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FOR Labor Standards

Discussion No. 3

CASES PAGE

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Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48645 January 7, 1987
"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO CASBADILLO,
PROSPERO TABLADA, ERNESTO BENGSON, PATRICIO SERRANO, ANTONIO B. BOBIAS,
VIRGILIO ECHAS, DOMINGO PARINAS, NORBERTO GALANG, JUANITO NAVARRO, NESTORIO
MARCELLANA, TEOFILO B. CACATIAN, RUFO L. EGUIA, CARLOS SUMOYAN, LAMBERTO
RONQUILLO, ANGELITO AMANCIO, DANILO B. MATIAR, ET AL., petitioners,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, OFFICE OF
THE PRESIDENT, HON. AMADO G. INCIONG, UNDERSECRETARY OF LABOR, SAN MIGUEL
CORPORATION, GENARO OLIVES, ENRIQUE CAMAHORT, FEDERICO OÑATE, ERNESTO
VILLANUEVA, ANTONIO BOCALING and GODOFREDO CUETO, respondents.
Armando V. Ampil for petitioners.
Siguion Reyna, Montecillo and Ongsiako Law Office for private respondents.

GUTIERREZ, JR., J.:


The elemental question in labor law of whether or not an employer-employee relationship exists between
petitioners-members of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM) and respondent San
Miguel Corporation, is the main issue in this petition. The disputed decision of public respondent Ronaldo Zamora,
Presidential Assistant for legal Affairs, contains a brief summary of the facts involved:
1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now defunct
Court of Industrial Relations, charging San Miguel Corporation, and the following officers:
Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio Eugenia Jr., Ernesto
Villanueva, Antonio Bocaling and Godofredo Cueto of unfair labor practice as set forth in
Section 4 (a), sub-sections (1) and (4) of Republic Act No. 875 and of Legal dismissal. It was
alleged that respondents ordered the individual complainants to disaffiliate from the
complainant union; and that management dismissed the individual complainants when they
insisted on their union membership.
On their part, respondents moved for the dismissal of the complaint on the grounds that the
complainants are not and have never been employees of respondent company but employees of
the independent contractor; that respondent company has never had control over the means and
methods followed by the independent contractor who enjoyed full authority to hire and control
said employees; and that the individual complainants are barred by estoppel from asserting that
they are employees of respondent company.
While pending with the Court of Industrial Relations CIR pleadings and testimonial and
documentary evidences were duly presented, although the actual hearing was delayed by
several postponements. The dispute was taken over by the National Labor Relations
Commission (NLRC) with the decreed abolition of the CIR and the hearing of the case
intransferably commenced on September 8, 1975.
On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was
concurred in by the NLRC in a decision dated June 28, 1976. The amount of backwages
awarded, however, was reduced by NLRC to the equivalent of one (1) year salary.
On appeal, the Secretary in a decision dated June 1, 1977, set aside the NLRC ruling, stressing
the absence of an employer-mployee relationship as borne out by the records of the case. ...

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The petitioners strongly argue that there exists an employer-employee relationship between them and the
respondent company and that they were dismissed for unionism, an act constituting unfair labor practice "for which
respondents must be made to answer."
Unrebutted evidence and testimony on record establish that the petitioners are workers who have been employed at
the San Miguel Parola Glass Factory since 1961, averaging about seven (7) years of service at the time of their
termination. They worked as "cargadores" or "pahinante" at the SMC Plant loading, unloading, piling or palleting
empty bottles and woosen shells to and from company trucks and warehouses. At times, they accompanied the
company trucks on their delivery routes.
The petitioners first reported for work to Superintendent-in-Charge Camahort. They were issued gate passes signed
by Camahort and were provided by the respondent company with the tools, equipment and paraphernalia used in the
loading, unloading, piling and hauling operation.
Job orders emanated from Camahort. The orders are then transmitted to an assistant-officer-in-charge. In turn, the
assistant informs the warehousemen and checkers regarding the same. The latter, thereafter, relays said orders to the
capatazes or group leaders who then give orders to the workers as to where, when and what to load, unload, pile,
pallet or clean.
Work in the glass factory was neither regular nor continuous, depending wholly on the volume of bottles
manufactured to be loaded and unloaded, as well as the business activity of the company. Work did not necessarily
mean a full eight (8) hour day for the petitioners. However, work,at times, exceeded the eight (8) hour day and
necessitated work on Sundays and holidays. For this, they were neither paid overtime nor compensation for work on
Sundays and holidays.
Petitioners were paid every ten (10) days on a piece rate basis, that is, according to the number of cartons and
wooden shells they were able to load, unload, or pile. The group leader notes down the number or volume of work
that each individual worker has accomplished. This is then made the basis of a report or statement which is
compared with the notes of the checker and warehousemen as to whether or not they tally. Final approval of report
is by officer-in-charge Camahort. The pay check is given to the group leaders for encashment, distribution, and
payment to the petitioners in accordance with payrolls prepared by said leaders. From the total earnings of the
group, the group leader gets a participation or share of ten (10%) percent plus an additional amount from the
earnings of each individual.
The petitioners worked exclusive at the SMC plant, never having been assigned to other companies or departments
of SMC plant, even when the volume of work was at its minimum. When any of the glass furnaces suffered a
breakdown, making a shutdown necessary, the petitioners work was temporarily suspended. Thereafter, the
petitioners would return to work at the glass plant.
Sometime in January, 1969, the petitioner workers — numbering one hundred and forty (140) organized and
affiliated themselves with the petitioner union and engaged in union activities. Believing themselves entitled to
overtime and holiday pay, the petitioners pressed management, airing other grievances such as being paid below the
minimum wage law, inhuman treatment, being forced to borrow at usurious rates of interest and to buy raffle
tickets, coerced by withholding their salaries, and salary deductions made without their consent. However, their
gripes and grievances were not heeded by the respondents.
On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of Labor Relations in connection
with the dismissal of some of its members who were allegedly castigated for their union membership and warned
that should they persist in continuing with their union activities they would be dismissed from their jobs. Several
conciliation conferences were scheduled in order to thresh out their differences, On February 12, 1969, union
member Rogelio Dipad was dismissed from work. At the scheduled conference on February 19, 1969, the
complainant union through its officers headed by National President Artemio Portugal Sr., presented a letter to the
respondent company containing proposals and/or labor demands together with a request for recognition and
collective bargaining.
San Miguel refused to bargain with the petitioner union alleging that the workers are not their employees.

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On February 20, 1969, all the petitioners were dismissed from their jobs and, thereafter, denied entrance to
respondent company's glass factory despite their regularly reporting for work. A complaint for illegal dismissal and
unfair labor practice was filed by the petitioners.
The case reaches us now with the same issues to be resolved as when it had begun.
The question of whether an employer-employee relationship exists in a certain situation continues to bedevil the
courts. Some businessmen try to avoid the bringing about of an employer-employee relationship in their enterprises
because that judicial relation spawns obligations connected with workmen's compensation, social security,
medicare, minimum wage, termination pay, and unionism. (Mafinco Trading Corporation v. Ople, 70 SCRA 139).
In determining the existence of an employer-employee relationship, the elements that are generally considered are
the following: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the employee with respect to the means and methods by which
the work is to be accomplished. It. is the called "control test" that is the most important element (Investment
Planning Corp. of the Phils. v. The Social Security System, 21 SCRA 924; Mafinco Trading Corp. v.
Ople, supra, and Rosario Brothers, Inc. v. Ople, 131 SCRA 72).
Applying the above criteria, the evidence strongly indicates the existence of an employer-employee relationship
between petitioner workers and respondent San Miguel Corporation. The respondent asserts that the petitioners are
employees of the Guaranteed Labor Contractor, an independent labor contracting firm.
The facts and evidence on record negate respondent SMC's claim.
The existence of an independent contractor relationship is generally established by the following criteria: "whether
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 employer's power with respect to the hiring, firing and payment
of the contractor's 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" (56 CJS Master and Servant, Sec. 3(2), 46; See also 27
AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75 ALR 7260727)
None of the above criteria exists in the case at bar.
Highly unusual and suspect is the absence of a written contract to specify the performance of a specified piece of
work, the nature and extent of the work and the term and duration of the relationship. The records fail to show that a
large commercial outfit, such as the San Miguel Corporation, entered into mere oral agreements of employment or
labor contracting where the same would involve considerable expenses and dealings with a large number of workers
over a long period of time. Despite respondent company's allegations not an iota of evidence was offered to prove
the same or its particulars. Such failure makes respondent SMC's stand subject to serious doubts.
Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked continuously
and exclusively for the respondent company's shipping and warehousing department. Considering the length of time
that the petitioners have worked with the respondent company, there is justification to conclude that they were
engaged to perform activities necessary or desirable in the usual business or trade of the respondent, and the
petitioners are, therefore regular employees (Phil. Fishing Boat Officers and Engineers Union v. Court of Industrial
Relations, 112 SCRA 159 and RJL Martinez Fishing Corporation v. National Labor Relations Commission, 127
SCRA 454).
As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission (supra):
... [T]he employer-employee relationship between the parties herein is not coterminous with
each loading and unloading job. As earlier shown, respondents are engaged in the business of
fishing. For this purpose, they have a fleet of fishing vessels. Under this situation, respondents'
activity of catching fish is a continuous process and could hardly be considered as seasonal in
nature. So that the activities performed by herein complainants, i.e. unloading the catch of tuna
fish from respondents' vessels and then loading the same to refrigerated vans, are necessary or
desirable in the business of respondents. This circumstance makes the employment of

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complainants a regular one, in the sense that it does not depend on any specific project or
seasonable activity. (NLRC Decision, p. 94, Rollo).lwphl@itç
so as it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for repairs, the
petitioners, thereafter, promptly returned to their jobs, never having been replaced, or assigned elsewhere until the
present controversy arose. The term of the petitioners' employment appears indefinite. The continuity and
habituality of petitioners' work bolsters their claim of employee status vis-a-vis respondent company,
Even under the assumption that a contract of employment had indeed been executed between respondent SMC and
the alleged labor contractor, respondent's case will, nevertheless, fail.
Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides:
Job contracting. — There is job contracting permissible under the Code if the following
conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his
own account under his own responsibility according to his own manner and method, free from
the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.
We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor investment to qualify as
an independent contractor under the law. The premises, tools, equipment and paraphernalia used by the petitioners
in their jobs are admittedly all supplied by respondent company. It is only the manpower or labor force which the
alleged contractors supply, suggesting the existence of a "labor only" contracting scheme prohibited by law (Article
106, 109 of the Labor Code; Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor
Code). In fact, even the alleged contractor's office, which consists of a space at respondent company's warehouse,
table, chair, typewriter and cabinet, are provided for by respondent SMC. It is therefore clear that the alleged
contractors have no capital outlay involved in the conduct of its business, in the maintenance thereof or in the
payment of its workers' salaries.
The payment of the workers' wages is a critical factor in determining the actuality of an employer-employee
relationship whether between respondent company and petitioners or between the alleged independent contractor
and petitioners. It is important to emphasize that in a truly independent contractor-contractee relationship, the fees
are paid directly to the manpower agency in lump sum without indicating or implying that the basis of such lump
sum is the salary per worker multiplied by the number of workers assigned to the company. This is the rule
in Social Security System v. Court of Appeals (39 SCRA 629, 635).
The alleged independent contractors in the case at bar were paid a lump sum representing only the salaries the
workers were entitled to, arrived at by adding the salaries of each worker which depend on the volume of work
they. had accomplished individually. These are based on payrolls, reports or statements prepared by the workers'
group leader, warehousemen and checkers, where they note down the number of cartons, wooden shells and bottles
each worker was able to load, unload, pile or pallet and see whether they tally. The amount paid by respondent
company to the alleged independent contractor considers no business expenses or capital outlay of the latter. Nor is
the profit or gain of the alleged contractor in the conduct of its business provided for as an amount over and above
the workers' wages. Instead, the alleged contractor receives a percentage from the total earnings of all the workers
plus an additional amount corresponding to a percentage of the earnings of each individual worker, which, perhaps,
accounts for the petitioners' charge of unauthorized deductions from their salaries by the respondents.
Anent the argument that the petitioners are not employees as they worked on piece basis, we merely have to cite our
rulings in Dy Keh Beng v. International Labor and Marine Union of the Philippines (90 SCRA 161), as follows:
"[C]ircumstances must be construed to determine indeed if payment by the piece is just a
method of compensation and does not define the essence of the relation. Units of time . . . and
units of work are in establishments like respondent (sic) just yardsticks whereby to determine

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rate of compensation, to be applied whenever agreed upon. We cannot construe payment by
the piece where work is done in such an establishment so as to put the worker completely at
liberty to turn him out and take in another at pleasure."
Article 106 of the Labor Code provides the legal effect of a labor only contracting scheme, to wit:
... 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.
Firmly establishing respondent SMC's role as employer is the control exercised by it over the petitioners that is,
control in the means and methods/manner by which petitioners are to go about their work, as well as in disciplinary
measures imposed by it.
Because of the nature of the petitioners' work as cargadores or pahinantes, supervision as to the means and manner
of performing the same is practically nil. For, how many ways are there to load and unload bottles and wooden
shells? The mere concern of both respondent SMC and the alleged contractor is that the job of having the bottles
and wooden shells brought to and from the warehouse be done. More evident and pronounced is respondent
company's right to control in the discipline of petitioners. Documentary evidence presented by the petitioners
establish respondent SMC's right to impose disciplinary measures for violations or infractions of its rules and
regulations as well as its right to recommend transfers and dismissals of the piece workers. The inter-office
memoranda submitted in evidence prove the company's control over the petitioners. That respondent SMC has the
power to recommend penalties or dismissal of the piece workers, even as to Abner Bungay who is alleged by SMC
to be a representative of the alleged labor contractor, is the strongest indication of respondent company's right of
control over the petitioners as direct employer. There is no evidence to show that the alleged labor contractor had
such right of control or much less had been there to supervise or deal with the petitioners.
The petitioners were dismissed allegedly because of the shutdown of the glass manufacturing plant. Respondent
company would have us believe that this was a case of retrenchment due to the closure or cessation of operations of
the establishment or undertaking. But such is not the case here. The respondent's shutdown was merely temporary,
one of its furnaces needing repair. Operations continued after such repairs, but the petitioners had already been
refused entry to the premises and dismissed from respondent's service. New workers manned their positions. It is
apparent that the closure of respondent's warehouse was merely a ploy to get rid of the petitioners, who were then
agitating the respondent company for benefits, reforms and collective bargaining as a union. There is no showing
that petitioners had been remiss in their obligations and inefficient in their jobs to warrant their separation.
As to the charge of unfair labor practice because of SMC's refusal to bargain with the petitioners, it is clear that the
respondent company had an existing collective bargaining agreement with the IBM union which is the recognized
collective bargaining representative at the respondent's glass plant.
There being a recognized bargaining representative of all employees at the company's glass plant, the petitioners
cannot merely form a union and demand bargaining. The Labor Code provides the proper procedure for the
recognition of unions as sole bargaining representatives. This must be followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel Corporation is
hereby ordered to REINSTATE petitioners, with three (3) years backwages. However, where reinstatement is no
longer possible, the respondent SMC is ordered to pay the petitioners separation pay equivalent to one (1) month
pay for every year of service.
SO ORDERED.

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SECOND DIVISION

[G.R. No. L-43825. May 9, 1988.]

CONTINENTAL MARBLE CORP. and FELIPE DAVID, Petitioners, v. NATIONAL LABOR RELATIONS
COMMISSION (NLRC); ARBITRATOR JOSE T. COLLADO and RODITO NASAYAO, Respondents.

Benito P. Fabie, for Petitioners.

Narciso C. Parayno, Jr. for Respondents.

SYLLABUS

1. REMEDIAL LAW; SUPREME COURT; EMPOWERED TO REVIEW FINAL DECISIONS OF


VOLUNTARY ARBITRATORS WHERE QUESTIONS OF LAW ARE INVOLVED. — In Oceanic Bic Division
(FFW) v. Romero, and reiterated in Mantrade/FMMC Division Employees and Workers Union v. Bacungan the
Court ruled that it can review the decisions of voluntary arbitrators inspite of statutory provisions making ‘final’ the
decisions of certain administrative agencies, we have taken cognizance of petitions questioning these decisions
where want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice, or
erroneous interpretation of the law were brought to our attention. A voluntary arbitrator by the nature of her
functions acts in a quasi-judicial capacity. There is no reason why her decisions involving interpretation of law
should be beyond this Court’s review. Administrative officials are presumed to act in accordance with law and yet
we do not hesitate to pass upon their work where a question of law is involved or where a showing of abuse of
authority or discretion in their official acts is properly raised in petitions for certiorari.

2. ADMINISTRATIVE LAW; EXHAUSTION OF ADMINISTRATIVE REMEDIES DOCTRINE CANNOT BE


INVOKED WHERE NO LAW PROVIDE FOR AN APPEAL FROM DECISIONS OF THE NATIONAL LABOR
RELATIONS COMMISSION. — The contention is without merit. The doctrine of exhaustion of administrative
remedies cannot be invoked in this case, as contended. In the recent case of John Clement Consultants, Inc. versus
National Labor Relations Commission, the Court said: "As is well known, no law provides for an appeal from
decisions of the National Labor Relations Commission; hence, there can be no review and reversal on appeal by
higher authority of its factual or legal conclusions.

3. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACTS OF ADMINISTRATIVE BODIES SUPPORTED BY


SUBSTANTIAL EVIDENCE ACCORDED GREAT RESPECT. — While the Court has accorded great respect for,
and finality to, findings of fact of a voluntary arbitrator and administrative agencies which have acquired expertise
in their respective fields, like the Labor Department and the National Labor Relations Commission, their findings of
fact and the conclusions drawn therefrom have to be supported by substantial evidence.

4. LABOR AND SOCIAL LEGISLATIONS; LABOR CODE; EMPLOYMENT; FACTORS IN DETERMINING


EXISTENCE EMPLOYER-EMPLOYEE RELATIONSHIP. — Most of all, the element of control is lacking. In
Brotherhood Labor Unity Movement in the Philippines v. Zamora, the Court enumerated the factors in determining
whether or not an employer-employee relationship exists, to wit: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control the employee with
respect to the means and methods by which the work is to be accomplished. It is the so-called ‘control test’ that is
the most important element.

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5. ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — In the instant case, it appears that the petitioners had no control over
the conduct of Rodito Nasayao in the performance of his work. He decided for himself on what was to be done and
worked at his own pleasure. He was not subject to definite hours or conditions of work and, in turn, was
compensated according to the results of his own effort. He had a free hand in running the company and its business,
so much so, that the petitioner Felipe David did not know, until very much later, that Rodito Nasayao had collected
old accounts receivables, not covered by their agreement, which he converted to his own personal use. Absent the
power to control the employee with respect to the means and methods by which his work was to be accomplished,
there was no employer-employee relationship between the parties. Hence, there is no basis for an award of unpaid
salaries or wages to Rodito Nasayao.

DECISION

PADILLA, J.:

In this petition for mandamus, prohibition and certiorari with preliminary injunction, petitioners seek to annul and
set aside the decision rendered by the respondent Arbitrator Jose T. Collado, dated 29 December 1975, in NLRC
Case No. LR-6151, entitled: "Rodito Nasayao, complainant, versus Continental Marble Corp. and Felipe
David, Respondents," and the resolution issued by the respondent Commission, dated 7 May 1976, which dismissed
herein petitioners’ appeal from said decision.

In his complaint before the NLRC, herein private respondent Rodito Nasayao claimed that sometime in May 1974,
he vas appointed plant manager of the petitioner corporation, with an alleged compensation of P3,000.00, s month,
or 25% of the monthly net income of the company, whichever is greater, and when the company failed to pay his
salary for the months of May, June, and July 1974, Rodito Nasayao filed a complaint with the National Labor
Relations Commission, Branch IV, for the recovery of said unpaid salaries. The case was docketed therein as NLRC
Case No. LR-6151.

Answering, the herein petitioners denied that Rodito Nasayao was employed in the company as plant manager with
a fixed monthly salary of P3,000.00. They claimed that the undertaking agreed upon by the parties was a joint
venture, a sort of partnership, wherein Rodito Nasayao was to keep the machinery in good working condition and,
in return, he would get the contracts from end-users for the installation of marble products, in which the company
would not interfere. In addition, private respondent Nasayao was to receive an amount equivalent to 25% of the net
profits that the petitioner corporation would realize, should there be any. Petitioners alleged that since there had
been no profits during said period, private respondent was not entitled to any amount. virtua

The case was submitted for voluntary arbitration and the parties selected the herein respondent Jose T. Collado as
voluntary arbitrator. In the course of the proceedings, however, the herein petitioners challenged the arbitrator’s
capacity to try and decide the case fairly and judiciously and asked him to desist from further hearing the case. But,
the respondent arbitrator refused. In due time, or on 29 December 1975, he rendered judgment in favor of the
complainant, ordering the herein petitioners to pay Rodito Nasayao the amount of P9,000.00, within 10 days from
notice. 1

Upon receipt of the decision, the herein petitioners appealed to the National Labor Relations Commission on
grounds that the labor arbiter gravely abused his discretion in persisting to hear and decide the case notwithstanding

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petitioners’ request for him to desist therefrom: and that the appealed decision is not supported by evidence. 2

On 18 March 1976, Rodito Nasayao filed a motion to dismiss the appeal on the ground that the decision of the
voluntary arbitrator is final, unappealable, and immediately executory; 3 and, on 23 March 1976, he filed a motion
for the issuance of a writ of execution. 4

Acting on the motions, the respondent Commission, in a resolution dated 7 May 1976, dismissed the appeal on the
ground that the decision appealed from is final, unappealable and immediately executory, and ordered the herein
petitioners to comply with the decision of the voluntary arbitrator within 10 days from receipt of the resolution. 5

The petitioners are before the Court in the present recourse. As prayed for, the Court issued a temporary restraining
order, restraining herein respondents from enforcing and/or carrying out the questioned decision and resolution. 6

The issue for resolution is whether or not the private respondent Rodito Nasayao was employed as plant manager of
petitioner Continental Marble Corporation with a monthly salary of P3,000.00 or 25% of its monthly income,
whichever is greater, as claimed by said respondent, or entitled to receive only an amount equivalent to 25% of net
profits, if any, that the company would realize, as contended by the petitioners.

The respondent arbitrator found that the agreement between the parties was for the petitioner company to pay the
private respondent, Rodito Nasayao, a monthly salary of P3,000.00, and, consequently, ordered the company to pay
Rodito Nasayao the amount of P9,000.00 covering a period of three (3) months, that is, May, June and July 1974.

The respondent Rodito Nasayao now contends that the judgment or award of the voluntary arbitrator is final,
unappealable and immediately executory, and may not be reviewed by the Court. His contention is based upon the
provisions of Art. 262 of the Labor Code, as amended.

The petitioners, upon the other hand, maintain that "where there is patent and manifest abuse of discretion, the rule
on unappealability of awards of a voluntary arbitrator becomes flexible and it is the inherent power of the Courts to
maintain the people’s faith in the administration of justice." 1aw library

The question of the finality and unappealability of a decision and/or award of a voluntary arbitrator had been laid to
rest in Oceanic Bic Division (FFW) v. Romero, 7 and reiterated in Mantrade/FMMC Division Employees and
Workers Union v. Bacungan. 8 The Court therein ruled that it can review the decisions of voluntary arbitrators, thus

"We agree with the petitioner that the decisions of voluntary arbitrators must be given the highest respect and as a
general rule must be accorded a certain measure of finality. This is especially true where the arbitrator chosen by
the parties enjoys the first rate credentials of Professor Flerida Ruth Pineda Romero, Director of the U.P. Law
Center and an academician of unquestioned expertise in the field of Labor Law. It is not correct, however, that this
respect precludes the exercise of judicial review over their decisions. Article 262 of the Labor Code making
voluntary arbitration awards final, inappealable, and executory except where the money claims exceed P100,000.00
or 40% of paid-up capital of the employer or where there is abuse of discretion or gross incompetence refers to
appeals to the National Labor Relations Commission and not to judicial review.

"Inspite of statutory provisions making ‘final’ the decisions of certain administrative agencies, we have taken
cognizance of petitions questioning these decisions where want of jurisdiction, grave abuse of discretion, violation
of due process, denial of substantial justice, or erroneous interpretation of the law were brought to our attention.
There is no provision for appeal in the statute creating the Sandiganbayan but this has not precluded us from

9
examining decisions of this special court brought to us in proper petitions. . . ." 1aw library

The Court further said: om.ph

"A voluntary arbitrator by the nature of her functions acts in a quasi-judicial capacity. There is no reason why her
decisions involving interpretation of law should be beyond this Court’s review. Administrative officials are
presumed to act in accordance with law and yet we do not hesitate to pass upon their work where a question of law
is involved or where a showing of abuse of authority or discretion in their official acts is properly raised in petitions
for certiorari." 1aw library

The foregoing pronouncements find support in Section 29 of Republic Act No. 876, otherwise known as the
Arbitration Law, which provides: om.ph

"Sec. 29. Appeals. — An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to questions of
law. The proceedings upon such an appeal, including the judgment thereon shall be governed by the Rules of Court
in so far as they are applicable." 1aw library

The private respondent, Rodito Nasayao, in his Answer to the petition, 9 also claims that the case is premature for
non-exhaustion of administrative remedies. He contends that the decision of the respondent Commission should
have been first appealed by petitioners to the Secretary of Labor, and, if they are not satisfied with his decision, to
appeal to the President of the Philippines, before resort is made to the Court.

The contention is without merit. The doctrine of exhaustion of administrative remedies cannot be invoked in this
case, as contended. In the recent case of John Clement Consultants, Inc. versus National Labor Relations
Commission, 10 the Court said:

"As is well known, no law provides for an appeal from decisions of the National Labor Relations Commission;
hence, there can be no review and reversal on appeal by higher authority of its factual or legal conclusions. When,
however, it decides a case without or in excess of its jurisdiction, or with grave abuse of discretion, the party
thereby adversely affected may obtain a review and nullification of that decision by this Court through the
extraordinary writ of certiorari. Since, in this case, it appears that the Commission has indeed acted without
jurisdiction and with grave abuse of discretion in taking cognizance of a belated appeal sought to be taken from a
decision of Labor Arbiter and thereafter reversing it, the writ of certiorari will issue to undo those acts, and do
justice to the aggrieved party." 1aw library

We also find no merit in the contention of Rodito Nasayao that only questions of law, and not findings of fact of a
voluntary arbitrator may be reviewed by the Court, since the findings of fact of the voluntary arbitrator are
conclusive upon the Court.

While the Court has accorded great respect for, and finality to, findings of fact of a voluntary arbitrator 11 and
administrative agencies which have acquired expertise in their respective fields, like the Labor Department and the
National Labor Relations Commission, 12 their findings of fact and the conclusions drawn therefrom have to be
supported by substantial evidence. In that instant case, the finding of the voluntary arbitrator that Rodito Nasayao
was an employee of the petitioner corporation is not supported by the evidence or by the law.

On the other hand, we find the version of the petitioners to be more plausible and in accord with human nature and
the ordinary course of things. As pointed out by the petitioners, it was illogical for them to hire the private

10
respondent Rodito Nasayao as plant manager with a monthly salary of P3,000.00, an amount which they could ill-
afford to pay, considering that the business was losing, at the time he was hired, and that they were about to close
shop in a few months’ time.

Besides, there is nothing in the record which would support the claim of Rodito Nasayao that he was an employee
of the petitioner corporation. He was not included in the company payroll, nor in the list of company employees
furnished the Social Security System.

Most of all, the element of control is lacking. In Brotherhood Labor Unity Movement in the Philippines v. Zamora,
13 the Court enumerated the factors in determining whether or not an employer-employee relationship exists, to wit:
om.ph

"In determining the existence of an employer-employee relationship, the elements that are generally considered are
the following: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer’s power to control the employee with respect to the means and methods by which
the work is to be accomplished. It is the so-called ‘control test’ that is the most important element (Investment
Planning Corp. of the Phils. v. The Social Security System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra,
and Rosario Brothers, Inc. v. Ople, 131 SCRA 72)." 1aw library

In the instant case, it appears that the petitioners had no control over the conduct of Rodito Nasayao in the
performance of his work. He decided for himself on what was to be done and worked at his own pleasure. He was
not subject to definite hours or conditions of work and, in turn, was compensated according to the results of his own
effort. He had a free hand in running the company and its business, so much so, that the petitioner Felipe David did
not know, until very much later, that Rodito Nasayao had collected old accounts receivables, not covered by their
agreement, which he converted to his own personal use. It was only after Rodito Nasayao had abandoned the plant
following discovery of his wrong-doings, that Felipe David assumed management of the plant. .com : virtual law
library

Absent the power to control the employee with respect to the means and methods by which his work was to be
accomplished, there was no employer-employee relationship between the parties. Hence, there is no basis for an
award of unpaid salaries or wages to Rodito Nasayao.

WHEREFORE, the decision rendered by the respondent Jose T. Collado in NLRC Case No. LR-6151, entitled:
"Rodito Nasayao, complainant, versus Continental Marble Corp. and Felipe David, Respondents," on 29 December
1975, and the resolution issued by the respondent National Labor Relations Commission in said case on 7 May
1976, are REVERSED and SET ASIDE and another one entered DISMISSING private respondent’s complaint. The
temporary restraining order heretofore issued by the Court is made permanent. Without costs.

SO ORDERED.

11
FIRST DIVISION

[G.R. No. 84484. November 15, 1989.]

INSULAR LIFE ASSURANCE CO., LTD., Petitioner, v. NATIONAL LABOR RELATIONS


COMMISSION and MELECIO BASIAO, Respondents.

Tirol & Tirol for Petitioner.

Enojas, Defensor & Teodosio Cabado Law Offices for Private Respondent.

DECISION

NARVASA, J.:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio T. Basiao
entered into a contract 1 by which: virtual 1aw library

1. Basiao was "authorized to solicit within the Philippines applications for insurance policies and annuities in
accordance with the existing rules and regulations" of the Company;

2. he would receive "compensation, in the form of commissions . . . as provided in the Schedule of Commissions"
of the contract to "constitute a part of the consideration of . . . (said) agreement;" and

3. the "rules in . . . (the Company’s) Rate Book and its Agent’s Manual, as well as all its circulars . . . and those
which may from time to time be promulgated by it, . . ." were made part of said contract.

The contract also contained, among others, provisions governing the relations of the parties, the duties of the Agent,
the acts prohibited to him, and the modes of termination of the agreement, viz.:

"RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to time, place and
means of soliciting insurance. Nothing herein contained shall therefore be construed to create the relationship of
employee and employer between the Agent and the Company. However, the Agent shall observe and conform to all
rules and regulations which the Company may from time to time prescribe.

"ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or indirectly, rebates
in any form, or from making any misrepresentation or over-selling, and, in general, from doing or committing acts
prohibited in the Agent’s Manual and in circulars of the Office of the Insurance Commissioner.

"TERMINATION. The Company may terminate the contract at will, without any previous notice to the Agent, for
or on account of . . . (explicitly specified causes) . . .

Either party may terminate this contract by giving to the other notice in writing to that effect. It shall become ipso
facto cancelled if the Insurance Commissioner should revoke a Certificate of Authority previously issued or should
the Agent fail to renew his existing Certificate of Authority upon its expiration. The Agent shall not have any right

12
to any commission on renewal of premiums that may be paid after the termination of this agreement for any cause
whatsoever, except when the termination is due to disability or death in line of service. As to commission
corresponding to any balance of the first year’s premiums remaining unpaid at the termination of this agreement,
the Agent shall be entitled to it if the balance of the first year premium is paid, less actual cost of collection, unless
the termination is due to a violation of this contract, involving criminal liability or breach of trust.

"ASSIGNMENT. No Assignment of the Agency herein created or of commissions or other compensations shall be
valid without the prior consent in writing of the Company . . ." 1aw library

Some four years later, in April 1972, the parties entered into another contract - an Agency Manager’s Contract —
and to implement his end of it Basiao organized an agency or office to which he gave the name M. Basiao and
Associates, while concurrently fulfilling his commitments under the first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager’s Contract. After vainly seeking a reconsideration,
Basiao sued the Company in a civil action and this, he was later to claim, prompted the latter to terminate also his
engagement under the first contract and to stop payment of his commissions starting April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its president.
Without contesting the termination of the first contract, the complaint sought to recover commissions allegedly
unpaid thereunder, plus attorney’s fees. The respondents disputed the Ministry’s jurisdiction over Basiao’s claim,
asserting that he was not the Company’s employee, but an independent contractor and that the Company had no
obligation to him for unpaid commissions under the terms and conditions of his contract. 5

The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting agreement had
established an employer-employee relationship between him and the Company, and this conferred jurisdiction on
the Ministry of Labor to adjudicate his claim. Said official’s decision directed payment of his unpaid commissions."
. . equivalent to the balance of the first year’s premium remaining unpaid, at the time of his termination, of all the
insurance policies solicited by . . . (him) in favor of the respondent company . . ." plus 10% attorney’s fees. 6

This decision was, on appeal by the Company, affirmed by the National Labor Relations Commission. 7 Hence, the
present petition for certiorari and prohibition.

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company’s employee by
virtue of the contract invoked by him, thereby placing his claim for unpaid commissions within the original and
exclusive jurisdiction of the Labor Arbiter under the provisions of Section 217 of the Labor Code, 8 or, contrarily,
as the Company would have it, that under said contract Basiao’s status was that of an independent contractor whose
claim was thus cognizable, not by the Labor Arbiter in a labor case, but by the regular courts in an ordinary civil
action.

The Company’s thesis, that no employer-employee relation in the legal and generally accepted sense existed
between it and Basiao, is drawn from the terms of the contract they had entered into, which, either expressly or by
necessary implication, made Basiao the master of his own time and selling methods, left to his judgment the time,
place and means of soliciting insurance, set no accomplishment quotas and compensated him on the basis of results
obtained. He was not bound to observe any schedule of working hours or report to any regular station; he could seek
and work on his prospects anywhere and at anytime he chose to, and was free to adopt the selling methods he
deemed most effective.

Without denying that the above were indeed the expressed or implicit conditions of Basiao’s contract with the

13
Company, the respondents contend that they do not constitute the decisive determinant of the nature of his
engagement, invoking precedents to the effect that the critical feature distinguishing the status of an employee from
that of an independent contractor is control, that is, whether or not the party who engages the services of another has
the power to control the latter’s conduct in rendering such services. Pursuing the argument, the respondents draw
attention to the provisions of Basiao’s contract obliging him to." . . observe and conform to all rules and regulations
which the Company may from time to time prescribe . . .," as well as to the fact that the Company prescribed the
qualifications of applicants for insurance, processed their applications and determined the amounts of insurance
cover to be issued as indicative of the control, which made Basiao, in legal contemplation, an employee of the
Company. 9

It is true that the "control test" expressed in the following pronouncement of the Court in the 1956 case of Viana v.
Alejo Al-Lagadan: 10

". . . In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employees’ conduct - although the latter is the most important element
(35 Am. Jur. 445). . .,"

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a valid test of the
character of a contract or agreement to render service. It should, however, be obvious that not every form of control
that the hiring party reserves to himself over the conduct of the party hired in relation to the services rendered may
be accorded the effect of establishing an employer-employee relationship between them in the legal or technical
sense of the term. A line must be drawn somewhere, if the recognized distinction between an employee and an
individual contractor is not to vanish altogether. Realistically, it would be a rare contract of service that gives
untrammelled freedom to the party hired and eschews any intervention whatsoever in his performance of the
engagement.

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. The distinction acquires particular relevance in the case of an enterprise affected with
public interest, as is the business of insurance, and is on that account subject to regulation by the State with respect,
not only to the relations between insurer and insured but also to the internal affairs of the insurance company. 12
Rules and regulations governing the conduct of the business are provided for in the Insurance Code and enforced by
the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of
rules to guide its commission agents in selling its policies that they may not run afoul of the law and what it requires
or prohibits. Of such a character are the rules which prescribe the qualifications of persons who may be insured,
subject insurance applications to processing and approval by the Company, and also reserve to the Company the
determination of the premiums to be paid and the schedules of payment. None of these really invades the agent’s
contractual prerogative to adopt his own selling methods or to sell insurance at his own time and convenience,
hence cannot justifiably be said to establish an employer-employee relationship between him and the company.

There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent contractors,
instead of employees of the parties for whom they worked. In Mafinco Trading Corporation v. Ople, 13 the Court
ruled that a person engaged to sell soft drinks for another, using a truck supplied by the latter, but with the right to
employ his own workers, sell according to his own methods subject only to prearranged routes, observing no
working hours fixed by the other party and obliged to secure his own licenses and defray his own selling expenses,

14
all in consideration of a peddler’s discount given by the other party for at least 250 cases of soft drinks sold daily,
was not an employee but an independent contractor.

In Investment Planning Corporation of the Philippines v. Social Security System, 14 a case almost on all fours with
the present one, this Court held that there was no employer-employee relationship between a commission agent and
an investment company, but that the former was an independent contractor where said agent and others similarly
placed were: (a) paid compensation in the form of commissions based on percentages of their sales, any balance of
commissions earned being payable to their legal representatives in the event of death or registration; (b) required to
put up performance bonds; (c) subject to a set of rules and regulations governing the performance of their duties
under the agreement with the company and termination of their services for certain causes; (d) not required to report
for work at any time, nor to devote their time exclusively to working for the company nor to submit a record of their
activities, and who, finally, shouldered their own selling and transportation expenses.

More recently, in Sara v. NLRC, 15 it was held that one who had been engaged by a rice miller to buy and sell rice
and palay without compensation except a certain percentage of what he was able to buy or sell, did work at his own
pleasure without any supervision or control on the part of his principal and relied on his own resources in the
performance of his work, was a plain commission agent, an independent contractor and not an employee.

The respondents limit themselves to pointing out that Basiao’s contract with the Company bound him to observe
and conform to such rules and regulations as the latter might from time to time prescribe. No showing has been
made that any such rules or regulations were in fact promulgated, much less that any rules existed or were issued
which effectively controlled or restricted his choice of methods - or the methods themselves of selling insurance.
Absent such showing, the Court will not speculate that any exceptions or qualifications were imposed on the
express provision of the contract leaving Basiao." . . free to exercise his own judgment as to the time, place and
means of soliciting insurance." 1aw library

The Labor Arbiter’s decision makes reference to Basiao’s claim of having been connected with the Company for
twenty-five years. Whatever this is meant to imply, the obvious reply would be that what is germane here is
Basiao’s status under the contract of July 2, 1968, not the length of his relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the petitioner,
but a commission agent, an independent contractor whose claim for unpaid commissions should have been litigated
in an ordinary civil action. The Labor Arbiter erred in taking cognizance of, and adjudicating, said claim, being
without jurisdiction to do so, as did the respondent NLRC in affirming the Arbiter’s decision. This conclusion
renders it unnecessary and premature to consider Basiao’s claim for commissions on its merits. law library : red

WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and that
complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No pronouncement
as to costs.

SO ORDERED.

15
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 119268 February 23, 2000
ANGEL JARDIN, DEMETRIO CALAGOS, URBANO MARCOS, ROSENDO MARCOS, LUIS DE LOS
ANGELES, JOEL ORDENIZA and AMADO CENTENO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) and GOODMAN TAXI (PHILJAMA
INTERNATIONAL, INC.) respondents.
QUISUMBING, J.:
This special civil action for certiorari seeks to annul the decision1 of public respondent promulgated on October 28,
1994, in NLRC NCR CA No. 003883-92, and its resolution2 dated December 13, 1994 which denied petitioners
motion for reconsideration.
Petitioners were drivers of private respondent, Philjama International Inc., a domestic corporation engaged in the
operation of "Goodman Taxi." Petitioners used to drive private respondent's taxicabs every other day on a 24-hour
work schedule under the boundary system. Under this arrangement, the petitioners earned an average of P400.00
daily. Nevertheless, private respondent admittedly regularly deducts from petitioners, daily earnings the amount of
P30.00 supposedly for the washing of the taxi units. Believing that the deduction is illegal, petitioners decided to
form a labor union to protect their rights and interests.
Upon learning about the plan of petitioners, private respondent refused to let petitioners drive their taxicabs when
they reported for work on August 6, 1991, and on succeeding days. Petitioners suspected that they were singled out
because they were the leaders and active members of the proposed union. Aggrieved, petitioners filed with the labor
arbiter a complaint against private respondent for unfair labor practice, illegal dismissal and illegal deduction of
washing fees. In a decision3 dated August 31, 1992, the labor arbiter dismissed said complaint for lack of merit.
On appeal, the NLRC (public respondent herein), in a decision dated April 28, 1994, reversed and set aside the
judgment of the labor arbiter. The labor tribunal declared that petitioners are employees of private respondent, and,
as such, their dismissal must be for just cause and after due process. It disposed of the case as follows:
WHEREFORE, in view of all the foregoing considerations, the decision of the Labor Arbiter appealed
from is hereby SET ASIDE and another one entered:
1. Declaring the respondent company guilty of illegal dismissal and accordingly it is directed to reinstate
the complainants, namely, Alberto A. Gonzales, Joel T. Morato, Gavino Panahon, Demetrio L. Calagos,
Sonny M. Lustado, Romeo Q. Clariza, Luis de los Angeles, Amado Centino, Angel Jardin, Rosendo
Marcos, Urbano Marcos, Jr., and Joel Ordeniza, to their former positions without loss of seniority and
other privileges appertaining thereto; to pay the complainants full backwages and other benefits, less
earnings elsewhere, and to reimburse the drivers the amount paid as washing charges; and
2. Dismissing the charge of unfair [labor] practice for insufficiency of evidence.
SO ORDERED.4
Private respondent's first motion for reconsideration was denied. Remaining hopeful, private respondent filed
another motion for reconsideration. This time, public respondent, in its decision 5 dated October 28, 1994, granted
aforesaid second motion for reconsideration. It ruled that it lacks jurisdiction over the case as petitioners and private
respondent have no employer-employee relationship. It held that the relationship of the parties is leasehold which is
covered by the Civil Code rather than the Labor Code, and disposed of the case as follows:
VIEWED IN THE LIGHT OF ALL THE FOREGOING, the Motion under reconsideration is hereby
given due course.
Accordingly, the Resolution of August 10, 1994, and the Decision of April 28, 1994 are hereby SET
ASIDE. The Decision of the Labor Arbiter subject of the appeal is likewise SET ASIDE and a NEW
ONE ENTERED dismissing the complaint for lack of jurisdiction.

16
No costs.
SO ORDERED.6
Expectedly, petitioners sought reconsideration of the labor tribunal's latest decision which was denied. Hence, the
instant petition.
In this recourse, petitioners allege that public respondent acted without or in excess of jurisdiction, or with grave
abuse of discretion in rendering the assailed decision, arguing that:
I
THE NLRC HAS NO JURISDICTION TO ENTERTAIN RESPONDENT'S SECOND MOTION FOR
RECONSIDERATION WHICH IS ADMITTEDLY A PLEADING PROHIBITED UNDER THE NLRC RULES,
AND TO GRANT THE SAME ON GROUNDS NOT EVEN INVOKED THEREIN.
II
THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES IS
ALREADY A SETTLED ISSUE CONSTITUTING RES JUDICATA, WHICH THE NLRC HAS NO MORE
JURISDICTION TO REVERSE, ALTER OR MODIFY.
III
IN ANY CASE, EXISTING JURISPRUDENCE ON THE MATTER SUPPORTS THE VIEW THAT
PETITIONERS-TAXI DRIVERS ARE EMPLOYEES OF RESPONDENT TAXI COMPANY.7
The petition is impressed with merit.
The phrase "grave abuse of discretion amounting to lack or excess of jurisdiction" has settled meaning in the
jurisprudence of procedure. It means such capricious and whimsical exercise of judgment by the tribunal exercising
judicial or quasi-judicial power as to amount to lack of power.8 In labor cases, this Court has declared in several
instances that disregarding rules it is bound to observe constitutes grave abuse of discretion on the part of labor
tribunal.
In Garcia vs. NLRC,9 private respondent therein, after receiving a copy of the labor arbiter's decision, wrote the
labor arbiter who rendered the decision and expressed dismay over the judgment. Neither notice of appeal was filed
nor cash or surety bond was posted by private respondent. Nevertheless, the labor tribunal took cognizance of the
letter from private respondent and treated said letter as private respondent's appeal. In a certiorari action before this
Court, we ruled that the labor tribunal acted with grave abuse of discretion in treating a mere letter from private
respondent as private respondent's appeal in clear violation of the rules on appeal prescribed under Section 3(a),
Rule VI of the New Rules of Procedure of NLRC.
In Philippine Airlines Inc. vs. NLRC,10 we held that the labor arbiter committed grave abuse of discretion when he
failed to resolve immediately by written order a motion to dismiss on the ground of lack of jurisdiction and the
supplemental motion to dismiss as mandated by Section 15 of Rule V of the New Rules of Procedure of the NLRC.
In Unicane Workers Union-CLUP vs. NLRC,11 we held that the NLRC gravely abused its discretion by allowing
and deciding an appeal without an appeal bond having been filed as required under Article 223 of the Labor Code.
In Mañebo vs. NLRC,12 we declared that the labor arbiter gravely abused its discretion in disregarding the rule
governing position papers. In this case, the parties have already filed their position papers and even agreed to
consider the case submitted for decision, yet the labor arbiter still admitted a supplemental position paper and
memorandum, and by taking into consideration, as basis for his decision, the alleged facts adduced therein and the
documents attached thereto.
In Gesulgon vs. NLRC,13 we held that public respondent gravely abused its discretion in treating the motion to set
aside judgment and writ of execution as a petition for relief of judgment. In doing so, public respondent had,
without sufficient basis, extended the reglementary period for filing petition for relief from judgment contrary to
prevailing rule and case law.
In this case before us, private respondent exhausted administrative remedy available to it by seeking reconsideration
of public respondent's decision dated April 28, 1994, which public respondent denied. With this motion for
reconsideration, the labor tribunal had ample opportunity to rectify errors or mistakes it may have committed before
resort to courts of justice can be had.14 Thus, when private respondent filed a second motion for reconsideration,

17
public respondent should have forthwith denied it in accordance with Rule 7, Section 14 of its New Rules of
Procedure which allows only one motion for reconsideration from the same party, thus:
Sec. 14. Motions for Reconsideration. — Motions for reconsideration of any order, resolution or decision
of the Commission shall not be entertained except when based on palpable or patent errors, provided that
the motion is under oath and filed within ten (10) calendar days from receipt of the order, resolution or
decision with proof of service that a copy of the same has been furnished within the reglementary period
the adverse party and provided further, that only one such motion from the same party shall be
entertained. [Emphasis supplied]
The rationale for allowing only one motion for reconsideration from the same party is to assist the parties in
obtaining an expeditious and inexpensive settlement of labor cases. For obvious reasons, delays cannot be
countenanced in the resolution of labor disputes. The dispute may involve no less than the livelihood of an
employee and that of his loved ones who are dependent upon him for food, shelter, clothing, medicine, and
education. It may as well involve the survival of a business or an industry.15
As correctly pointed out by petitioner, the second motion for reconsideration filed by private respondent is
indubitably a prohibited pleading16 which should have not been entertained at all. Public respondent cannot just
disregard its own rules on the pretext of "satisfying the ends of justice", 17 especially when its disposition of a legal
controversy ran afoul with a clear and long standing jurisprudence in this jurisdiction as elucidated in the
subsequent discussion. Clearly, disregarding a settled legal doctrine enunciated by this Court is not a way of
rectifying an error or mistake. In our view, public respondent gravely abused its discretion in taking cognizance and
granting private respondent's second motion for reconsideration as it wrecks the orderly procedure in seeking reliefs
in labor cases.
But, there is another compelling reason why we cannot leave untouched the flip-flopping decisions of the public
respondent. As mentioned earlier, its October 28, 1994 judgment is not in accord with the applicable decisions of
this Court. The labor tribunal reasoned out as follows:
On the issue of whether or not employer-employee relationship exists, admitted is the fact that
complainants are taxi drivers purely on the "boundary system". Under this system the driver takes out his
unit and pays the owner/operator a fee commonly called "boundary" for the use of the unit. Now, in the
determination the existence of employer-employee relationship, the Supreme Court in the case of Sara, et
al., vs. Agarrado, et al. (G.R. No. 73199, 26 October 1988) has applied the following four-fold test: "(1)
the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and
(4) the power of control the employees conduct."
"Among the four (4) requisites", the Supreme Court stresses that "control is deemed the most important
that the other requisites may even be disregarded". Under the control test, an employer-employee
relationship exists if the "employer" has reserved the right to control the "employee" not only as to the
result of the work done but also as to the means and methods by which the same is to be accomplished.
Otherwise, no such relationship exists. (Ibid.)
Applying the foregoing parameters to the case herein obtaining, it is clear that the respondent does not
pay the drivers, the complainants herein, their wages. Instead, the drivers pay a certain fee for the use of
the vehicle. On the matter of control, the drivers, once they are out plying their trade, are free to choose
whatever manner they conduct their trade and are beyond the physical control of the owner/operator; they
themselves determine the amount of revenue they would want to earn in a day's driving; and, more
significantly aside from the fact that they pay for the gasoline they consume, they likewise shoulder the
cost of repairs on damages sustained by the vehicles they are driving.
Verily, all the foregoing attributes signify that the relationship of the parties is more of a leasehold or one
that is covered by a charter agreement under the Civil Code rather than the Labor Code. 18
The foregoing ratiocination goes against prevailing jurisprudence.
In a number of cases decided by this Court,19 we ruled that the relationship between jeepney owners/operators on
one hand and jeepney drivers on the other under the boundary system is that of employer-employee and not of

18
lessor-lessee. We explained that in the lease of chattels, the lessor loses complete control over the chattel leased
although the lessee cannot be reckless in the use thereof, otherwise he would be responsible for the damages to the
lessor. In the case of jeepney owners/operators and jeepney drivers, the former exercise supervision and control
over the latter. The management of the business is in the owner's hands. The owner as holder of the certificate of
public convenience must see to it that the driver follows the route prescribed by the franchising authority and the
rules promulgated as regards its operation. Now, the fact that the drivers do not receive fixed wages but get only
that in excess of the so-called "boundary" they pay to the owner/operator is not sufficient to withdraw the
relationship between them from that of employer and employee. We have applied by analogy the abovestated
doctrine to the relationships between bus owner/operator and bus conductor, 20 auto-calesa owner/operator and
driver,21 and recently between taxi owners/operators and taxi drivers. 22 Hence, petitioners are undoubtedly
employees of private respondent because as taxi drivers they perform activities which are usually necessary or
desirable in the usual business or trade of their employer.
As consistently held by this Court, termination of employment must be effected in accordance with law. The just
and authorized causes for termination of employment are enumerated under Articles 282, 283 and 284 of the Labor
Code. The requirement of notice and hearing is set-out in Article 277 (b) of the said Code. Hence, petitioners, being
employees of private respondent, can be dismissed only for just and authorized cause, and after affording them
notice and hearing prior to termination. In the instant case, private respondent had no valid cause to terminate the
employment of petitioners. Neither were there two (2) written notices sent by private respondent informing each of
the petitioners that they had been dismissed from work. These lack of valid cause and failure on the part of private
respondent to comply with the twin-notice requirement underscored the illegality surrounding petitioners' dismissal.
Under the law, an employee who is unjustly dismissed from work shall be 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 from him up to the time of his
actual reinstatement.23 It must be emphasized, though, that recent judicial pronouncements 24 distinguish between
employees illegally dismissed prior to the effectivity of Republic Act No. 6715 on March 21, 1989, and those
whose illegal dismissals were effected after such date. Thus, employees illegally dismissed prior to March 21, 1989,
are entitled to backwages up to three (3) years without deduction or qualification, while those illegally dismissed
after that date are granted full backwages inclusive of allowances and other benefits or their monetary equivalent
from the time their actual compensation was withheld from them up to the time of their actual reinstatement. The
legislative policy behind Republic Act No. 6715 points to "full backwages" as meaning exactly that, i.e., without
deducting from backwages the earnings derived elsewhere by the concerned employee during the period of his
illegal dismissal. Considering that petitioners were terminated from work on August 1, 1991, they are entitled to full
backwages on the basis of their last daily earnings.
With regard to the amount deducted daily by private respondent from petitioners for washing of the taxi units, we
view the same as not illegal in the context of the law. We note that after a tour of duty, it is incumbent upon the
driver to restore the unit he has driven to the same clean condition when he took it out. Car washing after a tour of
duty is indeed a practice in the taxi industry and is in fact dictated by fair play. 25 Hence, the drivers are not entitled
to reimbursement of washing charges.1âwphi1.nêt
WHEREFORE, the instant petition is GRANTED. The assailed DECISION of public respondent dated October 28,
1994, is hereby SET ASIDE. The DECISION of public respondent dated April 28, 1994, and its RESOLUTION
dated December 13, 1994, are hereby REINSTATED subject to MODIFICATION. Private respondent is directed to
reinstate petitioners to their positions held at the time of the complained dismissal. Private respondent is likewise
ordered to pay petitioners their full backwages, to be computed from the date of dismissal until their actual
reinstatement. However, the order of public respondent that petitioners be reimbursed the amount paid as washing
charges is deleted. Costs against private respondents.
SO ORDERED.

19
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 64948 September 27, 1994


MANILA GOLF & COUNTRY CLUB, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and FERMIN LLAMAR, respondents.
Bito, Misa & Lozada for petitioner.
Remberto Z. Evio for private respondent.

NARVASA, C.J.:
The question before the Court here is whether or not persons rendering caddying services for members of golf clubs
and their guests in said clubs' courses or premises are the employees of such clubs and therefore within the
compulsory coverage of the Social Security System (SSS).
That question appears to have been involved, either directly or peripherally, in three separate proceedings, all
initiated by or on behalf of herein private respondent and his fellow caddies. That which gave rise to the present
petition for review was originally filed with the Social Security Commission (SSC) via petition of seventeen (17)
persons who styled themselves "Caddies of Manila Golf and Country Club-PTCCEA" for coverage and availment
of benefits under the Social Security Act as amended, "PTCCEA" being
the acronym of a labor organization, the "Philippine Technical, Clerical, Commercial Employees Association," with
which the petitioners claimed to be affiliated. The petition, docketed as SSC Case No. 5443, alleged in essence that
although the petitioners were employees of the Manila Golf and Country Club, a domestic corporation, the latter
had not registered them as such with the SSS.
At about the same time, two other proceedings bearing on the same question were filed or were pending; these
were:
(1) a certification election case filed with the Labor Relations Division of the Ministry of
Labor by the PTCCEA on behalf of the same caddies of the Manila Golf and Country Club,
the case being titled "Philippine Technical, Clerical, Commercial Association vs. Manila Golf
and Country Club" and docketed as Case No. R4-LRDX-M-10-504-78; it appears to have been
resolved in favor of the petitioners therein by Med-Arbiter Orlando S. Rojo who was thereafter
upheld by Director Carmelo S. Noriel, denying the Club's motion for reconsideration; 1
(2) a compulsory arbitration case initiated before the Arbitration Branch of the Ministry of
Labor by the same labor organization, titled "Philippine Technical, Clerical, Commercial
Employees Association (PTCCEA), Fermin Lamar and Raymundo Jomok vs. Manila Golf and
Country Club, Inc., Miguel Celdran, Henry Lim and Geronimo Alejo;" it was dismissed for
lack of merit by Labor Arbiter Cornelio T. Linsangan, a decision later affirmed on appeal by
the National Labor Relations Commission on the ground that there was no employer-employee
relationship between the petitioning caddies and the respondent Club. 2
In the case before the SSC, the respondent Club filed answer praying for the dismissal of the petition, alleging in
substance that the petitioners, caddies by occupation, were allowed into the Club premises to render services as such
to the individual members and guests playing the Club's golf course and who themselves paid for such services; that
as such caddies, the petitioners were not subject to the direction and control of the Club as regards the manner in
which they performed their work; and hence, they were not the Club's employees.
Subsequently, all but two of the seventeen petitioners of their own accord withdrew their claim for social security
coverage, avowedly coming to realize that indeed there was no employment relationship between them and the
Club. The case continued, and was eventually adjudicated by the SSC after protracted proceedings only as regards

20
the two holdouts, Fermin Llamar and Raymundo Jomok. The Commission dismissed the petition for lack of
merit, 3ruling:
. . . that the caddy's fees were paid by the golf players themselves and not by respondent club.
For instance, petitioner Raymundo Jomok averred that for their services as caddies a caddy's
Claim Stub (Exh. "1-A") is issued by a player who will in turn hand over to management the
other portion of the stub known as Caddy Ticket (Exh. "1") so that by this arrangement
management will know how much a caddy will be paid (TSN, p. 80, July 23, 1980). Likewise,
petitioner Fermin Llamar admitted that caddy works on his own in accordance with the rules
and regulations (TSN, p. 24, February 26, 1980) but petitioner Jomok could not state any
policy of respondent that directs the manner of caddying (TSN, pp. 76-77, July 23, 1980).
While respondent club promulgates rules and regulations on the assignment, deportment and
conduct of caddies (Exh. "C") the same are designed to impose personal discipline among the
caddies but not to direct or conduct their actual work. In fact, a golf player is at liberty to
choose a caddy of his preference regardless of the respondent club's group rotation system and
has the discretion on whether or not to pay a caddy. As testified to by petitioner Llamar that
their income depends on the number of players engaging their services and liberality of the
latter (TSN, pp. 10-11, Feb. 26, 1980). This lends credence to respondent's assertion that the
caddies are never their employees in the absence of two elements, namely, (1) payment of
wages and (2) control or supervision over them. In this connection, our Supreme Court ruled
that in the determination of the existence of an employer-employee relationship, the "control
test" shall be considered decisive (Philippine Manufacturing Co. vs. Geronimo and Garcia, 96
Phil. 276; Mansal vs. P.P. Coheco Lumber Co., 96 Phil. 941; Viana vs.
Al-lagadan, et al., 99 Phil. 408; Vda, de Ang, et al. vs. The Manila Hotel Co., 101 Phil. 358,
LVN Pictures Inc. vs. Phil. Musicians Guild, et al.,
L-12582, January 28, 1961, 1 SCRA 132. . . . (reference being made also to Investment
Planning Corporation Phil. vs. SSS 21 SCRA 925).
Records show the respondent club had reported for SS coverage Graciano Awit and Daniel
Quijano, as bat unloader and helper, respectively, including their ground men, house and
administrative personnel, a situation indicative of the latter's concern with the rights and
welfare of its employees under the SS law, as amended. The unrebutted testimony of Col.
Generoso A. Alejo (Ret.) that the ID cards issued to the caddies merely intended to identify the
holders as accredited caddies of the club and privilege(d) to ply their trade or occupation
within its premises which could be withdrawn anytime for loss of confidence. This gives us a
reasonable ground to state that the defense posture of respondent that petitioners were never its
employees is well taken. 4
From this Resolution appeal was taken to the Intermediate appellate Court by the union representing Llamar and
Jomok. After the appeal was docketed 5 and some months before decision thereon was reached and promulgated,
Raymundo Jomok's appeal was dismissed at his instance, leaving Fermin Llamar the lone appellant. 6
The appeal ascribed two errors to the SSC:
(1) refusing to suspend the proceedings to await judgment by the Labor Relations Division of
National Capital Regional Office in the certification election case (R-4-LRD-M-10-504-
78) supra, on the precise issue of the existence of employer-employee relationship between the
respondent club and the appellants, it being contended that said issue was "a function of the
proper labor office"; and
(2) adjudicating that self same issue a manner contrary to the ruling of the Director of the
Bureau of Labor Relations, which "has not only become final but (has been) executed or
(become) res adjudicata." 7

21
The Intermediate Appellate Court gave short shirt to the first assigned error, dismissing it as of the least importance.
Nor, it would appear, did it find any greater merit in the second alleged error. Although said Court reserved the
appealed SSC decision and declared Fermin Llamar an employee of the Manila Gold and Country Club, ordering
that he be reported as such for social security coverage and paid any corresponding benefits, 8 it conspicuously
ignored the issue of res adjudicata raised in said second assignment. Instead, it drew basis for the reversal from this
Court's ruling in Investment Planning Corporation of the Philippines vs. Social Security System, supra 9 and
declared that upon the evidence, the questioned employer-employee relationship between the Club and Fermin
Llamar passed the so-called "control test," establishment in the case — i.e., "whether the employer controls or has
reserved the right to control the employee not only as to the result of the work to be done but also as to the means
and methods by which the same is to be accomplished," — the Club's control over the caddies encompassing:
(a) the promulgation of no less than twenty-four (24) rules and regulations just about every
aspect of the conduct that the caddy must observe, or avoid, when serving as such, any
violation of any which could subject him to disciplinary action, which may include suspending
or cutting off his access to the club premises;
(b) the devising and enforcement of a group rotation system whereby a caddy is assigned a
number which designates his turn to serve a player;
(c) the club's "suggesting" the rate of fees payable to the caddies.
Deemed of title or no moment by the Appellate Court was the fact that the caddies were paid by the players, not by
the Club, that they observed no definite working hours and earned no fixed income. It quoted with approval from an
American decision 10 to the effect that: "whether the club paid the caddies and afterward collected in the first
instance, the caddies were still employees of the club." This, no matter that the case which produced this ruling had
a slightly different factual cast, apparently having involved a claim for workmen's compensation made by a caddy
who, about to leave the premises of the club where he worked, was hit and injured by an automobile then
negotiating the club's private driveway.
That same issue of res adjudicata, ignored by the IAC beyond bare mention thereof, as already pointed out, is now
among the mainways of the private respondent's defenses to the petition for review. Considered in the perspective
of the incidents just recounted, it illustrates as well as anything can, why the practice of forum-shopping justly
merits censure and punitive sanction. Because the same question of employer-employee relationship has been
dragged into three different fora, willy-nilly and in quick succession, it has birthed controversy as to which of the
resulting adjudications must now be recognized as decisive. On the one hand, there is the certification case [R4-
LRDX-M-10-504-78), where the decision of the Med-Arbiter found for the existence of employer-employee
relationship between the parties, was affirmed by Director Carmelo S. Noriel, who ordered a certification election
held, a disposition never thereafter appealed according to the private respondent; on the other, the compulsory
arbitration case (NCR Case No. AB-4-1771-79), instituted by or for the same respondent at about the same time,
which was dismissed for lack of merit by the Labor Arbiter, which was afterwards affirmed by the NLRC itself on
the ground that there existed no such relationship between the Club and the private respondent. And, as if matters
were not already complicated enough, the same respondent, with the support and assistance of the PTCCEA, saw
fit, also contemporaneously, to initiate still a third proceeding for compulsory social security coverage with the
Social Security Commission (SSC Case No. 5443), with the result already mentioned.
Before this Court, the petitioner Club now contends that the decision of the Med-Arbiter in the certification case
had never become final, being in fact the subject of three pending and unresolved motions for reconsideration, as
well as of a later motion for early resolution. 11 Unfortunately, none of these motions is incorporated or reproduced
in the record before the Court. And, for his part, the private respondent contends, not only that said decision had
been appealed to and been affirmed by the Director of the BLR, but that a certification election had in fact been
held, which resulted in the PTCCEA being recognized as the sole bargaining agent of the caddies of the Manila
Golf and Country Club with respect to wages, hours of work, terms of employment, etc. 12 Whatever the truth about
these opposing contentions, which the record before the Court does not adequately disclose, the more controlling
consideration would seem to be that, however, final it may become, the decision in a certification case, by the

22
very nature of that proceedings, is not such as to foreclose all further dispute between the parties as to the existence,
or non-existence, of employer-employee relationship between them.
It is well settled that for res adjudicata, or the principle of bar by prior judgment, to apply, the following essential
requisites must concur: (1) there must be a final judgment or order; (2) said judgment or order must be on the
merits; (3) the court rendering the same must have jurisdiction over the subject matter and the parties; and (4) there
must be between the two cases identity of parties, identity of subject matter and identity of cause of action. 13
Clearly implicit in these requisites is that the action or proceedings in which is issued the "prior Judgment" that
would operate in bar of a subsequent action between the same parties for the same cause, be adversarial, or
contentious, "one having opposing parties; (is) contested, as distinguished from an ex parte hearing or proceeding. .
. . of which the party seeking relief has given legal notice to the other party and afforded the latter an opportunity to
contest it" 14 and a certification case is not such a proceeding, as this Court already ruled:
A certification proceedings is not a "litigation" in the sense in which the term is commonly
understood, but mere investigation of a non-adversary, fact-finding character, in which the
investigating agency plays the part of a disinterested investigator seeking merely to ascertain
the desires of the employees as to the matter of their representation. The court enjoys a wide
discretion in determining the procedure necessary to insure the fair and free choice of
bargaining representatives by the employees. 15
Indeed, if any ruling or judgment can be said to operate as res adjudicata on the contested issue of employer-
employee relationship between present petitioner and the private respondent, it would logically be that rendered in
the compulsory arbitration case (NCR Case No. AB-4-771-79, supra), petitioner having asserted, without dispute
from the private respondent, that said issue was there squarely raised and litigated, resulting in a ruling of the
Arbitration Branch (of the same Ministry of Labor) that such relationship did not exist, and which ruling was
thereafter affirmed by the National Labor Relations Commission in an appeal taken by said respondent. 16
In any case, this Court is not inclined to allow private respondent the benefit of any doubt as to which of the
conflicting ruling just adverted to should be accorded primacy, given the fact that it was he who actively sought
them simultaneously, as it were, from separate fora, and even if the graver sanctions more lately imposed by the
Court for forum-shopping may not be applied to him retroactively.
Accordingly, the IAC is not to be faulted for ignoring private respondent's invocation of res adjudicata; on contrary,
it acted correctly in doing so.
Said Court’s holding that upon the facts, there exists (or existed) a relationship of employer and employee between
petitioner and private respondent is, however, another matter. The Court does not agree that said facts necessarily or
logically point to such a relationship, and to the exclusion of any form of arrangements, other than of employment,
that would make the respondent's services available to the members and guest of the petitioner.
As long as it is, the list made in the appealed decision detailing the various matters of conduct, dress, language, etc.
covered by the petitioner's regulations, does not, in the mind of the Court, so circumscribe the actions or judgment
of the caddies concerned as to leave them little or no freedom of choice whatsoever in the manner of carrying out
their services. In the very nature of things, caddies must submit to some supervision of their conduct while enjoying
the privilege of pursuing their occupation within the premises and grounds of whatever club they do their work in.
For all that is made to appear, they work for the club to which they attach themselves on sufference but, on the other
hand, also without having to observe any working hours, free to leave anytime they please, to stay away for as long
they like. It is not pretended that if found remiss in the observance of said rules, any discipline may be meted them
beyond barring them from the premises which, it may be supposed, the Club may do in any case even absent any
breach of the rules, and without violating any right to work on their part. All these considerations clash frontally
with the concept of employment.
The IAC would point to the fact that the Club suggests the rate of fees payable by the players to the caddies as still
another indication of the latter's status as employees. It seems to the Court, however, that the intendment of such
fact is to the contrary, showing that the Club has not the measure of control over the incidents of the caddies' work
and compensation that an employer would possess.

23
The Court agrees with petitioner that the group rotation system so-called, is less a measure of employer control than
an assurance that the work is fairly distributed, a caddy who is absent when his turn number is called simply losing
his turn to serve and being assigned instead the last number for the day. 17
By and large, there appears nothing in the record to refute the petitioner's claim that:
(Petitioner) has no means of compelling the presence of a caddy. A caddy is not required to
exercise his occupation in the premises of petitioner. He may work with any other golf club or
he may seek employment a caddy or otherwise with any entity or individual without restriction
by petitioner. . . .
. . . In the final analysis, petitioner has no was of compelling the presence of the caddies as
they are not required to render a definite number of hours of work on a single day. Even the
group rotation of caddies is not absolute because a player is at liberty to choose a caddy of his
preference regardless of the caddy's order in the rotation.
It can happen that a caddy who has rendered services to a player on one day may still find
sufficient time to work elsewhere. Under such circumstances, he may then leave the premises
of petitioner and go to such other place of work that he wishes (sic). Or a caddy who is on call
for a particular day may deliberately absent himself if he has more profitable caddying, or
another, engagement in some other place. These are things beyond petitioner's control and for
which it imposes no direct sanctions on the caddies. . . . 18
WHEREFORE, the Decision of the Intermediate Appellant Court, review of which is sought, is reversed and set
aside, it being hereby declared that the private respondent, Fermin Llamar, is not an employee of petitioner Manila
Golf and Country Club and that petitioner is under no obligation to report him for compulsory coverage to the
Social Security System. No pronouncement as to costs.
SO ORDERED.

24
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32245 May 25, 1979
DY KEH BENG, petitioner,
vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET AL., respondents.
A. M Sikat for petitioner.
D. A. Hernandez for respondents.

DE CASTRO, J.:
Petitioner Dy Keh Beng seeks a review by certiorari of the decision of the Court of Industrial Relations dated March
23, 1970 in Case No. 3019-ULP and the Court's Resolution en banc of June 10, 1970 affirming said decision. The
Court of Industrial Relations in that case found Dy Keh Beng guilty of the unfair labor practice acts alleged and
order him to
reinstate Carlos Solano and Ricardo Tudla to their former jobs with backwages from their
respective dates of dismissal until fully reinstated without loss to their right of seniority and of
such other rights already acquired by them and/or allowed by law. 1
Now, Dy Keh Beng assigns the following errors 2 as having been committed by the Court of Industrial Relations:
I
RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO AND
TUDLA WERE EMPLOYEES OF PETITIONERS.
II
RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO AND
TUDLA WERE DISMISSED FROM THEIR EMPLOYMENT BY PETITIONER.
III
RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES ADDUCED BY
COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC) A PATTERN OF
DISCRIMINATION BY THE PETITIONER HEREIN.
IV
RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF UNFAIR
LABOR PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE COMPLAINT.
V
RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE RESPONDENTS TO
THEIR FORMER JOBS WITH BACKWAGES FROM THEIR RESPECTIVE DATES OF
DISMISSALS UNTIL FINALLY REINSTATED WITHOUT LOSS TO THEIR RIGHT OF
SENIORITY AND OF SUCH OTHER RIGHTS ALREADY ACQUIRED BY THEM
AND/OR ALLOWED BY LAW.
The facts as found by the Hearing Examiner are as follows:
A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a basket factory, for discriminatory
acts within the meaning of Section 4(a), sub-paragraph (1) and (4). Republic Act No. 875, 3 by dismissing on
September 28 and 29, 1960, respectively, Carlos N. Solano and Ricardo Tudla for their union activities. After
preliminary investigation was conducted, a case was filed in the Court of Industrial Relations for in behalf of the
International Labor and Marine Union of the Philippines and two of its members, Solano and Tudla In his answer,
Dy Keh Beng contended that he did not know Tudla and that Solano was not his employee because the latter came
to the establishment only when there was work which he did on pakiaw basis, each piece of work being done under

25
a separate contract. Moreover, Dy Keh Beng countered with a special defense of simple extortion committed by the
head of the labor union, Bienvenido Onayan.
After trial, the Hearing Examiner prepared a report which was subsequently adopted in toto by the Court of
Industrial Relations. An employee-employer relationship was found to have existed between Dy Keh Beng and
complainants Tudla and Solano, although Solano was admitted to have worked on piece basis. 4 The issue therefore
centered on whether there existed an employee employer relation between petitioner Dy Keh Beng and the
respondents Solano and Tudla .
According to the Hearing Examiner, the evidence for the complainant Union tended to show that Solano and Tudla
became employees of Dy Keh Beng from May 2, 1953 and July 15, 1955, 5 respectively, and that except in the
event of illness, their work with the establishment was continuous although their services were compensated on
piece basis. Evidence likewise showed that at times the establishment had eight (8) workers and never less than five
(5); including the complainants, and that complainants used to receive ?5.00 a day. sometimes less. 6
According to Dy Keh Beng, however, Solano was not his employee for the following reasons:
(1) Solano never stayed long enought at Dy's establishment;
(2) Solano had to leave as soon as he was through with the
(3) order given him by Dy;
(4) When there were no orders needing his services there was nothing for him to do;
(5) When orders came to the shop that his regular workers could not fill it was then that Dy
went to his address in Caloocan and fetched him for these orders; and
(6) Solano's work with Dy's establishment was not continuous. , 7
According to petitioner, these facts show that respondents Solano and Tudla are only piece workers, not employees
under Republic Act 875, where an employee 8 is referred to as
shall include any employee and shag not be limited to the employee of a particular employer
unless the Act explicitly states otherwise and shall include any individual whose work has
ceased as a consequence of, or in connection with any current labor dispute or because of any
unfair labor practice and who has not obtained any other substantially equivalent and regular
employment.
while an employer 9
includes any person acting in the interest of an employer, directly or indirectly but shall not
include any labor organization (otherwise than when acting as an employer) or anyone acting
in the capacity of officer or agent of such labor organization.
Petitioner really anchors his contention of the non-existence of employee-employer relationship on the control test.
He points to the case of Madrigal Shipping Co., Inc. v. Nieves Baens del Rosario, et al., L-13130, October 31, 1959,
where the Court ruled that:
The test ... of the existence of employee and employer relationship is whether there is an
understanding between the parties that one is to render personal services to or for the benefit of
the other and recognition by them of the right of one to order and control the other in the
performance of the work and to direct the manner and method of its performance.
Petitioner contends that the private respondents "did not meet the control test in the fight of the ... definition of the
terms employer and employee, because there was no evidence to show that petitioner had the right to direct the
manner and method of respondent's work. 10 Moreover, it is argued that petitioner's evidence showed that "Solano
worked on a pakiaw basis" and that he stayed in the establishment only when there was work.
While this Court upholds the control test 11 under which an employer-employee relationship exists "where the
person for whom the services are performed reserves a right to control not only the end to be achieved but also the
means to be used in reaching such end, " it finds no merit with petitioner's arguments as stated above. It should be
borne in mind that the control test calls merely for the existence of the right to control the manner of doing the
work, not the actual exercise of the right. 12Considering the finding by the Hearing Examiner that the establishment
of Dy Keh Beng is "engaged in the manufacture of baskets known as kaing, 13 it is natural to expect that those

26
working under Dy would have to observe, among others, Dy's requirements of size and quality of the kaing. Some
control would necessarily be exercised by Dy as the making of the kaingwould be subject to Dy's specifications.
Parenthetically, since the work on the baskets is done at Dy's establishments, it can be inferred that the proprietor
Dy could easily exercise control on the men he employed.
As to the contention that Solano was not an employee because he worked on piece basis, this Court agrees with the
Hearing Examiner that
circumstances must be construed to determine indeed if payment by the piece is just a method
of compensation and does not define the essence of the relation. Units of time ... and units of
work are in establishments like respondent (sic) just yardsticks whereby to determine rate of
compensation, to be applied whenever agreed upon. We cannot construe payment by the piece
where work is done in such an establishment so as to put the worker completely at liberty to
turn him out and take in another at pleasure.
At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief Justice Ricardo Paras who penned
the decision in "Sunrise Coconut Products Co. v. Court of Industrial Relations" (83 Phil..518, 523), opined that
judicial notice of the fact that the so-called "pakyaw" system mentioned in this case as
generally practiced in our country, is, in fact, a labor contract -between employers and
employees, between capitalists and laborers.
Insofar as the other assignments of errors are concerned, there is no showing that the Court of Industrial Relations
abused its discretion when it concluded that the findings of fact made by the Hearing Examiner were supported by
evidence on the record. Section 6, Republic Act 875 provides that in unfair labor practice cases, the factual findings
of the Court of Industrial Relations are conclusive on the Supreme Court, if supported by substantial evidence. This
provision has been put into effect in a long line of decisions where the Supreme Court did not reverse the findings
of fact of the Court of Industrial Relations when they were supported by substantial evidence. 14
Nevertheless, considering that about eighteen (18) years have already elapsed from the time the complainants were
dismissed, 15 and that the decision being appealed ordered the payment of backwages to the employees from their
respective dates of dismissal until finally reinstated, it is fitting to apply in this connection the formula for
backwages worked out by Justice Claudio Teehankee in "cases not terminated sooner." 16 The formula cans for
fixing the award of backwages without qualification and deduction to three years, "subject to deduction where there
are mitigating circumstances in favor of the employer but subject to increase by way of exemplary damages where
there are aggravating circumstances. 17Considering there are no such circumstances in this case, there is no reason
why the Court should not apply the abovementioned formula in this instance.
WHEREFORE; the award of backwages granted by the Court of Industrial Relations is herein modified to an award
of backwages for three years without qualification and deduction at the respective rates of compensation the
employees concerned were receiving at the time of dismissal. The execution of this award is entrusted to the
National Labor Relations Commission. Costs against petitioner.
SO ORDERED.

27
FIRST DIVISION
[G.R. No. 138051. June 10, 2004]
JOSE Y. SONZA, petitioner, vs. ABS-CBN BROADCASTING CORPORATION, respondent.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review on 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 10th and 25th 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:

28
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:
xxx
While Philippine jurisprudence has not yet, with certainty, touched on the true nature of the contract of a talent, it
stands to reason that a talent as above-described cannot be considered as an employee by reason of the peculiar
circumstances surrounding the engagement of his services.
It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent as a
TV host and a radio broadcaster. Unlike an ordinary employee, he was free to perform the services he
undertook to render in accordance with his own style. The benefits conferred to complainant under the May
1994 Agreement are certainly very much higher than those generally given to employees. For one, complainant
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

29
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, 13th month pay, signing bonus and travel allowance against respondent-appellee are not based on the
Labor Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds under Stock
Purchase Agreement are based on the latter. A portion of the Position Paper of complainant-appellant bears perusal:
Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually bound itself to pay
complainant a signing bonus consisting of shares of 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)

30
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.

31
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 13th month pay[20] which the law automatically incorporates into every employer-employee
contract.[21] Whatever benefits SONZA enjoyed arose from contract and not because of an employer-employee
relationship.[22]
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

32
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

33
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

34
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
xxx
These verified position papers shall cover only those claims and causes of action raised in the complaint excluding
those that may have been amicably settled, and shall be accompanied by all supporting documents including the
affidavits of their respective witnesses which shall take the place of the latters direct testimony. x x x

35
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, 13th month pay, separation pay, service incentive
leave, signing bonus, travel allowance, and amounts due under the Employee Stock Option Plan. We agree with the
findings of the Labor Arbiter and the Court of Appeals that 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.

36
EN BANC

[G.R. No. L-19124. November 18, 1967.]

INVESTMENT PLANNING CORPORATION OF THE PHILIPPINES, Petitioner-Appellant, v. SOCIAL


SECURITY SYSTEM, Respondent-Appellee.

Ozaeta, Gibbs & Ozaeta for Petitioner.

Solicitor General A.A. Alafriz, Asst. Solicitor General F. Zaballero, Solicitor R. I. Goco and Atty. Luis
Javellana for Respondent.

SYLLABUS

1. LABOR LAWS; COMMISSION AGENTS, STATUS OF. — Where an agent is not required to work exclusively
for his employer, is not subject to definite hours or conditions of labor, is free to work at any time at his own
pleasure, and is only paid commission from his actual sales, his status is more of an independent contractor under
Art. 1713 of the Civil Code, than of an employee within the meaning of the Social Security Act.

2. ID.; SOCIAL SECURITY ACT; MASTER AND SERVANT RELATIONSHIP. — Although the specific
question of when does "employer-employee relationship" exist for purposes of the Social Security Act has not yet
been settled in this jurisdiction, in other connections wherein the term is used, the so-called "control test" has been
applied by the Supreme Court following American jurisprudence, that is to say, where the element of supervisory
power of the employer to control the method and detail of performance of service by the employee is present, such
element is indicative of an employer-employee relationship, and the absence thereof indicative of that of an
independent contractor.

3. ID.; INDEPENDENT CONTRACTORS BEYOND THE COVERAGE OF THE SOCIAL SECURITY ACT. —
Considering the simmilarity between the definition of "employee" in the Social Security Act of the United States
after which our own Social Security Act is admittedly patterned, and considering that prevailing American
decisions on the subject the control test is being applied, such jurisprudence may well be accorded persuasive force.
The logic of the situation indeed dictates that where compensation is measured not by the labor performed but by
the result thereof, employer-employee relationship does not exist, and the ruling of respondent Social Security
Commission to the effect that commission agents are within the compulsory coverage of the Social Security Act
must be reversed and set aside.

DECISION

MAKALINTAL, J.:

Petitioner is a domestic corporation engaged in business management and the sale of securities. It has two classes of
agents who sell its investment plans: (1) salaried employees who keep definite hours and work under the control
and supervision of the company; and (2) registered representatives who work on commission basis.

37
On August 27, 1960 petitioner, through counsel, applied to respondent Social Security Commission for exemption
of its so-called registered representatives from the compulsory coverage of the Social Security Act. The application
was denied in a letter signed by the Secretary to the Commission on January 16, 1961. A motion to reconsider was
filed and also denied, after hearing, by the Commission itself in its resolution dated September 8, 1961. The matter
was thereafter elevated to this Court for review.

The issue submitted for decision here is whether petitioner’s registered representatives are employees within the
meaning of the Social Security Act (R.A. No. 1161 as amended). Section 8 (d) thereof defines the term "employee"
— for purposes of the Act — as "any person who performs services for an ‘employer’ in which either or both
mental and physical efforts are used and who receives compensation for such services, where there is an employer-
employee relationship." (As amended by Sec. 4, R. A. No. 2658) These representatives are in reality commission
agents. The uncontradicted testimony of petitioner’s lone witness, who was its assistant sales director, is that these
agents are recruited and trained by him particularly for the job of selling "Filipinas Mutual Fund" shares, made to
undergo a test after such training and, if successful, are given license to practice by the Securities and Exchange
Commission. They then execute an agreement with petitioner with respect to the sale of FMF shares to the general
public. Among the features of said agreement which respondent Commission considered pertinent to the issue are:
(a) an agent is paid compensation for services in the form of commission; (b) in the event of death or resignation he
or his legal representative shall be paid the balance of the commission corresponding to him; (c) he is subject to a
set of rules and regulations governing the performance of his duties under the agreement; (d) he is required to put
up a performance bond; and (e) his services may be terminated for certain causes. At the same time the Commission
found from the evidence and so stated in its resolution that the agents "are not required to report (for work) at any
time; they do not have to devote their time exclusively to or work solely for petitioner; the time and the effort they
spend in their work depend entirely upon their own will and initiative; they are not required to account for their time
nor submit a record of their activities; they shoulder their own selling expenses as well as transportation; and they
are paid their commission based on a certain percentage of their sales." The record also reveals that the commission
earned by an agent on his sales is directly deducted by him from the amount he receives from the investor and turns
over to the company the amount invested after such deduction is made. The majority of the agents are regularly
employed elsewhere — either in the government or in private enterprises.

Of the three requirements under Section 8 (d) of the Social Security Act it is admitted that the first is present in
respect of the agents whose status is in question. They exert both mental and physical efforts in the performance of
their services. The compensation they receive, however, is not necessarily for those efforts but rather for the results
thereof, that is, for actual sales that they make. This point is relevant in the determination of whether or not the third
requisite is also present, namely, the existence of employer-employee relationship. Petitioner points out that in
effect such compensation is paid not by it but by the investor, as shown by the basis on which the amount of the
commission is fixed and the manner in which it is collected.

Petitioner submits that its commission agents, engaged under the terms and conditions already enumerated, are not
employees but independent contractors, as defined in Article 1713 of the Civil Code, which provides: om.ph

"ART. 1713. By the contract for a piece of work the contractor binds himself to execute a piece of work for the
employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or
skill, or also furnish the material." 1aw library

We are convinced from the facts that the work of petitioner’s agents or registered representatives more nearly
approximates that of an independent contractor than that of an employee. The latter is paid for the labor he
performs, that is, for the acts of which such labor consists; the former is paid for the result thereof. This Court has

38
recognized the distinction in Chartered Bank: et al, v. Constantino, 56 Phil. 717, where it said: om.ph

"On this point, the distinguished commentator Manresa in referring to Article 1588 of the (Spanish) Civil Code has
the following to say . . .

"‘The code does not begin by giving a general idea of the subject matter, but by fixing its two distinguishing
characteristics.

"‘But such an idea was not absolutely necessary because the difference between the lease of work by contract or for
a fixed price and the lease of services of hired servants or laborers is sufficiently clear. In the latter, the direct object
of the contract is the lessor’s labor; the acts in which such labor consists, performed for the benefit of the lessee, are
taken into account immediately. In work done by contract or for a fixed price, the lessor’s labor is indeed an
important, a most important factor, but it is not the direct object of the contract, nor is it immediately taken into
account. The object which the parties consider, which they bear in mind in order to determine the cause of the
contract, and upon which they really give their consent, is not the labor but its result, the complete and finished
work, the aggregate of the lessor’s acts embodied in something material, which is the useful object of the contract . .
.’ (Manresa Commentarios al Codigo Civil, Vol. X, 3d ed., pp. 774-775.)"

Even if an agent of petitioner should devote all of his time and effort trying to sell its investment plans he would not
necessarily be entitled to compensation therefor. His right to compensation depends upon and is measured by the
tangible results he produces.

The specific question of when there is "employer-employee relationship" for purposes of the Social Security Act
has not yet been settled in this jurisdiction by any decision of this Court. But in other connections wherein the term
is used the test that has been generally applied is the so-called control test, that is, whether the "employer" controls
or has reserved the right to control the "employee" not only as to the result of the work to be done but also as to the
means and methods by which the same is to be accomplished.

Thus in Philippine Manufacturing Company v. Geronimo Et. Al., L-6968, November 29, 1954, involving the
Workmen’s Compensation Act, we read: om.ph

". . .Garcia, a painting contractor, had a contract undertaken to paint a water tank belonging to the Company ‘in
accordance with specifications and price stipulated,’ and with ‘the actual supervision of the work (being) taken care
of by’ himself. Clearly, this made Garcia an independent contractor, for while the company prescribed what should
be done, the doing of it and the supervision thereof was left entirely to him, all of which meant that he was free to
do the job according to his own method without being subject to the control of the company except as to the result."
1aw library

Cruz Et. Al. v. The Manila Hotel Company, L-9110, April 30, 1957, presented the issue of who were to be
considered employees of the defendant firm for purposes of separation gratuity. LVN Pictures, Inc. v. Phil.
Musicians Guild Et. Al., L-12582, January 28, 1961, involved the status of certain musicians for purposes of
determining the appropriate bargaining representative of the employees. In both instances the "control" test was
followed. (See also Mansal v. P.P. Gocheco Lumber Co., L-8017, April 30, 1955; and Viana v. Allagadan, Et Al.,
L-8967, May 31, 1956.)

In the United States, the Federal Social Security Act of 1935 set forth no definition of the term ‘employee’ other
than that ‘it includes an officer of a corporation.’ Under the Act the U.S. Supreme Court adopted for a time and in
several cases the so-called "economic- reality" test instead of the "control" test. (U.S. v. Silk and Harrison, 91 Law

39
Ed. 1757; Bartels v. Birmingham Ibid, 1947, both decided in June 1947). In the Bartels case the Court said: om.ph

"In United States v. Silk, No. 312, 331 US 704, ante, 1957, 67 S CT 1463, supra, we held that the relationship of
employer-employee, which determines the liability for employment taxes under the Social Security Act was not to
be determined solely by the idea of control which an alleged employer may or could exercise over the details of the
service rendered to his business by the worker or workers. Obviously control is characteristically associated with
the employer-employee relationship, but in the application of social legislation employees are those who as a matter
of economic reality are dependent upon the business to which they render service. In Silk, we pointed out that
permanency of the relation, the skill required, the investment in the facilities for work and opportunities for profit or
less from the activities were also factors that should enter into judicial determination as to the coverage of the Social
Security Act. It is the total situation that controls. These standards are as important in the entertainment field as we
have just said, in Silk, that they were in that of distribution and transportation." (91 Law, Ed. 1947, 1953;)

However, the "economic-reality" test was subsequently abandoned as not reflective of the intention of congress in
the enactment of the original Security Act of 1935. The change was accomplished by means of an amendatory Act
passed in 1948, which was construed and applied in later cases. In Benson v. Social Security Board, 172 F. 2d. 682,
the U.S. Supreme Court said: om.ph

"After the decision by the Supreme Court in the Silk case, the Treasury Department revamped its Regulation, 12
Fed. Reg. 7966, using the test set out in the silk case for determining the existence of an employer-employee
relationship. Apparently this was not the concept of such a relationship that Congress had in mind in the passage of
such remedial acts as the one involved here because thereafter on June 14, 1948, Congress enacted Public Law 642,
42 U.S. C.A. Sec. 1301(a) (6). Section 1101(a) (6) of the Social Security Act was amended to read as follows:
om.ph

"‘The term ‘employee’ includes an officer of a corporation, but such term does not include (1) any individual who,
under the usual common-law rules applicable in determining the employer-employee relationship, has the status of
an independent contractor or (2) any individual (except an officer of a corporation) who is not am employee under
such common law rules.’

"While it is not necessary to explore the full effect of this enactment in the determination of the existence of
employer-employee relationships arising in the future, we think it can fairly be said that the intent of Congress was
to say that in determining in a given case whether under the Social Security Act such a relationship exists, the
common-law elements of such a relationship, as recognized and applied by the courts generally at the time of the
passage of the Act, were the standard to be used . . ." 1aw library

The common-law principles expressly adopted by the United States Congress are summarized in Corpus Juris
Secundum as follows: om.ph

"Under the common-law principles as to tests of the independent contractor relationship, discussed in Master and
Servant, and applicable in determining coverage under the Social Security Act and related taxing provisions, the
significant factor in determining the relationship of the parties is the presence or absence of a supervisory power to
control the method and detail of performance of the service, and the degree to which the principal may intervene to
exercise such control, the presence of such power of control being indicative of an employment relationship and the
absence of such power being indicative of the relationship of independent contractor. In other words, the test of
existence of the relationship of independent contractor, which relationship is not taxable under the Social Security
Act and related provisions, is whether the one who is claimed 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 as to the

40
result of the work." (81 C.J.S, Sec, 5, pp. 24-25;) See also Millard’s Inc. v. United States, 146 F. Supp. 385;
Schmidt v. Ewing, 108 F. Supp. 505; Rambin v. Ewing, 106 F. Supp. 268.

In the case last cited (Rambin v. Ewing) the question presented was whether the plaintiff there, who was a sales
representative of a cosmetics firm working on a commission basis, was to be considered an employee. Said the
Court: om.ph

"Plaintiff’s only remuneration was her commission of 40% plus $5 extra for every $250 of sales, Plaintiff was not
guaranteed any minimum compensation and she was not allowed a drawing account or advance of any kind against
unearned commissions. Plaintiff paid all of her traveling expenses and she even had to pay the postage for sending
orders to Avon.

"The only office which Avon maintained in Shreveport was an office for the city manager. Plaintiff worked from
her own home and she was never furnished any leads. The relationship between plaintiff and Avon was terminable
at will . . .
x x x

". . . A long line of decisions holds that commissions sales representatives are not employees within the coverage of
the Social Security Act, The underlying circumstances of the relationship between the sales representatives and
company often vary widely from case to case, but commission sales representatives have uniformly been held to be
outside the Social Security Act." 1aw library

Considering the similarity between the definition of "employee" in the Federal Social Security Act (U.S.) as
amended and its definitions in our own Social Security Act, and considering further that the local statute is
admittedly patterned after that of the United States, the decisions of American courts on the matter before us may
well be accorded persuasive force. The logic of the situation indeed dictates that where the element of control is
absent; where a person who works for another does so more or less at his own pleasure and is not subject to definite
hours or conditions of work, and in turn is compensated according to the result of his efforts and not the amount
thereof, we should not find that the relationship of employer and employee exists.

We have examined the contract form between petitioner and its registered representatives and found nothing therein
which would indicate that the latter are under the control of the former in respect of the means and methods they
employ in the performance of their work. The fact that for certain specified causes the relationship may be
terminated (e.g. failure to meet the annual quota of sales, inability to make any sales production during a six-month
period, conduct detrimental to petitioner, etc.) does not mean, that such control exists, for the causes of termination
thus specified have no relation to the means and methods of work that are ordinarily required of or imposed upon
employees.

In view of the foregoing considerations, the resolution of respondent Social Security Commission subject of this
appeal is reversed and set aside, without pronouncement as to costs.

41
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 101761. March 24, 1993.


NATIONAL SUGAR REFINERIES CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION and NBSR SUPERVISORY UNION, (PACIWU) TUCP, respondents.
Jose Mario C. Bunag for petitioner.
The Solicitor General and the Chief Legal Officer, NLRC, for public respondent.
Zoilo V. de la Cruz for private respondent.
DECISION
REGALADO, J p:
The main issue presented for resolution in this original petition for certiorari is whether supervisory employees, as
defined in Article 212 (m), Book V of the Labor Code, should be considered as officers or members of the
managerial staff under Article 82, Book III of the same Code, and hence are not entitled to overtime rest day and
holiday pay.
Petitioner National Sugar Refineries Corporation (NASUREFCO), a corporation which is fully owned and
controlled by the Government, operates three (3) sugar refineries located at Bukidnon, Iloilo and Batangas. The
Batangas refinery was privatized on April 11, 1992 pursuant to Proclamation No. 50. 1 Private respondent union
represents the former supervisors of the NASUREFCO Batangas Sugar Refinery, namely, the Technical Assistant
to the Refinery Operations Manager, Shift Sugar Warehouse Supervisor, Senior Financial/Budget Analyst, General
Accountant, Cost Accountant, Sugar Accountant, Junior Financial/Budget Analyst, Shift Boiler Supervisor,, Shift
Operations Chemist, Shift Electrical Supervisor, General Services Supervisor, Instrumentation Supervisor,
Community Development Officer, Employment and Training Supervisor, Assistant Safety and Security Officer,
Head and Personnel Services, Head Nurse, Property Warehouse Supervisor, Head of Inventory Control Section,
Shift Process Supervisor, Day Maintenance Supervisor and Motorpool Supervisor.
On June 1, 1988, petitioner implemented a Job Evaluation (JE) Program affecting all employees, from rank-and-file
to department heads. The JE Program was designed to rationalized the duties and functions of all positions,
reestablish levels of responsibility, and recognize both wage and operational structures. Jobs were ranked according
to effort, responsibility, training and working conditions and relative worth of the job. As a result, all positions were
re-evaluated, and all employees including the members of respondent union were granted salary adjustments and
increases in benefits commensurate to their actual duties and functions.
We glean from the records that for about ten years prior to the JE Program, the members of respondent union were
treated in the same manner as rank-and file employees. As such, they used to be paid overtime, rest day and holiday
pay pursuant to the provisions of Articles 87, 93 and 94 of the Labor Code as amended. With the implementation of
the JE Program, the following adjustments were made: (1) the members of respondent union were re-classified
under levels S-5 to S-8 which are considered managerial staff for purposes of compensation and benefits; (2) there
was an increase in basic pay of the average of 50% of their basic pay prior to the JE Program, with the union
members now enjoying a wide gap (P1,269.00 per month) in basic pay compared to the highest paid rank-and-file
employee; (3) longevity pay was increased on top of alignment adjustments; (4) they were entitled to increased
company COLA of P225.00 per month; (5) there was a grant of P100.00 allowance for rest day/holiday work.
On May 11, 1990, petitioner NASUREFCO recognized herein respondent union, which was organized pursuant to
Republic Act NO. 6715 allowing supervisory employees to form their own unions, as the bargaining representative
of all the supervisory employees at the NASUREFCO Batangas Sugar Refinery.

42
Two years after the implementation of the JE Program, specifically on June 20, 1990, the members of herein
respondent union filed a complainant with the executive labor arbiter for non-payment of overtime, rest day and
holiday pay allegedly in violation of Article 100 of the Labor Code.
On January 7, 1991, Executive Labor Arbiter Antonio C. Pido rendered a decision 2 disposing as follows:
"WHEREFORE, premises considered, respondent National Sugar refineries Corporation is hereby directed to —
1. pay the individual members of complainant union the usual overtime pay, rest day pay and holiday pay enjoyed
by them instead of the P100.00 special allowance which was implemented on June 11, 1988; and
2. pay the individual members of complainant union the difference in money value between the P100.00 special
allowance and the overtime pay, rest day pay and holiday pay that they ought to have received from June 1, 1988.
All other claims are hereby dismissed for lack of merit.
SO ORDERED."
In finding for the members therein respondent union, the labor ruled that the along span of time during which the
benefits were being paid to the supervisors has accused the payment thereof to ripen into contractual obligation; at
the complainants cannot be estopped from questioning the validity of the new compensation package despite the
fact that they have been receiving the benefits therefrom, considering that respondent union was formed only a year
after the implementation of the Job Evaluation Program, hence there was no way for the individual supervisors to
express their collective response thereto prior to the formation of the union; and the comparative computations
presented by the private respondent union showed that the P100.00 special allowance given NASUREFCO fell
short of what the supervisors ought to receive had the overtime pay rest day pay and holiday pay not been
discontinued, which arrangement, therefore, amounted to a diminution of benefits.
On appeal, in a decision promulgated on July 19, 1991 by its Third Division, respondent National Labor Relations
Commission (NLRC) affirmed the decision of the labor arbiter on the ground that the members of respondent union
are not managerial employees, as defined under Article 212 (m) of the Labor Code and, therefore, they are entitled
to overtime, rest day and holiday pay. Respondent NLRC declared that these supervisory employees are merely
exercising recommendatory powers subject to the evaluation, review and final action by their department heads;
their responsibilities do not require the exercise of discretion and independent judgment; they do not participate in
the formulation of management policies nor in the hiring or firing of employees; and their main function is to carry
out the ready policies and plans of the corporation. 3 Reconsideration of said decision was denied in a resolution of
public respondent dated August 30, 1991. 4
Hence this petition for certiorari, with petitioner NASUREFCO asseverating that public respondent commission
committed a grave abuse of discretion in refusing to recognized the fact that the members of respondent union are
members of the managerial staff who are not entitled to overtime, rest day and holiday pay; and in making
petitioner assume the "double burden" of giving the benefits due to rank-and-file employees together with those due
to supervisors under the JE Program.
We find creditable merit in the petition and that the extraordinary writ of certiorari shall accordingly issue.
The primordial issue to be resolved herein is whether the members of respondent union are entitled to overtime, rest
day and holiday pay. Before this can be resolved, however it must of necessity be ascertained first whether or not
the union members, as supervisory employees, are to be considered as officers or members of the managerial staff
who are exempt from the coverage of Article 82 of the Labor Code.
It is not disputed that the members of respondent union are supervisory employees, as defined employees, as
defined under Article 212(m), Book V of the Labor Code on Labor Relations, which reads:
"(m) 'Managerial employee' is one who is vested with powers or prerogatives to lay down and execute management
policies and/or to hire, transfer, suspend, lay-off, recall, discharged, assign or discipline employees. Supervisory
employees are those who, in the interest of the employer effectively recommend such managerial actions if the
exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgment.
All employees not falling within any of those above definitions are considered rank-and-file employees of this
Book."

43
Respondent NLRC, in holding that the union members are entitled to overtime, rest day and holiday pay, and in
ruling that the latter are not managerial employees, adopted the definition stated in the aforequoted statutory
provision.
Petitioner, however, avers that for purposes of determining whether or not the members of respondent union are
entitled to overtime, rest day and holiday pay, said employees should be considered as "officers or members of the
managerial staff" as defined under Article 82, Book III of the Labor Code on "Working Conditions and Rest
Periods" and amplified in Section 2, Rule I, Book III of the Rules to Implement the Labor Code, to wit:
"Art. 82 Coverage. — The provisions of this title shall apply to employees in all establishments and undertakings
whether for profit or not, but not to government employees, managerial employees, field personnel, members of the
family of the employer who are dependent on him for support, domestic helpers, persons in the personal service of
another, and workers who are paid by results as determined by the Secretary of Labor in Appropriate regulations.
"As used herein, 'managerial employees' refer to those whose primary duty consists of the management of the
establishment in which they are employed or of a department or subdivision thereof, and to other officers or
members of the managerial staff." (Emphasis supplied.)
xxx xxx xxx
'Sec. 2. Exemption. — The provisions of this rule shall not apply to the following persons if they qualify for
exemption under the condition set forth herein:
xxx xxx xxx
(b) Managerial employees, if they meet all of the following conditions, namely:
(1) Their primary duty consists of the management of the establishment in which they are employed or of a
department or subdivision thereof:
(2) They customarily and regularly direct the work of two or more employees therein:
(3) They have the authority to hire or fire other employees of lower rank; or their suggestions and recommendations
as to the hiring and firing and as to the promotion or any other change of status of other employees are given
particular weight.
(c) Officers or members of a managerial staff if they perform the following duties and responsibilities:
(1) The primary duty consists of the performance of work directly related to management policies of their employer;
(2) Customarily and regularly exercise discretion and independent judgment;
(3) (i) Regularly and directly assist a proprietor or a managerial employee whose primary duty consists of the
management of the establishment in which he is employed or subdivision thereof; or (ii) execute under general
supervision work along specialized or technical lines requiring special training, experience, or knowledge; or (iii)
execute under general supervision special assignments and tasks; and
(4) Who do not devote more 20 percent of their hours worked in a work-week to activities which are not directly
and closely related to the performance of the work described in paragraphs (1), (2), and above."
It is the submission of petitioner that while the members of respondent union, as supervisors, may not be occupying
managerial positions, they are clearly officers or members of the managerial staff because they meet all the
conditions prescribed by law and, hence, they are not entitled to overtime, rest day and supervisory employees
under Article 212 (m) should be made to apply only to the provisions on Labor Relations, while the right of said
employees to the questioned benefits should be considered in the light of the meaning of a managerial employee
and of the officers or members of the managerial staff, as contemplated under Article 82 of the Code and Section 2,
Rule I Book III of the implementing rules. In other words, for purposes of forming and joining unions, certification
elections, collective bargaining, and so forth, the union members are supervisory employees. In terms of working
conditions and rest periods and entitlement to the questioned benefits, however, they are officers or members of the
managerial staff, hence they are not entitled thereto.
While the Constitution is committed to the policy of social justice and the protection of the working class, it should
not be supposed that every labor dispute will be automatically decided in favor of labor. Management also has its
own rights which, as such, are entitled to respect and enforcement in the interest of simple fair play. Out of its
concern for those with less privileges in life, this Court has inclined more often than not toward the worker and

44
upheld his cause in his conflicts with the employer. Such favoritism, however, has not blinded us to the rule that
justice is in every case for the deserving, to be dispensed in the light of the established facts and the applicable law
and doctrine. 5
This is one such case where we are inclined to tip the scales of justice in favor of the employer.
The question whether a given employee is exempt from the benefits of the law is a factual one dependent on the
circumstances of the particular case, In determining whether an employee is within the terms of the statutes, the
criterion is the character of the work performed, rather than the title of the employee's position. 6
Consequently, while generally this Court is not supposed to review the factual findings of respondent commission,
substantial justice and the peculiar circumstances obtaining herein mandate a deviation from the rule.
A cursory perusal of the Job Value Contribution Statements 7 of the union members will readily show that these
supervisory employees are under the direct supervision of their respective department superintendents and that
generally they assist the latter in planning, organizing, staffing, directing, controlling communicating and in making
decisions in attaining the company's set goals and objectives. These supervisory employees are likewise responsible
for the effective and efficient operation of their respective departments. More specifically, their duties and functions
include, among others, the following operations whereby the employee:
1) assists the department superintendent in the following:
a) planning of systems and procedures relative to department activities;
b) organizing and scheduling of work activities of the department, which includes employee shifting scheduled and
manning complement;
c) decision making by providing relevant information data and other inputs;
d) attaining the company's set goals and objectives by giving his full support;
e) selecting the appropriate man to handle the job in the department; and
f) preparing annual departmental budget;
2) observes, follows and implements company policies at all times and recommends disciplinary action on erring
subordinates;
3) trains and guides subordinates on how to assume responsibilities and become more productive;
4) conducts semi-annual performance evaluation of his subordinates and recommends necessary action for their
development/advancement;
5) represents the superintendent or the department when appointed and authorized by the former;
6) coordinates and communicates with other inter and intra department supervisors when necessary;
7) recommends disciplinary actions/promotions;
8) recommends measures to improve work methods, equipment performance, quality of service and working
conditions;
9) sees to it that safety rules and regulations and procedure and are implemented and followed by all NASUREFCO
employees, recommends revisions or modifications to said rules when deemed necessary, and initiates and prepares
reports for any observed abnormality within the refinery;
10) supervises the activities of all personnel under him and goes to it that instructions to subordinates are properly
implemented; and
11) performs other related tasks as may be assigned by his immediate superior.
From the foregoing, it is apparent that the members of respondent union discharge duties and responsibilities which
ineluctably qualify them as officers or members of the managerial staff, as defined in Section 2, Rule I Book III of
the aforestated Rules to Implement the Labor Code, viz.: (1) their primary duty consists of the performance of work
directly related to management policies of their employer; (2) they customarily and regularly exercise discretion and
independent judgment; (3) they regularly and directly assist the managerial employee whose primary duty consist of
the management of a department of the establishment in which they are employed (4) they execute, under general
supervision, work along specialized or technical lines requiring special training, experience, or knowledge; (5) they
execute, under general supervision, special assignments and tasks; and (6) they do not devote more than 20% of

45
their hours worked in a work-week to activities which are not directly and clearly related to the performance of their
work hereinbefore described.
Under the facts obtaining in this case, we are constrained to agree with petitioner that the union members should be
considered as officers and members of the managerial staff and are, therefore, exempt from the coverage of Article
82. Perforce, they are not entitled to overtime, rest day and holiday.
The distinction made by respondent NLRC on the basis of whether or not the union members are managerial
employees, to determine the latter's entitlement to the questioned benefits, is misplaced and inappropriate. It is
admitted that these union members are supervisory employees and this is one instance where the nomenclatures or
titles of their jobs conform with the nature of their functions. Hence, to distinguish them from a managerial
employee, as defined either under Articles 82 or 212 (m) of the Labor Code, is puerile and in efficacious. The
controversy actually involved here seeks a determination of whether or not these supervisory employees ought to be
considered as officers or members of the managerial staff. The distinction, therefore, should have been made along
that line and its corresponding conceptual criteria.
II. We likewise no not subscribe to the finding of the labor arbiter that the payment of the questioned benefits to the
union members has ripened into a contractual obligation.
A. Prior to the JE Program, the union members, while being supervisors, received benefits similar to the rank-and-
file employees such as overtime, rest day and holiday pay, simply because they were treated in the same manner as
rank-and-file employees, and their basic pay was nearly on the same level as those of the latter, aside from the fact
that their specific functions and duties then as supervisors had not been properly defined and delineated from those
of the rank-and-file. Such fact is apparent from the clarification made by petitioner in its motion for reconsideration
8 filed with respondent commission in NLRC Case No. CA No. I-000058, dated August 16, 1991, wherein, it
lucidly explained:
"But, complainants no longer occupy the same positions they held before the JE Program. Those positions formerly
classified as 'supervisory' and found after the JE Program to be rank-and-file were classified correctly and continue
to receive overtime, holiday and restday pay. As to them, the practice subsists.
"However, those whose duties confirmed them to be supervisory, were re-evaluated, their duties re-defined and in
most cases their organizational positions re-designated to confirm their superior rank and duties. Thus, after the JE
program, complainants cannot be said to occupy the same positions." 9
It bears mention that this positional submission was never refuted nor controverted by respondent union in any of its
pleadings filed before herein public respondent or with this Court. Hence, it can be safely concluded therefrom that
the members of respondent union were paid the questioned benefits for the reason that, at that time, they were
rightfully entitled thereto. Prior to the JE Program, they could not be categorically classified as members or officers
of the managerial staff considering that they were then treated merely on the same level as rank-and-file.
Consequently, the payment thereof could not be construed as constitutive of voluntary employer practice, which
cannot be now be unilaterally withdrawn by petitioner. To be considered as such, it should have been practiced over
a long period of time, and must be shown to have been consistent and deliberate. 10
The test or rationale of this rule on long practice requires an indubitable showing that the employer agreed to
continue giving the benefits knowingly fully well that said employees are not covered by the law requiring payment
thereof. 11 In the case at bar, respondent union failed to sufficiently establish that petitioner has been motivated or
is wont to give these benefits out of pure generosity.
B. It remains undisputed that the implementation of the JE Program, the members of private respondent union were
re-classified under levels S-5 S-8 which were considered under the program as managerial staff purposes of
compensation and benefits, that they occupied re-evaluated positions, and that their basic pay was increased by an
average of 50% of their basic salary prior to the JE Program. In other words, after the JE Program there was an
ascent in position, rank and salary. This in essence is a promotion which is defined as the advancement from one
position to another with an increase in duties and responsibilities as authorized by law, and usually accompanied by
an increase in salary. 12

46
Quintessentially, with the promotion of the union members, they are no longer entitled to the benefits which attach
and pertain exclusively to their positions. Entitlement to the benefits provided for by law requires prior compliance
with the conditions set forth therein. With the promotion of the members of respondent union, they occupied
positions which no longer met the requirements imposed by law. Their assumption of these positions removed them
from the coverage of the law, ergo, their exemption therefrom.
As correctly pointed out by petitioner, if the union members really wanted to continue receiving the benefits which
attach to their former positions, there was nothing to prevent them from refusing to accept their promotions and
their corresponding benefits. As the sating goes by, they cannot have their cake and eat it too or, as petitioner
suggests, they could not, as a simple matter of law and fairness, get the best of both worlds at the expense of
NASUREFCO.
Promotion of its employees is one of the jurisprudentially-recognized exclusive prerogatives of management,
provided it is done in good faith. In the case at bar, private respondent union has miserably failed to convince this
Court that the petitioner acted implementing the JE Program. There is no showing that the JE Program was intended
to circumvent the law and deprive the members of respondent union of the benefits they used to receive.
Not so long ago, on this particular score, we had the occasion to hold that:
". . . it is the prerogative of the management to regulate, according to its discretion and judgment, all aspects of
employment. This flows from the established rule that labor law does not authorize the substitution of the judgment
of the employer in the conduct of its business. Such management prerogative may be availed of without fear of any
liability so long as it is exercised in good faith for the advancement of the employer's interest and not for the
purpose of defeating on circumventing the rights of employees under special laws or valid agreement and are not
exercised in a malicious, harsh, oppressive, vindictive or wanton manner or out of malice or spite." 13
WHEREFORE, the impugned decision and resolution of respondent National Labor Relations Commission
promulgated on July 19, 1991 and August 30, 1991, respectively, are hereby ANNULLED and SET ASIDE for
having been rendered and adopted with grave abuse of discretion, and the basic complaint of private respondent
union is DISMISSED.

47
SECOND DIVISION
[G.R. No. 156367. May 16, 2005]
AUTO BUS TRANSPORT SYSTEMS, INC., petitioner, vs. ANTONIO BAUTISTA, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari assailing the Decision[1] and Resolution[2] of the Court of
Appeals affirming the Decision[3] of the National Labor Relations Commission (NLRC). The NLRC ruling modified
the Decision of the Labor Arbiter (finding respondent entitled to the award of 13 th month pay and service incentive
leave pay) by deleting the award of 13th month pay to respondent.
THE FACTS
Since 24 May 1995, respondent Antonio Bautista has been employed by petitioner Auto Bus Transport
Systems, Inc. (Autobus), as driver-conductor with travel routes Manila-Tuguegarao via Baguio, Baguio- Tuguegarao
via Manila and Manila-Tabuk via Baguio. Respondent was paid on commission basis, seven percent (7%) of the total
gross income per travel, on a twice a month basis.
On 03 January 2000, while respondent was driving Autobus No. 114 along Sta. Fe, Nueva Vizcaya, the bus he
was driving accidentally bumped the rear portion of Autobus No. 124, as the latter vehicle suddenly stopped at a sharp
curve without giving any warning.
Respondent averred that the accident happened because he was compelled by the management to go back to
Roxas, Isabela, although he had not slept for almost twenty-four (24) hours, as he had just arrived in Manila from
Roxas, Isabela. Respondent further alleged that he was not allowed to work until he fully paid the amount of
P75,551.50, representing thirty percent (30%) of the cost of repair of the damaged buses and that despite respondents
pleas for reconsideration, the same was ignored by management. After a month, management sent him a letter of
termination.
Thus, on 02 February 2000, respondent instituted a Complaint for Illegal Dismissal with Money Claims for
nonpayment of 13th month pay and service incentive leave pay against Autobus.
Petitioner, on the other hand, maintained that respondents employment was replete with offenses involving
reckless imprudence, gross negligence, and dishonesty. To support its claim, petitioner presented copies of letters,
memos, irregularity reports, and warrants of arrest pertaining to several incidents wherein respondent was involved.
Furthermore, petitioner avers that in the exercise of its management prerogative, respondents employment was
terminated only after the latter was provided with an opportunity to explain his side regarding the accident on 03
January 2000.
On 29 September 2000, based on the pleadings and supporting evidence presented by the parties, Labor Arbiter
Monroe C. Tabingan promulgated a Decision,[4] the dispositive portion of which reads:
WHEREFORE, all premises considered, it is hereby found that the complaint for Illegal Dismissal has no leg to
stand on. It is hereby ordered DISMISSED, as it is hereby DISMISSED.
However, still based on the above-discussed premises, the respondent must pay to the complainant the following:
a. his 13th month pay from the date of his hiring to the date of his dismissal, presently computed
at P78,117.87;
b. his service incentive leave pay for all the years he had been in service with the respondent,
presently computed at P13,788.05.
All other claims of both complainant and respondent are hereby dismissed for lack of merit. [5]
Not satisfied with the decision of the Labor Arbiter, petitioner appealed the decision to the NLRC which
rendered its decision on 28 September 2001, the decretal portion of which reads:
[T]he Rules and Regulations Implementing Presidential Decree No. 851, particularly Sec. 3 provides:
Section 3. Employers covered. The Decree shall apply to all employers except to:
xxx xxx xxx
e) employers of those who are paid on purely commission, boundary, or task basis, performing a specific work,
irrespective of the time consumed in the performance thereof. xxx.

48
Records show that complainant, in his position paper, admitted that he was paid on a commission basis.
In view of the foregoing, we deem it just and equitable to modify the assailed Decision by deleting the award of
13th month pay to the complainant.
WHEREFORE, the Decision dated 29 September 2000 is MODIFIED by deleting the award of 13 th month pay. The
other findings are AFFIRMED.[6]
In other words, the award of service incentive leave pay was maintained. Petitioner thus sought a
reconsideration of this aspect, which was subsequently denied in a Resolution by the NLRC dated 31 October 2001.
Displeased with only the partial grant of its appeal to the NLRC, petitioner sought the review of said decision
with the Court of Appeals which was subsequently denied by the appellate court in a Decision dated 06 May 2002,
the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition is DISMISSED for lack of merit; and the assailed Decision of
respondent Commission in NLRC NCR CA No. 026584-2000 is hereby AFFIRMED in toto. No costs.[7]
Hence, the instant petition.
ISSUES
1. Whether or not respondent is entitled to service incentive leave;
2. Whether or not the three (3)-year prescriptive period provided under Article 291 of the Labor Code, as
amended, is applicable to respondents claim of service incentive leave pay.
RULING OF THE COURT
The disposition of the first issue revolves around the proper interpretation of Article 95 of the Labor Code vis-
-vis Section 1(D), Rule V, Book III of the Implementing Rules and Regulations of the Labor Code which provides:
Art. 95. RIGHT TO SERVICE INCENTIVE LEAVE
(a) Every employee who has rendered at least one year of service shall be entitled to a yearly service
incentive leave of five days with pay.
Book III, Rule V: SERVICE INCENTIVE LEAVE
SECTION 1. Coverage. This rule shall apply to all employees except:
(d) Field personnel and other employees whose performance is unsupervised by the employer including
those who are engaged on task or contract basis, purely commission basis, or those who are paid
in a fixed amount for performing work irrespective of the time consumed in the performance
thereof; . . .
A careful perusal of said provisions of law will result in the conclusion that the grant of service incentive leave
has been delimited by the Implementing Rules and Regulations of the Labor Code to apply only to those employees
not explicitly excluded by Section 1 of Rule V. According to the Implementing Rules, Service Incentive Leave shall
not apply to employees classified as field personnel. The phrase other employees whose performance is unsupervised
by the employer must not be understood as a separate classification of employees to which service incentive leave
shall not be granted. Rather, it serves as an amplification of the interpretation of the definition of field personnel under
the Labor Code as those whose actual hours of work in the field cannot be determined with reasonable certainty. [8]
The same is true with respect to the phrase those who are engaged on task or contract basis, purely commission
basis. Said phrase should be related with field personnel, applying the rule on ejusdem generis that general and
unlimited terms are restrained and limited by the particular terms that they follow. [9] Hence, employees engaged on
task or contract basis or paid on purely commission basis are not automatically exempted from the grant of service
incentive leave, unless, they fall under the classification of field personnel.
Therefore, petitioners contention that respondent is not entitled to the grant of service incentive leave just
because he was paid on purely commission basis is misplaced. What must be ascertained in order to resolve the issue
of propriety of the grant of service incentive leave to respondent is whether or not he is a field personnel.
According to Article 82 of the Labor Code, field personnel shall refer to non-agricultural employees who
regularly perform their duties away from the principal place of business or branch office of the employer and whose
actual hours of work in the field cannot be determined with reasonable certainty. This definition is further elaborated

49
in the Bureau of Working Conditions (BWC), Advisory Opinion to Philippine Technical-Clerical Commercial
Employees Association[10] which states that:
As a general rule, [field personnel] are those whose performance of their job/service is not supervised by the
employer or his representative, the workplace being away from the principal office and whose hours and days of
work cannot be determined with reasonable certainty; hence, they are paid specific amount for rendering specific
service or performing specific work. If required to be at specific places at specific times, employees including
drivers cannot be said to be field personnel despite the fact that they are performing work away from the principal
office of the employee. [Emphasis ours]
To this discussion by the BWC, the petitioner differs and postulates that under said advisory opinion, no
employee would ever be considered a field personnel because every employer, in one way or another, exercises
control over his employees. Petitioner further argues that the only criterion that should be considered is the nature of
work of the employee in that, if the employees job requires that he works away from the principal office like that of
a messenger or a bus driver, then he is inevitably a field personnel.
We are not persuaded. At this point, it is necessary to stress that the definition of a field personnel is not merely
concerned with the location where the employee regularly performs his duties but also with the fact that the employees
performance is unsupervised by the employer. As discussed above, field personnel are those who regularly perform
their duties away from the principal place of business of the employer and whose actual hours of work in the field
cannot be determined with reasonable certainty. Thus, in order to conclude whether an employee is a field employee,
it is also necessary to ascertain if actual hours of work in the field can be determined with reasonable certainty by the
employer. In so doing, an inquiry must be made as to whether or not the employees time and performance are
constantly supervised by the employer.
As observed by the Labor Arbiter and concurred in by the Court of Appeals:
It is of judicial notice that along the routes that are plied by these bus companies, there are its inspectors assigned at
strategic places who board the bus and inspect the passengers, the punched tickets, and the conductors reports.
There is also the mandatory once-a-week car barn or shop day, where the bus is regularly checked as to its
mechanical, electrical, and hydraulic aspects, whether or not there are problems thereon as reported by the driver
and/or conductor. They too, must be at specific place as [sic] specified time, as they generally observe prompt
departure and arrival from their point of origin to their point of destination. In each and every depot, there is always
the Dispatcher whose function is precisely to see to it that the bus and its crew leave the premises at specific times
and arrive at the estimated proper time. These, are present in the case at bar. The driver, the complainant herein, was
therefore under constant supervision while in the performance of this work. He cannot be considered a field
personnel.[11]
We agree in the above disquisition. Therefore, as correctly concluded by the appellate court, respondent is not
a field personnel but a regular employee who performs tasks usually necessary and desirable to the usual trade of
petitioners business. Accordingly, respondent is entitled to the grant of service incentive leave.
The question now that must be addressed is up to what amount of service incentive leave pay respondent is
entitled to.
The response to this query inevitably leads us to the correlative issue of whether or not the three (3)-year
prescriptive period under Article 291 of the Labor Code is applicable to respondents claim of service incentive leave
pay.
Article 291 of the Labor Code states that all money claims arising from employer-employee relationship shall
be filed within three (3) years from the time the cause of action accrued; otherwise, they shall be forever barred.
In the application of this section of the Labor Code, the pivotal question to be answered is when does the cause
of action for money claims accrue in order to determine the reckoning date of the three-year prescriptive period.
It is settled jurisprudence that a cause of action has three elements, to wit, (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant
to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right
of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff. [12]

50
To properly construe Article 291 of the Labor Code, it is essential to ascertain the time when the third element
of a cause of action transpired. Stated differently, in the computation of the three-year prescriptive period, a
determination must be made as to the period when the act constituting a violation of the workers right to the benefits
being claimed was committed. For if the cause of action accrued more than three (3) years before the filing of the
money claim, said cause of action has already prescribed in accordance with Article 291. [13]
Consequently, in cases of nonpayment of allowances and other monetary benefits, if it is established that the
benefits being claimed have been withheld from the employee for a period longer than three (3) years, the amount
pertaining to the period beyond the three-year prescriptive period is therefore barred by prescription. The amount that
can only be demanded by the aggrieved employee shall be limited to the amount of the benefits withheld within three
(3) years before the filing of the complaint.[14]
It is essential at this point, however, to recognize that the service incentive leave is a curious animal in relation
to other benefits granted by the law to every employee. In the case of service incentive leave, the employee may
choose to either use his leave credits or commute it to its monetary equivalent if not exhausted at the end of the
year.[15] Furthermore, if the employee entitled to service incentive leave does not use or commute the same, he is
entitled upon his resignation or separation from work to the commutation of his accrued service incentive leave. As
enunciated by the Court in Fernandez v. NLRC:[16]
The clear policy of the Labor Code is to grant service incentive leave pay to workers in all establishments, subject
to a few exceptions. Section 2, Rule V, Book III of the Implementing Rules and Regulations provides that [e]very
employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five
days with pay. Service incentive leave is a right which accrues to every employee who has served within 12 months,
whether continuous or broken reckoned from the date the employee started working, including authorized absences
and paid regular holidays unless the working days in the establishment as a matter of practice or policy, or that
provided in the employment contracts, is less than 12 months, in which case said period shall be considered as one
year. It is also commutable to its money equivalent if not used or exhausted at the end of the year. In other words,
an employee who has served for one year is entitled to it. He may use it as leave days or he may collect its monetary
value. To limit the award to three years, as the solicitor general recommends, is to unduly restrict such
right.[17] [Italics supplied]
Correspondingly, it can be conscientiously deduced that the cause of action of an entitled employee to claim
his service incentive leave pay accrues from the moment the employer refuses to remunerate its monetary equivalent
if the employee did not make use of said leave credits but instead chose to avail of its commutation. Accordingly, if
the employee wishes to accumulate his leave credits and opts for its commutation upon his resignation or separation
from employment, his cause of action to claim the whole amount of his accumulated service incentive leave shall
arise when the employer fails to pay such amount at the time of his resignation or separation from employment.
Applying Article 291 of the Labor Code in light of this peculiarity of the service incentive leave, we can
conclude that the three (3)-year prescriptive period commences, not at the end of the year when the employee becomes
entitled to the commutation of his service incentive leave, but from the time when the employer refuses to pay its
monetary equivalent after demand of commutation or upon termination of the employees services, as the case may
be.
The above construal of Art. 291, vis--vis the rules on service incentive leave, is in keeping with the rudimentary
principle that in the implementation and interpretation of the provisions of the Labor Code and its implementing
regulations, the workingmans welfare should be the primordial and paramount consideration.[18] The policy is to
extend the applicability of the decree to a greater number of employees who can avail of the benefits under the law,
which is in consonance with the avowed policy of the State to give maximum aid and protection to labor. [19]
In the case at bar, respondent had not made use of his service incentive leave nor demanded for its commutation
until his employment was terminated by petitioner. Neither did petitioner compensate his accumulated service
incentive leave pay at the time of his dismissal. It was only upon his filing of a complaint for illegal dismissal, one
month from the time of his dismissal, that respondent demanded from his former employer commutation of his

51
accumulated leave credits. His cause of action to claim the payment of his accumulated service incentive leave thus
accrued from the time when his employer dismissed him and failed to pay his accumulated leave credits.
Therefore, the prescriptive period with respect to his claim for service incentive leave pay only commenced
from the time the employer failed to compensate his accumulated service incentive leave pay at the time of his
dismissal. Since respondent had filed his money claim after only one month from the time of his dismissal, necessarily,
his money claim was filed within the prescriptive period provided for by Article 291 of the Labor Code.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The assailed Decision of the
Court of Appeals in CA-G.R. SP. No. 68395 is hereby AFFIRMED. No Costs.
SO ORDERED.

52
THIRD DIVISION
[G.R. No. 126383. November 28, 1997]
SAN JUAN DE DIOS HOSPITAL EMPLOYEES ASSOCIATION-AFW/MA. CONSUELO MAQUILING,
LEONARDO MARTINEZ, DOMINGO ELA, JR., RODOLFO CALUCIN, JR., PERLA
MENDOZA, REX RAPHAEL REYES, ROGELIO BELMONTE, AND 375 OTHER EMPLOYEE-
UNION MEMBERS, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, AND SAN
JUAN DE DIOS HOSPITAL, respondents.
DECISION
FRANCISCO, J.:
Petitioners, the rank-and-file employee-union officers and members of San Juan De Dios Hospital Employees
Association, sent on July 08, 1991, a four (4)-page letter with attached support signatures x x x requesting and pleading
for the expeditious implementation and payment by respondent Juan De Dios Hospital "of the 40 HOURS/5-DAY
WORKWEEK with compensable weekly two (2) days off provided for by Republic Act 5901 as clarified for
enforcement by the Secretary of Labors Policy Instructions No. 54 dated April 12, 1988. [1]Respondent hospital failed
to give a favorable response; thus, petitioners filed a complaint regarding their claims for statutory benefits under the
above-cited law and policy issuance[2], docketed as NLRC NCR Case No. 00-08-04815-91. On February 26, 1992,
the Labor Arbiter[3] dismissed the complaint. Petitioners appealed before public respondent National Labor Relations
Commission[4] (NLRC), docketed as NLRC NCR CA 003028-92, which affirmed the Labor Arbiters
decision. Petitioners subsequent motion for reconsideration was denied; hence, this petition under Rule 65 of the
Rules of Court ascribing grave abuse of discretion on the part of NLRC in concluding that Policy Instructions No. 54
proceeds from a wrong interpretation of RA 5901[5] and Article 83 of the Labor Code.
As the Court sees it, the core issue is whether Policy Instructions No. 54 issued by then Labor Secretary (now
Senator) Franklin M. Drilon is valid or not.
The policy instruction in question provides in full as follows:
Policy Instruction No. 54
To: All Concerned
Subject: Working Hours and Compensation of Hospital/Clinic Personnel
This issuance clarifies the enforcement policy of this Department on the working hours and compensation of
personnel employed by hospital/clinics with a bed capacity of 100 or more and those located in cities and
municipalities with a population of one million or more.
Republic Act 5901 took effect on 21 June 1969 prescribes a 40-hour/5 day work week for hospital/clinic
personnel. At the same time, the Act prohibits the diminution of the compensation of these workers who would
suffer a reduction in their weekly wage by reason of the shortened workweek prescribed by the Act. In effect, RA
5901 requires that the covered hospital workers who used to work seven (7) days a week should be paid for such
number of days for working only 5 days or 40 hours a week.
The evident intention of RA 5901 is to reduce the number of hospital personnel, considering the nature of their
work, and at the same time guarantee the payment to them of a full weekly wage for seven (7) days. This is quite
clear in the Exemplary Note of RA 5901 which states:
As compared with the other employees and laborers, these hospital and health clinic personnel are over-worked
despite the fact that their duties are more delicate in nature. If we offer them better working conditions, it is
believed that the brain drain, that our country suffers nowadays as far as these personnel are concerned will be
considerably lessened. The fact that these hospitals and health clinics personnel perform duties which are directly
concerned with the health and lives of our people does not mean that they should work for a longer period than most
employees and laborers. They are also entitled to as much rest as other workers. Making them work longer than is
necessary may endanger, rather than protect the health of their patients. Besides, they are not receiving better pay
than the other workers.Therefore, it is just and fair that they may be made to enjoy the privileges of equal working
hours with other workers except those excepted by law. (Sixth Congress of the Republic of the Philippines, Third
Session, House of Representatives, H. No. 16630)

53
The Labor Code in its Article 83 adopts and incorporates the basic provisions of RA 5901 and retains its spirit and
intent which is to shorten the workweek of covered hospital personnel and at the same time assure them of a full
weekly wage.
Consistent with such spirit and intent, it is the position of the Department that personnel in subject hospital and
clinics are entitled to a full weekly wage for seven (7) days it they have completed the 40-hours/5-day workweek in
any given workweek.
All enforcement and adjudicatory agencies of this Department shall be guided by this issuance in the disposition of
cases involving the personnel of covered hospitals and clinics.
Done in the City of Manila, this 12th day of April, 1988.
(Sgd.) FRANKLIN M. DRILON
Secretary
(Emphasis Added)
We note that Policy Instruction No. 54 relies and purports to implement Republic Act No. 5901, otherwise
known as An Act Prescribing Forty Hours A Week Of Labor For Government and Private Hospitals Or Clinic
Personnel, enacted on June 21, 1969. Reliance on Republic Act No. 5901, however, is misplaced for the said statute,
as correctly ruled by respondent NLRC, has long been repealed with the passage of the Labor Code on May 1, 1974,
Article 302 of which explicitly provides: All labor laws not adopted as part of this Code either directly or by reference
are hereby repealed. All provisions of existing laws, orders, decrees, rules and regulations inconsistent herewith are
likewise repealed. Accordingly, only Article 83 of the Labor Code which appears to have substantially incorporated
or reproduced the basic provisions of Republic Act No. 5901 may support Policy Instructions No. 54 on which the
latters validity may be gauged. Article 83 of the Labor Code states:
Art. 83. Normal Hours of Work. -- The normal hours of work of any employee shall not exceed eight (8) hours a
day.
Health personnel in cities and municipalities with a population of at least one million (1,000,000) or in hospitals and
clinics with a bed capacity of at least one hundred (100) shall hold regular office hours for eight (8) hours a day, for
five (5) days a week, exclusive of time for meals, except where the exigencies of the service require that such
personnel work for six (6) days or forty-eight (48) hours, in which case they shall be entitled to an additional
compensation of at least thirty per cent (30%) of their regular wage for work on the sixth day. For purposes of this
Article, health personnel shall include: resident physicians, nurses, nutritionists, dietitians, pharmacists, social
workers, laboratory technicians, paramedical technicians, psychologists, midwives, attendants and all other hospital
or clinic personnel. (Underscoring supplied)
A cursory reading of Article 83 of the Labor Code betrays petitioners position that hospital employees are
entitled to a full weekly salary with paid two (2) days off if they have completed the 40-hour/5-day workweek.[6] What
Article 83 merely provides are: (1) the regular office hour of eight hours a day, five days per week for health
personnel, and (2) where the exigencies of service require that health personnel work for six days or forty-eight hours
then such health personnel shall be entitled to an additional compensation of at least thirty percent of their regular
wage for work on the sixth day. There is nothing in the law that supports then Secretary of Labors assertion that
personnel in subject hospitals and clinics are entitled to a full weekly wage for seven (7) days if they have completed
the 40-hour/5-day workweek in any given workweek. Needless to say, the Secretary of Labor exceeded his authority
by including a two days off with pay in contravention of the clear mandate of the statute. Such act the Court shall not
countenance. Administrative interpretation of the law, we reiterate, is at best merely advisory, [7]and the Court will not
hesitate to strike down an administrative interpretation that deviates from the provision of the statute.
Indeed, even if we were to subscribe with petitioners erroneous assertion that Republic Act No. 5901 has neither
been amended nor repealed by the Labor Code, we nevertheless find Policy Instructions No. 54 invalid. A perusal of
Republic Act No. 5901[8] reveals nothing therein that gives two days off with pay for health personnel who complete
a 40-hour work or 5-day workweek. In fact, the Explanatory Note of House Bill No. 16630 (later passed into law as
Republic Act No. 5901) explicitly states that the bills sole purpose is to shorten the working hours of health personnel
and not to dole out a two days off with pay.

54
Hence:
The accompanying bill seeks to grant resident physicians, staff nurses, nutritionists, midwives, attendants and other
hospital and health clinic personnel of public and private hospitals and clinics, the privilege of enjoying the eight
hours a week exclusive of time for lunch granted by law to all government employees and workers except those
employed in schools and in courts. At present those hospitals and health clinic personnel including those employed
in private hospitals and clinics, work six days a week, 8 hours a day or 48 hours a week.
As compared with the other employees and laborers, these hospital and health clinic personnel are over-worked
despite the fact that their duties are more delicate in nature. If we offer them better working conditions, it is
believed that the brain drain, that our country suffers nowadays as far as these personnel are concerned will be
considerably lessened. The fact that these hospitals and health clinic personnel perform duties which are directly
concerned with the health and lives of our people does not mean that they should work for a longer period than most
employees and laborers. They are also entitled to as much rest as other workers. Making them work longer than is
necessary may endanger, rather than protect, the health of their patients. Besides, they are not receiving better pay
than the other workers.Therefore, it is just and fair that they be made to enjoy the privileges of equal working hours
with other workers except those excepted by law.
In the light of the foregoing, approval of this bill is strongly recommended.
(SGD.) SERGIO H. LOYOLA
Congressman, 3rd District Manila
(Annex F of petition,
underscoring supplied)
Further, petitioners' position is also negated by the very rules and regulations promulgated by the Bureau of Labor
Standards which implement Republic Act No. 5901. Pertinent portions of the implementing rules provide:
RULES AND REGULATIONS IMPLEMENTING REPUBLIC ACT NO. 5901
By virtue of Section 79 of the Revised Administrative Code, as modified by section 18 of Implementation Report
for Reorganization Plan No. 20-A on Labor, vesting in the Bureau of Labor Standards the authority to promulgate
rules and regulations to implement wage and hour laws, the following rules and regulations are hereby issued for
the implementation of Republic Act No. 5901.
CHAPTER I Coverage
Section 1. General Statement on Coverage. Republic Act No. 5901, hereinafter referred to as the Act, shall apply
to:
(a) All hospitals and clinics, including those with a bed capacity of less than one hundred, which are situated in
cities or municipalities with a population of one million or more; and to
(b) All hospitals and clinics with a bed capacity of at least one hundred, irrespective of the size of population of the
city or municipality where they may be situated.
xxx xxx xxx
Section 7. Regular Working Day. The regular working days of covered employees shall be not more than five
days in a workweek. The workweek may begin at any hour and on any day, including Saturday or Sunday,
designated by the employer.
Employers are not precluded from changing the time at which the workday or workweek begins, provided that the
change is not intended to evade the requirements of these regulations on the payment of additional compensation.
xxx xxx xxx
Section 15. Additional Pay Under the Act and C.A. No. 444. (a) Employees of covered hospitals and clinics who
are entitled to the benefits provided under the Eight-Hour Labor Law, as amended, shall be paid an additional
compensation equivalent to their regular rate plus at least twenty-five percent thereof for work performed on
Sunday and Holidays, not exceeding eight hours, such employees shall be entitled to an additional compensation of
at least 25% of their regular rate.

55
(b) For work performed in excess of forty hours a week, excluding those rendered in excess of eight hours a day
during the week, employees covered by the Eight-Hour Labor Law shall be entitled to an additional straight-time
pay which must be equivalent at least to their regular rate.
If petitioners are entitled to two days off with pay, then there appears to be no sense at all why Section 15 of
the implementing rules grants additional compensation equivalent to the regular rate plus at least twenty-five percent
thereof for work performed on Sunday to health personnel, or an additional straight-time pay which must be
equivalent at least to the regular rate [f]or work performed in excess of forty hours a week xxx. Policy Instructions
No. 54 to our mind unduly extended the statute. The Secretary of Labor moreover erred in invoking the spirit and
intent of Republic Act No. 5901 and Article 83 of the Labor Code for it is an elementary rule of statutory construction
that when the language of the law is clear and unequivocal, the law must be taken to mean exactly what it says. [9] No
additions or revisions may be permitted. Policy Instructions No. 54 being inconsistent with and repugnant to the
provision of Article 83 of the Labor Code, as well as to Republic Act No. 5901, should be, as it is hereby, declared
void.
WHEREFORE, the decision appealed from is AFFIRMED. No costs.
SO ORDERED.

56
GAYONA

57
FIRST DIVISION
[G.R. No. 119205. April 15, 1998]
SIME DARBY PILIPINAS, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (2ND
DIVISION) and SIME DARBY SALARIED EMPLOYEES ASSOCIATION (ALU-
TUCP), respondents.
DECISION
BELLOSILLO, J.:
Is the act of management in revising the work schedule of its employees and discarding their paid lunch break
constitutive of unfair labor practice?
Sime Darby Pilipinas, Inc., petitioner, is engaged in the manufacture of automotive tires, tubes and other rubber
products. Sime Darby Salaried Employees Association (ALU-TUCP), private respondent, is an association of
monthly salaried employees of petitioner at its Marikina factory. Prior to the present controversy, all company factory
workers in Marikina including members of private respondent union worked from 7:45 a.m. to 3:45 p.m. with a 30
minute paid on call lunch break.
On 14 August 1992 petitioner issued a memorandum to all factory-based employees advising all its monthly
salaried employees in its Marikina Tire Plant, except those in the Warehouse and Quality Assurance Department
working on shifts, a change in work schedule effective 14 September 1992 thus
TO: ALL FACTORY-BASED EMPLOYEES
RE: NEW WORK SCHEDULE
Effective Monday, September 14, 1992, the new work schedule factory office will be as follows:
7:45 A.M. 4:45 P.M. (Monday to Friday)
7:45 A.M. 11:45 P.M. (Saturday).
Coffee break time will be ten minutes only anytime between:
9:30 A.M. 10:30 A.M. and
2:30 P.M. 3:30 P.M.
Lunch break will be between:
12:00 NN 1:00 P.M. (Monday to Friday).
Excluded from the above schedule are the Warehouse and QA employees who are on shifting. Their
work and break time schedules will be maintained as it is now. [1]
Since private respondent felt affected adversely by the change in the work schedule and discontinuance of the
30-minute paid on call lunch break, it filed on behalf of its members a complaint with the Labor Arbiter for unfair
labor practice, discrimination and evasion of liability pursuant to the resolution of this Court in Sime Darby
International Tire Co., Inc. v. NLRC.[2]However, the Labor Arbiter dismissed the complaint on the ground that the
change in the work schedule and the elimination of the 30-minute paid lunch break of the factory workers constituted
a valid exercise of management prerogative and that the new work schedule, break time and one-hour lunch break
did not have the effect of diminishing the benefits granted to factory workers as the working time did not exceed eight
(8) hours.
The Labor Arbiter further held that the factory workers would be justly enriched if they continued to be paid
during their lunch break even if they were no longer on call or required to work during the break. He also ruled that
the decision in the earlier Sime Darby case[3] was not applicable to the instant case because the former involved
discrimination of certain employees who were not paid for their 30-minute lunch break while the rest of the factory
workers were paid; hence, this Court ordered that the discriminated employees be similarly paid the additional
compensation for their lunch break.
Private respondent appealed to respondent National Labor Relations Commission (NLRC) which sustained the
Labor Arbiter and dismissed the appeal. [4] However, upon motion for reconsideration by private respondent, the
NLRC, this time with two (2) new commissioners replacing those who earlier retired, reversed its arlier decision of
20 April 1994 as well as the decision of the Labor Arbiter. [5] The NLRC considered the decision of this Court in
the Sime Darby case of 1990 as the law of the case wherein petitioner was ordered to pay the money value of these

58
covered employees deprived of lunch and/or working time breaks. The public respondent declared that the new work
schedule deprived the employees of the benefits of time-honored company practice of providing its employees a 30-
minute paid lunch break resulting in an unjust diminution of company privileges prohibited by Art. 100 of the Labor
Code, as amended. Hence, this petition alleging that public respondent committed grave abuse of discretion
amounting to lack or excess of jurisdiction: (a) in ruling that petitioner committed unfair labor practice in the
implementation of the change in the work schedule of its employees from 7:45 a.m. 3:45 p.m. to 7:45 a.m. 4:45 p.m.
with one-hour lunch break from 12:00 nn to 1:00 p.m.; (b) in holding that there was diminution of benefits when the
30-minute paid lunch break was eliminated; (c) in failing to consider that in the earlier Sime Darby case affirming the
decision of the NLRC, petitioner was authorized to discontinue the practice of having a 30-minute paid lunch break
should it decide to do so; and (d) in ignoring petitioners inherent management prerogative of determining and fixing
the work schedule of its employees which is expressly recognized in the collective bargaining agreement between
petitioner and private respondent.
The Office of the Solicitor General filed in lieu of comment a manifestation and motion recommending that
the petition be granted, alleging that the 14 August 1992 memorandum which contained the new work schedule was
not discriminatory of the union members nor did it constitute unfair labor practice on the part of petitioner.
We agree, hence, we sustain petitioner. The right to fix the work schedules of the employees rests principally
on their employer. In the instant case petitioner, as the employer, cites as reason for the adjustment the efficient
conduct of its business operations and its improved production. [6] It rationalizes that while the old work schedule
included a 30-minute paid lunch break, the employees could be called upon to do jobs during that period as they were
on call. Even if denominated as lunch break, this period could very well be considered as working time because the
factory employees were required to work if necessary and were paid accordingly for working. With the new work
schedule, the employees are now given a one-hour lunch break without any interruption from their employer. For a
full one-hour undisturbed lunch break, the employees can freely and effectively use this hour not only for eating but
also for their rest and comfort which are conducive to more efficiency and better performance in their work. Since
the employees are no longer required to work during this one-hour lunch break, there is no more need for them to be
compensated for this period. We agree with the Labor Arbiter that the new work schedule fully complies with the
daily work period of eight (8) hours without violating the Labor Code.[7] Besides, the new schedule applies to all
employees in the factory similarly situated whether they are union members or not.[8]
Consequently, it was grave abuse of discretion for public respondent to equate the earlier Sime Darby
case[9] with the facts obtaining in this case. That ruling in the former case is not applicable here. The issue in that case
involved the matter of granting lunch breaks to certain employees while depriving the other employees of such
breaks. This Court affirmed in that case the NLRCs finding that such act of management was discriminatory and
constituted unfair labor practice.
The case before us does not pertain to any controversy involving discrimination of employees but only the issue
of whether the change of work schedule, which management deems necessary to increase production, constitutes
unfair labor practice. As shown by the records, the change effected by management with regard to working time is
made to apply to all factory employees engaged in the same line of work whether or not they are members of private
respondent union. Hence, it cannot be said that the new scheme adopted by management prejudices the right of private
respondent to self-organization.
Every business enterprise endeavors to increase its profits. In the process, it may devise means to attain that
goal. Even as the law is solicitous of the welfare of the employees, it must also protect the right of an employer to
exercise what are clearly management prerogatives.[10] Thus, management is free to regulate, according to its own
discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, time,
place and manner of work, processes to be followed, supervision of workers, working regulations, transfer of
employees, work supervision, lay off of workers and discipline, dismissal and recall of workers. [11] Further,
management retains the prerogative, whenever exigencies of the service so require, to change the working hours of
its employees. So long as such prerogative is exercised in good faith for the advancement of the employers interest

59
and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold such exercise.[12]
While the Constitution is committed to the policy of social justice and the protection of the working class, it
should not be supposed that every dispute will be automatically decided in favor of labor. Management also has right
which, as such, are entitled to respect and enforcement in the interest of simple fair play. Although this Court has
inclined more often than not toward the worker and has upheld his cause in his conflicts with the employer, such as
favoritism has not blinded the Court to the rule that justice is in every case for the deserving, to be dispensed in the
light of the established facts and the applicable law and doctrine. [13]
WHEREFORE, the Petition is GRANTED. The Resolution of the National Labor Relations Commission
dated 29 November 1994 is SET ASIDE and the decision of the Labor Arbiter dated 26 November 1993 dismissing
the complaint against petitioner for unfair labor practice is AFFIRMED.
SO ORDERED.

60
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15422 November 30, 1962
NATIONAL DEVELOPMENT COMPANY, petitioner,
vs.
COURT OF INDUSTRIAL RELATIONS and NATIONAL TEXTILE WORKERS UNION, respondents.
Government Corporate Counsel Simeon M. Gopengco and Lorenzo R. Mosqueda for petitioner.
Eulogio R. Lerum for respondent National Textile Workers Union.
Mariano B. Tuason for respondent Court of Industrial Relations.
REGALA, J.:
This is a case for review from the Court of Industrial Relations. The pertinent facts are the following:
At the National Development Co., a government-owned and controlled corporation, there were four shifts of work.
One shift was from 8 a.m. to 4 p.m., while the three other shifts were from 6 a.m. to 2 p.m; then from 2 p.m. to 10
p.m. and, finally, from 10 p.m. to 6 a.m. In each shift, there was a one-hour mealtime period, to wit: From (1) 11
a.m. to 12 noon for those working between 6 a.m. and 2 p.m. and from (2) 7 p.m. to 8 p.m. for those working
between 2 p.m. and 10 p.m.
The records disclose that although there was a one-hour mealtime, petitioner nevertheless credited the workers with
eight hours of work for each shift and paid them for the same number of hours. However, since 1953, whenever
workers in one shift were required to continue working until the next shift, petitioner instead of crediting them with
eight hours of overtime work, has been paying them for six hours only, petitioner that the two hours corresponding
to the mealtime periods should not be included in computing compensation. On the other hand, respondent National
Textile Workers Union whose members are employed at the NDC, maintained the opposite view and asked the
Court of Industrial Relations to order the payment of additional overtime pay corresponding to the mealtime
periods.
After hearing, Judge Arsenio I. Martinez of the CIR issued an order dated March 19, 1959, holding that mealtime
should be counted in the determination of overtime work and accordingly ordered petitioner to pay P101,407.96 by
way of overtime compensation. Petitioner filed a motion for reconsideration but the same was dismissed by the
CIR en banc on the ground that petitioner failed to furnish the union a copy of its motion.
Thereafter, petitioner appealed to this Court, contending, first, that the CIR has no jurisdiction over claims for
overtime compensation and, secondary that the CIR did not make "a correct appraisal of the facts, in the light of the
evidence" in holding that mealtime periods should be included in overtime work because workers could not leave
their places of work and rest completely during those hours.
In support of its contention that the CIR lost its jurisdiction over claims for overtime pay upon the enactment of the
Industrial Peace Act (Republic Act No. 875), petitioner cites a number of decisions of this Court. On May 23, 1960,
however, We ruled in Price Stabilization Corp. v. Court of Industrial Relations, et al., G.R. No. L-13206, that
Analyzing these cases, the underlying principle, it will be noted in all of them, though not stated in
express terms, is that where the employer-employee relationship is still existing or is sought to be
reestablished because of its wrongful severance, (as where the employee seeks reinstatement) the Court
of Industrial Relations has jurisdiction over all claims arising out of, or in connection with the
employment, such as those related to the Minimum Wage Law and the Eight-Hour Labor Law. After the
termination of their relationship and no reinstatement is sought, such claims become mere money claims,
and come within the jurisdiction of the regular courts,
We are aware that in 2 cases, some statements implying a different view have been made, but we now
hold and declare the principle set forth in the next preceding paragraph as the one governing all cases of
this nature.
This has been the constant doctrine of this Court since May 23, 1960. 1

61
A more recent definition of the jurisdiction of the CIR is found in Campos, et al. v. Manila Railroad Co., et al.,
G.R. No. L-17905, May 25, 1962, in which We held that, for such jurisdiction to come into play, the following
requisites must be complied with: (a) there must exist between the parties an employer-employee relationship or the
claimant must seek his reinstatement; and (b) the controversy must relate to a case certified by the President to the
CIR as one involving national interest, or must arise either under the Eight-Hour Labor Law, or under the Minimum
Wage Law. In default of any of these circumstances, the claim becomes a mere money claim that comes under the
jurisdiction of the regular courts. Here, petitioner does not deny the existence of an employer-employee relationship
between it and the members of the union. Neither is there any question that the claim is based on the Eight-Hour
Labor Law (Com. Act No. 444, as amended). We therefore rule in favor of the jurisdiction of the CIR over the
present claim.
The other issue raised in the appeal is whether or not, on the basis of the evidence, the mealtime breaks should be
considered working time under the following provision of the law;
The legal working day for any person employed by another shall be of not more than eight hours
daily. When the work is not continuous, the time during which the laborer is not working and can leave
his working place and can rest completely shall not be counted. (Sec. 1, Com. Act No. 444, as amended.
Emphasis ours.)
It will be noted that, under the law, the idle time that an employee may spend for resting and during which he may
leave the spot or place of work though not the premises 2 of his employer, is not counted as working time only where
the work is broken or is not continuous.
The determination as to whether work is continuous or not is mainly one of fact which We shall not review as long
as the same is supported by evidence. (Sec. 15, Com. Act No. 103, as amended, Philippine Newspaper Guild v.
Evening News, Inc., 86 Phil. 303).
That is why We brushed aside petitioner's contention in one case that workers who worked under a 6 a.m. to 6 p.m.
schedule had enough "free time" and therefore should not be credited with four hours of overtime and held that the
finding of the CIR "that claimants herein rendered services to the Company from 6:00 a.m. to 6:00 p.m. including
Sundays and holidays, . . . implies either that they were not allowed to leave the spot of their working place, or that
they could not rest completely" (Luzon Stevedoring Co., Inc. v. Luzon Marine Department Union, et al., G.R. No.
L-9265, April 29, 1957).
Indeed, it has been said that no general rule can be laid down is to what constitutes compensable work, rather the
question is one of fact depending upon particular circumstances, to be determined by the controverted in cases. (31
Am. Jurisdiction Sec. 626 pp. 878.)
In this case, the CIR's finding that work in the petitioner company was continuous and did not permit employees
and laborers to rest completely is not without basis in evidence and following our earlier rulings, shall not disturb
the same. Thus, the CIR found:
While it may be correct to say that it is well-high impossible for an employee to work while he is eating,
yet under Section 1 of Com. Act No. 444 such a time for eating can be segregated or deducted from his
work, if the same is continuous and the employee can leave his working place rest completely. The time
cards show that the work was continuous and without interruption. There is also the evidence adduced by
the petitioner that the pertinent employees can freely leave their working place nor rest completely. There
is furthermore the aspect that during the period covered the computation the work was on a 24-hour basis
and previously stated divided into shifts.
From these facts, the CIR correctly concluded that work in petitioner company was continuous and therefore the
mealtime breaks should be counted as working time for purposes of overtime compensation.
Petitioner gives an eight-hour credit to its employees who work a single shift say from 6 a.m. to 2 p.m. Why cannot
it credit them sixteen hours should they work in two shifts?
There is another reason why this appeal should dismissed and that is that there is no decision by the CIR en
bancfrom which petitioner can appeal to this Court. As already indicated above, the records show that petitioner's

62
motion for reconsideration of the order of March 19, 1959 was dismissed by the CIR en banc because of petitioner's
failure to serve a copy of the same on the union.
Section 15 of the rules of the CIR, in relation to Section 1 of Commonwealth Act No. 103, states:
The movant shall file the motion (for reconsideration), in six copies within five (5) days from the date on
which he receives notice of the order or decision, object of the motion for reconsideration, the same to be
verified under oath with respect to the correctness of the allegations of fact, and serving a copy thereof
personally or by registered mail, on the adverse party. The latter may file an answer, in six (6) copies,
duly verified under oath. (Emphasis ours.)
In one case (Bien, et al. v. Castillo, etc., et al., G.R. No. L-7428, May 24, 1955), We sustained the dismissal of a
motion for reconsideration filed outside of the period provided in the rules of the CIR. A motion for
reconsideration, a copy of which has not been served on the adverse party as required by the rules, stands on the
same footing. For "in the very nature of things, a motion for reconsideration against a ruling or decision by one
Judge is in effect an appeal to the Court of Industrial Relations, en banc," the purpose being "to substitute the
decision or order of a collegiate court for the ruling or decision of any judge." The provision in Commonwealth Act
No. 103 authorizing the presentation of a motion for reconsideration of a decision or order of the judge to the
CIR, en banc and not direct appeal therefore to this Court, is also in accord with the principal of exhaustion of
administrative remedies before resort can be made to this Court. (Broce, et al., v. The Court of Industrial Relations,
et al., G.R. No. L-12367, October 29, 1959).
Petitioner's motion for reconsideration having been dismissed for its failure to serve a copy of the same on the
union, there is no decision of the CIR en banc that petitioner can bring to this Court for review.
WHEREFORE, the order of March 19, 1959 and the resolution of April 27, 1959 are hereby affirmed and the
appeal is dismissed, without pronouncement as to costs.

63
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9265 April 29, 1957
LUZON STEVEDORING CO., INC., petitioner,
vs.
LUZON MARINE DEPARTMENT UNION and THE HON. MODESTO CASTILLO, THE HON. JOSE S.
BAUTISTA, THE HON. V. JIMENEZ YANSON and THE HON. JUAN L. LANTING, Judges of the Court
of Industrial Relations, respondents.
Perkins, Ponce Enrile and Associates for petitioner.
Mariano B. Tuason for respondent Judge of the Court of Industrial Relations.
Sioson, Roldan and Vidanes for respondent union.
FELIX, J.:
This case involves a petition for certiorari filed by the Luzon Stevedoring Co., Inc., to review a resolution dated
June 5, 1955, issued by the Court of Industrial Relations. On September 5, 1955, with leave of court, a supplemental
petition was filed by said petitioner, and both petitions were given due course by resolution of this Court of
September 15, 1955. The facts of the case may be summarized as follows:
On June 21, 1948, herein respondent Luzon Marine Department Union filed a petition with the Court of Industrial
Relations containing several demands against herein petitioner Luzon Stevedoring Co., Inc., among which were the
petition for full recognition of the right of COLLECTIVE bargaining, close shop and check off. However, on July
18, 1948, while the case was still pending with the CIR, said labor union declared a strike which was ruled down as
illegal by this Court in G.R. No. L-2660 promulgated on May 30, 1950. In view of said ruling, the Union filed a
"Constancia" with the Court of Industrial Relations praying that the remaining unresolved demands of the Union
presented in their original petition, be granted. Said unresolved demands are the following:
a. Point No. 2.
That the work performed in excess of eight (8) hours he paid an overtime pay of 50 per cent the regular
rate of pay, and that work performed on Sundays and legal holidays be paid double the regular rate of
pay.
b. Point No. 7.
That all officers, engineers and crew members of motor tugboats who have not received their pay
corresponding to the second half of December, 1941, be paid accordingly.
c. Point No. 11.
That Ciriaco Sarmiento, Chief Mate, M/V Marlin, Rafael Santos, Port Engineer, and Lorenzo de la Cruz,
Chief Engineer, M/V Shark who have been suspended without justifiable cause and for union activities,
be reinstated with pay from time of suspension.
d. Point No. 12.
That all officers, engineers and crew members of the motor tugboats "Shark", "Hearing", "Pike" and
"Ray", who have been discharged without justifiable cause and for union activities, be reinstate with pay
from time of discharge. (p. 65-66, Record).
On the basis of these demands, the case was set for hearing and the parties submitted their respective evidence, both
oral and documentary, from June 8,1951, to January 7, 1954. In one of the hearings of the case, the original
intervenor in Union de Obreros Estibadores de Filipinas (UOEF), through counsel, moved for the withdraw al of
said Union from the case, which motion was granted by the Court.
After the parties had submitted exhaustive memoranda, the trial Judge rendered a decision on February 10, 1955,
finding that the company gave said employees 3 free meals every day and about 20 minutes rest after each
mealtime; that they worked from 6:00 am. to 6:00 p.m. every day including Sundays and holidays, and for work
performed in excess of 8 hours, the officers, patrons and radio operators were given overtime pay in the amount of

64
P4 each and P2 each for the rest of the crew up to March, 1947, and after said date, these payments were increased
to P5 and P2.50, respectively, until the time of their separation or the strike of July 19, 1948; that when the tugboats
underwent repairs, their personnel worked only 8 hours a day excluding Sundays and holidays; that although there
was an effort on the part of claimants to show that some had worked beyond 6:00 p.m., the evidence was uncertain
and indefinite and that demand was, therefore, denied; that respondent Company, by the nature of its business and
as defined by law (Section 18-b of Commonwealth Act as amended) is considered a public service operator by the
Public Service Commission in its decision in case No. 3035-C entitled "Philippine Shipowners. Association vs.
Luzon Stevedoring Co., Inc., et al."(Exh. 23), and, therefore, exempt from paying additional remuneration or
compensation for work performed on Sundays and legal holidays, pursuant to the provisions of section 4 of
Commonwealth Act No. 444 (Manila Electric Co. vs. Public Utilities Employees Association, 79 Phil., 408. 44 Off.
Gaz., 1760); and ruled that:
For the above reasons, the aforementioned employees are only entitled to receive overtime pay for work
rendered in excess of 8 hours on ordinary days including Sundays and legal holidays.
However, the respondent company has proved to the satisfaction of the Court that it has paid its
employees for such overtime work as shown above Exhs. 1 to 20-B).
It is, therefore, only a matter of computation whether such over time pay by the respondent for overtime
services rendered covers the actual overtime work performed by the employees concerned equivalent to
25 per cent which is the minimum rate fixed by law in the absence of other proof to justify the granting of
more beyond said minimum rate.
Demands Nos. 11 and 12 regarding the reinstatement to the service of the employees named therein were denied
and respondent Company was only or to pay the separation pay and overtime work rendered by Ciriaco Sarmiento,
Rafael Santos and Lorenzo de la Cruz, after making the pronouncement that their separation or dismissal was not
due to union activities but for valid and legal grounds.
The Luzon Marine Department Union, through counsel, therefore, filed a motion for reconsideration praying that
the decision of February 10, 1955, be modified so as to declare and rule that the members of the Union who had
rendered services from 6:00 a.m. to 6:00 p.m. were entitled to 4 hours' overtime pay; that allotted to the taking of
their meals should not be deducted from the 4 hours of overtime rendered by said employees, that the amounts of P3
and P2 set aside for the daily meals of the employees be considered as part of their actual compensation in
determining the amount due to said employees separated from the service without just cause be paid their unearned
wages and salaries from the date of their separation up to the time the decision in case L-2660 became final; and for
such other relief as may be just and equitable in the premises.
Luzon Stevedoring Co., Inc. also sought for the reconsideration of the decision only in so far as it interpreted that
the period during which a seaman is aboard a tugboat shall be considered as "working time" for the purpose of the
Eight-Hour-Labor Law.
In pursuance of Section 1 of Commonwealth Act No. 103, as amended by Commonwealth Act No. 254 and further
amended by Commonwealth Act No. 559, the motions for reconsideration were passed upon by the Court en banc,
and on June 6, 1955, a resolution modifying the decision of February 10, 1955, was issued, in the sense that the 4
hours of overtime work included in the regular daily schedule of work from 6:00 a.m. to 6:00 p.m. should be paid
independently of the so-called "coffee-money", after making a finding that said extra amounts were given to crew
members of some tugboats for work performed beyond 6:00 p.m. over a period of some 16 weeks. The Company's
motion for reconsideration was denied.
From this resolution, the Luzon Stevedoring Co., Inc. filed the present petition for certiorari and when the Court of
Industrial Relations, acting upon said Company's motion for clarification, ruled that the 20 minutes' rest given the
claimants after mealtime should not be deducted from the 4 hours of overtime worked performed by said claimants,
petitioner filed a supplemental petition for certiorari dated September 5, 1955, and both petitions were given due
course by this Court.
Respondent Luzon Marine Labor Union filed within the reglementary period a motion to dismiss, which this Court
considered as an answer by resolution of October 14, 1955, alleging that the decision, resolution and order of the

65
Court of Industrial Relations sought to be reviewed by petitioner do not present any question of law, the issues in
said CIR case No. 147-V being purely factual. The respondent Judges of the Court of Industrial Relations,
represented by counsel, timely filed an answer likewise asserting that there could have been no question of law
involved or error of law committed by the said Judges in the resolutions appealed from, same having been based on
purely findings of fact.
In this instance, petitioner does not seek to alter the lower court's finding that the regular daily schedule of work of
the members of the herein respondent Union was from 6:00 a.m. to 6:00 p.m. Petitioner, however, submits several
"issues" which We will proceed to discuss one after the other. They are the following:
I. Is the definition for "hours of work" as presently applied to dryland laborers equally applicable to seamen? Or
should a different criterion be applied by virtue of the fact that the seamen's employment is completely different in
nature as well as in condition of work from that of a dryland laborer?
Petitioner questions the applicability to seamen of the interpretation given to the phrase "hours of work" for the
purpose of the Eight-Hour Labor Law, insinuating that although the seamen concerned stayed in petitioner's
tugboats, or merely within its compound, for 12 hours, yet their work was not continuous but interrupted or broken.
It has been the consistent stand of petitioner that while it is true that the workers herein were required to report for
work at 6:00 a.m. and were made to stay up to 6:00 p.m., their work was not continuous and they could have left the
premises of their working place were it not for the inherent physical impossibility peculiar to the nature of their duty
which prevented them from leaving the tugboats. It is the Company's defense that a literal interpretation of what
constitutes non-working hours would result in absurdity if made to apply to seamen aboard vessels in bays and
rivers, and We are called upon to make an interpretation of the law on "non-working hours" that may comprehend
within its embrace not only the non-working hours of laborers employed in land jobs, but also of that particular
group of seamen, i.e., those employed in vessels plying in rivers and bays, since admittedly there is no need for such
ruling with respect to officers and crew of interisland vessels which have aboard 2 shifts of said men and strictly
follow the 8-hour working period.
Section 1 of Commonwealth Act No. 444, known as the Eight-Hour Labor Law, provides:
SEC. 1. The legal working day for any person employed by another shall be of not more than eight hours
daily. When the work is not continuous, the time during which the laborer is not working AND CAN
LEAVE HIS WORKING PLACE and can rest completely, shall not be counted.
The requisites contained in this section are further implemented by contemporary regulations issued by
administrative authorities (Sections 4 and 5 of Chapter III, Article 1, Code of Rules and Regulations to Implement
the Minimum Wage Law).
For the purposes of this case, We do not need to set for seamen a criterion different from that applied to laborers on
land, for under the provisions of the above quoted section, the only thing to be done is to determine the meaning and
scope of the term "working place" used therein. As We understand this term, a laborer need not leave
thepremises of the factory, shop or boat in order that his period of rest shall not be counted, it being enough that he
"cease to work", may rest completely and leave or may leave at his will the spot where he actually stays while
working, to go somewhere else, whether within or outside the premises of said factory, shop or boat. If these
requisites are complied with, the period of such rest shall not be counted.
In the case at bar We do not need to look into the nature of the work of claimant mariners to ascertain the truth of
petitioners allegation that this kind of seamen have had enough "free time", a task of which We are relieved, for
although after an ocular inspection of the working premises of the seamen affected in this case the trial Judge
declared in his decision that the Company gave the complaining laborers 3 free meals a day with a recess of 20
minutes after each meal, this decision was specifically amended by the Court en banc in its Resolution of June 6,
1955, wherein it held that the claimants herein rendered services to the Company from 6:00 a.m. to 6:00 p.m.
including Sundays and holidays, which implies either that said laborers were not given any recess at all, or that they
were not allowed to leave the spot of their working place, or that they could not rest completely. And such
resolution being on a question essentially of fact, this Court is now precluded to review the same (Com. Act No.
103, Sec. 15, as amended by Sec. 2 of Com. Act No. 559; Rule 44 of the Rules of Court; Kaisahan Ng Mga

66
Manggagawa sa Kahoy sa Filipinas vs. Gotamco Sawmill, 80 Phil., 521; Operators, Inc. vs. Pelagio, 99 Phil, 893,
and others).
II. Should a person be penalized for following an opinion issued by the Secretary of Justice in the absence of any
judicial pronouncement whatsoever?
Petitioner cites Opinion No. 247, Series of 1941 of the Secretary of Justice to a query made by the Secretary of
Labor in connection with a similar subject matter as the one involved, in this issue, but that opinion has no bearing
on the case at bar because it refers to officers and crew on board interisland boats whose situation is different from
that of mariners or sailors working in small tugboats that ply along bays and rivers and have no cabins or places for
persons that man the same. Moreover, We can not pass upon this second issue because, aside from the fact that
there appears nothing on record that would support petitioner's assertion that in its dealing with its employees, it
was guided by an opinion of the Secretary of Justice, the issue involves a mere theoretical question.
III. When employees with full knowledge of the law, voluntarily agreed to work for so many hours in consideration
of a certain definite wage, and continue working without any protest for a period of almost two years, is said
compensation as agreed upon legally deemed and retroactively presumed to constitute full payment for all services
rendered, including whatever overtime wages might be due? Especially so if such wages, though received years
before the enactment of the Minimum Wage Law, were already set mostly above said minimum wage?
IV. The members set of respondent Union having expressly manifested acquiescence over a period of almost two
years with reference to the sufficiency of their wages and having made no protest whatsoever with reference to said
compensation does the legal and equitable principle of estoppel operate to bar them from making a claim for, or
making any recovery of, back overtime compensation?
We are going to discuss these two issues jointly. Section 6 of Commonwealth Act No. 444 provides:
Sec. 6. Any agreement or contract between the employer and the laborer or employee contrary to the provisions of
this Act shall be null and void ab initio.
In the case of the Manila Terminal Co. vs. Court of Industrial Relations et al., 91 Phil., 625, 48 Off. Gaz., 2725, this
Court held:
The principles of estoppel and laches cannot be, invoked against employees or laborers in an action for
the recovery of compensation for past overtime work. In the first place, it would be contrary to the spirit
of the Eight-Hour Labor Law, under which. as already seen, the laborers cannot waive their right to extra
compensation. In the second place, the law principally obligates the employer to observe it, so much so
that it punishes the employer for its violation and leaves the employee free and blameless. In the third
place, the employee or laborer is in such a disadvantageous position as to be naturally reluctant or even
apprehensive in asserting a claim which may cause the employer to devise a way for exercising his right
to terminate the employment.
Moreover, if the principle of estoppel and laches is to be applied, it would bring about a situation
whereby the employee or laborer, can not expressly renounce the right to extra compensation under the
Eight-Hour Labor Law, may be compelled to accomplish the same thing by mere silence or lapse of time,
thereby frustrating the purpose of the law by indirection.
This is the law on the matter and We certainly adhere, to it in the present case. We deem it, however, convenient to
say a few words of explanation so that the principle enunciated herein may not lead to any misconstruction of the
law in future cases. There is no question that the right of the laborers to overtime pay cannot be waived. But there
may be cases in which the silence of the employee or laborer who lets the time go by for quite a long period without
claiming or asserting his right to overtime compensation may favor the inference that he has not worked any such
overtime or that his extra work has been duly compensated. But this is not so in the case at bar. The complaining
laborers have declared that long before the filing of this case, they had informed Mr. Martinez, a sort of overseer of
the petitioner, that they had been working overtime and claiming the corresponding compensation therefor, and
there is nothing on record to show that the claimants, at least the majority of them, had received wages in excess of
the minimum wage later provided by Republic Act No. 602, approved April 6, 1951. On the contrary, in the

67
decision of the trial Judge, it appears that 34 out of the 58 claimants received salaries less than the minimum wage
authorized by said Minimum Wage Law, to wit:
Per month
1. Ambrosio Tañada …………….. oiler P82.50
but after passing the examinations his
wages were increased to P225 per month;
2. Patricio Santiago …………….. quartermaster 82.50
but after passing the examinations his
wages were increased to P225 per month;
3. Fidelino Villanueva …………… oiler 82.50
4. Pedro Filamor ………………… quartermaster 82.50
then his wage was reduced to P67.50 per
month as cook;
5. Emiliano Irabon ………………. seaman 82.50
then his wage was reduced to P60 and he
stayed for 1 month only; it was increased again
to P67.50;
6. Juanito de Luna oiler 82.50
7. Benigno Curambao oiler 82.50
8. Salvador Mercadillo oiler 82.50
9. Nicasio Sta. Lucia cook 82.50
10. Damaso Arciaga seaman 82.50
11. Leonardo Patnugot oiler 82.50
12. Bienvenido Crisostomo oiler 82.50
13. Isidro Malabanan cook 82.50
14. Saturnino Tumbokon seaman 67.50
15. Bonifacio Cortez quartermaster 82.50
16. Victorio Carillo cook 67.50
17. Francisco Atilano cook 67.50
18. Gualberto Legaspi seaman 67.50
19. Numeriano Juanillo quartermaster 82.50
20. Moises Nicodemus quartermaster 82.50
21. Arsenio Indiano seaman 82.50
22. Ricardo Autencio oiler 82.50
23. Mateo Arciaga seaman 67.50
24. Romulo Magallanes quartermaster 82.50
25. Antonio Belbes seaman 67.50
26. Benjamin Aguirre quartermaster 82.50
27. Emilio Anastasio quartermaster 82.50
28. Baltazar Labrada oiler 82.50

68
29. Emeterio Magallanes seaman 67.50
30. Agripino Laurente quartermaster 82.50
31. Roberto Francisco oiler 82.50
32. Elias Matrocinio seaman 82.50
33. Baltazar Vega seaman 67.50
34. Jose Sanchez oiler 82.50
Consequently, for lack of the necessary supporting evidence for the petitioner, the inference referred to above
cannot be drawn in this case.
V. Granting, without conceding, that any overtime pay in arrears is due, what is the extent and rule of retro-activity
with reference to overtime pay in arrears as set forth and established by the precedents and policies of the Court of
Industrial Relations in past decisions duly affirmed by the Honorable Supreme Court?
VI. Is the grant of a sizeable amount as back overtime wages by the Court of Industrial Relations in consonance
with the dictates of public policy and the avowed national and government policy on economic recovery and
financial stability?
In connection with issue No. 5, petitioner advances the theory that the computation of the overtime payment in
arrears should be based from the filing of the petition. In support of this contention, petitioner cites the case of
Gotamco Lumber Co. vs- Court of Industrial Relations, 85 Phil., 242; 47 Off. Gaz., 3421. This case is not in point;
it merely declares that Commonwealth Act No. 444 imposes upon the employer the duty to secure the permit for
overtime work, and the latter may not therefore be heard to plead his own negligence as exemption or defense. The
employee in rendering extra services at the request of his employer has a right to assume that the latter has complied
with the requirements of the law and therefore has obtained the required permission from the Department of Labor
(47 Off, Gaz., 3421). The other decisions of the Court of Industrial Relations cited by petitioner, to wit: Cases 6-V,
7-V and 8-V, Gotamco & Co., Dy Pac & Co., Inc. and D. C. Chuan; Case 110-V, National Labor Union vs.
Standard Vacuum Oil Co.; Case No. 76-v, Dee Cho Workers, CLO vs. Dee Cho Lumber Co., and Case No. 70-
V, National Labor Union vs. Benguet Consolidated Mining Co., do not seem to have reached this Court and to have
been affirmed by Us.
It is of common occurrence that a workingman has already rendered services in excess of the statutory period of 8
hours for some time before he can be led or he can muster enough courage to confront his employer with a demand
for payment thereof. Fear of possible unemployment sometimes is a very strong factor that gags the man from
asserting his right under the law and it may take him months or years before he could be made to present a claim
against his employer. To allow the workingman to be compensated only from the date of the filing of the petition
with the court would be to penalize him for his acquiescence or silence which We have declared in the case of
the Manila Terminal Co. vs. CIR, supra, to be beyond the intent of the law. It is not just and humane that he should
be deprived of what is lawfully his under the law, for the true intendent of Commonwealth Act No. 444 is to
compensate the worker for services rendered beyond the statutory period and this should be made to retroact to the
date when such services were actually performed.
Anent issue No. VI, petitioner questions the reasonableness of the law providing for the grant of overtime wages. It
is sufficient for Us to state here that courts cannot go outside of the field of interpretation so as to inquire into the
motive or motives of Congress in enacting a particular piece of legislation. This question, certainly, is not within
Our province to entertain.
It may be alleged, however, that the delay in asserting the right to back overtime compensation may cause an
unreasonable or irreparable injury to the employer, because the accumulation of such back overtime wages may
become so great that their payment might cause the bankruptcy or the closing of the business of the employer who
might not be in a position to defray the same. Perhaps this situation may occur, but We shall not delve on it this
time because petitioner does not claim that the payment of the back overtime wages it is ordered to pay to its
claimant laborers will cause the injury it foresees or force it to close its business, a situation which it speaks of
theoretically and in general.

69
VII. Should not a Court of Industrial Relations' resolution, en banc, which is clearly unsupported in fact and in law,
patently arbitrary and capricious and absolutely devoid of sustaining reason, be declared illegal? Especially so, if
the trial court's decision which the resolution en banc reversed, is most detailed, exhaustive and comprehensive in
its findings as well as most reasonable and legal in its conclusions? This issue was raised by petitioner in its
supplemental petition and We have this much to say. The Court of Industrial Relations has been considered "a court
of justice" (Metropolitan Transportation Service vs. Paredes, * G.R. No. L-1232, prom. January 12, 1948), although
in another case. We said that it is "more an administrative board than a part of the integrated judicial system of the
nation" (Ang Tibay vs. Court of Industrial Relations, 69 Phil., 635). But for procedural purposes, the Court of
Industrial Relations is a court with well-defined powers vested by the law creating it and with such other powers as
generally pertain to a court of justice (Sec. 20, Com. Act No. 103). As such, the general rule that before a judgment
becomes final, the Court that rendered the same may alter or modify it so as to conform with the law and the
evidence, is applicable to the Court of Industrial Relations (Connel Bros. Co.(Phil.) vs. National Labor Union, G.R.
No. L-3631, prom. January 30, 1956). The law also provides that after a judge of the Court of Industrial Relations,
duly designated by the Presiding Judge therein to hear a particular case, had rendered a decision, any agrieved party
may request for reconsideration thereof and the judges of said Court shall sit together, the concurrence of the 3 of
them being necessary for the pronouncement of a decision, order or award (See. 1, Com. Act No. 103). It was in
virtue of these rules and upon motions for reconsideration presented by both parties that resolution subject of the
present petition was issued, the Court en banc finding it necessary to modify a part of the decision of February 10,
1955, which is clearly within its power to do.
On the other hand, the issue under consideration is predicated on a situation which is not obtaining in the case at
bar, for, it presupposes that the resolutions en banc of the respondent Court "are clearly unsupported in fact and in
law, patently arbitrary and capricious and absolutely devoid of any sustaining reason", which does not seem to be
the case as a matter of fact.
Wherefore, and on the strength of the foregoing consideration, the resolutions of the Court of Industrial Relations
appealed from are hereby affirmed, with costs against petitioner. It is so ordered.

70
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26844 September 30, 1969
FELIPE DE LEON, BALDOMERO SALVADOR, MARTINIANO EVANGELISTA, VICENTE
PANLAQUI, CASTOR TUASON, FRANCISCO GONZALO, ENRIQUE PAGCU, CLAUDIO SICHON,
ESTANISLAO SICHON, RUBEN ICBAN, ABONDINO ISIP, LUIS P. ISIP, DIOSDADO P. GONZALES,
MAXIMO PAULE, FAUSTINO DIMATULAC, MATEO BAUTISTA, WILFREDO AYCARDO,
HORACIO OCAMPO, FABIAN MENESES, FLORENTINO GARCIA and JOSE D. GALANG, petitioners,
vs.
PAMPANGA SUGAR DEVELOPMENT COMPANY, INC., respondent.
Juan C. Limin for petitioners.
Carlos, Madarang, Carballo and Valdez for respondent.

CASTRO, J.:
Review on certiorari of the resolution dated October 14, 1966 of the Court of Industrial Relations (CIR) dismissing
the petitioners' complaint in case 38-V.
The respondent Pampanga Sugar Development Company (PASUDECO) operates a sugar central at San Fernando,
Pampanga. The petitioners, 21 all told, were its security guards required to work eight hours a day, seven days a
week. On November 28, 1961 the petitioners filed with the CIR a complaint seeking payment to them of premium
or differential pay in the total amount P49,581.79, plus attorney's fees of P3,000 and costs of suit. Upon the finding
that the "petitioners were paid their monthly salaries plus 25% additional compensation for work on Sundays and
Holidays as provided for by law and that work on said days is one of the terms and conditions of their employment
as security guards." CIR Judge Joaquin M. Salvador dismissed the case. Acting on the petitioners' motion for
reconsideration, the court en banc affirmed Judge Salvador's order. Hence this appeal.
The petitioners' claim, in essence, is that under the authority of section 4 of Commonwealth Act 444 as amended
(Eight-Hour Labor Law), for a Sunday or legal holiday work of not more than eight hours, each of them is entitled
to his monthly salary and his premium or differential compensation, i.e., his wage for the said Sunday or legal
holiday plus at least 25% thereof.
Sec. 4 of C.A. 444, as amended, reads:
No person, firm, or corporation, business establishment or place or center of labor shall compel an
employee or laborer to work during Sundays and legal holidays, unless he is paid an additional sum of at
least twenty-five per centum of his regular remuneration: Provided, however, That this prohibition shall
not apply to public utilities performing some public service such as supplying gas, electricity, power,
water, or providing means of transportation or communication.
The issue which the petitioners here pose is not one of novel perception. In Manalo vs. Pampanga Sugar
Development Company, Inc., L-26776, June 30, 1969, this Court disposed of a similar contention, thus:
The law is plain and unambiguous. It directs payment for work done not exceeding eight hours during
Sundays and legal holidays by an employee or laborer not falling under the exception "an additional sum
of at least twenty-five per centum of his regular remuneration." And we already said in one case that
"(t)he minimum legal additional compensation for work on Sundays and legal holidays is — 25% of the
laborer's regular remuneration." Thus, if said employee or laborer regularly receives P6 a day for an
eight-hour work on an ordinary day and he is made to work for eight hours on Sunday or legal holiday,
he is entitled to his base pay of P6 plus P1.50 (25% of P6), or a total of P7.50. His premium pay is P1.50,
the "twenty-five per centum of his regular remuneration of P6. It does not include his base pay of P6. He
gets that P6 for an eight-hour work performed any day. And he gets the extra P1.50 if such eight-hour

71
work is rendered on a Sunday or legal holiday. This is the most logical and reasonable import of the law.
The CIR did not err in following it.
The same signification is, contrary to petitioners' contention, given to the term "premium pay" by the
Department of Labor, as may be gleaned from the following formula it devised in determining the daily
wage of monthly-salaried employees, except those employed by public utilities, working the whole year
round, including Sundays and legal holidays:
Monthly salary multiplied by 12 (months) equals yearly salary; yearly salary divided by 380.5 (days)
equals daily wage.1awphîl.nèt
The figure 380.5 above is the sum of the 303 ordinary days of the year and the 62 Sundays, and legal
holidays of the same year and 15.5 (25% of 62). Stated otherwise, the last figure 15.5 is the difference
between 380.5 (theoretically, the number of days worked by the employee in one year) and 365 days (the
actual number of days in a year). It is, in short, the equivalent in days of the employee's 25% premium
pay for 52 Sundays and 10 legal holidays in one year. The premium pay is not, therefore, 125% as
petitioners want us to believe. Thus, if the employee's daily wage is P6, his total premium pay for one
year is P93 (P6 times 15.5). Computed in another way, with the same daily wage, his premium pay for
one Sunday or legal holiday is P1.50 (25% of P6); multiplying P1.50 by 62 (the number of Sundays and
legal holidays in one year), we get the same amount of P93. This is the amount of premium pay to which
he is entitled in one year in addition to his fixed yearly salary.
Petitioners postulate that the monthly salary or, for that matter, the yearly salary applies only to the
ordinary working days and does not take into account the Sundays and legal holidays found in a given
calendar month or year.
The position thus taken by petitioners-appellants, that they are entitled to 125% premium, or extra pay,
for work done in each Sunday and holiday, would only apply if it is shown that the monthly or yearly
salaries stipulated are intended to cover work on ordinary working days only or where the nature or
conditions of employment do not require work on Sundays and holidays. But where, in agreeing to the
monthly or yearly stipend, the parties knew, or had reason to know, that the work would be continuous,
without interruption on Sundays and holidays, then the wage earner would only be entitled to the 25%
supplement (or extra pay) provided by section 4 of the Eight-Hour Labor law, as the regular monthly or
yearly wage already covered the work done on Sundays and holidays.
The import of the law and the decision in Manalo is that for work on Sundays and legal holidays, the employer
must pay the employee: (1) his regular remuneration, or 100%; and (2) an additional sum of at least 25% of the
regular remuneration, which is called the "premium pay." In other words, the pay for Sundays and legal holidays is
125% of the pay for ordinary days, but only the excess of 25% is premium pay. With respect to employees paid on a
monthly basis, the first 100% (of the 125%), corresponding to the regular remuneration, may or may not be
included in the monthly salary. If it is, then the employee is entitled to collect only the premium of 25%. If it is not,
then the employee has a right to receive the entire 125%.
The question that thus emerges is whether the petitioners' monthly salaries already cover the 100% regular
remuneration for Sundays and legal holidays. 1
From the allegations in paragraph 3 of the petitioners' complaint it can be clearly inferred that such regular
remuneration of 100% is already encompassed in the petitioners' monthly salaries. We hereunder quote the
itemization of the claim (which is essentially the same in respect to the other petitioners) of the petitioner Felipe de
Leon:
Period of employment for which claim is based January 1, 1946
to October 31, 1957

Salary per month from January 1,


1946 to December 31, 1950 P95.00

72
Number of Sundays and Holidays
from January 1, 1946 to December
31, 1950 300

Rate per day plus 25% P3.95

300 Sundays and Holidays


multiplied by P3.95 rate per each
Sunday and Holiday P1,185.00
From the particular precise statement, "Rate per day plus 25% - P3.95," 2 it follows that the regular rate per ordinary
day is P3.1666, which is 1/30th of the monthly salary of P95. This means that in computing the daily wage, each of
the petitioners divided his monthly salary by 30, the average number of days in a month, which includes Sundays
and legal holidays. This is an effective admission, or at least demonstrates awareness on the part of the petitioners,
that their monthly salaries covered work not only on ordinary days but also on Sundays and legal holidays. 3 The
allegation, "300 Sundays and holidays multiplied by P3.95 rate per each Sunday and Holiday — P1,185.00," is
correct. However, it must be remembered that of the amount of P1,185, the sum of P948 had already been paid to
De Leon as part of his salary for the five-year period from January 1, 1946 to December 31, 1950.
The only question remaining is whether the 25% premium pay has also been paid. In the order of Judge Salvador,
affirmed by the court en banc, there is a finding that the "petitioners were paid their monthly salaries plus 25%
additional compensation for work on Sundays and holidays." The factual findings of the trial judge, unaltered or
unmodified by the court en banc, cannot be reviewed by this Court. 4 The findings of fact of the CIR are conclusive
on this Court, where they are supported by substantial evidence, and the lower court has not acted with grave abuse
of discretion in reaching them. 5
ACCORDINGLY, the judgment a quo dismissing the complaint is affirmed. No pronouncement as to costs.

73
FIRST DIVISION

[G.R. No. L-63122. February 20, 1984.]

UNIVERSITY OF PANGASINAN FACULTY UNION, Petitioner, v. UNIVERSITY OF PANGASINAN And


NATIONAL LABOR RELATIONS COMMISSION, Respondents.

Tanopo, Serafico, Juanitez & Callanta Law Office and Hermogenes S. Decano for Petitioner.

The Solicitor General for Respondents.

SYLLABUS

1. LABOR AND SOCIAL LEGISLATIONS; LABOR LAWS; PRESIDENTIAL DECREES ON EMERGENCY


COST OF LIVING ALLOWANCE; REQUISITES FOR ENTITLEMENT TO ALLOWANCES PROVIDED
THEREUNDER. — The various Presidential Decrees on ECOLAs to wit: PD’s 1614, 1634, 1678 and 1713,
provide on "Allowances of Fulltime Employees . . ." that "Employees shall be paid in full the required monthly
allowance regardless of the number of their regular working days if they incur no absences during the month. If
they incur absences without pay, the amounts corresponding to the absences may be deducted from the monthly
allowance . . ." ; and on "Leave of Absence Without Pay", that "All covered employees shall be entitled to the
allowance provided herein when they are on leave of absence with pay." 1aw library

2. ID.; ID.; ID.; "NO WORK, NO PAY" PRINCIPLE NOT APPLICABLE’ CASE AT BAR. — It is beyond
dispute that the petitioner’s members are full-time employees receiving their monthly salaries irrespective of the
number of working days or teaching hours in a month. However, they find themselves in a most peculiar situation
whereby they are forced to go on leave during semestral breaks. These semestral breaks are in the nature of work
interruptions beyond the employees’ control. The duration of the semestral break varies from year to year dependent
on a variety of circumstances affecting at times only the private respondent but at other times all educational
institutions in the country. As such, these breaks cannot be considered as absences within the meaning of the law for
which deductions may be made from monthly allowances. The "No work, no pay" principle does not apply in the
instant case. The petitioner’s members received their regular salaries during this period. It is clear from the
aforequoted provision of law that it contemplates a "no work" situation where the employees voluntarily absent
themselves. Petitioners, in the case at bar, certainly do not, ad voluntatem, absent themselves during semestral
breaks. Rather, they are constrained to take mandatory leave from work. For this they cannot be faulted nor can they
be begrudged that which is due them under the law.

3. ID.; ID.; ID.; EMPLOYEES WHETHER PAID ON MONTHLY OR DAILY BASIS ENTITLED TO DAILY
LIVING ALLOWANCE WHEN PAID THEIR BASIC WAGE. — Respondent’s contention that the "factor
receiving a salary alone should not be the basis of receiving ECOLA", is likewise, without merit. Particular
attention is brought to the Implementing Rules and Regulations of Wage Order No. 1 to wit: "Sec. 5. Allowance for
Unworked Days. — a) All covered employees whether paid on a monthly or daily basis shall be entitled to their
daily living allowance when they are paid their basic.." . .

4. ID.; ID.; ID.; PURPOSE OF THE LAW. — The legal principles of "No work, no pay; No pay, no ECOLA" must
necessarily give way to the purpose of the law to augment the income of employees to enable them to cope with the
harsh living conditions brought about by inflation; and to protect employees and their wages against the ravages

74
brought by these conditions. Significantly, it is the commitment of the State to protect labor and to provide means
by which the difficulties faced by the working force may best be alleviated.

5. ID.; ID.; ID.; PRESIDENTIAL DECREE 451; CONSTRUED. — Respondent overlooks the elemental principle
of statutory construction that the general statements in the whereas clauses cannot prevail over the specific or
particular statements in the law itself which define or limit the purposes of the legislation or proscribe certain acts.
True, the whereas clauses of PD 451 provide for salary and or wage increase and other benefits, however, the same
do not delineate the source of such funds and it is only in Section 3 which provides for the limitations wherein the
intention of the framers of the law is clearly outlined. The law is clear. The sixty (60%) percent incremental
proceeds from the tuition increase are to be devoted entirely to wage or salary increases which means increases in
basic salary. The law cannot be construed to include allowances which are benefits over and above the basic salaries
of the employees.

6. REMEDIAL LAW; APPEALS; FINDINGS OF FACT OF NATIONAL LABOR RELATIONS COMMISSION


ARE BINDING WHEN FULLY SUBSTANTIATED BY EVIDENCE. — As evidenced by the payrolls submitted
by them during the period September 16 to September 30, 1981, the faculty members have been paid for the extra
loads. We agree with the respondents that this issue involves a question of fact properly within the competence of
the respondent NLRC to pass upon. The findings of fact of the respondent Commission are binding on this Court
there being no indication of their being unsubstantiated by evidence.

DECISION

GUTIERREZ, JR., J.:

This is a petition for review on certiorari pursuant to Rule 65 of the Rules of Court to annul and to set aside the
decision of respondent National Labor Relations Commission (NLRC) dated October 25, 1982, dismissing the
appeal of petitioner in NLRC Case No. RBI-47-82, entitled "University of Pangasinan Faculty Union, complainant,
versus University of Pangasinan, Respondent."

Petitioner is a labor union composed of faculty members of the respondent University of Pangasinan, an educational
institution duly organized and existing by virtue of the laws of the Philippines.

On December 18, 1981, the petitioner, through its President, Miss Consuelo Abad, filed a complaint against the
private respondent with the Arbitration Branch of the NLRC, Dagupan District Office, Dagupan City. The
complaint seeks: (a) the payment of Emergency Cost of Living Allowances (ECOLA) for November 7 to December
5, 1981, a semestral break; (b) salary increases from the sixty (60%) percent of the incremental proceeds of
increased tuition fees; and (c) payment of salaries for suspended extra loads.

The petitioner’s members are full-time professors, instructors, and teachers of respondent University. The teachers
in the college level teach for a normal duration of ten (10) months a school year, divided into two (2) semesters of
five (5) months each, excluding the two (2) months summer vacation. These teachers are paid their salaries on a
regular monthly basis.

In November and December, 1981, the petitioner’s members were fully paid their regular monthly salaries.
However, from November 7 to December 5, during the semestral break, they were not paid their ECOLA. The

75
private respondent claims that the teachers are not entitled thereto because the semestral break is not an integral part
of the school year and there being no actual services rendered by the teachers during said period, the principle of
"No work, no pay" applies.

During the same school year (1981-1982), the private respondent was authorized by the Ministry of Education and
Culture to collect, as it did collect, from its students a fifteen (15%) percent increase of tuition fees. Petitioner’s
members demanded a salary increase effective the first semester of said schoolyear to be taken from the sixty (60%)
percent incremental proceeds of the increased tuition fees. Private respondent refused, compelling the petitioner to
include said demand in the complaint filed in the case at bar. While the complaint was pending in the arbitration
branch, the private respondent granted an across-the-board salary increase of 5.86%. Nonetheless, the petitioner is
still pursuing full distribution of the 60% of the incremental proceeds as mandated by the Presidential Decree No.
451.

Aside from their regular loads, some of petitioner’s members were given extra loads to handle during the same
1981-1982 schoolyear. Some of them had extra loads to teach on September 21, 1981, but they were unable to teach
as classes in all levels throughout the country were suspended, although said days was proclaimed by the President
of the Philippines as a working holiday. Those with extra loads to teach on said day claimed they were not paid
their salaries for those loads, but the private respondent claims otherwise.

The issue to be resolved in the case at bar are the following: virtual 1aw library
I

"WHETHER OR NOT PETITIONER’S MEMBERS ARE ENTITLED TO ECOLA DURING THE SEMESTRAL
BREAK FROM NOVEMBER 7 TO DECEMBER 5, 1981 OF THE 1981-82 SCHOOL YEAR.
II

"WHETHER OR NOT 60% OF THE INCREMENTAL PROCEEDS OF INCREASED TUITION FEES SHALL
BE DEVOTED EXCLUSIVELY TO SALARY INCREASE,
III

"WHETHER OR NOT ALLEGED PAYMENT OF SALARIES FOR EXTRA LOADS ON SEPTEMBER 21, 1981
WAS PROVEN BY SUBSTANTIAL EVIDENCE." 1aw library

Anent the first issue, the various Presidential Decrees on ECOLAs to wit: PD’s 1614, 1634, 1678 and 1713, provide
on "Allowances of Fulltime Employees . . ." that "Employees shall be paid in full the required monthly allowance
regardless of the number of their regular working days if they incur no absences during the month. If they incur
absences without pay, the amounts corresponding to the absences may be deducted from the monthly allowance . .
." ; and on "Leave of Absence Without Pay", that "All covered employees shall be entitled to the allowance
provided herein when they are on leave of absence with pay." 1aw library

It is beyond dispute that the petitioner’s members are full-time employees receiving their monthly salaries
irrespective of the number of working days or teaching hours in a month. However, they find themselves in a most
peculiar situation whereby they are forced to go on leave during semestral breaks. These semestral breaks are in the
nature of work interruptions beyond the employees’ control. The duration of the semestral break varies from year to
year dependent on a variety of circumstances affecting at times only the private respondent but at other times all

76
educational institutions in the country. As such, these breaks cannot be considered as absences within the meaning
of the law for which deductions may be made from monthly allowances. The "No work, no pay" principle does not
apply in the instant case. The petitioner’s members received their regular salaries during this period. It is clear from
the aforequoted provision of law that it contemplates a "no work" situation where the employees voluntarily absent
themselves. Petitioners, in the case at bar, certainly do not, ad voluntatem, absent themselves during semestral
breaks. Rather, they are constrained to take mandatory leave from work. For this they cannot be faulted nor can they
be begrudged that which is due them under the law. To a certain extent, the private respondent can specify dates
when no classes would be held. Surely, it was not the intention of the framers of the law to allow employers to
withhold employee benefits by the simple expedient of unilaterally imposing "no work" days and consequently
avoiding compliance with the mandate of the law for those days.

Respondent’s contention that "the fact of receiving a salary alone should not be the basis of receiving ECOLA", is,
likewise, without merit. Particular attention is brought to the Implementing Rules and Regulations of Wage Order
No. 1 to wit.

SECTION 5. Allowance for Unworked Days. —

"a) All covered employees whether paid on a monthly or daily basis shall be entitled to their daily living allowance
when they are paid their basic wage." 1aw library
x x x

This provision, at once refutes the above contention. It is evident that the intention of the law is to grant ECOLA
upon the payment of basic wages. Hence, we have the principle of "No pay, no ECOLA" the converse of which
finds application in the case at bar. Petitioners cannot be considered to be on leave without pay so as not to be
entitled to ECOLA, for, as earlier stated, the petitioners were paid their wages in full for the months of November
and December of 1981, notwithstanding the intervening semestral break. This, in itself, is a tacit recognition of the
rather unusual state of affairs in which teachers find themselves. Although said to be on forced leave, professors and
teachers are, nevertheless, burdened with the task of working during a period of time supposedly available for rest
and private matters. There are papers to correct, students to evaluate, deadlines to meet, and periods within which to
submit grading reports. Although they may be considered by the respondent to be on leave, the semestral break
could not be used effectively for the teacher’s own purposes for the nature of a teacher’s job imposes upon him
further duties which must be done during the said period of time. Learning is a never ending process. Teachers and
professors must keep abreast of developments all the time. Teachers cannot also wait for the opening of the next
semester to begin their work. Arduous preparation is necessary for the delicate task of educating our children.
Teaching involves not only an application of skill and an imparting of knowledge, but a responsibility which entails
self dedication and sacrifice. The task of teaching ends not with the perceptible efforts of the petitioner’s members
but goes beyond the classroom: a continuum where only the visible labor is relieved by academic intermissions. It
would be most unfair for the private respondent to consider these teachers as employees on leave without pay to suit
its purposes and, yet, in the meantime, continue availing of their services as they prepare for the next semester or
complete all of the last semester’s requirements. Furthermore, we may also by analogy apply the principle
enunciated in the Omnibus Rules Implementing the Labor Code to wit: virtual 1aw library

Sec. 4. Principles in Determining Hours Worked. — The following general principles shall govern in determining
whether the time spent by an employee is considered hours worked for purposes of this Rule: virtual 1aw library
x x x

77
"(d) The time during which an employee is inactive by reason of interruptions in his work beyond his control shall
be considered time either if the imminence of the resumption of work requires the employee’s presence at the place
of work or if the interval is too brief to be utilized effectively and gainfully in the employee’s own interest."
(Emphasis supplied).

The petitioner’s members in the case at bar, are exactly in such a situation. The semestral break scheduled is an
interruption beyond petitioner’s control and it cannot be used "effectively nor gainfully in the employee’s interest’.
Thus, the semestral break may also be considered as "hours worked." For this, the teachers are paid regular salaries
and, for this, they should be entitled to ECOLA. Not only do the teachers continue to work during this short recess
but much less do they cease to live for which the cost of living allowance is intended. The legal principles of "No
work, no pay; No pay, no ECOLA" must necessarily give way to the purpose of the law to augment the income of
employees to enable them to cope with the harsh living conditions brought about by inflation; and to protect
employees and their wages against the ravages brought by these conditions. Significantly, it is the commitment of
the State to protect labor and to provide means by which the difficulties faced by the working force may best be
alleviated. To submit to the respondents’ interpretation of the no work, no pay policy is to defeat this noble purpose.
The Constitution and the law mandate otherwise.

With regard to the second issue, we are called upon to interpret and apply Section 3 of Presidential Decree 451 to
wit: virtual 1aw library

SEC. 3. Limitations. — The increase in tuition or other school fees or other charges as well as the new fees or
charges authorized under the next preceding section shall be subject to the following conditions: om.ph

"(a) That no increase in tuition or other school fees or charges shall be approved unless sixty (60%) per centum of
the proceeds is allocated for increase in salaries or wages of the members of the faculty and all other employees of
the school concerned, and the balance for institutional development, student assistance and extension services, and
return to investments: Provided, That in no case shall the return to investments exceed twelve (12%) per centum of
the incremental proceeds; . . ." library
x x x

This Court had the occasion to rule squarely on this point in the very recent case entitled, University of the East v.
University of the East Faculty Association, 117 SCRA 554. We held that: om.ph

"In effect, the problem posed before Us is whether or not the reference in Section 3(a) to ‘increase in salaries or
wages of the faculty and all other employees of the schools concerned’ as the first purpose to which the incremental
proceeds from authorized increases to tuition fees may be devoted, may be construed to include allowances and
benefits. In the negative, which is the position of respondents, it would follow that such allowances must be taken in
resources of the school not derived from tuition fees.

"Without delving into the factual issue of whether or not there could be any such other resources, We note that
among the items of second purpose stated in provision in question is return in investment. And the law provides
only for a maximum, not a minimum. In other words, the schools may get a return to investment of not more than
12%, but if circumstances warrant, there is no minimum fixed by law which they should get.

"On this predicate, We are of the considered view that, if the school happen to have no other resources to grant
allowances and benefits, either mandated by law or secured by collective bargaining, such allowances and benefits
should be charged against the return to investments referred to in the second purpose stated in Section 3(a) of
P.D.451."

78
Private respondent argues that the above interpretation "disregarded the intention and spirit of the law" which
intention is clear from the "whereas" clauses as follows:

"It is imperative that private educational institutions upgrade classroom instruction . . . provide salary and or wage
increases and other benefits . . ."

Respondent further contends that PD 451 was issued to alleviate the sad plight of private schools, their personnel
and all those directly or indirectly on school income as the decree was aimed —

". . . to upgrade classroom instruction by improving their facilities and bring competent teachers in all levels of
education, provide salary and or wage increases and other benefits to their teaching, administrative, and other
personnel to keep up with the increasing cost of living." (Emphasis supplied)

Respondent overlooks the elemental principle of statutory construction that the general statements in the whereas
clauses cannot prevail over the specific or particular statements in the law itself which define or limit the purposes
of the legislation or proscribe certain acts. True, the whereas clauses of PD 451 provide for salary and or wage
increase and other benefits, however, the same do not delineate the source of such funds and it is only in Section 3
which provides for the limitations wherein the intention of the framers of the law is clearly outlined. The law is
clear. The sixty (60%) percent incremental proceeds from the tuition increase are to be devoted entirely to wage or
salary increases which means increases in basic salary. The law cannot be construed to include allowances which
are benefits over and above the basic salaries of the employees. To charge such benefits to the 60% incremental
proceeds would be to reduce the increase in basic salary provided by law, an increase intended also to help the
teachers and other workers tide themselves and their families over these difficult economic times.

This Court is not guilty of usurpation of legislative functions as claimed by the respondents. We expressed the
opinion in the University of the East case that benefits mandated by law and collective bargaining may be charged
to the 12% return on investments within the 40% incremental proceeds of tuition increase. As admitted by
respondent, we merely made this statement as a suggestion in answer to the respondent’s query as to where then,
under the law, can such benefits be charged. We were merely interpreting the meaning of the law within the
confines of its provisions. The law provides that 60% should go to wage increases and 40% to institutional
developments, student assistance, extension services, and return on investments (ROI). Under the law, the last item
ROI has flexibility sufficient to accommodate other purposes of the law and the needs of the university. ROI is not
set aside for any one purpose of the university such as profits or returns on investments. The amount may be used to
comply with other duties and obligations imposed by law which the university exercising managerial prerogatives
finds cannot under present circumstances, be funded by other revenue sources. It may be applied to any other
collateral purpose of the university or invested elsewhere. Hence, the framers of the law intended this portion of the
increases in tuition fees to be a general fund to cover up for the university’s miscellaneous expenses and, precisely,
for this reason, it was not so delimited. Besides, ROI is a return or profit over and above the operating expenditures
of the university, and still, over and above the profits it may have had prior to the tuition increase. The earning
capacities of private educational institutions are not dependent on the increases in tuition fees allowed by P.D. 451.
Accommodation of the allowances required by law require wise and prudent management of all the university
resources together with the incremental proceeds of tuition increases. Cognizance should be taken of the fact that
the private respondent had, before PD 451, managed to grant all allowances required by law. It cannot now claim
that it could not afford the same, considering that additional funds are even granted them by the law in question. We
find no compelling reason, therefore, to deviate from our previous ruling in the University of the East case even as
we take the second hard look at the decision requested by the private Respondent. This case was decided in 1982
when PDs 1614, 1634, 1678, and 1713 which are also the various Presidential Decrees on ECOLA were already in

79
force. PD 451 was interpreted in the light of these subsequent legislations which bear upon but do not modify nor
amend, the same. We need not go beyond the ruling in the University of the East case.

Coming now to the third issue, the respondents are of the considered view that as evidenced by the payrolls
submitted by them during the period September 16 to September 30, 1981, the faculty members have been paid for
the extra loads. We agree with the respondents that this issue involves a question of fact properly within the
competence of the respondent NLRC to pass upon. The findings of fact of the respondent Commission are binding
on this Court there being no indication of their being unsubstantiated by evidence. We find no grave abuse in the
findings of respondent NLRC on this matter to warrant reversal. Assuming arguendo, however, that the petitioners
have not been paid for these extra loads, they are not entitled to payment following the principles of "No work, no
pay." This time, the rule applies. Involved herein is a matter different from the payment of ECOLA under the first
issue. We are now concerned with extra, not regular loads for which the petitioners are paid regular salaries every
month regardless of the number of working days or hours in such a month. Extra loads should be paid for only
when actually performed by the employee. Compensation is based, therefore, on actual work done and on the
number of hours and days spent over and beyond their regular hours of duty. Since there was no work on September
21, 1981, it would now be unfair to grant petitioner’s demand for extra wages on that day. law library : red

Finally, disposing of the respondent’s charge of petitioner’s lack of legal capacity to sue, suffice it to say that this
question can no longer be raised initially on appeal or certiorari. It is quite belated for the private respondent to
question the personality of the petitioner after it had dealt with it as a party in the proceedings below. Furthermore,
it was not disputed that the petitioner is a duly registered labor organization and as such has the legal capacity to sue
and be sued. Registration grants it the rights of a legitimate labor organization and recognition by the respondent
University is not necessary for it to institute this action in behalf of its members to protect their interests and obtain
relief from grievances. The issues raised by the petitioner do not involve pure money claims but are more intricately
intertwined with conditions of employment.

WHEREFORE the petition for certiorari is hereby GRANTED. The private respondent is ordered to pay its regular
fulltime teachers/employees emergency cost of living allowances for the semestral break from November 7 to
December 5, 1981 and the undistributed balance of the sixty (60%) percent incremental proceeds from tuition
increases for the same schoolyear as outlined above. The respondent Commission is sustained insofar as it DENIED
the payment of salaries for the suspended extra loads on September 21, 1981.

SO ORDERED.

80
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-65482 December 1, 1987
JOSE RIZAL COLLEGE, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND NATIONAL ALLIANCE OF
TEACHERS/OFFICE WORKERS, respondents.

PARAS, J.:
This is a petition for certiorari with prayer for the issuance of a writ of preliminary injunction, seeking the
annulment of the decision of the National Labor Relations Commission * in NLRC Case No. RB-IV 23037-78
(Case No. R4-1-1081-71) entitled "National Alliance of Teachers and Office Workers and Juan E. Estacio, Jaime
Medina, et al. vs. Jose Rizal College" modifying the decision of the Labor Arbiter as follows:
WHEREFORE, in view of the foregoing considerations, the decision appealed from is
MODIFIED, in the sense that teaching personnel paid by the hour are hereby declared to be
entitled to holiday pay.
SO ORDERED.
The factual background of this case which is undisputed is as follows:
Petitioner is a non-stock, non-profit educational institution duly organized and existing under the laws of the
Philippines. It has three groups of employees categorized as follows: (a) personnel on monthly basis, who receive
their monthly salary uniformly throughout the year, irrespective of the actual number of working days in a month
without deduction for holidays; (b) personnel on daily basis who are paid on actual days worked and they receive
unworked holiday pay and (c) collegiate faculty who are paid on the basis of student contract hour. Before the start
of the semester they sign contracts with the college undertaking to meet their classes as per schedule.
Unable to receive their corresponding holiday pay, as claimed, from 1975 to 1977, private respondent National
Alliance of Teachers and Office Workers (NATOW) in behalf of the faculty and personnel of Jose Rizal College
filed with the Ministry of Labor a complaint against the college for said alleged non-payment of holiday pay,
docketed as Case No. R04-10-81-72. Due to the failure of the parties to settle their differences on conciliation, the
case was certified for compulsory arbitration where it was docketed as RB-IV-23037-78 (Rollo, pp. 155-156).
After the parties had submitted their respective position papers, the Labor Arbiter ** rendered a decision on
February 5, 1979, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. The faculty and personnel of the respondent Jose Rizal College who are paid their salary by
the month uniformly in a school year, irrespective of the number of working days in a month,
without deduction for holidays, are presumed to be already paid the 10 paid legal holidays and
are no longer entitled to separate payment for the said regular holidays;
2. The personnel of the respondent Jose Rizal College who are paid their wages daily are
entitled to be paid the 10 unworked regular holidays according to the pertinent provisions of
the Rules and Regulations Implementing the Labor Code;
3. Collegiate faculty of the respondent Jose Rizal College who by contract are paid
compensation per student contract hour are not entitled to unworked regular holiday pay
considering that these regular holidays have been excluded in the programming of the student
contact hours. (Rollo. pp. 26-27)
On appeal, respondent National Labor Relations Commission in a decision promulgated on June 2, 1982, modified
the decision appealed from, in the sense that teaching personnel paid by the hour are declared to be entitled to
holiday pay (Rollo. p. 33).

81
Hence, this petition.
The sole issue in this case is whether or not the school faculty who according to their contracts are paid per lecture
hour are entitled to unworked holiday pay.
Labor Arbiter Julio Andres, Jr. found that faculty and personnel employed by petitioner who are paid their salaries
monthly, are uniformly paid throughout the school year regardless of working days, hence their holiday pay are
included therein while the daily paid employees are renumerated for work performed during holidays per affidavit
of petitioner's treasurer (Rollo, pp. 72-73).
There appears to be no problem therefore as to the first two classes or categories of petitioner's workers.
The problem, however, lies with its faculty members, who are paid on an hourly basis, for while the Labor Arbiter
sustains the view that said instructors and professors are not entitled to holiday pay, his decision was modified by
the National Labor Relations Commission holding the contrary. Otherwise stated, on appeal the NLRC ruled that
teaching personnel paid by the hour are declared to be entitled to holiday pay.
Petitioner maintains the position among others, that it is not covered by Book V of the Labor Code on Labor
Relations considering that it is a non- profit institution and that its hourly paid faculty members are paid on a
"contract" basis because they are required to hold classes for a particular number of hours. In the programming of
these student contract hours, legal holidays are excluded and labelled in the schedule as "no class day. " On the
other hand, if a regular week day is declared a holiday, the school calendar is extended to compensate for that day.
Thus petitioner argues that the advent of any of the legal holidays within the semester will not affect the faculty's
salary because this day is not included in their schedule while the calendar is extended to compensate for special
holidays. Thus the programmed number of lecture hours is not diminished (Rollo, pp. 157- 158).
The Solicitor General on the other hand, argues that under Article 94 of the Labor Code (P.D. No. 442 as amended),
holiday pay applies to all employees except those in retail and service establishments. To deprive therefore
employees paid at an hourly rate of unworked holiday pay is contrary to the policy considerations underlying such
presidential enactment, and its precursor, the Blue Sunday Law (Republic Act No. 946) apart from the
constitutional mandate to grant greater rights to labor (Constitution, Article II, Section 9). (Reno, pp. 76-77).
In addition, respondent National Labor Relations Commission in its decision promulgated on June 2, 1982, ruled
that the purpose of a holiday pay is obvious; that is to prevent diminution of the monthly income of the workers on
account of work interruptions. In other words, although the worker is forced to take a rest, he earns what he should
earn. That is his holiday pay. It is no excuse therefore that the school calendar is extended whenever holidays occur,
because such happens only in cases of special holidays (Rollo, p. 32).
Subject holiday pay is provided for in the Labor Code (Presidential Decree No. 442, as amended), which reads:
Art. 94. Right to holiday pay — (a) Every worker shall be paid his regular daily wage during
regular holidays, except in retail and service establishments regularly employing less than ten
(10) workers;
(b) The employer may require an employee to work on any holiday but such employee shall be
paid a compensation equivalent to twice his regular rate; ... "
and in the Implementing Rules and Regulations, Rule IV, Book III, which reads:
SEC. 8. Holiday pay of certain employees. — (a) Private school teachers, including faculty
members of colleges and universities, may not be paid for the regular holidays during
semestral vacations. They shall, however, be paid for the regular holidays during Christmas
vacations. ...
Under the foregoing provisions, apparently, the petitioner, although a non-profit institution is under obligation to
give pay even on unworked regular holidays to hourly paid faculty members subject to the terms and conditions
provided for therein.
We believe that the aforementioned implementing rule is not justified by the provisions of the law which after all is
silent with respect to faculty members paid by the hour who because of their teaching contracts are obliged to work
and consent to be paid only for work actually done (except when an emergency or a fortuitous event or a national
need calls for the declaration of special holidays). Regular holidays specified as such by law are known to both

82
school and faculty members as no class days;" certainly the latter do not expect payment for said unworked days,
and this was clearly in their minds when they entered into the teaching contracts.
On the other hand, both the law and the Implementing Rules governing holiday pay are silent as to payment on
Special Public Holidays.
It is readily apparent that the declared purpose of the holiday pay which is the prevention of diminution of the
monthly income of the employees on account of work interruptions is defeated when a regular class day is cancelled
on account of a special public holiday and class hours are held on another working day to make up for time lost in
the school calendar. Otherwise stated, the faculty member, although forced to take a rest, does not earn what he
should earn on that day. Be it noted that when a special public holiday is declared, the faculty member paid by the
hour is deprived of expected income, and it does not matter that the school calendar is extended in view of the days
or hours lost, for their income that could be earned from other sources is lost during the extended days. Similarly,
when classes are called off or shortened on account of typhoons, floods, rallies, and the like, these faculty members
must likewise be paid, whether or not extensions are ordered.
Petitioner alleges that it was deprived of due process as it was not notified of the appeal made to the NLRC against
the decision of the labor arbiter.
The Court has already set forth what is now known as the "cardinal primary" requirements of due process in
administrative proceedings, to wit: "(1) the right to a hearing which includes the right to present one's case and
submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the decision must
have something to support itself; (4) the evidence must be substantial, and substantial evidence means such
evidence as a reasonable mind might accept as adequate to support a conclusion; (5) the decision must be based on
the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected; (6) the
tribunal or body of any of its judges must act on its or his own independent consideration of the law and facts of the
controversy, and not simply accept the views of a subordinate; (7) the board or body should in all controversial
questions, render its decisions in such manner that the parties to the proceeding can know the various issues
involved, and the reason for the decision rendered. " (Doruelo vs. Commission on Elections, 133 SCRA 382
[1984]).
The records show petitioner JRC was amply heard and represented in the instant proceedings. It submitted its
position paper before the Labor Arbiter and the NLRC and even filed a motion for reconsideration of the decision of
the latter, as well as an "Urgent Motion for Hearing En Banc" (Rollo, p. 175). Thus, petitioner's claim of lack of due
process is unfounded.
PREMISES CONSIDERED, the decision of respondent National Labor Relations Commission is hereby set aside,
and a new one is hereby RENDERED:
(a) exempting petitioner from paying hourly paid faculty members their pay for regular holidays, whether the same
be during the regular semesters of the school year or during semestral, Christmas, or Holy Week vacations;
(b) but ordering petitioner to pay said faculty members their regular hourly rate on days declared as special holidays
or for some reason classes are called off or shortened for the hours they are supposed to have taught, whether
extensions of class days be ordered or not; in case of extensions said faculty members shall likewise be paid their
hourly rates should they teach during said extensions.
SO ORDERED.

83
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 114698 July 3, 1995


WELLINGTON INVESTMENT AND MANUFACTURING CORPORATION, petitioner,
vs.
CRESENCIANO B. TRAJANO, Under-Secretary of Labor and Employment, ELMER ABADILLA, and 34
others, respondents.

NARVASA, C.J.:
The basic issue raised by petitioner in this case is, as its counsel puts it, "whether or not a monthly-paid employee,
receiving a fixed monthly compensation, is entitled to an additional pay aside from his usual holiday pay, whenever
a regular holiday falls on a Sunday."
The case arose from a routine inspection conducted by a Labor Enforcement Officer on August 6, 1991 of the
Wellington Flour Mills, an establishment owned and operated by petitioner Wellington Investment and
Manufacturing Corporation (hereafter, simply Wellington). The officer thereafter drew up a report, a copy of which
was "explained to and received by" Wellington's personnel manager, in which he set forth his finding of "(n)on-
payment of regular holidays falling on a Sunday for monthly-paid employees." 1
Wellington sought reconsideration of the Labor Inspector's report, by letter dated August 10, 1991. It argued that
"the monthly salary of the company's monthly-salaried employees already includes holiday pay for all regular
holidays . . . (and hence) there is no legal basis for the finding of alleged non-payment of regular holidays falling on
a Sunday." 2 It expounded on this thesis in a position paper subsequently submitted to the Regional Director,
asserting that it pays its monthly-paid employees a fixed monthly compensation "using the 314 factor which
undeniably covers and already includes payment for all the working days in a month as well as all the 10 unworked
regular holidays within a year." 3
Wellington's arguments failed to persuade the Regional Director who, in an Order issued on July 28, 1992, ruled
that "when a regular holiday falls on a Sunday, an extra or additional working day is created and the employer has
the obligation to pay the employees for the extra day except the last Sunday of August since the payment for the
said holiday is already included in the 314 factor," and accordingly directed Wellington to pay its employees
compensation corresponding to four (4) extra working days. 4
Wellington timely filed a motion for reconsideration of this Order of August 10, 1992, pointing out that it was in
effect being compelled to "shell out an additional pay for an alleged extra working day" despite its complete
payment of all compensation lawfully due its workers, using the 314 factor. 5 Its motion was treated as an appeal
and was acted on by respondent Undersecretary. By Order dated September 22, the latter affirmed the challenged
order of the Regional Director, holding that "the divisor being used by the respondent (Wellington) does not reliably
reflect the actual working days in a year, " and consequently commanded Wellington to pay its employees the "six
additional working days resulting from regular holidays falling on Sundays in 1988, 1989 and 1990." 6 Again,
Wellington moved for reconsideration, 7 and again was rebuffed. 8
Wellington then instituted the special civil action of certiorari at bar in an attempt to nullify the orders above
mentioned. By Resolution dated July 4, 1994, this Court authorized the issuance of a temporary restraining order
enjoining the respondents from enforcing the questioned orders. 9
Every worker should, according to the Labor Code, 10 "be paid his regular daily wage during regular holidays,
except in retail and service establishments regularly employing less than ten (10) workers;" this, of course, even if
the worker does no work on these holidays. The regular holidays include: "New Year's Day, Maundy Thursday,
Good Friday, the ninth of April, the first of May, the twelfth of June, the fourth of July, the thirtieth of November,

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the twenty-fifth of December, and the day designated by law for holding a general election (or national referendum
or plebiscite). 11
Particularly as regards employees "who are uniformly paid by the month, "the monthly minimum wage shall not be
less than the statutory minimum wage multiplied by 365 days divided by twelve." 12 This monthly salary shall serve
as compensation "for all days in the month whether worked or not," and "irrespective of the number of working
days therein." 13In other words, whether the month is of thirty (30) or thirty-one (31) days' duration, or twenty-eight
(28) or twenty-nine (29) (as in February), the employee is entitled to receive the entire monthly salary. So, too, in
the event of the declaration of any special holiday, or any fortuitous cause precluding work on any particular day or
days (such as transportation strikes, riots, or typhoons or other natural calamities), the employee is entitled to the
salary for the entire month and the employer has no right to deduct the proportionate amount corresponding to the
days when no work was done. The monthly compensation is evidently intended precisely to avoid computations and
adjustments resulting from the contingencies just mentioned which are routinely made in the case of workers paid
on daily basis.
In Wellington's case, there seems to be no question that at the time of the inspection conducted by the Labor
Enforcement Officer on August 6, 1991, it was and had been paying its employees "a salary of not less than the
statutory or established minimum wage," and that the monthly salary thus paid was "not . . . less than the statutory
minimum wage multiplied by 365 days divided by twelve," supra. There is, in other words, no issue that to this
extent, Wellington complied with the minimum norm laid down by law.
Apparently the monthly salary was fixed by Wellington to provide for compensation for every working day of the
year including the holidays specified by law — and excluding only Sundays. In fixing the salary, Wellington used
what it calls the "314 factor;" that is to say, it simply deducted 51 Sundays from the 365 days normally comprising
a year and used the difference, 314, as basis for determining the monthly salary. The monthly salary thus fixed
actually covers payment for 314 days of the year, including regular and special holidays, as well as days when no
work is done by reason of fortuitous cause, as above specified, or causes not attributable to the employees.
The Labor Officer who conducted the routine inspection of Wellington discovered that in certain years, two or three
regular holidays had fallen on Sundays. He reasoned that this had precluded the enjoyment by the employees of a
non-working day, and the employees had consequently had to work an additional day for that month. This
ratiocination received the approval of his Regional Director who opined 14 that "when a regular holiday falls on a
Sunday, an extra or additional working day is created and the employer has the obligation to pay its employees for
the extra day except the last Sunday of August since the payment for the said holiday is already included in the 314
factor." 15
This ingenuous theory was adopted and further explained by respondent Labor Undersecretary, to whom the matter
was appealed, as follows: 16
. . . By using said (314) factor, the respondent (Wellington) assumes that all the regular
holidays fell on ordinary days and never on a Sunday. Thus, the respondent failed to consider
the circumstance that whenever a regular holiday coincides with a Sunday, an additional
working day is created and left unpaid. In other words, while the said divisor may be utilized
as proof evidencing payment of 302 working days, 2 special days and the ten regular holidays
in a calendar year, the same does not cover or include payment of additional working days
created as a result of some regular holidays falling on Sundays.
He pointed out that in 1988 there was "an increase of three (3) working days resulting from regular holidays falling
on Sundays;" hence Wellington "should pay for 317 days, instead of 314 days." By the same process of
ratiocination, respondent Undersecretary theorized that there should be additional payment by Wellington to its
monthly-paid employees for "an increment of three (3) working days" for 1989 and again, for 1990. What he is
saying is that in those years, Wellington should have used the "317 factor," not the "314 factor."
The theory loses sight of the fact that the monthly salary in Wellington — which is based on the so-called "314
factor" — accounts for all 365 days of a year; i.e., Wellington's "314 factor" leaves no day unaccounted for; it is
paying for all the days of a year with the exception only of 51 Sundays.

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The respondents' theory would make each of the years in question (1988, 1989, 1990), a year of 368 days. Pursuant
to this theory, no employer opting to pay his employees by the month would have any definite basis to determine
the number of days in a year for which compensation should be given to his work force. He would have to ascertain
the number of times legal holidays would fall on Sundays in all the years of the expected or extrapolated lifetime of
his business. Alternatively, he would be compelled to make adjustments in his employees' monthly salaries every
year, depending on the number of times that a legal holiday fell on a Sunday.
There is no provision of law requiring any employer to make such adjustments in the monthly salary rate set by him
to take account of legal holidays falling on Sundays in a given year, or, contrary to the legal provisions bearing on
the point, otherwise to reckon a year at more than 365 days. As earlier mentioned, what the law requires of
employers opting to pay by the month is to assure that "the monthly minimum wage shall not be less than the
statutory minimum wage multiplied by 365 days divided by twelve," 17 and to pay that salary "for all days in the
month whether worked or not," and "irrespective of the number of working days therein." 18 That salary is due and
payable regardless of the declaration of any special holiday in the entire country or a particular place therein, or any
fortuitous cause precluding work on any particular day or days (such as transportation strikes, riots, or typhoons or
other natural calamities), or cause not imputable to the worker. And as also earlier pointed out, the legal provisions
governing monthly compensation are evidently intended precisely to avoid re-computations and alterations in salary
on account of the contingencies just mentioned, which, by the way, are routinely made between employer and
employees when the wages are paid on daily basis.
The public respondents argue that their challenged conclusions and dispositions may be justified by Section 2, Rule
X, Book III of the Implementing Rules, giving the Regional Director power — 19
. . . to order and administer (in cases where employer-employee relations still exist), after due
notice and hearing, compliance with the labor standards provisions of the Code and the other
labor legislations based on the findings of their Regulations Officers or Industrial Safety
Engineers (Labor Standard and Welfare Officers) and made in the course of inspection, and to
issue writs of execution to the appropriate authority for the enforcement of his order, in line
with the provisions of Article 128 in relation to Articles 289 and 290 of the Labor Code, as
amended. . . .
The respondents beg the question. Their argument assumes that there are some "labor standards provisions of the
Code and the other labor legislations" imposing on employers the obligation to give additional compensation to
their monthly-paid employees in the event that a legal holiday should fall on a Sunday in a particular month — with
which compliance may be commanded by the Regional Director — when the existence of said provisions is
precisely the matter to be established.
In promulgating the orders complained of the public respondents have attempted to legislate, or interpret legal
provisions in such a manner as to create obligations where none are intended. They have acted without authority, or
at the very least, with grave abuse of their discretion. Their acts must be nullified and set aside.
WHEREFORE, the orders complained of, namely: that of the respondent Undersecretary dated September 22, 1993,
and that of the Regional Director dated July 30, 1992, are NULLIFIED AND SET ASIDE, and the proceeding
against petitioner DISMISSED.
SO ORDERED.

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