Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 177592 June 9, 2014

AVELINO S. ALILIN, TEODORO CALESA, CHARLIE HINDANG, EUTIQUIO GINDANG, ALLAN

SUNGAHID, MAXIMO LEE, JOSE G. MORA TO, REX GABILAN, AND EUGEMA L.
LAURENTE, Petitioners,
vs.
PETRON CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

A contractor is presumed to be a labor-only contractor, unless it proves that it has the substantial
capital, investment, tools and the like. However, where the principal is the one claiming that the
contractor is a legitimate contractor, the burden of proving the supposed status of the contractor
rests on the principal.1

This Petition for Review on Certiorari assails the Decision dated May 10, 2006 of the Court of
2 3

Appeals (CA) in CA-G.R. SP No. 01291 which granted the Petition for Certiorari filed therewith,
reversed and set aside the February 18, 2005 Decision and August 24, 2005 Resolution of the
4 5

National Labor Relations Commission (NLRC) in NLRC Case No. V-000481-2003 and dismissed the
Complaint for illegal dismissal filed by petitioners Avelino Alilin (Alilin), Teodoro Calesa (Calesa),
Charlie Hindang (Hindang), Eutiquio Gindang (Gindang), Allan Sungahid (Sungahid), Maximo Lee
(Lee), Jose G. Morato (Morato), Rex Gabilan (Gabilan) and Eugema L. Laurente (Laurente) against
respondent Petron Corporation (Petron). Also assailed in this Petition is the CA Resolution dated 6

March 30, 2007 which denied petitioners’ Motion for Reconsideration and Supplemental Motion for
7

Reconsideration. 8

Factual Antecedents

Petron is a domestic corporation engaged in the oil business. It owns several bulk plants in the
country for receiving, storing and distributing its petroleum products.

In 1968, Romualdo D. Gindang Contractor, which was owned and operated by Romualdo D.
Gindang (Romualdo), started recruiting laborers for fielding to Petron’s Mandaue Bulk Plant. When
Romualdo died in1989, his son Romeo D. Gindang (Romeo), through Romeo D. Gindang
Services(RDG), took over the business and continued to provide manpower services to Petron.
Petitioners were among those recruited by Romualdo D. Gindang Contractor and RDG to work in the
premises of the said bulk plant, with the corresponding dates of hiring and work duties, to wit:

Employees Date of Hiring Duties

Eutiquio Gindang 1968 utility/tanker receiver/barge loader/warehouseman/mixer
Eugema L. Laurente June 1979 telephone operator/order taker
Teodoro Calesa August 1, 1981 utility/tanker receiver/barge loader/sounder/gauger
Rex Gabilan July 1, 1987 warehouseman/forklift driver/tanker receiver/barge loader
Charlie T. Hindang September 18, 1990 utility/tanker receiver/barge loader/sounder/gauger
Allan P. Sungahid September 18, 1990 filler/sealer/painter/tanker receiver/utility
Maximo S. Lee September 18, 1990 gasul filler/painter/utility
Avelino S. Alilin July 16, 1992 carpenter/driver
Jose Gerry M. Morato March 16, 1993 cylinder checker/tanker receiver/grass cutter/janitor/utility

On June 1, 2000, Petron and RDG entered into a Contract for Services for the period from June 1,
9

2000 to May 31, 2002, whereby RDG undertook to provide Petron with janitorial, maintenance,
tanker receiving, packaging and other utility services in its Mandaue Bulk Plant. This contract was
extended on July 31, 2002 and further extended until September 30, 2002. Upon expiration thereof,
no further renewal of the service contract was done.

Proceedings before the Labor Arbiter

Alleging that they were barred from continuing their services on October 16, 2002, petitioners Alilin,
Calesa, Hindang, Gindang, Sungahid, Lee, Morato and Gabilan filed a Complaint for illegal 10

dismissal, underpayment of wages, damages and attorney’s fees against Petron and RDG on
November 12, 2002. Petitioner Laurente filed another Complaint for illegal dismissal, underpayment
11

of wages, non-payment of overtime pay, holiday pay, premium pay for holiday, rest day, 13th month
pay, service incentive leave pay, allowances, separation pay, retirement benefits, damages and
attorney’s fees against Petron and RDG. The said complaints were later consolidated.

Petitioners did not deny that RDG hired them and paid their salaries. They, however, claimed that
the latter is a labor-only contractor, which merely acted as an agent of Petron, their true employer.
They asseverated that their jobs, which are directly related to Petron’s business, entailed them to
work inside the premises of Petron using the required equipment and tools furnished by it and that
they were subject to Petron’s supervision. Claiming to be regular employees, petitioners thus
asserted that their dismissal allegedly in view of the expiration of the service contract between
Petron and RDG is illegal.

RDG corroborated petitioners’ claim that they are regular employees of Petron. It alleged that Petron
directly supervised their activities; they performed jobs necessary and desirable to Petron’s
business; Petron provided petitioners with supplies, tools and equipment used in their jobs; and that
petitioners’ workplace since the start of their employment was at Petron’s bulk plant in Mandaue
City. RDG denied liability over petitioners’ claim of illegal dismissal and further argued that Petron
cannot capitalize on the service contract to escape liability.

Petron, on the other hand, maintained that RDG is an independent contractor and the real employer
of the petitioners. It was RDG which hired and selected petitioners, paid their salaries and wages,
and directly supervised their work. Attesting to these were two former employees of RDG and
Petron’s Mandaue Terminal Superintendent whose joint affidavit and affidavit, respectively, were
12 13

submitted by Petron. Anent its allegation that RDG is an independent contractor, Petron presented
the following documents: (1) RDG’s Certificate of Registration issued by the Department of Labor
and Employment (DOLE) on December 27, 2000; (2) RDG’s Certificate of Registration of Business
14

Name issued by the Department of Trade and Industry (DTI) on August 18, 2000; (3) Contractor’s
15

Pre-Qualification Statement; (4) Conflict of Interest Statement signed by Romeo Gindang as

16

manager of RDG; (5) RDG’s Audited Financial Statements for the years 1998 1999 and
17 18 19

2000; (6) RDG’s Mayor’s Permit for the years 2000 and 2001; (7) RDG’s Certificate of
20 21 22

Accreditation issued by DTI in October 1991; (8) performance bond and insurance policy posted
23 24 25

to insure against liabilities; (9) Social Security System (SSS) Online Inquiry System Employee
Contributions and Employee Static Information; and, (10) Romeo’s affidavit stating that he had
26 27

paid the salaries of his employees assigned to Petron for the period of November 4, 2001 to
December 31, 2001. Petron argued that with the expiration of the service contract it entered with
RDG, petitioners’ term of employment has concomitantly ended. And not being the employer, Petron
cannot be held liable for petitioners’ claim of illegal dismissal.

In a Decision dated June 12, 2003,the Labor Arbiter ruled that petitioners are regular employees of
28

Petron. It found that their jobs were directly related to Petron’s business operations; they worked
under the supervision of Petron’s foreman and supervisor; and they were using Petron’s tools and
equipment in the performance of their works. The Labor Arbiter also found that Petron merely
utilized RDG in its attempt to hide the existence of employee-employer relationship between it and
petitioners and avoid liability under labor laws. And there being no showing that petitioners’ dismissal
was for just or authorized cause, the Labor Arbiter declared them to have been illegally dismissed.
Petron was thus held solidarily liable with Romeo for the payment of petitioners’ separation pay (in
lieu of reinstatement due to strained relations with Petron) fixed at one month pay for every year of
service and backwages computed on the basis of the last salary rate at the time of dismissal. The
dispositive portion of the Decision reads: WHEREFORE, premises considered, judgment is hereby
rendered ordering the respondents Petron Corporation and Romeo Gindang to pay the complainants
as follows:

1. Teodoro Calesa P 136,890.00

2. Eutiquio Gindang P 202,800.00
3. Charlie T. Gindang P 91,260.00
4. Allan P. Sungahid P 91,260.00
5. Jose Gerry Morato P 76,050.00
6. Avelino A. Alilin P 95,680.00
7. Rex S. Gabilan P 106,470.00
8. Maximo S. Lee P 91,260.00
9. Eugema Minao P 150,800.00
Laurente
 Total award ₱1,042,470.00

The other claims are dismissed for lack of merit.

SO ORDERED. 29

Proceedings before the National Labor Relations Commission

Petron continued to insist that there is no employer-employee relationship between it and petitioners.
The NLRC, however, was not convinced. In its Decision of February 18, 2005, the NLRC ruled that
30

petitioners are Petron’s regular employees because they are performing job assignments which are
germane to its main business. Thus:

WHEREFORE, premises considered, the Decision of the Labor Arbiter is hereby affirmed. It is
understood that the grant of backwages shall be until finality of the Decision.

The appeal of respondent Petron Corporation is hereby DISMISSED for lack of merit.

SO ORDERED. 31

The NLRC also denied Petron’s Motion for Reconsideration in its Resolution of August 24, 2005.
32

Proceedings before the Court of Appeals

Petron filed a Petition for Certiorari with prayer for the issuance of a temporary restraining order or
writ of injunction before the CA. The said court resolved to grant the injunction. Hence, a Writ of
33

Preliminary Injunction to restrain the implementation of the February 18, 2005 Decision and August
34

24, 2005 Resolution of the NLRC was issued on March 3, 2006.

In a Decision dated May 10, 2006, the CA found no employer-employee relationship between the
35

parties. According to it, the records of the case do not show that petitioners were directly hired,
selected or employed by Petron; that their wages and other wage related benefits were paid by the
said company; and that Petron controlled the manner by which they carried out their tasks. On the
other hand, RDG was shown to be responsible for paying petitioners’ wages. In fact, SSS records
show that RDG is their employer and actually the one remitting their contributions thereto. Also, two
former employees of RDG who were likewise assigned in the Mandaue Bulk Plant confirmed by way
of a joint affidavit that it was Romeo and his brother Alejandre Gindang who supervised their work,
not Petron’s foreman or supervisor. This was even corroborated by the Terminal Superintendent of
the Mandaue Bulk Plant.

The CA also found RDG to be an independent labor contractor with sufficient capitalization and
investment as shown by its financial statement for year-end 2000. In addition, the works for which
RDG was contracted to provide were menial which were neither directly related nor sensitive and
critical to Petron’s principal business. The CA disposed of the case as follows:

WHEREFORE, the Petition is GRANTED. The February 18, 2005 Decision and the August 24, 2005
Resolution of the Fourth Division of the National Labor Relations Commission in NLRC Case No. V-
000481-2003, entitled "Teodoro Calesa et al. vs. Petron Corporation and R.D. Gindang Services",
having been rendered with grave abuse of discretion amounting to excess of jurisdiction, are hereby
REVERSED and SET ASIDE and a NEW ONE is entered DISMISSING private respondents’
complaint against petitioner. It is so ordered. 36

Petitioners filed a Motion for Reconsideration insisting that Petron illegally dismissed them; that
37

RDG is a labor-only contractor; and that they performed jobs which are sensitive to Petron’s
business operations. To support these, they attached to their Supplemental Motion for
Reconsideration Affidavits of former employees of Petron attesting to the fact that their jobs were
38 39

critical to Petron’s business operations and that they were carried out under the control of a Petron
employee.

Petitioners’ motions were, however, denied by the CA in a Resolution dated March 30, 2007.
40

Hence, this Petition.

Issue

The primary issue to be resolved in this case is whether RDG is a legitimate job contractor. Upon
such finding hinges the determination of whether an employer-employee relationship exists between
the parties as to make Petron liable for petitioners’ dismissal.
 Our Ruling

The Petition is impressed with merit. The conflicting findings of the Labor Arbiter and the NLRC on
one hand, and of the CA on the other, constrains the Court to review the factual issues involved in
this case.

As a general rule, the Court does not review errors that raise factual questions. Nonetheless, while
41

it is true that the determination of whether an employer-employee relationship existed between the
parties basically involves a question of fact, the conflicting findings of the Labor Arbiter and the
NLRC on one hand, and of the CA on the other, constrains the Court to review and reevaluate such
factual findings. 42

Labor-only contracting, distinguished

from permissible job contracting.

The prevailing rule on labor-only contracting at the time Petron and RDG entered into the Contract
for Services in June 2000 is DOLE Department Order No. 10, series of 1997, the pertinent provision
43

of which reads:

Section 4. x x x

xxxx

(f) "Labor-only contracting" prohibited under this Rule is an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work or service for a
principal and the following elements are present:

(i) The contractor or subcontractor does not have substantial capital or investment to actually
perform the job, work or service under its own account and responsibility; and

(ii) The employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal.

xxxx

Section 6. Permissible contracting or subcontracting. - Subject to the conditions set forth in Section 3
(d) and (e) and Section 5 hereof, the principal may engage the services of a contractor or
subcontractor for the performance of any of the following:

(a) Works or services temporarily or occasionally needed to meet abnormal increase in the
demand of products or services, provided that the normal production capacity or regular
workforce of the principal cannot reasonably cope with such demands;

(b) Works or services temporarily or occasionally needed by the principal for undertakings
requiring expert or highly technical personnel to improve the management or operations of
an enterprise;

(c) Services temporarily needed for the introduction or promotion of new products, only for
the duration of the introductory or promotional period;

(d) Works or services not directly related or not integral to the main business or operation of
the principal, including casual work, janitorial, security, landscaping, and messengerial
services, and work not related to manufacturing processes in manufacturing establishments;

(e) Services involving the public display of manufacturers’ products which do not involve the
act of selling or issuance of receipts or invoices;

(f) Specialized works involving the use of some particular, unusual or peculiar skills,
expertise, tools or equipment the performance of which is beyond the competence of the
regular workforce or production capacity of the principal; and

(g) Unless a reliever system is in place among the regular workforce, substitute services for
absent regular employees, provided that the period of service shall be coextensive with the
period of absence and the same is made clear to the substitute employee at the time of
engagement. The phrase "absent regular employees" includes those who are serving
suspensions or other disciplinary measures not amounting to termination of employment
meted out by the principal, but excludes those on strike where all the formal requisites for the
 legality of the strike have been prima facie complied with based on the records filed with the
National Conciliation and Mediation Board.

"Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees

to farm out with a contractor or subcontractor the performance of a specific job, work, or service
within a definite or predetermined period, regardless of whether such job, work or, service is to be
performed or completed within or outside the premises of the principal. Under this arrangement, the
following conditions must be met: (a) the contractor carries on a distinct and independent business
and undertakes the contract work on his account under his own responsibility according to his own
manner and method, free from the control and direction of his employer or principal in all matters
connected with the performance of his work except as to the results thereof; (b) the contractor has
substantial capital or investment; and (c) the agreement between the principal and contractor or
subcontractor assures the contractual employees’ entitlement to all labor and occupational safety
and health standards, free exercise of the right to self-organization, security of tenure, and social
welfare benefits." Labor-only contracting, on the other hand, is a prohibited act, defined as
44

"supplying workers to an employer who 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." "[I]n distinguishing between prohibited labor-only contracting and permissible job
45

contracting, the totality of the facts and the surrounding circumstances of the case shall be
considered." Generally, the contractor is presumed to be a labor-only contractor, unless such
46

contractor overcomes the burden of proving that it has the substantial capital, investment, tools and
the like. However, where the principal is the one claiming that the contractor is a legitimate
contractor, as in the present case, said principal has the burden of proving that supposed status. It
47

is thus incumbent upon Petron, and not upon petitioners as Petron insists, to prove that RDG is an
48

independent contractor.

Petron failed to discharge the burden of

proving that RDG is a legitimate
contractor. Hence, the presumption that
RDG is a labor-only contractor stands.

Here, the audited financial statements and other financial documents of RDG for the years 1999 to
2001 establish that it does have sufficient working capital to meet the requirements of its service
contract. In fact, the financial evaluation conducted by Petron of RDG’s financial statements for
years 1998-2000 showed RDG to have a maximum financial capability of Php4.807 Million as of
December 1998, and Php1.611 Million as of December 2000. Petron was able to establish RDG’s
49 50

sufficient capitalization when it entered into the service contract in 2000. The Court stresses though
that this determination of RDG’s status as an independent contractor is only with respect to its
financial capability for the period covered by the financial and other documents presented. In other
words, the evidence adduced merely proves that RDG was financially qualified as a legitimate
contractor but only with respect to its last service contract with Petron in the year 2000.

As may be recalled, petitioners have rendered work for Petron for a long period of time even before
the service contract was executed in 2000. The respective dates on which petitioners claim to have
started working for Petron, as well as the fact that they have rendered continuous service to it until
October 16, 2002, when they were prevented from entering the premises of Petron’s Mandaue Bulk
Plant, were not at all disputed by Petron. In fact, Petron even recognized that some of the petitioners
were initially fielded by Romualdo Gindang, the father of Romeo, through RDG’s precursor,
Romualdo D.Gindang Contractor, while the others were provided by Romeo himself when he took
over the business of his father in 1989. Hence, while Petron was able to establish that RDG was
1âwphi1

financially capable as a legitimate contractor at the time of the execution of the service contract in
2000, it nevertheless failed to establish the financial capability of RDG at the time when petitioners
actually started to work for Petron in 1968, 1979, 1981, 1987, 1990,1992 and 1993.

Sections 8 and 9,Rule VIII, Book III of the implementing rules of the Labor Code, in force since
51

1976 and prior to DOLE Department Order No. 10, series of 1997, provide that for job contracting to
52

be permissible, one of the conditions that has to be met is that the contractor must have substantial
capital or investment. Petron having failed to show that this condition was met by RDG, it can be
concluded, on this score alone, that RDG is a mere labor-only contractor. Otherwise stated, the
presumption that RDG is a labor-only contractor stands due to the failure of Petron to discharge the
burden of proving the contrary.

The Court also finds, as will be discussed below, that the works performed by petitioners were
directly related to Petron’s business, another factor which negates Petron’s claim that RDG is an
independent contractor.

Petron’s power of control over

petitioners exists in this case.
"[A] finding that a contractor is a ‘labor-only’ contractor is equivalent to declaring that there is an
employer-employee relationship between the principal and the employees of the supposed
contractor." In this case, the employer employee relationship between Petron and petitioners
53

becomes all the more apparent due to the presence of the power of control on the part of the former
over the latter.

It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals that:
54

This Court has constantly adhered to the "four-fold test" to determine whether there exists an
employer-employee relationship between the parties. The four elements 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 power to control the employee’s conduct.

Of these four elements, it is the power to control which is the most crucial and most determinative
factor, so important, in fact, that, the other elements may even be disregarded." (Emphasis supplied)

Hence, the facts that petitioners were hired by Romeo or his father and that their salaries were paid
by them do not detract from the conclusion that there exists an employer-employee relationship
between the parties due to Petron’s power of control over the petitioners. One manifestation of the
power of control is the power to transfer employees from one work assignment to another. Here,55

Petron could order petitioners to do work outside of their regular "maintenance/utility" job. Also,
petitioners were required to report for work everyday at the bulk plant, observe an 8:00 a.m. to 5:00
p.m. daily work schedule, and wear proper uniform and safety helmets as prescribed by the safety
and security measures being implemented within the bulk plant. All these imply control. In an
industry where safety is of paramount concern, control and supervision over sensitive operations,
such as those performed by the petitioners, are inevitable if not at all necessary. Indeed, Petron
deals with commodities that are highly volatile and flammable which, if mishandled or not properly
attended to, may cause serious injuries and damage to property and the environment. Naturally,
supervision by Petron is essential in every aspect of its product handling in order not to compromise
the integrity, quality and safety of the products that it distributes to the consuming public.

Petitioners already attained regular

status as employees of Petron.

Petitioners were given various work assignments such as tanker receiving, barge loading, sounding,
gauging, warehousing, mixing, painting, carpentry, driving, gasul filling and other utility works. Petron
refers to these work assignments as menial works (boring or unpleasant work that does not require
special skill and usually does not pay much money.) which could be performed by any able-bodied
individual. The Court finds, however, that while the jobs performed by petitioners may be menial and
mechanical, they are nevertheless necessary and related to Petron’s business operations. If not for
these tasks, Petron’s products will not reach the consumers in their proper state. Indeed, petitioners’
roles were vital in as much as they involve the preparation of the products that Petron will distribute
to its consumers.

Furthermore, while it may be true that any able-bodied individual can perform the tasks assigned to
petitioners, the Court notes the undisputed fact that for many years, it was the same able-bodied
individuals (petitioners) who performed the tasks for Petron. The engagement of petitioners for the
same works for a long period of time is a strong indication that such works were indeed necessary to
Petron’s business. In view of these, and considering further that petitioners’ length of service entitles
them to become regular employees under the Labor Code, petitioners are deemed by law to have
already attained the status as Petron’s regular employees. As such, Petron could not terminate their
services on the pretext that the service contract it entered with RDG has already lapsed. For one,
and as previously discussed, such regular status had already attached to them even before the
execution of the service contract in 2000. For another, the same does not constitute a just or
authorized cause for a valid dismissal of regular employees.

In sum, the Court finds that RDG is a labor-only contractor. As such, it is considered merely as an
agent of Petron. Consequently, the employer-employee relationship which the Court finds to exist in
this case is between petitioners as employees and Petron as their employer. Petron therefore, being
the principal employer and RDG, being the labor-only contractor, are solidarily liable for petitioners'
illegal dismissal and monetary claims. 56

WHEREFORE, the Petition is GRANTED. The May 10, 2006 Decision and March 30, 2007
Resolution of the Court of Appeals in CA-G.R. SP No. 01291 are REVERSED and SET ASIDE. The
February 18, 2005 Decision and August 24, 2005 Resolution of the National Labor Relations
Commission in NLRC Case No. V-000481-2003 are hereby REINSTATED and AFFIRMED.
 THIRD DIVISION

G.R. No. 220103, January 31, 2018

SAN MIGUEL FOODS, INC., Petitioner, v. HANNIVAL V. RIVERA, JOVICELL B.

FUJA, ENCENARIO B. CORONADO, JR., LEYLANIE O. GULANE, JOSE PEDRO, REY
RELLOROSA, CHERRY MAY BRAGA, ROGELIO ALSONADO, JOHN DE VERA,
ALBERTO DAGANIO, RHENE PURA, EFREN ESCOBIDO, ALEXANDER D.
BUENAOBRA, SUSIE VERIDIANO, ROBERTO E. GERMAN, JR., HERMAN B.
ESPANUEVA, JR., MARIONITO D. JUMAO-AS, ANTHONY ANTONIO, JESSIE
GLENN DELA CRUZ, SOFRONIO SIMPORIOS, JR., RICHARD FLAUTA, ENRIQUE
BUNA, JOJIT ORILLOSA, JONATHAN PENA, JENNIFER B. CASTILLO, EDGARDO
BARBACENA, JOSE WARLITO INTING, MICHAEL FLORES, LEONCIO M. ISON,
ALEXANDER C. ARELLANO, CARMELITO F. FUNTANBA, ALMARO M. ROSEL,
NORBERTO PONCE B. PULIDO, JR., ARIAMHER OGANA, DOMINADOR B.
SALAZAR, ANGELITO C. TABUCOL, RENATO C. ILLUSTRISIMO, ROGELIO M. DE
LEON, FELIPE P. GUILLANO, AND SHIRLY M. TOLENTINO, Respondents.

DECISION

VELASCO JR., J.:

For review on certiorari under Rule 45 of the Rules of Court are the Decision1 dated
October 28, 2014 and the Resolution2 dated August 18, 2015 of the Court of Appeals
(CA) in CA-G.R. SP No. 118337, which reversed and set aside the Decision3 dated
September 28, 2010 and the Resolution4 dated December 14, 2010 of the National
Labor Relations Commission (NLRC) in NLRC LAC No. 04-000709-10 and, accordingly,
ordered the herein petitioner San Miguel Foods, Inc. (SMFI) to reinstate the herein
respondents with full status and rights of regular employees and to grant them all
benefits as provided by law or by any existing collective bargaining agreement (CBA).
The questioned CA Resolution, on the other hand, denied for lack of merit the motion
for reconsideration thereof.

The factual antecedents, as culled from the records, are as follows:

The petitioner, a corporation organized and existing under Philippine laws, is engaged in
the feeds, and poultry and meats businesses. Its poultry business involves growing,
breeding, dressing, sale and marketing of poultry products. To maximize efficiency and
cost effectiveness, the petitioner opted to outsource the invoicing services, which it
deems merely ancillary to its business as it simply involved: (1) witnessing and
checking the unloading of chicken products in designated outlets; (2) preparation of
invoice, delivery receipt and other documents required to complete the delivery in
designated outlets; (3) securing from designated outlets such receiving documents
and/or information necessary for the liquidation and subsequent collection of the
delivery; and (4) submission of reports to the petitioner on actual volumes delivered to
designated outlets.5

Thus, sometime in 2005, the petitioner forged a six-month invoicing services

contract,6 that is from January 17, 2005 to July 16, 2005, with IMSHR Corporate
Support, Inc. (ICSI), an independent contractor duly registered with the Department of
Labor and Employment (DOLE) and engaged in the business of providing and supplying
various services, like invoicing, to different companies.7 The parties agreed that after
the contract term expired and they still want to continue their relations but without
having to execute a written renewal, they shall continue to be governed by the same
contract in its entirety, except for the term, which should subsist on a month-to-month
basis.8

In compliance therewith, ICSI assigned its employees, including the respondents, to the
petitioner to perform the invoicing services. Sometime in 2009, however, the petitioner
decided to discontinue its invoicing operations at its JMT/GMA office (head office),
where the respondents were assigned, and set up a new one at its San Fernando,
Pampanga, and Nueva Ecija Plants. This is to standardize its North and South Luzon
operations, among others. The petitioner accordingly informed ICSI of this decision and
the latter, in turn, informed its employees, including the respondents, of the said
development and that all the affected employees shall be considered for assignment in
San Fernando, Pampanga. Those interested to be transferred were instructed to submit
a Request for Transfer on or before July 13, 2009. Of all the respondents, only one
complied with the said directive while the others submitted their resignation letters,
some others continued working and some no longer reported to work.9

With the discontinuance of the invoicing operations at the petitioner's head office, the
respondents filed their consolidated Complaints for Constructive Dismissal,
Regularization, Underpayment of Salaries and Service Incentive Leave Pay,
Non-Payment of 13th Month Pay, Vacation/Sick Leave, Maternity/Paternity
Leave, Refund of Cash Bond, Tax Refund, Illegal Deduction - Variance Bond,
Moral and Exemplary Damages, and Attorney's Fees (Complaints), against the
former before the Labor Arbiter (LA).10

The respondents alleged that the petitioner employed them as Invoicers on different
dates, the earliest of which is in January 2005 and the latest is in May 2009, and they
were then assigned to its numerous clients, i.e., supermarkets, food chains, hotels and
other business establishments. They claimed that the tasks they are performing as
such, that is, checking and counting quantity of chickens upon unloading to various
outlets, weighing chickens in the presence of customers' representatives, issuing
delivery receipt or invoice, and preparing liquidation reports and submitting the same to
the petitioner, are necessary and desirable in the latter's usual trade or business. They
also averred that it was the petitioner that assigned their individual daily work
assignments and the one that monitored their attendance, through an attendance form
countersigned by the outlet/client's representative to confirm that they reported for
work on that day. Then, at the end of the day, they were obliged to submit the
liquidation report and to log out from work at the petitioner's office, where its finance
officer, Ric Buena, supervised them. They similarly avowed that they represented the
petitioner in their transactions with customers as they wore uniforms and utilized
delivery receipts and other commercial documents, all bearing its name and label. Even
the signatories in the receipts showed that they are under the direct supervision of the
petitioner. Further, the latter exercises control over the means and methods of
accomplishing their tasks and their result as evidenced by the various policies it directly
issued to them, like the instructions on how to distribute the Chicken Station Receiving
Report (CSRR); the utilization of delivery receipts, invoices and shrinkage forms;
development of activity-based system to be strictly followed by them; and listing of its
Key Account Managers (KAM) to whom they directly report based on their place of
assignment.11

They further contended that on May 22, 2009, the petitioner issued a memorandum to
ICSI declaring that it will not anymore renew the contract as to the invoicing operations
at its head office, where they were all employed; in its stead, new operations will be set
up at its San Fernando Plant in San Fernando, Pampanga, which will be subjected to
Region 3 labor rates and terms; and those who would not accept these conditions
should be properly separated under authorized causes. These prompted them to file a
case against the petitioner initially for regularization due to the apparent threat to their
employment and the discovery and enlightenment of its real identity as their true and
lawful employer. On July 3, 2009, ICSI issued a similarly worded memorandum. On July
16, 2009, however, some of them did not anymore receive their respective schedules
and assignments from the petitioner; thus, they amended their Complaints to include
constructive dismissal and other monetary claims.12

For its part, the petitioner vehemently maintained that it is not the respondents'
employer but ICSI as the latter was the one that hired and selected them and they
were simply deployed to the former. Also, ICSI was the one that paid the respondents'
salaries and made the necessary deductions thereto of their Social Security System
(SSS), PAG-IBIG, and Philippine Health Insurance Corporation (Philhealth)
contributions. The petitioner equally insisted that the power to control the means and
manner of performance of the respondents' work rests upon ICSI. With these, the
petitioner cannot be made answerable to the respondents' complaints. Moreover, even
ICSI itself supported petitioner's positions. ICSI affirmed that it is the respondents'
employer having the power to hire, discipline, and terminate their services; it is the one
responsible for the payment of their salaries; and it controlled the manner and method
of their work. In fact, its Officer-in-Charge (OIC), Invoicing Account was the one who
assigned the respondents' daily time records. The respondents received their work
assignment or daily schedule from ICSFs Base Controller, Invoicing Account. Even
though the respondents are field employees, they are still under the supervision of
ICSI's Base Controller and OIC-Invoicing Account. The respondents only reported to the
petitioner's KAM in exceptional cases, such as where there are diverted deliveries,
meaning, when the outlets where the products are supposed to be delivered have
rejected them. This is done merely to inform the petitioner's KAM that the products
were rejected and to know where they can deliver the same. The petitioner, therefore,
does not have control over the work premises of the respondents and the latter do not
use the tools, materials and equipment of the former.13

After taking into consideration the parties' respective arguments, the LA rendered a
Decision dated February 17, 2010 dismissing the Complaints for lack of merit.

The LA held that ICSI is a legitimate service contractor having substantial capital and
investment to carry out its business independently. The right to control the
performance of the work of its employees likewise rests upon it. Even the four-fold test
to determine the existence of an employer-employee relationship revealed that the
same exists between ICSI and the respondents, and not between the petitioner and the
respondents. Notably, it was established on record that the respondents applied with
and were hired by ICSI; the latter was also the one that paid their salaries and other
labor standard benefits and made the necessary deductions thereto of their SSS,
Philhealth, PAG-IBIG and Bureau of Internal Revenue (BIR) contributions; ICSI likewise
has the authority to subject the respondents to disciplinary action when they have
committed violations of the Basic Policy for Invoicers; and ICSI likewise has the control
over the manner of performance of the respondents' functions, being under the direct
supervision of its Base Controller, who gives them their work schedule, and its OIC,
who monitors their attendance. Though the petitioner's representative at the outlet
signs in the respondents' daily time monitoring sheets, the same is only for purposes of
validating their presence thereat for that specific time and date. And while it is true that
the respondents used the petitioner's invoice and other documents bearing its name,
this is not an indication that they used its tools and equipment. Rather, it is just but
natural that the invoices or receipts should bear the petitioner's name as they are the
owner of the products being delivered and checked by the respondents. Even the fact
that the respondents reported to the petitioner at the end of the day does not
constitute the latter's control over them. The same is an indication that the petitioner is
only after the result of their work, which is the invoice itself being handed to it after
completion. Similarly, even if the petitioner had issued action plans or plans of activities
on how the respondents should accomplish their work, the same should be considered
as mere guidelines to attain the desired result and not to control the manner and
means of performing their work. With all of these, the respondents cannot hold the
petitioner liable for all the charges in its Complaints. The respondents cannot also be
said to have been constructively dismissed as they were hired only for the duration of
the petitioner's invoicing project. Their employment is co-terminus with ICSI's contract
of invoicing with the petitioner, which is a clear manifestation that they were hired only
for a fixed period or for the project's duration; thus, their claim for regularization has
no leg to stand on.14

On appeal, the NLRC, in a Decision dated September 28, 2010, dismissed the appeal for
lack of merit and affirmed the LA Decision. It also denied for lack of merit the
respondents' subsequent Motion for Reconsideration.15

On further appeal, the CA, in its now assailed Decision dated October 28, 2014,
reversed and set aside the NLRC Decision and Resolution.

The CA held that an employer-employee relationship exists between the petitioner and
the respondents; and that ICSI was only its agent or intermediary. Applying the control
test, it was the petitioner that exercises direct supervision and control over the
respondents. The petitioner was the one that issued to respondents various orders on
how to perform their respective tasks from menial instructions on how to distribute the
CSSR and how to use delivery receipts, invoice and shrinkage forms, to the more
complex ones of chart preparation on its activity-based system. The respondents were
also instructed to report to the petitioner's various account managers. Even the power
of dismissal appeared to have been exercised by the petitioner. This can be gleaned
from its letter to ICSI dated May 22, 2009 ordering the dismissal under authorized
causes of those unwilling to abide with the conditions set forth regarding the transfer of
its invoicing operations at its San Fernando, Pampanga Plant. Apparently, the petitioner
could give instructions to ICSI on how to deal with the employees and it could also
direct the termination of their employment. Further, the petitioner could relocate the
respondents' workplace relative to the performance of their duties as ICSI's
"employees" as it is incapable of providing a suitable one for all of them. Equally, the
CA held that the respondents' functions as Invoicers are necessary and desirable in the
petitioner's usual trade or business, being engaged in the manufacturing and sale of
food products. This too is a clear indication that the respondents are petitioner's
employees. As such, both the petitioner and ICSI are solidarity liable for the
respondents' rightful claims. And since their respective employments with the petitioner
commenced between 2005 and 2009, thus, they have attained the status of regular
employees. They cannot, therefore, be dismissed except for valid and lawful reasons.
Being unjustly dismissed, the respondents are entitled to (1) reinstatement without loss
of seniority rights and other privileges; and (2) payment of full backwages, inclusive of
allowances, and other benefits or their monetary equivalent, computed from the time
their compensation was withheld up to the time of their actual reinstatement.16

The petitioner sought reconsideration thereof but was denied in the questioned
Resolution dated August 18, 2015.

Hence, this petition raising these arguments: (1) the CA erred in reversing the
dismissal of the Complaints and the findings of the NLRC that the respondents are not
the petitioner's employees; and (2) the CA erred in directing the petitioner to reinstate
the respondents with full status and rights of regular employees and to grant them all
benefits as may be provided for by law or any existing CBA.17

The petition is impressed with merit.

At the outset, the primordial issue that must first be addressed here is whether ICSI is
a legitimate job contractor. On the resolution of this issue depends the determination of
the ultimate issue of whether an employer-employee relationship exists between the
petitioner and the respondents so as to hold the former liable for the dismissal and all
the other claims of the latter.

Generally, this Court does not review factual questions (such as whether an employer-
employee relationship exists between the parties), primarily because it is not a trier of
facts. This notwithstanding, where, like in this case, there is a conflict between the
factual findings of the LA and the NLRC, on one hand, and those of the CA, on the
other, it becomes imperative for the Court, in the exercise of its equity jurisdiction, to
review and re-evaluate the factual issues and to look into the records of the case and
re-examine the questioned findings.18

Article 106 of the Labor Code clearly identified and distinguished the relations that may
arise in a situation where there is an employer, a contractor, and employees of the
contractor.19 It provides, thus:

ART. 106. Contractor or subcontractor. - Whenever an employer enters into a

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

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

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the

contracting out of labor to protect the rights of workers established under this Code. In
so prohibiting or restricting, he may make appropriate distinctions between labor-only
contracting and job contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any
provision of this Code.

There is "labor-only" contracting where the person supplying workers to an

employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers
recruited and placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him.
From the aforequoted provision, the two possible relations that may arise among the
parties are: (1) the permitted legitimate job contract; or (2) the prohibited labor-only
contracting.20

Obviously, the permitted or permissible or legitimate job contracting or subcontracting

is the one allowed and permitted by law. It is an arrangement whereby a principal
agrees to put out or farm out with the contractor or subcontractor the performance or
completion of a specific job, work, or service within a definite or predetermined period,
regardless of whether such job, work, or service is to be performed or completed within
or outside the premises of the principal. To determine its existence, these conditions
must concur: (a) the contractor carries on a distinct and independent business and
partakes the contract work on his account under his own responsibility according to his
own manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of his work except as to the
results thereof; (b) the contractor has substantial capital or investment; and (c) the
agreement between the principal and the contractor or subcontractor assures the
contractual employees' entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization, security of tenure, and social
welfare benefits.21 Thus, in legitimate job contracting, the employer-employee
relationship between the job contractor and his employees is maintained. While the law
creates an employer-employee relationship between the employer and the contractor's
employees, the same is only for the purpose of ensuring the payment of the employees'
wages. In short, the employer becomes jointly and severally liable with the job
contractor but only for the payment of the employees' wages whenever the contractor
fails to pay the same. Other than that, the employer is not responsible for any claim
made by the contractor's employees.22

In stark contrast, labor-only contracting is a prohibited act and it is not condoned by

law. It is an arrangement where the contractor not having substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others,
supplies workers to an employer and the workers recruited are performing activities
which are directly related to the principal business of such employer.23 The guidelines to
determine its existence24 are set forth in Section 5 of Department Order No. 18-02 (DO
18-02),25 the Rules Implementing Articles 106 to 109 of the Labor Code, as amended,
to wit:

Section 5. Prohibition against labor-only contracting. - Labor-only contracting is

hereby declared prohibited. For this purpose, labor-only contracting shall refer to an
arrangement where the contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any of the following
elements are present:

(i) The contractor or subcontractor does not have substantial capital or investment
which relates to the job, work or service to be performed and the employees recruited,
supplied or placed by such contractor or subcontractor are performing activities which
are directly related to the main business of the principal; or

(ii) the contractor does not exercise the right to control over the performance of the
work of the contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (C )
of the Labor Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization

in the case of corporations, tools, equipment, implements, machineries and work
premises, actually and directly used by the contractor or subcontractor in the
performance or completion of the job, work or service contracted out.

The "right to control" shall refer to the right reserved to the person for whom the
services of the contractual workers are performed, to determine not only the end to be
achieved, but also the manner and means to be used in reaching that end. (Emphases
and italics in the original.)

Section 7 of the same implementing rules then provides for the consequences of a
labor-only contracting, thus:26
Section 7. Existence of an employer-employee relationship. - The contractor or
subcontractor shall be considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code and other social legislation. The
principal, however, shall be solidarity liable with the contractor in the event of any
violation of any provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of the
following cases as declared by a competent authority:

(a) where there is labor-only contracting; or

(b) where the contracting arrangement falls within the prohibitions provided in Section
6 (Prohibitions) hereof. (Emphases and italics in the original.)

Clearly therefrom, a finding of the existence of a labor-only contracting would definitely

give rise to: (1) the creation of an employer-employee relationship between the
principal and the employees of the contractor or sub-contractor; and (2) the solidary
liability of the principal and the contractor to the employees in the event of any
violation of the Labor Code.27

To distinguish prohibited labor-only contracting from permissible job contracting, the

totality of the facts and the surrounding circumstances of the case shall be considered.
Customarily, the contractor is presumed to be a labor-only contractor, unless such
contractor overcomes the burden of proving that it has the substantial capital,
investment, tools and the like. But then, where the principal is the one claiming that the
contractor is a legitimate contractor, like in this case, the burden to prove the same
rests on the principal.28 Inescapably, the petitioner bears the burden of proving that
ICSI is truly an independent contractor, which it successfully did.

Here, this Court is more inclined to sustain the findings of both the LA and the NLRC
regarding the matter. As succinctly found by these administrative agencies, not only the
petitioner but even ICSI had satisfactorily proven that the latter is truly a legitimate
contractor and not just a fly-by-night one, and thus, the employer-employee
relationship between ICSI and the respondents is maintained. First, ICSI has been
incorporated and duly registered with the Securities and Exchange Commission (SEC),
as well as with the BIR, SSS, Philhealth, PAG-IBIG, and the DOLE with DOLE Certificate
of Registration No. NCR-8-0507-236. These may not be conclusive evidence of the
status of the petitioner as a contractor but the fact of its registration prevented the
legal presumption of it being a mere labor-only contractor from arising.29Second, ICSI
has substantial capital. Per its Articles of Incorporation, ICSI has an authorized capital
stock of P4 Million while per an Independent Auditor's Report for the year ended on
December 31, 2008, it has a gross income of P14,192,040 and a total assets amounting
to P30,820,419.34.30 Though it is unclear whether they have investment in the form of
tools, equipments, machineries, etc., the same would not change the fact that they
have substantial capital to be considered as a legitimate contractor. As this Court held
in Neri, et al. v. NLRC, et al.,31 the law does not require both substantial capital and
investment in the form of tools, equipment, machineries, etc. and this is clear from the
use of the conjunction "or." If it is otherwise, then the conjunction "and" should have
been used.32Third, ICSI also has other A-list clients apart from the petitioner during the
time that its contract with the former was subsisting,33 which is an indication that it
carries on a distinct and independent business. Fourth, ICSI also has the control on the
performance of the work of its employees. It was the officer or officers of ICSI who has
the direct supervision over the respondents. In particular, it was the ICSI's Base
Controller, who gives the respondents their work schedule, while its OIC was the one
who monitors their attendance. In relation to this, quite telling is the following
observations of the LA and the NLRC, thus:

Lastly, the power of control over the means and manner of performance of the work,
weighing the evidence presented by both parties, We find [herein petitioner's] evidence
more credible. [Petitioner] outlines its arrangement with [ICSI], viz:

The Supply Chain Department upon finalization of the delivery schedule shall request
through e-mail or fax invoicers from [ICSI's] OIC Invoicing Account, Ms. Jocelyn
Lenchico, as may be required Ms. Lenchico would then contact [ICSI's] pool of invoicers
and assign such number of invoicers as required and they shall be advised of the
delivery route and meeting place with the trucker. Ms. Lenchico would likewise forward
to the Route Planner of the company the names of the invoicers assigned for the day
which shall be forwarded to the plant and the truckers. Contrary to [herein
respondents'] claim that their daily schedule are given by employees of the [petitioner],
it has been proven that the schedules are given by the OIC Invoicing Account, who is
an employee of [ICSI].

The assigned invoicers would then meet the trucker either at the plant of at the first
delivery drop-off point. The invoicers are then expected to:

1. witness and check versus the Delivery manifest the unloading of

products in the designated outlets;

2. prepare invoice, delivery receipt and other documents required to

complete the delivery at the designated outlets;

3. obtain from the designted outlets such receiving documents and/or

information necessary for the liquidation and subsequent collection.

Upon completion of the schedued deliveries, the invoicer turns over the delivery
documents and reports on actual volumes delivered to designated outlets to the Manual
Liquidator.

From the foregoing, it is clear that the interaction between [respondents] and
[petitioner's] employees are limited. And [ICSI] controls the means and manner of how
they perform their work too.34

Further, these invoicing services have never been performed by the petitioner's regular
employees, being merely incidental to its selling activities. And again, as held in Neri,
while these services, like the invoicing services in this case, may be considered directly
related to the principal business of the employer, nevertheless, they are not necessary
in the conduct of the principal business of the employer. This Court has already taken
judicial notice of the general practice adopted in several government and private
institutions and industries of hiring independent contractors to perform special services
ranging from janitorial, security, and even technical or other specific services, like
invoicing in this case.35

With the foregoing, it cannot be gainsaid that ICSI is a legitimate contractor. Being a
legitimate contractor, the employer-employee relationship between ICSI and the
respondents is maintained. Even with the application of the four-fold test to determine
the existence of employer-employee relationship, to wit: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal;
and (4) the power of control,36 all pointed to ICSI as the respondents' employer.

In the case under consideration, it was sufficiently found by both the LA and the NLRC
that the respondents applied with and were hired by ICSI, as evidenced by their
individual Personal Information Sheets, employment contracts and Letters of
Appointment. Concomitantly, ICSI issued them their individual identification cards as
borne by the records. Even the payment of respondents' wages and other labor
standard benefits were also made by ICSI, as shown by their payrolls and disbursement
vouchers. More so, ICSI itself reported the respondents as its employees with the SSS,
Philhealth, PAG-IBIG, and BIR. Also, ICSI was the one that made the necessary
deductions on the respondents' salaries for their contributions (their premium share)
thereto, which were all properly remitted to the said agencies. As to the power of
dismissal and to discipline, it was also ICSI that exercised the same. This is evident
from the Notice to Explain and Memorandum it issued to its erring employees who
violated its rules and regulations. Contrary to the claim of the respondents, which the
CA affirmed, this Court holds that the controverted letter dated May 22, 2009 issued by
the petitioner to ICSI contained no instruction from the former for the latter to transfer
or even terminate the respondents. This Court finds satisfactory the petitioner's
explanation that such letter merely informed ICSI of the changes in their agreement
regarding the invoicing services that the invoicing operations at its head office would be
discontinued and would be transferred to San Fernando, Pampanga. At the same time,
the petitioner was just reminding ICSI to ensure that in the event there will be
employees unwilling to comply with the new terms and conditions of their agreement,
they should be properly dealt with in accordance with law. Stated differently, the
petitioner only wanted to make sure that ICSI would not renege on its obligations to its
employees. Lastly, the power of control similarly rests upon ICSI. As previously stated,
it was ICSI's officers who have direct supervision over the respondents. ICSI's Base
Controller and OIC were the ones who gave the respondents their work schedule and
monitored their attendance, respectively.37 As keenly observed by the LA, thus:

The only interaction [herein respondents] have with the representatives of [herein
petitioner] is when the deliveries are rejected and the products need to be diverted.
Thus, they call the KAM to inform them of the rejected products and also to inquire if
there are other outlets where these rejects could be accommodated. At the end of the
day, the invoices issued by [respondents] are submitted to [petitioner] precisely
because these are used by the latter in monitoring their products. Moreover, the only
function of [respondents] is the invoicing and not to keep the records. The fact that
they report to [petitioner] at the end of the day does not constitute control by [the
latter] over them. On the contrary, this is an indication that [petitioner] is only after the
result of [respondents'] work, which is the invoice itself that is being handed to them
after completion of their work. Moreover, if [petitioner has] issued action plans or plans
of activities on how [respondents] should accomplish their work, these should be
considered as mere guidelines to attain the desired result and not to control the manner
and means of performing their work.38

It is worthy to note this Court's pronouncement in Royale Homes Marketing Corporation

v. Alcantara,39 citing Insular Life Assurance Co., Ltd. v. National Labor Relations
Commission,40 viz.:

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. In Insular Life Assurance Co., Ltd. v. National Labor Relations
Commission (citation omitted) it was pronounced that:

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

With all the foregoing, this Court holds that no employer-employee relationship exists
between the petitioner and the respondents. It is an error, therefore, on the part of the
CA to order the petitioner to reinstate the respondents and to grant them all the
benefits and privileges of regular employees. Not being petitioner's employees, thus,
they cannot attain the regular status. Along side, the petitioner cannot be charged of
constructive illegal dismissal for it is beyond its power to dismiss the respondents as
they were never its employees.

WHEREFORE, premises considered, the present petition is hereby GRANTED. The CA

Decision and Resolution dated October 28, 2014 and August 18, 2015, respectively, in
CA-G.R. SP No. 118337 are hereby REVERSED and SET ASIDE. The NLRC Decision
and Resolution dated September 28, 2010 and December 14, 2010, respectively, are
hereby REINSTATED.

SO ORDERED.
 THIRD DIVISION

March 18, 2015

G.R. No. 205300

FONTERRA BRANDS PHILS., INC., Petitioner,

vs.
LEONARDO LARGADO and TEOTIMO ESTRELLADO, Respondents.
1

DECISION

VELASCO, JR., J.:

The Case

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal
and setting aside of the Decision of the Court of Appeals (CA) dated September 6, 2012, as well as
its January 11, 2013 Resolution denying reconsideration thereof, in CA-G.R. SP No. 114227,
entitled Leonardo Largado and Teotimo P. Estrellado v. National Labor Relations Commission
(NLRC), Fonterra Brands Phils., lnc./Carlo Mendoza, Zytron Marketing & Promotions
Corp./Francisco Valencia, A. C. Sicat Marketing & Promotional Services/Arturo Sicat.

The Facts

Petitioner Fonterra Brands Phils., Inc. (Fonterra) contracted the services of Zytron Marketing and
Promotions Corp. (Z)rtron) for the marketing and promotion of its milk and dairy products. Pursuant
to the contract, Zytron provided Fonterra with trade merchandising representatives (TMRs), including
respondents Leonardo Largado (Largado) and Teotimo Estrellado (Estrellado). The engagement of
their services began on September 15, 2003 and May 27, 2002, respectively, and ended on June 6,
2006.

On May 3, 2006, Fonterra sent Zytron a letter terminating its promotions contract, effective June 5,
2006. Fonterra then entered into an agreement for manpower supply with A.C. Sicat Marketing and
Promotional Services (A.C. Sicat). Desirous of continuing their work as TMRs, respondents
submitted their job applications with A.C. Sicat, which hired them for a term of five (5) months,
beginning June 7, 2006 up to November 6, 2006.

When respondents’ 5-month contracts with A.C. Sicat were about to expire, they allegedly sought
renewal thereof, but were allegedly refused. This prompted respondents to file complaints for illegal
dismissal, regularization, non-payment of service incentive leave and 13th month pay, and actual
and moral damages, against petitioner, Zytron, and A.C. Sicat.

The Labor Arbiter dismissed the complaint and ruled that: (1) respondents were not illegally
dismissed. As a matter of fact, they were the ones who refused to renew their contract and that they
voluntarily complied with the requirements for them to claim their corresponding monetary benefits in
relation thereto; and (2) they were consecutively employed by Zytron and A.C. Sicat, not by
Fonterra. The dispositive portion of the Decision reads:
2

WHEREFORE, in view of the foregoing, judgment is hereby rendered DISMISSING the instant case
for utter lack of merit.

SO ORDERED.

The NLRC affirmed the Labor Arbiter, finding that respondents’ separation from Zytron was brought
about by the execution of the contract between Fonterra and A.C. Sicat where the parties agreed to
absorb Zytron’s personnel, including respondents. Too, respondents failed to present any evidence
that they protested this set-up. Furthermore, respondents failed to refute the allegation that they
voluntarily refused to renew their contract with A.C. Sicat. Also, respondents did not assert any claim
against Zytron and A.C. Sicat. The NLRC disposed of the case in this wise:

WHEREFORE, premises considered, the appeals are hereby ordered DISMISSED and the Decision
of the Labor Arbiter is AFFIRMED [in] toto.

SO ORDERED. 3

The NLRC decision was assailed in a petition under Rule 65 before the CA.
Ruling on the petition, the CA, in the questioned Decision, found that A.C. Sicat satisfies the
4

requirements of legitimate job contracting, but Zytron does not. According to the CA: (1) Zytron’s
paid-in capital of 250,000 cannot be considered as substantial capital; (2) its Certificate of
Registration was issued by the DOLE months after respondents’ supposed employment ended; and
(3) its claim that it has the necessary tools and equipment for its business is unsubstantiated.
Therefore, according to the CA, respondents were Fonterra’s employees.

Additionally, the CA held that respondents were illegally dismissed since Fonterra itself failed to
prove that their dismissal is lawful. However, the illegal dismissal should be reckoned from the
termination of their supposed employment with Zytron on June 6, 2006. Furthermore, respondents’
transfer to A.C. Sicat is tantamount to a completely new engagement by another employer. Lastly,
the termination of their contract with A.C. Sicat arose from the expiration of their respective contracts
with the latter. The CA, thus, ruled that Fonterra is liable to respondents and ordered the
reinstatement of respondents without loss of seniority rights, with full backwages, and other benefits
from the time of their illegal dismissal up to the time of their actual reinstatement. The fallo of the
Decision reads:

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Decision dated
20 November 2009 and Resolution dated 5 March 2010 of the National Labor Relations Commission
(NLRC), Seventh Division, are hereby ANULLED and SET ASIDE. Private respondent Fonterra
Brand, Inc. is hereby ordered to REINSTATE [respondents] without loss of seniority rights. Private
respondents Fonterra Brand, Inc. and Zytron Marketing and Promotional Corp. are hereby
further ORDERED to jointly and severally pay petitioners their full backwages and other benefits
from the time of their illegal dismissal up to the time of their actual reinstatement; and attorney’s
fees.

SO ORDERED.

Zytron and Fonterra moved for reconsideration, but to no avail. Hence, this petition.

The Issues

Petitioner presents the following issues for Our resolution:

I.The CA erred in ruling that Zytron was a mere labor-only contractor to petitioner Fonterra, in that:

a.As held by the Court, there is no absolute figure that constitutes "substantial" capital for an
independent contractor, and the same should instead be measured against the type of work
it is obligated to do for the principal. It is most respectfully submitted that, here, the
merchandising work undertaken by Zytron’s paid-in capital of 250,000 was as of 1990, the
year it was incorporated;

b.As shown in its Articles of Incorporation, Zytron had been in business since 1990, or more
than a decade before it signed a merchandising agreement with petitioner Fonterra;

c.Very importantly, petitioner Fonterra never exercised the right to control respondents and
other employees of Zytron. Indeed, respondents neither alleged that petitioner exercised
control over them nor presented proof in support thereof in any of their previous pleadings.

II.Respondents never claimed nor adduced evidence that they were dismissed from employment by
Zytron. In fact, Zytron denies terminating them from work. The CA, thus, erred in finding that
respondents were "illegally dismissed."

Succinctly, the issues in the case at bar are: (1) whether or not Zytron and A.C. Sicat are labor-only
contractors, making Fonterra the employer of herein respondents; and (2) whether or not
respondents were illegally dismissed.

Our Ruling

We find merit in the petition.

As regards the CA’s conclusion that Zytron is not a legitimate job contractor, We are of the view that
such is immaterial to the resolution of the illegal dismissal issue for one reason: We find that
respondents voluntarily terminated their employment with Zytron, contrary to their allegation that
their employment with Zytron was illegally terminated.

We do not agree with the CA that respondents’ employment with Zytron was illegally terminated.
As correctly held by the Labor Arbiter and the NLRC, the termination of respondents’ employment
with Zytron was brought about by the cessation of their contracts with the latter. We give credence to
the Labor Arbiter’s conclusion that respondents were the ones who refused to renew their contracts
with Zytron, and the NLRC’s finding that they themselves acquiesced to their transfer to A.C. Sicat.

By refusing to renew their contracts with Zytron, respondents effectively resigned from the latter.
Resignation is the voluntary act of employees who are compelled by personal reasons to dissociate
themselves from their employment, done with the intention of relinquishing an office, accompanied
by the act of abandonment. 5

Here, it is obvious that respondents were no longer interested in continuing their employment with
Zytron. Their voluntary refusal to renew their contracts was brought about by their desire to continue
their assignment in Fonterra which could not happen in view of the conclusion of Zytron’s contract
with Fonterra. Hence, to be able to continue with their assignment, they applied for work with A.C.
Sicat with the hope that they will be able to continue rendering services as TMRs at Fonterra since
A.C. Sicat is Fonterra’s new manpower supplier. This fact is even acknowledged by the CA in the
assailed Decision where it recognized the reason why respondents applied for work at A.C. Sicat.
The CA stated that "[t]o continuously work as merchandisers of Fonterra products, [respondents]
submitted their job applications to A.C. Sicat x x x." This is further bolstered by the fact that
6

respondents voluntarily complied with the requirements for them to claim their corresponding
monetary benefits in relation to the cessation of their employment contract with Zytron.

In short, respondents voluntarily terminated their employment with Zytron by refusing to renew their
employment contracts with the latter, applying with A.C. Sicat, and working as the latter’s
employees, thereby abandoning their previous employment with Zytron. Too, it is well to mention
that for obvious reasons, resignation is inconsistent with illegal dismissal. This being the case,
Zytron cannot be said to have illegally dismissed respondents, contrary to the findings of the CA.

As regards respondents’ employment with A.C. Sicat and its termination via non-renewal of their
contracts, considering that in labor-only contracting, the law creates an employer-employee
relationship between the principal and the labor-only contractor’s employee as if such employees are
directly employed by the principal employer, and considers the contractor as merely the agent of the
principal, it is proper to dispose of the issue on A.C. Sicat’s status as a job contractor first before
7

resolving the issue on the legality of the cessation of respondents’ employment.

In this regard, We defer to the findings of the CA anent A.C. Sicat’s status as a legitimate job
contractor, seeing that it is consistent with the rules on job contracting and is sufficiently supported
by the evidence on record.

A person is considered engaged in legitimate job contracting or subcontracting if the following

conditions concur:

1.The contractor or subcontractor carries on a distinct and independent business and

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

2.The contractor or subcontractor has substantial capital or investment; and

3.The agreement between the principal and contractor or subcontractor assures the
contractual employees entitlement to all labor and occupational safety and health standards,
free exercise of the right to self-organization, security of tenure, and social and welfare
benefits.8

On the other hand, contracting is prohibited when the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a principal and if any of the following
elements are present, thus:

1.The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly related
to the main business of the principal; or

2.The contractor does not exercise the right to control over the performance of the work of
the contractual employee. 9
The CA correctly found that A.C. Sicat is engaged in legitimate job contracting. It duly noted that
A.C. Sicat was able to prove its status as a legitimate job contractor for having presented the
following evidence, to wit:

1.Certificate of Business Registration;

2.Certificate of Registration with the Bureau of Internal Revenue;

3.Mayor’s Permit;

4.Certificate of Membership with the Social Security System;

5.Certificate of Registration with the Department of Labor and Employment;

6.Company Profile; and

7.Certifications issued by its clients. 10

Furthermore, A.C. Sicat has substantial capital, having assets totaling 5,926,155.76 as of December
31, 2006. Too, its Agreement with Fonterra clearly sets forth that A.C. Sicat shall be liable for the
wages and salaries of its employees or workers, including benefits, premiums, and protection due
them, as well as remittance to the proper government entities of all withholding taxes, Social
Security Service, and Medicare premiums, in accordance with relevant laws.

The appellate court further correctly held that Fonterra’s issuance of Merchandising Guidelines,
stock monitoring and inventory forms, and promo mechanics, for compliance and use of A.C. Sicat’s
employees assigned to them, does not establish that Fonterra exercises control over A.C. Sicat. We
agree with the CA’s conclusion that these were imposed only to ensure the effectiveness of the
promotion services to be rendered by the merchandisers as it would be risky, if not imprudent, for
any company to completely entrust the performance of the operations it has contracted out.

These sufficiently show that A.C. Sicat carries out its merchandising and promotions business,
independent of Fonterra’s business. Thus, having settled that A.C. Sicat is a legitimate job
1âwphi1

contractor, We now determine whether the termination of respondents’ employment with the former
is valid.

We agree with the findings of the CA that the termination of respondents’ employment with the latter
was simply brought about by the expiration of their employment contracts.

Foremost, respondents were fixed-term employees. As previously held by this Court, fixed-term
employment contracts are not limited, as they are under the present Labor Code, to those by nature
seasonal or for specific projects with predetermined dates of completion; they also include those to
which the parties by free choice have assigned a specific date of termination. The determining
11

factor of such contracts is not the duty of the employee but the day certain agreed upon by the
parties for the commencement and termination of the employment relationship. 12

In the case at bar, it is clear that respondents were employed by A.C. Sicat as project employees. In
their employment contract with the latter, it is clearly stated that "[A.C. Sicat is] temporarily
employing [respondents] as TMR[s] effective June 6[, 2006] under the following terms and
conditions: The need for your service being only for a specific project, your temporary employment
will be for the duration only of said project of our client, namely to promote FONTERRA BRANDS
products x x x which is expected to be finished on or before Nov. 06, 2006." 13

Respondents, by accepting the conditions of the contract with A.C. Sicat, were well aware of and
even acceded to the condition that their employment thereat will end on said pre-determined date of
termination. They cannot now argue that they were illegally dismissed by the latter when it refused to
renew their contracts after its expiration. This is so since the non-renewal of their contracts by A.C.
Sicat is a management prerogative, and failure of respondents to prove that such was done in bad
faith militates against their contention that they were illegally dismissed. The expiration of their
contract with A.C. Sicat simply caused the natural cessation of their fixed-term employment thereat.
We, thus, see no reason to disturb the ruling of the CA in this respect.

With these, We need not belabor the other assigned errors.

IN VIEW OF THE FOREGOING, the instant Petition for Review is GRANTED. The assailed Decision
of the Court of Appeals dated September 6, 2012 and its January 11, 2013 Resolution denying
reconsideration thereof, in CA-G.R. SP No. 114227, are hereby REVERSED and SET ASIDE. The
Decision of the National Labor Relations Commission dated November 20, 2009 and its Resolution
dated March 5, 2010 in NLRC Case No. RAB IV 12-23927-06-Q are hereby REINSTATED.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice
 FIRST DIVISION

G.R. No. 138051 June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of the
Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza
("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations Commission
("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The Facts

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

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

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

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

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first year and
₱317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on
the 10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

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

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

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount
stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the
other benefits under said Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and
Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did not
pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel
allowance and amounts due under the Employees Stock Option Plan ("ESOP").
On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

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

In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and directed
the parties to file their respective position papers. The Labor Arbiter ruled:

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

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.

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

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

xxx

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

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

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

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

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

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

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

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

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

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

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

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

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

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to
the regular courts, the same being in the nature of an action for alleged breach of contractual
obligation on the part of respondent-appellee. As squarely apparent from complainant-
appellant’s Position Paper, his claims for compensation for services, ‘13th month pay’,
signing bonus and travel allowance against respondent-appellee are not based on the Labor
Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds
under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of
complainant-appellant bears perusal:

‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually
bound itself to pay complainant a signing bonus consisting of shares of stocks…with
FIVE HUNDRED THOUSAND PESOS (₱500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount
not lower than the amount he was receiving prior to effectivity of (the) Agreement’.

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

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

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that his
contractual relations with ABS-CBN are founded on the New Civil Code, rather than the
Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served
upon the latter a ‘notice of rescission’ of Agreement with the station, per his letter dated April
1, 1996, which asserted that instead of referring to unpaid employee benefits, ‘he is waiving
and renouncing recovery of the remaining amount stipulated in paragraph 7 of the
Agreement but reserves the right to such recovery of the other benefits under said
Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to Dismiss dated July 10, 1996).
 Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or
the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his
complaint. Complainant-appellant’s claims being anchored on the alleged breach of contract
on the part of respondent-appellee, the same can be resolved by reference to civil law and
not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the
regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238
SCRA 267, 21 November 1994, an action for breach of contractual obligation is
intrinsically a civil dispute.9 (Emphasis supplied)

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

The Issue

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

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

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

The Court’s Ruling

We affirm the assailed decision.

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

The present controversy is one of first impression. Although Philippine labor laws and jurisprudence
define clearly the elements of an employer-employee relationship, this is the first time that the Court
will resolve the nature of the relationship between a television and radio station and one of its
"talents." There is no case law stating that a radio and television program host is an employee of the
broadcast station.

The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known
television and radio personality, and ABS-CBN, one of the biggest television and radio networks in
the country.

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

Employee or Independent Contractor?

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

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

SONZA maintains that all essential elements of an employer-employee relationship are present in
this case. Case law has consistently held that the elements of an employer-employee relationship
are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer’s power to control the employee on the means and methods by
which the work is accomplished.18 The last element, the so-called "control test", is the most
important element.19

A. Selection and Engagement of Employee

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

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

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

B. Payment of Wages

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

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

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

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

C. Power of Dismissal

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

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

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

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

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

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

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

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

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

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

SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host the
"Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work,
SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television,
and sounded on radio were outside ABS-CBN’s control. SONZA did not have to render eight hours
of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the
shows, as well as pre- and post-production staff meetings.31 ABS-CBN could not dictate the contents
of SONZA’s script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-
CBN or its interests.32 The clear implication is that SONZA had a free hand on what to say or discuss
in his shows provided he did not attack ABS-CBN or its interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN
merely reserved the right to modify the program format and airtime schedule "for more effective
programming."34 ABS-CBN’s sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of
SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over
the means and methods of the performance of his work. Although ABS-CBN did have the option not
to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s talent fees... Thus, even
if ABS-CBN was completely dissatisfied with the means and methods of SONZA’s performance of
his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even
discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show but ABS-CBN
must still pay his talent fees in full.35

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

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

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

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

Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN subjected
him to its rules and standards of performance. SONZA claims that this indicates ABS-CBN’s control
"not only [over] his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance
"covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules
and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed
on SONZA under the Agreement refers to the "Television and Radio Code of the Kapisanan ng mga
Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code
of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television stations.
Broadcasters are not necessarily employees of radio and television stations. Clearly, the rules and
standards of performance referred to in the Agreement are those applicable to talents and not to
employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former.43 In this case, SONZA failed to show that these rules controlled his
performance. We find that these general rules are merely guidelines towards the achievement of
the mutually desired result, which are top-rating television and radio programs that comply with
standards of the industry. We have ruled that:

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

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

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

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

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

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

MJMDC as Agent of SONZA

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

In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the
employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal
who is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent of
the principal. The law makes the principal responsible to the employees of the "labor-only
contractor" as if the principal itself directly hired or employed the employees. 48 These circumstances
are not present in this case.

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

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

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

Policy Instruction No. 40

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

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

Affidavits of ABS-CBN’s Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando
Cruz without giving his counsel the

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to

attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of
these witnesses as misleading and irrelevant.

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

Section 3. Submission of Position Papers/Memorandum

xxx

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

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

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

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

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries
to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it
is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution 53 arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee
creates an employer-employee relationship. To hold that every person who renders services to
another for a fee is an employee - to give meaning to the security of tenure clause - will lead to
absurd results.

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

Different Tax Treatment of Talents and Broadcasters

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

Nature of SONZA’s Claims

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

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26
March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., Panganiban, Ynares-Santiago, and Azcuna, JJ., concur

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 160506 June 6, 2011

JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO AMPELOQUIO,

ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO PLATON, JOSE FERNANDO
GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR
IGNACIO, JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO CALANAO,
ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR.,
ARNEL ENDAYA, ROBERTO ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO,
SANTOS BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA,
ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA, FERNANDO
MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO
MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P. TALLEDO,
ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL
BILLONES, ALLAN BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT,
RAUL DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO DACUNA,
RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, WILFREDO TORRES,
MELCHOR CARDANO, MARIANO NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES,
GERRY C. GATPO, GERMAN N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO,
ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ,
FRED P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ
BUSTENERA, ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, ALEJANDRINO
ABATON, and ORLANDO S. BALANGUE, Petitioners,
vs.
PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.

DECISION

DEL CASTILLO, J.:

Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor Code
establishes an employer-employee relationship between the employer and the employees of the
‘labor-only’ contractor.

The instant petition for review assails the March 21, 2003 Decision1 of the Court of Appeals (CA) in
CA-G.R. SP No. 52082 and its October 20, 2003 Resolution2 denying the motions for
reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G).
The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations Commission
(NLRC), which in turn affirmed the November 29, 1996 Decision3 of the Labor Arbiter. All these
decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be
legitimate independent contractors and the employers of the petitioners.

Factual Antecedents

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982
or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:

Name Date Employed Date Dismissed

1. Joeb M. Aliviado November, 1985 May 5, 1992
2. Arthur Corpuz 1988 March 11, 1993
3. Eric Aliviado 1985 March 11, 1993
4. Monchito Ampeloquio September, 1988 March 11, 1993
5. Abraham Basmayor[, Jr.] 1987 March 11, 1993
6. Jonathan Mateo May, 1988 March 11, 1993
7. Lorenzo Platon 1985 March 11, 1993
8. Jose Fernando Gutierrez 1988 May 5, 1992
9. Estanislao Buenaventura June, 1988 March 11, 1993
10. Lope Salonga 1982 March 11, 1993
11. Franz David 1989 March 11, 1993
12. Nestor Ignacio 1982 March 11, 1993
13. Julio Rey 1989 May 5, 1992
14. Ruben [Vasquez], Jr. 1985 May 5, 1992
15. Maximino Pascual 1990 May 5, 1992
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
17. Rolando Romasanta 1983 March 11, 1993
18. [Roehl] Agoo 1988 March 11, 1993
19. Bonifacio Ortega 1988 March 11, 1993
20. Arsenio Soriano, Jr. 1985 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993
22. Roberto Enriquez December, 1988 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992
24. Ed[g]ardo Quiambao 1989 March 11, 1993
25. Santos Bacalso 1990 March 11, 1993
26. Samson Basco 1984 March 11, 1993
27. Aladino Gregor[e], Jr. 1980 May 5, 1992
28. Edwin Garcia 1987 May 5, 1992
29. Armando Villar 1990 May 5, 1992
30. Emil Tawat 1988 March 11, 1993
31. Mario P. Liongson 1991 May 5, 1992
32. Cresente J. Garcia 1984 March 11, 1993
33. Fernando Macabent[a] 1990 May 5, 1992
34. Melecio Casapao 1987 March 11, 1993
35. Reynaldo Jacaban 1990 May 5, 1992
36. Ferdinand Salvo 1985 May 5, 1992
37. Alstando Montos 1984 March 11, 1993
38. Rainer N. Salvador 1984 May 5, 1992
39. Ramil Reyes 1984 March 11, 1993
40. Pedro G. Roy 1987
41. Leonardo [F]. Talledo 1985 March 11, 1993
42. Enrique [F]. Talledo 1988 March 11, 1993
43. Willie Ortiz 1987 May 5, 1992
44. Ernesto Soyosa 1988 May 5, 1992
45. Romeo Vasquez 1985 March 11, 1993
46. Joel Billones 1987 March 11, 1993
47. Allan Baltazar 1989 March 11, 1993
48. Noli Gabuyo 1991 March 11, 1993
49. Emmanuel E. Laban 1987 May 5, 1992
50. Ramir[o] E. [Pita] 1990 May 5, 1992
51. Raul Dulay 1988 May 5, 1992
52. Tadeo Duran[o] 1988 May 5, 1992
53. Joseph Banico 1988 March 11, 1993
54. Albert Leynes 1990 May 5, 1992
55. Antonio Dacu[m]a 1990 May 5, 1992
56. Renato dela Cruz 1982
57. Romeo Viernes, Jr. 1986
 58. El[ia]s Bas[c]o 1989
59. Wilfredo Torres 1986 May 5, 1992
60. Melchor Carda[ñ]o 1991 May 5, 1992
61. [Marino] [Maranion] 1989 May 5, 1992
62. John Sumergido 1987 May 5, 1992
63. Roberto Rosales May, 1987 May 5, 1992
64. Gerry [G]. Gatpo November, 1990 March 11, 1993
65. German N. Guevara May, 1990 March 11, 1993
66. Gilbert Y. Miranda June, 1991 March 11, 1993
67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
68. Arnold D. [Laspoña] June 1991 March 11, 1993
69. Philip M. Loza March 5, 1992 March 11, 1993
70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993
71. Orlando P. Jimenez November 6, 1992 March 11, 1993
72. Fred P. Jimenez September, 1991 March 11, 1993
73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993
74. Rolando J. de Andres June, 1991 March 11, 1993
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993
76. Roberto B. Cruz May 4, 1990 March 11, 1993
77. Rosedy O. Yordan June, 1991 May 5, 1992
78. Dennis Dacasin May. 1990 May 5, 1992
79. Alejandrino Abaton 1988 May 5, 1992
80. Orlando S. Balangue March, 1989 March 11, 19934

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of
more or less five months at a time.5 They were assigned at different outlets, supermarkets and
stores where they handled all the products of P&G. They received their wages from Promm-Gem or
SAPS.6

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such
as habitual absenteeism, dishonesty or changing day-off without prior notice. 7

P&G is principally engaged in the manufacture and production of different consumer and health
products, which it sells on a wholesale basis to various supermarkets and distributors. 8 To enhance
consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem
and SAPS for the promotion and merchandising of its products.9

In December 1991, petitioners filed a complaint10 against P&G for regularization, service incentive
leave pay and other benefits with damages. The complaint was later amended 11 to include the matter
of their subsequent dismissal.

Ruling of the Labor Arbiter

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that
there was no employer-employee relationship between petitioners and P&G. He found that the
selection and engagement of the petitioners, the payment of their wages, the power of dismissal and
control with respect to the means and methods by which their work was accomplished, were all done
and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate
independent job contractors. The dispositive portion of his Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled

cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit.

SO ORDERED.12

Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings. On July 27, 1998, the
NLRC rendered a Decision13 disposing as follows:

WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the
decision appealed from AFFIRMED.

SO ORDERED.14

Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998
Resolution.15

Ruling of the Court of Appeals

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC. However,
said petition was also denied by the CA which disposed as follows:

WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is
AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered to pay
service incentive leave pay to petitioners.

SO ORDERED.16

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition.

Issues

Petitioners now come before us raising the following issues:

I.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A]

REVERSIBLE ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE
ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN
EXCESS OF JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN,
OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND ESTABLISH THAT
RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT
THEY WERE ILLEGALLY DISMISSED BY THE FORMER.

II.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A]

REVERSIBLE ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS
HAD ACTED WITH GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND
THE PRIVATE RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF
ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND
ATTORNEY’S FEES.17

Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether petitioners
were illegally dismissed; and (3) whether petitioners are entitled for payment of actual, moral and
exemplary damages as well as litigation costs and attorney’s fees.

Petitioners’ Arguments

Petitioners insist that they are employees of P&G. They claim that they were recruited by the
salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the
existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-
alignment program, petitioners were instructed to fill up application forms and report to the agencies
which P&G created.18

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its
letter19 to SAPS dated February 24, 1993, informing the latter that their Merchandising Services
Contract will no longer be renewed.

Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services
of manpower to their client. They claim that the contractors have neither substantial capital nor tools
and equipment to undertake independent labor contracting. Petitioners insist that since they had
been engaged to perform activities which are necessary or desirable in the usual business or trade
of P&G, then they are its regular employees.20

Respondents’ Arguments

On the other hand, P&G points out that the instant petition raises only questions of fact and should
thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the NLRC,
particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and
conclusive on the Supreme Court.

P&G further argues that there is no employment relationship between it and petitioners. It was
Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their
salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of
work.

P&G also contends that the Labor Code neither defines nor limits which services or activities may be
validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor,
regardless of whether such activity is peripheral or core in nature. It insists that the determination of
whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of
management prerogative.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of
the Comment of Promm-Gem on the petition.21 Also, although SAPS was impleaded as a party in the
proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a party in the
proceedings before the CA.22 Hence, our pronouncements with regard to SAPS are only for the
purpose of determining the obligations of P&G, if any.

Our Ruling

The petition has merit.

As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies
exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is
constrained to wade into factual matters when there is insufficient or insubstantial evidence on
record to support those factual findings; or when too much is concluded, inferred or deduced from
the bare or incomplete facts appearing on record.23 In the present case, we find the need to review
the records to ascertain the facts.

Labor-only contracting and job contracting

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first
determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors.

The pertinent Labor Code provision on the matter states:

ART. 106. Contractor or subcontractor. – Whenever an employer enters into a contract with another
person for the performance of the former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of this Code.

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

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of
labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he
may make appropriate distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the parties involved shall
be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any provision of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such person are performing activities which are
directly related to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed by him. (Emphasis and
underscoring supplied.)
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18-02,24 distinguishes between legitimate and labor-only contracting:

xxxx

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists

a trilateral relationship under which there is a contract for a specific job, work or service between the
principal and the contractor or subcontractor, and a contract of employment between the contractor
or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the
principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or
subcontractor which has the capacity to independently undertake the performance of the job, work or
service, and the contractual workers engaged by the contractor or subcontractor to accomplish the
job[,] work or service.

xxxx

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared

prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or
service for a principal, and any of the following elements are present:

i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly related
to the main business of the principal; or

ii) [T]he contractor does not exercise the right to control over the performance of the work of
the contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor
Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case
of corporations, tools, equipment, implements, machineries and work premises, actually and directly
used by the contractor or subcontractor in the performance or completion of the job, work or service
contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.

x x x x (Underscoring supplied.)

Clearly, the law and its implementing rules allow contracting arrangements for the performance of
specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities,
regardless of whether such activity is peripheral or core in nature. However, in order for such
outsourcing to be valid, it must be made to an independent contractor because the current labor
rules expressly prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or service for a principal25 and any of the following
elements are present:

i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly related
to the main business of the principal; or

ii) The contractor does not exercise the right to control over the performance of the work of
the contractual employee. (Underscoring supplied)

In the instant case, the financial statements26 of Promm-Gem show that it

has authorized capital stock of ₱1 million and a paid-in capital, or capital available for operations, of
₱500,000.00 as of 1990.27 It also has long term assets worth ₱432,895.28 and current assets of
₱719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space
with a floor area of 870 square meters.28 It also had under its name three registered vehicles which
were used for its promotional/merchandising business.29 Promm-Gem also has other clients30 aside
from P&G.31 Under the circumstances, we find that Promm-Gem has substantial investment which
relates to the work to be performed. These factors negate the existence of the element specified in
Section 5(i) of DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant
materials, such as markers, tapes, liners and cutters, necessary for them to perform their work.
Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already
considered the complainants working under it as its regular, not merely contractual or project,
employees.32 This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE
Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates –
on the part of Promm-Gem – bad faith and intent to circumvent labor laws which factors have often
been tipping points that lead the Court to strike down the employment practice or agreement
concerned as contrary to public policy, morals, good customs or public order.33

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find

that it is a legitimate independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only
₱31,250.00. There is no other evidence presented to show how much its working capital and assets
are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets.

In Vinoya v. National Labor Relations Commission,34 the Court held that "[w]ith the current economic
atmosphere in the country, the paid-in capitalization of PMCI amounting to ₱75,000.00 cannot be
considered as substantial capital and, as such, PMCI cannot qualify as an independent
contractor."35 Applying the same rationale to the present case, it is clear that SAPS – having a paid-
in capital of only ₱31,250 - has no substantial capital. SAPS’ lack of substantial capital is underlined
by the records36 which show that its payroll for its merchandisers alone for one month would already
total ₱44,561.00. It had 6-month contracts with P&G.37 Yet SAPS failed to show that it could
complete the 6-month contracts using its own capital and investment. Its capital is not even sufficient
for one month’s payroll. SAPS failed to show that its paid-in capital of ₱31,250.00 is sufficient for the
period required for it to generate its needed revenue to sustain its operations independently.
Substantial capital refers to capitalization used in the performance or completion of the job, work or
service contracted out. In the present case, SAPS has failed to show substantial capital.

Furthermore, the petitioners have been charged with the merchandising and promotion of the
products of P&G, an activity that has already been considered by the Court as doubtlessly directly
related to the manufacturing business,38 which is the principal business of P&G. Considering that
SAPS has no substantial capital or investment and the workers it recruited are performing activities
which are directly related to the principal business of P&G, we find that the former is engaged in
"labor-only contracting".

"Where ‘labor-only’ contracting exists, the Labor Code itself establishes an employer-employee
relationship between the employer and the employees of the ‘labor-only’ contractor." 39 The statute
establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws.
The contractor is considered merely an agent of the principal employer and the latter is responsible
to the employees of the labor-only contractor as if such employees had been directly employed by
the principal employer.40

Consequently, the following petitioners, having been recruited and supplied

by SAPS41 -- which engaged in labor-only contracting -- are considered as the employees of P&G:
Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo,
Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando
Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez,
Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro
G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry
Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M.
Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr.,
Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S.
Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz,
Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.

The following petitioners, having worked under, and been dismissed by Promm-Gem, are
considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin
Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto
Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz,
Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio
Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul
Dulay, Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado. 42
Termination of services

We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular
employment, the employer shall not terminate the services of an employee except for a just 43 or
authorized44 cause.

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified
the cause of dismissal as grave misconduct and breach of trust, as follows:

xxxx

This informs you that effective May 5, 1992, your employment with our company, Promm-Gem, Inc.
has been terminated. We find your expressed admission, that you considered yourself as an
employee of Procter & Gamble Phils., Inc…. and assailing the integrity of the Company as legitimate
and independent promotion firm, is deemed as an act of disloyalty prejudicial to the interests of our
Company: serious misconduct and breach of trust reposed upon you as employee of our Company
which [co]nstitute just cause for the termination of your employment.

x x x x45

Misconduct has been defined as improper or wrong conduct; the transgression of some established
and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying
wrongful intent and not mere error of judgment. The misconduct to be serious must be of such grave
and aggravated character and not merely trivial and unimportant.46 To be a just cause for dismissal,
such misconduct (a) must be serious; (b) must relate to the performance of the employee’s duties;
and (c) must show that the employee has become unfit to continue working for the employer. 47

In other words, in order to constitute serious misconduct which will warrant the dismissal of an
employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or
conduct complained of has violated some established rules or policies. It is equally important and
required that the act or conduct must have been performed with wrongful intent. 48 In the instant case,
petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be
employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so.
As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a
legitimate and independent promotion firm. A misconduct which is not serious or grave, as that
existing in the instant case, cannot be a valid basis for dismissing an employee.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful
breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A
breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse,
as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently. 49

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that
the employee concerned holds a position of responsibility or of trust and confidence. As such, he
must be invested with confidence on delicate matters, such as custody, handling or care and
protection of the property and assets of the employer. And, in order to constitute a just cause for
dismissal, the act complained of must be work-related and must show that the employee is unfit to
continue to work for the employer.50 In the instant case, the petitioners-employees of Promm-Gem
have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is
there any evidence to show that they are unfit to continue to work as merchandisers for Promm-
Gem.

All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.

While Promm-Gem had complied with the procedural aspect of due process in terminating the
employment of petitioners-employees, i.e., giving two notices and in between such notices, an
opportunity for the employees to answer and rebut the charges against them, it failed to comply with
the substantive aspect of due process as the acts complained of neither constitute serious
misconduct nor breach of trust. Hence, the dismissal is illegal.

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of
dismissal. The records show that upon receipt by SAPS of P&G’s letter terminating their
"Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the
concerned petitioners not to report for work anymore. The concerned petitioners related their
dismissal as follows:

xxxx
5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino
A. Ponce that we should already stop working immediately because that was the order of Procter
and Gamble. According to him he could not do otherwise because Procter and Gamble was the one
paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he showed
to us the letter51 dated February 24, 1993, x x x

February 24, 1993

Sales and Promotions Services

Armon’s Bldg., 142 Kamias Road,
Quezon City

Attention: Mr. Saturnino A. Ponce

President & General Manager

Gentlemen:

Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be
renewing our Merchandising Services Contract with your agency.

Please immediately undertake efforts to ensure that your services to the Company will terminate
effective close of business hours of 11 March 1993.

This is without prejudice to whatever obligations you may have to the company under the
abovementioned contract.

Very truly yours,

(Sgd.)
EMMANUEL M. NON
Sales Merchandising III

6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no longer
allowed to work and we were refused entrance by the security guards posted. According to the
security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the
Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x
x x52

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike
Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to
disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does
not carry on its own business because the termination of its contract with P&G automatically meant
for it also the termination of its employees’ services. It is obvious from its act that SAPS had no other
clients and had no intention of seeking other clients in order to further its merchandising business.
From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in
the latter’s merchandising concerns only. Under the circumstances prevailing in the instant case, we
cannot consider SAPS as an independent contractor.

Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the
lawfulness of the dismissal rests with the employer.53 In termination cases, the burden of proof rests
upon the employer to show that the dismissal is for just and valid cause.54 In the instant case, P&G
failed to discharge the burden of proving the legality and validity of the dismissals of those
petitioners who are considered its employees. Hence, the dismissals necessarily were not justified
and are therefore illegal.

Damages

We now go to the issue of whether petitioners are entitled to damages. Moral

and exemplary damages are recoverable where the dismissal of an employee was attended by bad
faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to morals,
good customs or public policy.55

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any
oppressive act on the part of the latter, we find no support for the award of damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive
to labor. The sudden and peremptory barring of the concerned petitioners from work, and from
admission to the work place, after just a one-day verbal notice, and for no valid cause bellows
oppression and utter disregard of the right to due process of the concerned petitioners. Hence, an
award of moral damages is called for.

Attorney’s fees may likewise be awarded to the concerned petitioners who were illegally dismissed
in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the
oppressive acts56 of P&G.

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall
be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of
allowances, and other benefits or their monetary equivalent from the time the compensation was
withheld up to the time of actual reinstatement.57 Hence, all the petitioners, having been illegally
dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and
other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.
1avvphi1

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of
Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003
are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc.
are ORDERED to reinstate their respective employees immediately without loss of seniority rights
and with full backwages and other benefits from the time of their illegal dismissal up to the time of
their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to pay each of those
petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio,
Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga,
Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano,
Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando
Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones,
Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo,
Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez,
Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy
O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo
Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, ₱25,000.00 as
moral damages plus ten percent of the total sum as and for attorney’s fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from receipt of
this Decision, of petitioners’ backwages and other benefits; and ten percent of the total sum as and
for attorney’s fees as stated above; and for immediate execution.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 114337 September 29, 1995

NITTO ENTERPRISES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and ROBERTO CAPILI, respondents.

KAPUNAN, J.:

This petition for certiorari under Rule 65 of the Rules of Court seeking to annul the
decision rendered by public respondent National Labor Relations Commission, which reversed the
1

decision of the Labor Arbiter.

Briefly, the facts of the case are as follows:

Petitioner Nitto Enterprises, a company engaged in the sale of glass and aluminum products, hired
Roberto Capili sometime in May 1990 as an apprentice machinist, molder and core maker as
evidenced by an apprenticeship agreement for a period of six (6) months from May 28, 1990 to
2

November 28, 1990 with a daily wage rate of P66.75 which was 75% of the applicable minimum
wage.

At around 1:00 p.m. of August 2, 1990, Roberto Capili who was handling a piece of glass which he
was working on, accidentally hit and injured the leg of an office secretary who was treated at a
nearby hospital.

Later that same day, after office hours, private respondent entered a workshop within the office
premises which was not his work station. There, he operated one of the power press machines
without authority and in the process injured his left thumb. Petitioner spent the amount of P1,023.04
to cover the medication of private respondent.

The following day, Roberto Capili was asked to resign in a letter which reads:
3

August
2, 1990

Wala siyang tanggap ng utos mula sa superbisor at wala siyang experiensa kung
papaano gamitin and "TOOL" sa pagbuhat ng salamin, sarili niyang desisyon ang
paggamit ng tool at may disgrasya at nadamay pa ang isang sekretarya ng
kompanya.

Sa araw ding ito limang (5) minute ang nakakalipas mula alas-singko ng hapon siya
ay pumasok sa shop na hindi naman sakop ng kanyang trabaho. Pinakialaman at
kinalikot ang makina at nadisgrasya niya ang kanyang sariling kamay.

Nakagastos ang kompanya ng mga sumusunod:

Emergency and doctor fee P715.00

Medecines (sic) and others 317.04

Bibigyan siya ng kompanya ng Siyam na araw na libreng sahod hanggang

matanggal ang tahi ng kanyang kamay.

Tatanggapin niya ang sahod niyang anim na araw, mula ika-30 ng Hulyo at ika-4 ng
Agosto, 1990.

Ang kompanya ang magbabayad ng lahat ng gastos pagtanggal ng tahi ng kanyang

kamay, pagkatapos ng siyam na araw mula ika-2 ng Agosto.

Sa lahat ng nakasulat sa itaas, hinihingi ng kompanya ang kanyang resignasyon,

kasama ng kanyang comfirmasyon at pag-ayon na ang lahat sa itaas ay totoo.

Naiintindihan ko ang lahat ng nakasulat sa itaas, at ang lahat ng ito ay aking

pagkakasala sa hindi pagsunod sa alintuntunin ng kompanya.

(Sgd.) Roberto
Capili
Roberto Capili
On August 3, 1990 private respondent executed a Quitclaim and Release in favor of petitioner for
and in consideration of the sum of P1,912.79. 4

Three days after, or on August 6, 1990, private respondent formally filed before the NLRC Arbitration
Branch, National Capital Region a complaint for illegal dismissal and payment of other monetary
benefits.

On October 9, 1991, the Labor Arbiter rendered his decision finding the termination of private
respondent as valid and dismissing the money claim for lack of merit. The dispositive portion of the
ruling reads:

WHEREFORE, premises considered, the termination is valid and for cause, and the
money claims dismissed for lack of merit.

The respondent however is ordered to pay the complainant the amount of P500.00
as financial assistance.

SO ORDERED. 5

Labor Arbiter Patricio P. Libo-on gave two reasons for ruling that the dismissal of Roberto Capilian
was valid. First, private respondent who was hired as an apprentice violated the terms of their
agreement when he acted with gross negligence resulting in the injury not only to himself but also to
his fellow worker. Second, private respondent had shown that "he does not have the proper attitude
in employment particularly the handling of machines without authority and proper training. 6

On July 26, 1993, the National Labor Relations Commission issued an order reversing the decision
of the Labor Arbiter, the dispositive portion of which reads:

WHEREFORE, the appealed decision is hereby set aside. The respondent is hereby
directed to reinstate complainant to his work last performed with backwages
computed from the time his wages were withheld up to the time he is actually
reinstated. The Arbiter of origin is hereby directed to further hear complainant's
money claims and to dispose them on the basis of law and evidence obtaining.

SO ORDERED. 7

The NLRC declared that private respondent was a regular employee of petitioner by
ruling thus:

As correctly pointed out by the complainant, we cannot understand how an

apprenticeship agreement filed with the Department of Labor only on June 7, 1990
could be validly used by the Labor Arbiter as basis to conclude that the complainant
was hired by respondent as a plain "apprentice" on May 28, 1990. Clearly, therefore,
the complainant was respondent's regular employee under Article 280 of the Labor
Code, as early as May 28,1990, who thus enjoyed the security of tenure guaranteed
in Section 3, Article XIII of our 1987 Constitution.

The complainant being for illegal dismissal (among others) it then behooves upon
respondent, pursuant to Art. 227(b) and as ruled in Edwin Gesulgon vs. NLRC, et al.
(G.R. No. 90349, March 5, 1993, 3rd Div., Feliciano, J.) to prove that the dismissal of
complainant was for a valid cause. Absent such proof, we cannot but rule that the
complainant was illegally dismissed. 8

On January 28, 1994, Labor Arbiter Libo-on called for a conference at which only private
respondent's representative was present.

On April 22, 1994, a Writ of Execution was issued, which reads:

NOW, THEREFORE, finding merit in [private respondent's] Motion for Issuance of

the Writ, you are hereby commanded to proceed to the premises of [petitioner] Nitto
Enterprises and Jovy Foster located at No. l 74 Araneta Avenue, Portero, Malabon,
Metro Manila or at any other places where their properties are located and effect the
reinstatement of herein [private respondent] to his work last performed or at the
option of the respondent by payroll reinstatement.

You are also to collect the amount of P122,690.85 representing his backwages as
called for in the dispositive portion, and turn over such amount to this Office for
proper disposition.
 Petitioner filed a motion for reconsideration but the same was denied.

Hence, the instant petition — for certiorari.

The issues raised before us are the following:

WHETHER OR NOT PUBLIC RESPONDENT NLRC COMMITTED GRAVE ABUSE

OF DISCRETION IN HOLDING THAT PRIVATE RESPONDENT WAS NOT AN
APPRENTICE.

II

WHETHER OR NOT PUBLIC RESPONDENT NLRC COMMITTED GRAVE ABUSE

OF DISCRETION IN HOLDING THAT PETITIONER HAD NOT ADEQUATELY
PROVEN THE EXISTENCE OF A VALID CAUSE IN TERMINATING THE SERVICE
OF PRIVATE RESPONDENT.

We find no merit in the petition.

Petitioner assails the NLRC's finding that private respondent Roberto Capili cannot plainly be
considered an apprentice since no apprenticeship program had yet been filed and approved at the
time the agreement was executed.

Petitioner further insists that the mere signing of the apprenticeship agreement already established
an employer-apprentice relationship.

Petitioner's argument is erroneous.

The law is clear on this matter. Article 61 of the Labor Code provides:

Contents of apprenticeship agreement. — Apprenticeship agreements, including the

main rates of apprentices, shall conform to the rules issued by the Minister of Labor
and Employment. The period of apprenticeship shall not exceed six months.
Apprenticeship agreements providing for wage rates below the legal minimum wage,
which in no case shall start below 75% per cent of the applicable minimum wage,
may be entered into only in accordance with apprenticeship program duly approved
by the Minister of Labor and Employment. The Ministry shall develop standard model
programs of apprenticeship. (emphasis supplied)

In the case at bench, the apprenticeship agreement between petitioner and private respondent was
executed on May 28, 1990 allegedly employing the latter as an apprentice in the trade of "care
maker/molder." On the same date, an apprenticeship program was prepared by petitioner and
submitted to the Department of Labor and Employment. However, the apprenticeship Agreement
was filed only on June 7, 1990. Notwithstanding the absence of approval by the Department of Labor
and Employment, the apprenticeship agreement was enforced the day it was signed.

Based on the evidence before us, petitioner did not comply with the requirements of the law. It is
mandated that apprenticeship agreements entered into by the employer and apprentice shall be
entered only in accordance with the apprenticeship program duly approved by the Minister of Labor
and Employment.

Prior approval by the Department of Labor and Employment of the proposed apprenticeship program
is, therefore, a condition sine quo non before an apprenticeship agreement can be validly entered
into.

The act of filing the proposed apprenticeship program with the Department of Labor and
Employment is a preliminary step towards its final approval and does not instantaneously give rise to
an employer-apprentice relationship.

Article 57 of the Labor Code provides that the State aims to "establish a national apprenticeship
program through the participation of employers, workers and government and non-government
agencies" and "to establish apprenticeship standards for the protection of apprentices." To translate
such objectives into existence, prior approval of the DOLE to any apprenticeship program has to be
secured as a condition sine qua non before any such apprenticeship agreement can be fully
enforced. The role of the DOLE in apprenticeship programs and agreements cannot be debased.
Hence, since the apprenticeship agreement between petitioner and private respondent has no force
and effect in the absence of a valid apprenticeship program duly approved by the DOLE, private
respondent's assertion that he was hired not as an apprentice but as a delivery boy ("kargador" or
"pahinante") deserves credence. He should rightly be considered as a regular employee of petitioner
as defined by Article 280 of the Labor Code:

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

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

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

and pursuant to the constitutional mandate to "protect the rights of workers and promote their
welfare."9

Petitioner further argues that, there is a valid cause for the dismissal of private respondent.

There is an abundance of cases wherein the Court ruled that the twin requirements of due process,
substantive and procedural, must be complied with, before valid dismissal exists. Without which,
10

the dismissal becomes void.

The twin requirements of notice and hearing constitute the essential elements of due process. This
simply means that the employer shall afford the worker ample opportunity to be heard and to defend
himself with the assistance of his representative, if he so desires.

Ample opportunity connotes every kind of assistance that management must accord the employee to
enable him to prepare adequately for his defense including legal representation. 11

As held in the case of Pepsi-Cola Bottling Co., Inc. v. NLRC: 12

The law requires that the employer must furnish the worker sought to be dismissed
with two (2) written notices before termination of employee can be legally effected:
(1) notice which apprises the employee of the particular acts or omissions for which
his dismissal is sought; and (2) the subsequent notice which informs the employee of
the employer's decision to dismiss him (Sec. 13, BP 130; Sec. 2-6 Rule XIV, Book V,
Rules and Regulations Implementing the Labor Code as amended). Failure to
comply with the requirements taints the dismissal with illegality. This procedure is
mandatory, in the absence of which, any judgment reached by management is void
and in existent (Tingson, Jr. vs. NLRC, 185 SCRA 498 [1990]; National Service Corp.
vs. NLRC, 168 SCRA 122; Ruffy vs. NLRC. 182 SCRA 365 [1990]).

The fact is private respondent filed a case of illegal dismissal with the Labor Arbiter only three days
after he was made to sign a Quitclaim, a clear indication that such resignation was not voluntary and
deliberate.

Private respondent averred that he was actually employed by petitioner as a delivery boy ("kargador"
or "pahinante").

He further asserted that petitioner "strong-armed" him into signing the aforementioned resignation
letter and quitclaim without explaining to him the contents thereof. Petitioner made it clear to him that
anyway, he did not have a choice. 13

Petitioner cannot disguise the summary dismissal of private respondent by orchestrating the latter's
alleged resignation and subsequent execution of a Quitclaim and Release. A judicious examination
of both events belies any spontaneity on private respondent's part.

WHEREFORE, finding no abuse of discretion committed by public respondent National Labor

Relations Commission, the appealed decision is hereby AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 122917 July 12, 1999

MARITES BERNARDO, ELVIRA GO DIAMANTE, REBECCA E. DAVID, DAVID P. PASCUAL,

RAQUEL ESTILLER, ALBERT HALLARE, EDMUND M. CORTEZ, JOSELITO O. AGDON
GEORGE P. LIGUTAN JR., CELSO M. YAZAR, ALEX G. CORPUZ, RONALD M. DELFIN,
ROWENA M. TABAQUERO, CORAZON C. DELOS REYES, ROBERT G. NOORA, MILAGROS O.
LEQUIGAN, ADRIANA F. TATLONGHARI, IKE CABANDUCOS, COCOY NOBELLO, DORENDA
CANTIMBUHAN, ROBERT MARCELO, LILIBETH Q. MARMOLEJO, JOSE E. SALES, ISABEL
MAMAUAG, VIOLETA G. MONTES, ALBINO TECSON, MELODY V. GRUELA, BERNADETH D.
AGERO, CYNTHIA DE VERA, LANI R. CORTEZ, MA. ISABEL B. CONCEPCION, DINDO
VALERIO, ZENAIDA MATA, ARIEL DEL PILAR, MARGARET CECILIA CANOZA, THELMA
SEBASTIAN, MA. JEANETTE CERVANTES, JEANNIE RAMIL, ROZAIDA PASCUAL, PINKY
BALOLOA, ELIZABETH VENTURA, GRACE S. PARDO and TIMOSA, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FAR EAST BANK AND TRUST
COMPANY, respondents.

PANGANIBAN, J.:

The Magna Carta for Disabled Persons mandates that qualified disabled persons be granted the
same terms and conditions of employment as qualified able-bodied employees. Once they have
attained the status of regular workers, they should be accorded all the benefits granted by law,
notwithstanding written or verbal contracts to the contrary. This treatments is rooted not merely on
charity or accomodation, but on justice for all.

The Case

Challenged in the Petition for Certiorari before us is the June 20, 1995 Decision of the National
1 2

Labor Relations Commission (NLRC), which affirmed the August, 22 1994 ruling of Labor Arbiter
3

Cornelio L. Linsangan. The labor arbiter's Decision disposed as follows: 4

WHEREFORE, judgment is hereby rendered dismissing the above-mentioned

complaint for lack of merit.

Also assailed is the August 4, 1995 Resolution of the NLRC, which denied the Motion for
5

Reconsideration.

The Facts

The facts were summarized by the NLRC in this wise: 6

Complainants numbering 43 (p. 176, Records) are deaf-mutes who were hired on
various periods from 1988 to 1993 by respondent Far East Bank and Trust Co. as
Money Sorters and Counters through a uniformly worded agreement called
"Employment Contract for Handicapped Workers". (pp. 68 & 69, Records) The full
text of said agreement is quoted below:

EMPLOYMENT CONTRACT FOR

HANDICAPPED WORKERS

This Contract, entered into by and between:

FAR EAST BANK AND TRUST COMPANY, a universal banking

corporation duly organized and existing under and by virtue of the
laws of the Philippines, with business address at FEBTC Building,
Muralla, Intramuros, Manila, represented herein by its Assistant Vice
President, MR. FLORENDO G. MARANAN, (hereinafter referred to
as the "BANK");

-and-

—————, ————— years old, of legal age, ————, and

residing at (hereinafter referred to as the ("EMPLOYEE").

WITNESSETH : That

WHEREAS, the BANK, cognizant of its social responsibility, realizes

that there is a need to provide disabled and handicapped persons
gainful employment and opportunities to realize their potentials, uplift
their socio-economic well being and welfare and make them
productive, self-reliant and useful citizens to enable them to fully
integrate in the mainstream of society;
WHEREAS, there are certain positions in the BANK which may be
filled-up by disabled and handicapped persons, particularly deaf-
mutes, and the BANK ha[s] been approached by some civic-minded
citizens and authorized government agencies [regarding] the
possibility of hiring handicapped workers for these positions;

WHEREAS, the EMPLOYEE is one of those handicapped workers

who [were] recommended for possible employment with the BANK;

NOW, THEREFORE, for and in consideration of the foregoing

premises and in compliance with Article 80 of the Labor Code of the
Philippines as amended, the BANK and the EMPLOYEE have
entered into this Employment Contract as follows:

1. The BANK agrees to employ and train the EMPLOYEE, and the
EMPLOYEE agrees to diligently and faithfully work with the BANK,
as Money Sorter and Counter.

2. The EMPLOYEE shall perform among others, the following duties

and responsibilities:

i. Sort out bills according to color;

ii. Count each denomination per

hundred, either manually or with the
aid of a counting machine;

iii. Wrap and label bills per hundred;

iv. Put the wrapped bills into bundles;

and

v. Submit bundled bills to the bank

teller for verification.

3. The EMPLOYEE shall undergo a training period of one (1) month,

after which the BANK shall determine whether or not he/she should
be allowed to finish the remaining term of this Contract.

4. The EMPLOYEE shall be entitled to an initial compensation of

P118.00 per day, subject to adjustment in the sole judgment of the
BANK, payable every 15th and end of the month. 1âwphi1.nêt

5. The regular work schedule of the EMPLOYEE shall be five (5)

days per week, from Mondays thru Fridays, at eight (8) hours a day.
The EMPLOYEE may be required to perform overtime work as
circumstance may warrant, for which overtime work he/she [shall] be
paid an additional compensation of 125% of his daily rate if
performed during ordinary days and 130% if performed during
Saturday or [a] rest day.

6. The EMPLOYEE shall likewise be entitled to the following benefits:

i. Proportionate 13th month pay based

on his basic daily wage.

ii. Five (5) days incentive leave.

iii. SSS premium payment.

7. The EMPLOYEE binds himself/herself to abide [by] and comply

with all the BANK Rules and Regulations and Policies, and to conduct
himself/herself in a manner expected of all employees of the BANK.

8. The EMPLOYEE acknowledges the fact that he/she had been

employed under a special employment program of the BANK, for
which reason the standard hiring requirements of the BANK were not
applied in his/her case. Consequently, the EMPLOYEE
 acknowledges and accepts the fact that the terms and conditions of
the employment generally observed by the BANK with respect to the
BANK's regular employee are not applicable to the EMPLOYEE, and
that therefore, the terms and conditions of the EMPLOYEE's
employment with the BANK shall be governed solely and exclusively
by this Contract and by the applicable rules and regulations that the
Department of Labor and Employment may issue in connection with
the employment of disabled and handicapped workers. More
specifically, the EMPLOYEE hereby acknowledges that the
provisions of Book Six of the Labor Code of the Philippines as
amended, particularly on regulation of employment and separation
pay are not applicable to him/her.

9. The Employment Contract shall be for a period of six (6) months or

from —— to —— unless earlier terminated by the BANK for any just
or reasonable cause. Any continuation or extension of this Contract
shall be in writing and therefore this Contract will automatically expire
at the end of its terms unless renewed in writing by the BANK.

IN WITNESS WHEREOF, the parties, have hereunto affixed their

signature[s] this —— day of ———, ——— at Intramuros, Manila,
Philippines.

In 1988, two (2) deaf-mutes were hired under this Agreement; in 1989 another two
(2); in 1990, nineteen (19); in 1991 six (6); in 1992, six (6) and in 1993, twenty-one
(21). Their employment[s] were renewed every six months such that by the time this
case arose, there were fifty-six (56) deaf-mutes who were employed by respondent
under the said employment agreement. The last one was Thelma Malindoy who was
employed in 1992 and whose contract expired on July 1993.

xxx xxx xxx

Disclaiming that complainants were regular employees, respondent Far East Bank
and Trust Company maintained that complainants who are a special class of workers
— the hearing impaired employees were hired temporarily under [a] special
employment arrangement which was a result of overtures made by some civic and
political personalities to the respondent Bank; that complainant[s] were hired due to
"pakiusap" which must be considered in the light of the context career and working
environment which is to maintain and strengthen a corps of professionals trained and
qualified officers and regular employees who are baccalaureate degree holders from
excellent schools which is an unbending policy in the hiring of regular employees;
that in addition to this, training continues so that the regular employee grows in the
corporate ladder; that the idea of hiring handicapped workers was acceptable to
them only on a special arrangement basis; that it was adopted the special program to
help tide over a group of workers such as deaf-mutes like the complainants who
could do manual work for the respondent Bank; that the task of counting and sorting
of bills which was being performed by tellers could be assigned to deaf-mutes that
the counting and sorting of money are tellering works which were always logically
and naturally part and parcel of the tellers' normal functions; that from the beginning
there have been no separate items in the respondent Bank plantilla for sortes or
counters; that the tellers themselves already did the sorting and counting chore as a
regular feature and integral part of their duties (p. 97, Records); that through the
"pakiusap" of Arturo Borjal, the tellers were relieved of this task of counting and
sorting bills in favor of deaf-mutes without creating new positions as there is no
position either in the respondent or in any other bank in the Philippines which deals
with purely counting and sorting of bills in banking operations.

Petitioners specified when each of them was hired and dimissed, viz: 7

NAME OF PETITIONER WORKPLACE Date Hired Date Dismissed

1. MARITES BERNARDO Intramuros 12-Nov-90 17-Nov-93
2. ELVIRA GO DIAMANTE Intramuros 24-Jan-90 11-Jan-94
3. REBECCA E. DAVID Intramuros 16-Apr-90 23-Oct-93
4. DAVID P. PASCUAL Bel-Air 15-Oct-88 21-Nov-94
5. RAQUEL ESTILLER Intramuros 2-Jul-92 4-Jan-94
6. ALBERT HALLARE West 4-Jan-91 9-Jan-94
7. EDMUND M. CORTEZ Bel-Air 15-Jan-91 3-Dec-93
8. JOSELITO O. AGDON Intramuros 5-Nov-90 17-Nov-93
 9. GEORGE P. LIGUTAN JR. Intramuros 6-Sep-89 19-Jan-94
10. CELSO M. YAZAR Intramuros 8-Feb-93 8-Aug-93
11. ALEX G. CORPUZ Intramuros 15-Feb-93 15-Aug-93
12. RONALD M. DELFIN Intramuros 22-Feb-93 22-Aug-93
13. ROWENA M. TABAQUERO Intramuros 22-Feb-93 22-Aug-93
14. CORAZON C. DELOS REYES Intramuros 8-Feb-93 8-Aug-93
15. ROBERT G. NOORA Intramuros 15-Feb-93 15-Aug-93
16. MILAGROS O. LEQUIGAN Intramuros 1-Feb-93 1-Aug-93
17. ADRIANA F. TATLONGHARI Intramuros 22-Jan-93 22-Jul-93
18. IKE CABUNDUCOS Intramuros 24-Feb-93 24-Aug-93
19. COCOY NOBELLO Intramuros 22-Feb-93 22-Aug-93
20. DORENDA CATIMBUHAN Intramuros 15-Feb-93 15-Aug-93
21. ROBERT MARCELO West 31 JUL 93 8 1-Aug-93
22. LILIBETH Q. MARMOLEJO West 15-Jun-90 21-Nov-93
23. JOSE E. SALES West 6-Aug-92 12-Oct-93
24. ISABEL MAMAUAG West 8-May-92 10-Nov-93
25. VIOLETA G. MONTES Intramuros 2-Feb-90 15-Jan-94
26. ALBINO TECSON Intramuros 7-Nov-91 10-Nov-93
27. MELODY B. GRUELA West 28-Oct-91 3-Nov-93
28. BERNADETH D. AGERO West 19-Dec-90 27-Dec-93
29. CYNTHIA DE VERA Bel-Air 26-Jun-90 3-Dec-93
30. LANI R. CORTEZ Bel-Air 15-Oct-88 10-Dec-93
31. MARIA ISABEL B.CONCEPCION West 6-Sep-90 6-Feb-94
32. DINDO VALERIO Intramuros 30-May-93 30-Nov-93
33. ZENAIDA MATA Intramuros 10-Feb-93 10-Aug-93
34. ARIEL DEL PILAR Intramuros 24-Feb-93 24-Aug-93
35. MARGARET CECILIA CANOZA Intramuros 27-Jul-90 4-Feb-94
36. THELMA SEBASTIAN Intramuros 12-Nov-90 17-Nov-93
37. MA. JEANETTE CERVANTES West 6-Jun-92 7-Dec-93
38. JEANNIE RAMIL Intramuros 23-Apr-90 12-Oct-93
39. ROZAIDA PASCUAL Bel-Air 20-Apr-89 29-Oct-93
40. PINKY BALOLOA West 3-Jun-91 2-Dec-93
41. ELIZABETH VENTURA West 12-Mar-90 FEB 94 [sic]
42. GRACE S. PARDO West 4-Apr-90 13-Mar-94
43. RICO TIMOSA Intramuros 28-Apr-93 28-Oct-93

As earlier noted, the labor arbiter and, on appeal, the NLRC ruled against herein petitioners. Hence,
this recourse to this Court.
9

The Ruling of the NLRC

In affirming the ruling of the labor arbiter that herein petitioners could not be deemed regular
employees under Article 280 of the Labor Code, as amended, Respondent Commission ratiocinated
as follows:

We agree that Art. 280 is not controlling herein. We give due credence to the
conclusion that complainants were hired as an accommodation to [the]
recommendation of civic oriented personalities whose employment[s] were covered
by . . . Employment Contract[s] with special provisions on duration of contract as
specified under Art. 80. Hence, as correctly held by the Labor Arbiter a quo, the
terms of the contract shall be the law between the parties. 10

The NLRC also declared that the Magna Carta for Disabled Persons was not applicable,
"considering the prevailing circumstances/milieu of the case."

Issues

In their Memorandum, petitioners cite the following grounds in support of their cause:

I. The Honorable Commission committed grave abuse of discretion in holding that

the petitioners — money sorters and counters working in a bank — were not regular
employees.
 II. The Honorable Commission committed grave abuse of discretion in holding that
the employment contracts signed and renewed by the petitioners — which provide
for a period of six (6) months — were valid.

III. The Honorable Commission committed grave abuse of discretion in not applying
the provisions of the Magna Carta for the Disabled (Republic Act No. 7277), on
proscription against discrimination against disabled persons. 11

In the main, the Court will resolve whether petitioners have become regular employees.

This Court's Ruling

The petition is meritorious. However, only the employees, who worked for more than six months and
whose contracts were renewed are deemed regular. Hence, their dismissal from employement was
illegal.

Preliminary Matter:

Propriety of Certiorari

Respondent Far East Bank and Trust Company argues that a review of the findings of facts of the
NLRC is not allowed in a petition for certiorari. Specifically, it maintains that the Court cannot pass
upon the findings of public respondent that petitioners were not regular employees.

True, the Court, as a rule, does not review the factual findings of public respondents in
a certiorari proceeding. In resolving whether the petitioners have become regular employees, we
shall not change the facts found by the public respondent. Our task is merely to determine whether
the NLRC committed grave abuse of discretion in applying the law to the established facts, as
above-quoted from the assailed Decision.

Main Issue

Are Petitioners Regular Employee?

Petitioners maintain that they should be considered regular employees, because their task as money
sorters and counters was necessary and desirable to the business of respondent bank. They further
allege that their contracts served merely to preclude the application of Article 280 and to bar them
from becoming regular employees.

Private respondent, on the other hand, submits that petitioners were hired only as "special workers
and should not in any way be considered as part of the regular complement of the Bank." Rather,
12

they were "special" workers under Article 80 of the Labor Code. Private respondent contends that it
never solicited the services of petitioners, whose employment was merely an "accommodation" in
response to the requests of government officials and civic-minded citizens. They were told from the
start, "with the assistance of government representatives," that they could not become regular
employees because there were no plantilla positions for "money sorters," whose task used to be
performed by tellers. Their contracts were renewed several times, not because of need "but merely
for humanitarian reasons." Respondent submits that "as of the present, the "special position" that
was created for the petitioners no longer exist[s] in private respondent [bank], after the latter had
decided not to renew anymore their special employment contracts."

At the outset, let it be known that this Court appreciates the nobility of private respondent's effort to
provide employment to physically impaired individuals and to make them more productive members
of society. However, we cannot allow it to elude the legal consequences of that effort, simply
because it now deems their employment irrelevant. The facts, viewed in light of the Labor Code and
the Magna Carta for Disabled Persons, indubitably show that the petitioners, except sixteen of them,
should be deemed regular employees. As such, they have acquired legal rights that this Court is
duty-bound to protect and uphold, not as a matter of compassion but as a consequence of law and
justice.

The uniform employment contracts of the petitioners stipulated that they shall be trained for a period
of one month, after which the employer shall determine whether or not they should be allowed to
finish the 6-month term of the contract. Furthermore, the employer may terminate the contract at any
time for a just and reasonable cause. Unless renewed in writing by the employer, the contract shall
automatically expire at the end of the term. 1âwphi1.nêt

According to private respondent, the employment contracts were prepared in accordance with Article
80 of the Labor code, which provides;
 Art. 80. Employment agreement. — Any employer who employs handicapped
workers shall enter into an employment agreement with them, which agreement shall
include:

(a) The names and addresses of the handicapped workers to be

employed;

(b) The rate to be paid the handicapped workers which shall be not
less than seventy five (75%) per cent of the applicable legal minimum
wage;

(c) The duration of employment period; and

(d) The work to be performed by handicapped workers.

The employment agreement shall be subject to inspection by the Secretary of Labor

or his duly authorized representatives.

The stipulations in the employment contracts indubitably conform with the aforecited provision.
Succeeding events and the enactment of RA No. 7277 (the Magna Carta for Disabled
Persons), however, justify the application of Article 280 of the Labor Code.
13

Respondent bank entered into the aforesaid contract with a total of 56 handicapped workers and
renewed the contracts of 37 of them. In fact, two of them worked from 1988 to 1993. Verily, the
renewal of the contracts of the handicapped workers and the hiring of others lead to the conclusion
that their tasks were beneficial and necessary to the bank. More important, these facts show that
they were qualified to perform the responsibilities of their positions. In other words, their disability did
not render them unqualified or unfit for the tasks assigned to them.

In this light, the Magna Carta for Disabled Persons mandates that a qualified disabled employee
should be given the same terms and conditions of employment as a qualified able-bodied person.
Section 5 of the Magna Carta provides:

Sec. 5. Equal Opportunity for Employment. — No disabled person shall be denied

access to opportunities for suitable employment. A qualified disabled employee shall
be subject to the same terms and conditions of employment and the same
compensation, privileges, benefits, fringe benefits, incentives or allowances as a
qualified able bodied person.

The fact that the employees were qualified disabled persons necessarily removes the employment
contracts from the ambit of Article 80. Since the Magna Carta accords them the rights of qualified
able-bodied persons, they are thus covered by Article 280 of the Labor Code, which provides:

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

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

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

The test of whether an employee is regular was laid down in De Leon v. NLRC, in which this Court
14

held:

The primary standard, therefore, of determining regular employment is the

reasonable connection between the particular activity performed by the employee in
relation to the usual trade or business of the employer. The test is whether the former
is usually necessary or desirable in the usual business or trade of the employer. The
connection can be determined by considering the nature of the work performed and
its relation to the scheme of the particular business or trade in its entirety. Also if the
employee has been performing the job for at least one year, even if 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 indispensibility
of that activity to the business. Hence, the employment is considered regular, but
only with respect to such activity, and while such activity exist.

Without a doubt, the task of counting and sorting bills is necessary and desirable to the business of
respondent bank. With the exception of sixteen of them, petitioners performed these tasks for more
than six months. Thus, the following twenty-seven petitioners should be deemed regular employees:
Marites Bernardo, Elvira Go Diamante, Rebecca E. David, David P. Pascual, Raquel Estiller, Albert
Hallare, Edmund M. Cortez, Joselito O. Agdon, George P. Ligutan Jr., Lilibeth Q. Marmolejo, Jose E.
Sales, Isabel Mamauag, Violeta G. Montes, Albino Tecson, Melody V. Gruela, Bernadeth D. Agero,
Cynthia de Vera, Lani R. Cortez, Ma. Isabel B. Concepcion, Margaret Cecilia Canoza, Thelma
Sebastian, Ma. Jeanette Cervantes, Jeannie Ramil, Rozaida Pascual, Pinky Baloloa, Elizabeth
Ventura and Grace S. Pardo.

As held by the Court, "Articles 280 and 281 of the Labor Code put an end to the pernicious practice
of making permanent casuals of our lowly employees by the simple expedient of extending to them
probationary appointments, ad infinitum." The contract signed by petitioners is akin to a
15

probationary employment, during which the bank determined the employees' fitness for the job.
When the bank renewed the contract after the lapse of the six-month probationary period, the
employees thereby became regular employees. No employer is allowed to determine indefinitely
16

the fitness of its employees.

As regular employees, the twenty-seven petitioners are entitled to security of tenure; that is, their
services may be terminated only for a just or authorized cause. Because respondent failed to show
such cause, these twenty-seven petitioners are deemed illegally dismissed and therefore entitled
17

to back wages and reinstatement without loss of seniority rights and other privileges. Considering
18

the allegation of respondent that the job of money sorting is no longer available because it has been
assigned back to the tellers to whom it originally belonged, petitioners are hereby awarded
18

separation pay in lieu of reinstatement. 20

Because the other sixteen worked only for six months, they are not deemed regular employees and
hence not entitled to the same benefits.

Applicability of the

Brent Ruling

Respondent bank, citing Brent School v. Zamora in which the Court upheld the validity of an
21

employment contract with a fixed term, argues that the parties entered into the contract on equal
footing. It adds that the petitioners had in fact an advantage, because they were backed by then
DSWD Secretary Mita Pardo de Tavera and Representative Arturo Borjal.

We are not persuaded. The term limit in the contract was premised on the fact that the petitioners
were disabled, and that the bank had to determine their fitness for the position. Indeed, its validity is
based on Article 80 of the Labor Code. But as noted earlier, petitioners proved themselves to
be qualified disabled persons who, under the Magna Carta for Disabled Persons, are entitled to
terms and conditions of employment enjoyed by qualified able-bodied individuals; hence, Article 80
does not apply because petitioners are qualified for their positions. The validation of the limit
imposed on their contracts, imposed by reason of their disability, was a glaring instance of the very
mischief sought to be addressed by the new law.

Moreover, it must be emphasized that a contract of employment is impressed with public

interest. Provisions of applicable statutes are deemed written into the contract, and the "parties are
22

not at liberty to insulate themselves and their relationships from the impact of labor laws and
regulations by simply contracting with each other." Clearly, the agreement of the parties regarding
23

the period of employment cannot prevail over the provisions of the Magna Carta for Disabled
Persons, which mandate that petitioners must be treated as qualified able-bodied employees.

Respondent's reason for terminating the employment of petitioners is instructive. Because the
Bangko Sentral ng Pilipinas (BSP) required that cash in the bank be turned over to the BSP during
business hours from 8:00 a.m. to 5:00 p.m., respondent resorted to nighttime sorting and counting of
money. Thus, it reasons that this task "could not be done by deaf mutes because of their physical
limitations as it is very risky for them to travel at night." We find no basis for this argument.
24

Travelling at night involves risks to handicapped and able-bodied persons alike. This excuse cannot
justify the termination of their employment.

Other Grounds Cited by Respondent

Respondent argues that petitioners were merely "accommodated" employees. This fact does not
change the nature of their employment. As earlier noted, an employee is regular because of the
nature of work and the length of service, not because of the mode or even the reason for hiring
them.

Equally unavailing are private respondent's arguments that it did not go out of its way to recruit
petitioners, and that its plantilla did not contain their positions. In L. T. Datu v. NLRC, the Court 25

held that "the determination of whether employment is casual or regular does not depend on the will
or word of the employer, and the procedure of hiring . . . but on the nature of the activities performed
by the employee, and to some extent, the length of performance and its continued existence."

Private respondent argues that the petitioners were informed from the start that they could not
become regular employees. In fact, the bank adds, they agreed with the stipulation in the contract
regarding this point. Still, we are not persuaded. The well-settled rule is that the character of
employment is determined not by stipulations in the contract, but by the nature of the work
performed. Otherwise, no employee can become regular by the simple expedient of incorporating
26

this condition in the contract of employment.

In this light, we iterate our ruling in Romares v. NLRC: 27

Art. 280 was emplaced in our statute books to prevent the circumvention of the
employee's right to be secure in his tenure by indiscriminately and completely ruling
out all written and oral agreements inconsistent with the concept of regular
employment defined therein. Where an employee has been engaged to perform
activities which are usually necessary or desirable in the usual business of the
employer, such employee is deemed a regular employee and is entitled to security of
tenure notwithstanding the contrary provisions of his contract of employment.

xxx xxx xxx

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

In rendering this Decision, the Court emphasizes not only the constitutional bias in favor of the
working class, but also the concern of the State for the plight of the disabled. The noble objectives of
Magna Carta for Disabled Persons are not based merely on charity or accommodation, but on
justice and the equal treatment of qualified persons, disabled or not. In the present case, the
handicap of petitioners (deaf-mutes) is not a hindrance to their work. The eloquent proof of this
statement is the repeated renewal of their employment contracts. Why then should they be
dismissed, simply because they are physically impaired? The Court believes, that, after showing
their fitness for the work assigned to them, they should be treated and granted the same rights like
any other regular employees.

In this light, we note the Office of the Solicitor General's prayer joining the petitioners' cause. 28

WHEREFORE, premises considered, the Petition is hereby GRANTED. The June 20, 1995 Decision
and the August 4, 1995 Resolution of the NLRC are REVERSED and SET ASIDE. Respondent Far
East Bank and Trust Company is hereby ORDERED to pay back wages and separation pay to each
of the following twenty-seven (27) petitioners, namely, Marites Bernardo, Elvira Go Diamante,
Rebecca E. David, David P. Pascual, Raquel Estiller, Albert Hallare, Edmund M. Cortez, Joselito O.
Agdon, George P. Ligutan Jr., Liliberh Q. Marmolejo, Jose E. Sales, Isabel Mamauag, Violeta G.
Montes, Albino Tecson, Melody V. Gruela, Bernadeth D. Agero, Cynthia de Vera, Lani R. Cortez,
Ma. Isabel B. Concepcion, Margaret Cecilia Canoza, Thelma Sebastian, Ma. Jeanette Cervantes,
Jeannie Ramil, Rozaida Pascual, Pinky Baloloa, Elizabeth Ventura and Grace S. Pardo. The NLRC
is hereby directed to compute the exact amount due each of said employees, pursuant to existing
laws and regulations, within fifteen days from the finality of this Decision. No costs. 1âwphi1.nêt

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-65482 December 1, 1987

JOSE RIZAL COLLEGE, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION AND NATIONAL ALLIANCE OF
TEACHERS/OFFICE WORKERS, respondents.

PARAS, J.:

This is a petition for certiorari with prayer for the issuance of a writ of preliminary injunction, seeking
the annulment of the decision of the National Labor Relations Commission * in NLRC Case No. RB-IV 23037-
78 (Case No. R4-1-1081-71) entitled "National Alliance of Teachers and Office Workers and Juan E. Estacio, Jaime Medina, et al. vs. Jose
Rizal College" modifying the decision of the Labor Arbiter as follows:

WHEREFORE, in view of the foregoing considerations, the decision appealed from is

MODIFIED, in the sense that teaching personnel paid by the hour are hereby
declared to be entitled to holiday pay.

SO ORDERED.

The factual background of this case which is undisputed is as follows:

Petitioner is a non-stock, non-profit educational institution duly organized and existing under the laws
of the Philippines. It has three groups of employees categorized as follows: (a) personnel on monthly
basis, who receive their monthly salary uniformly throughout the year, irrespective of the actual
number of working days in a month without deduction for holidays; (b) personnel on daily basis who
are paid on actual days worked and they receive unworked holiday pay and (c) collegiate faculty
who are paid on the basis of student contract hour. Before the start of the semester they sign
contracts with the college undertaking to meet their classes as per schedule.

Unable to receive their corresponding holiday pay, as claimed, from 1975 to 1977, private
respondent National Alliance of Teachers and Office Workers (NATOW) in behalf of the faculty and
personnel of Jose Rizal College filed with the Ministry of Labor a complaint against the college for
said alleged non-payment of holiday pay, docketed as Case No. R04-10-81-72. Due to the failure of
the parties to settle their differences on conciliation, the case was certified for compulsory arbitration
where it was docketed as RB-IV-23037-78 (Rollo, pp. 155-156).

After the parties had submitted their respective position papers, the Labor Arbiter ** rendered a decision on
February 5, 1979, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. The faculty and personnel of the respondent Jose Rizal College who are paid their
salary by the month uniformly in a school year, irrespective of the number of working
days in a month, without deduction for holidays, are presumed to be already paid the
10 paid legal holidays and are no longer entitled to separate payment for the said
regular holidays;

2. The personnel of the respondent Jose Rizal College who are paid their wages
daily are entitled to be paid the 10 unworked regular holidays according to the
pertinent provisions of the Rules and Regulations Implementing the Labor Code;

3. Collegiate faculty of the respondent Jose Rizal College who by contract are paid
compensation per student contract hour are not entitled to unworked regular holiday
pay considering that these regular holidays have been excluded in the programming
of the student contact hours. (Rollo. pp. 26-27)

On appeal, respondent National Labor Relations Commission in a decision promulgated on June 2,

1982, modified the decision appealed from, in the sense that teaching personnel paid by the hour
are declared to be entitled to holiday pay (Rollo. p. 33).

Hence, this petition.

The sole issue in this case is whether or not the school faculty who according to their contracts are
paid per lecture hour are entitled to unworked holiday pay.

Labor Arbiter Julio Andres, Jr. found that faculty and personnel employed by petitioner who are paid
their salaries monthly, are uniformly paid throughout the school year regardless of working days,
hence their holiday pay are included therein while the daily paid employees are renumerated for
work performed during holidays per affidavit of petitioner's treasurer (Rollo, pp. 72-73).

There appears to be no problem therefore as to the first two classes or categories of petitioner's
workers.

The problem, however, lies with its faculty members, who are paid on an hourly basis, for while the
Labor Arbiter sustains the view that said instructors and professors are not entitled to holiday pay,
his decision was modified by the National Labor Relations Commission holding the contrary.
Otherwise stated, on appeal the NLRC ruled that teaching personnel paid by the hour are declared
to be entitled to holiday pay.
Petitioner maintains the position among others, that it is not covered by Book V of the Labor Code
on Labor Relations considering that it is a non- profit institution and that its hourly paid faculty
members are paid on a "contract" basis because they are required to hold classes for a particular
number of hours. In the programming of these student contract hours, legal holidays are excluded
and labelled in the schedule as "no class day. " On the other hand, if a regular week day is declared
a holiday, the school calendar is extended to compensate for that day. Thus petitioner argues that
the advent of any of the legal holidays within the semester will not affect the faculty's salary because
this day is not included in their schedule while the calendar is extended to compensate for special
holidays. Thus the programmed number of lecture hours is not diminished (Rollo, pp. 157- 158).

The Solicitor General on the other hand, argues that under Article 94 of the Labor Code (P.D. No.
442 as amended), holiday pay applies to all employees except those in retail and service
establishments. To deprive therefore employees paid at an hourly rate of unworked holiday pay is
contrary to the policy considerations underlying such presidential enactment, and its precursor, the
Blue Sunday Law (Republic Act No. 946) apart from the constitutional mandate to grant greater
rights to labor (Constitution, Article II, Section 9). (Reno, pp. 76-77).

In addition, respondent National Labor Relations Commission in its decision promulgated on June 2,
1982, ruled that the purpose of a holiday pay is obvious; that is to prevent diminution of the monthly
income of the workers on account of work interruptions. In other words, although the worker is forced
to take a rest, he earns what he should earn. That is his holiday pay. It is no excuse therefore that
the school calendar is extended whenever holidays occur, because such happens only in cases of
special holidays (Rollo, p. 32).

Subject holiday pay is provided for in the Labor Code (Presidential Decree No. 442, as amended),
which reads:

Art. 94. Right to holiday pay — (a) Every worker shall be paid his regular daily wage
during regular holidays, except in retail and service establishments regularly
employing less than ten (10) workers;

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

and in the Implementing Rules and Regulations, Rule IV, Book III, which reads:

SEC. 8. Holiday pay of certain employees. — (a) Private school teachers, including
faculty members of colleges and universities, may not be paid for the regular
holidays during semestral vacations. They shall, however, be paid for the regular
holidays during Christmas vacations. ...

Under the foregoing provisions, apparently, the petitioner, although a non-profit institution is under
obligation to give pay even on unworked regular holidays to hourly paid faculty members subject to
the terms and conditions provided for therein.

We believe that the aforementioned implementing rule is not justified by the provisions of the law
which after all is silent with respect to faculty members paid by the hour who because of their
teaching contracts are obliged to work and consent to be paid only for work actually done (except
when an emergency or a fortuitous event or a national need calls for the declaration of special
holidays). Regular holidays specified as such by law are known to both school and faculty members
as no class days;" certainly the latter do not expect payment for said unworked days, and this was
clearly in their minds when they entered into the teaching contracts.

On the other hand, both the law and the Implementing Rules governing holiday pay are silent as to
payment on Special Public Holidays.

It is readily apparent that the declared purpose of the holiday pay which is the prevention of
diminution of the monthly income of the employees on account of work interruptions is defeated
when a regular class day is cancelled on account of a special public holiday and class hours are
held on another working day to make up for time lost in the school calendar. Otherwise stated, the
faculty member, although forced to take a rest, does not earn what he should earn on that day. Be it
noted that when a special public holiday is declared, the faculty member paid by the hour is deprived
of expected income, and it does not matter that the school calendar is extended in view of the days
or hours lost, for their income that could be earned from other sources is lost during the extended
days. Similarly, when classes are called off or shortened on account of typhoons, floods, rallies, and
the like, these faculty members must likewise be paid, whether or not extensions are ordered.

Petitioner alleges that it was deprived of due process as it was not notified of the appeal made to the
NLRC against the decision of the labor arbiter.
The Court has already set forth what is now known as the "cardinal primary" requirements of due
process in administrative proceedings, to wit: "(1) the right to a hearing which includes the right to
present one's case and submit evidence in support thereof; (2) the tribunal must consider the
evidence presented; (3) the decision must have something to support itself; (4) the evidence must be
substantial, and substantial evidence means such evidence as a reasonable mind might accept as
adequate to support a conclusion; (5) the decision must be based on the evidence presented at the
hearing, or at least contained in the record and disclosed to the parties affected; (6) the tribunal or
body of any of its judges must act on its or his own independent consideration of the law and facts of
the controversy, and not simply accept the views of a subordinate; (7) the board or body should in all
controversial questions, render its decisions in such manner that the parties to the proceeding can
know the various issues involved, and the reason for the decision rendered. " (Doruelo vs.
Commission on Elections, 133 SCRA 382 [1984]).

The records show petitioner JRC was amply heard and represented in the instant proceedings. It
submitted its position paper before the Labor Arbiter and the NLRC and even filed a motion for
reconsideration of the decision of the latter, as well as an "Urgent Motion for Hearing En Banc"
(Rollo, p. 175). Thus, petitioner's claim of lack of due process is unfounded.

PREMISES CONSIDERED, the decision of respondent National Labor Relations Commission is

hereby set aside, and a new one is hereby RENDERED:

(a) exempting petitioner from paying hourly paid faculty members their pay for regular holidays,
whether the same be during the regular semesters of the school year or during semestral,
Christmas, or Holy Week vacations;

(b) but ordering petitioner to pay said faculty members their regular hourly rate on days declared as
special holidays or for some reason classes are called off or shortened for the hours they are
supposed to have taught, whether extensions of class days be ordered or not; in case of extensions
said faculty members shall likewise be paid their hourly rates should they teach during said
extensions.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-65482 December 1, 1987

JOSE RIZAL COLLEGE, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION AND NATIONAL ALLIANCE OF
TEACHERS/OFFICE WORKERS, respondents.

PARAS, J.:

This is a petition for certiorari with prayer for the issuance of a writ of preliminary injunction, seeking
the annulment of the decision of the National Labor Relations Commission * in NLRC Case No. RB-IV 23037-
78 (Case No. R4-1-1081-71) entitled "National Alliance of Teachers and Office Workers and Juan E. Estacio, Jaime Medina, et al. vs. Jose
Rizal College" modifying the decision of the Labor Arbiter as follows:
 WHEREFORE, in view of the foregoing considerations, the decision appealed from is
MODIFIED, in the sense that teaching personnel paid by the hour are hereby
declared to be entitled to holiday pay.

SO ORDERED.

The factual background of this case which is undisputed is as follows:

Petitioner is a non-stock, non-profit educational institution duly organized and existing under the laws
of the Philippines. It has three groups of employees categorized as follows: (a) personnel on monthly
basis, who receive their monthly salary uniformly throughout the year, irrespective of the actual
number of working days in a month without deduction for holidays; (b) personnel on daily basis who
are paid on actual days worked and they receive unworked holiday pay and (c) collegiate faculty
who are paid on the basis of student contract hour. Before the start of the semester they sign
contracts with the college undertaking to meet their classes as per schedule.

Unable to receive their corresponding holiday pay, as claimed, from 1975 to 1977, private
respondent National Alliance of Teachers and Office Workers (NATOW) in behalf of the faculty and
personnel of Jose Rizal College filed with the Ministry of Labor a complaint against the college for
said alleged non-payment of holiday pay, docketed as Case No. R04-10-81-72. Due to the failure of
the parties to settle their differences on conciliation, the case was certified for compulsory arbitration
where it was docketed as RB-IV-23037-78 (Rollo, pp. 155-156).

After the parties had submitted their respective position papers, the Labor Arbiter ** rendered a decision on
February 5, 1979, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. The faculty and personnel of the respondent Jose Rizal College who are paid their
salary by the month uniformly in a school year, irrespective of the number of working
days in a month, without deduction for holidays, are presumed to be already paid the
10 paid legal holidays and are no longer entitled to separate payment for the said
regular holidays;

2. The personnel of the respondent Jose Rizal College who are paid their wages
daily are entitled to be paid the 10 unworked regular holidays according to the
pertinent provisions of the Rules and Regulations Implementing the Labor Code;

3. Collegiate faculty of the respondent Jose Rizal College who by contract are paid
compensation per student contract hour are not entitled to unworked regular holiday
pay considering that these regular holidays have been excluded in the programming
of the student contact hours. (Rollo. pp. 26-27)

On appeal, respondent National Labor Relations Commission in a decision promulgated on June 2,

1982, modified the decision appealed from, in the sense that teaching personnel paid by the hour
are declared to be entitled to holiday pay (Rollo. p. 33).

Hence, this petition.

The sole issue in this case is whether or not the school faculty who according to their contracts are
paid per lecture hour are entitled to unworked holiday pay.

Labor Arbiter Julio Andres, Jr. found that faculty and personnel employed by petitioner who are paid
their salaries monthly, are uniformly paid throughout the school year regardless of working days,
hence their holiday pay are included therein while the daily paid employees are renumerated for
work performed during holidays per affidavit of petitioner's treasurer (Rollo, pp. 72-73).

There appears to be no problem therefore as to the first two classes or categories of petitioner's
workers.

The problem, however, lies with its faculty members, who are paid on an hourly basis, for while the
Labor Arbiter sustains the view that said instructors and professors are not entitled to holiday pay,
his decision was modified by the National Labor Relations Commission holding the contrary.
Otherwise stated, on appeal the NLRC ruled that teaching personnel paid by the hour are declared
to be entitled to holiday pay.

Petitioner maintains the position among others, that it is not covered by Book V of the Labor Code
on Labor Relations considering that it is a non- profit institution and that its hourly paid faculty
members are paid on a "contract" basis because they are required to hold classes for a particular
number of hours. In the programming of these student contract hours, legal holidays are excluded
and labelled in the schedule as "no class day. " On the other hand, if a regular week day is declared
a holiday, the school calendar is extended to compensate for that day. Thus petitioner argues that
the advent of any of the legal holidays within the semester will not affect the faculty's salary because
this day is not included in their schedule while the calendar is extended to compensate for special
holidays. Thus the programmed number of lecture hours is not diminished (Rollo, pp. 157- 158).

The Solicitor General on the other hand, argues that under Article 94 of the Labor Code (P.D. No.
442 as amended), holiday pay applies to all employees except those in retail and service
establishments. To deprive therefore employees paid at an hourly rate of unworked holiday pay is
contrary to the policy considerations underlying such presidential enactment, and its precursor, the
Blue Sunday Law (Republic Act No. 946) apart from the constitutional mandate to grant greater
rights to labor (Constitution, Article II, Section 9). (Reno, pp. 76-77).

In addition, respondent National Labor Relations Commission in its decision promulgated on June 2,
1982, ruled that the purpose of a holiday pay is obvious; that is to prevent diminution of the monthly
income of the workers on account of work interruptions. In other words, although the worker is forced
to take a rest, he earns what he should earn. That is his holiday pay. It is no excuse therefore that
the school calendar is extended whenever holidays occur, because such happens only in cases of
special holidays (Rollo, p. 32).

Subject holiday pay is provided for in the Labor Code (Presidential Decree No. 442, as amended),
which reads:

Art. 94. Right to holiday pay — (a) Every worker shall be paid his regular daily wage
during regular holidays, except in retail and service establishments regularly
employing less than ten (10) workers;

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

and in the Implementing Rules and Regulations, Rule IV, Book III, which reads:

SEC. 8. Holiday pay of certain employees. — (a) Private school teachers, including
faculty members of colleges and universities, may not be paid for the regular
holidays during semestral vacations. They shall, however, be paid for the regular
holidays during Christmas vacations. ...

Under the foregoing provisions, apparently, the petitioner, although a non-profit institution is under
obligation to give pay even on unworked regular holidays to hourly paid faculty members subject to
the terms and conditions provided for therein.

We believe that the aforementioned implementing rule is not justified by the provisions of the law
which after all is silent with respect to faculty members paid by the hour who because of their
teaching contracts are obliged to work and consent to be paid only for work actually done (except
when an emergency or a fortuitous event or a national need calls for the declaration of special
holidays). Regular holidays specified as such by law are known to both school and faculty members
as no class days;" certainly the latter do not expect payment for said unworked days, and this was
clearly in their minds when they entered into the teaching contracts.

On the other hand, both the law and the Implementing Rules governing holiday pay are silent as to
payment on Special Public Holidays.

It is readily apparent that the declared purpose of the holiday pay which is the prevention of
diminution of the monthly income of the employees on account of work interruptions is defeated
when a regular class day is cancelled on account of a special public holiday and class hours are
held on another working day to make up for time lost in the school calendar. Otherwise stated, the
faculty member, although forced to take a rest, does not earn what he should earn on that day. Be it
noted that when a special public holiday is declared, the faculty member paid by the hour is deprived
of expected income, and it does not matter that the school calendar is extended in view of the days
or hours lost, for their income that could be earned from other sources is lost during the extended
days. Similarly, when classes are called off or shortened on account of typhoons, floods, rallies, and
the like, these faculty members must likewise be paid, whether or not extensions are ordered.

Petitioner alleges that it was deprived of due process as it was not notified of the appeal made to the
NLRC against the decision of the labor arbiter.

The Court has already set forth what is now known as the "cardinal primary" requirements of due
process in administrative proceedings, to wit: "(1) the right to a hearing which includes the right to
present one's case and submit evidence in support thereof; (2) the tribunal must consider the
evidence presented; (3) the decision must have something to support itself; (4) the evidence must be
substantial, and substantial evidence means such evidence as a reasonable mind might accept as
adequate to support a conclusion; (5) the decision must be based on the evidence presented at the
hearing, or at least contained in the record and disclosed to the parties affected; (6) the tribunal or
body of any of its judges must act on its or his own independent consideration of the law and facts of
the controversy, and not simply accept the views of a subordinate; (7) the board or body should in all
controversial questions, render its decisions in such manner that the parties to the proceeding can
know the various issues involved, and the reason for the decision rendered. " (Doruelo vs.
Commission on Elections, 133 SCRA 382 [1984]).

The records show petitioner JRC was amply heard and represented in the instant proceedings. It
submitted its position paper before the Labor Arbiter and the NLRC and even filed a motion for
reconsideration of the decision of the latter, as well as an "Urgent Motion for Hearing En Banc"
(Rollo, p. 175). Thus, petitioner's claim of lack of due process is unfounded.

PREMISES CONSIDERED, the decision of respondent National Labor Relations Commission is

hereby set aside, and a new one is hereby RENDERED:

(a) exempting petitioner from paying hourly paid faculty members their pay for regular holidays,
whether the same be during the regular semesters of the school year or during semestral,
Christmas, or Holy Week vacations;

(b) but ordering petitioner to pay said faculty members their regular hourly rate on days declared as
special holidays or for some reason classes are called off or shortened for the hours they are
supposed to have taught, whether extensions of class days be ordered or not; in case of extensions
said faculty members shall likewise be paid their hourly rates should they teach during said
extensions.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

Republic of the Philippines

SUPREME COURT
Baguio City

FIRST DIVISION

G.R. No. 113097 April 27, 1998

NASIPIT LUMBER COMPANY, INC., and PHILIPPINE WALLBOARD

CORPORATION, petitioners,
vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION, WESTERN AGUSAN WORKERS
UNION (WAWU-ULGWP LOCAL 101), TUNGAO LUMBER WORKERS UNION (TULWU-ULGWP
LOCAL 102) and UNITED WORKERS UNION (UWU-ULGWP LOCAL 103), respondents.

PANGANIBAN, J.:
The Labor Code, as amended by RA 6727 (the Wage Rationalization Act), grants the National
Wages and Productivity Commission (NWPC) the power to prescribe rules and guidelines for the
determination of appropriate wages in the country. Hence, "guidelines" issued by the Regional
Tripartite Wages and Productivity Boards (RTWPB) without the approval of or, worse, contrary to
those promulgated by the NWPC are ineffectual, void and cannot be the source of rights and
privileges.

The Case

This is the principle used by the Court in resolving this petition for certiorari under Rule 65 of the
Rules of Court assailing the Decision dated March 8, 1993, promulgated by the NWPC which
1 2

disposed as follows:

WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The
application for exemption of Anakan Lumber Company is hereby GRANTED for a period of
one (1) year retroactive to the date subject Wage Orders took effect until November 21,
1991. The applications for exemption of Nasipit Lumber Company and Philippine Wallboard
Corporation are hereby DENIED for lack of merit, and as such, they are hereby ordered to
pay their covered workers the wage increases under subject Wage Orders retroactive to the
date of effectivity of said Wage Orders plus interest of one percent (1%) per month.

SO ORDERED.

Petitioners also challenge the NWPC's Decision dated November 17, 1993 which denied their
3

motion for reconsideration.

The RTWPB's August 1, 1991 Decision, which the NWPC modified, disposed as follows:

WHEREFORE, all foregoing premises considered, the instant petition for exemption from
compliance with Wage Order Nos. RX-01 and RX-01-A is hereby approved under and by
virtue of criteria No. 2, Section 3 of RTWPB Guidelines No. 3 on Exemption, dated
November 26, 1990, for a period of only one (1) year, retroactive to the date said Wage
Order took effect up to November 21, 1991.

SO ORDERED. 4

The Facts

The undisputed facts are narrated by the NWPC as follows:

On October 20, 1990, the Region X [Tripartite Wages and Productivity] Board issued Wage Order
No. RX-01 which provides as follows:

Sec. 1. Upon the effectivity of this Wage Order, the increase in minimum wage rates
applicable to workers and employees in the private sector in Northern Mindanao (Region X)
shall be as follows:

a. The provinces of Agusan del Norte, Bukidnon, Misamis Oriental, and the
Cities of Butuan, Gingoog, and Cagayan de Oro P13.00/day

b. The provinces of Agusan del Sur, Surigao del Norte and Misamis
Occidental, and the Cities of Surigao Oroquieta, Ozamis and Tangub
P11.00/day.

c. The province of Camiguin P9.00/day.

Subsequently, a supplementary Wage Order No. RX-01-A was issued by the Board on
November 6, 1990 which provides as follows:

Sec. 1. Upon the effectivity of the original Wage Order RX-01, all workers
and employees in the private sector in Region X already receiving wages
above the statutory minimum wage rates up to one hundred and twenty
pesos (P120.00) per day shall also receive an increase of P13, P11, P9 per
day, as provided for under Wage Order No. RX-01;

Applicants/appellees Nasipit Lumber Company, Inc. (NALCO), Philippine Wallboard

Corporation (PWC), and Anakan Lumber Company (ALCO), claiming to be separate and
distinct from each other but for expediency and practical purposes, jointly filed an application
 for exemption from the above-mentioned Wage Orders as distressed establishments under
Guidelines No. 3, issued by the herein Board on November 26, 1990, specifically Sec. 3(2)
thereof which, among others, provides:

A. For purposes of this Guidelines the following criteria to determine whether

the applicant-firm is actually distressed shall be used.

xxx xxx xxx

2. Establishment belonging to distressed industry — an establishment that is

engaged in an industry that is distressed due to conditions beyond its
control as may be determined by the Board in consultation with DTI and
NWPC. (Emphasis supplied)

xxx xxx xxx

Applicants/appellees aver that they are engaged in logging and integrated wood processing
industry but are distressed due to conditions beyond their control, to wit: 1) Depressed
economic conditions due to worldwide recession; 2) Peace and order and other emergency-
related problems causing disruption and suspension of normal logging operations; 3)
Imposition of environmental fee for timber production in addition to regular forest charges; 4)
Logging moratorium in Bukidnon; 5) A reduction in the annual allowable volume of cut logs of
NALCO & ALCO by 59%; 6) Highly insufficient raw material supply; 7) Extraordinary
increases in the cost of fuel, oil, spare parts, and maintenance; 8) Excessive labor
cost/production ratio that is more or less 47%; and 9) Lumber export ban.

On the other hand, oppositor/appellant Unions jointly opposed the application for exemption
on the ground that said companies are not distressed establishments since their
capitalization has not been impaired by 25%. 5

Citing liquidity problems and business decline in the wood-processing industry, the RTWPB
approved the applicants' joint application for exemption in this wise:

1. The Board considered the arguments presented by petitioners and the oppositors. The
Board likewise took note of the financial condition of petitioner firms. One of the affiliates,
Anakan Lumber Company, is confirmed to be suffering from capital impairment by: 14:80%
in 1988, 71.35% in 1989 and 100% in 1990. On the other hand, NALCO had a capital
impairment of 6.41%. 13.53% and 17.04% in 1988, 1989 and 1990, respectively, while PWC
had no capital impairment from 1988 to 1990. However, the Board also took note of the fact
that petitioners are claiming for exemption, not on the strength of capital impairment, but on
the basis of belonging to a distressed industry — an establishment that is engaged in an
industry that is distressed due to conditions beyond its control as may be determined by the
Board in consultation with DTI and NWPC.

2. Inquiries made by the Board from the BOI and the DTI confirm that all petitioner-firms are
encountering liquidity problems and extreme difficulty servicing their loan obligations.

3. A perusal of the Provincial Trade and Industry Development Plan for Agusan del Norte
and Butuan City where petitioners are operating their business, confirms the existence of a
slump in the wood-processing industry due to the growing scarcity of [a] large volume of raw
materials to feed the various plywood and lumber mills in the area. A lot of firms have closed
and shifted to other ventures, the report continued, although the competitive ones are still in
operation.

4. The Board took note of the fact that most of the circumstances responsible for the financial
straits of petitioners are largely external, over which petitioners have very little control. The
Board feels that as an alternative to closing up their business[es] which could bring untold
detriment and dislocation to [their] 4,000 workers and their families, petitioners should be
extended assistance and encouragement to continue operating — so that jobs could thereby
be preserved during these difficult times. One such way is for the Board to grant them a
temporary reprieve from compliance with the mandated wage increase specifically W.O. RX-
01 and RX-01-A only. 6

Dissatisfied with the RTWPB's Decision, the private respondents lodged an appeal with the NWPC,
which affirmed ALCO's application but reversed the applications of herein petitioners, NALCO and
PWC. The NWPC reasoned:
 The Guidelines No. 3 dated November 26, 1990, issued by the herein Board cannot be used
as valid basis for granting applicants/appellees application for exemption since it did not
pass the approval of this Commission.

Under the Rules of Procedure on Minimum Wage Fixing dated June 4, 1990, issued by this
Commission pursuant to Republic Act 6727, particularly Section 1 of Rule VIII thereof
provides that:

Sec. 1. Application For Exemption. Whenever a wage order provides for exemption,
applications thereto shall be filed with the appropriate Board which shall process the
same, subject to guidelines issued by the Commission. (Emphasis supplied)

Clearly, it is the Commission that is empowered to set [the] criteria on exemption from
compliance with wage orders. While the Boards may issue supplementary guidelines on
exemption, the same should first pass the Commission for the purpose of determining its
conformity to the latter's general policies and guidelines relative thereto. In fact, under the
"Guidelines on Exemption from Compliance with the Prescribed Wage/Cost of Living
Allowance Increases Granted by the Regional Tripartite Wages and Productivity Boards"
dated February 25, 1991, issued by the Commission, there is a provision that "(T)he Board
may issue supplementary guidelines for exemption . . . subject to review/approval by the
Commission". (Section 11). In the case at bar, after the Commission Secretariat made some
comments on said Guidelines No. 3, the same was never submitted again for [the]
Commission's approval either justifying its original provisions or incorporating the comments
made thereon. Until and unless said Guidelines No. 3 is approved by the Commission, it has
no operative force and effect.

The applicable guidelines on exemption therefore is that one issued by the Commission
dated February 25, 1991, the pertinent portion of which reads:

Sec. 3. CRITERIA FOR EXEMPTION

xxx xxx xxx

2. Distressed Employers/Establishment:

a. In the case of a stock corporation, partnership, single proprietorship or

non-stock, non-profit organization engaged in business activity or charging
fees for its services.

When accumulated losses at end of the period under review have impaired
by at least 25 percent the:

— Paid-up-capital at the end of the last full accounting period preceding the
application, in the case of corporations;

— Total invested capital at the beginning of the last full accounting period
preceding the application, in the case of partnership and single
proprietorships (Emphasis supplied)

A perusal of the financial documents on record shows that for the year 1990, which is the last
full accounting period preceding the applications for exemption, appellees NALCO, ALCO,
and PWC incurred a capital impairment of 1.89%, 28.72%, and 5.03%, respectively.
Accordingly, based on the criteria set forth above in the NWPC Guidelines on Exemption,
only the application for exemption of ALCO should be approved in view of its capital
impairment of 28.72%.

We are not unmindful of the fact that during the Board hearing conducted, both labor and
management manifested their desire for a uniform decision to apply to all three (3) firms.
However, we cannot grant the same for want of legal basis considering that we are required
by the rules to decide on the basis of the merit of application by an establishment having a
legal personality of its own.
7

In denying petitioners' motion for reconsideration, public respondent explained:

The fact that applicant companies relied in good faith upon Guidelines No. 3 issued by the
Board a quo, the same is not sufficient reason that they should be assessed based on the
criteria of said Guidelines considering that it does not conform to the policies and guidelines
relative to wage exemption issued by this Commission pursuant to Republic Act 6727.
Consequently, it has no force and effect. As such, said Guidelines No. 3 cannot therefore be
 a source of a right no matter if one has relied on it in good faith. In like manner that the
workers, who are similarly affected, cannot be bound thereof.

Moreover, even assuming that Guidelines No. 3 conforms to the procedural requirement,
still, the same cannot be given effect insofar as it grants exemption by industry considering
that the subject Wage Order mentioned only distressed establishments as one of those to be
exempted thereof. It did not mention exemption by industries. Well-settled is the rule that an
implementing guidelines [sic] cannot expand nor limit the provision of [the] law it seeks to
implement. Otherwise, it shall be considered ultra vires. And, contrary to applicant
companies' claim, this Commission does not approve rules implementing the Wage Orders
issued by the Regional Tripartite Wages and Productivity Boards. Perforce, it cannot be said
that this Commission has approved the Rules Implementing Wage Order No[s]. RX-01 and
RX-01 A. 8

Hence, this recourse. 9

The Issue

Petitioners raise this solitary issue:

With all due respect, Public Respondent National Wages and Productivity Commission
committed grave abuse of discretion amounting to lack of or in excess of jurisdiction in ruling
that RTWPB-X-Guideline No. 3 has "no operative force and effect", among others, and
consequently, denying for lack of merit the application for exemption of petitioners Nasipit
Lumber Company, Inc. and Philippine Wallboard Corporation from the coverage of Wage
Orders Nos. RX-01 and RX-01-A.

In the main, the issue boils down to a question of power. Is a guideline issued by an RTWPB without
the approval of or, worse, contrary to the guidelines promulgated by the NWPC valid?

The Court's Ruling

The petition is unmeritorious. The answer to the above question is in the negative.

Sole Issue: Approval of NWPC Required

Petitioners contend that the NWPC gravely abused its discretion in overturning the RTWPB's
approval of their application for exemption from Wages Orders RX-01 and RX-01-A. They argue that
under Art. 122 (e) of the Labor Code, the RTWPB has the power "[t]o receive, process and act on
applications for exemption from prescribed wage rates as may be provided by law or any wage
order." They also maintain that no law expressly requires the approval of the NWPC for the
10

effectivity of the RTWPB's Guideline No. 3. Assuming arguendo that the approval of the NWPC was
legally necessary, petitioners should not be prejudiced by their observance of the guideline, pointing
out that the NWCP's own guidelines took effect "only on March 18, 1991 long after Guideline No. 3
11

was issued on November 26, 1990." Lastly, they posit that the NWPC guidelines "cannot be given
12

retroactive effect as [they] will effect or change the petitioners' vested rights." 13

The Court is not persuaded.

Power to Prescribe Guidelines

Lodged in the NWPC, Not in the RTWPB

The three great branches and the various administrative agencies of the government can exercise
only those powers conferred upon them by the Constitution and the law. It is through the application
14

of this basic constitutional principle that the Court resolves the instant case.

RA 6727 (the Wage Rationalization Act), amending the Labor Code, created both the NWPC and the
RTWPB and defined their respective powers. Article 121 of the Labor Code lists the powers and
functions of the NWPC, as follows:

Art. 121. Powers and Functions of the Commission. — The Commission shall have the
following powers and functions:

(a) To act as the national consultative and advisory body to the President of the Philippine[s]
and Congress on matters relating to wages, incomes and productivity;
 (b) To formulate policies and guidelines on wages, incomes and productivity improvement at
the enterprise, industry and national levels;

(c) To prescribe rules and guidelines for the determination of appropriate minimum wage and
productivity measures at the regional, provincial or industry levels;

(d) To review regional wage levels set by the Regional Tripartite Wages and Productivity
Boards to determine if these are in accordance with prescribed guidelines and national
development plans;

(e) To undertake studies, researches and surveys necessary for the attainment of its
functions and objectives, and to collect and compile data and periodically disseminate
information on wages and productivity and other related information, including, but not
limited to, employment, cost-of-living, labor costs, investments and returns;

(f) To review plans and programs of the Regional Tripartite Wages and Productivity Boards
to determine whether these are consistent with national development plans;

(g) To exercise technical and administrative supervision over the Regional Tripartite Wages
and Productivity Boards;

(h) To call, from time to time, a national tripartite conference of representatives of

government, workers and employers for the consideration of measures to promote wage
rationalization and productivity; and

(i) To exercise such powers and functions as may be necessary to implement this Act.

xxx xxx xxx

(Emphasis supplied)

Article 122 of the Labor Code, on the other hand, prescribes the powers of the RTWPB thus:

Art. 122. Creation of Regional Tripartite Wages and Productivity Boards.

xxx xxx xxx

The Regional Boards shall have the following powers and functions in their respective
territorial jurisdiction:

(a) To develop plans, programs and projects relative to wages, income and productivity
improvement for their respective regions;

(b) To determine and fix minimum wage rates applicable in their region, provinces or
industries therein and to issue the corresponding wage orders, subject to guidelines issued
by the Commission;

(c) To undertake studies, researches, and surveys necessary for the attainment of their
functions, objectives and programs, and to collect and compile data on wages, incomes,
productivity and other related information and periodically disseminate the same;

(d) To coordinate with the other Regional Boards as may be necessary to attain the policy
and intention of this Code.

(e) To receive, process and act on applications for exemption from prescribed wage rates as
may be provided by law or any Wage Order; and

(f) To exercise such other powers and functions as may be necessary to carry out their
mandate under this Code. (Emphasis supplied)

The foregoing clearly grants the NWPC, not the RTWPB, the power to "prescribe the rules and
guidelines" for the determination of minimum wage and productivity measures. While the RTWPB
has the power to issue wage orders under Article 122 (b) of the Labor Code, such orders are subject
to the guidelines prescribed by the NWPC. One of these guidelines is the "Rules on Minimum Wage
Fixing," which was issued on June 4, 1990. Rule IV, Section 2 thereof, allows the RTWPB to issue
15

wage orders exempting enterprises from the coverage of the prescribed minimum wages. However,
16

the NWPC has the power not only to prescribe guidelines to govern wage orders, but also to issue
exemptions therefrom, as the said rule provides that "[w]henever a wage order provides for
exemption, applications thereto shall be filed with the appropriate Board which shall process the
same, subject to guidelines issued by the Commission." In short, the NWPC lays down the
17

guidelines which the RTWPB implements.

Significantly, the NWPC authorized the RTWPB to issue exemptions from wage orders, but subject
to its review and approval. Since the NWPC never assented to Guideline No. 3 of the RTWPB, the
18

said guideline is inoperative and cannot be used by the latter in deciding or acting on petitioners'
application for exemption. Moreover, Rule VIII, Section 1 of the NWPC's Rules of Procedure on
Minimum Wage Fixing issued on June 4, 1990 — which was prior to the effectivity of RTWPB
Guideline No. 3 — requires that an application for exemption from wage orders should be processed
by the RTWPB, subject specifically to the guidelines issued by the NWPC.

To allow RTWPB Guideline No. 3 to take effect without the approval of the NWPC is to arrogate unto
RTWPB a power vested in the NWPC by Article 121 of the Labor Code, as amended by RA 6727.
The Court will not countenance this naked usurpation of authority. It is a hornbook doctrine that the
issuance of an administrative rule or regulation must be in harmony with the enabling law. If a
discrepancy occurs "between the basic law and an implementing rule or regulation, it is the former
that prevails." This is so because the law cannot be broadened by a mere administrative issuance.
19

It is axiomatic that "[a]n administrative agency cannot amend an act of Congress." Article 122 (e) of
20

the Labor Code cannot be construed to enable the RTWPB to decide applications for exemption on
the basis of its own guidelines which were not reviewed an approved by the NWPC, for the simple
reason that a statutory grant of "powers should not be extended by implication beyond what may be
necessary for their just and reasonable execution. Official powers cannot be merely assumed by
administrative officers, nor can they be created by the courts in the exercise of their judicial
functions."21

There is no basis for petitioners' claim that their vested rights were prejudiced by the NWPC's
alleged retroactive application of its own rules which were issued on February 25, 1991 and took
22

effect on March 18, 1991. Such claim cannot stand because Guideline No. 3, as previously
23

discussed and as correctly concluded by the NWPC, was not valid and, thus, cannot be a source of
24

a right; much less, a vested one.

The Insertion in Guideline No. 3 of

"Distressed Industry" as a Criterion for

Exemption Void

The Court wishes to stress that the law does not automatically grant exemption to all establishments
belonging to an industry which is deemed "distressed." Hence, RX-O1, Section 3 (4), must not be
construed to automatically include all establishments belonging to a distressed industry. The fact
that the wording of a wage order may contain some ambiguity would not help petitioners. Basic is
the rule in statutory construction that all doubts in the implementation and the interpretation of the
provisions of the Labor Code, as well as its implementing rules and regulations, must be resolved in
favor of labor. By exempting all establishments belonging to a distressed industry, Guideline No. 3
25

surreptitiously and irregularly takes away the mandated increase in the minimum wage awarded to
the affected workers. In so acting, the RTWPB proceeded against the declared policy of the State,
enshrined in the enabling act, "to rationalize the fixing of minimum wages and to promote
productivity-improvement and gain-sharing measures to ensure a decent standard of living for the
workers and their families; to guarantee the rights of labor to its just share in the fruits of
production; . . ." Thus, Guideline No. 3 is void not only because it lacks NWPC approval and
26

contains an arbitrarily inserted exemption, but also because it is inconsistent with the avowed State
policies protective of labor.

NWPC Decision Not Arbitrary

To justify the exemption of a distressed establishment from effects of wage orders, the NWPC
requires the applicant, if a stock corporation like petitioners, to prove that its accumulated losses
impaired its paid-up capital by at least 25 percent in the last full accounting period preceding the
application or the effectivity of the order. In the case at bar, it is undisputed that during the relevant
27 28

accounting period, NALCO, ALCO and PWC sustained capital impairments of 1.89, 28.72, and 5.03
percent, respectively. Clearly, it was only ALCO which met the exemption standard. Hence, the
29

NWPC did not commit grave abuse of discretion in approving the application only of ALCO and in
denying those of petitioners. Indeed, the NWPC acted within the ambit of its administrative
prerogative when it set guidelines for the exemption of a distressed establishment. Absent any grave
abuse of discretion, NWPC's actions will not be subject to judicial review. Accordingly, we deem the
30

appealed Decisions to be consistent with law.

WHEREFORE, the petition is hereby DISMISSED. The assailed Decisions are hereby AFFIRMED.
Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 153511 July 18, 2012

LEGEND HOTEL (MANILA), owned by TITANIUM CORPORATION, and/or, NELSON NAPUD, in

his capacity as the President of Petitioner Corporation, Petitioner,
vs.
HERNANI S. REALUYO, also known as JOEY ROA, Respondent.

DECISION

BERSAMIN, J.:
This labor case for illegal dismissal involves a pianist employed to perform in the restaurant of a
hotel. On August 9, 1999, respondent, whose stage name was Joey R. Roa, filed a complaint for
alleged unfair labor practice, constructive illegal dismissal, and the underpayment/nonpayment of his
premium pay for holidays, separation pay, service incentive leave pay, and 13111 month pay. He
prayed for attorney's fees, moral damages off P100,000.00 and exemplary damages for
P100,000.00. 1

Respondent averred that he had worked as a pianist at the Legend Hotel’s Tanglaw Restaurant from
September 1992 with an initial rate of P400.00/night that was given to him after each night’s
performance; that his rate had increased to P750.00/night; and that during his employment, he could
not choose the time of performance, which had been fixed from 7:00 pm to 10:00 pm for three to six
times/week. He added that the Legend Hotel’s restaurant manager had required him to conform with
the venue’s motif; that he had been subjected to the rules on employees’ representation checks and
chits, a privilege granted to other employees; that on July 9, 1999, the management had notified him
that as a cost-cutting measure his services as a pianist would no longer be required effective July
30, 1999; that he disputed the excuse, insisting that Legend Hotel had been lucratively operating as
of the filing of his complaint; and that the loss of his employment made him bring his complaint. 2

In its defense, petitioner denied the existence of an employer-employee relationship with

respondent, insisting that he had been only a talent engaged to provide live music at Legend Hotel’s
Madison Coffee Shop for three hours/day on two days each week; and stated that the economic
crisis that had hit the country constrained management to dispense with his services.

On December 29, 1999, the Labor Arbiter (LA) dismissed the complaint for lack of merit upon finding
that the parties had no employer-employee relationship. The LA explained thusly:
3

xxx

On the pivotal issue of whether or not there existed an employer-employee relationship between the
parties, our finding is in the negative. The finding finds support in the service contract dated
September 1, 1992 xxx.

xxx

Even if we grant the initial non-existence of the service contract, as complainant suggests in his
reply (third paragraph, page 4), the picture would not change because of the admission by
complainant in his letter dated October 8, 1996 (Annex "C") that what he was receiving was talent
fee and not salary.

This is reinforced by the undisputed fact that complainant received his talent fee nightly, unlike the
regular employees of the hotel who are paid by monthly xxx.

xxx

And thus, absent the power to control with respect to the means and methods by which his work was
to be accomplished, there is no employer-employee relationship between the parties xxx.

xxx

WHEREFORE, this case must be, as it is hereby, DISMISSED for lack of merit.

SO ORDERED. 4

Respondent appealed, but the National Labor Relations Commission (NLRC) affirmed the LA on
May 31, 2001. 5

Respondent assailed the decision of the NLRC in the Court of Appeals (CA) on certiorari.

On February 11, 2002, the CA set aside the decision of the NLRC, holding:
6

xxx

Applying the above-enumerated elements of the employee-employer relationship in this case, the
question to be asked is, are those elements present in this case?

The answer to this question is in the affirmative.

xxx
Well settled is the rule that of the four (4) elements of employer-employee relationship, it is the
power of control that is more decisive.

In this regard, public respondent failed to take into consideration that in petitioner’s line of work, he
was supervised and controlled by respondent’s restaurant manager who at certain times would
require him to perform only tagalog songs or music, or wear barong tagalog to conform with
Filipiniana motif of the place and the time of his performance is fixed by the respondents from 7:00
pm to 10:00 pm, three to six times a week. Petitioner could not choose the time of his performance.
xxx.

As to the status of petitioner, he is considered a regular employee of private respondents since the
job of the petitioner was in furtherance of the restaurant business of respondent hotel. Granting that
petitioner was initially a contractual employee, by the sheer length of service he had rendered for
private respondents, he had been converted into a regular employee xxx.

xxx

xxx In other words, the dismissal was due to retrenchment in order to avoid or minimize business
losses, which is recognized by law under Article 283 of the Labor Code, xxx.

xxx

WHEREFORE, foregoing premises considered, this petition is GRANTED. xxx. 7

Issues

In this appeal, petitioner contends that the CA erred:

I. XXX WHEN IT RULED THAT THERE IS THE EXISTENCE OF EMPLOYER-EMPLOYEE

RELATIONSHIP BETWEEN THE PETITIONER HOTEL AND RESPONDENT ROA.

II. XXX IN FINDING THAT ROA IS A REGULAR EMPLOYEE AND THAT THE
TERMINATION OF HIS SERVICES WAS ILLEGAL. THE CA LIKEWISE ERRED WHEN IT
DECLARED THE REINSTATEMENT OF ROA TO HIS FORMER POSITION OR BE GIVEN
A SEPARATION PAY EQUIVALENT TO ONE MONTH FOR EVERY YEAR OF SERVICE
FROM SEPTEMBER 1999 UNTIL JULY 30, 1999 CONSIDERING THE ABSENCE OF AN
EMPLOYMENT RELATIONSHIP BETWEEN THE PARTIES.

III. XXX WHEN IT DECLARED THAT ROA IS ENTITLED TO BACKWAGES, SERVICE

INCENTIVE LEAVE AND OTHER BENEFITS CONSIDERING THAT THERE IS NO
EMPLOYER EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES.

IV. XXX WHEN IT NULLIFIED THE DECISION DATED MAY 31, 2001 IN NLRC NCR CA
NO. 023404-2000 OF THE NLRC AS WELL AS ITS RESOLUTION DATED JUNE 29, 2001
IN FAVOR OF HEREIN PETITIONER HOTEL WHEN HEREIN RESPONDENT ROA
FAILED TO SHOW PROOF THAT THE NLRC AND THE LABOR ARBITER HAVE
COMMITTED GRAVE ABUSE OF DISCRETION OR LACK OF JURISDICTION IN THEIR
RESPECTIVE DECISIONS.

V. XXX WHEN IT OVERLOOKED THE FACT THAT THE PETITION WHICH ROA FILED IS
IMPROPER SINCE IT RAISED QUESTIONS OF FACT.

VI. XXX WHEN IT GAVE DUE COURSE TO THE PETITION FILED BY ROA WHEN IT IS
CLEARLY IMPROPER AND SHOULD HAVE BEEN DISMISSED OUTRIGHT
CONSIDERING THAT A PETITION FOR CERTIORARI UNDER RULE 65 IS LIMITED
ONLY TO QUESTIONS OR ISSUES OF GRAVE ABUSE OF DISCRETION OR LACK OF
JURISDICTION COMMITTED BY THE NLRC OR THE LABOR ARBITER, WHICH ISSUES
ARE NOT PRESENT IN THE CASE AT BAR.

The assigned errors are divided into the procedural issue of whether or not the petition for certiorari
filed in the CA was the proper recourse; and into two substantive issues, namely: (a) whether or not
respondent was an employee of petitioner; and (b) if respondent was petitioner’s employee, whether
he was validly terminated.

Ruling

The appeal fails.

Procedural Issue:

Certiorari was a proper recourse

Petitioner contends that respondent’s petition for certiorari was improper as a remedy against the
NLRC due to its raising mainly questions of fact and because it did not demonstrate that the NLRC
was guilty of grave abuse of discretion.

The contention is unwarranted. There is no longer any doubt that a petition for certiorari brought to
assail the decision of the NLRC may raise factual issues, and the CA may then review the decision
of the NLRC and pass upon such factual issues in the process. The power of the CA to review
8

factual issues in the exercise of its original jurisdiction to issue writs of certiorari is based on Section
9 of Batas Pambansa Blg. 129, which pertinently provides that the CA "shall have the power to try
cases and conduct hearings, receive evidence and perform any and all acts necessary to resolve
factual issues raised in cases falling within its original and appellate jurisdiction, including the power
to grant and conduct new trials or further proceedings."

Substantive Issue No. 1:

Employer-employee relationship existed between the parties

We next ascertain if the CA correctly found that an employer-employee relationship existed between
the parties.

The issue of whether or not an employer-employee relationship existed between petitioner and
respondent is essentially a question of fact. The factors that determine the issue include who has the
9

power to select the employee, who pays the employee’s wages, who has the power to dismiss the
employee, and who exercises control of the methods and results by which the work of the employee
is accomplished. Although no particular form of evidence is required to prove the existence of the
10

relationship, and any competent and relevant evidence to prove the relationship may be admitted, a 11

finding that the relationship exists must nonetheless rest on substantial evidence, which is that
amount of relevant evidence that a reasonable mind might accept as adequate to justify a
conclusion. 12

Generally, the Court does not review factual questions, primarily because the Court is not a trier of
facts. However, where, like here, there is a conflict between the factual findings of the Labor Arbiter
and the NLRC, on the one hand, and those of the CA, on the other hand, it becomes proper for the
Court, in the exercise of its equity jurisdiction, to review and re-evaluate the factual issues and to
look into the records of the case and re-examine the questioned findings. 13

A review of the circumstances reveals that respondent was, indeed, petitioner’s employee. He was
undeniably employed as a pianist in petitioner’s Madison Coffee Shop/Tanglaw Restaurant from
September 1992 until his services were terminated on July 9, 1999.

First of all, petitioner actually wielded the power of selection at the time it entered into the service
contract dated September 1, 1992 with respondent. This is true, notwithstanding petitioner’s
insistence that respondent had only offered his services to provide live music at petitioner’s Tanglaw
Restaurant, and despite petitioner’s position that what had really transpired was a negotiation of his
rate and time of availability. The power of selection was firmly evidenced by, among others, the
express written recommendation dated January 12, 1998 by Christine Velazco, petitioner’s
restaurant manager, for the increase of his remuneration. 14

Petitioner could not seek refuge behind the service contract entered into with respondent. It is the
law that defines and governs an employment relationship, whose terms are not restricted to those
fixed in the written contract, for other factors, like the nature of the work the employee has been
called upon to perform, are also considered. The law affords protection to an employee, and does
not countenance any attempt to subvert its spirit and intent. Any stipulation in writing can be ignored
when the employer utilizes the stipulation to deprive the employee of his security of tenure. The
inequality that characterizes employer-employee relations generally tips the scales in favor of the
employer, such that the employee is often scarcely provided real and better options. 15

Secondly, petitioner argues that whatever remuneration was given to respondent were only his talent
fees that were not included in the definition of wage under the Labor Code; and that such talent fees
were but the consideration for the service contract entered into between them.

The argument is baseless.

Respondent was paid P400.00 per three hours of performance from 7:00 pm to 10:00 pm, three to
six nights a week. Such rate of remuneration was later increased to P750.00 upon restaurant
manager Velazco’s recommendation. There is no denying that the remuneration denominated as
talent fees was fixed on the basis of his talent and skill and the quality of the music he played during
the hours of performance each night, taking into account the prevailing rate for similar talents in the
entertainment industry. 16

Respondent’s remuneration, albeit denominated as talent fees, was still considered as included in
the term wage in the sense and context of the Labor Code, regardless of how petitioner chose to
designate the remuneration. Anent this, Article 97(f) of the Labor Code clearly states:

xxx wage paid to any employee shall mean the remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece,
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
services rendered or to be rendered, and includes the fair and reasonable value, as determined by
the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to
the employee.

Clearly, respondent received compensation for the services he rendered as a pianist in petitioner’s
hotel. Petitioner cannot use the service contract to rid itself of the consequences of its employment
of respondent. There is no denying that whatever amounts he received for his performance,
howsoever designated by petitioner, were his wages.

It is notable that under the Rules Implementing the Labor Code and as held in Tan v.
Lagrama, every employer is required to pay his employees by means of a payroll, which should
17

show in each case, among others, the employee’s rate of pay, deductions made from such pay, and
the amounts actually paid to the employee. Yet, petitioner did not present the payroll of its
employees to bolster its insistence of respondent not being its employee.

That respondent worked for less than eight hours/day was of no consequence and did not detract
from the CA’s finding on the existence of the employer-employee relationship. In providing that the "
normal hours of work of any employee shall not exceed eight (8) hours a day," Article 83 of the
Labor Code only set a maximum of number of hours as "normal hours of work" but did not prohibit
work of less than eight hours.

Thirdly, the power of the employer to control the work of the employee is considered the most
significant determinant of the existence of an employer-employee relationship. This is the so-called
18

control test, and is premised on whether the person for whom the services are performed reserves
the right to control both the end achieved and the manner and means used to achieve that end. 19

Petitioner submits that it did not exercise the power of control over respondent and cites the
following to buttress its submission, namely: (a) respondent could beg off from his nightly
performances in the restaurant for other engagements; (b) he had the sole prerogative to play and
perform any musical arrangements that he wished; (c) although petitioner, through its manager,
required him to play at certain times a particular music or song, the music, songs, or arrangements,
including the beat or tempo, were under his discretion, control and direction; (d) the requirement for
him to wear barong Tagalog to conform with the Filipiniana motif of the venue whenever he
performed was by no means evidence of control; (e) petitioner could not require him to do any other
work in the restaurant or to play the piano in any other places, areas, or establishments, whether or
not owned or operated by petitioner, during the three hour period from 7:00 pm to 10:00 pm, three to
six times a week; and (f) respondent could not be required to sing, dance or play another musical
instrument.

A review of the records shows, however, that respondent performed his work as a pianist under
petitioner’s supervision and control. Specifically, petitioner’s control of both the end achieved and the
manner and means used to achieve that end was demonstrated by the following, to wit:

a. He could not choose the time of his performance, which petitioners had fixed from 7:00 pm
to 10:00 pm, three to six times a week;

b. He could not choose the place of his performance;

c. The restaurant’s manager required him at certain times to perform only Tagalog songs or
music, or to wear barong Tagalog to conform to the Filipiniana motif; and

d. He was subjected to the rules on employees’ representation check and chits, a privilege
granted to other employees.

Relevantly, it is worth remembering that the employer need not actually supervise the performance
of duties by the employee, for it sufficed that the employer has the right to wield that power.
Lastly, petitioner claims that it had no power to dismiss respondent due to his not being even subject
to its Code of Discipline, and that the power to terminate the working relationship was mutually
vested in the parties, in that either party might terminate at will, with or without cause.

The claim is contrary to the records. Indeed, the memorandum informing respondent of the
discontinuance of his service because of the present business or financial condition of
petitioner showed that the latter had the power to dismiss him from employment.
20 21

Substantive Issue No. 2:

Validity of the Termination

Having established that respondent was an employee whom petitioner terminated to prevent losses,
the conclusion that his termination was by reason of retrenchment due to an authorized cause under
the Labor Code is inevitable.

Retrenchment is one of the authorized causes for the dismissal of employees recognized by the
Labor Code. It is a management prerogative resorted to by employers to avoid or to minimize
business losses. On this matter, Article 283 of the Labor Code states:

Article 283. Closure of establishment and reduction of personnel. – The employer may also
terminate the employment of any employee due to the installation of labor-saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the provisions of
this Title, by serving a written notice on the workers and the Ministry of Labor and Employment at
least one (1) month before the intended date thereof. xxx. In case of retrenchment to prevent losses
and in cases of closures or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, the separation pay shall be equivalent to one (1)
month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A
fraction of at least six (6) months shall be considered one (1) whole year.

The Court has laid down the following standards that an employer should meet to justify
retrenchment and to foil abuse, namely:

(a) The expected losses should be substantial and not merely de minimis in extent;

(b) The substantial losses apprehended must be reasonably imminent;

(c) The retrenchment must be reasonably necessary and likely to effectively prevent the
expected losses; and

(d) The alleged losses, if already incurred, and the expected imminent losses sought to be
forestalled must be proved by sufficient and convincing evidence. 22

Anent the last standard of sufficient and convincing evidence, it ought to be pointed out that a less
exacting standard of proof would render too easy the abuse of retrenchment as a ground for
termination of services of employees. 23

Was the retrenchment of respondent valid?

In termination cases, the burden of proving that the dismissal was for a valid or authorized cause
rests upon the employer. Here, petitioner did not submit evidence of the losses to its business
operations and the economic havoc it would thereby imminently sustain. It only claimed that
respondent’s termination was due to its "present business/financial condition." This bare statement
fell short of the norm to show a valid retrenchment. Hence, we hold that there was no valid cause for
the retrenchment of respondent.

Indeed, not every loss incurred or expected to be incurred by an employer can justify
retrenchment. The employer must prove, among others, that the losses are substantial and that the
1âwphi1

retrenchment is reasonably necessary to avert such losses. Thus, by its failure to present sufficient
and convincing evidence to prove that retrenchment was necessary, respondent’s termination due to
retrenchment is not allowed.

The Court realizes that the lapse of time since the retrenchment might have rendered respondent's
reinstatement to his former job no longer feasible. If that should be true, then petitioner should
instead pay to him separation pay at the rate of one. month pay for every year of service computed
from September 1992 (when he commenced to work for the petitioners) until the finality of this
decision, and full backwages from the time his compensation was withheld until the finality of this
decision.

WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision of the Court
of Appeals promulgated on February 11, 2002, subject to the modification that should reinstatement
be no longer feasible, petitioner shall pay to respondent separation pay of one month for every year
of service computed from September 1992 until the finality of this decision, and full backwages from
the time his compensation was withheld until the finality of this decision.

Costs of suit to be paid by the petitioners.

SO ORDERED.

LUCAS P. BERSAMIN
Associate justice
Acting Chairperson, First Division

WE CONCUR:

MARIANO C. DEL CASTILLO

Associate justice

ROBERTO A. ABAD* MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate justice

ATTESTATION

l attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LUCAS P. BERSAMIN
Associate justice
Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article VII of the Constitution and the Division Acting Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12 R.A. 296, The Judiciary Act of 1948, as amended)