1. LVN PICTURES, INC.
,  vs. PHILIPPINE MUSICIANS GUILD (FFW)  "The right of control of the film company over the musicians is shown (1) by calling
FACTS:
 The Philippine Musicians Guild (FFW), referred to as the Guild, averred that it is
a duly registered legitimate labor organization; that petitioners LVN Pictures,
Inc., Sampaguita Pictures, Inc., and Premiere Productions, Inc. are corporations,
duly organized under the Philippine laws, engaged in the making of motion
pictures and in the processing and distribution thereof; that said companies
employ musicians for the purpose of making music recordings for title
music, background music, musical numbers, finale music and other
incidental music, without which a motion picture is incomplete; that ninety-
five (95%) percent of all the musicians playing for the musical recording of said
companies are members of the Guild; and that the same has no knowledge of
the existence of any other legitimate labor organization representing musicians
in said companies.
 Premised upon these allegations, the Guild prayed that it be certified as the sole
and exclusive bargaining agency for all musicians working in the aforementioned
companies.
 In their respective answers, petitioners denied that they have any musicians as
employees, and alleged that the musical numbers in the films of the companies
are furnished by independent contractors.  director's intervention has stopped." Or, as testified to in the lower court, "the movie
 The lower court, however, rejected this pretense and sustained the theory of the
Guild.
ISSUE:
Whether or not the musicians in question are employees of the film companies.  person for whom the services are performed reserves a right to control not only
RULING:
YES. An employer-employee relationship exists between the musicians and the
film companies. The relationship exists where the person for whom the services
are performed reserves a right to control not only the end to be achieved but also
the means to be used in reaching such end.
"In other words, to determine whether a person who performs work for another is
the latter's employee or an independent contractor, the National Labor Relations
Board relies on "the right of control' test. Under this test 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 manner and
means to be used in reaching the end.
LABORLAW_W3_DIGEST POOL
the musicians through 'call slips' in the name of the company; (2) by arranging
schedules in its studio for recording sessions; (3) by furnishing transportation and
meals to musicians; and (4) by supervising and directing in detail, through the
motion picture director, the performance of the musicians before the camera, in
order to suit the music they are playing to the picture which is being flashed on the
screen.
The musical directors in the instant case have no control over the musicians
involved in the present case. Said directors control neither the music to be played,
nor the musicians playing it. The film companies summon the musicians to work,
through the musical directors. The film companies, through the musical directors,
provide the transportation to and from the studio. The film companies furnish meal
at dinner time. The motion picture director who is an employee of the company —
not the musical director — supervises the recording of the musicians and tells
them what to do in every detail, and solely directs the performance of the
musicians before the camera. 
What is more — in the language of the order appealed from — "during the recording
sessions, the motion picture director who is an employee of the company" — not the
musical director — "supervises the recording of the musicians and tells them what to do
in every detail." The motion picture director — not the musical director — "solely
directs the performance of the musicians before the camera". The motion picture
director "supervises the performance of all the actors, including the musicians who appear
in the scenes, so that in the actual performance to be shown on the screen, the musical
director tells the musical director what to do; tells the music to be cut or tells additional
music in this part or he eliminates the entire music he does not (want) or he may want
more drums or more violin or piano, as the case may be". The movie director "directly
controls the activities of the musicians". He "says he wants more drums and the drummer
plays more" or "if he wants more violin or he does not like that".
It is well settled that "an employer-employee relationship exists . . . where the
the end to be achieved but also the means to be used in reaching such end . . .." 
WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners
herein. It is so ordered.
Page 1 of 28
2. G.R. No. L-53590 July 31, 1984

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3. G.R. No. 64948 September 27, 1994

LABORLAW_W3_DIGEST POOL Page 3 of 28

 TEST TO DETERMINE EXISTENCE
4 LA SUERTE CIGAR AND CIGARETTE FACTORY, petitioner,
vs. DIRECTOR OF THE BUREAU OF LABOR RELATIONS, THE LA SUERTE CIGAR
AND CIGARETTE FACTORY PROVINCIAL (Luzon) AND METRO MANILA SALES
FORCE ASSOCIATION-NATU, and THE NATIONAL ASSOCIATION OF TRADE
UNIONS, respondents.
FACTS:
 On 1979, the La Suerte Cigar and Cigarette Factory Provincial (Luzon) and Metro Manila
Sales Force Association (union) for and was granted chapter status by the National
Association of Trade Unions (NATU). Thereafter, 31 local members signed a joined letter
withdrawing their membership from NATU.
 On April 18, 1979, the local union and NATU filed a petition for direct certification or
certification election which alleged among others, that forty-eight of the sixty sales
personnel of the Company were members of the local union; that the petition is supported
by no less than 75% of the sales force; that there is no existing recognized labor union in
the Company representing the said sales personnel; that there is likewise no existing
collecting bargaining agreement; and that there had been no certification election in the last
twelve months preceding the filing of the petition.
 COMPANY’S ARGUMENT: No EE-ER relationship Filed a motion to dismiss the petition on
the ground that it is not supported by at least 30% of the members of the proposed
bargaining unit because (a) of the alleged forty-eight (48) members of the local union, thirty-
one (31) had withdrawn prior to the filing of the petition; and (b) fourteen (14) of the alleged
members of the union were not employees of the Company but were independent
contractors.
 NATU & UNION’S: ARGUMENT: NATU and the local union opposed the Company's
motion to dismiss alleging that the fourteen dealers are actually employees of the Company
because they are subject to its control and supervision.
 MED ARBITER DECISION: Issued an order dismissing the petition for lack of merit as the
fourteen dealers who joined the union should not be counted in determining the 30%
consent requirement because they are not employees but independent contractors and the
withdrawal of the 31 salesmen from the union prior to the filing of the petition for certification
election was uncontroverted by the parties.
ISSUES:
1. W/N the 14 dealers are employees or independent contractors. YES
LABORLAW_W3_DIGEST POOL
2. W/N the withdrawal of 31 union members from the NATU affected the petition for
certification election insofar as the thirty per cent requirement is concerned; YES,
while there might be force or duress of withdrawal, this must be proven.
3. W/N the withdrawal of the petition for certification election by the NATU, through its
President and legal counsel, was valid and effective.
RULING: The Court hold and rule that the 14 members of respondent local union are
dealers or independent contractors. They are not employees of Petitioner Company. With
the withdrawal by 31 members of their support to the petition prior to or before the filing
thereof, making a total of 45, the remainder of 3 out of the 48 alleged to have supported the
petition can hardly be said to represent the union. Hence, the dismissal of the petition by the
Med-Arbiter was correct and justified. Respondent Director committed grave abuse of
discretion in reversing the order of the MedArbiter.
Failure to establish this juridical relationship between the union members and the
employer affects the legality of the union itself. It means the ineligibility of the union
members to present a petition for certification election as well as to vote therein
It is important in the determination of who shall be included in a proposed bargaining unit
because it is the sine qua non, the fundamental and essential condition that a bargaining
unit be composed of employees. Corollary, when a petition for certification election is
supported by 48 signatories in a bargaining unit composed of 60 salesmen, but 14 of the 48
lacks employee status, the petition is vitiated thereby. Herein lies the importance of
resolving the status of the dealers in this case.
Status thereby created is one of independent contractorship, pursuant to the first rule
in the interpretation of the signed Dealership contracts
It is likewise immediately noticeable that no such words as "to hire and employ" are present.
The Dealership Agreement uses the words "the factory has accepted the application of
(name of applicant) and therefore has appointed him as one of its dealers"; whereas the
Dealership Supplementary Agreement is prefaced with the statement: "For and in
consideration of the mutual covenants and agreements made herein, by one to the other,
the COMPANY and the DEALER by these presents, enter into this Supplementary
Agreement whereby the COMPANY will avail of the services of the DEALER to handle the
sale and distribution of the cigarette products". Nothing in the terms and conditions likewise
reveals that the dealers were engaged as employees.
No Mention of Wage payment- Indication of non-existence of EE-ER relationship
'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 under a written or unwritten contract of employment for work done
Page 4 of 28
or to be done or for services rendered or to be rendered, and includes the fair and 4) the power to control the employees' conduct-although the latter is the most
reasonable value, as determined by the Secretary of Labor, of board, lodging, or other important element.
facilities customarily furnished by the employer to the employee.

Precisely, there was need to change the contract of employment because of the change of
relationship, from an employee to that of an independent dealer or contractor. The
Factors to determine existence of independent contract relationship
employees were free to enter into the new status, to sign or not to sign the new agreement.
An independent contractor is one who exercises independent employment and
As in the Mafinco case, the respondents therein as in the instant case, were free to reject
contracts to do a piece of work according to his own methods and without being
the terms of the dealership but having signed it, they were bound by its stipulations and the
subject to control of his employer except as to the result of the work.
consequences thereof under existing labor laws. The fact that the 14 local union
members voluntarily executed with La Suerte formal dealership agreements which
Among the factors to be considered are whether the contractor is carrying on an
indicate the distribution and sale of La Suerte cigarettes signifies that they were
independent business;
acting as independent businessmen.

It is not disputed that under the dealership agreement, the dealer purchases and sells the
cigarettes manufactured by the company under and for his own account. The dealer
places his order for the purchase of cigarettes to be sold by him in a particular territory by
filling up an Issuance Slip. The dealers do not devote their full time in selling company
products. They are likewise engaged in other livelihood and businesses while selling
cigarettes manufactured by the company.
The Court agree with the petitioner. We hold further that the terms and conditions for the
termination of the contract are the usual and common stipulations in independent
contractorship agreements. In any event, the contention that the totality of the powers
expressly reserved to the company establish company control over the manner and details
of performance is merely speculative and conjectural.
(1) 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;
(2) the right to assign the performance of the work to another; the power to terminate
the relationship;
(3) the existence of a contract for the performance of a specified piece of work;
(4) the control and supervision of the work;
(5) the employer's powers and duties with respect to the hiring, firing, and payment of
the contractor's servants

IMPORTANT NOTES OF THE CASE:

the control of the premises; the duty to supply the premises, tools, appliances, material and
ISSUE: Whether the employees of petitioner company in which case they should be labor, and the mode, manner, and terms of payment.' “whether the employer controls or has
included in the 30% jurisdictional requirement necessary to support the petition for reserved the right to control the employee not only as to the result of the work to be done
certification election, or independent contractors and hence, excluded therefrom but also as to the means and methods by which the same is to be accomplished.

SUMMARY: In the determination of the basic issue raised in the "control test" earlier laid
down in Investment Planning Corp. vs. Social Security System, 21 SCRA 924, and in Social
Security System vs. Hon. Court of Appeals and Shriro (Phils.) Inc., 37 SCRA 579 are
authoritative and controlling.

4 fold-test:
1) the selection and engagement of the employee;
2) the payment of wages;
3) the power of dismissal; and

LABORLAW_W3_DIGEST POOL Page 5 of 28

”5. DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R.
ERISPE, JOEL MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND CRUZ,
FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER ARMADA, EDUARDO UDOG,
PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN and
LYDIA ORTEGA, petitioners, vs. CALIFORNIA MANUFACTURING COMPANY, INC.,
LILY-VICTORIA A. AZARCON, NATIONAL LABOR RELATIONS COMMISSION, and
HON. EMERSON C. TUMANON, respondents.

LABORLAW_W3_DIGEST POOL Page 6 of 28

6. G.R. No. 126586           February 2, 2000

LABORLAW_W3_DIGEST POOL Page 7 of 28

7.JOSE Y. SONZA, petitioner, vs. ABS-CBN BROADCASTING
CORPORATION, respondent.
FACTS:
 In May 1994, respondent ABS-CBN signed an Agreement with the Mel and
Jay Management and Development Corporation ("MJMDC"). 
 Referred to in the Agreement as "AGENT," MJMDC agreed to provide
SONZA's services exclusively to ABS-CBN as talent for radio and television,
specifically as a Co-host for the Mel & Jay radio program and for Mel & Jay
television program.  B. Payment of Wages
 On 1 April 1996, SONZA wrote a letter to ABS-CBN's President, stating that
he irrevocably resigned in view of recent events concerning his programs and
career. 
 Mr. Sonza informed that he was 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.
 On 30 April 1996, SONZA filed a complaint against ABS-CBN before the
DOLE in Quezon City complaining 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").
 ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties because Sonza was an independent
contractor.
 The Labor Arbiter rendered his Decision ruling that a "talent" cannot be
considered as an employee by reason of the peculiar circumstances
surrounding the engagement of his services.
 SONZA appealed to the NLRC. The NLRC rendered a Decision affirming the
Labor Arbiter's decision. 
 The Court of Appeals affirmed the NLRC's finding that no employer-employee
relationship existed between SONZA and ABS-CBN. 
The Issue:
W/N 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.
The Court's Ruling:
NO. We affirm the assailed decision. Case law has consistently held that the elements of an
employer-employee relationship are: (a) the selection and engagement of the employee; (b)
the payment of wages; (c) the power of dismissal; and (d) the employer's power to control
the employee on the means and methods by which the work is accomplished. The last
element, the so-called "control test", is the most important element.   ABS-CBN cancelled SONZA's programs through no fault of SONZA.
A. Selection and Engagement of Employee
LABORLAW_W3_DIGEST POOL
ABS-CBN engaged SONZA's services to co-host its television and radio programs because
of SONZA's peculiar skills, talent and celebrity status. 
Independent contractors often present themselves to possess unique skills, expertise or
talent to distinguish them from ordinary employees. The specific selection and hiring of
SONZA, because of his unique skills, talent and celebrity status not possessed by ordinary
employees, is a circumstance indicative, but not conclusive, of an independent contractual
relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-
CBN would not have entered into the Agreement with SONZA but would have hired him
through its personnel department just like any other employee.
ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to
MJMDC. 
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, . . . and 13th month pay" which the law
automatically incorporates into every employer-employee contract.  Whatever benefits
SONZA enjoyed arose from contract and not because of an employer-employee
relationship. 
SONZA's talent fees, amounting to P317,000 monthly in the second and third year, are so
huge and out of the ordinary that they indicate more an independent contractual relationship
rather than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge
talent fees precisely because of SONZA's unique skills, talent and celebrity status not
possessed by ordinary employees. Obviously, SONZA acting alone possessed enough
bargaining power to demand and receive such huge talent fees for his services. The power
to bargain talent fees way above the salary scales of ordinary employees is a circumstance
indicative, but not conclusive, of an independent contractual relationship.
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.  
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." 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
  
D. Power of Control
Page 8 of 28
Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor. This test is based on the extent
of control the hirer exercises over a worker. The greater the supervision and control the
hirer exercises, the more likely the worker is deemed an employee. The converse holds true
as well — the less control the hirer exercises, the more likely the worker is considered an
independent contractor.
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.  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.  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.
Clearly, ABS-CBN did not exercise control over the means and methods of performance of
SONZA's work.
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.
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.

LABORLAW_W3_DIGEST POOL Page 9 of 28

 8. GREGORIO V. TONGKO, Petitioner, vs. THE MANUFACTURERS LIFE INSURANCE
CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, Respondents.
FACTS:  was not afforded due process. The NLRC ruled that there was an employer-employee
 Taking from the November 2008 decision, the facts are as follows: Manufacturers Life
Insurance, Co. is a domestic corporation engaged in life insurance business. De Dios was
its President and Chief Executive Officer. Petitioner Tongko started his relationship with
Manulife in 1977 by virtue of a Career Agent's Agreement.
 Pertinent provisions of the agreement state 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.
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.
b) 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.
c) 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.
 Sometime in 2001, De Dios addressed a letter to Tongko, then one of the Metro North
Managers, regarding meetings wherein De Dios found Tongko's views and comments to be
unaligned with the directions the company was taking. De Dios also expressed his concern
regarding the Metro North Managers' interpretation of the company's goals. He maintains
that Tongko's allegations are unfounded. Some allegations state that some Managers are
unhappy with their earnings, that they're earning less than what they deserve and that these
are the reasons why Tonko's division is unable to meet agency development objectives.
However, not a single Manager came forth to confirm these allegations. Finally, De Dios
related his worries about Tongko's inability to push for company development and growth.
 De Dios subsequently sent Tongko a letter of termination in accordance with Tongko's
Agents Contract. Tongko filed a complaint with the NLRC against Manulife for illegal
dismissal, alleging that he had an employer-employee relationship with De Dios instead of a
LABORLAW_W3_DIGEST POOL
revocable agency by pointing out that the latter exercised control over him through
directives regarding how to manage his area of responsibility and setting objectives for him
relating to the business. Tongko also claimed that his dismissal was without basis and he
relationship as evidenced by De Dios's letter which contained the manner and means by
which Tongko should do his work. The NLRC ruled in favor of Tongko, affirming the
existence of the employer-employee relationship.
 The Court of Appeals, however, set aside the NLRC's ruling. It applied the four-fold test for
determining control and found the elements in this case to be lacking, basing its decision on
the same facts used by the NLRC. It found that Manulife did not exert control over Tongko,
there was no employer-employee relationship and thus the NLRC did not have jurisdiction
over the case.
 The Supreme Court reversed the ruling of the Court of Appeals and ruled in favor of
Tongko. However, the Supreme Court issued another Resolution dated June 29, 2010,
reversing its decision. Tongko filed a motion for reconsideration, which is now the subject of
the instant case.
ISSUE: Whether or not there is employee and employer relationship
RULING: NO. The Supreme Court finds no reason to reverse the June 29, 2010 decision.
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. The Supreme Court ruled petitioners 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; Manulifes
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.
In the Supreme Courts June 29, 2010 Resolution, they 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
companys insurance products, his collection activities and his delivery of the insurance
contract or policy. 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.
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. Tested by this
norm, Manulifes 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. Manulifes codes of conduct, likewise, do not
necessarily intrude into the insurance agents means and manner of conducting their sales.
Page 10 of 28
Codes of conduct are norms or standards of behavior rather than employer directives into
how specific tasks are to be done.

In sum, the Supreme Court found absolutely no evidence of labor law control. DENIED.

LABORLAW_W3_DIGEST POOL Page 11 of 28

 8. GREGORIO V. TONGKO, Petitioner, vs. THE MANUFACTURERS LIFE INSURANCE
CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, Respondents.
FACTS:
 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 that provided:
 Pertinent provisions of the agreement state 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.
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.
b) 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.
c) 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.
 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.
 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, Tongko
became a Regional Sales Manager.
 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.
LABORLAW_W3_DIGEST POOL
 De Dios addressed a letter to Tongko stating that the former found the latter’s views and
comments unaligned with the directions the company was taking. The allegations stated
that some Managers were unhappy with their earnings. However, no Managers confirmed
the said allegations. De Dios worried about Tongko’s inability to push for the company’s
development and growth.
 Subsequently, de Dios wrote Tongko another letter terminating Tongko’s services. Tongko
responded by filing an illegal dismissal complaint with the 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.
 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 for which he never paid any rental. Manulife provided the office
equipment he used, 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.
 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.
 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 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.
 In the Supreme Court’s Decision of November 7, 2008, the Court reversed the CA ruling
and found that an employment relationship existed between Tongko and Manulife for the
following reasons:
Page 12 of 28
 1. Our ruling in the first Insular 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;
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.
 Manulife disagreed filed the present motion for reconsideration for 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."
LABORLAW_W3_DIGEST POOL
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.
ISSUE: Whether or not there is an existing employer-employee relationship.
RULING: NO. The Supreme Court finds no reason to reverse the June 29, 2010 decision.
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. The Supreme Court ruled petitioners 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; Manulifes
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 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; 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 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.
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
Page 13 of 28
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.
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.
There 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.
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.
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.
According to the Insular Life case, 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
LABORLAW_W3_DIGEST POOL
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.
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.
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.
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:
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.
Page 14 of 28
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. 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. 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.

What 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. 

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.

The 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.

LABORLAW_W3_DIGEST POOL Page 15 of 28

9. SAN MIGUEL CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION and RUSTICO VEGA, respondents.
In line with an Innovation Program sponsored by petitioner San Miguel Corporation
("Corporation;" "SMC") and under which management undertook to grant cash awards to
"all SMC employees ... except [ED-HO staff, Division Managers and higher-ranked
personnel" who submit to the Corporation Ideas and suggestions found to be beneficial to
the Corporation, private respondent Rustico Vega submitted on 23 September 1980 an
innovation proposal. Mr. Vega's proposal was entitled "Modified Grande Pasteurization
Process," and was supposed to eliminate certain alleged defects in the quality and taste of
the product "San Miguel Beer Grande:"
Title of Proposal
Modified Grande Pasteurization Process
Present Condition or Procedure
At the early stage of beer grande production, several cases of beer
grande full goods were received by MB as returned beer fulls (RBF). The
RBF's were found to have sediments and their contents were hazy. These
effects are usually caused by underpasteurization time and the
pasteurzation units for beer grande were almost similar to those of the
steinie.
Proposed lnnovation  (Attach necessary information)
In order to minimize if not elienate underpasteurization of beer grande,
reduce the speed of the beer grande pasteurizer thereby, increasing the
pasteurization time and the pasteurization acts for grande beer. In this
way, the self-life (sic) of beer grande will also be increased. 1
Mr. Vega at that time had been in the employ of petitioner Corporation for thirteen (1 3)
years and was then holding the position of "mechanic in the Bottling Department of the SMC
Plant Brewery situated in Tipolo, Mandaue City.
Petitioner Corporation, however, did not find the aforequoted proposal acceptable and
consequently refused Mr. Vega's subsequent demands for a cash award under the
Innovation Program. On 22 February 1983., a Complaint 2 (docketed as Case No. RAB-VII-
0170-83) was filed against petitioner Corporation with Regional Arbitration Branch No. VII
(Cebu City) of the then.", Ministry of Labor and Employment. Frivate respondent Vega
alleged there that his proposal "[had] been accepted by the methods analyst and
implemented by the Corporation [in] October 1980," and that the same "ultimately and finally
solved the problem of the Corporation in the production of Beer Grande." Private
LABORLAW_W3_DIGEST POOL
respondent thus claimed entitlement to a cash prize of P60,000.00 (the maximum award per
proposal offered under the Innovation Program) and attorney's fees.
In an Answer With Counterclaim and Position Paper, 3 petitioner Corporation alleged that
private respondent had no cause of action. It denied ever having approved or adopted Mr.
Vega's proposal as part of the Corporation's brewing procedure in the production of San
Miguel Beer Grande. Among other things, petitioner stated that Mr. Vega's proposal was
tumed down by the company "for lack of originality" and that the same, "even if implemented
[could not] achieve the desired result." Petitioner further alleged that the Labor Arbiter had
no jurisdiction, Mr. Vega having improperly bypassed the grievance machinery procedure
prescribed under a then existing collective bargaining agreement between management and
employees, and available administrative remedies provided under the rules of the
Innovation Program. A counterclaim for moral and exemplary damages, attorney's fees, and
litigation expenses closed out petitioner's pleading.
In an Order 4 dated 30 April 1986, the Labor Arbiter, noting that the money claim of
complainant Vega in this case is "not a necessary incident of his employment" and that said
claim is not among those mentioned in Article 217 of the Labor Code, dismissed the
complaint for lack of jurisdiction. However, in a gesture of "compassion and to show the
government's concern for the workingman," the Labor Arbiter also directed petitioner to pay
Mr. Vega the sum of P2,000.00 as "financial assistance."
The Labor Arbiter's order was subsequently appealed by both parties, private respondent
Vega assailing the dismissal of his complaint for lack of jurisdiction and petitioner
Corporation questioning the propriety of the award of "financial assistance" to Mr. Vega.
Acting on the appeals, the public respondent National Labor Relations Commission, on 4
September 1987, rendered a Decision, 5 the dispositive portion of which reads:
WHEREFORE, the appealed Order is hereby set aside and another
udgment entered, order the respondent to pay the complainant the
amount of P60,000.00 as explained above.
SO ORDERED.
In the present Petition for certiorari filed on 4 December 1987, petitioner Corporation,
invoking Article 217 of the Labor Code, seeks to annul the Decision of public respondent
Commission in Case No. RAB-VII-01 70-83 upon the ground that the Labor Arbiter and the
Commission have no jurisdiction over the subject matter of the case.
The jurisdiction of Labor Arbiters and the National Labor Relations Commission is outlined
in Article 217 of the Labor Code, as last amended by Batas Pambansa Blg. 227 which took
effect on 1 June 1982:
ART. 217. Jurisdiction of Labor Arbiters and the commission. (a) The
Labor Arbiters shall have the original and exclusive jurisdiction to hear
and decide within thirty (30) working days after submission of the case by
Page 16 of 28
 the parties for decision, the following cases involving are workers,
whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Those that workers may file involving wages, hours
of work and other terms and conditions of employment;
3. All money claims of workers, including those based
on non-payment or underpayment of wages, overtime
compensation, separation pay and other benefits
provided by law or appropriate agreement, except
claims for employees' compensation, social security,
medicare and maternity benefits;
4. Cases involving household services; and
5. Cases arising from any violation of Article 265 of this;
Code, including questions involving the legality of
strikes and lockouts.
(b) The Commission shall have exclusive appellate jurisdiction over all
cases decided by Labor Arbiters. (Emphasis supplied)
While paragraph 3 above refers to "all money claims of workers," it is not necessary to
suppose that the entire universe of money claims that might be asserted by workers against
their employers has been absorbed into the original and exclusive jurisdiction of Labor
Arbiters. In the first place, paragraph 3 should be read not in isolation from but rather within
the context formed by paragraph 1 related to unfair labor practices), paragraph 2 (relating to
claims concerning terms and conditions of employment), paragraph 4 (claims relating to
household services, a particular species of employer-employee relations), and paragraph 5
(relating to certain activities prohibited to employees or to employers).<äre||anº•1àw>  It is
evident that there is a unifying element which runs through paragraphs 1 to 5 and that is,
that they all refer to cases or disputes arising out of or in connection with an employer-
employee relationship. This is, in other words, a situation where the rule of noscitur a sociis
may be usefully invoked in clarifying the scope of paragraph 3, and any other paragraph of
Article 217 of the Labor Code, as amended. We reach the above conclusion from an
examination of the terms themselves of Article 217, as last amended by B.P. Blg. 227, and
even though earlier versions of Article 217 of the Labor Code expressly brought within the
jurisdiction of the Labor Arbiters and the NLRC "cases arising from employer employee
relations," 6 which clause was not expressly carried over, in printer's ink, in Article 217 as it
exists today. For it cannot be presumed that money claims of workers which do not arise out
of or in connection with their employer-employee relationship, and which would therefore fall
within the general jurisdiction of the regular courts of justice, were intended by the legislative
authority to be taken away from the jurisdiction of the courts and lodged with Labor Arbiters
on an exclusive basis. The Court, therefore, believes and so holds that the money claims of
LABORLAW_W3_DIGEST POOL
workers" referred to in paragraph 3 of Article 217 embraces money claims which arise out of
or in connection with the employer-employee relationship, or some aspect or incident of
such relationship. Put a little differently, that money claims of workers which now fall within
the original and exclusive jurisdiction of Labor Arbiters are those money claims which have
some reasonable causal connection with the employer-employee relationship.
Applying the foregoing reading to the present case, we note that petitioner's Innovation
Program is an employee incentive scheme offered and open only to employees of petitioner
Corporation, more specifically to employees below the rank of manager. Without the
existing employer-employee relationship between the parties here, there would have been
no occasion to consider the petitioner's Innovation Program or the submission by Mr. Vega
of his proposal concerning beer grande; without that relationship, private respondent Vega's
suit against petitioner Corporation would never have arisen. The money claim of private
respondent Vega in this case, therefore, arose out of or in connection with his employment
relationship with petitioner.
The next issue that must logically be confronted is whether the fact that the money claim of
private respondent Vega arose out of or in connection with his employment relation" with
petitioner Corporation, is enough to bring such money claim within the original and exclusive
jurisdiction of Labor Arbiters.
In Molave Motor Sales, Inc. v. Laron, 7 the petitioner was a corporation engaged in the sale
and repair of motor vehicles, while private respondent was the sales Manager of petitioner.
Petitioner had sued private respondent for non-payment of accounts which had arisen from
private respondent's own purchases of vehicles and parts, repair jobs on cars personally
owned by him, and cash advances from the corporation. At the pre-trial in the lower court,
private respondent raised the question of lack of jurisdiction of the court, stating that
because petitioner's complaint arose out of the employer-employee relationship, it fell
outside the jurisdiction of the court and consequently should be dismissed. Respondent
Judge did dismiss the case, holding that the sum of money and damages sued for by the
employer arose from the employer-employee relationship and, hence, fell within the
jurisdiction of the Labor Arbiter and the NLRC. In reversing the order of dismissal and
requiring respondent Judge to take cognizance of the case below, this Court, speaking
through Mme. Justice Melencio-Herrera, said:
Before the enactment of BP Blg. 227 on June 1, 1982, Labor Arbiters,
under paragraph 5 of Article 217 of the Labor Code had jurisdiction over"
all other cases arising from employer-employee relation, unless, expressly
excluded by this Code." Even then, the principle followed by this Court
was that, although a controversy is between an employer and an
employee, the Labor Arbiters have no jurisdiction if the Labor Code is not
involved. In Medina vs. Castro-Bartolome, 11 SCRA 597, 604, in negating
jurisdiction of the Labor Arbiter, although the parties were an employer
and two employees, Mr. Justice Abad Santos stated:
The pivotal question to Our mind is whether or not the
Labor Code has any relevance to the reliefs sought by
Page 17 of 28
 the plaintiffs. For if the Labor Code has no relevance,
any discussion concerning the statutes amending it and
whether or not they have retroactive effect is
unnecessary.
It is obvious from the complaint that the plaintiffs have
not alleged any unfair labor practice. Theirs is a simple
action for damages for tortious acts allegedly
committed by the defendants. Such being the case, the
governing statute is the Civil Code and not the Labor
Code. It results that the orders under review are based
on a wrong premise.
And in Singapore Airlines Limited v. Paño, 122 SCRA 671, 677, the
following was said:
Stated differently,  petitioner seeks protection under the
civil laws and claims no benefits under the Labor Code.
The primary relief sought is for liquidated damages for
breach of a contractual obligation. The other items
demanded are not labor benefits demanded by workers
generally taken cognizance of in labor disputes, such
as payment of wages, overtime compensation or
separation pay. The items claimed are the natural
consequences flowing from breach of an obligation,
intrinsically a civil dispute.
In the case below, PLAINTIFF had sued for monies loaned to
DEFENDANT, the cost of repair jobs made on his personal cars, and for
the purchase price of vehicles and parts sold to him. Those accounts
have no relevance to the Labor Code. The cause of action was one under
the civil laws, and it does not breach any provision of the Labor Code or
the contract of employment of DEFENDANT. Hence the civil courts, not
the Labor Arbiters and the NLRC should have jurisdiction. 8
general civil law, the jurisdiction over the dispute belongs to the regular courts of justice and
not to the Labor Arbiter and the NLRC. In such situations, resolution of the dispute requires
expertise, not in labor management relations nor in wage structures and other terms and
conditions of employment, but rather in the application of the general civil law. Clearly, such
claims fall outside the area of competence or expertise ordinarily ascribed to Labor Arbiters
and the NLRC and the rationale for granting jurisdiction over such claims to these agencies
disappears.
Applying the foregoing to the instant case, the Court notes that the SMC Innovation
Program was essentially an invitation from petitioner Corporation to its employees to submit
innovation proposals, and that petitioner Corporation undertook to grant cash awards to
employees who accept such invitation and whose innovation suggestions, in the judgment
of the Corporation's officials, satisfied the standards and requirements of the Innovation
Program 10 and which, therefore, could be translated into some substantial benefit to the
Corporation. Such undertaking, though unilateral in origin, could nonetheless ripen into an
enforceable contractual (facio ut des) 11 obligation on the part of petitioner Corporation
under certain circumstances. Thus, whether or not an enforceable contract, albeit implied
arid innominate, had arisen between petitioner Corporation and private respondent Vega in
the circumstances of this case, and if so, whether or not it had been breached, are
preeminently legal questions, questions not to be resolved by referring to labor legislation
and having nothing to do with wages or other terms and conditions of employment, but
rather having recourse to our law on contracts.
WEREFORE, the Petition for certiorari is GRANTED. The decision dated 4 September 1987
of public respondent National Labor Relations Commission is SET ASIDE and the complaint
in Case No. RAB-VII-0170-83 is hereby DISMISSED, without prejudice to the right of private
respondent Vega to file a suit before the proper court, if he so desires. No pronouncement
as to costs.
SO ORDERED.

It seems worth noting that Medina v. Castro-Bartolome, referred to in the above excerpt,

involved a claim for damages by two (2) employees against the employer company and the
General Manager thereof, arising from the use of slanderous language on the occasion
when the General Manager fired the two (2) employees (the Plant General Manager and the
Plant Comptroller). The Court treated the claim for damages as "a simple action for
damages for tortious acts" allegedly committed by private respondents, clearly if impliedly
suggesting that the claim for damages did not necessarily arise out of or in connection with
the employer-employee relationship. Singapore Airlines Limited v. Paño, also cited
in Molave, involved a claim for liquidated damages not by a worker but by the employer
company, unlike Medina. The important principle that runs through these three (3) cases is
that where the claim to the principal relief sought 9 is to be resolved not by reference to the
Labor Code or other labor relations statute or a collective bargaining agreement but by the

LABORLAW_W3_DIGEST POOL Page 18 of 28

 JURISDICTION
10. PEPSI COLA DISTRIBUTORS OF THE PHILIPPINES, INC., represented by its Plant
General Manager ANTHONY B. SIAN, ELEAZAR LIMBAB, IRENEO BALTAZAR &
JORGE HERAYA, petitioners, vs. HON. LOLITA O. GAL-LANG, SALVADOR NOVILLA,
ALEJANDRO OLIVA, WILFREDO CABAÑAS & FULGENCIO LEGO, respondents
FACTS:
 PRIVATE RESPONDENTS were employees of the PETITIONER PEPSI who were
suspected of complicity in the irregular disposition of empty Pepsi Cola bottles, hence a
criminal complaint of theft which was substituted by a crime of falsification of private
documents which was dismissed after a preliminary investigation.
 After an administrative investigation, PRIVATE RESPONDENTS were dismissed by PEPSI,
thus, a complaint of illegal dismissal before NLRC. They also instituted a civil complaint
before RTC for damages from what they claimed to be their malicious prosecution.
 PEPSI moved to dismiss the civil complaint on the ground that the trial court had no
jurisdiction over the case because it involved employee-employer relations that were
exclusively cognizable by the labor arbiter.
 RTC DECISION: At first, the case was dismissed holding that they indeed no jurisdiction.
However, upon MR, it reinstated the complaint holding that it was "distinct from the labor
case for damages now pending before the labor courts. Hence this case.
 PEPSI’S CONTENTION: PEPSI invoke Article 217 of the Labor Code to support their
position that the PRIVATE RESPONDENTS civil complaint for damages falls under the
jurisdiction of the labor arbiter.
Getz Corporation v. Court of Appeals, where it was held that a court of first
instance had no jurisdiction over the complaint filed by a dismissed employee "for
unpaid salary and other employment benefits, termination pay and moral and
exemplary damages.
ISSUE: Whether or not the civil complaint for damages filed by herein respondents falls
under the jurisdiction of the Labor Arbiter.
RULING: NO. The Court ruled that the civil complaint for damages filed by herein
respondents does not fall under the jurisdiction of the Labor Arbiter.
The Court ruled that the case at bar involves a complaint for damages for malicious
prosecution which was filed with the Regional Trial Court of Leyte by the employees of the
LABORLAW_W3_DIGEST POOL
defendant company. It does not appear that there is a "reasonable causal connection"
between the complaint and the relations of the parties as employer and employees.
The complaint did not arise from such relations and in fact could have arisen independently
of an employment relationship between the parties. No such relationship or any unfair
labor practice is asserted.
What the employees are alleging is that the petitioners acted with bad faith when they filed
the criminal complaint which the Municipal Trial Court said was intended "to harass the poor
employees" and the dismissal of which was affirmed by the Provincial Prosecutor "for lack of
evidence to establish even a slightest probability that all the respondents herein have
committed the crime imputed against them."
THEREFORE, this is a matter which the labor arbiter has no competence to resolve as
the applicable law is not the Labor Code but the Revised Penal Code.
It must be stressed that not every controversy involving workers and their employers can be
resolved only by the labor arbiters. This will be so only if there is a "reasonable causal
connection" between the claim asserted and employee-employer relations to put the
case under the provisions of Article 217. Absent such a link, the complaint will be
cognizable by the regular courts of justice in the exercise of their civil and criminal
jurisdiction.
In Medina v. Castro-Bartolome, two employees filed in the Court of First Instance of Rizal a
civil complaint for damages against their employer for slanderous remarks made against
them by the company president. On the order dismissing the case because it came under
the jurisdiction of the labor arbiters, Justice Vicente Abad Santos said for the Court:
It is obvious from the complaint that the plaintiffs have not alleged any unfair labor
practice. Theirs is a simple action for damages for tortious acts allegedly
committed by the defendants. Such being the case, the governing statute is the
Civil Code and not the Labor Code. It results that the orders under review are
based on a wrong premise.
In Molave Sales, Inc. v. Laron,  the Court held that the claim of the plaintiff against its sales
manager for payment of certain accounts pertaining to his purchase of vehicles and
automotive parts, repairs of such vehicles, and cash advances from the corporation was
properly cognizable by RTC Dagupan and not the labor arbiter, because "although a
controversy is between an employer and an employee, the Labor Arbiters have no
jurisdiction if the Labor Code is not involved."
In San Miguel Corporation v. NLRC,  this case involved a claim of an employee for a
P60,000.00 prize for a proposal made by him which he alleged had been accepted and
Page 19 of 28
implemented by the defendant corporation in the processing of one of its beer products. The
claim was filed with the labor arbiter, who dismissed it for lack of jurisdiction but was
reversed by the NLRC on appeal. In setting aside the appealed decision and dismissing the
complaint, the Court observed through Justice Feliciano:

It is the character of the principal relief sought that appears essential, in this
connection. Where such principal relief is to be granted under labor legislation or a
collective bargaining agreement, the case should fall within the jurisdiction of the
Labor Arbiter and the NLRC, even though a claim for damages might be asserted
as an incident to such claim.

x x x           x x x          x x x

Where the claim to the principal relief sought is to be resolved not by

reference to the Labor Code or other labor relations statute or a collective
bargaining agreement but by the general civil law, the jurisdiction over the
dispute belongs to the regular courts of justice and not to the Labor Arbiter
and the NLRC. In such situations, resolution of the dispute requires expertise, not
in labor management relations nor in wage structures and other terms and
conditions of employment, but rather in the application of the general civil law.
Clearly, such claims fall outside the area of competence or expertise ordinarily
ascribed to Labor Arbiters and the NLRC and the rationale for granting jurisdiction
over such claims to these agencies disappears.

x x x           x x x          x x x

While paragraph 3 above refers to "all money claims of workers," it is not

necessary to suppose that the entire universe of money claims that might be
asserted by workers against their employers has been absorbed into the original
and exclusive jurisdiction of Labor Arbiters.

x x x           x x x          x x x

For it cannot be presumed that money claims of workers which do not arise out of
or in connection with their employer-employee relationship, and which would
therefore fall within the general jurisdiction of the regular courts of justice, were
intended by the legislative authority to be taken away from the jurisdiction of the
courts and lodged with Labor Arbiters on an exclusive basis. The Court, therefore,
believes and so holds that the 'money claims of workers" referred to in
paragraph 3 of Article 217 embraces money claims which arise out of or in
connection with the employer- employee relationship, or some aspect or
incident of such relationship. Put a little differently, that money claims of workers
which now fall within the original and exclusive jurisdiction of Labor Arbiters are
those money claims which have some reasonable causal connection with the
employer-employee relationship (Ibid.).

LABORLAW_W3_DIGEST POOL Page 20 of 28

11. ERNESTO MEDINA and JOSE G. ONG, petitioners, vs. HON. FLORELIANA
CASTRO-BARTOLOME in her capacity as Presiding Judge of the Court of First
Instance Cf Rizal, Branch XV, Makati, Metro Manila, COSME DE ABOITIZ and PEPSI-
COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., respondents.

LABORLAW_W3_DIGEST POOL Page 21 of 28

12. FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY
MAGALLANES AND 4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES and 4
OTHERS, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION),
GENERAL MILLING CORPORATION and/or FELICIANO LUPO, respondents.
The liability of an employer in job contracting, vis-a-vis his contractor's employees, is the
sole issue brought to the fore in this labor dispute.
This Petition for certiorari seeks to set aside the Resolution, dated 27 February 1987, of
public respondent National Labor Relations Commission (NLRC), Third Division, which
reversed the Resolution of its First Division, dated 27 December 1985, and absolved private
respondent General Milling Corporation (GMC) from any and all liability to petitioners.
Sometime in 1983, private respondent Feliciano LUPO, a building contractor, entered into a
contract with GMC, a domestic corporation engaged in flour and feeds manufacturing, for
the construction of an annex building inside the latter's plant in Cebu City. In connection with
the aforesaid contract, LUPO hired herein petitioners either as carpenters, masons or
laborers.
Subsequently, LUPO terminated petitioners' services, on different dates. As a result,
petitioners filed Complaints against LUPO and GMC before the NLRC Regional Arbitration
Branch No. VII, Cebu City, for unpaid wages, COLA differentials, bonus and overtime pay.
In a Decision, dated 21 November 1984, the Executive Labor Arbiter, Branch VII, found
LUPO and GMC jointly and severally liable to petitioners, premised on Article 109 of the
Labor Code,  infra, and ordered them to pay the aggregate amount of P95,382.92. Elevated
on appeal on 14 December 1984, the NLRC (First Division) denied the same for lack of
merit in a Resolution, dated 27 December 1985.
Upon Motion for Reconsideration, filed on 27 February 1986, the case was reassigned to
the Third Division. In a Resolution of 27 February 1987, that Division absolved GMC from
any liability. It opined that petitioners were only hired by LUPO as workers in his
construction contract with GMC and were never meant to be employed by the latter.
Petitioners now assail that judgment in this Petition for Certiorari.
Petitioners contend that GMC is jointly and severally liable with LUPO for the latter's
obligations to them. They seek recovery from GMC based on Article 106 of the Labor
Code, infra, which holds the employer jointly and severally liable with his contractor for
unpaid wages of employees of the latter.
In his "Manifestation in lieu of Comment," the Solicitor General recognizes the solidary
liability of GMC and LUPO but bases recovery on Article 108 of the Labor
Code, infra, contending that inasmuch as GMC failed to require them LUPO a bond to
LABORLAW_W3_DIGEST POOL
answer for the latter's obligations to his employees, as required by said provision, GMC
should, correspondingly, be deemed solidarily liable.
In their respective Comments, both GMC and the NLRC maintain that Article 106 finds no
application in the instant case because it is limited to situations where the work being
performed by the contractor's employees are directly related to the principal business of the
employer. The NLRC further opines that Article 109 on "Solidary Liability" finds no
application either because GMC was neither petitioners' employer nor indirect employer.
Upon the facts and circumstances, we uphold the solidary liability of GMC and LUPO for the
latter's liabilities in favor of employees whom he had earlier employed and dismissed.
Recovery, however, should not be based on Article 106 of the Labor Code. This provision
treats specifically of "labor-only" contracting, which is not the set-up between GMC and
LUPO.
Article 106 provides:
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.
x x x           x x x          x x x
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 (Emphasis supplied).
In other words, a person is deemed to be engaged in "labor only" contracting where (1) 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 (2) the
workers recruited and placed by such person are performing activities which are directly
Page 22 of 28
related to the principal business of such employer (See Section 9, Rule VIII, Book III of the
Omnibus Rules Implementing the Labor Code; emphasis supplied).
Since the construction of an annex building inside the company plant has no relation
whatsoever with the employer's business of flour and feeds manufacturing, "labor-only"
contracting does not exist. Article 106 is thus inapplicable.
Instead, it is "job contracting," covered by Article 107, which is involved, reading:
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. (Emphasis supplied).
Specifically, there is "job contracting" where (1) the contractor carries on an independent
business and undertakes the contract work on his own account under his own responsibility
according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to
the results thereof; and (2) the contractor has substantial capital or investment in the form of
tools, equipment, machineries, work premises, and other materials which are necessary in
the conduct of his business. It may be that LUPO subsequently ran out of capital and was
unable to satisfy the award to petitioners. That was an after-the-fact development, however,
and does not detract from his status as an independent contractor.
Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a contract
with an independent contractor, LUPO, for the construction of an annex building, a work,
task, job or project not directly related to GMC's business of flour and feeds manufacturing.
Being an "indirect employer," GMC is solidarily liable with LUPO for any violation of the
Labor Code pursuant to Article 109 thereof, reading:
Art. 109. Solidary Liability. — The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible with
a 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.
The provision of existing law referred to is Article 1728 of the Civil Code, which states,
among others, that "the contractor is liable for all the claims of laborers and others
employed by him ..."
The foregoing interpretation finds a precedent in the case o Deferia v. NLRC (G.R. No.
78713, 27 February 1991) per Sarmiento, J., where Articles 107 and 109 were applied as
the statutory basis for the joint and several liability of the employer with his contractor, in
addition to Article 106, since the situation in that case was clearly one of "labor-only"
contracting.
LABORLAW_W3_DIGEST POOL
The NLRC submission that Article 107 is not applicable in the instant case for the reason
that the coverage thereof is limited to one "not an employer" whereas GMC is such an
employer as defined in Article 97 (b) of the Labor Code, 1 is not well-taken. Under the
peculiar set-up herein, GMC is, in fact, "not an employer" (in the sense of not being a direct
employer) as understood in Article 106 of the Labor Code, but qualifies as an "indirect
employer" under Article 107 of said Code.
The distinction between Articles 106 and 107 was in the fact that Article 106 deals with
"labor-only" contracting. Here, by operation of law, the contractor is merely considered as an
agent of the employer, who is deemed "responsible to the workers to the same extent as if
the latter were directly employed by him." On the other hand, Article 107 deals with  "job
contracting." In the latter situation, while the contractor himself is the direct employer of the
employees, the employer is deemed, by operation of law, as an indirect employer.
In other words, the phrase "not an employer" found in Article 107 must be read in
conjunction with Article 106. A contrary interpretation would render the provisions of Article
107 meaningless considering that everytime an employer engages a contractor, the latter is
always acting in the interest of the former, whether directly or indirectly, in relation to his
employees.
It should be recalled that a finding that a contractor is a "labor-only" contractor is equivalent
to declaring that there is an employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor (Associated Anglo-American
Tobacco Corp. v. Clave, G.R. No. 50915, 30 August 1990, 189 SCRA 127; Industrial Timber
Corp. v. NLRC, G.R. No. 83616, 20 January 1989, 169 SCRA 341). This is evidently
because, as heretofore stated, the "labor-only" contractor is considered as a mere agent of
an employer. In contrast, in "job contracting," no employer-employee relationship exists
between the owner and the employees of his contractor. The owner of the project is not the
direct employer but merely an indirect employer, by operation of law, of his contractor's
employees.
As an indirect employer, and for purposes of determining the extent of its civil liability, GMC
is deemed a "direct employee" of his contractor's employees pursuant to the last sentence
of Article 109 of the Labor Code. As a consequence, GMC can not escape its joint and
solidary liability to petitioners.
Further, Article 108 of the Labor Code requires the posting of a bond to answer for wages
that a contractor fails to pay, thus:
Article 108. Posting of Bond. — An employer or indirect employer may require the
contractor or subcontractor to furnish a bond equal to the cost of labor under
contract, on condition that the bond will answer for the wages due the employees
showed the contractor or subcontractor, as the case may be, fails to pay the same.
Page 23 of 28
Having failed to require LUPO to post such a bond, GMC must answer for whatever
liabilities LUPO may have incurred to his employees. This is without prejudice to its seeking
reimbursement from LUPO for whatever amount it will have to pay petitioners.
WHEREFORE, the Petition for certiorari is GRANTED. The Resolution of respondent NLRC,
Third Division, dated 27 February 1987, is hereby SET ASIDE, and the Decision of the
Labor Arbiter, dated 21 November 1984, is hereby REINSTATED.
SO ORDERED.
13.DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, LABOR ARBITER ISABEL P. ORTIGUERRA, and LABOR
ALLIANCE FOR NATIONAL DEVELOPMENT, respondents.
DEVELOPMENT BANK OF THE PHILIPPINES vs. NLRC
 Private respondents were hired as security guards by Confidential Investigation
and Security Corporation ("CISCOR") on 19 May 1981, 21 August 1984, 22
January 1985, and 27 November 1985, respectively.  doubt, liable to pay such benefits because the law mandates the joint and several liability of
 In the course of their employment, private respondents were assigned to secure
the premises of CISCOR's clients, among them, the herein petitioner, Development
Bank of the Philippines ("DBP") which, in turn, assigned private respondents to
secure one of its properties or assets, the Riverside Mills Corporation.
 On 11 August 1987, private respondent Villanueva resigned from CISCOR. On 15
August 1987, private respondents Morillo, Bacea and Cos followed suit in resigning
from CISCOR. Thereafter, private respondents claimed from CISCOR the return of
their cash bond and payment of their 13th month pay and service incentive leave
pay.  several liability facilities, if not guarantees, payment of the workers' performance of
 For failure of CISCOR to grant their claims, private respondents Villanueva and
Cos filed against CISCOR and its President/Manager Ernesto Medina with
the NLRC.
 Private respondents alleged that they tender their resignations in August 1987
upon the assurance of CISCOR that they would be paid the cash benefits due
them. 
 For failure of CISCOR to comply, private respondents claimed violations committed
by CISCOR and Medina, specifically, the non-payment of their 13th month pay, five
(5) day service incentive leave pay from the date of employment to the time of their
separation, non-refund of their cash bond, non-payment of legal holiday pay and
rest pay day.  any other relief, in respect of his opponent's claim" (emphasis ours).Since Rule I,
 CISCOR filed a motion with leave to implead petitioner bank that in view of its
contract with the petitioner whereby, for a certain service fee, CISCOR undertook
to guard petitioner's premises, both CISCOR and petitioner, under the Labor Code,
are jointly and severally liable to pay the salaries and other statutory benefits due
the private respondents.
 The Labor Arbiter granted the motion and rendered a decision ordering the
respondents CISCOR, Mr. Ernesto Medina and DBP to pay the complainants the
LABORLAW_W3_DIGEST POOL
corresponding salary differential due them to be computed for the last three (3)
years from the time they stopped working, and for CISCOR to return to the
complainants their respective cash bond.
 In its Resolution, the NLRC held the petitioner DPB, CISCOR and Medina, as
jointly and severally liable, 
ISSUE:
Whether or not the NLRC (or the Labor Arbiter) correctly applied Article 106 of
the Labor Code.
RULING:
YES. Petitioner's interpretation of Article 106 of the Labor Code is quite misplaced. Nothing
in said Article 106 indicates that insolvency or unwillingness to pay by the contractor or
direct employer is a prerequisite for the joint and several liability of the principal or indirect
employer. In fact, the rule is that in job contracting, the principal is jointly and severally liable
with the contractor. The statutory basis for this joint and several liability is set forth
in Articles 107 to 109 in relation to Article 106 of the Labor Code. There is no doubt that
private respondents are entitled to the cash benefits due them. The petitioner is also, no
the principal and the contractor for the protection of labor. In Eagle Security Agency,
Inc. vs.  NLRC,this Court, explaining the aforesaid liability, held:
"This joint and several liability of the contractor and the principal is mandated by
the Labor Code to assure compliance of the provisions therein including the
statutory minimum wage [Article 99, Labor Code]. The contractor 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's employees for purposes of paying the
employees their wages should the contractor be unable to pay them. This joint and
any work, task, job or project, thus giving the workers ample protection as
mandated by the 1987 Constitution [See Article II Sec. 18 and Article XIII Sec. 3]."  
Neither may petitioner argue that it was not properly impleaded and hence, should not be
made liable to the claims of private respondents. On this matter, petitioner cannot be
absolved from responsibility. We sustain respondent Commission's holding that:
"Anent the Bank's first issue, what we actually have here is a "Third-Party
Complaint",defined by Section 12, Rule 6 of the Rules of Court as "a claim that a
defending party may, with leave of court, file against a person not a party to the
action, called the  third-party defendant, for contribution, indemnity, subrogation or
Section 3 of our 1986 Revised NLRC Rules adopts suppletorily the Rules of Court"
in the interest of expeditious labor justice and whenever practicable and
convenient" with the Security Agency's impleading the Bank for indemnity and
subrogation considering that the complainants worked with the Bank "to safeguard
their premises, properties and their person" (Record, p. 76),such a third-party
complaint would therefore be proper. That the bank has not disputed liability on the
admitted claims, but professes merely subsidiary, instead of solidary liability, we
find its position here all the more, untenable."  
Page 24 of 28
WHEREFORE, premises considered, the questioned resolution of the respondent NLRC is
hereby AFFIRMED.

LABORLAW_W3_DIGEST POOL Page 25 of 28

14. VIRGINIA G. NERI and JOSE CABELIN, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and
BUILDING CARE CORPORATION, respondents.
Respondents are sued by two employees of Building Care Corporation, which provides
janitorial and other specific services to various firms, to compel Far Bast Bank and Trust
Company to recognize them as its regular employees and be paid the same wages which
its employees receive.
Building Care Corporation (BCC, for brevity), in the proceedings below, established that it
had substantial capitalization of P1 Million or a stockholders equity of P1.5 Million. Thus the
Labor Arbiter ruled that BCC was only job contracting and that consequently its employees
were not employees of Far East Bank and Trust Company (FEBTC, for brevity). on appeal,
this factual finding was affirmed by respondent National Labor Relations Commission
(NLRC, for brevity). Nevertheless, petitioners insist before us that BCC is engaged in "labor-
only" contracting hence, they conclude, they are employees of respondent FEBTC.
Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were hired by,
respondent BCC, a corporation engaged in providing technical, maintenance, engineering,
housekeeping, security and other specific services to its clientele. They were assigned to
work in the Cagayan de Oro City Branch of respondent FEBTC on 1 May 1979 and 1
August 1980, respectively, Neri an radio/telex operator and Cabelin as janitor, before being
promoted to messenger on 1 April 1989.
On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before
Regional Arbitration Branch No. 10 of the Department of Labor and Employment to compel
the bank to accept them as regular employees and for it to pay the differential between the
wages being paid them by BCC and those received by FEBTC employees with similar
length of service.
On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of
merit.1 Respondent BCC was considered an independent contractor because it proved it
had substantial capital. Thus, petitioners were held to be regular employees of BCC, not
FEBTC. The dismissal was appealed to NLRC which on 28 September 1990 affirmed the
decision on appeal.2 On 22 October 1990, NLRC denied reconsideration of its
affirmance,3 prompting petitioners to seek redress from this Court.
Petitioners vehemently contend that BCC in engaged in "labor-only" contracting because it
failed to adduce evidence purporting to show that it invested in the form of tools, equipment,
machineries, work premises and other materials which are necessary in the conduct of its
business. Moreover, petitioners argue that they perform duties which are directly related to
the principal business or operation of FEBTC. If the definition of "labor-only" contracting 4 is
to be read in conjunction with job contracting,5 then the only logical conclusion is that BCC is
a "labor only" contractor. Consequently, they must be deemed employees of respondent
bank by operation of law since BCC is merely an agent of FEBTC following the doctrine laid
LABORLAW_W3_DIGEST POOL
down in Philippine Bank of Communications v. National Labor Relations
Commission6 where we ruled that where "labor-only" contracting exists, the Labor Code
itself establishes an employer-employee relationship between the employer and the
employees of the "labor-only" contractor; hence, FEBTC should be considered the employer
of petitioners who are deemed its employees through its agent, "labor-only" contractor BCC.
We cannot sustain the petition.
Respondent BCC need not prove that it made investments in the form of tools, equipment,
machineries, work premises, among others, because it has established that it has sufficient
capitalization. The Labor Arbiter and the NLRC both determined that BCC had a capital
stock of P1 million fully subscribed and paid for. 7 BCC is therefore a highly capitalized
venture and cannot be deemed engaged in "labor-only" contracting.
It is well-settled that there is "labor-only" contracting where: (a) 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, (b) the workers recruited and
placed by such person are performing activities which are directly related to the principal
business of the employer.8
Article 106 of the Labor Code defines "labor-only" contracting thus —
Art. 106. Contractor or subcontractor. — . . . . 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 by
such persons are performing activities which are directly related to the
principal business of such employer . . . . (emphasis supplied).
Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it has
substantial capital. While there may be no evidence that it has investment in the form of
tools, equipment, machineries, work premises, among others, it is enough that it has
substantial capital, as was established before the Labor Arbiter as well as the NLRC. In
other words, the law does not require both substantial capital and investment in the form of
tools, equipment, machineries, etc. This is clear from the use of the conjunction "or". If the
intention was to require the contractor to prove that he has both capital and the requisite
investment, then the conjunction "and" should have been used. But, having established that
it has substantial capital, it was no longer necessary for BCC to further adduce evidence to
prove that it does not fall within the purview of "labor-only" contracting. There is even no
need for it to refute petitioners' contention that the activities they perform are directly related
to the principal business of respondent bank.
Be that as it may, the Court has already taken judicial notice of the general practice adopted
in several government and private institutions and industries of hiring independent
contractors to perform special services.9 These services range from
Page 26 of 28
janitorial, 10 security 11 and even technical or other specific services such as those performed
by petitioners Neri and Cabelin. While these services may be considered directly related to
the principal business of the employer, 12 nevertheless, they are not necessary in the
conduct of the principal business of the employer.
In fact, the status of BCC as an independent contractor was previously confirmed by this
Court in Associated Labor Unions-TUCP v. National Labor Relations Commission, 13 where
we held thus —
The public respondent ruled that the complainants are not employees of
the bank but of the company contracted to serve the bank. Building Care
Corporation is a big firm which services, among others, a university, an
international bank, a big local bank, a hospital center, government
agencies, etc. It is a qualified independent contractor. The public
respondent correctly ruled against petitioner's contentions . . . . (Emphasis
supplied).
Even assuming ex argumenti  that petitioners were performing activities directly related to
the principal business of the bank, under the "right of control" test they must still be
considered employees of BCC. In the case of petitioner Neri, it is admitted that FEBTC
issued a job description which detailed her functions as a radio/telex operator. However, a
cursory reading of the job description shows that what was sought to be controlled by
FEBTC was actually the end-result of the task, e.g., that the daily incoming and outgoing
telegraphic transfer of funds received and relayed by her, respectively, tallies with that of the
register. The guidelines were laid down merely to ensure that the desired end-result was
achieved. It did not, however, tell Neri how the radio/telex machine should be operated. In
the Shipside case, 14 we ruled —
. . . . If in the course of private respondents' work (referring to the
workers), SHIPSIDE occasionally issued instructions to them, that alone
does not in the least detract from the fact that only STEVEDORES is the
employer of the private respondents, for in legal contemplation, such
instructions carry no more weight than mere requests, the privity of
contract being between SHIPSIDE and STEVEDORES . . . .
Besides, petitioners do not deny that they were selected and hired by BCC before being
assigned to work in the Cagayan de Oro Branch of FFBTC. BCC likewise acknowledges
that petitioners are its employees. The record is replete with evidence disclosing that BCC
maintained supervision and control over petitioners through its Housekeeping and Special
Services Division: petitioners reported for work wearing the prescribed uniform of BCC;
leaves
of absence were filed directly with BCC; and, salaries were drawn only from BCC. 15
As a matter of fact, Neri even secured a certification from BCC on 16 May 1986 that she
was employed by the latter. On the other hand, on 24 May 1988, Cabelin filed a complaint
for underpayment of wages, non-integration of salary adjustments mandated by Wage
Orders Nos. 5 & 6 and R.A. 6640 as well as for illegal deduction 16 against BCC alone which
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was provisionally dismissed on 19 August 1988 upon Cabelin's manifestation that his
money claim was negligible. 17
More importantly, under the terms and conditions of the contract, it was BCC alone which
had the power to reassign petitioners. Their deployment to FEBTC was not subject to the
bank's acceptance. Cabelin was promoted to messenger because the FEBTC branch
manager promised BCC that two (2) additional janitors would be hired from the company if
the promotion was to be effected. 18 Furthermore, BCC was to be paid in lump sum unlike in
the situation in Philippine Bank of Communications  19 where the contractor, CESI, was to be
paid at a daily rate on a per person basis. And, the contract therein stipulated that the CESI
was merely to provide manpower that would render temporary services. In the case at bar,
Neri and Cabelin were to perform specific special services. Consequently, petitioners
cannot be held to be employees of FEBTC as BCC "carries an independent business" and
undertaken the performance of its contract with various clients according to its "own manner
and method, free from the control and supervision" of its principals in all matters "except as
to the results thereof." 20
Indeed, the facts in Philippine Bank of Communications do not square with those of the
instant case. Therein, the Court ruled that CESI was a "labor-only" contractor because
upholding the contract between the contractor and the bank would in effect permit
employers to avoid the necessity of hiring regular or permanent employees and would
enable them to keep their employees indefinitely on a temporary or casual basis, thus
denying them security of tenure in their jobs. This of course violates the Labor Code. BCC
has not committed any violation. Also, the former case was for illegal dismissal; this case,
on the other hand, is for conversion of employment status so that petitioners can receive the
same salary being given to regular employees of FEBTC. But, as herein determined,
petitioners are not regular employees of FEBTC but of BCC. At any rate, the finding that
BCC in a qualified independent contractor precludes us from applying the Philippine Bank of
Communications  doctrine to the instant petition.
The determination of employer-employee relationship involves factual findings. 21 Absent
any grave abuse of discretion, and we find none in the case before us, we are bound by the
findings of the Labor Arbiter as affirmed by respondent NLRC.
IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.
SO ORDERED.
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15.SAN MIGUEL CORPORATION EMPLOYEES UNION-PTGWO, DANIEL S.L. BORBON
II, HERMINIA REYES, MARCELA PURIFICACION, ET AL., petitioners, vs.
HON. JESUS G. BERSAMIRA, IN HIS CAPACITY AS PRESIDING JUDGE OF BRANCH
166, RTC, PASIG, and SAN MIGUEL CORPORATION, respondents.

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