G.R.No. 204261, October 05, 2016 P1,000,000.

P1,000,000.00 was subscribed and paid equally by the Martinez Group and the De
Castro Group.10
EDWARD C. DE CASTRO AND MA. GIRLIE F. PLATON, Petitioners, v. COURT OF
APPEALS, NATIONAL LABOR RELATIONS COMMISSION, SILVERICON, INC., As it turned out, the supposedly new corporation contemplated was Silvericon. De
AND/OR NUVOLAND PHILS., INC., AND/OR RAUL MARTINEZ, RAMON Castro was appointed the President and majority stockholder of Silvericon while
BIENVENIDA, AND THE BOARD OF DIRECTORS OF NUVOLAND, Respondents. Bienvenida and Martinez were named as stockholders and incorporators thereof,
each owning one (1) share of subscribed capital stock.

DECISION In the same MOA, Martinez was designated as Chairman of the new corporation to
whom De Castro, as President and Chief Operating Officer, would directly report. De
MENDOZA, J.: Castro was tasked to manage the day to day operations of the new corporation
based on policies, procedures and strategies set by Martinez. For their respective
This is a Petition for Certiorari under Rule 65 of the Rules of Court assailing the June roles, Martinez was to receive a monthly allowance of P125,000.00, while De
Castro's monthly salary was P400,000.00, with car plan and project income bonus,
1, 2012 Decision1and the September 21, 2012 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 122415, for having been issued with grave abuse of among other perks. Both Martinez and De Castro were stipulated to receive override
commissions at 1% each, based on the net contract price of each condominium unit
discretion, when it affirmed the July 29, 2011 Decision3 and the September 22, 2011
Resolution4 of the National Labor Relations Commission (NLRC) in NLRC -NCR Case sold.
Nos. 11-16356-09 and 12-17308-09, consolidated cases for illegal dismissal filed
against respondent corporations, Nuvoland Phils., Inc. (Nuvoland) and Silvericon, During De Castro's tenure as Chief Operating Officer of the newly created Silvericon,
he recruited forty (40) sales and marketing personnel. One of them was petitioner
Inc. (Silvericon).
Ma. Girlie F. Platon (Platon) who occupied the position of Executive Property
Consultant. De Castro and his team of sales personnel were responsible for the sale
The July 29, 2011 NLRC Decision, in turn, reversed the March 15 2011 Decision5 of
the Labor Arbiter (LA), finding that the petitioners were illegally dismissed.
chanroblesvirtuallawlibrary
of 100% of the projects owned and developed by Nuvoland. 11

Thereafter, the Sales and Marketing Agreement12(SMA), dated February 26, 2008,
The Antecedents
was purportedly executed by Nuvoland and Silvericon, stipulating that all payments
made for the condominium projects of Nuvoland were to be given directly to it.
Clients secured by the sales and marketing personnel would issue checks payable to
Nuvoland, a corporation formed primarily "to own, use, improve, develop, subdivide,
Nuvoland while the cash payments, as the case may be, were deposited to
sell, exchange, lease and hold for investment or otherwise, real estate of all kinds,
Nuvoland's account. Meanwhile, the corresponding sales commission of the sales
including buildings, houses, apartments and other structures," was registered with
personnel were issued to them by Nuvoland, with Martinez signing on behalf of the
the Securities and Exchange Commission (SEC) on August 9, 2006.6 Respondent
said company.
Ramon Bienvenida (Bienvenida) was the principal stockholder and member of the
Board of Directors while Raul Martinez (Martinez) was its President.
In a Letter,13 dated December 12, 2008 and signed by Bienvenida, Nuvoland
terminated the SMA on the ground that Silvericon personnel committed an
Silvericon, on the other hand, was registered with the SEC on December 19, 2006.
unauthorized walkout and abandonment of the Nuvo City Showroom for two (2)
Its Articles: of Incorporation described it as a "corporation organized 'to own, use,
days. In the same letter, Nuvoland demanded that Silvericon make a full accounting
improve, develop, subdivide, sell, exchange, lease and hold for investment or
of all its uses of the marketing advances from Nuvoland. It, however, assured that
otherwise, real estate of all kinds, including buildings, houses, apartments and other
all sales commissions earned by Silvericon personnel would be released as per
structures.'"7
existing policy.
Sometime in 2007, Martinez recruited petitioner Edward de Castro (De Castro), a
After the issuance of the said termination letter, De Castro and all the sales and
sales and marketing professional in the field of real estate, to handle its sales and
marketing personnel of Silvericon were barred from entering the office premises.
marketing operations, including the hiring and supervision of the sales and
Nuvoland, eventually, was able to secure the settlement of all sales and marketing
marketing personnel. To formalize this undertaking, De Castro was made to sign a
personnel's commissions and wages with the exception of those of De Castro and
Memorandum of Agreement (MOA), denominated as Shareholders
Platon. The claims of one of Silvericon's senior manager were settled during the
Agreement,8 wherein Martinez proposed to create a new corporation, through which
pendency of a complaint with the LA.14
the latter's compensation, benefits and commissions, including those of other sales
personnel, would be coursed. It was stipulated in the said MOA that the new
Aggrieved, De Castro and Platon filed a complaint for illegal dismissal before the LA,
corporation9 would have an authorized capital stock of P4,000,000.00, of which

Labor Law Review – Melo M. Ponce de Leon Page 1

demanding the payment of their unpaid wages, commissions and other benefits with personnel, and not to take the cudgels for Silvericon in abruptly terminating the
prayer for the payment of moral and exemplary damages and attorney's fees against entire sales force including the complainants herein.16
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Silvericon, Nuvoland, Martinez, Bienvenida, and the Board of Directors of Nuvoland. Nuvoland was adjudged as the direct employer of De Castro and Platon and, thus,
liable to pay their money claims as a consequence of their illegal dismissal.
Nuvoland and its directors and officers denied a direct contractual relationship with According to the LA, the ground relied upon for the termination of the employment of
De Castro and Platon, and contended that if there was any dispute at all, it was De Castro and Platon - abandonment of the Nuvo City Showroom - was not at all
merely between the complainants and Silvericon. proven. Mere suspicion that De Castro instigated the walkout did not discharge the
burden of proof which heavily rested on the employer. Without an unequivocal
For its part, Silvericon admitted that it had employed De Castro as President and showing that an employee deliberately and unjustifiably refused his
COO. It, however, asserted the application of Presidential Decree (P.D.) No. 902-A to employment sans any intention to return to work, abandonment as a cause for
the case, arguing that the claims come within the purview of corporate affairs and dismissal could not stand. Worse, procedural due process could not be said to have
management, thus, falling within the jurisdiction of the regular courts. 15 been observed through the expediency of a letter in contravention to Article 277,
paragraph 2 of the Labor Code.17 Hence, the LA disposed: chanRoblesvirtualLawlibrary

The Ruling of the Labor Arbiter WHEREFORE, all the foregoing premises being considered, judgment is hereby
rendered ordering respondent Nuvoland Phils. Inc. and/or Raul Martinez and Ramon
On March 15, 2011, after the filing of the parties' respective position papers, the LA Bienvenida to pay jointly and solidarity the awarded claims in favor of the
handed down his decision in favor of De Castro and Platon. He concluded that complainants, as follows: cralawlawlibrary

Silvericon was a mere labor-only contractor and, therefore, a mere agent of

Nuvoland. Thus: chanRoblesvirtualLawlibrary
EDWARD DE CASTRO
It should be noted that in the Sales and Marketing Agreement between Silvericon
and Nuvoland, the latter committed to advance all the necessary amount of money Backwages................................ P10,800,000.00
up to the extent of P30 million per building to fund the marketing expenses for the Separation pay.............................. 1,600,000.00
project. This alone disqualifies respondent Silvericon as an independent contractor as Unpaid Salaries................................ 146,667.00
it could not undertake the contracted sales and marketing work under its own 13th Month Pay............................... 380,000.00
account and under its own responsibility. Not only that, that respondent Nuvoland Unpaid Override Commissions ........26,454.839.88
has to bankroll the marketing expenses of respondent Silvericon up to the extent of
P30 million per building means that the latter does not have substantial capital to ��� � � � � � �� TOTAL........................P39,381,506.88
undertake the contract work on its own account and under its own responsibility.
Thus, the argument by the respondents that the paid-up capital of respondent MA. GIRLIE PLATON
Silvericon in the amount of P1 million as shown by its Articles of Incorporation to be
substantial capital is simply puerile. If it were true that said amount of Pi million Backwages................................ P405,000.00
would be substantial enough for Silvericon to carry out its undertaking under Sales Separation pay.............................. 60,000.00
and Marketing Agreement, then there was no need for respondent Nuvoland to Unpaid Salaries................................ 5,500.00
advance the amount of P30,000,000.00 for the marketing expenses of Silvericon. 13th Month Pay.............................. 14,250.00
Moreover, as argued by complainants, how can P1,000,000.00 be deemed as Unpaid Override Commissions ........530.231.93
substantial capitalization if complainant De Castro's salary per month alone is
already about almost half of Silver/icon's paid-up capitalization. This is not to �� � � � � � �� TOTAL........................P1,014,981.93
mention the salaries of the more than forty sales and marketing staff. This means
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Not in conformity, Nuvoland, Bienvenida and Martinez interposed an appeal before

that after only one (1) month in operation, Silvericon's capitalization would not have the NLRC, arguing that the LA gravely abused his discretion in ruling that: 1)
been enough to pay even the salaries of its employees. Silvericon was a labor-only contractor; 2) the case did not involve an intra-corporate
dispute; and 3) Martinez and Bienvenida were solidarity liable for illegal dismissal.
To be added to the foregoing findings is the admitted fact that it was respondent
Nuvoland which paid the sales commissions of the sales personnel of respondent The Ruling of the NLRC
Silvericon. Even the power to dismiss the complainants and the other sales personnel
of Silvericon was exercised by respondent Nuvoland. If indeed there was an In its July 29, 2011 Decision, the NLRC reversed the LA decision, finding that
unauthorized walkout and abandonment by the sales personnel of the Nuvo City Silvericon was an independent contractor, thus, the direct employer of De Castro and
showroom for a period of two (2) days, then what Nuvoland could have done was to Platon. In its view, in the SMA, Silvericon had full discretion on how to perform and
notify Silvericon to institute appropriate disciplinary action against the erring conduct its marketing and sales tasks; and there was no showing that Nuvoland had
exercised control over the method of sales and marketing strategies used by

Labor Law Review – Melo M. Ponce de Leon Page 2

Silvericon. The NLRC further concluded that Silvericon had substantial capital. It III
pointed out that in several cases decided by the Court, even an amount less than
One Million Pesos was sufficient to constitute : substantial capital; and so to require
Silvericon to prove that it had investments in the form of tools, equipment, THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION
machinery, and work premises would be going beyond what the law and WHEN IT HELD THAT NO BAD FAITH WAS ESTABLISHED ON THE PART OF
jurisprudence required. Hence, it could not consider Silvericon as a dummy RESPONDENTS RAUL MARTINEZ AND RAMON BIENVENIDA. 18
chanrobleslaw

corporation of Nuvoland organized to effectively evade the latter's obligation of Essentially, petitioners De Castro and Platon argue that Silvericon, far from being an
providing employment benefits to its sales and marketing agents. This being the independent contractor, was engaged in labor-only contracting as shown by: 1) its
case, the NLRC ruled that no employer-employee relationship existed between lack of a substantial capital necessary in the conduct of its business; 2) its lack of
Nuvoland, on one hand, and De Castro and Platon, on the other. There was no investment on tools, equipment, machineries, work premises, and other materials;
evidence showing that Nuvoland hired, paid wages, dismissed or controlled De and 3) its failure to secure a certificate of authority to act as an independent
Castro and Platon, or anyone of Silvericon's employees. Resultantly, Martinez and contractor issued by the Department of Labor and Employment (DOLE); and 4) its
Bienvenida could not be held liable for they merely acted as officers of Nuvoland. services to Nuvoland being exclusive in nature.

Unfazed, De Castro and Platon assailed the decision of the NLRC via a petition According to De Castro and Platon, the evaluation of the authorized capital stock of
for certiorari under Rule 65 with the CA. Silvericon against the marketing and sales activities of its sales personnel would
readily show that it needed a huge amount of funds for salaries and operating
The Ruling of the CA expenses, not to mention the funds for promotions and advertisements for the Aspire
Condominium Project and Infinity Office and Residential Condominium Prpject.
In its June 1, 2012 Decision, the CA affirmed the findings of the NLRC, pointing out Suffice it to say, Silvericon's authorized or paid up capital was deficient to cover its
that what was terminated was the SMA. As such, the employment of the forty (40) operations. This is the reason why Nuvoland made advancements amounting to P30
personnel hired by Silvericon, as well as the petitioners' employment, was not Million per building.
affected. Considering that there was no employer-employee relationship between the
petitioners and Nuvoland, the CA deemed that the latter could not be held liable for The petitioners contend that the CA gravely erred when it relied on the eventual
the claim of illegal dismissal. Even assuming that De Castro was illegally dismissed, deduction of the said advances from the earned marketing fee of Silvericon pursuant
the CA opined that the NLRC was correct in refraining from taking cognizance of the to the SMA. The advancements, whether or not at cost on the part of Silvericon, only
complaint because De Castro's employment with Silvericon put him within the ambit proved that the latter had no substantial capital necessary for its business. Although
of Section 5.2 of Republic Act (R.A.) No. 8799, otherwise known as The Securities jurisprudence was replete with rulings considering an amount less than the paid-up
Regulation Code. As such, his claim should have been brought before the Regional capital of Silvericon as substantial, the industry in which the respondent corporations
Trial Court (RTC) instead. were engaged, that is, the sale and marketing of enormous condominium projects,
should be taken into account. In other words, the test of a substantial paid-up
Upon the denial of their motion for reconsideration, the petitioners filed this petition capital for purposes of identifying an entity; as an independent contractor should be
on the following evaluated in light of the business it is undertaking. In the case of Silvericon, the
GROUNDS paid-up capital of P1 Million Pesos could hardly be considered substantial.

I Further, Silvericon had no investment in the form of tools and equipment necessary
in the conduct of its business, the sales and marketing activities of which were
conducted in the premises of Nuvoland. The latter itself designed and constructed
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION the model units used for the sales and marketing of the condominium projects.
WHEN IT AGREED WITH THE NLRC THAT SILVERICON IS NOT A LABOR-
ONLY CONTRACTOR More significantly, the petitioners explained that Nuvoland created Silvericon to
serve, not any other clientele, but its creator. If Nuvoland really wanted to engage a
truly independent contractor to undertake its sales and marketing needs, it should
II
have engaged a more experienced one, not a two-year old untested company. But
then, they are one and the same. The services of Silvericon were exclusively for
Nuvoland. Hence, there was no need for Nuvoland to require Silvericon to secure a
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION
certificate of authority from the DOLE. Undeniably, De Castro was merely engaged to
WHEN IT AGREED WITH THE NLRC THAT THE INSTANT CASE INVOLVES AN
facilitate the recruitment of sales and marketing personnel, who then performed
INTRA-CORPORATE DISPUTE
functions which were directly related to the main business of the principal, Nuvoland.

Labor Law Review – Melo M. Ponce de Leon Page 3

 of certiorari may still be issued.23
Position of the Respondents
In the broader interest of justice, the Court deems it proper to suspend the rules and
In their Comment,19 respondents Nuvoland, Martinez and Bienvenida argued that the allow due course to the petition as one for certiorari under Rule 65. As will be
subject petition should be dismissed outright for having been filed under a wrong discussed hereafter, the Court has determined points of contention that were
mode of appeal. In other words, instead of being captioned as a petition under Rule disregarded by the authorities a quo, the outright conclusion of which stripped off
45, the petitioners availed of the special civil action under Rule 65, setting forth the petitioners of a remedy to demand their claims which were founded on a legal
grave abuse of discretion on the part of the CA as a main ground. The respondents obligation. The propriety of the mode of appeal used by the petitioners pales in
pointed out that the petitioners may not utilize a petition for certiorari as a pretext comparison with the alleged grave errors of judgment committed by the CA. For said
for a belated filing of a petition for review. reason, matters deserving clear resolution by the Court of last resort cannot be
ignored lest a miscarriage of justice come to pass.
Respondent Silvericon for its part, submitted its Manifestation, 20 dated December 12,
2013, praying that it be excused from filing a comment as it did not see any need to Substantive Issues
be part of the appeal.
As to the substantive issues, the Court is faced with divergent views in the
Reply of Petitioners arguments raised. On one hand, the petitioners strongly urge the Court to consider
numerous factors that would justify the piercing of the corporate veil showing that
In their Reply,21 the petitioners asserted that their petition was strongly grounded on Silvericon was just a business conduit of Nuvoland. On the other, the respondents
grave abuse of discretion due to the CA's deliberate failure to consider material and vehemently deny the existence of an employer-employee relationship between
undisputed facts showing that Silvericon was indeed a labor-only contractor. They Nuvoland and the petitioners. This absence of a juridical tie, according to Nuvoland,
hinged their choice of remedy on their view that the NLRC, as affirmed by the CA, necessarily directs the claims of the petitioners to Silvericon as their employer, being
acted in total disregard of the evidence decisive of the present controversy. chanroblesvirtuallawlibrary an independent contractor.

The Court's Ruling Pertinently, Article 106 of the Labor Code provides: chanRoblesvirtualLawlibrary

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

contract with another person for the performance of the former's work, the
Initially, because of the divergence in the conclusions of the LA and the NLRC, it employees of the contractor and of the latter's subcontractor, if any, shall be paid in
appears that the issues surrounding the legal arrangements between and among the accordance with the provisions of this Code.
parties are complicated. After a perusal of the records, however, the Court comes to
view the case as a simple question of whether Silvericon was engaged in In the event that the contractor or subcontractor fails to pay the wages of his
independent contracting or a labor-only scheme. The answer to this issue would employees in accordance with this Code, the employer shall be jointly and severally
necessarily shape the conclusions as to respondents' other contentions like liable with his contractor or subcontractor to such employees to the extent of the
jurisdiction. Before delving into these matters, though, there is a need to first work performed under the contract, in the same manner and extent that he is liable
resolve the procedural issues. to employees directly employed by him.

Procedural Issues The Secretary of Labor and Employment may, by appropriate regulations, restrict or
prohibit the contracting-out of labor to protect the rights of workers established
After a careful review of the records, the Court decides to apply a tempered under this Code. In so prohibiting or restricting, he may make appropriate
relaxation of the procedural rules in accord with substantial justice. distinctions between labor-only contracting and jobcontracting as well as
differentiations within these types of contracting and determine who among the
It is elementary that parties seeking the review of NLRC decisions should file a Rule parties involved shall be considered the employer for purposes of this Code, to
65 petition for certiorari in the CA on the ground of grave abuse of discretion prevent any violation or circumvention of any provision of this Code.
amounting to lack or excess of jurisdiction. Thereafter, the remedy of the aggrieved
party from the CA decision is an appeal via a Rule 45 petition for review There is "labor-only" contracting where the person supplying workers to an employer
on certiorari.22 It is equally true, however, that the Court, on several occasions, has does not have substantial capital or investment in the form of tools, equipment,
relaxed the procedural application in accordance with the liberal spirit and in the machineries, work premises, among others, and the workers recruited and placed by
interest of substantial justice. Where the exigencies of the case are such that the such person are performing activities which are directly related to the principal
ordinary methods of appeal may not prove adequate - either in point of promptness business of such employer. In such cases, the person or intermediary shall be
or completeness, so that a partial if not a total failure of justice could result - a writ considered merely as an agent of the emplover who shall be responsible to

Labor Law Review – Melo M. Ponce de Leon Page 4

the workers in the same manner and extent as if the latter were directly Failure to register shall give rise to the presumption that the contractor is
employed by him. [Emphasis and underscoring supplied]
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engaged in labor-only contracting. [Emphasis and underscorings supplied]
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Corollary thereto, DOLE Department Order No. 18-02, Series of 2002 (D.O. 18- In the present case, the Court is hounded by nagging doubts in its review of the
02), implements the above provision of law: chanRoblesvirtualLawlibrary assailed decision. Several factors showing that Silvericon was not an independent
Section 5. Prohibition against labor-only contracting. -Labor-only contracting is contractor were, conveniently brushed aside resulting in an unjust outcome. For
hereby declared prohibited x x x labor-only contracting shall refer to an arrangement clarity, the Court lists down these factors, most of which were left unexplained by
where the contractor or subcontractor merely recruits, supplies or places workers to the respondents.
perform a job, work or service for a principal, and any of the following elements are
present: cralawlawlibrary First. As earlier pointed out, D.O. 18-02 expressly provides for a registration
requirement. Remarkably, the respondents do not deny the apparent non-
i) The contractor or subcontractor does not have substantial capital or investment compliance with the rules governing independent contractors.
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 This failure on the part of Silvericon reinforces the Court's view that it was engaged
activities which are directly related to the main business of the principal; or in labor-only contracting. Nuvoland did not even bother to make Silvericon comply
with this vital requirement had it really entered into a legitimate contracting
ii) The contractor does not exercise the right to control over the performance of the arrangement with a truly independent outfit. The efforts which the two corporations
work of the contractual-employee. chanroblesvirtuallawlibrary have put into the drafting of the SMA belie mere inadvertence and heedlessness on
this matter.
xxxx
That the NLRC and the CA failed to consider this fact of non-compliance confounds
the Court. The tribunals below should have looked into the cited provision, as non-
"Substantial capital or investment" refers to capital stocks and subscribed compliance thereto gives rise to a presumption completely opposite to their claim.
capitalization in the case of corporations, tools or equipment, implements, The presumption finds more significance especially when the respondents have
machineries and work premises, actually and directly used by the contractor nothing but silence to rebut the same.
or subcontractor in the performance or completion of the job, work or
service contracted out. All they could say was that what Nuvoland terminated was the SMA, the termination
of which produced no effect whatsoever on the personnel of Silvericon. The sweeping
The "right to control" shall refer to the right reserved to the person for whom the conclusion might have been the simplest and easiest way to dismiss the case but this
services of the contractual parties are performed to determine, not only the end to certainly failed to rebut the fact that Silvericon was a labor-only contracting entity.
be achieved, but also the manner and means to be used in reaching that end. To the Court's mind, this is a clear attribute of grave abuse of discretion on the part
[Emphasis and underscoring supplied] of the CA.
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At the outset it should be rioted that a real estate company like Nuvoland may opt to
advertise and; sell its real estate assets on its own, or allow an independent Second. D.O. No. 18-A, series of 2011, defines substantial capital as the paid-up
contractor to market these developments in a manner that does not violate aforesaid capital stocks/shares of at least P3,000,000.00 in the case of corporations,
regulations. Basically, a legitimate job contractor complies with the requirements on partnerships and cooperatives. This amount was set with speciflty to avoid the
sufficient capitalization and equipment to undertake the needs of its client. Although subterfuge resorted to by entities with the intention to circumvent the law. As things
this is not the sole determining factor of legitimate contracting, independent now stand, even the subscribed capital of Silvericon was a far cry from the amount
contractors are likewise required to register with the DOLE. This is required by set by the rules. It is important to note that at the time Nuvoland engaged the
D.O. 18-02. Thus: services of Silvericon, the latter's authorized stock capital was P4,000,000.00, out of
which only P1,000,000.00 was subscribed.
chanRoblesvirtualLawlibrary

Section 11. Registration of Contractors or Subcontractors. - Consistent with the

authority of the Secretary of Labor and Employment to restrict or prohibit the
contracting out of labor through appropriate regulations, a registration system to In Vinoya v. National Labor Relations Commission,24 the Court tackled the
govern contracting arrangements and to be implemented by the Regional Offices is insufficiency of paid-in capitalization taking into account the "current economic
hereby established. atmosphere in the country."25 In other words, the determination of sufficient capital
stock for independent contractors must be assessed in a broad and extensive
The registration of contractors and subcontractors shall be necessary for purposes of manner with consideration of the industry involved.
establishing an effective labor market information and monitoring.
In this case, the sufficiency of a subscribed capital of P1,000,000.00 for independent
contracting must be assessed taking into consideration the extent of the undertaking

Labor Law Review – Melo M. Ponce de Leon Page 5

relative to the nature of the industry in which Nuvoland was engaged. same as the transaction of Silvericon with LNC (SPV-AMC) Corporation.
Unfortunately for the respondents, this allegation alone could not override the other
Nuvoland was one of the prominent corporations in the real estate industry. It is safe tell-tale indicators of labor-only contracting present in this case.
to assume then that the marketing of its condominium projects would entail a
substantially high amount in what was typically a capital intensive industry. The Fifth. The respondents do not deny that Nuvoland and Silvericon shared the same
undertaking covered not just one but two considerably huge condominium projects officers and employees: respondents Bienvenida and Martinez were stockholders and
located in prime spots in the metropolis. incorporators thereof while De Castro was the President and majority stockholder of
Silvericon. At the same time, Bienvenida was a principal stockholder and member of
For the sale and marketing of two condominium buildings, it would require massive the Board of Directors of Nuvoland while Martinez was Nuvoland's President.
funds for promotions, advertisements, shows, salaries, and operating expenses of its Admittedly, this fact alone does not give rise to an inference that Nuvoland and
more or less 40 personnel. In light of this vast business undertaking, it is obvious Silvericon are one and the same. It effectively sows doubt, however, when taken
that the P1 million subscribed capital of Silvericon would hardly suffice to satisfy this together with the other indicators of labor-only contracting, as previously discussed.
huge engagement. Nuvoland was apparently aware of this that it had to fund the
marketing expenses of the project in an amount not exceeding P30 million per If Nuvoland and Silvericon were indeed separate entities, out of all other Nuvoland
building. This was even provided in paragraph 6 of the SMA. officers, why did Bienvenida, as an incorporator of both corporations, choose to
authorize the purported termination of the SMA without at least calling for an
This being the case, the paid-in capitalization of Silvericon amounting to P1 million investigation of the incident? As a stockholder of Silvericon, he possessed an interest
was woefully inadequate to be considered as substantial capital. Thus, Silvericon in the said corporation. Curiously though, Nuvoland's decision to part with Silvericon
could not qualify as an independent contractor. as expressed in Bienvenida's letter was reached without consultation or, at the least,
a preliminary notice. Had there really been a breach of contract, Nuvoland would
The CA finding that Silvericon's capital was sufficient for independent contracting due have demanded an explanation from Silvericon before barring the personnel's entry
to the agreement that Nuvoland would advance the amount of P30,000,000.00 for in their work premises to think that the latter was engaged in an important aspect of
marketing expenses, though deductible from Silvericon's earned marketing fees at a its business.
later time, was a strained reasoning. The Court agrees with the observation of the LA
that this set-up would not have been resorted to if Silvericon's capital was Further, with Nuvoland having advanced a huge amount of money for Silvericon, it
substantial enough from the start of the business venture. It is logical to presume could have at least exercised caution before terminating the SMA with a meager
that an established corporation like Nuvoland would select an independent request for an accounting of funds. A closer scrutiny of the events that transpired
contractor, which had the financial resources to adequately undertake its marketing would show that the termination of the SMA was one and the same with the
and advertising requirements, and not an under capitalized company like Silvericon. termination of all Silvericon personnel. This conclusion proceeded from the
It perplexes the Court that the CA disregarded this set-up as it certainly shows that irrefutable fact that Silvericon was actually a creation of Nuvoland. As a labor-only
Silvericon, from the beginning, did not have substantial capital to service the needs contractor, for all intents and purposes, Silvericon was a mere mock-up.
of Nuvoland.
In truth, the termination of the SMA was actually a ruse to make it appear that
Third. Silvericon had no substantial equipment in the form of tools, equipment, Silvericon was an independent entity. It was simply a way to terminate the
machinery, and work premises. Records reveal that Nuvoland itself designed and employment of several employees altogether and escape liability as an employer.
constructed the model units used in the sales and marketing of its condominium True enough, Nuvoland insisted that the petitioners direct their claims to Silvericon.
units. This indisputably proves that at the time of its engagement, Silvericon had no
such investment necessary for the conduct of its business. The conclusion that Silvericon was a mere labor-only contractor and a business
conduit of Nuvoland warrants the piercing of its corporate veil. At this point, it is apt
Fourth. Although it is true that the respondents had explicitly assailed the to restate the Court's ruling in Sarona v. National Labor Relations Commission:26 chanroblesvirtuallawlibrary

authenticity of the MO A attached with the petition, their faint denial fails to explain The doctrine of piercing the corporate veil applies only in three (3) basic areas,
the exclusivity which had characterized the relationship between Nuvoland and namely: 1) defeat of public convenience as when the corporate fiction is used as a
Silvericon. If Silvericon was an independent contractor, it is only but logical that it vehicle for the evasion of an existing obligation; 2) fraud cases or when the
should have also offered its services to the public. corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where a corporation merely a farce since it is a mere alter ego or
The respondents claim that they had presented a contract tending to show that business conduit of a person, or where the corporation is so organized and controlled
Silvericon had catered its services to one LNC (SPV-AMC) Corporation in 2007. In and its affairs are so conducted as to make it merely an instrumentality, agency,
their own words, the respondents assert that the relationship of Nuvoland with conduit or adjunct of another corporation.
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Silvericon, particularly as to its contractual rights and obligations, was exactly the As ruled in Prince Transport, Inc. v. Garcia,27 it is the act of hiding behind the

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separate and distinct personalities of juridical entities to perpetuate fraud, commit personnel, and not to take the cudgels for Silvericon in abruptly terminating the
illegal acts and evade one's obligations, that the equitable piercing doctrine was entire sales force including the complainants herein.31
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formulated to address and prevent: Thus: chanRoblesvirtualLawlibrary

Not to be excluded from this pronouncement is the observation that the subject
x x x A settled formulation of the doctrine of piercing the corporate veil is that when termination letter itself mentioned the release of all the commissions earned by
two business enterprises are owned, conducted and controlled by the same parties, Silvericon personnel after the impetuous decision of Nuvoland to physically bar the
both law and equity will, when necessary to protect the rights of third parties, personnel from entry to their workplace. If these are not indicators of the power of
disregard the legal fiction that these two entities are distinct and treat them as engagement, payment of wages and power of dismissal, the Court is at a loss as to
identical or as one and the same, xxx However, petitioners' attempt to isolate what to call this authority. Astonishingly, Nuvoland did not refute its conformity to
themselves from and hide behind the supposed separate and distinct personality of the payment of commissions, as if it was oblivious to an admission that all
Lubas so as to evade their liabilities is precisely what the classical doctrine of commissions were taken directly from Nuvoland, and not from Silvericon. Verily, this
piercing the veil of corporate entity seeks to prevent and remedy. 28
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reflects Nuvoland's exercise of the power to compensate Silvericon personnel. The
Consequently, the piercing of the corporate veil disregards the seemingly separate power to terminate employees had also been exercised by Nuvoland when it clearly
and distinct personalities of Nuvoland and Silvericon with the aim of preventing the dispensed with the cancellation clause in the SMA providing a 30-day period for
anomalous situation abhorred by prevailing labor laws. That Silvericon was grievance resolution. Instead, Nuvoland utilized the alleged abandonment of the
independent from Nuvoland's personality could not be given legal imprimatur as the showroom as a ground for unilateral termination of the simulated agreement.
same would pave the way for Nuvoland's complete exoneration from liability after a
circumvention of the law. Besides, a contrary proposition would leave the petitioners As regards the power of control, the only argument raised by the respondents was
without any recourse notwithstanding the unquestioned fact that Nuvoland the inclusion of a provision in the SMA which stated that Silvericon, as its agent,
eventually assented to the settlement of all the sales and marketing personnel's "shall be responsible for all advertisements, promotions, public relations, special
commissions and wages before the LA, except the petitioners. The respondents in events, marketing collaterals, road shows, open houses, etc. as part of its marketing
their comment were strikingly silent on this point. efforts."32 For Nuvoland, this provision in the SMA showed that Silvericon exercised
full and exclusive control over all levels of work, especially as to the means
In the interest of justice and equity, that veil of corporate fiction must be pierced, thereof.33 Regrettably, the existence of the subject provision would not cause an
and Nuvoland and Silvericon be regarded as one and the same entity to prevent a automatic proposition that Silvericon exercised control over the work of its
denial of what the petitioners are entitled to. In a situation like this, an employer- personnel. A clear showing of Silvericon's control over its day-to-day operations and
employee relationship between the principal and the dismissed employees arises by ultimate work performance would have dispelled any doubt, but Nuvoland fell short
operation of law. Silvericon being merely an agent, its employees were in fact those on this score. Worse, it again opted for silence when the petitioners alleged that
of Nuvoland. Stated differently, Nuvoland was the principal employer of the Nuvoland provided the work premises of the sales and marketing; personnel of
petitioners. Silvericon; that Nuvoland dictated the end result of the undertaking, that is, to sell at
least eighty percent of the condominium project within a period of twenty-four
Sixth. As additional basis of this outcome, the Court highlights the presence of the months; that Nuvoland decided on the models, designs and prices of the units; that
elements of an employer-employee relationship between the parties. In determining Nuvoland was the ultimate recipient of all amounts collected by the sales and
the presence or absence of an employer-employee relationship, the Court has marketing team; and lastly, Nuvoland determined the maximum amount of
consistently looked for the following incidents, to wit; (a) the selection and marketing expenses for the accomplishment of the goal.
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 On Jurisdiction
which the work is accomplished. The last element, the so-called control test, is the
most important element.29Jurisprudentially speaking, there is no hard and fast rule Anent the issue on jurisdiction, Article 217 of the Labor Code, as amended by
designed to establish the aforesaid elements. It depends on the peculiar facts of Section 9 of R.A. No. 6715 is instructive: chanRoblesvirtualLawlibrary

each case.30 Here, the Court acknowledges the findings of the LA since the inception ART. 217. Jurisdiction of the Labor Arbiters and the Commission-- (a) Except as
of this legal controversy - otherwise provided under this Code, the Labor Arbiter shall have original and
To be added to the foregoing findings is the admitted fact that it was respondent exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
Nuvoland which paid the sales commissions of the sales personnel of respondent submission of the case by the parties for decision without extension, even in the
Silvericon. Even the power to dismiss the complainants and the other sales personnel absence of stenographic notes, the following cases involving all workers, whether
of Silvericon was exercised by respondent Nuvoland. If indeed there was an agricultural or nonagricultural:
chanRoblesvirtualLawlibrary

unauthorized walkout and abandonment by the sales personnel of the Nuvo City 1. Unfair labor practice cases;
showroom for a period of two (2) days, then what Nuvoland could have done was to 2. Termination disputes;
notify Silvericon to institute appropriate disciplinary action against the erring

Labor Law Review – Melo M. Ponce de Leon Page 7

 3. If accompanied with a claim for reinstatement, those cases that workers which the Court has interpreted as a ruse to conceal Nuvoland's labor-contracting
may file involving wages, rates of pay, hours of work and other terms and activities. As previously discussed, the contrived cancellation of the SMA was, in
conditions of employment; effect, a termination of its personnel assigned to Silvericon.

4. Claims for actual, moral, exemplary and other forms of damages arising Equally important for contemplation is the nature of the petitioners' claims and
from the employer-employee relations; arguments which not only demonstrates a firm avowal of labor-only contracting on
the part of Nuvoland and Silvericon but also shows that the ultimate issue to be
5. Cases arising from any violation of Article 264 of this Code, including resolved is not rooted in a corporate issue governed by the Corporation Code and its
questions involving the legality of strikes and lockouts; andcralawlawlibrary
implementing rules, but a labor problem, the resolution of which is covered by labor
laws and DOLE issuances.
6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims arising from employer-employee The Court reiterates the odd silence that pervaded Nuvoland despite the allegation
relations, including those of persons in domestic or household that it was able to settle the payment of all the sales and marketing personnel's
service, involving an amount exceeding five thousand pesos commissions and wages with the exception of the petitioners and one Amy Rose
(P5,000.00) regardless of whether accompanied with a claim for Palileo, whose claims were settled during the pendency of her complaint with LA Fe
reinstatement. [Emphases and underscoring supplied] Cellan.37 This information raised serious doubts as to Nuvoland's refutation of the
jurisdiction of the LA over the case. The Court, in fact, expected a denial or, at the
least, an explanation of this matter on the part of Nuvoland but all it got was silence.
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Taking the foregoing into consideration, the Court finds that the LA properly took
cognizance of the existence of an employer-employee relationship between the Certainly, this distinctive treatment of the petitioners influences the Court to take a
parties. The NLRC's position that the case belonged to the RTC as an "intra-corporate position against any attempt to sidestep legal obligations under a pretense of a
dispute" could not be applied to Platon as she was merely a rank-and-file personnel jurisdictional challenge.
raising illegal dismissal as her main cause of action.
In view of the foregoing, the complete resolution of this case now boils down to the
With respect to De Castro, the Court recalls the pronouncement in Viray v. Court of determination of the: 1) corporate liability of Nuvoland as the principal employer of
Appeals,34 which provided for the policy in determining jurisdiction in similar cases. the petitioners; and 2) individual liabilities of the respondents, as officers thereof, if
In order to determine whether a dispute constitutes an intra-corporate controversy any.
or not, the Court considers two elements instead, namely: (a) the status or
relationship of the parties; and (b) the nature of their controversy. Concurrence of Solidary liability is imposed by law on the principal who is deemed as the direct
these two renders a case as an intra-corporate dispute. employer of the employees as provided in Section 19 of D.O. No. 18-02-
Section 19. Solidary liability. - The principal shall be deemed as the direct employer
Under the nature-of-the-controversy test, the dispute must not only be rooted in the of the contractual employees and therefore, solidarity liable with the contractor or
existence of an intra-corporate relationship, but must also refer to the enforcement subcontractor for whatever monetary claims the contractual employees may have
of the parties' correlative rights and obligations under the Corporation Code, as well against the former in the case of violations as provided for in Sections 5 (Labor-Only
as the internal and intra-corporate regulatory rules of the corporation. 35 The contracting), 6 (Prohibitions), 8 (Rights of Contractual Employees) and 16 (Delisting)
combined application of the relationship test and the nature-of-the-controversy test of these Rules. In addition, the principal shall also be solidarity liable in case the
has, consequently, become the norm in determining whether a case is an intra- contract between the principal and contractor or subcontractor is preterminated for
corporate controversy or purely civil in character.36 In the absence of any one of reasons not attributable to the fault of the contractor or subcontractor.
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these factors, the case cannot be considered an intra-corporate dispute and the RTC Based on the said provision, Nuvoland is solidarity liable with Silvericon for the
acting as a special commercial court cannot acquire any jurisdiction. The criteria for monetary claims of the petitioners who were clearly their employees. Further, the
distinguishing between corporate officers who may be ousted from office at will, on application of law and jurisprudence on illegal dismissal becomes relevant.
one hand, and ordinary corporate employees, who may only be terminated for just In Skippers United Pacific, Inc. v. Doza38 the Court held that for a worker's dismissal
cause, on the other hand, do not depend on the nature of the services performed, to be considered valid, it must comply with both procedural and substantive due
but on the manner of creation of the office. process, viz.: chanRoblesvirtualLawlibrary

For a worker's dismissal to be considered valid, it must comply with both procedural
As it had been determined that Silvericon was a mere subterfuge for Nuvoland's and substantive due process. The legality of the manner of dismissal
sales and marketing activities, the circumstances surrounding the nature of De constitutes procedural due process, while the legality of the act of dismissal
Castro's hiring and the very nature of his claims must be fully considered to constitutes substantive due process.39 [Emphasis and underscoring supplied]
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determine jurisdiction. It must be remembered that De Castro was hired by Martinez Procedural due process in dismissal cases consists of the twin requirements of notice
and Bienvenida to be the President and COO of Silvericon. This appears in the SMA, and hearing. The employer must furnish the employee with two written notices

Labor Law Review – Melo M. Ponce de Leon Page 8

before the termination of employment can be effected: (1) the first notice apprises are REVERSED and SET ASIDE.
the employee of the particular acts or omissions for which his dismissal is sought;
and (2) the second notice informs the employee of the employer's The March 15, 2011 Decision of the Labor Arbiter declaring Nuvoland as a labor-only
decision to dismiss him. Before the issuance of the second notice, the requirement of contractor is REINSTATED, but the pronouncement on the solidary liability of
a hearing must be complied with by giving the worker an opportunity to be heard. It Ramon Bienvenida and Raul Martinez is ordered DELETED.
is not necessary though that an actual hearing be conducted. 40 Substantive due
process, on the other hand, requires that the dismissal by the employer be made for The case is hereby REMANDED to the Labor Arbiter for the computation of the
a just or authorized cause under Articles 282 to 284 of the Labor Code. 41 cralawred separation pay, back wages and other monetary awards that the petitioners deserve
to receive.
As correctly observed by the LA, the respondents failed to show any valid or just
cause under the Labor Code on which it may justify the termination of services of the No pronouncement as to costs.
petitioners. There was no iota of evidence to substantiate their story of staged
walkout and abandonment which caused them to terminate the employment of the SO ORDERED. ChanRoblesVirtualawlibrary

petitioners. After the issuance of the termination letter, De Castro and all the sales
and marketing personnel of Nuvoland were barred from entering the premises of
their office and payment of wages, commissions and all other benefits were withheld.
The respondents also failed to comply with the rudimentary requirement of notifying
the petitioners why they were being dismissed, as well as giving them ample
opportunity to contest the legality of their dismissal. Failing to show compliance with
the requirements of termination of employment under the Labor Code, the
respondents were found liable for illegal dismissal. A contrary ruling would serve as a
wallop on the very principles of labor - justice and equity for a man to be made to
work and thereafter be denied of his due as to the fruits of his labor.

Corporate Directors and Officers,

Not Liable

A corporation, being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporate agents, are not
theirs but the direct accountabilities of the corporation they represent. 42 Pursuant to
this principle, a director, officer or employee of a corporation is generally not held
personally liable for obligations incurred by the corporation; it is only in exceptional
circumstances that solidary liability will attach to them.43 Thus, in labor cases, the
Court has held that corporate directors and officers are solidarity liable with the
corporation for the employee's termination only when the same is done with malice
or in bad faith.44

"Xxx. Bad faith is never presumed. Bad faith does not simply connote bad judgment
or negligence - it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong. It means a breach of a known duty through some motive or interest
or ill will that partakes of the nature of fraud."45

The records are bereft of any evidence at all that respondents Martinez and
Bienvenida acted with malice, ill will or bad faith when the SMA was terminated.
Hence, the said individual officers cannot be held solidarity liable for the money
claims due the petitioners.

WHEREFORE, the petition is GRANTED. The June 1, 2012 Decision and the
September 21, 2012 Resolution of the Court of Appeals in CA-G.R. SP No. 122415

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