Determining the existence of an employer-employee relationship

Cases:

a.) What is the importance of determining whether an employer-employee

relationship exists?

 Brotherhood Labor Unity Movement of the Philippines, et al. vs. Zamora,

et al.: That San Miguel has the power to recommend penalties or dismissal is
the strongest indication of the company’s right of control over the workers as
direct employer. In determining the existence of an employer-employee
relationship, the elements that are generally considered are the following:
(a) the selection and engagement of the employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employer's power to control the employee with respect to the
means and methods by which the work is to be accomplished.

Facts:

The petitioners are workers who have been employed at the San Miguel Parola Glass
Factory as “pahinantes” or “kargadors” for almost seven years. They worked exclusively
at the SMC plant, never having been assigned to other companies or departments of
San Miguel Corp, even when the volume of work was at its minimum. Their work was
neither regular nor continuous, depending on the volume of bottles to be loaded and
unloaded, as well as the business activity of the company. However, work exceeded the
eight-hour day and sometimes, necessitated work on Sundays and holidays. -for this,
they were neither paid overtime nor compensation.

Sometime in 1969, the workers organized and affiliated themselves with Brotherhood
Labor Unity Movement (BLUM). They wanted to be paid to overtime and holiday pay.
They pressed the SMC management to hear their grievances. BLUM filed a notice of
strike with the Bureau of Labor Relations in connection with the dismissal of some of its
members. San Miguel refused to bargain with the union alleging that the workers are
not their employees but the employees of an independent labor contracting firm,
Guaranteed Labor Contractor.

The workers were then dismissed from their jobs and denied entrance to the glass
factory despite their regularly reporting for work. A complaint was filed for illegal
dismissal and unfair labor practices.

Issue:

Whether or not there was employer-employee (ER-EE) relationship between the

workers and San Miguel Corporation.
Ruling:

Yes. In determining the existence of an employer-employee relationship, the elements

that are generally considered are the following:
(a) the selection and engagement of the employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employer's power to control the employee with respect to the means and
methods by which the work is to be accomplished.

It is the called "control test" that is the most important element.

In the case, the records fail to show that San Miguel entered into mere oral agreements
of employment with the workers. Considering the length of time that the petitioners have
worked with the company, there is justification to conclude that they were engaged to
perform activities necessary in the usual business or trade. Despite past shutdowns of
the glass plant, the workers promptly returned to their jobs. The term of the petitioner’s
employment appears indefinite and the continuity and habituality of the petitioner’s work
bolsters the claim of an employee status.

As for the payment of the workers’ wages, the contention that the independent
contractors were paid a lump sum representing only the salaries the workers where
entitled to have no merit. The amount paid by San Miguel to the contracting firm is no
business expense or capital outlay of the latter. What the contractor receives is a
percentage from the total earnings of all the workers plus an additional amount from the
earnings of each individual worker.

The power of dismissal by the employer was evident when the petitioners had already
been refused entry to the premises. It is apparent that the closure of the warehouse was
a ploy to get rid of the petitioners, who were then agitating the company for reforms and
benefits.

The inter-office memoranda submitted in evidence prove the company’s control over the
workers. That San Miguel has the power to recommend penalties or dismissal is the
strongest indication of the company’s right of control over the workers as direct
employer.

SC ordered San Miguel to reinstate the petitioners with 3 years backwages.

 Lapanday Agricultural Development Corporation vs. CA: 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.
Facts:

Commando Security Service Agency, Inc., and defendant Lapanday Agricultural

Development Corporation entered into a Guard Service Contract. Plaintiff provided
security guards in defendant’s banana plantation.

Subsequently, a wage order was issued, with the stipulation that the increase in wages
for security services would be borne by the client/principal, in this case Lapanday. The
latter refused to amend the contract to conform to the wage order, and the said contract
ran through its natural life and expired, without the required adjustments having been
made.

The security agency then filed a case for the collection of a sum of money with the
regional Trial Court that had jurisdiction over the case. Lapanday opposed, stating the
NLRC was the proper forum for the case.

Issue:

1. Whether or not RTC has jurisdiction

2. Whether or not petitioner is liable to the private respondent for the wage
adjustments provided under Wage Order Nos. 5 and 6 and for attorney’s fees

Ruling:

1. Yes. It is well settled in law and jurisprudence that where no employer-employee

relationship exists between the parties and no issue is involved which may be
resolved by reference to the Labor Code, other labor statutes or any collective
bargaining agreement, it is the Regional Trial Court that has jurisdiction.

In its complaint, private respondent is not seeking any relief under the Labor
Code but seeks payment of a sum of money and damages on account of
petitioners alleged breach of its obligation under their Guard Service Contract.
The action is within the realm of civil law hence jurisdiction over the case belongs
to the regular courts.

While the resolution of the issue involves the application of labor laws, reference
to the labor code was only for the determination of the solidary liability of the
petitioner to the respondent where no employer-employee relation exists. Article
217 of the Labor Code as amended vests upon the labor arbiters exclusive
original jurisdiction only over the following:

1. Unfair labor practices;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers
may file involving wages, rates of pay, hours of work and other terms and
conditions of employment;
 4. Claims for actual, moral exemplary and other forms of damages arising
from employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including
questions involving legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare
and maternity benefits, all other claims, arising from employer-employee
relations, including those of persons in domestic or household service,
involving an amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for reinstatement.

In all these cases, an employer-employee relationship is an indispensable

jurisdictional requisite; and there is none in this case.

2. No. Private respondent admits that there is no employer-employee relationship

between it and the petitioner. The private respondent is an independent/job
contractor who assigned security guards at the petitioners premises for a
stipulated amount per guard per month. The Contract of Security Services
expressly stipulated that the security guards are employees of the Agency and
not of the petitioner.

Articles 106 and 107 of the Labor Code provides the rule governing the payment
of wages of employees in the event that the contractor fails to pay such wages as
follows:

"Art. 106. Contractor or subcontractor. Whenever an employer enters into a

contract with another person for the performance of the formers work, the
employees of the contractor and of the latter’s subcontractor, if any, shall be paid
in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.

b.) What are the tests to determine the existence of an employment relationship?

 What is the four-fold test?

 Viaña vs. Al-Lagadan and Piga: In determining the existence of employer-

employee relationship, the following elements are generally considered,
namely:
(1) the selection and engagement of the employee;
(2) the payment of wages;
(3) the power of dismissal;
(4) the power to control the employees’ conduct
Facts:

The fishing sailboat “Magkapatid”, owned by Anastacio Viana, had a collision with a
U.S. Navy vessel and sunk to the waters. Alejandro Al-Lagadan, a member of the crew
of the former disappeared with the craft.

Workmen’s Compensation Commission ordered Anastacio Viana to pay the claimants,

Alejo Al-Lagadan and Filomena Piga. Petioner said, however, that this case does not
fall within the purview of Act No. 3428, because Alejandro Al-Lagadan was, at the time
of his death, industrial partner, not his employee. He further contended that they were in
a share basis— owner of the vessel, on one hand receives one-half of the earnings of
the sailboat, the other half is divided pro rata among the members of the crew.

The trial referee said, as well as the Workmen’s Compensation Commission that there
was an employer-employee relation between the Respondent and the deceased,
Alejandro Al-Lagadan, and the share which the deceased received at the end of each
trip was in the nature of ‘wages’ which is defined under section 39 of the Compensation
Act. This is so because such share could be reckoned in terms of money.

In other words, there existed the relation of employer and employee between the
Respondent and Alejandro Al-Lagadan at the time of the latter’s death.

Issue:

Whether or not the mere fact that a person’s share in the understanding “could be
reckoned in terms of money”, sufficed to characterize him as an employee of another.

Ruling:

No. However, petitioner’s theory to the effect that the deceased was his partner, not an
employee, simply because he (the deceased) shared in the profits, not in the losses
cannot be accepted.

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

are generally considered, namely:
(1) the selection and engagement of the employee;
(2) the payment of wages;
(3) the power of dismissal;
(4) the power to control the employees’ conduct — although the latter is the most
important element.

Assuming that the share received by the deceased could partake of the nature of wages
and that the second element, therefore, exists in the case at bar, the record does not
contain any specific data regarding the third and fourth elements.
Furthermore, the report contained that the patron selects and engages the crew, and
also, that the members thereof are subject to his control and may be dismissed by him.
To put it differently, the literal import of said report is open to the conclusion that the
crew has a contractual relation, not with the owner of the vessel, but with the patron,
and that the latter, not the former, is either their employer or their partner.

 Selection and Engagement

 Is the stipulation of the parties controlling?

 Tabas vs. California Manufacturing Co, Inc.: The existence of an

employer-employee relation cannot be made the subject of an agreement.

Facts:

Petitioners filed a petition in the NLRC for reinstatement and payment of various
benefits against California Manufacturing Company. The respondent company then
denied the existence of an employer-employee relationship between the company and
the petitioners.

Pursuant to a manpower supply agreement, it appears that the petitioners prior to their
involvement with California Manufacturing Company were employees of Livi Manpower
service, an independent contractor, which assigned them to work as “promotional
merchandisers.” The agreement provides that:

California “has no control or supervisions whatsoever over [Livi’s] workers with respect
to how they accomplish their work or perform [California’s] obligation” It was further
expressly stipulated that the assignment of workers to California shall be on a “seasonal
and contractual basis”; that “[c]ost of living allowance and the 10 legal holidays will be
charged directly to [California] at cost’; and that “[p]ayroll for the preceding [sic] week
[shall] be delivered by [Livi] at [California’s] premises.”

Issue:

Whether or not principal employer is liable.

Ruling:

Yes. The existence of an employer-employee relation cannot be made the subject of an

agreement.

Based on Article 106, “labor-only” contractor is considered merely as an agent of the

employer, and the liability must be shouldered by either one or shared by both.
There is no doubt that in the case at bar, Livi performs “manpower services”, meaning
to say, it contracts out labor in favor of clients. We hold that it is one notwithstanding its
vehement claims to the contrary, and notwithstanding the provision of the contract that it
is “an independent contractor.” The nature of one’s business is not determined by self-
serving appellations one attaches thereto but by the tests provided by statute and
prevailing case law. The bare fact that Livi maintains a separate line of business does
not extinguish the equal fact that it has provided California with workers to pursue the
latter’s own business.

In this connection, we do not agree that the petitioners had been made to perform
activities ‘which are not directly related to the general business of
manufacturing,” California’s purported “principal operation activity.”

Livi, as a placement agency, had simply supplied California with the manpower
necessary to carry out its (California’s) merchandising activities, using its (California’s)
premises and equipment.

 Valeroso vs. Skycable Corp.: Indeed, "[t]he presence of [the] power of

control is indicative of an employment relationship while the absence
thereof is indicative of independent contractorship." Moreover, evidence
on record reveal the existence of independent contractorship between the
parties.

Facts:

Antonio Valeroso and Allan Legatona alleged that they started working on Nov. 1, 1998
and July 13, 1998, respectively, as account executives tasked to solicit cable
subscriptions for respondent Skycable Corp.

They received commissions ranging from P15,000 to P530,000 each upon reaching a
specific quota every month and an allowance of P6,500 to P7,000 per month. From
being direct hires of respondent, they were transferred on Jan. 1, 2007 to Skill Plus
Manpower Services. In February 2009, they were informed that their commissions
would be reduced due to the introduction of prepaid cards sold to cable subscribers
resulting in lower monthly cable subscriptions.

On the other hand, respondent claimed that it did not terminate the services of
petitioners for there was never an employer-employee relationship between them. It
averred that in 1998, respondent engaged petitioners as independent contractors under
a sales agency agreement. In 2007, it decided to streamline its operations and instead
of contracting with numerous independent account executives such as petitioners,
respondent engaged the services of an independent contractor, Armada Resources &
Marketing Solutions, Inc., formerly Skill Plus Manpower Services.

Petitioners, however, assailed the allegation that they were employees of Armada,
claiming that they were directly hired, paid and dismissed by respondent. They cited the
following as indicators that they are under the direct control and supervision of
respondent:
1) respondent's officers supervise their area of work, monitor them daily, update them of
new promos and installations they need to work on, inform them of meetings and
penalize them for non-attendance, ask them to train new agents/account executives,
and inform them of new prices and expiration dates of product promos;
2) respondent's supervisors delegate to them authority to investigate, campaign against
and legalize unlawful cable connections;
3) respondent's supervisors monitor their quota production and impose guaranteed
charges as penalty for failing to meet their quota; and
4) respondent consistently gives trophies to award them of their outstanding
performance.

As a result, petitioners’ contracts were terminated but they, together with other sales
executives, were transferred to Armada, which became their employer. In 2009,
respondent and Armada again entered into a sales agency agreement wherein
petitioners were again tasked to solicit accounts/generate sales for respondent.

Issue:

Whether or not petitioners were respondent’s regular employees, whose dismissal from
employment was illegal.

Ruling:

No. The evidence presented by petitioners did not prove their claim that they were
employees of respondent. The certifications issued by De la Cuesta are not competent
evidence of employer-employee relation as these merely certified that respondent had
engaged the services of petitioners without specifying the true nature of such
engagement. These documents did not certify that petitioners were employees but were
only issued to accommodate petitioners' request for loan applications, which fact was
not refuted by petitioners.

As for the payslips presented, it appears that only the payslips for the years 2001 to
2006 were submitted. No payslips for the years material to this case (2007 to 2009)
were submitted. It is undisputed that petitioners were transferred to Armada in 2007,
thus, we cannot give much credence to the payslips issued before this period.

Respondent's act of regularly updating petitioners of new promos, new price listings,
meetings and trainings of new account executives; imposing quotas and penalties; and
giving commendations for meritorious performance do not pertain to the means and
methods of how petitioners were to perform and accomplish their task of soliciting cable
subscriptions. At most, these indicate that respondent regularly monitors the result of
petitioners' work but in no way dictate upon them the manner in which they should
perform their duties. Absent any intrusion by respondent into the means and manner of
conducting petitioners' tasks, bare assertion that petitioners' work was supervised and
monitored does not suffice to establish employer-employee relationship.

In the present case, there is a written contract, i.e., the Sales Agency Agreement, which
served as the primary evidence of the nature of the parties' relationship. In this duly
executed and signed agreement, petitioners and respondent unequivocally agreed that
petitioners' services were to be engaged on an agency basis as sales account
executives and that no employer-employee relationship is created but an independent
contractorship. It is therefore clear that the intention at the time of the signing of the
agreement is not to be bound by an employer-employee relationship. At any rate, even
if we are to apply the two-tiered test pronounced in the Francisco case, there can still
be no employer-employee relationship since, as discussed, the element of control is
already absent.

Indeed, "[t]he presence of [the] power of control is indicative of an employment

relationship while the absence thereof is indicative of independent
contractorship." Moreover, evidence on record reveal the existence of independent
contractorship between the parties.

As mentioned, the Sales Agency Agreement provided the primary evidence of such
relationship. "While the existence of employer-employee relationship is a matter of law,
the characterization made by the parties in their contract as to the nature of their
juridical relationship cannot be simply ignored, particularly in this case where the parties'
written contract unequivocally states their intention" to be strictly bound by independent
contractorship.

Petitioner Legatona, in fact, in his Release and Quitclaim, acknowledged that he was
performing sales activities as sales agent/independent contractor and not an employee
of respondent. In the same token, De la Cuesta and Navasa, made sworn testimonies
that petitioners are employees of Armada which is an independent contractor engaged
to provide marketing services for respondent.

 Are job titles controlling?

 Sevilla vs. CA: The fact that Sevilla had been designated 'branch
manager" does not make her, ergo, Tourist World's employee. As we said,
employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.

Facts:

Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc.,
represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred
to as appellants, the Tourist World Service, Inc. leased the premises belonging to the
party of the first part at Mabini St., Manila for the former-s use as a branch office.
In the said contract the party of the third part held herself solidarily liable with the party
of the part for the prompt payment of the monthly rental agreed on. When the branch
office was opened, the same was run by the herein appellant Una 0. Sevilla payable to
Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs.
Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist
World Service, Inc.

On November 24, 1961 the Tourist World Service, Inc. appears to have been informed
that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and,
since the branch office was anyhow losing, the Tourist World Service considered
closing down its office.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees
and after the issues were joined, the reinstated counterclaim of Segundina Noguera and
the new complaint of appellant Lina Sevilla were jointly heard following which the court
ordered both cases dismiss for lack of merit.

In her appeal, Lina Sevilla claims that a joint business venture was entered into by and
between her and appellee TWS with offices at the Ermita branch office and that she
was not an employee of the TWS to the end that her relationship with TWS was one of
a joint business venture appellant made declarations.

Issue:

Whether or not the padlocking of the premises by the Tourist World Service, Inc. without
the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of
damages prayed for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and without the
consent of the appellant disconnected the telephone lines of the Ermita branch office of
the appellee Tourist World Service, Inc.

Ruling:

The trial court held for the private respondent on the premise that the private
respondent, Tourist World Service, Inc., being the true lessee, it was within its
prerogative to terminate the lease and padlock the premises. It likewise found the
petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and
as such, she was bound by the acts of her employer. The respondent Court of Appeal
rendered an affirmance.

In this jurisdiction, there has been no uniform test to determine the evidence of an
employer-employee relation. In general, we have relied on the so-called right of control
test, "where the person for whom the services are performed reserves a right to control
not only the end to be achieved but also the means to be used in reaching such end."
Subsequently, however, we have considered, in addition to the standard of right-of
control, the existing economic conditions prevailing between the parties, like the
inclusion of the employee in the payrolls, in determining the existence of an employer-
employee relationship.

The records will show that the petitioner, Lina Sevilla, was not subject to control by the
private respondent Tourist World Service, Inc., either as to the result of the enterprise or
as to the means used in connection therewith. In the first place, under the contract of
lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as
and for rental payments, an arrangement that would be like claims of a master-servant
relationship. True the respondent Court would later minimize her participation in the
lease as one of mere guaranty, that does not make her an employee of Tourist World,
since in any case, a true employee cannot be made to part with his own money in
pursuance of his employer's business, or otherwise, assume any liability thereof. In that
event, the parties must be bound by some other relation, but certainly not employment.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she
retained 4% in commissions from airline bookings, the remaining 3% going to Tourist
World. Unlike an employee then, who earns a fixed salary usually, she earned
compensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo,
Tourist World's employee. As we said, employment is determined by the right-of-control
test and certain economic parameters. But titles are weak indicators.

 Is the nature of the services performed controlling?

 Phil. Global Communications, Inc. vs. De Vera: The parties themselves

practically agreed on every terms and conditions of De Vera’s engagement,
which thereby negates the element of control in their relationship.

Facts:

Petitioner Philippine Global Communications, Inc. (PhilCom), is a corporation engaged

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

Ricardo De Vera wrote a letter and offered his services to Philippine Global
Communications wherein he proposed his plan of works required of a practitioner of
industrial medicine. The 2 parties agreed and entered a Retainership Contract which
was renewed yearly from 1981-1996.

In December 1996, Phil Global Comm wrote a letter informing De Vera that such
contract will be discontinued. De Vera filed a case of Illegal Dismissal.

Issue:
Whether or not there is an employer-employee relationship between the petitioner and
respondent.

Ruling:

No. The Court, in determining the existence of an employer-employee relationship, has

invariably adhered to the four-fold test:

[1] the selection and engagement of the employee;

[2] the payment of wages;
[3]the power of dismissal; and
[4] the power to control the employee's conduct, or the so-called "control test",
considered to be the most important element.

Applying the four-fold test to this case, the Court initially finds that it was De Vera
himself who sets the parameters of what his duties would be in offering his services to
Phil Global Comm. This is evidenced by no less than his May 1981 letter. Phil Global
Comm. had no control over the means and methods by which De Vera went about
performing his work at the company premises. He could even embark in the private
practice of his profession, not to mention the fact that De Vera’s work hours and the
additional compensation therefor were negotiated upon by the parties.

The parties themselves practically agreed on every terms and conditions of De Vera’s
engagement, which thereby negates the element of control in their relationship.

The element of control is absent from the parties’ arrangement. Such element of control
is where the employer has reserved the right to control not only as to the result of the
work done but also as to the means and methods by which the same is to be
accomplished.

 But note par. 4 of Article 106: There is "labor-only" contracting where the
person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises,
among others, and the workers recruited and placed by such person are
performing activities which are directly related to the principal business of
such employer. In such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible to the workers
in the same manner and extent as if the latter were directly employed by him.

and

 Section 5(a)(iii) of DOLE Department Order 174-17: The contractor’s or

subcontractor’s employees recruited and placed are performing activities
which are directly related to the main business operation of the principal.
  Is the ability to negotiate controlling?

 Sonza vs. ABS-CBN Broadcasting Corporation: 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.

Facts:

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

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

On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III
about the recent event concerning his program and career, and that the said violation of
the company has breached the agreement, thus, the notice of rescission of the
Agreement was sent.

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

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

Issue:

Whether or not SONZA is an employee.

Ruling:

No. Applying the control test to the present case, we find that SONZA is not an
employee but 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.

SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which
contracted out his services to ABS-CBN. The Labor Arbiter ruled that as a talent of
MJMDC, SONZA is not an employee of ABS-CBN. SONZA insists that MJMDC is a
“labor-only” contractor and ABS-CBN is his employer.

In a labor-only contract, there are three parties involved:

(1) the “labor-only” contractor;
(2) the employee who is ostensibly under the employ of the “labor-only” contractor; and
(3) the principal who is deemed the real employer.

Under this scheme, the “labor-only” contractor is the agent of the principal. The law
makes the principal responsible to the employees of the “labor-only contractor” as if the
principal itself directly hired or employed the employees. These circumstances are not
present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA
and ABS-CBN. MJMDC merely acted as SONZA’s agent. The Agreement expressly
states that MJMDC acted as the “AGENT” of SONZA. The records do not show that
MJMDC acted as ABS-CBN’s agent. MJMDC, which stands for Mel and Jay
Management and Development Corporation, is a corporation organized and owned by
SONZA and TIANGCO. The President and General Manager of MJMDC is SONZA
himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and
managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement with
SONZA, who himself is represented by MJMDC. That would make MJMDC the agent
of both ABS-CBN and SONZA.

 Payment of Wages
  Domasig vs. NLRC: The nature of petitioner's employment with private
respondents is vital to the case as it will determine the monetary benefits
to which he is entitled.

Facts:

The complaint was instituted by Eddie Domasig against respondent Cata Garments
Corporation, a company engaged in garments business and its owner/manager Otto
Ong and Catalina Co for illegal dismissal, unpaid commission and other monetary
claims.

Complainant alleged that he started working with the respondent on July 6, 1986 as
Salesman when the company was still named Cato Garments Corporation; that three
(3) years ago, because of a complaint against respondent by its workers, it changed its
name to Cata Garments Corporation; and that on August 29, 1992, he was dismissed
when respondent learned that he was being pirated by a rival corporation which offer he
refused.

Prior to his dismissal, complainant alleged that he was receiving a salary of P1,500.00 a
month plus commission. On September 3, 1992 he filed the instant complaint.

Respondent denied complainant's claim that he is a regular employee contending that

he is a mere commission agent who receives a commission of P5.00 per piece of article
sold at regular price and P2.50 per piece sold in bargain price; that in addition to
commission, complainant received a fixed allowance of P1,500.00 a month; that he had
no regular time schedule; and that the company come into existence only on September
17, 1991.

Issue:

Whether or not petitioner Domasig is an employee.

Ruling:

Yes. Having been in the employ of private respondents continuously for more than one
year, under the law, petitioner is considered a regular employee. Proof beyond
reasonable doubt is not required as a basis for judgment on the legality of an employer's
dismissal of an employee, nor even preponderance of evidence for that matter,
substantial evidence being sufficient. Petitioner's contention that private respondents
terminated his employment due to their suspicion that he was being enticed by another
firm to work for it was not refuted by private respondents.

In a business establishment, an identification card is usually provided not only as a

security measure but mainly to identify the holder thereof as a bona fide employee of
the firm that issues it. Together with the cash vouchers covering petitioner's salaries for
the months stated therein, we agree with the labor arbiter that these matters constitute
substantial evidence adequate to support a conclusion that petitioner was indeed an
employee of private respondent.

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

An ordinary employee would consider the SSS payments important and

thus make sure they would be paid. The complainant never bothered to
ask the respondent to remit his SSS contributions. This clearly shows that
the complainant never considered himself an employee of PHILCOM and
thus, respondent need not remit anything to the SSS in favor of the
complainant.

Any agreement may provide that one party shall render services for and in
behalf of another, no matter how necessary for the latter's business, even
without being hired as an employee. This set-up is precisely true in the
case of an independent contractorship as well as in an agency agreement.

 Is the method of computing controlling?

 Jardin vs. NLRC: The fact that the drivers do not receive fixed wages is
not sufficient to withdraw the relationship from that of employer and
employee. The termination of employment must be effectuated in
accordance with law.

Facts:

Petitioners were drivers of private respondent, Philjama International Inc., a domestic

corporation engaged in the operation of "Goodman Taxi." Petitioners used to drive
private respondents’ taxicabs every other day on a 24-hour work schedule under the
boundary system.

Under this arrangement, the petitioners earned an average of P400.00 daily.

Nevertheless, private respondent admittedly regularly deducts from petitioners’ daily
earnings the amount of P30.00 supposedly for the washing of the taxi units. Believing
that the deduction is illegal, petitioners decided to form a labor union to protect their
rights and interests.

Upon learning about the plan of petitioners, private respondent refused to let petitioners
drive their taxicabs when they reported for work on August 6, 1991, and on succeeding
days. Petitioners suspected that they were singled out because they were the leaders
and active members of the proposed union.

Aggrieved, petitioners filed with the labor arbiter a complaint against private respondent
for unfair labor practice, illegal dismissal and illegal deduction of washing fees.

LA: Dismissed for Lack of Merit

NLRC: Declared that petitioners are employees of private respondent. On

reconsideration however, the decision was reversed by the NLRC tribunal and held that
no employer-employee relationship between the parties exists.

Issue:

Whether or not petitioner taxi drivers are employees of respondent company.

Ruling:

Yes. In a number of cases decided by this Court, we ruled that the relationship between
jeepney owners/operators on one hand and jeepney drivers on the other under the
boundary system is that of employer-employee and not of lessor-lessee.

We explained that in the lease of chattels, the lessor loses complete control over the
chattel leased although the lessee cannot be reckless in the use thereof, otherwise he
would be responsible for the damages to the lessor.

In the case of jeepney owners/operators and jeepney drivers, the former exercise
supervision and control over the latter. The management of the business is in the
owner’s hands. The owner as holder of the certificate of public convenience must see to
it that the driver follows the route prescribed by the franchising authority and the rules
promulgated as regards its operation.

Now, the fact that the drivers do not receive fixed wages but get only that in excess of
the so-called "boundary" they pay to the owner/operator is not sufficient to withdraw the
relationship between them from that of employer and employee. We have applied by
analogy the above stated doctrine to the relationships between bus owner/operator and
bus conductor, auto-calesa owner/operator and driver, and recently between taxi
owners/operators and taxi driver.

With regard to the amount deducted daily by private respondent from petitioners for
washing of the taxi units, we view the same as not illegal in the context of the law. We
note that after a tour of duty, it is incumbent upon the driver to restore the unit he has
driven to the same clean condition when he took it out. Car washing after a tour of duty
is indeed a practice in the taxi industry and is in fact dictated by fair play. Hence, the
drivers are not entitled to reimbursement of washing charges.
Hence, petitioners are undoubtedly employees of private respondent because as taxi
drivers they perform activities which are usually necessary or desirable in the usual
business or trade of their employer.

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

Under the Rules Implementing the Labor Code, every employer is

required to pay his employees by means of payroll. The payroll should
show, among other things, the employee’s rate of pay, deductions made,
and the amount actually paid to the employee.

Facts:

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

cartons and other packaging materials for export and distribution. The petitioner, Pedro
Chavez, was a truck driver (from October 25, 1984) tasked to deliver the respondent
company’s products to its various customers.

The respondent furnished petitioner with a truck that all deliveries were made in
accordance with the routing slips issued by the respondent company indicating the
order, time and urgency of delivery.

In 1992, the petitioner expressed his desire to avail the benefits that a regular employee
was receiving such as overtime pay, nightshift differential pay, and 13th month pay,
among others but nothing was complied.

On February 20, 1995, petitioner filed a complaint for regularization with the Regional
Arbitration Branch No. III of NLRC in San Fernando, Pampanga. Before the case could
be heard, respondent terminated the services of the petitioner.

Hence, the petitioner filed an amended complaint for illegal dismissal, unfair labor
practice and non-payment of overtime pay, nightshift differential, and 13th month pay,
among others.

Issue:

Whether or not there exists an employer-employee relationship.

Ruling:

Yes, an employer-employee do exist.

The elements to determine the existence of an employment relationship are:

(1) the selection and engagement of the employee;
(2) the payment of wages;
(3) the power of dismissal; and
(4) the employer’s power to control the employee’s conduct.

The most important element is the employer’s control of the employee’s conduct, not
only as to the result of the work to be done, but also as to the means and methods to
accomplish it.

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

Second. Wages are defined as “remuneration or earnings, however designated,

capable of being expressed in terms of money, whether fixed or ascertained on a time,
task, piece or commission basis, or other method of calculating the same, which is
payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered. The
petitioner is paid on a per trip basis is not significant. This is merely a method of
computing compensation.

Third. The respondent’s power to dismiss the petitioner was inherent in the fact that
they engaged the services of the petitioner as truck driver. They exercised this power by
terminating the petitioner’s services albeit in the guise of severance of contractual
relation due allegedly to the latter’s breach of his contractual obligation.

Fourth. Compared to an employee, an independent contractor is one who carries on a

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

Hence while an independent contractor enjoys independence and freedom from the
control and supervision of his principal. An employee is subject to the employer’s power
to control the means and methods by which the employee’s work is to be performed and
accomplished. A careful review of the records shows that the latter performed his work
under the respondents’ supervision and control.

The existence of an employer-employee relationship cannot be negated by expressly

repudiating it in a contract and providing therein that the employee is an independent
contractor when the facts clearly show otherwise. Employment status is defined by law
and not by what the parties say it should be.
  Tan vs. Lagrama, et al: Payment by result is a method of compensation
and does not define the essence of the relation. It is a method of
computing compensation, not a basis for determining the existence or
absence of employer-employee relationship. One may be paid on the
basis of results or time expended on the work, and may or may not
acquire an employment status, depending on whether the elements of an
employer-employee relationship are present or not.

Facts:

Lagrama works for Tan as painter of billboards and murals for the motion pictures
shown at the theaters managed by Tan for more than 10 years. Lagrama was dismissed
for having urinated in his working area. Lagrama filed a complaint for illegal dismissal
and non-payment of benefits. Tan asserted that Lagrama was an independent
contractor as he was paid in piece-work basis.

Issue:

Whether or not Lagrama is an employee.

Ruling:

Yes, Lagrama is an employee. That Lagrama worked for Tan on a fixed piece-work
basis is of no moment. Payment by result is a method of compensation and does not
define the essence of the relation. It is a method of computing compensation, not a
basis for determining the existence or absence of employer-employee relationship. One
may be paid on the basis of results or time expended on the work, and may or may not
acquire an employment status, depending on whether the elements of an employer-
employee relationship are present or not.

 Is the amount controlling?

 Sonza vs. ABS-CBN Broadcasting Corp: The right of labor to security of

tenure as guaranteed in the Constitution arises only if there is an
employer-employee relationship under labor laws. Not every performance
of services for a fee creates an employer-employee relationship. To hold
that every person who renders services to another for a fee is an
employee - to give meaning to the security of tenure clause - will lead to
absurd results.

 Power of dismissal

 Tan vs. Lagrama, et al: To begin, the employer has the burden of proving
the lawfulness of his employee’s dismissal. The validity of the charge must
be clearly established in a manner consistent with due process.
 The Implementing Rules of the Labor Code provide that no worker shall
be dismissed except for a just or authorized cause provided by law and
after due process. This provision has two aspects:
(1) the legality of the act of dismissal, that is, dismissal under the grounds
provided for under Article 282 of the Labor Code and
(2) the legality in the manner of dismissal.

The illegality of the act of dismissal constitutes discharge without just

cause, while illegality in the manner of dismissal is dismissal without due
process.

 Chavez vs. NLRC, et al: As a rule, the employer bears the burden to
prove that the dismissal was for a valid and just cause. In this case, the
respondents failed to prove any such cause for the petitioner’s dismissal.
They insinuated that the petitioner abandoned his job.

To constitute abandonment, these two factors must concur:

(1) the failure to report for work or absence without valid or justifiable
reason; and
(2) a clear intention to sever employer-employee relationship.

Obviously, the petitioner did not intend to sever his relationship with the
respondent company for at the time that he allegedly abandoned his job,
the petitioner just filed a complaint for regularization, which was forthwith
amended to one for illegal dismissal. A charge of abandonment is totally
inconsistent with the immediate filing of a complaint for illegal dismissal,
more so when it includes a prayer for reinstatement.

 Sonza vs. ABS-CBN Broadcasting Corp: 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.

 Power of control

 SSS vs. CA: In other words, where the element of control is absent;
where a person who works for another does so more or less at his own
pleasure and is not subject to definite hours or conditions of work, and in
turn is compensated according to the result of his effort, the relationship of
employer-employee does not exist.

Facts:
QTC, formerly U.S. Tobacco Corporation, is a firm engaged in the manufacture and sale
of cigarettes. On August 12, 1972, QTC, as VENDOR, entered into an agreement with
CARREON, as VENDEE.

QTC assigned a definite sales territory for Romeo Carreon; QTC provided Romeo
Carreon with a delivery truck for the exclusive use of the latter in his sales activities;
QTC dictated the price of the cigarettes sold by Romeo Carreon; QTC prescribed what
brand of cigarettes Romeo Carreon could sell; QTC determined the persons to whom
Romeo Carreon could sell, QTC issued circulars and memoranda relative to Romeo
Carreon's sales activities; QTC required Romeo Carreon to submit to it daily, weekly
and monthly reports; QTC grounded Romeo Carreon for six months in 1966; Romeo
Carreon was supervised by sales coordinators of QTC; Romeo Carreon was subject to
payment of damages and loss even of accrued rights for any violation of instructions
made by QTC in relation to his sales activities; and Romeo Carreon was paid an
allowance by QTC. All these indicate control and supervision over Carreon's work.

CARREON filed a petition with the Social Security Commission alleging that he was an
employee of QTC, and asking that QTC be ordered to report him for coverage under the
Social Security Law QTC answered claiming that CARREON has not been an employee
but was an 'Independent businessman.' The Social Security System intervened and,
taking the side of CARREON, also asked that QTC be ordered to pay Social Security
contributions in respect of CARREON.

Issue:

Whether or not Romeo Carreon is an employee

Ruling:

Yes. Applying the control test, that is, whether the employer controls or has reserved
the right to control the employee not only as to the result of the work to be done but also
as to the means and method by which the same is to be accomplished, the question of
whether or not there is an employer-employee relationship for purposes of the Social
Security Act has been settled in this jurisdiction.

In other words, where the element of control is absent; where a person who works for
another does so more or less at his own pleasure and is not subject to definite hours or
conditions of work, and in turn is compensated according to the result of his effort, the
relationship of employer-employee does not exist.

 Royal Homes Marketing v. Alcantara: Not every form of control is

indicative of employer-employee relationship. A person who performs
work for another and is subjected to its rules, regulations, and code of
ethics does not necessarily become an employee. As long as the level of
control does not interfere with the means and methods of accomplishing
 the assigned tasks, the rules imposed by the hiring party on the hired
party do not amount to the labor law concept of control that is indicative of
employer-employee relationship.

Facts:

In 1994, Royale Homes, a corporation engaged in marketing real estates, appointed

Alcantara as its Marketing Director for a fixed period of one year. His work consisted
mainly of marketing Royale Homes’ real estate inventories on an exclusive basis.
Royale Homes reappointed him for several consecutive years, the last of which covered
the period January 1 to December 31, 2003 where he held the position of Division 5
Vice-President-Sales.

In December 17, 2003, Alcantara filed a Complaint for Illegal Dismissal.

Royale Homes, on the other hand, vehemently denied that Alcantara is its employee. It
argued that the appointment paper of Alcantara is clear that it engaged his services as
an independent sales contractor for a fixed term of one year only. He never received
any salary, 13th month pay, overtime pay or holiday pay from Royale Homes as he was
paid purely on commission basis. In addition, Royale Homes had no control on how
Alcantara would accomplish his tasks and responsibilities as he was free to solicit sales
at any time and by any manner which he may deem appropriate and necessary. He is
even free to recruit his own sales personnel to assist him in pursuance of his sales
target.

Issue:

Whether or not Alcantara was an independent contractor.

Ruling:

Yes. The juridical relationship of the parties based on their written contract.

The primary evidence of the nature of the parties’ relationship in this case is the written
contract that they signed and executed in pursuance of their mutual agreement. While
the existence of employer-employee relationship is a matter of law, the characterization
made by the parties in their contract as to the nature of their juridical relationship cannot
be simply ignored, particularly in this case where the parties’ written contract
unequivocally states their intention at the time they entered into it.

In this case, the contract, duly signed and not disputed by the parties, conspicuously
provides that "no employer-employee relationship exists between" Royale Homes and
Alcantara, as well as his sales agents. It is clear that they did not want to be bound by
employer-employee relationship at the time of the signing of the contract.
Not every form of control is indicative of employer-employee relationship. A person who
performs work for another and is subjected to its rules, regulations, and code of ethics
does not necessarily become an employee. As long as the level of control does not
interfere with the means and methods of accomplishing the assigned tasks, the rules
imposed by the hiring party on the hired party do not amount to the labor law concept of
control that is indicative of employer-employee relationship.

 Brotherhood Labor Unity Movement of the Philippines, et al. vs.

Zamora, et al., supra.: That San Miguel has the power to recommend
penalties or dismissal is the strongest indication of the company’s right of
control over the workers as direct employer.

 Tan v. Lagrama, et al: The Bureau of Working Conditions classifies

workers paid by results into two groups, namely:

(1) those whose time and performance is supervised by the employer, and
(2) those whose time and performance is unsupervised by the employer.

The first involves an element of control and supervision over the manner
the work is to be performed, while the second does not. If a piece worker
is supervised, there is an employer-employee relationship, as in this case.

 Orozco v. CA, et al.: Where a person who works for another performs his
job more or less at his own pleasure, in the manner he sees fit, not subject
to definite hours or conditions of work, and is compensated according to
the result of his efforts and not the amount thereof, no employer-employee
relationship exists.

Facts:

In March 1990, PDI engaged the services of petitioner to write a weekly column for its
Lifestyle section. She religiously submitted her articles every week, except for a six-
month stint in New York City when she, nonetheless, sent several articles through mail.
She received compensation of P250.00 – later increased to P300.00 – for every column
published.

On November 7, 1992, petitioner’s column appeared in the PDI for the last time.
Petitioner claims that her then editor, Ms. Lita T. Logarta, told her that respondent
Leticia Jimenez Magsanoc, PDI Editor in Chief, wanted to stop publishing her column
for no reason at all and advised petitioner to talk to Magsanoc herself. Petitioner
narrates that when she talked to Magsanoc, the latter informed her that it was PDI
Chairperson Eugenia Apostol who had asked to stop publication of her column, but that
in a telephone conversation with Apostol, the latter said that Magsanoc informed her
(Apostol) that the Lifestyle section already had many columnists.
On the other hand, PDI claims that in June 1991, Magsanoc met with the Lifestyle
section editor to discuss how to improve said section. They agreed to cut down the
number of columnists by keeping only those whose columns were well-written, with
regular feedback and following. In their judgment, petitioner’s column failed to improve,
continued to be superficially and poorly written, and failed to meet the high standards of
the newspaper. Hence, they decided to terminate petitioner’s column.

Aggrieved by the newspaper’s action, petitioner filed a complaint for illegal dismissal,
backwages, moral and exemplary damages, and other money claims before the NLRC.

Issue:

Whether or not petitioner is an employee of PDI.

Ruling:

No. Petitioner has not shown that PDI, acting through its editors, dictated how she was
to write or produce her articles each week. Aside from the constraints presented by the
space allocation of her column, there were no restraints on her creativity; petitioner was
free to write her column in the manner and style she was accustomed to and to use
whatever research method she deemed suitable for her purpose. The apparent
limitation that she had to write only on subjects that befitted the Lifestyle section did not
translate to control, but was simply a logical consequence of the fact that her column
appeared in that section and therefore had to cater to the preference of the readers of
that section.

Contrary to petitioner’s protestations, it does not appear that there was any actual
restraint or limitation on the subject matter – within the Lifestyle section – that she could
write about. Respondent PDI did not dictate how she wrote or what she wrote in her
column. Neither did PDI’s guidelines dictate the kind of research, time, and effort she
put into each column. In fact, petitioner herself said that she received "no comments on
her articles…except for her to shorten them to fit into the box allotted to her column."
Therefore, the control that PDI exercised over petitioner was only as to the finished
product of her efforts, i.e., the column itself, by way of either shortening or outright
rejection of the column.

The newspaper’s power to approve or reject publication of any specific article she wrote
for her column cannot be the control contemplated in the "control test," as it is but
logical that one who commissions another to do a piece of work should have the right to
accept or reject the product. The important factor to consider in the "control test" is still
the element of control over how the work itself is done, not just the end result thereof.

Where a person who works for another performs his job more or less at his own
pleasure, in the manner he sees fit, not subject to definite hours or conditions of work,
and is compensated according to the result of his efforts and not the amount thereof, no
employer-employee relationship exists.
  Valeroso v. Skycable Corp.: Respondent's act of regularly updating
petitioners of new promos, new price listings, meetings and trainings of
new account executives; imposing quotas and penalties; and giving
commendations for meritorious performance do not pertain to the means
and methods of how petitioners were to perform and accomplish their task
of soliciting cable subscriptions. At most, these indicate that respondent
regularly monitors the result of petitioners' work but in no way dictate upon
them the manner in which they should perform their duties. Absent any
intrusion by respondent into the means and manner of conducting
petitioners' tasks, bare assertion that petitioners' work was supervised and
monitored does not suffice to establish employer-employee relationship.

 Bernate v. PBA: Generally, "if an employer has the right to control and
direct the work of an individual, not only as to the result to be achieved,
but also as to details by which the result is achieved, an
employer/employee relationship is likely to exist."

Facts:

Complainants (Jose Mel Bernarte and Renato Guevarra) aver that they were invited to
join the PBA as referees. During the leadership of Commissioner Emilio Bernardino,
they were made to sign contracts on a year-to-year basis. During the term of
Commissioner Eala, however, changes were made on the terms of their employment.

Complainant Bernarte, for instance, was not made to sign a contract during the first
conference of the All-Filipino Cup which was from February 23, 2003 to June 2003. It
was only during the second conference when he was made to sign a one and a half
month contract for the period July 1 to August 5, 2003.

On January 15, 2004, Bernarte received a letter from the Office of the Commissioner
advising him that his contract would not be renewed citing his unsatisfactory
performance on and off the court. It was a total shock for Bernarte who was awarded
Referee of the year in 2003. He felt that the dismissal was caused by his refusal to fix a
game upon order of Ernie De Leon.

On the other hand, complainant Guevarra alleges that he was invited to join the PBA
pool of referees in February 2001. On March 1, 2001, he signed a contract as trainee.
Beginning 2002, he signed a yearly contract as Regular Class C referee. On May 6,
2003, respondent Martinez issued a memorandum to Guevarra expressing
dissatisfaction over his questioning on the assignment of referees officiating out-of-town
games. Beginning February 2004, he was no longer made to sign a contract.

Respondents aver, on the other hand, that complainants entered into two contracts of
retainer with the PBA in the year 2003. The first contract was for the period January 1,
2003 to July 15, 2003; and the second was for September 1 to December 2003. After
the lapse of the latter period, PBA decided not to renew their contracts.

Complainants were not illegally dismissed because they were not employees of the
PBA. Their respective contracts of retainer were simply not renewed. PBA had the
prerogative of whether or not to renew their contracts, which they knew were fixed.

Issue:

Whether or not petitioner is an employee.

Ruling:

No. The following circumstances indicate that petitioner is an independent contractor:

(1) the referees are required to report for work only when PBA games are scheduled,
which is three times a week spread over an average of only 105 playing days a year,
and they officiate games at an average of two hours per game; and (2) the only
deductions from the fees received by the referees are withholding taxes.

In other words, unlike regular employees who ordinarily report for work eight hours per
day for five days a week, petitioner is required to report for work only when PBA games
are scheduled or three times a week at two hours per game. In addition, there are no
deductions for contributions to the Social Security System, Philhealth or Pag-Ibig, which
are the usual deductions from employees’ salaries. These undisputed circumstances
buttress the fact that petitioner is an independent contractor, and not an employee of
respondents.

Furthermore, the applicable foreign case law declares that a referee is an independent
contractor, whose special skills and independent judgment are required specifically for
such position and cannot possibly be controlled by the hiring party.

In Yonan v. United States Soccer Federation, Inc., the United States District Court of
Illinois held that plaintiff, a soccer referee, is an independent contractor, and not an
employee of defendant which is the statutory body that governs soccer in the United
States. As such, plaintiff was not entitled to protection by the Age Discrimination in
Employment Act. The U.S. District Court ruled:

Generally, "if an employer has the right to control and direct the work of an individual,
not only as to the result to be achieved, but also as to details by which the result is
achieved, an employer/employee relationship is likely to exist." The Court must be
careful to distinguish between "control[ling] the conduct of another party contracting
party by setting out in detail his obligations" consistent with the freedom of contract, on
the one hand, and "the discretionary control an employer daily exercises over its
employee’s conduct" on the other.
For a hired party to be considered an employee, the hiring party must have control over
the means and methods by which the hired party is to perform his work, which is absent
in this case. The continuous rehiring by PBA of petitioner simply signifies the renewal of
the contract between PBA and petitioner, and highlights the satisfactory services
rendered by petitioner warranting such contract renewal. Conversely, if PBA decides to
discontinue petitioner’s services at the end of the term fixed in the contract, whether for
unsatisfactory services, or violation of the terms and conditions of the contract, or for
whatever other reason, the same merely results in the non-renewal of the contract, as in
the present case. The non-renewal of the contract between the parties does not
constitute illegal dismissal of petitioner by respondents.

 Air Material Wing Savings and Loan Association, Inc. vs. NLRC, et
al.: A lawyer, like any other professional, may very well be an employee of
a private corporation or even of the government. It is not unusual for a big
corporation to hire a staff of lawyers as its in-house counsel, pay them
regular salaries, rank them in its table of organization, and otherwise treat
them like its other officers and employees. At the same time, it may also
contract with a law firm to act as outside counsel on a retainer basis. The
two classes of lawyers often work closely together but one group is made
up of employees while the other is not. A similar arrangement may exist as
to doctors, nurses, dentists, public relations practitioners and other
professionals.

Facts:

Private respondent Luis S. Salas was appointed "notarial and legal counsel" for
petitioner Air Material Wings Savings and Loan Association (AMWSLAI) in 1980. The
appointment was renewed for three years in an implementing order dated January 23,
1987.

On January 9, 1990, the petitioner issued another order reminding Salas of the
approaching termination of his legal services under their contract. This prompted Salas
to lodge a complaint against AMWSLAI for separation pay, vacation and sick leave
benefits, cost of living allowances, refund of SSS premiums, moral and exemplary
damages, payment of notarial services rendered from February 1, 1980 to March 2,
1990, and attorney's fees.

Instead of filing an answer, AMWSLAI moved to dismiss for lack of jurisdiction. It

averred that there was no employer-employee relationship between it and Salas and
that his monetary claims properly fell within the jurisdiction of the regular courts. Salas
opposed the motion and presented documentary evidence to show that he was indeed
an employee of AMWSLAI.

Issue:

Whether or not Salas is an employee.

Ruling:

Yes. The terms and conditions set out in the letter-contract entered into by the parties
on January 23, 1987, clearly show that Salas was an employee of the petitioner. His
selection as the company counsel was done by the board of directors in one of its
regular meetings. The petitioner paid him a monthly compensation/retainer's fee for his
services.

Though his appointment was for a fixed term of three years, the petitioner reserved its
power of dismissal for cause or as it might deem necessary for its interest and
protection. No less importantly, AMWSLAI also exercised its power of control over Salas
by defining his duties and functions as its legal counsel, to wit:

1. To act on all legal matters pertinent to his Office.

2. To seek remedies to effect collection of overdue accounts of members without
prejudice to initiating court action to protect the interest of the association.
3. To defend by all means all suit against the interest of the Association.

 Phil. Global Communications, Inc. v. De Vera: The element of control is

absent from the parties’ arrangement. Such element of control is where
the employer has reserved the right to control not only as to the result of
the work done but also as to the means and methods by which the same
is to be accomplished.

 Vallum Security Services vs. NLRC, et al.,: Where labor-only

contracting exists in a given case, the law itself implies or establishes an
employer-employee relationship between the employer (the owner of the
project or establishment) (here, Hyatt Baguio) and the employees of the
labor-only contractor (here, Vallum) to prevent any violation or
circumvention of provisions of the Labor Code.

Facts:

Baguio Leisure Corporation (Hyatt Terraces Baguio) and Vallum Security Services
entered into a contract for security services under the terms of which Vallum agreed to
protect the properties and premises of Hyatt Baguio by providing fifty (50) security
guards, on a 24-hour basis, a day.

Heinrich L. Maulbecker, Hyatt Baguio's General Manager, wrote to Domingo A.

Inocentes, President of Vallum advising that the contract of security service would be
terminated.

Vallum informed Mr. Maulbecker that it was agreeable to the termination of the contract.
private respondents, who were security guards provided by Vallum to Hyatt Baguio,
were informed by Vallum's Personnel Officer that the contract between the two (2) had
already expired.

They were also told that failure to report at Sucat would be taken to mean that they
were no longer interested in being re-assigned to same other client of Vallum.

None of the private respondents reported at Sucat for re-assignment.

Private respondents filed several complaints against petitioners in the National Labor
Relations Commission's Office in Baguio City for illegal dismissal and unfair labor
practices; for violation of labor standards relating to underpayment of wages, premium
holiday and rest day pay, uniform allowances and meal allowances.

The Labor Arbiter rendered a decision dismissing the complaints. He found Vallum to be
an independent contractor and, consequently, declined to hold Hyatt Baguio liable for
dismissal of private respondents.

The NLRC promulgated a resolution reversing the Labor Arbiter's decision.

Issue:

Whether or not the private respondents security guards are employees of petitioner
Hyatt Baguio.

Ruling:

Yes. Where labor-only contracting exists in a given case, the law itself implies or
establishes an employer-employee relationship between the employer (the owner of the
project or establishment) (here, Hyatt Baguio) and the employees of the labor-only
contractor (here, Vallum) to prevent any violation or circumvention of provisions of the
Labor Code.

In the case at bar, we noted that Vallum did not have a branch office in Baguio City and
that Hyatt Baguio provided Vallum with offices at Hyatt's own premises and allowed
Vallum to use its Security Department in the processing of applications. That was the
reason too why Vallum had stipulated that Hyatt Baguio was to distribute the salaries of
the security guards directly to them and that Hyatt had used its own corporate forms
and pay slips in doing so. The security guards were clearly performing activities directly
related to the business operations of Hyatt Baguio, since the undertaking to safeguard
the person and belongings of hotel guests is one of the obligations of a hotel vis-a-vis its
guests and the general public.

 Sonza v. ABS-CBN Broadcasting Corp.: 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.

 Dumpit-Murillo v. CA: If the employee has been performing the job for at
least a year, even if the performance is not continuous and merely
intermittent, the law deems repeated and continuing need for its
performance as sufficient evidence of the necessity if not indispensability
of that activity to the business.

Facts:

On October 2, 1995, under talent contract no. NT95-1805, private respondent

Associated Broadcasting Company (ABC) hired petitioner Thelma Dumpit-Murillo as a
newscaster and co-anchor of Balitang-Balita, an early evening news program. The
contract was for a period of 3 months.

It renewed under talent contract nos. NT95-1915, NT96-3002, NT98-4984, and NT99-
5649. In addition, petitioner’s services were engaged for the program “Live on Five.”

On September 30, 1999, after 4 years of repeated renewals, petitioner’s talent contract
expired.

Two weeks after the expiration of the last contract, petitioner sent a letter to Mr. Jose
Javier, Vice President for news and public affairs of ABC, informing the latter that she
was still interested in renewing her contract subject to a salary increase, thereafter,
petitioner stopped reporting for work. On November 5, 1999 she wrote Mr. Javier
another letter.

Issue:

Whether or not the continuous renewal of petitioner’s talent contracts constitute

regularity in the employment status.

Ruling:

Yes. An employer-employee relationship was created when the private respondents

started to merely renew the contracts repeatedly 15 times for 4 consecutive years.
Petitioner was a regular employee under contemplation of law. The practice of having
fixed-term contracts in the industry does not automatically make all talent contracts valid
and compliant with labor law. The assertion that a talent contract exists does not
necessarily prevent a regular employment status.

The elements to determine the existence of an employment relationship are: a.) The
selection and engagement of the employee; b.) The payment of wages; c.) The power
of dismissal; and d.) The employer’s control of the employee’s conduct, not only as to
the result of the work to be done, but also as to the means and methods to accomplish
it.

The duties of petitioner as enumerated in her employment contract indicate that ABC
had control over the work or petitioner. Aside from control, ABC also dictated the work
assignments and payment of petitioner’s wages. ABC also had power to dismiss her. All
these being present, clearly there existed an employment relationship between
petitioner and ABC.

Concerning regular employment, the law provides for 2 kinds of employees, namely: 1.)
Those who are engaged to perform activities which are usually necessary or desirable
in the usual business or trade of the employer; and 2.) Those who have rendered at
least one year of service, whether continuous or broken with respect to the activity in
which they are employed. In other words, regular status arises from either the nature of
work of the employee or the duration of his employment.

The primary standard of determining regular employment is the reasonable connection

between the particular activity performed by the employee vis-a-vis the usual trade or
business of the employer. This connection can be determined by considering the nature
of the work performed and its relation to the scheme of the particular business or trade
in its entirety. If the employee has been performing the job for at least a year, even if the
performance is not continuous and merely intermittent, the law deems repeated and
continuing need for its performance as sufficient evidence of the necessity if not
indispensability of that activity to the business.

 Religious of the Virgin Mary v. NLRC: petitioner was subject to the

control and supervision of CDSPB in running the Girls Department.
Petitioner has not been shown to have substantial capital or investment
necessary in the conduct of the business.

Facts:

Private respondent Colegio de San Pascual Baylon (CDSPB) is a religious educational

institution owned by the Diocese of Malolos, Bulacan, which operates two high school
departments (the Boys' and the Girls' departments) in Obando, Meycauayan, Bulacan.

On July 18, 1983, CDSPB, represented by the Bishop of Malolos, entered into an
Agreement with petitioner Religious of the Virgin Mary (RVM), a religious congregation,
whereby the latter was designated to "run, administer and operate the [CDSPB] Girls'
Department." The Agreement was for a term of 10 years, commencing in the school
year 1983-1984.

Petitioner contends that CDSPB is the employer of complainants. It maintains that it is

not an independent contractor but merely the manager or administrator of the Girls
Department, and that after the Agreement was terminated on April 10, 1987, it no longer
had any access to the income of the school to entitle and enable it to pay the salaries of
complainants.

CDSPB, on the other hand, contends that petitioner is not an independent contractor
but the sole employer of private respondents-complainants. It further argues that the
payment of salaries for the month of May 1987 should come from the fees collected by
petitioner during the school year 1986-1987.

Issue:

Whether or not the petitioner is an independent contractor.

Ruling:

No. Based on the Agreement and other evidence on record, it thus appears that
petitioner was merely the agent or administrator of CDSPB, and that private
respondents are its employees.

Petitioner was subject to the control and supervision of CDSPB in running the Girls'
Department. Petitioner has not been shown to have substantial capital or investment
necessary in the conduct of the business. Under the Agreement, the ownership of the
parcel of land and the building thereon remained with CDSPB. Tested by the standards
announced in Ponce, petitioner cannot be considered an independent contractor.

In this case, CDSPB reserved the right to control and supervise the operations of the
Girls' Department. As noted by the labor arbiter himself and affirmed by the NLRC,
although CDSPB "actually exercised minimal supervision over petitioner, [it] could
exercise substantial supervision and control as it did when [it] preterminated the
Agreement." There was, therefore, no basis in finding that petitioner had a "greater
degree of autonomy and independence in running the affairs" of the school. The
presence of the school director, whose vast powers have already been noted, negates
any suggestion or semblance of autonomy.

Nor is there any merit in the claim that "actual and effective control" was exercised by
petitioner since the designation of the parish priest as director was "a mere formality, as
he did perform functions which are purely ministerial and figurative in nature." Time and
again we have held that "the 'control test' only requires the existence of the right to
control the manner of doing the work not necessarily the actual exercise of the power by
him, which he can delegate." Indeed, although the letters of appointment were signed
by the principal/representative of petitioner, they bore the name/letterhead of CDSPB
and clearly indicated therein that the employees were hired as teachers/personnel by
CDSPB, and not by RVM. Moreover, CDSPB itself admits that its name not petitioner's
appears in the employees' payroll ledger cards.
  Leonardo v. CA: DIGITEL’s exercise of the power of control necessarily
flows from the exercise of its responsibilities under the management
contract which includes providing for personnel, consultancy and technical
expertise in the management, administration, and operation of the
telephone system. Thus, the control test has no application in this case.

Facts:

BALTEL holds the franchise from the Municipality of Balagtas, Bulacan to operate a
telephone service in the municipality. BALTEL also has authority from the National
Telecommunications Commission (NTC) to operate in the municipality.

BALTEL hired Emelita Leonardo, Conrado Bargamento, Emelita Nuñez, Rodolfo

Graban, and Roberto Graban ("petitioners") for various positions in the company.

On 22 April 1991, BALTEL and DIGITEL entered into a management contract. Under
the terms of the contract, DIGITEL was to provide personnel, consultancy and technical
expertise in the management, administration, and operation of BALTEL’s telephone
service in Balagtas, Bulacan. DIGITEL also undertook to improve the internal and
external plants of BALTEL’s telephone system and to handle customer relations and
such other matters necessary for the efficient management and operation of the
telephone system.

BALTEL informed the NTC that it would cease to operate effective 28 February 1994
because it was no longer in a financial position to continue its operations. On 17
February 1994, BALTEL assigned to DIGITEL its buildings and other improvements on
a parcel of land in Balagtas, Bulacan covered by OCT No. O-7280 where BALTEL
conducted its business operations. The assignment was in partial payment of BALTEL’s
obligation to DIGITEL.

On 28 February 1994, petitioners’ employment ceased. They executed separate,

undated and similarly worded quitclaims acknowledging receipt of various amounts
representing their claims from BALTEL. In their quitclaims, petitioners absolved and
released BALTEL from all monetary claims that arose out of their employer-employee
relationship with the company. Petitioners also acknowledged that BALTEL closed its
operations due to serious business losses.

On 1 March 1994, petitioners filed a complaint against BALTEL and Domingo De Asis
for recovery of salary differential and attorney’s fees. Petitioners later filed a
supplemental complaint to include illegal dismissal as additional cause of action and to
implead DIGITEL as additional respondent. DIGITEL denied having any liability on the
ground that it was not petitioners’ employer.

Issue:

Whether an employer-employee relationship exists between petitioners and DIGITEL.

Ruling:

No. In this case, DIGITEL undoubtedly has the power of control. However, DIGITEL’s
exercise of the power of control necessarily flows from the exercise of its responsibilities
under the management contract which includes providing for personnel, consultancy
and technical expertise in the management, administration, and operation of the
telephone system. Thus, the control test has no application in this case.

The Court notes that DIGITEL did not hire petitioners. BALTEL had already employed
petitioners when BALTEL entered into the management contract with DIGITEL. We also
agree with the Court of Appeals that the fact that DIGITEL uses its payslips does not
necessarily imply that DIGITEL pays petitioners’ salaries. As pointed out by the Court of
Appeals, DIGITEL introduced its own financial and accounting systems to BALTEL and
it included the use of DIGITEL’s payslips for accounting purposes. The management
contract provides that BALTEL shall reimburse DIGITEL for all expenses incurred in the
performance of its services and this includes reimbursement of whatever amount
DIGITEL paid or advanced to BALTEL’s employees.

 What is the two tiered test?

 Francisco vs. NLRC: It is better, therefore, to adopt a two-tiered test

involving: (1) the employer’s power to control; and (2) the economic
realities of the activity or relationship.

Facts:

1995, Petitioner was hired by Kasei Corporation during its incorporation stage. She was
designated as Accountant and Corporate Secretary and was assigned to handle all the
accounting needs of the company. She was also designated as Liaison Officer to the
City of Makati to secure business permits, construction permits and other licenses for
the initial operation of the company.

Although she was designated as Corporate Secretary, she was not entrusted with the
corporate documents; neither did she attend any board meeting nor required to do so.
She never prepared any legal document and never represented the company as its
Corporate Secretary. 1996, petitioner was designated Acting Manager. Petitioner was
assigned to handle recruitment of all employees and perform management
administration functions; represent the company in all dealings with government
agencies, especially with the BIR, SSS and in the city government of Makati; and to
administer all other matters pertaining to the operation of Kasei Restaurant which is
owned and operated by Kasei Corporation.

January 2001, petitioner was replaced by a certain Liza R. Fuentes as Manager. Kasei
Corporation reduced her salary, she was not paid her mid-year bonus allegedly
because the company was not earning well. On October 2001, petitioner did not
receive her salary from the company. She made repeated follow-ups with the company
cashier but she was advised that the company was not earning well. Eventually she was
informed that she is no longer connected with the company.

Since she was no longer paid her salary, petitioner did not report for work and filed an
action for constructive dismissal before the labor arbiter. Private respondents averred
that petitioner is not an employee of Kasei Corporation. They alleged that petitioner
was hired in 1995 as one of its technical consultants on accounting matters and act
concurrently as Corporate Secretary. As technical consultant, petitioner performed her
work at her own discretion without control and supervision of Kasei Corporation.
Petitioner had no daily time record and she came to the office any time she wanted and
that her services were only temporary in nature and dependent on the needs of the
corporation.

The Labor Arbiter found that petitioner was illegally dismissed, NLRC affirmed with
modification the Decision of the Labor Arbiter. On appeal, CA reversed the NLRC
decision. CA denied petitioner’s MR, hence, the present recourse.

Issue:

Whether or not there was an employer-employee relationship between petitioner and

private respondent

Ruling:

Yes. There are instances when, aside from the employer’s power to control the
employee, economic realities of the employment relations help provide a
comprehensive analysis of the true classification of the individual, whether as employee,
independent contractor, corporate officer or some other capacity.

It is better, therefore, to adopt a two-tiered test involving: (1) the employer’s power to
control; and (2) the economic realities of the activity or relationship.

The control test means that there is an employer-employee relationship when the
person for whom the services are performed reserves the right to control not only the
end achieved but also the manner and means used to achieve that end.

There has to be analysis of the totality of economic circumstances of the worker. Thus,
the determination of the relationship between employer and employee depends upon
the circumstances of the whole economic activity, such as:
(1) the extent to which the services performed are an integral part of the
employer’s business;
(2) the extent of the worker’s investment in equipment and facilities;
(3) the nature and degree of control exercised by the employer;
(4) the worker’s opportunity for profit and loss;
 (5) the amount of initiative, skill, judgment or foresight required for the success of
the claimed independent enterprise;
(6) the permanency and duration of the relationship between the worker and the
employer; and
(7) the degree of dependency of the worker upon the employer for his continued
employment in that line of business.

The proper standard of economic dependence is whether the worker is dependent on

the alleged employer for his continued employment in that line of business

By applying the control test, it can be said that petitioner is an employee of Kasei
Corporation because she was under the direct control and supervision of Seiji Kamura,
the corporation’s Technical Consultant. She reported for work regularly and served in
various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager
and Corporate Secretary, with substantially the same job functions, that is, rendering
accounting and tax services to the company and performing functions necessary and
desirable for the proper operation of the corporation such as securing business permits
and other licenses over an indefinite period of engagement. Respondent corporation
had the power to control petitioner with the means and methods by which the work is to
be accomplished.

Under the economic reality test, the petitioner can also be said to be an employee of
respondent corporation because she had served the company for 6 yrs. before her
dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month
pay, bonuses and allowances, as well as deductions and Social Security contributions
from. When petitioner was designated General Manager, respondent corporation made
a report to the SSS. Petitioner’s membership in the SSS evinces the existence of an
employer-employee relationship between petitioner and respondent corporation. The
coverage of Social Security Law is predicated on the existence of an employer-
employee relationship.

 Are corporate officers employees?

 Matling vs. Coros: As a rule, the illegal dismissal of an officer or other

employee of a private employer is properly cognizable by the LA.

However, where the complaint for illegal dismissal concerns a corporate

officer, the controversy falls under the jurisdiction of the Securities and
Exchange Commission (SEC), because the controversy arises out of
intra-corporate or partnership relations between and among stockholders,
members, or associates, or between any or all of them and the
corporation, partnership, or association of which they are stockholders,
members, or associates, respectively; and between such corporation,
partnership, or association and the State insofar as the controversy
concerns their individual franchise or right to exist as such entity; or
because the controversy involves the election or appointment of a
 director, trustee, officer, or manager of such corporation, partnership, or
association. Such controversy, among others, is known as an intra-
corporate dispute.

Facts:

After his dismissal by Matling as its Vice President for Finance and Administration, the
respondent filed on August 10, 2000 a complaint for illegal suspension and illegal
dismissal against Matling and some of its corporate officers (petitioners) in the NLRC,
Sub-Regional Arbitration Branch XII, Iligan City.

The petitioners moved to dismiss the complaint, raising the ground, among others, that
the complaint pertained to the jurisdiction of the Securities and Exchange Commission
(SEC) due to the controversy being intracorporate inasmuch as the respondent was a
member of Matlings Board of Directors aside from being its Vice-President for Finance
and Administration prior to his termination.

The respondent opposed the petitioners motion to dismiss, insisting that his status as a
member of Matlings Board of Directors was doubtful, considering that he had not been
formally elected as such; that he did not own a single share of stock in Matling,
considering that he had been made to sign in blank an undated indorsement of the
certificate of stock he had been given in 1992; that Matling had taken back and retained
the certificate of stock in its custody; and that even assuming that he had been a
Director of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination dated April 10,
2000 showed.

On October 16, 2000, the LA granted the petitioners motion to dismiss, ruling that the
respondent was a corporate officer because he was occupying the position of Vice
President for Finance and Administration and at the same time was a Member of the
Board of Directors of Matling; and that, consequently, his removal was a corporate act
of Matling and the controversy resulting from such removal was under the jurisdiction of
the SEC, pursuant to Section 5, paragraph (c) of Presidential Decree No. 902.

Issue:

Whether or not the respondent is a corporate officer within the jurisdiction of the regular
courts.

Ruling:

No. As a rule, the illegal dismissal of an officer or other employee of a private employer
is properly cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code,
as amended, which provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. –

(a) Except as otherwise provided under this Code, the Labor Arbiters shall have original
and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after
the submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may
file involving wages, rates of pay, hours of work and other terms and conditions
of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from
the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including
questions involving the legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P 5,000.00) regardless of whether accompanied
with a claim for reinstatement.

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

(c) Cases arising from the interpretation or implementation of collective bargaining

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

Where the complaint for illegal dismissal concerns a corporate officer, however, the
controversy falls under the jurisdiction of the Securities and Exchange Commission
(SEC), because the controversy arises out of intra-corporate or partnership relations
between and among stockholders, members, or associates, or between any or all of
them and the corporation, partnership, or association of which they are stockholders,
members, or associates, respectively; and between such corporation, partnership, or
association and the State insofar as the controversy concerns their individual franchise
or right to exist as such entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such corporation, partnership,
or association. Such controversy, among others, is known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799, otherwise
known as The Securities Regulation Code, the SECs jurisdiction over all intra-corporate
disputes was transferred to the RTC, pursuant to Section 5.2 of RA No. 8799.
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever
are the corporate officers enumerated in the by-laws are the exclusive Officers of the
corporation and the Board has no power to create other Offices without amending first
the corporate By-laws. However, the Board may create appointive positions other than
the positions of corporate Officers, but the persons occupying such positions are not
considered as corporate officers within the meaning of Section 25 of the Corporation
Code and are not empowered to exercise the functions of the corporate Officers, except
those functions lawfully delegated to them. Their functions and duties are to be
determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to
create a corporate office to the President, in light of Section 25 of the Corporation Code
requiring the Board of Directors itself to elect the corporate officers. Verily, the power to
elect the corporate officers was a discretionary power that the law exclusively vested in
the Board of Directors, and could not be delegated to subordinate officers or agents.
The office of Vice President for Finance and Administration created by Matlings
President pursuant to By Law No. V was an ordinary, not a corporate, office.

The criteria for distinguishing between corporate officers who may be ousted from office
at will, on one hand, and ordinary corporate employees who may only be terminated for
just cause, on the other hand, do not depend on the nature of the services performed,
but on the manner of creation of the office. In the respondents case, he was supposedly
at once an employee, a stockholder, and a Director of Matling. The circumstances
surrounding his appointment to office must be fully considered to determine whether the
dismissal constituted an intra-corporate controversy or a labor termination dispute. We
must also consider whether his status as Director and stockholder had any relation at all
to his appointment and subsequent dismissal as Vice President for Finance and
Administration.

 Malcalba vs. Pro-Health Pharma Philippines: The dismissal of a

corporate officer is considered an intra-corporate dispute, not a labor
dispute.Court stated that jurisdiction over intra-corporate disputes
involving the illegal dismissal of corporate officers was with the Regional
Trial Court, not with the Labor Arbiter

Facts:

ProHealth Pharma Philippines, Inc. (ProHealth) is a corporation engaged in the sale of

pharmaceutical products and health food on a wholesale and retail basis. Generoso Del
Castillo (Del Castillo) is the Chair of the Board of Directors and Chief Executive Officer
while Dante Busto (Busto) is the Executive Vice President. Malcaba, Tomas Adona, Jr.
(Adona), Nepomuceno, and Palit-Ang were employed as its President, Marketing
Manager, Business Manager, and Finance Officer, respectively.

Malcaba had been employed with ProHealth since it started in 1997. He was one of its
incorporators together with Del Castillo and Busto, and they were all members of the
Board of Directors in 2004. He held 1,000,000 shares in the corporation. He was initially
the Vice President for Sales then became President in 2005.

Malcaba alleged that Del Castillo did acts that made his job difficult. He asked to take a
leave but when he attempted to return back to work, Del Castillo insisted that he had
already resigned and had his things removed from his office. He attested that he was
paid a lower salary in December 2007 and his benefits were withheld. On January 7,
2008, Malcaba tendered his resignation effective February 1, 2008.

Nepomuceno, for his part, alleged that he was initially hired as a medical representative
in 1999 but was eventually promoted to District Business Manager for South Luzon. On
March 24, 2008, he applied for vacation leave for the dates April 24, 25, and 28, 2008,
which Busto approved. When he left for Malaysia on April 23, 2008, ProHealth sent him
a Memorandum dated April 24, 2008 asking him to explain his absence. He replied
through email that he tried to call ProHealth to inform them that his flight was on April
22, 2008 at 9:00p.m. and not on April 23, 2008 but was unable to connect on the phone.
He tried to explain again on May 2, 2008 and requested for a personal dialogue with Del
Castillo.

On May 7, 2008, Nepomuceno was given a notice of termination, which was effective
May 5, 2008, on the ground of fraud and willful breach of trust.

Palit-Ang, on the other hand, was hired to join ProHealth's audit team in 2007. She was
later promoted to Finance Officer. On November 26, 2007, Del Castillo instructed Palit-
Ang to give P3,000.00 from the training funds to Johnmer Gamboa (Gamboa), a District
Business Manager, to serve as cash advance.

On November 27, 2007, Busto issued a show cause memorandum for Palit-Ang's failure
to release the cash advance. Palit-Ang was also relieved of her duties and reassigned
to the Office of the Personnel and Administration Manager.

In her explanation, Palit-Ang alleged that when Gamboa saw that she was busy
receiving cash sales from another District Business Manager, he told her that he would
just return the next day to collect his cash advance. When he told her that the cash
advance was for car repairs, Palit-Ang told him to get the cash from his revolving fund,
which she would reimburse after the repairs were done. Del Castillo was dissatisfied
with her explanation and transferred her to another office.

Palit-Ang was invited to a fact-finding investigation where Palit-Ang was again asked to
explain her actions.

On December 17, 2007, she was handed a notice of termination effective December 31,
2007, for disobeying the order of ProHealth's highest official.
Malcaba, Nepomuceno, Palit-Ang, and Adona separately filed Complaints before the
Labor Arbiter for illegal dismissal, nonpayment of salaries and 13th month pay,
damages, and attorney's fees.

The Labor Arbiter found that Malcaba was constructively dismissed. He found that
ProHealth never controverted the allegation that Del Castillo made it difficult for
Malcaba to effectively fulfill his duties. He likewise ruled that ProHealth's insistence that
Malcaba's leave of absence in October 2007 was an act of resignation was false since
Malcaba continued to perform his duties as President through December 2007.

The Labor Arbiter declared that Nepomuceno's failure to state the actual date of his
flight was an excusable mistake on his part, considering that this was his first infraction
in his nine (9) years of service. He noted that no administrative proceedings were
conducted before Nepomuceno's dismissal, thereby violating his right to due process.

Palit-Ang's dismissal was also found to have been illegal as delay in complying with a
lawful order was not tantamount to disobedience. The Labor Arbiter further noted that
delay in giving a cash advance for car maintenance would not have affected the
company's operations. He declared that Palit-Ang's dismissal was too harsh of a
penalty.

ProHealth appealed to the National Labor Relations Commission. On September 29,

2010, the National Labor Relations Commission rendered its Decision, affirming the
Labor Arbiter's Decision.

ProHealth, Del Castillo, and Busto filed a Petition for Certiorari before the Court of
Appeals.

Court of Appeals rendered its Decision reversing and setting aside the National Labor
Relations Commission Decision.

On the substantive issues, the Court of Appeals held that there was no employer-
employee relationship between Malcaba and ProHealth since he was a corporate
officer. Thus, he should have filed his complaint with the Regional Trial Court, not with
the Labor Arbiter, since his dismissal from service was an intra-corporate dispute.

The Court of Appeals likewise concluded that ProHealth was justified in dismissing
Nepomuceno and Palit-Ang since both were given opportunities to fully explain their
sides.

Issue:

1. Whether or not the Labor Arbiter and National Labor Relations Commission had
jurisdiction over petitioner Nicanor F. Malcaba's termination dispute considering
the allegation that he was a corporate officer, and not a mere employee
 2. Whether or not petitioner Christian C. Nepomuceno was validly dismissed for
willful breach of trust when he failed to inform respondents ProHealth Pharma
Philippines, Inc., Generoso R. Del Castillo, Jr., and Dante M. Busto of the actual
dates of his vacation leave

3. Whether or not petitioner Laura Mae Fatima F. Palit-Ang was validly dismissed
for willful disobedience when she failed to immediately comply with an order of
her superior.

Ruling:

1. No. Malcaba is the President of respondent corporation and a corporate officer,

any issue on his alleged dismissal is beyond the jurisdiction of the Labor Arbiter
or the National Labor Relations Commission.

The dismissal of a corporate officer is considered an intra-corporate dispute, not

a labor dispute.

Court stated that jurisdiction over intra-corporate disputes involving the illegal
dismissal of corporate officers was with the Regional Trial Court, not with the
Labor Arbiter

Malcaba must, therefore, return all amounts received as judgment award pending
final adjudication of his claims. This Court's dismissal of petitioner Malcaba's
claims, however, is without prejudice to his filing of the appropriate case in the
proper forum.

2. No, there was illegal dismissal. While an employer is free to regulate all aspects
of employment, the exercise of management prerogatives must be in good faith
and must not defeat or circumvent the rights of its employees.

However, as found by the Labor Arbiter and the National Labor Relations
Commission, petitioner Nepomuceno turned over all of his pending work to a
reliever before he left for Malaysia. He was able to reach his sales quota and
surpass his sales target even before taking his vacation leave. Respondents did
not suffer any financial damage as a result of his absence. This was also
petitioner Nepomuceno's first infraction in his nine (9) years of service with
respondents. None of these circumstances constitutes a willful breach of trust on
his part. The penalty of dismissal, thus, was too severe for this kind of infraction.

3. No, she was illegally dismissed. For disobedience to be considered as just cause
for termination, two (2) requisites must concur:

first, "the employee's assailed conduct must have been willful or intentional," and
second, "the order violated must have been reasonable, lawful, made known to
the employee and must pertain to the duties which he [or she] had been engaged
to discharge."

For disobedience to be willful, it must be "characterized by a wrongful and

perverse mental attitude rendering the employee's act inconsistent with proper
subordination."

The conduct complained of must also constitute "harmful behavior against the
business interest or person of his [or her] employer." Thus, it is implied in every
case of willful disobedience that "the erring employee obtains undue advantage
detrimental to the business interest of the employer."

Petitioner Palit-Ang's failure to immediately give the money to Gamboa was not
the result of a perverse mental attitude but was merely because she was busy at
the time. Neither did she profit from her failure to immediately give the cash
advance for the car tune-up nor did respondents suffer financial damage by her
failure to comply.