew this conclusion from
what the other Manulife managers disclosed in their affidavits (i.e., their enumerated administrative and managerial
functions) and after comparing these statements with the managers in Grepalife. The dissent compared the control
exercised by Manulife over its managers in the present case with the control the managers in the Grepalife case
exercised over their employees by presenting the following matrix:31

Duties of Manulife’s Manager Duties of Grepalife’s Managers/Supervisors

- to render or recommend prospective agents - train understudies for the position of district
to be licensed, trained and contracted to sell manager
Manulife products and who will be part of my
Unit
- to coordinate activities of the agents under - properly account, record and document the
[the managers’] Unit in [the agents’] daily, company’s funds, spot-check and audit the work of
weekly and monthly selling activities, making the zone supervisors, x x x follow up the
sure that their respective sales targets are met; submission of weekly remittance reports of the
debit agents and zone supervisors
- to conduct periodic training sessions for [the]
agents to further enhance their sales skill; and - direct and supervise the sales activities of the
debit agents under him, x x x undertake and
- to assist [the] agents with their sales activities discharge the functions of absentee debit agents,
by way of joint fieldwork, consultations and spot-check the record of debit agents, and insure
one-on-one evaluation and analysis of proper documentation of sales and collections of
particular accounts debit agents.

Aside from these affidavits however, no other evidence exists regarding the effects of Tongko’s additional roles in
Manulife’s sales operations on the contractual relationship between them.

To the dissent, Tongko’s administrative functions as recruiter, trainer, or supervisor of other sales agents constituted a
substantive alteration of Manulife’s authority over Tongko and the performance of his end of the relationship with Manulife.
We could not deny though that Tongko remained, first and foremost, an insurance agent, and that his additional role as
Branch Manager did not lessen his main and dominant role as insurance agent; this role continued to dominate the
relations between Tongko and Manulife even after Tongko assumed his leadership role among agents. This conclusion
cannot be denied because it proceeds from the undisputed fact that Tongko and Manulife never altered their July 1, 1977
Agreement, a distinction the present case has with the contractual changes made in the second Insular Life case.
Tongko’s results-based commissions, too, attest to the primacy he gave to his role as insurance sales agent.

The dissent apparently did not also properly analyze and appreciate the great qualitative difference that exists between:

 the Manulife managers’ role is to coordinate activities of the agents under the managers’ Unit in the agents’ daily,
weekly, and monthly selling activities, making sure that their respective sales targets are met.
 the District Manager’s duty in Grepalife is to properly account, record, and document the company's funds, spot-
check and audit the work of the zone supervisors, conserve the company's business in the district through
"reinstatements," follow up the submission of weekly remittance reports of the debit agents and zone supervisors,
preserve company property in good condition, train understudies for the position of district managers, and
maintain his quota of sales (the failure of which is a ground for termination).
 the  Zone Supervisor’s (also in Grepalife)  has the duty to direct and supervise the sales activities of the debit
agents under him, conserve company property through "reinstatements," undertake and discharge the functions
of absentee debit agents, spot-check the records of debit agents, and insure proper documentation of sales and
collections by the debit agents.

These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the job are specified and
pre-determined; in the present case, the operative words are the "sales target," the methodology being left undefined
except to the extent of being "coordinative." To be sure, a "coordinative" standard for a manager cannot be indicative of
control; the standard only essentially describes what a Branch Manager is – the person in the lead who orchestrates
activities within the group. To "coordinate," and thereby to lead and to orchestrate, is not so much a matter of control by
Manulife; it is simply a statement of a branch manager’s role in relation with his agents from the point of view of Manulife
whose business Tongko’s sales group carries.

A disturbing note, with respect to the presented affidavits and Tongko’s alleged administrative functions, is the selective
citation of the portions supportive of an employment relationship and the consequent omission of portions leading to the

78
contrary conclusion. For example, the following portions of the affidavit of Regional Sales Manager John Chua, with
counterparts in the other affidavits, were not brought out in the Decision of November 7, 2008, while the other portions
suggesting labor law control were highlighted. Specifically, the following portions of the affidavits were not brought out:32

1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on the
computed premiums paid in full on the policies obtained thereat;

1.b. I have no fixed working hours and employ my own method in soliticing insurance at a time and place I see fit;

1.c. I have my own assistant and messenger who handle my daily work load;

1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;

xxxx

6. I have my own staff that handles the day to day operations of my office;

7. My staff are my own employees and received salaries from me;

xxxx

9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a self-
employed individual or professional with a ten (10) percent creditable withholding tax. I also remit monthly for
professionals.

These statements, read with the above comparative analysis of the Manulife and the Grepalife cases, would have readily
yielded the conclusion that no employer-employee relationship existed between Manulife and Tongko.

Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into Tongko’s exercise of
his role as manager in guiding the sales agents. Strictly viewed, de Dios’ directives are merely operational guidelines on
how Tongko could align his operations with Manulife’s re-directed goal of being a "big league player." The method is to
expand coverage through the use of more agents. This requirement for the recruitment of more agents is not a means-
and-method control as it relates, more than anything else, and is directly relevant, to Manulife’s objective of expanded
business operations through the use of a bigger sales force whose members are all on a principal-agent relationship. An
important point to note here is that Tongko was not supervising regular full-time employees of Manulife engaged in the
running of the insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife
through the same Agreement that he had with Manulife, all the while sharing in these agents’ commissions through his
overrides. This is the lead agent concept mentioned above for want of a more appropriate term, since the title of Branch
Manager used by the parties is really a misnomer given that what is involved is not a specific regular branch of the
company but a corps of non-employed agents, defined in terms of covered territory, through which the company sells
insurance. Still another point to consider is that Tongko was not even setting policies in the way a regular company
manager does; company aims and objectives were simply relayed to him with suggestions on how these objectives can
be reached through the expansion of a non-employee sales force.

Interestingly, a large part of de Dios’ letter focused on income, which Manulife demonstrated, in Tongko’s case, to be
unaffected by the new goal and direction the company had set. Income in insurance agency, of course, is dependent on
results, not on the means and manner of selling – a matter for Tongko and his agents to determine and an area into which
Manulife had not waded. Undeniably, de Dios’ letter contained a directive to secure a competent assistant at Tongko’s
own expense. While couched in terms of a directive, it cannot strictly be understood as an intrusion into Tongko’s method
of operating and supervising the group of agents within his delineated territory. More than anything else, the "directive"
was a signal to Tongko that his results were unsatisfactory, and was a suggestion on how Tongko’s perceived weakness
in delivering results could be remedied. It was a solution, with an eye on results, for a consistently underperforming group;
its obvious intent was to save Tongko from the result that he then failed to grasp – that he could lose even his own status
as an agent, as he in fact eventually did.

The present case must be distinguished from the second Insular Life case that showed the hallmarks of an employer-
employee relationship in the management system established. These were: exclusivity of service, control of assignments
and removal of agents under the private respondent’s unit, and furnishing of company facilities and materials as well as
capital described as Unit Development Fund. All these are obviously absent in the present case. If there is a commonality
in these cases, it is in the collection of premiums which is a basic authority that can be delegated to agents under the
Insurance Code.

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As previously discussed, what simply happened in Tongko’s case was the grant of an expanded sales agency role that
recognized him as leader amongst agents in an area that Manulife defined. Whether this consequently resulted in the
establishment of an employment relationship can be answered by concrete evidence that corresponds to the
following questions:

 as lead agent, what were Tongko’s specific functions and the terms of his additional engagement;
 was he paid additional compensation as a so-called Area Sales Manager, apart from the commissions he
received from the insurance sales he generated;
 what can be Manulife’s basis to terminate his status as lead agent;
 can Manulife terminate his role as lead agent separately from his agency contract; and
 to what extent does Manulife control the means and methods of Tongko’s role as lead agent?

The answers to these questions may, to some extent, be deduced from the evidence at hand, as partly discussed above.
But strictly speaking, the questions cannot definitively and concretely be answered through the evidence on record. The
concrete evidence required to settle these questions is simply not there, since only the Agreement and the anecdotal
affidavits have been marked and submitted as evidence.

Given this anemic state of the evidence, particularly on the requisite confluence of the factors determinative of the
existence of employer-employee relationship, the Court cannot conclusively find that the relationship exists in the present
case, even if such relationship only refers to Tongko’s additional functions. While a rough deduction can be made, the
answer will not be fully supported by the substantial evidence needed.

Under this legal situation, the only conclusion that can be made is that the absence of evidence showing Manulife’s
control over Tongko’s contractual duties points to the absence of any employer-employee relationship between Tongko
and Manulife. In the context of the established evidence, Tongko remained an agent all along; although his subsequent
duties made him a lead agent with leadership role, he was nevertheless only an agent whose basic contract yields no
evidence of means-and-manner control.

This conclusion renders unnecessary any further discussion of the question of whether an agent may simultaneously
assume conflicting dual personalities. But to set the record straight, the concept of a single person having the dual role of
agent and employee while doing the same task is a novel one in our jurisprudence, which must be viewed with caution
especially when it is devoid of any jurisprudential support or precedent. The quoted portions in Justice Carpio-Morales’
dissent,33 borrowed from both the Grepalife and the second Insular Life cases, to support the duality approach of the
Decision of November 7, 2008, are regrettably far removed from their context – i.e., the cases’ factual situations, the
issues they decided and the totality of the rulings in these cases – and cannot yield the conclusions that the dissenting
opinions drew.

The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment as zone supervisor and district
manager made them employees of Grepalife. Indeed, because of the presence of the element of control in their contract
of engagements, they were considered Grepalife’s employees. This did not mean, however, that they were simultaneously
considered agents as well as employees of Grepalife; the Court’s ruling never implied that this situation existed insofar as
the Ruiz brothers were concerned. The Court’s statement – the Insurance Code may govern the licensing requirements
and other particular duties of insurance agents, but it does not bar the application of the Labor Code with regard to labor
standards and labor relations – simply means that when an insurance company has exercised control over its agents so
as to make them their employees, the relationship between the parties, which was otherwise one for agency governed by
the Civil Code and the Insurance Code, will now be governed by the Labor Code. The reason for this is simple – the
contract of agency has been transformed into an employer-employee relationship.

The second Insular Life case, on the other hand, involved the issue of whether the labor bodies have jurisdiction over an
illegal termination dispute involving parties who had two contracts – first, an original contract (agency contract), which was
undoubtedly one for agency, and another subsequent contract that in turn designated the agent acting unit manager (a
management contract). Both the Insular Life and the labor arbiter were one in the position that both were agency
contracts. The Court disagreed with this conclusion and held that insofar as the management contract is concerned, the
labor arbiter has jurisdiction. It is in this light that we remanded the case to the labor arbiter for further proceedings. We
never said in this case though that the insurance agent had effectively assumed dual personalities for the simple reason
that the agency contract has been effectively superseded by the management contract. The management contract
provided that if the appointment was terminated for any reason other than for cause, the acting unit manager would be
reverted to agent status and assigned to any unit.

The dissent pointed out, as an argument to support its employment relationship conclusion, that any doubt in the
existence of an employer-employee relationship should be resolved in favor of the existence of the relationship. 34 This
observation, apparently drawn from Article 4 of the Labor Code, is misplaced, as Article 4 applies only when a doubt

80
exists in the "implementation and application" of the Labor Code and its implementing rules; it does not apply where no
doubt exists as in a situation where the claimant clearly failed to substantiate his claim of employment relationship by the
quantum of evidence the Labor Code requires.

On the dissent’s last point regarding the lack of jurisprudential value of our November 7, 2008 Decision, suffice it to state
that, as discussed above, the Decision was not supported by the evidence adduced and was not in accordance with
controlling jurisprudence. It should, therefore, be reconsidered and abandoned, but not in the manner the dissent
suggests as the dissenting opinions are as factually and as legally erroneous as the Decision under reconsideration.

In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines of de Dios’ letter, as a
ground for termination of Tongko’s agency, is a matter that the labor tribunals cannot rule upon in the absence of an
employer-employee relationship. Jurisdiction over the matter belongs to the courts applying the laws of insurance, agency
and contracts.

WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7,

2008, GRANT Manulife’s motion for reconsideration and, accordingly, DISMISS Tongko’s petition. No costs.

SO ORDERED.

G.R. No. 167622               January 25, 2011

GREGORIO V. TONGKO, Petitioner,
vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, Respondents.

RESOLUTION

BRION, J.:

We resolve petitioner Gregorio V. Tongko’s bid, through his Motion for Reconsideration, 1 to set aside our June 29, 2010
Resolution that reversed our Decision of November 7, 2008. 2 With the reversal, the assailed June 29, 2010 Resolution
effectively affirmed the Court of Appeals’ ruling3 in CA-G.R. SP No. 88253 that the petitioner was an insurance agent, not
the employee, of the respondent The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife).

In his Motion for Reconsideration, petitioner reiterates the arguments he had belabored in his petition and various other
submissions. He argues that for 19 years, he performed administrative functions and exercised supervisory authority over
employees and agents of Manulife, in addition to his insurance agent functions.4 In these 19 years, he was designated as
a Unit Manager, a Branch Manager and a Regional Sales Manager, and now posits that he was not only an insurance
agent for Manulife but was its employee as well.

81
We find no basis or any error to merit the reconsideration of our June 29, 2010 Resolution.

A. Labor Law Control = Employment Relationship

Control over the performance of the task of one providing service – both with respect to the means and manner, and the
results of the service – is the primary element in determining whether an employment relationship exists. We resolve the
petitioner’s Motion against his favor since he failed to show that the control Manulife exercised over him was the control
required to exist in an employer-employee relationship; Manulife’s control fell short of this norm and carried only the
characteristic of the relationship between an insurance company and its agents, as defined by the Insurance Code and by
the law of agency under the Civil Code.

The petitioner asserts in his Motion that Manulife’s labor law control over him was demonstrated (1) when it set the
objectives and sales targets regarding production, recruitment and training programs; and (2) when it prescribed the Code
of Conduct for Agents and the Manulife Financial Code of Conduct to govern his activities. 5 We find no merit in these
contentions.

In our June 29, 2010 Resolution, we noted that there are built-in elements of control specific to an insurance agency,
which do not amount to the elements of control that characterize an employment relationship governed by the Labor
Code. The Insurance Code provides definite parameters in the way an agent negotiates for the sale of the company’s
insurance products, his collection activities and his delivery of the insurance contract or policy.6 In addition, the Civil Code
defines an agent as a person who binds himself to do something in behalf of another, with the consent or authority of the
latter.7 Article 1887 of the Civil Code also provides that in the execution of the agency, the agent shall act in accordance
with the instructions of the principal.

All these, read without any clear understanding of fine legal distinctions, appear to speak of control by the insurance
company over its agents. They are, however, controls aimed only at specific results in undertaking an insurance agency,
and are, in fact, parameters set by law in defining an insurance agency and the attendant duties and responsibilities an
insurance agent must observe and undertake. They do not reach the level of control into the means and manner of doing
an assigned task that invariably characterizes an employment relationship as defined by labor law. From this perspective,
the petitioner’s contentions cannot prevail.

To reiterate, guidelines indicative of labor law "control" do not merely relate to the mutually desirable result intended by
the contractual relationship; they must have the nature of dictating the means and methods to be employed in attaining
the result.8 Tested by this norm, Manulife’s instructions regarding the objectives and sales targets, in connection with the
training and engagement of other agents, are among the directives that the principal may impose on the agent to achieve
the assigned tasks. They are targeted results that Manulife wishes to attain through its agents. Manulife’s codes of
conduct, likewise, do not necessarily intrude into the insurance agents’ means and manner of conducting their sales.
Codes of conduct are norms or standards of behavior rather than employer directives into how specific tasks are to be
done. These codes, as well as insurance industry rules and regulations, are not per se indicative of labor law control
under our jurisprudence.9

The duties10 that the petitioner enumerated in his Motion are not supported by evidence and, therefore, deserve scant
consideration. Even assuming their existence, however, they mostly pertain to the duties of an insurance agent such as
remitting insurance fees to Manulife, delivering policies to the insured, and after-sale services. For agents leading other
agents, these include the task of overseeing other insurance agents, the recruitment of other insurance agents engaged
by Manulife as principal, and ensuring that these other agents comply with the paperwork necessary in selling insurance.
That Manulife exercises the power to assign and remove agents under the petitioner’s supervision is in keeping with its
role as a principal in an agency relationship; they are Manulife agents in the same manner that the petitioner had all along
been a Manulife agent.

The petitioner also questions Manulife’s act of investing him with different titles and positions in the course of their
relationship, given the respondents’ position that he simply functioned as an insurance agent.11 He also considers it an
unjust and inequitable situation that he would be unrewarded for the years he spent as a unit manager, a branch
manager, and a regional sales manager.12

Based on the evidence on record, the petitioner’s occupation was to sell Manulife’s insurance policies and products from
1977 until the termination of the Career Agent’s Agreement (Agreement). The evidence also shows that through the
years, Manulife permitted him to exercise guiding authority over other agents who operate under their own agency
agreements with Manulife and whose commissions he shared.13 Under this scheme – an arrangement that pervades the
insurance industry – petitioner in effect became a "lead agent" and his own commissions increased as they included his
share in the commissions of the other agents;14 he also received greater reimbursements for expenses and was allowed
to use Manulife’s facilities. His designation also changed from unit manager to branch manager and then to regional sales

82
manager, to reflect the increase in the number of agents he recruited and guided, as well as the increase in the area
where these agents operated.

As our assailed Resolution concluded and as we now similarly conclude, these arrangements, and the titles and positions
the petitioner was invested with, did not change his status from the insurance agent that he had always been (as
evidenced by the Agreement that governed his relationship with Manulife from the start to its disagreeable end). The
petitioner simply progressed from his individual agency to being a lead agent who could use other agents in selling
insurance and share in the earnings of these other agents.

In sum, we find absolutely no evidence of labor law control, as extensively discussed in our Resolution of June 29, 2010,
granting Manulife’s motion for reconsideration. The Dissent, unfortunately, misses this point.

B. No Resulting Inequity

We also do not agree that our assailed Resolution has the effect of fostering an inequitable or unjust situation. The
records show that the petitioner was very amply paid for his services as an insurance agent, who also shared in the
commissions of the other agents under his guidance. In 1997, his income was ₱2,822,620; in 1998, ₱4,805,166.34; in
1999, ₱6,797,814.05; in 2001, ₱6,214,737.11; and in 2002, ₱8,003,180.38. All these he earned as an insurance agent, as
he failed to ever prove that he earned these sums as an employee. In technical terms, he could not have earned all these
as an employee because he failed to provide the substantial evidence required in administrative cases to support the
finding that he was a Manulife employee. No inequity results under this legal situation; what would be unjust is an award
of backwages and separation pay – amounts that are not due him because he was never an employee.

The Dissent’s discussion on this aspect of the case begins with the wide disparity in the status of the parties – that
Manulife is a big Canadian insurance company while Tongko is but a single agent of Manulife. The Dissent then went on
to say that "[i]f is but just, it is but right, that the Court interprets the relationship between Tongko and Manulife as one of
employment under labor laws and to uphold his constitutionally protected right, as an employee, to security of tenure and
entitlement to monetary award should such right be infringed." 15 We cannot simply invoke the magical formula by creating
an employment relationship even when there is none because of the unavoidable and inherently weak position of an
individual over a giant corporation.

The Dissent likewise alluded to an ambiguity in the true relationship of the parties after Tongko’s successive
appointments. We already pointed out that the legal significance of these appointments had not been sufficiently
explained and that it did not help that Tongko never bothered to present evidence on this point. The Dissent recognized
this but tried to excuse Tongko from this failure in the subsequent discussion, as follows:

[o]ther evidence was adduced to show such duties and responsibilities. For one, in his letter of November 6, 2001,
respondent De Dios addressed petitioner as sales manager. And as I wrote in my Dissent to the June 29, 2010
Resolution, it is difficult to imagine that Manulife did not issue promotional appointments to petitioner as unit manager,
branch manager, and, eventually, regional sales manager. Sound management practice simply requires an appointment
for any upward personnel movement, particularly when additional functions and the corresponding increase in
compensation are involved. Then, too, the adverted affidavits of the managers of Manulife as to the duties and
responsibilities of a unit manager, such as petitioner, point to the conclusion that these managers were employees of
Manulife, applying the "four-fold" test.16

This Court (and all adjudicators for that matter) cannot and should not fill in the evidentiary gaps in a party’s case that the
party failed to support; we cannot and should not take the cudgels for any party. Tongko failed to support his cause and
we should simply view him and his case as they are; our duty is to sit as a judge in the case that he and the respondent
presented.

To support its arguments on equity, the Dissent uses the Constitution and the Civil Code, using provisions and principles
that are all motherhood statements. The mandate of the Court, of course, is to decide cases based on the facts and the
law, and not to base its conclusions on fundamental precepts that are far removed from the particular case presented
before it. When there is no room for their application, of capacity of principles, reliance on the application of these
fundamental principles is misplaced.

C. Earnings were Commissions

That his earnings were agent’s commissions arising from his work as an insurance agent is a matter that the petitioner
cannot deny, as these are the declarations and representations he stated in his income tax returns through the years. It
would be doubly unjust, particularly to the government, if he would be allowed at this late point to turn around and
successfully claim that he was merely an employee after he declared himself, through the years, as an independent self-

83
employed insurance agent with the privilege of deducting business expenses. This aspect of the case alone – considered
together with the probative value of income tax declarations and returns filed prior to the present controversy — should be
enough to clinch the present case against the petitioner’s favor.

D. The Dissent’s Solution:

Unwieldy and Legally Infirm

The Dissent proposes that Tongko should be considered as part employee (as manager) and part insurance agent;
hence, the original decision should be modified to pertain only to the termination of his employment as a manager and not
as an insurance agent. Accordingly, the backwages component of the original award to him should not include the
insurance sales commissions. This solution, according to the line taken by the Dissent then, was justified on the view that
this was made on a case-to-case basis.

Decisions of the Supreme Court, as the Civil Code provides, form part of the law of the land. When the Court states that
the determination of the existence of an employment relationship should be on a case-to-case basis, this does not mean
that there will be as many laws on the issue as there are cases. In the context of this case, the four-fold test is the
established standard for determining employer-employee relationship and the existence of these elements, most notably
control, is the basis upon which a conclusion on the absence of employment relationship was anchored. This simply
means that a conclusion on whether employment relationship exists in a particular case largely depends on the facts and,
in no small measure, on the parties’ evidence vis-à-vis the clearly defined jurisprudential standards. Given that the parties
control what and how the facts will be established in a particular case and/or how a particular suit is to be litigated,
deciding the issues on a case-to-case basis becomes an imperative.

Another legal reality, a more important one, is that the duty of a court is to say what the law is. 17 This is the same duty of
the Supreme Court that underlies the stare decisis principle. This is how the public, in general and the insurance industry
in particular, views the role of this Court and courts in general in deciding cases. The lower courts and the bar, most
specially, look up to the rulings of this Court for guidance. Unless extremely unavoidable, the Court must, as a matter of
sound judicial policy, resist the temptation of branding its ruling pro hac vice.

The compromise solution of declaring Tongko both an employee and an agent is legally unrealistic, unwieldy and is, in
fact, legally infirm, as it goes against the above basic principles of judicial operation. Likewise, it does not and cannot
realistically solve the problem/issue in this case; it actually leaves more questions than answers.

As already pointed out, there is no legal basis (be it statutory or jurisprudential) for the part-employee/part-insurance
agent status under an essentially principal-agent contractual relation which the Dissent proposes to accord to Tongko. If
the Dissent intends to establish one, this is highly objectionable for this would amount to judicial legislation. A legal
relationship, be it one of employment or one based on a contract other than employment, exists as a matter of law
pursuant to the facts, incidents and legal consequences of the relationship; it cannot exist devoid of these legally defined
underlying facts and legal consequences unless the law itself creates the relationship – an act that is beyond the authority
of this Court to do.

Additionally, the Dissent’s conclusion completely ignores an unavoidable legal reality – that the parties are bound by a
contract of agency that clearly subsists notwithstanding the successive designation of Tongko as a unit manager, a
branch manager and a regional sales manager. (As already explained in our Resolution granting Manulife’s motion for
reconsideration, no evidence on record exists to provide the Court with clues as to the precise impact of all these
designations on the contractual agency relationship.) The Dissent, it must be pointed out, concludes that Tongko’s
employment as manager was illegally terminated; thus, he should be accordingly afforded relief therefor. But, can Tongko
be given the remedies incidental to his dismissal as manager separately from his status as an insurance agent? In other
words, since the respondents terminated all relationships with Tongko through the termination letter, can we simply rule
that his role as a manager was illegally terminated without touching on the consequences of this ruling on his status as an
insurance agent? Expressed in these terms, the inseparability of his contract as agent with any other relationship that
springs therefrom can thus be seen as an insurmountable legal obstacle.

The Dissent’s compromise approach would also sanction split jurisdiction. The labor tribunals shall have jurisdiction over
Tongko’s employment as manager while another entity shall decide the issues/cases arising from the agency relationship.
If the managerial employment is anchored on the agency, how will the labor tribunals decide an issue that is inextricably
linked with a relationship that is outside the loop of their jurisdiction? As already mentioned in the Resolution granting
Manulife’s reconsideration, the DOMINANT relationship in this case is agency and no other.

E. The Dissent’s Cited Cases

84
The Dissent cites the cases of Great Pacific Life Assurance Corporation v. National Labor Relations Commission 18 and
Insular Life Assurance Co., Ltd. v. National Labor Relations Commission 19 to support the allegation that Manulife
exercised control over the petitioner as an employer.

In considering these rulings, a reality that cannot but be recognized is that cases turn and are decided on the basis of their
own unique facts; the ruling in one case cannot simply be bodily lifted and applied to another, particularly when notable
differences exist between the cited cases and the case under consideration; their respective facts must be strictly
examined to ensure that the ruling in one applies to another. This is particularly true in a comparison of the cited cases
with the present case. Specifically, care should be taken in reading the cited cases and applying their rulings to the
present case as the cited cases all dealt with the proper legal characterization of subsequent management contracts that
superseded the original agency contract between the insurance company and the agent.

In Great Pacific Life, the Ruiz brothers were appointed to positions different from their original positions as insurance
agents, whose duties were clearly defined in a subsequent contract. Similarly, in Insular, de los Reyes, a former insurance
agent, was appointed as acting unit manager based on a subsequent contract. In both cases, the Court anchored its
findings of labor control on the stipulations of these subsequent contracts.

In contrast, the present case is remarkable for the absence of evidence of any change in the nature of the petitioner’s
employment with Manulife. As previously stated above and in our assailed Resolution, the petitioner had always been
governed by the Agreement from the start until the end of his relationship with Manulife. His agency status never changed
except to the extent of being a lead agent. Thus, the cited cases – where changes in company-agent relationship
expressly changed and where the subsequent contracts were the ones passed upon by the Court – cannot be totally
relied upon as authoritative.

We cannot give credit as well to the petitioner’s claim of employment based on the affidavits executed by other Manulife
agents describing their duties, because these same affidavits only affirm their status as independent agents, not as
employees. To quote these various claims:20

1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on the
computed premiums paid in full on the policies obtained thereat;

1.b. I have no fixed working hours and employ my own method in soliciting insurance at a time and place I see fit;

1.c. I have my own assistant and messenger who handle my daily work load;

1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;

xxxx

6. I have my own staff that handles day to day operations of my office;

7. My staff are my own employees and received salaries from me;

xxxx

9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a self-employed
individual or professional with a ten (10) percent creditable withholding tax. I also remit monthly for professionals.

The petitioner cannot also rely on the letter written by respondent Renato Vergel de Dios to prove that Manulife exercised
control over him. As we already explained in the assailed Resolution:

Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into Tongko’s exercise of
his role as manager in guiding the sales agents. Strictly viewed, de Dios’ directives are merely operational guidelines on
how Tongko could align his operations with Manulife’s re-directed goal of being a "big league player." The method is to
expand coverage through the use of more agents. This requirement for the recruitment of more agents is not a means-
and-method control as it relates, more than anything else, and is directly relevant, to Manulife’s objective of expanded
business operations through the use of a bigger sales force whose members are all on a principal-agent relationship. An
important point to note here is that Tongko was not supervising regular full-time employees of Manulife engaged in the
running of the insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife
through the same agreement that he had with manulife, all the while sharing in these agents’ commissions through his
overrides.21

85
Lastly, in assailing the Agreement between him and Manulife, the petitioner cites Paguio v. National Labor Relations
Commission22 on the claim that the agreement that the parties signed did not conclusively indicate the legal relationship
between them.

The evidentiary situation in the present case, however, shows that despite the petitioner’s insistence that the Agreement
was no longer binding between him and Manulife, no evidence was ever adduced to show that their relationship changed
so that Manulife at some point controlled the means and method of the petitioner’s work. In fact, his evidence only further
supports the conclusion that he remained an independent insurance agent – a status he admits, subject only to the
qualification that he is at the same time an employee. Thus, we can only conclude that the Agreement governed his
relations with Manulife.

Additionally, it is not lost on us that Paguio is a ruling based on a different factual setting; it involves a publishing firm and
an account executive, whose repeated engagement was considered as an indication of employment. Our ruling in the
present case is specific to the insurance industry, where the law permits an insurance company to exercise control over
its agents within the limits prescribed by law, and to engage independent agents for several transactions and within an
unlimited period of time without the relationship amounting to employment. In light of these realities, the petitioner’s
arguments on his last argument must also fail.

The dissent also erroneously cites eight other cases — Social Security System v. Court of Appeals, 23 Cosmopolitan
Funeral Homes, Inc. v. Maalat,24 Algon Engineering Construction Corporation v. National Labor Relations
Commission,25 Equitable Banking Corporation v. National Labor Relations Commission,26 Lazaro v. Social Security
Commission,27 Dealco Farms, Inc. v. National Labor Relations Commission,28 South Davao Development Company, Inc.
v. Gamo,29 and Abante, Jr. v. Lamadrid Bearing & Parts Corporation. 30 The dissent cited these cases to support its
allegation that labor laws and jurisprudence should be applied in cases, to the exclusion of other laws such as the Civil
Code or the Insurance Code, even when the latter are also applicable.

In Social Security System, Cosmopolitan Funeral Homes, Dealco Farms, and South Davao Development, the issue that
repeats itself is whether complainants were employees or independent contractors; the legal relationships involved are
both labor law concepts and make no reference to the Civil Code (or even the Insurance Code). The provisions cited in
the Dissent — Articles 1458-1637 of the Civil Code31 and Articles 1713-1720 of the Civil Code 32 — do not even appear in
the decisions cited.

In Algon, the issue was whether the lease contract should dictate the legal relationship between the parties, when there
was proof of an employer-employee relationship. In the cited case, the lease provisions on termination were thus
considered irrelevant because of a substantial evidence of an employment relationship. The cited case lacks the
complexity of the present case; Civil Code provisions on lease do not prescribe that lessees exercise control over their
lessors in the way that the Insurance Code and the Civil provide that insurance companies and principals exercised
control over their agents.

The issue in Equitable, on the other hand, is whether a lawyer-client relationship or an employment relationship governs
the legal relation between parties. Again, this case is inapplicable as it does not illustrate the predominance of labor laws
and jurisprudence over other laws, in general, and the Insurance Code and Civil Code, in particular. It merely weighed the
evidence in favor of an employment relationship over that of a lawyer-client relationship. Similarly in Lazaro, the Court
found ample proof of control determinative of an employer-employee relationship.1âwphi1 Both cases are not applicable
to the present case, which is attended by totally different factual considerations as the petitioner had not offered any
evidence of the company’s control in the means and manner of the performance of his work.

On the other hand, we find it strange that the dissent cites Abante as a precedent, since the Court, in this case, held that
an employee-employer relationship is notably absent in this case as the complainant was a sales agent. This case better
supports the majority’s position that a sales agent, who fails to show control in the concept of labor law, cannot be
considered an employee, even if the company exercised control in the concept of a sales agent.33

It bears stressing that our ruling in this case is not about which law has primacy over the other, but that we should be able
to reconcile these laws. We are merely saying that where the law makes it mandatory for a company to exercise control
over its agents, the complainant in an illegal dismissal case cannot rely on these legally prescribed control devices as
indicators of an employer-employee relationship. As shown in our discussion, our consideration of the Insurance Code
and Civil Code provisions does not negate the application of labor laws and jurisprudence; ultimately, we dismissed the
petition because of its failure to comply with the control test.

WHEREFORE, premises considered, we hereby DENY the Motion for Reconsideration WITH FINALITY for lack of merit.
No further pleadings shall be entertained. Let entry of judgment proceed in due course.

86
SO ORDERED.

G.R. No.187691

OLYMPIA HOUSING, INC., Petitioner,

vs.
ALLAN LAPASTORA and IRENE UBALUBAO, Respondents.

DECISION

REYES, J.:

This is a Petition for Review on Certiorari1 filed under Rule 45 of the Rules of Court, assailing the Decision 2 dated April 28,
2009 of the Court of Appeals (CA) in CA-G.R. SP No. 103699, which affirmed the Decision dated December 28, 2007 and
Resolution3 dated February 29, 2008 of the National Labor Relations Commission (NLRC) in NLRC NCR Case No. 30-03-
00976-00.

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The instant case stemmed from a complaint for illegal dismissal, payment of backwages and other benefits, and
regularization of employment filed by Allan Lapastora (Lapastora) and Irene Ubalubao (Ubalubao) against Olympic
Housing, Inc. (OHI), the entity engaged in the management of the Olympia Executive Residences (OER), a condominium
hotel building situated in Makati City, owned by a Philippine-registered corporation known as the Olympia Condominium
Corporation (OCC). The complaint, which was docketed as NLRC NCR Case No. 30-03-00976-00 (NLRC NCR CA No.
032043-02), likewise impleaded as defendants the part owner of OHI, Felix Limcaoco (Limcaoco), and Fast Manpower
and Allied Services Company, Inc. (Fast Manpower). Lapastora and Ubalubao alleged that they worked as room
attendants of OHI from March 1995 and June 1997, respectively, until they were placed on floating status on February 24,
2000, through a memorandum sent by Fast Manpower.4

To establish employer-employee relationship with OHI, Lapastora and Ubalubao alleged that they were directly hired by
the company and received salaries directly from its operations clerk, Myrna Jaylo (Jaylo). They also claimed that OHI
exercised control over them as they were issued time cards, disciplinary action reports and checklists of room
assignments. It was also OHI which terminated their employment after they petitioned for regularization. Prior to their
dismissal, they were subjected to investigations for their alleged involvement in the theft of personal items and cash
belonging to hotel guests and were summarily dismissed by OHI despite lack of evidence.5

For their part, OHI and Limcaoco alleged that Lapastora and Ubalubao were not employees of the company but of Fast
Manpower, with which it had a contract of services, particularly, for the provision of room attendants. They claimed that
Fast Manpower is an independent contractor as it (1) renders janitorial services to various establishments in Metro Manila,
with 500 janitors under its employ; (2) maintains an office where janitors assemble before they are dispatched to their
assignments; (3) exercises the right to select, refuse or change personnel assigned to OHI; and (4) supervises and pays
the wages of its employees.6

Reinforcing OHI’s claims, Fast Manpower reiterated that it is a legitimate manpower agency and that it had a valid
contract of services with OHI, pursuant to which Lapastora and Ubalubao were deployed as room attendants. Lapastora
and Ubalubao were, however, found to have violated house rules and regulations and were reprimanded accordingly. It
denied the employees’ claim that they were dismissed and maintained they were only placed on floating status for lack of
available work assignments.7

Subsequently, on August 22, 2000, a memorandum of agreement was executed, stipulating the transfer of management
of the OER from OHI to HSAI-Raintree, Inc. (HSAI-Raintree). Thereafter, OHI informed the Department of Labor and
Employment (DOLE) of its cessation of operations due to the said change of management and issued notices of
termination to all its employees. This occurrence prompted some union officers and members to file a separate complaint
for illegal dismissal and unfair labor practice against OHI, OCC and HSAI-Raintree, docketed as NLRC NCR CN 30-11-
04400-00 (CA No. 032193-02), entitled Malonie D. Ocampo, et al. v. Olympia Housing, Inc., et al.  (Ocampo v. OHI). This
complaint was, however, dismissed for lack of merit. The complainants therein appealed the said ruling to the NLRC.8

Meanwhile, on May 10, 2002, the Labor Arbiter (LA) rendered a Decision 9 in the instant case, holding that Lapastora and
Ubalubao were regular employees of OHI and that they were illegally dismissed. The dispositive portion of the decision
reads as follows:

WHEREFORE, finding complainants to have been illegally dismissed and as regular employees of [OHI] the latter is
ordered to reinstate complainants to their former position or substantially equal position without loss of seniority rights and
benefits. [OHI] is further ordered to pay complainants backwages, service incentive leave pay and attorney’s fees as
follows:

1. Backwages:

[Lapastora] - P171,616.60 and

[Ubalubao] - P170,573.44 from February 24, 2000 to date of decision which shall further be adjusted until
their actual reinstatement.

2. P3,305.05 - ILP for Lapastora

3. P3,426.04 - SILP for Ubalubao

4. 10% of the money awards as attorney’s fees.

Other claims are dismissed for lack of merit.

88
The claim against [Limcaoco] is hereby dismissed for lack of merit.

SO ORDERED.10

In ruling for the existence of employer-employee relationship, the LA held that OHI exercised control and supervision over
Lapastora and Ubalubao through its supervisor, Anamie Lat. The LA likewise noted that documentary evidence consisting
of time cards, medical cards and medical examination reports all indicated OHI as employer of the said employees.

Moreover, the affidavit of OHI’s housekeeping coordinator, Jaylo, attested to the fact that OHI is the one responsible for
the selection of employees for its housekeeping department. OHI also paid the salaries of the housekeeping staff by
depositing them to their respective ATM accounts. That there is a contract of services between OHI and Fast Manpower
did not rule out the existence of employer-employee relationship between the former and Lapastora and Ubalubao as it
appears that the said contract was a mere ploy to circumvent the application of pertinent labor laws particularly those
relating to security of tenure. The LA pointed out that the business of OHI necessarily requires the services of
housekeeping aides, room boys, chambermaids, janitors and gardeners in its daily operations, which is precisely the line
of work being rendered by Lapastora and Ubalubao.11

Both parties appealed to the NLRC. OHI asseverated that the reinstatement of Lapastora and Ubalubao was no longer
possible in view of the transfer of the management of the OER to HSAI-Raintree.12

On December 28, 2007, the NLRC rendered a decision, dismissing the appeal for lack of merit, the dispositive portion of
which reads as follows:

WHEREFORE, premises considered, the appeals of both the respondents and the complainants are DISMISSED, and the
Decision of the [LA] is hereby AFFIRMED. All other claims are dismissed for lack of merit.13

The NLRC held that OHI is the employer of Lapastora and Ubalubao since Fast Manpower failed to establish the fact that
it is an independent contractor. Further, it ruled that the memorandum of agreement between OCC and HSAI-Raintree did
not render the reinstatement of Lapastora and Ubalubao impossible since a change in the management does not
automatically result in a change of personnel especially when the memorandum itself did not include a provision on that
matter.14

Unyielding, OHI filed its Motion for Reconsideration15 but the NLRC denied the same in a Resolution16 dated February 29,
2008.

In the meantime, in Ocampo v. OHI, the NLRC rendered a Decision17 dated November 22, 2002, upholding the validity of
the cessation of OHI’s operations and the consequent termination of all its employees. It stressed that the cessation of
business springs from the management’s prerogative to do what is necessary for the protection of its investment,
notwithstanding adverse effect on the employees. The discharge of employees for economic reasons does not amount to
unfair labor practice.18 The said ruling of the NLRC was elevated on petition for certiorari  to the CA, which dismissed the
same in Resolutions dated November 28, 2003 19 and June 23, 2004.20 The mentioned resolutions were appealed to this
Court and were docketed as G.R. No. 164160, which was, however, denied in the Resolution 21 dated July 26, 2004 for
failure to comply with procedural rules and lack of reversible error on the part of the CA.

Ruling of the CA

OHI, upon receipt of the adverse decision in NLRC NCR Case No. 30-03-00976-00, filed a Petition for Certiorari22 with the
CA, praying that the Decision dated December 28, 2007 and Resolution dated February 29, 2008 of the NLRC be set
aside. It pointed out that in the related case of Ocampo v. OHI, the NLRC took into consideration the supervening events
which transpired after the supposed termination of Lapastora and Ubalubao, particularly OHI’s closure of business on
October 1, 2000. The NLRC then likewise upheld the validity of the closure of business and the consequent termination of
employees in favor of OHI, holding that the measures taken by the company were proper exercises of management
prerogative. OHI argued that since the said disposition of the NLRC in Ocampo v. OHI  was affirmed by both the CA and
the Supreme Court, the principle of stare decisis  becomes applicable and the issues that had already been resolved in
the said case may no longer be relitigated.23 At any rate, OHI argued that it could not be held liable for illegal dismissal
since Lapastora and Ubalubao were not its employees.24

On April 28, 2009, the CA rendered a Decision25 dismissing the petition, the dispositive portion of which reads as follows:

WHEREFORE, the petition for certiorari is DISMISSED. The NLRC’s Decision dated December 28, 2007 and Resolution
dated February 29, 2008 in NLRC NCR Case No. 30-03-00976-00 (NLRC NCR CA No. 032043-02) are AFFIRMED.

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SO ORDERED.26

The CA ruled that OHI’s cessation of operations on October 1, 2000 is not a supervening event because it transpired long
before the promulgation of the LA’s Decision dated May 10, 2002 in the instant case. In the same manner, the ruling of
the NLRC in Ocampo v. OHI does not constitute stare decisis to the present petition because of the apparent
dissimilarities in the attendant circumstances. For instance, Ocampo v. OHI was founded on the union members’
allegation that OHI’s claim of substantial financial losses to support closure of business lacked evidence, while in the
instant case, Lapastora and Ubalubao claimed illegal dismissal on account of their being placed on floating status after
they were implicated in a theft case. The differences in the facts and issues in the two cases rule out the invocation of the
doctrine. The CA added that the prevailing jurisprudence is that the NLRC decision upholding the validity of the closure of
business and retrenchment of employees resulting therefrom will not preclude it from decreeing the illegality of an
employee’s dismissal. Considering that OHI failed to prove that the memorandum of agreement between OCC and HSAI-
Raintree had any effect on the employment of Lapastora and Ubalubao or that there is any other valid or authorized cause
for their termination from employment, the CA concluded that they were unlawfully dismissed.27

Unyielding, OHI filed the instant petition, reiterating its arguments before the CA. It added that, even assuming that the
facts warrant a finding of illegal dismissal, the cessation of operations of the company is a supervening event that should
limit the award of backwages to Lapastora and Ubalubao until October 1, 2000 only and justify the deletion of the order of
reinstatement. After all, it complied with the notice requirements of the DOLE for a valid closure of business.28

On April 4, 2011, Ubalubao, on her own behalf, filed a Motion to Dismiss/Withdraw Complaint and Waiver,29 stating that
she has decided to accept the financial assistance in the amount of ₱50,000.00 offered by OHI, in lieu of all the monetary
claims she has against the company, as full and complete satisfaction of any judgment that may be subsequently
rendered in her favor. She likewise informed the Court that she had willingly and knowingly executed a quitclaim and
waiver agreement, releasing OHI from any liability. She thus prayed for the dismissal of the complaint she filed against
OHI.

In a Resolution30 dated January 16, 2012, the Court granted Ubalubao’s motion and considered the case closed and
terminated as to her part, leaving Lapastora as the lone respondent in the present petition.

Ruling of the Court

Lapastora was illegally dismissed

Indisputably, Lapastora was a regular employee of OHI. As found by the LA, he has been under the continuous employ of
OHI since March 3, 1995 until he was placed on floating status in February 2000. His uninterrupted employment by OHI,
lasting for more than a year, manifests the continuing need and desirability of his services, which characterize regular
employment. Article 280 of the Labor Code provides as follows:

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

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That, any
employee who has rendered at least one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is employed and his employment shall continue
while such activity exists.

Based on records, OHI is engaged in the business of managing residential and commercial condominium units at the
OER. By the nature of its business, it is imperative that it maintains a pool of housekeeping staff to ensure that the
premises remain an uncluttered place of comfort for the occupants. It is no wonder why Lapastora, among several others,
was continuously employed by OHI precisely because of the indispensability of their services to its business. The fact
alone that Lapastora was allowed to work for an unbroken period of almost five years is all the same a reason to consider
him a regular employee.

The attainment of a regular status of employment guarantees the employee’s security of tenure that he cannot be
unceremoniously terminated from employment. "To justify fully the dismissal of an employee, the employer must, as a
rule, prove that the dismissal was for a just cause and that the employee was afforded due process prior to dismissal. As

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a complementary principle, the employer has the onus of proving with clear, accurate, consistent, and convincing
evidence the validity of the dismissal."31

OHI miserably failed to discharge its burdens thus making Lapastora’s termination illegal.

On the substantive aspect, it appears that OHI failed to prove that Lapastora’s dismissal was grounded on a just or
authorized cause. While it claims that it had called Lapastora’s attention several times for tardiness, unexplained
absences and loitering, it does not appear from the records that the latter had been notified of the company’s
dissatisfaction over his performance and that he was made to explain his supposed infractions. It does not even show
from the records that Lapastora was ever disciplined because of his alleged tardiness. In the same manner, allegations
regarding Lapastora’s involvement in the theft of personal items and cash belonging to hotel guests remained unfounded
suspicions as they were not proven despite OHI’s probe into the incidents.

On the procedural aspect, OHI admittedly failed to observe the twin notice rule in termination cases. As a rule, the
employer is required to furnish the concerned employee two written notices: (1) a written notice served on the employee
specifying the ground or grounds for termination, and giving to said employee reasonable opportunity within which to
explain his side; and (2) a written notice of termination served on the employee indicating that upon due consideration of
all the circumstances, grounds have been established to justify his termination.32 In the present case, Lapastora was not
informed of the charges against him and was denied the opportunity to disprove the same. He was summarily terminated
from employment.

OHI argues that no formal notices of investigation, notice of charges or termination was issued to Lapastora since he was
not an employee of the company but of Fast Manpower.

The issue of employer-employee relationship between OHI and Lapastora had been deliberated and ruled upon by the LA
and the NLRC in the affirmative on the basis of the evidence presented by the parties. The LA ruled that Lapastora was
under the effective control and supervision of OHI through the company supervisor. She gave credence to the pertinent
records of Lapastora’s employment, i.e., timecards, medical records and medical examinations, which all indicated OHI as
his employer. She likewise noted Fast Manpower’s failure to establish its capacity as independent contractor based on the
standards provided by law.

That there is an existing contract of services between OHI and Fast Manpower where both parties acknowledged the
latter as the employer of the housekeeping staff, including Lapastora, did not alter established facts proving the contrary.
The parties cannot evade the application of labor laws by mere expedient of a contract considering that labor and
employment are matters imbued with public interest. It cannot be subjected to the agreement of the parties but rather on
existing laws designed specifically for the protection of labor. Thus, it had been repeatedly stressed in a number of
jurisprudence that "[a] party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of
its business, i.e., whether as labor-only contractor or as job contractor, it being crucial that its character be measured in
terms of and determined by the criteria set by statute."33

The Court finds no compelling reason to deviate from the findings of the LA and NLRC, especially in this case when the
same was affirmed by the CA. It is settled that findings of fact made by LAs, when affirmed by the NLRC, are entitled not
only to great respect but even finality and are binding on this Court especially when they are supported by substantial
evidence.34

The principle of stare decisis  is not applicable

Still, OHI argues that the legality of the closure of its business had been the subject of the separate case of Ocampo v.
OHI, where the NLRC upheld the validity of the termination of all the employees of OHI due to cessation of operations. It
asserts that since the ruling was affirmed by the CA and, eventually by this Court, the principle of stare decisis  becomes
applicable. Considering the closure of its business, Lapastora can no longer be reinstated and should instead be awarded
backwages up to the last day of operations of the company only, specifically on October 1, 2000.35

In Ting v. Velez-Ting,36 the Court elaborated on the principle of stare decisis, thus:

The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by this Court in its final
decisions. It is based on the principle that once a question of law has been examined and decided, it should be deemed
settled and closed to further argument. Basically, it is a bar to any attempt to relitigate the same issues, necessary for two
simple reasons: economy and stability. In our jurisdiction, the principle is entrenched in Article 8 of the Civil
Code.37 (Citations omitted)

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Verily, the import of the principle is that questions of law that have been decided by this Court and applied in resolving
earlier cases shall be deemed the prevailing rule which shall be binding on future cases dealing on the same intricacies.
Apart from saving the precious time of the Court, the application of this principle is essential to the consistency of the
rulings of the Court which is significant in its role as the final arbiter of judicial controversies.

The CA correctly ruled that the principle of stare decisis finds no relevance in the present case. To begin with, there is no
doctrine of law that is similarly applicable in both the present case and in Ocampo v. OHI. While both are illegal dismissal
cases, they are based on completely different sets of facts and involved distinct issues. In the instant case, Lapastora
cries illegal dismissal after he was arbitrarily placed on a floating status on mere suspicion that he was involved in theft
incidents within the company premises without being given the opportunity to explain his side or any formal investigation
of his participation. On the other hand, in Ocampo v. OHI, the petitioners therein questioned the validity of OHI’s closure
of business and the eventual termination of all the employees. Thus, the NLRC ruled upon both cases differently.

Nonetheless, the Court finds the recognition of the validity of OHI’s cessation of business in the Decision dated November
22, 2002 of the NLRC, which was affirmed by the CA and this Court, a supervening event which inevitably alters the
judgment award in favor of Lapastora. The NLRC noted that OHI complied with all the statutory requirements, including
the filing of a notice of closure with the DOLE and furnishing written notices of termination to all employees effective 30
days from receipt.38 OHI likewise presented financial statements substantiating its claim that it is operating at a loss and
that the closure of business is necessary to avert further losses. 39 The action of the OHI, the NLRC held, is a valid
exercise of management prerogative.

Thus, while the finding of illegal dismissal in favor of Lapastora subsists, his reinstatement was rendered a legal
impossibility with OHI’s closure of business.1âwphi1 In Galindez v. Rural Bank of Llanera, Inc.,40 the Court noted:

Reinstatement presupposes that the previous position from which one had been removed still exists or there is an unfilled
position more or less of similar nature as the one previously occupied by the employee. Admittedly, no such position is
available. Reinstatement therefore becomes a legal impossibility. The law cannot exact compliance with what is
impossible.41

Considering the impossibility of Lapastora’s reinstatement, the payment of separation pay, in lieu thereof, is proper. The
amount of separation pay to be given to Lapastora must be computed from March 1995, the time he commenced
employment with OHI, until the time when the company ceased operations in October 2000.42 As a twin relief, Lapastora is
likewise entitled to the payment of backwages, computed from the time he was unjustly dismissed, or from February 24,
2000 until October 1, 2000 when his reinstatement was rendered impossible without fault on his part.43

Finally, for OHI’s failure to prove the fact of payment, the Court sustains the award for the payment of service incentive
leave pay and 13th month pay. The rule, as stated in Mantle Trading Services, Inc. and/or Del Rosario v. NLRC, et al.,44 is
that "the burden rests on the employer to prove payment, rather than on the employee to prove nonpayment. The reason
for the rule is that the pertinent personnel files, payrolls, records, remittances and other similar documents — which will
show that overtime, differentials, service incentive leave and other claims of workers have been paid — are not in the
possession of the employee but in the custody and absolute control of the employer." 45 Considering that OHI did not
dispute Lapastora’s claim for nonpayment of the mentioned benefits and opted to disclaim employer-employee
relationship, the presumption is that the said claims were not paid.

The award for attorney’s fees of 10% of the monetary awards is likewise sustained considering that Lapastora was forced
to litigate and, thus, incurred expenses to protect his rights and interests.46

WHEREFORE, the Decision dated April 28, 2009 of the Court of Appeals in CA-G.R. SP No. 103699 is AFFIRMED with
MODIFICATION in that OHI is hereby ORDERED to pay Allan Lapastora the following: (1) separation pay, in lieu of
reinstatement, computed from the time of his employment until the time of its closure of business, or from March 1995 to
October 2000; (2) backwages, computed from the time of illegal dismissal until cessation of business, or from February
24, 2000 to October 1, 2000; (3) service incentive leave pay and 13th month pay; and (4) attorney's fees.

SO ORDERED.

G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,

vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA
NOGUERA, respondents-appellees.

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SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are
beyond dispute:

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct.
19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc.,
represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as appellants,
the Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St.,
Manila for the former-s use as a branch office. In the said contract the party of the third part held herself
solidarily liable with the party of the part for the prompt payment of the monthly rental agreed on. When
the branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist
World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go
to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been
informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the
branch office was anyhow losing, the Tourist World Service considered closing down its office. This was
firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961
(Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of the Tourist World
Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the properties
of the Tourist World Service then located at the said branch office. It further appears that on Jan. 3, 1962,
the contract with the appellees for the use of the Branch Office premises was terminated and while the
effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used
it since Nov. 1961. Because of this, and to comply with the mandate of the Tourist World Service, the
corporate secretary Gabino Canilao went over to the branch office, and, finding the premises locked, and,
being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests
of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could
enter the locked premises, a complaint wall filed by the herein appellants against the appellees with a
prayer for the issuance of mandatory preliminary injunction. Both appellees answered with counterclaims.
For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without
prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which
the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of
her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues
were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina
Sevilla were jointly heard following which the court a quo ordered both cases dismiss for lack of merit, on
the basis of which was elevated the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT

MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S
ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF
EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS
ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT
APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO
THEIR OWN HANDS.

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 V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S
RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A.
MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA
SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on
Ermita;

2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees
TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and
between her and appellee TWS with offices at the Ermita branch office and that she was not an employee
of the TWS to the end that her relationship with TWS was one of a joint business venture appellant made
declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and
nose specialist as well as a imediately columnist had been in the travel business prior to
the establishment of the joint business venture with appellee Tourist World Service, Inc.
and appellee Eliseo Canilao, her compadre, she being the godmother of one of his
children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn.
February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960
(Exh. 'A') covering the premises at A. Mabini St., she expressly warranting and holding
[sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the prompt
payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn.
Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service,
Inc., which had its own, separate office located at the Trade & Commerce Building; nor
was she an employee thereof, having no participation in nor connection with said
business at the Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings
her own business (and not for any of the business of appellee Tourist World Service, Inc.)
obtained from the airline companies. She shared the 7% commissions given by the airline
companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for
herself (pp. 18 tsn.  Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St.
office, paying for the salary of an office secretary, Miss Obieta, and other sundry
expenses, aside from desicion the office furniture and supplying some of fice furnishings
(pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental
and other expenses in consideration for the 3% split in the co procured by appellant Mrs.
Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant Mrs. Sevilla would be given the
title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo
Canilao admit that it was just a title for dignity (p. 36 tsn. June 18, 1965- testimony of
appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary
Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist
World Service, Inc. and as such was designated manager.1

94
 xxx xxx xxx

The trial court2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc.,
being the true lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the
petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts
of her employer. 4 The respondent Court of Appeal 5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN
HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE
KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA
OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO
IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE),
IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE
TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP.
7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED
THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON
ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT
VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST
WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC.6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist
World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether
or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the
appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the said
appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc.7 Tourist
World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its
Ermita "branch" office and that inferentially, she had no say on the lease executed with the private respondent, Segundina
Noguera. The petitioners contend, however, that relation between the between parties was one of joint venture, but
concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of
Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the padlocking
now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc.,
maintains, that the relation between the parties was in the character of employer and employee, the courts would have
been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations,
later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general,
we have relied on the so-called right of control test, "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." 10 Subsequently,
however, we have considered, in addition to the standard of right-of control, the existing economic conditions prevailing

95
between the parties, like the inclusion of the employee in the payrolls, in determining the existence of an employer-
employee relationship.11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World
Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place,
under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental
payments, an arrangement that would be like claims of a master-servant relationship. True the respondent Court would
later minimize her participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist
World, since in any case, a true employee cannot be made to part with his own money in pursuance of his employer's
business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some other relation, but
certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the
herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of
Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World
Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from
airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she
earned compensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we
said, employment is determined by the right-of-control test and certain economic parameters. But titles are weak
indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own,
that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not
recognize the existence of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist
World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s
control over the manner in which the business was run. A joint venture, including a partnership, presupposes generally a
of standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital
or property contributed 15 and where each party exercises equal rights in the conduct of the business.16 furthermore, the
parties did not hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist
World Service, Inc. 17in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent,
Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of
this contract that the agent renders services "in representation or on behalf of another. 18 In the case at bar, Sevilla
solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she
received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of
November 28, 1961, pre-assumed her principal's authority as owner of the business undertaking. We are convinced,
considering the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal
agent relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the
parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for
mutual interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as
such, she had acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for
the operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her
own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she
earned as a result of her business transactions, but one that extends to the very subject matter of the power of
management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal.
Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and
padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence
showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch office. 20 Yet, what cannot be
denied is the fact that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it
had no hand in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it
must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist
World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract
96
without notice to its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner,
Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third party in charge of
rental payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would
eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner,
Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court
speaks of alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch
had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist
World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the
private respondents ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the
respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " 22 It is
strange indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five months earlier.
While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but
surely, it was aware that after office hours, she could not have been anywhere near the premises. Capping these series of
"offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving
Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be
disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World
Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches
of contract where the defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its
brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the
Civil Code, in relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.24

ART. 2219. Moral damages25 may be recovered in the following and analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a
solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had
connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held
liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, 25 and
P5,000.00 as nominal 26 and/or temperate27 damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the
respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc.,
and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as
and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for
nominal and/or temperate damages.

Costs against said private respondents.

SO ORDERED.

97
G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO TAKAHASHI, TIMOTEO
ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA, Respondents.

DECISION

98
YNARES-SANTIAGO, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision and
Resolution of the Court of Appeals dated October 29, 2004 1 and October 7, 2005, 2 respectively, in CA-G.R. SP No.
78515 dismissing the complaint for constructive dismissal filed by herein petitioner Angelina Francisco. The appellate
court reversed and set aside the Decision of the National Labor Relations Commission (NLRC) dated April 15, 2003, 3 in
NLRC NCR CA No. 032766-02 which affirmed with modification the decision of the Labor Arbiter dated July 31, 2002, 4 in
NLRC-NCR Case No. 30-10-0-489-01, finding that private respondents were liable for constructive dismissal.

In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was designated as Accountant and
Corporate Secretary and was assigned to handle all the accounting needs of the company. She was also designated as
Liaison Officer to the City of Makati to secure business permits, construction permits and other licenses for the initial
operation of the company. 5

Although she was designated as Corporate Secretary, she was not entrusted with the corporate documents; neither did
she attend any board meeting nor required to do so. She never prepared any legal document and never represented the
company as its Corporate Secretary. However, on some occasions, she was prevailed upon to sign documentation for the
company. 6

In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as accountant in lieu of
petitioner. As Acting Manager, petitioner was assigned to handle recruitment of all employees and perform management
administration functions; represent the company in all dealings with government agencies, especially with the Bureau of
Internal Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to administer all other
matters pertaining to the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. 7

For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her salary was P27,500.00
plus P3,000.00 housing allowance and a 10% share in the profit of Kasei Corporation. 8

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that she was required to sign
a prepared resolution for her replacement but she was assured that she would still be connected with Kasei Corporation.
Timoteo Acedo, the designated Treasurer, convened a meeting of all employees of Kasei Corporation and announced
that nothing had changed and that petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji
Kamura and in charge of all BIR matters. 9

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to September 2001 for a
total reduction of P22,500.00 as of September 2001. Petitioner was not paid her mid-year bonus allegedly because the
company was not earning well. On October 2001, petitioner did not receive her salary from the company. She made
repeated follow-ups with the company cashier but she was advised that the company was not earning well. 10

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she was informed that she
is no longer connected with the company. 11

Since she was no longer paid her salary, petitioner did not report for work and filed an action for constructive dismissal
before the labor arbiter.

Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged that petitioner was
hired in 1995 as one of its technical consultants on accounting matters and act concurrently as Corporate Secretary. As
technical consultant, petitioner performed her work at her own discretion without control and supervision of Kasei
Corporation. Petitioner had no daily time record and she came to the office any time she wanted. The company never
interfered with her work except that from time to time, the management would ask her opinion on matters relating to her
profession. Petitioner did not go through the usual procedure of selection of employees, but her services were engaged
through a Board Resolution designating her as technical consultant. The money received by petitioner from the
corporation was her professional fee subject to the 10% expanded withholding tax on professionals, and that she was not
one of those reported to the BIR or SSS as one of the company’s employees. 12

Petitioner’s designation as technical consultant depended solely upon the will of management. As such, her consultancy
may be terminated any time considering that her services were only temporary in nature and dependent on the needs of
the corporation.

To prove that petitioner was not an employee of the corporation, private respondents submitted a list of employees for the
years 1999 and 2000 duly received by the BIR showing that petitioner was not among the employees reported to the BIR,

99
as well as a list of payees subject to expanded withholding tax which included petitioner. SSS records were also
submitted showing that petitioner’s latest employer was Seiji Corporation. 13

The Labor Arbiter found that petitioner was illegally dismissed, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. finding complainant an employee of respondent corporation;

2. declaring complainant’s dismissal as illegal;

3. ordering respondents to reinstate complainant to her former position without loss of seniority rights and jointly and
severally pay complainant her money claims in accordance with the following computation:

a. Backwages 10/2001 – 07/2002 275,000.00

(27,500 x 10 mos.)

b. Salary Differentials (01/2001 – 09/2001) 22,500.00

c. Housing Allowance (01/2001 – 07/2002) 57,000.00

d. Midyear Bonus 2001 27,500.00

e. 13th Month Pay 27,500.00

f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00

g. Moral and exemplary damages 100,000.00

h. 10% Attorney’s fees 87,076.50

P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay with additional
backwages that would accrue up to actual payment of separation pay.

SO ORDERED. 14

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the dispositive portion of which
reads:

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay computed at one month per year of service in addition to
full backwages from October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10% share in profit in the respective accounts of
P100,000.00 and P361,175.00 are deleted;

3) The award of 10% attorney’s fees shall be based on salary differential award only;

4) The awards representing salary differentials, housing allowance, mid year bonus and 13th month pay are AFFIRMED.

SO ORDERED. 15

On appeal, the Court of Appeals reversed the NLRC decision, thus:

100
WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor Relations Commissions dated
April 15, 2003 is hereby REVERSED and SET ASIDE and a new one is hereby rendered dismissing the complaint filed by
private respondent against Kasei Corporation, et al. for constructive dismissal.

SO ORDERED. 16

The appellate court denied petitioner’s motion for reconsideration, hence, the present recourse.

The core issues to be resolved in this case are (1) whether there was an employer-employee relationship between
petitioner and private respondent Kasei Corporation; and if in the affirmative, (2) whether petitioner was illegally
dismissed.

Considering the conflicting findings by the Labor Arbiter and the National Labor Relations Commission on one hand, and
the Court of Appeals on the other, there is a need to reexamine the records to determine which of the propositions
espoused by the contending parties is supported by substantial evidence. 17

We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test to determine the existence
of an employer-employee relation. Generally, courts have relied on the so-called right of control test 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. In addition to the standard of right-of-control, the existing economic conditions prevailing
between the parties, like the inclusion of the employee in the payrolls, can help in determining the existence of an
employer-employee relationship.

However, in certain cases the control test is not sufficient to give a complete picture of the relationship between the
parties, owing to the complexity of such a relationship where several positions have been held by the worker. There are
instances when, aside from the employer’s power to control the employee with respect to the means and methods by
which the work is to be accomplished, economic realities of the employment relations help provide a comprehensive
analysis of the true classification of the individual, whether as employee, independent contractor, corporate officer or
some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employer’s power to control
the employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying
economic realities of the activity or relationship.

This two-tiered test would provide us with a framework of analysis, which would take into consideration the totality of
circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate in this
case where there is no written agreement or terms of reference to base the relationship on; and due to the complexity of
the relationship based on the various positions and responsibilities given to the worker over the period of the latter’s
employment.

The control test initially found application in the case of Viaña v. Al-Lagadan and Piga, 19 and lately in Leonardo v. Court
of Appeals, 20 where we held that there is an employer-employee relationship when the person for whom the services are
performed reserves the right to control not only the end achieved but also the manner and means used to achieve that
end.

In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic conditions prevailing between
the parties, in addition to the standard of right-of-control like the inclusion of the employee in the payrolls, to give a clearer
picture in determining the existence of an employer-employee relationship based on an analysis of the totality of economic
circumstances of the worker.

Thus, the determination of the relationship between employer and employee depends upon the circumstances of the
whole economic activity, 22 such as: (1) the extent to which the services performed are an integral part of the employer’s
business; (2) the extent of the worker’s investment in equipment and facilities; (3) the nature and degree of control
exercised by the employer; (4) the worker’s opportunity for profit and loss; (5) the amount of initiative, skill, judgment or
foresight required for the success of the claimed independent enterprise; (6) the permanency and duration of the
relationship between the worker and the employer; and (7) the degree of dependency of the worker upon the employer for
his continued employment in that line of business. 23

The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his
continued employment in that line of business. 24 In the United States, the touchstone of economic reality in analyzing
possible employment relationships for purposes of the Federal Labor Standards Act is dependency. 25 By analogy, the

101
benchmark of economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to
be the economic dependence of the worker on his employer.

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation because she was under
the direct control and supervision of Seiji Kamura, the corporation’s Technical Consultant. She reported for work regularly
and served in various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate
Secretary, with substantially the same job functions, that is, rendering accounting and tax services to the company and
performing functions necessary and desirable for the proper operation of the corporation such as securing business
permits and other licenses over an indefinite period of engagement.

Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation
because she had served the company for six years before her dismissal, receiving check vouchers indicating her
salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security
contributions from August 1, 1999 to December 18, 2000. 26 When petitioner was designated General Manager,
respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner’s membership in the SSS as
manifested by a copy of the SSS specimen signature card which was signed by the President of Kasei Corporation and
the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an employer-employee
relationship between petitioner and respondent corporation. 27

It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment
in the latter’s line of business.

In Domasig v. National Labor Relations Commission, 28 we held that in a business establishment, an identification card is
provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that
issues it. Together with the cash vouchers covering petitioner’s salaries for the months stated therein, these matters
constitute substantial evidence adequate to support a conclusion that petitioner was an employee of private respondent.

We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the SSS is proof that the latter
were the former’s employees. The coverage of Social Security Law is predicated on the existence of an employer-
employee relationship.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that petitioner never acted as
Corporate Secretary and that her designation as such was only for convenience. The actual nature of petitioner’s job was
as Kamura’s direct assistant with the duty of acting as Liaison Officer in representing the company to secure construction
permits, license to operate and other requirements imposed by government agencies. Petitioner was never entrusted with
corporate documents of the company, nor required to attend the meeting of the corporation. She was never privy to the
preparation of any document for the corporation, although once in a while she was required to sign prepared
documentation for the company. 30

The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001 affidavit has been allegedly
withdrawn by Kamura himself from the records of the case. 31 Regardless of this fact, we are convinced that the
allegations in the first affidavit are sufficient to establish that petitioner is an employee of Kasei Corporation.

Granting arguendo, that the second affidavit validly repudiated the first one, courts do not generally look with favor on any
retraction or recanted testimony, for it could have been secured by considerations other than to tell the truth and would
make solemn trials a mockery and place the investigation of the truth at the mercy of unscrupulous witnesses. 32 A
recantation does not necessarily cancel an earlier declaration, but like any other testimony the same is subject to the test
of credibility and should be received with caution. 33

Based on the foregoing, there can be no other conclusion that petitioner is an employee of respondent Kasei Corporation.
She was selected and engaged by the company for compensation, and is economically dependent upon respondent for
her continued employment in that line of business. Her main job function involved accounting and tax services rendered to
respondent corporation on a regular basis over an indefinite period of engagement. Respondent corporation hired and
engaged petitioner for compensation, with the power to dismiss her for cause. More importantly, respondent corporation
had the power to control petitioner with the means and methods by which the work is to be accomplished.

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month from January to
September 2001. This amounts to an illegal termination of employment, where the petitioner is entitled to full backwages.
Since the position of petitioner as accountant is one of trust and confidence, and under the principle of strained relations,
petitioner is further entitled to separation pay, in lieu of reinstatement. 34

102
A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an
involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible,
unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination,
insensibility or disdain by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. Florendo-
Flores, 36 we ruled that where an employee ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment rendering it impossible for such employee to
continue working for her employer. Hence, her severance from the company was not of her own making and therefore
amounted to an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even
as we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are
mindful of the fact that the policy of the law is to apply the Labor Code to a greater number of employees. This would
enable employees to avail of the benefits accorded to them by law, in line with the constitutional mandate giving maximum
aid and protection to labor, promoting their welfare and reaffirming it as a primary social economic force in furtherance of
social justice and national development.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals dated October 29, 2004
and October 7, 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the
National Labor Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case
is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Francisco’s full backwages from the time
she was illegally terminated until the date of finality of this decision, and separation pay representing one-half month pay
for every year of service, where a fraction of at least six months shall be considered as one whole year.

SO ORDERED.

G.R. No. 146530            January 17, 2005

103
PEDRO CHAVEZ, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING, INC. and ALVIN LEE, Plant
Manager, respondents.

DECISION

CALLEJO, SR., J.:

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

The case stemmed from the following facts:

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

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

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

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

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

1. That the inland transport delivery/hauling activities to be performed by the contractor to the principal, shall only
cover travel route from Mariveles to Metro Manila. Otherwise, any change to this travel route shall be subject to
further agreement by the parties concerned.

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

a) If the hauling or delivery service shall require a truck of six wheeler, the payment on a per trip basis
from Mariveles to Metro Manila shall be THREE HUNDRED PESOS (₱300.00) and EFFECTIVE
December 15, 1984.

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

104
 3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at least two (2) helpers;

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

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

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

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

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

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

The contract of service invoked by the respondents was declared null and void as it constituted a circumvention of the
constitutional provision affording full protection to labor and security of tenure. The Labor Arbiter found that the petitioner’s
dismissal was anchored on his insistent demand to be regularized. Hence, for lack of a valid and just cause therefor and
for their failure to observe the due process requirements, the respondents were found guilty of illegal dismissal. The
dispositive portion of the Labor Arbiter’s decision states:

WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent SUPREME PACKAGING,
INC. and/or MR. ALVIN LEE, Plant Manager, with business address at BEPZ, Mariveles, Bataan guilty of illegal dismissal,
ordering said respondent to pay complainant his separation pay equivalent to one (1) month pay per year of service based
on the average monthly pay of ₱10,800.00 in lieu of reinstatement as his reinstatement back to work will not do any good
between the parties as the employment relationship has already become strained and full backwages from the time his
compensation was withheld on February 23, 1995 up to January 31, 1997 (cut-off date) until compliance, otherwise, his
backwages shall continue to run. Also to pay complainant his 13th month pay, night shift differential pay and service
incentive leave pay hereunder computed as follows:

a) Backwages ………………….. ₱248,400.00

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

c) 13th month pay ………….……₱ 10,800.00

d) Service Incentive Leave Pay .. 2,040.00

TOTAL ₱401,640.00

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

105
SO ORDERED.3

The respondents seasonably interposed an appeal with the NLRC. However, the appeal was dismissed by the NLRC in
its Decision4 dated January 27, 1998, as it affirmed in toto the decision of the Labor Arbiter. In the said decision, the
NLRC characterized the contract of service between the respondent company and the petitioner as a "scheme" that was
resorted to by the respondents who, taking advantage of the petitioner’s unfamiliarity with the English language and/or
legal niceties, wanted to evade the effects and implications of his becoming a regularized employee.5

The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC. Acting thereon, the NLRC
rendered another Decision6 dated July 10, 1998, reversing its earlier decision and, this time, holding that no employer-
employee relationship existed between the respondent company and the petitioner. In reconsidering its earlier decision,
the NLRC stated that the respondents did not exercise control over the means and methods by which the petitioner
accomplished his delivery services. It upheld the validity of the contract of service as it pointed out that said contract was
silent as to the time by which the petitioner was to make the deliveries and that the petitioner could hire his own helpers
whose wages would be paid from his own account. These factors indicated that the petitioner was an independent
contractor, not an employee of the respondent company.

The NLRC ruled that the contract of service was not intended to circumvent Article 280 of the Labor Code on the
regularization of employees. Said contract, including the fixed period of employment contained therein, having been
knowingly and voluntarily entered into by the parties thereto was declared valid citing Brent School, Inc. v. Zamora.7 The
NLRC, thus, dismissed the petitioner’s complaint for illegal dismissal.

The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied by the NLRC in its Resolution dated
September 7, 1998. He then filed with this Court a petition for certiorari, which was referred to the CA following the ruling
in St. Martin Funeral Home v. NLRC .8

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

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

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

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

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

106
The fact that the petitioner had been with the respondent company for more than ten years was, according to the CA, of
no moment because his status was determined not by the length of service but by the contract of service. This contract,
not being contrary to morals, good customs, public order or public policy, should be given the force and effect of law as
between the respondent company and the petitioner. Consequently, the CA reinstated the July 10, 1998 Decision of the
NLRC dismissing the petitioner’s complaint for illegal dismissal.

Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000 Resolution of the appellate court
alleging that:

(A)

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

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

(B)

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

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

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

The elements to determine the existence of an employment relationship are: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the employer’s power to control the employee’s
conduct.11 The most important element is the employer’s control of the employee’s conduct, not only as to the result of the
work to be done, but also as to the means and methods to accomplish it.12 All the four elements are present in this case.

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

Second. Wages are defined as "remuneration or earnings, however designated, capable of being expressed in terms of
money, whether fixed or ascertained on a time, task, piece or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to
be done, or for service rendered or to be rendered."13 That the petitioner was paid on a per trip basis is not significant.
This is merely a method of computing compensation and not a basis for determining the existence or absence of
employer-employee relationship. One may be paid on the basis of results or time expended on the work, and may or may
not acquire an employment status, depending on whether the elements of an employer-employee relationship are present
or not.14 In this case, it cannot be gainsaid that the petitioner received compensation from the respondent company for the
services that he rendered to the latter.

Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his employees by means of
payroll.15 The payroll should show, among other things, the employee’s rate of pay, deductions made, and the amount
actually paid to the employee. Interestingly, the respondents did not present the payroll to support their claim that the
petitioner was not their employee, raising speculations whether this omission proves that its presentation would be
adverse to their case.16

Third. The respondents’ power to dismiss the petitioner was inherent in the fact that they engaged the services of the
petitioner as truck driver. They exercised this power by terminating the petitioner’s services albeit in the guise of
"severance of contractual relation" due allegedly to the latter’s breach of his contractual obligation.

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

107
independence and freedom from the control and supervision of his principal, an employee is subject to the employer’s
power to control the means and methods by which the employee’s work is to be performed and accomplished.18

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

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

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

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

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

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

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

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

These circumstances, to the Court’s mind, prove that the respondents exercised control over the means and methods by
which the petitioner accomplished his work as truck driver of the respondent company. On the other hand, the Court is
hard put to believe the respondents’ allegation that the petitioner was an independent contractor engaged in providing
delivery or hauling services when he did not even own the truck used for such services. Evidently, he did not possess
substantial capitalization or investment in the form of tools, machinery and work premises. Moreover, the petitioner
performed the delivery services exclusively for the respondent company for a continuous and uninterrupted period of ten
years.

The contract of service to the contrary notwithstanding, the factual circumstances earlier discussed indubitably establish
the existence of an employer-employee relationship between the respondent company and the petitioner. It bears
stressing that the existence of an employer-employee relationship cannot be negated by expressly repudiating it in a
contract and providing therein that the employee is an independent contractor when, as in this case, the facts clearly show
otherwise. Indeed, the employment status of a person is defined and prescribed by law and not by what the parties say it
should be.22

Having established that there existed an employer-employee relationship between the respondent company and the
petitioner, the Court shall now determine whether the respondents validly dismissed the petitioner.

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

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

108
The Court agrees with the following findings and conclusion of the Labor Arbiter:

… As against the gratuitous allegation of the respondent that complainant was not dismissed from the service but due to
complainant’s breach of their contractual relation, i.e., his violation of the terms and conditions of the contract, we are very
much inclined to believe complainant’s story that his dismissal from the service was anchored on his insistent demand
that he be considered a regular employee. Because complainant in his right senses will not just abandon for that reason
alone his work especially so that it is only his job where he depends chiefly his existence and support for his family if he
was not aggrieved by the respondent when he was told that his services as driver will be terminated on February 23,
1995.28

Thus, the lack of a valid and just cause in terminating the services of the petitioner renders his dismissal illegal. Under
Article 279 of the Labor Code, an employee who is unjustly dismissed is entitled to reinstatement, without loss of seniority
rights and other privileges, and to the payment of full backwages, inclusive of allowances, and other benefits or their
monetary equivalent, computed from the time his compensation was withheld from him up to the time of his actual
reinstatement.29 However, as found by the Labor Arbiter, the circumstances obtaining in this case do not warrant the
petitioner’s reinstatement. A more equitable disposition, as held by the Labor Arbiter, would be an award of separation
pay equivalent to one month for every year of service from the time of his illegal dismissal up to the finality of this
judgment in addition to his full backwages, allowances and other benefits.

WHEREFORE, the instant petition is GRANTED. The Resolution dated December 15, 2000 of the Court of Appeals
reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is REVERSED and SET ASIDE. The Decision dated
February 3, 1997 of the Labor Arbiter in NLRC Case No. RAB-III-02-6181-5, finding the respondents guilty of illegally
terminating the employment of petitioner Pedro Chavez, is REINSTATED.

SO ORDERED.

109
G.R. No. 149011               June 28, 2005

SAN MIGUEL CORPORATION, petitioner

vs.
PROSPERO A. ABALLA, BONNY J. ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE, CELANIO D.
ARROLLADO, EDDIE A. ARROLLADO, REYNALDO T. ASONG, RENE A. ASPERA, JOEL D. BALATERIA, JOSEPH
D. BALATERIA, JOSE JOLLEN BALLADOS, WILFREDO B. BASAS, EDWIN E. BEATINGO, SONNY V. BERONDO,
CHRISTOPHER D. BRIONES, MARLON D. BRIONES, JOEL C. BOOC, ENRIQUE CABALIDA, DIOSCORO R.
CAHINOD, ERNESTO P. CAHINOD, RENANTE S. CAHINOD, RUDERICK R. CALIXTON, RONILO C. CALVEZ,
PANCHO CAÑETE, JUNNY CASTEL, JUDY S. CELESTE, ROMEO CHUA, DANILO COBRA, ARMANDO C.
DEDOYCO, JOEY R. DELA CRUZ, JOHN D. DELFIN, RENELITO P. DEON, ARNEL C. DE PEDRO, ORLANDO
DERDER, CLIFFORD A. DESPI, RAMIE A. DESPI, SR., VICTOR A. DESPI, ROLANDO L. DINGLE, ANTONIO D.
DOLORFINO, LARRY DUMA-OP, NOEL DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA, ROMMEL
ESTREBOR, RIC E. GALPO, MANSUETO GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ, ROBERTLY Y.
HOFILEÑA, ROBERTO HOFILEÑA, VICENTE INDENCIO, JONATHAN T. INVENTOR, PETER PAUL T. INVENTOR,
JOEBERT G. LAGARTO, RENATO LAMINA, ALVIN LAS POBRES, ALBERT LAS POBRES, LEONARD
LEMONCHITO, JERRY LIM, JOSE COLLY S. LUCERO, ROBERTO E. MARTIL, HERNANDO MATILLANO, VICENTE
M. MATILLANO, TANNY C. MENDOZA, WILLIAM P. NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO, ROBERTO
G. OTERO, BIENVENIDO C. PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG, BERNIE O. PILLO,
ALBERTO O. PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON, RAUL A. RUBIO, HENRY S. SAMILLANO, EDGAR
SANTIAGO, ROLAND B. SANTILLANA, ROLDAN V. SAYAM, JOSEPH S. SAYSON, RENE SUARNABA, ELMAR
TABLIGAN, JERRY D. TALITE, OSCAR TALITE, WINIFREDO TALITE, CAMILO N. TEMPOROSA, JOSE
TEMPOROSA, RANDY TINGALA, TRISTAN A. TINGSON, ROGELIO TOMESA, DIONISE A. TORMIS, ADELINO C.
UNTAL, FELIX T. UNTAL, RONILO E. VISTA, JOAN C. VIYO and JOSE JOFER C. VIYO and the COURT OF
APPEALS, respondents.

DECISION

CARPIO-MORALES,  J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas Area Manager for
Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose Cooperative (Sunflower), represented by the
Chairman of its Board of Directors Roy G. Asong, entered into a one-year Contract of Services1 commencing on January
1, 1993, to be renewed on a month to month basis until terminated by either party. The pertinent provisions of the contract
read:

1. The cooperative agrees and undertakes to perform and/or provide for the company, on a non-exclusive basis
for a period of one year the following services for the Bacolod Shrimp Processing Plant:

A. Messengerial/Janitorial

B. Shrimp Harvesting/Receiving

C. Sanitation/Washing/Cold Storage2

2. To carry out the undertaking specified in the immediately preceding paragraph, the cooperative shall employ
the necessary personnel and provide adequate equipment, materials, tools and apparatus, to efficiently, fully and
speedily accomplish the work and services undertaken by the cooperative. xxx

3. In consideration of the above undertaking the company expressly agrees to pay the cooperative the following
rates per activity:

A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five Hundred Pesos
Only (P19,500.00)

110
 B. Harvesting/Shrimp Receiving. – Piece rate of P0.34/kg. Or P100.00 minimum per person/activity
whichever is higher, with provisions as follows:

P25.00 Fixed Fee per person

Additional meal allowance P15.00 every meal time in case harvest duration exceeds one meal.

This will be pre-set every harvest based on harvest plan approved by the Senior Buyer.

C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.

One-half of the payment for all services rendered shall be payable on the fifteenth and the other half, on
the end of each month. The cooperative shall pay taxes, fees, dues and other impositions that shall
become due as a result of this contract.

The cooperative shall have the entire charge, control and supervision of the work and services herein
agreed upon. xxx

4. There is no employer-employee relationship between the company and the cooperative, or the cooperative and
any of its members, or the company and any members of the cooperative. The cooperative is an association of
self-employed members, an independent contractor, and an entrepreneur. It is subject to the control and direction
of the company only as to the result to be accomplished by the work or services herein specified, and not as to
the work herein contracted. The cooperative and its members recognize that it is taking a business risk in
accepting a fixed service fee to provide the services contracted for and its realization of profit or loss from its
undertaking, in relation to all its other undertakings, will depend on how efficiently it deploys and fields its
members and how they perform the work and manage its operations.

5. The cooperative shall, whenever possible, maintain and keep under its control the premises where the work
under this contract shall be performed.

6. The cooperative shall have exclusive discretion in the selection, engagement and discharge of its member-
workers or otherwise in the direction and control thereof. The determination of the wages, salaries and
compensation of the member-workers of the cooperative shall be within its full control. It is further understood that
the cooperative is an independent contractor, and as such, the cooperative agrees to comply with all the
requirements of all pertinent laws and ordinances, rules and regulations. Although it is understood and agreed
between the parties hereto that the cooperative, in the performance of its obligations, is subject to the control or
direction of the company merely as a (sic) result to be accomplished by the work or services herein specified, and
not as to the means and methods of accomplishing such result, the cooperative hereby warrants that it will
perform such work or services in such manner as will be consistent with the achievement of the result herein
contracted for.

xxx

8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well as all benefits,
premiums and protection in accordance with the provisions of the labor code, cooperative code and other
applicable laws and decrees and the rules and regulations promulgated by competent authorities, assuming all
responsibility therefor.

The cooperative further undertakes to submit to the company within the first ten (10) days of every month, a
statement made, signed and sworn to by its duly authorized representative before a notary public or other officer
authorized by law to administer oaths, to the effect that the cooperative has paid all wages or salaries due to its
employees or personnel for services rendered by them during the month immediately preceding, including
overtime, if any, and that such payments were all in accordance with the requirements of law.

xxx

12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for a period of one (1)
year commencing on January 1, 1993. Thereafter, this Contract will be deemed renewed on a month-to-month
basis until terminated by either party by sending a written notice to the other at least thirty (30) days prior to the
intended date of termination.

xxx3 (Underscoring supplied)

111
Pursuant to the contract, Sunflower engaged private respondents to, as they did, render services at SMC’s Bacolod
Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract was deemed renewed by the parties every month after its
expiration on January 1, 1994 and private respondents continued to perform their tasks until September 11, 1995.

In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch No. VI, Bacolod City,
praying to be declared as regular employees of SMC, with claims for recovery of all benefits and privileges enjoyed by
SMC rank and file employees.

Private respondents subsequently filed on September 25, 1995 an Amended Complaint 4 to include illegal dismissal as
additional cause of action following SMC’s closure of its Bacolod Shrimp Processing Plant on September 15, 1995 5 which
resulted in the termination of their services.

SMC filed a Motion for Leave to File Attached Third Party Complaint6 dated November 27, 1995 to implead Sunflower as
Third Party Defendant which was, by Order7 of December 11, 1995, granted by Labor Arbiter Ray Alan T. Drilon.

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the Department of Labor
and Employment (DOLE) a Notice of Closure8 of its aquaculture operations effective on even date, citing serious business
losses.

By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents’ complaint for lack of merit,
ratiocinating as follows:

We sustain the stand of the respondent SMC that it could properly exercise its management prerogative to contract out
the preparation and processing aspects of its aquaculture operations. Judicial notice has already been taken regarding
the general practice adopted in government and private institutions and industries of hiring independent contractors to
perform special services. xxx

xxx

Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code under specific conditions and
we do not see how this activity could not be legally undertaken by an independent service cooperative like the third-party
respondent herein.

There is no basis to the demand for regularization simply on the theory that complainants performed activities which are
necessary and desirable in the business of respondent. It has been held that the definition of regular employees as those
who perform activities which are necessary and desirable for the business of the employer is not always
determinative because any agreement may provide for one (1) party to render services for and in behalf of another for a
consideration even without being hired as an employee.

The charge of the complainants that third-party respondent is a mere labor-only contractor is a sweeping generalization
and completely unsubstantiated. xxx In the absence of clear and convincing evidence showing that third-party respondent
acted merely as a labor only contractor, we are firmly convinced of the legitimacy and the integrity of its service contract
with respondent SMC.

In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management decision purely dictated by
economic factors which was (sic) mainly serious business losses. The law recognizes the right of the employer to close
his business or cease his operations for bonafide reasons, as much as it recognizes the right of the employer to terminate
the employment of any employee due to closure or cessation of business operations, unless the closing is for the purpose
of circumventing the provisions of the law on security of tenure. The decision of respondent SMC to close its Bacolod
Shrimp Processing Plant, due to serious business losses which has (sic) clearly been established, is a management
prerogative which could hardly be interfered with.

xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant, who were accordingly
terminated following the legal requisites prescribed by law. The closure, however, in so far as the complainants are
concerned, resulted in the termination of SMC’s service contract with their cooperative xxx9 (Underscoring supplied)

Private respondents appealed to the NLRC.

By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding that third party respondent
Sunflower was an independent contractor in light of its observation that "[i]n all the activities of private respondents, they
were under the actual direction, control and supervision of third party respondent Sunflower, as well as the payment of
wages, and power of dismissal."10

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Private respondents’ Motion for Reconsideration11 having been denied by the NLRC for lack of merit by Resolution of
September 10, 1999, they filed a petition for certiorari12 before the Court of Appeals (CA).

Before the CA, SMC filed a Motion to Dismiss 13 private respondents’ petition for non-compliance with the Rules on Civil
Procedure and failure to show grave abuse of discretion on the part of the NLRC.

SMC subsequently filed its Comment14 to the petition on March 30, 2000.

By Decision of February 7, 2001, the appellate court reversed the NLRC decision and accordingly found for private
respondents, disposing as follows:

WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1) REVERSING and SETTING
ASIDE both the 29 December 1998 decision and 10 September 1999 resolution of the National Labor Relations
Commission (NLRC), Fourth Division, Cebu City in NLRC Case No. V-0361-97 as well as the 23 September 1997
decision of the labor arbiter in RAB Case No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation,
to GRANT petitioners: (a) separation pay in accordance with the computation given to the regular SMC employees
working at its Bacolod Shrimp Processing Plant with full backwages, inclusive of allowances and other benefits or their
monetary equivalent, from 11 September 1995, the time their actual compensation was withheld from them, up to the time
of the finality of this decision; (b) differentials pays (sic) effective as of and from the time petitioners acquired regular
employment status pursuant to the disquisition mentioned above, and all such other and further benefits as provided by
applicable collective bargaining agreement(s) or other relations, or by law, beginning such time up to their termination
from employment on 11 September 1995; and ORDERING private respondent SMC to PAY unto the
petitioners attorney’s fees equivalent to ten (10%) percent of the total award.

No pronouncement as to costs.

SO ORDERED.15 (Underscoring supplied)

Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court reasoned:

Although the terms of the non-exclusive contract of service between SMC and [Sunflower] showed a clear intent to
abstain from establishing an employer-employee relationship between SMC and [Sunflower] or the latter’s members, the
extent to which the parties successfully realized this intent in the light of the applicable law is the controlling factor in
determining the real and actual relationship between or among the parties.

xxx

With respect to the power to control petitioners’ conduct, it appears that petitioners were under the direct control and
supervision of SMC supervisors both as to the manner they performed their functions and as to the end results thereof. It
was only after petitioners lodged a complaint to have their status declared as regular employees of SMC that certain
members of [Sunflower] began to countersign petitioners’ daily time records to make it appear that they (petitioners) were
under the control and supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx

Even without these instances indicative of control by SMC over the petitioners, it is safe to assume that SMC would never
have allowed the petitioners to work within its premises, using its own facilities, equipment and tools, alongside SMC
employees discharging similar or identical activities unless it exercised a substantial degree of control and supervision
over the petitioners not only as to the manner they performed their functions but also as to the end results of such
functions.

xxx

xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent contractors. [Sunflower] and
the petitioners did not have substantial capital or investment in the form of tools, equipment, implements, work premises,
et cetera necessary to actually perform the service under their own account, responsibility, and method. The only "work
premises" maintained by [Sunflower] was a small office within the confines of a small "carinderia" or refreshment parlor
owned by the mother of its chair, Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-525) and, the
only assets it provided SMC were the bare bodies of its members, the petitioners herein (rollo, p. 523).

In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under the control and supervision
of SMC both as to the manner and method in discharging their functions and as to the results thereof.

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Besides, it should be taken into account that the activities undertaken by the petitioners as cleaners, janitors, messengers
and shrimp harvesters, packers and handlers were directly related to the aquaculture business of SMC (See Guarin vs.
NLRC, 198 SCRA 267, 273). This is confirmed by the renewal of the service contract from January 1993 to September
1995, a period of close to three (3) years.

Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce and raises the suspicion
that the non-exclusive service contract between SMC and [Sunflower] was "designed to evade the obligations inherent in
an employer-employee relationship" (See Rhone-Poulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249,
259).

Equally suspicious is the fact that the notary public who signed the by-laws of [Sunflower] and its [Sunflower]
retained counsel are both partners of the local counsel of SMC (rollo, p. 9).

xxx

With these observations, no other logical conclusion can be reached except that [Sunflower] acted as an agent of SMC,
facilitating the manpower requirements of the latter, the real employer of the petitioners. We simply cannot allow these two
entities through the convenience of a non-exclusive service contract to stipulate on the existence of employer-employee
relation. Such existence is a question of law which cannot be made the subject of agreement to the detriment of the
petitioners (Tabas vs. California Manufacturing, Inc., 169 SCRA 497, 500).

xxx

There being a finding of "labor-only" contracting, liability must be shouldered either by SMC or [Sunflower] or shared by
both (See Tabas vs. California Manufacturing, Inc., supra, p. 502). SMC however should be held solely liable for
[Sunflower] became non-existent with the closure of the aquaculture business of SMC .

Furthermore, since the closure of the aquaculture operations of SMC appears to be valid, reinstatement is no longer
feasible. Consistent with the pronouncement in Bustamante, et al., vs. NLRC, G.R. No. 111651, 28 November 1996,
petitioners are thus entitled to separation pay (in the computation similar to those given to regular SMC employees at its
Bacolod Shrimp Processing Plant) "with full backwages, inclusive of allowances and other benefits or their monetary
equivalent, from the time their actual compensation was withheld from them" up to the time of the finality of this decision.
This is without prejudice to differentials pays (sic) effective as of and from the time petitioners acquired regular
employment status pursuant to the discussion mentioned above, and all such other and further benefits as provided by
applicable collective bargaining agreement(s) or other relations, or by law, beginning such time up to their termination
from employment on 11 September 1995.16 (Emphasis and underscoring supplied)

SMC’s Motion for Reconsideration17 having been denied for lack of merit by Resolution of July 11, 2001, it comes before
this Court via the present petition for review on certiorari assigning to the CA the following errors:

THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND GRANTING RESPONDENTS’
PATENTLY DEFECTIVE PETITION FOR CERTIORARI. IN DOING SO, THE COURT OF APPEALS DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.

II

THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS COMPLAINANTS IN
THE CASE BEFORE THE LABOR ARBITER. IN DOING SO, THE COURT OF APPEALS DECIDED THIS CASE IN A
MANNER NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT.

III

THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE EMPLOYEES OF SMC.

IV

THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT RESPONDENTS ARE NOT ENTITLED TO
ANY RELIEF. THE CLOSURE OF THE BACOLOD SHRIMP PROCESSING PLANT WAS DUE TO SERIOUS BUSINESS
LOSSES.18 (Underscoring supplied)

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SMC bewails the failure of the appellate court to outrightly dismiss the petition for certiorari as only three out of the ninety
seven named petitioners signed the verification and certification against forum-shopping.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs or petitioners in a
case and the signature of only one of them is insufficient,19 this Court has stressed that the rules on forum shopping,
which were designed to promote and facilitate the orderly administration of justice, should not be interpreted with such
absolute literalness as to subvert its own ultimate and legitimate objective. 20 Strict compliance with the provisions
regarding the certificate of non-forum shopping merely underscores its mandatory nature in that the certification cannot be
altogether dispensed with or its requirements completely disregarded.21 It does not, however, thereby interdict substantial
compliance with its provisions under justifiable circumstances.22

Thus in the recent case of HLC Construction and Development Corporation v. Emily Homes Subdivision Homeowners
Association,23 this Court held:

Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a group, represented by their
homeowners’ association president who was likewise one of the plaintiffs, Mr. Samaon M. Buat. Respondents raised one
cause of action which was the breach of contractual obligations and payment of damages. They shared a common
interest in the subject matter of the case, being the aggrieved residents of the poorly constructed and developed Emily
Homes Subdivision. Due to the collective nature of the case, there was no doubt that Mr. Samaon M. Buat could validly
sign the certificate of non-forum shopping in behalf of all his co-plaintiffs. In cases therefore where it is highly impractical
to require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to defeat the ends of
justice, for one of the plaintiffs, acting as representative, to sign the certificate provided that xxx the plaintiffs share a
common interest in the subject matter of the case or filed the case as a "collective," raising only one common
cause of action or defense.24 (Emphasis and underscoring supplied)

Given the collective nature of the petition filed before the appellate court by herein private respondents, raising one
common cause of action against SMC, the execution by private respondents Winifredo Talite, Renelito Deon and Jose
Temporosa in behalf of all the other private respondents of the certificate of non-forum shopping constitutes substantial
compliance with the Rules.25 That the three indeed represented their co-petitioners before the appellate court is, as it
correctly found, "subsequently proven to be true as shown by the signatures of the majority of the petitioners appearing in
their memorandum filed before Us."26

Additionally, the merits of the substantive aspects of the case may also be deemed as "special circumstance" or
"compelling reason" to take cognizance of a petition although the certification against forum shopping was not executed
and signed by all of the petitioners.27

SMC goes on to argue that the petition filed before the CA is fatally defective as it was not accompanied by "copies of all
pleadings and documents relevant and pertinent thereto" in contravention of Section 1, Rule 65 of the Rules of Court.28

This Court is not persuaded. The records show that private respondents appended the following documents to their
petition before the appellate court: the September 23, 1997 Decision of the Labor Arbiter,29 their Notice of Appeal with
Appeal Memorandum dated October 16, 1997 filed before the NLRC,30 the December 29, 1998 NLRC D E C I S I O
N,31 their Motion for Reconsideration dated March 26, 1999 filed with the NLRC32 and the September 10,
1999 NLRC Resolution.33

It bears stressing at any rate that it is the appellate court which ultimately determines if the supporting documents are
sufficient to make out a prima facie case.34 It discerns whether on the basis of what have been submitted it could already
judiciously determine the merits of the petition.35 In the case at bar, the CA found that the petition was adequately
supported by relevant and pertinent documents.

At all events, this Court has allowed a liberal construction of the rule on the accomplishment of a certificate of non-forum
shopping in the following cases: (1) where a rigid application will result in manifest failure or miscarriage of justice; (2)
where the interest of substantial justice will be served; (3) where the resolution of the motion is addressed solely to the
sound and judicious discretion of the court; and (4) where the injustice to the adverse party is not commensurate with the
degree of his thoughtlessness in not complying with the procedure prescribed.36

Rules of procedure should indeed be viewed as mere tools designed to facilitate the attainment of justice. Their strict and
rigid application, which would result in technicalities that tend to frustrate rather than promote substantial justice, must
always be eschewed.37

SMC further argues that the appellate court exceeded its jurisdiction in reversing the decisions of the labor arbiter and the
NLRC as "findings of facts of quasi-judicial bodies like the NLRC are accorded great respect and finality," and that this

115
principle acquires greater weight and application in the case at bar as the labor arbiter and the NLRC have the same
factual findings.

The general rule, no doubt, is that findings of facts of an administrative agency which has acquired expertise in the
particular field of its endeavor are accorded great weight on appeal.38 The rule is not absolute and admits of certain well-
recognized exceptions, however. Thus, when the findings of fact of the labor arbiter and the NLRC are not supported by
substantial evidence or their judgment was based on a misapprehension of facts, the appellate court may make an
independent evaluation of the facts of the case.39

SMC further faults the appellate court in giving due course to private respondents’ petition despite the fact that the
complaint filed before the labor arbiter was signed and verified only by private respondent Winifredo Talite; that private
respondents’ position paper40 was verified by only six41 out of the ninety seven complainants; and that their Joint-
Affidavit42 was executed only by twelve43 of the complainants.

Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts that it should not have been considered
by the appellate court in establishing the claims of those who did not sign the same, citing this Court’s ruling in Southern
Cotabato Development and Construction, Inc. v. NLRC.44

SMC’s position does not lie.

A perusal of the complaint shows that the ninety seven complainants were being represented by their counsel of choice.
Thus the first sentence of their complaint alleges: "xxx complainants, by counsel and unto this Honorable Office
respectfully state xxx." And the complaint was signed by Atty. Jose Max S. Ortiz as "counsel for the complainants."
Following Section 6, Rule III of the 1990 Rules of Procedure of the NLRC, now Section 7, Rule III of the 1999 NLRC
Rules, Atty. Ortiz is presumed to be properly authorized by private respondents in filing the complaint.

That the verification wherein it is manifested that private respondent Talite was one of the complainants and was causing
the preparation of the complaint "with the authority of my co-complainants" indubitably shows that Talite was representing
the rest of his co-complainants in signing the verification in accordance with Section 7, Rule III of the 1990 NLRC Rules,
now Section 8, Rule 3 of the 1999 NLRC Rules, which states:

Section 7. Authority to bind party. – Attorneys and other representatives of parties shall have authority to bind their clients
in all matters of procedure; but they cannot, without a special power of attorney or express consent, enter into a
compromise agreement with the opposing party in full or partial discharge of a client’s claim. (Underscoring supplied)

As regards private respondents’ position paper which bore the signatures of only six of them, appended to it was an
Authority/Confirmation of Authority45 signed by the ninety one others conferring authority to their counsel "to file RAB Case
No. 06-07-10316-95, entitled Winifredo Talite et al. v. San Miguel Corporation presently pending before the sala of Labor
Arbiter Ray Alan Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City" and appointing him as their
retained counsel to represent them in the said case.

That there has been substantial compliance with the requirement on verification of position papers under Section 3, Rule
V of the 1990 NLRC Rules of Procedure46 is not difficult to appreciate in light of the provision of Section 7, Rule V of the
1990 NLRC Rules, now Section 9, Rule V of the 1999 NLRC Rules which reads:

Section 7. Nature of Proceedings. – The proceedings before a Labor Arbiter shall be non-litigious in nature. Subject to the
requirements of due process, the technicalities of law and procedure and the rules obtaining in the courts of law shall not
strictly apply thereto. The Labor Arbiter may avail himself of all reasonable means to ascertain the facts of the controversy
speedily, including ocular inspection and examination of well-informed persons. (underscoring supplied)

As regards private respondents’ Joint-Affidavit which is being assailed in view of the failure of some complainants to affix
their signatures thereon, this Court quotes with approval the appellate court’s ratiocinations:

A perusal of the Southern Cotabato Development Case would reveal that movant did not quote the whole text of
paragraph 5 on page 865 of 280 SCRA. The whole paragraph reads:

"Clearly then, as to those who opted to move for the dismissal of their complaints, or did not submit their affidavits nor
appear during trial and in whose favor no other independent evidence was adduced, no award for back wages could have
been validly and properly made for want of factual basis. There is no showing at all that any of the affidavits of the thirty-
four (34) complainants were offered as evidence for those who did not submit their affidavits, or that such affidavits had
any bearing at all on the rights and interest of the latter. In the same vein, private respondent’s position paper was not of
any help to these delinquent complainants.

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The implication is that as long as the affidavits of the complainants were offered as evidence for those who did not
submit theirs, or the affidavits were material and relevant to the rights and interest of the latter, such affidavits
may be sufficient to establish the claims of those who did not give their affidavits.

Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants (petitioners herein) would
readily reveal that the affidavit was offered as evidence not only for the signatories therein but for all of the complainants.
(These ninety-seven (97) individuals were previously identified during the mandatory conference as the only complainants
in the proceedings before the labor arbiter) Moreover, the affidavit touched on the common interest of all of the
complainants as it supported their claim of the existence of an employer-employee relationship between them and
respondent SMC. Thus, the said affidavit was enough to prove the claims of the rest of the complainants. 47 (Emphasis
supplied, underscoring in the original)

In any event, SMC is reminded that the rules of evidence prevailing in courts of law or equity do not control proceedings
before the Labor Arbiter. So Article 221 of the Labor Code enjoins:

ART. 221. Technical rules not binding and prior resort to amicable settlement. – In any proceeding before the
Commission or any of the Labor Arbiters, the rules of evidence prevailing in courts of law or equity shall not be controlling
and it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters shall use every
and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to technicalities
of law or procedure, all in the interest of due process. xxx

As such, their application may be relaxed to serve the demands of substantial justice.48

On the merits, the petition just the same fails.

SMC insists that private respondents are the employees of Sunflower, an independent contractor. On the other hand,
private respondents assert that Sunflower is a labor-only contractor.

Article 106 of the Labor Code provides:

ART. 106. Contractor or subcontracting. – Whenever an employer enters into a contract with another person for the
performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any shall be paid in
accordance with the provisions of this Code.

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

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

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such person are performing activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible
to the workers in the same manner and extent as if the latter were directly employed by him.

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18,
distinguishes between legitimate and labor-only contracting:

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral

relationship under which there is a contract for a specific job, work or service between the principal and the contractor or
subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the
job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job, work
or service.

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Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis hereby declared prohibited. For this
purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present:

i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or
service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal, or

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

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work or service contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end.

The test to determine the existence of independent contractorship is whether one claiming to be an independent
contractor has contracted to do the work according to his own methods and without being subject to the control
of the employer, except only as to the results of the work.49

In legitimate labor contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure
that the employees are paid their wages. The principal employer becomes jointly and severally liable with the job
contractor, only for the payment of the employees’ wages whenever the contractor fails to pay the same. Other than that,
the principal employer is not responsible for any claim made by the employees.50

In labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent
a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if such employees had been directly employed by the
principal employer.51

The Contract of Services between SMC and Sunflower shows that the parties clearly disavowed the existence of an
employer-employee relationship between SMC and private respondents. The language of a contract is not, however,
determinative of the parties’ relationship; rather it is the totality of the facts and surrounding circumstances of the case.52 A
party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of its
business, i.e., whether as labor-only contractor or job contractor, it being crucial that its character be measured in terms of
and determined by the criteria set by statute.53

SMC argues that Sunflower could not have been issued a certificate of registration as a cooperative if it had no substantial
capital.54

While indeed Sunflower was issued Certificate of Registration No. IL0-87555 on February 10, 1992 by the Cooperative
Development Authority, this merely shows that it had at least ₱2,000.00 in paid-up share capital as mandated by Section
5 of Article 1456 of Republic Act No. 6938, otherwise known as the Cooperative Code, which amount cannot be considered
substantial capitalization.

What appears is that Sunflower does not have substantial capitalization or investment in the form of tools, equipment,
machineries, work premises and other materials to qualify it as an independent contractor.

On the other hand, it is gathered that the lot, building, machineries and all other working tools utilized by private
respondents in carrying out their tasks were owned and provided by SMC. Consider the following uncontroverted
allegations of private respondents in the Joint Affidavit:

[Sunflower], during the existence of its service contract with respondent SMC, did not own a single machinery, equipment,
or working tool used in the processing plant. Everything was owned and provided by respondent SMC. The lot, the
building, and working facilities are owned by respondent SMC. The machineries and equipments (sic) like washer
machine, oven or cooking machine, sizer machine, freezer, storage, and chilling tanks, push carts, hydrolic (sic) jack,
tables, and chairs were all owned by respondent SMC. All the boxes, trays, molding pan used in the processing are also
owned by respondent SMC. The gloves and boots used by the complainants were also owned by respondent SMC. Even

118
the mops, electric floor cleaners, brush, hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the like
used by the complainants assigned as cleaners were all owned and provided by respondent SMC.

Simply stated, third-party respondent did not own even a small capital in the form of tools, machineries, or facilities used
in said prawn processing

xxx

The alleged office of [Sunflower] is found within the confines of a small "carinderia" or "refreshment" (sic) owned by the
mother of the Cooperative Chairman Roy Asong.

xxx In said . . . office, the only equipment used and owned by [Sunflower] was a typewriter. 57

And from the job description provided by SMC itself, the work assigned to private respondents was directly related to the
aquaculture operations of SMC. Undoubtedly, the nature of the work performed by private respondents in shrimp
harvesting, receiving and packing formed an integral part of the shrimp processing operations of SMC. As for janitorial
and messengerial services, that they are considered directly related to the principal business of the employer58 has been
jurisprudentially recognized.

Furthermore, Sunflower did not carry on an independent business or undertake the performance of its service contract
according to its own manner and method, free from the control and supervision of its principal, SMC, its apparent role
having been merely to recruit persons to work for SMC.

Thus, it is gathered from the evidence adduced by private respondents before the labor arbiter that their daily time records
were signed by SMC supervisors Ike Puentebella, Joemel Haro, Joemari Raca, Erwin Tumonong, Edison Arguello, and
Stephen Palabrica, which fact shows that SMC exercised the power of control and supervision over its
employees.59 And control of the premises in which private respondents worked was by SMC. These tend to disprove the
independence of the contractor.60

More. Private respondents had been working in the aqua processing plant inside the SMC compound alongside regular
SMC shrimp processing workers performing identical jobs under the same SMC supervisors.61 This circumstance is
another indicium of the existence of a labor-only contractorship.62

And as private respondents alleged in their Joint Affidavit which did not escape the observation of the CA, no showing to
the contrary having been proffered by SMC, Sunflower did not cater to clients other than SMC, 63 and with the closure of
SMC’s Bacolod Shrimp Processing Plant, Sunflower likewise ceased to exist. This Court’s ruling in San Miguel
Corporation v. MAERC Integrated Services, Inc.64 is thus instructive.

xxx Nor do we believe MAERC to have an independent business. Not only was it set up to specifically meet the pressing
needs of SMC which was then having labor problems in its segregation division, none of its workers was also ever
assigned to any other establishment, thus convincing us that it was created solely to service the needs of SMC.
Naturally, with the severance of relationship between MAERC and SMC followed MAERC’s cessation of operations, the
loss of jobs for the whole MAERC workforce and the resulting actions instituted by the workers.65 (Underscoring supplied)

All the foregoing considerations affirm by more than substantial evidence the existence of an employer-employee
relationship between SMC and private respondents.

Since private respondents who were engaged in shrimp processing performed tasks usually necessary or desirable in the
aquaculture business of SMC, they should be deemed regular employees of the latter 66 and as such are entitled to all the
benefits and rights appurtenant to regular employment.67 They should thus be awarded differential pay corresponding to
the difference between the wages and benefits given them and those accorded SMC’s other regular
employees.1awphi1.zw+

Respecting the private respondents who were tasked with janitorial and messengerial duties, this Court quotes with
approval the appellate court’s ruling thereon:

Those performing janitorial and messengerial services however acquired regular status only after rendering one-year
service pursuant to Article 280 of the Labor Code. Although janitorial and messengerial services are considered directly
related to the aquaculture business of SMC, they are deemed unnecessary in the conduct of its principal business; hence,
the distinction (See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137 and Philippine Bank of
Communications v. NLRC, supra, p. 359).68

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The law of course provides for two kinds of regular employees, namely: (1) those who are engaged to perform activities
which are usually necessary or desirable in the usual business or trade of the employer; and (2) those who have rendered
at least one year of service, whether continuous or broken, with respect to the activity in which they are employed.69

As for those of private respondents who were engaged in janitorial and messengerial tasks, they fall under the second
category and are thus entitled to differential pay and benefits extended to other SMC regular employees from the day
immediately following their first year of service.70

Regarding the closure of SMC’s aquaculture operations and the consequent termination of private respondents, Article
283 of the Labor Code provides:

ART. 283. Closure of establishment and reduction of personnel. – The employer may also terminate the employment
of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing
or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least
one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or
redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay
or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses
and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for
every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.
(Underscoring supplied)

In the case at bar, a particular department under the SMC group of companies was closed allegedly due to serious
business reverses. This constitutes retrenchment by, and not closure of, the enterprise or the company itself as SMC has
not totally ceased operations but is still very much an on-going and highly viable business concern.71

Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is, however, subject to
faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence.72

For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected
should be substantial and not merely de minimis in extent; (b) the substantial losses apprehended must be reasonably
imminent such as can be perceived objectively and in good faith by the employer; (c) the retrenchment must be
reasonably necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if already incurred,
and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence.73

In the discharge of these requirements, it is the employer who has the onus, being in the nature of an affirmative
defense.74

Normally, the condition of business losses is shown by audited financial documents like yearly balance sheets, profit and
loss statements and annual income tax returns. The financial statements must be prepared and signed by independent
auditors failing which they can be assailed as self-serving documents.75

In the case at bar, company losses were duly established by financial documents audited by Joaquin Cunanan & Co.
showing that the aquaculture operations of SMC’s Agribusiness Division accumulated losses amounting to
₱145,848,172.00 in 1992 resulting in the closure of its Calatrava Aquaculture Center in Negros Occidental,
₱11,393,071.00 in 1993 and ₱80,325,608.00 in 1994 which led to the closure of its San Fernando Shrimp Processing
Plant in Pampanga and the Bacolod Shrimp Processing Plant in 1995.

SMC has thus proven substantial business reverses justifying retrenchment of its employees.

For termination due to retrenchment to be valid, however, the law requires that written notices of the intended
retrenchment be served by the employer on the worker and on the DOLE at least one (1) month before the actual date of
the retrenchment,76 in order to give employees some time to prepare for the eventual loss of their jobs, as well as to give
DOLE the opportunity to ascertain the verity of the alleged cause of termination.77

Private respondents, however, were merely verbally informed on September 10, 1995 by SMC Prawn Manager Ponciano
Capay that effective the following day or on September 11, 1995, they were no longer to report for work as SMC would be
closing its operations.78

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the employer failed to
comply with the notice requirement, the sanction should be stiff as the dismissal process was initiated by the employer’s

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exercise of his management prerogative, as opposed to a dismissal based on a just cause under Article 282 with the
same procedural infirmity where the sanction to be imposed upon the employer should be tempered as the dismissal
process was, in effect, initiated by an act imputable to the employee.79

In light of the factual circumstances of the case at bar, this Court awards ₱50,000.00 to each private respondent as
nominal damages.

The grant of separation pay as an incidence of termination of employment due to retrenchment to prevent losses is a
statutory obligation on the part of the employer and a demandable right on the part of the employee. Private respondents
should thus be awarded separation pay equivalent to at least one (1) month pay or to at least one-half month pay for
every year of service, whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay awarded
by SMC to other regular SMC employees that were terminated as a result of the retrenchment, depending on which is
most beneficial to private respondents.

Considering that private respondents were not illegally dismissed, however, no backwages need be awarded. It is well
settled that backwages may be granted only when there is a finding of illegal dismissal.80 The appellate court thus erred in
awarding backwages to private respondents upon the authority of Bustamante v. NLRC,81 what was involved in that case
being one of illegal dismissal.

With respect to attorney’s fees, in actions for recovery of wages or where an employee was forced to litigate and thus
incurred expenses to protect his rights and interests,82 a maximum of ten percent (10%) of the total monetary award83 by
way of attorney’s fees is justifiable under Article 111 of the Labor Code,84 Section 8, Rule VIII, Book III of its Implementing
Rules,85 and paragraph 7, Article 2208 of the Civil Code.86 Although an express finding of facts and law is still necessary to
prove the merit of the award, there need not be any showing that the employer acted maliciously or in bad faith when it
withheld the wages. There need only be a showing that the lawful wages were not paid accordingly, as in this case.87

Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant to Rule VIII-A, Section
1988 of the Omnibus Rules Implementing the Labor Code, Sunflower is held solidarily liable with SMC for all the rightful
claims of private respondents.

WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and Resolution dated July 11, 2001
of the Court of Appeals are AFFIRMED with MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED to jointly and
severally pay each private respondent differential pay from the time they became regular employees up to the date of their
termination; separation pay equivalent to at least one (1) month pay or to at least one-half month pay for every year of
service, whichever is higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to
other regular SMC employees that were terminated as a result of the retrenchment, depending on which is most beneficial
to private respondents; and ten percent (10%) attorney’s fees based on the herein modified award.

Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount of ₱50,000.00,
representing nominal damages for non-compliance with statutory due process.

The award of backwages is DELETED.

SO ORDERED.

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

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement ("Agreement") with the
Mel and Jay Management and Development Corporation ("MJMDC"). ABS-CBN was represented by its corporate officers
while MJMDC was represented by SONZA, as President and General Manager, and Carmela Tiangco ("TIANGCO"), as
EVP and Treasurer. Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZA’s services exclusively
to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would render to ABS-CBN, as
follows:

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

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

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first year and ₱317,000 for the
second and third year of the Agreement. ABS-CBN would pay the talent fees on the 10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

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

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

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated in
paragraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under said
Agreement.

Thank you for your attention.

Very truly yours,

122
 (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 Arbiter 5 denied the motion to dismiss and directed the parties to file their
respective position papers. The Labor Arbiter ruled:

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

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their position papers on 24
February 1997.

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

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

xxx

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

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

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

The fact that complainant was made subject to respondent’s Rules and Regulations, likewise, does not
detract from the absence of employer-employee relationship. As held by the Supreme Court, "The line should
be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result

123
 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

124
 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

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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

126
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.
127
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

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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

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

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries to treat talents like
SONZA as independent contractors. SONZA argues that if such practice exists, it is void for violating the right of labor to
security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution 53 arises only if there is an employer-employee
relationship under labor laws. Not every performance of services for a fee creates an employer-employee relationship. To
hold that every person who renders services to another for a fee is an employee - to give meaning to the security of
tenure clause - will lead to absurd results.

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

Different Tax Treatment of Talents and Broadcasters

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

Nature of SONZA’s Claims

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

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26 March 1999 in CA-G.R. SP
No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

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131
G.R. No. 119930 March 12, 1998

INSULAR LIFE ASSURANCE CO., LTD., Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (Fourth
Division, Cebu City), LABOR ARBITER NICASIO P. ANINON and PANTALEON DE LOS REYES, Respondents.

BELLOSILLO, J.:

On 17 June 1994 respondent Labor Arbiter dismissed for lack of jurisdiction NLRC RAB-VII Case No. 03-0309-94 filed by
private respondent Pantaleon de los Reyes against petitioner Insular Life Assurance Co., Ltd. (INSULAR LIFE), for illegal
dismissal and nonpayment of salaries and back wages after finding no employer-employee relationship between De los
Reyes and petitioner INSULAR LIFE. 1 On appeal by private respondent, the order of dismissal was reversed by the
National Labor Relations Commission (NLRC) which ruled that respondent De los Reyes was an employee of
petitioner. 2 Petitioner's motion for reconsideration having been denied, the NLRC remanded the case to the Labor Arbiter
for hearing on the merits.

Seeking relief through this special civil action for certiorari with prayer for a restraining order and/or preliminary injunction,
petitioner now comes to us praying for annulment of the decision of respondent NLRC dated 3 March 1995 and its Order
dated 6 April 1995 denying the motion for reconsideration of the decision. It faults NLRC for acting without jurisdiction
and/or with grave abuse of discretion when, contrary to established facts and pertinent law and jurisprudence, it reversed
the decision of the Labor Arbiter and held instead that the complaint was properly filed as an employer-employee
relationship existed between petitioner and private respondent.

Petitioner reprises the stand it assumed below that it never had any employer-employee relationship with private
respondent, this being an express agreement between them in the agency contracts, particularly reinforced by the
stipulation therein that De los Reyes was allowed discretion to devise ways and means to fulfill his obligations as agent
and would be paid commission fees based on his actual output. It further insists that the nature of this work status as
described in the contracts had already been squarely resolved by the Court in the earlier case of Insular Life Assurance
Co., Ltd. v. NLRC and Basiao 3 where the complainant therein, Melecio Basiao, was similarly situated as respondent De
los Reyes in that he was appointed first as an agent and then promoted as agency manager, and the contracts under
which he was appointed contained terms and conditions identical to those of Delos Reyes. Petitioner concludes that since
Basiao was declared by the Court to be an independent contractor and not an employee of petitioner, there should be no
reason why the status of De los Reyes herein vis-a-vis petitioner should not be similarly determined.

We reject the submissions of petitioner and hold that respondent NLRC acted appropriately within the bounds of the law.
The records of the case are replete with telltale indicators of an existing employer-employee relationship between the two
parties despite written contractual disavowals.

These facts are undisputed: on 21 August 1992 petitioner entered into an agency contract with respondent Pantaleon de
los Reyes 4 authorizing the latter to solicit within the Philippines applications for life insurance and annuities for which he
would be paid compensation in the form of commissions. The contract was prepared by petitioner in its entirety and De los
Reyes merely signed his conformity thereto. It contained the stipulation that no employer-employee relationship shall be
created between the parties and that the agent shall be free to exercise his own judgment as to time, place and means of
soliciting insurance. De los Reyes however was prohibited by petitioner from working for any other life insurance
company, and violation of this stipulation was sufficient ground for termination of the contract. Aside from soliciting
insurance for the petitioner, private respondent was required to submit to the former all completed applications for
insurance within ninety (90) consecutive days, deliver policies, receive and collect initial premiums and balances of first
year premiums, renewal premiums, deposits on applications and payments on policy loans. Private respondent was also
bound to turn over to the company immediately any and all sums of money collected by him. In a written communication
by petitioner to respondent De los Reyes, the latter was urged to register with the Social Security System as a self-
employed individual as provided under PD No. 1636. 5

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On 1 March 1993 petitioner and private respondent entered into another contract 6 where the latter was appointed as
Acting Unit Manager under its office - the Cebu DSO V (157). As such, the duties and responsibilities of De los Reyes
included the recruitment, training, organization and development within his designated territory of a sufficient number of
qualified, competent and trustworthy underwriters, and to supervise and coordinate the sales efforts of the underwriters in
the active solicitation of new business and in the furtherance of the agency's assigned goals. It was similarly provided in
the management contract that the relation of the acting unit manager and/or the agents of his unit to the company shall be
that of independent contractor. If the appointment was terminated for any reason other than for cause, the acting unit
manager would be reverted to agent status and assigned to any unit. As in the previous agency contract, De los Reyes
together with his unit force was granted freedom to exercise judgment as to time, place and means of soliciting insurance.
Aside from being granted override commissions, the acting unit manager was given production bonus, development
allowance and a unit development financing scheme euphemistically termed "financial assistance" consisting of payment
to him of a free portion of P300.00 per month and a validate portion of P1,200.00. While the latter amount was deemed as
an advance against expected commissions, the former was not and would be freely given to the unit manager by the
company only upon fulfillment by him of certain manpower and premium quota requirements. The agents and
underwriters recruited and trained by the acting unit manager would be attached to the unit but petitioner reserved the
right to determine if such assignment would be made or, for any reason, to reassign them elsewhere.

Aside from soliciting insurance, De los Reyes was also expressly obliged to participate in the company's conservation
program, i.e., preservation and maintenance of existing insurance policies, and to accept moneys duly receipted on
agent's receipts provided the same were turned over to the company. As long as he was unit manager in an acting
capacity, De los Reyes was prohibited from working for other life insurance companies or with the government. He could
not also accept a managerial or supervisory position in any firm doing business in the Philippines without the written
consent of petitioner.

Private respondent worked concurrently as agent and Acting Unit Manager until he was notified by petitioner on 18
November 1993 that his services were terminated effective 18 December 1993. On 7 March 1994 he filed a complaint
before the Labor Arbiter on the ground that he was illegally dismissed and that he was not paid his salaries and
separation pay.

Petitioner filed a motion to dismiss the complaint of De los Reyes for lack of jurisdiction, citing the absence of employer-
employee relationship. It reasoned out that based on the criteria for determining the existence of such relationship or the
so-called "four-fold test," i.e., (a) selection and engagement of employee, (b) payment of wages, (c) power of dismissal,
and, (d) power of control, De los Reyes was not an employee but an independent contractor.

On 17 June 1994 the motion of petitioner was granted by the Labor Arbiter and the case was dismissed on the ground
that the element of control was not sufficiently established since the rules and guidelines set by petitioner in its agency
agreement with respondent Delos Reyes were formulated only to achieve the desired result without dictating the means or
methods of attaining it.

Respondent NLRC however appreciated the evidence from a different perspective. It determined that respondent De los
Reyes was under the effective control of petitioner in the critical and most important aspects of his work as Unit Manager.
This conclusion was derived from the provisions in the contract which appointed private respondent as Acting Unit
Manager, to wit: (a) De los Reyes was to serve exclusively the company, therefore, he was not an independent contractor;
(b) he was required to meet certain manpower and production quota; and, (c) petitioner controlled the assignment to and
removal of soliciting agents from his unit.

The NLRC also took into account other circumstances showing that petitioner exercised employer's prerogatives over De
los Reyes, e.g., (a) limiting the work of respondent De los Reyes to selling a life insurance policy known as "Salary
Deduction Insurance" only to members of the Philippine National Police, public and private school teachers and other
employees of private companies; (b) assigning private respondent to a particular place and table where he worked
whenever he was not in the field; (c) paying private respondent during the period of twelve (12) months of his appointment
as Acting Unit Manager the amount of P1,500.00 as Unit Development Financing of which 20% formed his salary and the
rest, i.e., 80%, as advance of his expected commissions; and, (d) promising that upon completion of certain requirements,
he would be promoted to Unit Manager with the right of petitioner to revert him to agent status when warranted.

Parenthetically, both petitioner and respondent NLRC treated the agency contract and the management contract entered
into between petitioner and De los Reyes as contracts of agency. We however hold otherwise. Unquestionably there exist
major distinctions between the two agreements. While the first has the earmarks of an agency contract, the second is far
removed from the concept of agency in that provided therein are conditionalities that indicate an employer-employee
relationship. The NLRC therefore was correct in finding that private respondent was an employee of petitioner, but this
holds true only insofar as the management contract is concerned. In view thereof, the Labor Arbiter has jurisdiction over
the case..

133
It is axiomatic that the existence of an employer-employee relationship cannot be negated by expressly repudiating it in
the management contract and providing therein that the "employee" is an independent contractor when the terms of the
agreement clearly show otherwise. For, the employment status of a person is defined and prescribed by law and not by
what the parties say it should be. 7 In determining the status of the management contract, the "four-fold test" on
employment earlier mentioned has to be applied.

Petitioner contends that De los Reyes was never required to go through the pre-employment procedures and that the
probationary employment status was reserved only to employees of petitioner. On this score, it insists that the first
requirement of selection and engagement of the employee was not met.

A look at the provisions of the contract shows that private respondent was appointed as Acting Unit Manager only upon
recommendation of the District Manager. 8 This indicates that private respondent was hired by petitioner because of the
favorable endorsement of its duly authorized officer. But, this approbation could only have been based on the
performance of De los Reyes as agent under the agency contract so that there can be no other conclusion arrived under
this premise than the fact that the agency or underwriter phase of the relationship of De los Reyes with petitioner was
nothing more than a trial or probationary period for his eventual appointment as Acting Unit Manager of petitioner. Then,
again, the very designation of the appointment of private respondent as "acting" unit manager obviously implies a
temporary employment status which may be made permanent only upon compliance with company standards such as
those enumerated under Sec. 6 of the management contract. 9

On the matter of payment of wages, petitioner points out that respondent was compensated strictly on commission basis,
the amount of which was totally dependent on his total output. But, the manager's contract, speaks differently. Thus-

4. Performance Requirements. - To maintain your appointment as Acting Unit Manager you must meet the following
manpower and production requirements:

Quarter Active Calendar Year

Production Agents Cumulative FYP
Production

1st 2 P 125,000
2nd 3 250,000
3rd 4 375,000
4th 5 500,000

5.4. Unit Development Financing (UDF). - As an Acting Unit Manager you shall be given during the first 12 months of your
appointment a financial assistance which is composed of two parts:

5.4.1. Free Portion amounting to P300 per month, subject to your meeting prescribed minimum performance requirement
on manpower and premium production. The free portion is not payable by you.

5.4.2. Validate Portion amounting to P1,200 per month, also subject to meeting the same prescribed minimum
performance requirements on manpower and premium production. The validated portion is an advance against expected
compensation during the UDF period and thereafter as may be necessary.

The above provisions unquestionably demonstrate that the performance requirement imposed on De los Reyes was
applicable quarterly while his entitlement to the free portion (P300) and the validated portion (P1,200)
was monthly starting on the first month of the twelve (12) months of the appointment. Thus, it has to be admitted that even
before the end of the first quarter and prior to the so-called quarterly performance evaluation, private respondent was
already entitled to be paid both the free and validated portions of the UDF every month because his production
performance could not be determined until after the lapse of the quarter involved. This indicates quite clearly that the unit
manager's quarterly performance had no bearing at all on his entitlement at least to the free portion of the UDF which for
all intents and purposes comprised the salary regularly paid to him by petitioner. Thus it cannot be validly claimed that the
financial assistance consisting of the free portion of the UDF was purely dependent on the premium production of the
agent. Be that as it may, it is worth considering that the payment of compensation by way of commission does not militate
against the conclusion that private respondent was an employee of petitioner. Under Art. 97 of the Labor Code, "wage"
shall mean "however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time,
task, price or commission basis . . . ." 10

As to the matter involving the power of dismissal and control by the employer, the latter of which is the most important of
the test, petitioner asserts that its termination of De los Reyes was but an exercise of its inherent right as principal under
the contracts and that the rules and guidelines it set forth in the contract cannot, by any stretch of the imagination, be

134
deemed as an exercise of control over the private respondent as these were merely directives that fixed the desired result
without dictating the means or method to be employed in attaining it. The following factual findings of the
NLRC 11 however contradict such claims:

A perusal of the appointment of complainant as Acting Unit Manager reveals that:

1. Complainant was to "exclusively" serve respondent company. Thus it is provided: . . . 7..7 Other causes of Termination:
This appointment may likewise be terminated for any of the following causes: . . . 7..7..2. Your entering the service of the
government or another life insurance company; 7..7..3. Your accepting a managerial or supervisory position in any firm
doing business in the Philippines without the written consent of the Company; . . .

2. Complainant was required to meet certain manpower and production quotas.

3. Respondent (herein petitioner) controlled the assignment and removal of soliciting agents to and from complainant's
unit, thus: . . . 7..2. Assignment of Agents: Agents recruited and trained by you shall be attached to your unit unless for
reasons of Company policy, no such assignment should be made. The Company retains the exclusive right to assign new
soliciting agents to the unit. It is agreed that the Company may remove or transfer any soliciting agents appointed and
assigned to the said unit. . . .

It would not be amiss to state that respondent's duty to collect the company's premiums using company receipts under
Sec. 7.4 of the management contract is further evidence of petitioner's control over respondent, thus:

xxx xxx xxx

7.4. Acceptance and Remittance of Premiums. - . . . . the Company hereby authorizes you to accept and to receive sums
of money in payment of premiums, loans, deposits on applications, with or without interest, due from policyholders and
applicants for insurance, and the like, specially from policyholders of business solicited and sold by the agents attached to
your unit provided however, that all such payments shall be duly receipted by you on the corresponding Company's
"Agents' Receipt" to be provided you for this purpose and to be covered by such rules and accounting regulations the
Company may issue from time to time on the matter. Payments received by you shall be turned over to the Company's
designated District or Service Office clerk or directly to the Home Office not later than the next working day from receipt
thereof . . . .

Petitioner would have us apply our ruling in Insular Life Assurance Co., Ltd. v. NLRC and Basiao 12 to the instant case
under the doctrine of stare decisis, postulating that both cases involve parties similarly situated and facts which are almost
identical.

But we are not convinced that the cited case is on all fours with the case at bar. In Basiao, the agent was appointed
Agency Manager under an Agency Manager Contract. To implement his end of the agreement, Melecio Basiao organized
an agency office to which he gave the name M. Basiao and Associates. The Agency Manager Contract  practically
contained the same terms and conditions as the Agency Contract earlier entered into, and the Court observed that,
"drawn from the terms of the contract they had entered into, (which) either expressly or by necessary implication, Basiao
(was) made the master of his own time and selling methods, left to his own judgment the time, place and means of
soliciting insurance, set no accomplishment quotas and compensated him on the bases of results obtained. He was not
bound to observe any schedule of working hours or report to any regular station; he could seek and work on his prospects
anywhere and at anytime he chose to and was free to adopt the selling methods he deemed most effective." Upon these
premises, Basiao was considered as agent - an independent contractor - of petitioner INSULAR LIFE.

Unlike Basiao, herein respondent De los Reyes was appointed Acting Unit Manager, not agency manager. There is no
evidence that to implement his obligations under the management contract, De los Reyes had organized an office.
Petitioner in fact has admitted that it provided De los Reyes a place and a table at its office where he reported for and
worked whenever he was not out in the field. Placed under petitioner's Cebu District Service Office, the unit was given a
name by petitioner - De los Reyes and Associates - and assigned Code No. 11753 and Recruitment No. 109398. Under
the managership contract, De los Reyes was obliged to work exclusively for petitioner in life insurance solicitation and was
imposed premium production quotas. Of course, the acting unit manager could not underwrite other lines of insurance
because his Permanent Certificate of Authority was for life insurance only and for no other. He was proscribed from
accepting a managerial or supervisory position in any other office including the government without the written consent of
petitioner. De los Reyes could only be promoted to permanent unit manager if he met certain requirements and his
promotion was recommended by the petitioner's District Manager and Regional Manager and approved by its Division
Manager. As Acting Unit Manager, De los Reyes performed functions beyond mere solicitation of insurance business for
petitioner. As found by the NLRC, he exercised administrative functions which were necessary and beneficial to the
business of INSULAR LIFE.

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In Great Pacific Life Insurance Company v. NLRC 13 which is closer in application than Basiao to this present controversy,
we found that "the relationships of the Ruiz brothers and Grepalife were those of employer-employee. First, their work at
the time of their dismissal as zone supervisor and district manager was necessary and desirable to the usual business of
the insurance company. They were entrusted with supervisory, sales and other functions to guard Grepalife's business
interests and to bring in more clients to the company, and even with administrative functions to ensure that all collections,
reports and data are faithfully brought to the company . . . . A cursory reading of their respective functions as enumerated
in their contracts reveals that the company practically dictates the manner by which their jobs are to be carried out . . . ."
We need elaborate no further.

Exclusivity of service, control of assignments and removal of agents under private respondent's unit, collection of
premiums, furnishing of company facilities and materials as well as capital described as Unit Development Fund are but
hallmarks of the management system in which herein private respondent worked. This obtaining, there is no escaping the
conclusion that private respondent Pantaleon de los Reyes was an employee of herein petitioner.

WHEREFORE, the petition of Insular Life Assurance Company, Ltd., is DENIED and the Decision of the National Labor
Relations Commission dated 3 March 1995 and its Order of 6 April 1996 sustaining it are AFFIRMED. Let this case be
REMANDED to the Labor Arbiter a quo who is directed to hear and dispose of this case with deliberate dispatch in light of
the views expressed herein.

SO ORDERED.

136
[G.R. NO. 167648 - January 28, 2008]

TELEVISION AND PRODUCTION EXPONENTS, INC. and/or ANTONIO P. TUVIERA, Petitioners, v. ROBERTO C.

SERVAÑA, Respondent.

DECISION

TINGA, J.:

This Petition for Review under Rule 45 assails the 21 December 2004 Decision 1 and 8 April 2005 Resolution2 of the Court
of Appeals declaring Roberto Servaña (respondent) a regular employee of petitioner Television and Production
Exponents, Inc. (TAPE). The appellate court likewise ordered TAPE to pay nominal damages for its failure to observe
statutory due process in the termination of respondent's employment for authorized cause.

TAPE is a domestic corporation engaged in the production of television programs, such as the long-running variety
program, "Eat Bulaga!". Its president is Antonio P. Tuviera (Tuviera). Respondent Roberto C. Servaña had served as a
security guard for TAPE from March 1987 until he was terminated on 3 March 2000.

Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE. He alleged that he was first
connected with Agro-Commercial Security Agency but was later on absorbed by TAPE as a regular company guard. He
was detailed at Broadway Centrum in Quezon City where "Eat Bulaga!" regularly staged its productions. On 2 March
2000, respondent received a memorandum informing him of his impending dismissal on account of TAPE's decision to
contract the services of a professional security agency. At the time of his termination, respondent was receiving a monthly
salary of P6,000.00. He claimed that the holiday pay, unpaid vacation and sick leave benefits and other monetary
considerations were withheld from him. He further contended that his dismissal was undertaken without due process and
violative of existing labor laws, aggravated by nonpayment of separation pay.3

In a motion to dismiss which was treated as its position paper, TAPE countered that the labor arbiter had no jurisdiction
over the case in the absence of an employer-employee relationship between the parties. TAPE made the following
assertions: (1) that respondent was initially employed as a security guard for Radio Philippines Network (RPN-9); (2) that
he was tasked to assist TAPE during its live productions, specifically, to control the crowd; (3) that when RPN-9 severed
its relationship with the security agency, TAPE engaged respondent's services, as part of the support group and thus a
talent, to provide security service to production staff, stars and guests of "Eat Bulaga!" as well as to control the audience
during the one-and-a-half hour noontime program; (4) that it was agreed that complainant would render his services until
such time that respondent company shall have engaged the services of a professional security agency; (5) that in 1995,
when his contract with RPN-9 expired, respondent was retained as a talent and a member of the support group, until such
time that TAPE shall have engaged the services of a professional security agency; (6) that respondent was not prevented
from seeking other employment, whether or not related to security services, before or after attending to his "Eat Bulaga!"
functions; (7) that sometime in late 1999, TAPE started negotiations for the engagement of a professional security
agency, the Sun Shield Security Agency; and (8) that on 2 March 2000, TAPE issued memoranda to all talents, whose
functions would be rendered redundant by the engagement of the security agency, informing them of the management's
decision to terminate their services.4

TAPE averred that respondent was an independent contractor falling under the talent group category and was working
under a special arrangement which is recognized in the industry.5

Respondent for his part insisted that he was a regular employee having been engaged to perform an activity that is
necessary and desirable to TAPE's business for thirteen (13) years.6

On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared respondent to be a regular employee of TAPE. The
Labor Arbiter relied on the nature of the work of respondent, which is securing and maintaining order in the studio, as
necessary and desirable in the usual business activity of TAPE. The Labor Arbiter also ruled that the termination was valid

137
on the ground of redundancy, and ordered the payment of respondent's separation pay equivalent to one (1)-month pay
for every year of service. The dispositive portion of the decision reads:

WHEREFORE, complainant's position is hereby declared redundant. Accordingly, respondents are hereby ordered to pay
complainant his separation pay computed at the rate of one (1) month pay for every year of service or in the total amount
of P78,000.00.7

On appeal, the National Labor Relations Commission (NLRC) in a Decision8 dated 22 April 2002 reversed the Labor
Arbiter and considered respondent a mere program employee, thus:

We have scoured the records of this case and we find nothing to support the Labor Arbiter's conclusion that complainant
was a regular employee.

xxx

The primary standard to determine regularity of employment is the reasonable connection between the particular activity
performed by the employee in relation to the usual business or trade of the employer. This connection can be determined
by considering the nature and work performed and its relation to the scheme of the particular business or trade in its
entirety. x x x Respondent company is engaged in the business of production of television shows. The records of this case
also show that complainant was employed by respondent company beginning 1995 after respondent company transferred
from RPN-9 to GMA-7, a fact which complainant does not dispute. His last salary was P5,444.44 per month. In such
industry, security services may not be deemed necessary and desirable in the usual business of the employer. Even
without the performance of such services on a regular basis, respondent's company's business will not grind to a halt.

xxx

Complainant was indubitably a program employee of respondent company. Unlike [a] regular employee, he did not
observe working hours x x x. He worked for other companies, such as M-Zet TV Production, Inc. at the same time that he
was working for respondent company. The foregoing indubitably shows that complainant-appellee was a program
employee. Otherwise, he would have two (2) employers at the same time.9

Respondent filed a motion for reconsideration but it was denied in a Resolution10 dated 28 June 2002.

Respondent filed a petition for certiorari with the Court of Appeals contending that the NLRC acted with grave abuse of
discretion amounting to lack or excess of jurisdiction when it reversed the decision of the Labor Arbiter. Respondent
asserted that he was a regular employee considering the nature and length of service rendered.11

Reversing the decision of the NLRC, the Court of Appeals found respondent to be a regular employee. We quote the
dispositive portion of the decision:

IN LIGHT OF THE FOREGOING, the petition is hereby GRANTED. The Decision dated 22 April 2002 of the public
respondent NLRC reversing the Decision of the Labor Arbiter and its Resolution dated 28 June 2002 denying petitioner's
motion for reconsideration are REVERSED and SET ASIDE. The Decision dated 29 June 2001 of the Labor Arbiter
is REINSTATED with MODIFICATION in that private respondents are ordered to pay jointly and severally petitioner the
amount of P10,000.00 as nominal damages for non-compliance with the statutory due process.

SO ORDERED.12

Finding TAPE's motion for reconsideration without merit, the Court of Appeals issued a Resolution 13 dated 8 April 2005
denying said motion.

TAPE filed the instant Petition for Review raising substantially the same grounds as those in its petition
for certiorari before the Court of Appeals. These matters may be summed up into one main issue: whether an employer-
employee relationship exists between TAPE and respondent.

On 27 September 2006, the Court gave due course to the petition and considered the case submitted for decision.14

At the outset, it bears emphasis that the existence of employer-employee relationship is ultimately a question of fact.
Generally, only questions of law are entertained in appeals by certiorari to the Supreme Court. This rule, however, is not
absolute. Among the several recognized exceptions is when the findings of the Court of Appeals and Labor Arbiters, on
one hand, and that of the NLRC, on the other, are conflicting,15 as obtaining in the case at bar.

138
Jurisprudence is abound with cases that recite the factors to be considered in determining the existence of employer-
employee relationship, namely: (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 method by which
the work is to be accomplished.16 The most important factor involves the control test. Under the control test, there is an
employer-employee relationship when the person for whom the services are performed reserves the right to control not
only the end achieved but also the manner and means used to achieve that end.17

In concluding that respondent was an employee of TAPE, the Court of Appeals applied the "four-fold test" in this wise:

First. The selection and hiring of petitioner was done by private respondents. In fact, private respondents themselves
admitted having engaged the services of petitioner only in 1995 after TAPE severed its relations with RPN Channel 9.

By informing petitioner through the Memorandum dated 2 March 2000, that his services will be terminated as soon as the
services of the newly hired security agency begins, private respondents in effect acknowledged petitioner to be their
employee. For the right to hire and fire is another important element of the employer-employee relationship.

Second. Payment of wages is one of the four factors to be considered in determining the existence of employer-employee
relation. . . Payment as admitted by private respondents was given by them on a monthly basis at a rate of P5,444.44.

Third. Of the four elements of the employer-employee relationship, the "control test" is the most important. x x x

The bundy cards representing the time petitioner had reported for work are evident proofs of private respondents' control
over petitioner more particularly with the time he is required to report for work during the noontime program of "Eat
Bulaga!" If it were not so, petitioner would be free to report for work anytime even not during the noontime program of "Eat
Bulaga!" from 11:30 a.m. to 1:00 p.m. and still gets his compensation for being a "talent." Precisely, he is being paid for
being the security of "Eat Bulaga!" during the above-mentioned period. The daily time cards of petitioner are not just for
mere record purposes as claimed by private respondents. It is a form of control by the management of private respondent
TAPE.18

TAPE asseverates that the Court of Appeals erred in applying the "four-fold test" in determining the existence of
employer-employee relationship between it and respondent. With respect to the elements of selection, wages and
dismissal, TAPE proffers the following arguments: that it never hired respondent, instead it was the latter who offered his
services as a talent to TAPE; that the Memorandum dated 2 March 2000 served on respondent was for the
discontinuance of the contract for security services and not a termination letter; and that the talent fees given to
respondent were the pre-agreed consideration for the services rendered and should not be construed as wages. Anent
the element of control, TAPE insists that it had no control over respondent in that he was free to employ means and
methods by which he is to control and manage the live audiences, as well as the safety of TAPE's stars and guests.19

The position of TAPE is untenable. Respondent was first connected with Agro-Commercial Security Agency, which
assigned him to assist TAPE in its live productions. When the security agency's contract with RPN-9 expired in 1995,
respondent was absorbed by TAPE or, in the latter's language, "retained as talent." 20 Clearly, respondent was hired by
TAPE. Respondent presented his identification card21 to prove that he is indeed an employee of TAPE. It has been in held
that in a business establishment, an identification card is usually provided not just as a security measure but to mainly
identify the holder thereof as a bona fide employee of the firm who issues it.22

Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE prefers to designate such amount
as talent fees. Wages, as defined in the Labor Code, are remuneration or earnings, however designated, capable of being
expressed in terms of money, whether fixed or ascertained on a time, task, piece or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered. It is beyond dispute that respondent
received a fixed amount as monthly compensation for the services he rendered to TAPE.

The Memorandum informing respondent of the discontinuance of his service proves that TAPE had the power to dismiss
respondent.

Control is manifested in the bundy cards submitted by respondent in evidence. He was required to report daily and
observe definite work hours. To negate the element of control, TAPE presented a certification from M-Zet Productions to
prove that respondent also worked as a studio security guard for said company. Notably, the said certificate categorically
stated that respondent reported for work on Thursdays from 1992 to 1995. It can be recalled that during said period,
respondent was still working for RPN-9. As admitted by TAPE, it absorbed respondent in late 1995.23

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TAPE further denies exercising control over respondent and maintains that the latter is an independent contractor.24 Aside
from possessing substantial capital or investment, a legitimate job contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the control and direction of the principal in all
matters connected with the performance of the work except as to the results thereof. 25 TAPE failed to establish that
respondent is an independent contractor. As found by the Court of Appeals:

We find the annexes submitted by the private respondents insufficient to prove that herein petitioner is indeed an
independent contractor. None of the above conditions exist in the case at bar. Private respondents failed to show that
petitioner has substantial capital or investment to be qualified as an independent contractor. They likewise failed to
present a written contract which specifies the performance of a specified piece of work, the nature and extent of the work
and the term and duration of the relationship between herein petitioner and private respondent TAPE.26

TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in classifying respondent as a program
employee and equating him to be an independent contractor.

Policy Instruction No. 40 defines program employees as'

x x x those whose skills, talents or services are engaged by the station for a particular or specific program or undertaking
and who are not required to observe normal working hours such that on some days they work for less than eight (8) hours
and on other days beyond the normal work hours observed by station employees and are allowed to enter into
employment contracts with other persons, stations, advertising agencies or sponsoring companies. The engagement of
program employees, including those hired by advertising or sponsoring companies, shall be under a written contract
specifying, among other things, the nature of the work to be performed, rates of pay and the programs in which they will
work. The contract shall be duly registered by the station with the Broast Media Council within three (3) days from its
consummation.27

TAPE failed to adduce any evidence to prove that it complied with the requirements laid down in the policy instruction. It
did not even present its contract with respondent. Neither did it comply with the contract-registration requirement.

Even granting arguendo that respondent is a program employee, stills, classifying him as an independent contractor is
misplaced. The Court of Appeals had this to say:

We cannot subscribe to private respondents' conflicting theories. The theory of private respondents that petitioner is an
independent contractor runs counter to their very own allegation that petitioner is a talent or a program employee. An
independent contractor is not an employee of the employer, while a talent or program employee is an employee. The only
difference between a talent or program employee and a regular employee is the fact that a regular employee is entitled to
all the benefits that are being prayed for. This is the reason why private respondents try to seek refuge under the concept
of an independent contractor theory. For if petitioner were indeed an independent contractor, private respondents will not
be liable to pay the benefits prayed for in petitioner's complaint.28

More importantly, respondent had been continuously under the employ of TAPE from 1995 until his termination in March
2000, or for a span of 5 years. Regardless of whether or not respondent had been performing work that is necessary or
desirable to the usual business of TAPE, respondent is still considered a regular employee under Article 280 of the Labor
Code which 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 engagement of the employee or where the work or service to be performed is
seasonal in nature and 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.

As a regular employee, respondent cannot be terminated except for just cause or when authorized by law. 29 It is clear
from the tenor of the 2 March 2000 Memorandum that respondent's termination was due to redundancy. Thus, the Court
of Appeals correctly disposed of this issue, viz:

140
Article 283 of the Labor Code provides that the employer may also terminate the employment of any employee due to the
installation of labor saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of
the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the
intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1)
month pay for every year or service, whichever is higher.

xxx

We uphold the finding of the Labor Arbiter that "complainant [herein petitioner] was terminated upon [the] management's
option to professionalize the security services in its operations. x x x" However, [we] find that although petitioner's services
[sic] was for an authorized cause, i.e., redundancy, private respondents failed to prove that it complied with service of
written notice to the Department of Labor and Employment at least one month prior to the intended date of retrenchment.
It bears stressing that although notice was served upon petitioner through a Memorandum dated 2 March 2000, the
effectivity of his dismissal is fifteen days from the start of the agency's take over which was on 3 March 2000. Petitioner's
services with private respondents were severed less than the month requirement by the law.

Under prevailing jurisprudence the termination for an authorized cause requires payment of separation pay. Procedurally,
if the dismissal is based on authorized causes under Articles 283 and 284, the employer must give the employee and the
Deparment of Labor and Employment written notice 30 days prior to the effectivity of his separation. Where the dismissal
is for an authorized cause but due process was not observed, the dismissal should be upheld. While the procedural
infirmity cannot be cured, it should not invalidate the dismissal. However, the employer should be liable for non-
compliance with procedural requirements of due process.

xxx

Under recent jurisprudence, the Supreme Court fixed the amount of P30,000.00 as nominal damages. The basis of the
violation of petitioners' right to statutory due process by the private respondents warrants the payment of indemnity in the
form of nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances. We believe this form of damages would serve to deter employer from future
violations of the statutory due process rights of the employees. At the very least, it provides a vindication or recognition of
this fundamental right granted to the latter under the Labor Code and its Implementing Rules. Considering the
circumstances in the case at bench, we deem it proper to fix it at P10,000.00.30

In sum, we find no reversible error committed by the Court of Appeals in its assailed decision.

However, with respect to the liability of petitioner Tuviera, president of TAPE, absent any showing that he acted with
malice or bad faith in terminating respondent, he cannot be held solidarily liable with TAPE. 31 Thus, the Court of Appeals
ruling on this point has to be modified.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that
only petitioner Television and Production Exponents, Inc. is liable to pay respondent the amount of P10,000.00 as nominal
damages for non-compliance with the statutory due process and petitioner Antonio P. Tuviera is accordingly absolved
from liability.

SO ORDERED.

141
[G.R. NO. 164652   : June 8, 2007]

THELMA DUMPIT-MURILLO, Petitioner, v. COURT OF APPEALS, ASSOCIATED BROADCASTING COMPANY, JOSE

JAVIER AND EDWARD TAN, Respondents.

DECISION

QUISUMBING, J.:

This petition seeks to reverse and set aside both the Decision 1 dated January 30, 2004 of the Court of Appeals in CA-G.R.
SP No. 63125 and its Resolution2 dated June 23, 2004 denying the motion for reconsideration. The Court of Appeals had
overturned the Resolution3 dated August 30, 2000 of the National Labor Relations Commission (NLRC) ruling that
petitioner was illegally dismissed.

The facts of the case are as follows:

On October 2, 1995, under Talent Contract No. NT95-1805,4 private respondent Associated Broasting Company (ABC)
hired petitioner Thelma Dumpit-Murillo as a newscaster and co-anchor for Balitang-Balita, an early evening news
program. The contract was for a period of three months. It was renewed under Talent Contracts Nos. NT95-1915, NT96-
3002, NT98-4984 and NT99-5649.5 In addition, petitioner's services were engaged for the program "Live on Five." On
September 30, 1999, after four years of repeated renewals, petitioner's talent contract expired. Two weeks after the
expiration of the last contract, petitioner sent a letter to Mr. Jose Javier, Vice President for News and Public Affairs of
ABC, informing the latter that she was still interested in renewing her contract subject to a salary increase. Thereafter,
petitioner stopped reporting for work. On November 5, 1999, she wrote Mr. Javier another letter, 6 which we quote
verbatim:

xxx

Dear Mr. Javier:

On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal note "what terms and conditions"
in response to my first letter dated October 13, 1999. To date, or for more than fifteen (15) days since then, I have not
received any formal written reply. xxx

In view hereof, should I not receive any formal response from you until Monday, November 8, 1999, I will deem it as a
constructive dismissal of my services.

xxx

A month later, petitioner sent a demand letter7 to ABC, demanding: (a) reinstatement to her former position; (b) payment
of unpaid wages for services rendered from September 1 to October 20, 1999 and full backwages; (c) payment of 13th
month pay, vacation/sick/service incentive leaves and other monetary benefits due to a regular employee starting March
31, 1996. ABC replied that a check covering petitioner's talent fees for September 16 to October 20, 1999 had been
processed and prepared, but that the other claims of petitioner had no basis in fact or in law.

On December 20, 1999, petitioner filed a complaint8 against ABC, Mr. Javier and Mr. Edward Tan, for illegal constructive
dismissal, nonpayment of salaries, overtime pay, premium pay, separation pay, holiday pay, service incentive leave pay,
vacation/sick leaves and 13th month pay in NLRC-NCR Case No. 30-12-00985-99. She likewise demanded payment for
moral, exemplary and actual damages, as well as for attorney's fees.

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The parties agreed to submit the case for resolution after settlement failed during the mandatory conference/conciliation.
On March 29, 2000, the Labor Arbiter dismissed the complaint.9

On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30, 2000. The NLRC held that an
employer-employee relationship existed between petitioner and ABC; that the subject talent contract was void; that the
petitioner was a regular employee illegally dismissed; and that she was entitled to reinstatement and backwages or
separation pay, aside from 13th month pay and service incentive leave pay, moral and exemplary damages and attorney's
fees. It held as follows:

WHEREFORE, the Decision of the Arbiter dated 29 March 2000 is hereby REVERSED/SET ASIDE and a NEW
ONE promulgated:

1) declaring respondents to have illegally dismissed complainant from her regular work therein and thus, ordering them to
reinstate her in her former position without loss of seniority right[s] and other privileges and to pay her full backwages,
inclusive of allowances and other benefits, including 13th month pay based on her said latest rate of P28,000.00/mo. from
the date of her illegal dismissal on 21 October 1999 up to finality hereof, or at complainant's option, to pay her separation
pay of one (1) month pay per year of service based on said latest monthly rate, reckoned from date of hire on 30
September 1995 until finality hereof;

2) to pay complainant's accrued SILP [Service Incentive Leave Pay] of 5 days pay per year and 13th month pay for the
years 1999, 1998 and 1997 of P19,236.00 and P84,000.00, respectively and her accrued salary from 16 September 1999
to 20 October 1999 of P32,760.00 plus legal interest at 12% from date of judicial demand on 20 December 1999 until
finality hereof;

3) to pay complainant moral damages of P500,000.00, exemplary damages of P350,000.00 and 10% of the total of the
adjudged monetary awards as attorney's fees.

Other monetary claims of complainant are dismissed for lack of merit.

SO ORDERED.10

After its motion for reconsideration was denied, ABC elevated the case to the Court of Appeals in a petition
for certiorari under Rule 65. The petition was first dismissed for failure to attach particular documents,11 but was reinstated
on grounds of the higher interest of justice.12

Thereafter, the appellate court ruled that the NLRC committed grave abuse of discretion, and reversed the decision of the
NLRC.13 The appellate court reasoned that petitioner should not be allowed to renege from the stipulations she had
voluntarily and knowingly executed by invoking the security of tenure under the Labor Code. According to the appellate
court, petitioner was a fixed-term employee and not a regular employee within the ambit of Article 280 14 of the Labor Code
because her job, as anticipated and agreed upon, was only for a specified time.15

Aggrieved, petitioner now comes to this Court on a Petition for Review, raising issues as follows:

I.

THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE COURT OF APPEALS, THE
DECISION OF WHICH IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME
COURT[;]

II.

THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC - FIRST DIVISION, ARE "ANTI-
REGULARIZATION DEVICES" WHICH MUST BE STRUCK DOWN FOR REASONS OF PUBLIC POLICY[;]

III.

BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE THREE-MONTH TALENT

CONTRACTS, AN EMPLOYER-EMPLOYEE RELATIONSHIP WAS CREATED AS PROVIDED FOR UNDER ARTICLE
280 OF THE LABOR CODE[;]

IV.

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BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR EMPLOYEE, THERE WAS A
DENIAL OF PETITIONER'S RIGHT TO DUE PROCESS THUS ENTITLING HER TO THE MONEY CLAIMS AS STATED
IN THE COMPLAINT[.]16

The issues for our disposition are: (1) whether or not this Court can review the findings of the Court of Appeals; and (2)
whether or not under Rule 45 of the Rules of Court the Court of Appeals committed a reversible error in its Decision.

On the first issue, private respondents contend that the issues raised in the instant petition are mainly factual and that
there is no showing that the said issues have been resolved arbitrarily and without basis. They add that the findings of the
Court of Appeals are supported by overwhelming wealth of evidence on record as well as prevailing jurisprudence on the
matter.17

Petitioner however contends that this Court can review the findings of the Court of Appeals, since the appellate court
erred in deciding a question of substance in a way which is not in accord with law or with applicable decisions of this
Court.18

We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in any case - regardless of the
nature of the action or proceeding involved - may be appealed to this Court through a Petition for Review . This remedy is
a continuation of the appellate process over the original case,19 and considering there is no congruence in the findings of
the NLRC and the Court of Appeals regarding the status of employment of petitioner, an exception to the general rule that
this Court is bound by the findings of facts of the appellate court,20 we can review such findings.

On the second issue, private respondents contend that the Court of Appeals did not err when it upheld the validity of the
talent contracts voluntarily entered into by petitioner. It further stated that prevailing jurisprudence has recognized and
sustained the absence of employer-employee relationship between a talent and the media entity which engaged the
talent's services on a per talent contract basis, citing the case of Sonza v. ABS-CBN Broasting Corporation.21

Petitioner avers however that an employer-employee relationship was created when the private respondents started to
merely renew the contracts repeatedly fifteen times or for four consecutive years.22

Again, we agree with petitioner. The Court of Appeals committed reversible error when it held that petitioner was a fixed-
term employee. Petitioner was a regular employee under contemplation of law. The practice of having fixed-term contracts
in the industry does not automatically make all talent contracts valid and compliant with labor law. The assertion that a
talent contract exists does not necessarily prevent a regular employment status.23

Further, the Sonza  case is not applicable. In Sonza, the television station did not instruct Sonza how to perform his job.
How Sonza delivered his lines, appeared on television, and sounded on radio were outside the television station's control.
Sonza had a free hand on what to say or discuss in his shows provided he did not attack the television station or its
interests. Clearly, the television station did not exercise control over the means and methods of the performance of
Sonza's work.24 In the case at bar, ABC had control over the performance of petitioner's work. Noteworthy too, is the
comparatively low P28,000 monthly pay of petitioner25 vis the P300,000 a month salary of Sonza,26 that all the more
bolsters the conclusion that petitioner was not in the same situation as Sonza.

The contract of employment of petitioner with ABC had the following stipulations:

xxx

1. SCOPE OF SERVICES - TALENT agrees to devote his/her talent, time, attention and best efforts in the performance of
his/her duties and responsibilities as Anchor/Program Host/Newscaster of the Program, in accordance with the direction
of ABC and/or its authorized representatives.

1.1. DUTIES AND RESPONSIBILITIES - TALENT shall:

A. Render his/her services as a newscaster on the Program;

b. Be involved in news-gathering operations by conducting interviews on - and off-the-air;

c. Participate in live remote coverages when called upon;

d. Be available for any other news assignment, such as writing, research or camera work;

e. Attend production meetings;

144
f. On assigned days, be at the studios at least one (1) hour before the live telecasts;

g. Be present promptly at the studios and/or other place of assignment at the time designated by ABC;

h. Keep abreast of the news;

i. Give his/her full cooperation to ABC and its duly authorized representatives in the production and promotion of the
Program; andcralawlibrary

j. Perform such other functions as may be assigned to him/her from time to time.

xxx

1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND REGULATIONS - TALENT agrees
that he/she will promptly and faithfully comply with the requests and instructions, as well as the program standards,
policies, rules and regulations of ABC, the KBP and the government or any of its agencies and instrumentalities.27

xxx

In Manila Water Company, Inc. v. Pena,28 we said that the elements to determine the existence of an employment
relationship are: (a) the selection and engagement of the employee, (b) the payment of wages, (c) the power of dismissal,
and (d) the employer's power to control. The most important element is the employer's control of the employee's conduct,
not only as to the result of the work to be done, but also as to the means and methods to accomplish it.29

The duties of petitioner as enumerated in her employment contract indicate that ABC had control over the work of
petitioner. Aside from control, ABC also dictated the work assignments and payment of petitioner's wages. ABC also had
power to dismiss her. All these being present, clearly, there existed an employment relationship between petitioner and
ABC.

Concerning regular employment, the law provides for two kinds of employees, namely: (1) those who are engaged to
perform activities which are usually necessary or desirable in the usual business or trade of the employer; and (2) those
who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they
are employed.30 In other words, regular status arises from either the nature of work of the employee or the duration of his
employment.31 In Benares v. Pancho,32 we very succinctly said:

'[T]he primary standard for determining regular employment is the reasonable connection between the particular activity
performed by the employee vis - à-vis the usual trade or business of the employer. This connection can be determined
by considering the nature of the work performed and its relation to the scheme of the particular business or trade in its
entirety. 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.33

In our view, the requisites for regularity of employment have been met in the instant case. Gleaned from the description of
the scope of services aforementioned, petitioner's work was necessary or desirable in the usual business or trade of the
employer which includes, as a pre-condition for its enfranchisement, its participation in the government's news and public
information dissemination. In addition, her work was continuous for a period of four years. This repeated engagement
under contract of hire is indicative of the necessity and desirability of the petitioner's work in private respondent ABC's
business.34

The contention of the appellate court that the contract was characterized by a valid fixed-period employment is untenable.
For such contract to be valid, it should be shown that the fixed period was knowingly and voluntarily agreed upon by the
parties. There should have been no force, duress or improper pressure brought to bear upon the employee; neither
should there be any other circumstance that vitiates the employee's consent.35 It should satisfactorily appear that the
employer and the employee dealt with each other on more or less equal terms with no moral dominance being exercised
by the employer over the employee.36 Moreover, fixed-term employment will not be considered valid where, from the
circumstances, it is apparent that periods have been imposed to preclude acquisition of tenurial security by the
employee.37

In the case at bar, it does not appear that the employer and employee dealt with each other on equal terms.
Understandably, the petitioner could not object to the terms of her employment contract because she did not want to lose
the job that she loved and the workplace that she had grown accustomed to, 38 which is exactly what happened when she

145
finally manifested her intention to negotiate. Being one of the numerous newscasters/broasters of ABC and desiring to
keep her job as a broasting practitioner, petitioner was left with no choice but to affix her signature of conformity on each
renewal of her contract as already prepared by private respondents; otherwise, private respondents would have simply
refused to renew her contract. Patently, the petitioner occupied a position of weakness vis - à-vis the employer.
Moreover, private respondents' practice of repeatedly extending petitioner's 3-month contract for four years is a
circumvention of the acquisition of regular status. Hence, there was no valid fixed-term employment between petitioner
and private respondents.

While this Court has recognized the validity of fixed-term employment contracts in a number of cases, it has consistently
emphasized that when the circumstances of a case show that the periods were imposed to block the acquisition of
security of tenure, they should be struck down for being contrary to law, morals, good customs, public order or public
policy.39

As a regular employee, petitioner is entitled to security of tenure and can be dismissed only for just cause and after due
compliance with procedural due process. Since private respondents did not observe due process in constructively
dismissing the petitioner, we hold that there was an illegal dismissal.

WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution dated June 23, 2004 of the Court of
Appeals in CA-G.R. SP No. 63125, which held that the petitioner was a fixed-term employee, are REVERSED and SET
ASIDE. The NLRC decision is AFFIRMED.

Costs against private respondents.

SO ORDERED.

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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 Decision 1 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
147
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

148
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

149
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)

150
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:

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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:

152
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.

153
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 223 21 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

154
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.

155
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
156
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.

157
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."

158
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.

159
[G.R. NO. 162401 - January 31, 2006]

CORAZON ALMIREZ, Petitioner, v. INFINITE LOOP TECHNOLOGY CORPORATION, EDWIN R. RABINO and COURT

OF APPEALS, Respondents.

DECISION

CARPIO MORALES, J.:

Corazon Almirez (petitioner) was hired as a Refinery Senior Process Design Engineer for a specific project by respondent
Infinite Loop Technology Corporation (Infinite Loop) through its General Manager/President-co-respondent Edwin R.
Rabino (Rabino) who, by letter1 dated September 30, 1999 to petitioner, furnished the details of the employment of her
services as follows:

Subject: Acceptance of Professional Services

Refinery - Senior Process Design Engineer

Dear Ms. Almirez

This is to confirm acceptance of your services as per attached Terms and Conditions. Your services will commence
effective October 18, 1999 up to the completion of the scope of services and continuation thereof with a guaranty of 12
continuous months as outlined in the attachment or until a mutually agreed date.

We thank you for considering our company as a valued partner in the advancement of Petroleum Processing Technology
in our country.

x x x x (Emphasis and underscoring supplied)cralawlibrary

As indicated in the above-quoted portion of Rabino's letter, the terms and conditions attendant to the acceptance of
petitioner's "Professional Services"2 were attached to it reading:

Scope of Professional Services

The Senior Process Design Engineer shall work together with the Process Design Consultant in performing the scope of
services below which includes but are not limited to the following:

1. Prepare the Process Design Terms of Reference or Basis of Design and other data required for the proposed
1,200,000 BPSD Petroleum Refinery. These data are to be used in securing the services of a Basic Design Engineering
Company as well as part of Project Accomplishment of Infinite Loop Technology Corp.

160
2. Review and revise/improve as necessary the existing conceptual process block diagram or Process Flow Scheme of
the proposed petroleum refinery. Various capacity combinations are to be considered to develop process design modules
of 1,200,000 BPSD total capacity.

3. Implement new process technologies that can meet the requirements of Japanese, Australian and US petroleum
product standard by the year 2004. As well as the Philippine Clean Air Act provisions applicable to the proposed
1,200,000 BPSD petroleum refinery. Petroleum Product Standards required shall be researched and be part of the Basis
of Design or Term of Reference.

4. Participate in discussions during the solicitation of proposals from Basic Design Engineering Companies.

5. Review the progress of work being done by the Basic Design Engineering Company and coordinate with the company
management team for an efficient and effective project implementation.

6. Make reports and recommendations to the company management team regarding work progress, revisions and
improvement of process design on a regular basis as required by company management team.

7. Represent the Company in technical meetings to be held locally or abroad.

8. Perform other related works that are necessary in completing the Engineering Procurement and Construction (EPC) bid
documents and progress reports relevant to schedules of deliveries to the Project Proponent as required by the company.

9. Continue related works when the construction stage of this Proposed Refinery will push through.

10. Serve as technical consultant to Infinite Loop Technology Corp. on other relevant works or projects when required.

x x x x (Emphasis in the original; underscoring supplied)

Terms of Payments

Professional Fee: US$ 2,000.00 per month (net of tax)

To be paid 50/50 split in US Dollars or

equivalent Peso every 15th and 30th of the month

Length of Service: Guaranteed minimum of 12 continuous months

or up to completion of services, or until a

mutually agreed date.

Reimbursable Expenses:

Work related expenses which include but not

limited to the following:

- Communication Expenses (Cellular

phone, fax, tels)

- Representation Expenses

- Out of town travel expenses

Other Benefits:

- US$ 300.00 per month as transportation

allowance (Engineer to use her

161
personal car in the performance of

work) to be paid in equivalent pesos

every end of the month.

- Project Bonus at the end of the contract

to be mutually agreed upon by both parties.

Others:

Infinite Loop Technology Corporation to provide

the ff:

- Laptop Computer (Pentium III or best

available model with modems etc.)

- Printer/ Scanner

- Process Simulation Softwares to be identified later (Emphasis in the original; underscoring supplied)

The letter, as well as the attached documents, bore the signature of petitioner and Rabino.

For her services, petitioner received the following amounts on the dates indicated:3

Voucher date   Amount

11/23/99 Salary for Nov. 1-15, 1999 P

20,000.00
12/02/99 Salary for Nov. 15-30, 1999 8,000.00
12/15/99 Full payment for Nov. 15-30 salary 2,000.00
  Salary for Dec. 1-15, 1999 10,000.00
1/17/00 Salary for Jan. 1-15, 2000 12,000.00
1/16/00 Salary for Jan. 16-31, 2000 12,500.00
1/20/00 Salary for Jan. 1-15, 2000 12,500.00
    -------------
--
  Total P

77,000.00

By letter4 dated February 2, 2000, petitioner conveyed to Infinite Loop through Rabino her disappointment with the "salary"
she was receiving in this wise:

x x x When I agreed with a salary of P30,000.00 monthly, my understanding is that, this amount is already net of tax x x x.
However, when I received my salary for the month of January which is only partial, (P25,000) and even less because [of]
SSS and tax deductions x x x

I understand that tax should be deducted from my salary for your Accounting records but I would like to ask you not to
deduct it from the P30,000.00 salary I am supposed to be receiving. Currently I am paying my SSS contributions
voluntarily so there is no need for the company to pay my monthly contributions.

I would like to render my service at Infinite Loop based on the contract that I signed and I am willing to serve as technical
consultant to Infinite Loop on other relevant works or projects while we are waiting for the Masbate refinery project.

162
x x x x (Emphasis and underscoring supplied)cralawlibrary

Responding,5 Rabino stated that petitioner's letter "was totally different [from] what [they] verbally agreed [upon]" in her
house; that "like any other proposed project, [the Proposed 1,200,000 BPSD Petroleum Refinery] can be deferred like its
present status;" and that since "the financial side for the engineering design for the proposed [project] is not yet available x
x x it would be prudent to SUSPEND her professional services as Senior Process Design Engineer effective February 7,
2000." Rabino assured petitioner that her professional services would be resumed once they are provided with the initial
payment requested from the project proponent.

By letter6 dated August 9, 2000, petitioner, through counsel, wrote Rabino "to compensate [her with] the total amount of
her contract," thus:

Our client MS. CORAZON S. ALMIREZ has referred to us for appropriate legal action concerning her contract with your
company as a refinery process design engineer.

In the said contract, which was accepted by our said client on September 30, 1999, you stated that our client's services
"will commence effective October 18, 1999 up to the completion of the scope of the services and continuation thereof with
a guaranty of 12 continuous months as outlined in the attachment or until a mutually agreed date". However, despite your
guarantee of at least 12 continuous months of service, you suspended her professional services effective February 7,
2000. The same is a clear violation of the terms and conditions of the contract. Moreover, you have paid her only a total
amount of SEVENTY FOUR THOUSAND TWO HUNDRED TWENTY NINE & 17/100 PESOS (P74,229.17), which is way
below than the agreed professional fee of US $2,000.00 a month net of tax. On account of your blatant violation of the
terms and conditions of the contract, our client suffered sleepless nights, anxiety and besmirched reputation. She was
constrained to resign from her job as an engineer at the Technoserve International Co., Inc., in view of her contract with
your company.

In view thereof, formal demand is hereby made on you to compensate our client the total amount of her contract or the
amount of US DOLLARS: twenty thousand ($ 20,000.00), MORE OR LESS, within five (5) days from your receipt hereof,
failing which we shall, much to our regret, be constrained to file the necessary action in court.

x x x x (Underscoring supplied)cralawlibrary

Rabino later wrote petitioner, by letter of November 15, 2000,7 as follows:

Thank you for reminding us about our agreement about this possible landmark project. You all know that Infinite Loop
Tech. Corp. is the lead company in this undertaking in association with other companies forming a consortium to cope up
with the huge financial and technical requirement of this project. We all have invested a lot of group resources for this, but
unfortunately the Project Proponent, Arrox Resources Corp., have encountered re-organization and have not yet paid us
for this project.

At the moment, the former Chairman of Arrox Resources Corp. is still in contact with us. We all hope that this project will
push thru after our country would overcome all the peace and order, economic and political crisis we are encountering
now.

We all hope that you would bear with us. We would inform you soonest once any development from the project proponent
would be relayed to us.

On December 12, 2000, petitioner filed a complaint against Infinite Loop and Rabino before the National Labor Relations
Commission (NLRC) for "breach of contract of employment," praying that judgment be rendered in her favor ordering
Infinite Loop to pay:

(1) $22,000.00 or its peso equivalent representing salaries and wages;

(2) P300,000.00 as and for moral damages;

(3) P100,000.00 as and for exemplary damages; andcralawlibrary

(4) 10% of the total claim as and for attorney's fees.

Infinite Loop moved to dismiss8 petitioner's complaint on the ground that the NLRC has no jurisdiction over the parties and
the subject matter, there being no employee-employer relationship between them as the contract they entered into was
one of services and not of employment.

163
By Resolution of November 14, 2001, the Labor Arbiter, finding that paragraph No. 6 of the Scope of Professional
Services of petitioner showed that "the company's management team exercises control over the means and methods in
the performance of [petitioner's] duties as Refinery Process Design Engineer," held that there existed an employer-
employee relationship between the parties.

The Labor Arbiter thus ordered Infinite Loop and Rabino to jointly and severally pay petitioner the sum of US$ 24,000.00
in its peso equivalent at the date of payment less advances in the amount of P77,000.00 plus 5% thereof by way of
attorney's fees. It dismissed petitioner's claim for damages, however.9

Infinite Loop and Rabino (hereafter respondents) appealed to the NLRC. By Resolution10 dated September 19, 2002, the
NLRC, finding that employer-employee relation between the parties indeed existed, dismissed respondents' appeal.

Before the Court of Appeals to which respondents elevated the case, they argued that the NLRC:

I.

x x x ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION AND ERRED IN NOT FINDING THAT
THE LABOR ARBITER HAS NO JURISDICTION OVER THE CAUSES OF ACTION PLEADED IN THE COMPLAINT,
I.E., NON PAYMENT OF PROFESSIONAL FEE AND BREACH OF CONTRACT.

II.

x x x COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION AND COMMITTED

REVERSIBLE ERROR IN NOT FINDING THAT [PETITIONER] IS NOT AN EMPLOYEE OF [INFINITE LOOP].

III.

x x x SERIOUSLY ERRED IN NOT FINDING THE ENVISIONED ENGAGEMENT OF [PETITIONER] AS A REFINERY

PROCESS ENGINEER IS CO-TERMINOUS WITH THE PROJECT, WHICH PROJECT DID NOT
MATERIALIZE.11 (Underscoring supplied)cralawlibrary

The appellate court, finding that "[petitioner] was hired to render professional services for a specific project" and her
"primary cause of action is for a sum of money on account of [Infinite Loop's] alleged breach of contractual obligation to
pay her agreed professional fee," held by Decision12 dated October 20, 2003 that no employer-employee relationship
existed between the parties, hence, the NLRC and the Labor Arbiter have no jurisdiction over the complaint. It accordingly
reversed the NLRC decision and dismissed petitioner's complaint.

Hence, the present petition, petitioner contending that the appellate court erred when it:

A.

x x x INCONSISTENTLY RULED THAT THERE WAS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE

PARTIES BUT AT THE SAME TIME IT CITED THAT [PETITIONER] IS A PROJECT EMPLOYEE. MOREOVER, THE
ASSAILED JUDGMENT IS BASED ON MISAPPRECIATION OF FACTS.

B.

x x x FAILED TO CONSIDER THE RELIEF MENTIONED IN [PETITIONER'S] COMPLAINT FOR PAYMENT OF SALARY
xxx

C.

x x x RULED THAT THE SEPARATION FROM SERVICE OF [PETITIONER] BECAUSE OF THE PROJECT'S
DISCONTINUANCE DID NOT RESULT TO ILLEGAL DISMISSAL.13

To ascertain the existence of an employer-employee relationship, jurisprudence has invariably applied the four-fold test, to
wit: (1) the manner of selection and engagement; (2) the payment of wages; (3) the presence or absence of the power of
dismissal; and (4) the presence or absence of the power of control. Of these four, the last one, the so called "control test"
is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-
employee relationship.14

164
Under the control test, an employer-employee relationship exists where the person for whom the services are performed
reserves the right to control not only the end achieved, but also the manner and means to be used in reaching that end.15

From the earlier-quoted scope of petitioner's professional services, there is no showing of a power of control over
petitioner. The services to be performed by her specified what she needed to achieve but not on how she was to go about
it.

Contrary to the finding of the Labor Arbiter, as affirmed by the NLRC, above-quoted paragraph No. 6 of the "Scope of
[petitioner's] Professional Services" requiring her to "[m]ake reports and recommendations to the company management
team regarding work progress, revisions and improvement of process design on a regular basis as required by company
management team" does not "show that the company's management team exercises control over the means and
methods in the performance of her duties as Refinery Process Design Engineer." Having hired petitioner's professional
services on account of her "expertise and qualifications" as petitioner herself proffers in her Position Paper, 16 the company
naturally expected to be updated regularly of her "work progress," if any, on the project for which she was specifically
hired.

In bolstering her contention that there was an employer-employee relationship, petitioner draws attention to the pay slips
and Infinite Loop's deduction of her SSS, Philhealth, and withholding tax, and to the designation of the payments to her as
"salaries."

The deduction from petitioner's remuneration of amounts representing SSS premiums, Philhealth contributions and
withholding tax, was made in the only payslip issued to petitioner, that for the period of January 16-31, 2000, 17 the other
amounts of remuneration having been documented by cash vouchers. Such payslip cannot prove the existence of an
employer-employee relationship between the parties.

The cases of Equitable Banking Corp. v. NLRC18 and Nagusara v. NLRC19 should be differentiated from the present case,
as the employers in these two cases did not only regularly make similar deductions from the therein complainants'
remuneration but also registered and declared the complainants with the SSS and Medicare (Philhealth) as their
employees.

As for the designation of the payments to petitioner as "salaries," it is not determinative of the existence of an employer-
employee relationship. "Salary" is a general term defined as "a remuneration for services given." It is the above-quoted
contract of engagement of services-letter dated September 30, 1999, together with its attachments, which is the law
between the parties. Even petitioner concedes rendering service "based on the contract,"20 which, as reflected earlier, is
bereft of a showing of power of control, the most crucial and determinative indicator of the presence of an employer-
employee relationship.

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioner.

SO ORDERED.

165
G.R. No. 138254             July 30, 2004

ANGELITO L. LAZARO, Proprietor of Royal Star Marketing, petitioner,

vs.
SOCIAL SECURITY COMMISSION, ROSALINA LAUDATO, SOCIAL SECURITY SYSTEM and THE HONORABLE
COURT OF APPEALS, respondents.

DECISION

TINGA, J.:

Before us is a Petition for Review under Rule 45, assailing the Decision1 of the Court of Appeals Fifteenth Division2 in CA-
G.R. Sp. No. 40956, promulgated on 20 November 1998, which affirmed two rulings of the Social Security Commission
("SSC") dated 8 November 1995 and 24 April 1996.

Private respondent Rosalina M. Laudato ("Laudato") filed a petition before the SSC for social security coverage and
remittance of unpaid monthly social security contributions against her three (3) employers. Among the respondents was
herein petitioner Angelito L. Lazaro ("Lazaro"), proprietor of Royal Star Marketing ("Royal Star"), which is engaged in the
business of selling home appliances.3 Laudato alleged that despite her employment as sales supervisor of the sales
agents for Royal Star from April of 1979 to March of 1986, Lazaro had failed during the said period, to report her to the
SSC for compulsory coverage or remit Laudato's social security contributions.4

Lazaro denied that Laudato was a sales supervisor of Royal Star, averring instead that she was a mere sales agent whom
he paid purely on commission basis. Lazaro also maintained that Laudato was not subjected to definite hours and
conditions of work. As such, Laudato could not be deemed an employee of Royal Star.5

After the parties submitted their respective position papers, the SSC promulgated a Resolution6 dated 8 November 1995
ruling in favor of Laudato.7 Applying the "control test," it held that Laudato was an employee of Royal Star, and ordered
Royal Star to pay the unremitted social security contributions of Laudato in the amount of Five Thousand Seven Pesos
and Thirty Five Centavos (P5,007.35), together with the penalties totaling Twenty Two Thousand Two Hundred Eighteen
Pesos and Fifty Four Centavos (P22,218.54). In addition, Royal Star was made liable to pay damages to the SSC in the

166
amount of Fifteen Thousand Six Hundred Eighty Pesos and Seven Centavos (P15,680.07) for not reporting Laudato for
social security coverage, pursuant to Section 24 of the Social Security Law.8

After Lazaro's Motion for Reconsideration before the SSC was denied,9 Lazaro filed a Petition for Review with the Court of
Appeals. Lazaro reiterated that Laudato was merely a sales agent who was paid purely on commission basis, not included
in the company payroll, and who neither observed regular working hours nor accomplished time cards.

In its assailed Decision, the Court of Appeals noted that Lazaro's arguments were a reprise of those already presented
before the SSC.10 Moreover, Lazaro had not come forward with particulars and specifics in his petition to show that the
Commission's ruling is not supported by substantial evidence.11 Thus, the appellate court affirmed the finding that Laudato
was an employee of Royal Star, and hence entitled to coverage under the Social Security Law.

Before this Court, Lazaro again insists that Laudato was not qualified for social security coverage, as she was not an
employee of Royal Star, her income dependent on a generation of sales and based on commissions.12 It is argued that
Royal Star had no control over Laudato's activities, and that under the so-called "control test," Laudato could not be
deemed an employee.13

It is an accepted doctrine that for the purposes of coverage under the Social Security Act, the determination of employer-
employee relationship warrants the application of the "control test," that is, whether the employer controls or has reserved
the right to control the employee, not only as to the result of the work done, but also as to the means and methods by
which the same is accomplished.14 The SSC, as sustained by the Court of Appeals, applying the control test found that
Laudato was an employee of Royal Star. We find no reversible error.

Lazaro's arguments are nothing more but a mere reiteration of arguments unsuccessfully posed before two bodies: the
SSC and the Court of Appeals. They likewise put to issue factual questions already passed upon twice below, rather than
questions of law appropriate for review under a Rule 45 petition. The determination of an employer-employee relationship
depends heavily on the particular factual circumstances attending the professional interaction of the parties. The Court is
not a trier of facts15 and accords great weight to the factual findings of lower courts or agencies whose function is to
resolve factual matters.16

Lazaro's arguments may be dispensed with by applying precedents. Suffice it to say, the fact that Laudato was paid by
way of commission does not preclude the establishment of an employer-employee relationship. In Grepalife v.
Judico,17 the Court upheld the existence of an employer-employee relationship between the insurance company and its
agents, despite the fact that the compensation that the agents on commission received was not paid by the company but
by the investor or the person insured.18 The relevant factor remains, as stated earlier, whether the "employer" controls or
has reserved the right to control the "employee" not only as to the result of the work to be done but also as to the means
and methods by which the same is to be accomplished.19

Neither does it follow that a person who does not observe normal hours of work cannot be deemed an employee.
In Cosmopolitan Funeral Homes, Inc. v. Maalat,20 the employer similarly denied the existence of an employer-employee
relationship, as the claimant according to it, was a "supervisor on commission basis" who did not observe normal hours of
work. This Court declared that there was an employer-employee relationship, noting that "[the] supervisor, although
compensated on commission basis, [is] exempt from the observance of normal hours of work for his compensation is
measured by the number of sales he makes."21

It should also be emphasized that the SSC, also as upheld by the Court of Appeals, found that Laudato was a sales
supervisor and not a mere agent.22 As such, Laudato oversaw and supervised the sales agents of the company, and thus
was subject to the control of management as to how she implements its policies and its end results. We are disinclined to
reverse this finding, in the absence of countervailing evidence from Lazaro and also in light of the fact that Laudato's
calling cards from Royal Star indicate that she is indeed a sales supervisor.

The finding of the SSC that Laudato was an employee of Royal Star is supported by substantial evidence. The SSC
examined the cash vouchers issued by Royal Star to Laudato,23 calling cards of Royal Star denominating Laudato as a
"Sales Supervisor" of the company,24 and Certificates of Appreciation issued by Royal Star to Laudato in recognition of her
unselfish and loyal efforts in promoting the company.25 On the other hand, Lazaro has failed to present any convincing
contrary evidence, relying instead on his bare assertions. The Court of Appeals correctly ruled that petitioner has not
sufficiently shown that the SSC's ruling was not supported by substantial evidence.

A piece of documentary evidence appreciated by the SSC is Memorandum dated 3 May 1980 of Teresita Lazaro, General
Manager of Royal Star, directing that no commissions were to be given on all "main office" sales from walk-in customers
and enjoining salesmen and sales supervisors to observe this new policy. 26 The Memorandum evinces the fact that,

167
contrary to Lazaro's claim, Royal Star exercised control over its sales supervisors or agents such as Laudato as to the
means and methods through which these personnel performed their work.

Finally, Lazaro invokes our ruling in the 1987 case of Social Security System v. Court of Appeals27 that a person who
works for another at his own pleasure, subject to definite hours or conditions of work, and is compensated according to
the result of his effort is not an employee.28 The citation is odd for Lazaro to rely upon, considering that in the cited case,
the Court affirmed the employee-employer relationship between a sales agent and the cigarette firm whose products he
sold.29 Perhaps Lazaro meant instead to cite our 1969 ruling in the similarly-titled case of Social Security System v. Court
of Appeals,30 also cited in the later eponymous ruling, whose disposition is more in accord with Lazaro's argument.

Yet, the circumstances in the 1969 case are very different from those at bar. Ruling on the question whether jockeys were
considered employees of the Manila Jockey Club, the Court noted that the jockeys were actually subjected to the control
of the racing steward, whose authority in turn was defined by the Games and Amusements Board. 31 Moreover, the
jockey's choice as to which horse to mount was subject to mutual agreement between the horse owner and the jockey,
and beyond the control of the race club.32 In the case at bar, there is no showing that Royal Star was similarly precluded
from exerting control or interference over the manner by which Laudato performed her duties. On the contrary, substantial
evidence as found by the SSC and the Court of Appeals have established the element of control determinative of an
employer-employee relationship. We affirm without hesitation.

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals dated 20 November 1998 is
AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 118101 September 16, 1996

EDDIE DOMASIG, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION), CATA GARMENTS CORPORATION and/or
OTTO ONG and CATALINA CO., respondents.

PADILLA, J.:

This petition for certiorari under Rule 65 of the Rules of Court seeks to nullify and set aside the Resolution 1 of
respondent National Labor Relations Commission (NLRC) rendered on 20 September 1994 remanding the records of the
case to the arbitration branch of origin for further proceedings.

The antecedent facts as narrated by public respondent in the assailed resolution are as follows:

The complaint was instituted by Eddie Domasig against respondent Cata Garments Corporation, a
company engaged in garments business and its owner/manager Otto Ong and Catalina Co for illegal
dismissal, unpaid commission and other monetary claim[s]. Complainant alleged that he started working
with the respondent on July 6, 1986 as Salesman when the company was still named Cato Garments
Corporation; that three (3) years ago, because of a complaint against respondent by its workers, its
changed its name to Cata Garments Corporation; and that on August 29, 1992, he was dismissed when
respondent learned that he was being pirated by a rival corporation which offer he refused. Prior to his
dismissal, complainant alleged that he was receiving a salary of P1,500.00 a month plus commission. On
September 3, 1992 he filed the instant complaint.

Respondent denied complainant's claim that he is a regular employee contending that he is a mere
commission agent who receives a commission of P5.00 per piece of article sold at regular price and
P2.50 per piece sold in [sic] bargain price; that in addition to commission, complainant received a fixed
allowance of P1,500.00 a month; that he had no regular time schedule; and that the company come [sic]
into existence only on September 17, 1991. In support of its claim that complainant is a commission
agent, respondent submitted as Annexes "B" and "B-1" the List of Sales Collections, Computation of
Commission due, expenses incurred, cash advances received for the month of January and March 1992
(Rollo,  p. 22-27). Respondent further contends that complainant failed to turn over to the respondent his

168
 collection from two (2) buyers as per affidavit executed by these buyers (Rollo p. 28-29) and for which,
according to respondent it initiated criminal proceedings against the complainant.

The Labor Arbiter held that complainant was illegally dismissed and entitled to reinstatement and
backwages as well as underpayment of salary; 13th month pay; service incentive leave and legal holiday.
The Arbiter also awarded complainant his claim for unpaid commission in the amount of P143,955.00. 2

Private respondents appealed the decision of the labor arbiter to public respondent. As aforesaid, the NLRC resolved to
remand the case to the labor arbiter for further proceeding. It declared as follows:

We find the decision of the Labor Arbiter not supported by evidence on record. The issue of whether or
not complainant was a commission agent was not fully resolved in the assailed decision. It appears that
the Labor Arbiter failed to appreciate the evidences submitted by respondent as Annexes "B" and "B-1"
(Rollo p. 22-27) in support of its allegation as regard[s] the nature of complainant's employment. Neither
is there a showing that the parties were required to adduce further to support their respective claim. The
resolution of the nature of complainant's employment is vital to the case at bar considering that it would
be determinative to his entitlement of monetary benefits. The same is similarly true as regard the claim
[sic] for unpaid commission. The amount being claim [sic] for unpaid commission as big as it is requires
substantial proof to establish the entitlement of the complainant proof to establish the entitlement of the
complainant to the same. We take not of the respondent's claim that "while they admit that complainant
has an unpaid commission due him, the same is only for his additional sale of 4,027 pieces at regular
price and 1,047 pieces at bargain price for a total sum of (P20,135.00 + 2,655.00) or P22,820.00 as
appearing in the list of Sales and unpaid commission" (Annex "C" and "C-1" Appeal, Rollo p. 100-102).
Said amount according to respondent is being withheld by them pending the accounting of money
collected by complainant from his two (2) buyers which was not remitted to them. Considering the
conflicting version of the parties regarding the issues on hand, it was incumbent on the Labor Arbiter to
conduct further proceedings thereon. The ends of justice would better be served if both partied are given
the opportunity to ventilate further their positions. 3

In their comment on the petition at bar, private respondents agree with the finding of the NLRC that the nature of
petitioner's employment with private respondents is vital to the case as it will determine the monetary benefits to which he
is entitled. They further aver that the evidence presented upon which the labor arbiter based her decision is insufficient, so
that the NLRC did not commit grave abuse of discretion in remanding the case to the arbitration branch of origin for further
proceedings.

The comment of the Solicitor General is substantially the same as that of private respondents, i.e., there is no sufficient
evidence to prove employer-employee relationship between the parties. Furthermore, he avers that the order of the NLRC
to the labor arbiter for further proceedings does not automatically translate to a protracted trial on the merits for such can
be faithfully complied with through the submission of additional documents or pleadings only.

The only issue to be resolved in this petition is whether or not the NLRC gravely abused its discretion in vacating and
setting aside the decision of the labor arbiter and remanding the case to the arbitration branch of origin for further
proceedings.

In essence, respondent NLRC was not convinced that the evidence presented by the petitioner, consisting of the
identification card issued to him by private respondent corporation and the cash vouchers reflecting his monthly salaries
covering the months stated therein, settled the issue of employer-employee relationship between private respondents and
petitioner.

It has long been established that in administrative and quasi-judicial proceedings, substantial evidence is sufficient as a
basis for judgment on the existence of employer-employee relationship. No particular form of evidence is required is
required to prove the existence of such employer-employee relationship. Any competent and relevant evidence to prove
the relationship may be admitted. 4

Substantial evidence has been defined to be such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion, and its absence is not shown by stressing that there is contrary evidence on record, direct or
circumstantial, for the appellate court cannot substitute its own judgment or criterion for that of the trial court in
determining wherein lies the weight of evidence or what evidence is entitled to belief. 5

In a business establishment, an identification card is usually provided not only as a security measure but mainly to identify
the holder thereof as a bona fide  employee of the firm that issues it. Together with the cash vouchers covering petitioner's

169
salaries for the months stated therein, we agree with the labor arbiter that these matters constitute substantial evidence
adequate to support a conclusion that petitioner was indeed an employee of private respondent.

Section 4, Rule V of the Rules of Procedure of the National Labor Relations Commission provides thus:

Sec. 4. Determination of Necessity of Hearing. — Immediately after the submission of the parties of their
position papers/memoranda, 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.

It is clear from the law that it is the arbiters who are authorized to determine whether or not there is a
necessity for conducting formal hearings in cases brought before them for adjudication. Such
determination is entitled to great respect in the absence of arbitrariness. 6

In the case at bar, we do not believe that the labor arbiter acted arbitrarily. Contrary to the finding of the NLRC, her
decision at least on the existence of an employer-employee relationship between private respondents and petitioner, is
supported by substantial evidence on record.

The list of sales collection including computation of commissions due, expenses incurred and cash advances received
(Exhibits "B" and "B-1") which, according to public respondent, the labor arbiter failed to appreciate in support of private
respondents" allegation as regards the nature of petitioner's employment as a commission agent, cannot overcome the
evidence of the ID card and salary vouchers presented petitioner which private respondents have not denied. The list
presented by private respondents would even support petitioner's allegations that, aside from a monthly salary of
P1,500.00, he also received commissions for his work as a salesman of private respondents.

Having been in the employ of private respondents continuously for more than one year, under the law, petitioner is
considered a regular employee. Proof beyond reasonable doubt is not required as a basis for judgment on the legality of
an employer's dismissal of an employee, nor even preponderance of evidence for that matter, substantial evidence being
sufficient. 7 Petitioner's contention that private respondents terminated his employment due to their suspicion that he was
being enticed by another firm to work for it was not refuted by private respondents. The labor arbiter's conclusion that
petitioner's dismissal is therefore illegal, is not necessarily arbitrary or erroneous. It is entitled to great weight and respect.

It was error and grave abuse of discretion for the NLRC to remand the case for further proceedings to determine whether
or not petitioner was private respondents' employee. This would only prolong the final disposition of the complaint. It is
stressed that, in labor cases, simplification of procedures, without regard to technicalities and without sacrificing the
fundamental requisites of due process, is mandated to ensure the speedy administration of justice. 8

After all, Article 218 of the Labor Code grants the Commission and the labor arbiter broad powers, including issuance of
subpoena, requiring the attendance and testimony of witnesses or the production of such documentary evidence as may
be material to a just determination of the matter under investigation.

Additionally, the National Labor Relations Commission and the labor arbiter have authority under the Labor Code to
decide a case based on the position papers and documents submitted without resorting to the technical rules of
evidence. 9

However, in view of the need for further and correct computation of the petitioner's commissions in the light of the exhibits
presented and the dismissal of the criminal cases filed against petitioner, the labor arbiter is required to undertake a new
computation of the commissions to which petitioner may be entitled, within thirty (30) days from the submission by the
partied of all necessary documents.

WHEREFORE, the resolutions of the public respondent dated 20 September 1994 and 9 November 1994 are SET
ASIDE. The decision of the labor arbiter dated 19 may 1993 us REINSTATED and AFFIRMED subject to the modification
above-stated as regards a re-computation by the labor arbiter of the commissions to which petitioner maybe actually
entitled.

SO ORDERED.

170
G.R. No. 155731             September 3, 2007

LOLITA LOPEZ, petitioner,
vs.
BODEGA CITY (Video-Disco Kitchen of the Philippines) and/or ANDRES C. TORRES-YAP, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the July 18, 2002
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 66861, dismissing the petition for certiorari filed before it and
affirming the Decision of the National Labor Relations Commission (NLRC) in NLRC-NCR Case No. 00-03-01729-95; and
its Resolution dated October 16, 2002,2 denying petitioner's Motion for Reconsideration. The NLRC Decision set aside the
Decision of the Labor Arbiter finding that Lolita Lopez (petitioner) was illegally dismissed by Bodega City and/or Andres C.
Torres-Yap (respondents).

Respondent Bodega City (Bodega City) is a corporation duly registered and existing under and by virtue of the laws of the
Republic of the Philippines, while respondent Andres C. Torres-Yap (Yap) is its owner/ manager. Petitioner was the "lady
keeper" of Bodega City tasked with manning its ladies' comfort room.

In a letter signed by Yap dated February 10, 1995, petitioner was made to explain why the concessionaire agreement
between her and respondents should not be terminated or suspended in view of an incident that happened on February 3,
1995, wherein petitioner was seen to have acted in a hostile manner against a lady customer of Bodega City who
informed the management that she saw petitioner sleeping while on duty.

In a subsequent letter dated February 25, 1995, Yap informed petitioner that because of the incident that happened on
February 3, 1995, respondents had decided to terminate the concessionaire agreement between them.

On March 1, 1995, petitioner filed with the Arbitration Branch of the NLRC, National Capital Region, Quezon City, a
complaint for illegal dismissal against respondents contending that she was dismissed from her employment without
cause and due process.
171
In their answer, respondents contended that no employer-employee relationship ever existed between them and
petitioner; that the latter's services rendered within the premises of Bodega City was by virtue of a concessionaire
agreement she entered into with respondents.

The complaint was dismissed by the Labor Arbiter for lack of merit. However, on appeal, the NLRC set aside the order of
dismissal and remanded the case for further proceedings. Upon remand, the case was assigned to a different Labor
Arbiter. Thereafter, hearings were conducted and the parties were required to submit memoranda and other supporting
documents.

On December 28, 1999, the Labor Arbiter rendered judgment finding that petitioner was an employee of respondents and
that the latter illegally dismissed her.3

Respondents filed an appeal with the NLRC. On March 22, 2001, the NLRC issued a Resolution, the dispositive portion of
which reads as follows:

WHEREFORE, premises duly considered, the Decision appealed from is hereby ordered SET ASIDE and
VACATED, and in its stead, a new one entered DISMISSING the above-entitled case for lack of merit.4

Petitioner filed a motion for reconsideration of the above-quoted NLRC Resolution, but the NLRC denied the same.

Aggrieved, petitioner filed a Petition for Certiorari with the CA. On July 18, 2002, the CA promulgated the presently
assailed Decision dismissing her special civil action for certiorari. Petitioner moved for reconsideration but her motion was
denied.

Hence, herein petition based on the following grounds:

1. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN RULING THAT THE NATIONAL
LABOR RELATIONS COMMISSION DID NOT COMMIT GRAVE ABUSE OF DISCRETION IN REVERSING THE
DECISION OF THE LABOR ARBITER FINDING PETITIONER TO HAVE BEEN ILLEGALLY DISMISSED BY
PRIVATE RESPONDENTS.

2. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN RULING THAT PETITIONER
WAS NOT AN EMPLOYEE OF PRIVATE RESPONDENTS.5

Petitioner contends that it was wrong for the CA to conclude that even if she did not sign the document evidencing the
concessionaire agreement, she impliedly accepted and thus bound herself to the terms and conditions contained in the
said agreement when she continued to perform the task which was allegedly specified therein for a considerable length of
time. Petitioner claims that the concessionaire agreement was only offered to her during her tenth year of service and
after she organized a union and filed a complaint against respondents. Prior to all these, petitioner asserts that her job as
a "lady keeper" was a task assigned to her as an employee of respondents.

Petitioner further argues that her receipt of a special allowance from respondents is a clear evidence that she was an
employee of the latter, as the amount she received was equivalent to the minimum wage at that time.

Petitioner also contends that her identification card clearly shows that she was not a concessionaire but an employee of
respondents; that if respondents really intended the ID card issued to her to be used simply for having access to the
premises of Bodega City, then respondents could have clearly indicated such intent on the said ID card.

Moreover, petitioner submits that the fact that she was required to follow rules and regulations prescribing appropriate
conduct while she was in the premises of Bodega City is clear evidence of the existence of an employer-employee
relationship between her and petitioners.

On the other hand, respondents contend that the present petition was filed for the sole purpose of delaying the
proceedings of the case; the grounds relied upon in the instant petition are matters that have been exhaustively discussed
by the NLRC and the CA; the present petition raises questions of fact which are not proper in a petition for review
on certiorari under Rule 45 of the Rules of Court; the respective decisions of the NLRC and the CA are based on evidence
presented by both parties; petitioner's compliance with the terms and conditions of the proposed concessionaire contract
for a period of three years is evidence of her implied acceptance of such proposal; petitioner failed to present evidence to
prove her allegation that the subject concessionaire agreement was only proposed to her in her 10 th year of employment
with respondent company and after she organized a union and filed a labor complaint against respondents; petitioner

172
failed to present competent documentary and testimonial evidence to prove her contention that she was an employee of
respondents since 1985.

The main issue to be resolved in the present case is whether or not petitioner is an employee of respondents.

The issue of whether or not an employer-employee relationship exists in a given case is essentially a question of fact.6

While it is a settled rule that only errors of law are generally reviewed by this Court in petitions for review on certiorari of
CA decisions,7 there are well-recognized exceptions to this rule, as in this case, when the factual findings of the NLRC as
affirmed by the CA contradict those of the Labor Arbiter.8 In that event, it is this Court's task, in the exercise of its equity
jurisdiction, to re-evaluate and review the factual issues by looking into the records of the case and re-examining the
questioned findings.9

It is a basic rule of evidence that each party must prove his affirmative allegation.10 If he claims a right granted by law, he
must prove his claim by competent evidence, relying on the strength of his own evidence and not upon the weakness of
that of his opponent.11

The test for determining on whom the burden of proof lies is found in the result of an inquiry as to which party would be
successful if no evidence of such matters were given.12

In an illegal dismissal case, the onus probandi rests on the employer to prove that its dismissal of an employee was for a
valid cause.13 However, before a case for illegal dismissal can prosper, an employer-employee relationship must first be
established.14

In filing a complaint before the Labor Arbiter for illegal dismissal based on the premise that she was an employee of
respondent, it is incumbent upon petitioner to prove the employee-employer relationship by substantial evidence.15

The NLRC and the CA found that petitioner failed to discharge this burden, and the Court finds no cogent reason to depart
from their findings.

The Court applies the four-fold test expounded in Abante v. Lamadrid Bearing and Parts Corp.,16 to wit:

To ascertain the existence of an employer-employee relationship, jurisprudence has invariably applied the four-
fold test, namely: (1) the manner of selection and engagement; (2) the payment of wages; (3) the presence or
absence of the power of dismissal; and (4) the presence or absence of the power of control. Of these four, the last
one is the most important. The so-called "control test" is commonly regarded as the most crucial and
determinative indicator of the presence or absence of an employer-employee relationship. Under the control test,
an employer-employee relationship exists where the person for whom the services are performed reserves the
right to control not only the end achieved, but also the manner and means to be used in reaching that end.17

To prove the element of payment of wages, petitioner presented a petty cash voucher showing that she received an
allowance for five (5) days.18 The CA did not err when it held that a solitary petty cash voucher did not prove that petitioner
had been receiving salary from respondents or that she had been respondents' employee for 10 years.

Indeed, if petitioner was really an employee of respondents for that length of time, she should have been able to present
salary vouchers or pay slips and not just a single petty cash voucher. The Court agrees with respondents that petitioner
could have easily shown other pieces of evidence such as a contract of employment, SSS or Medicare forms, or
certificates of withholding tax on compensation income; or she could have presented witnesses to prove her contention
that she was an employee of respondents. Petitioner failed to do so.

Anent the element of control, petitioner's contention that she was an employee of respondents because she was subject
to their control does not hold water.

Petitioner failed to cite a single instance to prove that she was subject to the control of respondents insofar as the manner
in which she should perform her job as a "lady keeper" was concerned.

It is true that petitioner was required to follow rules and regulations prescribing appropriate conduct while within the
premises of Bodega City. However, this was imposed upon petitioner as part of the terms and conditions in the
concessionaire agreement embodied in a 1992 letter of Yap addressed to petitioner, to wit:

January 6, 1992

173
 Dear Ms. Lolita Lopez,

The new owners of Bodega City, 1121 Food Service Corporation offers to your goodself the
concessionaire/contract to provide independently, customer comfort services to assist users of the ladies comfort
room of the Club to further enhance its business, under the following terms and conditions:

1. You will provide at your own expense, all toilet supplies, useful for the purpose, such as toilet papers,
soap, hair pins, safety pins and other related items or things which in your opinion is beneficial to the
services you will undertake;

2. For the entire duration of this concessionaire contract, and during the Club's operating hours, you shall
maintain the cleanliness of the ladies comfort room. Provided, that general cleanliness, sanitation and
physical maintenance of said comfort rooms shall be undertaken by the owners of Bodega City;

3. You shall at all times ensure satisfaction and good services in the discharge of your undertaking. More
importantly, you shall always observe utmost courtesy in dealing with the persons/individuals using said
comfort room and shall refrain from doing acts that may adversely affect the goodwill and business
standing of Bodega City;

4. All remunerations, tips, donations given to you by individuals/persons utilizing said comfort rooms
and/or guests of Bodega City shall be waived by the latter to your benefit provided however, that if
concessionaire receives tips or donations per day in an amount exceeding 200% the prevailing minimum
wage, then, she shall remit fifty percent (50%) of said amount to Bodega City by way of royalty or
concession fees;

5. This contract shall be for a period of one year and shall be automatically renewed on a yearly basis
unless notice of termination is given thirty (30) days prior to expiration. Any violation of the terms and
conditions of this contract shall be a ground for its immediate revocation and/or termination.

6. It is hereby understood that no employer-employee relationship exists between Bodega City and/or
1121 FoodService Corporation and your goodself, as you are an independent contractor who has
represented to us that you possess the necessary qualification as such including manpower compliment,
equipment, facilities, etc. and that any person you may engage or employ to work with or assist you in the
discharge of your undertaking shall be solely your own employees and/or agents.

1121 FoodService Corporation Bodega City

By:
(Sgd.) ANDRES C. TORRES-YAP

Conforme:

_______________
LOLITA LOPEZ19

Petitioner does not dispute the existence of the letter; neither does she deny that respondents offered her the subject
concessionaire agreement. However, she contends that she could not have entered into the said agreement with
respondents because she did not sign the document evidencing the same.

Settled is the rule that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by
the offeror.20 For a contract, to arise, the acceptance must be made known to the offeror. 21 Moreover, the acceptance of
the thing and the cause, which are to constitute a contract, may be express or implied as can be inferred from the
contemporaneous and subsequent acts of the contracting parties.22 A contract will be upheld as long as there is proof of
consent, subject matter and cause; it is generally obligatory in whatever form it may have been entered into.23

In the present case, the Court finds no cogent reason to disregard the findings of both the CA and the NLRC that while
petitioner did not affix her signature to the document evidencing the subject concessionaire agreement, the fact that she
performed the tasks indicated in the said agreement for a period of three years without any complaint or question only
goes to show that she has given her implied acceptance of or consent to the said agreement.

Petitioner is likewise estopped from denying the existence of the subject concessionaire agreement. She should not, after
enjoying the benefits of the concessionaire agreement with respondents, be allowed to later disown the same through her
174
allegation that she was an employee of the respondents when the said agreement was terminated by reason of her
violation of the terms and conditions thereof.

The principle of estoppel in pais applies wherein -- by one's acts, representations or admissions, or silence when one
ought to speak out -- intentionally or through culpable negligence, induces another to believe certain facts to exist and to
rightfully rely and act on such belief, so as to be prejudiced if the former is permitted to deny the existence of those facts.24

Moreover, petitioner failed to dispute the contents of the affidavit25 as well as the testimony26 of Felimon Habitan (Habitan),
the concessionaire of the men's comfort room of Bodega City, that he had personal knowledge of the fact that petitioner
was the concessionaire of the ladies' comfort room of Bodega City.

Petitioner also claims that the concessionaire agreement was offered to her only in her 10th year of service, after she
organized a union and filed a complaint against respondents. However, petitioner's claim remains to be an allegation
which is not supported by any evidence. It is a basic rule in evidence that each party must prove his affirmative
allegation,27 that mere allegation is not evidence.28

The Court is not persuaded by petitioner's contention that the Labor Arbiter was correct in concluding that there existed an
employer-employee relationship between respondents and petitioner. A perusal of the Decision 29 of the Labor Arbiter
shows that his only basis for arriving at such a conclusion are the bare assertions of petitioner and the fact that the latter
did not sign the letter of Yap containing the proposed concessionaire agreement. However, as earlier discussed, this
Court finds no error in the findings of the NLRC and the CA that petitioner is deemed as having given her consent to the
said proposal when she continuously performed the tasks indicated therein for a considerable length of time. For all
intents and purposes, the concessionaire agreement had been perfected.

Petitioner insists that her ID card is sufficient proof of her employment. In Domasig v. National Labor Relations
Commission,30 this Court held that the complainant's ID card and the cash vouchers covering his salaries for the months
indicated therein were substantial evidence that he was an employee of respondents, especially in light of the fact that the
latter failed to deny said evidence. This is not the situation in the present case. The only evidence presented by petitioner
as proof of her alleged employment are her ID card and one petty cash voucher for a five-day allowance which were
disputed by respondents.

As to the ID card, it is true that the words "EMPLOYEE'S NAME" appear printed below petitioner's name.31 However, she
failed to dispute respondents' evidence consisting of Habitan's testimony,32 that he and the other "contractors" of Bodega
City such as the singers and band performers, were also issued the same ID cards for the purpose of enabling them to
enter the premises of Bodega City.

The Court quotes, with approval, the ruling of the CA on this matter, to wit:

Nor can petitioners identification card improve her cause any better. It is undisputed that non-employees, such as
Felimon Habitan, an admitted concessionaire, musicians, singers and the like at Bodega City are also issued
identification cards. Given this premise, it appears clear to Us that petitioner's I.D. Card is incompetent proof of an
alleged employer-employee relationship between the herein parties. Viewed in the context of this case, the card is
at best a "passport" from management assuring the holder thereof of his unmolested access to the premises of
Bodega City.33

With respect to the petty cash voucher, petitioner failed to refute respondent's claim that it was not given to her for
services rendered or on a regular basis, but simply granted as financial assistance to help her temporarily meet her
family's needs.

Hence, going back to the element of control, the concessionaire agreement merely stated that petitioner shall maintain the
cleanliness of the ladies' comfort room and observe courtesy guidelines that would help her obtain the results they wanted
to achieve. There is nothing in the agreement which specifies the methods by which petitioner should achieve these
results. Respondents did not indicate the manner in which she should go about in maintaining the cleanliness of the
ladies' comfort room. Neither did respondents determine the means and methods by which petitioner could ensure the
satisfaction of respondent company's customers. In other words, petitioner was given a free hand as to how she would
perform her job as a "lady keeper." In fact, the last paragraph of the concessionaire agreement even allowed petitioner to
engage persons to work with or assist her in the discharge of her functions.34

Moreover, petitioner was not subjected to definite hours or conditions of work. The fact that she was expected to maintain
the cleanliness of respondent company's ladies' comfort room during Bodega City's operating hours does not indicate that
her performance of her job was subject to the control of respondents as to make her an employee of the latter. Instead,

175
the requirement that she had to render her services while Bodega City was open for business was dictated simply by the
very nature of her undertaking, which was to give assistance to the users of the ladies' comfort room.

In Consulta v. Court of Appeals,35 this Court held:

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

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the
mutually desired result without dictating the means or methods to be employed in attaining it, and those that
control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim
only to promote the result, create no employer-employee relationship unlike the second, which address both the
result and the means used to achieve it.36

Lastly, the Court finds that the elements of selection and engagement as well as the power of dismissal are not present in
the instant case.

It has been established that there has been no employer-employee relationship between respondents and petitioner.
Their contractual relationship was governed by the concessionaire agreement embodied in the 1992 letter. Thus,
petitioner was not dismissed by respondents. Instead, as shown by the letter of Yap to her dated February 15,
1995,37 their contractual relationship was terminated by reason of respondents' termination of the subject concessionaire
agreement, which was in accordance with the provisions of the agreement in case of violation of its terms and conditions.

In fine, the CA did not err in dismissing the petition for certiorari filed before it by petitioner.

WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the Court of Appeals
are AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 159890             May 28, 2004

EMPERMACO B. ABANTE, JR., petitioner,

vs.
LAMADRID BEARING & PARTS CORP. and JOSE LAMADRID, President, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure assailing the Decision dated
March 7, 2003 of the Court of Appeals in CA-G.R. SP No. 73102 which affirmed the Resolution dated April 2, 2002 of the
National Labor Relations Commission.

Petitioner was employed by respondent company Lamadrid Bearing and Parts Corporation sometime in June 1985 as a
salesman earning a commission of 3% of the total paid-up sales covering the whole area of Mindanao. His average
monthly income was more or less P16,000.00, but later was increased to approximately P20,269.50. Aside from selling
the merchandise of respondent corporation, he was also tasked to collect payments from his various customers.
Respondent corporation had complete control over his work because its President, respondent Jose Lamadrid, frequently
directed him to report to a particular area for his sales and collection activities, and occasionally required him to go to
Manila to attend conferences regarding product competition, prices, and other market strategies.

Sometime in 1998, petitioner encountered five customers/clients with bad accounts, namely:

Customers/Clients Amount
1) A&B Engineering Services P 86,431.20
2) Emmanuel Engineering 126, 858.50
176
 Services
3) Panabo Empire Marketing 226,458.76
4) Southern Fortune Marketing 191,208.00
5) Alreg Marketing 56, 901.18
Less Returns: 691.02 56, 210.16

Total Bad Accounts P 687,166.62

Petitioner was confronted by respondent Lamadrid over the bad accounts and warned that if he does not issue his own
checks to cover the said bad accounts, his commissions will not be released and he will lose his job. Despite serious
misgivings, he issued his personal checks in favor of respondent corporation on condition that the same shall not be
deposited for clearing and that they shall be offset against his periodic commissions.1

Not contented with the issuance of the foregoing checks as security for the bad accounts, respondents "tricked" petitioner
into signing two documents, which he later discovered to be a Promissory Note2 and a Deed of Real Estate Mortgage.3

Pursuant to the parties’ agreement that the checks would not be deposited, as their corresponding values would be offset
from petitioner’s sales commissions, respondents returned the same to petitioner as evidenced by the undeposited
checks and respondent Lamadrid’s computations of petitioner’s commissions.4

Due to financial difficulties, petitioner inquired about his membership with the Social Security System in order to apply for
a salary loan. To his dismay, he learned that he was not covered by the SSS and therefore was not entitled to any benefit.
When he brought the matter of his SSS coverage to his employer, the latter berated and hurled invectives at him and,
contrary to their agreement, deposited the remaining checks which were dishonored by the drawee bank due to "Account
Closed."

On March 22, 2001, counsel for respondent corporation sent a letter to petitioner demanding that he make good the
dishonored checks or pay their cash equivalent. In response, petitioner sent a letter addressed to Atty. Meneses, counsel
for respondent corporation, which reads:5

This has reference to your demand letter dated March 22, 2001 which I received on March 30, 2001, relative to
the checks I issued to my employer LAMADRID BEARING PARTS CORPORATION.

May I respectfully request for a consideration as to the payment of the amount covered by the said checks, as follows:

1. I have an earned commission in the amount of P33,412.39 as shown in the hereto attached Summary of Sales
as of February 28, 2001 (P22,748.60) and as of March 31, 2001 (P10,664.79), which I offer to be charged or
deducted as partial payment thereof;

2. I hereby commit One Hundred Percent (100%) of all my commission to be directly charged or deducted as
payment, from date onward, until such time that payment will be completed;

Sir, kindly convey my good faith to your client and my employer, as is shown by my willingness to
continue working as Commission Salesman, having served the Company for the last sixteen (16) years.

I’m sincerely appealing to my employer, through you, Sir, to settle these accountabilities which all resulted
from the checks issued by my customers which bounced and later charged to my account, in the manner
afore-cited.

May this request merit your kindest consideration, Sirs.

Thank you very much.

On April 2, 2001, petitioner sent another letter to respondent Lamadrid, to wit:6

Dear Mr. Lamadrid,

This is to inform your good office that if you pursue the case against me, I may refer this problem to Mr.
Paul Dominguez and Atty. Jesus Dureza to solicit proper legal advice. I may also file counter charges

177
 against your company of (sic) unfair labor practice and unfair compensation of 3% commission to my
sales and commissions of more or less 90,000,000.00 (all collected and covered with cleared check
payments) for 16 years working with your company up to the present year 2001.

If I am not wrong your company did not exactly declare the correct amount of P90,000,000.00 more or
less representing my sales and collections (all collected and covered with cleared check payments to the
Bureau of Internal Revenue [BIR] for tax declaration purposes). In short your company profited large
amount of money to (sic) the above-mentioned sales and collections of P90,000,000.00 more or less for
16 years working with your company.

I remember that upon my employment with your company last 1985 up to the present year 2001 as
commission basis salesman, I have not signed any contract with your company stating that all uncollected
accounts including bounced checks from Lamadrid Bearing & Parts Corp. will be charged to me. I wonder
why your company forcibly instructed me to secure checking account to pay and issue check payment of
P15,000.00 per month to cover your company’s bad accounts in which this amount is too heavy on my
part paying a total bad accounts of more than P650,000.00 for my 16 years employment with your
company as commission basis salesman.

Recalling your visit here at my Davao City residence, located at Zone 1 2nd Avenue, San Vicente
Buhangin Davao City, way back 1998, you even forced me to sign mortgage contract of my house and lot
located at Zone 1 2nd Avenue, San Vicente, Buhangin, Davao City, according to Mr. Jose Lamadrid this
mortgage contract of my house and lot will serve as guarantee to the uncollected and bounced checks
from Lamadrid Bearing and Parts Corp., customers. I have asked 1 copy of the mortgage contract I have
signed but Mr. Jose C. Lamadrid never furnished me a copy.

Very truly yours,

(Sgd) Empermaco B. Abante, Jr.

While doing his usual rounds as commission salesman, petitioner was handed by his customers a letter from the
respondent company warning them not to deal with petitioner since it no longer recognized him as a commission
salesman.

In the interim, petitioner received a subpoena from the Office of the City Prosecutor of Manila for violations of Batas
Pambansa Blg. 22 filed by respondent Lamadrid.

Petitioner thus filed a complaint for illegal dismissal with money claims against respondent company and its president,
Jose Lamadrid, before the NLRC Regional Arbitration Branch No. XI, Davao City.

By way of defense, respondents countered that petitioner was not its employee but a freelance salesman on commission
basis, procuring and purchasing auto parts and supplies from the latter on credit, consignment and installment basis and
selling the same to his customers for profit and commission of 3% out of his total paid-up sales. Respondents cite the
following as indicators of the absence of an employer-employee relationship between them:

(1) petitioner constantly admitted in all his acts, letters, communications with the respondents that his relationship
with the latter was strictly commission basis salesman;

(2) he does not have a monthly salary nor has he received any benefits accruing to regular employment;

(3) he was not required to report for work on a daily basis but would occasionally drop by the Manila office when
he went to Manila for some other purpose;

(4) he was not given the usual pay-slip to show his monthly gross compensation;

(5) neither has the respondent withheld his taxes nor was he enrolled as an employee of the respondent under
the Social Security System and Philhealth;

(6) he was in fact working as commission salesman of five other companies, which are engaged in the same line
of business as that of respondent, as shown by certifications issued by the said companies;7

(7) if respondent owed petitioner his alleged commissions, he should not have executed the Promissory Note and
the Deed of Real Estate Mortgage.8

178
Finding no necessity for further hearing the case after the parties submitted their respective position papers, the Labor
Arbiter rendered a decision dated November 29, 2001, the decretal portion of which reads:9

WHEREFORE, premises considered judgment is hereby rendered DECLARING respondents LAMADRID

BEARING & PARTS CORPORATION AND JOSE LAMADRID to pay jointly and severally complainant
EMPERMACO B. ABANTE, JR., the sum of PESOS ONE MILLION THREE HUNDRED THIRTY SIX THOUSAND
SEVEN HUNDRED TWENTY NINE AND 62/100 ONLY (P1,336,729.62) representing his awarded separation
pay, back wages (partial) unpaid commissions, refund of deductions, damages and attorney’s fees.

SO ORDERED.

On appeal, the National Labor Relations Commission reversed the decision of the Labor Arbiter in a Resolution dated
April 5, 2002, the dispositive portion of which reads:10

WHEREFORE, the Appeal is GRANTED. Accordingly, the appealed decision is Set Aside and Vacated. In lieu
thereof, a new judgment is entered dismissing the instant case for lack of cause of action.

SO ORDERED.

Petitioner challenged the decision of the NLRC before the Court of Appeals, which rendered the assailed judgment on
March 7, 2003, the dispositive portion of which reads:11

WHEREFORE, premises considered, petition is hereby DENIED. Let the supersedeas bond dated 09 January
2002, issued the Philippine Charter Insurance Corporation be cancelled and released.

SO ORDERED.

Upon denial of his motion for reconsideration, petitioner filed the instant appeal based on the following grounds:

THE HONORABLE COURT OF APPEALS IN GRAVE ABUSE OF DISCRETION "MODIFIED" THE IMPORT OF
THE "RELEVANT ANTECEDENTS" AS ITS PREMISE IN ITS QUESTIONED DECISION CAUSING IT TO
ARRIVE AT ERRONEOUS CONCLUSIONS OF FACT AND LAW.

II

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPRECIATING THE TRUE FACTS OF THIS
CASE THEREBY IT MADE A WRONG CONCLUSION BY STATING THAT THE FOURTH ELEMENT FOR
DETERMINING EMPLOYER-EMPLOYEE RELATIONSHIP, WHICH IS THE "CONTROL TEST," IS WANTING IN
THIS CASE.

III

THE HONORABLE COURT OF APPEALS IS AT WAR WITH THE EVIDENCE PRESENTED IN THIS CASE AS
WELL AS WITH THE APPLICABLE LAW AND ESTABLISHED RULINGS OF THIS HONORABLE COURT.

Initially, petitioner challenged the statement by the appellate court that "petitioner, who was contracted a 3% of the total
gross sales as his commission, was tasked to sell private respondent’s merchandise in the Mindanao area and to collect
payments of his sales from the customers." He argues that this statement, which suggests contracting or subcontracting
under Department Order No. 10-97 Amending the Rules Implementing Books III and VI of the Labor Code, is erroneous
because the circumstances to warrant such conclusion do not exist. Not being an independent contractor, he must be a
regular employee pursuant to Article 280 of the Labor Code because 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.

Petitioner likewise disputes the finding of the appellate court that no employer-employee relationship exists between him
and respondent corporation since the power of control, which is the most decisive element to determine such relationship,
is wanting. He argues that the following circumstances show that he was in truth an employee of the respondent
corporation:

179
 (1) As salesman of the private respondents, petitioner was also the one collecting payment of his sales from
various customers. Thus, he was bringing with him Provisional Receipts, samples of which are attached to his
Position Paper filed with the Labor Arbiter.

(2) Private respondents had complete control over the work of the petitioner. From time to time, respondent JOSE
LAMADRID was directing him to report to a particular area in Mindanao for his sales and collection activities, and
sometimes he was required to go to Manila for a conference regarding competitions, new prices (if any), special
offer (if competitors gave special offer or discounts), and other selling/marketing strategy. In other words,
respondent JOSE LAMADRID was closely monitoring the sales and collection activities of the petitioner.

Petitioner further contends that it was illogical for the appellate court to conclude that since he was not required to report
for work on a daily basis, the power of control is absent. He reasons that being a field personnel, as defined under Article
82 of the Labor Code, who is covering the Mindanao area, it would be impractical for him to report to the respondents’
office in Manila in order to keep tab of his actual working hours.

Well-entrenched is the doctrine that the existence of an employer-employee relationship is ultimately a question of fact
and that the findings thereon by the Labor Arbiter and the National Labor Relations Commission shall be accorded not
only respect but even finality when supported by substantial evidence. The decisive factor in such finality is the presence
of substantial evidence to support said finding, otherwise, such factual findings cannot be accorded finality by this
Court.12 Considering the conflicting findings of fact by the Labor Arbiter and the NLRC as well as the Court of Appeals,
there is a need to reexamine the records to determine with certainty which of the propositions espoused by the contending
parties is supported by substantial evidence.

We are called upon to resolve the issue of whether or not petitioner, as a commission salesman, is an employee of
respondent corporation. To ascertain the existence of an employer-employee relationship, jurisprudence has invariably
applied the four-fold test, namely: (1) the manner of selection and engagement; (2) the payment of wages; (3) the
presence or absence of the power of dismissal; and (4) the presence or absence of the power of control. Of these four,
the last one is the most important.13 The so-called "control test" is commonly regarded as the most crucial and
determinative indicator of the presence or absence of an employer-employee relationship. Under the control test, an
employer-employee relationship exists where the person for whom the services are performed reserves the right to control
not only the end achieved, but also the manner and means to be used in reaching that end.

Applying the aforementioned test, an employer-employee relationship is notably absent in this case. It is undisputed that
petitioner Abante was a commission salesman who received 3% commission of his gross sales. Yet no quota was
imposed on him by the respondent; such that a dismal performance or even a dead result will not result in any sanction or
provide a ground for dismissal. He was not required to report to the office at any time or submit any periodic written report
on his sales performance and activities. Although he had the whole of Mindanao as his base of operation, he was not
designated by respondent to conduct his sales activities at any particular or specific place. He pursued his selling
activities without interference or supervision from respondent company and relied on his own resources to perform his
functions. Respondent company did not prescribe the manner of selling the merchandise; he was left alone to adopt any
style or strategy to entice his customers. While it is true that he occasionally reported to the Manila office to attend
conferences on marketing strategies, it was intended not to control the manner and means to be used in reaching the
desired end, but to serve as a guide and to upgrade his skills for a more efficient marketing performance. As correctly
observed by the appellate court, reports on sales, collection, competitors, market strategies, price listings and new offers
relayed by petitioner during his conferences to Manila do not indicate that he was under the control of
respondent.14 Moreover, petitioner was free to offer his services to other companies engaged in similar or related
marketing activities as evidenced by the certifications issued by various customers.15

In Encyclopedia Britannica (Philippines), Inc. v. NLRC, 16 we reiterated the rule that there could be no employer-employee
relationship where the element of control is absent. Where a person who works for another does so more or less at his
own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to the result
of his efforts and not the amount thereof, no relationship of employer-employee exists.

We do not agree with petitioner’s contention that Article 28017 is a crucial factor in determining the existence of an
employment relationship. It merely distinguishes between two kinds of employees, i.e., regular employees and casual
employees, for purposes of determining their rights to certain benefits, such as to join or form a union, or to security of
tenure. Article 280 does not apply where the existence of an employment relationship is in dispute.18

Neither can we subscribe to petitioner’s misplaced reliance on the case of Songco v. NLRC.19 While in that case the term
"commission" under Article 96 of the Labor Code was construed as being included in the definition of the term "wage"
available to employees, there is no categorical pronouncement that the payment of compensation on commission basis is
conclusive proof of the existence of an employer-employee relationship. After all, commission, as a form of remuneration,
may be availed of by both an employee or a non-employee.
180
Petitioner decried the alleged intimidation and trickery employed by respondents to obtain from him a Promissory Note
and to issue forty-seven checks as security for the bad accounts incurred by five customers.

While petitioner may have been coerced into executing force to issue the said documents, it may equally be true that
petitioner did so in recognition of a valid financial obligation. He who claims that force or intimidation was employed upon
him lies the onus probandi. He who asserts must prove. It is therefore incumbent upon petitioner to overcome the
disputable presumption that private transactions have been prosecuted fairly and regularly, and that there is sufficient
consideration for every contract.20 A fortiori, it is difficult to imagine that petitioner, a salesman of long standing, would
accede without raising a protest to the patently capricious and oppressive demand by respondent of requiring him to
assume bad accounts which, as he contended, he had not incurred. This lends credence to the respondent’s assertion
that petitioner procured the goods from the said company on credit, consignment or installment basis and then sold the
same to various customers. In the scheme of things, petitioner, having directly contracted with the respondent company,
becomes responsible for the amount of merchandise he took from the respondent, and in turn, the customer/s would be
liable for their respective accounts to the seller, i.e., the petitioner, with whom they contracted the sale.

All told, we sustain the factual and legal findings of the appellate court and accordingly, find no cogent reason to overturn
the same.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated March 7, 2003 in CA-G.R. SP No.
73102, which denied the petition of Empermaco B. Abante, is AFFIRMED in toto.

SO ORDERED.

[G.R. NO. 148508 : May 20, 2004]

R TRANSPORT CORPORATION, Petitioner, v. ROGELIO EJANDRA, Respondent.

DECISION

CORONA, J.:

Before us is a Petition for Review of the decision 1 of the Court of Appeals2 dated December 22, 2000 dismissing the
Petition for Certiorari of the decision of the National Labor Relations Commission 3 (NLRC) dated May 30, 1997. The latter
affirmed the decision4 of the labor arbiter dated February 27, 1997 holding petitioner liable for illegal dismissal and
directing private respondents reinstatement.

Private respondent Rogelio Ejandra alleged that, for almost six years, from July 15, 1990 to January 31, 1996, he worked
as a bus driver of petitioner R Transport Corporation. He plied the route Muntilupa-Alabang-Malanday-Monumento-UE-
Letre-Sangandaan from 5:00 a.m. up to 2:00 a.m. the next day and was paid 10% of his daily earnings.

On January 31, 1996, an officer of the Land Transportation Office (LTO), Guadalupe Branch, Makati City, apprehended
him for obstruction of traffic for which his license was confiscated. Upon his arrival at petitioners garage, he immediately
reported the incident to his manager, Mr. Oscar Pasquin, who gave him P500 to redeem his license. The following day, he
went to LTO, Guadalupe Branch, to claim it but he was told that it had not yet been turned over by the officer who
apprehended him. He was able to retrieve his license only after a week.

On February 8, 1996, private respondent informed Mr. Pasquin that he was ready to report for work. However, he was told
that the company was still studying whether to allow him to drive again. Private respondent was likewise accused of
causing damage to the bus he used to drive. Denying the charge, private respondent blamed the person who drove the
said bus during his absence, considering that the damage was sustained during the week that he did not drive the bus.
181
Mr. Pacquin nonetheless told him Magpahinga ka muna at tatawagin ka na lang namin kung kailangan ka na para
magmaneho. Magbakasyon ka muna, bata. When respondent asked how long he had to rest, the manager did not give a
definite time.

Petitioner denied private respondents allegations and claimed that private respondent, a habitual absentee, abandoned
his job. To belie private respondents allegation that his license had been confiscated, petitioner asserted that, had it been
true, he should have presented an apprehension report and informed petitioner of his problems with the LTO. But he did
not. Petitioner further argued that private respondent was not an employee because theirs was a contract of lease and not
of employment, with petitioner being paid on commission basis.

On February 23, 1997, labor arbiter Rogelio Yulo rendered his decision in favor of private respondent. The dispositive
portion of the decision read:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

PREMISES CONSIDERED, judgment is hereby rendered finding the dismissal of Rogelio Ejandra to be without just cause
and, therefore, illegal and ORDERING R-Transport to REINSTATE him to his former position without loss of seniority and
other benefits and to pay him backwages from the time of his dismissal until actual reinstatement.

SO ORDERED.5 ςrνll

Labor arbiter Yulo gave no weight to petitioners claim that private respondent abandoned his work. His one-week absence
did not constitute abandonment of work considering that it took him the whole week to reclaim his license. Private
respondent could not retrieve it unless and until the apprehending officer first transmitted it to their office. His inability to
drive for petitioner that whole week was therefore not his fault and petitioner could be held liable for illegal dismissal. Due
process was not accorded to private respondent who was never given the opportunity to contest the charge of
abandonment.Moreover, assuming actual abandonment, petitioner should have reported such fact to the nearest
employment office of the Department of Labor and Employment. But no such report was ever made.

On May 30, 1997, the NLRC rendered a decision affirming the decision of the labor arbiter:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

WHEREFORE, premises considered, the appeal is hereby DISMISSED and the appealed decision AFFIRMED in toto.

SO ORDERED.6 ςrνll

In disputing petitioners claim that private respondent was not its employee and was not therefore entitled to notice and
hearing before termination, the NLRC held that:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

It is very clear that (sic) from no less than appellants admission, that complainant was not afforded his right to due
process prior to the severance of his employment with respondents. (First par. p.3, respondents Appeal Memorandum, p.
45, Rollo)

Appellants defense of denying the existence of employer-employee relationship with the complainant based on the
manner by which complainant was being paid his salary, cannot hold water.

x    x    x

While employees paid on piece-rate and commission basis are not covered by the provisions of the Labor Code, as
amended, on hours of work, these employees however, for all intents and purposes, are employees of their employers.

xxxxxxxxx7 ςrνll

Petitioner filed in the Court of Appeals a Petition for Certiorari on the ground that the NLRC committed grave abuse of
discretion in affirming the decision of the labor arbiter. On December 22, 2000, the Court of Appeals rendered a decision,
the dispositive portion of which read:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

WHEREFORE, the instant petition is hereby DENIED for lack of merit.

SO ORDERED.8 ςrνll

Categorizing the issues raised by petitioner as factual, the appellate court held that the findings of fact of the labor arbiter
(affirmed by the NLRC) were entitled to great respect because they were supported by substantial evidence. The Court of
Appeals also ruled that petitioner was barred from denying the existence of an employer-employee relationship because
petitioner invoked its rights under the law and jurisprudence as an employer in dismissing private respondent.
182
Hence, this appeal based on the following assignments of errors:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS, TENTH DIVISION COMMITTED GRAVE ABUSE OF
DISCRETION WHEN IT AFFIRMED/ADOPTED IN TOTO THE DECISION OF THE NATIONAL LABOR RELATIONS
COMMISSION (NLRC) BASED PURELY ON A SPECULATION, SURMISE OR CONJECTURE.

THE FINDINGS OF FACTS ARE MERE CONCLUSIONS WITHOUT CITATION OR SPECIFIC EVIDENCE ON WHICH
THEY ARE BASED.

FURTHER, THE HONORABLE COURT OF APPEALS, TENTH DIVISION COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION IN NOT RULING THAT THE RELATIONSHIP IN LAW
OCCURRING BETWEEN THE PETITIONER R TRANSPORT CORPORATION AND THE PRIVATE RESPONDENT
WAS IN A NATURE OF LESSOR AND LESSEE.

MOREOVER, THERE IS A NEED BY THIS HONORABLE COURT TO GIVE A SECOND LOOK ON THE RECORDS OF
NLRC NCR CASE RAB NO. IV-2-7910-R / NLRC NCR CA-012-605-97 TO AVOID MISCARRIAGE OF JUSTICE AND
FURTHERANCE OF THE STATUTORY REQUIREMENTS OF DUE PROCESS.

FINALLY, THE HONORABLE COURT OF APPEALS, TENTH DIVISION GRAVELY ERRED IN DENYING THE
PETITION IN CA-G.R. SP. NO. 51962 IN ITS DECISION PROMULGATED ON DECEMBER 22, 2000 (ANNEXES G AND
G-1) AND IN ITS RESOLUTION DATED JUNE 4, 2001 (ANNEX B), HAS ACTED CONTRARY TO LAW AND THE
RULES OF COURT.9 ςrνll

According to the petitioner, the appellate court erred in not finding that private respondent abandoned his work; that
petitioner was not the lessor of private respondent; that, as such, the termination of the contract of lease of services did
not require petitioner to respect private respondents rights to notice and hearing; and, that private respondents affidavit
was hearsay and self-serving.

We deny the appeal.

Under Section 1, Rule 45 of the 1997 Rules of Civil Procedure, a Petition for Review shall only raise questions of law
considering that the findings of fact of the Court of Appeals are, as a general rule, conclusive upon and binding on this
Court.10 This doctrine applies with greater force in labor cases where the factual findings of the labor tribunals are affirmed
by the Court of Appeals. The reason is because labor officials are deemed to have acquired expertise in matters within
their jurisdiction and therefore, their factual findings are generally accorded not only respect but also finality, and are
binding on this Court.11 ςrνll

In the case at bar, the labor arbiter,the NLRC and the Court of Appeals were unanimous in finding that private respondent
worked as a driver of one of the buses of petitioner and was paid on a 10% commission basis. After he was apprehended
for a traffic violation, his license was confiscated. When he informed petitioners general manager of such fact, the latter
gave him money to redeem his license. He went to the LTO office everyday but it was only after a week that he was able
to get back his license. When he reported back to work, petitioners manager told him to wait until his services were
needed again. Considering himself dismissed, private respondent filed a complaint for illegal dismissal against petitioner.

We have no reason to disturb all these factual findings because they are amply supported by substantial evidence.

Denying the existence of an employer-employee relationship, petitioner insists that the parties agreement was for a
contract of lease of services. We disagree. Petitioner is barred to negate the existence of an employer-employee
relationship. In its petition filed before this Court, petitioner invoked our rulings on the right of an employer to dismiss an
employee for just cause.12 Petitioner maintained that private respondent was justifiably dismissed due to abandonment of
work. By adopting said rulings, petitioner impliedly admitted that it was in fact the employer of private respondent.
According to the control test, the power to dismiss an employee is one of the indications of an employer-employee

183
relationship.13 Petitioners claim that private respondent was legally dismissed for abandonment was in fact a negative
pregnant:14 an acknowledgement that there was no mutual termination of the alleged contract of lease and that private
respondent was its employee. The fact that petitioner paid private respondent on commission basis did not rule out the
presence of an employee-employer relationship. Article 97(f) of the Labor Code clearly provides that an employees wages
can be in the form of commissions.

We now ask the next question: was private respondent, an employee of petitioner, dismissed for just cause? We do not
think so.

According to petitioner, private respondent abandoned his job and lied about the confiscation of his license. To constitute
abandonment, two elements must concur: (1) the failure to report for work or absence without valid or justifiable reason
and (2) a clear intention to sever the employer-employee relationship. Of the two, the second element is the more
determinative factor and should be manifested by some overt acts. Mere absence is not sufficient. It is the employer who
has the burden of proof to show a deliberate and unjustified refusal of the employee to resume his employment without
any intention of returning.15 ςrνll

In the instant case, petitioner fell short of proving the requisites. To begin with, petitioners absence was justified because
the LTO, Guadalupe Branch, did not release his license until after a week. This was the unanimous factual finding of the
labor tribunals and the Court of Appeals. As aptly held by labor arbiter Yulo, the process of redeeming a confiscated
license, based on common experience, depended on when the apprehending officer turned over the same. Second,
private respondent never intended to sever his employment as he in fact reported for work as soon as he got his license
back. Petitioner offered no evidence to rebut these established facts. Third, labor arbiter Yulo correctly observed that, if
private respondent really abandoned his work, petitioner should have reported such fact to the nearest Regional Office of
the Department of Labor and Employment in accordance with Section 7, Rule XXIII, Book V of Department Order No. 9,
series of 199716 (Rules Implementing Book V of the Labor Code). Petitioner made no such report.

In addition to the fact that petitioner had no valid cause to terminate private respondent from work, it violated the latters
right to procedural due process by not giving him the required notice and hearing. Section 2, Rule XXIII, Book V of
Department Order No. 9 provides for the procedure for dismissal for just or authorized
cause:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

SEC. 2. Standards of due process; requirement of notice. In all cases of termination of employment, the following
standards of due process shall be substantially observed:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

I. For termination of employment based on just causes as defined in Article 282 of the Code:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

(a) A written notice served on the employee specifying the ground or grounds for termination, and giving to said employee
reasonable opportunity within which to explain his side;chanroblesvirtuallawlibrary

(b) A hearing or conference during which the employee concerned, with the assistance of counsel if the employee so
desires, is given opportunity to respond to the charge, present his evidence or rebut the evidence presented against him;
andcralawlibrary

(c) A written notice of termination served on the employee indicating that upon due consideration of all the circumstances,
grounds have been established to justify his termination. In case of termination, the foregoing notices shall be served on
the employees last known address.

II. For termination of employment as based on authorized causes defined in Article 283 of the Code, the requirements of
due process shall be deemed complied with upon service of a written notice to the employee and the appropriate
Regional Office of the Department at least thirty days before the effectivity of the termination, specifying the ground or
grounds for termination.

III. If termination is brought about by the completion of the contract or phase thereof, no prior notice is required. If the
termination is brought about by the 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.

WHEREFORE, premises considered, the petition is hereby DENIED. Costs against the petitioner.

SO ORDERED.

184
G.R. No. 146408             February 29, 2008

PHILIPPINE AIRLINES, INC., petitioner,

vs.
ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL,
AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN,
RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL,
ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES,
BENEDICTO AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE, and ALLAN BENTUZAL, respondents.

DECISION

CARPIO MORALES, J.:

Petitioner Philippine Airlines as Owner, and Synergy Services Corporation (Synergy) as Contractor, entered into an
Agreement1 on July 15, 1991 whereby Synergy undertook to "provide loading, unloading, delivery of baggage and cargo
and other related services to and from [petitioner]'s aircraft at the Mactan Station."2

The Agreement specified the following "Scope of Services" of Contractor Synergy:

1.2 CONTRACTOR shall furnish all the necessary capital, workers, loading, unloading and delivery materials,
facilities, supplies, equipment and tools for the satisfactory performance and execution of the following services
(the Work):

a. Loading and unloading of baggage and cargo to and from the aircraft;

185
 b. Delivering of baggage from the ramp to the baggage claim area;

c. Picking up of baggage from the baggage sorting area to the designated parked aircraft;

d. Delivering of cargo unloaded from the flight to cargo terminal;

e. Other related jobs (but not janitorial functions) as may be required and necessary;

CONTRACTOR shall perform and execute the aforementioned Work at the following areas located at
Mactan Station, to wit:

a. Ramp Area

b. Baggage Claim Area

c. Cargo Terminal Area, and

d. Baggage Sorting Area3 (Underscoring supplied)

And it expressly provided that Synergy was "an independent contractor and . . . that there w[ould] be no employer-
employee relationship between CONTRACTOR and/or its employees on the one hand, and OWNER, on the other."4

On the duration of the Agreement, Section 10 thereof provided:

10. 1 Should at any time OWNER find the services herein undertaken by CONTRACTOR to be unsatisfactory, it
shall notify CONTRACTOR who shall have fifteen (15) days from such notice within which to improve the
services. If CONTRACTOR fails to improve the services under this Agreement according to OWNER'S
specifications and standards, OWNER shall have the right to terminate this Agreement immediately and without
advance notice.

10.2 Should CONTRACTOR fail to improve the services within the period stated above or should
CONTRACTOR breach the terms of this Agreement and fail or refuse to perform the Work in such a manner as
will be consistent with the achievement of the result therein contracted for or in any other way fail to comply strictly
with any terms of this Agreement, OWNER at its option, shall have the right to terminate this Agreement and to
make other arrangements for having said Work performed and pursuant thereto shall retain so much of the money
held on the Agreement as is necessary to cover the OWNER's costs and damages, without prejudice to the right
of OWNER to seek resort to the bond furnished by CONTRACTOR should the money in OWNER's possession be
insufficient.

x x x x (Underscoring supplied)

Except for respondent Benedicto Auxtero (Auxtero), the rest of the respondents, who appear to have been assigned by
Synergy to petitioner following the execution of the July 15, 1991 Agreement, filed on March 3, 1992 complaints before
the NLRC Regional Office VII at Cebu City against petitioner, Synergy and their respective officials for underpayment,
non-payment of premium pay for holidays, premium pay for rest days, service incentive leave pay, 13th month pay and
allowances, and for regularization of employment status with petitioner, they claiming to be "performing duties for the
benefit of [petitioner] since their job is directly connected with [its] business x x x."5

Respondent Auxtero had initially filed a complaint against petitioner and Synergy and their respective officials for
regularization of his employment status. Later alleging that he was, without valid ground, verbally dismissed, he filed a
complaint against petitioner and Synergy and their respective officials for illegal dismissal and reinstatement with full
backwages.6

The complaints of respondents were consolidated.

By Decision7 of August 29, 1994, Labor Arbiter Dominador Almirante found Synergy an independent contractor and
dismissed respondents' complaint for regularization against petitioner, but granted their money claims. The fallo of the
decision reads:

WHEREFORE, foregoing premises considered, judgment is hereby rendered as follows:

186
 (1) Ordering respondents PAL and Synergy jointly and severally to pay all the complainants herein their
13th month pay and service incentive leave benefits;

xxxx

(3) Ordering respondent Synergy to pay complainant Benedicto Auxtero a financial assistance in the amount of
P5,000.00.

The awards hereinabove enumerated in the aggregate total amount of THREE HUNDRED TWENTY-TWO
THOUSAND THREE HUNDRED FIFTY NINE PESOS AND EIGHTY SEVEN CENTAVOS (P322,359.87) are
computed in detail by our Fiscal Examiner which computation is hereto attached to form part of this decision.

The rest of the claims are hereby ordered dismissed for lack of merit.8 (Underscoring supplied)

On appeal by respondents, the NLRC, Fourth Division, Cebu City, vacated and set aside the decision of the Labor Arbiter
by Decision9 of January 5, 1996, the fallo of which reads:

WHEREFORE, the Decision of the Labor Arbiter Dominador A. Almirante, dated August 29, 1994, is hereby
VACATED and SET ASIDE and judgment is hereby rendered:

1. Declaring respondent Synergy Services Corporation to be a 'labor-only' contractor;

2. Ordering respondent Philippine Airlines to accept, as its regular employees, all the complainants, . . . and
to give each of them the salaries, allowances and other employment benefits and privileges of a regular
employee under the Collective Bargaining Agreement subsisting during the period of their employment;

xxxx

4. Declaring the dismissal of complainant Benedicto Auxtero to be illegal and ordering his reinstatement as
helper or utility man with respondent Philippine Airlines, with full backwages, allowances and other benefits and
privileges from the time of his dismissal up to his actual reinstatement; and

5. Dismissing the appeal of respondent Synergy Services Corporation, for lack of merit.10 (Emphasis and
underscoring supplied)

Only petitioner assailed the NLRC decision via petition for certiorari before this Court.

By Resolution11 of January 25, 1999, this Court referred the case to the Court of Appeals for appropriate action and
disposition, conformably with St. Martin Funeral Homes v. National Labor Relations Commission which was promulgated
on September 16, 1998.

The appellate court, by Decision of September 29, 2000, affirmed the Decision of the NLRC. 12 Petitioner's motion for
reconsideration having been denied by Resolution of December 21, 2000,13 the present petition was filed, faulting the
appellate court

I.

. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION DECISION WHICH IMPOSED THE

RELATIONSHIP OF EMPLOYER-EMPLOYEE BETWEEN PETITIONER AND THE RESPONDENTS HEREIN.

II.

. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR RELATIONS COMMISSION ORDERING THE

REINSTATEMENT OF RESPONDENT AUXTERO DESPITE THE ABSENCE [OF] ANY FACTUAL FINDING IN
THE DECISION THAT PETITIONER ILLEGALLY TERMINATED HIS EMPLOYMENT.

III.

. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE ERROR IN UPHOLDING THE DECISION OF
THE NATIONAL LABOR RELATIONS COMMISSION WHICH COMPELLED THE PETITIONER TO EMPLOY
THE RESPONDENTS AS REGULAR EMPLOYEES DESPITE THE FACT THAT THEIR SERVICES ARE IN
EXCESS OF PETITIONER COMPANY'S OPERATIONAL REQUIREMENTS.14 (Underscoring supplied)
187
Petitioner argues that the law does not prohibit an employer from engaging an independent contractor, like Synergy,
which has substantial capital in carrying on an independent business of contracting, to perform specific jobs.

Petitioner further argues that its contracting out to Synergy various services like janitorial, aircraft cleaning, baggage-
handling, etc., which are directly related to its business, does not make respondents its employees.

Petitioner furthermore argues that none of the four (4) elements of an employer-employee relationship between petitioner
and respondents, viz: selection and engagement of an employee, payment of wages, power of dismissal, and the power
to control employee's conduct, is present in the case.15

Finally, petitioner avers that reinstatement of respondents had been rendered impossible because it had reduced its
personnel due to heavy losses as it had in fact terminated its service agreement with Synergy effective June 30, 199816 as
a cost-saving measure.

The decision of the case hinges on a determination of whether Synergy is a mere job-only contractor or a legitimate
contractor. If Synergy is found to be a mere job-only contractor, respondents could be considered as regular employees of
petitioner as Synergy would then be a mere agent of petitioner in which case respondents would be entitled to all the
benefits granted to petitioner's regular employees; otherwise, if Synergy is found to be a legitimate contractor,
respondents' claims against petitioner must fail as they would then be considered employees of Synergy.

The statutory basis of legitimate contracting or subcontracting is provided in Article 106 of the Labor Code which reads:

ART. 106. CONTRACTOR OR SUBCONTRACTOR. - Whenever an employer enters into a contract with another
person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor,
if any, shall be paid in accordance with the provisions of this Code.

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

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

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among others,
AND the workers recruited and placed by such person are performing activities which are directly related
to the principal business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him. (Emphasis, capitalization and underscoring
supplied)

Legitimate contracting and labor-only contracting are defined in Department Order (D.O.) No. 18-02, Series of 2002
(Rules Implementing Articles 106 to 109 of the Labor Code, as amended) as follows:

Section 3. Trilateral relationship in contracting arrangements. In legitimate contracting, there exists a trilateral

relationship under which there is a contract for a specific job, work or service between the principal and the
contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its
workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a
job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work or service, and the contractual workers engaged by the
contractor or subcontractor to accomplish the job, work or service. (Emphasis and underscoring supplied)

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For
this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following
elements are [sic] present:

188
 (i) The contractor or subcontractor does not have substantial capital or investment which relates to the job,
work or service to be performed and the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the main business of the principal; OR

(ii) The contractor does not exercise the right to control over the performance of the work of the contractual
employee. (Emphasis, underscoring and capitalization supplied)

"Substantial capital or investment" and the "right to control" are defined in the same Section 5 of the Department Order as
follows:

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the
contractor or subcontractor in the performance or completion of the job, work or service contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the contractual
workers are performed, to determine not only the end to be achieved, but also the manner and means to be used
in reaching that end. (Emphasis and underscoring supplied)

From the records of the case, it is gathered that the work performed by almost all of the respondents - loading and
unloading of baggage and cargo of passengers - is directly related to the main business of petitioner. And the equipment
used by respondents as station loaders, such as trailers and conveyors, are owned by petitioner.17

Petitioner asserts, however, that mere compliance with substantial capital requirement suffices for Synergy to be
considered a legitimate contractor, citing Neri v. National Labor Relations Commission.18 Petitioner's reliance on said case
is misplaced.

In Neri, the Labor Arbiter and the NLRC both determined that Building Care Corporation had a capital stock of P1 million
fully subscribed and paid for.19 The corporation's status as independent contractor had in fact been previously confirmed
in an earlier case20 by this Court which found it to be serving, among others, a university, an international bank, a big local
bank, a hospital center, government agencies, etc."

In stark contrast to the case at bar, while petitioner steadfastly asserted before the Labor Arbiter and the NLRC that
Synergy has a substantial capital to engage in legitimate contracting, it failed to present evidence thereon. As the NLRC
held:

The decision of the Labor Arbiter merely mentioned on page 5 of his decision that respondent SYNERGY has
substantial capital, but there is no showing in the records as to how much is that capital. Neither had respondents
shown that SYNERGY has such substantial capital. x x x21 (Underscoring supplied)

It was only after the appellate court rendered its challenged Decision of September 29, 2002 when petitioner, in its Motion
for Reconsideration of the decision, sought to prove, for the first time, Synergy's substantial capitalization by attaching
photocopies of Synergy's financial statements, e.g., balance sheets, statements of income and retained earnings, marked
as "Annexes 'A' - 'A-4.'"22

More significantly, however, is that respondents worked alongside petitioner's regular employees who were performing
identical work.23 As San Miguel Corporation v. Aballa24 and Dole Philippines, Inc. v. Esteva, et al.25 teach, such is an
indicium of labor-only contracting.

For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which requires any of two elements to be present is, for
convenience, re-quoted:

(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job,
work or service to be performed and the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the main business of the principal, OR

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

Even if only one of the two elements is present then, there is labor-only contracting.

189
The control test element under the immediately-quoted paragraph (ii), which was not present in the old Implementing
Rules (Department Order No. 10, Series of 1997),26 echoes the prevailing jurisprudential trend27 elevating such element as
a primary determinant of employer-employee relationship in job contracting agreements.

One who claims to be an independent contractor has to prove that he contracted to do the work according to his own
methods and without being subject to the employer's control except only as to the results.28

While petitioner claimed that it was Synergy's supervisors who actually supervised respondents, it failed to present
evidence thereon. It did not even identify who were the Synergy supervisors assigned at the workplace.

Even the parties' Agreement does not lend support to petitioner's claim, thus:

Section 6. Qualified and Experienced Worker: Owner's Right to Dismiss Workers.

CONTRACTOR shall employ capable and experienced workers and foremen to carry out the loading, unloading
and delivery Work as well as provide all equipment, loading, unloading and delivery equipment, materials,
supplies and tools necessary for the performance of the Work. CONTRACTOR shall upon OWNER'S request
furnish the latter with information regarding the qualifications of the former's workers, to prove their capability and
experience. Contractor shall require all its workers, employees, suppliers and visitors to comply with
OWNER'S rules, regulations, procedures and directives relative to the safety and security of OWNER'S
premises, properties and operations. For this purpose, CONTRACTOR shall furnish its employees and
workers identification cards to be countersigned by OWNER and uniforms to be approved by OWNER.
OWNER may require CONTRACTOR to dismiss immediately and prohibit entry into OWNER'S premises of
any person employed therein by CONTRACTOR who in OWNER'S opinion is incompetent or misconducts
himself or does not comply with OWNER'S reasonable instructions and requests regarding security, safety
and other matters and such person shall not again be employed to perform the services hereunder without
OWNER'S permission.29 (Underscoring partly in the original and partly supplied; emphasis supplied)

Petitioner in fact admitted that it fixes the work schedule of respondents as their work was dependent on the frequency of
plane arrivals.30 And as the NLRC found, petitioner's managers and supervisors approved respondents' weekly work
assignments and respondents and other regular PAL employees were all referred to as "station attendants" of the cargo
operation and airfreight services of petitioner.31

Respondents having performed tasks which are usually necessary and desirable in the air transportation business of
petitioner, they should be deemed its regular employees and Synergy as a labor-only contractor.32

The express provision in the Agreement that Synergy was an independent contractor and there would be "no employer-
employee relationship between [Synergy] and/or its employees on one hand, and [petitioner] on the other hand" is not
legally binding and conclusive as contractual provisions are not valid determinants of the existence of such relationship.
For it is the totality of the facts and surrounding circumstances of the case 33 which is determinative of the parties'
relationship.

Respecting the dismissal on November 15, 199234 of Auxtero, a regular employee of petitioner who had been working as
utility man/helper since November 1988, it is not legally justified for want of just or authorized cause therefor and for non-
compliance with procedural due process. Petitioner's claim that he abandoned his work does not persuade. 35 The
elements of abandonment being (1) the failure to report for work or absence without valid or justifiable reason, and (2) a
clear intention to sever the employer-employee relationship manifested by some overt acts, 36 the onus probandi lies with
petitioner which, however, failed to discharge the same.

Auxtero, having been declared to be a regular employee of petitioner, and found to be illegally dismissed from
employment, should be entitled to salary differential37 from the time he rendered one year of service until his dismissal,
reinstatement plus backwages until the finality of this decision. 38 In view, however, of the long period of time 39 that had
elapsed since his dismissal on November 15, 1992, it would be appropriate to award separation pay of one (1) month
salary for each year of service, in lieu of reinstatement.40

As regards the remaining respondents, the Court affirms the ruling of both the NLRC and the appellate court, ordering
petitioner to accept them as its regular employees and to give each of them the salaries, allowances and other
employment benefits and privileges of a regular employee under the pertinent Collective Bargaining Agreement.

Petitioner claims, however, that it has become impossible for it to comply with the orders of the NLRC and the Court of
Appeals, for during the pendency of this case, it was forced to reduce its personnel due to heavy losses caused by

190
economic crisis and the pilots' strike of June 5, 1998.41 Hence, there are no available positions where respondents could
be placed.

And petitioner informs that "the employment contracts of all if not most of the respondents . . . were terminated by Synergy
effective 30 June 1998 when petitioner terminated its contract with Synergy."42

Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of compliance. In fact,
petitioner waived this defense by failing to raise it in its Memorandum filed on June 14, 1999 before the Court of
Appeals.43 Further, the notice of termination in 1998 was in disregard of a subsisting temporary restraining order44 to
preserve the status quo, issued by this Court in 1996 before it referred the case to the Court of Appeals in January 1999.
So as to thwart the attempt to subvert the implementation of the assailed decision, respondents are deemed to be
continuously employed by petitioner, for purposes of computing the wages and benefits due respondents.

Finally, it must be stressed that respondents, having been declared to be regular employees of petitioner, Synergy being a
mere agent of the latter, had acquired security of tenure. As such, they could only be dismissed by petitioner, the real
employer, on the basis of just or authorized cause, and with observance of procedural due process.

WHEREFORE, the Court of Appeals Decision of September 29, 2000 is AFFIRMED with MODIFICATION.

Petitioner PHILIPPINE AIRLINES, INC. is ordered to:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD
GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS,
JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS,
ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO,
CHERRIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular
employees in their same or substantially equivalent positions, and pay the wages and benefits due them as regular
employees plus salary differential corresponding to the difference between the wages and benefits given them and
those granted to petitioner's other regular employees of the same rank; and

(b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time of his dismissal until the
finality of this decision; and separation pay, in lieu of reinstatement, equivalent to one (1) month pay for every year of
service until the finality of this decision.

There being no data from which this Court may determine the monetary liabilities of petitioner, the case is REMANDED to
the Labor Arbiter solely for that purpose.

SO ORDERED.

G.R. No. 145402               March 14, 2008

MERALCO INDUSTRIAL ENGINEERING SERVICES CORPORATION, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, OFELIA P. LANDRITO GENERAL SERVICES and/or OFELIA P.
LANDRITO, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure
seeking to reverse and set aside (1) the Decision 1 of the Court of Appeals in CA-G.R. SP No. 50806, dated 24 April 2000,
which modified the Decision2 of the National Labor Relations Commission (NLRC), dated 30 January 1996 in NLRC NCR
CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89), and thereby held the petitioner solidarily liable with the
191
private respondents for the satisfaction of the separation pay of the latter’s employees; and (2) the Resolution 3 of the
appellate court, dated 27 September 2000, in the same case which denied the petitioner’s Motion for Reconsideration.

Petitioner Meralco Industrial Engineering Services Corporation (MIESCOR) is a corporation duly organized and existing
under the laws of the Republic of the Philippines and a client of private respondents. Private respondent Ofelia P. Landrito
General Services (OPLGS) is a business firm engaged in providing and rendering general services, such as janitorial and
maintenance work to its clients, while private respondent Ofelia P. Landrito is the Proprietor and General Manager of
OPLGS.

The factual milieu of the present case is as follows:

On 7 November 1984, petitioner and private respondents executed Contract Order No. 166-84,4 whereby the latter would
supply the petitioner janitorial services, which include labor, materials, tools and equipment, as well as supervision of its
assigned employees, at petitioner’s Rockwell Thermal Plant in Makati City. Pursuant thereto, private respondents
assigned their 49 employees as janitors to petitioner’s Rockwell Thermal Plant with a daily wage of ₱51.50 per employee.

On 20 September 1989, however, the aforesaid 49 employees (complainants) lodged a Complaint for illegal deduction,
underpayment, non-payment of overtime pay, legal holiday pay, premium pay for holiday and rest day and night
differentials5 against the private respondents before the Labor Arbiter. The case was docketed as NLRC NCR Case No.
00-09-04432-89.

In view of the enactment of Republic Act No. 6727, 6 the contract between the petitioner and the private respondents was
amended7 for the 10th time on 3 November 1989 to increase the minimum daily wage per employee from ₱63.55 to
₱89.00 or ₱2,670.00 per month. Two months thereafter, or on 2 January 1990,8 petitioner sent a letter to private
respondents informing them that effective at the close of business hours on 31 January 1990, petitioner was terminating
Contract Order No. 166-84. Accordingly, at the end of the business hours on 31 January 1990, the complainants were
pulled out from their work at the petitioner’s Rockwell Thermal Plant. Thus, on 27 February 1990, complainants amended
their Complaint to include the charge of illegal dismissal and to implead the petitioner as a party respondent therein.

Since the parties failed to settle amicably before the Labor Arbiter, they submitted their respective position papers and
other pleadings together with their documentary evidence. Thereafter, a Decision was rendered by the Labor Arbiter on 26
March 1991, dismissing the Complaint against the petitioner for lack of merit, but ordering the private respondents to pay
the complainants the total amount of ₱487,287.07 representing unpaid wages, separation pay and overtime pay; as well
as attorney’s fees in an amount equivalent to 10% of the award or ₱48,728.70. All other claims of the complainants
against the private respondents were dismissed. 9

Feeling aggrieved, private respondents appealed the aforesaid Decision to the NLRC. Private respondents alleged,
among other things, that: (1) 48 of the 49 complainants had executed affidavits of desistance and they had never attended
any hearing nor given any authority to anyone to file a case on their behalf; (2) the Labor Arbiter erred in not conducting a
full-blown hearing on the case; (3) there is only one complainant in that case who submitted a position paper on his own;
(4) the complainants were not constructively dismissed when they were not given assignments within a period of six
months, but had abandoned their jobs when they failed to report to another place of assignment; and (5) the petitioner,
being the principal, was solidarily liable with the private respondents for failure to make an adjustment on the wages of the
complainants.10 On 28 May 1993, the NLRC issued a Resolution11 affirming the Decision of the Labor Arbiter dated 26
March 1991 with the modification that the petitioner was solidarily liable with the private respondents, ratiocinating thus:

We, however, disagree with the dismissal of the case against [herein petitioner]. Under Art. 107 12 of the Labor Code of the
Philippines, [herein petitioner] is considered an indirect employer and can be held solidarily liable with [private
respondents] as an independent contractor. Under Art. 109,13 for purposes of determining the extent of its liability, [herein
petitioner] is considered a direct employer, hence, it is solidarily liable for complainant’s (sic) wage differentials and unpaid
overtime. We find this situation obtaining in this case in view of the failure of [private respondents] to pay in full the labor
standard benefits of complainants, in which case liability is limited thereto and does not extend to the establishment of
employer-employee relations.14 [Emphasis supplied].

Both private respondents and petitioner separately moved for reconsideration of the aforesaid Resolution of the NLRC. In
their Motion for Reconsideration, private respondents reiterated that the complainants abandoned their work, so that
private respondents should not be liable for separation pay; and that petitioner, not private respondents, should be liable
for complainants’ other monetary claims, i.e., for wage differentials and unpaid overtime. The petitioner, in its own Motion
for Reconsideration, asked that it be excluded from liability. It averred that private respondents should be solely
responsible for their acts as it sufficiently paid private respondents all the benefits due the complainants.

192
On 30 July 1993, the NLRC issued an Order15 noting that based on the records of the case, the judgment award in the
amount of ₱487,287.07 was secured by a surety bond posted by the private respondents;16 hence, there was no longer
any impediment to the satisfaction of the complainants’ claims. Resultantly, the NLRC denied the private respondents’
Motion for Reconsideration. The NLRC likewise directed the Labor Arbiter to enforce the monetary award against the
private respondents’ surety bond and to determine who should finally shoulder the liability therefor.17

Alleging grave abuse of discretion of the NLRC in its issuance of the Resolution and Order dated 28 May 1993 and 30
July 1993, respectively, private respondents filed before this Court a Petition for Certiorari with prayer for the issuance of a
writ of preliminary injunction. The same was docketed as G.R. No. 111506 entitled Ofelia Landrito General Services v.
National Labor Relations Commission. The said Petition suspended the proceedings before the Labor Arbiter.

On 23 May 1994, however, this Court issued a Resolution18 dismissing G.R. No. 111506 for failure of private respondents
to sufficiently show that the NLRC had committed grave abuse of discretion in rendering its questioned judgment. This
Court’s Resolution in G.R. No. 111506 became final and executory on 25 July 1994.19

As a consequence thereof, the proceedings before the Labor Arbiter resumed with respect to the determination of who
should finally shoulder the liability for the monetary awards granted to the complainants, in accordance with the NLRC
Order dated 30 July 1993.

On 5 October 1994, the Labor Arbiter issued an Order,20 which reads:

As can be gleaned from the Resolution dated [28 May 1993], there is that necessity of clarifying the respective liabilities of
[herein petitioner] and [herein private respondents] insofar as the judgment award in the total sum of ₱487,287.07 is
concerned.

The judgment award in the total sum of ₱487,287.07 as contained in the Decision dated [26 March 1991] consists of three
(3) parts, as follows: First, the judgment award on the underpayment; Second, the judgment award on separation pay; and
Third, the judgment award on the overtime pay.

The question now is: Which of these awards is [petitioner] solidarily liable with [private respondents]?

An examination of the record elicits the finding that [petitioner] is solidarily liable with [private respondents] on the
judgment awards on the underpayment and on the non-payment of the overtime pay. xxx. This joint and several liability of
the contractor [private respondents] and the principal [petitioner] is mandated by the Labor Code to assure compliance of
the provisions therein, including the statutory minimum wage (Art. 99, 21 Labor Code). The contractor-agency is made
liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the
contractor-agency’s employees for purposes of paying the employees their wages should the contractor-agency be
unable to pay them. This joint and several liability facilitates, if not guarantees, payment of the workers performance of
any work, task, job or project, thus giving the workers ample protection as mandated by the 1987 Constitution.

In sum, the complainants may enforce the judgment award on underpayment and the non-payment of overtime pay
against either [private respondents] and/or [petitioner].

However, in view of the finding in the Decision that [petitioner] had adjusted its contract price for the janitorial services it
contracted with [private respondents] conforming to the provisions of Republic Act No. 6727, should the complainants
enforce the judgment on the underpayment and on the non-payment of the overtime pay aginst (sic) [petitioner], the latter
can seek reimbursement from the former [meaning (private respondents)], but should the judgment award on the
underpayment and on the non-payment of the overtime pay be enforced against [private respondents], the latter cannot
seek reimbursement against [petitioner].

The judgment award on separation pay is the sole liability of [private respondents].

WHEREFORE, [petitioner] is jointly and severally liable with [private respondents] in the judgment award on
underpayment and on the non-payment of overtime pay. Should the complainants enforce the above judgment award
against [petitioner], the latter can seek reimbursement against [private respondents], but should the aforementioned
judgment award be enforced against [private respondents], the latter cannot seek reimbursement from the [petitioner].

The judgment award on the payment of separation pay is the sole liability of [private respondents].

Let an alias writ of execution be issued. [Emphasis supplied].

193
Again, both the private respondents and the petitioner appealed the afore-quoted Order of the Labor Arbiter to the NLRC.
On 25 April 1995, the NLRC issued a Resolution22 affirming the Order dated 5 October 1994 of the Labor Arbiter and
dismissing both appeals for non-posting of the appeal or surety bond and/or for utter lack of merit. 23 When the private
respondents and the petitioner moved for reconsideration, however, it was granted by the NLRC in its Order 24 dated 27
July 1995. The NLRC thus set aside its Resolution dated 25 April 1995, and directed the private respondents and the
petitioner to each post an appeal bond in the amount of ₱487,287.62 to perfect their respective appeals.25 Both parties
complied.26

On 30 January 1996, the NLRC rendered a Decision modifying the Order of the Labor Arbiter dated 5 October 1994, the
dispositive portion of which reads:

WHEREFORE, the [21 November 1994] appeal of [herein petitioner] is hereby granted. The [5 October 1994] Order of
Labor Arbiter Donato G. Quinto, Jr., is modified to the extent that it still held [petitioner] as "jointly and severally liable with
[herein private respondents] in the judgment award on underpayment and on the non-payment of overtime pay," our
directive being that the Arbiter should now satisfy said labor-standards award, as well as that of the separation
pay, exclusively through the surety bond posted by [private respondents].27 [Emphasis supplied].

Dissatisfied, private respondents moved for the reconsideration of the foregoing Decision, but it was denied by the NLRC
in an Order28 dated 30 October 1996. This NLRC Order dated 30 October 1996 became final and executory on 29
November 1996.

On 4 December 1996, private respondents filed a Petition for Certiorari 29 before this Court assailing the Decision and the
Order of the NLRC dated 30 January 1996 and 30 October 1996, respectively. On 9 December 1998, this Court issued a
Resolution30 referring the case to the Court of Appeals conformably with its ruling in St. Martin Funeral Home v. National
Labor Relations Commission.31 The case was docketed before the appellate court as CA-G.R. SP No. 50806.

The Petition made a sole assignment of error, to wit:

THE HONORABLE COMMISSION GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETION IN FINDING THAT
THE ULTIMATE LIABILITY SHOULD FALL ON THE [HEREIN PRIVATE RESPONDENTS] ALONE, WITHOUT
REIMBURSEMENT FROM THE [HEREIN PETITIONER], IN ORDER TO SATISFY THE MONETARY AWARDS OF THE
[THEREIN COMPLAINANTS].32

After due proceedings, the Court of Appeals rendered the assailed Decision on 24 April 2000, modifying the Decision of
the NLRC dated 30 January 1996 and holding the petitioner solidarily liable with the private respondents for the
satisfaction of the laborers’ separation pay. According to the Court of Appeals:

The [NLRC] adjudged the payment of separation pay to be the sole responsibility of [herein private respondents] because
(1) there is no employer-employee relationship between [herein petitioner] and the forty-nine (49) [therein complainants];
(2) the payment of separation pay is not a labor standard benefit. We disagree.

Again, We quote Article 109 of the Labor Code, as amended, viz:

"The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held
responsible with his contractor or subcontractor for any violation of any provision of this Code…"

The abovementioned statute speaks of "any violation of any provision of this Code." Thus, the existence or non-existence
of employer-employee relationship and whether or not the violation is one of labor standards is immaterial because said
provision of law does not make any distinction at all and, therefore, this Court should also refrain from making any
distinction. Concomitantly, [herein petitioner] should be jointly and severally liable with [private respondents] for the
payment of wage differentials, overtime pay and separation pay of the [therein complainants]. The joint and several
liability imposed to [petitioner] is, again, without prejudice to a claim for reimbursement by [petitioner] against [private
respondents] for reasons already discusses (sic).

WHEREFORE, premises studiedly considered, the assailed 30 January 1996 decision of [the NLRC] is hereby modified
insofar as [petitioner] should be held solidarily liable with [the private respondents] for the satisfaction of the laborers’
separation pay. No pronouncement as to costs.33 [Emphasis supplied].

The petitioner filed a Motion for Reconsideration of the aforesaid Decision but it was denied by the Court of Appeals in a
Resolution dated 27 September 2000.

194
Petitioner now comes before this Court via a Petition for Review on Certiorari, docketed as G.R. No. 145402, raising the
sole issue of "whether or not the Honorable Court of Appeals palpably erred when it went beyond the issues of the
case as it modified the factual findings of the Labor Arbiter which attained finality after it was affirmed by Public
Respondent NLRC and by the Supreme Court which can no longer be disturbed as it became the law of the case."34

Petitioner argues that in the assailed Decision dated 24 April 2000, the Court of Appeals found that the sole issue for its
resolution was whether the ultimate liability to pay the monetary awards in favor of the 49 employees falls on the private
respondents without reimbursement from the petitioner. Hence, the appellate court should have limited itself to
determining the right of private respondents to still seek reimbursement from petitioner for the monetary awards on the
unpaid wages and overtime pay of the complainants.

According to petitioner, the NLRC, in its Resolution dated 28 May 1993, already found that petitioner had fully complied
with its salary obligations to the complainants. Petitioner invokes the same NLRC Resolution to support its claim that it
was not liable to share with the private respondents in the payment of separation pay to complainants. When private
respondents questioned the said NLRC Resolution in a Petition for Certiorari with this Court, docketed as G.R. No.
111506, this Court found that the NLRC did not commit grave abuse of discretion in the issuance thereof and accordingly
dismissed private respondents’ Petition. Said NLRC Resolution, therefore, has since become final and executory and can
no longer be disturbed for it now constitutes the law of the case.

Assuming for the sake of argument that the Court of Appeals can still take cognizance of the issue of petitioner’s liability
for complainants’ separation pay, petitioner asserts that the appellate court seriously erred in concluding that it is jointly
and solidarily liable with private respondents for the payment thereof. The payment of separation pay should be the sole
responsibility of the private respondents because there was no employer-employee relationship between the petitioner
and the complainants, and the payment of separation pay is not a labor standards benefit.

Law of the case has been defined as the opinion delivered on a former appeal. It is a term applied to an established rule
that when an appellate court passes on a question and remands the case to the lower court for further proceedings, the
question there settled becomes the law of the case upon subsequent appeal. It means that whatever is once irrevocably
established as the controlling legal rule or decision between the same parties in the same case continues to be the law of
the case, whether correct on general principles or not, so long as the facts on which such decision was predicated
continue to be the facts of the case before the court. 35 Indeed, courts must adhere thereto, whether the legal principles
laid down were "correct on general principles or not" or "whether the question is right or wrong" because public policy,
judicial orderliness and economy require such stability in the final judgments of courts or tribunals of competent
jurisdiction.36

Petitioner’s application of the law of the case principle to the case at bar as regards its liability for payment of separation
pay is misplaced.

The only matters settled in the 23 May 1994 Resolution of this Court in G.R. No. 111506, which can be regarded as the
law of the case, were (1) both the petitioner and the private respondents were jointly and solidarily liable for the judgment
awards due the complainants; and (2) the said judgment awards shall be enforced against the surety bond posted by the
private respondents. However, the issue as regards the liability of the petitioner for payment of separation pay was yet to
be resolved because precisely, the NLRC, in its Order dated 30 July 1993, still directed the Labor Arbiter to make a
determination on who should finally shoulder the monetary awards granted to the complainants. And it was only after G.R.
No. 111506 was dismissed by this Court that the Labor Arbiter promulgated his Decision dated 5 October 1994, wherein
he clarified the respective liabilities of the petitioner and the private respondents for the judgment awards. In his 5 October
1994 Decision, the Labor Arbiter explained that the solidary liability of the petitioner was limited to the monetary awards
for wage underpayment and non-payment of overtime pay due the complainants, and it did not, in any way, extend to the
payment of separation pay as the same was the sole liability of the private respondents.

Nonetheless, this Court finds the present Petition meritorious.

The Court of Appeals indeed erred when it ruled that the petitioner was jointly and solidarily liable with the private
respondents as regards the payment of separation pay.

The appellate court used as basis Article 109 of the Labor Code, as amended, in holding the petitioner solidarily liable
with the private respondents for the payment of separation pay:

ART. 109. Solidary Liability. - The provisions of existing laws to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For
purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.
[Emphasis supplied].1avvphi1

195
However, the afore-quoted provision must be read in conjunction with Articles 106 and 107 of the Labor Code, as
amended.

Article 107 of the Labor Code, as amended, defines an indirect employer as "any person, partnership, association or
corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task,
job or project." To ensure that the contractor’s employees are paid their appropriate wages, Article 106 of the Labor Code,
as amended, provides:

ART. 106. CONTRACTOR OR SUBCONTRACTOR. – x x x.

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

Taken together, an indirect employer (as defined by Article 107) can only be held solidarily liable with the independent
contractor or subcontractor (as provided under Article 109) in the event that the latter fails to pay the wages of its
employees (as described in Article 106).

Hence, while it is true that the petitioner was the indirect employer of the complainants, it cannot be held liable in the
same way as the employer in every respect. The petitioner may be considered an indirect employer only for purposes of
unpaid wages. As this Court succinctly explained in Philippine Airlines, Inc. v. National Labor Relations Commission37:

While USSI is an independent contractor under the security service agreement and PAL may be considered an indirect
employer, that status did not make PAL the employer of the security guards in every respect. As correctly posited by the
Office of the Solicitor General, PAL may be considered an indirect employer only for purposes of unpaid wages since
Article 106, which is applicable to the situation contemplated in Section 107, speaks of wages. The concept of indirect
employer only relates or refers to the liability for unpaid wages. Read together, Articles 106 and 109 simply mean that the
party with whom an independent contractor deals is solidarily liable with the latter for unpaid wages, and only to that
extent and for that purpose that the latter is considered a direct employer. The term "wage" is defined in Article 97(f) of the
Labor Code as "the remuneration of earnings, however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the unwritten
contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and
reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by
the employer to the employee."

Further, there is no question that private respondents are operating as an independent contractor and that the
complainants were their employees. There was no employer-employee relationship that existed between the petitioner
and the complainants and, thus, the former could not have dismissed the latter from employment. Only private
respondents, as the complainants’ employer, can terminate their services, and should it be done illegally, be held liable
therefor. The only instance when the principal can also be held liable with the independent contractor or subcontractor for
the backwages and separation pay of the latter’s employees is when there is proof that the principal conspired with the
independent contractor or subcontractor in the illegal dismissal of the employees, thus:

The liability arising from an illegal dismissal is unlike an order to pay the statutory minimum wage, because the workers’
right to such wage is derived from law. The proposition that payment of back wages and separation pay should be
covered by Article 109, which holds an indirect employer solidarily responsible with his contractor or subcontractor for
"any violation of any provision of this Code," would have been tenable if there were proof - there was none in this case -
that the principal/employer had conspired with the contractor in the acts giving rise to the illegal dismissal. 38

It is the established fact of conspiracy that will tie the principal or indirect employer to the illegal dismissal of the contractor
or subcontractor’s employees. In the present case, there is no allegation, much less proof presented, that the petitioner
conspired with private respondents in the illegal dismissal of the latter’s employees; hence, it cannot be held liable for the
same.

Neither can the liability for the separation pay of the complainants be extended to the petitioner based on contract.
Contract Order No. 166-84 executed between the petitioner and the private respondents contains no provision for
separation pay in the event that the petitioner terminates the same. It is basic that a contract is the law between the
parties and the stipulations therein, provided that they are not contrary to law, morals, good customs, public order or
public policy, shall be binding as between the parties. 39 Hence, if the contract does not provide for such a liability, this
Court cannot just read the same into the contract without possibly violating the intention of the parties.

196
It is also worth noting that although the issue in CA-G.R. SP No. 50806 pertains to private respondents’ right to
reimbursement from petitioner for the "monetary awards" in favor of the complainants, they limited their arguments to the
monetary awards for underpayment of wages and non-payment of overtime pay, and were conspicuously silent on the
monetary award for separation pay. Thus, private respondents’ sole liability for the separation pay of their employees
should have been deemed settled and already beyond the power of the Court of Appeals to resolve, since it was an issue
never raised before it.40

Although petitioner is not liable for complainants’ separation pay, the Court conforms to the consistent findings in the
proceedings below that the petitioner is solidarily liable with the private respondents for the judgment awards for
underpayment of wages and non-payment of overtime pay.

In this case, however, private respondents had already posted a surety bond in an amount sufficient to cover all the
judgment awards due the complainants, including those for underpayment of wages and non-payment of overtime pay.
The joint and several liability of the principal with the contractor and subcontractor were enacted to ensure compliance
with the provisions of the Labor Code, principally those on statutory minimum wage. This liability facilitates, if not
guarantees, payment of the workers’ compensation, thus, giving the workers ample protection as mandated by the 1987
Constitution.41 With private respondents’ surety bond, it can therefore be said that the purpose of the Labor Code
provision on the solidary liability of the indirect employer is already accomplished since the interest of the complainants
are already adequately protected. Consequently, it will be futile to continuously hold the petitioner jointly and solidarily
liable with the private respondents for the judgment awards for underpayment of wages and non-payment of overtime pay.

But while this Court had previously ruled that the indirect employer can recover whatever amount it had paid to the
employees in accordance with the terms of the service contract between itself and the contractor,42 the said ruling cannot
be applied in reverse to this case as to allow the private respondents (the independent contractor), who paid for the
judgment awards in full, to recover from the petitioner (the indirect employer).

Private respondents have nothing more to recover from petitioner.

Petitioner had already handed over to private respondent the wages and other benefits of the complainants. Records
reveal that it had complied with complainants’ salary increases in accordance with the minimum wage set by Republic Act
No. 6727 by faithfully adjusting the contract price for the janitorial services it contracted with private respondents. 43 This is
a finding of fact made by the Labor Arbiter,44 untouched by the NLRC45 and explicitly affirmed by the Court of
Appeals,46 and which should already bind this Court.

This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of this Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are completely devoid of support from the evidence on record, or the assailed judgment is
based on a gross misapprehension of facts. Besides, factual findings of quasi-judicial agencies like the NLRC, when
affirmed by the Court of Appeals, are conclusive upon the parties and binding on this Court.47

Having already received from petitioner the correct amount of wages and benefits, but having failed to turn them over to
the complainants, private respondents should now solely bear the liability for the underpayment of wages and non-
payment of the overtime pay.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision and Resolution of the Court
of Appeals dated 24 April 2000 and 27 September 2000, respectively, in CA-G.R. SP No. 50806, are hereby REVERSED
AND SET ASIDE. The Decision dated 30 January 1996 of the National Labor Relations Commission in NLRC NCR CA
No. 001737-91 (NLRC NCR Case No. 00-09-04432-89) is hereby REINSTATED. No costs.

SO ORDERED.

[G.R. NO. 145271 July 14, 2005]

MANILA ELECTRIC COMPANY, Petitioner, v. ROGELIO BENAMIRA, ERNIE DE SAGUN1, DIOSDADO YOGARE,

FRANCISCO MORO2, OSCAR LAGONOY3, Rolando Beni, Alex Beni, Raul4 Guia, Armed Security & Detective
Agency, Inc., (ASDAI) and Advance FORCES Security & INVESTIGATION Services, Inc., (AFSISI), Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

197
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision, 5 dated
September 27, 2000, of the Court of Appeals (CA) in CA-G.R. SP No. 50520 which declared petitioner Manila Electric
Company (MERALCO) as the direct employer of individual respondents Rogelio Benamira, Ernie De Sagun, Diosdado
Yogare, Francisco Moro, Oscar Lagonoy, Rolando Beni, Alex Beni and Raul De Guia (individual respondents for brevity).

The factual background of the case is as follows:

The individual respondents are licensed security guards formerly employed by People's Security, Inc. (PSI) and deployed
as such at MERALCO's head office in Ortigas Avenue, Pasig, Metro Manila.

On November 30, 1990, the security service agreement between PSI and MERALCO was terminated.

Immediately thereafter, fifty-six of PSI's security guards, including herein eight individual respondents, filed a complaint for
unpaid monetary benefits against PSI and MERALCO, docketed as NLRC-NCR Case No. 05-02746-90.

Meanwhile, the security service agreement between respondent Armed Security & Detective Agency, Inc., (ASDAI) and
MERALCO took effect on December 1, 1990. In the agreement, ASDAI was designated as the AGENCY while MERALCO
was designated as the COMPANY. The pertinent terms and conditions of the agreement are as follows:

1. The AGENCY shall initially provide the COMPANY with TWO HUNDRED TWENTY (220) licensed, uniformed, bonded
and armed security guards to be assigned at the COMPANY's "MERALCO CENTER," complete with nightsticks,
flashlights, raincoats, and other paraphernalias to work on eight (8) hours duty. The COMPANY shall determine the
number of security guards in accordance with its needs and the areas of responsibility assigned to each, and shall have
the option to increase or decrease the number of guards at any time provided the AGENCY is notified within twenty four
(24) hours of the contemplated reduction or increase of the guards in which case the cost or consideration shall be
adjusted accordingly.

2. The COMPANY shall furnish the AGENCY copies of written specific instruction to be followed or implemented by the
latter's personnel in the discharge of their duties and responsibilities and the AGENCY shall be responsible for the faithful
compliance therewith by its personnel together with such general and specific orders which shall be issued from time to
time.

3. For and in consideration of the services to be rendered by the AGENCY to the COMPANY, the COMPANY during the
term of this contract shall pay the AGENCY the amount of THREE THOUSAND EIGHT HUNDRED PESOS (P3,800.00) a
month per guard, FOUR THOUSAND PESOS (P4,000.00) for the Shift Leader and FOUR THOUSAND TWO HUNDRED
PESOS (P4,200.00) for the Detachment Commander for eight (8) hours work/day, Saturdays, Sundays and Holidays
included, payable semi-monthly.

xxx

5. The AGENCY shall assume the responsibility for the proper and efficient performance of duties by the security guards
employed by it and it shall be solely responsible for any act of said security guards during their watch hours, the
COMPANY being specifically released from any and all liability to third parties arising from the acts or omission of the
security guards of the AGENCY.

6. The AGENCY also agrees to hold the COMPANY entirely free from any liability, cause or causes of action or claims
which may be filed by said security guards by reason of their employment with the AGENCY pursuant to this Agreement
or under the provisions of the Labor Code, the Social Security Act, and other laws, decrees or social legislations now
enacted or which hereafter may be enacted.

7. Discipline and Administration of the security guards shall conform with the rules and regulations of the AGENCY, and
the COMPANY reserves the right to require without explanation the replacement of any guard whose behavior, conduct or
appearance is not satisfactory to the COMPANY and that the AGENCY cannot pull-out any security guard from the
COMPANY without the consent of the latter.

8. The AGENCY shall conduct inspections through its duly authorized inspector at least two (2) times a week of guards
assigned to all COMPANY installations secured by the AGENCY located in the Metropolitan Manila area and at least once
a week of the COMPANY's installations located outside of the Metropolitan Manila area and to further submit its
inspection reports to the COMPANY. Likewise, the COMPANY shall have the right at all times to inspect the guards of the
AGENCY assigned to the COMPANY.

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9. The said security guards shall be hired by the AGENCY and this contract shall not be deemed in any way to constitute
a contract of employment between the COMPANY and any of the security guards hired by the AGENCY but merely as a
contract specifying the conditions and manner under which the AGENCY shall render services to the COMPANY.

10. Nothing herein contained shall be understood to make the security guards under this Agreement, employees of the
COMPANY, it being clearly understood that such security guards shall be considered as they are, employees of the
AGENCY alone, so that the AGENCY shall be responsible for compliance with all pertinent labor laws and regulations
included but not limited to the Labor Code, Social Security Act, and all other applicable laws and regulations including that
providing for a withholding tax on income.

xxx

13. This contract shall take effect on the 1st day of December, 1990 and shall continue from year to year unless sooner
terminated by the COMPANY for cause or otherwise terminated by either party without cause upon thirty (30) days written
notice by one party to the other.6

Subsequently, the individual respondents were absorbed by ASDAI and retained at MERALCO's head office.

On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered a decision in NLRC-NCR Case No. 05-02746-90 in favor
of the former PSI security guards, including the individual respondents.

Less than a month later, or on July 21, 1992, the individual respondents filed another complaint for unpaid monetary
benefits, this time against ASDAI and MERALCO, docketed as NLRC-NCR Case No. 00-07-03953-92.

On July 25, 1992, the security service agreement between respondent Advance Forces Security & Investigation Services,
Inc. (AFSISI) and MERALCO took effect, terminating the previous security service agreement with ASDAI.7 Except as to
the number of security guards,8 the amount to be paid the agency,9 and the effectivity of the agreement,10 the terms and
conditions were substantially identical with the security service agreement with ASDAI.

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

The individual respondents alleged that: MERALCO and ASDAI never paid their overtime pay, service incentive leave
pay, premium pay for Sundays and Holidays, P50.00 monthly uniform allowance and underpaid their 13th month pay; on
July 24, 1992, when the security service agreement of ASDAI was terminated and AFSISI took over the security functions
of the former on July 25, 1992, respondent security guard Benamira was no longer given any work assignment when
AFSISI learned that the former has a pending case against PSI, in effect, dismissing him from the service without just
cause; and, the rest of the individual respondents were absorbed by AFSISI but were not given any assignments, thereby
dismissing them from the service without just cause.

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

On the other hand, MERALCO denied liability on the ground of lack of employer-employee relationship with individual
respondents. It averred that the individual respondents are the employees of the security agencies it contracted for
security services; and that it has no existing liability for the individual respondents' claims since said security agencies
have been fully paid for their services per their respective security service agreement.

For its part, AFSISI asserted that: it is not liable for illegal dismissal since it did not absorb or hire the individual
respondents, the latter were merely hold-over guards from ASDAI; it is not obliged to employ or absorb the security
guards of the agency it replaced since there is no provision in its security service agreement with MERALCO or in law
requiring it to absorb and hire the guards of ASDAI as it has its own guards duly trained to service its various clients.

On January 3, 1994, after the submission of their respective evidence and position papers, Labor Arbiter Pablo C.
Espiritu, Jr. rendered a Decision holding ASDAI and MERALCO jointly and solidarily liable to the monetary claims of
individual respondents and dismissing the complaint against AFSISI. The dispositive portion of the decision reads as
follows:

WHEREFORE, conformably with the above premises, judgment is hereby rendered:

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1. Declaring ASDAI as the employer of the complainants and as such complainants should be reinstated as regular
security guards of ASDAI without loss of seniority rights, privileges and benefits and for ASDAI to immediately post the
complainants as security guards with their clients. The complaint against AFSISI is Dismissed for lack of merit.

2. Ordering both respondents, ASDAI and MERALCO to jointly and solidarily pay complainants monetary claims
(underpayment of actual regular hours and overtime hours rendered, and premium pay for holiday and rest day) in the
following amounts:

NAME OVERTIME DIFFERENTIALS AND PREMIUM PAY FOR HOLIDAY & REST DAY

1. Rogelio Benamira P14,615.75

2. Ernie De Sagun 21,164.31
3. Diosdado Yogare 7,108.77
4. Francisco Maro 26,567.11
5. Oscar Lagonay 18,863.36
6. Rolando Beni 21,834.12
7. Alex Beni 21,648.80
8. Ruel De Guia 14,200.33

3. Ordering Respondents ASDAI and MERALCO to jointly and solidarily pay complainants 10% attorney's fees in the
amount of P14,600.25 based on the total monetary award due to the complainants in the amount of P146,002.55.

All other claims of the complainants are hereby DISMISSED for lack of merit.

The counter-claim of respondent AFSISI for damages is hereby dismissed for want of substantial evidence to justify the
grant of damages.

SO ORDERED.11

All the parties, except AFSISI, appealed to the National Labor Relations Commission (NLRC).

Individual respondents' partial appeal assailed solely the Labor Arbiter's declaration that ASDAI is their employer. They
insisted that AFSISI is the party liable for their illegal dismissal and should be the party directed to reinstate them.

For its part, MERALCO attributed grave abuse of discretion on the part of the Labor Arbiter in failing to consider the
absence of employer-employee relationship between MERALCO and individual respondents.

On the other hand, ASDAI took exception from the Labor Arbiter's finding that it is the employer of the individual
respondents and therefore liable for the latter's unpaid monetary benefits.

On April 10, 1995, the NLRC affirmed in toto the decision of the Labor Arbiter.12 On April 19, 1995, the individual
respondents filed a motion for partial reconsideration but it was denied by the NLRC in a Resolution dated May 23, 1995.13

On August 11, 1995, the individual respondents filed a Petition for Certiorari before us, docketed as G.R. No.
121232.14 They insisted that they were absorbed by AFSISI and the latter effected their termination without notice and just
cause.

After the submission of the responsive pleadings and memoranda, we referred the petition, in accordance with St. Martin
Funeral Homes v. NLRC, 15 to the CA which, on September 27, 2000, modified the decision of the NLRC by declaring
MERALCO as the direct employer of the individual respondents.

The CA held that: MERALCO changed the security agency manning its premises three times while engaging the services
of the same people, the individual respondents; MERALCO employed a scheme of hiring guards through an agency and
periodically entering into service contract with one agency after another in order to evade the security of tenure of
individual respondents; individual respondents are regular employees of MERALCO since their services as security
guards are usually necessary or desirable in the usual business or trade of MERALCO and they have been in the service
of MERALCO for no less than six years; an employer-employee relationship exists between MERALCO and the individual
respondents because: (a) MERALCO had the final say in the selection and hiring of the guards, as when its advice was
proved to have carried weight in AFSISI's decision not to absorb the individual respondents into its workforce; (b)
MERALCO paid the wages of individual respondents through ASDAI and AFSISI; (c) MERALCO's discretion on matters of
dismissal of guards was given great weight and even finality since the record shows that the individual respondents were
replaced upon the advice of MERALCO; and, (d) MERALCO has the right, at any time, to inspect the guards, to require

200
without explanation the replacement of any guard whose behavior, conduct or appearance is not satisfactory and ASDAI
and AFSISI cannot pull out any security guard from MERALCO without the latter's consent; and, a labor-only contract
existed between ASDAI and AFSISI and MERALCO, such that MERALCO is guilty of illegal dismissal without just cause
and liable for reinstatement of individual respondents to its workforce.

The dispositive portion of the CA's Decision reads as follows:

WHEREFORE, in view of the foregoing premises, the Resolution subject of this petition is hereby AFFIRMED with
MODIFICATION in the sense that MERALCO is declared the employer of the petitioners. Accordingly, private respondent
MERALCO is hereby ordered as follows:

1. To reinstate petitioners into MERALCO's work force as regular security guards without loss of seniority rights and other
privileges; andcralawlibrary

2. To pay the petitioners' full backwages, inclusive of allowances, and other benefits or their monetary equivalent
computed from the time their compensation was withheld from them up to the time of their actual reinstatement, for which
the Labor Arbiter Pablo C. Espiritu, Jr. is hereby directed to undertake the necessary computation and enforcement
thereof.

With respect to the rest of the dispositive portion of the assailed Resolution which affirmed the decision of the Labor
Arbiter Pablo C. Espiritu, Jr., particularly the joint and solidary liabilities of both ASDAI and MERALCO to the petitioners,
the same are hereby AFFIRMED.

SO ORDERED.16

Hence, the present Petition for Review on certiorari, filed by MERALCO, anchored on the following grounds:

A. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR AND GRAVE ABUSE OF DISCRETION
IN HOLDING THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTS BETWEEN PETITIONER MERALCO AND
INDIVIDUAL RESPONDENTS.

B. THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT INDIVIDUAL RESPONDENTS
ARE REGULAR EMPLOYEES OF PETITIONER MERALCO.

C. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN ALLOWING INDIVIDUAL

RESPONDENTS TO RAISE FOR THE FIRST TIME ON APPEAL, THE ISSUE THAT PETITIONER WAS THEIR DIRECT
EMPLOYER.

D. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN FINDING THAT PETITIONER MERALCO IS GUILTY
OF ILLEGAL DISMISSAL.

E. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT INDIVIDUAL RESPONDENTS ARE ENTITLED
TO REINSTATEMENT INTO PETITIONER'S WORKFORCE.

F. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT PETITIONER MERALCO IS ENTITLED TO
REIMBURSEMENT FROM RESPONDENT ASDAI FOR THE MONETARY CLAIMS PETITIONER PAID TO INDIVIDUAL
RESPONDENTS PURSUANT TO THE SECURITY SERVICE AGREEMENT.17

Anent the first ground, MERALCO submits that the elements of "four-fold" test to determine the existence of an employer-
employee relation, namely: (1) the power to hire, (2) the payment of wages, (3) the power to dismiss, and (4) the power to
control, are not present in the instant case.

Regarding the power to hire, MERALCO contends that the records are bereft of any evidence that shows that it
participated in or influenced the decision of PSI and ASDAI to hire or absorb the individual respondents.

As to the payment of wages, MERALCO maintains that the individual respondents received their wages from their agency.

With regard to the power to dismiss, MERALCO argues that the security service agreement clearly provided that the
discipline and administration of the security guards shall conform to the rules and regulations of the agency.

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Concerning the power of control, MERALCO asserts that there is no evidence that individual respondents were subjected
to its control as to the manner or method by which they conduct or perform their work of guarding of MERALCO's
premises.

Furthermore, MERALCO insists that ASDAI and AFSISI are not labor-only contractors since they have their own
equipment, machineries and work premises which are necessary in the conduct of their business and the duties
performed by the security guards are not necessary in the conduct of MERALCO's principal business.

With respect to the second ground, MERALCO argues that the individual respondents cannot be considered as regular
employees as the duties performed by them as security guards are not necessary in the conduct of MERALCO's principal
business which is the distribution of electricity.

As regards the third ground, MERALCO argues that it was denied due process when the individual respondents raised for
the first time in the CA the issue that MERALCO is their direct employer since the individual respondents have always
considered themselves as employees of AFSISI and nowhere in the Labor Arbiter or the NLRC did they raise the
argument that MERALCO is their direct employer.

Regarding the fourth ground, MERALCO asserts that it is not guilty of illegal dismissal because it had no direct hand or
participation in the termination of the employment of individual respondents, who even insisted in their Petition
for Certiorari in the CA that it was AFSISI which terminated their employment.

As to the fifth ground, MERALCO maintains that the individual respondents are not entitled to reinstatement into its
workforce because no employer-employee relationship exists between it and the individual respondents.

With regard to the sixth ground, MERALCO asserts that since it is not the direct employer of the individual respondents, it
has a right of reimbursement from ASDAI for the full amount it may pay to the individual respondents under Articles 106
and 107 of the Labor Code.

In contrast, the individual respondents maintain that the CA aptly found that all the elements in employer-employee
relationship exist between them and MERALCO and there is no cogent reason to deviate from such factual findings.

For its part, ASDAI contends that the instant petition raises factual matters beyond the jurisdiction of this Court to resolve
since only questions of law may be raised in a Petition for Review on certiorari. It submits that while the rule admits of
exceptions, MERALCO failed to establish that the present case falls under any of the exceptions.

On the other hand, AFSISI avers that there is no employer-employee relationship between MERALCO and the security
guards of any of the security agencies under contract with MERALCO.

It is a settled rule that in the exercise of the Supreme Court's power of review, the Court is not a trier of facts and does not
normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case
considering that the findings of facts of the CA are conclusive and binding on the Court. However, jurisprudence has
recognized several exceptions in which factual issues may be resolved by this Court, to wit:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on
a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of
Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.18

In the present case, the existence of an employer-employee relationship is a question of fact which is well within the
province of the CA. Nonetheless, given the reality that the CA's findings are at odds to those of the NLRC, the Court is
constrained to look deeper into the attendant circumstances obtaining in the present case, as appearing on record.

At the outset, we note that the individual respondents never alleged in their complaint in the Labor Arbiter, in their appeal
in the NLRC and even in their Petition for Certiorari in the CA that MERALCO was their employer. They have always
advanced the theory that AFSISI is their employer. A perusal of the records shows it was only in their Memorandum in the
CA that this thesis was presented and discussed for the first time. We cannot ignore the fact that this position of individual
respondents runs contrary to their earlier submission in their pleadings filed in the Labor Arbiter, NLRC and even in the

202
Petition for Certiorari in the CA that AFSISI is their employer and liable for their termination. As the object of the pleadings
is to draw the lines of battle, so to speak, between the litigants and to indicate fairly the nature of the claims or defenses of
both parties, a party cannot subsequently take a position contrary to, or inconsistent, with his pleadings.19

Moreover, it is a fundamental rule of procedure that higher courts are precluded from entertaining matters neither alleged
in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for
reconsideration or on appeal.20 The individual respondents are bound by their submissions that AFSISI is their employer
and they should not be permitted to change their theory. Such a change of theory cannot be tolerated on appeal, not due
to the strict application of procedural rules but as a matter of fairness. A change of theory on appeal is objectionable
because it is contrary to the rules of fair play, justice and due process.21

Thus, the CA should not have considered the new theory offered by the individual respondents in their memorandum.

The present Petition for Review on Certiorari is far from novel and, in fact, not without precedence. We have ruled
in Social Security System v. Court of Appeals22 that:

...The guards or watchmen render their services to private respondent by allowing themselves to be assigned by said
respondent, which furnishes them arms and ammunition, to guard and protect the properties and interests of private
respondent's clients, thus enabling that respondent to fulfill its contractual obligations. Who the clients will be, and under
what terms and conditions the services will be rendered, are matters determined not by the guards or watchmen, but by
private respondent. On the other hand, the client companies have no hand in selecting who among the guards or
watchmen shall be assigned to them. It is private respondent that issues assignment orders and instructions and
exercises control and supervision over the guards or watchmen, so much so that if, for one reason or another, the client is
dissatisfied with the services of a particular guard, the client cannot himself terminate the services of such guard, but has
to notify private respondent, which either substitutes him with another or metes out to him disciplinary measures. That in
the course of a watchman's assignment the client conceivably issues instructions to him, does not in the least detract from
the fact that private respondent is the employer of said watchman, for in legal contemplation such instructions carry no
more weight than mere requests, the privity of contract being between the client and private respondent, not between the
client and the guard or watchman. Corollarily, such giving out of instructions inevitably spring from the client's right
predicated on the contract for services entered into by it with private respondent.

In the matter of compensation, there can be no question at all that the guards or watchmen receive compensation from
private respondent and not from the companies or establishments whose premises they are guarding. The fee contracted
for to be paid by the client is admittedly not equal to the salary of a guard or watchman; such fee is arrived at
independently of the salary to which the guard or watchman is entitled under his arrangements with private respondent.23

and reiterated in American President Lines v. Clave,24 thus:

In the light of the foregoing standards, We fail to see how the complaining watchmen of the Marine Security Agency can
be considered as employees of the petitioner. It is the agency that recruits, hires, and assigns the work of its watchmen.
Hence, a watchman can not perform any security service for the petitioner's vessels unless the agency first accepts him
as its watchman. With respect to his wages, the amount to be paid to a security guard is beyond the power of the
petitioner to determine. Certainly, the lump sum amount paid by the petitioner to the agency in consideration of the latter's
service is much more than the wages of any one watchman. In point of fact, it is the agency that quantifies and pays the
wages to which a watchman is entitled.

Neither does the petitioner have any power to dismiss the security guards. In fact, We fail to see any evidence in the
record that it wielded such a power. It is true that it may request the agency to change a particular guard. But this,
precisely, is proof that the power lies in the hands of the agency.

Since the petitioner has to deal with the agency, and not the individual watchmen, on matters pertaining to the contracted
task, it stands to reason that the petitioner does not exercise any power over the watchmen's conduct. Always, the agency
stands between the petitioner and the watchmen; and it is the agency that is answerable to the petitioner for the conduct
of its guards.25

In this case, the terms and conditions embodied in the security service agreement between MERALCO and ASDAI
expressly recognized ASDAI as the employer of individual respondents.

Under the security service agreement, it was ASDAI which (a) selected, engaged or hired and discharged the security
guards; (b) assigned them to MERALCO according to the number agreed upon; (c) provided the uniform, firearms and
ammunition, nightsticks, flashlights, raincoats and other paraphernalia of the security guards; (d) paid them salaries or
wages; and, (e) disciplined and supervised them or principally controlled their conduct. The agreement even explicitly

203
provided that "[n]othing herein contained shall be understood to make the security guards under this Agreement,
employees of the COMPANY, it being clearly understood that such security guards shall be considered as they are,
employees of the AGENCY alone." Clearly, the individual respondents are the employees of ASDAI.

As to the provision in the agreement that MERALCO reserved the right to seek replacement of any guard whose behavior,
conduct or appearance is not satisfactory, such merely confirms that the power to discipline lies with the agency. It is a
standard stipulation in security service agreements that the client may request the replacement of the guards to it.
Service-oriented enterprises, such as the business of providing security services, generally adhere to the business adage
that "the customer or client is always right" and, thus, must satisfy the interests, conform to the needs, and cater to the
reasonable impositions of its clients.

Neither is the stipulation that the agency cannot pull out any security guard from MERALCO without its consent an
indication of control. It is simply a security clause designed to prevent the agency from unilaterally removing its security
guards from their assigned posts at MERALCO's premises to the latter's detriment.

The clause that MERALCO has the right at all times to inspect the guards of the agency detailed in its premises is likewise
not indicative of control as it is not a unilateral right. The agreement provides that the agency is principally mandated to
conduct inspections, without prejudice to MERALCO's right to conduct its own inspections.

Needless to stress, for the power of control to be present, the person for whom the services are rendered must reserve
the right to direct not only the end to be achieved but also the means for reaching such end.26 Not all rules imposed by the
hiring party on the hired party indicate that the latter is an employee of the former. 27 Rules which serve as general
guidelinestowards the achievement of the mutually desired result are not indicative of the power of control.28

Verily, the security service agreements in the present case provided that all specific instructions by MERALCO relating to
the discharge by the security guards of their duties shall be directed to the agency and not directly to the individual
respondents. The individual respondents failed to show that the rules of MERALCO controlled their performance.

Moreover, ASDAI and AFSISI are not "labor-only" contractors. There is "labor only" contract when the person acting as
contractor is considered merely as an agent or intermediary of the principal who is responsible to the workers in the same
manner and to the same extent as if they had been directly employed by him. On the other hand, "job (independent)
contracting" is present if the following conditions are met: (a) the contractor carries on an independent business and
undertakes the contract work on his own account under his own responsibility according to his own manner and method,
free from the control and direction of his employer or principal in all matters connected with the performance of the work
except to the result thereof; and (b) the contractor has substantial capital or investments in the form of tools, equipment,
machineries, work premises and other materials which are necessary in the conduct of his business. 29 Given the above
distinction and the provisions of the security service agreements entered into by petitioner with ASDAI and AFSISI, we are
convinced that ASDAI and AFSISI were engaged in job contracting.

The individual respondents can not be considered as regular employees of the MERALCO for, although security services
are necessary and desirable to the business of MERALCO, it is not directly related to its principal business and may even
be considered unnecessary in the conduct of MERALCO's principal business, which is the distribution of electricity.

Furthermore, the fact that the individual respondents filed their claim for unpaid monetary benefits against ASDAI is a
clear indication that the individual respondents acknowledge that ASDAI is their employer.

We cannot give credence to individual respondents' insistence that they were absorbed by AFSISI when MERALCO's
security service agreement with ASDAI was terminated. The individual respondents failed to present any evidence to
confirm that AFSISI absorbed them into its workforce. Thus, respondent Benamira was not retained in his post at
MERALCO since July 25, 1992 due to the termination of the security service agreement of MERALCO with ASDAI. As for
the rest of the individual respondents, they retained their post only as "hold-over" guards until the security guards of
AFSISI took over their post on August 6, 1992.30

In the present case, respondent Benamira has been "off-detail" for seventeen days while the rest of the individual
respondents have only been "off - detail" for five days when they amended their complaint on August 11, 1992 to include
the charge of illegal dismissal. The inclusion of the charge of illegal dismissal then was premature. Nonetheless, bearing
in mind that ASDAI simply stopped giving the individual respondents any assignment and their inactivity clearly persisted
beyond the six-month period allowed by Article 28631 of the Labor Code, the individual respondents were, in effect,
constructively dismissed by ASDAI from employment, hence, they should be reinstated.

The fact that there is no actual and direct employer-employee relationship between MERALCO and the individual
respondents does not exonerate MERALCO from liability as to the monetary claims of the individual respondents. When

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MERALCO contracted for security services with ASDAI as the security agency that hired individual respondents to work
as guards for it, MERALCO became an indirect employer of individual respondents pursuant to Article 107 of the Labor
Code, which reads:

ART. 107. Indirect employer -  The provisions of the immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project.

When ASDAI as contractor failed to pay the individual respondents, MERALCO as principal becomes jointly and severally
liable for the individual respondents' wages, under Articles 106 and 109 of the Labor Code, which provide:

ART. 106. Contractor or subcontractor. - Whenever an employer enters into a contract with another person for the
performance of the former['s] work, the employees of the contractor and of the latter['s] subcontractor, if any, shall be paid
in accordance with the provisions of this Code.

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

ART. 109. Solidary liability -  The provisions of existing laws to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For
purpose of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.

ASDAI is held liable by virtue of its status as direct employer, while MERALCO is deemed the indirect employer of the
individual respondents for the purpose of paying their wages in the event of failure of ASDAI to pay them. This statutory
scheme gives the workers the ample protection

consonant with labor and social justice provisions of the 1987 Constitution.32

However, as held in Mariveles Shipyard Corp. v. Court of Appeals, 33 the solidary liability of MERALCO with that of ASDAI
does not preclude the application of Article 1217 of the Civil Code on the right of reimbursement from his co-debtor by the
one who paid,34 which provides:

ART. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer
to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for
the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be
demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.

ASDAI may not seek exculpation by claiming that MERALCO's payments to it were inadequate for the individual
respondents' lawful compensation. As an employer, ASDAI is charged with knowledge of labor laws and the adequacy of
the compensation that it demands for contractual services is its principal concern and not any other's.35

WHEREFORE, the present petition is GRANTED. The assailed Decision, dated September 27, 2000, of the CA is
REVERSED and SET ASIDE. The Decision of the Labor Arbiter dated January 3, 1994 and the Resolution of the NLRC
dated April 10, 1995 are AFFIRMED with the MODIFICATION that the joint and solidary liability of ASDAI and MERALCO
to pay individual respondents' monetary claims for underpayment of actual regular hours and overtime hours rendered,
and premium pay for holiday and rest day, as well as attorney's fees, shall be without prejudice to MERALCO's right of
reimbursement from ASDAI.

SO ORDERED.

[G.R. NO. 161115 : November 30, 2006]

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DOLE PHILIPPINES, INC., Petitioner, v. MEDEL ESTEVA, HENRY SILVA, GILBERT CABILAO, LORENZO GAQUIT,
DANIEL PABLO, EDWIN CAMILO, BENJAMIN SAKILAN, RICHARD PENUELA, ARMANDO PORRAS, EDUARDO
FALDAS, NILO DONDOYANO, MIGUEL DIAZ, ROMEL BAJO, ARTEMIO TENERIFE, EDDIE LINAO, JERRY LIGTAS,
SAMUEL RAVAL, WILFREDO BLANDO, LORENZO MONTERO, JR., JAIME TESIPAO, GEORGE DERAL, ERNESTO
ISRAEL, JR., AGAPITO ESTOLOGA, JOVITO DAGUIO, ARSENIO LEONCIO, MARLON BLANDO, JOSE OTELO
CASPILLO, ARNOLD LIZADA, JERRY DEYPALUBOS, STEVEN MADULA, ROGELIO CABULAO, JR., ALVIN
COMPOC, EUGENIO BRITANA, RONNIE GUELOS, EMMANUEL JIMENA, GERMAN JAVA, JESUS MEJICA, JOEL
INVENTADO, DOMINGO JABULGO, RAMIL ENAD, RAYMUNDO YAMON, RITCHIE MELENDRES, JACQUEL ORGE,
RAMON BARCELONA, ERWIN ESPIA, NESTOR DELIDELI, JR., ALLAN GANE, ROMEO PORRAS, RITCHIE
BOCOG, JOSELITO ACEBES, DANNY TORRES, JIMMY NAVARRO, RALPH PEREZ, SONNY SESE, RONALD
RODRIQUES, ROBERTO ALLANEC, ERNIE GIGANTANA, NELSON SAMSON, REDANTE DAVILA, EDDIE BUSLIG,
ALLAN PINEDA, JESUS BELGERA, VICENTE LABISTE, CARMENCITA FELISILDA, GEORGE DERLA, RUBEN
TORMON, NEIL TAJALE, ORLANDO ESPENILLA, RITCHEL MANEJAR, JOEL QUINTANA, ERWIN ALDE, JOEL
CATALAN, ELMER TIZON, ALLAN ESPADA, EUGENE BRETANA, RAMIL ENAD, RENE INGALLA, STEVEN
MADULLA, RANDY REBUTAZO, NEIL BAGATILLA, ARSENIO LEONCIO, ROLANDO VILLEGAS and JUSLIUS
TESIPAO, herein represented by MEDEL ESTEVA, Authorized Representative, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the revised Rules of Civil Procedure seeking the
reversal of the Decision,1 dated 20 May 2002, and the Amended Decision,2 dated 27 November 2003, both rendered by
the Court of Appeals in CA-G.R. SP No. 63405, which declared herein petitioner Dole Philippines, Inc. as the employer of
herein respondents, Medel Esteva and 86 others; found petitioner guilty of illegal dismissal; and ordered petitioner to
reinstate respondents to their former positions and to pay the latter backwages.

The antecedent facts of the case are recounted as follows:

Petitioner is a corporation duly organized and existing in accordance with Philippine laws, engaged principally in the
production and processing of pineapple for the export market.3 Its plantation is located in Polomolok, South Cotabato.4

Respondents are members of the Cannery Multi-Purpose Cooperative (CAMPCO). CAMPCO was organized in
accordance with Republic Act No. 6938, otherwise known as the Cooperative Code of the Philippines, and duly-registered
with the Cooperative Development Authority (CDA) on 6 January 1993. 5 Members of CAMPCO live in communities
surrounding petitioner's plantation and are relatives of petitioner's employees.

On 17 August 1993, petitioner and CAMPCO entered into a Service Contract.6 The Service Contract referred to petitioner
as "the Company," while CAMPCO was "the Contractor." Relevant portions thereof read as follows '

1. That the amount of this contract shall be or shall not exceed TWO HUNDRED TWENTY THOUSAND ONLY
(P220,000.00) PESOS, terms and conditions of payment shall be on a per job basis as specified in the attached schedule
of rates; the CONTRACTOR shall perform the following services for the COMPANY;

1.1 Assist the COMPANY in its daily operations;

1.2 Perform odd jobs as may be assigned.

2. That both parties shall observe the following terms and conditions as stipulated, to wit:

2.1 CONTRACTOR must carry on an independent legitimate business, and must comply with all the pertinent laws of the
government both local and national;

2.2 CONTRACTOR must provide all hand tools and equipment necessary in the performance of their work.

However, the COMPANY may allow the use of its fixed equipment as a casual facility in the performance of the contract;

2.3 CONTRACTOR must comply with the attached scope of work, specifications, and GMP and safety practices of the
company;

2.4 CONTRACTOR must undertake the contract work under the following manner:

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A. on his own account;

b. under his own responsibility;

c. according to his manner and method, free from the control and direction of the company in all matters connected with
the performance of the work except as to the result thereof;

3. CONTRACTOR must pay the prescribed minimum wage, remit SSS/MEDICARE premiums to proper government
agencies, and submit copies of payroll and proof of SSS/MEDICARE remittances to the COMPANY;

4. This contract shall be for a specific period of Six (6) months from July 1 to December 31, 1993; x x x.

Pursuant to the foregoing Service Contract, CAMPCO members rendered services to petitioner. The number of CAMPCO
members that report for work and the type of service they performed depended on the needs of petitioner at any given
time. Although the Service Contract specifically stated that it shall only be for a period of six months, i.e., from 1 July to 31
December 1993, the parties had apparently extended or renewed the same for the succeeding years without executing
another written contract. It was under these circumstances that respondents came to work for petitioner.

Investigation by DOLE

Concomitantly, the Sangguniang Bayan of Polomolok, South Cotabato, passed Resolution No. 64, on 5 May 1993,
addressed to then Secretary Ma. Nieves R. Confessor of the Department of Labor and Employment (DOLE), calling her
attention to the worsening working conditions of the petitioner's workers and the organization of contractual workers into
several cooperatives to replace the individual labor-only contractors that used to supply workers to the petitioner. Acting
on the said Resolution, the DOLE Regional Office No. XI in Davao City organized a Task Force that conducted an
investigation into the alleged labor-only contracting activities of the cooperatives in Polomolok.7

On 24 May 1993, the Senior Legal Officer of petitioner wrote a letter addressed to Director Henry M. Parel of DOLE
Regional Office No. XI, supposedly to correct the misinformation that petitioner was involved in labor-only contracting,
whether with a cooperative or any private contractor. He further stated in the letter that petitioner was not hiring
cooperative members to replace the regular workers who were separated from service due to redundancy; that the
cooperatives were formed by the immediate dependents and relatives of the permanent workers of petitioner; that these
cooperatives were registered with the CDA; and that these cooperatives were authorized by their respective constitutions
and by-laws to engage in the job contracting business.8

The Task Force submitted a report on 3 June 1993 identifying six cooperatives that were engaged in labor-only
contracting, one of which was CAMPCO. The DOLE Regional Office No. XI held a conference on 18 August 1993 wherein
the representatives of the cooperatives named by the Task Force were given the opportunity to explain the nature of their
activities in relation to petitioner. Subsequently, the cooperatives were required to submit their position papers and other
supporting documents, which they did on 30 August 1993. Petitioner likewise submitted its position paper on 15
September 1993.9

On 19 October 1993, Director Parel of DOLE Regional Office No. XI issued an Order 10 in which he made the following
findings'

Records submitted to this Office show that the six (6) aforementioned cooperatives are all duly registered with the
Cooperative Development Authority (CDA). These cooperatives were also found engaging in different activities with DOLE
PHILIPPINES, INC. a company engaged in the production of pineapple and export of pineapple products. Incidentally,
some of these cooperatives were also found engaging in activities which are directly related to the principal business or
operations of the company. This is true in the case of the THREE (3) Cooperatives, namely; Adventurer's Multi Purpose
Cooperative, Human Resource Multi Purpose Cooperative and Cannery Multi Purpose Cooperative.

From the foregoing findings and evaluation of the activities of Adventurer's Multi Purpose Cooperative, Human Resource
Multi Purpose Cooperative and Cannery Multi Purpose Cooperative, this Office finds and so holds that they are engaging
in Labor Only Contracting Activities as defined under Section 9, Rule VIII, Book III of the rules implementing the Labor
Code of the Philippines, as amended which we quote:

"Section 9 Labor Only Contracting - a) Any person who undertakes to supply workers to an employer shall be deemed to
be engaged in labor-only contracting where such person:

1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other
materials; andcralawlibrary

207
2) The workers recruited and placed by such person are performing activities which are directly related to the principal
business or operation of the employer to which workers are habitually employed.

b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered
merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him."

WHEREFORE, premises considered, ADVENTURER'S MULTI PURPOSE COOPERATIVE, HUMAN RESOURCE MULTI
PURPOSE COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE are hereby declared to be engaged in
labor only contracting which is a prohibited activity. The same cooperatives are therefore ordered to cease and desist
from further engaging in such activities.

The three (3) other cooperatives, namely Polomolok Skilled Workers Multi Purpose Cooperative, Unified Engineering and
Manpower Service Multi Purpose Cooperative and Tibud sa Katibawasan Multi Purpose Cooperative whose activities may
not be directly related to the principal business of DOLE Philippines, Inc. are also advised not to engage in labor only
contracting with the company.

All the six cooperatives involved appealed the afore-quoted Order to the Office of the DOLE Secretary, raising the sole
issue that DOLE Regional Director Director Parel committed serious error of law in directing the cooperatives to cease
and desist from engaging in labor-only contracting. On 15 September 1994, DOLE Undersecretary Cresencio B. Trajano,
by the authority of the DOLE Secretary, issued an Order11 dismissing the appeal on the basis of the following ratiocination'

The appeal is devoid of merit.

The Regional Director has jurisdiction to issue a cease and desist order as provided by Art. 106 of the Labor Code, as
amended, to wit:

"Art. 106. Contractor or subcontractor. x x x

xxx

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

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or
investment in the forms of tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such person are performing activities which are directly related to the principal business of the employer. In
such cases, the person or the intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed by him."

in relation to Article 128(b) of the Labor Code, as amended by Republic Act No. 7730, which reads:

"Art. 128. Visitorial and Enforcement Power.

b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases where the relationship
of employer-employee still exists, the Secretary of Labor and Employment or his duly authorized representatives shall
have the power to issue compliance orders to give effect to the labor standards provisions of this Code and other labor
legislation based on the findings of labor employment and enforcement officers or industrial safety engineers made in the
course of inspection. The Secretary or his duly authorized representatives shall issue writs of execution to the appropriate
authority for the enforcement of their orders, except in cases where the employer contests the findings of the labor
employment and enforcement officer and raises issues supported by documentary proof which were not considered in the
course of inspection.

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

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The records reveal that in the course of the inspection of the premises of Dolefil, it was found out that the activities of the
members of the [cooperatives] are necessary and desirable in the principal business of the former; and that they do not
have the necessary investment in the form of tools and equipments. It is worthy to note that the cooperatives did not deny
that they do not have enough capital in the form of tools and equipment. Under the circumstances, it could not be denied
that the [cooperatives] are considered as labor-only contractors in relation to the business operation of DOLEFIL, INC.

Thus, Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code, provides that:

"Sec. 9. Labor-only contracting. - (a) Any person who undertakes to supply workers to an employer shall be deemed to be
engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other
materials; andcralawlibrary

(2) The workers recruited and placed by such person are performing activities which are directly related to the principal
business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as a contractor shall be
considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.

x x x x"

Violation of the afore-quoted provision is considered a labor standards violation and thus, within the visitorial and
enforcement powers of the Secretary of Labor and Employment (Art. 128).

The Regional Director's authority to issue a cease and desist order emanates from Rule I, Section 3 of the Rules on
Disposition of Labor Standard Cases in the Regional Offices, to wit:

"Section 3. Authorized representative of the Secretary of Labor and Employment. - The Regional Directors shall be the
duly authorized representatives of the Secretary of Labor and Employment in the administration and enforcement of the
labor standards within their respective territorial jurisdiction."

The power granted under Article 106 of the Labor Code to the Secretary of Labor and Employment to restrict or prohibit
the contracting out of labor to protect the rights of workers established under the Code is delegated to the Regional
Directors by virtue of the above-quoted provision.

The reason why "labor-only" contracting is prohibited under the Labor Code is that it encourages circumvention of the
provisions of the Labor Code on the workers' right to security of tenure and to self-organization.

WHEREFORE, the respondents' Appeal is hereby DISMISSED for lack of merit. The Order of the Regional Director,
Regional Office No. XI, Davao City, is AFFIRMED.

After the motion for reconsideration of the foregoing Order was denied, no further motion was filed by the parties, and the
Order, dated 15 September 1994, of DOLE Undersecretary Trajano became final and executory. A Writ of
Execution12 was issued by DOLE Regional Office No. XI only on 27 July 1999, years after the issuance of the order
subject of the writ. The DOLE Regional Office No. XI was informed that CAMPCO and two other cooperatives "continued
to operate at DOLE Philippines, Inc. despite the cease and desist Order" it had issued. It therefore commanded the Sheriff
to proceed to the premises of CAMPCO and the two other cooperatives and implement its Order dated 19 October 1993.

Respondent's Complaint before the NLRC

Respondents started working for petitioner at various times in the years 1993 and 1994, by virtue of the Service Contract
executed between CAMPCO and petitioner. All of the respondents had already rendered more than one year of service to
petitioner. While some of the respondents were still working for petitioner, others were put on "stay home status" on
varying dates in the years 1994, 1995, and 1996 and were no longer furnished with work thereafter. Together,
respondents filed a Complaint,13 on 19 December 1996, with the National Labor Relations Commission (NLRC), for illegal
dismissal, regularization, wage differentials, damages and attorney's fees.

In their Position Paper,14 respondents reiterated and expounded on the allegations they previously made in their
Complaint'

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Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged the services of the [herein respondents] through Cannery
Multi-purpose Cooperative. A cooperative which was organized through the initiative of Dolefil in order to fill in the vacuum
created as a result of the dismissal of the regular employees of Dolefil sometime in 1990 to 1993.

The [respondents] were assigned at the Industrial Department of respondent Dolefil. All tools, implements and
machineries used in performing their task such as: can processing attendant, feeder of canned pineapple at
pineapple processing, nata de coco processing attendant, fruit cocktail processing attendant, and etc. were
provided by Dolefil. The cooperative does not have substantial capital and does not provide the [respondents] with the
necessary tools to effectively perform their assigned task as the same are being provided by Dolefil.

The training and instructions received by the [respondents] were provided by Dolefil. Before any of the [respondents] will
be allowed to work, he has to undergo and pass the training prescribed by Dolefil. As a matter of fact, the trainers are
employees of Dolefil.

The [respondents] perform their assigned task inside the premises of Dolefil. At the job site, they were given specific task
and assignment by Dolefil's supervisors assigned to supervise the works and efficiency of the complainants. Just like the
regular employees of Dolefil, [respondents] were subjected to the same rules and regulations observe [sic] inside
company premises and to some extent the rules applied to the [respondents] by the company through its officers are even
stricter.

The functions performed by the [respondents] are the same functions discharged by the regular employees of Dolefil. In
fact, at the job site, the [respondents] were mixed with the regular workers of Dolefil. There is no difference in so far as the
job performed by the regular workers of Dolefil and that of the [respondents].

Some of the [respondents] were deprived of their employment under the scheme of "stay home status" where they were
advised to literally stay home and wait for further instruction to report anew for work. However, they remained in this
condition for more than six months. Hence, they were constructively or illegally dismissed.

Respondents thus argued that they should be considered regular employees of petitioner given that: (1) they were
performing jobs that were usually necessary and desirable in the usual business of petitioner; (2) petitioner exercised
control over respondents, not only as to the results, but also as to the manner by which they performed their assigned
tasks; and (3) CAMPCO, a labor-only contractor, was merely a conduit of petitioner. As regular employees of petitioner,
respondents asserted that they were entitled to security of tenure and those placed on "stay home status" for more than
six months had been constructively and illegally dismissed. Respondents further claimed entitlement to wage differential,
moral damages, and attorney's fees.

In their Supplemental Position Paper,15 respondents presented, in support of their Complaint, the Orders of DOLE
Regional Director Parel, dated 19 October 1993, and DOLE Undersecretary Trajano, dated 15 September 1994, finding
that CAMPCO was a labor-only contractor and directing CAMPCO to cease and desist from any further labor-only
contracting activities.

Petitioner, in its Position Paper16 filed before the NLRC, denied that respondents were its employees.

Petitioner explained that it found the need to engage external services to augment its regular workforce, which was
affected by peaks in operation, work backlogs, absenteeism, and excessive leaves. It used to engage the services of
individual workers for definite periods specified in their employment contracts and never exceeding one year. However,
such an arrangement became the subject of a labor case,17 in which petitioner was accused of preventing the
regularization of such workers. The Labor Arbiter who heard the case, rendered his Decision18 on 24 June 1994 declaring
that these workers fell squarely within the concept of seasonal workers as envisaged by Article 280 of the Labor Code, as
amended, who were hired by petitioner in good faith and in consonance with sound business practice; and consequently,
dismissing the complaint against petitioner. The NLRC, in its Resolution,19 dated 14 March 1995, affirmed in toto the Labor
Arbiter's Decision and further found that the workers were validly and legally engaged by petitioner for "term employment,"
wherein the parties agreed to a fixed period of employment, knowingly and voluntarily, without any force, duress or
improper pressure being brought to bear upon the employees and absent any other circumstance vitiating their consent.
The said NLRC Resolution became final and executory on 18 June 1996. Despite the favorable ruling of both the Labor
Arbiter and the NLRC, petitioner decided to discontinue such employment arrangement. Yet, the problem of petitioner as
to shortage of workforce due to the peaks in operation, work backlogs, absenteeism, and excessive leaves, persisted.
Petitioner then found a solution in the engagement of cooperatives such as CAMPCO to provide the necessary additional
services.

Petitioner contended that respondents were owners-members of CAMPCO; that CAMPCO was a duly-organized and
registered cooperative which had already grown into a multi-million enterprise; that CAMPCO was engaged in legitimate

210
job-contracting with its own owners-members rendering the contract work; that under the express terms and conditions of
the Service Contract executed between petitioner (the principal) and CAMPCO (the contractor), the latter shall undertake
the contract work on its own account, under its own responsibility, and according to its own manner and method free from
the control and direction of the petitioner in all matters connected with the performance of the work, except as to the result
thereof; and since CAMPCO held itself out to petitioner as a legitimate job contractor, respondents, as owners-members
of CAMPCO, were estopped from denying or refuting the same.

Petitioner further averred that Department Order No. 10, amending the rules implementing Books III and VI of the Labor
Code, as amended, promulgated by the DOLE on 30 May 1997, explicitly recognized the arrangement between petitioner
and CAMPCO as permissible contracting and subcontracting, to wit'

Section 6. Permissible contracting and subcontracting. - Subject to the conditions set forth in Section 3(d) and (e) and
Section 5 hereof, the principal may engage the services of a contractor or subcontractor for the performance of any of the
following;

(a) Works or services temporarily or occasionally needed to meet abnormal increase in the demand of products or
services, provided that the normal production capacity or regular workforce of the principal cannot reasonably cope with
such demands;

(b) Works or services temporarily or occasionally needed by the principal for undertakings requiring expert or highly
technical personnel to improve the management or operations of an enterprise;

(c) Services temporarily needed for the introduction or promotion of new products, only for the duration of the introductory
or promotional period;

(d) Works or services not directly related or not integral to the main business or operation of the principal, including casual
work, janitorial, security, landscaping, and messengerial services, and work not related to manufacturing processes in
manufacturing establishments;

(e) Services involving the public display of manufacturer's products which does not involve the act of selling or issuance of
receipts or invoices;

(f) Specialized works involving the use of some particular, unusual, or peculiar skills, expertise, tools or equipment the
performance of which is beyond the competence of the regular workforce or production capacity of the principal;
andcralawlibrary

(g) Unless a reliever system is in place among the regular workforce, substitute services for absent regular employees,
provided that the period of service shall be coextensive with the period of absence and the same is made clear to the
substitute employee at the time of engagement. The phrase "absent regular employees" includes those who are serving
suspensions or other disciplinary measures not amounting to termination of employment meted out by the principal, but
excludes those on strike where all the formal requisites for the legality of the strike have been prima facie complied with
based on the records filed with the National Conciliation and Mediation Board.

According to petitioner, the services rendered by CAMPCO constituted permissible job contracting under the afore-quoted
paragraphs (a), (c), and (g), Section 6 of DOLE Department Order No. 10, series of 1997.

After the parties had submitted their respective Position Papers, the Labor Arbiter promulgated its Decision20 on 11 June
1999, ruling entirely in favor of petitioner, ratiocinating thus'

After judicious review of the facts, narrated and supporting documents adduced by both parties, the undersigned finds
[and] holds that CAMPCO is not engaged in labor-only contracting.

Had it not been for the issuance of Department Order No. 10 that took effect on June 22, 1997 which in the contemplation
of Law is much later compared to the Order promulgated by the Undersecretary Cresencio Trajano of Department of
[L]abor and Employment, the undersigned could safely declared [sic] otherwise. However, owing to the principle observed
and followed in legal practice that the later law or jurisprudence controls, the reliance to Secretary Trajano's order is
overturned.

Labor-only contracting as amended by Department [O]rder No. 10 is defined in this wise:

211
"Labor-only contracting is prohibited under this Rule is an arrangement where the contractor or subcontractor merely
recruits, supplied [sic] or places workers to perform a job, work or service for a principal, and the following elements are
present:

i) The contractor or sub-contractor does not have substantial capital or investment to actually perform the job, work, or
service under its own account & responsibility, and

ii) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are
directly related to the main business of the principal."

Verification of the records reveals that per Annexes "J" and "K" of [herein petitioner DolePhil's] position paper, which are
the yearly audited Financial Statement and Balance Sheet of CAMPCO shows [sic] that it has more than substantial
capital or investment in order to qualify as a legitimate job contractor.

We likewise recognize the validity of the contract entered into and between CAMPCO and [petitioner] for the former to
assists [sic] the latter in its operations and in the performance of odd jobs - such as the augmentation of regular manning
particularly during peaks in operation, work back logs, absenteeism and excessive leave availment of respondent's
regular employees. The rule is well-settled that labor laws discourage interference with an employer's judgment in the
conduct of his business. Even as the law is solicitors [sic] of the welfare of the employees, it must also protect the right of
an employer to exercise what are clearly management prerogatives. The free will of management to conduct its own
business affairs to achieve its purpose cannot be denied (Yuco Chemical Industries v. Ministry of [L]abor, GR No. 75656,
May 28, 1990).

CAMPCO being engaged in legitimate contracting, cannot therefore declared [sic] as guilty of labor-only contracting which
[herein respondents] want us to believe.

The second issue is likewise answered in the negative. The reason is plain and simple[,] section 12 of Department [O]rder
No. 10 states:

"Section 12. Employee-employer relationship. Except in cases provided for in Section 13, 14, 15 & 17, the contractor or
subcontractor shall be considered the employer of the contractual employee for purposes of enforcing the provisions of
the Code."

The Resolution of NLRC 5th division, promulgated on March 14, 1 1995 [sic] categorically declares:

"Judging from the very nature of the terms and conditions of their hiring, the Commission finds the complainants to have
been engaged to perform work, although necessary or desirable to the business of respondent company, for a definite
period or what is community called TERM EMPLOYMENT. It is clear from the evidence and record that the nature of the
business and operation of respondent company has its peaks and valleys and therefore, it is not difficult to discern,
inclement weather, or high availment by regular workers of earned leave credits, additional workers categorized as
casuals, or temporary, are needed to meet the exigencies." (Underlining in the original)

The validity of fixed-period employment has been consistently upheld by the Supreme [C]ourt in a long line of cases, the
leading case of which is Brent School, Inc. v. Zamora & Alegre, GR No. 48494, February 5, 1990. Thus at the end of the
contract the employer-employee relationship is terminated. It behooves upon us to rule that herein complainants cannot
be declared regular rank and file employees of the [petitioner] company.

Anent the third issue, [respondents] dismally failed to provide us the exact figures needed for the computation of their
wage differentials. To simply alleged [sic] that one is underpaid of his wages is not enough. No bill of particulars was
submitted. Moreover, the Order of RTWPB Region XI, Davao City dated February 21, 1996 exempts [petitioner] company
from complying Wage Order No. 04 [sic] in so far as such exemption applies only to workers who are not covered by the
Collective Bargaining Agreement, for the period January 1 to December 31, 1995,. [sic] In so far as [respondents] were
not privies to the CBA, they were the workers referred to by RTWPB's Order. [H]ence, [respondents'] claims for wage
differentials are hereby dismissed for lack of factual basis.

We find no further necessity in delving into the issues raised by [respondents] regarding moral damages and attorney's
fees for being moot and academic because of the findings that CAMPCO does not engaged [sic] in labor-only contracting
and that [respondents] cannot be declared as regular employees of [petitioner].

WHEREFORE, premises considered, judgment is hereby rendered in the above-entitled case, dismissing the complaint
for lack of merit.

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Respondents appealed the Labor Arbiter's Decision to the NLRC, reiterating their position that they should be recognized
as regular employees of the petitioner since CAMPCO was a mere labor-only contractor, as already declared in the
previous Orders of DOLE Regional Director Parel, dated 19 October 1993, and DOLE Undersecretary Trajano, dated 15
September 1994, which already became final and executory. The NLRC, in its Resolution,21 dated 29 February 2000,
dismissed the appeal and affirmed the Labor Arbiter's Decision, reasoning as follows'

We find no merit in the appeal.

The concept of conclusiveness of judgment under the principle of "res judicata" means that where between the first case
wherein judgment is rendered and the second case wherein such judgment is invoked, there is identity of parties, but
there is no identity of cause of action, the judgment is conclusive in the second case, only as to those matters actually and
directly controverted and determined and not as to matters merely involved therein (Viray, etc. v. Marinas, et al., 49
SCRA 44). There is no denying that the order of the Department of Labor and Employment, Regional Office No. XI in case
No. RI100-9310-RI-355, which the complainants perceive to have sealed the status of CAMPCO as labor-only contractor,
proceeded from the visitorial and enforcement power of the Department Secretary under Article 128 of the Labor Code.
Acting on reports that the cooperatives, including CAMPCO, that operated and offered services at [herein petitioner]
company were engaging in labor-only contracting activities, that Office conducted a routinary inspection over the records
of said cooperatives and consequently, found the latter to be engaging in labor-only contracting activities. This being so,
[petitioner] company was not a real party-in-interest in said case, but the cooperatives concerned. Therefore, there is no
identity of parties between said case and the present case which means that the afore-said ruling of the DOLE is not
binding and conclusive upon [petitioner] company.

It is not correct, however, to say, as the Labor Arbiter did, that the afore-said ruling of the Department of Labor and
Employment has been overturned by Department Order No. 10. It is a basic principle that "once a judgment becomes final
it cannot be disturbed, except for clerical errors or when supervening events render its execution impossible or unjust"
(Sampaguita Garmens  [sic]  Corp. v. NLRC, G. R. No. 102406, June 7, 1994). Verily, the subsequent issuance of
Department Order No. 10 cannot be construed as supervening event that would render the execution of said judgment
impossible or unjust. Department Order No. 10 refers to the ramification of some provisions of the Rules Implementing
Articles 106 and 109 of the Labor Code, without substantially changing the definition of "labor-only" or "job' contracting.

Well-settled is the rule that to qualify as an independent job contractor, one has either substantial capital "or" investment
in the form of tools, equipment and machineries necessary to carry out his business (see Virginia Neri, et al. v. NLRC, et
al., G.R. NOS. 97008-89, July 23, 1993). CAMPCO has admittedly a paid-up capital of P4,562,470.25 and this is more
than enough to qualify it as an independent job contractor, as aptly held by the Labor Arbiter.

WHEREFORE, the appeal is DISMISSED for lack of merit and the appealed decision is AFFIRMED.

Petition for  Certiorari  with the Court of Appeals

Refusing to concede defeat, respondents filed with the Court of Appeals a Petition for Certiorari  under Rule 65 of the
revised Rules of Civil Procedure, asserting that the NLRC acted without or in excess of its jurisdiction and with grave
abuse of discretion amounting to lack of jurisdiction when, in its Resolution, dated 29 February 2000, it (1) ruled that
CAMPCO was a bona fide independent job contractor with substantial capital, notwithstanding the fact that at the time of
its organization and registration with CDA, it only had a paid-up capital of P6,600.00; and (2) refused to apply the doctrine
of res judicata against petitioner. The Court of Appeals, in its Decision,22 dated 20 May 2002, granted due course to
respondents' Petition, and set aside the assailed NLRC Decision. Pertinent portions of the Court of Appeals Decision are
reproduced below'

In the case at bench, it was established during the proceedings before the [NLRC] that CAMPCO has a substantial
capital. However, having a substantial capital does not per se qualify CAMPCO as a job contractor. In order to be
considered an independent contractor it is not enough to show substantial capitalization or investment in the form of tools,
equipment, machinery and work premises. The conjunction "and," in defining what a job contractor is, means that aside
from having a substantial capital or investment in the form of tools, equipment, machineries, work premise, and other
materials which are necessary in the conduct of his business, the contractor must be able to prove that it also carries on
an independent business and undertakes the contract work on his own account under his own responsibility according to
his own manner and method, free from the control and direction of his employer or principal in all matters connected with
the performance of the work except as to the results thereof. [Herein petitioner DolePhil] has failed to prove, except for the
substantial capital requirement, that CAMPCO has met the other requirements. It was not established that CAMPCO is
engaged or carries on an independent business. In the performance of the respective tasks of workers deployed by
CAMPCO with [petitioner], it was not established that CAMPCO undertook the contract of work it entered with [petitioner]
under its own account and its own responsibility. It is [petitioner] who provides the procedures to be followed by the
workers in the performance of their assigned work. The workers deployed by CAMPCO to [petitioner] performed activities
which are directly related to the principal business or operations of the employer in which workers are habitually employed
213
since [petitioner] admitted that these workers were engaged to perform the job of other regular employees who cannot
report for work.

Moreover, [NLRC] likewise gravely erred in not giving weight to the Order dated 19 October 1993 issued by the Office of
the Secretary of the Department of Labor and Employment, through Undersecretary Cresencio Trajano, which affirmed
the findings of the Department of Labor and Employment Regional Office, Region XI, Davao City that Cannery Multi-
Purpose Cooperative is one of the cooperatives engaged in labor-only contracting activities.

In the exercise of the visitorial and enforcement power of the Department of Labor and Employment, an investigation was
conducted among the cooperatives organized and existing in Polomolok, South Cotabato, relative to labor-only
contracting activities. One of the cooperatives investigated was Cannery Multi-Purpose Cooperative. After the
investigation, the Department of Labor and Employment, Regional Office No. XI, Davao City, through its Regional
Director, issued the Order dated 19 October 1993, stating:

"WHEREFORE, premises considered, ADVENTURER'S MULTI PURPOSE COOPERATIVE, HUMAN RESOURCE

MULTI PURPOSE SKILLED COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE are hereby declared to
be engaged in labor only contracting which is a prohibited activity. The same cooperatives are therefore ordered to cease
and desist from further engaging in such activities.

xxxx

SO ORDERED."

Cannery Multi Purpose Cooperative, together with the other cooperatives declared as engaged in labor-only contracting
activity, appeal the above-findings to the Secretary of the Department of Labor and Employment. Their appeal was
dismissed for lack of merit as follows:: [sic]

xxx

[NLRC] held that CAMPCO, being not a real party-in interest in the above-case, the said ruling is not binding and
conclusive upon [petitioner]. This Court, however, finds the contrary.

CAMPCO was one of the cooperatives investigated by the Department of Labor and Employment, Regional Office No. XI,
Davao City, pursuant to Article 128 of the Labor Code. It was one of the appellants before the Secretary of the
Department of Labor questioning the decision of the Regional Director of DOLE, Regional Office No. XI, Davao City. This
Court noted that in the proceedings therein, and as mentioned in the decision rendered by Undersecretary Cresencio B.
Trajano of the Department of Labor and Employment, Manila, regarding the cooperatives' appeal thereto, the parties
therein, including Cannery Multi-Purpose Cooperative, submitted to the said office their position papers and Articles of
Cooperatives and Certification of Registrations [sic] on 30 August 1993. This is a clear indicia that CAMPCO participated
in the proceedings therein. [NLRC], therefore, committed grave abuse of discretion amounting to lack or excess of
jurisdiction when it held that CAMPCO was never a party to the said case.

[Petitioner] invokes Section 6 of Department Order No. 10, series of 1997, issued by the Department of Labor and
Employment which took effect on 22 June 1997. The said section identified the circumstances which are permissible job
contracting, to wit:

xxx

[Petitioner's] main contention is based on the decisions rendered by the labor arbiter and [NLRC] which are both anchored
on Department Order No. 10 issued by the Department of Labor and Employment. The said department order provided for
several flexible working relations between a principal, a contractor or subcontractor and the workers recruited by the latter
and deployed to the former. In the case at bench, [petitioner] posits that the engagement of [petitioner] of the workers
deployed by CAMPCO was pursuant to D.O. No. 10, Series of 1997.

However, on 8 May 2001, the Department of Labor and Employment issued Department Order No. 3, series of 2001,
revoking Department Order No. 10, series of 1997. The said department order took effect on 29 May 2001.

xxx

Under Department Order No. 3, series of 2001, some contracting and outsourcing arrangements are no longer legitimate
modes of employment relation. Having revoked Department Order No. 10, series of 1997, [petitioner] can no longer
support its argument by relying on the revoked department order.

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Considering that [CAMPCO] is not a job contractor, but one engaged in labor-only contracting, CAMPCO serves only as
an agent of [petitioner] pursuant to par. (b) of Sec. 9, Rule VIII, Book III of the Implementing Rules and Regulations of the
Labor Code, stating,

xxx

However, the Court cannot declare that [herein respondents] are regular employees of [petitioner]. x x x

xxx

In the case at bench, although [respondents] were engaged to perform activities which are usually necessary or desirable
in the usual business or trade of private respondent, it is apparent, however, that their services were engaged by
[petitioner] only for a definite period. [Petitioner's] nature of business and operation has its peaks. In order to meet the
demands during peak seasons they necessarily have to engage the services of workers to work only for a particular
season. In the case of [respondents], when they were deployed by CAMPCO with [petitioner] and were assigned by the
latter at its cannery department, they were aware that they will be working only for a certain duration, and this was made
known to them at the time they were employed, and they agreed to the same.

xxx

The non-rehiring of some of the petitioners who were allegedly put on a "floating status' is an indication that their services
were no longer needed. They attained their "floating status" only after they have finished their contract of employment, or
after the duration of the season that they were employed. The decision of [petitioner] in not rehiring them means that their
services were no longer needed due to the end of the season for which they were hired. And this Court reiterates that at
the time they were deployed to [petitioner's] cannery division, they knew that the services they have to render or the work
they will perform are seasonal in nature and consequently their employment is only for the duration of the season.

ACCORDINGLY, in view of the foregoing, the instant petition for certiorari is hereby GRANTED DUE COURSE. The
decision dated 29 February 2000 and Resolution dated 19 December 2000 rendered by [NLRC] are hereby SET ASIDE.
In place thereof, it is hereby rendered that:

1. Cannery Multi-Purpose Cooperative is a labor-only contractor as defined under the Labor Code of the Philippines and
its implementing rules and regulations; and that

2. DOLE Philippines Incorporated is merely an agent or intermediary of Cannery Multi-Purpose Cooperative.

All other claims of [respondents] are hereby DENIED for lack of basis.

Both petitioner and respondents filed their respective Motions for Reconsideration of the foregoing Decision, dated 20
May 2002, prompting the Court of Appeals to promulgate an Amended Decision on 27 November 2003, in which it ruled in
this wise:

This court examined again the documentary evidence submitted by the [herein petitioner] and we rule not to disturb our
findings in our Decision dated May 20, 2002. It is our opinion that there was no competent evidence submitted that would
show that CAMPCO is engaged to perform a specific and special job or service which is one of the strong indicators that
an entity is an independent contractor. The articles of cooperation and by-laws of CAMPCO do not show that it is engaged
in performing a specific and special job or service. What is clear is that it is a multi-purpose cooperative organized under
RA No. 6938, nothing more, nothing less.

As can be gleaned from the contract that CAMPCO entered into with the [petitioner], the undertaking of CAMPCO is to
provide [petitioner] with workforce by assisting the company in its daily operations and perform odd jobs as may be
assigned. It is our opinion that CAMPCO merely acted as recruitment agency for [petitioner]. CAMPCO by supplying
manpower only, clearly conducted itself as 'labor-only" contractor. As can be gleaned from the service contract, the work
performed by the [herein respondents] are directly related to the main business of the [petitioner]. Clearly, the requisites of
"labor-only" contracting are present in the case at bench.

In view of the above ruling, we find it unnecessary to discuss whether the Order of Undersecretary Trajano finding that
CAMPCO is a "labor-only" contractor is a determining factor or constitutes res judicata in the case at bench. Our findings
that CAMPCO is a "labor-only" contractor is based on the evidence presented vis - à-vis  the rulings of the Supreme Court
on the matter.

215
Since, the argument that the [petitioner] is the real employer of the [respondents], the next question that must be
answered is - what is the nature of the employment of the petitioners?

xxx

The afore-quoted [Article 280 of the Labor Code, as amended] provides for two kinds of employment, namely: (1) regular
(2) casual. In our Decision, we ruled that the [respondents] while performing work necessary and desirable to the
business of the [petitioner] are seasonal employees as their services were engaged by the [petitioner] for a definite period
or only during peak season.

In the most recent case of Hacienda Fatima v. National Federation of Sugarcane Workers Food and General Trade,
the Supreme Court ruled that for employees to be excluded from those classified as regular employees, it is not enough
that they perform work or services that are seasonal in nature. They must have also been employed only for the duration
of one season. It is undisputed that the [respondents'] services were engaged by the [petitioner] since 1993 and 1994.
The instant complaint was filed in 1996 when the [respondents] were placed on floating status. Evidently, [petitioner]
employed the [respondents] for more than one season. Therefore, the general rule on regular employment is applicable.
The herein petitioners who performed their jobs in the workplace of the [petitioner] every season for several years, are
considered the latter's regular employees for having performed works necessary and desirable to the business of the
[petitioner]. The [petitioner's] eventual refusal to use their services'even if they were ready, able and willing to perform
their usual duties whenever these were available and hiring other workers to perform the tasks originally assigned to
[respondents] amounted to illegal dismissal of the latter. We thus, correct our earlier ruling that the herein petitioners are
seasonal workers. They are regular employees within the contemplation of Article 280 of the Labor Code and thus cannot
be dismissed except for just or authorized cause. The Labor Code provides that when there is a finding of illegal
dismissal, the effect is that the employee dismissed shall be reinstated to his former position without loss of seniority
rights with backwages from the date of his dismissal up to his actual reinstatement.

This court however, finds no basis for the award of damages and attorney's fees in favor of the petitioners.

WHEREFORE, the Decision dated May 20, 2002 rendered by this Court is hereby AMENDED as follows:

1) [Petitioner] DOLE PHILIPPINES is hereby declared the employer of the [respondents].

2) [Petitioner] DOLE PHILIPPINES is hereby declared guilty of illegal dismissal and ordered to immediately reinstate the
[respondents] to their former position without loss of seniority rights and other benefits, and to pay each of the
[respondents] backwages from the date of the filing of illegal dismissal on December 19, 1996 up to actual reinstatement,
the same to be computed by the labor arbiter.

3) The claims for damages and attorney's fees are hereby denied for lack of merit.

No costs.23

The Petition at Bar

Aggrieved by the Decision, dated 20 May 2002, and the Amended Decision, dated 27 November 2003, of the Court of
Appeals, petitioner filed the instant Petition for Review on Certiorari under Rule 45 of the revised Rules of Civil Procedure,
in which it made the following assignment of errors '

I.

THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE OF JUDCIAL PROCEEDINGS WHEN IT
MADE ITS OWN FACTUAL FINDINGS AND DISREGARDED THE UNIFORM AND CONSISTENT FACTUAL FINDINGS
OF THE LABOR ARBITER AND THE NLRC, WHICH MUST BE ACCORDED GREAT WEIGHT, RESPECT AND EVEN
FINALITY. IN SO DOING, THE COURT OF APPEALS EXCEEDED ITS AUTHORITY ON CERTIORARI UNDER RULE
65 OF THE RULES OF COURT.

II.

THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH THE
CONSTITUTION, LAW, APPLICABLE RULES AND REGULATIONS AND DECISIONS OF THE SUPREME COURT
IN NOT HOLDING THAT DEPARTMENT ORDER NO. 10, SERIES OF 1997 IS THE APPLICABLE REGULATION IN
THIS CASE. IN GIVING RETROACTIVE APPLICATION TO DEPARTMENT ORDER NO. 3, SERIES OF 2001, THE

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COURT OF APPEALS VIOLATED THE CONSTITUTIONAL PROVISION AGAINST IMPAIRMENT OF CONTRACTS
AND DEPRIVED PETITIONER OF THE DUE PROCESS OF THE LAW.

III.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN GIVING WEIGHT TO THE ORDER DATED 19 OCTOBER 1993 ISSUED BY THE OFFICE OF
SECRETARY OF LABOR, WHICH AFFIRMED THE FINDINGS OF THE DOLE REGIONAL OFFICE (REGION XI,
DAVAO CITY) THAT CAMPCO IS ONE OF THE COOPERATIVES ENGAGED IN LABOR-ONLY CONTRACTING
ACTIVITIES.

IV.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN NOT RULING THAT RESPONDENTS, BY ACTIVELY REPRESENTING THEMSELVES AND
WARRANTING THAT THEY ARE ENGAGED IN LEGITIMATE JOB CONTRACTING, ARE BARRED BY THE
EQUITABLE PRINCIPLE OF ESTOPPEL FROM ASSERTING THAT THEY ARE REGULAR EMPLOYEES OF
PETITIONER.

V.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN RULING THAT CAMPCO IS ENGAGED IN THE PROHIBITED ACT OF "LABOR-ONLY
CONTRACTING" DESPITE THERE BEING SUBSTANTIAL EVIDENCE TO THE CONTRARY.

VI.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN RULING THAT PETITIONER IS THE EMPLOYER OF RESPONDENTS AND THAT PETITIONER
IS GUILTY OF ILLEGAL DISMISSAL.24

This Court's Ruling

Anent the first assignment of error, petitioner argues that judicial review under Rule 65 of the revised Rules of Civil
Procedure is limited only to issues concerning want or excess or jurisdiction or grave abuse of discretion. The special civil
action for certiorari is a remedy designed to correct errors of jurisdiction and not mere errors of judgment. It is the
contention of petitioner that the NLRC properly assumed jurisdiction over the parties and subject matter of the instant
case. The errors assigned by the respondents in their Petition for Certiorari before the Court of Appeals do not pertain to
the jurisdiction of the NLRC; they are rather errors of judgment supposedly committed by the the NLRC, in its Resolution,
dated 29 February 2000, and are thus not the proper subject of a Petition for Certiorari. Petitioner also posits that the
Petition for Certiorari filed by respondents with the Court of Appeals raised questions of fact that would necessitate a
review by the appellate court of the evidence presented by the parties before the Labor Arbiter and the NLRC, and that
questions of fact are not a fit subject for a special civil action for certiorari.

It has long been settled in the landmark case of St. Martin Funeral Home v. NLRC,25 that the mode for judicial review over
decisions of the NLRC is by a Petition for Certiorari under Rule 65 of the revised Rules of Civil Procedure. The different
modes of appeal, namely, writ of error (Rule 41), Petition for Review (Rules 42 and 43), and Petition for Review
on Certiorari (Rule 45), cannot be availed of because there is no provision on appellate review of NLRC decisions in the
Labor Code, as amended.26 Although the same case recognizes that both the Court of Appeals and the Supreme Court
have original jurisdiction over such petitions, it has chosen to impose the strict observance of the hierarchy of courts.
Hence, a Petition for Certiorari of a decision or resolution of the NLRC should first be filed with the Court of Appeals; direct
resort to the Supreme Court shall not be allowed unless the redress desired cannot be obtained in the appropriate courts
or where exceptional and compelling circumstances justify an availment of a remedy within and calling for the exercise by
the Supreme Court of its primary jurisdiction.

The extent of judicial review by certiorari of decisions or resolutions of the NLRC, as exercised previously by the Supreme
Court and, now, by the Court of Appeals, is described in Zarate v. Olegario,27 thus'

The rule is settled that the original and exclusive jurisdiction of this Court to review a decision of respondent NLRC (or
Executive Labor Arbiter as in this case) in a Petition for Certiorari under Rule 65 does not normally include an inquiry into

217
the correctness of its evaluation of the evidence. Errors of judgment, as distinguished from errors of jurisdiction, are not
within the province of a special civil action for certiorari, which is merely confined to issues of jurisdiction or grave abuse of
discretion. It is thus incumbent upon petitioner to satisfactorily establish that respondent Commission or executive labor
arbiter acted capriciously and whimsically in total disregard of evidence material to or even decisive of the controversy, in
order that the extraordinary writ of certiorari will lie. By grave abuse of discretion is meant such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, and it must be shown that the discretion was exercised
arbitrarily or despotically. For certiorari to lie, there must be capricious, arbitrary and whimsical exercise of power, the very
antithesis of the judicial prerogative in accordance with centuries of both civil law and common law traditions.

The Court of Appeals, therefore, can grant the Petition for Certiorari if it finds that the NLRC, in its assailed decision or
resolution, committed grave abuse of discretion by capriciously, whimsically, or arbitrarily disregarding evidence which is
material or decisive of the controversy; and the Court of Appeals can not make this determination without looking into the
evidence presented by the parties. Necessarily, the appellate court can only evaluate the materiality or significance of the
evidence, which is alleged to have been capriciously, whimsically, or arbitrarily disregarded by the NLRC, in relation to all
other evidence on record.

As this Court elucidated in Garcia v. National Labor Relations Commission28 - -

[I]n Ong v. People, we ruled that certiorari can be properly resorted to where the factual findings complained of are not
supported by the evidence on record. Earlier, in Gutib v. Court of Appeals, we emphasized thus:

[I]t has been said that a wide breadth of discretion is granted a court of justice in certiorari proceedings. The cases in
which certiorari will issue cannot be defined, because to do so would be to destroy its comprehensiveness and
usefulness. So wide is the discretion of the court that authority is not wanting to show that certiorari is more discretionary
than either prohibition or mandamus . In the exercise of our superintending control over inferior courts, we are to be
guided by all the circumstances of each particular case "as the ends of justice may require." So it is that the writ will be
granted where necessary to prevent a substantial wrong or to do substantial justice.

And in another case of recent vintage, we further held:

In the review of an NLRC decision through a special civil action for certiorari, resolution is confined only to issues of
jurisdiction and grave abuse of discretion on the part of the labor tribunal. Hence, the Court refrains from reviewing factual
assessments of lower courts and agencies exercising adjudicative functions, such as the NLRC. Occasionally, however,
the Court is constrained to delve into factual matters where, as in the instant case, the findings of the NLRC contradict
those of the Labor Arbiter.

In this instance, the Court in the exercise of its equity jurisdiction may look into the records of the case and re-examine the
questioned findings. As a corollary, this Court is clothed with ample authority to review matters, even if they are not
assigned as errors in their appeal, if it finds that their consideration is necessary to arrive at a just decision of the case.
The same principles are now necessarily adhered to and are applied by the Court of Appeals in its expanded jurisdiction
over labor cases elevated through a petition for certiorari; thus, we see no error on its part when it made anew a factual
determination of the matters and on that basis reversed the ruling of the NLRC.

II

The second assignment of error delves into the significance and application to the case at bar of the two department
orders issued by DOLE. Department Order No. 10, series of 1997, amended the implementing rules of Books III and VI of
the Labor Code, as amended. Under this particular DOLE department order, the arrangement between petitioner and
CAMPCO would qualify as permissible contracting. Department Order No. 3, series of 2001, revoked Department Order
No. 10, series of 1997, and reiterated the prohibition on labor-only contracting.

Attention is called to the fact that the acts complained of by the respondents occurred well before the issuance of the two
DOLE department orders in 1997 and 2001. The Service Contract between DOLE and CAMPCO was executed on 17
August 1993. Respondents started working for petitioner sometime in 1993 and 1994. While some of them continued to
work for petitioner, at least until the filing of the Complaint, others were put on "stay home status" at various times in 1994,
1995, and 1996. Respondents filed their Complaint with the NLRC on 19 December 1996.

A basic rule observed in this jurisdiction is that no statute, decree, ordinance, rule or regulation shall be given
retrospective effect unless explicitly stated.29 Since there is no provision at all in the DOLE department orders that
expressly allowed their retroactive application, then the general rule should be followed, and the said orders should be
applied only prospectively.

218
Which now brings this Court to the question as to what was the prevailing rule on labor-only contracting from 1993 to
1996, the period when the occurrences subject of the Complaint before the NLRC took place.

Article 106 of the Labor Code, as amended, permits legitimate job contracting, but prohibits labor-only contracting. The
said provision reads'

ART. 106. Contractor or subcontractor. - Whenever an employer enters into a contract with another person for the
performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in
accordance with the provisions of this Code.

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

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

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such persons are performing activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible
to the workers in the same manner and extent as if the latter were directly employed by him.

To implement the foregoing provision of the Labor Code, as amended, Sections 8 and 9, Rule VIII, Book III of the
implementing rules, in force since 1976 and prior to their amendment by DOLE Department Order No. 10, series of 1997,
provided as follows'

Sec. 8. Job contracting. - There is job contracting permissible under the Code if the following conditions are met;

(1) The contractor carries on an independent business and undertakes the contract work on his own account under his
own responsibility according to his own manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except as to the results thereof; andcralawlibrary

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his business.

Sec. 9. Labor-only contracting. - (a) Any person who undertakes to supply workers to an employer shall be deemed to be
engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other
materials; andcralawlibrary

(2) The workers recruited and placed by such persons are performing activities which are directly related to the principal
business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered
merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.

(c) For cases not falling under this Article, the Secretary of Labor shall determine through appropriate orders whether or
not the contracting out of labor is permissible in the light of the circumstances of each case and after considering the
operating needs of the employer and the rights of the workers involved. In such case, he may prescribe conditions and
restrictions to insure the protection and welfare of the workers.

Since these statutory and regulatory provisions were the ones in force during the years in question, then it was in
consideration of the same that DOLE Regional Director Parel and DOLE Undesrsecretary Trajano issued their Orders on
19 September 1993 and 15 September 1994, respectively, both finding that CAMPCO was engaged in labor-only

219
contracting. Petitioner, in its third assignment of error, questions the weight that the Court of Appeals gave these orders in
its Decision, dated 20 May 2002, and Amended Decision, dated 27 November 2003.

III

The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of DOLE Undersecretary Trajano, dated 15
September 1994, were issued pursuant to the visitorial and enforcement power conferred by the Labor Code, as
amended, on the DOLE Secretary and his duly authorized representatives, to wit'

ART. 128. Visitorial and enforcement power. - (a) The Secretary of Labor or his duly authorized representatives, including
labor regulation officers, shall have access to employer's records and premises at any time of the day or night whenever
work is being undertaken therein, and the right to copy therefrom, to question any employee and investigate any fact,
condition or matter which may be necessary to determine violations or which may aid in the enforcement of this Code and
of any labor law, wage order or rules and regulations pursuant thereto.

(b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases where the
relationship of employer-employee still exists, the Secretary of Labor and Employment or his duly authorized
representatives shall have the power to issue compliance orders to give effect to the labor standards provisions of this
Code and other labor legislation based on the findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection. The Secretary or his duly authorized representatives shall issue writs of
execution to the appropriate authority for the enforcement of their orders, except in cases where the employer contests
the findings of the labor employment and enforcement officer and raises issues supported by documentary proofs which
were not considered in the course of inspection.

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

Before Regional Director Parel issued his Order, dated 19 September 1993, a Task Force investigated the operations of
cooperatives in Polomolok, South Cotabato, and submitted a report identifying six cooperatives that were engaged in
labor-only contracting, one of which was CAMPCO. In a conference before the DOLE Regional Office, the cooperatives
named by the Task Force were given the opportunity to explain the nature of their activities in relation to petitioner; and,
the cooperatives, as well as petitioner, submitted to the DOLE Regional Office their position papers and other supporting
documents to refute the findings of the Task Force. It was only after these procedural steps did Regional Director Parel
issued his Order finding that three cooperatives, including CAMPCO, were indeed engaged in labor-only contracting and
were directed to cease and desist from further engaging in such activities. On appeal, DOLE Undersecretary Trajano, by
authority of the DOLE Secretary, affirmed Regional Director Parel's Order. Upon denial of the Motion for Reconsideration
filed by the cooperatives, and no further appeal taken therefrom, the Order of DOLE Undersecretary Trajano, dated 15
September 1994, became final and executory.

Petitioner avers that the foregoing Orders of the authorized representatives of the DOLE Secretary do not constitute res
judicata in the case filed before the NLRC. This Court, however, believes otherwise and finds that the final and executory
Orders of the DOLE Secretary or his authorized representatives should bind the NLRC.

It is obvious that the visitorial and enforcement power granted to the DOLE Secretary is in the nature of a quasi-judicial
power. Quasi-judicial power has been described by this Court in the following manner'

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency to
adjudicate the rights of persons before it. It is the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law. The administrative body exercises its quasi-judicial power when it performs
in a judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such
manner is incidental to or reasonably necessary for the performance of the executive or administrative duty
entrusted to it. In carrying out their quasi-judicial functions the administrative officers or bodies are required to
investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from
them as basis for their official action and exercise of discretion in a judicial nature.  Since rights of specific persons
are affected it is elementary that in the proper exercise of quasi-judicial power due process must be observed in the
conduct of the proceedings.30 (Emphasis supplied.)

The DOLE Secretary, under Article 106 of the Labor Code, as amended, exercise quasi-judicial power, at least, to the
extent necessary to determine violations of labor standards provisions of the Code and other labor legislation. He can

220
issue compliance orders and writs of execution for the enforcement of his orders. As evidence of the importance and
binding effect of the compliance orders of the DOLE Secretary, Article 128 of the Labor Code, as amended, further
provides'

ART. 128. Visitorial and enforcement power.'

xxx

(d) It shall be unlawful for any person or entity to obstruct, impede, delay or otherwise render ineffective the orders of the
Secretary of Labor or his duly authorized representatives issued pursuant to the authority granted under this article, and
no inferior court or entity shall issue temporary or permanent injunction or restraining order or otherwise assume
jurisdiction over any case involving the enforcement orders issued in accordance with this article.

The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of DOLE Undersecretary Trajano, dated 15
September 1994, consistently found that CAMPCO was engaging in labor-only contracting. Such finding constitutes res
judicata in the case filed by the respondents with the NLRC.

It is well-established in this jurisdiction that the decisions and orders of administrative agencies, rendered pursuant to their
quasi-judicial authority, have upon their finality, the force and binding effect of a final judgment within the purview of the
doctrine of res judicata. The rule of res judicata, which forbids the reopening of a matter once judicially determined by
competent authority, applies as well to the judicial and quasi-judicial acts of public, executive or administrative officers and
boards acting within their jurisdiction as to the judgments of courts having general judicial powers. The orderly
administration of justice requires that the judgments or resolutions of a court or quasi-judicial body must reach a point of
finality set by the law, rules and regulations, so as to write finis to disputes once and for all. This is a fundamental principle
in the Philippine justice system, without which there would be no end to litigations.31

Res judicata has dual aspects, "bar by prior judgment" and "conclusiveness of judgment." This Court has previously
clarified the difference between the two'

Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in actions in personam. to
wit:

"Effect of judgment. - The effect of a judgment or final order rendered by a court or judge of the Philippines, having
jurisdiction to pronounce the judgment or order, may be as follows:

xxx

(b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to any other matter that
could have been raised in relation thereto, conclusive between the parties and their successors in interest by title
subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same
title and in the same capacity;

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been
adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and
necessarily included therein or necessary thereto."

Section 49(b) enunciates the first concept of res judicata known as "bar by prior judgment," whereas, Section 49(c) is
referred to as "conclusiveness of judgment."

There is "bar by former judgment" when, between the first case where the judgment was rendered, and the second case
where such judgment is invoked, there is identity of parties, subject matter and cause of action. When the three identities
are present, the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. But
where between the first case wherein Judgment is rendered and the second case wherein such judgment is invoked,
there is only identity of parties but there is no identity of cause of action, the judgment is conclusive in the second case,
only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein.
This is what is termed "conclusiveness of judgment."

The second concept of res judicata, conclusiveness of judgment, is the one applicable to the case at bar.

The same parties who participated in the proceedings before the DOLE Regional Office are the same parties involved in
the case filed before the NLRC. CAMPCO, on behalf of its members, attended the conference before the DOLE Regional
Office; submitted its position paper; filed an appeal with the DOLE Secretary of the Order of DOLE Regional Director

221
Parel; and moved for reconsideration of the subsequent Order of DOLE Undersecretary Trajano. Petitioner, although not
expressly named as a respondent in the DOLE investigation, was a necessary party thereto, considering that CAMPCO
was rendering services to petitioner solely. Moreover, petitioner participated in the proceedings before the DOLE Regional
Office, intervening in the matter through a letter sent by its Senior Legal Officer, dated 24 May 1993, and submitting its
own position paper.

While the causes of action in the proceedings before the DOLE and the NLRC differ, they are, in fact, very closely related.
The DOLE Regional Office conducted an investigation to determine whether CAMPCO was violating labor laws,
particularly, those on labor-only contracting. Subsequently, it ruled that CAMPCO was indeed engaging in labor-only
contracting activities, and thereafter ordered to cease and desist from doing so. Respondents came before the NLRC
alleging illegal dismissal by the petitioner of those respondents who were put on "stay home status," and seeking
regularization of respondents who were still working for petitioner. The basis of their claims against petitioner rests on the
argument that CAMPCO was a labor-only contractor and, thus, merely an agent or intermediary of petitioner, who should
be considered as respondents' real employer. The matter of whether CAMPCO was a labor-only contractor was already
settled and determined in the DOLE proceedings, which should be conclusive and binding upon the NLRC. What were left
for the determination of the NLRC were the issues on whether there was illegal dismissal and whether respondents
should be regularized.

This Court also notes that CAMPCO and DOLE still continued with their Service Contract despite the explicit cease and
desist orders rendered by authorized DOLE officials. There is no other way to look at it except that CAMPCO and DOLE
acted in complete defiance and disregard of the visitorial and enforcement power of the DOLE Secretary and his
authorized representatives under Article 128 of the Labor Code, as amended. For the NLRC to ignore the findings of
DOLE Regional Director Parel and DOLE Undersecretary Trajano is an unmistakable and serious undermining of the
DOLE officials' authority.

IV

In petitioner's fourth assignment of error, it points out that the Court of Appeals erred in not holding respondents estopped
from asserting that they were regular employees of petitioner since respondents, as owners-members of CAMPCO,
actively represented themselves and warranted that they were engaged in legitimate job contracting.

This Court cannot sustain petitioner's argument.

It is true that CAMPCO is a cooperative composed of its members, including respondents. Nonetheless, it cannot be
denied that a cooperative, as soon as it is registered with the CDA, attains a juridical personality of its own,32 separate and
distinct from its members; much in the same way that a corporation has a juridical personality separate and distinct from
its stockholders, known as the doctrine of corporate fiction. The protection afforded by this doctrine is not absolute, but the
exception thereto which necessitates the piercing of the corporate veil can only be made under specified circumstances.
In Traders Royal Bank v. Court of Appeals,33 this Court ruled that -

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an equitable remedy, and
maybe awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud
or defend crime or where a corporation is a mere alter ego or business conduit of a person.

Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders
from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one,
were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused,
to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is
the corporate entity which the law aims to protect by this doctrine.

Using the above-mentioned guidelines, is petitioner entitled to a piercing of the "cooperative identity" of CAMPCO? This
Court thinks not.

It bears to emphasize that the piercing of the corporate veil is an equitable remedy, and among the maxims of equity are:
(1) he who seeks equity must do equity, and (2) he who comes into equity must come with clean hands. Hence, a litigant
may be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair, dishonest,
fraudulent, or deceitful as to the controversy in issue.34

Petitioner does not come before this Court with clean hands. It is not an innocent party in this controversy.

Petitioner itself admitted that it encouraged and even helped the establishment of CAMPCO and the other cooperatives in
Polomolok, South Cotabato. These cooperatives were established precisely to render services to petitioner. It is highly

222
implausible that the petitioner was lured into entering into the Service Contract with CAMPCO in 1993 on the latter's
misrepresentation and false warranty that it was an independent job contractor. Even if it is conceded that petitioner was
indeed defrauded into believing that CAMPCO was an independent contractor, then the DOLE proceedings should have
placed it on guard. Remember that petitioner participated in the proceedings before the DOLE Regional Office, it cannot
now claim ignorance thereof. Furthermore, even after the issuance of the cease and desist order on CAMPCO, petitioner
still continued with its prohibited service arrangement with the said cooperative. If petitioner was truly defrauded by
CAMPCO and its members into believing that the cooperative was an independent job contractor, the more logical
recourse of petitioner was to have the Service Contract voided in the light of the explicit findings of the DOLE officials that
CAMPCO was engaging in labor-only contracting. Instead, petitioner still carried on its Service Contract with CAMPCO for
several more years thereafter.

As previously discussed, the finding of the duly authorized representatives of the DOLE Secretary that CAMPCO was a
labor-only contractor is already conclusive. This Court cannot deviate from said finding.

This Court, though, still notes that even an independent review of the evidence on record, in consideration of the proper
labor statutes and regulations, would result in the same conclusion: that CAMPCO was engaged in prohibited activities of
labor-only contracting.

The existence of an independent and permissible contractor relationship is generally established by the following criteria:
whether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required;
the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and
supervision of the work to another; the employer's power with respect to the hiring, firing and payment of the contractor's
workers; the control of the premises; the duty to supply the premises tools, appliances, materials and labor; and the mode,
manner and terms of payment.35

While there is present in the relationship of petitioner and CAMPCO some factors suggestive of an independent contractor
relationship (i.e., CAMPCO chose who among its members should be sent to work for petitioner; petitioner paid CAMPCO
the wages of the members, plus a percentage thereof as administrative charge; CAMPCO paid the wages of the members
who rendered service to petitioner), many other factors are present which would indicate a labor-only contracting
arrangement between petitioner and CAMPCO.36

First, although petitioner touts the multi-million pesos assets of CAMPCO, it does well to remember that such were
amassed in the years following its establishment. In 1993, when CAMPCO was established and the Service Contract
between petitioner and CAMPCO was entered into, CAMPCO only had P6,600.00 paid-up capital, which could hardly be
considered substantial.37 It only managed to increase its capitalization and assets in the succeeding years by continually
and defiantly engaging in what had been declared by authorized DOLE officials as labor-only contracting.

Second, CAMPCO did not carry out an independent business from petitioner. It was precisely established to render
services to petitioner to augment its workforce during peak seasons. Petitioner was its only client. Even as CAMPCO had
its own office and office equipment, these were mainly used for administrative purposes; the tools, machineries, and
equipment actually used by CAMPCO members when rendering services to the petitioner belonged to the latter.

Third, petitioner exercised control over the CAMPCO members, including respondents. Petitioner attempts to refute
control by alleging the presence of a CAMPCO supervisor in the work premises. Yet, the mere presence within the
premises of a supervisor from the cooperative did not necessarily mean that CAMPCO had control over its members.
Section 8(1), Rule VIII, Book III of the implementing rules of the Labor Code, as amended, required for permissible job
contracting that the contractor undertakes the contract work on his account, under his own responsibility, according to his
own manner and method, free from the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof. As alleged by the respondents, and unrebutted by petitioner,
CAMPCO members, before working for the petitioner, had to undergo instructions and pass the training provided by
petitioner's personnel. It was petitioner who determined and prepared the work assignments of the CAMPCO members.
CAMPCO members worked within petitioner's plantation and processing plants alongside regular employees performing
identical jobs, a circumstance recognized as an indicium of a labor-only contractorship.38

Fourth, CAMPCO was not engaged to perform a specific and special job or service. In the Service Contract of 1993,
CAMPCO agreed to assist petitioner in its daily operations, and perform odd jobs as may be assigned. CAMPCO
complied with this venture by assigning members to petitioner. Apart from that, no other particular job, work or service
was required from CAMPCO, and it is apparent, with such an arrangement, that CAMPCO merely acted as a recruitment
agency for petitioner. Since the undertaking of CAMPCO did not involve the performance of a specific job, but rather the
supply of manpower only, CAMPCO clearly conducted itself as a labor-only contractor.39

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Lastly, CAMPCO members, including respondents, performed activities directly related to the principal business of
petitioner. They worked as can processing attendant, feeder of canned pineapple and pineapple processing, nata de coco
processing attendant, fruit cocktail processing attendant, and etc., functions which were, not only directly related, but were
very vital to petitioner's business of production and processing of pineapple products for export.

The findings enumerated in the preceding paragraphs only support what DOLE Regional Director Parel and DOLE
Undersecretary Trajano had long before conclusively established, that CAMPCO was a mere labor-only contractor.

VI

The declaration that CAMPCO is indeed engaged in the prohibited activities of labor-only contracting, then consequently,
an employer-employee relationship is deemed to exist between petitioner and respondents, since CAMPCO shall be
considered as a mere agent or intermediary of petitioner.

Since respondents are now recognized as employees of petitioner, this Court is tasked to determine the nature of their
employment. In consideration of all the attendant circumstances in this case, this Court concludes that respondents are
regular employees of petitioner.

Article 280 of the Labor Code, as amended, reads'

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

An employment shall be deemed to be casual if its is not covered by the preceding paragraph: Provided, That, any
employee who has rendered at least one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is employed and his employment shall continue
while such activity exists.

This Court expounded on the afore-quoted provision, thus'

The primary standard, therefore, of determining a regular employment is the reasonable connection between the
particular activity performed by the employee in relation to the usual business or trade of the employer. The test is
whether the former is usually necessary or desirable in the usual business or trade of the employer. The connection can
be determined by considering the nature of the work performed and its relation to the scheme of the particular business or
trade in its entirety. Also, if the employee has been performing the job for at least one year, even if her performance is not
continuous or merely intermittent, the law deems the repeated and continuing need for its performance as sufficient
evidence of the necessity if not indispensability of the activity to the business. Hence, the employment is also considered
regular, but only with respect to such activity and while such activity exists.40

In the instant Petition, petitioner is engaged in the manufacture and production of pineapple products for
export.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Respondents rendered services as processing attendant, feeder of canned pineapple and pineapple processing, nata de
coco processing attendant, fruit cocktail processing attendant, and etc., functions they performed alongside regular
employees of the petitioner. There is no doubt that the activities performed by respondents are necessary or desirable to
the usual business of petitioner.

Petitioner likewise want this Court to believe that respondents' employment was dependent on the peaks in operation,
work backlogs, absenteeism, and excessive leaves. However, bearing in mind that respondents all claimed to have
worked for petitioner for over a year, a claim which petitioner failed to rebut, then respondent's continued employment
clearly demonstrates the continuing necessity and indispensability of respondents' employment to the business of
petitioner.

Neither can this Court apply herein the ruling of the NLRC in the previous case involving petitioner and the individual
workers they used to hire before the advent of the cooperatives, to the effect that the employment of these individual
workers were not regular, but rather, were valid "term employments," wherein the employer and employee knowingly and
voluntarily agreed to employment for only a limited or specified period of time. The difference between that case and the
one presently before this Court is that the members of CAMPCO, including respondents, were not informed, at the time of

224
their engagement, that their employment shall only be for a limited or specified period of time. There is absence of proof
that the respondents were aware and had knowingly and voluntarily agreed to such term employment. Petitioner did not
enter into individual contracts with the CAMPCO members, but executed a Service Contract with CAMPCO alone.
Although the Service Contract of 1993 stated that it shall be for a specific period, from 1 July to 31 December 1993,
petitioner and CAMPCO continued the service arrangement beyond 1993. Since there was no written renewal of the
Service Contract,41 there was no further indication that the engagement by petitioner of the services of CAMPCO
members was for another definite or specified period only.

Respondents, as regular employees of petitioner, are entitled to security of tenure. They could only be removed based on
just and authorized causes as provided for in the Labor Code, as amended, and after they are accorded procedural due
process. Therefore, petitioner's acts of placing some of the respondents on "stay home status" and not giving them work
assignments for more than six months were already tantamount to constructive and illegal dismissal.42

In summary, this Court finds that CAMPCO was a labor-only contractor and, thus, petitioner is the real employer of the
respondents, with CAMPCO acting only as the agent or intermediary of petitioner. Due to the nature of their work and
length of their service, respondents should be considered as regular employees of petitioner. Petitioner constructively
dismissed a number of the respondents by placing them on "stay home status" for over six months, and was therefore
guilty of illegal dismissal. Petitioner must accord respondents the status of regular employees, and reinstate the
respondents who it constructively and illegally dismissed, to their previous positions, without loss of seniority rights and
other benefits, and pay these respondents' backwages from the date of filing of the Complaint with the NLRC on 19
December 1996 up to actual reinstatement.

WHEREFORE, in view of the foregoing, the instant Petition is DENIED and the Amended Decision, dated 27 November
2003, rendered by the Court of Appeals in CA-G.R. SP No. 63405 is AFFIRMED.

Costs against the petitioner.

SO ORDERED.

225
G.R. No. 208451, February 03, 2016

MANILA MEMORIAL PARK CEMETERY, INC., Petitioner, v. EZARD D. LLUZ, NORMAN CORRAL, ERWIN

FUGABAN, VALDIMAR BALISI, EMILIO FABON, JOHN MARK APLICADOR, MICHAEL CURIOSO, JUNLIN
ESPARES, GAVINO FARINAS, AND WARD TRADING AND SERVICES, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 assailing the Decision2 dated 21 January 2013 and the Resolution3 dated 17 July
2013 of the Court of Appeals (CA) in CA-G.R. SP No. 119237.chanRoblesvirtualLawlibrary

The Facts

On 23 February 2006, petitioner Manila Memorial Park Cemetery, Inc. (Manila Memorial) entered into a Contract of
Services with respondent Ward Trading and Services (Ward Trading). The Contract of Services provided that Ward
Trading, as an independent contractor, will render interment and exhumation services and other related work to Manila
Memorial in order to supplement operations at Manila Memorial Park, Paranaque City.

Among those assigned by Ward Trading to perform services at the Manila Memorial Park were respondents Ezard Lluz,
Norman Corral, Erwm Fugaban, Valdimar Balisi, Emilio Fabon, John Mark Aplicador, Michael Curioso, Junlin Espares,
and Gavino Farinas (respondents). They worked six days a week for eight hours daily and were paid P250 per day.

On 26 June 2007, respondents filed a Complaint4 for regularization and Collective Bargaining Agreement benefits against
Manila Memorial; Enrique B. Lagdameo, Manila Memorial's Executive Vice-President and Director in Charge for Overall
Operations, and Ward Trading. On 6 August 2007, respondents filed an amended complaint to include illegal dismissal,
underpayment of 13th month pay, and payment of attorney's fees.

Respondents alleged that they asked Manila Memorial to consider them as regular workers within the appropriate
bargaining unit established in the collective bargaining agreement by Manila Memorial and its union, the Manila Memorial
Park Free Workers Union (MMP Union). Manila Memorial refused the request since respondents were employed by Ward
Trading, an independent labor contractor. Thereafter, respondents joined the MMP Union. The MMP Union, on behalf of
respondents, sought their regularization which Manila Memorial again declined. Respondents then filed the complaint.
Subsequently, respondents were dismissed by Manila Memorial. Thus, respondents amended the complaint to include the
prayer for their reinstatement and payment of back wages.

Meanwhile, Manila Memorial sought the dismissal of the complaint for lack of jurisdiction since there was no employer-
employee relationship. Manila Memorial argued that respondents were the employees of Ward Trading.

In a Decision5 dated 29 March 2010, the Labor Arbiter dismissed the complaint for failing to prove the existence of an
employer-employee relationship. The dispositive portion of the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled case for complainants'
lack of employer-employee relationship with respondent Manila Memorial Park Cemetery, Inc.

SO ORDERED.6chanroblesvirtuallawlibrary

226
Respondents appealed7 to the NLRC. In a Decision8 dated 30 September 2010, the NLRC reversed the Labor Arbiter's
findings. The NLRC ruled that Ward Trading was a labor-only contractor and an agent of Manila Memorial. The dispositive
portion of the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, complainants' appeal is GRANTED. The assailed Decision of Labor Arbiter Geobel
A. Bartolabac dated March 29, 2010 is MODIFIED. It is hereby declared that complainants were regular employees of
respondent Manila Memorial Park Cemetery, Inc. and entitled to the benefits provided for under the CBA between the
latter and the Manila Memorial Park Free Workers Union.

Respondent Manila Memorial Park Cemetery, Inc. is ordered to pay wage differentials to complainants as
follows:ChanRoblesVirtualawlibrary

1. Ezard D. Lluz - P43,982.79

2. Norman Corral - P29,765.67
3. Erwin Fugaban - P28,634.67
4. Valdimar Balisi - P20,310.33
5. Emilio Fabon - P43,982.79
6. John Mark Aplicador - P43,982.79
7. Michael Curioso - P43,982.79
8. Ju[n]lin Espares - P43,982.79
9. Gavino Farinas - P43,982.79
9
SO ORDERED. chanroblesvirtuallawlibrary
Manila Memorial filed a Motion for Reconsideration which was denied in a Resolution 10 dated 31 January 2011.

Thereafter, Manila Memorial filed an appeal with the CA. In a Decision dated 21 January 2013, the CA affirmed the ruling
of the NLRC. The CA found the existence of an employer-employee relationship between Manila Memorial and
respondents. The dispositive portion of the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, in view of the foregoing, the instant Petition for Certiorari is DENIED. The Decision, dated September 30,
2010 and the Resolution, dated January 31, 2011, rendered by the National Labor Relations Commission (NLRC) in
NLRC LAC No. 06-001267-10 are AFFIRMED.

SO ORDERED.11chanroblesvirtuallawlibrary
Manila Memorial then filed a Motion for Reconsideration which was denied by the CA in a Resolution dated 17 July 2013.

Hence, the instant petition.chanRoblesvirtualLawlibrary

The Issue

The main issue for our resolution is whether or not an employer-employee relationship exists between Manila Memorial
and respondents for the latter to be entitled to their claim for wages and other benefits.chanRoblesvirtualLawlibrary

The Court's Ruling

The petition lacks merit.

Manila Memorial contends that Ward Trading has total assets in excess of P1.4 million, according to Ward Trading's
financial statements for the year 2006, proving that it has sufficient capitalization to qualify as a legitimate independent
contractor. Manila Memorial insists that nowhere is it provided in the Contract of Services that Manila Memorial controls
the manner and means by which respondents accomplish the results of their work. Manila Memorial states that the
company only wants its contractors and the latter's employees to abide by company rules and regulations.

Respondents, on the other hand, assert that they are regular employees of Manila Memorial since Ward Trading cannot
qualify as an independent contractor but should be treated as a mere labor-only contractor. Respondents state that (1)
there is enough proof that Ward Trading does not have substantial capital, investment, tools and the like; (2) the workers
recruited and placed by the alleged contractors performed activities that were related to Manila Memorial's business; and
(3) Ward Trading does not exercise the right to control the performance of the work of the contractual employees.

As a general rule, factual findings of the CA are binding upon this Court. One exception to this rule is when the factual
findings of the former are contrary to those of the trial court, or the lower administrative body, as the case may be. This
Court is obliged to resolve an issue of fact due to the conflicting findings of the Labor Arbiter on one hand, and the NLRC

227
and the CA on the other.

In order to determine whether there exists an employer-employee relationship between Manila Memorial and
respondents, relevant provisions of the labor law and rules must first be reviewed. Article 106 of the Labor Code
states:ChanRoblesVirtualawlibrary
Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the
performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in
accordance with the provisions of this Code.

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

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

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such person are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of
the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly
employed by him. (Emphasis supplied)
Sections 3, 5 and 7 of Department Order No. 18-0212 distinguish between legitimate and labor-only contracting and
assume the existence of an employer-employee relationship if found to be engaged in labor-only contracting. The
provisions state:ChanRoblesVirtualawlibrary
x x x x

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral
relationship under which there is a contract for a specific job, work or service between the principal and the contractor or
subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the
job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job, work
or service.

x x x x

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this
purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present:

i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service
to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal; or

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

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work or service contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end.

x x x x

Section 7. Existence of an employer-employee relationship. - The contractor or subcontractor shall be considered the
228
employer of the contractual employee for purposes of enforcing the provisions of the Labor Code and other social
legislation. The principal, however, shall be solidarity liable with the contractor in the event of any violation of any
provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of the following cases as declared by a
competent authority:ChanRoblesVirtualawlibrary
(a) where there is labor-only contracting; or
(b) where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions) hereof. (Emphasis
supplied)
It is clear from these provisions that contracting arrangements for the performance of specific jobs or services under the
law and its implementing rules are allowed. However, contracting must be made to a legitimate and independent job
contractor since labor rules expressly prohibit labor-only contracting.

Labor-only contracting exists when the contractor or subcontractor merely recruits, supplies or places workers to perform
a job, work or service for a principal and any of the following elements are present:

1) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or
service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal; or
2) The contractor does not exercise the right to control the performance of the work of the contractual employee.13

In the present case, Manila Memorial entered into a Contract of Services with Ward Trading, a single proprietorship
owned by Emmanuel Mayor Ward with business address in Las Piñas City on 23 February 2006. In the Contract of
Services, it was provided that Ward Trading, as the contractor, had adequate workers and substantial capital or
investment in the form of tools, equipment, machinery, work premises and other materials which were necessary in the
conduct of its business.

However, a closer look at the Contract of Services reveals that Ward Trading does not have substantial capital or
investment in the form of tools, equipment, machinery, work premises and other materials since it is Manila Memorial
which owns the equipment used in the performance of work needed for interment and exhumation services. The pertinent
provision in the Contract of Services which shows that Manila Memorial owns the equipment
states:ChanRoblesVirtualawlibrary
The COMPANY shall [sell] to the contractor the COMPANY owned equipment in the amount of ONE MILLION FOUR
HUNDRED THOUSAND PESOS ONLY (Php 1,400,000.00) payable in two (2) years or a monthly payment of FIFTY
EIGHT THOUSAND THREE HUNDRED THIRTY FIVE PESOS ONLY (Php 58,335.00) to be deducted from the
CONTRACTOR'S billing.14chanroblesvirtuallawlibrary
Just by looking at the provision, it seems that the sale was a regular business transaction between two parties. However,
Manila Memorial did not present any evidence to show that the sale actually pushed through or that payments were made
by Ward Trading to prove an ordinary arms length transaction. We agree with the NLRC in its
findings:ChanRoblesVirtualawlibrary
While the above-cited provision of the Contract of Service implies that respondent MMPCI would sell subject equipment to
Ward at some future time, the former failed to present any contract of sale as proof that, indeed, it actually sold said
equipment to Ward. Likewise, respondent MMPCI failed to present any "CONTRACTOR'S billing" wherein the purported
monthly installment of P58,335.00 had been deducted, to prove that Ward truly paid the same as they fell due. In a
contract to sell, title is retained by the vendor until full payment of the price.

Moreover, the Contract of Service provides that:ChanRoblesVirtualawlibrary

"5. The COMPANY reserves the right to rent all or any of the CONTRACTOR'S equipment in the event the COMPANY
requires the use of said equipment, x x x."
This provision is clear proof that Ward does not have an absolute right to use or enjoy subject equipment, considering that
its right to do so is subject to respondent MMPCI's use thereof at any time the latter requires it. Such provision is contrary
to Article 428 of the Civil Code, which provides that "The owner has the right to enjoy and dispose of a thing, without other
limitation than those established by law." It is plain to see that Ward is not the owner of the equipment worth
P1,400,000.00 that is being actually and directly used in the performance of the services contracted out.

Further, the Service Contract states that:ChanRoblesVirtualawlibrary

"For its part, the COMPANY agrees to provide the following:

a) Area to store CONTRACTOR'S equipment and materials

b) Office space for CONTRACTOR'S staff and personnel"
This provision is clear proof that even the work premises actually and directly used by Ward in the performance of the
services contracted out is owned by respondent MMPCI.15chanroblesvirtuallawlibrary
229
Also, the difference in the value of the equipment in the total amount of P1,400,000.00 can be glaringly seen in Ward
Trading's financial statements for the year 2006 when compared to its 2005 financial statements. It is significant to note
that these financial statements were submitted by Manila Memorial without any certification that these financial statements
were actually audited by an independent certified public accountant. Ward Trading's Balance Sheet16 as of 31 December
2005 showed that it had assets in the amount of P441,178.50 and property and equipment with a net book value of
P86,026.50 totaling P534,705. A year later, Ward Trading's Balance Sheet 17 ending in 31 December 2006 showed that it
had assets in the amount of P57,084.70 and property and equipment with a net book value of Pl,426,468 totaling
P1,491,052.70. Ward Trading, in its Income Statements18 for the years 2005 and 2006, only earned a net income of
P53,800 in the year ending 2005 and P68,141.50 in 2006. Obviously, Ward Trading could not have raised a substantial
capital of P1,400,000.00 from its income alone without the inclusion of the equipment owned and allegedly sold by Manila
Memorial to Ward Trading after they signed the Contract of Services on 23 February 2006.

Further, the records show that Manila Memorial and Enrique B. Lagdameo admitted that respondents performed various
interment services at its Sucat, Paranaque branch which were directly related to Manila Memorial's business of
developing, selling and maintaining memorial parks and interment functions. Manila Memorial even retained the right to
control the performance of the work of the employees concerned. As correctly observed by the
CA:ChanRoblesVirtualawlibrary
A perusal of the Service Contract would reveal that respondent Ward is still subject to petitioner's control as it specifically
provides that although Ward shall be in charge of the supervision over individual respondents, the exercise of its
supervisory function is heavily dependent upon the needs of petitioner Memorial Park,
particularly:ChanRoblesVirtualawlibrary
"It is also agreed that:

a) The CONTRACTOR'S supervisor will conduct a regular inspection of grave sites/areas being dug to ensure compliance
with the COMPANY'S interment schedules and other related ceremonies.
b) The CONTRACTOR will provide enough manpower during peak interment days including Sundays and Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in coordination with the COMPANY'S schedule of interment
operation.
d) The CONTRACTOR shall be responsible for any damage done to lawn/s and/or structure/s resulting from its operation,
which must be restored to its/their original condition without delay and at the expense of CONTRACTOR."
The contract further provides that petitioner has the option to take over the functions of Ward's personnel if it finds any
part or aspect of the work or service provided to be unsatisfactory, thus:ChanRoblesVirtualawlibrary
"6.1 It is hereby expressly agreed and understood that, at any time during the effectivity of this CONTRACT and its sole
determination, the COMPANY may take over the performance of any of the functions mentioned in Paragraph I above, in
any of the following cases:chanRoblesvirtualLawlibrary

xxx

c. If the COMPANY finds the performance of the CONTRACTOR in any part or aspect of the grave digging works or other
services provided by it to be unsatisfactory."
It is obvious that the aforementioned provision leaves respondent Ward at the mercy of petitioner Memorial Park as the
contract states that the latter may take over if it finds any part of the services to be below its expectations, including the
manner of its performance. x x x.19chanroblesvirtuallawlibrary

The NLRC also found that Ward Trading's business documents fell short of sound business practices. The relevant
portion in the NLRC's Decision states:ChanRoblesVirtualawlibrary
It is also worth noting that while Ward has a Certificate of Business Name Registration issued by the Department of Trade
and Industry on October 24, 2003 and valid up to October 24, 2008, the same expressly states that it is not a license to
engage in any kind of business, and that it is valid only at the place indicated therein, which is Las Piñas City. Hence, the
same is not valid in Paranaque City, where Ward assigned complainants to perform interment services it contracted with
respondent MMPCI. It is also noted that the Permit, which was issued to Ward by the Office of the Mayor of Las Piñas
City on October 28, 2003, was valid only up to December 31, 2003. Likewise, the Sanitary Permit to Operate, which was
issued to Ward by the Office of the City Health Officer of the Las Piñas City Health Office on October 28, 2003, expired on
December 31, 2003. While respondents MMPCI and Lagdameo were able to present copies of the above-mentioned
documents, they failed to present any proof that Ward is duly registered as [a] contractor with the Department of Labor
and Employment.20chanroblesvirtuallawlibrary
Section 11 of Department Order No. 18-02, which mandates registration of contractors or subcontractors with the DOLE,
states:ChanRoblesVirtualawlibrary
Section 11. Registration of Contractors or Subcontractors. - Consistent with authority of the Secretary of Labor and
Employment to restrict or prohibit the contracting out of labor through appropriate regulations, a registration system to
govern contracting arrangements and to be implemented by the Regional Office is hereby established.

230
The Registration of contractors and subcontractors shall be necessary for purposes of establishing an effective labor
market information and monitoring.

Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting.
For failing to register as a contractor, a presumption arises that one is engaged in labor-only contracting unless the
contractor overcomes the burden of proving that it has substantial capital, investment, tools and the
like.21chanroblesvirtuallawlibrary

In this case, however, Manila Memorial failed to adduce evidence to prove that Ward Trading had any substantial capital,
investment or assets to perform the work contracted for. Thus, the presumption that Ward Trading is a labor-only
contractor stands. Consequently, Manila Memorial is deemed the employer of respondents. As regular employees of
Manila Memorial, respondents are entitled to their claims for wages and other benefits as awarded by the NLRC and
affirmed by the CA.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 21 January 2013 and the Resolution dated 17 July
2013 of the Court of Appeals in CA-G.R. SP No. 119237.

SO ORDERED.

231
G.R. No. L-37790 March 25, 1976

MAFINCO TRADING CORPORATION, petitioner,

vs.
THE HON. BLAS F. OPLE, in his capacity as Secretary of Labor, The NATIONAL LABOR RELATIONS
COMMISSION RODRIGO REPOMANTA and REY MORALDE, respondents.

Tanada, Sanchez, Tanada & Tanada for petitioner.

Jose T. Maghari for private respondents.

Solicitor General Estelito P. Mendoza for all other respondents.

AQUINO, J.:

Mafinco Trading Corporation (Mafinco for short) filed these special civil actions of certiorari and prohibition in order to
annul the decision of the Secretary of Labor dated April 16, 1973. In that decision the Secretary reversed an order of the
old National Labor Relations Commission (NLRC) and held that the NLRC had jurisdiction over the complaint lodged by
the Federacion Obrera de la Industria Tabaquera y Otros Trabajadores de Filipinas (FOITAF) against Mafinco for having
dismissed Rodrigo Repomanta and Rey Moralde (NLRC Case No. LR-086). The voluminous record reveals the following
facts:

Peddling contracts and their termination. — On April 30, 1968 Cosmos Aerated Water Factory, Inc., hereinafter called
Cosmos, a firm based at Malabon, Rizal, appointed Mafinco as its sole distributor of Cosmos soft drinks in Manila. On
May 31, 1972 Rodrigo Repomanta and Mafinco executed a peddling contract whereby Repomanta agreed to "buy and
sell" Cosmos soft drinks. Rey Moralde entered into a similar contract. The contracts were to remain in force for one year
unless sooner terminated by either party upon five days notice to the other. 1 The contract with Repomanta reads as
follows:

PEDDLING CONTRACT

KNOW ALL MEN BY THESE PRESENTS:

This CONTRACT, entered into by and between:

The MAFINCO TRADING CORPORATION, a domestic corporation duly organized and existing under the
laws of the Philippines, doing business at Rm. 715 Equitable Bank Bldg., Juan Luna St., Manila, under
the style MAFINCO represented in this act by its General Manager, SALVADOR C. PICA, duly authorized
for the purpose and hereinafter referred to as MAFINCO, and RODRIGO REPOMANTA, married/single,
of legal age, and a resident of 70-D Bo. Potrero, MacArthur Highway, Malabon, Rizal hereinafter referred
to as PEDDLER, WITNESSETH:

WHEREAS, MAFINCO has been appointed as the exclusive distributor of 'COSMOS' Soft Drink Products
for and within the City of Manila;

232
 WHEREAS, the PEDDLER is desirous of buying and selling in Manila the 'COSMOS' Soft Drink Products
handled by MAFINCO;

NOW THEREFORE, for and in consideration of the foregoing premises and the covenants and conditions
hereinafter set forth, the parties hereto has agreed as follows:

1. That in consideration of the competence of the PEDDLER and his ability to promote mutual benefits for the parties
hereto, MAFINCO shall provide the PEDDLER with a delivery truck with which the latter shall exclusively peddle the soft
drinks of the former, under the terms set forth herein;

2. The PEDDLER himself shall, carefully and in strict observance to traffic regulations, drive the truck furnished him by
MAFINCO or should he employ a driver or helpers such driver or helpers shall be his employees under his direction and
responsibility and not that of MAFINCO, and their compensation including salaries, wages, overtime pay, separation pay,
bonus or other remuneration and privileges shall be for the PEDDLER'S own account; The PEDDLER shall likewise bind
himself to comply with the provisions of the Social Security Act and all the applicable labor laws in relation to his
employees;

3. The PEDDLER shall be responsible for any damage to property, death or injuries to persons or damage to the truck
used by him caused by his own acts or omission or that of his driver and helpers;

4. MAFINCO shall furnish the gasoline and oil to run the said truck in business trips, bear the cost of maintenance and
repairs of the said truck arising from ordinary wear and tear;

5. The PEDDLER shall secure at his own expense all necessary licenses and permits required by law or ordinance and
shall bear any and all expenses which may be incurred by him in the sales of the soft drink products covered by the
contract;

6. All purchases by the PEDDLER shall be charged to him at a price of P2.52 per case of 24 bottles, ex-warehouse;
PROVIDED, However, that if the PEDDLER purchases a total of not less than 250 cases a day, he shall be entitled further
to a Peddler's Discount of P11.00;

7. Upon the execution of this contract, the PEDDLER shall give a cash bond in the amount of P1,500.00 against which
MAFINCO shall charge the PEDDLER with any unpaid account at the end of each day or with any damage to the truck of
other account which is properly chargeable to the PEDDLER; within 30 days after the termination of this contract, the cash
bond, after deducting proper charges, shall be returned to the PEDDLER;

8. The PEDDLER shall liquidate and pay all his accounts to MAFINCO'S authorized representative at the end of each day,
and his failure to do so shall subject his cash bond at once to answer for any unliquidated accounts;

9. This contract shall be effective up to May 31, 1973 and supersedes any or all other previous contracts, if any, that may
have been entered into between the parties; However, either of the parties may terminate the same upon five (5) days
prior notice to the other;

10. Upon the. termination of this contract, unless the same is renewed, the delivery truck and such other equipment
furnished by MAFINCO to the PEDDLER shall be returned by the latter in good order and workable condition, ordinary
wear and tear excepted, und shall promptly settle his outstanding account if any, with MAFINCO;

11. To assure performance by the PEDDLER of his obligation to his employees under the Social Security Act, the
applicable labor laws and for damages suffered by third persons, PEDDLER shall furnish a performance bond of
P1,000.00 in favor of MAFINCO from a SURETY COMPANY acceptable to MAFINCO.

IN WITNESS WHEREOF, the parties hereto have signed this instrument at the City of Manila, Philippines,
this May 31, 1972.

MAFINCO TRADING CORPORATION

By:

(Sgd.) RODRIGO REPOMANTA (Sgd.) SALVADOR C. PICA

Peddler General Manager

233
 (Witnesses and notarial acknowledgment are omitted)

On December 7, 1972 Mafinco, pursuant to section 9 of the contract, terminated the same. The notice to Repomanta
reads as follows:

Dear Mr. Repomanta:

This has reference to the Peddling Contract you executed with the Mafinco Trading Corporation on May
31, 1972. Please be informed that in accordance with the provisions of paragraph 9 of the said peddling
contract, we are hereby serving notice of termination thereof effective on December 12, 1972.

Yours truly,

(Sgd.) SALVADOR C. PICA

General Manager

Complaints of Repomanta and Moralde and NLRCs dismissal thereof.  — Four days later or on December 11, 1972
Repomanta and Moralde, through their union, the FOITAF, filed a complaint with the NLRC, charging the general
manager of Mafinco with having violated Presidential Decree No. 21, issued on October 14, 1972, which created the
NLRC and which was intended "to promote industrial peace, maximize productivity and secure social justice for all". The
brief complaint reads as follows:

Hon. Amado Gat Inciong, Chairman

National Labor Relations Commission

Phoenix Bldg., Intramuros,

Manila

Sir:

Pursuant to the Presidential Decree No. 21, Sections 2 and 11, the FOITAF files a complaint against
SALVADOR C. PICA, General Manager of MAFINCO TRADING CORP. located at Room 715, Equitable
Bank Bldg., Juan Luna, Manila, for terminating union officials (sic), Mr. Rodrigo Refumanta and Mr. Rey
Moralde, which is a violation of the above mentioned decree.

Notice of termination is herewith attach (sic).

We anticipate your due attention and assistance.

Respectfully yours,

(Signed by National Secretary of FOITAF)

Mafinco filed a motion to dismiss the complaint on the ground that the NLRC had no jurisdiction because Repomanta and
Moralde were not its employees but were independent contractors. It stressed that there was termination of the contract,
not a dismissal of an employee. In Repomanta's case, it pointed out that he was registered with the Social Security
System as an employer who, as a peddler, paid premiums for his employees; that he secured the mayor's permit to do
business and the corresponding peddler's license and paid the privilege tax and that he obtained workmen's
compensation insurance for his own employees or helpers. It alleged that Moralde was in the same situation as
Repomanta.

Mafinco further alleged that the Bureau of Labor Relations denied the application of peedlers for registration as a labor
union because they were not employees but employers in their own right of delivery helpers (Decision dated January 4,
1966 by the Registrar of Labor Organizations in Registration Proceeding No. 4,  In the Matter of Cosmos Supervisors
Association-PTGWO); that the Court of Industrial Relations in Case No. 4399-ULP, Cosmos Supervisors' Association —
PTGWO vs. Manila Cosmos Aerated Water Factory, Inc., held in its decision dated July 17, 1967 that the peddlers were
not employees of Cosmos, and that the Court of Appeals held in Rapajon vs. Fong Kui and Figueras vs. Asierto, CA-G.R.
No. 19477-R and 21397-R, March 18, 1958 that the delivery helpers of the peddlers were not employees of Cosmos, a
ruling which this Court refused to review (L-14072-74, Rapajon vs. Fung Kui, Resolution dated July 16, 1958).
234
The complaint was referred to a factfinder who in a lengthy report dated January 22, 1973 found, after "exhaustively and
impartially" considering the contentions of the parties, that the peddlers were employers or "independent businessmen', as
held by the Court of Industrial Relations and the Court of Appeals, and that that holding has the force of res judicata. The
factfinder recommended the dismissal of the complaint.

The old NLRC, composed of Amado G. Inciong, Diego P. Atienza and Ricardo O. Castro, adopted that recommendation
in its order dated February 2, 1973. That order, which analyzes the peddling contract and reviews the court rulings on the
matter, is quoted below:

The question of whether peddling contracts of the kind entered into between the parties give rise to an
employer-employee relationship is not new. Nor are the contracts themselves of recent vintage.

For at least twenty years respondent MAFINCO and its predecessor and/or principal, the Manila-Cosmos
Aerated Water Factory, have entered into contracts with peddlers, under the terms of which the latter buy
from the former at a special price, and sell in Manila, the former's soft drink products. The distributor
provides the peddler with a delivery truck with the distributor answering for the cost of fuel and
maintenance. If a peddler buys a certain number of cases or more a day, he is entitled to a fixed amount
of peddler's discount.

The peddler himself drives the truck but if he engages a driver or helpers, the latter are his employees
and he assumes all the responsibilities of an employer in relation to them. He also obtains at his own
expense all licenses and permits required by law of salesmen.

The peddler clears his accounts with the distributor at the end of each day, and unpaid accounts are
charged against the cash deposit or bond which he gives the distributor upon the execution of the
peddling contract. He answers for damages caused by him or his employees to third persons.

Ruling upon this type of contracts, and the practices and relationships that attended its implementation,
the Court of Appeals, in CA-G.R. No. 19477-R, said that it did not create a relationship of employer and
employee; that the peddlers under such contract were not employees of the manufacturer or distributor,
and accordingly dismissed the complaints in the said case. (The peddler-complainants in that case were
claiming overtime pay and damages, among others.) Elevated to the Supreme Court on review (G.R.
Nos.
L-14072 to L-14074, 2 August 1958), the decision of the Court of Appeals was in effect affirmed, for the
petition for review was dismissed by the Supreme Court 'for being factual and for lack of merit!

The Court of Industrial Relations is of the same persuasion. After inquiring extensively into substantially
the same terms and conditions of peddling contracts and the practices and relationships that went into
their implementation, the Court said in Case No. 4399ULP that the peddlers of the Manila-Cosmos
Aerated Water Factory were not employees of the latter.

These precedents apply squarely to the case at hand. The complainants here have not shown that their
peddling contracts with the respondent differ in any substantial degree from those that were at issue in
the Court of Industrial Relations, the Court of Appeals and the Supreme Court in the cases cited above.
Indeed, a comparison between the contracts involved in those cases and those in the instant litigation do
not show any difference that would warrant a different conclusion than that reached by those courts. If at
all, the additional stipulations in the present contracts strengthen the position that the complainant
peddlers are independent contractors or businessman, not employees of the respondent.

Nor has there been shown any substantial change in the old practices of peddlers vis-a-vis the distributor
or manufacturer. The points raised by the complainants in their pleadings regarding these practices were
extensively discussed by the CIR in the ULP case above referred to.

We are not prepared to depart from this rule of long standing. It is the law of the case.

We therefore hold that the complainants in this case were not employees of MAFINCO and Presidential
Decree No. 21 does not I apply to them.

Complainants' appeal and the Labor Secretary's decision that they were employees of Mafinco. — Complainants
Repomanta and Moralde appealed to the Secretary of Labor. They argued that the NLRC erred (1) in holding that they
were independent contractors and not employees; (2) in relying on the peddler's contract to determine the existence of

235
employer-employee relationship; (3) in anchoring its decisions on precedents which have only persuasive force and which
did not rule squarely on the issue of employer-employee relationship, and (4) in dismissing their complaint.

As stated at the outset, the Secretary in his decision reversed al the NLRC order. He ruled that Repomanta and Moralde
were employees of Mafinco and that, consequently, the NLRC had jurisdiction over their complaint. The Secretary
directed the NLRC to hear the case on the merits.

The Secretary found that the complainants "were driver-salesmen of the company, driving the trucks and distributing the
products of the company" and that they were not independent contractors because they had no capital of their own. That
finding was based on the following considerations:

(1) That the contracts are Identical; (2) that the complainants were originally plant drivers' of the company;
(3) that the complainants had no capital of their own; (4) that their delivery trucks were provided by the
company; (5) that the use of the trucks were 'exclusively' for peddling the products of the company; (6)
that they were required to observe regulations; (7) that they were required to drive the trucks; (8) that the
company furnished the gasoline and oil to run the said trucks in business trips; (9) that the company
shouldered the cost of maintenance and repair of the said trucks arising from an ordinary wear and tear;
(10) that the company required them to secure the necessary licenses and permits; (11) that the company
prohibited them from selling the company's products higher than the fixed price of the company; and (12)
that they and their helpers were paid on commission basis.

The Secretary relied on this Court's ruling that a person who possesses no capital or money of his own to pay his
obligations to his workers but relies-entirely upon the contract price to be paid by the company, falls short of the requisites
or conditions necessary for an independent contractor (Mansal vs. Gocheco Lumber Co., 96 Phil. 941).

He observed that "behind the peddling cloak there was in fact employee-employer relationship". He said:

While, generally, written employment contracts are held sufficient in determining the nature of
employment, such contracts, however, cannot be always held conclusive where the actual circumstances
of employment indicate otherwise. For example, some employers, in order to avoid or evade coverage of
the Workmen's Compensation Act, enter into pseudo contracts with their employees who are named as
'employers' or 'independent contractors'. Such 'written contracts as distinguished from oral Agreements,
purporting to make persons independent contractors, no matter how 'adroitly framed', can be carefully
scanned and the real relationship ascertained' (Glielmi vs. Netherlands Dairy Co., 254 N.Y. 60 (1930),
Morabe & Inton, Workmen's Compensation Act. p. 69).

If the Peddling Contract were carefully scanned, the conclusion may be drawn that the contract is but a
device and subterfuge to evade coverage under the labor laws. There is more than meets the eye in item
2 of the Peddling Contract which required the peddlers to do that which the law intends the employer to
have done.

In fact, such contracts, as the one in question, exempting or tending to exempt the employers from their
legal obligations to their workers are null and void under Sec. 7 of the Workmen's Compensation Act, as
amended, which states:

Any contract, regulation or device of any sort intended to exempt the employer from all or part of the
liability created by this Act shall be null and void.

To rule otherwise would be to open the floodgate to employers in this territory to evade liabilities to their
workers by simply letting contracts for the doing of their business. 'Such construction could not only
narrow the provisions of the Act, but would defeat its intent and purposes in their entirety. (Andoyo vs.
Manila Railroad Co.,  supra).

The motion for the reconsideration of the decision was denied by the Secretary in his order of July 16,1973.

The Committee's report that the peddlers are independent contractors. — On July 25, 1973 Mafinco moved for the
clarification of the decision by inquiring whether the question of employee-employer relationship would be included in the
hearing on the merits.

Action on the said motion was deferred until the receipt of the report of the committee created to study the status of
peddlers of Cosmos products. On September 3, 1973- the Secretary directed the committee composed of Ernesto

236
Valencia, Vicente R. Guzman and Eleo Cayapas to conduct an in-depth study of the actual relationship existing between
the Cosmos Bottling Co. and its peddlers.

The committee in its report dated September 17, 1973 arrived at the conclusion that the relationship actually existing
between Cosmos and Mafinco, on one hand, and the peddlers of Cosmos products, on the other, is not one of employer
and employee and "that the peddlers are independent contractors".

The committee after a perusal of the record of NLRC Case No. LR-086 interviewed twenty peddlers, an officer of Cosmos
and an officer of Mafinco. In the conduct of the interviews it 44 observed judicious adherence to impartiality and
openmindedness but with a modicum of friendliness and much of informality". The report reads in part as follows:

(1) Implications of the 'Agreement To Peddler Soft Drinks'.  — Of vital importance to the mind of your committee is the fact
that this Agreement entered into between Cosmos and the Peddlers has, as its prefatory statement but before the
enumeration of its terms and conditions, the following:

That the Peddler has agreed to buy and sell the products of the MANUFACTURER under the following
conditions:

Similarly, the 'Peddling Contract' entered into between Mafinco and the Peddlers. contains peculiarly
Identical wordings. viz:

WHEREAS, the PEDDLER is desirious of buying and selling in Manila the 'COSMOS' Soft Drink Products
handled by

MAFINCO:

It is immediately clear from the beginning that the relationship that the parties would want to establish
between them is one of buyer and seller of the Cosmos Products. Moreover, this type of Agreement or
Contract has its roots since some twenty (20) years earlier, with modifications only with respect to the
factory price, the amount of over prices or what the peddlers refer to as commission, and the amount
pertaining to the dealer's discount. which appear to vary depending upon the market demands.

We are, however, tempted to argue, as did the Peddlers, that this Agreement or Contract might have
been contrived as a device to evade responsibilities imposed upon Cosmos or Mafinco under our labor
laws as well as under other national or municipal laws. Nevertheless, a close reading thereof will show a
flaw in this line of insistence, when we consider that this type of Agreement or Contract has been
substantially the same since the beginning of this relationship. More than this, it has withstood the test of
time by pronouncements of the CIR in ULP Case No. 4399, Cosmos Supervisors Association vs. Manila
Cosmos Aerated Water Factory, Inc.' July 17, 1967; by judicial review of the Court of Appeals in CA-G.R.
Nos. 19477-R, 19478-R and 21397-R, 'Eustaquio Repajon, et al. vs. Manila Cosmos Aerated Water
Factory, Inc.', promulgated on March 18, 1958; and impliedly by resolution of the Supreme Court in G.R.
Nos. L-14072 to L-14074 when the Court of Appeals cases were appealed to that Tribunal.

But the more basic and indeed forceful ratiocination in favor of the validity of the Agreement or Contract
which covenants that the relationship between the Peddlers and Cosmos or Mafinco is one of buyer and
seller of the Cosmos Products on the part of the Peddlers, and, therefore, one of an independent
contractorship, finds substantive support in our Civil Code which provides: (here arts. 1370 and 1374 of
the Civil Code regarding interpretation of contracts are quoted).

For its adjective interpretation, our Rules of Court specifically provides: (Here parol evidence rule in see.
7, Rule 130, Rules of Court is quoted)

It must b restated at this point for purposes of emphasis that the validity of the aforesaid Agreement or
Contract has not been seriously assailed by the parties. In fact, their rallying cause was the Agreement or
Contract itself. To strengthen these provisions of the Civil Code and the Rules of Court, stabilized
jurisprudence have held that it is elementary rule of contract that the laws in force at the time the contract
was made must govern its interpretation and application; that the terms of the contract, where
unambiguous, are conclusive, in the absence of averment and proof of mistake, the question being, not
what intention existed in the minds of the parties, but what intention is expressed by the language used;
that interpretation of an agreement does not include its modifications or the creation of a new or different
one; that Courts cannot make for the parties better agreements than they themselves have been satisfied
to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties; and

237
 that there is no right to interpret an agreement as meaning something different from what the parties
intended as expressed by the language they saw fit to employ.

xxx xxx xxx

(1) The selection and engagement of the employees.-Nothing in the Agreement to Peddler Soft Drinks in the case of
Cosmos and in the Peddling Contract in the case of Mafinco, will reveal and we cannot logically infer therefrom, that the
Peddlers were engaged as employees of Cosmos or Mafinco. The selection of the Peddlers who will buy and sell Cosmos
products is left entirely between the parties; it is not the sole prerogative of either one of the parties. There must be
meeting of the minds in order to consummate the Agreement or Contract and no evidence of coercion or imposition of the
will of one over the other is evident or apparent from the Peddlers' or Managements' interviews had by the members of
your Committee. This test, therefore, cannot be invoked by the Peddlers in their attempt at presenting arguments to the
effect that they are employees of Cosmos or Mafinco. Upon the other hand, the Agreement or Contract itself provides that
the Peddlers can hire helpers and drivers under their direction and responsibility, and to whom they shall be liable for
payment of 'salaries, wages, overtime pay, separation pay, bonus and other remuneration and privileges.' As a matter of
fact, drivers were employed by Mrs. Victoria Ariz and M. Fong Kui, who are peddlers in their own right. This evidently
shows the discretion granted the peddlers to hire employees of their own.

(2) The payment of wages. — On the basis of the clear terms of the Agreement or Contract, no mention is made of the
wages of the Peddlers; neither can an inference be made that any salary or wage is given to Peddlers. In the interviews,
however, with the Peddlers, they vehemently take the position that the 'dealer's discount' which was given to them at the
rate of Pll.50 in excess of 200 cases of Cosmos products they sell a day, constitutes their 'wages'. The term 'wages' as
defined in Section 2 of the Minimum Wage Law (Rep. Act No. 602, as amended) is as follows:

(g) 'Wage' paid to any employee shall mean the remuneration or earnings, however designated, capable of being
expressed in terms of money whether fixed or ascertained on a time, task, piece, commission basis, or other method of
calculating the same, which is payable by an employer to an under a written or unwritten contract of employement for
work done or to be done or for services rendered or to be rendered, and includes the fair and reasonable value, as
determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the
employee. ...

Section 10 (k) of the same law provides as follows:

(k) Notification of wage conditions. — It shall be the duty of every employer to notify his employees at the time of hiring of
the wage conditions under which they are employed, which shall include the following particulars:

(1) The rate of wages payable;

(2) The method of calculation of wages;

(3) The periodicity of wage payment; the day, the hour and pIace of payment; and

(4) Any change with respect to any of the foregoing items.

To the Committee's mind, all these requirements have not been shown to exist in the relationship
between the Peddlers and the Cosmos or Mafinco. If it were true that the Pedders' 'dealer's discount' is in
the nature of wages, then they must be notifed fully of the wage conditions. Moreover, such 'wages' must
be paid to them periodically at least once every two weeks or twice a month. (See Par. (h) of See. 10 of
Act No. 602, as amended). The absence of such notification to the Peddlers and the lack of periodicity of
such payment in the manner and procedure contemplated in the Minimum Wage Law destroy, quiet
evidently, their allegation that the 'dealer's discount' was their 'wage'. Take note that the 'dealer's
discount' was given only about a week after the end of the month, and from the evidence submitted by
Cosmos, it appears clearly that the 'dealer's discount' varies from month to month. Thus, the earnings of
Mr. Salvador Abonales, who is a Peddler, from January to August, 1973, amounted to P12,520.70, while
that of Mr. Alberto S. Garcia, for the same period, amounted to P13,633.42, and 4 their earnings every
month vary decisively. This factor defeats factually the insistence of the Peddlers that they are employees
of Cosmos or Mafinco.

Upon the other hand, the Peddlers' declarations reveal that the wages of their helpers are taken from the
overprice or what is ordinarily termed as 'commission' of ten centavos (P0.10) per case that they get-a
factor which indicates that they are themselves employers of their helpers. In addition, the Peddlers are
reported as Employers of these helpers with the Social Security System, and that they also purchase

238
 workmen's compensation policies in their names as Employers of their own helpers for purposes of
workmen's compensation insurance of their liabilities, which are all in accordance with the terms and
conditions of the Agreement or Contract and indicative of an attribute of one who is an independent
merchant.

(3) The power of dismissal. — In the case of 'Rodrigo Repomanta and Rey Moralde vs. Mafinco Trading Corp.,' NLRC
Case No. LR-086, which served as one of our bases for this study, the complainants therein appear to have complained
before the National Labor Relations Commission for being allegedly illegally dismissed or that their services were
terminated without cause. A search of the alleged dismissal however shows that the Identical letters both dated December
7, 1972 addressed to the said complainants were not actually what complainants pictured them to be, but the termination
of the peddling in accordance with paragraph 9 of said Contract.

xxx xxx xxx

Thus, complainants' services were not terminated, only their Peddling Contracts with Mafinco were. The
power of dismissal is not lodged with either Mafinco or Cosmos, for based on the Agreement or Contract
none whatsoever exists. Certainly, to attribute a power of dismissal to Cosmos or Mafinco where none
exists is careless imprudence and a height of inaccuracy. This power of dismissal by Cosmos or Mafinco
is not countenanced in the Agreement or Contract.

There is, however, an allegation by the Peddlers that the hiring and firing of the helpers ultimately rest on
Cosmos or Mafinco. This allegation nevertheless, is controverted by Cosmos and Mafinco. Nonetheless,
we checked the basic document — the Agreement or Contract — and we find that the hiring and,
impliedly firing, we is a prerogative of the Peddlers and not of Cosmos or Mafinco.

(4) The power to control the employee's conduct. — From the interviews had by your Committee with both the Peddlers
and the representatives of Cosmos and Mafinco, we gather that the following findings on the power of control are
substantially correct:

(a) That the delivery trucks assigned to the Peddlers are available to them early in the morning and are
free to get them, which they usually do between 5:30 A.M. to 6:30 A.M. There was no compulsion on the
part of the Peddlers to report for work at that time, as in fact, they did not sign any time record. The
practice of getting the delivery trucks early in the morning is more beneficial to the Peddlers than to
Cosmos or Mafinco since they can finish the peddling of Cosmos products much earlier and spend the
rest of the day at their own pleasure. The signing of the 'logbooks' is both pertinent and necessary since
the trucks used in the delivery of Cosmos products are owned by Cosmos or Mafinco and are simply
utilized by Peddlers as a measure of convenience and for advertising purposes. But peddlers are not
precluded from getting trucks of their own should they so desire.

(b) That liaison officers (supervisors) are assigned by Cosmos or Mafinco in definite areas routes or
zones, not so much of supervision over Peddlers, since their areas, routes or zones were already agreed
upon or pre-arranged among them through the Cosmos Peddlers Association, Inc. of which all Peddlers
are members, as principally for market analysis since soft drinks selling is a highly competitive business,
and also to inquire or check on sales, and the result of which, report is made direct to the Office of
Cosmos or Mafinco.

(c) That the use of the uniform does not seem to be an imposition by management of Cosmos or Mafinco
upon the Peddlers, but a voluntary arrangement among the Peddlers themselves. For, from the
documents submitted to this Committee, it appears that the Cosmos Peddlers Association, in a meeting
held on August 5, 1967, adopted a resolution to 'always wear their uniform while in the performance of
their sales work,' and in their meeting on January 25, 1969, it adopted another resolution penalizing
Peddlers who failed to wear their uniform in the amount of P2.00 per violation. Certainly, the resolutions of
the Cosmos Peddlers Association, an independent association of Peddlers and duly registered with the
Securities and Exchange Commission, and possessing an entirely distinct existence, cannot be taken as
impositions from Cosmos or Mafinco.

(d) That the matter of turning in of sales of collection which, if found short, is charged against the
Peddler's cash bond, is to the mind of the Committee, giving effect to the valid terms and conditions of the
Agreement or Contract, and also an ordinary business practice which necessarily requires liquidation of
the day's accounts. We do not see any evidence of control on the part of Cosmos or Mafinco over the
activities, including the sales, of the Cosmos products by the Peddlers themselves who are, apparently,
left to their own choices of routes, areas or zones as pre-arranged, with no definite, much less
supervised, time schedule.
239
 (e) That in the matter of reprimand or discipline which the peddlers attempt to project when they failed to
report for work, your Committee found no substantial evidence on this point. The evidence shows that the
peddlers are free to choose their time. Obviously, any absence that they may incur means so much
reduction from their earnings. Thus, if their attention is incidentally called on this matter it is for the
observance of their agreements which is present in any contractual relations.

As to the aspect of employer-employee relation, therefore, between Cosmos or Mafinco and the Peddlers,
your Committee does not have sufficient basis to reasonably sustain the stand of the Peddlers that there
is such relationship.

(c) Attributes of an independent contractor. — As a countercheck, as it were, to the issue of employer-

employee relationship your committee has taken the task of testing such relationship against the
attributes of an independent contractor which, from the interviews and documents submitted by the
parties, appear to exists on the part of the Peddlers. The earlier case of Andoyo vs. Manila Railroad Co.,
G.R. No. 34722, promulgated on March 28, 1932, furnishes us the definition of an 'independent
contractor.' Our Supreme Court of pre-war composition, ruled:

An independent contractor is one who exercises independent employment and contracts to do a piece of
work according to his own methods and without being subject to control of his employer except as to the
resuIt of thework. A person who has no capital or money of his own to pay his laborers or to comply with
his obligations to them, who files no bond to answer for the fulfillment of his contract with his employer,
falls short of the requisites or conditions necessary to classify him as independent contractor.

These requisites and conditions were reiterated in the postwar cases of Philippine Manufacturing Co.,
Inc. vs. Geronimo, G. R. No. L-6968, promulgated on November 29, 1954, and Koppel (Phil.), Inc. vs.
Darlucio et, al., G.R. No. L-14903, promulgated on August. 29, 1960. Analyzing the definition of
'independent contractor', the following may be gathered from the relationship between the Peddlers, on
the one hand, and Cosmos or Mafinco, on the other:

(1) Peddlers contract to sell and buy Cosmos products from Cosmos or Mafinco, the latter furnishing the delivery truck,
but the former sell Cosmos products according to their own methods, subject to the pre-arranged routes, areas and
zones, and go back to the Company compound to return the delivery truck and to make accounting of the day's sales
collection at any time in the morning or in the afternoon. Essentially, control, if at all, extends only as to observance of
traffic regulations which is inherent in ownership of the delivery truck by Cosmos or Mafinco and the end result which is
the liquidation of the sales collection. Control over the details of the Peddlers' sales activities seems to be farfetched in
this case.

(2) Capital or money of the Peddlers to pay their own helpers is evidently within their prerogative, although it appears that
the wages of helpers are uniform at P6.00 per trip. But can we safely say that the cash bond of Pl,500.00 by the Peddlers
constitute their capital? For big-time businessmen, this small amount may not be considered capital, but when it is taken
as a 'deposit on consignment' since the same answers for any deficiencies that the Peddlers may incur during the day's
sales collection, then it can be taken to mean 'capital' within its signification that it allocates to every day business dealing.
The amount of capital, to us, is immaterial; it is the purpose for which the same is deposited that is most significant.

(3) The Peddlers are required under the Agreement to Peddler Soft Drinks and Peddling Contract to put up not only the
cash bond of P1,500.00, but also a performance bond of P1,000.00 as embodied in said Agreement to Peddler Soft
Drinks as follows:

(4) To assure performance by the PEDDLER of his obligation to his employees under the Social Security Act, the
applicable labor laws, and for damages suffered by third persons PEDDLER shall furnish a performance bond of
P1,000.00 in favor of the MANUFACTURER from a surety Company acceptable to the MANUFACTURER. And, in case
Performance Bond within 30 days from the date of signing of this Contract, such failure shall be sufficient ground for the
MANUFACTURER to suspend the business relationship with the Peddler until the Peddler complies with this provision.

Again, to the mind of your Committee, the amount of the Performance Bond is not so relevant and
material as to the purpose for which the same is executed- which is to assure performance of the
Peddlers' obligations as employer of his helpers. This is an attribute of an independent contractor to
which the Peddlers are bound under the Agreement or Contract.

(4) Peddlers are doing business for themselves since they took out licenses in the City of Manila, and
have paid their corresponding professional or occupation tax to the Bureau of Internal Avenue. This fact

240
 strengthens the Committee findings that the peddlers are carrying on a business as independent
merchants.

The Secretary in his resolution of October 18, 1973 ignored the committee's conclusion. He clarified that the NLRC should
determine whether the two complainants were illegally dismissed and that the jurisdictional issue should not be taken up
anymore.

The instant petition; the issue and the ruling thereon. — Mafinco filed the instant actions on November 14, 1973. It prayed
for a declaration that the Secretary of Labor and the NLRC had no jurisdiction to entertain the complaints of Repomanta
and Moralde; that the Secretary's decision should be set aside, and that the NLRC and the Secretary be enjoined from
further proceeding in NLRC Case No. LR-086.

Parenthetically, it should be noted that under section 5 of Presidential Decree No. 21 the Secretary's decision "is
appealable" to the President of the Philippines (Nation Multi Service Labor Union vs. Agcaoili, L-39741, May 30, 1975, 64
SCRA 274). However, under section 22 of the old NLRC regulations, an appeal to the President should be made only "in
national interest cases".

On the other hand, judicial review of the decision of an administrative agency or official exercising quasi-judicial functions
is proper in cases of lack of jurisdiction, error of law, grave abuse of discretion, fraud or collusion or in case the
administrative action or resolution is "corrupt, arbitrary or capricious (San Miguel Corporation vs. Secretary of Labor, L-
39195, May 16, 1975, 64 SCRA 56; Commissioner of Customs vs. Valencia, 100 Phil. 165; Villegas vs. Auditor General,
L-21352, November 29, 1966, 18 SCRA 877, 891).

After the parties had submitted their illuminating memoranda, Mafinco filed a motion in this Court for the dismissal of the
complaint in the defunct NLRC on three grounds, to wit: (1) that the NLRC had no jurisdiction over the case because
Repomanta and Moralde had not sought reinstatement or backwages; (2) that the employer's failure to secure written
clearance from the Secretary of Labor before dismissing an employee might constitute a crime punishable under article
327 of the Labor Code and not mere contempt, as contemplated in section 10 of Presidential Decree No. 21, and (3) that
the contempt provisions of that decree were abrogated by the Labor Code.

Mafinco in support of its motion for dismissal cited Quisaba vs. Sta. Ines-Melale Veneer & Plywood, Inc., L-38088, August
30, 1974, 58 SCRA 771, where it was held that the regular court, not the NLRC, has jurisdiction over an employee's action
for damages against his employer's act of demoting him.

Respondent Repomanta and Moralde opposed that motion to dismiss. They Pointed out that, inasmuch as their complaint
is pending in the new NLRC, this Court cannot dismiss it. They also observed that article 327 was eliminated from the
Labor Code which, as amended by Presidential Decrees Nos. 570-A, 626 and 643, contains only 292 articles. Article 327
was superseded by article 278 of the amended Code.

The truth is that Mafinco's motion merely adduced additional grounds to support its stand that the Secretary of Labor had
no jurisdiction over the complaint of Repomanta and Moralde.

This case was not rendered moot by the Labor Code. Although the Code abolished the old NLRC (Art. 289), it created a
new NLRC (Art. 213) and provided that cases pending before the old NLRC should be transferred to, and processed by,
the corresponding labor relations division or the new NLRC and should be decided in accordance with Presidential
Decree No. 21 and the rules and regulations adopted thereunder (Art. 290. See Sec. 5, P.D. No. 626).

The issue is whether the dismissal of Repomanta and Moralde was within the jurisdiction of the old NLRC. If, as held by
the old NLRC, it had no jurisdiction over their complaint because they were not employees of Mafinco but independent
contractors, then the Secretary of Labor had no jurisdiction to remand the case to the NLRC for a hearing on the merits of
the complaint.

Hence, the crucial issue is whether Repomanta and Moralde were employees of Mafinco under the peddling contract
already quoted. Is the contract an employment contract or a contract to sell or distribute Cosmos products?

The question of whether an employer-employee relationship exists in a certain situation has bedevilled the courts.
Businessmen, with the aid of lawyers, have tried to avoid the bringing about of an employer-employee relationship in
some of their enterprises because that juridical relation spawns obligations connected with workmen's compensation,
social security, medicare, minimum wage, termination pay and unionism.

Presidential Decree No. 21 provides:

241
 SEC. 2. The Commission shall have original and exclusive jurisdiction over the following:

1) All matters involving employee-employer relations including all disputes and grievances which may otherwise lead to
strikes and lockouts under Republic Act No. 875;

xxx xxx xxx

SEC. 10. The President of the Philippines, on recommendation of the Commission and the Secretary of
Labor, may order the arrest and detention of any person held in contempt by the Commission for non-
compliance and defiance of any subpoena, order or decision duly issued by the Commission in
accordance with this Decree and its implementing rules and regulations and for any violation of the
provisions of this Decree.

SEC. 11. No employer may shut down his establishment or dismiss or terminate the services of regular
employees with at least one year of service without the written clearance of the Secretary of , Labor.

The Solicitor General, as counsel for the old NLRC and the Secretary of Labor, argues that the question of whether
Repomanta and Morale are independent contractors or employees is factual in character and cannot be resolved by
merely construing the peddling contracts; that other relevant facts aliunde or dehors the said contracts should be taken
into account, and that the contracts were a part of an "intricate network of devices (of Mafinco and Cosmos) developed.
and perfected through the years to conceal the true nature of their relationship to their sales agents".

Repomanta and Moralde contend that their peddling contracts were terminated because of their activities in organizing a
union among the peddlers. Annexed to their memorandum is a joint affidavit of sixty-three sales agents of Cosmos
products who described therein the nature of their work, the organization of their union and the dismissal of Repomanta
and Moralde. Annexed to their answer is Resolution No. 921 of the Social Security Commission dated November 16, 1972
in SSS Case No. 602 wherein it was held that peddlers and their helpers were employees of Cosmos.

Like the Solicitor General, Repomanta and Moralde harp on the argument that the peddling contracts were a scheme to
camouflage an employer-employee relationship and thus evade the coverage of labor laws.

The parties in their pleadings and memoranda injected conflicting factual allegations to support their diametrically opposite
contentions. From the factual angle, the case has become highly controversial.

In a certiorari and prohibition case, like the instant case, only legal issues affecting the jurisdiction of the tribunal, board or
officer involved may be resolved on the basis of undisputed facts. Sections 1, 2 and 3, Rule 65 of the Rules of Court
require that in the verified petition for certiorari, mandamus and prohibition the petitioner should allege "facts with
certainty".

In this case the facts have become uncertain. Controversial evidentiary facts have been alleged. What is certain and
indubitable is that a notarized peddling contract was executed.

This Court is not a trier of facts. It would be difficult, if not anomalous, to decide the jurisdictional issue on the basis of the
parties' contradictory factual submissions. The record has become voluminous because of their efforts to persuade this
Court to accept their discordant factual statements.

Pro hac vice the issue of whether Repomanta and Moralde were employees of Mafinco or were independent contractors
should be resolved mainly in the light of their peddling contracts. A different approach would lead this Court astray into the
field of factual controversy where its legal pronouncements would not rest on solid grounds.

A restatement of the provisions of the peddling contract is necessary in order to find out whether under that instrument
Repomanta and Moralde were independent contractors or mere employees of Mafinco.

Under the peddling contract, Mafinco would provide the peddler with a delivery truck to be used in the distribution of
Cosmos soft drinks (Par. 1). Should the peddler employ a driver and helpers, he would be responsible for their
compensation and social security contributions and he should comply with applicable labor laws "in relation to his
employees" (Par. 2).

The peddler would be responsible for any damage to persons or property or to the truck caused by his own acts or
omissions or those of his driver and helpers (Par. 3). Mafinco would bear the cost of gasoline and maintenance of the
truck (Par. 4). The peddler would secure at his own expense the necessary licenses and permits and bear the expenses
to be incurred in the sale of Cosmos products (Par. 5).

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The soft drinks would be charged to the peddler at P2.52 per case of 24 bottles, ex-warehouse. Should he purchase at
least 250 cases a day, he would be entitled to a peddler's discount of eleven pesos (Par. 6). The peddler would post a
cash bond in the sum of P1,500 to answer for his obligations to Mafinco (Par. 7) and another cash bond of P1,000 to
answer for his obligations to his employees (Par. 11). He should liquidate his accounts at the end of each day (Par. 8).
The contract would be effective up to May 31, 1973. Either party might terminate it upon five days' prior notice to the other
(Par. 9).

We hold that under their peddling contracts Repomanta and Moralde were not employees of Mafinco but were
independent contractors as found by the NLRC and its fact-finder and by the committee appointed by the Secretary of
Labor to look into the status of Cosmos and Mafinco peddlers. They were distributors of Cosmos soft drinks with their own
capital and employees. Ordinarily, an employee or a mere peddler does not execute a formal contract of employment. He
is simply hired and he works under the direction and control of the employer.

Repomanta and Moralde voluntarily executed with Mafinco formal peddling contracts which indicate the manner in which
they would sell Cosmos soft drinks. That Circumstance signifies that they were acting as independent businessmen. They
were to sign or not to sign that contract. If they did not want to sell Cosmos products under the conditions defined in that
contract; they were free to reject it.

But having signed it, they were bound by its stipulations and the consequences thereof under existing labor laws. One
such stipulation is the right of the parties to terminate the contract upon five days' prior notice (Par. 9). Whether the
termination in this case was an unwarranted dismissal of an employee, as contended by Repomanta and Moralde, is a
point that cannot be resolved without submission of evidence. Using the contract itself as the sole criterion, the
termination should perforce be characterized as simply the exercise of a right freely stipulated upon by the parties.

"In determining the existence of employer-employee relationship, the following elements are generally considered,
namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4)
the power to control the employees' conduct-although the latter is the most important element" (Viana vs. Al-Lagadan and
Piga, 99 Phil. 408, 411, citing 35 Am. Jur. 445).

On the other hand, an independent contractor is "one who exercises independent employment and contracts to do a piece
of work according to his own methods and without being subject to control of his employer except as to the result of the
work" (Mansal vs. P.P. Gocheco Lumber Co., supra).

Among the factors to be considered are whether the contractor is carrying on an independent business;
whether the work is part of the employer's general business; the nature and extent of the work; the skill
required; the term and duration of the relationship; the right to assign the performance of the work to
another; the power to terminate the relationship; the existence of a contract for the performance of a
specified piece of work; the control and supervision of the work; the employer's powers and duties with
respect to the hiring, firing, and payment of the contractor's servants; the control of the premises; the duty
to supply the premises, tools, appliances, material and labor; and the mode, manner, and terms of
payment. (56 C.J.S. 46).

Those tests to determine the existence of an employer-employee relationship or whether the person doing a particular
work for another is an independent contractor cannot be satisfactorily applied in the instant case. It should be obvious by
now that the instant case is a penumbral, sui generis case lying on the shadowy borderline that separates an employee
from an independent contractor.

In determining whether the relationship is that of employer and employee or whether one is an independent contractor,
"each case must be determined on its own facts and all the features of the relationship are to be considered" (56 C.J.S.
45). We are convinced that on the basis of the peddling contract, no employer-employee relationship was created. Hence,
the old NLRC had no jurisdiction over the termination of the peddling contract.

However, this ruling is without prejudice to the right of Repomanta and Moralde and the other peddlers to sue in the
proper Court of First Instance and to ask for a reformation of the instrument evidencing the contract or for its annulment or
to secure a declaration that, disregarding the peddling contract, the actual juridical relationship between them and Mafinco
or Cosmos is that of employer and employee. In that action a fulldress trial may be held and the parties may introduce the
evidence necessary to sustain their respective contentions.

Paragphrasing the dictum in the Quisaba case, supra, if Mafinco and Cosmos had acted oppressively towards their
peddlers, as contemplated in article 1701 of the Civil Code, then they should file the proper action for damages in the
regular courts. Where there is a right, there is a remedy (Ubi jus, ubi remedium).

243
WHEREFORE, the decision, order and resolution of the Secretary of Labor in NLRC Case No. LR-086 dated April 16, July
16 and October 18, 1973, respectively, are set aside and the order of the NLRC dated February 2, 1973, dismissing the
case for lack of jurisdiction, is affirmed. No costs.

SO ORDERED.

WORK RELATIONSHIP  Sevilla vs. CA, 160 SCRA 171

 Francisco vs. NLRC, 500 SCRA 690
Employer-Employee Relationship Agreement
Factual Test Case(s):
Case(s):  Chavez vs. NLRC, 478 SCRA (2005)
 Television and Production Exponents, Inc. vs.  San Miguel Corp. vs. Abella, 461 SCRA 392
Servana, 542 SCRA 578  Sonza vs. ABS-CBN Broadcasting Corp., 431
 Remington Industrial Sales Corp. vs. Castaneda, SCRA 381
507 SCRA 391  Insular Life Assurance Co. vs. NLRC, 287 SCRA
Established 476
Broadcast-Talents-Performers
Case(s):
Case(s):
 Miguel vs. JCT Group, Inc. 453 SCRA 529
 Wack-Wack Golf and Country Club vs. NLRC,  Television, etc. vs. Servana, 542 SCRA 578
456 SCRA 280  Dumpit-Murillo vs. CA, 524 SCRA 290
Factors  ABS-CBN vs. Nazareno, 503 SCRA 204
Method Wage Payment
Case(s):
Case(s):
 Pacific Consultants International Asia, Inc. vs.
Schonfeld, 516 SCRA 209  Almirez vs. Infinite Corp., 481 SCRA 364
 Gabriel vs. Bilon, 515 SCRA 29  Lazaro vs. SSS, 435 SCRA 472
 Philippine Global Communicators vs. De Vera, Proof
459 SCRA 260 Case(s):
Control Test
 Domasig vs. NLRC, 261 SCRA 779
Case(s):  Mcleod vs. NLRC, 512 SCRA 222
 Lopez vs. Metropolitan Waterworks and Absence of Relationship
Sewerage Systems, 462 SCRA 425 Case(s):
 Insular Life vs. NLRC, 179 SCRA 459
 Tongko vs The Manufacturers Life Insurance  Lopez vs. Bodega City, 532 SCRA 56
Co. (Phils), Inc., G. R. No. 167622, 7 November  Abante vs. Lamadrid, 430 SCRA 368
2008, see also same case promulgated on Denial
June 29, 2010 and January 25, 2011
 Olympia Housing, Inc. vs. Lapasora, et al., G.R. Case(s):
No. 187691, January 13, 2016  R. Transport Corp. vs. Ejaneira, 428 SCRA 724
Economic Test
Case(s): C. Independent Contractor and Labor Contractor

244
Only - Articles 106 to 109; DOLE Department Order
No. 174, series of 2017
Department Circular No. 01, series of 2017
Cases:
 Philippine Airlines vs. Ligan, February 29, 2008
, G. R. NO. 146408
 San Miguel Corporation vs. Aballa, June 28,
2005, G. R. NO. 149011
 Meralco Industrial Engineering Services vs.
NLRC, March 14, 2008
 Manila Electric Company vs. Benamira, July 14,
2005
 DOLE Phils. vs. Esteva, November 30, 2006
 Manila Memorial Park Cemetery vs. Luiz,
February 3, 2016
 Mafinco vs. Ople, 70 SCRA 139
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