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Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 111359 August 15, 1995
CALTEX REGULAR EMPLOYEES AT MANILA OFFICE, LEGAZPI BULK DEPOT AND
MARINDUQUE BULK DEPOT-(MACLU), petitioners,
vs.
CALTEX (PHILIPPINES), INC. and NATIONAL LABOR RELATIONS COMMISSION (FIRST
DIVISION),respondents.

FELICIANO, J.:
In this petition for certiorari, petitioner Caltex Regular Employees Association at the Manila Office,
Legazpi Bulk Depot and the Marinduque Bulk Depot (hereinafter referred to as "Union"), seeks to annul
and set aside the decision of the National Labor Relations Commission ("NLRC"), promulgated on 5
March 1993, which reversed the decision of Labor Arbiter Valentin Guanio.
On 12 December 1985, petitioner Union and private respondent Caltex (Philippines), Inc. ("Caltex")
entered into a Collective Bargaining Agreement ("1985 CBA") which was to be in effect until midnight of
31 December 1988. The CBA included, among others, the following provision:
ARTICLE III
HOURS OF WORK
In conformity with Presidential Decree 442, otherwise known as the Labor Code of the Philippines, as
amended, the regular work week shall consist of eight (8) hours per day, seven (7) days, Monday
through Sunday, during which regular rates of pay shall be paid in accordance with Annex B and work
on the employee's one "Day of Rest," shall be considered a special work day, during which "Day of
Rest" rates of pay shall be paid as provided in Annex B. Daily working schedules shall be established
by management in accordance with the requirements of efficient operations on the basis of eight (8)
hours per day for any five (5) days. Provided, however employees required to work in excess of forty
(40) hours in any week shall be compensated in accordance with Annex B of this
Agreement.
1
(Emphasis supplied).
Pertinent portions of Annex "B" of the 1985 CBA are also quoted here as follows:
Annex "B"
Computation of:
Regular Day Pay
Overtime Pay
Night Shift Differential Pay
Day Off Pay
Excess of 40 hours within a calendar week
Sunday Premium Pay
Holiday Premium Pay
Employee's Basic Hourly Wage Rate:
Monthly Base Pay

X = (21.667) (8)
A. Regular Pay
1) Hourly rate
= X
2) OT Hourly Rate 12 MN
= (X + 50% X)
3) NSD 6 PM - 12 MN
= (X + 25% X)
4) OT Hourly Rate NSD 6 PM - 12 MN
= (X + 25% X) + 50% (X + 25% X)
5) NSD 12 MN - 6 AM
= (X + 50% X)
6) OT Hourly Rate NSD 12 MN - 6 AM
= (X + 50% X) + 50% (X + 50% X)
B. Regular First Day Off
1. Hourly Rate
= (X + 50% X)
2. OT Hourly Rate
= (X + 50% X) + 50% (x + 50% X)
3. NSD 6 PM - 12 MN
= [ (X + 50% X) + 25% (X + 50% X) ]
4. OT Hourly Rate NSD 6 PM - 12 MN
= [ (X + 50% X) + 25% (X + 50% X) ] +
50% [ (X + 50% X) + 25% (X + 50%) ]
5. NSD 12 MN - 6 AM
= [ (X + 50% X) + 50% (X + 50% X) ]
6. OT Hourly Rate NSD 12 MN - 6 AM
= [ (X + 50% X) + 50% (X + 50% X) ] +
50% [ (X + 50% X) + 50% (X + 50% X) ]
C. Regular Second Day Off
1. Hourly Rate
= (X + 100% X)
2. OT Hourly Rate
= (X + 100% X) + 50% (X + 100% X)
3. NSD 6 PM - 12MN
= [ (X + 100% X) + 25% (X + 100%) ]
4. OT Hourly Rate NSD 6 PM - 12 MN
= [ (X + 100% X) + 25% (X + 100% X) ] +
50% [ (X + 100% X) + 25% (X + 100% X) ]
5. NSD 12 MN - 6 AM
= [ (X + 100% X) + 50% (X + 100% X) ]
6. OT Hourly Rate NSD 12 MN - 6 AM
= [ (X + 100% X) + 50% (X + 100% X) ] +
50% [ (X + 100% X) + 50% (X + 100% X) ]
D. Excess of 40 Hours within a Calendar Week
1. Hourly Rate
= (X + 50% X)
2. OT Hourly Rate
= (X + 50% X) + 50% (X + 50% X)
3. NSD 6 PM - 12MN
= [ (X + 50% X) + 25% (X + 50% X) ]
4. OT Hourly Rate NSD 6 PM - 12 MN
= [ (X + 50% X) + 25% (X + 50% X) ] +
50% [ (X + 50% X) + 25% (X + 50% X) ]
5. NSD 12 MN - 6 AM
= [ (X + 50% X) + 50% (X + 50% X) ]
6. OT Hourly Rate NSD 12 MN - 6 AM
= [ (X + 50% X) + 50% (X + 50% X) ] +
50% [ (X + 50% X) + 50% (X + 50% X) ]
E. Sunday as a Normal Work Day
1. Hourly Rate
= (X + 100% X)
2. OT Hourly Rate
= (X + 100% X) + 50% (X + 100% X)
3. NSD 6 PM - 12 MN
= [ (X + 100% X) + 25% (X + 100% X) ]
4. OT Hourly Rate NSD 6 PM - 12 MN
= [ (X + 100% X) + 25% (X + 100% X) ] +
50% [ (X + 100% X) + 25% (X + 100% X) ]
5. NSD 12 MN - 6 AM
= [ (X + 100% X) + 50% (X + 100% X) ]
6. OT Hourly Rate NSD 12 MN - 6 AM
= [ (X + 100% X) + 50% (X + 100% X) ] +
50% [ (X + 100% X) + 50% (X + 100% X) ]
F. Sunday as day off
1. Hourly Rate
= (X + 100% X)
2. OT Hourly Rate
= (X + 100% X) + 50% (X + 100% X)
3. NSD 6 PM - 12 MN
= [ (X + 100% X) + 25% (X+ 100% X) ]
4. OT Hourly Rate NSD 6 PM - 12 MN
= [ (X + 100% X) + 25% (X + 100% X) ] +
50% [ (X+ 100% X) + 25% (X + 100% X) ]
5. NSD 12 MN - 6 AM
= [ (X + 100% X) + 50% (X + 100% X) ]
6. OT Hourly Rate NSD 12 MN - 6 AM
= [ (X + 100% X) + 50% (X + 100% X) ] +
50% [ (X + 100% X) + 50% (X + 100% X) ]
G. Holiday as Normal Work Day
1. Hourly Rate
= (X + 150% X)
2. OT Hourly Rate
= (X + 150% X) + 50% (X + 150% X)
3. NSD 6 PM - 12 MN
= [ (X + 150% X) + 25% (X + 150% X) ]
4. OT Hourly Rate NSD 6 PM - 12 MN
= [ (X + 150% X) + 25% (X + 150% X) ] +
50% [ (X + 150% X) + 25% (X + 150% X) ]
5. NSD 12 MN - 6 AM
= [ (X + 150% X) + 50% (X + 150% X) ]
6. OT Hourly Rate NSD 12 MN - 6 AM
= [ (X + 150% X) + 50% (X + 150% X) ] +
50% [ (X + 150% X) + 50% (X + 150% X) ]
H. Holiday as Day Off
1. Hourly Rate
= (X + 150% X)
2. OT Hourly Rate
= (X + 150% X) + 50% (X + 150% X)
3. NSD 6 PM - 12 MN
= [ (X + 150% X) + 25% (X + 150% X) ]
4. OT Hourly Rate NSD 6 PM - 12 MN
= [ (X + 150% X) + 25% (X + 150% X) ] + 50%
[ (X + 150% X) + 25% (X + 150% X) ]
5. NSC 12 MN - 6 AM
= [ (X + 150% X) + 50% (X + 150% X) ]
6. OT Hourly Rate
= [ (X + 150% X) + 50% (X + 150% X) ] + 50%
[ (X + 150% X) + 50% (X + 150% X) ]
7. * Hourly Rate for less than 8 hours
= (150% X)
* For work of less than 8 hours, the employee will receive his basic daily rate
(Monthly Base Pay)

21.667
plus the hourly rate multiplied by the number of hours worked.
2

Sometime in August 1986, the Union called Caltex's attention to alleged violations by Caltex of Annex "B"
of the 1985 CBA, e.g. non-payment of night-shift differential, non-payment of overtime pay and non-
payment at "first day-off rates" for work performed on a Saturday.
Caltex's Industrial Relations manager immediately evaluated petitioner's claims and accordingly informed
petitioner Union that differential payments would be timely implemented. In the implementation of the re-
computed claims, however, no differential payment was made with respect to work performed on the first
2 1/2 hours on a Saturday.
On 7 July 1987, the Union instituted a complaint for unfair labor practice against Caltex alleging violation
of the provisions of the 1985 CBA. Petitioner Union charged Caltex with shortchanging its employees
when Caltex compensated work performed on the first 2 1/2 hours of Saturday, an employees' day of
rest, at regular rates, when it should be paying at "day of rest" or "day off" rates.
Caltex denied the accusations of the Union. It averred that Saturday was never designated as a day of
rest, much less a "day-off". It maintained that the 1985 CBA provided only 1 day of rest for employees at
the Manila Office, as well as employees similarly situated at the Legazpi and Marinduque Bulk Depots.
This day of rest, according to Caltex, was Sunday.
In due time, the Labor Arbiter ruled in favor of petitioner Union, while finding at the same time that private
respondent Caltex was not guilty of any unfair labor practice. Labor Arbiter Valentin C. Guanio,
interpreting Article III and Annex "B" of the 1985 CBA, concluded that Caltex's employees had been given
two (2) days (instead of one [1] day) of rest, with the result that work performed on the employee's first
day of rest, viz. Saturday, should be compensated at "First day-off" rates.
On appeal by Caltex, public respondent NLRC set aside the decision of Labor Arbiter Guanio. The NLRC
found that the conclusions of the Labor Arbiter were not supported by the evidence on record. The
NLRC, interpreting the provisions of the 1985 CBA, concluded that that CBA granted only one (1) day of
rest, e.g., Sunday. The Union's motion for reconsideration was denied on 9 June 1993.
The controversy we must address in this Petition for Certiorari relates to the appropriate interpretation of
Article III in relation to Annex "B" of the parties' 1985 CBA.
After carefully examining the language of Article III, in relation to Annex "B" of the 1985 CBA, quoted in
limine, as well as relevant portions of earlier CBAs between the parties, we agree with the NLRC that the
intention of the parties to the 1985 CBA was to provide the employees with only one (1) day of rest. The
plain and ordinary meaning of the language of Article III is that Caltex and the Union had agreed to pay
"day of rest" rates for work performed on "an employee's one day of rest". To the Court's mind, the use of
the word "one" describing the phrase "day of rest [of an employee]" emphasizes the fact that the parties
had agreed that only a single day of rest shall be scheduled and shall be provided to the employee.
It is useful to note that the contract clauses governing hours of work in previous CBAs executed between
private respondent Caltex and petitioner Union in 1973, 1976, 1979 and 1982 contained provisions
parallel if not identical to those set out in Article III of the 1985 CBA here before us.
Article III of the 1973 Collective Bargaining Agreement
3
provided as follows:
Article III
Hours of Work
Sec. 1. In conformity with Presidential Decree No. 143, the regular work week shall consist of
eight (8) hours per day, seven (7) days, Monday through Sunday, during which regular rates of
pay shall be paid in accordance with Article IV, Section 1 and work on the employee's one "Day
of Rest" shall be paid as provided in Article IV, Section 8. Daily working schedules shall be
established by management in accordance with the requirements of efficient operations on the
basis of eight (8) hours per day for any five (5) days; provided, however, employees required to
work in excess of forty (40) hours in any week shall be compensated in accordance with Article
IV, Section 7 of this Agreement. (Emphasis supplied)
Article III of the 1976 Collective Bargaining Agreement
4
read:
Article III
Hours of Work
Sec. 1. In conformity with Presidential Decree No. 143, the regular work week shall consist of
eight (8) hours per day, seven (7) days, Monday through Sunday, during which regular rates of
pay shall be paid in accordance with Article IV, Section 1 and work on the employee's one "Day
of Rest" shall be paid as provided in Article IV, Section 8. Daily working schedules shall be
established by management in accordance with the requirements of efficient operations on the
basis of eight (8) hours per day for any five (5) days; provided, however, employees required to
work in excess of forty (40) hours in any week shall be compensated in accordance with Article
IV, Section 7 of this Agreement. (Emphasis supplied)
Article III of the 1979 Collective Bargaining Agreement
5
said:
Article III
Hours of Work
Sec. 1. In conformity with Presidential Decree 442, otherwise known as the Labor Code of the
Philippines, as mended, the regular work week shall consist of eight (8) hours per day, seven (7)
days, Monday thru Sunday during which regular rates of pay shall be paid in accordance with
Article IV, Section 1 and work on the employee's one "Day of Rest" shall be paid as provided in
Article IV, Section 7. Daily working schedules shall be established by management in accordance
with the requirements of efficient operations on the basis of eight hours per day for any five (5)
days; provided, however, employees required to work in excess of forty (40) hours in any week
shall be compensated in accordance with Article IV, Section 6 of this Agreement. (Emphasis
supplied).
Article III of the 1982 Collective Bargaining Agreement
6
also provided as follows:
Article III
Hours of Work
Sec. 1. In conformity with Presidential Decree 442, otherwise known as the Labor Code of the
Philippines, as amended, the regular work week shall consist of eight (8) hours per day, seven (7)
days, Monday thru Sunday, during which regular rates of pay shall be paid in accordance with
Article IV, Section 1 and work on the employee's one "Day of Rest" shall be paid as provided in
Article IV, Section 7. Daily working schedules shall be established by management in accordance
with the requirements of efficient operations on the basis of eight hours per day for any five (5)
days;provided, however employees required to work in excess of forty (40) hours in any
week shall be compensated in accordance with Article IV, Section 6 of this Agreement.
(Emphasis supplied)
In all these CBAs (1973, 1976, 1979, 1982), Article III provide that only "work on an employee's one day
of rest "shall be paid on the basis of "day of rest rates". The relevant point here is that petitioner Union
had never suggested that more than 1 day of rest had been agreed upon, and certainly Caltex had never
treated Article III or any other portion of the CBAs as providing two (2) days of rest. It is well settled that
the contemporaneous and subsequent conduct of the parties may be taken into account by a court called
upon to interpret and apply a contract entered into by them.
7

We note that Labor Arbiter Guanio surmised that the intention he implied from the contents of Annex "B"
was in conflict with the intention expressed in Article III (which, the Labor Arbiter admitted, stipulated only
one day of rest). According to the Labor Arbiter, when Annex "B" referred to "First Day-off Rates" and
"Second Day-off Rates", these were meant to express an agreement that the parties intended to provide
employees two (2) days of rest. He then declared that Annex "B" should prevail over Article III because
the former was a more specific provision than the latter.
An annex expresses the idea of joining a smaller or subordinate thing with another, larger or of higher
importance.
8
An annex has a subordinate role, without any independent significance separate from that
to which it is tacked on. Annex "B," in the case at bar, is one such document. It is not a memorandum of
amendments or a codicil containing additional or new terms or stipulations. Annex "B" cannot be
construed as modifying or altering the terms expressed in the body of the agreement contained in the
1985 CBA. It did not confer any rights upon employees represented by petitioner Union; neither did it
impose any obligations upon private respondent Caltex. In fact, the contents of Annex "B" have no
intelligible significance in and of themselves when considered separately from the 1985 CBA.
Moreover, we are persuaded by private respondent's argument that Annex "B" was intended to serve as
acompany wide guide in computing compensation for work performed by all its employees, including but
not limited to the Manila Office employees represented by petitioner Union. Private respondent also
points out that the mathematical formulae contained in Annex "B" are not all applicable to all classes of
employees, there being some formulae applicable only to particular groups or classes of employees.
Thus, "First Day-off rates" and "Second Day-off rates" are applicable only to employees stationed at the
refinery and associated facilities like depots and terminals which must be in constant twenty-four (24)
hours a day, seven (7) days a week, operation, hence necessitating the continuous presence of
operations personnel. The work of such operations personnel required them to be on duty for six (6)
consecutive days. Upon the other hand, "First Day-off rates" and "Second Day-off rates"
are not applicable to personnel of the Manila Office which consisted of other groups or categories of
employees (e.g., office clerks, librarians, computer operators, secretaries, collectors, etc.),
9
since the
nature of their work did not require them to be on duty for six (6) consecutive days.
We find, under the foregoing circumstances, that the purported intention inferred from Annex "B" by the
Labor Arbiter was based merely on conjecture and speculation.
We also note that the Labor Arbiter merely suspected that the parties agreed to provide two (2) days of
rest on the ground that they had so stipulated in their 1970 CBA.
10
A principal difficulty with this view is
that it disregards the fact that Article III of the 1985 CBA no longer contained a particular proviso found in
the 1970 CBA. In fact, all the CBAs subsequent to 1970 (1973, 1976, 1979, 1982) had similarly deleted
the proviso in the 1970 CBA providing for two (2) days-off. To the Court's mind, such deletion means only
one thing that is the parties had agreed to remove such stipulation. Accordingly, the proviso found
in Article III of the 1970 CBA ceased to be a demandable obligation. Petitioner Union cannot now
unilaterally re-insert such a stipulation by strained inference from Annex "B." Upon the foregoing
circumstances, we must hold that the Labor Arbiter's suspicion is without basis in the facts of record.
Petitioner Union also contended that private respondent Caltex in the instant petition was violating the
statutory prohibition against off-setting undertime for overtime work on another day.
11
Union counsel
attempted to establish this charge by asserting that the employees had been required to render "overtime
work" on a Saturday but compensated only at regular rates of pay, because they had not completed the
eight (8)-hour work period daily from Monday thru Friday.
The Court finds petitioner's contention bereft of merit. Overtime work consists of hours worked on a given
day in excess of the applicable work period, which here is eight (8) hours.
12
It is not enough that the
hours worked fall on disagreeable or inconvenient hours. In order that work may be considered as
overtime work, the hours worked must be in excess of and in addition to the eight (8) hours worked
during the prescribed daily work period, or the forty (40) hours worked during the regular work week
Monday thru Friday.
In the present case, under the 1985 CBA, hours worked on a Saturday do not, by that fact alone,
necessarily constitute overtime work compensable at premium rates of pay, contrary to petitioner's
assertion. These are normal or regular work hours, compensable at regular rates of pay, as provided in
the 1985 CBA; under that CBA, Saturday is not a rest day or a "day off". It is only when an employee has
been required on a Saturday to render work in excess of the forty (40) hours which constitute the regular
work week that such employee may be considered as performing overtime work on that Saturday. We
consider that the statutory prohibition against offsetting undertime one day with overtime another day has
no application in the case at bar.
13

Petitioner's counsel, in his final attempt to lay a basis for compelling private respondent to pay premium
rates of pay for all hours worked on a Saturday, regardless of the number of hours actually worked earlier
during the week, i.e., on Monday to Friday, insists that private respondent cannot require its employees
to complete the 40-hour regular work week on a Saturday, after it has allowed its employees to render
only 37-1/2 hours of work.
The company practice of allowing employees to leave thirty (30) minutes earlier than the scheduled off-
time had been established primarily for the convenience of the employees most of whom have had to
commute from work place to home and in order that they may avoid the heavy rush hour vehicular traffic.
There is no allegation here by petitioner Union that such practice was resorted to by Caltex in order to
escape its contractual obligations. This practice, while it effectively reduced to 37-1/2 the number of
hours actually worked by employees who had opted to leave ahead of off-time, is not be construed as
modifying the other terms of the 1985 CBA. As correctly pointed out by private respondent, the shortened
work period did not result in likewise shortening the work required for purposes of determining overtime
pay, as well as for purposes of determining premium pay for work beyond forty (40) hours within the
calendar week. It follows that an employee is entitled to be paid premium rates, whether for work in
excess of eight (8) hours on any given day, or for work beyond the forty (40)-hour requirement for the
calendar week, only when the employee had, in fact already rendered the requisite number of hours 8
or 40 prescribed in the 1985 CBA.
In recapitulation, the parties' 1985 CBA stipulated that employees at the Manila Office, as well as those
similarly situated at the Legazpi and Marinduque Bulk Depots, shall be provided only one (1) day of rest;
Sunday, and not Saturday, was designated as this day of rest. Work performed on a Saturday is
accordingly to be paid at regular rates of pay, as a rule, unless the employee shall have been required to
render work in excess of forty (40) hours in a calendar week. The employee must, however, have in fact
rendered work in excess of forty (40) hours before hours subsequently worked become payable at
premium rates. We conclude that the NLRC correctly set aside the palpable error committed by Labor
Arbiter Guanio, when the latter imposed upon one of the parties to the 1985 CBA, an obligation which it
had never assumed.
WHEREFORE, petitioner Union having failed to show grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of public respondent National Labor Relations Commission in rendering
its decision dated 5 March 1993, the Court Resolved to DISMISS the Petition for lack of merit.
SO ORDERED.

































Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172161 March 2, 2011
SLL INTERNATIONAL CABLES SPECIALIST and SONNY L. LAGON, Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, 4th DIVISION, ROLDAN LOPEZ, EDGARDO ZUIGA and
DANILO CAETE, Respondents.
D E C I S I O N
MENDOZA, J.:
Assailed in this petition for review on certiorari are the January 11, 2006 Decision
1
and the March 31, 2006
Resolution
2
of the Court of Appeals (CA), in CA-G.R. SP No. 00598 which affirmed with modification the March
31, 2004 Decision
3
and December 15, 2004 Resolution
4
of the National Labor Relations
Commission (NLRC). The NLRC Decision found the petitioners, SLL International Cables Specialist (SLL) and its
manager, Sonny L. Lagon(petitioners), not liable for the illegal dismissal of Roldan Lopez, Danilo Caete and
Edgardo Zuiga (private respondents) but held them jointly and severally liable for payment of certain monetary
claims to said respondents.
A chronicle of the factual antecedents has been succinctly summarized by the CA as follows:
Sometime in 1996, and January 1997, private respondents Roldan Lopez (Lopez for brevity) and Danilo Caete
(Caete for brevity), and Edgardo Zuiga (Zuiga for brevity) respectively, were hired by petitioner Lagon as
apprentice or trainee cable/lineman. The three were paid the full minimum wage and other benefits but since they
were only trainees, they did not report for work regularly but came in as substitutes to the regular workers or in
undertakings that needed extra workers to expedite completion of work. After their training, Zuiga, Caete and
Lopez were engaged as project employees by the petitioners in their Islacom project in Bohol. Private
respondents started on March 15, 1997 until December 1997. Upon the completion of their project, their
employment was also terminated. Private respondents received the amount of P145.00, the minimum prescribed
daily wage for Region VII. In July 1997, the amount of P145 was increased to P150.00 by the Regional Wage
Board (RWB) and in October of the same year, the latter was increased to P155.00. Sometime in March 1998,
Zuiga and Caete were engaged again by Lagon as project employees for its PLDT Antipolo, Rizal project,
which ended sometime in (sic) the late September 1998. As a consequence, Zuiga and Caetes employment
was terminated. For this project, Zuiga and Caete received only the wage of P145.00 daily. The minimum
prescribed wage for Rizal at that time was P160.00.
Sometime in late November 1998, private respondents re-applied in the Racitelcom project of Lagon in Bulacan.
Zuiga and Caete were re-employed. Lopez was also hired for the said specific project. For this, private
respondents received the wage of P145.00. Again, after the completion of their project in March 1999, private
respondents went home to Cebu City.
On May 21, 1999, private respondents for the 4th time worked with Lagons project in Camarin, Caloocan City
with Furukawa Corporation as the general contractor. Their contract would expire on February 28, 2000, the
period of completion of the project. From May 21, 1997-December 1999, private respondents received the wage
ofP145.00. At this time, the minimum prescribed rate for Manila was P198.00. In January to February 28, the
three received the wage of P165.00. The existing rate at that time was P213.00.
For reasons of delay on the delivery of imported materials from Furukawa Corporation, the Camarin project was
not completed on the scheduled date of completion. Face[d] with economic problem[s], Lagon was constrained to
cut down the overtime work of its worker[s][,] including private respondents. Thus, when requested by private
respondents on February 28, 2000 to work overtime, Lagon refused and told private respondents that if they
insist, they would have to go home at their own expense and that they would not be given anymore time nor
allowed to stay in the quarters. This prompted private respondents to leave their work and went home to Cebu.
On March 3, 2000, private respondents filed a complaint for illegal dismissal, non-payment of wages, holiday
pay, 13th month pay for 1997 and 1998 and service incentive leave pay as well as damages and attorneys fees.
In their answers, petitioners admit employment of private respondents but claimed that the latter were only
project employees[,] for their services were merely engaged for a specific project or undertaking and the same
were covered by contracts duly signed by private respondents. Petitioners further alleged that the food allowance
ofP63.00 per day as well as private respondents allowance for lodging house, transportation, electricity, water
and snacks allowance should be added to their basic pay. With these, petitioners claimed that private
respondents received higher wage rate than that prescribed in Rizal and Manila.
Lastly, petitioners alleged that since the workplaces of private respondents were all in Manila, the complaint
should be filed there. Thus, petitioners prayed for the dismissal of the complaint for lack of jurisdiction and utter
lack of merit. (Citations omitted.)
On January 18, 2001, Labor Arbiter Reynoso Belarmino (LA) rendered his decision
5
declaring that his office had
jurisdiction to hear and decide the complaint filed by private respondents. Referring to Rule IV, Sec. 1 (a) of the
NLRC Rules of Procedure prevailing at that time,
6
the LA ruled that it had jurisdiction because the "workplace,"
as defined in the said rule, included the place where the employee was supposed to report back after a
temporary detail, assignment or travel, which in this case was Cebu.
As to the status of their employment, the LA opined that private respondents were regular employees because
they were repeatedly hired by petitioners and they performed activities which were usual, necessary and
desirable in the business or trade of the employer.
With regard to the underpayment of wages, the LA found that private respondents were underpaid. It ruled that
the free board and lodging, electricity, water, and food enjoyed by them could not be included in the computation
of their wages because these were given without their written consent.
The LA, however, found that petitioners were not liable for illegal dismissal. The LA viewed private respondents
act of going home as an act of indifference when petitioners decided to prohibit overtime work.
7

In its March 31, 2004 Decision, the NLRC affirmed the findings of the LA. In addition, the NLRC noted that not a
single report of project completion was filed with the nearest Public Employment Office as required
by the Department of Labor and Employment (DOLE) Department Order No. 19, Series of 1993.
8
The NLRC later
denied
9
the motion for reconsideration
10
subsequently filed by petitioners.
When the matter was elevated to the CA on a petition for certiorari, it affirmed the findings that the private
respondents were regular employees. It considered the fact that they performed functions which were the regular
and usual business of petitioners. According to the CA, they were clearly members of a work pool from which
petitioners drew their project employees.
The CA also stated that the failure of petitioners to comply with the simple but compulsory requirement to submit
a report of termination to the nearest Public Employment Office every time private respondents employment was
terminated was proof that the latter were not project employees but regular employees.
The CA likewise found that the private respondents were underpaid. It ruled that the board and lodging,
electricity, water, and food enjoyed by the private respondents could not be included in the computation of their
wages because these were given without their written consent. The CA added that the private respondents were
entitled to 13th month pay.
The CA also agreed with the NLRC that there was no illegal dismissal. The CA opined that it was the petitioners
prerogative to grant or deny any request for overtime work and that the private respondents act of leaving the
workplace after their request was denied was an act of abandonment.
In modifying the decision of the labor tribunal, however, the CA noted that respondent Roldan Lopez did not work
in the Antipolo project and, thus, was not entitled to wage differentials. Also, in computing the differentials for the
period January and February 2000, the CA disagreed in the award of differentials based on the minimum daily
wage of P223.00, as the prevailing minimum daily wage then was only P213.00. Petitioners sought
reconsideration but the CA denied it in its March 31, 2006 Resolution.
11

In this petition for review on certiorari,
12
petitioners seek the reversal and setting aside of the CA decision
anchored on this lone:
GROUND/ASSIGNMENT OF ERROR
THE PUBLIC RESPONDENT NLRC COMMITTED A SERIOUS ERROR IN LAW IN AWARDING WAGE
DIFFERENTIALS TO THE PRIVATE COMPLAINANTS ON THE BASES OF MERE TECHNICALITIES, THAT
IS, FOR LACK OF WRITTEN CONFORMITY x x x AND LACK OF NOTICE TO THE DEPARTMENT OF LABOR
AND EMPLOYMENT (DOLE)[,] AND THUS, THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING
WITH MODIFICATION THE NLRC DECISION IN THE LIGHT OF THE RULING IN THE CASE OF JENNY M.
AGABON and VIRGILIO AGABON vs, NLRC, ET AL., GR NO. 158963, NOVEMBER 17, 2004, 442 SCRA 573,
[AND SUBSEQUENTLY IN THE CASE OF GLAXO WELLCOME PHILIPPINES, INC. VS. NAGAKAKAISANG
EMPLEYADO NG WELLCOME-DFA (NEW DFA), ET AL., GR NO. 149349, 11 MARCH 2005], WHICH FINDS
APPLICATION IN THE INSTANT CASE BY ANALOGY.
13

Petitioners reiterated their position that the value of the facilities that the private respondents enjoyed should be
included in the computation of the "wages" received by them. They argued that the rulings in Agabon v.
NLRC
14
and Glaxo Wellcome Philippines, Inc. v. Nagkakaisang Empleyado Ng Wellcome-DFA
15
should be
applied by analogy, in the sense that the lack of written acceptance of the employees of the facilities enjoyed by
them should not mean that the value of the facilities could not be included in the computation of the private
respondents "wages."
On November 29, 2006, the Court resolved to issue a Temporary Restraining Order (TRO) enjoining the public
respondent from enforcing the NLRC and CA decisions until further orders from the Court.
After a thorough review of the records, however, the Court finds no merit in the petition.
This petition generally involves factual issues, such as, whether or not there is evidence on record to support the
findings of the LA, the NLRC and the CA that private respondents were project or regular employees and that
their salary differentials had been paid. This calls for a re-examination of the evidence, which the Court cannot
entertain. Settled is the rule that factual findings of labor officials, who are deemed to have acquired expertise in
matters within their respective jurisdiction, are generally accorded not only respect but even finality, and bind the
Court when supported by substantial evidence. It is not the Courts function to assess and evaluate the evidence
all over again, particularly where the findings of both the Labor tribunals and the CA concur.
16

As a general rule, on payment of wages, a party who alleges payment as a defense has the burden of proving
it.
17
Specifically with respect to labor cases, the burden of proving payment of monetary claims rests on the
employer, the rationale being that the pertinent personnel files, payrolls, records, remittances and other similar
documents which will show that overtime, differentials, service incentive leave and other claims of workers
have been paid are not in the possession of the worker but in the custody and absolute control of the
employer.
18

In this case, petitioners, aside from bare allegations that private respondents received wages higher than the
prescribed minimum, failed to present any evidence, such as payroll or payslips, to support their defense of
payment. Thus, petitioners utterly failed to discharge the onus probandi.
Private respondents, on the other hand, are entitled to be paid the minimum wage, whether they are regular or
non-regular employees.
Section 3, Rule VII of the Rules to Implement the Labor Code
19
specifically enumerates those who are not
covered by the payment of minimum wage. Project employees are not among them.
On whether the value of the facilities should be included in the computation of the "wages" received by private
respondents, Section 1 of DOLE Memorandum Circular No. 2 provides that an employer may provide subsidized
meals and snacks to his employees provided that the subsidy shall not be less that 30% of the fair and
reasonable value of such facilities. In such cases, the employer may deduct from the wages of the employees
not more than 70% of the value of the meals and snacks enjoyed by the latter, provided that such deduction is
with the written authorization of the employees concerned.
Moreover, before the value of facilities can be deducted from the employees wages, the following requisites
must all be attendant: first, proof must be shown that such facilities are customarily furnished by the trade;
second, the provision of deductible facilities must be voluntarily accepted in writing by the employee; and finally,
facilities must be charged at reasonable value.
20
Mere availment is not sufficient to allow deductions from
employees wages.
21

These requirements, however, have not been met in this case. SLL failed to present any company policy or
guideline showing that provisions for meals and lodging were part of the employees salaries. It also failed to
provide proof of the employees written authorization, much less show how they arrived at their valuations. At any
rate, it is not even clear whether private respondents actually enjoyed said facilities.
The Court, at this point, makes a distinction between "facilities" and "supplements." It is of the view that the food
and lodging, or the electricity and water allegedly consumed by private respondents in this case were not
facilities but supplements. In the case of Atok-Big Wedge Assn. v. Atok-Big Wedge Co.,
22
the two terms were
distinguished from one another in this wise:
"Supplements," therefore, constitute extra remuneration or special privileges or benefits given to or received by
the laborers over and above their ordinary earnings or wages. "Facilities," on the other hand, are items of
expense necessary for the laborer's and his family's existence and subsistence so that by express provision of
law (Sec. 2[g]), they form part of the wage and when furnished by the employer are deductible therefrom, since if
they are not so furnished, the laborer would spend and pay for them just the same.
In short, the benefit or privilege given to the employee which constitutes an extra remuneration above and over
his basic or ordinary earning or wage is supplement; and when said benefit or privilege is part of the laborers'
basic wages, it is a facility. The distinction lies not so much in the kind of benefit or item (food, lodging, bonus or
sick leave) given, but in the purpose for which it is given.
23
In the case at bench, the items provided were given
freely by SLL for the purpose of maintaining the efficiency and health of its workers while they were working at
their respective projects.1avvphi 1
For said reason, the cases of Agabon and Glaxo are inapplicable in this case. At any rate, these were cases of
dismissal with just and authorized causes. The present case involves the matter of the failure of the petitioners to
comply with the payment of the prescribed minimum wage.
The Court sustains the deletion of the award of differentials with respect to respondent Roldan Lopez. As
correctly pointed out by the CA, he did not work for the project in Antipolo.
WHEREFORE, the petition is DENIED. The temporary restraining order issued by the Court on November 29,
2006 is deemed, as it is hereby ordered, DISSOLVED.
SO ORDERED.




FIRST DIVISION
[G.R. No. 138051. June 10, 2004]
JOSE Y. SONZA, petitioner, vs. ABS-CBN BROADCASTING
CORPORATION, respondent.
D E C I S I O N
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari
[1]
assailing the 26 March
1999 Decision
[2]
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
Arbiters 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 SONZAs 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 SONZAs services a monthly talent fee of P310,000 for
the first year and P317,000 for the second and third year of the Agreement. ABS-CBN
would pay the talent fees on the 10
th
and 25
th
days of the month.
On 1 April 1996, SONZA wrote a letter to ABS-CBNs 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. Manager
[4]

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, 13
th
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 SONZAs 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 SONZAs talent
fees and other payments due him under the Agreement.
In his Order dated 2 December 1996, the Labor Arbiter
[5]
denied the motion to
dismiss and directed the parties to file their respective position papers. The Labor
Arbiter ruled:
In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is sufficient
enough as to confer jurisdiction over the instant case in this Office. And as to whether or not
such claim would entitle complainant to recover upon the causes of action asserted is a matter to
be resolved only after and as a result of a hearing. Thus, the respondents 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 Respondents Position Paper with
Motion to Expunge Respondents Annex 4 and Annex 5 from the Records. Annexes 4
and 5 are affidavits of ABS-CBNs 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:
x x x
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 Sonzas monthly talent
fees amount to a staggering P317,000. 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 respondents 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 Arbiters 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 NLRCs finding that no employer-employee
relationship existed between SONZA and ABS-CBN. Adopting the NLRCs 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-
appellants Position Paper, his claims for compensation for services, 13
th
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 stockswith FIVE HUNDRED
THOUSAND PESOS (P500,000.00).
Similarly, complainant is also entitled to be paid 13
th
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 (P150,000.00) per year.
Thus, it is precisely because of complainant-appellants 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-CBNs 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-appellants 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 NLRCs
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 NLRCS 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 Courts 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 Arbiters 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 employers
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 SONZAs services to co-host its television and radio programs
because of SONZAs 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 respondents 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-CBNs employee, there would be no need
for the parties to stipulate on benefits such as SSS, Medicare, x x x and 13
th
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]

SONZAs talent fees, amounting to P317,000 monthly in the second and third year,
are so huge and out of the ordinary that they indicate more an independent contractual
relationship rather than an employer-employee relationship. ABS-CBN agreed to pay
SONZA such huge talent fees precisely because of SONZAs 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 SONZAs 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 SONZAs 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 SONZAs talent fees during the remaining life of the
Agreement even if ABS-CBN cancelled SONZAs programs through no fault of
SONZA.
[25]

SONZA assails the Labor Arbiters 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. SONZAs 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-Vlez v. Corporacin De Puerto Rico Para La Difusin Pblica
(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 masters 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. Albertys 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. Albertys 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 x
[28]
(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.
SONZAs argument is misplaced. ABS-CBN engaged SONZAs 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-CBNs 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
SONZAs 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 SONZAs 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-CBNs 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 SONZAs work.
SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-
CBNs power over the means and methods of the performance of his work. Although
ABS-CBN did have the option not to broadcast SONZAs show, ABS-CBN was still
obligated to pay SONZAs talent fees. Thus, even if ABS-CBN was completely
dissatisfied with the means and methods of SONZAs 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 SONZAs show but ABS-CBN
must still pay his talent fees in full.
[35]

Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by
the obligation to continue paying in full SONZAs talent fees, did not amount to control
over the means and methods of the performance of SONZAs 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-
CBNs approval. This proves that ABS-CBNs control was limited only to the result of
SONZAs work, whether to broadcast the final product or not. In either case, ABS-CBN
must still pay SONZAs 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-CBNs 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]
SONZAs 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-CBNs employee because ABS-
CBN subjected him to its rules and standards of performance. SONZA claims that this
indicates ABS-CBNs 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 Arbiters 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 SONZAs agent. The Agreement
expressly states that MJMDC acted as the AGENT of SONZA. The records do not
show that MJMDC acted as ABS-CBNs 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 SONZAs 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-CBNs 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-CBNs 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
x x x
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 latters 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 SONZAs Claims
SONZA seeks the recovery of allegedly unpaid talent fees, 13
th
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 SONZAs 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, SONZAs 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.
































SECOND DIVISION
[G.R. No. 155059. April 29, 2005]
AMERICAN WIRE AND CABLE DAILY RATED EMPLOYEES
UNION, petitioner, vs. AMERICAN WIRE AND CABLE CO., INC. and THE
COURT OF APPEALS, respondents.
D E C I S I O N
CHICO-NAZARIO, J.:
Before Us is a special civil action for certiorari, assailing the Decision
[1]
of the Special
Eighth Division of the Court of Appeals dated 06 March 2002. Said Decision upheld the
Decision
[2]
and Order
[3]
of Voluntary Arbitrator Angel A. Ancheta of the National
Conciliation and Mediation Board (NCMB) dated 25 September 2001 and 05 November
2001, respectively, which declared the private respondent herein not guilty of violating
Article 100 of the Labor Code, as amended. Assailed likewise, is the Resolution
[4]
of the
Court of Appeals dated 12 July 2002, which denied the motion for reconsideration of the
petitioner, for lack of merit.
THE FACTS
The facts of this case are quite simple and not in dispute.
American Wire and Cable Co., Inc., is a corporation engaged in the manufacture of
wires and cables. There are two unions in this company, the American Wire and Cable
Monthly-Rated Employees Union (Monthly-Rated Union) and the American Wire and
Cable Daily-Rated Employees Union (Daily-Rated Union).
On 16 February 2001, an original action was filed before the NCMB of the
Department of Labor and Employment (DOLE) by the two unions for voluntary
arbitration. They alleged that the private respondent, without valid cause, suddenly and
unilaterally withdrew and denied certain benefits and entitlements which they have long
enjoyed. These are the following:
a. Service Award;
b. 35% premium pay of an employees basic pay for the work rendered during Holy
Monday, Holy Tuesday, Holy Wednesday, December 23, 26, 27, 28 and 29;
c. Christmas Party; and
d. Promotional Increase.
A promotional increase was asked by the petitioner for fifteen (15) of its members
who were given or assigned new job classifications. According to petitioner, the new job
classifications were in the nature of a promotion, necessitating the grant of an increase
in the salaries of the said 15 members.
On 21 June 2001, a Submission Agreement was filed by the parties before the
Office for Voluntary Arbitration. Assigned as Voluntary Arbitrator was Angel A. Ancheta.
On 04 July 2001, the parties simultaneously filed their respective position papers
with the Office of the Voluntary Arbitrator, NCMB, and DOLE.
On 25 September 2001, a Decision
[5]
was rendered by Voluntary Arbitrator Angel A.
Ancheta in favor of the private respondent. The dispositive portion of the said Decision
is quoted hereunder:
WHEREFORE, with all the foregoing considerations, it is hereby declared that the Company is
not guilty of violating Article 100 of the Labor Code, as amended, or specifically for
withdrawing the service award, Christmas party and 35% premium for work rendered during
Holy Week and Christmas season and for not granting any promotional increase to the alleged
fifteen (15) Daily-Rated Union Members in the absence of a promotion. The Company however,
is directed to grant the service award to deserving employees in amounts and extent at its
discretion, in consultation with the Unions on grounds of equity and fairness.
[6]

A motion for reconsideration was filed by both unions
[7]
where they alleged that the
Voluntary Arbitrator manifestly erred in finding that the company did not violate Article
100 of the Labor Code, as amended, when it unilaterally withdrew the subject benefits,
and when no promotional increase was granted to the affected employees.
On 05 November 2001, an Order
[8]
was issued by Voluntary Arbitrator Angel A.
Ancheta. Part of the Order is quoted hereunder:
Considering that the issues raised in the instant case were meticulously evaluated and length[i]ly
discussed and explained based on the pleadings and documentary evidenc[e] adduced by the
contending parties, we find no cogent reason to change, modify, or disturb said decision.
WHEREFORE, let the instant MOTION[S] FOR RECONSIDERATION be, as they are hereby,
denied for lack of merit. Our decision dated 25 September 2001 is affirmed en toto.
[9]

An appeal under Rule 43 of the 1997 Rules on Civil Procedure was made by the
Daily-Rated Union before the Court of Appeals
[10]
and docketed as CA-G.R. SP No.
68182. The petitioner averred that Voluntary Arbitrator Angel A. Ancheta erred in finding
that the company did not violate Article 100 of the Labor Code, as amended, when the
subject benefits were unilaterally withdrawn. Further, they assert, the Voluntary
Arbitrator erred in adopting the companys unaudited Revenues and Profitability
Analysis for the years 1996-2000 in justifying the latters withdrawal of the questioned
benefits.
[11]

On 06 March 2002, a Decision in favor of herein respondent company was
promulgated by the Special Eighth Division of the Court of Appeals in CA-G.R. SP No.
68182. The decretal portion of the decision reads:
WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE
and accordingly DISMISSED, for lack of merit. The Decision of Voluntary Arbitrator Angel A.
Ancheta dated September 25, 2001 and his Order dated November 5, 2001 in VA Case No.
AAA-10-6-4-2001 are hereby AFFIRMED and UPHELD.
[12]

A motion for reconsideration
[13]
was filed by the petitioner, contending that the Court
of Appeals misappreciated the facts of the case, and that it committed serious error
when it ruled that the unaudited financial statement bears no importance in the instant
case.
The Court of Appeals denied the motion in its Resolution dated 12 July
2002
[14]
because it did not present any new matter which had not been considered in
arriving at the decision. The dispositive portion of the Resolution states:
WHEREFORE, the motion for reconsideration is hereby DENIED for lack of merit.
[15]

Dissatisfied with the court a quos ruling, petitioner instituted the instant special civil
action for certiorari,
[16]
citing grave abuse of discretion amounting to lack of jurisdiction.
ASSIGNMENT OF ERRORS
The petitioner assigns as errors the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPANY DID NOT
VIOLATE ARTICLE 100 OF THE LABOR CODE, AS AMENDED, WHEN IT
UNILATERALLY WITHDREW THE BENEFITS OF THE MEMBERS OF PETITIONER
UNION, TO WIT: 1) 35% PREMIUM PAY; 2) CHRISTMAS PARTY AND ITS
INCIDENTAL BENEFITS; AND 3) SERVICE AWARD, WHICH IN TRUTH AND IN FACT
SAID BENEFITS/ENTITLEMENTS HAVE BEEN GIVEN THEM SINCE TIME
IMMEMORIAL, AS A MATTER OF LONG ESTABLISHED COMPANY PRACTICE, WITH
THE FURTHER FACT THAT THE SAME NOT BEING DEPENDENT ON PROFITS.
II
THE COURT OF APPEALS ERRED WHEN IT JUST ACCEPTED HOOK, LINE AND
SINKER, THE RESPONDENT COMPANYS SELF SERVING AND UNAUDITED
REVENUES AND PROFITABILITY ANALYSIS FOR THE YEARS 1996-2000 WHICH
THEY SUBMITTED TO FALSELY JUSTIFY THEIR UNLAWFUL ACT OF
UNILATERALLY AND SUDDENLY WITHDRAWING OR DENYING FROM THE
PETITIONER THE SUBJECT BENEFITS/ENTITLEMENTS.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE YEARLY SERVICE
AWARD IS NOT DEPENDENT ON PROFIT BUT ON SERVICE AND THUS, CANNOT BE
UNILATERALLY WITHDRAWN BY RESPONDENT COMPANY.
ISSUE
Synthesized, the solitary issue that must be addressed by this Court is whether or
not private respondent is guilty of violating Article 100 of the Labor Code, as amended,
when the benefits/entitlements given to the members of petitioner union were
withdrawn.
THE COURTS RULING
Before we address the sole issue presented in the instant case, it is best to first
discuss a matter which was raised by the private respondent in its Comment. The
private respondent contends that this case should have been dismissed outright
because of petitioners error in the mode of appeal. According to it, the petitioner should
have elevated the instant case to this Court through a petition for review
on certiorari under Rule 45, and not through a special civil action for certiorari under
Rule 65, of the 1997 Rules on Civil Procedure.
[17]

Assuming arguendo that the mode of appeal taken by the petitioner is improper,
there is no question that the Supreme Court has the discretion to dismiss it if it is
defective. However, sound policy dictates that it is far better to dispose the case on the
merits, rather than on technicality.
[18]

The Supreme Court may brush aside the procedural barrier and take cognizance of
the petition as it raises an issue of paramount importance. The Court shall resolve the
solitary issue on the merits for future guidance of the bench and bar.
[19]

With that out of the way, we shall now resolve whether or not the respondent
company is guilty of violating Article 100 of the Labor Code, as amended.
Article 100 of the Labor Code provides:
ART. 100. PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF
BENEFITS. Nothing in this Book shall be construed to eliminate or in any way diminish
supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.
The petitioner submits that the withdrawal of the private respondent of the 35%
premium pay for selected days during the Holy Week and Christmas season, the
holding of the Christmas Party and its incidental benefits, and the giving of service
awards violated Article 100 of the Labor Code. The grant of these benefits was a
customary practice that can no longer be unilaterally withdrawn by private respondent
without the tacit consent of the petitioner. The benefits in question were given by the
respondent to the petitioner consistently, deliberately, and unconditionally since time
immemorial. The benefits/entitlements were not given to petitioner due to an error in
interpretation, or a construction of a difficult question of law, but simply, the grant has
been a practice over a long period of time. As such, it cannot be withdrawn from the
petitioner at respondents whim and caprice, and without the consent of the former. The
benefits given by the respondent cannot be considered as a bonus as they are not
founded on profit. Even assuming that it can be treated as a bonus, the grant of the
same, by reason of its long and regular concession, may be regarded as part of regular
compensation.
[20]

With respect to the fifteen (15) employees who are members of petitioner union that
were given new job classifications, it asserts that a promotional increase in their salaries
was in order. Salary adjustment is a must due to their promotion.
[21]

On respondent companys Revenues and Profitability Analysis for the years 1996-
2000, the petitioner insists that since the former was unaudited, it should not have
justified the companys sudden withdrawal of the benefits/entitlements. The normal
and/or legal method for establishing profit and loss of a company is through a financial
statement audited by an independent auditor.
[22]

The petitioner cites our ruling in the case of Saballa v. NLRC,
[23]
where we held
that financial statements audited by independent auditors constitute the normal method
of proof of the profit and loss performance of the company. Our ruling in the case
of Bogo-Medellin Sugarcane Planters Association, Inc., et al. v. NLRC, et al.
[24]
was
likewise invoked. In this case, we held:
The Court has previously ruled that financial statements audited by independent external
auditors constitute the normal method of proof of the profit and loss performance of a company.
On the matter of the withdrawal of the service award, the petitioner argues that it is
the employees length of service which is taken as a factor in the grant of this benefit,
and not whether the company acquired profit or not.
[25]

In answer to all these, the respondent corporation avers that the grant of all subject
benefits has not ripened into practice that the employees concerned can claim a
demandable right over them. The grant of these benefits was conditional based upon
the financial performance of the company and that conditions/circumstances that
existed before have indeed substantially changed thereby justifying the discontinuance
of said grants. The companys financial performance was affected by the recent
political turmoil and instability that led the entire nation to a bleeding economy. Hence,
it only necessarily follows that the companys financial situation at present is already
very much different from where it was three or four years ago.
[26]

On the subject of the unaudited financial statement presented by the private
respondent, the latter contends that the cases cited by the petitioner indeed uniformly
ruled that financial statements audited by independent external auditors constitute the
normal method of proof of the profit and loss performance of a company. However,
these cases do not require that the only legal method to ascertain profit and loss is
through an audited financial statement. The cases only provide that an audited financial
statement is the normal method.
[27]

The respondent company likewise asseverates that the 15 members of petitioner
union were not actually promoted. There was only a realignment of positions.
[28]

From the foregoing contentions, it appears that for the Court to resolve the issue
presented, it is critical that a determination must be first made on whether the
benefits/entitlements are in the nature of a bonus or not, and assuming they are so,
whether they are demandable and enforceable obligations.
In the case of Producers Bank of the Philippines v. NLRC
[29]
we have characterized
what a bonus is, viz:
A bonus is an amount granted and paid to an employee for his industry and loyalty which
contributed to the success of the employers business and made possible the realization of
profits. It is an act of generosity granted by an enlightened employer to spur the employee to
greater efforts for the success of the business and realization of bigger profits. The granting of a
bonus is a management prerogative, something given in addition to what is ordinarily received
by or strictly due the recipient. Thus, a bonus is not a demandable and enforceable obligation,
except when it is made part of the wage, salary or compensation of the employee.
Based on the foregoing pronouncement, it is obvious that the benefits/entitlements
subjects of the instant case are all bonuses which were given by the private respondent
out of its generosity and munificence. The additional 35% premium pay for work done
during selected days of the Holy Week and Christmas season, the holding of Christmas
parties with raffle, and the cash incentives given together with the service awards are all
in excess of what the law requires each employer to give its employees. Since they are
above what is strictly due to the members of petitioner-union, the granting of the same
was a management prerogative, which, whenever management sees necessary, may
be withdrawn, unless they have been made a part of the wage or salary or
compensation of the employees.
The consequential question therefore that needs to be settled is if the subject
benefits/entitlements, which are bonuses, are demandable or not. Stated another way,
can these bonuses be considered part of the wage or salary or compensation making
them enforceable obligations?
The Court does not believe so.
For a bonus to be enforceable, it must have been promised by the employer and
expressly agreed upon by the parties,
[30]
or it must have had a fixed amount
[31]
and had
been a long and regular practice on the part of the employer.
[32]

The benefits/entitlements in question were never subjects of any express agreement
between the parties. They were never incorporated in the Collective Bargaining
Agreement (CBA). As observed by the Voluntary Arbitrator, the records reveal that
these benefits/entitlements have not been subjects of any express agreement between
the union and the company, and have not yet been incorporated in the CBA. In fact, the
petitioner has not denied having made proposals with the private respondent for the
service award and the additional 35% premium pay to be made part of the CBA.
[33]

The Christmas parties and its incidental benefits, and the giving of cash incentive
together with the service award cannot be said to have fixed amounts. What is clear
from the records is that over the years, there had been a downtrend in the amount given
as service award.
[34]
There was also a downtrend with respect to the holding of the
Christmas parties in the sense that its location changed from paid venues to one which
was free of charge,
[35]
evidently to cut costs. Also, the grant of these two aforementioned
bonuses cannot be considered to have been the private respondents long and regular
practice. To be considered a regular practice, the giving of the bonus should have
been done over a long period of time, and must be shown to have been consistent and
deliberate.
[36]
The downtrend in the grant of these two bonuses over the years
demonstrates that there is nothing consistent about it. Further, as held by the Court of
Appeals:
Anent the Christmas party and raffle of prizes, We agree with the Voluntary Arbitrator that the
same was merely sponsored by the respondent corporation out of generosity and that the same is
dependent on the financial performance of the company for a particular year
[37]

The additional 35% premium pay for work rendered during selected days of the Holy
Week and Christmas season cannot be held to have ripened into a company practice
that the petitioner herein have a right to demand. Aside from the general averment of
the petitioner that this benefit had been granted by the private respondent since time
immemorial, there had been no evidence adduced that it had been a regular practice.
As propitiously observed by the Court of Appeals:
. . . [N]otwithstanding that the subject 35% premium pay was deliberately given and the same
was in excess of that provided by the law, the same however did not ripen into a company
practice on account of the fact that it was only granted for two (2) years and with the express
reservation from respondent corporations owner that it cannot continue to rant the same in view
of the companys current financial situation.
[38]

To hold that an employer should be forced to distribute bonuses which it granted out
of kindness is to penalize him for his past generosity.
[39]

Having thus ruled that the additional 35% premium pay for work rendered during
selected days of the Holy Week and Christmas season, the holding of Christmas parties
with its incidental benefits, and the grant of cash incentive together with the service
award are all bonuses which are neither demandable nor enforceable obligations of the
private respondent, it is not necessary anymore to delve into the Revenues and
Profitability Analysis for the years 1996-2000 submitted by the private respondent.
On the alleged promotion of 15 members of the petitioner union that should warrant
an increase in their salaries, the factual finding of the Voluntary Arbitrator is
revealing, viz:
Considering that the Union was unable to adduce proof that a promotion indeed occur[ed]
with respect to the 15 employees, the Daily Rated Unions claim for promotional increase
likewise fall[s] there being no promotion established under the records at hand.
[40]

WHEREFORE, in view of all the foregoing, the assailed Decision and Resolution of
the Court of Appeals dated 06 March 2002 and 12 July 2002, respectively, which
affirmed and upheld the decision of the Voluntary Arbitrator, are hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.



































THIRD DIVISION

AKLAN COLLEGE, INC.,
Petitioner,



- versus -




PERPETUO ENERO, ARLYN
CASTIGADOR, NUENA SERMON
and JOCELYN ZOLINA,
Respondents.

G.R. No. 178309

Present:

AUSTRIA-MARTINEZ, J.,
Acting Chairperson,
TINGA,
*

CHICO-NAZARIO,
NACHURA, and
LEONARDO-DE CASTRO,
**
JJ.

Promulgated:

January 27, 2009

x------------------------------------------------------------------------------------x


DECISION

NACHURA, J.:





Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the Decision
[1]
dated October 27, 2006 and the Resolution
[2]
dated June 6,
2007 of the Court of Appeals (CA) in CA-G.R. SP No. 85997.

The Facts

The facts of the case are as follows:

Petitioner
[3]
is an educational institution in Kalibo, Aklan, while respondents were high
school teachers of petitioner. On November 15, 16 and 17, 1994 and on January 6, 10 and 11,
1995, high school students of the College held mass actions against the principal of the high
school department at the public plaza opposite the school. The demonstrations were held with
validly issued permits from the Office of the Mayor.

Petitioner averred that the protest rallies were in the nature of illegal strikes instigated
by the respondents and not purely student demonstrations. An administrative investigation
was conducted at which respondents were given an opportunity to explain their side.
Thereafter, respondents were dismissed from employment for causes provided in Articles
264 and 282 of the Labor Code,
[4]
Section 16
[5]
of the Education Act of 1982, and paragraphs
(d) and (e) of Section 94
[6]
of the Manual of Regulations for Private Schools.

Respondents filed a case for illegal dismissal against petitioner before the Labor
Arbiter (LA). They alleged that what took place was a peaceful assembly wherein the
students demonstrated their sympathy on what they perceived to be wrongs committed by the
high school principal against some teachers. They maintained that they did not instigate the
students to rally.

On January 29, 1999, the LA rendered a Decision
[7]
absolving respondents and holding
petitioner guilty of illegal dismissal. The LA ratiocinated that there was no evidence that the
respondents abandoned their classes. Since it was respondents students who were the ones
rallying, naturally they had to go out of the classrooms and observe their students. The
participation of respondents in the activities was passive. The LA opined that even if it was
admitted that respondents actively participated, the same should not be taken against them,
for they joined a peaceful assembly and only exercised their constitutionally guaranteed
freedom of expression.
[8]
The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, respondents are hereby directed to
immediately reinstate the complainants and to pay them the following:

1. Perpetuo Enero:

a) Backwages ... P257,840.00
b) 13
th
month pay ... 21,486.67
c) Service incentive leave pay ... 7,936.00
d) Moral damages ... 50,000.00
e) Exemplary damages ... 30,000.00 P367,262.67

2. Arlyn Castigador:

a) Backwages ... P235,994.00
b) 13
th
month pay ... 19,666.42
c) Service incentive leave pay ... 6,992.40
d) Moral damages ... 50,000.00
e) Exemplary damages ... 30,000.00 342,652.82

3. Nuena Sermon:

a) Backwages ... P340,875.00
b) 13
th
month pay ... 28,406.25
c) Service incentive leave pay ... 10,100.00
d) Moral damages ... 50,000.00
e) Exemplary damages ... 30,000.00 459,381.25

4. Jocelyn Zolina:

a) Backwages ... P347,459.52
b) 13
th
month pay ... 28,954.96
c) Service incentive leave pay ... 9,651.60

d) Moral damages ... 50,000.00
e) Exemplary damages ... 30,000.00 466,066.08

TOTAL P1,635,362.82
Plus 10% Attorneys Fees of 163,536.28
Grand Total P1,798,899.10

This is without prejudice to further computation of the amounts if there are
increases in the interregnum.

SO ORDERED.
[9]



On appeal, the National Labor Relations Commission (NLRC) reversed the decision of
the LA. Based on the findings of facts of the NLRC, the respondents comprised barely two
percent (2%) of the total work force of the high school department. The mass action was not
a result of a labor dispute but of personal acrimony against the high school principal. The
principal was accused of giving respondents a quota in selling tickets for a dance sponsored
by petitioner and of withholding and deducting from teachers salaries the cost of the tickets.
Respondents employed high-handed machinations in using the students to redress their
grievances against the principal. Their conduct was unbecoming of teachers who should be
models of integrity and correct values. Their act of instigating and exploiting their students to
take to the streets their personal grudge against the principal should not be
tolerated.
[10]
The fallo of the Decision
[11]
dated March 25, 2002 reads:

WHEREFORE, the impugned decision of the Labor Arbiter is SET
ASIDE and VACATED and a new decision is rendered declaring the dismissal of
the [respondents] valid. However, [Aklan College, Inc. and Msgr. Adolfo P. Depra,
in his capacity as the College Rector] are ordered to pay the [respondents] their
13
th
month pay and service incentive leave pay as follows:

1. Perpetuo Enero

a) 13
th
month pay - P21,486.67
b) SIL pay - 7,936.00

2. Arlyn Castigador

a) 13
th
month pay - P19,666.42
b) SIL pay - 6,992.40

3. Nuena Sermon

a) 13
th
month pay - P28,406.25
b) SIL pay - 10,100.00

4. Jocelyn Zolina -

a) 13
th
month pay - P28,954.96
b) SIL pay - 9,651.60

SO ORDERED.
[12]



Presiding Commissioner Irenea E. Ceniza submitted a Separate Dissenting
Opinion
[13]
on the NLRC decision. According to her, the majority view that respondents used
high-handed machinations to instigate the students to rally was not supported by substantial
evidence. Furthermore, she agreed with the finding of the LA that there was no strike, but
only a rally or demonstration facilitated by the students with validly issued permits from the
Office of the Mayor.

Both parties filed a motion for reconsideration. On February 27, 2004, the NLRC
issued a Resolution
[14]
denying the said motions for lack of merit.

Petitioner filed a petition for certiorari
[15]
before the CA, seeking to partially annul the
Decision of the NLRC insofar as it held petitioner liable to pay respondents 13
th
month pay
and service incentive leave (SIL) pay despite the finding that respondents were validly
dismissed from service. Respondents did not file an appeal from the decision of the
NLRC.
[16]


On October 27, 2006, the CA rendered the assailed Decision. It held that, for failure of
the dismissed teachers to question the NLRCs denial of the motion for reconsideration, the
Decision dated March 25, 2002 and the Resolution dated February 27, 2007 became final and
executory as to them, thus, limiting the issue to be resolved to that presented by
petitioner, i.e., the propriety of the award of 13
th
month pay and SIL pay to the dismissed
teachers.

The CA held that the NLRC did not commit grave abuse of discretion in awarding
respondents 13
th
month pay and SIL pay. However, it modified the award to conform to the
dismissed teachers employment history. The pertinent portions of the CA decision read:

1. Perpetuo Enero (June 1, 1990 to May 5, 1995)

Thirteenth Month Pay

June 1, 1990 to December 1990
(7/12 x P5,952.02)
P 3,472.01
January 1991 to December 1994
(4 x P5,952.02)
23,808.08
January 1, 1995 to May 5, 1995
(5/12 x P5,952.02)
2,480.01

Service Incentive Leave Pay

Proportionate SIL for June to December 1990
7/12 x 10 days = 5.83 days
SIL earned from 1991 to 1994 = 40.00 days
Proportionate SIL for January
to May 1995

5/12 x 10 days = 4.17 days
50.00 days

P 5,952.02 30 days = P198.40 / day 9,920.00
P 39,680.10


2. Arlyn Castigador (June 1990 to May 5, 1995)

Thirteenth Month Pay

June 1, 1990 to December 1990 P 3,059.19
(7/12 x P5,244.32)
January 1991 to December 1994
(4 x P5,244.32)
20,977.28
January 1, 1995 to May 5, 1995
(5/12 x P5,244.32)
2,185.13

Service Incentive Leave Pay

Proportionate SIL for June to December 1990
7/12 x 10 days = 5.83 days
SIL earned from 1991 to 1994 = 40.00 days
Proportionate SIL for January
to May 1995

5/12 x 10 days = 4.17 days
50.00 days

P 5,244.32 30 days = P174.81 / day 8,740.50
P 34,962.10


3. Nuena Sermon (June 1970 to May 5, 1995)

Thirteenth Month Pay

January 1987 to December 1994
(8 x P7,575.00)
P 60,600.00
January 1, 1995 to May 5, 1995
(5/12 x P7,575.00)
3,156.25

Service Incentive Leave Pay

SIL earned from 1975 to 1994 = 190.00 days
Proportionate SIL for January
to May 1995

5/12 x 10 days = 4.17 days
194.17 days

P 7,575.00 30 days = P252.50 / day 49,027.92
P112,784.17
4. Jocelyn Zolina (June 1990 to January 19, 1995)
[17]


Thirteenth Month Pay

June 1, 1990 to December 1990
(7/12 x P7,238.74)
P 4,222.60
January 1991 to December 1994
(4 x P7,238.74)
28,954.96

Service Incentive Leave Pay

Proportionate SIL for June to December 1990
7/12 x 10 days = 5.83 days
SIL earned from 1991 to 1994 = 40.00 days
Proportionate SIL for January 1995
1/12 x 10 days = .83 day
46.66 days

P 7,238.74 30 days = P241.29 / day 11,258.59
P 44,436.15



WHEREFORE, the instant petition for certiorari is DENIED for lack of
merit. The assailed Decision dated March 25, 2002 and Resolution dated February
27, 2004 of the National Labor Relations Commission (NLRC), Fourth
Division, Cebu City, are, however, modified as to the monetary awards. Aklan
College, Inc. is hereby ordered to pay private respondents their unpaid Thirteenth
Month Pay and Service Incentive Leave Pay, with the computation as shown
above. Each of them is entitled to receive the following amount opposite their
names:

1. Perpetuo Enero P 39,680.10
2. Arlyn Castigador 34,962.10
3. Nuena Sermon 112,784.17
4. Jocelyn Zolina 44,436.15

SO ORDERED.
[18]



Petitioner filed a motion for reconsideration. The CA denied the same in the assailed
Resolution dated June 6, 2007.

Hence, this petition.

The Issues

Petitioner presented the following issues for resolution:

I. THE COURT OF APPEALS COMMITTED GRIEVOUS ERROR
IN AFFIRMING THE DECISION OF THE NLRC WHICH ORDERED THE
PETITIONER TO PAY THE RESPONDENTS 13
TH
MONTH PAY AND
SERVICE INCENTIVE LEAVE (SIL) PAY.
[19]


II. THE COURT OF APPEALS COMMITTED GRIEVOUS ERROR
WHEN IT INCREASED THE MONETARY AWARDS OF 13
TH
MONTH PAY
AND SERVICE INCENTIVE LEAVE PAY IN FAVOR OF THE NON-
APPEALING PRIVATE RESPONDENTS.
[20]


The Ruling of the Court

The instant petition is denied on the following grounds:

First. Whether respondents received 13
th
month pay and SIL pay is a factual issue.
Well-settled is the rule that the Supreme Court is not a trier of facts. When supported by
substantial evidence, the findings of fact of the CA are conclusive and binding, and are not
reviewable by this Court, unless the case falls under any of the following recognized
exceptions:

(1) When the conclusion is a finding grounded entirely on speculation,
surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or
impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both appellant and
appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific
evidence on which they are based;
(9) When the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on
the supposed absence of evidence and contradicted by the evidence on record.
[21]



Petitioner failed to show that its case falls under any of the exceptions. Thus, there is
no compelling reason for us to reverse the award of these benefits. The CA did not commit a
reversible error when it affirmed the decision of the NLRC and awarded respondents
13
th
month pay
[22]
and SIL pay.
[23]


Based on the findings of fact of the lower tribunals, petitioner did not pay respondents
these benefits which are mandatorily prescribed by law. Although the LA and the NLRC
have contrary findings on the issue of illegal dismissal, both quasi-judicial bodies granted
respondents 13
th
month pay and SIL pay. The CA, after verifying that indeed respondents
were not paid the said benefits, sustained the finding of respondents entitlement thereto.

Petitioner avers that because the NLRC reversed the finding of illegal dismissal by the
LA, ergo, the payment of the award of the 13
th
month pay and SIL pay must also be
deleted.
[24]
But it does not follow that since they are not guilty of illegal dismissal, they are
also not liable for non-payment of the said benefits. Illegal dismissal and non-payment of
benefits are entirely different grounds on which an employer can be held liable.

Second. Petitioner avers that it was improper for the CA to increase the monetary
award on the subject benefits in favor of respondents who did not file an appeal from the
decision of the NLRC.
[25]


As a rule, a party who does not appeal from the decision may not obtain any
affirmative relief from the appellate court other than what he has obtained from the lower
tribunal, if any, whose decision is brought up on appeal.
[26]
Due process prevents the grant of
additional awards to parties who did not appeal.
[27]
As an exception, he may assign an error
where the purpose is to maintain the judgment on other grounds, but he cannot seek
modification or reversal of the judgment or affirmative relief unless he has also appealed or
filed a separate petition.
[28]


In this case, the CA is not precluded from affirming, reversing or modifying the
decision of the NLRC on the propriety of payment of 13
th
month pay and SIL pay to the
respondents. It is the propriety of the award of these benefits which were precisely the issues
raised by petitioner in its appeal before the said appellate court.
[29]


Section 8, Rule 51 of the Rules of Court provides that only those issues assigned as
errors will be considered in the appealed decision, viz.:

SEC. 8. Questions that may be decided. No error which does not affect the
jurisdiction over the subject matter or the validity of the judgment appealed from or
the proceedings therein will be considered unless stated in the assignment of errors,
or closely related to or dependent on an assigned error and properly argued in the
brief, save as the court may pass upon plain errors and clerical errors.


The appealing party is legally required to indicate in his brief an assignment of errors,
and only those assigned shall be considered by the appellate court in deciding the case.
However, this is not without qualification, for the appellate court is accorded a broad
discretionary power to waive the lack of proper assignment of errors and to consider errors
not assigned. The CA may reverse the decision of the lower tribunal on the basis of grounds
other than those raised as errors on appeal in the following instances:

(1) Grounds not assigned as errors but affecting jurisdiction over the
subject matter;

(2) Matters not assigned as errors on appeal but are evidently plain or
clerical errors within contemplation of law;

(3) Matters not assigned as errors on appeal but consideration of which
is necessary in arriving at a just decision and complete resolution of the case or to
serve the interest of justice or to avoid dispensing piecemeal justice;

(4) Matters not specifically assigned as errors on appeal but raised in
the trial court and are matters of record having some bearing on the issue submitted
which the parties failed to raise or which the lower court ignored;

(5) Matters not assigned as errors on appeal but closely related to an
error assigned; and

(6) Matters not assigned as errors on appeal but upon which the
determination of a question properly assigned, is dependent.
[30]



The CA committed no reversible error in increasing the amounts of the 13
th
month pay
and the SIL pay in order to correct the error committed by the NLRC in the computation. The
instant controversy falls squarely under the third exception enumerated above. A just, fair
and complete resolution of the case necessarily entails the correct computation of these
benefits. To avoid dispensing piecemeal justice, the full period of employment of
respondents was rightfully considered by the CA in the computation of the 13
th
month pay
and the SIL pay.

Furthermore, the CA sufficiently explained the need to increase the award of
13
th
month pay and SIL pay. It modified the award after finding that the computation of the
amount given by the NLRC in its Decision dated March 25, 2002 does not conform to the
dismissed employees employment history. The CA aptly explained, viz.:

A cursory reading of the assailed Decision of the NLRC dated March 25,
2002 readily reveals that the labor tribunal awarded private respondents their
unpaid 13
th
Month Pay and Service Incentive Leave (SIL) Pay without regard to
their employment history with the petitioner. There was even no explanation or
adequate showing on the face of the questioned judgment why the award of the
unpaid 13
th
Month and SIL Pay differs from one private respondent to
another. This Court, therefore, after determining that indeed the petitioner had not
paid the private respondents these special benefits for the whole period of their
employment therewith, modified the award by painstakingly basing it to each of the
dismissed employees employment history with petitioner.

x x x x

The procedural lapse on the part of the NLRC in this case in failing to take
into account the number of years when the private respondents did not receive their
13
th
Month and SIL Pay cannot defeat their right to receive these benefits as
granted under substantive law. This Court simply could not uphold an erroneous
computation of the said unpaid benefits. Hence, it had to re-compute, and as a
consequence, increased it.
[31]



WHEREFORE, the instant petition is DENIED for lack of merit. The Decision
dated October 27, 2006 and the Resolution dated June 6, 2007 of the Court of Appeals in
CA-G.R. SP No. 85997 are hereby AFFIRMED.

Costs against the petitioners.

SO ORDERED.





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.
D E C I S I O N
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 Decision
1
of the Court of Appeals (CA) in CA-G.R. SP
No. 52082 and its October 20, 2003 Resolution
2
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
Decision
3
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[]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. [Laspoa] 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, 1993
4

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 complaint
10
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 Arbiters findings. On July 27, 1998, the NLRC rendered a
Decision
13
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 ATTORNEYS 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 attorneys 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 letter
19
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 formers work, the employees of the contractor and of the latters 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:
x x x x
Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral
relationship under which there is a contract for a specific job, work or service between the principal and the
contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its
workers. Hence, there are three parties involved in these arrangements, the principal which decides to farm out a
job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work or service, and the contractual workers engaged by
the contractor or subcontractor to accomplish the job[,] work or service.
x x x x
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For
this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following
elements are present:
i) The contractor or subcontractor does not have substantial capital or investment which relates to the
job, work or service to be performed and the employees recruited, supplied or placed by such contractor
or subcontractor are performing activities which are directly related to the main business of the principal;
or
ii) [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 principal
25
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 contractualemployee. (Underscoring supplied)
In the instant case, the financial statements
26
of Promm-Gem show that it
has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00
as of 1990.
27
It also has long term assets worth P432,895.28 and current assets of P719,042.32. 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 clients
30
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 P31,250.00.
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 P75,000.00 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 P31,250 - has no substantial capital. SAPS
lack of substantial capital is underlined by the records
36
which show that its payroll for its merchandisers alone for
one month would already total P44,561.00. 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 months payroll. SAPS failed to show that its paid-in capital of P31,250.00 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 SAPS
41
-- 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. Laspoa, 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 authorized
44
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:
x x x x
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 x
45

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 employees 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&Gs 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:
x x x x
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 letter
51
dated February 24, 1993, x x x
February 24, 1993
Sales and Promotions Services
Armons 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 x
52

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 latters 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.
Attorneys 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 acts
56
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. Laspoa, 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, P25,000.00 as moral damages plus ten percent of the total sum as and for attorneys 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 attorneys fees
as stated above; and for immediate execution.
SO ORDERED.




































SECOND DIVISION


JOSE MEL BERNARTE, G.R. No. 192084
Petitioner,

Present:

- versus - CARPIO, J., Chairperson,
BRION,
DEL CASTILLO,
*

PEREZ, and
SERENO, JJ.
PHILIPPINE BASKETBALL
ASSOCIATION (PBA), JOSE
EMMANUEL M. EALA, and Promulgated:
PERRY MARTINEZ,
Respondents. September 14, 2011
x-----------------------------------------------------------------------------------------x


D E C I S I O N


CARPIO, J.:


The Case


This is a petition for review
1
of the 17 December 2009 Decision
2
and 5 April 2010
Resolution
3
of the Court of Appeals in CA-G.R. SP No. 105406. The Court of Appeals set aside
the decision of the National Labor Relations Commission (NLRC), which affirmed the decision
of the Labor Arbiter, and held that petitioner Jose Mel Bernarte is an independent contractor, and
not an employee of respondents Philippine Basketball Association (PBA), Jose Emmanuel
M. Eala, and Perry Martinez. The Court of Appeals denied the motion for reconsideration.


The Facts

The facts, as summarized by the NLRC and quoted by the Court of Appeals, are as follows:

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

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

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

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

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





Complainants were not illegally dismissed because they were not employees of the PBA.
Their respective contracts of retainer were simply not renewed. PBA had the prerogative
of whether or not to renew their contracts, which they knew were fixed.
4


In her 31 March 2005 Decision,
5
the Labor Arbiter
6
declared petitioner an employee whose
dismissal by respondents was illegal. Accordingly, the Labor Arbiter ordered the reinstatement
of petitioner and the payment of backwages, moral and exemplary damages and attorneys fees,
to wit:

WHEREFORE, premises considered all respondents who are here found to have illegally
dismissed complainants are hereby ordered to (a) reinstate complainants within thirty (30)
days from the date of receipt of this decision and to solidarily pay complainants:



1. backwages from January 1,
2004 up to the finality of this
Decision, which to date is

2. moral damages

3. exemplary damages
JOSE MEL
BERNARTE


P536,250.00
100,000.00
50,000.00
RENATO
GUEVARRA


P211,250.00

100,000.00

50,000.00
4. 10% attorneys fees

TOTAL

or a total of P1,152,250.00
68,625.00

P754,875.00
36,125.00

P397,375.00

The rest of the claims are hereby dismissed for lack of merit or basis.

SO ORDERED.
7


In its 28 January 2008 Decision,
8
the NLRC affirmed the Labor Arbiters judgment. The
dispositive portion of the NLRCs decision reads:

WHEREFORE, the appeal is hereby DISMISSED. The Decision of Labor
Arbiter Teresita D. Castillon-Lora dated March 31, 2005 is AFFIRMED.

SO ORDERED.
9



Respondents filed a petition for certiorari with the Court of Appeals, which overturned the
decisions of the NLRC and Labor Arbiter. The dispositive portion of the Court of Appeals
decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated January
28, 2008 and Resolution dated August 26, 2008 of the National Labor Relations
Commission areANNULLED and SET ASIDE. Private respondents complaint before
the Labor Arbiter is DISMISSED.

SO ORDERED.
10




The Court of Appeals Ruling


The Court of Appeals found petitioner an independent contractor since respondents did not
exercise any form of control over the means and methods by which petitioner performed his
work as a basketball referee. The Court of Appeals held:

While the NLRC agreed that the PBA has no control over the referees acts of blowing the
whistle and making calls during basketball games, it, nevertheless, theorized that the said
acts refer to the means and methods employed by the referees in officiating basketball
games for the illogical reason that said acts refer only to the referees skills. How could a
skilled referee perform his job without blowing a whistle and making calls? Worse, how
can the PBA control the performance of work of a referee without controlling his acts of
blowing the whistle and making calls?

Moreover, this Court disagrees with the Labor Arbiters finding (as affirmed by the
NLRC) that the Contracts of Retainer show that petitioners have control over private
respondents.

x x x x



Neither do We agree with the NLRCs affirmance of the Labor Arbiters conclusion that
private respondents repeated hiring made them regular employees by operation of law.
11




The Issues


The main issue in this case is whether petitioner is an employee of respondents, which in turn
determines whether petitioner was illegally dismissed.

Petitioner raises the procedural issue of whether the Labor Arbiters decision has become final
and executory for failure of respondents to appeal with the NLRC within thereglementary period.


The Ruling of the Court


The petition is bereft of merit.

The Court shall first resolve the procedural issue posed by petitioner.

Petitioner contends that the Labor Arbiters Decision of 31 March 2005 became final
and executory for failure of respondents to appeal with the NLRC within the prescribed period.
Petitioner claims that the Labor Arbiters decision was constructively served on respondents as
early as August 2005 while respondents appealed the Arbiters decision only on 31 March 2006,
way beyond the reglementary period to appeal. Petitioner points out that service of an unclaimed
registered mail is deemed complete five days from the date of first notice of the post master. In
this case three notices were issued by the post office, the last being on 1 August 2005. The
unclaimed registered mail was consequently returned to sender. Petitioner presents the
Postmasters Certification to prove constructive service of the Labor Arbiters decision on
respondents. The Postmaster certified:
x x x

That upon receipt of said registered mail matter, our registry in charge, Vicente Asis, Jr.,
immediately issued the first registry notice to claim on July 12, 2005 by the addressee.
The second and third notices were issued on July 21 and August 1, 2005, respectively.

That the subject registered letter was returned to the sender (RTS) because the addressee
failed to claim it after our one month retention period elapsed. Said registered letter was
dispatched from this office to Manila CPO (RTS) under bill #6, line 7, page1, column 1,
on September 8, 2005.
12



Section 10, Rule 13 of the Rules of Court provides:


SEC. 10. Completeness of service. Personal service is complete upon actual delivery.
Service by ordinary mail is complete upon the expiration of ten (10) days after mailing,
unless the court otherwise provides. Service by registered mail is complete upon actual
receipt by the addressee, or after five (5) days from the date he received the first notice of
the postmaster, whichever date is earlier.


The rule on service by registered mail contemplates two situations: (1) actual service the
completeness of which is determined upon receipt by the addressee of the registered mail; and
(2) constructive service the completeness of which is determined upon expiration of five days
from the date the addressee received the first notice of the postmaster.
13


Insofar as constructive service is concerned, there must be conclusive proof that a first notice
was duly sent by the postmaster to the addressee.
14
Not only is it required that notice of the
registered mail be issued but that it should also be delivered to and received by the
addressee.
15
Notably, the presumption that official duty has been regularly performed is not
applicable in this situation. It is incumbent upon a party who relies on constructive service to
prove that the notice was sent to, and received by, the addressee.
16


The best evidence to prove that notice was sent would be a certification from the postmaster,
who should certify not only that the notice was issued or sent but also as to how, when and to
whom the delivery and receipt was made. The mailman may also testify that the notice was
actually delivered.
17


In this case, petitioner failed to present any concrete proof as to how, when and to whom the
delivery and receipt of the three notices issued by the post office was made. There is no
conclusive evidence showing that the post office notices were actually received by respondents,
negating petitioners claim of constructive service of the Labor Arbiters decision on
respondents. The Postmasters Certification does not sufficiently prove that the three notices
were delivered to and received by respondents; it only indicates that the post office issued the
three notices. Simply put, the issuance of the notices by the post office is not equivalent to
delivery to and receipt by the addressee of the registered mail. Thus, there is no proof of
completed constructive service of the Labor Arbiters decision on respondents.

At any rate, the NLRC declared the issue on the finality of the Labor Arbiters decision moot as
respondents appeal was considered in the interest of substantial justice. We agree with the
NLRC. The ends of justice will be better served if we resolve the instant case on the merits
rather than allowing the substantial issue of whether petitioner is an independent contractor or an
employee linger and remain unsettled due to procedural technicalities.


The existence of an employer-employee relationship is ultimately a question of fact. As a general
rule, factual issues are beyond the province of this Court. However, this rule admits of
exceptions, one of which is where there are conflicting findings of fact between the Court of
Appeals, on one hand, and the NLRC and Labor Arbiter, on the other, such as in the present
case.
18


To determine the existence of an employer-employee relationship, case law has consistently
applied the four-fold test, to wit: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employers power to control the
employee on the means and methods by which the work is accomplished. The so-called control
test is the most important indicator of the presence or absence of an employer-employee
relationship.
19


In this case, PBA admits repeatedly engaging petitioners services, as shown in the retainer
contracts. PBA pays petitioner a retainer fee, exclusive of per diem or allowances, as stipulated
in the retainer contract. PBA can terminate the retainer contract for petitioners violation of its
terms and conditions.

However, respondents argue that the all-important element of control is lacking in this case,
making petitioner an independent contractor and not an employee of respondents.

Petitioner contends otherwise. Petitioner asserts that he is an employee of respondents since the
latter exercise control over the performance of his work. Petitioner cites the following
stipulations in the retainer contract which evidence control: (1) respondents classify or rate a
referee; (2) respondents require referees to attend all basketball games organized or authorized
by the PBA, at least one hour before the start of the first game of each day; (3) respondents
assign petitioner to officiate ballgames, or to act as alternate referee or substitute; (4) referee
agrees to observe and comply with all the requirements of the PBA governing the conduct of the
referees whether on or off the court; (5) referee agrees (a) to keep himself in good physical,
mental, and emotional condition during the life of the contract; (b) to give always his best effort
and service, and loyalty to the PBA, and not to officiate as referee in any basketball game
outside of the PBA, without written prior consent of the Commissioner; (c) always to conduct
himself on and off the court according to the highest standards of honesty or morality; and (6)
imposition of various sanctions for violation of the terms and conditions of the contract.

The foregoing stipulations hardly demonstrate control over the means and methods by which
petitioner performs his work as a referee officiating a PBA basketball game. The contractual
stipulations do not pertain to, much less dictate, how and when petitioner will blow the whistle
and make calls. On the contrary, they merely serve as rules of conduct or guidelines in order to
maintain the integrity of the professional basketball league. As correctly observed by the Court
of Appeals, how could a skilled referee perform his job without blowing a whistle and making
calls? x x x [H]ow can the PBA control the performance of work of a referee without controlling
his acts of blowing the whistle and making calls?
20


In Sonza v. ABS-CBN Broadcasting Corporation,
21
which determined the relationship between a
television and radio station and one of its talents, the Court held that not all rules imposed by the
hiring party on the hired party indicate that the latter is an employee of the former. The Court
held:

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. v. 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.
22


We agree with respondents that once in the playing court, the referees exercise their own
independent judgment, based on the rules of the game, as to when and how a call or decision is
to be made. The referees decide whether an infraction was committed, and the PBA cannot
overrule them once the decision is made on the playing court. The referees are the only, absolute,
and final authority on the playing court. Respondents or any of the PBA officers cannot and do
not determine which calls to make or not to make and cannot control the referee when he blows
the whistle because such authority exclusively belongs to the referees. The very nature of
petitioners job of officiating a professional basketball game undoubtedly calls for freedom of
control by respondents.

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

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

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

In Yonan v. United States Soccer Federation, Inc.,
23
the United States District Court of Illinois
held that plaintiff, a soccer referee, is an independent contractor, and not an employee of
defendant which is the statutory body that governs soccer in the United States. As such, plaintiff
was not entitled to protection by the Age Discrimination in Employment Act. The U.S. District
Court ruled:

Generally, if an employer has the right to control and direct the work of an individual,
not only as to the result to be achieved, but also as to details by which the result is
achieved, an employer/employee relationship is likely to exist. The Court must be careful
to distinguish between control[ling] the conduct of another party contracting party by
setting out in detail his obligations consistent with the freedom of contract, on the one
hand, and the discretionary control an employer daily exercises over its employees
conduct on the other.

Yonan asserts that the Federation closely supervised his performance at each soccer
game he officiated by giving him an assessor, discussing his performance, and controlling
what clothes he wore while on the field and traveling. Putting aside that the Federation did
not, for the most part, control what clothes he wore, the Federation did not
supervise Yonan, but rather evaluated his performance after matches. That the Federation
evaluated Yonan as a referee does not mean that he was an employee. There is no
question that parties retaining independent contractors may judge the performance of
those contractors to determine if the contractual relationship should continue. x x x

It is undisputed that the Federation did not control the way Yonan refereed his games. He
had full discretion and authority, under the Laws of the Game, to call the game as he saw
fit. x x x In a similar vein, subjecting Yonan to qualification standards and procedures like
the Federations registration and training requirements does not create an
employer/employee relationship. x x x

A position that requires special skills and independent judgment weights in favor of
independent contractor status. x x x Unskilled work, on the other hand, suggests an
employment relationship. x x xHere, it is undisputed that soccer refereeing, especially at
the professional and international level, requires a great deal of skill and natural
ability. Yonan asserts that it was the Federations training that made him a top referee,
and that suggests he was an employee. Though substantial training supports an
employment inference, that inference is dulled significantly or negated when the putative
employers activity is the result of a statutory requirement, not the employers
choice. x x x

In McInturff v. Battle Ground Academy of Franklin,
24
it was held that the umpire was not
an agent of the Tennessee Secondary School Athletic Association (TSSAA), so the players
vicarious liability claim against the association should be dismissed. In finding that the
umpire is an independent contractor, the Court of Appeals of Tennesse ruled:

The TSSAA deals with umpires to achieve a result-uniform rules for all baseball games
played between TSSAA member schools. The TSSAA does not supervise regular season
games. It does not tell an official how to conduct the game beyond the framework
established by the rules. The TSSAA does not, in the vernacular of the case law, control
the means and method by which the umpires work.


In addition, the fact that PBA repeatedly hired petitioner does not by itself prove that petitioner
is an employee of the former. For a hired party to be considered an employee, the hiring party
must have control over the means and methods by which the hired party is to perform his work,
which is absent in this case. The continuous rehiring by PBA of petitioner simply signifies the
renewal of the contract between PBA and petitioner, and highlights the satisfactory services
rendered by petitioner warranting such contract renewal. Conversely, if PBA decides to
discontinue petitioners services at the end of the term fixed in the contract, whether for
unsatisfactory services, or violation of the terms and conditions of the contract, or for whatever
other reason, the same merely results in the non-renewal of the contract, as in the present case.
The non-renewal of the contract between the parties does not constitute illegal dismissal of
petitioner by respondents.

WHEREFORE, we DENY the petition and AFFIRM the assailed decision of the Court of
Appeals.

SO ORDERED.




















Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

POLYFOAM-RGC INTERNATIONAL,
CORPORATION and PRECILLA A.
GRAMAJE,
Petitioners,



- versus -



EDGARDO CONCEPCION,
Respondent.
G.R. No. 172349

Present:

PERALTA, J., Acting Chairperson,
*

ABAD,
VILLARAMA, JR.,
**

MENDOZA, and
PERLAS-BERNABE, JJ.

Promulgated:

June 13, 2012
x-----------------------------------------------------------------------------------------x


D E C I S I O N


PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioners Polyfoam-RGC International Corporation (Polyfoam) and Precilla A. Gramaje
(Gramaje) against respondent Edgardo Concepcion assailing the Court of Appeals (CA)
Decision
[1]
dated December 19, 2005 and Resolution
[2]
dated April 25, 2006 in CA-G.R. SP
No. 83696. The assailed decision reversed the National Labor Relations Commissions
(NLRCs) Decision
[3]
dated May 7, 2003 in NLRC NCR CA No. 030622-02, while the
assailed resolution denied petitioners and respondents motions for reconsideration.

The factual and procedural antecedents follow:

On February 8, 2000, respondent filed a Complaint
[4]
for illegal dismissal, non-
payment of wages, premium pay for rest day, separation pay, service incentive leave pay,
13
th
month pay, damages, and attorneys fees against Polyfoam and Ms. Natividad Cheng
(Cheng). Respondent alleged that he was hired by Polyfoam as an all-around factory
worker and served as such for almost six years.
[5]
On January 14, 2000, he allegedly
discovered that his time card was not in the rack and was later informed by the security guard
that he could no longer punch his time card.
[6]
When he protested to his supervisor, the latter
allegedly told him that the management decided to dismiss him due to an infraction of a
company rule. Cheng, the companys manager, also refused to face him. Respondents
counsel later wrote a letter
[7]
to Polyfoams manager requesting that respondent be re-
admitted to work, but the request remained unheeded prompting the latter to file the
complaint for illegal dismissal.
[8]


On April 28, 2000, Gramaje filed a Motion for Intervention
[9]
claiming to be the real
employer of respondent. On the other hand, Polyfoam and Cheng filed a Motion to
Dismiss
[10]
on the grounds that the NLRC has no jurisdiction over the case, because of the
absence of employer-employee relationship between Polyfoam and respondent and that the
money claims had already prescribed.
[11]


On May 24, 2000, Labor Arbiter Adolfo Babiano issued an Order
[12]
granting
Gramajes motion for intervention, it appearing that she is an indispensable party and
denying Polyfoam and Chengs motion to dismiss as the lack of employer-employee
relationship is only a matter of defense.

In their Position Paper,
[13]
Polyfoam and Cheng insisted that the NLRC has no
jurisdiction over the case, because respondent was not their employee. They likewise
contended that respondents money claims had already prescribed. Finally, they fault
respondent for including Cheng as a party-defendant, considering that she is not even a
director of the company.
[14]


In her Position Paper,
[15]
Gramaje claimed that P.A. Gramaje Employment Services
(PAGES) is a legitimate job contractor who provided some manpower needs of Polyfoam. It
was alleged that respondent was hired as packer and assigned to Polyfoam, charged with
packing the latters finished foam products. She argued, however, that respondent was not
dismissed from employment, rather, he simply stopped reporting for work.
[16]


On December 14, 2001, Labor Arbiter (LA) Marita V. Padolina rendered a Decision
finding respondent to have been illegally dismissed from employment and holding Polyfoam
and Gramaje/PAGES solidarily liable for respondents money claims. The dispositive
portion of the Decision is quoted below for easy reference:

WHEREFORE, premises considered, judgment is hereby rendered finding
complainant to have been illegally dismissed and respondents Polyfoam-RGC
International Corporation, P.A. Gramaje Employment Services/Precilla A. Gramaje
are ordered to pay complainant jointly and severally the following:


1). Separation Pay - P 52,000.00
2). Backwages - 157,041.38
3). 13
th
Month Pay - 17,407.00
4). Moral Damages - 5,000.00
5). Exemplary Damages - 5,000.00
6). Attorneys fees - ___ 23,644.83
P 260,093.21

All other claims are denied for lack of factual basis.

SO ORDERED.
[17]



The Labor Arbiter found respondent to have been illegally dismissed from
employment and thus is entitled to full backwages inclusive of allowances. In lieu of
reinstatement, the LA awarded respondent separation pay of one month salary for every year
of service from April 21, 1994 until promulgation of the decision.
[18]
The LA further held
that petitioners are solidarily liable to respondent for the latters money claims, considering
that Gramaje (the contractor) was not enrolled as private employment agency in the registry
of the Regional Office of the Department of Labor and Employment (DOLE) and considering
further that respondent performed a job directly related to the main business of Polyfoam.
[19]


On appeal by petitioners, the NLRC modified the LA decision by exonerating
Polyfoam from liability for respondents claim for separation pay and deleting the awards of
backwages, 13
th
month pay, damages, and attorneys fees. The dispositive portion of the
decision reads:

WHEREFORE, the appealed decision is modified in that the complaint
against respondent-appellant Polyfoam-RGC International Corp. is dismissed.
However, respondent-intervenor-appellant P.A. Gramaje Employment Services is
hereby ordered to pay complainant separation pay of one (1) month salary for every
year of service reckoned from April 21, 1996 up to the rendition of this decision, or
the sum of P58,5000 (sic).

The awards of backwages, 13
th
month pay, damages, and attorneys fees are
set aside.

SO ORDERED.
[20]



The NLRC found Gramaje to be an independent contractor who contracted the
packaging aspect of the finished foam products of Polyfoam. Pursuant to said contract,
Gramajes employees, including respondent, were assigned to Polyfoam but remained under
the control and supervision of Gramaje. It likewise concluded that Gramaje had its own
office equipment, tools, and substantial capital and, in fact, supplied the plastic containers
and carton boxes used by her employees in performing their duties.
[21]
The Commission also
found sufficient evidence to prove that Gramaje paid respondents wages and benefits and
reported the latter to the Social Security System (SSS) as a covered employee.
[22]
As to
whether there was illegal dismissal, the NLRC answered in the negative, since respondent
was not notified that he had been dismissed nor was he prevented from returning to his
work. The NLRC found Gramaje liable for claiming that respondent abandoned his
job. Reinstatement, however, could not be decreed because of the strained relations between
the parties; hence, the award of separation pay. But the NLRC refused to award
backwages.
[23]
The award of moral and exemplary damages was likewise deleted for lack of
evidence.
[24]


Aggrieved, respondent elevated the case to the CA in a special civil action
for certiorari under Rule 65 of the Rules of Court. On December 19, 2005, the appellate
court rendered the assailed decision,
[25]
the dispositive portion of which reads:

WHEREFORE, IN VIEW OF THE FOREGOING, the petition
is GRANTED. The assailed Decision of the National Labor Relations Commission,
First Division dated May 7, 2003is REVERSED and the decision of Labor Arbiter
Marita Padolina, dated December 14, 2001, is hereby REINSTATED.

SO ORDERED.
[26]



The CA agreed with the LAs conclusion that Gramaje is not a legitimate job
contractor but only a labor-only contractor because of the following: (1) Gramaje failed to
present its Audited Financial Statement that would have shown its financial standing and
ownership of equipment, machineries, and tools necessary to run her own business;
[27]
(2)
Gramaje failed to present a single copy of the purported contract with Polyfoam as to the
packaging aspect of the latters business;
[28]
(3) Gramajes licenses supposedly issued by the
DOLE appeared to be spurious.
[29]
(4) Gramaje was not registered with DOLE as a private
recruitment agency;
[30]
and (5) Gramaje presented only one (1) SSS Quarterly Collection List
whose authenticity is doubtful.
[31]
The CA noted that petitioners are represented by only one
law firm though they made it appear that they were represented by different
lawyers.
[32]
These circumstances, says the CA, give rise to the suspicion that the creation or
establishment of Gramaje was just a scheme designed to evade the obligation inherent in an
employer-employee relationship.
[33]
Thus, respondent was indeed Polyfoams
employee. This relationship was specifically shown by Polyfoams exercise of supervision
over the work of respondent;
[34]
the furnishing of a copy of Polyfoams Mga Alituntunin at
Karampatang Parusa to serve as respondents guide in the performance of his duty;
[35]
the
length of time that respondent had performed activities necessary for Polyfoams
business;
[36]
and Polyfoams act of directly firing respondent.
[37]
Finally, the appellate court
affirmed the LAs findings of illegal dismissal as respondent was dismissed from the service
without cause and due process.
[38]
Consequently, separation pay in lieu of reinstatement was
awarded. The CA quoted with approval the LA conclusions on the award of respondents
other money claims.
[39]


Petitioners now come before the Court in this petition for review on certiorari based
on the following assigned errors:

I.
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION
FOR CERTIORARI FILED BY HEREIN RESPONDENT CONSIDERING THE
FACT THAT IT WAS CLEARLY FILED OUT OF TIME, HAVING BEEN
FILED ON THE 77
TH
DAY FROM RECEIPT BY HEREIN RESPONDENT OF
THE RESOLUTION OF THE NLRC DENYING HIS MOTION FOR
RECONSIDERATION.

II.
THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE DECISION OF
THE NLRC AND ITS FINDINGS THAT A) RESPONDENT CONCEPCION IS
AN EMPLOYEE OF P.A. GRAMAJE EMPLOYMENT SERVICES; B) P.A.
GRAMAJE IS A LEGITIMATE JOB CONTRACTOR; C)
RESPONDENT CONCEPCION WAS NOT DISMISSED FROM HIS JOB,
CONSIDERING THAT THESE FINDINGS ARE FULLY SUPPORTED BY
EVIDENCE.

III.
THE COURT OF APPEALS ERRED IN REINSTATING THE DECISION OF
THE LABOR ARBITER MARITA PADOLINA AWARDING RESPONDENT
CONCEPCION BACKWAGES, MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES.
[40]



There are three issues for resolution, to wit: (1) whether or not Gramaje is an
independent job contractor; (2) whether or not an employer-employee relationship exists
between Polyfoam and respondent; and (3) whether or not respondent was illegally dismissed
from employment.


Gramaje is a Labor-Only
Contractor

Article 106 of the Labor Code explains the relations which may arise between an
employer, a contractor, and the contractors employees, thus:

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

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

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

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


In Sasan, Sr. v. National Labor Relations Commission 4
th
Division,
[41]
the Court
distinguished permissible job contracting or subcontracting from labor-only contracting, to
wit:

Permissible job contracting or subcontracting refers to an arrangement
whereby a principal agrees to put out or farm out to a 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. A person
is considered engaged in legitimate job contracting or subcontracting if the
following conditions concur:

(a) 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;

(b) The contractor or subcontractor 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 and welfare benefits.

In contrast, labor-only contracting, a prohibited act, is an arrangement where
the contractor or subcontractor merely recruits, supplies or places workers to
perform a job, work or service for a principal. In labor-only contracting, the
following elements are present:

(a) 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

(b) 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.
[42]



The test of independent contractorship is whether one claiming to be an independent
contractor has contracted to do the work according to his own methods and without being
subject to the control of the employer, except only as to the results of the work.
[43]
In San
Miguel Corporation v. Semillano,
[44]
the Court laid down the criteria in determining the
existence of an independent and permissible contractor relationship, to wit:

x x x [W]hether or not the contractor is carrying on an independent business; the
nature and extent of the work; the skill required; the term and duration of the
relationship; the right to assign the performance of a specified piece of work; the
control and supervision of the work to another; the employers power with respect
to the hiring, firing and payment of the contractors workers; the control of the
premises; the duty to supply the premises, tools, appliances, materials, and labor;
and the mode, manner and terms of payment.
[45]



Simply put, the totality of the facts and the surrounding circumstances of the case are to be
considered. Each case must be determined by its own facts and all the features of the
relationship are to be considered.
[46]


Applying the foregoing tests, we agree with the CAs conclusion that Gramaje is not
an independent job contractor, but a labor-only contractor.

First, Gramaje has no substantial capital or investment. The presumption is that a
contractor is a labor-only contractor unless he overcomes the burden of proving that it has
substantial capital, investment, tools, and the like. The employee should not be expected to
prove the negative fact that the contractor does not have substantial capital, investment and
tools to engage in job-contracting.
[47]


Gramaje claimed that it has substantial capital of its own as well as investment in its
office, equipment and tools. She pointed out that she furnished the plastic containers and
carton boxes used in carrying out the function of packing the mattresses of Polyfoam. She
added that she had placed in Polyfoams workplace ten (10) sealing machines, twenty (20)
hand trucks, and two (2) forklifts to enable respondent and the other employees of Gramaje
assigned at Polyfoam to perform their job. Finally, she explained that she had her own office
with her own staff.
[48]
However, aside from her own bare statement, neither Gramaje nor
Polyfoam presented evidence showing Gramajes ownership of the equipment and
machineries used in the performance of the alleged contracted job. Considering that these
machineries are found in Polyfoams premises, there can be no other logical conclusion but
that the tools and equipment utilized by Gramaje and her employees are owned by
Polyfoam. Neither did Polyfoam nor Gramaje show that the latter had clients other than the
former. Since petitioners failed to adduce evidence that Gramaje had any substantial capital,
investment or assets to perform the work contracted for, the presumption that Gramaje is a
labor-only contractor stands.
[49]


Second, Gramaje did not carry on an independent business or undertake the
performance of its service contract according to its own manner and method, free from the
control and supervision of its principal, Polyfoam, its apparent role having been merely to
recruit persons to work for Polyfoam.
[50]
It is undisputed that respondent had performed his
task of packing Polyfoams foam products in Polyfoams premises. As to the recruitment of
respondent, petitioners were able to establish only that respondents application was referred
to Gramaje, but that is all. Prior to his termination, respondent had been performing the same
job in Polyfoams business for almost six (6) years. He was even furnished a copy of
Polyfoams Mga Alituntunin at Karampatang Parusa,
[51]
which embodied Polyfoams
rules on attendance, the manner of performing the employees duties, ethical standards,
cleanliness, health, safety, peace and order. These rules carried with them the corresponding
penalties in case of violation.

While it is true that petitioners submitted the Affidavit of Polyfoams supervisor Victor
Abadia, claiming that the latter did not exercise supervision over respondent because the
latter was not Polyfoams but Gramajes employee, said Affidavit is insufficient to prove
such claim. Petitioners should have presented the person who they claim to have exercised
supervision over respondent and their alleged other employees assigned to Polyfoam. It was
never established that Gramaje took entire charge, control and supervision of the work and
service agreed upon. And as aptly observed by the CA, it is likewise highly unusual and
suspect as to the absence of a written contract specifying the performance of a specified
service, the nature and extent of the service or work to be done and the term and duration of
the relationship.
[52]


An Employer-Employee Relationship Exists
Between Respondent and Polyfoam


A finding that a contractor is a labor-only contractor, as opposed to permissible job
contracting, is equivalent to declaring that there is an employer-employee relationship
between the principal and the employees of the supposed contractor, and the labor-only
contractor is considered as a mere agent of the principal, the real employer.
[53]
In this case,
Polyfoam is the principal employer and Gramaje is the labor-only contractor. Polyfoam and
Gramaje are, therefore, solidarily liable for the rightful claims of respondent.
[54]


Respondent was Illegally Dismissed
From Employment


Respondent stated that on January 14, 2000, his time card was suddenly taken off the
rack. His supervisor later informed him that Polyfoams management decided to dismiss him
due to infraction of company rule. In short, respondent insisted that he was dismissed from
employment without just or lawful cause and without due process. Polyfoam did not offer
any explanation of such dismissal. It, instead, explained that respondents real employer is
Gramaje. Gramaje, on the other hand, denied the claim of illegal dismissal. She shifted the
blame on respondent claiming that the latter in fact abandoned his work.

The LA gave credence to respondents narration of the circumstances of the case. Said
conclusion was affirmed by the CA. We find no reason to depart from such findings.

Abandonment cannot be inferred from the actuations of respondent. When he
discovered that his time card was off the rack, he immediately inquired from his
supervisor. He later sought the assistance of his counsel, who wrote a letter addressed to
Polyfoam requesting that he be re-admitted to work. When said request was not acted upon,
he filed the instant illegal dismissal case. These circumstances clearly negate the intention to
abandon his work.

Petitioners failed to show any valid or authorized cause under the Labor Code which
allowed it to terminate the services of respondent. Neither was it shown that respondent was
given ample opportunity to contest the legality of his dismissal. No notice of termination was
given to him. Clearly, respondent was not afforded due process. Having failed to establish
compliance with the requirements of termination of employment under the Labor Code, the
dismissal of respondent was tainted with illegality.
[55]
Consequently, respondent is entitled to
reinstatement without loss of seniority rights, and other privileges and to his full backwages
inclusive of allowances and to his other benefits or their monetary equivalent computed from
the time his compensation was withheld up to the time of his actual reinstatement. However,
if reinstatement is no longer feasible as in this case, separation pay equivalent to one month
salary for every year of service shall be awarded as an alternative.
[56]
Thus, the CA is correct
in affirming the LAs award of separation pay with full backwages and other monetary
benefits.

WHEREFORE, premises considered, the petition is hereby DENIED. The Court of
Appeals Decision dated December 19, 2005 and Resolution dated April 25, 2006, in CA-
G.R. SP No. 83696, are AFFIRMED.

SO ORDERED.






Republic of the Philippines
Supreme Court
Manila

FIRST DIVISION

EXODUS INTERNATIONAL

G.R. No. 166109
CONSTRUCTION CORPORATION


and ANTONIO P. JAVALERA,


Petitioners,

Present:



-versus-

CORONA, C. J., Chairperson,


VELASCO, JR.,


NACHURA,
GUILLERMO BISCOCHO,

DEL CASTILLO, and
FERNANDO PEREDA, FERDINAND

PEREZ, JJ.
MARIANO, GREGORIO BELLITA


and MIGUEL BOBILLO,

Promulgated:
Respondents.

February 23, 2011
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


D E C I S I O N


DEL CASTILLO, J.:


In illegal dismissal cases, it is incumbent upon the employees to first establish the fact of their
dismissal before the burden is shifted to the employer to prove that the dismissal was legal.

This Petition for Review on Certiorari[1] assails the Decision[2] dated August 10, 2004 of the Court
of Appeals (CA) in CA-G.R. SP No. 79800, which dismissed the petition for certiorari challenging the
Resolutions dated January 17, 2003[3] and July 31, 2003[4] of the National Labor Relations Commission
(NLRC) in NLRC NCR CASE Nos. 30-11-04656-00[5] and 30-12-04714-00.
Factual Antecedents

Petitioner Exodus International Construction Corporation (Exodus) is a duly licensed labor contractor for the
painting of residential houses, condominium units and commercial buildings. Petitioner Antonio P. Javalera
is the President and General Manager of Exodus.

On February 1, 1999, Exodus obtained from Dutch Boy Philippines, Inc. (Dutch Boy) a contract[6] for the
painting of the Imperial Sky Garden located at Ongpin Street, Binondo, Manila. On July 28, 1999, Dutch
Boy awarded another contract[7] to Exodus for the painting of Pacific Plaza Towers in Fort Bonifacio,
Taguig City.

In the furtherance of its business, Exodus hired respondents as painters on different dates with the
corresponding wages appearing opposite their names as hereunder listed:

NAME
DATE EMPLOYED
DAILY SALARY
1. Guillermo B. Biscocho
Feb. 8, 1999
P 222.00
2. Fernando S. Pereda
Feb. 8, 1999
235.00
3. Ferdinand M. Mariano
April 12, 1999
235.00
4. Gregorio S. Bellita
May 20, 1999
225.00
5. Miguel B. Bobillo
March 10, 2000
220.00


Guillermo Biscocho (Guillermo) was assigned at the Imperial Sky Garden from February 8, 1999 to
February 8, 2000. Fernando Pereda (Fernando) worked in the same project from February 8, 1999 to June
17, 2000. Likewise, Ferdinand Mariano (Ferdinand) worked there from April 12, 1999 to February 17, 2000.
All of them were then transferred to Pacific Plaza Towers.

Gregorio S. Bellita (Gregorio) was assigned to work at the house of Mr. Teofilo Yap in Ayala Alabang,
Muntinlupa City from May 20, 1999 to December 4, 1999. Afterwards he was transferred to Pacific Plaza
Towers.

Miguel B. Bobillo (Miguel) was hired and assigned at Pacific Plaza Towers on March 10, 2000.

On November 27, 2000, Guillermo, Fernando, Ferdinand, and Miguel filed a complaint[8] for illegal
dismissal and non-payment of holiday pay, service incentive leave pay, 13th month pay and night-shift
differential pay. This was docketed as NLRC NCR CASE No. 30-11-04656-00.

On December 1, 2000, Gregorio also filed a complaint[9] which was docketed as NLRC NCR CASE No. 30-
12-04714-00. He claimed that he was dismissed from the service on September 12, 2000 while Guillermo,
Fernando, Ferdinand, and Miguel were orally notified of their dismissal from the service on November 25,
2000.

Petitioners denied respondents allegations. As regards Gregorio, petitioners averred that on September 15,
2000, he absented himself from work and applied as a painter with SAEI-EEI which is the general building
contractor of Pacific Plaza Towers. Since then, he never reported back to work.

Guillermo absented himself from work without leave on November 27, 2000. When he reported for work
the following day, he was reprimanded for being Absent Without Official Leave (AWOL). Because of the
reprimand, he worked only half-day and thereafter was unheard of until the filing of the instant complaint.

Fernando, Ferdinand, and Miguel were caught eating during working hours on November 25, 2000 for which
they were reprimanded by their foreman. Since then they no longer reported for work.

Ruling of the Labor Arbiter

On March 21, 2002, the Labor Arbiter rendered a Decision[10] exonerating petitioners from the charge of
illegal dismissal as respondents chose not to report for work. The Labor Arbiter ruled that since there is
neither illegal dismissal nor abandonment of job, respondents should be reinstated but without any
backwages. She disallowed the claims for premium pay for holidays and rest days and nightshift differential
pay as respondents failed to prove that actual service was rendered on such non-working days. However, she
allowed the claims for holiday pay, service incentive leave pay and 13th month pay. The dispositive portion
of the Labor Arbiters Decision reads:

WHEREFORE, premises considered, respondents Exodus International Construction Corporation and/or
Antonio Javalera are hereby ordered to reinstate complainants to their former positions as painters without
loss of seniority rights and other benefits appurtenant thereto without any backwages.

Respondents are likewise hereby ordered to pay complainants the following:

1. Guillermo Biscocho
P 1,968.75 - Service Incentive Leave Pay
10,237.50 - 13th Month Pay
3,600.00 - Holiday Pay
P 15,806.25 - Sub-Total
+ 1,580.87 - 10% Attorneys Fees
P 17,386.86 Total

2. Fernando Pereda
P 2,056.25 - Service Incentive Leave Pay
10,692.50 - 13th Month Pay
3,525.00 - Holiday Pay
P 16,273.75 - Sub-Total
+ 1,627.37 - 10% Attorneys Fees
P 17,901.12 Total

3. Miguel Bobillo
P 3,813.34 - 13th Month Pay
1,320.00 - Holiday Pay
P 5,133.34 - Sub-Total
+ 513.33 - 10% Attorneys Fees
P 5,646.67 Total

4. Ferdinand Mariano
P 1,860.42 - Service Incentive Leave Pay
9,674.19 - 13th Month Pay
3,055.00 - Holiday Pay
P 14,589.61 - Sub-Total
+ 1,458.96 - 10% Attorneys Fees
P 16,048.57 Total

5. Gregorio Bellita
P 1,500.00 - Service Incentive Leave Pay
7,800.00 - 13th Month Pay
2,700.00 - Holiday Pay
P 12,000.00 - Sub-Total
+ 1,200.00 - 10% Attorneys Fees
P 13,200.00 Total

or the total aggregate sum of Seventy Thousand, One Hundred Eighty Three and 23/100 (P70,183.23) Pesos,
inclusive of the ten (10%) percent of the award herein by way of attorneys fees, all within ten (10) days
from receipt hereof;

The rest of complainants claims for lack of merit are hereby Dismissed.

SO ORDERED.[11]


Ruling of the National Labor Relations Commission


Petitioners sought recourse to the NLRC limiting their appeal to the award of service incentive leave pay,
13th month pay, holiday pay and 10% attorneys fees in the sum of P70,183.23.

On January 17, 2003, the NLRC dismissed the appeal. It ruled that petitioners, who have complete
control over the records of the company, could have easily rebutted the monetary claims against it. All that it
had to do was to present the vouchers showing payment of the same. However, they opted not to lift a
finger, giving an impression that they never paid said benefits.
As to the award of attorneys fees, the NLRC found the same to be proper because respondents were
forced to litigate in order to validate their claim.

The NLRC thus affirmed the Decision of the Labor Arbiter, viz:

Accordingly, premises considered, the decision appealed from is hereby AFFIRMED and the appeal
DISMISSED for lack of merit.

SO ORDERED.[12]


Petitioners filed a Motion for Reconsideration[13] which was denied by the NLRC in a
Resolution[14] dated July 31, 2003.


Ruling of the Court of Appeals

Aggrieved, petitioners filed with the CA a petition for certiorari. The CA through a Resolution[15]
dated October 22, 2003, directed the respondents to file their comment. On December 4, 2003, respondents
filed their comment.[16] On January 12, 2004, petitioners filed their reply.[17]

On August 10, 2004, the CA dismissed the petition and affirmed the findings of the Labor Arbiter
and the NLRC. It opined that in a situation where the employer has complete control over the records and
could thus easily rebut any monetary claims against it but opted not to lift any finger, the burden is on the
employer and not on the complainants. This is so because the latter are definitely not in a position to adduce
any documentary evidence, the control of which being not with them.

However, in addition to the reliefs awarded to respondents in the March 21, 2002 Decision of the
Labor Arbiter which was affirmed by the NLRC in a Resolution dated January 17, 2003, the petitioners were
directed by the CA to solidarily pay full backwages, inclusive of all benefits the respondents should have
received had they not been dismissed.

The dispositive portion of the CA Decision reads:

WHEREFORE, the instant petition for certiorari is dismissed. However, in addition to the reliefs awarded to
private respondents in the decision dated March 21, 2002 of Labor Arbiter Aldas and resolution of the NLRC
dated January 17, 2003, the petitioners are directed to solidarily pay private respondents full backwages,
inclusive of all benefits they should have received had they not been dismissed, computed from the time their
wages were withheld until the time they are actually reinstated. Such award of full backwages shall be
included in the computation of public respondents award of ten percent (10%) attorneys fees.

SO ORDERED.[18]


Petitioners moved for reconsideration,[19] but to no avail. Hence, this appeal anchored on the following
grounds:

Issues

I.
The Honorable Court of Appeals erred and committed grave abuse of discretion in ordering the reinstatement
of respondents to their former positions which were no longer existing because its findings of facts are
premised on misappreciation of facts.

II.
The Honorable Court of Appeals also seriously erred and committed grave abuse of discretion in affirming
the award of service incentive leave pay, 13th month pay, and holiday pay in the absence of evidentiary and
legal basis therefor.

III.
The Honorable Court of Appeals likewise seriously erred and committed grave abuse of discretion in
affirming the award of attorney's fees even in the absence of counsel on record to handle and prosecute the
case.

IV.
The Honorable Court of Appeals also seriously erred and gravely abused its discretion in holding individual
petitioner solidarily liable with petitioner company without specific evidence on which the same was
based.[20]


Petitioners Arguments


Petitioners contend that, contrary to their allegations, respondents were never dismissed from the
service. If respondents find themselves no longer in the service of petitioners, it is simply because of their
refusal to report for work. Further, granting that they were dismissed, respondents prolonged absences is
tantamount to abandonment which is a valid ground for the termination of their employment. As to
respondents monetary claims, it is incumbent upon them to prove the same because the burden of proof rests
on their shoulders. But since respondents failed to prove the same, their claims should be denied.

Respondents Arguments

Respondents, in support of their claim that they were illegally dismissed, argue that as painters, they
performed activities which were necessary and desirable in the usual business of petitioners, who are
engaged in the business of contracting painting jobs. Hence, they are regular employees who, under the law,
cannot just be dismissed from the service without prior notice and without any just or valid cause.
According to the respondents, they did not abandon their job. For abandonment to serve as basis for a valid
termination of their employment, it must first be established that there was a deliberate and unjustified
refusal on their part to resume work. Mere absences are not sufficient for these must be accompanied by
overt acts pointing to the fact that they simply do not want to work anymore. Petitioners failed to prove this.
Furthermore, the filing of a complaint for illegal dismissal ably defeats the theory of abandonment of the job.

Our Ruling

The petition is partly meritorious.

[T]his Court is not unmindful of the rule that in cases of illegal dismissal, the employer bears the
burden of proof to prove that the termination was for a valid or authorized cause.[21] But [b]efore the
[petitioners] must bear the burden of proving that the dismissal was legal, [the respondents] must first
establish by substantial evidence that indeed they were dismissed. [I]f there is no dismissal, then there can
be no question as to the legality or illegality thereof.[22]

There was no dismissal in this case, hence, there is no question that can be entertained regarding its legality
or illegality.


As found by the Labor Arbiter, there was no evidence that respondents were dismissed nor were they
prevented from returning to their work. It was only respondents unsubstantiated conclusion that they were
dismissed. As a matter of fact, respondents could not name the particular person who effected their dismissal
and under what particular circumstances.

In Machica v. Roosevelt Services Center, Inc.,[23] this Court sustained the employer's denial as
against the employees' categorical assertion of illegal dismissal. In so ruling, this Court held that:

The rule is that one who alleges a fact has the burden of proving it; thus, petitioners were burdened to prove
their allegation that respondents dismissed them from their employment. It must be stressed that the evidence
to prove this fact must be clear, positive and convincing. The rule that the employer bears the burden of
proof in illegal dismissal cases finds no application here because the respondents deny having dismissed the
petitioners.
In this case, petitioners were able to show that they never dismissed respondents. As to the case of
Fernando, Miguel and Ferdinand, it was shown that on November 25, 2000, at around 7:30 a.m., the
petitioners foreman, Wenifredo Lalap (Wenifredo) caught the three still eating when they were supposed to
be working already. Wenifredo reprimanded them and, apparently, they resented it so they no longer
reported for work. In the case of Gregorio, he absented himself from work on September 15, 2000 to apply
as a painter with SAEI-EEI, the general contractor of Pacific Plaza Towers. Since then he never reported
back to work. Lastly, in the case of Guillermo, he absented himself without leave on November 27, 2000,
and so he was reprimanded when he reported for work the following day. Because of the reprimand, he did
not report for work anymore.

Hence, as between respondents general allegation of having been orally dismissed from the service
vis-a-vis those of petitioners which were found to be substantiated by the sworn statement of foreman
Wenifredo, we are persuaded by the latter. Absent any showing of an overt or positive act proving that
petitioners had dismissed respondents, the latters claim of illegal dismissal cannot be sustained. Indeed, a
cursory examination of the records reveal no illegal dismissal to speak of.

There was also no abandonment of work on the part of the respondents.


The Labor Arbiter is also correct in ruling that there was no abandonment on the part of respondents
that would justify their dismissal from their employment.

It is a settled rule that [m]ere absence or failure to report for work x x x is not enough to amount to
abandonment of work.[24] Abandonment is the deliberate and unjustified refusal of an employee to
resume his employment.[25]
In Northwest Tourism Corporation v. Former Special 3rd Division of the Court of Appeals[26] this
Court held that [t]o constitute abandonment of work, two elements must concur, [namely]:

(1) the employee must have failed to report for work or must have been absent without valid or
justifiable reason; and

(2) there must have been a clear intention on the part of the employee to sever the employer-employee
relationship manifested by some overt act.


It is the employer who has the burden of proof to show a deliberate and unjustified refusal of the employee
to resume his employment without any intention of returning.[27] It is therefore incumbent upon
petitioners to ascertain the respondents interest or non-interest in the continuance of their employment.
However, petitioners failed to do so.

Respondents must be reinstated and paid their holiday pay, service incentive leave pay, and 13th month pay.


Clearly therefore, there was no dismissal, much less illegal, and there was also no abandonment of job to
speak of. The Labor Arbiter is therefore correct in ordering that respondents be reinstated but without any
backwages.

However, petitioners are of the position that the reinstatement of respondents to their former positions, which
were no longer existing, is impossible, highly unfair and unjust. The project was already completed by
petitioners on September 28, 2001. Thus the completion of the project left them with no more work to do.
Having completed their tasks, their positions automatically ceased to exist. Consequently, there were no
more positions where they can be reinstated as painters.

Petitioners are misguided. They forgot that there are two types of employees in the construction industry.
The first is referred to as project employees or those employed in connection with a particular construction
project or phase thereof and such employment is coterminous with each project or phase of the project to
which they are assigned. The second is known as non-project employees or those employed without
reference to any particular construction project or phase of a project.

The second category is where respondents are classified. As such they are regular employees of petitioners.
It is clear from the records of the case that when one project is completed, respondents were automatically
transferred to the next project awarded to petitioners. There was no employment agreement given to
respondents which clearly spelled out the duration of their employment, the specific work to be performed
and that such is made clear to them at the time of hiring. It is now too late for petitioners to claim that
respondents are project employees whose employment is coterminous with each project or phase of the
project to which they are assigned.

Nonetheless, assuming that respondents were initially hired as project employees, petitioners must be
reminded of our ruling in Maraguinot, Jr. v. National Labor Relations Commission[28] that [a] project
employee x x x may acquire the status of a regular employee when the following [factors] concur:

1. There is a continuous rehiring of project employees even after cessation of a project; and

2. The tasks performed by the alleged project employee are vital, necessary and indespensable to
the usual business or trade of the employer.


In this case, the evidence on record shows that respondents were employed and assigned continuously to the
various projects of petitioners. As painters, they performed activities which were necessary and desirable in
the usual business of petitioners, who are engaged in subcontracting jobs for painting of residential units,
condominium and commercial buildings. As regular employees, respondents are entitled to be reinstated
without loss of seniority rights.

Respondents are also entitled to their money claims such as the payment of holiday pay, service incentive
leave pay, and 13th month pay. Petitioners as the employer of respondents and having complete control over
the records of the company could have easily rebutted the monetary claims against it. All that they had to do
was to present the vouchers or payrolls showing payment of the same. However, they decided not to provide
the said documentary evidence. Our conclusion therefore is that they never paid said benefits and therefore
they must be ordered to settle their obligation with the respondents.

Respondents are also entitled to the payment of attorneys fees.


Even though respondents were not represented by counsel in most of the stages of the proceedings of this
case, the award of attorneys fees as ruled by the Labor Arbiter, the NLRC and the CA to the respondents is
still proper. In Rutaquio v. National Labor Relations Commission,[29] this Court held that:

It is settled that in actions for recovery of wages or where an employee was forced to litigate and, thus, incur
expenses to protect his rights and interest, the award of attorneys fees is legally and morally justifiable.


In Producers Bank of the Philippines v. Court of Appeals[30] this Court ruled that:

Attorneys fees may be awarded when a party is compelled to litigate or to incur expenses to protect his
interest by reason of an unjustified act of the other party.

In this case, respondents filed a complaint for illegal dismissal with claim for payment of their
holiday pay, service incentive leave pay, and 13th month pay. The Labor Arbiter, the NLRC and the CA
were one in ruling that petitioners did not pay the respondents their holiday pay, service incentive leave pay,
and 13th month pay as mandated by law. For sure, this unjustified act of petitioners had compelled the
respondents to institute an action primarily to protect their rights and interests.


The CA erred when it ordered reinstatement of respondents with payment of full backwages.


It must be noted that the Labor Arbiters disposition directed petitioners to reinstate respondents
without any backwages and awarded the payment of service incentive leave pay, holiday pay, 13th month
pay, and 10% attorneys fees in the sum of P70,183.23.

On appeal to the NLRC, petitioners limited their appeal to the award of service incentive leave pay,
holiday pay, 13th month pay, and 10% attorneys fees. No appeal was made on the order of reinstatement.

In the proceedings before the CA, it is only the award of service incentive leave pay, holiday pay,
13th month pay, and 10% attorneys fees that were raised by the petitioners. The CA in fact dismissed the
petition. However, the CA further concluded in its Decision that since there is no abandonment to speak
about, it is therefore indisputable that respondents were illegally dismissed. Therefore, they deserve not only
reinstatement but also the payment of full backwages.

We do not agree with this ruling of the CA.

In cases where there is no evidence of dismissal, the remedy is
reinstatement but without backwages. In this case, both the Labor Arbiter and the NLRC made a finding that
there was no dismissal much less an illegal one. It is settled that factual findings of quasi-judicial agencies
are generally accorded respect and finality so long as these are supported by substantial evidence.[31]

In Leonardo v. National Labor Relations Commission,[32] this Court held that:

In a case where the employees failure to work was occasioned neither by his abandonment nor by a
termination, the burden of economic loss is not rightfully shifted to the employer; each party must bear his
own loss.


Thus, inasmuch as no finding of illegal dismissal had been made, and considering that the absence of such
finding is supported by the records of the case, this Court is bound by such conclusion and cannot allow an
award of the payment of backwages.

Lastly, since there was no need to award backwages to respondents, the ruling of the CA that Javalera is
solidarily liable with Exodus International Construction Corporation in paying full backwages need not be
discussed.

WHEREFORE, the instant petition for review on certiorari is PARTLY GRANTED. The Decision of the
Court of Appeals in CA-G.R. SP No. 79800 dated August 10, 2004, is AFFIRMED with MODIFICATION
that the award of full backwages is DELETED for lack of legal basis.

SO ORDERED.
































Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

KAISAHAN AT KAPATIRAN NG
MGA MANGGAGAWA AT KAWANI
SA MWC-EAST ZONE UNION and
EDUARDO BORELA, representing its
members,
Petitioners,


- versus -



MANILA WATER COMPANY, INC.,
Respondent.

G.R. No. 174179

Present:

CARPIO, J.,
Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.

Promulgated:

November 16, 2011

x------------------------------------------------------------------------------------x


DECISION

BRION, J.:





We resolve the petition for review on certiorari
[1]
filed by the petitioners, Kaisahan at
Kapatiran ng mga Manggagawa at Kawani sa MWC-East Zone Union (Union) and Eduardo
Borela, assailing the decision
[2]
and the resolution
[3]
of the Court of Appeals (CA) in CA-
G.R. SP No. 83654.
[4]


The Factual Antecedents

The background facts are not disputed and are summarized below.

The Union is the duly-recognized bargaining agent of the rank-and-file employees of
the respondent Manila Water Company, Inc. (Company) while Borela is the Union
President.
[5]
On February 21, 1997, the Metropolitan Waterworks and Sewerage System
(MWSS) entered into a Concession Agreement (Agreement) with the Company to privatize
the operations of the MWSS.
[6]
Article 6.1.3 of the Agreement provides that the
Concessionaire shall grant [its] employees benefits no less favorable than those granted to
MWSS employees at the time of [their] separation from MWSS.
[7]
Among the benefits
enjoyed by the employees of the MWSS were the amelioration allowance (AA) and the cost-
of-living allowance (COLA) granted in August 1979, pursuant to Letter of Implementation
No. 97 issued by the Office of the President.
[8]


The payment of the AA and the COLA was discontinued pursuant to Republic Act No.
6758, otherwise known as the Salary Standardization Law, which integrated the allowances
into the standardized salary.
[9]
Nonetheless, in 2001, the Union demanded from the
Company the payment of the AA and the COLA during the renegotiation of the parties
Collective Bargaining Agreement (CBA).
[10]
The Company initially turned down this
demand, however, it subsequently agreed to an amendment of the CBA on the matter, which
provides:

The Company shall implement the payment of the Amelioration Allowance and Cost
of Living [A]llowance retroactive August 1, 1997 should the MWSS decide to pay its
employees and all its former employees or upon award of a favorable order by the MWSS
Regulatory Office or upon receipt of [a] final court judgment.
[11]



Thereafter, the Company integrated the AA into the monthly payroll of all its
employees beginning August 1, 2002, payment of the AA and the COLA after an
appropriation was made and approved by the MWSS Board of Trustees. The Company,
however, did not subsequently include the COLA since the Commission on Audit
disapproved its payment because the Company had no funds to cover this benefit.
[12]


As a result, the Union and Borela filed on April 15, 2003 a complaint against the
Company for payment of the AA, COLA, moral and exemplary damages, legal interest, and
attorneys fees before the National Labor Relations Commission (NLRC).
[13]


The Compulsory Arbitration Rulings

In his decision of August 20, 2003, Labor Arbiter Aliman D. Mangandog (LA) ruled in
favor of the petitioners and ordered the payment of their AA and COLA, six percent (6%)
interest of the total amount awarded, and ten percent (10%) attorneys fees.
[14]


On appeal by the Company, the NLRC affirmed with modification the LAs
decision.
[15]
It set aside the award of the COLA benefits because the claim was not proven
and established, but ordered the Company to pay the petitioners their accrued AA of
about P107,300,000.00 in lump sum and to continue paying the AA starting August 1,
2002. It also upheld the award of 10% attorneys fees to the petitioners.

In its Motion for Partial Reconsideration of the NLRCs December 19, 2003 decision,
the Company pointed out that the award of ten percent (10%) attorneys fees to the
petitioners is already provided for in their December 19, 2003 Memorandum of Agreement
(MOA) which mandated that attorneys fees shall be deducted from the AA and CBA
receivables.
[16]
This compromise agreement, concluded between the parties in connection
with a notice of strike filed by the Union in 2003,
[17]
provides among others that:
[18]


31. Attorneys fees 10% to be deducted from AA and CBA receivables.
32. All other issues are considered withdrawn.
[19]


In their Opposition, the petitioners argued that the MOA only covered the payment of
their share in the contracted attorneys fees, but did not include the attorneys fees awarded
by the NLRC. To support their claim, the petitioners submitted Borelas affidavit which
relevantly stated:

2. On December 19, 2003, in settlement of the notice of Strike for CBA Deadlock,
Manila Water Company, Inc. and the Union entered into an Agreement settling the deadlock
issued (sic) of the CBA negotiation including [the] payment of the AA and the mode of
payment thereof.

3. Considering that the AA payment was included in the Agreement, the Union
representation deemed it wise, for practical reason, to authorize the company to immediately
deduct from the benefits that will be received by the member/employees the 10% attorneys
fees in conformity with our contract with our counsel.

4. The 10% attorneys fees paid by the members/employees is separate and
distinct from the obligation of the company to pay the 10% awarded attorneys fees
which we also gave to our counsel as part of our contingent fee agreement.

5. There was no agreement that we are going to shoulder the entire attorneys fees as
this would cost us 20% of the amount we would recover. There was also no agreement that
the 10% attorneys fees in the MOA represents the entire attorneys cost because the said
payment represents only our compliance of our share in the attorneys fees in conformity with
our contract. Likewise, we did not waive the awarded 10% attorneys fees because the same
belongs to our counsel and not to us and beyond our authority.
[20]
(emphasis ours)


The NLRC subsequently denied both parties Motions for Partial
Reconsideration,
[21]
prompting the Company to elevate the case to the CA via a petition
for certiorari under Rule 65 of the Rules of Court. It charged the NLRC of grave abuse of
discretion in sustaining the award of attorneys fees on the grounds that: (1) it is contrary to
the MOA
[22]
concerning the payment of attorneys fees; (2) there was no finding of unlawful
withholding of wages or bad faith on the part of the Company; and (3) the attorneys fees
awarded are unconscionable.

The CA Decision

In its Decision promulgated on March 6, 2006,
[23]
the CA modified the assailed NLRC
rulings by deleting [t]he order for respondent MWCI to pay attorneys fees equivalent to
10% of the total judgment awards. The CA recognized the binding effect of the MOA
between the Company and the Union; it stressed that any further award of attorneys fees is
unfounded considering that it did not find anything in the Agreement that is contrary to law,
morals, good customs, public policy or public order.

In resolving the issue, the CA cited our ruling in Traders Royal Bank Employees
Union-Independent v. NLRC,
[24]
where we distinguished between the two commonly
accepted concepts of attorneys fees the ordinary and the extraordinary. We held in that
case that under its ordinary concept, attorneys fees are the reasonable compensation paid to a
lawyer by his client for legal services rendered. On the other hand, we ruled that in its
extraordinary concept, attorneys fees represent an indemnity for damages ordered by the
court to be paid by the losing party in a litigation based on what the law provides; it is
payable to the client not to the lawyer, unless there is an agreement to the contrary.

The CA noted that the fees at issue in this case fall under the extraordinary concept
the NLRC having ordered the Company, as losing party, to pay the Union and its members
ten percent (10%) attorneys fees. It found the award without basis under Article 111 of the
Labor Code which provides that attorneys fees equivalent to ten percent (10%) of the
amount of wages recovered may be assessed only in cases of unlawful withholding of wages.

The CA ruled that the facts of the case do not indicate any unlawful withholding of
wages or bad faith attributable to the Company. It also held that the additional grant of 10%
attorneys fees violates Article 111 of the Labor Code considering that the MOA between the
parties already ensured the payment of 10% attorneys fees, deductible from the AA and
CBA receivables of the Unions members. The CA thus adjudged the NLRC decision
awarding attorneys fees to have been rendered with grave abuse of discretion.

The Union and Borela moved for reconsideration, but the CA denied the motion in its
resolution of August 15, 2006.
[25]
Hence, the present petition.

The Petition

The petitioners seek a reversal of the CA rulings on the sole ground that the appellate
court committed a reversible error in reviewing the factual findings of the NLRC and in
substituting its own findings an action that is not allowed under Rule 65 of the Rules of
Court. They question the CAs re-evaluation of the evidence, particularly the MOA, and its
conclusion that there was no unlawful withholding of wages or bad faith attributable to the
Company, thereby contradicting the factual findings of the NLRC. They also submit that a
petition for certiorari under Rule 65 is confined only to issues of jurisdiction or grave abuse
of discretion, and does not include the review of the NLRCs evaluation of the evidence and
its factual findings.
[26]


The petitioners argue that in the present case, all the parties arguments and evidence
relating to the award of attorneys fees were carefully studied and weighed by the NLRC. As
a result, the NLRC gave credence to Borelas affidavit claiming that the attorneys fees paid
by the Unions members are separate and distinct from the attorneys fees awarded by the
NLRC. The petitioners stress that whether the NLRC is correct in giving credence to
Borelas affidavit is a question that the CA cannot act upon in a petition for certiorari unless
grave abuse of discretion can be shown.
[27]


The Case for the Company

In its Memorandum filed on September 7, 2007,
[28]
the Company argues that the
correctness of the NLRCs interpretation of the provision of the MOA, the reasonableness
of the attorneys fees in question, and the application or interpretation of a provision of
the Labor Code on the matter are questions of law which the CA validly inquired into in
the certiorari proceedings. It argues that the CA correctly ruled that the NLRC acted with
grave abuse of discretion when it affirmed the LAs award of attorneys fees despite the
absence of a finding of any unlawful withholding of wages or bad faith on the part of the
Company. It finally contends that the Unions demand, together with the NLRC award, is
unconscionable as it represents 20% of the amount due or about P21.4 million.

Issues

The core issues posed for our resolution are: (1) whether the CA can review the
factual findings of the NLRC in a Rule 65 petition; and (2) whether the NLRC gravely
abused its discretion in awarding ten percent (10%) attorneys fees to the petitioners.

The Courts Ruling

We find the petition and its arguments meritorious.

On the CAs Review of the NLRCs Factual Findings

We agree with the petitioners that as a rule, the CA cannot undertake a re-assessment
of the evidence presented in the case in certiorari proceedings under Rule 65 of the Rules of
Court.
[29]
However, the rule admits of exceptions. In Mercado v. AMA Computer College-
Paraaque City, Inc.,
[30]
we held that the CA may examine the factual findings of the NLRC
to determine whether or not its conclusions are supported by substantial evidence, whose
absence justifies a finding of grave abuse of discretion. We ruled:

We agree with the petitioners that, as a rule in certiorari proceedings under
Rule 65 of the Rules of Court, the CA does not assess and weigh each piece of
evidence introduced in the case. The CA only examines the factual findings of the
NLRC to determine whether or not the conclusions are supported by substantial
evidence whose absence points to grave abuse of discretion amounting to lack or
excess of jurisdiction. In the recent case of Protacio v. Laya Mananghaya &
Co., we emphasized that:

As a general rule, in certiorari proceedings under Rule 65 of
the Rules of Court, the appellate court does not assess and weigh the
sufficiency of evidence upon which the Labor Arbiter and the NLRC
based their conclusion. The query in this proceeding is limited to the
determination of whether or not the NLRC acted without or in excess
of its jurisdiction or with grave abuse of discretion in rendering its
decision. However, as an exception, the appellate court may
examine and measure the factual findings of the NLRC if the
same are not supported by substantial evidence. The Court has
not hesitated to affirm the appellate courts reversals of the
decisions of labor tribunals if they are not supported by
substantial evidence.
[31]
(italics and emphasis supplied; citation
omitted)


As discussed below, our review of the records and of the CA decision shows that the
CA erred in ruling that the NLRC gravely abused its discretion in awarding the petitioners
ten percent (10%) attorneys fees without basis in fact and in law. Corollary to the above-
cited rule is the basic approach in the Rule 45 review of Rule 65 decisions of the CA in labor
cases which we articulated in Montoya v. Transmed Manila Corporation
[32]
as a guide and
reminder to the CA. We laid down that:

In a Rule 45 review, we consider the correctness of the assailed CA decision, in
contrast with the review for jurisdictional error that we undertake under Rule
65. Furthermore, Rule 45 limits us to the review of questions of law raised against
the assailed CA decision. In ruling for legal correctness, we have to view the CA
decision in the same context that the petition for certiorari it ruled upon was
presented to it; we have to examine the CA decision from the prism of whether
it correctly determined the presence or absence of grave abuse of discretion in
the NLRC decision before it, not on the basis of whether the NLRC decision on
the merits of the case was correct. In other words, we have to be keenly aware
that the CA undertook a Rule 65 review, not a review on appeal, of the NLRC
decision challenged before it. This is the approach that should be basic in a Rule
45 review of a CA ruling in a labor case. In question form, the question to ask
is: Did the CA correctly determine whether the NLRC committed grave abuse
of discretion in ruling on the case?
[33]
(italics and emphases supplied)


In the present case, we are therefore tasked to determine whether the CA correctly
ruled that the NLRC committed grave abuse of discretion in awarding 10% attorneys fees to
the petitioners.

On the Award of Attorneys Fees


Article 111 of the Labor Code, as amended, governs the grant of attorneys fees in
labor cases:

Art. 111. Attorneys fees.- (a) In cases of unlawful withholding of wages,
the culpable party may be assessed attorneys fees equivalent to ten percent of the
amount of wages recovered.

(b) It shall be unlawful for any person to demand or accept, in any judicial or
administrative proceedings for the recovery of wages, attorneys fees which exceed
ten percent of the amount of wages recovered.


Section 8, Rule VIII, Book III of its Implementing Rules also provides, viz.:

Section 8. Attorneys fees. Attorneys fees in any judicial or
administrative proceedings for the recovery of wages shall not exceed 10% of the
amount awarded. The fees may be deducted from the total amount due the winning
party.


We explained in PCL Shipping Philippines, Inc. v. National Labor Relations
Commission
[34]
that there are two commonly accepted concepts of attorneys fees the
ordinary and extraordinary. In its ordinary concept, an attorneys fee is the reasonable
compensation paid to a lawyer by his client for the legal services the former renders;
compensation is paid for the cost and/or results of legal services per agreement or as may be
assessed. In its extraordinary concept, attorneys fees are deemed indemnity for
damages ordered by the court to be paid by the losing party to the winning party. The
instances when these may be awarded are enumerated in Article 2208 of the Civil Code,
specifically in its paragraph 7 on actions for recovery of wages, and is payable not to the
lawyer but to the client,unless the client and his lawyer have agreed that the award shall
accrue to the lawyer as additional or part of compensation.
[35]


We also held in PCL Shipping that Article 111 of the Labor Code, as amended,
contemplates the extraordinary concept of attorneys fees and that Article 111 is an
exception to the declared policy of strict construction in the award of attorneys
fees. Although an express finding of facts and law is still necessary to prove the merit of
the award, there need not be any showing that the employer acted maliciously or in bad
faith when it withheld the wages. In carrying out and interpreting the Labor Code's
provisions and implementing regulations, the employee's welfare should be the primary and
paramount consideration. This kind of interpretation gives meaning and substance to the
liberal and compassionate spirit of the law as embodied in Article 4 of the Labor Code
(which provides that "[a]ll doubts in the implementation and interpretation of the provisions
of [the Labor Code], including its implementing rules and regulations, shall be resolved in
favor of labor") and Article 1702 of the Civil Code (which provides that "[i]n case of doubt,
all labor legislation and all labor contracts shall be construed in favor of the safety and decent
living for the laborer).
[36]


We similarly so ruled in RTG Construction, Inc. v. Facto
[37]
and in Ortiz v. San Miguel
Corporation.
[38]
In RTG Construction, we specifically stated:

Settled is the rule that in actions for recovery of wages, or where an employee was
forced to litigate and, thus, incur expenses to protect his rights and interests, a
monetary award by way of attorneys fees is justifiable under Article 111 of the
Labor Code; Section 8, Rule VIII, Book III of its Implementing Rules; and
paragraph 7, Article 2208 of the Civil Code. The award of attorneys fees is
proper, and there need not be any showing that the employer acted
maliciously or in bad faith when it withheld the wages. There need only be a
showing that the lawful wages were not paid accordingly.
[39]
(emphasis ours)


In PCL Shipping, we found the award of attorneys fees due and appropriate since the
respondent therein incurred legal expenses after he was forced to file an action for recovery
of his lawful wages and other benefits to protect his rights.
[40]
From this perspective and the
above precedents, we conclude that the CA erred in ruling that a finding of the employers
malice or bad faith in withholding wages must precede an award of attorneys fees under
Article 111 of the Labor Code. To reiterate, a plain showing that the lawful wages were not
paid without justification is sufficient.

In the present case, we find it undisputed that the union members are entitled to their
AA benefits and that these benefits were not paid by the Company. That the Company had
no funds is not a defense as this was not an insuperable cause that was cited and properly
invoked. As a consequence, the union members represented by the Union were compelled to
litigate and incur legal expenses. On these bases, we find no difficulty in upholding the
NLRCs award of ten percent (10%) attorneys fees.

The more significant issue in this case is the effect of the MOA provision that
attorneys fees shall be deducted from the AA and CBA receivables. In this regard, the CA
held that the additional grant of 10% attorneys fees by the NLRC violates Article 111 of the
Labor Code, considering that the MOA between the parties already ensured the payment of
10% attorneys fees deductible from the AA and CBA receivables of the Unions
members. In addition, the Company also argues that the Unions demand, together with the
NLRC award, is unconscionable as it represents 20% of the amount due or about P21.4
million.

In Traders Royal Bank Employees Union-Independent v. NLRC,
[41]
we expounded on
the concept of attorneys fees in the context of Article 111 of the Labor Code, as follows:

In the first place, the fees mentioned here are the extraordinary attorneys
fees recoverable as indemnity for damages sustained by and payable to the
prevailing part[y]. In the second place, the ten percent (10%) attorneys fees
provided for in Article 111 of the Labor Code and Section 11, Rule VIII, Book III
of the Implementing Rules is the maximum of the award that may thus be
granted. Article 111 thus fixes only the limit on the amount of attorneys fees
the victorious party may recover in any judicial or administrative proceedings
and it does not even prevent the NLRC from fixing an amount lower than the ten
percent (10%) ceiling prescribed by the article when circumstances warrant
it.
[42]
(emphases ours; citation omitted)


In the present case, the ten percent (10%) attorneys fees awarded by the NLRC on the
basis of Article 111 of the Labor Code accrue to the Unions members as indemnity for
damages and not to the Unions counsel as compensation for his legal services, unless, they
agreed that the award shall be given to their counsel as additional or part of his
compensation; in this case the Union bound itself to pay 10% attorneys fees to its counsel
under the MOA and also gave up the attorneys fees awarded to the Unions members in
favor of their counsel. This is supported by Borelas affidavit which stated that [t]he 10%
attorneys fees paid by the members/employees is separate and distinct from the obligation of
the company to pay the 10% awarded attorneys fees which we also gave to our counsel as
part of our contingent fee agreement.
[43]
The limit to this agreement is that the indemnity
for damages imposed by the NLRC on the losing party (i.e., the Company) cannot
exceed ten percent (10%).

Properly viewed from this perspective, the award cannot be taken to mean an
additional grant of attorneys fees, in violation of the ten percent (10%) limit under Article
111 of the Labor Code since it rests on an entirely different legal obligation than the one
contracted under the MOA. Simply stated, the attorneys fees contracted under the MOA
do not refer to the amount of attorneys fees awarded by the NLRC; the MOA
provision on attorneys fees does not have any bearing at all to the attorneys fees
awarded by the NLRC under Article 111 of the Labor Code. Based on these
considerations, it is clear that the CA erred in ruling that the LAs award of attorneys fees
violated the maximum limit of ten percent (10%) fixed by Article 111 of the Labor Code.

Under this interpretation, the Companys argument that the attorneys fees are
unconscionable as they represent 20% of the amount due or about P21.4 million is more
apparent than real. Since the attorneys fees awarded by the LA pertained to the Unions
members as indemnity for damages, it was totally within their right to waive the amount and
give it to their counsel as part of their contingent fee agreement. Beyond the limit fixed by
Article 111 of the Labor Code, such as between the lawyer and the client, the attorneys fees
may exceed ten percent (10%) on the basis of quantum meruit, as in the present case.
[44]


WHEREFORE, premises considered, the petition is hereby GRANTED. The
assailed decision dated March 6, 2006 and the resolution dated August 15, 2006 of the
Court of Appeals in CA-G.R. SP No. 83654 are REVERSED and SET ASIDE. The
Labor Arbiters award of attorneys fees equivalent to ten percent (10%) of the total
judgment award is hereby REINSTATED.

No pronouncement as to costs.

SO ORDERED.






Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION



G.R. No. 91980 June 27, 1991

ILAW AT BUKLOD NG MANGGAGAWA (IBM), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (First Division), HON. CARMEN TALUSAN and
SAN MIGUEL CORPORATION, respondents.

Banzuela, Flores, Miralles, Raneses, Sy, Taquio & Associates for petitioner.

Jardeleza Law Offices for private respondents.


NARVASA, J.:p

The controversy at bar had its origin in the "wage distortions" affecting the employees of respondent San
Miguel Corporation allegedly caused by Republic Act No. 6727, otherwise known as the Wage
Rationalization Act.

Upon the effectivity of the Act on June 5, 1989, the union known as "Ilaw at Buklod Ng Manggagawa
(IBM)" said to represent 4,500 employees of San Miguel Corporation, more or less, "working at the
various plants, offices, and warehouses located at the National Capital Region" presented to the company
a "demand" for correction of the "significant distortion in . . . (the workers') wages." In that "demand," the
Union explicitly invoked Section 4 (d) of RA 6727 which reads as follows:

xxx xxx xxx

(d) . . .

Where the application of the increases in the wage rates under this Section results in distortions as defined
under existing laws in the wage structure within an establishment and gives rise to a dispute therein, such
dispute shall first be settled voluntarily between the parties and in the event of a deadlock, the same shall be
finally resolved through compulsory arbitration by the regional branches of the National Labor Relations
Commission (NLRC) having jurisdiction over the workplace.

It shall be mandatory for the NLRC to conduct continuous hearings and decide any dispute arising under this
Section within twenty (20) calendar days from the time said dispute is formally submitted to it for
arbitration. The pendency of a dispute arising from a wage distortion shall not in any way delay the
applicability of the increase in the wage rates prescribed under this Section.

But the Union claims that "demand was ignored: 1

The . . . COMPANY ignored said demand by offering a measly across-the-board wage increase of P7.00 per
day, per employee, as against the proposal of the UNION of P25.00 per day, per employee. Later, the
UNION reduced its proposal to P15.00 per day, per employee by way of amicable settlement.

When the . . . COMPANY rejected the reduced proposal of the UNION the members thereof, on their own
accord, refused to render overtime services, most especially at the Beer Bottling Plants at Polo, starting
October 16, 1989.

In this connection, the workers involved issues a joint notice reading as follows: 2

SAMA-SAMANG PAHAYAG: KAMING ARAWANG MANGGAGAWA NG POLO BREWERY
PAWANG KASAPI NG ILAW AT BUKLOD NG MANGGAGAWA (IBM) AY NAGKAISANG
NAGPASYA NA IPATUPAD MUNA ANG EIGHT HOURS WORK SHIFT PANSAMANTALA
HABANG HINDI IPINATUTUPAD NG SMC MANAGEMENT ANG TAMANG WAGE DISTORTION.

The Union's position (set out in the petition subsequently filed in this Court, infra) was that the workers'
refuse "to work beyond eight (8) hours everyday starting October 16, 1989" as a legitimate means of
compelling SMC to correct "the distortion in their wages brought about by the implementation of the said
laws (R.A. 6640 and R.A. 6727) to newly-hired employees. 3 That decision to observe the "eight hours work
shift" was implemented on October 16, 1989 by "some 800 daily-paid workers at the Polo Plant's production
line (of San Miguel Corporation [hereafter, simply SMC]) joined by others at statistical quality control and
warehouse, all members of . . . IBM . . . " 4 There ensued thereby a change in the work schedule which had
been observed by daily-paid workers at the Polo Plant for the past five (5) years, i.e., "ten (10) hours for the
first shift and ten (10) to fourteen (14) hours for the second shift, from Mondays to Fridays . . ; (and on)
Saturdays, . . eight (8) hours for both shifts" a work schedule which, SMC says, the workers had
"welcomed, and encouraged" because the automatic overtime built into the schedule "gave them a steady
source of extra-income," and pursuant to which it (SMC) "planned its production targets and budgets. 5

This abandonment of the long-standing schedule of work and the reversion to the eight-hour shift apparently
caused substantial losses to SMC. Its claim is that there ensued "from 16 October 1989 to 30 November 1989
alone . . work disruption and lower efficiency . . (resulting in turn, in) lost production of 2,004,105 cases of
beer . . ; that (i)n "money terms, SMC lost P174,657,598 in sales and P48,904,311 in revenues . . (and the)
Government lost excise tax revenue of P42 million, computed at the rate of P21 per case collectible at the
plant. 6 These losses occurred despite such measures taken by SMC as organizing "a third shift composed of
regular employees and some contractuals," and appeals "to the Union members, through letters and
memoranda and dialogues with their plant delegates and shop stewards," to adhere to the existing work
schedule.

Thereafter, on October 18, 1989, SMC filed with the Arbitration Branch of the National Labor Relations
Commission a complaint against the Union and its members "to declare the strike or slowdown illegal" and
to terminate the employment of the union officers and shop stewards. The complaint was docketed as NLRC-
NCR Case No. 00-10-04917. 7

Then on December 8, 1989, on the claim that its action in the Arbitration Branch had as yet "yielded no
relief," SMC filed another complaint against the Union and members thereof, this time directly with the
National labor Relations Commission, "to enjoin and restrain illegal slowdown and for damages, with prayer
for the issuance of a cease-and-desist and temporary restraining order. 8 Before acting on the application for
restraining order, the NLRC's First Division first directed SMC to present evidence in support of the
application before a commissioner, Labor Arbiter Carmen Talusan. On December 19, 1989, said First
Division promulgated a Resolution on the basis of "the allegations of the petitioner (SMC) and the evidence
adduced ex parte in support of their petition." The Resolution

1) authorized the issuance of "a Temporary Restraining Order for a period of twenty (20) days . . upon .
. a cash or surety bond in the amount of P50,000.00 . . . DIRECTING the respondents to CEASE and
DESIST from further committing the acts complained about particularly their not complying with the work
schedule established and implemented by the company through the years or at the least since 1984, which
schedule appears to have been adhered to by the respondents until October 16, 1989 . . .;

2) set the incident on injunction for hearing before Labor Arbiter Carmen Talusan on 27 December 1989
. . .

The Labor Arbiter accordingly scheduled the incident for hearing on various dates: December 27 and
29,1989, January 8, 11, 16, and 19, 1990. The first two settings were cancelled on account of the
unavailability of the Union's counsel. The hearing on January 8, 1990 was postponed also at the instance of
said counsel who declared that the Union refused to recognize the NLRC's jurisdiction. The hearings set on
January 11, 16 and 19, 1990 were taken up with the cross-examination of SMC's witness on the basis of his
affidavit and supplemental affidavits. The Union thereafter asked the Hearing Officer to schedule other
hearings. SMC objected. The Hearing Officer announced she would submit a report to the Commission
relative to the extension of the temporary restraining order of December 9, 1989, supra, prayed for by SMC.
Here the matter rested until February 14, 1990, when the Union filed the petition which commenced the
special civil action of certiorari and prohibition at bar. 9

In its petition, the Union asserted that:

1) the "central issue . . is the application of the Eight-Hour Labor Law . . . (i.e.) (m)ay an employer force
an employee to work everyday beyond eight hours a day?

2) although the work schedule adopted by SMC with built-in automatic overtime, 10 "tremendously
increased its production of beer at lesser cost," SMC had been paying its workers "wages far below the
productivity per employee," and turning a deaf ear to the Union's demands for wage increases;

3) the NLRC had issued the temporary restraining order of December 19, 1989 "with indecent haste,
based on ex parte evidence of SMC and such an order had the effect of "forcing the workers to work beyond
eight (8) hours a day, everyday!!

4) the members of the NLRC had no authority to act as Commissioners because their appointments had
not been confirmed by the Commission on Appointment; and

5) even assuming the contrary, the NLRC, as an essentially appellate body, had no jurisdiction to act on
the plea for injunction in the first instance.

The petition thus prayed:

1) for judgment (a) annulling the Resolution of December 19, 1990; (b) declaring mandatory the
confirmation by the Commission on Appointments of the appointments of National Labor Relations
Commissioners; and (c) ordering the removal "from the 201 files of employees any and all memoranda or
disciplinary action issued/imposed to the latter by reason of their refusal to render overtime work;" and

2) pending such judgment restraining(a) the NLR Commissioners "from discharging their power and
authority under R.A. 6715 prior to their re-appointment and/or confirmation;" as well as (b) Arbiter Talusan
and the Commission from acting on the matter or rendering a decision or issuing a permanent injunction
therein, or otherwise implementing said Resolution of December 19, 1989.

In traverse of the petition, SMC filed a pleading entitled "Comment with Motion to Admit Comment as
Counter-Petition," in which it contended that:

1) the workers' abandonment of the regular work schedule and their deliberate and wilful reduction of
the Polo plant's production efficiency is a slowdown, which is an illegal and unprotected concerted activity;

2) against such a slowdown, the NLRC has jurisdiction to issue injunctive relief in the first instance;

3) indeed, the NLRC has "the positive legal duty and statutory obligation to enjoin the slowdown
complained of and to compel the parties to arbitrate . ., (and) to effectuate the important national policy of
peaceful settlement of labor disputes through arbitration;" accordingly, said NLRC "had no legal choice but
to issue injunction to enforce the reciprocal no lockout-no slowdown and mandatory arbitration agreement of
the parties;" and

4) the NLRC "gravely abused its discretion when it refused to decide the application for injunction
within the twenty day period of its temporary restraining order, in violation of its own rules and the repeated
decisions of this . . . Court.

It is SMC's submittal that the coordinated reduction by the Union's members of the work time theretofore
willingly and consistently observed by them, thereby causing financial losses to the employer in order to
compel it to yield to the demand for correction of "wage distortions," is an illegal and "unprotected" activity.
It is, SMC argues, contrary to the law and to the collective bargaining agreement between it and the Union.
The argument is correct and will be sustained.

Among the rights guaranteed to employees by the Labor Code is that of engaging in concerted activities in
order to attain their legitimate objectives. Article 263 of the Labor Code, as amended, declares that in line
with "the policy of the State to encourage free trade unionism and free collective bargaining, . . (w)orkers
shall have the right to engage in concerted activities for purposes of collective bargaining or for their mutual
benefit and protection." A similar right to engage in concerted activities for mutual benefit and protection is
tacitly and traditionally recognized in respect of employers.

The more common of these concerted activities as far as employees are concerned are: strikes the
temporary stoppage of work as a result of an industrial or labor dispute; picketing the marching to and fro
at the employer's premises, usually accompanied by the display of placards and other signs making known
the facts involved in a labor dispute; and boycotts the concerted refusal to patronize an employer's goods
or services and to persuade others to a like refusal. On the other hand, the counterpart activity that
management may licitly undertake is the lockout the temporary refusal to furnish work on account of a
labor dispute, In this connection, the same Article 263 provides that the "right of legitimate labor
organizations to strike and picket and of employer to lockout, consistent with the national interest, shall
continue to be recognized and respected." The legality of these activities is usually dependent on the legality
of the purposes sought to be attained and the means employed therefor.

It goes without saying that these joint or coordinated activities may be forbidden or restricted by law or
contract. In the particular instance of "distortions of the wage structure within an establishment" resulting
from "the application of any prescribed wage increase by virtue of a law or wage order," Section 3 of
Republic Act No. 6727 prescribes a specific, detailed and comprehensive procedure for the correction
thereof, thereby implicitly excluding strikes or lockouts or other concerted activities as modes of settlement
of the issue. The provision 11 states that

. . . the employer and the union shall negotiate to correct the distort-ions. Any dispute arising from wage
distortions shall be resolved through the grievance procedure under their collective bargaining agreement
and, if it remains unresolved, through voluntary arbitration. Unless otherwise agreed by the parties in
writing, such dispute shall be decided by the voluntary arbitrator or panel of voluntary arbitrators within ten
(10) calendar days from the time said dispute was referred to voluntary arbitration.

In cases where there are no collective agreements or recognized labor unions, the employers and workers
shall endeavor to correct such distortions. Any dispute arising therefrom shall be settled through the National
Conciliation and Mediation Board and, if it remains unresolved after ten (10) calendar days of conciliation,
shall be referred to the appropriate branch of the National Labor Relations Commission (NLRC). It shall be
mandatory for the NLRC to conduct continuous hearings and decide the dispute within twenty (20) calendar
days from the time said dispute is submitted for compulsory arbitration.

The pendency of a dispute arising from a wage distortion shall not in any way delay the applicability of any
increase in prescribed wage rates pursuant to the provisions of law or Wage Order.

xxx xxx xxx

The legislative intent that solution of the problem of wage distortions shall be sought by voluntary
negotiation or abitration, and not by strikes, lockouts, or other concerted activities of the employees or
management, is made clear in the rules implementing RA 6727 issued by the Secretary of Labor and
Employment 12 pursuant to the authority granted by Section 13 of the Act. 13 Section 16, Chapter I of these
implementing rules, after reiterating the policy that wage distortions be first settled voluntarily by the parties
and eventually by compulsory arbitration, declares that, "Any issue involving wage distortion shall not be a
ground for a strike/lockout."

Moreover, the collective bargaining agreement between the SMC and the Union, relevant provisions of
which are quoted by the former without the latter's demurring to the accuracy of the quotation, 14 also
prescribes a similar eschewal of strikes or other similar or related concerted activities as a mode of resolving
disputes or controversies, generally, said agreement clearly stating that settlement of "all disputes,
disagreements or controversies of any kind" should be achieved by the stipulated grievance procedure and
ultimately by arbitration. The provisions are as follows:

Section 1. Any and all disputes, disagreements and controversies of any kind between the COMPANY
and the UNION and/or the workers involving or relating to wages, hours of work, conditions of employment
and/or employer-employee relations arising during the effectivity of this Agreement or any renewal thereof,
shall be settled by arbitration in accordance with the procedure set out in this Article. No dispute,
disagreement or controversy which may be submitted to the grievance procedure in Article IX shall be
presented for arbitration unless all the steps of the grievance procedure are exhausted (Article V
Arbitration).

Section 1. The UNION agrees that there shall be no strikes, walkouts, stoppage or slowdown of work,
boycotts, secondary boycotts, refusal to handle any merchandise, picketing, sit-down strikes of any kind,
sympathetic or general strikes, or any other interference with any of the operations of the COMPANY during
the terms of this agreement (Article VI).

The Union was thus prohibited to declare and hold a strike or otherwise engage in non-peaceful concerted
activities for the settlement of its controversy with SMC in respect of wage distortions, or for that matter; any
other issue "involving or relating to wages, hours of work, conditions of employment and/or employer-
employee relations." The partial strike or concerted refusal by the Union members to follow the five-year-old
work schedule which they had therefore been observing, resorted to as a means of coercing correction of
"wage distortions," was therefore forbidden by law and contract and, on this account, illegal.

Awareness by the Union of the proscribed character of its members' collective activities, is clearly connoted
by its attempt to justify those activities as a means of protesting and obtaining redress against said members
working overtime every day from Monday to Friday (on an average of 12 hours), and every Saturday (on 8
hour shifts), 15 rather than as a measure to bring about rectification of the wage distortions caused by RA
6727 which was the real cause of its differences with SMC. By concealing the real cause of their dispute
with management (alleged failure of correction of wage distortion), and trying to make it appear that the
controversy involved application of the eight-hour labor law, they obviously hoped to remove their case from
the operation of the rules implementing RA 6727 that "Any issue involving wage distortion shall not be a
ground for a strike/lockout." The stratagem cannot succeed.

In the first place, that it was indeed the wage distortion issue that principally motivated the Union's partial or
limited strike is clear from the facts, The work schedule (with "built-in overtime") had not been forced upon
the workers; it had been agreed upon between SMC and its workers at the Polo Plant and indeed, had been
religiously followed with mutually beneficial results for the past five (5) years. Hence, it could not be
considered a matter of such great prejudice to the workers as to give rise to a controversy between them and
management. Furthermore, the workers never asked, nor were there ever any negotiations at their instance,
for a change in that work schedule prior to the strike. What really bothered them, and was in fact the subject
of talks between their representatives and management, was the "wage distortion" question, a fact made even
more apparent by the joint notice circulated by them prior to the strike, i.e., that they would adopt the eight-
hour work shift in the meantime pending correction by management of the wage distortion (IPATUPAD
MUNA ANG EIGHT HOURS WORK SHIFT PANSAMANTALA HABANG HINDI IPINATUTUPAD
NG SMC MANAGEMENT ANG TAMANG WAGE DISTORTION).

In the second place, even if there were no such legal prohibition, and even assuming the controversy really
did not involve the wage distortions caused by RA 6727, the concerted activity in question would still be
illicit because contrary to the workers' explicit contractual commitment "that there shall be no strikes,
walkouts, stoppage or slowdown of work, boycotts, secondary boycotts, refusal to handle any merchandise,
picketing, sit-down strikes of any kind, sympathetic or general strikes, or any other interference with any of
the operations of the COMPANY during the term of . . . (their collective bargaining) agreement. 16

What has just been said makes unnecessary resolution of SMC's argument that the workers' concerted refusal
to adhere to the work schedule in force for the last several years, is a slowdown, an inherently illegal activity
essentially illegal even in the absence of a no-strike clause in a collective bargaining contract, or statute or
rule. The Court is in substantial agreement with the petitioner's concept of a slowdown as a "strike on the
installment plan;" as a wilfull reduction in the rate of work by concerted action of workers for the purpose of
restricting the output of the employer, in relation to a labor dispute; as an activity by which workers, without
a complete stoppage of work, retard production or their performance of duties and functions to compel
management to grant their demands. 17 The Court also agrees that such a slowdown is generally condemned
as inherently illicit and unjustifiable, because while the employees "continue to work and remain at their
positions and accept the wages paid to them," they at the same time "select what part of their allotted tasks
they care to perform of their own volition or refuse openly or secretly, to the employer's damage, to do other
work;" in other words, they "work on their own terms. 18 But whether or not the workers' activity in question
their concerted adoption of a different work schedule than that prescribed by management and adhered to
for several years constitutes a slowdown need not, as already stated, be gone into. Suffice it to say that
activity is contrary to the law, RA 6727, and the parties' collective bargaining agreement.

The Union's claim that the restraining order is void because issued by Commissioners whose appointments
had not been duly confirmed by the Commission on Appointments should be as it is hereby given short shift,
for, as the Solicitor General points out, it is an admitted fact that the members of the respondent Commission
were actually appointed by the President of the Philippines on November 18, 1989; there is no evidence
whatever in support of the Union's bare allegation that the appointments of said members had not been
confirmed; and the familiar presumption of regularity in appointment and in performance of official duty
exists in their favor. 19

Also untenable is the Union's other argument that the respondent NLRC Division had no jurisdiction to issue
the temporary restraining order or otherwise grant the preliminary injunction prayed for by SMC and that,
even assuming the contrary, the restraining order had been improperly issued. The Court finds that the
respondent Commission had acted entirely in accord with applicable provisions of the Labor Code.

Article 254 of the Code provides that "No temporary or permanent injunction or restraining order in any case
involving or growing out of labor disputes shall be issued by any court or other entity, except as otherwise
provided in Articles 218 and 264 . . ." Article 264 lists down specific "prohibited activities" which may be
forbidden or stopped by a restraining order or injunction. Article 218 inter alia enumerates the powers of the
National Labor Relations Commission and lays down the conditions under which a restraining order or
preliminary injunction may issue, and the procedure to be followed in issuing the same.

Among the powers expressly conferred on the Commission by Article 218 is the power to "enjoin or restrain
any actual or threatened commission of any or all prohibited or unlawful acts or to require the performance
of a particular act in any labor dispute which, if not restrained or performed forthwith, may cause grave or
irreparable damage to any party or render ineffectual any decision in favor of such party . . ."

As a rule such restraining orders or injunctions do not issue ex parte, but only after compliance with the
following requisites, to wit:

a) a hearing held "after due and personal notice thereof has been served, in such manner as the
Commission shall direct, to all known persons against whom relief is sought, and also to the Chief Executive
and other public officials of the province or city within which the unlawful acts have been threatened or
committed charged with the duty to protect complainant's property;"

b) reception at the hearing of "testimony of witnesses, with opportunity for cross-examination, in
support of the allegations of a complaint made under oath," as well as "testimony in opposition thereto, if
offered . . .;

c) a finding of fact by the Commission, to the effect:

(1) That prohibited or unlawful acts have been threatened and will be committed and will be continued
unless restrained, but no injunction or temporary restraining order shall be issued on account of any threat,
prohibited or unlawful act, except against the person or persons, association or organization making the
threat or committing the prohibited or unlawful act or actually authorizing or ratifying the same after actual
knowledge thereof;
(2) That substantial and irreparable injury to complainant's property will follow;
(3) That as to each item of relief to be granted, greater injury will be inflicted upon complainant by the
denial of relief than will be inflicted upon defendants by the granting of relief;

(4) That complainant has no adequate remedy at law; and

(5) That the public officers charged with the duty to protect complainant's property are unable or
unwilling to furnish adequate protection.

However, a temporary restraining order may be issued ex parte under the following conditions:

a) the complainant "shall also allege that, unless a temporary restraining order shall be issued without
notice, a substantial and irreparable injury to complainant's property will be unavoidable;

b) there is "testimony under oath, sufficient, if sustained, to justify the Commission in issuing a
temporary injunction upon hearing after notice;"

c) the "complainant shall first file an undertaking with adequate security in an amount to be fixed by the
Commission sufficient to recompense those enjoined for any loss, expense or damage caused by the
improvident or erroneous issuance of such order or injunction, including all reasonable costs, together with a
reasonable attorney's fee, and expense of defense against the order or against the granting of any injunctive
relief sought in the same proceeding and subsequently denied by the Commission;" and

d) the "temporary restraining order shall be effective for no longer than twenty (20) days and shall
become void at the expiration of said twenty (20) days.

The reception of evidence "for the application of a writ of injunction may be delegated by the Commission to
any of its Labor Arbiters who shall conduct such hearings in such places as he may determine to be
accessible to the parties and their witnesses and shall submit thereafter his recommendation to the
Commission."

The record reveals that the Commission exercised the power directly and plainly granted to it by sub-
paragraph (e) Article 217 in relation to Article 254 of the Code, and that it faithfully observed the procedure
and complied with the conditions for the exercise of that power prescribed in said sub-paragraph (e) It acted
on SMC's application for immediate issuance of a temporary restraining order ex parte on the ground that
substantial and irreparable injury to its property would transpire before the matter could be heard on notice;
it, however, first direct SMC Labor Arbiter Carmen Talusan to receive SMC's testimonial evidence in
support of the application and thereafter submit her recommendation thereon; it found SMC's evidence
adequate and issued the temporary restraining order upon bond. No irregularity may thus be imputed to the
respondent Commission in the issuance of that order.

In any event, the temporary restraining order had a lifetime of only twenty (20) days and became void ipso
facto at the expired ration of that period.

In view of the foregoing factual and legal considerations, all irresistibly leading to the basic conclusion that
the concerted acts of the members of petitioner Union in question are violative of the law and their formal
agreement with the employer, the latter's submittal, in its counter-petition that there was, in the premises, a
"legal duty and obligation" on the part of the respondent Commission "to enjoin the unlawful and prohibited
acts and omissions of petitioner IBM and the workers complained of, 20 a proposition with which, it must
be said, the Office of the Solicitor General concurs, asserting that the "failure of the respondent commission
to resolve the application for a writ of injunction is an abuse of discretion especially in the light of the fact
that the restraining order it earlier issued had already expired" 21 must perforce be conceded.

WHEREFORE, the petition is DENIED, the counter-petition is GRANTED, and the case is REMANDED to
the respondent Commission (First Division) with instructions to immediately take such action thereon as is
indicated by and is otherwise in accord with, the findings and conclusions herein set forth. Costs against
petitioner.

IT IS SO ORDERED.