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G.R. NO. 74156. JUNE 29, 1988.MELENCIO- HERRERA, J.
Wage Order No. 6 increased the cost-of-living allowance of
non-agricultural workersin the private sector.
Petitioner corporation (GMCR) complied with the said
WageOrder by paying its monthly-paid employees the
mandated P3.00 per day COLA.
However, in computing said COLA, GMCR multiplied the
P3.00 daily COLA by 22days, which is the number of working
days in the company.
Respondent Union disagreed with the computation of the
monthly COLA claimingthat the daily COLA rate of P3.00
should be multiplied by 30 days to arrive at themonthly
COLA rate.
The union alleged furthermore that prior to the effectivity
ofWage Order No. 6, GMCR had been computing and paying
the monthly COLA onthe basis of thirty (30) days per month
and that this constituted an employer practice,which should
not be unilaterally withdrawn.
The Labor Arbiter ruled that the monthly COLA should be
computed on the basis oftwenty two (22) days, since the
evidence showed that there are only 22 paid days ina month
for monthly-paid employees in the company. To compel the
respondentcompany to use 30 days in a month to compute
the allowance and retain 22 days forvacation and sick leave,
overtime pay and other benefits is inconsistent and
If 30 days is used as divisor, then it must be used for the
computation of allbenefits, not just the allowance. But this is
not fair to complainants, not to mentionthat it will
contravene the provision of the parties' CBA.
However, the NLRC reversed the Labor Arbiter and held that
petitioner was guilty ofillegal deductions, upon the following
(1) that the P3.00 daily COLAshould be paid and
computed on the basis of thirty (30) days instead of
twenty two(22) days since workers paid on a
monthly basis are entitled to COLA on
Saturdays,Sundays and legal holidays "even if
(2) that the full allowance enjoyed bymonthly-paid
employees before the CBA executed in 1982
constituted voluntaryemployer practice, which
cannot be unilaterally withdrawn.
1.How should the COLA be computed?
2.Can the COLA be unilaterally withdrawn by the employer? YES
The primordial consideration for entitlement to COLA is that
basic wage is beingpaid. In other words, the payment of
COLA is mandated only for the days that theemployees are
paid their basic wage, even if said days are unworked.
So that, on thedays that employees are not paid their basic
wage, the payment of COLA is notmandated. Peculiar to this
case, however, is the circumstance that pursuant to
theCollective Bargaining Agreement (CBA) between
Petitioner and Respondent Union,the monthly basic pay is
computed on the basis of five (5) days a week, or twentytwo
(22) days a month.
In determining the hourly rate of monthly paid employees
for purposes of computingovertime pay, the monthly wage is
divided by the number of actual work days in amonth and
then, by eight (8) working hours.
If a monthly-paid employee rendersovertime work, he is paid
his basic salary rate plus one-half thereof.
Thus, where thecompany observes a 5-day work week, it
will have to be held that the COLA shouldbe computed on
the basis of twenty two (22) days, which is the period during
whichthe employees of petitioner receive their basic wage.
The CBA is the law betweenthe parties and, if not
acceptable, can be the subject of future re-negotiation.
Payment in full by petitioner of the COLA before the
execution of the CBA in 1982and in compliance with Wage
Orders Nos. 1 (26 March 1981) to 5 (11 June 1984),should
not be construed as constitutive of voluntary employer
practice, which cannot now be unilaterally withdrawn by
To be considered as such, it should havebeen practiced over
a long period of time, and must be shown to have
beenconsistent and deliberate. Adequate proof is wanting in
this respect.
The test of longpractice has been enunciated in Oceanic
Pharmaceutical Employees Union vs.Inciong such that
respondent company agreed to continue giving holiday
payknowing fully well that said employees are not covered
by the law requiring paymentof holiday pay."
Absent clear administrative guidelines, petitioner cannot be
faulted for erroneousapplication of the law
. Payment may be said to have been made by reason of
amistake in the construction or application of a "doubtful or
difficult question of law."
Since it is a past error that is being corrected, no vested
right may be said to havearisen nor any diminution of
benefit under Article 100 of the Labor Code may be saidto
have resulted by virtue of the correction.
Manila Water Co., vs Pena (2004) G.R. 158255
Petitioner Manila Water Company, Inc. is one of the two
private concessionaires contracted by the Metropolitan
Waterworks and Sewerage System (MWSS) to manage the
water distribution system in the East Zone of MetroManila.
Under the Concession Agreement, petitioner undertook to
absorb former employees of the MWSS whose names and
positions were in the list furnished by the latter, while the
employment of those not in the list wasterminated. Private
respondents, being contractual collectors of the MWSS, were
among the 121 employees notincluded in the list;
nevertheless, petitioner engaged their services without
written contract for three months.
Before the end of the three-month contract, the 121
collectors incorporated the Association Collectors Group, Inc.
(ACGI),which was contracted by petitioner to collect charges
for the Balara Branch.
Subsequently, most of the 121 collectors were asked by the
petitioner to transfer to the First Classic Courier Services, a
newly registered corporation.
Only private respondents remained with ACGI. Private
respondents filed a complaint for illegal dismissal and
moneyclaims against petitioner, contending that they were
petitioners employees as all the methods and procedures of
their collections were controlled by the latter.
Petitioner on the other hand asserts that private respondents
were employees of ACGI, an independent contractor.
It maintained that it had no control and supervision over
private respondents manner of performing their work except
as to the results.
Thus, petitioner did not have an employer-employee
relationship with the private respondents, butonly a service
contractor-client relationship with ACGI.
ISSUE: Whether or not ACGI is an independent contractor;
ACGI is NOT an independent contractor but a labor- only
First, ACGI does not have substantial capitalization or
investment in the form of tools, equipment, machineries,
workpremises, and other materials, to qualify as an
independent contractor.
While it has an authorized capital stock ofP1,000,000.00,
only P62,500.00 is actually paid-in, which cannot be
considered substantial capitalization.
The 121collectors subscribed to four shares each and paid
only the amount of P625.00 in order to comply with the
incorporation requirements.
Further, private respondents reported daily to the branch
office of the petitioner because ACGI has no office or work
In fact, the corporate address of ACGI was the residence of
its president, Mr.Herminio D. Pea.
Moreover, in dealing with the consumers, private
respondents used the receipts and identification cards issued
by petitioner.
Second, the work of the private respondents was directly
related to the principal business or operation of
Being in the business of providing water to the consumers in
the East Zone, the collection of the chargestherefore by
private respondents for the petitioner can only be
categorized as clearly related to, and in the pursuit of the
latters business.
Lastly, ACGI 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, petitioner.
Prior to private respondents alleged employment with ACGI,
they were already working for petitioner, subject to its rules
and regulations in regard to the manner and method of
performing their tasks.
This form ofcontrol and supervision never changed although
they were already under the seeming employ of ACGI.
Petitionerissued memoranda regarding the billing methods
and distribution of books to the collectors; it required
privaterespondents to report daily and to remit their
collections on the same day to the branch office or to
deposit them withBank of the Philippine Islands; it monitored
strictly their attendance as when a collector cannot perform
his dailycollection, he must notify petitioner or the branch
office in the morning of the day that he will be absent;
andalthough it was ACGI which ultimately disciplined private
respondents, the penalty to be imposed was dictated
bypetitioner as shown in the letters it sent to ACGI
specifying the penalties to be meted on the erring
These are indications that ACGI was not left alone in the
supervision and control of its allegedemployees.
Consequently, it can be concluded that ACGI was not an
independent contractor since it did not carry adistinct
business free from the control and supervision of petitioner.
Under this factual milieu, there is no doubt that ACGI was
engaged in labor-only contracting, and as such, isconsidered
merely an agent of the petitioner.
In labor-only contracting, the statute creates an employer-
employeerelationship for a comprehensive purpose: to
prevent a circumvention of labor laws.
The contractor is consideredmerely an agent of the principal
employer and the latter is responsible to the employees of
the labor-only contractoras if such employees had been
directly employed by the principal employer.
Since ACGI is only a labor-onlycontractor, the workers it
supplied should be considered as employees of the petitioner
The petitioners petitioned the National Labor Relations
Commission for reinstatement and payment of various
benefits, including minimum wage, overtime pay, holiday
pay, thirteen-month pay, and emergency cost of living
allowance pay, against the respondent, the California
Manufacturing Company.
California denied the existence of an employer-employee
relation between the petitioners and the company and
impleaded Livi Manpower Services, Inc. as a party-
Petitioners were assigned to work as "promotional
merchandisers" for California pursuant to a manpower
supply agreement.
The agreement provided that California "has no control or
supervisions whatsoever over Livi's workers with respect to
how they accomplish their work or perform California's
obligation"; the Livi "is an independent contractor and
nothing herein contained shall be construed as creating
between California and Livi . . . the relationship of principal-
agent or employer-employee'; that "it is hereby agreed that
it is the sole responsibility of Livi to comply with all existing
as well as future laws, rules and regulations pertinent to
employment of labor" and that "California is free and
harmless from any liability arising from such laws or from
any accident that may befall workers and employees of Livi
while in the performance of their duties for California.
It was further expressly stipulated that the assignment of
workers to California shall be on a "seasonal and contractual
basis"; that "cost of living allowance and the 10 legal
holidays will be charged directly to California at cost "; and
that "payroll for the preceding week shall be delivered by
Livi at California's premises."
The petitioners were then made to sign employment
contracts with durations of six months, upon the expiration
of which they signed new agreements with the same period.
Pending proceeding they were notified by California that
they would not be rehired.
As a result, they filed an amended complaint charging
California with illegal dismissal.
Issue: Whether or not Livi is only engaged in labor only contracting
Held: Yes.
The existence of an employer-employees relation is a
question of law and being such, it cannot be made the
subject of agreement.
Hence, the fact that the manpower supply agreement
between Livi and California had specifically designated the
former as the petitioners' employer and had absolved the
latter from any liability as an employer, will not erase either
party's obligations as an employer, if an employer-employee
relation otherwise exists between the workers and either
At any rate, since the agreement was between Livi and
California, they alone are bound by it, and the petitioners
cannot be made to suffer from its adverse consequences.
The Court has consistently ruled that the determination of
whether or not there is an employer-employee relation
depends upon four standards:
1. the manner of selection and engagement of the putative
2. the mode of payment of wages;
3. the presence or absence of a power of dismissal; and
4. the presence or absence of a power to control the
putative employee's conduct.
Of the four, the right-of-control test has been held to be the
decisive factor.
The fact that the petitioners have allegedly admitted being
Livi's "direct employees" in their complaints is nothing
For one thing, the fact that the petitioners were (are), will
not absolve California since liability has been imposed by
legal operation.
For another, and as the court indicated, the relations of
parties must be judged from case to case and the decree of
law, and not by declarations of parties.
In the case at bar, Livi is admittedly an "independent
contractor providing temporary services of manpower to its
client. "
When it thus provided California with manpower, it supplied
California with personnel, as if such personnel had been
directly hired by California.
Hence, Article 106 of the Code applies.
The Court need not therefore consider whether it is Livi or
California which exercises control over the petitioner vis-a-
vis the four barometers referred to earlier, since by fiction of
law, either or both shoulder responsibility.
The records show that the petitioners bad been given an
initial six-month contract, renewed for another six months.
Accordingly, under Article 281 of the Code, they had become
regular employees-of-California-and had acquired a secure
Hence, they cannot be separated without due process of
The court reiterate that the petitioners are its employees
and who, by virtue of the required one-year length-of-
service, have acquired a regular status.
Virginia G. Neri vs. National Labor Relations Commission, et
Respondents are sued by two employees of Building Care
Corporation, which provides janitorial and other specific
services to various firms, to compel Far Bast Bank and Trust
Company to recognize them as its regular employees and be
paid the same wages which its employees receive.
Building Care Corporation (BCC, for brevity), in the
proceedings below, established that it had substantial
capitalization of P1 Million or a stockholders equity of P1.5
Thus the Labor Arbiter ruled that BCC was only job
contracting and that consequently its employeeswere not
employees of Far East Bank and Trust Company (FEBTC, for
brevity). on appeal, this factual finding was affirmed by
respondentNational Labor Relations Commission (NLRC, for
Nevertheless, petitioners insist before us that BCC is
engaged in "labor-only"contracting hence, they conclude,
they are employees of respondent FEBTC.
On 28 June 1989, petitioners instituted complaints against
FEBTC and BCC before Regional Arbitration Branch No. 10 of
the Department of Labor and Employment to compel the
bank to accept them as regular employees and for it to pay
the differential between the wages being paid them by BCC
and those received by FEBTC employees with similar length
of service.
Issue: Whether or not BCC is only a job contracting company,
hence petitioners are not regular employees of FEBTC.
It is well-settled that there is labor-only contracting where:
a. the person supplying workers to an employerdoes
not have substantial capital or investment in the
form of tools, equipment, machineries, work
premises, amongothers; and,
b. the workers recruited and placed by such person are
performing activities which are directly relatedto the
principal business of the employer.
BCC need not prove that it made investments in the form of
tools, equipment, machineries, work premises, amongothers,
because it has established that it has sufficient capitalization.
This fact was both determined by the LaborArbiter and the
NLRC as BCC had a capital stock of P1 million fully
subscribed and paid for.
BCC is therefore ahighly capitalized venture and cannot be
deemed engaged in labor-only contracting
While there may be no evidence that it has investment in
the form of tools, equipment, machineries, work
premises,among others, it is enough that it has substantial
capital, as was established before the Labor Arbiter as well
as theNLRC.
The law does not require both substantial capital and
investment in the form of tools, equipment, machineries,
This is clear from the use of the conjunction "or" instead of
Having established that it hassubstantial capital, it was no
longer necessary for BCC to further adduce evidence to
prove that it does not fall withinthe purview of "labor-only"
There is even no need for it to refute petitioners' contention
that the activitiesthey perform are directly related to the
principal business of respondent bank.
On the other hand, the Court has already taken judicial
notice of the general practice adopted in several
governmentand private institutions and industries of hiring
independent contractors to perform special services.
These servicesrange from janitorial, security and even
technical or other specific services such as those performed
by petitionersNeri and Cabelin.
While these services may be considered directly related to
the principal business of the employer,nevertheless, they are
not necessary in the conduct of the principal business of the