G.R. No.
81958 June 30, 1988 "Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future
PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., petitioner,
vs.
HON. FRANKLIN M. DRILON as Secretary of Labor and Employment, and TOMAS D.
ACHACOSO, as Administrator of the Philippine Overseas Employment
Administration, respondents.
Gutierrez & Alo Law Offices for petitioner.
SARMIENTO, J.:
The petitioner, Philippine Association of Service Exporters, Inc. (PASEI, for short), a firm
"engaged principally in the recruitment of Filipino workers, male and female, for overseas
placement," 1 challenges the Constitutional validity of Department Order No. 1, Series of 1988, of
the Department of Labor and Employment, in the character of "GUIDELINES GOVERNING THE
TEMPORARY SUSPENSION OF DEPLOYMENT OF FILIPINO DOMESTIC AND HOUSEHOLD
WORKERS," in this petition for certiorari and prohibition. Specifically, the measure is assailed for
"discrimination against males or females;" 2 that it "does not apply to all Filipino workers but only
to domestic helpers and females with similar skills;" 3 and that it is violative of the right to travel. It
is held likewise to be an invalid exercise of the lawmaking power, police power being legislative,
and not executive, in character.
In its supplement to the petition, PASEI invokes Section 3, of Article XIII, of the Constitution,
providing for worker participation "in policy and decision-making processes affecting their rights
and benefits as may be provided by law." 4 Department Order No. 1, it is contended, was passed
in the absence of prior consultations. It is claimed, finally, to be in violation of the Charter's non-
impairment clause, in addition to the "great and irreparable injury" that PASEI members face
should the Order be further enforced.
On May 25, 1988, the Solicitor General, on behalf of the respondents Secretary of Labor and
Administrator of the Philippine Overseas Employment Administration, filed a Comment informing
the Court that on March 8, 1988, the respondent Labor Secretary lifted the deployment ban in the
states of Iraq, Jordan, Qatar, Canada, Hongkong, United States, Italy, Norway, Austria, and
Switzerland. * In submitting the validity of the challenged "guidelines," the Solicitor General
invokes the police power of the Philippine State.
It is admitted that Department Order No. 1 is in the nature of a police power measure. The only
question is whether or not it is valid under the Constitution.
The concept of police power is well-established in this jurisdiction. It has been defined as the
"state authority to enact legislation that may interfere with personal liberty or property in order to
promote the general welfare." 5 As defined, it consists of (1) an imposition of restraint upon liberty
or property, (2) in order to foster the common good. It is not capable of an exact definition but has
1
been, purposely, veiled in general terms to underscore its all-comprehensive embrace.
Page
where it could be done, provides enough room for an efficient and flexible response to conditions
and circumstances thus assuring the greatest benefits." 6
It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the
Charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood
and sovereignty. It is a fundamental attribute of government that has enabled it to perform the
most vital functions of governance. Marshall, to whom the expression has been credited, 7 refers
to it succinctly as the plenary power of the State "to govern its citizens." 8
"The police power of the State ... is a power coextensive with self- protection, and it is not inaptly
termed the "law of overwhelming necessity." It may be said to be that inherent and plenary power
in the State which enables it to prohibit all things hurtful to the comfort, safety, and welfare of
society." 9
It constitutes an implied limitation on the Bill of Rights. According to Fernando, it is "rooted in the
conception that men in organizing the state and imposing upon its government limitations to
safeguard constitutional rights did not intend thereby to enable an individual citizen or a group of
citizens to obstruct unreasonably the enactment of such salutary measures calculated to ensure
communal peace, safety, good order, and welfare." 10 Significantly, the Bill of Rights itself does
not purport to be an absolute guaranty of individual rights and liberties "Even liberty itself, the
greatest of all rights, is not unrestricted license to act according to one's will." 11 It is subject to the
far more overriding demands and requirements of the greater number.
Notwithstanding its extensive sweep, police power is not without its own limitations. For all its
awesome consequences, it may not be exercised arbitrarily or unreasonably. Otherwise, and in
that event, it defeats the purpose for which it is exercised, that is, to advance the public good.
Thus, when the power is used to further private interests at the expense of the citizenry, there is a
clear misuse of the power. 12
In the light of the foregoing, the petition must be dismissed.
As a general rule, official acts enjoy a presumed vahdity. 13 In the absence of clear and
convincing evidence to the contrary, the presumption logically stands.
The petitioner has shown no satisfactory reason why the contested measure should be nullified.
There is no question that Department Order No. 1 applies only to "female contract workers," 14 but
it does not thereby make an undue discrimination between the sexes. It is well-settled that
"equality before the law" under the Constitution 15does not import a perfect Identity of rights
among all men and women. It admits of classifications, provided that (1) such classifications rest
on substantial distinctions; (2) they are germane to the purposes of the law; (3) they are not
confined to existing conditions; and (4) they apply equally to all members of the same class. 16
The Court is satisfied that the classification made-the preference for female workers — rests on
substantial distinctions.
As a matter of judicial notice, the Court is well aware of the unhappy plight that has befallen our
female labor force abroad, especially domestic servants, amid exploitative working conditions
marked by, in not a few cases, physical and personal abuse. The sordid tales of maltreatment
suffered by migrant Filipina workers, even rape and various forms of torture, confirmed by
 testimonies of returning workers, are compelling motives for urgent Government action. As The Court finds, finally, the impugned guidelines to be applicable to all female domestic overseas
precisely the caretaker of Constitutional rights, the Court is called upon to protect victims of workers. That it does not apply to "all Filipina workers" 20 is not an argument for
exploitation. In fulfilling that duty, the Court sustains the Government's efforts. unconstitutionality. Had the ban been given universal applicability, then it would have been
unreasonable and arbitrary. For obvious reasons, not all of them are similarly circumstanced.
What the Constitution prohibits is the singling out of a select person or group of persons within an
The same, however, cannot be said of our male workers. In the first place, there is no evidence
existing class, to the prejudice of such a person or group or resulting in an unfair advantage to
that, except perhaps for isolated instances, our men abroad have been afflicted with an Identical
another person or group of persons. To apply the ban, say exclusively to workers deployed by A,
predicament. The petitioner has proffered no argument that the Government should act similarly
but not to those recruited by B, would obviously clash with the equal protection clause of the
with respect to male workers. The Court, of course, is not impressing some male chauvinistic
Charter. It would be a classic case of what Chase refers to as a law that "takes property from A
notion that men are superior to women. What the Court is saying is that it was largely a matter of
and gives it to B." 21 It would be an unlawful invasion of property rights and freedom of contract
evidence (that women domestic workers are being ill-treated abroad in massive instances) and
and needless to state, an invalid act. 22 (Fernando says: "Where the classification is based on
not upon some fanciful or arbitrary yardstick that the Government acted in this case. It is evidence
such distinctions that make a real difference as infancy, sex, and stage of civilization of minority
capable indeed of unquestionable demonstration and evidence this Court accepts. The Court
groups, the better rule, it would seem, is to recognize its validity only if the young, the women, and
cannot, however, say the same thing as far as men are concerned. There is simply no evidence
the cultural minorities are singled out for favorable treatment. There would be an element of
to justify such an inference. Suffice it to state, then, that insofar as classifications are concerned,
unreasonableness if on the contrary their status that calls for the law ministering to their needs is
this Court is content that distinctions are borne by the evidence. Discrimination in this case is
made the basis of discriminatory legislation against them. If such be the case, it would be difficult
justified.
to refute the assertion of denial of equal protection." 23 In the case at bar, the assailed Order
clearly accords protection to certain women workers, and not the contrary.)
As we have furthermore indicated, executive determinations are generally final on the Court.
Under a republican regime, it is the executive branch that enforces policy. For their part, the
It is incorrect to say that Department Order No. 1 prescribes a total ban on overseas deployment.
courts decide, in the proper cases, whether that policy, or the manner by which it is implemented,
From scattered provisions of the Order, it is evident that such a total ban has hot been
agrees with the Constitution or the laws, but it is not for them to question its wisdom. As a co-
contemplated. We quote:
equal body, the judiciary has great respect for determinations of the Chief Executive or his
subalterns, especially when the legislature itself has specifically given them enough room on how
the law should be effectively enforced. In the case at bar, there is no gainsaying the fact, and the 5. AUTHORIZED DEPLOYMENT-The deployment of domestic helpers and
Court will deal with this at greater length shortly, that Department Order No. 1 implements the workers of similar skills defined herein to the following [sic] are authorized
rule-making powers granted by the Labor Code. But what should be noted is the fact that in spite under these guidelines and are exempted from the suspension.
of such a fiction of finality, the Court is on its own persuaded that prevailing conditions indeed call
for a deployment ban.
5.1 Hirings by immediate members of the family of
Heads of State and Government;
There is likewise no doubt that such a classification is germane to the purpose behind the
measure. Unquestionably, it is the avowed objective of Department Order No. 1 to "enhance the
5.2 Hirings by Minister, Deputy Minister and the other
protection for Filipino female overseas workers" 17 this Court has no quarrel that in the midst of
senior government officials; and
the terrible mistreatment Filipina workers have suffered abroad, a ban on deployment will be for
their own good and welfare.
5.3 Hirings by senior officials of the diplomatic corps and
duly accredited international organizations.
The Order does not narrowly apply to existing conditions. Rather, it is intended to apply
indefinitely so long as those conditions exist. This is clear from the Order itself ("Pending review
of the administrative and legal measures, in the Philippines and in the host countries . . ." 18), 5.4 Hirings by employers in countries with whom the
meaning to say that should the authorities arrive at a means impressed with a greater degree of Philippines have [sic] bilateral labor agreements or
permanency, the ban shall be lifted. As a stop-gap measure, it is possessed of a necessary understanding.
malleability, depending on the circumstances of each case. Accordingly, it provides:
xxx xxx xxx
9. LIFTING OF SUSPENSION. — The Secretary of Labor and Employment
(DOLE) may, upon recommendation of the Philippine Overseas Employment
Administration (POEA), lift the suspension in countries where there are: 7. VACATIONING DOMESTIC HELPERS AND WORKERS OF SIMILAR
SKILLS--Vacationing domestic helpers and/or workers of similar skills shall
be allowed to process with the POEA and leave for worksite only if they are
1. Bilateral agreements or understanding with the Philippines, and/or, returning to the same employer to finish an existing or partially served
employment contract. Those workers returning to worksite to serve a new
2

employer shall be covered by the suspension and the provision of these

2. Existing mechanisms providing for sufficient safeguards to ensure the
Page

guidelines.
welfare and protection of Filipino workers. 19
 xxx xxx xxx
9. LIFTING OF SUSPENSION-The Secretary of Labor and Employment
(DOLE) may, upon recommendation of the Philippine Overseas Employment
Administration (POEA), lift the suspension in countries where there are:
1. Bilateral agreements or understanding with the
Philippines, and/or,
The Court finds furthermore that the Government has not indiscriminately made use of its
authority. It is not contested that it has in fact removed the prohibition with respect to certain
countries as manifested by the Solicitor General.
The non-impairment clause of the Constitution, invoked by the petitioner, must yield to the loftier
purposes targetted by the Government. 31 Freedom of contract and enterprise, like all other
freedoms, is not free from restrictions, more so in this jurisdiction, where laissez faire has never
been fully accepted as a controlling economic way of life.

This Court understands the grave implications the questioned Order has on the business of
2. Existing mechanisms providing for sufficient
recruitment. The concern of the Government, however, is not necessarily to maintain profits of
safeguards to ensure the welfare and protection of
business firms. In the ordinary sequence of events, it is profits that suffer as a result of
Filipino workers. 24
Government regulation. The interest of the State is to provide a decent living to its citizens. The
Government has convinced the Court in this case that this is its intent. We do not find the
xxx xxx xxx impugned Order to be tainted with a grave abuse of discretion to warrant the extraordinary relief
prayed for.
The consequence the deployment ban has on the right to travel does not impair the right. The
right to travel is subject, among other things, to the requirements of "public safety," "as may be WHEREFORE, the petition is DISMISSED. No costs.
provided by law." 25 Department Order No. 1 is a valid implementation of the Labor Code, in
particular, its basic policy to "afford protection to labor," 26 pursuant to the respondent Department
SO ORDERED.
of Labor's rule-making authority vested in it by the Labor Code. 27 The petitioner assumes that it is
unreasonable simply because of its impact on the right to travel, but as we have stated, the right
itself is not absolute. The disputed Order is a valid qualification thereto. G.R. No. 119243 April 17, 1997

Neither is there merit in the contention that Department Order No. 1 constitutes an invalid
exercise of legislative power. It is true that police power is the domain of the legislature, but it
does not mean that such an authority may not be lawfully delegated. As we have mentioned, the
Labor Code itself vests the Department of Labor and Employment with rulemaking powers in the
enforcement whereof. 28
BREW MASTER INTERNATIONAL INC., petitioner,
vs.
NATIONAL FEDERATION OF LABOR UNIONS (NAFLU), ANTONIO D. ESTRADA and
HONORABLE NATIONAL LABOR RELATIONS COMMISSION, (Third Division), respondents.

The petitioners's reliance on the Constitutional guaranty of worker participation "in policy and
decision-making processes affecting their rights and benefits" 29 is not well-taken. The right
granted by this provision, again, must submit to the demands and necessities of the State's power DAVIDE, JR., J.:
of regulation.
This is a special civil action for certiorari seeking the reversal of the 7 October 1994 decision1 of
The Constitution declares that: the National Labor Relations Commission (NLRC) in NLRC Case No. 00-06-04136-93 (CA No. L-
007370-94), which modified the 11 July 1994 decision2 of the Labor Arbiter by directing there
instatement of private respondent Antonio D. Estrada, the complainant, without loss of seniority
Sec. 3. The State shall afford full protection to labor, local and overseas, rights and benefits.
organized and unorganized, and promote full employment and equality of
employment opportunities for all. 30
Private respondent National Federation of Labor Unions (NAFLU), a co-complainant in the labor
case, is a labor union of which complainant is a member.
"Protection to labor" does not signify the promotion of employment alone. What concerns the
Constitution more paramountly is that such an employment be above all, decent, just, and
humane. It is bad enough that the country has to send its sons and daughters to strange lands The factual and procedural antecedents are summarized in the decision of the Labor Arbiter
because it cannot satisfy their employment needs at home. Under these circumstances, the which we quote verbatim:
Government is duty-bound to insure that our toiling expatriates have adequate protection,
personally and economically, while away from home. In this case, the Government has evidence, Complainant was first employed by respondent on 16 September 1991 as
3

an evidence the petitioner cannot seriously dispute, of the lack or inadequacy of such protection, route helper with the latest daily wage of P119.00. From 19 April 1993 up to
Page

and as part of its duty, it has precisely ordered an indefinite ban on deployment. 19 May 1993, for a period of one (1) month, complainant went on absent
 without permission (AWOP). On 20 May 1993, respondent thru Mr. Rodolfo
Valentin, sent a Memo to complainant, to wit:
"Please explain in writing within 24 hours of your receipt
of this memo why no disciplinary action should be taken
against you for the following offense:
You were absent since April 19, 1993 up to May 19,
1993.
For your strict compliance."
In answer to the aforesaid memo, complainant explained:
"Sa dahilan po na ako ay hindi nakapagpaalam sainyo
(sic) dahil inuwi ko ang mga anak ko sa Samar dahil ang
asawa ko ay lumayas at walang mag-aalaga sa mga
anak ko. Kaya naman hindi ako naka long distance or
telegrama dahil wala akong pera at ibinili ko ng gamot ay
puro utang pa.
Finding said explanation unsatisfactory, on 16 June 1993, respondent thru its
Sales Manager, Mr. Henry A. Chongco issued a Notice of Termination which
reads:
"We received your letter of explanation dated May 21,
1993 but we regret to inform you that we do not consider
it valid. You are aware of the company Rules and
Regulations that absence without permission for six (6)
consecutive working days is considered abandonment of
work.
In view of the foregoing, the company has decided to
terminate your employment effective June 17, 1993 for
abandonment of work.
Hence, this complaint.
Complainants contend that individual complainant's dismissal was done
without just cause; that if was not sufficiently established that individual
complainant's absence from April 19, 1993 to June 16, 1993 are unjustified;
that the penalty of dismissal for such violation is too severe; that in imposing
such. penalty, respondent should have taken into consideration
complainant's length of service and as a first offender, a penalty less punitive
will suffice such as suspension for a define period, (Position Paper,
complainants).
4
Page
Upon the other hand, respondent contends that individual complainant was
dismissed for cause allowed by the company Rules and Regulations and the
Labor Code; that the act of complainant in absenting from work for one (1)
month without official leave is deleterious to the business of respondent; that
it will result to stoppage of production which will not only destructive to
respondent's interests but also to the interest of its employees in general; that
the dissmisal of complainant from the service is legal, (Position Paper,
respondent).3
The Labor. Arbiter dismissed the complaint for lack of merit, citing the principle of managerial
control, which recognizes the employer's prerogative to prescribe reasonable rules and
regulations to govern the conduct of his employees. The principle allows the imposition of
disciplinary measures which are necessary for the efficiency of both the employer and the
employees. In complainant's case, he persisted in not reporting for work until 16 June 1993
notwithstanding his receipt of the memorandum requiring him to explain his absence without
approval. The Labor Arbiter, relying on Sheomart, Inc. vs. NLRC,4 thus concluded:
Verily, it is crystal clear that individual complainant has indeed abandoned his
work. The filing of the complaint on 25 June 1993 or almost two (2) months
from the date complainant failed to report for work affirms the findings of this
Office and therefore, under the law and jurisprudence which upholds the right
of an employer to discharge an employee who incurs frequent, prolonged and
unexplained absences as being grossly remiss in his duties to the employer
and is therefore, dismissed for cause, (Shoemart, Inc. vs. NLRC, 176 SCRA
385). An employee is deemed to have abandoned his position or to have
resigned from the same, whenever he has been absent therefrom without
previous permission of the employer for three consecutive days or more. This
justification is the obvious harm to employer's interest, resulting from [sic] the
non-availability of the worker's services, (Supra). (Emphasis supplied)5
and ruled that complainant's termination from his employment was "legal, the same with
just or authorized cause and due process."6
Complainant appealed to the NLRC, alleging that the immediate filing of a complaint for illegal
dismissal verily indicated that he never intended to abandon his work, then cited Policarpio v.
Vicente Dy Sun, Jr.,7 where the NLRC ruled that prolonged, absence does not, by itself,
necessarily mean abandonment. Accordingly, there must be a concurrence of intention and overt
acts from which it can be inferred that the employee is no longer interested in working.
Complainant likewise invoked compassion in the application of sanctions, as dismissal from
employment brings untold hardship and sorrows on the dependents of the wage earners. In his
case, a penalty less punitive than dismissal could have sufficed.
In the assailed decision8 of 7 October 1994, the NLRC modified the Labor Arbiter's decision and
held that complainant's dismissal was invalid for the following reasons:
Complainant appellant's prolonged absences, although unauthorized, may
not amount to gross neglect or abandonment of work to warrant outright
termination of employment. Dismissal is too severe a penalty. For one, the
mere fact that complainant-appellant is a first offender must be considered in
his favor. Besides, it is generally impossible for an employee to anticipate
when he would be ill or compelled to attend to some family problems or
emergency like in the case at bar.
 Reliance on the ruling enunciated in the cited case of Shoemart Inc. vs.
National Labor Relations, 176 SCRA 385, is quite misplaced because of the
obvious dissimilarities of the attendant circumstances in the said case vis-a-
vis those obtaining in the case at bar. Unlike in the aforecited Shoemart
Case, herein complainant-appellant was not dismissed for unauthorized
absences and eventually reinstated anterior to his second dismissal for the
same offense nor was he given a second chance which he could have
ignored.
Otherwise stated, the difference between the two cases greatly lies [in] the
fact that complainant in the Shoemart Case in the language of the Supreme
Court was "an inveterate absentee who does not deserve reinstatement"
compared to herein complainant-appellant who is a first offender9
The NLRC then decreed as follows:
PREMISES CONSIDERED, and [sic] the Decision of the Labor Arbiter, dated
11 July 1994 is hereby MODIFIED, by directing the reinstatement of
complainant-appellant to his former position without loss of seniority rights
and other benefits, but without backwages. The other findings in tile appealed
decision stand AFFIRMED. 10
Petitioner's motion for the reconsideration 11 was denied by the NLRC in its 7 December 1994
resolution.12 Petitioner thus filed this special civil action contending that the NLRC committed
grave abuse of discretion in ordering complainant's reinstatement, which in effect countenances
the reinstatement of an employee who is found guilty of "excessive" absences without pior
approval. It further argued that the NLRC failed to consider the rationale behind petitioner's Rules
and Regulations; that it was deprived of its prerogative to enforce them; and that complainant's
reinstatement would adversely affect its business and send the wrong signals to its employees.
In its comment13 for public respondent NLRC, the Office of the Solicitor General maintained that
dismissal from employment was too severe a penalty for a first time offender like complainant.
Although he violated petitioner's rules and regulations, his absences were justified: he had to
bring his children to Samar, his home province, as his wife deserted him. While that by itself might
not excuse the failure to seek permission, the Office of the Solicitor General submitted, however,
that "it would be at [sic] the height of callousness if one, considering his plight under the
circumstance[s], would not give due consideration to [complainant's] explanation. There has to be
an exception."14
Applying Itogon-Suyoc Mines, Inc. v. NLRC,15 the Office of the Solicitor General recommended
complainant's reinstatement, which would be more harmonious to the dictates of social justice
and equity. It further emphasized that the reinstatement should not be considered a condonation
of complainant's irresponsible behavior, rather, it must be viewed as a mitigation of the severity of
the penalty of dismissal. Accordingly, it prays that this petition be dismissed.
In its reply,16 petitioner disputed the application of Itogon-Suyoc because: (1) the employee
involved therein had been in the service for twenty-three years while complainant herein had
served petitioner for only two years; and (2) the offense in Itogon-Suyoc was limited to a single
5
act of high grading while complainant herein committed a series of unexcused absences.
Page
We gave due course to the petition and dispensed with complainant's comment.
The sole issue to be resolved is whether the NLRC committed grave abuse of discretion in
modifying the, decision of the Labor Arbiter.
The answer must be in the negative.
A scrutiny of the facts discloses that complainant's absence was precipitated by grave family
problem as his wife unexpectedly deserted him and abandoned the family. Considering that he
had a full-time job, there was no one to whom to the could entrust the children and he was thus
compelled to bring them to the province. It would have been extremely difficult for him to have
been husband and wife/father and mother at the same time to the children in the metropolis. He
was then under emotional, psychological, spiritual and physical stress and strain. The reason for
his absence is, under these circumstances, justified. While his failure to inform and seek
petitioner's approval was an omission which must be corrected and chastised, he did not merit the
severest penalty of dismissal from the service.
Petitioner's finding that complainant was guilty of abandonment is misplaced. Abandonment as a
just and valid ground for dismissal requires the deliberate, unjustified refusal of the employee to
resume his employment. Two elements must then be satisfied: (1) the failure to report for work or
absence without valid or justifiable reason; and (2) a clear intention to sever the employer-
employee relation. The second element is the more determinative factor and must be evinced by
overt acts.17 Likewise, the burden of proof is on the employer to show the employee's clear and
deliberate intent to discontinue his employment without any intention of returning, 18 mere absence
is not
sufficient. 19 These elements are not present here. First, as held above, complainant's absence
was justified under the circumstances. As to the second requisite, we are not convinced that
complainant ever intended to sever the employer-employee relationship. Complainant
immediately complied with the memo requiring him to explain his absence, and upon knowledge
of his termination, immediately sued for illegal dismissal. These plainly refuted any claim that he
was no longer interested in returning to work.20 Without doubt, the intention is lacking.
Moreover, petitioner failed to discharge the burden of proof that complainant was guilty of
abandonment. No evidence other than complainant's letter explaining his absence was
presented. Needless to state, the letter did not indicate, in the least, that complainant was no
longer interested in returning to work. On the contrary, complainant sought petitioner's
understanding. In declaring him guilty of abandonment, petitioner merely relied on its Rules and
Regulations which limited its application to a six-day continuous absence, contrary to the purpose
of the law. While the employer is not precluded from prescribing rules and regulations to govern
the conduct of his employees, these rules and their implementation must be fair, just and
reasonable. It must be underscored that no less than our Constitution looks with compassion on
the workingman and protects his rights not only under a general statement of a state policy, 21 but
under the Article on Social Justice and Human Rights,22 thus placing labor contracts on a higher
plane and with greater safeguards. Verily, relations between capital and labor are not merely
contractual. They are impressed with public interest and labor contracts must, perforce, yield to
the common good.23
We then conclude that complainant's "prolonged" absence without approval does not fall within
the definition of abandonment and that his dismissal was unjustified. While we do not decide here
the validity of petitioner's Rules and Regulations on continuous, unauthorized absences, what is
plain is that it was wielded with undue haste resulting in a deprivation of due process, thus not
 allowing for a determination of just cause or abandonment. In this light, petitioner's dismissal was
illegal. This is not to say that his absence should go unpunished, as impliedly noted by the NLRC
in declining to award back wages. In the absence of the appropriate offense which defines
complainant's infraction in the company's Rules and Regulations, equity dictates that a penalty
commensurate to the infraction be imposed.
WHEREFORE, the petition is hereby DISMISSED and the decision of the National Labor
Relations Commission in NLRC Case No. 06-04136-93 is hereby AFFIRMED. No pronouncement
as to costs.
SO ORDERED.
G.R. No. L-12582 January 28, 1961
LVN PICTURES, INC., petitioner-appellant,
vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL
RELATIONS, respondents-appellees.
x---------------------------------------------------------x
G.R. No. L-12598 January 28, 1961
SAMPAGUITA PICTURES, INC., petitioner-appellant,
vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL
RELATIONS, respondents-appellees.
Nicanor S. Sison for petitioner-appellant.
Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.
CONCEPCION, J.:
Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review by certiorari of
an order of the Court of Industrial Relations in Case No. 306-MC thereof, certifying the Philippine
Musicians Guild (FFW), petitioner therein and respondent herein, as the sole and exclusive
bargaining agency of all musicians working with said companies, as well as with the Premiere
6
Productions, Inc., which has not appealed. The appeal of LVN Pictures, Inc., has been docketed
Page
as G.R. No. L-12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc.
Involving as they do the same order, the two cases have been jointly heard in this Court, and will
similarly be disposed of.
In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as the
Guild, averred that it is a duly registered legitimate labor organization; that LVN Pictures, Inc.,
Sampaguita Pictures, Inc., and Premiere Productions, Inc. are corporations, duly organized under
the Philippine laws, engaged in the making of motion pictures and in the processing and
distribution thereof; that said companies employ musicians for the purpose of making music
recordings for title music, background music, musical numbers, finale music and other incidental
music, without which a motion picture is incomplete; that ninety-five (95%) percent of all the
musicians playing for the musical recordings of said companies are members of the Guild; and
that the same has no knowledge of the existence of any other legitimate labor organization
representing musicians in said companies. Premised upon these allegations, the Guild prayed
that it be certified as the sole and exclusive bargaining agency for all musicians working in the
aforementioned companies. In their respective answers, the latter denied that they have any
musicians as employees, and alleged that the musical numbers in the filing of the companies are
furnished by independent contractors. The lower court, however, rejected this pretense and
sustained the theory of the Guild, with the result already adverted to. A reconsideration of the
order complained of having been denied by the Court en banc, LVN Pictures, inc., and
Sampaguita Pictures, Inc., filed these petitions for review for certiorari.
Apart from impugning the conclusion of the lower court on the status of the Guild members as
alleged employees of the film companies, the LVN Pictures, Inc., maintains that a petition for
certification cannot be entertained when the existence of employer-employee relationship
between the parties is contested. However, this claim is neither borne out by any legal provision
nor supported by any authority. So long as, after due hearing, the parties are found to bear said
relationship, as in the case at bar, it is proper to pass upon the merits of the petition for
certification.
It is next urged that a certification is improper in the present case, because, "(a) the petition does
not allege and no evidence was presented that the alleged musicians-employees of the
respondents constitute a proper bargaining unit, and (b) said alleged musicians-employees
represent a majority of the other numerous employees of the film companies constituting a proper
bargaining unit under section 12 (a) of Republic Act No. 875."
The absence of an express allegation that the members of the Guild constitute a proper
bargaining unit is fatal proceeding, for the same is not a "litigation" in the sense in which this term
is commonly understood, but a 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 employees as to the matter of their representation. In connection
therewith, the court enjoys a wide discretion in determining the procedure necessary to insure the
fair and free choice of bargaining representatives by employees.1 Moreover, it is alleged in the
petition that the Guild it a duly registered legitimate labor organization and that ninety-five (95%)
percent of the musicians playing for all the musical recordings of the film companies involved in
these cases are members of the Guild. Although, in its answer, the LVN Pictures, Inc. denied both
allegations, it appears that, at the hearing in the lower court it was merely the status of the
musicians as its employees that the film companies really contested. Besides, the substantial
difference between the work performed by said musicians and that of other persons who
participate in the production of a film, and the peculiar circumstances under which the services of
that former are engaged and rendered, suffice to show that they constitute a proper bargaining
unit. At this juncture, it should be noted that the action of the lower court in deciding upon an
appropriate unit for collective bargaining purposes is discretionary (N.L.R.B. v. May Dept. Store
 Co., 66 Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this respect is entitled to almost
complete finality, unless its action is arbitrary or capricious (Marshall Field & Co. v. N.L.R.B.
[C.C.A. 19431, 135 F. 2d. 891), which is far from being so in the cases at bar.
Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for
the musicians working in the aforesaid film companies. It does not intend to represent the other
employees therein. Hence, it was not necessary for the Guild to allege that its members constitute
a majority of all the employees of said film companies, including those who are not musicians.
The real issue in these cases, is whether or not the musicians in question are employees of the
film companies. In this connection the lower court had the following to say:
As a normal and usual course of procedure employed by the companies when a picture
is to be made, the producer invariably chooses, from the musical directors, one who will
furnish the musical background for a film. A price is agreed upon verbally between the
producer and musical director for the cost of furnishing such musical background. Thus,
the musical director may compose his own music specially written for or adapted to the
picture. He engages his own men and pays the corresponding compensation of the
musicians under him.
When the music is ready for recording, the musicians are summoned through 'call slips'
in the name of the film company (Exh 'D'), which show the name of the musician, his
musical instrument, and the date, time and place where he will be picked up by the
truck of the film company. The film company provides the studio for the use of the
musicians for that particular recording. The musicians are also provided transportation
to and from the studio by the company. Similarly, the company furnishes them meals at
dinner time.
During the recording sessions, the motion picture director, who is an employee of the
company, supervises the recording of the musicians and tells what to do in every detail.
He solely directs the performance of the musicians before the camera as director, he
supervises the performance of all the action, including the musicians who appear in the
scenes so that in the actual performance to be shown on the screen, the musical
director's intervention has stopped.
And even in the recording sessions and during the actual shooting of a scene, the
technicians, soundmen and other employees of the company assist in the operation.
Hence, the work of the musicians is an integral part of the entire motion picture since
they not only furnish the music but are also called upon to appear in the finished
picture.
The question to be determined next is what legal relationship exits between the
musicians and the company in the light of the foregoing facts.
We are thus called upon to apply R.A. Act 875. which is substantially the same as and
patterned after the Wagner Act substantially the same as a Act and the Taft-Hartley
Law of the United States. Hence, reference to decisions of American Courts on these
laws on the point-at-issue is called for.
7
Page
Statutes are to be construed in the light of purposes achieved and the evils sought to
be remedied. (U.S. vs. American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .
In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the
United States Supreme Court said the Wagner Act was designed to avert the
'substantial obstruction to the free flow of commerce which results from strikes and
other forms of industrial unrest by eliminating the causes of the unrest. Strikes and
industrial unrest result from the refusal of employers' to bargain collectively and the
inability of workers to bargain successfully for improvement in their working conditions.
Hence, the purposes of the Act are to encourage collective bargaining and to remedy
the workers' inability to bargaining power, by protecting the exercise of full freedom of
association and designation of representatives of their own choosing, for the purpose of
negotiating the terms and conditions of their employment.'
The mischief at which the Act is aimed and the remedies it offers are not confined
exclusively to 'employees' within the traditional legal distinctions, separating them from
'independent contractor'. Myriad forms of service relationship, with infinite and subtle
variations in the term of employment, blanket the nation's economy. Some are within
this Act, others beyond its coverage. Large numbers will fall clearly on one side or on
the other, by whatever test may be applied. Inequality of bargaining power in
controversies of their wages, hours and working conditions may characterize the status
of one group as of the other. The former, when acting alone may be as helpless in
dealing with the employer as dependent on his daily wage and as unable to resist
arbitrary and unfair treatment as the latter.'
To eliminate the causes of labor dispute and industrial strike, Congress thought it
necessary to create a balance of forces in certain types of economic relationship.
Congress recognized those economic relationships cannot be fitted neatly into the
containers designated as 'employee' and 'employer'. Employers and employees not in
proximate relationship may be drawn into common controversies by economic forces
and that the very dispute sought to be avoided might involve 'employees' who are at
times brought into an economic relationship with 'employers', who are not their
'employers'. In this light, the language of the Act's definition of 'employee' or 'employer'
should be determined broadly in doubtful situations, by underlying economic facts
rather than technically and exclusively established legal classifications. (NLRB vs.
Blount, 131 F [2d] 585.)
In other words, the scope of the term 'employee' must be understood with reference to
the purposes of the Act and the facts involved in the economic relationship. Where all
the conditions of relation require protection, protection ought to be given .
By declaring a worker an employee of the person for whom he works and by
recognizing and protecting his rights as such, we eliminate the cause of industrial
unrest and consequently we promote industrial peace, because we enable him to
negotiate an agreement which will settle disputes regarding conditions of employment,
through the process of collective bargaining.
The statutory definition of the word 'employee' is of wide scope. As used in the Act, the
term embraces 'any employee' that is all employees in the conventional as well in the
legal sense expect those excluded by express provision. (Connor Lumber Co., 11
NLRB 776.).
It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of
industrial unrest by protecting the exercise of their right to self-organization for the
 purpose of collective bargaining. (b) To promote sound stable industrial peace and the
advancement of the general welfare, and the best interests of employers and
employees by the settlement of issues respecting terms and conditions of employment
through the process of collective bargaining between employers and representatives of
their employees.
The primary consideration is whether the declared policy and purpose of the Act can be
effectuated by securing for the individual worker the rights and protection guaranteed
by the Act. The matter is not conclusively determined by a contract which purports to
establish the status of the worker, not as an employee.
The work of the musical director and musicians is a functional and integral part of the
enterprise performed at the same studio substantially under the direction and control of
the company.
In other words, to determine whether a person who performs work for another is the
latter's employee or an independent contractor, the National Labor Relations relies on
'the right to control' test. Under this test an employer-employee relationship exist where
the person for whom the services are performed reserves the right to control not only
the end to be achieved, but also the manner and means to be used in reaching the end.
(United Insurance Company, 108, NLRB No. 115.).
Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.
'We find that the independent contractors and persons working under them
are employees' within the meaning of Section 2 (3) of its Act. However, we
are of the opinion that the independent contractors have sufficient authority
over the persons working under their immediate supervision to warrant their
exclusion from the unit. We shall include in the unit the employees working
under the supervision of the independent contractors, but exclude the
contractors.'
'Notwithstanding that the employees are called independent contractors', the Board will
hold them to be employees under the Act where the extent of the employer's control
over them indicates that the relationship is in reality one of employment. (John Hancock
Insurance Co., 2375-D, 1940, Teller, Labor Dispute Collective Bargaining, Vol.).
The right of control of the film company over the musicians is shown (1) by calling the
musicians through 'call slips' in 'the name of the company; (2) by arranging schedules
in its studio for recording sessions; (3) by furnishing transportation and meals to
musicians; and (4) by supervising and directing in detail, through the motion picture
director, the performance of the musicians before the camera, in order to suit the music
they are playing to the picture which is being flashed on the screen.
Thus, in the application of Philippine statutes and pertinent decisions of the United
States Courts on the matter to the facts established in this case, we cannot but
conclude that to effectuate the policies of the Act and by virtue of the 'right of control'
8
test, the members of the Philippine Musicians Guild are employees of the three film
Page
companies and, therefore, entitled to right of collective bargaining under Republic Act
No. 875.
In view of the fact that the three (3) film companies did not question the union's
majority, the Philippine Musicians Guild is hereby declared as the sole collective
bargaining representative for all the musicians employed by the film companies."
We are fully in agreement with the foregoing conclusion and the reasons given in support thereof.
Both are substantially in line with the spirit of our decision in Maligaya Ship Watchmen Agency vs.
Associated Watchmen and Security Union, L-12214-17 (May 28, 1958). In fact, the contention of
the employers in the Maligaya cases, to the effect that they had dealt with independent
contractors, was stronger than that of the film companies in these cases. The third parties with
whom the management and the workers contracted in the Maligaya cases were
agencies registered with the Bureau of Commerce and duly licensed by the City of Manila to
engage in the business of supplying watchmen to steamship companies, with permits to engage
in said business issued by the City Mayor and the Collector of Customs. In the cases at bar, the
musical directors with whom the film companies claim to have dealt with had nothing comparable
to the business standing of said watchmen agencies. In this respect, the status of said musical
directors is analogous to that of the alleged independent contractor in Caro vs. Rilloraza, L-9569
(September 30, 1957), with the particularity that the Caro case involved the enforcement of the
liability of an employer under the Workmen's Compensation Act, whereas the cases before us are
merely concerned with the right of the Guild to represent the musicians as a collective bargaining
unit. Hence, there is less reason to be legalistic and technical in these cases, than in
the Caro case.
Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut
Product Co., Inc vs. CIR(46 Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos Vda.
de Geronimo, L-6968 (November 29, 1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956),
and Josefa Vda. de Cruz vs. The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the
theory of said petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is
authority for herein respondents-appellees. It was held that, although engaged as piece-workers,
under the "pakiao" system, the "parers" and "shellers" in the case were, not independent
contractor, but employees of said company, because "the requirement imposed on the 'parers' to
the effect that 'the nuts are pared whole or that there is not much meat wasted,' in effect limits or
controls the means or details by which said workers are to accomplish their services" — as in the
cases before us.
The nature of the relation between the parties was not settled in the Viana case, the same having
been remanded to the Workmen's Compensation Commission for further evidence.
The case of the Philippine Manufacturing Co. involved a contract between said company and
Eliano Garcia, who undertook to paint a tank of the former. Garcia, in turn engaged the services
of Arcadio Geronimo, a laborer, who fell while painting the tank and died in consequence of the
injuries thus sustained by him. Inasmuch as the company was engaged in the manufacture of
soap, vegetable lard, cooking oil and margarine, it was held that the connection between its
business and the painting aforementioned was purely casual; that Eliano Garcia was an
independent contractor; that Geronimo was not an employee of the company; and that the latter
was not bound, therefore, to pay the compensation provided in the Workmen's Compensation
Act. Unlike the Philippine Manufacturing case, the relation between the business of herein
petitioners-appellants and the work of the musicians is not casual. As held in the order appealed
from which, in this respect, is not contested by herein petitioners-appellants — "the work of the
musicians is an integral part of the entire motion picture." Indeed, one can hardly find modern
films without music therein. Hence, in the Caro case (supra), the owner and operator of buildings
for rent was held bound to pay the indemnity prescribed in the Workmen's Compensation Act for
the injury suffered by a carpenter while working as such in one of said buildings even though his
 services had been allegedly engaged by a third party who had directly contracted with said owner.
In other words, the repair work had not merely a casual connection with the business of said
owner. It was a necessary incident thereof, just as music is in the production of motion pictures.
The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs
materially from the present cases. It involved the interpretation of Republic Act No. 660, which
amends the law creating and establishing the Government Service Insurance System. No labor
law was sought to be construed in that case. In act, the same was originally heard in the Court of
First Instance of Manila, the decision of which was, on appeal, affirmed by the Supreme Court.
The meaning or scope if the term "employee," as used in the Industrial Peace Act (Republic Act
No. 875), was not touched therein. Moreover, the subject matter of said case was a contract
between the management of the Manila Hotel, on the one hand, and Tirso Cruz, on the other,
whereby the latter greed to furnish the former the services of his orchestra, consisting of 15
musicians, including Tirso Cruz, "from 7:30 p.m. to closing time daily." In the language of this
court in that case, "what pieces the orchestra shall play, and how the music shall be arranged or
directed, the intervals and other details — such are left to the leader's discretion."
This is not situation obtaining in the case at bar. The musical directors above referred to
have no such control over the musicians involved in the present case. Said musical directors
control neither the music to be played, nor the musicians playing it. The film companies summon
the musicians to work, through the musical directors. The film companies, through the musical
directors, fix the date, the time and the place of work. The film companies, not the musical
directors, provide the transportation to and from the studio. The film companies furnish meal at
dinner time.
What is more — in the language of the order appealed from — "during the recording sessions, the
motion picture director who is an employee of the company" — not the musical director —
"supervises the recording of the musicians and tells them what to do in every detail". The motion
picture director — not the musical director — "solely directs and performance of the musicians
before the camera". The motion picture director "supervises the performance of all the
actors, including the musicians who appear in the scenes, so that in the actual performance to be
shown in the screen, the musical director's intervention has stopped." Or, as testified to in the
lower court, "the movie director tells the musical director what to do; tells the music to be cut or
tells additional music in this part or he eliminates the entire music he does not (want) or he may
want more drums or move violin or piano, as the case may be". The movie director "directly
controls the activities of the musicians." He "says he wants more drums and the drummer plays
more" or "if he wants more violin or he does not like that.".
It is well settled that "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 . . . ." (Alabama Highway Express Co., Express Co., v.
Local 612, 108S. 2d. 350.) The decisive nature of said control over the "means to be used", is
illustrated in the case of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp. 1197,
1199-1201), in which, by reason of said control, the employer-employee relationship was held to
exist between the management and the workers, notwithstanding the intervention of an alleged
independent contractor, who had, and exercise, the power to hire and fire said workers. The
aforementioned control over the means to be used" in reading the desired end is possessed and
exercised by the film companies over the musicians in the cases before us.
9
WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners herein.
Page
It is so ordered.
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 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).
10
Records show the respondent club had reported for SS coverage Graciano
Awit and Daniel Quijano, as bat unloader and helper, respectively, including
Page
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
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
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
11
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
Page
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
14
given legal notice to the other party and afforded the latter an opportunity to contest it" 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.
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.
G.R. No. 151228 August 15, 2002
ROLANDO Y. TAN, petitioner,
vs.
LEOVIGILDO LAGRAMA and THE HONORABLE COURT OF APPEALS, respondents.
MENDOZA, J.:
12
This is a petition for review on certiorari of the decision,1 dated May 31, 2001, and the
resolution,2 dated November 27, 2001, of the Court of Appeals in C.A.-G.R. SP. No. 63160,
Page
annulling the resolutions of the National Labor Relations Commission (NLRC) and reinstating the
ruling of the Labor Arbiter which found petitioner Rolando Tan guilty of illegally dismissing private
respondent Leovigildo Lagrama and ordering him to pay the latter the amount of P136,849.99 by
way of separation pay, backwages, and damages.
The following are the facts.
Petitioner Rolando Tan is the president of Supreme Theater Corporation and the general
manager of Crown and Empire Theaters in Butuan City. Private respondent Leovigildo Lagrama is
a painter, making ad billboards and murals for the motion pictures shown at the Empress,
Supreme, and Crown Theaters for more than 10 years, from September 1, 1988 to October 17,
1998.
On October 17, 1998, private respondent Lagrama was summoned by Tan and upbraided:
"Nangihi na naman ka sulod sa imong drawinganan." ("You again urinated inside your work
area.") When Lagrama asked what Tan was saying, Tan told him, "Ayaw daghang estorya. Dili ko
gusto nga mo-drawing ka pa. Guikan karon, wala nay drawing. Gawas." ("Don't say anything
further. I don't want you to draw anymore. From now on, no more drawing. Get out.")
Lagrama denied the charge against him. He claimed that he was not the only one who entered
the drawing area and that, even if the charge was true, it was a minor infraction to warrant his
dismissal. However, everytime he spoke, Tan shouted "Gawas" ("Get out"), leaving him with no
other choice but to leave the premises.
Lagrama filed a complaint with the Sub-Regional Arbitration Branch No. X of the National Labor
Relations Commission (NLRC) in Butuan City. He alleged that he had been illegally dismissed
and sought reinvestigation and payment of 13th month pay, service incentive leave pay, salary
differential, and damages.
Petitioner Tan denied that Lagrama was his employee. He asserted that Lagrama was an
independent contractor who did his work according to his methods, while he (petitioner) was only
interested in the result thereof. He cited the admission of Lagrama during the conferences before
the Labor Arbiter that he was paid on a fixed piece-work basis, i.e., that he was paid for every
painting turned out as ad billboard or mural for the pictures shown in the three theaters, on the
basis of a "no mural/billboard drawn, no pay" policy. He submitted the affidavits of other cinema
owners, an amusement park owner, and those supervising the construction of a church to prove
that the services of Lagrama were contracted by them. He denied having dismissed Lagrama and
alleged that it was the latter who refused to paint for him after he was scolded for his habits.
As no amicable settlement had been reached, Labor Arbiter Rogelio P. Legaspi directed the
parties to file their position papers. On June 17, 1999, he rendered a decision, the dispositive
portion of which reads:
WHEREFORE, premises considered judgment is hereby ordered:
1. Declaring complainant's [Lagrama's] dismissal illegal and
2. Ordering respondents [Tan] to pay complainant the following:
 A. Separation Pay - P 59,000.00
B. Backwages - 47,200.00
(from 17 October 1998 to 17 June 1999)
C. 13th month pay (3 years) - 17,700.00
D. Service Incentive Leave Pay (3 years) - 2, 949.99
E. Damages - 10,000.00
TOTAL [P136,849.99]
Complainant's other claims are dismissed for lack of merit. 3
Petitioner Rolando Tan appealed to the NLRC Fifth Division, Cagayan de Oro City, which, on
June 30, 2000, rendered a decision4 finding Lagrama to be an independent contractor, and for
this reason reversing the decision of the Labor Arbiter.
Respondent Lagrama filed a motion for reconsideration, but it was denied for lack of merit by the
NLRC in a resolution of September 29, 2000. He then filed a petition for certiorari under Rule 65
before the Court of Appeals.
The Court of Appeals found that petitioner exercised control over Lagrama's work by dictating the
time when Lagrama should submit his billboards and murals and setting rules on the use of the
work area and rest room. Although it found that Lagrama did work for other cinema owners, the
appeals court held it to be a mere sideline insufficient to prove that he was not an employee of
Tan. The appeals court also found no evidence of any intention on the part of Lagrama to leave
his job or sever his employment relationship with Tan. Accordingly, on May 31, 2001, the Court of
Appeals rendered a decision, the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, the Petition is hereby GRANTED. The
Resolutions of the Public Respondent issued on June 30, 2000 and September 29,
2000 are ANNULLED. The Decision of the Honorable Labor Arbiter Rogelio P. Legaspi
on June 17, 1999 is hereby REINSTATED.
Petitioner moved for a reconsideration, but the Court of Appeals found no reason to reverse its
decision and so denied his motion for lack of merit.5 Hence, this petition for review on certiorari
based on the following assignments of errors:
I. With all due respect, the decision of respondent Court of Appeals in CA-G.R. SP NO.
63160 is bereft of any finding that Public Respondent NLRC, 5th Division, had no
jurisdiction or exceeded it or otherwise gravely abused its discretion in its Resolution of
30 June 2000 in NLRC CA-NO. M-004950-99.
II. With all due respect, respondent Court of Appeals, absent any positive finding on its
part that the Resolution of 30 June 2000 of the NLRC is not supported by substantial
evidence, is without authority to substitute its conclusion for that of said NLRC.
13
III. With all due respect, respondent Court of Appeals' discourse on "freelance artists
Page
and painters" in the decision in question is misplaced or has no factual or legal basis in
the record.
IV. With all due respect, respondent Court of Appeals' opening statement in its decision
as to "employment," "monthly salary of P1,475.00" and "work schedule from Monday to
Saturday, from 8:00 o'clock in the morning up to 5:00 o'clock in the afternoon" as "facts"
is not supported by the evidence on record.
V. With all due respect, the case of Lambo, et al., v. NLRC, et al., 317 SCRA 420 [G.R.
No. 111042 October 26, 1999] relied upon by respondent Court of Appeals is not
applicable to the peculiar circumstances of this case.6
The issues raised boil down to whether or not an employer-employee relationship existed
between petitioner and private respondent, and whether petitioner is guilty of illegally dismissing
private respondent. We find the answers to these issues to be in the affirmative.
I.
In determining whether there is an employer-employee relationship, we have applied a "four-fold
test," to wit: (1) whether the alleged employer has the power of selection and engagement of
employees; (2) whether he has control of the employee with respect to the means and methods
by which work is to be accomplished; (3) whether he has the power to dismiss; and (4) whether
the employee was paid wages.7 These elements of the employer-employee relationship are
present in this case.
First. The existence in this case of the first element is undisputed. It was petitioner who engaged
the services of Lagrama without the intervention of a third party. It is the existence of the second
element, the power of control, that requires discussion here.
Of the four elements of the employer-employee relationship, the "control test" is the most
important. Compared to an employee, an independent contractor is one who carries on a distinct
and independent business and undertakes to perform the job, work, or service on its own account
and under its own responsibility according to its own manner and method, free from the control
and direction of the principal in all matters connected with the performance of the work except as
to the results thereof.8 Hence, while an independent contractor enjoys independence and freedom
from the control and supervision of his principal, an employee is subject to the employer's power
to control the means and methods by which the employee's work is to be performed and
accomplished.
In the case at bar, albeit petitioner Tan claims that private respondent Lagrama was an
independent contractor and never his employee, the evidence shows that the latter performed his
work as painter under the supervision and control of petitioner. Lagrama worked in a designated
work area inside the Crown Theater of petitioner, for the use of which petitioner prescribed rules.
The rules included the observance of cleanliness and hygiene and a prohibition against urinating
in the work area and any place other than the toilet or the rest rooms.9 Petitioner's control over
Lagrama's work extended not only to the use of the work area, but also to the result of Lagrama's
work, and the manner and means by which the work was to be accomplished.
Moreover, it would appear that petitioner not only provided the workplace, but supplied as well the
materials used for the paintings, because he admitted that he paid Lagrama only for the latter's
services.10
 Private respondent Lagrama claimed that he worked daily, from 8 o'clock in the morning to 5
o'clock in the afternoon. Petitioner disputed this allegation and maintained that he paid
Lagrama P1,475.00 per week for the murals for the three theaters which the latter usually finished
in 3 to 4 days in one week.11 Even assuming this to be true, the fact that Lagrama worked for at
least 3 to 4 days a week proves regularity in his employment by petitioner.
Second. That petitioner had the right to hire and fire was admitted by him in his position paper
submitted to the NLRC, the pertinent portions of which stated:
Complainant did not know how to use the available comfort rooms or toilets in and
about his work premises. He was urinating right at the place where he was
working when it was so easy for him, as everybody else did and had he only wanted to,
to go to the comfort rooms. But no, the complainant had to make a virtual urinal out of
his work place! The place then stunk to high heavens, naturally, to the consternation of
respondents and everyone who could smell the malodor.
...
Given such circumstances, the respondents had every right, nay all the compelling
reason, to fire him from his painting job upon discovery and his admission of such acts.
Nonetheless, though thoroughly scolded, he was not fired. It was he who stopped to
paint for respondents.12
By stating that he had the right to fire Lagrama, petitioner in effect acknowledged Lagrama to be
his employee. For the right to hire and fire is another important element of the employer-employee
relationship.13 Indeed, the fact that, as petitioner himself said, he waited for Lagrama to report for
work but the latter simply stopped reporting for work reinforces the conviction that Lagrama was
indeed an employee of petitioner. For only an employee can nurture such an expectancy, the
frustration of which, unless satisfactorily explained, can bring about some disciplinary action on
the part of the employer.
Third. Payment of wages is one of the four factors to be considered in determining the existence
of employer-employee relation. Wages are defined as "remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or ascertained on a
time, task, piece, or commission basis, or other method of calculating the same, which is payable
by an employer to an employee under a written or unwritten contract of employment for work
done or to be done, or for services rendered or to be rendered." 14 That Lagrama worked for Tan
on a fixed piece-work basis is of no moment. Payment by result is a method of compensation and
does not define the essence of the relation.15 It is a method of computing compensation, not a
basis for determining the existence or absence of employer-employee relationship. One may be
paid on the basis of results or time expended on the work, and may or may not acquire an
employment status, depending on whether the elements of an employer-employee relationship
are present or not.16
The Rules Implementing the Labor Code require every employer to pay his employees by means
of payroll.17 The payroll should show among other things, the employee's rate of pay, deductions
14
made, and the amount actually paid to the employee. In the case at bar, petitioner did not present
the payroll to support his claim that Lagrama was not his employee, raising speculations whether
his failure to do so proves that its presentation would be adverse to his case. 18
Page
The primary standard for determining regular employment is the reasonable connection between
the particular activity performed by the employee in relation to the usual trade or business of the
employer.19 In this case, there is such a connection between the job of Lagrama painting
billboards and murals and the business of petitioner. To let the people know what movie was to
be shown in a movie theater requires billboards. Petitioner in fact admits that the billboards are
important to his business.20
The fact that Lagrama was not reported as an employee to the SSS is not conclusive on the
question of whether he was an employee of petitioner.21 Otherwise, an employer would be
rewarded for his failure or even neglect to perform his obligation. 22
Neither does the fact that Lagrama painted for other persons affect or alter his employment
relationship with petitioner. That he did so only during weekends has not been denied by
petitioner. On the other hand, Samuel Villalba, for whom Lagrama had rendered service, admitted
in a sworn statement that he was told by Lagrama that the latter worked for petitioner. 23
Lagrama had been employed by petitioner since 1988. Under the law, therefore, he is deemed a
regular employee and is thus entitled to security of tenure, as provided in Art. 279 of Labor Code:
ART. 279. Security of Tenure. — In cases of regular employment, the employer shall
not terminate the services of an employee except for a just cause or when authorized
by this Title. 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.
This Court has held that if the employee has been performing the job for at least one year, even if
not continuously but intermittently, the repeated and continuing need for its performance is
sufficient evidence of the necessity, if not indispensability, of that activity to the business of his
employer. Hence, the employment is also considered regular, although with respect only to such
activity, and while such activity exists.24
It is claimed that Lagrama abandoned his work. There is no evidence to show this. Abandonment
requires two elements: (1) the failure to report for work or absence without valid or justifiable
reason, and (2) a clear intention to sever the employer-employee relationship, with the second
element as the more determinative factor and being manifested by some overt acts. 25 Mere
absence is not sufficient. What is more, the burden is on the employer to show a deliberate and
unjustified refusal on the part of the employee to resume his employment without any intention of
returning.26 In the case at bar, the Court of Appeals correctly ruled:
Neither do we agree that Petitioner abandoned his job. In order for abandonment to be
a just and valid ground for dismissal, the employer must show, by clear proof, the
intention of the employee to abandon his job. . . .
In the present recourse, the Private Respondent has not established clear proof of the
intention of the Petitioner to abandon his job or to sever the employment relationship
between him and the Private Respondent. On the contrary, it was Private Respondent
who told Petitioner that he did not want the latter to draw for him and thereafter refused
to give him work to do or any mural or billboard to paint or draw on.
 More, after the repeated refusal of the Private Respondent to give Petitioner murals or
billboards to work on, the Petitioner filed, with the Sub-Regional Arbitration Branch No.
X of the National Labor Relations Commission, a Complaint for "Illegal Dismissal and
Money Claims." Such act has, as the Supreme Court declared, negate any intention to
sever employment relationship. . . .27
II.
The second issue is whether private respondent Lagrama was illegally dismissed. To begin, the
employer has the burden of proving the lawfulness of his employee's dismissal. 28 The validity of
the charge must be clearly established in a manner consistent with due process. The
Implementing Rules of the Labor Code29 provide that no worker shall be dismissed except for a
just or authorized cause provided by law and after due process. This provision has two aspects:
(1) the legality of the act of dismissal, that is, dismissal under the grounds provided for under
Article 282 of the Labor Code and (2) the legality in the manner of dismissal. The illegality of the
act of dismissal constitutes discharge without just cause, while illegality in the manner of dismissal
is dismissal without due process.30
In this case, by his refusal to give Lagrama work to do and ordering Lagrama to get out of his
sight as the latter tried to explain his side, petitioner made it plain that Lagrama was dismissed.
Urinating in a work place other than the one designated for the purpose by the employer
constitutes violation of reasonable regulations intended to promote a healthy environment under
Art. 282(1) of the Labor Code for purposes of terminating employment, but the same must be
shown by evidence. Here there is no evidence that Lagrama did urinate in a place other than a
rest room in the premises of his work.
Instead of ordering his reinstatement as provided in Art. 279 of the Labor Code, the Labor Arbiter
found that the relationship between the employer and the employee has been so strained that the
latter's reinstatement would no longer serve any purpose. The parties do not dispute this finding.
Hence, the grant of separation pay in lieu of reinstatement is appropriate. This is of course in
addition to the payment of backwages which, in accordance with the ruling in Bustamante v.
NLRC,31 should be computed from the time of Lagrama's dismissal up to the time of the finality of
this decision, without any deduction or qualification.
32
The Bureau of Working Conditions classifies workers paid by results into two groups, namely;
(1) those whose time and performance is supervised by the employer, and (2) those whose time
and performance is unsupervised by the employer. The first involves an element of control and
supervision over the manner the work is to be performed, while the second does not. If a piece
worker is supervised, there is an employer-employee relationship, as in this case. However, such
an employee is not entitled to service incentive leave pay since, as pointed out in Makati
Haberdashery v. NLRC33 and Mark Roche International v. NLRC,34 he is paid a fixed amount for
work done, regardless of the time he spent in accomplishing such work.
WHEREFORE, based on the foregoing, the petition is DENIED for lack of showing that the Court
of Appeals committed any reversible error. The decision of the Court of Appeals, reversing the
decision of the National Labor Relations Commission and reinstating the decision of the Labor
Arbiter, is AFFIRMED with the MODIFICATION that the backwages and other benefits awarded
15
to private respondent Leovigildo Lagrama should be computed from the time of his dismissal up
to the time of the finality of this decision, without any deduction and qualification. However, the
Page
service incentive leave pay awarded to him is DELETED.
SO ORDERED.
G.R. No. 167622 June 29, 2010
GREGORIO V. TONGKO, Petitioner,
vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE
DIOS,Respondents.
RESOLUTION
BRION, J.:
This resolves the Motion for Reconsideration1 dated December 3, 2008 filed by respondent The
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November
7, 2008. In the assailed decision, we found that an employer-employee relationship existed
between Manulife and petitioner Gregorio Tongko and ordered Manulife to pay Tongko
backwages and separation pay for illegal dismissal.
The following facts have been stated in our Decision of November 7, 2008, now under
reconsideration, but are repeated, simply for purposes of clarity.
The contractual relationship between Tongko and Manulife had two basic phases. The first or
initial phase began on July 1, 1977, under a Career Agent’s Agreement (Agreement) that
provided:
It is understood and agreed that the Agent is an independent contractor and nothing contained
herein shall be construed or interpreted as creating an employer-employee relationship between
the Company and the Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other
products offered by the Company, and collect, in exchange for provisional receipts issued by the
Agent, money due to or become due to the Company in respect of applications or policies
obtained by or through the Agent or from policyholders allotted by the Company to the Agent for
servicing, subject to subsequent confirmation of receipt of payment by the Company as evidenced
by an Official Receipt issued by the Company directly to the policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation of any of the provisions
hereof by the Agent by giving written notice to the Agent within fifteen (15) days from the time of
the discovery of the breach. No waiver, extinguishment, abandonment, withdrawal or cancellation
of the right to terminate this Agreement by the Company shall be construed for any previous
failure to exercise its right under any provision of this Agreement.
 Either of the parties hereto may likewise terminate his Agreement at any time without cause, by
giving to the other party fifteen (15) days notice in writing.2
Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and
(2) to maintain a standard of knowledge and competency in the sale of Manulife’s products,
satisfactory to Manulife and sufficient to meet the volume of the new business, required by his
Production Club membership.3
With such views coming from you, I was a bit concerned that the rest of the Metro North
Managers may be a bit confused as to the directions the company was taking. For this reason, I
sought a meeting with everyone in your management team, including you, to clear the air, so to
speak.
This note is intended to confirm the items that were discussed at the said Metro North Region’s
Sales Managers meeting held at the 7/F Conference room last 18 October.

The second phase started in 1983 when Tongko was named Unit Manager in Manulife’s Sales xxxx
Agency Organization. In 1990, he became a Branch Manager. Six years later (or in 1996),
Tongko became a Regional Sales Manager.4
Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the
position of agents."
Tongko’s gross earnings consisted of commissions, persistency income, and management
overrides. Since the beginning, Tongko consistently declared himself self-employed in his income
This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed
tax returns. Thus, under oath, he declared his gross business income and deducted his business
the issue on the table before the rest of your Region’s Sales Managers to verify its validity. As you
expenses to arrive at his taxable business income. Manulife withheld the corresponding 10% tax
must have noted, no Sales Manager came forward on their own to confirm your statement and it
on Tongko’s earnings.5
took you to name Malou Samson as a source of the same, an allegation that Malou herself denied
at our meeting and in your very presence.
In 2001, Manulife instituted manpower development programs at the regional sales management
level. Respondent Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on
This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what
concerns that were brought up during the October 18, 2001 Metro North Sales Managers
I had thought all along, that these allegations were simply meant to muddle the issues
Meeting. De Dios wrote:
surrounding the inability of your Region to meet its agency development objectives!

The first step to transforming Manulife into a big league player has been very clear – to increase
Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they
the number of agents to at least 1,000 strong for a start. This may seem diametrically opposed to
earn less."
the way Manulife was run when you first joined the organization. Since then, however, substantial
changes have taken place in the organization, as these have been influenced by developments
both from within and without the company. xxxx

xxxx All the above notwithstanding, we had your own records checked and we found that you made a
lot more money in the Year 2000 versus 1999. In addition, you also volunteered the information to
Kevin when you said that you probably will make more money in the Year 2001 compared to Year
The issues around agent recruiting are central to the intended objectives hence the need for a
2000. Obviously, your above statement about making "less money" did not refer to you but the
Senior Managers’ meeting earlier last month when Kevin O’Connor, SVP-Agency, took to the floor
way you argued this point had us almost believing that you were spouting the gospel of truth
to determine from our senior agency leaders what more could be done to bolster manpower
when you were not. x x x
development. At earlier meetings, Kevin had presented information where evidently, your Region
was the lowest performer (on a per Manager basis) in terms of recruiting in 2000 and, as of today,
continues to remain one of the laggards in this area. xxxx

While discussions, in general, were positive other than for certain comments from your end which
were perceived to be uncalled for, it became clear that a one-on-one meeting with you was
necessary to ensure that you and management, were on the same plane. As gleaned from some
of your previous comments in prior meetings (both in group and one-on-one), it was not clear that
we were proceeding in the same direction.
All of a sudden, Greg, I have become much more worried about your ability to lead this group
towards the new direction that we have been discussing these past few weeks, i.e., Manulife’s
goal to become a major agency-led distribution company in the Philippines. While as you claim,
you have not stopped anyone from recruiting, I have never heard you proactively push for greater
agency recruiting. You have not been proactive all these years when it comes to agency growth.

Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In xxxx
16

those subsequent meetings you reiterated certain views, the validity of which we challenged and
subsequently found as having no basis.
I cannot afford to see a major region fail to deliver on its developmental goals next year and so,
Page

we are making the following changes in the interim:

 1. You will hire at your expense a competent assistant who can unload you of much of the routine
tasks which can be easily delegated. This assistant should be so chosen as to complement your
skills and help you in the areas where you feel "may not be your cup of tea."
You have stated, if not implied, that your work as Regional Manager may be too taxing for you
and for your health. The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star
Branch (NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you to
concentrate more fully on overseeing the remaining groups under Metro North, your Central Unit
and the rest of the Sales Managers in Metro North. I will hold you solely responsible for meeting
the objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any further. This, however, is
entirely dependent upon you. But you have to understand that meeting corporate objectives by
everyone is primary and will not be compromised. We are meeting tough challenges next year,
and I would want everybody on board. Any resistance or holding back by anyone will be dealt with
accordingly.6
Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating
Tongko’s services:
It would appear, however, that despite the series of meetings and communications, both one-on-
one meetings between yourself and SVP Kevin O’Connor, some of them with me, as well as
group meetings with your Sales Managers, all these efforts have failed in helping you align your
directions with Management’s avowed agency growth policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your Agents
Contract as we are now issuing this notice of termination of your Agency Agreement with us
effective fifteen days from the date of this letter.7
Tongko responded by filing an illegal dismissal complaint with the National Labor Relations
Commission (NLRC) Arbitration Branch. He essentially alleged – despite the clear terms of the
letter terminating his Agency Agreement – that he was Manulife’s employee before he was
illegally dismissed.8
17
Thus, the threshold issue is the existence of an employment relationship. A finding that none
exists renders the question of illegal dismissal moot; a finding that an employment relationship
Page
exists, on the other hand, necessarily leads to the need to determine the validity of the termination
of the relationship.
A. Tongko’s Case for Employment Relationship
Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding
₱50,000.00, regardless of production levels attained and exclusive of commissions and bonuses.
He also claimed that as Regional Sales Manager, he was given a travel and entertainment
allowance of ₱36,000.00 per year in addition to his overriding commissions; he was tasked with
numerous administrative functions and supervisory authority over Manulife’s employees, aside
from merely selling policies and recruiting agents for Manulife; and he recommended and
recruited insurance agents subject to vetting and approval by Manulife. He further alleges that he
was assigned a definite place in the Manulife offices when he was not in the field – at the 3rd
Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts., Salcedo Village, Makati City – for
which he never paid any rental. Manulife provided the office equipment he used, including tables,
chairs, computers and printers (and even office stationery), and paid for the electricity, water and
telephone bills. As Regional Sales Manager, Tongko additionally asserts that he was required to
follow at least three codes of conduct.9
B. Manulife’s Case – Agency Relationship with Tongko
Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was
paid commissions of varying amounts, computed based on the premium paid in full and actually
received by Manulife on policies obtained through an agent. As sales manager, Tongko was paid
overriding sales commission derived from sales made by agents under his
unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10% tax from
all commissions Tongko received; Tongko even declared himself to be self-employed and
consistently paid taxes as such—i.e., he availed of tax deductions such as ordinary and
necessary trade, business and professional expenses to which a business is entitled.
Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was not its
employee as characterized in the four-fold test and our ruling in Carungcong v. National Labor
Relations Commission.10
The Conflicting Rulings of the Lower Tribunals
The labor arbiter decreed that no employer-employee relationship existed between the parties.
However, the NLRC reversed the labor arbiter’s decision on appeal; it found the existence of an
employer-employee relationship and concluded that Tongko had been illegally dismissed. In the
petition for certiorari with the Court of Appeals (CA), the appellate court found that the NLRC
gravely abused its discretion in its ruling and reverted to the labor arbiter’s decision that no
employer-employee relationship existed between Tongko and Manulife.
Our Decision of November 7, 2008
In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment
relationship existed between Tongko and Manulife. We concluded that Tongko is Manulife’s
employee for the following reasons:
1. Our ruling in the first Insular11 case did not foreclose the possibility of an insurance
agent becoming an employee of an insurance company; if evidence exists showing that
the company promulgated rules or regulations that effectively controlled or restricted an
insurance agent’s choice of methods or the methods themselves in selling insurance,
 an employer-employee relationship would be present. The determination of the
existence of an employer-employee relationship is thus on a case-to-case basis
depending on the evidence on record.
2. Manulife had the power of control over Tongko, sufficient to characterize him as an
employee, as shown by the following indicators:
2.1 Tongko undertook to comply with Manulife’s rules, regulations and other
requirements, i.e., the different codes of conduct such as the Agent Code of
Conduct, the Manulife Financial Code of Conduct, and the Financial Code of
Conduct Agreement;
2.2 The various affidavits of Manulife’s insurance agents and managers, who
occupied similar positions as Tongko, showed that they performed
administrative duties that established employment with Manulife;12 and
2.3 Tongko was tasked to recruit some agents in addition to his other
administrative functions. De Dios’ letter harped on the direction Manulife
intended to take, viz., greater agency recruitment as the primary means to
sell more policies; Tongko’s alleged failure to follow this directive led to the
termination of his employment with Manulife.
The Motion for Reconsideration
Manulife disagreed with our Decision and filed the present motion for reconsideration on the
following GROUNDS:
1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a)
confining the review only to the issue of "control" and utterly disregarding all the other
issues that had been joined in this case; (b) mischaracterizing the divergence of
conclusions between the CA and the NLRC decisions as confined only to that on
"control"; (c) grossly failing to consider the findings and conclusions of the CA on the
majority of the material evidence, especially [Tongko’s] declaration in his income tax
returns that he was a "business person" or "self-employed"; and (d) allowing [Tongko]
to repudiate his sworn statement in a public document.
2. The November 7[, 2008] Decision contravenes settled rules in contract law and
agency, distorts not only the legal relationships of agencies to sell but also
distributorship and franchising, and ignores the constitutional and policy context of
contract law vis-à-vis labor law.
3. The November 7[, 2008] Decision ignores the findings of the CA on the three
elements of the four-fold test other than the "control" test, reverses well-settled
doctrines of law on employer-employee relationships, and grossly misapplies the
"control test," by selecting, without basis, a few items of evidence to the exclusion of
18
more material evidence to support its conclusion that there is "control."
Page
4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized
by Articles 8 and 9 of the Civil Code, beyond the powers granted to this Court under
Article VIII, Section 1 of the Constitution and contravenes through judicial legislation,
the constitutional prohibition against impairment of contracts under Article III, Section
10 of the Constitution.
5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and
reversible errors, which should be corrected, in concluding that Respondent Manulife
and Petitioner had an employer-employee relationship, that Respondent Manulife
illegally dismissed Petitioner, and for consequently ordering Respondent Manulife to
pay Petitioner backwages, separation pay, nominal damages and attorney’s fees. 13
THE COURT’S RULING
A. The Insurance and the Civil Codes;
the Parties’ Intent and Established
Industry Practices
We cannot consider the present case purely from a labor law perspective, oblivious that the
factual antecedents were set in the insurance industry so that the Insurance Code primarily
governs. Chapter IV, Title 1 of this Code is wholly devoted to "Insurance Agents and Brokers" and
specifically defines the agents and brokers relationship with the insurance company and how they
are governed by the Code and regulated by the Insurance Commission.
The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as
agency is a civil law matter governed by the Civil Code. Thus, at the very least, three sets of laws
– namely, the Insurance Code, the Labor Code and the Civil Code – have to be considered in
looking at the present case. Not to be forgotten, too, is the Agreement (partly reproduced on page
2 of this Dissent and which no one disputes) that the parties adopted to govern their relationship
for purposes of selling the insurance the company offers. To forget these other laws is to take a
myopic view of the present case and to add to the uncertainties that now exist in considering the
legal relationship between the insurance company and its "agents."
The main issue of whether an agency or an employment relationship exists depends on the
incidents of the relationship. The Labor Code concept of "control" has to be compared and
distinguished with the "control" that must necessarily exist in a principal-agent relationship. The
principal cannot but also have his or her say in directing the course of the principal-agent
relationship, especially in cases where the company-representative relationship in the insurance
industry is an agency.
a. The laws on insurance and agency
The business of insurance is a highly regulated commercial activity in the country, in terms
particularly of who can be in the insurance business, who can act for and in behalf of an insurer,
and how these parties shall conduct themselves in the insurance business. Section 186 of the
Insurance Code provides that "No person, partnership, or association of persons shall transact
any insurance business in the Philippines except as agent of a person or corporation authorized
to do the business of insurance in the Philippines." Sections 299 and 300 of the Insurance Code
on Insurance Agents and Brokers, among other provisions, provide:
Section 299. No insurance company doing business in the Philippines, nor any agent thereof,
shall pay any commission or other compensation to any person for services in obtaining
 insurance, unless such person shall have first procured from the Commissioner a license to act as
an insurance agent of such company or as an insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the Commissioner
x x x The Commissioner shall satisfy himself as to the competence and trustworthiness of the
applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such
license in his discretion.1avvphi1.net
Section 300. Any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application for a policy or
contract of insurance to or from such company or offers or assumes to act in the negotiating of
such insurance shall be an insurance agent within the intent of this section and shall thereby
become liable to all the duties, requirements, liabilities and penalties to which an insurance agent
is subject.
The application for an insurance agent’s license requires a written examination, and the applicant
must be of good moral character and must not have been convicted of a crime involving moral
turpitude.14 The insurance agent who collects premiums from an insured person for remittance to
the insurance company does so in a fiduciary capacity, and an insurance company which delivers
an insurance policy or contract to an authorized agent is deemed to have authorized the agent to
receive payment on the company’s behalf.15 Section 361 further prohibits the offer, negotiation, or
collection of any amount other than that specified in the policy and this covers any rebate from the
premium or any special favor or advantage in the dividends or benefit accruing from the policy.
Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and
must also act within the parameters of the authority granted under the license and under the
contract with the principal. Other than the need for a license, the agent is limited in the way he
offers and negotiates for the sale of the company’s insurance products, in his collection activities,
and in the delivery of the insurance contract or policy. Rules regarding the desired results (e.g.,
the required volume to continue to qualify as a company agent, rules to check on the parameters
on the authority given to the agent, and rules to ensure that industry, legal and ethical rules are
followed) are built-in elements of control specific to an insurance agency and should not and
cannot be read as elements of control that attend an employment relationship governed by the
Labor Code.
On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render
some service or to do something in representation or on behalf of another, with the consent or
authority of the latter."16 While this is a very broad definition that on its face may even encompass
an employment relationship, the distinctions between agency and employment are sufficiently
established by law and jurisprudence.
Generally, the determinative element is the control exercised over the one rendering service. The
employer controls the employee both in the results and in the means and manner of achieving
this result. The principal in an agency relationship, on the other hand, also has the prerogative to
19
exercise control over the agent in undertaking the assigned task based on the parameters
outlined in the pertinent laws.
Page
Under the general law on agency as applied to insurance, an agency must be express in light of
the need for a license and for the designation by the insurance company. In the present case, the
Agreement fully serves as grant of authority to Tongko as Manulife’s insurance agent. 17 This
agreement is supplemented by the company’s agency practices and usages, duly accepted by
the agent in carrying out the agency.18 By authority of the Insurance Code, an insurance agency
is for compensation,19 a matter the Civil Code Rules on Agency presumes in the absence of proof
to the contrary.20 Other than the compensation, the principal is bound to advance to, or to
reimburse, the agent the agreed sums necessary for the execution of the agency.21 By implication
at least under Article 1994 of the Civil Code, the principal can appoint two or more agents to carry
out the same assigned tasks,22 based necessarily on the specific instructions and directives given
to them.
With particular relevance to the present case is the provision that "In the execution of the agency,
the agent shall act in accordance with the instructions of the principal." 23 This provision is
pertinent for purposes of the necessary control that the principal exercises over the agent in
undertaking the assigned task, and is an area where the instructions can intrude into the labor law
concept of control so that minute consideration of the facts is necessary. A related article is Article
1891 of the Civil Code which binds the agent to render an account of his transactions to the
principal.
B. The Cited Case
The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that
the company rules and regulations that an agent has to comply with are indicative of an employer-
employee relationship.24 The Dissenting Opinions of Justice Presbitero Velasco, Jr. and Justice
Conchita Carpio Morales also cite Insular Life Assurance Co. v. National Labor Relations
Commission (second Insular case)25 to support the view that Tongko is Manulife’s employee. On
the other hand, Manulife cites the Carungcong case and AFP Mutual Benefit Association, Inc. v.
National Labor Relations Commission (AFPMBAI case)26 to support its allegation that Tongko
was not its employee.
A caveat has been given above with respect to the use of the rulings in the cited cases because
none of them is on all fours with the present case; the uniqueness of the factual situation of the
present case prevents it from being directly and readily cast in the mold of the cited cases. These
cited cases are themselves different from one another; this difference underscores the need to
read and quote them in the context of their own factual situations.
The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife,
and the second Insular Life cases. A critical difference, however, exists as these cited cases dealt
with the proper legal characterization of a subsequent management contract that superseded the
original agency contract between the insurance company and its agent. Carungcong dealt with a
subsequent Agreement making Carungcong a New Business Manager that clearly superseded
the Agreement designating Carungcong as an agent empowered to solicit applications for
insurance. The Grepalife case, on the other hand, dealt with the proper legal characterization of
the appointment of the Ruiz brothers to positions higher than their original position as insurance
agents. Thus, after analyzing the duties and functions of the Ruiz brothers, as these were
enumerated in their contracts, we concluded that the company practically dictated the manner by
which the Ruiz brothers were to carry out their jobs. Finally, the second Insular Life case dealt
with the implications of de los Reyes’ appointment as acting unit manager which, like the
subsequent contracts in the Carungcong and the Grepalife cases, was clearly defined under a
subsequent contract. In all these cited cases, a determination of the presence of the Labor Code
element of control was made on the basis of the stipulations of the subsequent contracts.
 In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only
contract or document extant and submitted as evidence in the present case is the Agreement – a
pure agency agreement in the Civil Code context similar to the original contract in the first Insular
Life case and the contract in the AFPMBAI case. And while Tongko was later on designated unit
manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no formal
contract regarding these undertakings appears in the records of the case. Any such contract or
agreement, had there been any, could have at the very least provided the bases for properly
ascertaining the juridical relationship established between the parties.
These critical differences, particularly between the present case and the Grepalife and the second
Insular Life cases, should therefore immediately drive us to be more prudent and cautious in
applying the rulings in these cases.
C. Analysis of the Evidence
c.1. The Agreement
The primary evidence in the present case is the July 1, 1977 Agreement that governed and
defined the parties’ relations until the Agreement’s termination in 2001. This Agreement stood for
more than two decades and, based on the records of the case, was never modified or novated. It
assumes primacy because it directly dealt with the nature of the parties’ relationship up to the
very end; moreover, both parties never disputed its authenticity or the accuracy of its terms.
By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife, not as
an employee. To be sure, the Agreement’s legal characterization of the nature of the relationship
cannot be conclusive and binding on the courts; as the dissent clearly stated, the characterization
of the juridical relationship the Agreement embodied is a matter of law that is for the courts to
determine. At the same time, though, the characterization the parties gave to their relationship in
the Agreement cannot simply be brushed aside because it embodies their intent at the time they
entered the Agreement, and they were governed by this understanding throughout their
relationship. At the very least, the provision on the absence of employer-employee relationship
between the parties can be an aid in considering the Agreement and its implementation, and in
appreciating the other evidence on record.
The parties’ legal characterization of their intent, although not conclusive, is critical in this case
because this intent is not illegal or outside the contemplation of law, particularly of the Insurance
and the Civil Codes. From this perspective, the provisions of the Insurance Code cannot be
disregarded as this Code (as heretofore already noted) expressly envisions a principal-agent
relationship between the insurance company and the insurance agent in the sale of insurance to
the public.1awph!1 For this reason, we can take judicial notice that as a matter of Insurance
Code-based business practice, an agency relationship prevails in the insurance industry for the
purpose of selling insurance. The Agreement, by its express terms, is in accordance with the
Insurance Code model when it provided for a principal-agent relationship, and thus cannot lightly
be set aside nor simply be considered as an agreement that does not reflect the parties’ true
intent. This intent, incidentally, is reinforced by the system of compensation the Agreement
provides, which likewise is in accordance with the production-based sales commissions the
Insurance Code provides.
20
Significantly, evidence shows that Tongko’s role as an insurance agent never changed during his
Page
relationship with Manulife. If changes occurred at all, the changes did not appear to be in the
nature of their core relationship. Tongko essentially remained an agent, but moved up in this role
through Manulife’s recognition that he could use other agents approved by Manulife, but operating
under his guidance and in whose commissions he had a share. For want of a better term, Tongko
perhaps could be labeled as a "lead agent" who guided under his wing other Manulife agents
similarly tasked with the selling of Manulife insurance.
Like Tongko, the evidence suggests that these other agents operated under their own agency
agreements. Thus, if Tongko’s compensation scheme changed at all during his relationship with
Manulife, the change was solely for purposes of crediting him with his share in the commissions
the agents under his wing generated. As an agent who was recruiting and guiding other insurance
agents, Tongko likewise moved up in terms of the reimbursement of expenses he incurred in the
course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code.
Thus, Tongko received greater reimbursements for his expenses and was even allowed to use
Manulife facilities in his interactions with the agents, all of whom were, in the strict sense,
Manulife agents approved and certified as such by Manulife with the Insurance Commission.
That Tongko assumed a leadership role but nevertheless wholly remained an agent is the
inevitable conclusion that results from the reading of the Agreement (the only agreement on
record in this case) and his continuing role thereunder as sales agent, from the perspective of the
Insurance and the Civil Codes and in light of what Tongko himself attested to as his role as
Regional Sales Manager. To be sure, this interpretation could have been contradicted if other
agreements had been submitted as evidence of the relationship between Manulife and Tongko on
the latter’s expanded undertakings. In the absence of any such evidence, however, this reading –
based on the available evidence and the applicable insurance and civil law provisions – must
stand, subject only to objective and evidentiary Labor Code tests on the existence of an
employer-employee relationship.
In applying such Labor Code tests, however, the enforcement of the Agreement during the course
of the parties’ relationship should be noted. From 1977 until the termination of the Agreement,
Tongko’s occupation was to sell Manulife’s insurance policies and products. Both parties
acquiesced with the terms and conditions of the Agreement. Tongko, for his part, accepted all the
benefits flowing from the Agreement, particularly the generous commissions.
Evidence indicates that Tongko consistently clung to the view that he was an independent agent
selling Manulife insurance products since he invariably declared himself a business or self-
employed person in his income tax returns. This consistency with, and action made pursuant
to the Agreement were pieces of evidence that were never mentioned nor considered in
our Decision of November 7, 2008. Had they been considered, they could, at the very least,
serve as Tongko’s admissions against his interest. Strictly speaking, Tongko’s tax returns cannot
but be legally significant because he certified under oath the amount he earned as gross business
income, claimed business deductions, leading to his net taxable income. This should be evidence
of the first order that cannot be brushed aside by a mere denial. Even on a layman’s view that is
devoid of legal considerations, the extent of his annual income alone renders his claimed
employment status doubtful.27
Hand in hand with the concept of admission against interest in considering the tax returns, the
concept of estoppel – a legal and equitable concept28 – necessarily must come into play.
Tongko’s previous admissions in several years of tax returns as an independent agent, as against
his belated claim that he was all along an employee, are too diametrically opposed to be simply
dismissed or ignored. Interestingly, Justice Velasco’s dissenting opinion states that Tongko was
forced to declare himself a business or self-employed person by Manulife’s persistent refusal to
recognize him as its employee.29 Regrettably, the dissent has shown no basis for this
conclusion, an understandable omission since no evidence in fact exists on this point in
 the records of the case. In fact, what the evidence shows is Tongko’s full conformity with, and
action as, an independent agent until his relationship with Manulife took a bad turn.
Another interesting point the dissent raised with respect to the Agreement is its conclusion that
the Agreement negated any employment relationship between Tongko and Manulife so that the
commissions he earned as a sales agent should not be considered in the determination of the
backwages and separation pay that should be given to him. This part of the dissent is correct
although it went on to twist this conclusion by asserting that Tongko had dual roles in his
relationship with Manulife; he was an agent, not an employee, in so far as he sold insurance for
Manulife, but was an employee in his capacity as a manager. Thus, the dissent concluded that
Tongko’s backwages should only be with respect to his role as Manulife’s manager.
The conclusion with respect to Tongko’s employment as a manager is, of course, unacceptable
for the legal, factual and practical reasons discussed in this Resolution. In brief, the factual
reason is grounded on the lack of evidentiary support of the conclusion that Manulife exercised
control over Tongko in the sense understood in the Labor Code. The legal reason, partly based
on the lack of factual basis, is the erroneous legal conclusion that Manulife controlled Tongko and
was thus its employee. The practical reason, on the other hand, is the havoc that the dissent’s
unwarranted conclusion would cause the insurance industry that, by the law’s own design,
operated along the lines of principal-agent relationship in the sale of insurance.
c.2. Other Evidence of Alleged Control
A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that
Manulife ever exercised means-and-manner control, even to a limited extent, over Tongko during
his ascent in Manulife’s sales ladder. In 1983, Tongko was appointed unit manager. Inexplicably,
Tongko never bothered to present any evidence at all on what this designation meant. This also
holds true for Tongko’s appointment as branch manager in 1990, and as Regional Sales Manager
in 1996. The best evidence of control – the agreement or directive relating to Tongko’s duties and
responsibilities – was never introduced as part of the records of the case. The reality is, prior to
de Dios’ letter, Manulife had practically left Tongko alone not only in doing the business of selling
insurance, but also in guiding the agents under his wing. As discussed below, the alleged
directives covered by de Dios’ letter, heretofore quoted in full, were policy directions and targeted
results that the company wanted Tongko and the other sales groups to realign with in their own
selling activities. This is the reality that the parties’ presented evidence consistently tells us.
What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife
imposes on its agents in the sale of insurance. The mere presentation of codes or of rules and
regulations, however, is not per se indicative of labor law control as the law and jurisprudence
teach us.
As already recited above, the Insurance Code imposes obligations on both the insurance
company and its agents in the performance of their respective obligations under the Code,
particularly on licenses and their renewals, on the representations to be made to potential
customers, the collection of premiums, on the delivery of insurance policies, on the matter of
compensation, and on measures to ensure ethical business practice in the industry.
21
The general law on agency, on the other hand, expressly allows the principal an element of
control over the agent in a manner consistent with an agency relationship. In this sense, these
Page
control measures cannot be read as indicative of labor law control. Foremost among these are the
directives that the principal may impose on the agent to achieve the assigned tasks, to the extent
that they do not involve the means and manner of undertaking these tasks. The law likewise
obligates the agent to render an account; in this sense, the principal may impose on the agent
specific instructions on how an account shall be made, particularly on the matter of expenses and
reimbursements. To these extents, control can be imposed through rules and regulations without
intruding into the labor law concept of control for purposes of employment.
From jurisprudence, an important lesson that the first Insular Life case teaches us is that a
commitment to abide by the rules and regulations of an insurance company does not ipso facto
make the insurance agent an employee. Neither do guidelines somehow restrictive of the
insurance agent’s conduct necessarily indicate "control" as this term is defined in
jurisprudence. Guidelines indicative of labor law "control," as the first Insular Life case tells
us, should not merely relate to the mutually desirable result intended by the contractual
relationship; they must have the nature of dictating the means or methods to be employed in
attaining the result, or of fixing the methodology and of binding or restricting the party hired to the
use of these means. In fact, results-wise, the principal can impose production quotas and can
determine how many agents, with specific territories, ought to be employed to achieve the
company’s objectives. These are management policy decisions that the labor law element of
control cannot reach. Our ruling in these respects in the first Insular Life case was practically
reiterated in Carungcong. Thus, as will be shown more fully below, Manulife’s codes of
conduct,30 all of which do not intrude into the insurance agents’ means and manner of conducting
their sales and only control them as to the desired results and Insurance Code norms, cannot be
used as basis for a finding that the labor law concept of control existed between Manulife and
Tongko.
The dissent considers the imposition of administrative and managerial functions on Tongko as
indicative of labor law control; thus, Tongko as manager, but not as insurance agent, became
Manulife’s employee. It drew this conclusion from what the other Manulife managers disclosed in
their affidavits (i.e., their enumerated administrative and managerial functions) and after
comparing these statements with the managers in Grepalife. The dissent compared the control
exercised by Manulife over its managers in the present case with the control the managers in the
Grepalife case exercised over their employees by presenting the following matrix: 31
Duties of Manulife’s Manager Duties of Grepalife’s Managers/Sup
- to render or recommend prospective agents to be - train understudies for the position of district m
licensed, trained and contracted to sell Manulife products
and who will be part of my Unit
- to coordinate activities of the agents under [the - properly account, record and document the c
managers’] Unit in [the agents’] daily, weekly and monthly spot-check and audit the work of the zone sup
selling activities, making sure that their respective sales follow up the submission of weekly remittance
targets are met; debit agents and zone supervisors
- to conduct periodic training sessions for [the] agents to - direct and supervise the sales activities of the
further enhance their sales skill; and under him, x x x undertake and discharge the
absentee debit agents, spot-check the record
and insure proper documentation of sales and
- to assist [the] agents with their sales activities by way of
debit agents.
joint fieldwork, consultations and one-on-one evaluation
and analysis of particular accounts
 Aside from these affidavits however, no other evidence exists regarding the effects of Tongko’s
additional roles in Manulife’s sales operations on the contractual relationship between them.
To the dissent, Tongko’s administrative functions as recruiter, trainer, or supervisor of other sales
agents constituted a substantive alteration of Manulife’s authority over Tongko and the
performance of his end of the relationship with Manulife. We could not deny though that Tongko
remained, first and foremost, an insurance agent, and that his additional role as Branch Manager
did not lessen his main and dominant role as insurance agent; this role continued to dominate the
relations between Tongko and Manulife even after Tongko assumed his leadership role among
agents. This conclusion cannot be denied because it proceeds from the undisputed fact that
Tongko and Manulife never altered their July 1, 1977 Agreement, a distinction the present case
has with the contractual changes made in the second Insular Life case. Tongko’s results-based
commissions, too, attest to the primacy he gave to his role as insurance sales agent.
The dissent apparently did not also properly analyze and appreciate the great qualitative
difference that exists between:
 the Manulife managers’ role is to coordinate activities of the agents under the
managers’ Unit in the agents’ daily, weekly, and monthly selling activities, making sure
that their respective sales targets are met.
 the District Manager’s duty in Grepalife is to properly account, record, and document
the company's funds, spot-check and audit the work of the zone supervisors, conserve
the company's business in the district through "reinstatements," follow up the
submission of weekly remittance reports of the debit agents and zone supervisors,
preserve company property in good condition, train understudies for the position of
district managers, and maintain his quota of sales (the failure of which is a ground for
termination).
 the Zone Supervisor’s (also in Grepalife) has the duty to direct and supervise the
sales activities of the debit agents under him, conserve company property through
"reinstatements," undertake and discharge the functions of absentee debit agents, spot-
check the records of debit agents, and insure proper documentation of sales and
collections by the debit agents.
These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the
job are specified and pre-determined; in the present case, the operative words are the "sales
target," the methodology being left undefined except to the extent of being "coordinative." To be
sure, a "coordinative" standard for a manager cannot be indicative of control; the standard only
essentially describes what a Branch Manager is – the person in the lead who orchestrates
activities within the group. To "coordinate," and thereby to lead and to orchestrate, is not so much
a matter of control by Manulife; it is simply a statement of a branch manager’s role in relation with
his agents from the point of view of Manulife whose business Tongko’s sales group carries.
A disturbing note, with respect to the presented affidavits and Tongko’s alleged administrative
functions, is the selective citation of the portions supportive of an employment relationship and the
consequent omission of portions leading to the contrary conclusion. For example, the following
portions of the affidavit of Regional Sales Manager John Chua, with counterparts in the other
affidavits, were not brought out in the Decision of November 7, 2008, while the other portions
22
suggesting labor law control were highlighted. Specifically, the following portions of the affidavits
were not brought out:32
Page
1.a. I have no fixed wages or salary since my services are compensated by way of
commissions based on the computed premiums paid in full on the policies obtained
thereat;
1.b. I have no fixed working hours and employ my own method in soliticing insurance at
a time and place I see fit;
1.c. I have my own assistant and messenger who handle my daily work load;
1.d. I use my own facilities, tools, materials and supplies in carrying out my business of
selling insurance;
xxxx
6. I have my own staff that handles the day to day operations of my office;
7. My staff are my own employees and received salaries from me;
xxxx
9. My commission and incentives are all reported to the Bureau of Internal Revenue
(BIR) as income by a self-employed individual or professional with a ten (10) percent
creditable withholding tax. I also remit monthly for professionals.
These statements, read with the above comparative analysis of the Manulife and
the Grepalife cases, would have readily yielded the conclusion that no employer-employee
relationship existed between Manulife and Tongko.
Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into
Tongko’s exercise of his role as manager in guiding the sales agents. Strictly viewed, de Dios’
directives are merely operational guidelines on how Tongko could align his operations with
Manulife’s re-directed goal of being a "big league player." The method is to expand coverage
through the use of more agents. This requirement for the recruitment of more agents is not a
means-and-method control as it relates, more than anything else, and is directly relevant, to
Manulife’s objective of expanded business operations through the use of a bigger sales force
whose members are all on a principal-agent relationship. An important point to note here is that
Tongko was not supervising regular full-time employees of Manulife engaged in the running of the
insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to
Manulife through the same Agreement that he had with Manulife, all the while sharing in these
agents’ commissions through his overrides. This is the lead agent concept mentioned above for
want of a more appropriate term, since the title of Branch Manager used by the parties is really a
misnomer given that what is involved is not a specific regular branch of the company but a corps
of non-employed agents, defined in terms of covered territory, through which the company sells
insurance. Still another point to consider is that Tongko was not even setting policies in the way a
regular company manager does; company aims and objectives were simply relayed to him with
suggestions on how these objectives can be reached through the expansion of a non-employee
sales force.
 Interestingly, a large part of de Dios’ letter focused on income, which Manulife demonstrated, in
Tongko’s case, to be unaffected by the new goal and direction the company had set. Income in
insurance agency, of course, is dependent on results, not on the means and manner of selling – a
matter for Tongko and his agents to determine and an area into which Manulife had not waded.
Undeniably, de Dios’ letter contained a directive to secure a competent assistant at Tongko’s own
expense. While couched in terms of a directive, it cannot strictly be understood as an intrusion
into Tongko’s method of operating and supervising the group of agents within his delineated
territory. More than anything else, the "directive" was a signal to Tongko that his results were
unsatisfactory, and was a suggestion on how Tongko’s perceived weakness in delivering results
could be remedied. It was a solution, with an eye on results, for a consistently underperforming
group; its obvious intent was to save Tongko from the result that he then failed to grasp – that he
could lose even his own status as an agent, as he in fact eventually did.
The present case must be distinguished from the second Insular Life case that showed the
hallmarks of an employer-employee relationship in the management system established. These
were: exclusivity of service, control of assignments and removal of agents under the private
respondent’s unit, and furnishing of company facilities and materials as well as capital described
as Unit Development Fund. All these are obviously absent in the present case. If there is a
commonality in these cases, it is in the collection of premiums which is a basic authority that can
be delegated to agents under the Insurance Code.
As previously discussed, what simply happened in Tongko’s case was the grant of an expanded
sales agency role that recognized him as leader amongst agents in an area that Manulife
defined. Whether this consequently resulted in the establishment of an employment
relationship can be answered by concrete evidence that corresponds to the following
questions:
 as lead agent, what were Tongko’s specific functions and the terms of his additional
engagement;
 was he paid additional compensation as a so-called Area Sales Manager, apart from
the commissions he received from the insurance sales he generated;
 what can be Manulife’s basis to terminate his status as lead agent;
 can Manulife terminate his role as lead agent separately from his agency contract; and
 to what extent does Manulife control the means and methods of Tongko’s role as lead
agent?
The answers to these questions may, to some extent, be deduced from the evidence at hand, as
partly discussed above. But strictly speaking, the questions cannot definitively and concretely be
answered through the evidence on record. The concrete evidence required to settle these
questions is simply not there, since only the Agreement and the anecdotal affidavits have been
marked and submitted as evidence.
Given this anemic state of the evidence, particularly on the requisite confluence of the factors
determinative of the existence of employer-employee relationship, the Court cannot conclusively
find that the relationship exists in the present case, even if such relationship only refers to
Tongko’s additional functions. While a rough deduction can be made, the answer will not be fully
23
supported by the substantial evidence needed.
Page
Under this legal situation, the only conclusion that can be made is that the absence of evidence
showing Manulife’s control over Tongko’s contractual duties points to the absence of any
employer-employee relationship between Tongko and Manulife. In the context of the established
evidence, Tongko remained an agent all along; although his subsequent duties made him a lead
agent with leadership role, he was nevertheless only an agent whose basic contract yields no
evidence of means-and-manner control.
This conclusion renders unnecessary any further discussion of the question of whether an agent
may simultaneously assume conflicting dual personalities. But to set the record straight, the
concept of a single person having the dual role of agent and employee while doing the same task
is a novel one in our jurisprudence, which must be viewed with caution especially when it is
devoid of any jurisprudential support or precedent. The quoted portions in Justice Carpio-Morales’
dissent,33 borrowed from both the Grepalife and the second Insular Life cases, to support the
duality approach of the Decision of November 7, 2008, are regrettably far removed from their
context – i.e., the cases’ factual situations, the issues they decided and the totality of the rulings in
these cases – and cannot yield the conclusions that the dissenting opinions drew.
The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment as zone
supervisor and district manager made them employees of Grepalife. Indeed, because of the
presence of the element of control in their contract of engagements, they were
considered Grepalife’s employees. This did not mean, however, that they were simultaneously
considered agents as well as employees of Grepalife; the Court’s ruling never implied that this
situation existed insofar as the Ruiz brothers were concerned. The Court’s statement – the
Insurance Code may govern the licensing requirements and other particular duties of insurance
agents, but it does not bar the application of the Labor Code with regard to labor standards and
labor relations – simply means that when an insurance company has exercised control over its
agents so as to make them their employees, the relationship between the parties, which was
otherwise one for agency governed by the Civil Code and the Insurance Code, will now be
governed by the Labor Code. The reason for this is simple – the contract of agency has been
transformed into an employer-employee relationship.
The second Insular Life case, on the other hand, involved the issue of whether the labor bodies
have jurisdiction over an illegal termination dispute involving parties who had two contracts – first,
an original contract (agency contract), which was undoubtedly one for agency, and another
subsequent contract that in turn designated the agent acting unit manager (a management
contract). Both the Insular Life and the labor arbiter were one in the position that both were
agency contracts. The Court disagreed with this conclusion and held that insofar as the
management contract is concerned, the labor arbiter has jurisdiction. It is in this light that we
remanded the case to the labor arbiter for further proceedings. We never said in this case though
that the insurance agent had effectively assumed dual personalities for the simple reason that the
agency contract has been effectively superseded by the management contract. The management
contract provided that if the appointment was terminated for any reason other than for cause, the
acting unit manager would be reverted to agent status and assigned to any unit.
The dissent pointed out, as an argument to support its employment relationship conclusion, that
any doubt in the existence of an employer-employee relationship should be resolved in favor of
the existence of the relationship.34This observation, apparently drawn from Article 4 of the Labor
Code, is misplaced, as Article 4 applies only when a doubt exists in the "implementation and
application" of the Labor Code and its implementing rules; it does not apply where no doubt exists
as in a situation where the claimant clearly failed to substantiate his claim of employment
relationship by the quantum of evidence the Labor Code requires.
On the dissent’s last point regarding the lack of jurisprudential value of our November 7, 2008
Decision, suffice it to state that, as discussed above, the Decision was not supported by the
 evidence adduced and was not in accordance with controlling jurisprudence. It should, therefore,
be reconsidered and abandoned, but not in the manner the dissent suggests as the dissenting
opinions are as factually and as legally erroneous as the Decision under reconsideration.
In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines of de
Dios’ letter, as a ground for termination of Tongko’s agency, is a matter that the labor tribunals
cannot rule upon in the absence of an employer-employee relationship. Jurisdiction over the
matter belongs to the courts applying the laws of insurance, agency and contracts.
WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7,
2008, GRANTManulife’s motion for reconsideration and, accordingly, DISMISS Tongko’s petition.
No costs.
SO ORDERED.
G.R. No. 84484 November 15, 1989
INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.
Tirol & Tirol for petitioner.
Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.
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:
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.
24
The contract also contained, among others, provisions governing the relations of the parties, the
Page
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 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. ...
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 implicit conditions of Basiao's contract
with the 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 vs. Alejo Al-Lagadan10
... 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). ...
25
has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a
Page
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 vs. Ople, 13the 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, 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 us. 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 vs. 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."
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.
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.
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.
26
Siguion Reyna, Montecillo and Ongsiako Law Office for private respondents.
Page
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. ...
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
27
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.,
Page
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.
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
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,
28
equipment, machineries, work premises, and other materials which are
necessary in the conduct of his business.
Page
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 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.
29
G.R. No. 138051 June 10, 2004
Page
JOSE Y. SONZA, petitioner,
vs.
ABS-CBN BROADCASTING CORPORATION, respondent.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of
the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza
("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations
Commission ("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case for lack of
jurisdiction.
The Facts
In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement
("Agreement") with the Mel and Jay Management and Development Corporation ("MJMDC").
ABS-CBN was represented by its corporate officers while MJMDC was represented by SONZA,
as President and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer.
Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZA’s services
exclusively to ABS-CBN as talent for radio and television. The Agreement listed the services
SONZA would render to ABS-CBN, as follows:
a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;
b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays. 3
ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first year
and ₱317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent
fees on the 10th and 25th days of the month.
On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:
Dear Mr. Lopez,
We would like to call your attention to the Agreement dated May 1994
entered into by your goodself on behalf of ABS-CBN with our company
relative to our talent JOSE Y. SONZA.
As you are well aware, Mr. Sonza irrevocably resigned in view of recent
events concerning his programs and career. We consider these acts of the
station violative of the Agreement and the station as in breach thereof. In this
connection, we hereby serve notice of rescission of said Agreement at our
instance effective as of date.
 Mr. Sonza informed us that he is waiving and renouncing recovery of the
remaining amount stipulated in paragraph 7 of the Agreement but reserves
the right to seek recovery of the other benefits under said Agreement.
Thank you for your attention.
Very truly yours,
(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4
On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor
and Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did
not pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus,
travel allowance and amounts due under the Employees Stock Option Plan ("ESOP").
On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July
1996.
Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at
PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account
with the same bank where ABS-CBN deposited SONZA’s talent fees and other payments due him
under the Agreement.
In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and
directed the parties to file their respective position papers. The Labor Arbiter ruled:
In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is
sufficient enough as to confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon the causes of
action asserted is a matter to be resolved only after and as a result of a hearing. Thus,
the respondent’s plea of lack of employer-employee relationship may be pleaded only
as a matter of defense. It behooves upon it the duty to prove that there really is no
employer-employee relationship between it and the complainant.
The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.
On 11 March 1997, SONZA filed a Reply to Respondent’s Position Paper with Motion to Expunge
Respondent’s Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-
CBN’s witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their
affidavits that the prevailing practice in the television and broadcast industry is to treat talents like
30
SONZA as independent contractors.
Page
The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:
xxx
While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of
the contract of a talent," it stands to reason that a "talent" as above-described cannot
be considered as an employee by reason of the peculiar circumstances surrounding the
engagement of his services.
It must be noted that complainant was engaged by respondent by reason of his
peculiar skills and talent as a TV host and a radio broadcaster. Unlike an ordinary
employee, he was free to perform the services he undertook to render in
accordance with his own style. The benefits conferred to complainant under the May
1994 Agreement are certainly very much higher than those generally given to
employees. For one, complainant Sonza’s monthly talent fees amount to a staggering
₱317,000. Moreover, his engagement as a talent was covered by a specific contract.
Likewise, he was not bound to render eight (8) hours of work per day as he worked only
for such number of hours as may be necessary.
The fact that per the May 1994 Agreement complainant was accorded some benefits
normally given to an employee is inconsequential. Whatever benefits complainant
enjoyed arose from specific agreement by the parties and not by reason of
employer-employee relationship. As correctly put by the respondent, "All these
benefits are merely talent fees and other contractual benefits and should not be
deemed as ‘salaries, wages and/or other remuneration’ accorded to an employee,
notwithstanding the nomenclature appended to these benefits. Apropos to this is the
rule that the term or nomenclature given to a stipulated benefit is not controlling, but the
intent of the parties to the Agreement conferring such benefit."
The fact that complainant was made subject to respondent’s Rules and
Regulations, likewise, does not detract from the absence of employer-employee
relationship. As held by the Supreme Court, "The line should be drawn between rules
that merely serve as guidelines towards the achievement of the mutually desired result
without dictating the means or methods to be employed in attaining it, and those that
control or fix the methodology and bind or restrict the party hired to the use of such
means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means to achieve
it." (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15,
1989).
x x x (Emphasis supplied)7
SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming
the Labor Arbiter’s decision. SONZA filed a motion for reconsideration, which the NLRC denied in
its Resolution dated 3 July 1998.
On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals
rendered a Decision dismissing the case.8
Hence, this petition.
 The Rulings of the NLRC and Court of Appeals
The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship existed
between SONZA and ABS-CBN. Adopting the NLRC’s decision, the appellate court quoted the
following findings of the NLRC:
x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract
merely as an agent of complainant Sonza, the principal. By all indication and as the law
puts it, the act of the agent is the act of the principal itself. This fact is made particularly
true in this case, as admittedly MJMDC ‘is a management company devoted exclusively
to managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C.
Tiangco.’ (Opposition to Motion to Dismiss)
Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a
commutable travel benefit amounting to at least One Hundred Fifty Thousand
Pesos (₱150,000.00) per year.’
Thus, it is precisely because of complainant-appellant’s own recognition of the fact that
his contractual relations with ABS-CBN are founded on the New Civil Code, rather than
the Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant
served upon the latter a ‘notice of rescission’ of Agreement with the station, per his
letter dated April 1, 1996, which asserted that instead of referring to unpaid employee
benefits, ‘he is waiving and renouncing recovery of the remaining amount stipulated in
paragraph 7 of the Agreement but reserves the right to such recovery of the other
benefits under said Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to
Dismiss dated July 10, 1996).

Clearly, the relations of principal and agent only accrues between complainant Sonza
Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement
and MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions
and/or the Stock Purchase Agreement by respondent-appellee that complainant-
of the May 1994 Agreement which specifically referred to MJMDC as the ‘AGENT’. As a
appellant filed his complaint. Complainant-appellant’s claims being anchored on the
matter of fact, when complainant herein unilaterally rescinded said May 1994
alleged breach of contract on the part of respondent-appellee, the same can be
Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr. Sonza,
resolved by reference to civil law and not to labor law. Consequently, they are within the
who himself signed the same in his capacity as President.
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
Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that for breach of contractual obligation is intrinsically a civil dispute.9 (Emphasis
historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is supplied)
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
The Court of Appeals ruled that the existence of an employer-employee relationship between
Mr. Sonza.
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
We find it erroneous to assert that MJMDC is a mere ‘labor-only’ contractor of ABS- jurisdiction of the NLRC.11 Such action cannot cover an inquiry into the correctness of the
CBN such that there exist[s] employer-employee relationship between the latter and Mr. evaluation of the evidence which served as basis of the NLRC’s conclusion. 12 The Court of
Sonza. On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS- Appeals added that it could not re-examine the parties’ evidence and substitute the factual
CBN, but of the talent/contractor Mr. Sonza, as expressly admitted by the latter and findings of the NLRC with its own.13
MJMDC in the May 1994 Agreement.
The Issue
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
In assailing the decision of the Court of Appeals, SONZA contends that:
contractual obligation on the part of respondent-appellee. As squarely apparent from
complainant-appellant’s Position Paper, his claims for compensation for services, ‘13th
month pay’, signing bonus and travel allowance against respondent-appellee are not THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S
based on the Labor Code but rather on the provisions of the May 1994 Agreement, DECISION AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE
while his claims for proceeds under Stock Purchase Agreement are based on the latter. RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE
A portion of the Position Paper of complainant-appellant bears perusal: WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO
SUPPORT SUCH A FINDING.14
‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter
contractually bound itself to pay complainant a signing bonus consisting of The Court’s Ruling
shares of stocks…with FIVE HUNDRED THOUSAND PESOS (₱500,000.00).
We affirm the assailed decision.
Similarly, complainant is also entitled to be paid 13th month pay based on an
31

amount not lower than the amount he was receiving prior to effectivity of (the)
No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming
Agreement’.
the NLRC ruling which upheld the Labor Arbiter’s dismissal of the case for lack of jurisdiction.
Page
 The present controversy is one of first impression. Although Philippine labor laws and
jurisprudence define clearly the elements of an employer-employee relationship, this is the first
time that the Court will resolve the nature of the relationship between a television and radio
station and one of its "talents." There is no case law stating that a radio and television program
host is an employee of the broadcast station.
The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a
known television and radio personality, and ABS-CBN, one of the biggest television and radio
networks in the country.
SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an
employee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no
jurisdiction because SONZA was an independent contractor.
Employee or Independent Contractor?
The existence of an employer-employee relationship is a question of fact. Appellate courts accord
the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when
supported by substantial evidence.15 Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.16 A party cannot prove the
absence of substantial evidence by simply pointing out that there is contrary evidence on record,
direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in
determining where the weight of evidence lies or what evidence is credible.17
SONZA maintains that all essential elements of an employer-employee relationship are present in
this case. Case law has consistently held that the elements of an employer-employee relationship
are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power
of dismissal; and (d) the employer’s power to control the employee on the means and methods by
which the work is accomplished.18 The last element, the so-called "control test", is the most
important element.19
A. Selection and Engagement of Employee
ABS-CBN engaged SONZA’s services to co-host its television and radio programs because of
SONZA’s peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by
respondent in specifically selecting and hiring complainant over other broadcasters of possibly
similar experience and qualification as complainant belies respondent’s claim of independent
contractorship."
Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because
of his unique skills, talent and celebrity status not possessed by ordinary employees, is a
circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA
did not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered
into the Agreement with SONZA but would have hired him through its personnel department just
like any other employee.
32
In any event, the method of selecting and engaging SONZA does not conclusively determine his
Page
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.
B. Payment of Wages
ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC.
SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN.
SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not
have enjoyed if he were truly the subject of a valid job contract."
All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBN’s employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay" 20 which the law
automatically incorporates into every employer-employee contract.21Whatever benefits SONZA
enjoyed arose from contract and not because of an employer-employee relationship.22
SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge
and out of the ordinary that they indicate more an independent contractual relationship rather than
an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees
precisely because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary
employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and
receive such huge talent fees for his services. The power to bargain talent fees way above the
salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an
independent contractual relationship.
The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn
over any talent fee accruing under the Agreement.
C. Power of Dismissal
For violation of any provision of the Agreement, either party may terminate their relationship.
SONZA failed to show that ABS-CBN could terminate his services on grounds other than breach
of contract, such as retrenchment to prevent losses as provided under labor laws. 23
During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as
"AGENT and Jay Sonza shall faithfully and completely perform each condition of this
Agreement."24 Even if it suffered severe business losses, ABS-CBN could not retrench SONZA
because ABS-CBN remained obligated to pay SONZA’s talent fees during the life of the
Agreement. This circumstance indicates an independent contractual relationship between SONZA
and ABS-CBN.
SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid
him his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue
paying SONZA’s talent fees during the remaining life of the Agreement even if ABS-CBN
cancelled SONZA’s programs through no fault of SONZA.25
SONZA assails the Labor Arbiter’s interpretation of his rescission of the Agreement as an
admission that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true
that complainant was really an employee, he would merely resign, instead." SONZA did actually
resign from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZA’s
letter clearly bears this out.26 However, the manner by which SONZA terminated his relationship
 with ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work
does not determine his status as employee or independent contractor.
D. Power of Control
Since there is no local precedent on whether a radio and television program host is an employee
or an independent contractor, we refer to foreign case law in analyzing the present case. The
United States Court of Appeals, First Circuit, recently held in Alberty-Vélez v. Corporación De
Puerto Rico Para La Difusión Pública ("WIPR")27 that a television program host is an
independent contractor. We quote the following findings of the U.S. court:
Several factors favor classifying Alberty as an independent contractor. First, a
television actress is a skilled position requiring talent and training not available
on-the-job. x x x In this regard, Alberty possesses a master’s degree in public
communications and journalism; is trained in dance, singing, and modeling; taught with
the drama department at the University of Puerto Rico; and acted in several theater and
television productions prior to her affiliation with "Desde Mi Pueblo." Second, Alberty
provided the "tools and instrumentalities" necessary for her to
perform. Specifically, she provided, or obtained sponsors to provide, the costumes,
jewelry, and other image-related supplies and services necessary for her appearance.
Alberty disputes that this factor favors independent contractor status because WIPR
provided the "equipment necessary to tape the show." Alberty’s argument is misplaced.
The equipment necessary for Alberty to conduct her job as host of "Desde Mi Pueblo"
related to her appearance on the show. Others provided equipment for filming and
producing the show, but these were not the primary tools that Alberty used to perform
her particular function. If we accepted this argument, independent contractors could
never work on collaborative projects because other individuals often provide the
equipment required for different aspects of the collaboration. x x x
Third, WIPR could not assign Alberty work in addition to filming "Desde Mi
Pueblo." Alberty’s contracts with WIPR specifically provided that WIPR hired her
"professional services as Hostess for the Program Desde Mi Pueblo." There is no
evidence that WIPR assigned Alberty tasks in addition to work related to these tapings.
x x x28 (Emphasis supplied)
Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor.29 This test is based on the extent of
control the hirer exercises over a worker. The greater the supervision and control the hirer
exercises, the more likely the worker is deemed an employee. The converse holds true as well –
the less control the hirer exercises, the more likely the worker is considered an independent
contractor.30
First, SONZA contends that ABS-CBN exercised control over the means and methods of his
work.
33
SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host
the "Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his
work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on
Page
television, and sounded on radio were outside ABS-CBN’s control. SONZA did not have to render
eight hours of work per day. The Agreement required SONZA to attend only rehearsals and
tapings of the shows, as well as pre- and post-production staff meetings.31 ABS-CBN could not
dictate the contents of SONZA’s script. However, the Agreement prohibited SONZA from
criticizing in his shows ABS-CBN or its interests.32 The clear implication is that SONZA had a free
hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its interests.
We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN
merely reserved the right to modify the program format and airtime schedule "for more effective
programming."34 ABS-CBN’s sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance
of SONZA’s work.
SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over
the means and methods of the performance of his work. Although ABS-CBN did have the option
not to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s talent fees... Thus,
even if ABS-CBN was completely dissatisfied with the means and methods of SONZA’s
performance of his work, or even with the quality or product of his work, ABS-CBN could not
dismiss or even discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show
but ABS-CBN must still pay his talent fees in full.35
Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation to
continue paying in full SONZA’s talent fees, did not amount to control over the means and
methods of the performance of SONZA’s work. ABS-CBN could not terminate or discipline
SONZA even if the means and methods of performance of his work - how he delivered his lines
and appeared on television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s
control was limited only to the result of SONZA’s work, whether to broadcast the final product or
not. In either case, ABS-CBN must still pay SONZA’s talent fees in full until the expiry of the
Agreement.
In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved the right
to delete objectionable features in their shows. Since the management did not have control over
the manner of performance of the skills of the artists, it could only control the result of the work by
deleting objectionable features.37
SONZA further contends that ABS-CBN exercised control over his work by supplying all
equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to
broadcast the "Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools
and instrumentalities" SONZA needed to perform his job. What SONZA principally needed were
his talent or skills and the costumes necessary for his appearance. 38Even though ABS-CBN
provided SONZA with the place of work and the necessary equipment, SONZA was still an
independent contractor since ABS-CBN did not supervise and control his work. ABS-CBN’s sole
concern was for SONZA to display his talent during the airing of the programs. 39
A radio broadcast specialist who works under minimal supervision is an independent
contractor.40 SONZA’s work as television and radio program host required special skills and
talent, which SONZA admittedly possesses. The records do not show that ABS-CBN exercised
any supervision and control over how SONZA utilized his skills and talent in his shows.
 Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN exclusively for a particular radio or television station. In short, the huge talent fees partially
subjected him to its rules and standards of performance. SONZA claims that this indicates ABS- compensates for exclusivity, as in the present case.
CBN’s control "not only [over] his manner of work but also the quality of his work."
MJMDC as Agent of SONZA
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
SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which contracted out his
rules and standards of performance prescribed for employees of ABS-CBN. The code of conduct
services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an
imposed on SONZA under the Agreement refers to the "Television and Radio Code of the
employee of ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN is
Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY
his employer.
(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 In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the
applicable to talents and not to employees of ABS-CBN. 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
In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is
contractor" as if the principal itself directly hired or employed the employees. 48 These
an employee of the former.43 In this case, SONZA failed to show that these rules controlled his
circumstances are not present in this case.
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: There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-
CBN. MJMDC merely acted as SONZA’s agent. The Agreement expressly states that MJMDC
acted as the "AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBN’s
Further, not every form of control that a party reserves to himself over the conduct of the other
agent. MJMDC, which stands for Mel and Jay Management and Development Corporation, is a
party in relation to the services being rendered may be accorded the effect of establishing an
corporation organized and owned by SONZA and TIANGCO. The President and General
employer-employee relationship. The facts of this case fall squarely with the case of Insular Life
Manager of MJMDC is SONZA himself. It is absurd to hold that MJMDC, which is owned,
Assurance Co., Ltd. vs. NLRC. In said case, we held that:
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
Logically, the line should be drawn between rules that merely serve as guidelines agent of both ABS-CBN and SONZA.
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
As SONZA admits, MJMDC is a management company devoted exclusively to managing the
and bind or restrict the party hired to the use of such means. The first, which aim only to
careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other
promote the result, create no employer-employee relationship unlike the second, which
business, not even job contracting. MJMDC does not have any other function apart from acting as
address both the result and the means used to achieve it. 44
agent of SONZA or TIANGCO to promote their careers in the broadcast and television industry.49

The Vaughan case also held that one could still be an independent contractor although the hirer
Policy Instruction No. 40
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
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
Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of
types of employees in the broadcast industry are the station and program employees.
control which ABS-CBN exercised over him.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of
This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an
law. There is no legal presumption that Policy Instruction No. 40 determines SONZA’s status. A
employee of ABS-CBN. Even an independent contractor can validly provide his services
mere executive issuance cannot exclude independent contractors from the class of service
exclusively to the hiring party. In the broadcast industry, exclusivity is not necessarily the same as
providers to the broadcast industry. The classification of workers in the broadcast industry into
control.
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.
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,
34

Affidavits of ABS-CBN’s Witnesses

but simply to protect the investment of the broadcast station. The broadcast station normally
spends substantial amounts of money, time and effort "in building up its talents as well as the
Page

programs they appear in and thus expects that said talents remain exclusive with the station for a SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando
commensurate period of time."47 Normally, a much higher fee is paid to talents who agree to work Cruz without giving his counsel the
 opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to
attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of
these witnesses as misleading and irrelevant.
While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from
denying or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether
to conduct a formal (trial-type) hearing after the submission of the position papers of the parties,
thus:
Section 3. Submission of Position Papers/Memorandum
xxx
These verified position papers shall cover only those claims and causes of action raised
in the complaint excluding those that may have been amicably settled, and shall be
accompanied by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latter’s direct testimony. x x x
Section 4. Determination of Necessity of Hearing. – Immediately after the submission of
the parties of their position papers/memorandum, the Labor Arbiter shall motu propio
determine whether there is need for a formal trial or hearing. At this stage, he may, at
his discretion and for the purpose of making such determination, ask clarificatory
questions to further elicit facts or information, including but not limited to the subpoena
of relevant documentary evidence, if any from any party or witness. 50
The Labor Arbiter can decide a case based solely on the position papers and the supporting
documents without a formal trial.51 The holding of a formal hearing or trial is something that the
parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on
the documents before him, he cannot be faulted for not conducting a formal trial, unless under the
particular circumstances of the case, the documents alone are insufficient. The proceedings
before a Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the
technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings
before a Labor Arbiter.
Talents as Independent Contractors
ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment
industries to treat talents like SONZA as independent contractors. SONZA argues that if such
practice exists, it is void for violating the right of labor to security of tenure.
The right of labor to security of tenure as guaranteed in the Constitution 53 arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee
creates an employer-employee relationship. To hold that every person who renders services to
another for a fee is an employee - to give meaning to the security of tenure clause - will lead to
absurd results.
35
Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
Page
independent contractors. The right to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to render his services
without any one controlling the means and methods by which he performs his art or craft. This
Court will not interpret the right of labor to security of tenure to compel artists and talents to render
their services only as employees. If radio and television program hosts can render their services
only as employees, the station owners and managers can dictate to the radio and television hosts
what they say in their shows. This is not conducive to freedom of the press.
Different Tax Treatment of Talents and Broadcasters
The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as
amended by Republic Act No. 8241,56 treats talents, television and radio broadcasters differently.
Under the NIRC, these professionals are subject to the 10% value-added tax ("VAT") on services
they render. Exempted from the VAT are those under an employer-employee relationship.57 This
different tax treatment accorded to talents and broadcasters bolters our conclusion that they are
independent contractors, provided all the basic elements of a contractual relationship are present
as in this case.
Nature of SONZA’s Claims
SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay,
service incentive leave, signing bonus, travel allowance, and amounts due under the Employee
Stock Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that
SONZA’s claims are all based on the May 1994 Agreement and stock option plan, and not
on the Labor Code. Clearly, the present case does not call for an application of the Labor Code
provisions but an interpretation and implementation of the May 1994 Agreement. In effect,
SONZA’s cause of action is for breach of contract which is intrinsically a civil dispute cognizable
by the regular courts.58
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26
March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 79004-08 October 4, 1991
FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY
MAGALLANES AND 4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES and 4
OTHERS, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL MILLING
CORPORATION and/or FELICIANO LUPO, respondents.
Public Attorney's Office for petitioners.
Joseph M. Baduel & Steve R. Siclot for private respondents.
 MELENCIO-HERRERA, J.:
The liability of an employer in job contracting, vis-a-vis his contractor's employees, is the sole
issue brought to the fore in this labor dispute.
This Petition for certiorari seeks to set aside the Resolution, dated 27 February 1987, of public
respondent National Labor Relations Commission (NLRC), Third Division, which reversed the
Resolution of its First Division, dated 27 December 1985, and absolved private respondent
General Milling Corporation (GMC) from any and all liability to petitioners.
Sometime in 1983, private respondent Feliciano LUPO, a building contractor, entered into a
contract with GMC, a domestic corporation engaged in flour and feeds manufacturing, for the
construction of an annex building inside the latter's plant in Cebu City. In connection with the
aforesaid contract, LUPO hired herein petitioners either as carpenters, masons or laborers.
Subsequently, LUPO terminated petitioners' services, on different dates. As a result, petitioners
filed Complaints against LUPO and GMC before the NLRC Regional Arbitration Branch No. VII,
Cebu City, for unpaid wages, COLA differentials, bonus and overtime pay.
In a Decision, dated 21 November 1984, the Executive Labor Arbiter, Branch VII, found LUPO
and GMC jointly and severally liable to petitioners, premised on Article 109 of the Labor
Code, infra, and ordered them to pay the aggregate amount of P95,382.92. Elevated on appeal
on 14 December 1984, the NLRC (First Division) denied the same for lack of merit in a
Resolution, dated 27 December 1985.
Upon Motion for Reconsideration, filed on 27 February 1986, the case was reassigned to the
Third Division. In a Resolution of 27 February 1987, that Division absolved GMC from any liability.
It opined that petitioners were only hired by LUPO as workers in his construction contract with
GMC and were never meant to be employed by the latter.
Petitioners now assail that judgment in this Petition for Certiorari.
Petitioners contend that GMC is jointly and severally liable with LUPO for the latter's obligations to
them. They seek recovery from GMC based on Article 106 of the Labor Code, infra, which holds
the employer jointly and severally liable with his contractor for unpaid wages of employees of the
latter.
In his "Manifestation in lieu of Comment," the Solicitor General recognizes the solidary liability of
GMC and LUPO but bases recovery on Article 108 of the Labor Code, infra, contending that
inasmuch as GMC failed to require them LUPO a bond to answer for the latter's obligations to his
employees, as required by said provision, GMC should, correspondingly, be deemed solidarily
liable.
In their respective Comments, both GMC and the NLRC maintain that Article 106 finds no
application in the instant case because it is limited to situations where the work being performed
36
by the contractor's employees are directly related to the principal business of the employer. The
NLRC further opines that Article 109 on "Solidary Liability" finds no application either because
Page
GMC was neither petitioners' employer nor indirect employer.
Upon the facts and circumstances, we uphold the solidary liability of GMC and LUPO for the
latter's liabilities in favor of employees whom he had earlier employed and dismissed.
Recovery, however, should not be based on Article 106 of the Labor Code. This provision treats
specifically of "labor-only" contracting, which is not the set-up between GMC and LUPO.
Article 106 provides:
Art. 106. Contractor or subcontractor. — Whenever an employer enters into a contract
with another person for the performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be paid in accordance with the
provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees
in accordance with this Code, the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent of the work performed
under the contract, in the same manner and extent that he is liable to employees
directly employed by him.
xxx xxx xxx
There is "labor-only" contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by
such persons are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the workers
in the same manner and extent as if the latter were directly employed by him (Emphasis
supplied).
In other words, a person is deemed to be engaged in "labor only" contracting where (1) the
person supplying workers to an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others; and (2) the workers
recruited and placed by such person are performing activities which are directly related to the
principal business of such employer (See Section 9, Rule VIII, Book III of the Omnibus Rules
Implementing the Labor Code; emphasis supplied).
Since the construction of an annex building inside the company plant has no relation whatsoever
with the employer's business of flour and feeds manufacturing, "labor-only" contracting does not
exist. Article 106 is thus inapplicable.
Instead, it is "job contracting," covered by Article 107, which is involved, reading:
Art. 107. Indirect Employer. — The provisions of the immediately preceding Article shall
likewise apply to any person, partnership, association or corporation which, not being
an employer, contracts with an independent contractor for the performance of any work,
task, job or project. (Emphasis supplied).
 Specifically, there is "job contracting" where (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. It may be that
LUPO subsequently ran out of capital and was unable to satisfy the award to petitioners. That
was an after-the-fact development, however, and does not detract from his status as an
independent contractor.
Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a contract with an
independent contractor, LUPO, for the construction of an annex building, a work, task, job or
project not directly related to GMC's business of flour and feeds manufacturing. Being an "indirect
employer," GMC is solidarily liable with LUPO for any violation of the Labor Code pursuant to
Article 109 thereof, reading:
Art. 109. Solidary Liability. — The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible with a
contractor or subcontractor for any violation of any provision of this Code. For purposes
of determining the extent of their civil liability under this Chapter, they shall be
considered as direct employers.
The provision of existing law referred to is Article 1728 of the Civil Code, which states, among
others, that "the contractor is liable for all the claims of laborers and others employed by him ..."
The foregoing interpretation finds a precedent in the case o Deferia v. NLRC (G.R. No. 78713, 27
February 1991) per Sarmiento, J., where Articles 107 and 109 were applied as the statutory basis
for the joint and several liability of the employer with his contractor, in addition to Article 106, since
the situation in that case was clearly one of "labor-only" contracting.
The NLRC submission that Article 107 is not applicable in the instant case for the reason that the
coverage thereof is limited to one "not an employer" whereas GMC is such an employer as
defined in Article 97 (b) of the Labor Code,1 is not well-taken. Under the peculiar set-up herein,
GMC is, in fact, "not an employer" (in the sense of not being a direct employer) as understood in
Article 106 of the Labor Code, but qualifies as an "indirect employer" under Article 107 of said
Code.
The distinction between Articles 106 and 107 was in the fact that Article 106 deals with "labor-
only" contracting. Here, by operation of law, the contractor is merely considered as an agent of
the employer, who is deemed "responsible to the workers to the same extent as if the latter were
directly employed by him." On the other hand, Article 107 deals with "job contracting." In the latter
situation, while the contractor himself is the direct employer of the employees, the employer is
deemed, by operation of law, as an indirect employer.
In other words, the phrase "not an employer" found in Article 107 must be read in conjunction with
Article 106. A contrary interpretation would render the provisions of Article 107 meaningless
37
considering that everytime an employer engages a contractor, the latter is always acting in the
interest of the former, whether directly or indirectly, in relation to his employees.
Page
It should be recalled that a finding that a contractor is a "labor-only" contractor is equivalent to
declaring that there is an employer-employee relationship between the owner of the project and
the employees of the "labor-only" contractor (Associated Anglo-American Tobacco Corp. v. Clave,
G.R. No. 50915, 30 August 1990, 189 SCRA 127; Industrial Timber Corp. v. NLRC, G.R. No.
83616, 20 January 1989, 169 SCRA 341). This is evidently because, as heretofore stated, the
"labor-only" contractor is considered as a mere agent of an employer. In contrast, in "job
contracting," no employer-employee relationship exists between the owner and the employees of
his contractor. The owner of the project is not the direct employer but merely an indirect employer,
by operation of law, of his contractor's employees.
As an indirect employer, and for purposes of determining the extent of its civil liability, GMC is
deemed a "direct employee" of his contractor's employees pursuant to the last sentence of Article
109 of the Labor Code. As a consequence, GMC can not escape its joint and solidary liability to
petitioners.
Further, Article 108 of the Labor Code requires the posting of a bond to answer for wages that a
contractor fails to pay, thus:
Article 108. Posting of Bond. — An employer or indirect employer may require the
contractor or subcontractor to furnish a bond equal to the cost of labor under contract,
on condition that the bond will answer for the wages due the employees showed the
contractor or subcontractor, as the case may be, fails to pay the same.
Having failed to require LUPO to post such a bond, GMC must answer for whatever liabilities
LUPO may have incurred to his employees. This is without prejudice to its seeking reimbursement
from LUPO for whatever amount it will have to pay petitioners.
WHEREFORE, the Petition for certiorari is GRANTED. The Resolution of respondent NLRC,
Third Division, dated 27 February 1987, is hereby SET ASIDE, and the Decision of the Labor
Arbiter, dated 21 November 1984, is hereby REINSTATED.
SO ORDERED.
G.R. No. 126586 August 25, 2000
ALEXANDER VINOYA, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD CORPORATION AND/OR
RICKY SEE (PRESIDENT), respondents.
RESOLUTION
KAPUNAN, J.:
This treats of a motion for reconsideration filed by private respondent Regent Food Corporation
(RFC) of our Decision, promulgated on 2 February 2000, which affirmed the decision of the labor
arbiter ordering RFC to reinstate petitioner Alexander Vinoya to his former position and pay him
backwages and other benefits.
 In its first motion for partial reconsideration,1 filed on 8 March 2000, RFC alleges that it respects
and abides by the finding of the Supreme Court that it is the employer of petitioner. However,
RFC points out that in view of the existing employment contract between petitioner and Peninsula
Manpower Company, Inc. (PMCI) and the service contract between RFC and PMCI, both of which
have not been declared as void by the Court, RFC claims that petitioner still appears to be the
employee of PMCI, since petitioner was merely assigned to it by PMCI by virtue of its own
declaration in the aforesaid contracts. Along this line, RFC argues that since PMCI held itself out
to the public as a qualified and legitimate independent contractor which convinced RFC to enter
into a contract of service with PMCI, when it truth and as held by the Court, it was not so, PMCI
should be made to reimburse RFC of the amount it will pay to petitioner as the adjudged employer
of the latter.
Subsequently, on 24 March 2000, a supplemental motion for reconsideration2 was filed by RFC.
In this motion, RFC pleads that in the event that the Court sustains its original decision and
denies its first partial motion for reconsideration, it prays that the Court modify the award of
reinstatement of petitioner and instead order the payment of separation pay in favor of the latter.
In a Resolution,3 dated 5 April 2000, the Court required the petitioner to file his comment to the
motion for partial reconsideration filed by RFC. On 12 May 2000, petitioner filed his
comment/opposition4 to the motion for partial reconsideration. Petitioner argues that the motion
filed by RFC dealt with issues already resolved and discussed by the Court in its decision. Thus,
petitioner prays that the motion for partial reconsideration be dismissed for lack of merit.
We have carefully examined and studied the records of the case but we have found no reason to
modify our finding that RFC is the true employer of petitioner. Indeed, despite the existence of the
alleged contracts of service and employment, the status of petitioner as the employee of RFC is
not affected. As we have previously held in our 2 February 2000 Decision, RFC is the rightful
employer of petitioner under the four-fold test of employer-employee relations.5 Moreover, PMCI,
based on the standards set by the Labor Code, is merely a labor-only contractor and, as such,
cannot be properly considered as the employer of petitioner. On this score, we deny the first
motion for partial reconsideration of RFC.
However, we find merit in the supplemental motion for reconsideration filed by
RFC.1âwphi1 Previously, we have held that an illegally dismissed employee is entitled to: (1)
either reinstatement, if viable, or separation pay if reinstatement is no longer viable, and (2)
backwages. Private respondent claims that reinstatement is no longer feasible due to the parties’
strained relations. As a general rule, strained relations is an issue factual in nature that should be
raised and proved before the Labor Arbiter.6 However, the case before us presents peculiar
circumstances as the strained relations arose after the filing of the case. As pointed out by the
private respondent, the antagonistic feelings of the parties towards each other stemmed from the
filing by the petitioner of the complaint before the labor arbiter and deepened during the eight-year
pendency of the case. This fact, petitioner has failed to deny in his comment to the motion for
reconsideration. Petitioner merely opposes private respondent’s motion for reconsideration on the
ground that the same does not raise any new issues not resolved in the decision. However, the
issue of strained relations was never squarely dealt with in the decision being reconsidered. The
Court finds that it would be impractical and not in the best interest of the parties if we insist that
petitioner be reinstated to his former position. Considering further that petitioner’s former position
as sales representatives involves the handling of accounts and other property of RFC, it would not
38
be equitable on the part of RFC to be forced to maintain petitioner in its employ since it may only
inspire vindictiveness on the part of petitioner. Accordingly in lieu of reinstatement, payment of
Page
separation pay equivalent to one month’s salary for every year of service may be awarded. 7
WHEREFORE, premises considered, the motion for reconsideration is hereby PARTIALLY
GRANTED. The dispositive portion of the 2 February 2000 decision is hereby MODIFIED in that
private respondent is ordered to pay petitioner separation pay equivalent to one month’s salary for
every year of service in lieu of reinstatement, plus full backwages, without deduction or
qualification, counted from the date of dismissal until the finality of this resolution including other
benefits to which he is entitled under the law.
SO ORDERED.
G.R. Nos. 97008-09 July 23, 1993
VIRGINIA G. NERI and JOSE CABELIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY
(FEBTC) and BUILDING CARE CORPORATION, respondents.
R.L. Salcedo & Improso Law Office for petitioners.
Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for Bldg. Care Corp.
Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.
BELLOSILLO, J.:
Respondents are sued by two employees of Building Care Corporation, which provides janitorial
and other specific services to various firms, to compel Far Bast Bank and Trust Company to
recognize them as its regular employees and be paid the same wages which its employees
receive.
Building Care Corporation (BCC, for brevity), in the proceedings below, established that it had
substantial capitalization of P1 Million or a stockholders equity of P1.5 Million. Thus the Labor
Arbiter ruled that BCC was only job contracting and that consequently its employees were not
employees of Far East Bank and Trust Company (FEBTC, for brevity). on appeal, this factual
finding was affirmed by respondent National Labor Relations Commission (NLRC, for brevity).
Nevertheless, petitioners insist before us that BCC is engaged in "labor-only" contracting hence,
they conclude, they are employees of respondent FEBTC.
Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were hired by,
respondent BCC, a corporation engaged in providing technical, maintenance, engineering,
housekeeping, security and other specific services to its clientele. They were assigned to work in
the Cagayan de Oro City Branch of respondent FEBTC on 1 May 1979 and 1 August 1980,
respectively, Neri an radio/telex operator and Cabelin as janitor, before being promoted to
messenger on 1 April 1989.
On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before Regional
Arbitration Branch No. 10 of the Department of Labor and Employment to compel the bank to
 accept them as regular employees and for it to pay the differential between the wages being paid as was established before the Labor Arbiter as well as the NLRC. In other words, the law does
them by BCC and those received by FEBTC employees with similar length of service. not require both substantial capital and investment in the form of tools, equipment, machineries,
etc. This is clear from the use of the conjunction "or". If the intention was to require the contractor
to prove that he has both capital and the requisite investment, then the conjunction "and" should
On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of merit. 1 Respondent
have been used. But, having established that it has substantial capital, it was no longer necessary
BCC was considered an independent contractor because it proved it had substantial capital.
for BCC to further adduce evidence to prove that it does not fall within the purview of "labor-only"
Thus, petitioners were held to be regular employees of BCC, not FEBTC. The dismissal was
contracting. There is even no need for it to refute petitioners' contention that the activities they
appealed to NLRC which on 28 September 1990 affirmed the decision on appeal. 2 On 22 October
perform are directly related to the principal business of respondent bank.
1990, NLRC denied reconsideration of its affirmance,3 prompting petitioners to seek redress from
this Court.
Be that as it may, the Court has already taken judicial notice of the general practice adopted in
several government and private institutions and industries of hiring independent contractors to
Petitioners vehemently contend that BCC in engaged in "labor-only" contracting because it failed
perform special services.9 These services range from janitorial, 10 security 11 and even technical or
to adduce evidence purporting to show that it invested in the form of tools, equipment,
other specific services such as those performed by petitioners Neri and Cabelin. While these
machineries, work premises and other materials which are necessary in the conduct of its
services may be considered directly related to the principal business of the
business. Moreover, petitioners argue that they perform duties which are directly related to the
employer, 12 nevertheless, they are not necessary in the conduct of the principal business of the
principal business or operation of FEBTC. If the definition of "labor-only" contracting4is to be read
employer.
in conjunction with job contracting,5 then the only logical conclusion is that BCC is a "labor only"
contractor. Consequently, they must be deemed employees of respondent bank by operation of
law since BCC is merely an agent of FEBTC following the doctrine laid down in Philippine Bank of In fact, the status of BCC as an independent contractor was previously confirmed by this Court
Communications v. National Labor Relations Commission6 where we ruled that where "labor-only" in Associated Labor Unions-TUCP v. National Labor Relations Commission, 13 where we held
contracting exists, the Labor Code itself establishes an employer-employee relationship between thus —
the employer and the employees of the "labor-only" contractor; hence, FEBTC should be
considered the employer of petitioners who are deemed its employees through its agent, "labor-
The public respondent ruled that the complainants are not employees of the
only" contractor BCC.
bank but of the company contracted to serve the bank. Building Care
Corporation is a big firm which services, among others, a university, an
We cannot sustain the petition. international bank, a big local bank, a hospital center, government agencies,
etc. It is a qualified independent contractor. The public respondent correctly
ruled against petitioner's contentions . . . . (Emphasis supplied).
Respondent BCC need not prove that it made investments in the form of tools, equipment,
machineries, work premises, among others, because it has established that it has sufficient
capitalization. The Labor Arbiter and the NLRC both determined that BCC had a capital stock of Even assuming ex argumenti that petitioners were performing activities directly related to the
P1 million fully subscribed and paid for.7 BCC is therefore a highly capitalized venture and cannot principal business of the bank, under the "right of control" test they must still be considered
be deemed engaged in "labor-only" contracting. employees of BCC. In the case of petitioner Neri, it is admitted that FEBTC issued a job
description which detailed her functions as a radio/telex operator. However, a cursory reading of
the job description shows that what was sought to be controlled by FEBTC was actually the end-
It is well-settled that there is "labor-only" contracting where: (a) the person supplying workers to
result of the task, e.g., that the daily incoming and outgoing telegraphic transfer of funds received
an employer does not have substantial capital or investment in the form of tools, equipment,
and relayed by her, respectively, tallies with that of the register. The guidelines were laid down
machineries, work premises, among others; and, (b) the workers recruited and placed by such
merely to ensure that the desired end-result was achieved. It did not, however, tell Neri how the
person are performing activities which are directly related to the principal business of the
radio/telex machine should be operated. In the Shipside case, 14 we ruled —
employer.8

. . . . If in the course of private respondents' work (referring to the workers),

Article 106 of the Labor Code defines "labor-only" contracting thus —
SHIPSIDE occasionally issued instructions to them, that alone does not in the
least detract from the fact that only STEVEDORES is the employer of the
Art. 106. Contractor or subcontractor. — . . . . There is "labor-only" private respondents, for in legal contemplation, such instructions carry no
contracting where the person supplying workers to an employer does not more weight than mere requests, the privity of contract being between
have substantial capital or investment in the form of tools, equipment, SHIPSIDE and STEVEDORES . . . .
machineries, work premises, among others, and the workers recruited by
such persons are performing activities which are directly related to the
Besides, petitioners do not deny that they were selected and hired by BCC before being assigned
principal business of such employer . . . . (emphasis supplied).
to work in the Cagayan de Oro Branch of FFBTC. BCC likewise acknowledges that petitioners are
39

its employees. The record is replete with evidence disclosing that BCC maintained supervision
Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it has and control over petitioners through its Housekeeping and Special Services Division: petitioners
Page

substantial capital. While there may be no evidence that it has investment in the form of tools, reported for work wearing the prescribed uniform of BCC; leaves
equipment, machineries, work premises, among others, it is enough that it has substantial capital, of absence were filed directly with BCC; and, salaries were drawn only from BCC. 15
 As a matter of fact, Neri even secured a certification from BCC on 16 May 1986 that she was
employed by the latter. On the other hand, on 24 May 1988, Cabelin filed a complaint for
underpayment of wages, non-integration of salary adjustments mandated by Wage Orders Nos. 5
& 6 and R.A. 6640 as well as for illegal deduction 16 against BCC alone which was provisionally
dismissed on 19 August 1988 upon Cabelin's manifestation that his money claim was
negligible. 17
More importantly, under the terms and conditions of the contract, it was BCC alone which had the
power to reassign petitioners. Their deployment to FEBTC was not subject to the bank's
acceptance. Cabelin was promoted to messenger because the FEBTC branch manager promised
BCC that two (2) additional janitors would be hired from the company if the promotion was to be
effected. 18 Furthermore, BCC was to be paid in lump sum unlike in the situation in Philippine
Bank of Communications 19 where the contractor, CESI, was to be paid at a daily rate on a per
person basis. And, the contract therein stipulated that the CESI was merely to provide manpower
that would render temporary services. In the case at bar, Neri and Cabelin were to perform
specific special services. Consequently, petitioners cannot be held to be employees of FEBTC as
BCC "carries an independent business" and undertaken the performance of its contract with
various clients according to its "own manner and method, free from the control and supervision" of
its principals in all matters "except as to the results thereof." 20
Indeed, the facts in Philippine Bank of Communications do not square with those of the instant
case. Therein, the Court ruled that CESI was a "labor-only" contractor because upholding the
contract between the contractor and the bank would in effect permit employers to avoid the
necessity of hiring regular or permanent employees and would enable them to keep their
employees indefinitely on a temporary or casual basis, thus denying them security of tenure in
their jobs. This of course violates the Labor Code. BCC has not committed any violation. Also, the
former case was for illegal dismissal; this case, on the other hand, is for conversion of
employment status so that petitioners can receive the same salary being given to regular
employees of FEBTC. But, as herein determined, petitioners are not regular employees of FEBTC
but of BCC. At any rate, the finding that BCC in a qualified independent contractor precludes us
from applying the Philippine Bank of Communications doctrine to the instant petition.
The determination of employer-employee relationship involves factual findings. 21 Absent any
grave abuse of discretion, and we find none in the case before us, we are bound by the findings
of the Labor Arbiter as affirmed by respondent NLRC.
IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.
SO ORDERED.
G.R. No. 144672 July 10, 2003
SAN MIGUEL CORPORATION, petitioner,
vs.
MAERC INTEGRATED SERVICES, INC.; and EMERBERTO ORQUE, ROGELIO PRADO, JR.,
EDDIE SELLE, ALEJANDRO ANNABIEZA, ANNIAS JUAMO-AS et al.,
40
Page
TWO HUNDRED NINETY-ONE (291) workers filed their complaints (nine [9] complaints in all)
against San Miguel Corporation (petitioner herein) and Maerc Integrated Services, Inc.
(respondent herein), for illegal dismissal, underpayment of wages, non-payment of service
incentive leave pays and other labor standards benefits, and for separation pays from 25 June to
24 October 1991. The complainants alleged that they were hired by San Miguel Corporation
(SMC) through its agent or intermediary Maerc Integrated Services, Inc. (MAERC) to work in two
(2) designated workplaces in Mandaue City: one, inside the SMC premises at the Mandaue
Container Services, and another, in the Philphos Warehouse owned by MAERC. They washed
and segregated various kinds of empty bottles used by SMC to sell and distribute its beer
beverages to the consuming public. They were paid on a per piece or pakiao basis except for a
few who worked as checkers and were paid on daily wage basis.
Complainants alleged that long before SMC contracted the services of MAERC a majority of them
had already been working for SMC under the guise of being employees of another contractor,
Jopard Services, until the services of the latter were terminated on 31 January 1988.
SMC denied liability for the claims and averred that the complainants were not its employees but
of MAERC, an independent contractor whose primary corporate purpose was to engage in the
business of cleaning, receiving, sorting, classifying, etc., glass and metal containers.
It appears that SMC entered into a Contract of Services with MAERC engaging its services on a
non-exclusive basis for one (1) year beginning 1 February 1988. The contract was renewed for
two (2) more years in March 1989. It also provided for its automatic renewal on a month-to-month
basis after the two (2)-year period and required that a written notice to the other party be given
thirty (30) days prior to the intended date of termination, should a party decide to discontinue with
the contract.
In a letter dated 15 May 1991, SMC informed MAERC of the termination of their service contract
by the end of June 1991. SMC cited its plans to phase out its segregation activities starting 1
June 1991 due to the installation of labor and cost-saving devices.
When the service contract was terminated, complainants claimed that SMC stopped them from
performing their jobs; that this was tantamount to their being illegally dismissed by SMC who was
their real employer as their activities were directly related, necessary and desirable to the main
business of SMC; and, that MAERC was merely made a tool or a shield by SMC to avoid its
liability under the Labor Code.
MAERC for its part admitted that it recruited the complainants and placed them in the bottle
segregation project of SMC but maintained that it was only conveniently used by SMC as an
intermediary in operating the project or work directly related to the primary business concern of
the latter with the end in view of avoiding its obligations and responsibilities towards the
complaining workers.
The nine (9) cases1 were consolidated. On 31 January 1995 the Labor Arbiter rendered a
decision holding that MAERC was an independent contractor.2 He dismissed the complaints for
illegal dismissal but ordered MAERC to pay complainants' separation benefits in the total amount
of P2,334,150.00. MAERC and SMC were also ordered to jointly and severally pay complainants
their wage differentials in the amount of P845,117.00 and to pay attorney's fees in the amount of
P317,926.70.
 The complainants appealed the Labor Arbiter's finding that MAERC was an independent
contractor and solely liable to pay the amount representing the separation benefits to the
exclusion of SMC, as well as the Labor Arbiter's failure to grant the Temporary Living Allowance
of the complainants. SMC appealed the award of attorney's fees.
The National Labor Relations Commission (NLRC) ruled in its 7 January 1997 decision that
MAERC was a labor-only contractor and that complainants were employees of SMC.3 The NLRC
also held that whether MAERC was a job contractor or a labor-only contractor, SMC was still
solidarily liable with MAERC for the latter's unpaid obligations, citing Art. 1094 of the Labor Code.
Thus, the NLRC modified the judgment of the Labor Arbiter and held SMC jointly and severally
liable with MAERC for complainants' separation benefits. In addition, both respondents were
ordered to pay jointly and severally an indemnity fee of P2,000.00 to each complainant.
SMC moved for a reconsideration which resulted in the reduction of the award of attorney's fees
from P317,926.70 to P84,511.70. The rest of the assailed decision was unchanged.5
On 12 March 1998, SMC filed a petition for certiorari with prayer for the issuance of a temporary
restraining order and/or injunction with this Court which then referred the petition to the Court of
Appeals.
On 28 April 2000 the Court of Appeals denied the petition and affirmed the decision of the
NLRC.6 The appellate court also denied SMC's motion for reconsideration in a resolution7 dated
26 July 2000. Hence, petitioner seeks a review of the Court of Appeals' judgment before this
Court.
Petitioner poses the same issues brought up in the appeals court and the pivotal question is
whether the complainants are employees of petitioner SMC or of respondent MAERC.
Relying heavily on the factual findings of the Labor Arbiter, petitioner maintained that MAERC was
a legitimate job contractor. It directed this Court's attention to the undisputed evidence it claimed
to establish this assertion: MAERC is a duly organized stock corporation whose primary purpose
is to engage in the business of cleaning, receiving, sorting, classifying, grouping, sanitizing,
packing, delivering, warehousing, trucking and shipping any glass and/or metal containers and
that it had listed in its general information sheet two hundred seventy-eight (278) workers, twenty-
two (22) supervisors, seven (7) managers/officers and a board of directors; it also voluntarily
entered into a service contract on a non-exclusive basis with petitioner from which it earned a
gross income of P42,110,568.24 from 17 October 1988 to 27 November 1991; the service
contract specified that MAERC had the selection, engagement and discharge of its personnel,
employees or agents or otherwise in the direction and control thereof; MAERC admitted that it
had machinery, equipment and fixed assets used in its business valued at P4,608,080.00; and, it
failed to appeal the Labor Arbiter's decision which declared it to be an independent contractor and
ordered it to solely pay the separation benefits of the complaining workers.
We find no basis to overturn the Court of Appeals and the NLRC. Well-established is the principle
that findings of fact of quasi-judicial bodies, like the NLRC, are accorded with respect, even
finality, if supported by substantial evidence.8 Particularly when passed upon and upheld by the
41
Court of Appeals, they are binding and conclusive upon the Supreme Court and will not normally
be disturbed.9
Page
This Court has invariably held that in ascertaining an employer-employee relationship, the
following factors are considered: (a) the selection and engagement of employee; (b) the payment
of wages; (c) the power of dismissal; and, (d) the power to control an employee's conduct, the last
being the most important.10 Application of the aforesaid criteria clearly indicates an employer-
employee relationship between petitioner and the complainants.
Evidence discloses that petitioner played a large and indispensable part in the hiring of MAERC's
workers. It also appears that majority of the complainants had already been working for SMC long
before the signing of the service contract between SMC and MAERC in 1988.
The incorporators of MAERC admitted having supplied and recruited workers for SMC even
before MAERC was created.11 The NLRC also found that when MAERC was organized into a
corporation in February 1988, the complainants who were then already working for SMC were
made to go through the motion of applying for work with Ms. Olga Ouano, President and General
Manager of MAERC, upon the instruction of SMC through its supervisors to make it appear that
complainants were hired by MAERC. This was testified to by two (2) of the workers who were
segregator and forklift operator assigned to the Beer Marketing Division at the SMC compound
and who had been working with SMC under a purported contractor Jopard Services since March
1979 and March 1981, respectively. Both witnesses also testified that together with other
complainants they continued working for SMC without break from Jopard Services to MAERC.
As for the payment of workers' wages, it is conceded that MAERC was paid in lump sum but
records suggest that the remuneration was not computed merely according to the result or the
volume of work performed. The memoranda of the labor rates bearing the signature of a Vice-
President and General Manager for the Vismin Beer Operations12 as well as a director of
SMC13 appended to the contract of service reveal that SMC assumed the responsibility of paying
for the mandated overtime, holiday and rest day pays of the MAERC workers. 14 SMC also paid
the employer's share of the SSS and Medicare contributions, the 13th month pay, incentive leave
pay and maternity benefits.15 In the lump sum received, MAERC earned a marginal amount
representing the contractor's share. These lend credence to the complaining workers' assertion
that while MAERC paid the wages of the complainants, it merely acted as an agent of SMC.
Petitioner insists that the most significant determinant of an employer-employee relationship, i.e.,
the right to control, is absent. The contract of services between MAERC and SMC provided that
MAERC was an independent contractor and that the workers hired by it "shall not, in any manner
and under any circumstances, be considered employees of the Company, and that the Company
has no control or supervision whatsoever over the conduct of the Contractor or any of its workers
in respect to how they accomplish their work or perform the Contractor's obligations under the
Contract."16
In deciding the question of control, the language of the contract is not determinative of the parties'
relationship; rather, it is the totality of the facts and surrounding circumstances of each case. 17
Despite SMCs disclaimer, there are indicia that it actively supervised the complainants. SMC
maintained a constant presence in the workplace through its own checkers. Its asseveration that
the checkers were there only to check the end result was belied by the testimony of Carlito R.
Singson, head of the Mandaue Container Service of SMC, that the checkers were also tasked to
report on the identity of the workers whose performance or quality of work was not according to
the rules and standards set by SMC. According to Singson, "it (was) necessary to identify the
names of those concerned so that the management [referring to MAERC] could call the attention
to make these people improve the quality of work."18
 Viewed alongside the findings of the Labor Arbiter that the MAERC organizational set-up in the
bottle segregation project was such that the segregators/cleaners were supervised by checkers
and each checker was also under a supervisor who was in turn under a field supervisor, the
responsibility of watching over the MAERC workers by MAERC personnel became superfluous
with the presence of additional checkers from SMC.
Reinforcing the belief that the SMC exerted control over the work performed by the segregators or
cleaners, albeit through the instrumentality of MAERC, were letters by SMC to the MAERC
management. These were letters19written by a certain Mr. W. Padin20 addressed to the President
and General Manager of MAERC as well as to its head of operations,21 and a third letter22 from
Carlito R. Singson also addressed to the President and General Manager of MAERC. More than
just a mere written report of the number of bottles improperly cleaned and/or segregated, the
letters named three (3) workers who were responsible for the rejection of several bottles,
specified the infraction committed in the segregation and cleaning, then recommended the
penalty to be imposed. Evidently, these workers were reported by the SMC checkers to the SMC
inspector.
While the Labor Arbiter dismissed these letters as merely indicative of the concern in the end-
result of the job contracted by MAERC, we find more credible the contention of the complainants
that these were manifestations of the right of petitioner to recommend disciplinary measures over
MAERC employees. Although calling the attention of its contractors as to the quality of their
services may reasonably be done by SMC, there appears to be no need to instruct MAERC as to
what disciplinary measures should be imposed on the specific workers who were responsible for
rejections of bottles. This conduct by SMC representatives went beyond a mere reminder with
respect to the improperly cleaned/segregated bottles or a genuine concern in the outcome of the
job contracted by MAERC.
Control of the premises in which the contractor's work was performed was also viewed as another
phase of control over the work, and this strongly tended to disprove the independence of the
contractor. 23 In the case at bar, the bulk of the MAERC segregation activities was accomplished
at the MAERC-owned PHILPHOS warehouse but the building along with the machinery and
equipment in the facility was actually being rented by SMC. This is evident from the memoranda
of labor rates which included rates for the use of forklifts and the warehouse at the PHILPHOS
area, hence, the NLRC's conclusion that the payment for the rent was cleverly disguised since
MAERC was not in the business of renting warehouses and forklifts. 24
Other instances attesting to SMC's supervision of the workers are found in the minutes of the
meeting held by the SMC officers on 5 December 1988. Among those matters discussed were the
calling of SMC contractors to have workers assigned to segregation to undergo and pass eye
examination to be done by SMC EENT company doctor and a review of compensation/incentive
system for segregators to improve the segregation activities. 25
But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of MAERC dated
27 May 1991 addressed to Francisco Eizmendi, SMC President and Chief Executive Officer,
asking the latter to reconsider the phasing out of SMC's segregation activities in Mandaue City.
The letter was not denied but in fact used by SMC to advance its own arguments.26
42
Briefly, the letter exposed the actual state of affairs under which MAERC was formed and
engaged to handle the segregation project of SMC. It provided an account of how in 1987
Page
Eizmendi approached the would-be incorporators of MAERC and offered them the business of
servicing the SMC bottle-washing and segregation department in order to avert an impending
labor strike. After initial reservations, MAERC incorporators accepted the offer and before long
trial segregation was conducted by SMC at the PHILPHOS warehouse.27
The letter also set out the circumstances under which MAERC entered into the Contract of
Services in 1988 with the assurances of the SMC President and CEO that the employment of
MAERC's services would be long term to enable it to recover its investments. It was with this
understanding that MAERC undertook borrowings from banking institutions and from affiliate
corporations so that it could comply with the demands of SMC to invest in machinery and
facilities.
In sum, the letter attested to an arrangement entered into by the two (2) parties which was not
reflected in the Contract of Services. A peculiar relationship mutually beneficial for a time but
nonetheless ended in dispute when SMC decided to prematurely end the contract leaving
MAERC to shoulder all the obligations to the workers.
Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in Neri v.
NLRC.28 In that case, it was held that the law did not require one to possess both substantial
capital and investment in the form of tools, equipment, machinery, work premises, among others,
to be considered a job contractor. The second condition to establish permissible job
contracting29 was sufficiently met if one possessed either attribute.
Accordingly, petitioner alleged that the appellate court and the NLRC erred when they declared
MAERC a labor-only contractor despite the finding that MAERC had investments amounting to
P4,608,080.00 consisting of buildings, machinery and equipment.
However, in Vinoya v. NLRC,30 we clarified that it was not enough to show substantial
capitalization or investment in the form of tools, equipment, machinery and work premises, etc., to
be considered an independent contractor. In fact, jurisprudential holdings were to the effect that in
determining the existence of an independent contractor relationship, several factors may be
considered, such as, but not necessarily confined to, whether the contractor was 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 specified pieces of work; the control and
supervision of the workers; the power of the employer with respect to the hiring, firing and
payment of the workers of the contractor; the control of the premises; the duty to supply premises,
tools, appliances, materials and labor; and the mode, manner and terms of payment. 31
In Neri, the Court considered not only the fact that respondent Building Care Corporation (BBC)
had substantial capitalization but noted that BCC carried on an independent business and
performed its contract according to its own manner and method, free from the control and
supervision of its principal in all matters except as to the results thereof.32 The Court likewise
mentioned that the employees of BCC were engaged to perform specific special services for their
principal.33 The status of BCC had also been passed upon by the Court in a previous case where
it was found to be a qualified job contractor because it was "a big firm which services among
others, a university, an international bank, a big local bank, a hospital center, government
agencies, etc." Furthermore, there were only two (2) complainants in that case who were not only
selected and hired by the contractor before being assigned to work in the Cagayan de Oro branch
of FEBTC but the Court also found that the contractor maintained effective supervision and
control over them.
In comparison, MAERC, as earlier discussed, displayed the characteristics of a labor-only
contractor. Moreover, while MAERC's investments in the form of buildings, tools and equipment
 amounted to more than P4 Million, we cannot disregard the fact that it was the SMC which Case No. 06-1165-9
required MAERC to undertake such investments under the understanding that the business
1 Rogelio Prado, Jr. P3,056.00 P8,190.00 P11,246.0
relationship between petitioner and MAERC would be on a long term basis. Nor do we believe
MAERC to have an independent business. Not only was it set up to specifically meet the pressing 2 Eddie Selle 3,056.00 8,190.00 11,246.0
needs of SMC which was then having labor problems in its segregation division, none of its
workers was also ever assigned to any other establishment, thus convincing us that it was 3 Alejandro Annabieza 3,056.00 8,190.00 11,246.0
created solely to service the needs of SMC. Naturally, with the severance of relationship between
MAERC and SMC followed MAERC's cessation of operations, the loss of jobs for the whole 4 Ananias Jumao-as 3,056.00 8,190.00 11,246.0
MAERC workforce and the resulting actions instituted by the workers. 5 Consorcio Manloloyo 3,056.00 8,190.00 11,246.0
6 Anananias Alcotin 3,056.00 8,190.00 11,246.0
Petitioner also alleged that the Court of Appeals erred in ruling that "whether MAERC is an
independent contractor or a labor-only contractor, SMC is liable with MAERC for the latter's 7 Rey Gestopa 2,865.00 8,190.00 11,055.0
unpaid obligations to MAERC's workers."
8 Edgardo Nuñez 2,865.00 8,190.00 11,055.0
On this point, we agree with petitioner as distinctions must be made. In legitimate job contracting, 9 Junel Cabatingan 2,865.00 8,190.00 11,055.0
the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the
employees are paid their wages.34 The principal employer becomes jointly and severally liable 10 Paul Dumaqueta 2,865.00 8,190.00 11,055.0
with the job contractor only for the payment of the employees' wages whenever the contractor
fails to pay the same. Other than that, the principal employer is not responsible for any claim 11 Felimon Echavez 2,843.00 8,190.00 10,673.0
made by the employees. 12 Vito Sealana 2,843.00 8,190.00 10,673.0
13 Denecia Palao 2,843.00 8,190.00 10,673.0
On the other hand, in labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The 14 Roberto Lapiz 3,056.00 8,190.00 11,246.0
contractor is considered merely an agent of the principal employer and the latter is responsible to
the employees of the labor-only contractor as if such employees had been directly employed by 15 Baltazar Labio 3,056.00 8,190.00 11,246.0
the principal employer. The principal employer therefore becomes solidarily liable with the labor-
only contractor for all the rightful claims of the employees. 16 Leonardo Bongo 3,056.00 8,190.00 11,246.0
17 El Cid Icalina 3,056.00 8,190.00 11,246.0
This distinction between job contractor and labor-only contractor, however, will not discharge
18 Jose Diocampo 3,056.00 8,190.00 11,246.0
SMC from paying the separation benefits of the workers, inasmuch as MAERC was shown to be a
labor-only contractor; in which case, petitioner's liability is that of a direct employer and thus 19 Adelo Cantillas 3,056.00 8,190.00 11,246.0
solidarily liable with MAERC.
20 Isaias Branzuela 3,056.00 8,190.00 11,246.0
SMC also failed to comply with the requirement of written notice to both the employees concerned 21 Ramon Rosales 3,056.00 8,190.00 11,246.0
and the Department of Labor and Employment (DOLE) which must be given at least one (1)
month before the intended date of retrenchment.35 The fines imposed for violations of the notice 22 Gaudencio Peson 3,056.00 8,190.00 11,246.0
requirement have varied.36 The measure of this award depends on the facts of each case and the
23 Hector Cabañog 3,056.00 8,190.00 11,246.0
gravity of the omission committed by the employer.37 For its failure, petitioner was justly ordered
to indemnify each displaced worker P2,000.00. 24 Edgardo Dagmayan 3,056.00 8,190.00 11,246.0
25 Rogelio Cruz 3,056.00 8,190.00 11,246.0
The NLRC and the Court of Appeals affirmed the Labor Arbiter's award of separation pay to the
complainants in the total amount of P2,334,150.00 and of wage differentials in the total amount of 26 Rolando Espina 3,056.00 8,190.00 11,246.0
P845,117.00. These amounts are the aggregate of the awards due the two hundred ninety-one
(291) complainants as computed by the Labor Arbiter. The following is a summary of the 27 Bernardino Regidor 3,056.00 8,190.00 11,246.0
computation of the benefits due the complainants which is part of the Decision of the Labor
Arbiter. 28 Arnelio Sumalinog 3,056.00 8,190.00 11,246.0
29 Gumersindo Alcontin 3,056.00 8,190.00 11,246.0
43

SUMMARY 30 Loreto Nuñez 3,056.00 8,190.00 11,246.0

Page

NAME SALARY SEPARATION PAY TOTAL 31 Joebe Boy Dayon 3,056.00 8,190.00 11,246.0
DIFFERENTIAL
 32 Conrado Mesanque 3,056.00 8,190.00 11,246.00 63 Francisco Carbonilla 3,056.00 8,190.00 11,246.0
33 Marcelo Pescador 3,056.00 8,190.00 11,246.00 64 Nicanor Cuizon 3,056.00 8,190.00 11,246.0
34 Marcelino Jabagat 3,056.00 8,190.00 11,246.00 65 Pedro Briones 3,056.00 8,190.00 11,246.0
35 Vicente Devilleres 3,056.00 8,190.00 11,246.00 66 Rodolfo Cabalhug 3,056.00 8,190.00 11,246.0
36 Vicente Alin 3,056.00 8,190.00 11,246.00 67 Teofilo Ricardo 3,056.00 8,190.00 11,246.0
37 Rodolfo Pahugot 3,056.00 8,190.00 11,246.00 68 Danilo R. Dizon 3,056.00 8,190.00 11,246.0
38 Ruel Navares 3,056.00 8,190.00 11,246.00 69 Alberto Embong 3,056.00 8,190.00 11,246.0
39 Danilo Anabieza 3,056.00 8,190.00 11,246.00 70 Alfonso Echavez 3,056.00 8,190.00 11,246.0
40 Alex Juen 3,056.00 8,190.00 11,246.00 71 Gonzalo Roraceña 3,056.00 8,190.00 11,246.0
41 Juanito Garces 3,056.00 8,190.00 11,246.00 72 Marcelo Caracina 3,056.00 8,190.00 11,246.0
42 Silvino Limbaga 3,056.00 8,190.00 11,246.00 73 Raul Borres 3,056.00 8,190.00 11,246.0
43 Aurelio Jurpacio 3,056.00 8,190.00 11,246.00 74 Lino Tongalamos 3,056.00 8,190.00 11,246.0
44 Jovito Loon 3,056.00 8,190.00 11,246.00 75 Artemio Bongo, Jr. 3,056.00 8,190.00 11,246.0
45 Victor Tenedero 3,056.00 8,190.00 11,246.00 76 Roy Avila 3,056.00 8,190.00 11,246.0
46 Sasing Moreno 3,056.00 8,190.00 11,246.00 77 Melchor Freglo 3,056.00 8,190.00 11,246.0
47 Wilfredo Hortezuela 3,056.00 8,190.00 11,246.00 78 Raul Cabillada 3,056.00 8,190.00 11,246.0
48 Joselito Melendez 3,056.00 8,190.00 11,246.00 79 Eddie Catab 3,056.00 8,190.00 11,246.0
49 Alfredo Gestopa 3,056.00 8,190.00 11,246.00 80 Melencio Durano 3,056.00 8,190.00 11,246.0
50 Regino Gabuya 3,056.00 8,190.00 11,246.00 81 Allan Rago 3,056.00 8,190.00 11,246.0
51 Jorge Gamuzarno 3,056.00 8,190.00 11,246.00 82 Dominador Caparida 3,056.00 8,190.00 11,246.0
52 Lolito Cocido 3,056.00 8,190.00 11,246.00 83 Jovito Catab 3,056.00 8,190.00 11,246.0
53 Efraim Yubal 3,056.00 8,190.00 11,246.00 84 Albert Laspiñas 3,056.00 8,190.00 11,246.0
54 Venerando Roamar 3,056.00 8,190.00 11,246.00 85 Alex Anabieza 3,056.00 8,190.00 11,246.0
55 Gerardo Butalid 3,056.00 8,190.00 11,246.00 86 Nestor Reynante 3,056.00 8,190.00 11,246.0
56 Hipolito Vidas 3,056.00 8,190.00 11,246.00 87 Eulogio Estopa 3,056.00 8,190.00 11,246.0
57 Vengelito Frias 3,056.00 8,190.00 11,246.00 88 Mario Bolo 3,056.00 8,190.00 11,246.0
58 Vicente Celacio 3,056.00 8,190.00 11,246.00 89 Ederlito A. Balocano 3,056.00 8,190.00 11,246.0
59 Corlito Pestañas 3,056.00 8,190.00 11,246.00 90 Joel Pepito 3,056.00 8,190.00 11,246.0
60 Ervin Hyrosa 3,056.00 8,190.00 11,246.00 91 Reynaldo Ludia 3,056.00 5,460.00 8,516.0
44

61 Rommel Guerero 3,056.00 8,190.00 11,246.00 92 Manuel Cinco 3,056.00 5,460.00 8,516.0
62 Rodrigo Enerlas 3,056.00 8,190.00 11,246.00 93 Allan Agustin 3,056.00 8,190.00 11,246.0
Page
 94 Pablito Polegrates 3,056.00 8,190.00 11,246.00 122 Alfred Naparate 3,056.00 5,460.00 8,516.0
95 Clyde Prado 3,056.00 8,190.00 11,246.00 123 Wenceslao Baclohon 3,056.00 8,190.00 11,246.0
96 Dindo Misa 3,056.00 8,190.00 11,246.00 124 Eduardo Langita 3,056.00 8,190.00 11,246.0
97 Roger Sasing 3,056.00 8,190.00 11,246.00 TOTAL P39,728.00 P76,440.00 P116,168.0
98 Ramon Arcallana 3,056.00 8,190.00 11,246.00Case No. 07-1283-91
99 Gabriel Salas 3,056.00 8,190.00 11,246.00 125 Feliz Ordeneza P2,816.00 P8,190.00 P11,006.0

100 Edwin Sasan 3,056.00 8,190.00 11,246.00 126 Arsenio Logarta 3,056.00 8,190.00 11,246.0

101 Diosdado Barriga 3,056.00 8,190.00 11,246.00 127 Eduardo dela Vega 3,056.00 8,190.00 11,246.0

102 Moises Sasan 3,056.00 8,190.00 11,246.00 128 Joventino Canoog 3,056.00 8,190.00 11,246.0

103 Sinforiano Cantago 3,056.00 8,190.00 11,246.00 TOTAL P11,984.00 P32,760.00 P44,744.0

104 Leonardo Marturillas 3,056.00 8,190.00 11,246.00Case No. 10-1584-91

129 Regelio Abapo P3,056.00 P8,190.00 P11,246.0
105 Mario Ranis 3,056.00 8,190.00 11,246.00
Case No. 08-1321-91
106 Alejandro Ranido 3,056.00 8,190.00 11,246.00
130 Ricardo Ramas P3,056.00 P8,190.00 P11,246.0
107 Jerome Prado 3,056.00 8,190.00 11,246.00
Case No. 09-1507-91
108 Raul Oyao 3,056.00 8,190.00 11,246.00 131 Jose Bandialan P2,816.00 P8,190.00 P11,006.0
109 Victor Celacio 3,056.00 5,460.00 8,516.00 132 Antonio Basalan 2,816.00 8,190.00 11,006.0
TOTAL P330,621.00 P884,520.00 P1,215,141.00 133 Lyndon Basalan 2,816.00 8,190.00 11,006.0
Case No. 07-1177-91 134 Wilfredo Aliviano 2,816.00 8,190.00 11,006.0
110 Gerardo Roque P3,056.00 P5,460.00 P8,516.00
135 Bienvenido Rosario 2,816.00 8,190.00 11,006.0
Case No. 07-1176-91
136 Jesus Capangpangan 2,816.00 8,190.00 11,006.0
111 Zosimo Cararaton P3,056.00 P8,192.00 P11,246.00
137 Renato Mendoza 2,816.00 8,190.00 11,006.0
Case No. 07-1219-91
112 Virgilio Zanoria P3,056.00 P5,460.00 P8,516.00 138 Alejandro Catandejan 2,816.00 8,190.00 11,006.0

113 Jose Zanoria 3,056.00 5,460.00 8,516.00 139 Ruben Talaba 2,816.00 8,190.00 11,006.0

114 Allan Zanoria 3,056.00 5,460.00 8,516.00 140 Filemon Echavez 2,816.00 8,190.00 11,006.0

115 Victorino Seno 3,056.00 5,460.00 8,516.00 141 Marcelino Caracena 2,816.00 8,190.00 11,006.0

116 Teodulo Jumao-as 3,056.00 5,460.00 8,516.00 142 Ignacio Misa 2,816.00 8,190.00 11,006.0

117 Alexander Hera 3,056.00 5,460.00 8,516.00 143 Feliciano Agbay 2,816.00 8,190.00 11,006.0

118 Anthony Araneta 3,056.00 5,460.00 8,516.00 144 Victor Maglasang 2,816.00 8,190.00 11,006.0

119 Aldrin Suson 3,056.00 5,460.00 8,516.00 145 Arturo Heyrosa 2,816.00 8,190.00 11,006.0
45

120 Victor Verano 3,056.00 5,460.00 8,516.00 146 Alipio Tirol 2,816.00 8,190.00 11,006.0
147 Rosendo Mondares 2,816.00 8,190.00 11,006.0
Page

121 Ruel Sufrerencia 3,056.00 5,460.00 8,516.00

 148 Aniceto Ludia 2,816.00 8,190.00 11,006.00 178 Serlito Noynay 2,816.00 8,190.00 11,006.0
149 Reynaldo Lavandero 2,816.00 8,190.00 11,006.00 179 Luciano Recopelacion 2,816.00 8,190.00 11,006.0
150 Reuyan Herculano 2,816.00 8,190.00 11,006.00 180 Juanito Garces 2,816.00 8,190.00 11,006.0
151 Teodula Nique 2,816.00 8,190.00 11,006.00 181 Feliciano Torres 2,816.00 8,190.00 11,006.0
TOTAL P59,136.00 P171,990.00 P231,126.00 182 Ranilo Villareal 2,816.00 8,190.00 11,006.0
Case No. 06-1145-91 183 Fermin Aliviano 2,816.00 8,190.00 11,006.0
152 Emerberto Orque P2,816.00 P8,190.00 P11,006.00 184 Junjie Laviste 2,816.00 8,190.00 11,006.0
153 Zosimo Baobao 2,816.00 8,190.00 11,006.00 185 Tomacito de Castro 2,816.00 8,190.00 11,006.0
154 Medardo Singson 2,816.00 8,190.00 11,006.00 186 Joselito Capilina 2,816.00 8,190.00 11,006.0
155 Antonio Patalinghug 2,816.00 8,190.00 11,006.00 187 Samuel Casquejo 2,816.00 8,190.00 11,006.0
156 Ernesto Singson 2,816.00 8,190.00 11,006.00 188 Leonardo Natad 2,816.00 8,190.00 11,006.0
157 Roberto Torres 2,816.00 8,190.00 11,006.00 189 Benjamin Sayson 2,816.00 8,190.00 11,006.0
158 Cesar Escario 2,816.00 8,190.00 11,006.00 190 Pedro Inoc 2,816.00 8,190.00 11,006.0
159 Leodegario Dollecin 2,816.00 8,190.00 11,006.00 191 Edward Flores 2,816.00 8,190.00 11,006.0
160 Alberto Anoba 2,816.00 8,190.00 11,006.00 192 Edwin Sasan 2,816.00 8,190.00 11,006.0
161 Rodrigo Bisnar 2,816.00 8,190.00 11,006.00 193 Jose Rey Inot 2,816.00 8,190.00 11,006.0
162 Zosimo Bingas 2,816.00 8,190.00 11,006.00 194 Edgar Cortes 2,816.00 8,190.00 11,006.0
163 Rosalio Duran, Sr. 2,816.00 8,190.00 11,006.00 195 Romeo Lombog 2,816.00 8,190.00 11,006.0
164 Rosalio Duran, Jr. 2,816.00 8,190.00 11,006.00 196 Nicolas Ribo 2,816.00 8,190.00 11,006.0
165 Romeo Duran 2,816.00 8,190.00 11,006.00 197 Jaime Rubin 2,816.00 8,190.00 11,006.0
166 Antonio Abella 2,816.00 8,190.00 11,006.00 198 Orlando Regis 2,816.00 8,190.00 11,006.0
167 Mariano Repollo 2,816.00 8,190.00 11,006.00 199 Ricky Alconza 2,816.00 8,190.00 11,006.0
168 Polegarpo Degamo 2,816.00 8,190.00 11,006.00 200 Rudy Tagalog 2,816.00 8,190.00 11,006.0
169 Mario Cereza 2,816.00 8,190.00 11,006.00 201 Victorino Tagalog 2,816.00 8,190.00 11,006.0
170 Antonio Laoronilla 2,816.00 8,190.00 11,006.00 202 Edward Colina 2,816.00 8,190.00 11,006.0
171 Proctuso Magallanes 2,816.00 8,190.00 11,006.00 203 Ronie Gonzaga 2,816.00 8,190.00 11,006.0
172 Eladio Torres 2,816.00 8,190.00 11,006.00 204 Paul Cabillada 2,816.00 8,190.00 11,006.0
173 Warlito Demana 2,816.00 8,190.00 11,006.00 205 Wilfredo Magalona 2,816.00 8,190.00 11,006.0
174 Henry Gedaro 2,816.00 8,190.00 11,006.00 206 Joel Pepito 2,816.00 8,190.00 11,006.0
175 Doisederio Gemperao 2,816.00 8,190.00 11,006.00
46

207 Prospero Maglasang 2,816.00 8,190.00 11,006.0

176 Aniceto Gemperao 2,816.00 8,190.00 11,006.00 208 Allan Agustin 2,816.00 8,190.00 11,006.0
Page

177 Jerry Caparoso 2,816.00 8,190.00 11,006.00

 209 Fausto Bargayo 2,816.00 8,190.00 11,006.00 240 Jesus Capangpangan 2,816.00 8,190.00 11,006.0
210 Nomer Sanchez 2,816.00 8,190.00 11,006.00 241 Damian Capangpangan 2,816.00 8,190.00 11,006.0
211 Jolito Alin 2,816.00 8,190.00 11,006.00 242 Teofilo Capangpangan 2,816.00 8,190.00 11,006.0
212 Birning Regidor 2,816.00 8,190.00 11,006.00 243 Nilo Capangpangan 2,816.00 8,190.00 11,006.0
213 Garry Dignos 2,816.00 8,190.00 11,006.00 244 Cororeno Capangpangan 2,816.00 8,190.00 11,006.0
214 Edwin Dignos 2,816.00 8,190.00 11,006.00 245 Emilio Mondares 2,816.00 8,190.00 11,006.0
215 Dario Dignos 2,816.00 8,190.00 11,006.00 246 Ponciano Agana 2,816.00 8,190.00 11,006.0
216 Rogelio Dignos 2,816.00 8,190.00 11,006.00 247 Vicente Devilleres 2,816.00 8,190.00 11,006.0
217 Jimmy Cabigas 2,816.00 8,190.00 11,006.00 248 Mario Alipan 2,816.00 8,190.00 11,006.0
218 Fernando Anajao 2,816.00 8,190.00 11,006.00 249 Romanito Alipan 2,816.00 8,190.00 11,006.0
219 Alex Flores 2,816.00 8,190.00 11,006.00 250 Aldeon Robinson 2,816.00 8,190.00 11,006.0
220 Fernando Remedio 2,816.00 8,190.00 11,006.00 251 Fortunato Soco 2,816.00 8,190.00 11,006.0
221 Toto Mosquido 2,816.00 8,190.00 11,006.00 252 Celso Compuesto 2,816.00 8,190.00 11,006.0
222 Alberto Yagonia 2,816.00 8,190.00 11,006.00 253 William Itoralde 2,816.00 8,190.00 11,006.0
223 Victor Bariquit 2,816.00 8,190.00 11,006.00 254 Antonio Pescador 2,816.00 8,190.00 11,006.0
224 Ignacio Misa 2,816.00 8,190.00 11,006.00 255 Jeremias Rondero 2,816.00 8,190.00 11,006.0
225 Eliseo Villareno 2,816.00 8,190.00 11,006.00 256 Estropio Punay 2,816.00 8,190.00 11,006.0
226 Manuel Lavandero 2,816.00 8,190.00 11,006.00 257 Leovijildo Punay 2,816.00 8,190.00 11,006.0
227 Vircede 2,816.00 8,190.00 11,006.00 258 Romeo Quilongquilong 2,816.00 8,190.00 11,006.0
228 Mario Ranis 2,816.00 8,190.00 11,006.00 259 Wilfredo Gestopa 2,816.00 8,190.00 11,006.0
229 Jaime Responso 2,816.00 8,190.00 11,006.00 260 Eliseo Santos 2,816.00 8,190.00 11,006.0
230 Marianito Aguirre 2,816.00 8,190.00 11,006.00 261 Henry Orio 2,816.00 8,190.00 11,006.0
231 Marcial Heruela 2,816.00 8,190.00 11,006.00 262 Jose Yap 2,816.00 8,190.00 11,006.0
232 Godofredo Tuñacao 2,816.00 8,190.00 11,006.00 263 Nicanor Manayaga 2,816.00 8,190.00 11,006.0
233 Perfecto Regis 2,816.00 8,190.00 11,006.00 264 Teodoro Salinas 2,816.00 8,190.00 11,006.0
234 Roel Demana 2,816.00 8,190.00 11,006.00 265 Aniceto Montero 2,816.00 8,190.00 11,006.0
235 Elmer Castillo 2,816.00 8,190.00 11,006.00 266 Rafaelito Versoza 2,816.00 8,190.00 11,006.0
236 Wilfredo Calamohoy 2,816.00 8,190.00 11,006.00 267 Alejandro Ranido 2,816.00 8,190.00 11,006.0
237 Rudy Lucernas 2,816.00 8,190.00 11,006.00 268 Henry Talaba 2,816.00 8,190.00 11,006.0
47

238 Antonio Cañete 2,816.00 8,190.00 11,006.00 269 Romulo Talaba 2,816.00 8,190.00 11,006.0
239 Efraim Yubal 2,816.00 8,190.00 11,006.00 270 Diosdado Besabela 2,816.00 8,190.00 11,006.0
Page
 271 Sylvestre Toring 2,816.00 8,190.00 11,006.00 06-1145-91 391,424.00 1,138,410.00 1,529,834.0
272 Edilberto Padilla 2,816.00 8,190.00 11,006.00 GRAND TOTAL P845,117.00 P2,334,150.00 P3,179,267.0
273 Allan Herosa 2,816.00 8,190.00 11,006.00
274 Ernesto Sumalinog 2,816.00 8,190.00 However, certain matters have cropped up which require a review of the awards to some
11,006.00
complainants and a recomputation by the Labor Arbiter of the total amounts.
275 Ariston Velasco, Jr. 2,816.00 8,190.00 11,006.00
276 Fernando Lopez 2,816.00 8,190.00 scrutiny of the enumeration of all the complainants shows that some names 38 appear twice by
A11,006.00
virtue of their being included in two (2) of the nine (9) consolidated cases. A check of the Labor
277 Alfonso Echavez 2,816.00 8,190.00 11,006.00
Arbiter's computation discloses that most of these names were awarded different amounts of
separation pay or wage differential in each separate case where they were impleaded as parties
278 Nicanor Cuizon 2,816.00 8,190.00 11,006.00
because the allegations of the length and period of their employment for the separate cases,
279 Dominador Caparida 2,816.00 8,190.00 though overlapping, were also different. The records before us are incomplete and do not aid in
11,006.00
verifying whether these names belong to the same persons but at least three (3) of those names
280 Zosimo Cororation 2,816.00 8,190.00 were found to have identical signatures in the complaint forms they filed in the separate cases. It
11,006.00
is likely therefore that the Labor Arbiter erroneously granted some complainants separation
281 Artemio Loveranes 2,816.00 8,190.00 11,006.00
benefits and wage differentials twice. Apart from this, we also discovered some names that are
almost identical.39 It is possible that the minor variance in the spelling of some names may have
282 Dionisio Yagonia 2,816.00 8,190.00 11,006.00
been a typographical error and refer to the same persons although the records seem to be
283 Victor Celocia 2,816.00 8,190.00 inconclusive.
11,006.00
284 Hipolito Vidas 2,816.00 8,190.00 11,006.00
Furthermore, one of the original complainants40 was inadvertently omitted by the Labor Arbiter
285 Teodoro Arcillas 2,816.00 8,190.00 from his computations.41 The counsel for the complainants promptly filed a motion for
11,006.00
inclusion/correction42 which motion was treated as an appeal of the Decision as the Labor Arbiter
286 Marcelino Habagat 2,816.00 8,190.00 11,006.00
was prohibited by the rules of the NLRC from entertaining any motion at that stage of the
proceedings.43 The NLRC for its part acknowledged the omission44 but both the Commission and
287 Gaudioso Labasan 2,816.00 8,190.00 11,006.00 the Court of Appeals failed to rectify the oversight in their decisions.
subsequently
288 Leopoldo Regis 2,816.00 8,190.00 11,006.00
Finally, the NLRC ordered both MAERC and SMC to pay P84,511.70 in attorneys fees which is
289 Aquillo Damole 2,816.00 8,190.00 11,006.00
ten percent (10%) of the salary differentials awarded to the complainants in accordance with Art.
290 Willy Roble 2,816.00 8,190.00 111 of the Labor Code. The Court of Appeals also affirmed the award. Consequently, with the
11,006.00
recomputation of the salary differentials, the award of attorney's fees must also be modified.
TOTAL P391,424.00 P1,138,410.00 P1,529,834.00
RECAP WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated 28
April 2000 and the Resolution dated 26 July 2000 are AFFIRMED with MODIFICATION.
CASE NO. SALARY SEPARATION PAY TOTAL
Respondent Maerc Integrated Services, Inc. is declared to be a labor-only contractor.
DIFFERENTIAL Accordingly, both petitioner San Miguel Corporation and respondent Maerc Integrated Services,
06-1165-91 P330,621.00 P884,520.00 Inc., are ordered to jointly and severally pay complainants (private respondents herein) separation
P1,215,141.00
benefits and wage differentials as may be finally recomputed by the Labor Arbiter as herein
07-1177-91 3,056.00 5,460.00 8,516.00
directed, plus attorney's fees to be computed on the basis of ten percent (10%) of the amounts
which complainants may recover pursuant to Art. 111 of the Labor Code, as well as an indemnity
06-1176-91 3,056.00 8,190.00 11,246.00
fee of P2,000.00 to each complainant.
07-1219-91 39,728.00 76,440.00 116,168.00
The Labor Arbiter is directed to review and recompute the award of separation pays and wage
07-1283-91 11,984.00 32,760.00 44,744.00
differentials due complainants whose names appear twice or are notably similar, compute the
10-1584-91 3,056.00 8,190.00 monetary
11,246.00award due to complainant Niel Zanoria whose name was omitted in the Labor Arbiter's
48

Decision and immediately execute the monetary awards as found in the Labor Arbiter's
08-1321-91 3,056.00 8,190.00 11,246.00 insofar as those complainants whose entitlement to separation pay and wage
computations
differentials and the amounts thereof are no longer in question. Costs against petitioner.
Page

09-1507-91 59,136.00 171,990.00 231,126.00

 SO ORDERED.
G.R. No. 176240 October 17, 2008
ROLANDO SASAN, SR., LEONILO DAYDAY, MODESTO AGUIRRE, ALEJANDRO ARDIMER,
ELEUTERIO SACIL, WILFREDO JUEGOS, PETRONILO CARCEDO and CESAR
PACIENCIA, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION 4TH DIVISION, EQUITABLE-PCI BANK and
HELPMATE, INC.,respondents.
DECISION
CHICO-NAZARIO, J.:
Assailed in this Petition for Review under Rule 45 of the Rules of Court are the Decision1 dated
24 April 2006 of the Court of Appeals in CA-G.R. SP No. 79912, which affirmed the Decision
dated 22 January 2003 of the National Labor Relations Commission (NLRC) in NLRC Case No.
V-000241-2002 finding that Helpmate, Inc. (HI) is a legitimate independent job contractor and that
the petitioners were not illegally dismissed from work; and the Resolution2 dated 31 October 2006
of the same court denying the Motion for Reconsideration filed by the petitioners.
Respondent Equitable-PCI Bank (E-PCIBank),3 a banking entity duly organized and existing
under and by virtue of Philippine laws, entered into a Contract for Services4 with HI, a domestic
corporation primarily engaged in the business of providing janitorial and messengerial services.
Pursuant to their contract, HI shall hire and assign workers to E-PCIBank to perform
janitorial/messengerial and maintenance services. The contract was impliedly renewed year after
year. Petitioners Rolando Sasan, Sr.,5 Leonilo Dayday,6 Modesto Aguirre,7 Alejandro
Ardimer,8Eleuterio Sacil,9 Wilfredo Juegos,10 Petronilo Carcedo,11 and Cesar Peciencia12 were
among those employed and assigned to E-PCIBank at its branch along Gorordo Avenue, Lahug,
Cebu City, as well as to its other branches in the Visayas. 13
O 23 July 2001, petitioners filed with the Arbitration Branch of the NLRC in Cebu City separate
complaints14 against E-PCIBank and HI for illegal dismissal, with claims for separation pay,
service incentive leave pay, allowances, damages, attorney’s fees and costs. Their complaints
were docketed as NLRC RAB-VII Case No. 07-1381-2001 and raffled to Labor Arbiter Jose G.
Gutierrez (Labor Arbiter Gutierrez) for their proper disposition. Subsequently, on 22 August 2001,
the petitioners15 amended their complaints to include a claim for 13th month-pay.
Several conciliation hearings were scheduled by Labor Arbiter Gutierrez but the parties still failed
to arrive at a mutually beneficial settlement; hence, Labor Arbiter Gutierrez ordered that they
submit their respective position papers.
In their position papers, petitioners claimed that they had become regular employees of E-
PCIBank with respect to the activities for which they were employed, having continuously
49
rendered janitorial and messengerial services to the bank for more than one year; that E-PCIBank
had direct control and supervision over the means and methods by which they were to perform
Page
their jobs; and that their dismissal by HI was null and void because the latter had no power to do
so since they had become regular employees of E-PCIBank.
For its part, E-PCIBank averred that it entered into a Contract for Services with HI, an
independent job contractor which hired and assigned petitioners to the bank to perform janitorial
and messengerial services thereat. It was HI that paid petitioners’ wages, monitored petitioners’
daily time records (DTR) and uniforms, and exercised direct control and supervision over the
petitioners and that therefore HI has every right to terminate their services legally. E-PCIBank
could not be held liable for whatever misdeed HI had committed against its employees.
HI, on the other hand, asserted that it was an independent job contractor engaged in the business
of providing janitorial and related services to business establishments, and E-PCIBank was one of
its clients. Petitioners were its employees, part of its pool of janitors/messengers assigned to E-
PCIBank. The Contract for Services between HI and E-PCIBank expired on 15 July 2000. E-
PCIBank no longer renewed said contract with HI and, instead, bidded out its janitorial
requirements to two other job contractors, Able Services and Puritan. HI designated petitioners to
new work assignments, but the latter refused to comply with the same. Petitioners were not
dismissed by HI, whether actually or constructively, thus, petitioners’ complaints before the NLRC
were without basis.
Labor Arbiter Gutierrez focused on the following issues: (a) whether petitioners were regular
employees of HI; (b) whether petitioners were illegally dismissed from their employment; and (c)
whether petitioners were entitled to their money claims.
On 7 January 2002, on the basis of the parties’ position papers and documentary evidence, Labor
Arbiter Gutierrez rendered a Decision finding that HI was not a legitimate job contractor on the
ground that it did not possess the required substantial capital or investment to actually perform
the job, work, or service under its own account and responsibility as required under the Labor
Code.16 HI is therefore a labor-only contractor and the real employer of petitioners is E-PCIBank
which is held liable to petitioners. According to Labor Arbiter Gutierrez:
[T]he undisputed facts show that the [herein petitioners] were made to perform not only as janitors
but also as messengers, drivers and one of them even worked as an electrician. For us, these
jobs are not only directly related to the main business of the principal but are, likewise deemed
necessary in the conduct of respondent Equitable-PCI Bank’s principal business. Thus, based on
the above, we so declare that the [petitioners] are employees of respondent Equitable-PCI Bank.
And having worked with respondent Equitable-PCI Bank for more than one (1) year, they are
deemed regular employees. They cannot, therefore, be removed from employment without cause
and without due process, which is wanting in this case. Hence, the severance of their employment
in the guise of termination of contract is illegal.17
In the dispositive portion of his 7 January 2002 Decision, Labor Arbiter Gutierrez awarded to
petitioners the following amounts:
I. – CESAR PACIENCIA
a) Backwages
July 15, 2001 to January 8, 2002
= ₱25,840.00
= ₱190.00 per day
 = 5 months and 6 days c) 13th Month Pay = ₱4,940.00
= ₱190.00 x 26 days
= 136 days x ₱190.00 Total = ₱75,240.00
b) Separation Pay =₱12,350.00 VII – Eleuterio Sacil
June 10, 1996 to July 15, 2001 a) Backwages = ₱25,840.00
= 5 years (same as Paciencia)
=₱190.00 x 26 days x 5 years / 2 b) Separation Pay = ₱22,230.00
c) 13th Month Pay = ₱4,940.00 June 2, 1992 to July 15, 2001
= ₱190.00 x 26 days = ₱190.00 x 26 days x 9 yrs. / 2
Total ₱43,130.00 c) 13th Month Pay = ₱4,940.00
II – Dominador Suico, Jr. (did not file Amended Complaint) = ₱190.00 x 26 days
a) Backwages = ₱25,840.00 Total = ₱53,010.00
July 15, 2001 to January 15, 2002 VIII – Mario Juntilla
same as Paciencia a) Backwages = ₱25,840.00
b) Separation Pay = ₱6,175.00 (same as Pacencia)
Feb. 2, 1999 to July 15, 2001 b) Separation Pay = ₱34,580.00
= ₱190.00 x 26 days x 2.5 years / 2 October 7, 1987 to July 15, 2001
Total = ₱32,015.00 = ₱190.00 x 26 days x 14 yrs. / 2
III – Roland Mosquera (did not file Amended Complaint) c) 13th Month Pay = ₱4,940.00
a) Backwages = ₱25,840.00 = ₱190.00 x 26 days
(same as Paciencia) Total = ₱65,360.00
b) Separation Pay = ₱7,410.00 IX – Wilfredo Juegos
March 8, 1998 to July 15, 2001 a) Backwages = ₱25,840.00
= ₱190.00 x 26 days x 3 yrs. / 2 (same as Pacencia)
Total = ₱33,250.00 b) Separation Pay = ₱27,170.00
IV – Petronillo Carcedo July 23, 1990 to July 15, 2001
a) Backwages = ₱25,840.00 = ₱190.00 x 26 days x 11 yrs. / 2
(same as Paciencia) c) 13th Month Pay = ₱4,840.00
b) Separation Pay = ₱41,990.00 = ₱190.00 x 26 days
Sept. 16, 1984 to July 15, 2001 Total = ₱57,950.00
= ₱190.00 x 26 days x 17 yrs. / 2 X – Modesto Aguirre
c) 13th Month Pay = ₱4,940.00 a) Backwages = ₱25,840.00
= ₱190.00 x 26 days (same as Paciencia)
Total = ₱72,770.00 b) Separation Pay
V – Rolando Sasan, Sr.
a) Backwages = ₱25,840.00 = Jan. 5, 1992 to July 15, 2001 = ₱23,465.00
(same as Paciencia)
b) Separation Pay = ₱29,640.00
= ₱190.00 x 26 days x 9.5 yrs. / 2
October 1989 to July 15, 2001
= ₱190.00 x 26 days x 12 yrs. / 2 c) 13th Month Pay = ₱4,940.00
= ₱190.00 x 26 days
c) 13th Month Pay = ₱4,940.00
= ₱190.00 x 26 days Total = ₱54,245.00
Total = ₱60,420.00 XI – Alejandro Ardimer
VI – Leonilo Dayday a) Backwages = ₱25,840.00
a) Backwages = ₱25,840.00
(same as Paciencia) (same as Paciencia)
50

b) Separation Pay = ₱44,460.00 b) Separation Pay = ₱28,405.00

Feb. 8, 1983 to July 15, 2001 = Jan. 20, 1990 to July 15, 2001
Page

= ₱190.00 x 26 days x 18 yrs. / 2 = ₱190.00 x 26 days x 11.5 yrs. / 2

 c) 13th Month Pay = ₱4,940.00 3. Transfer Certificate of Title No. 110173 and Tax Declaration No. GR2K-09-063-00582
= ₱190.00 x 26 days registered under the name of HI showing that it has a parcel of land with Market Value of
Total = ₱59,185.00 ₱1,168,860.00 located along Rizal Avenue (now Bacalso Avenue), Cebu City, and

xxxx 4. Tax Declaration No. GR2K-09-063-00583 registered under the name of HI showing that it has a
commercial building constructed on the preceding lot located along Bacalso Avenue, Cebu City
with market value of ₱2,515,170.00.19
WHEREFORE, the foregoing premises considered, judgment is hereby rendered directing the
respondents Equitable PCI Bank and Helpmate, Inc. to pay jointly and solidarily the complainants
as follows: The NLRC promulgated its Decision on 22 January 2003 modifying the ruling of Labor Arbiter
Gutierrez. The NLRC took into consideration the documentary evidence presented by HI for the
first time on appeal and, on the basis thereof, declared HI as a highly capitalized venture with
1. Cesar Paciencia - P 43,130.00 sufficient capitalization, which cannot be considered engaged in "labor-only contracting."

2. Dominador Suico, Jr. - 32,015.00 On the charge of illegal dismissal, the NLRC ruled that:

3. Roland Mosquera - 33,250.00 The charge of illegal dismissal was prematurely filed. The record shows that barely eight (8) days
from 15 July 2001 when the complainants were placed on a temporary "off-detail," they filed their
4. Petronilo Carceda - 72,770.00 complaints on 23 July 2001 and amended their complaints on 22 August 2001 against the
respondents on the presumption that their services were already terminated. Temporary "off-
5. Roland Sasan, Sr. - 60,420.00 detail" is not equivalent to dismissal. x x x.20

6. Leonilo Dayday - 75,240.00

The NLRC deleted Labor Arbiter Gutierrez’s award of backwages and separation pay, but
affirmed his award for 13th month pay and attorney’s fees equivalent to ten percent (10%) of the
7. Eleuterio Sacil - 53,010.00 13th month pay, to the petitioners.21 Thus, the NLRC decreed in its 22 January 2003 Decision, the
payment of the following reduced amounts to petitioners:
8. Mario Juntilla - 65,360.00
WHEREFORE, premises considered, the decision of Labor Arbiter Jose G. Gutierrez dated 7
9. Wilfredo Juegos - 57,950.00
January 2002 is MODIFIED, to wit:
10. Modesto Aguirre - 54,245.00
Ordering respondents Helpmate, Inc. and Equitable PCI Bank to jointly and severally22 pay the
11. Alejandro Ardimer - 59,185.00 complainants of their 13th month pay and attorney’s fees in the aggregate amount of Forty-Three
Thousand Four Hundred Seventy-Two and 00/100 (₱43,472.00), broken down as follows:
TOTAL - ₱606,575.0018

Aggrieved by the decision of Labor Arbiter Gutierrez, respondents E-PCIBank and HI appealed
the same to the NLRC, 4th Division, stationed in Cebu City. Their appeals were docketed as 1. Aguirre, Modesto - P 5,434.00
NLRC Case No. V-000241-2002. In support of its allegation that it was a legitimate job contractor,
HI submitted before the NLRC several documents which it did not present before Labor Arbiter 2. Ardimer, Alejandro - 5,434.00
Gutierrez. These are:
3. Carcedo, Petronilo - 5,434.00
1. Certificate of Filing of Certificate of Increase of Capital Stock, Certificate of Filing Amended
Articles of Incorporation, and General Information Sheet Stock Corporation of HI showing therein 4. Dayday, Leonilo - 5,434.00
that it increased its authorized capital stock from ₱1,500,000.00 to ₱20,000,000.00 on 12 March
1999 with the Securities and Exchange Commission; 5. Juegos, Wilfredo - 5,434.00
51

6. Juntilla, Mario - 5,434.00

2. Audited Financial Statement of HI showing therein that it has Total Assets of ₱20,939,935.72
Page

as of 31 December 2000;
7. Paciencia, Cesar - 5,434.00

8. Sacil, Eleuterio - 5,434.00
TOTAL ₱43,472.0023
Petitioners’ Motion for Reconsideration was denied by the NLRC in its Resolution dated 1 July
2003.24
Distressed by the decision of the NLRC, petitioners sought recourse with the Court of Appeals by
filing a Petition for Certiorari25 under Rule 65 of the 1997 Rules of Civil Procedure docketed as
CA-G.R. SP No. 79912.
In its Decision dated 24 April 2006, the Court of Appeals affirmed the findings of the NLRC that HI
was a legitimate job contractor and that it did not illegally dismiss petitioners:
As to the question of whether or not, as a legitimate independent job contractor, respondent HI
illegally dismissed the petitioners. We rule in the negative.
It is undisputed that the contract between respondent HI and its client E-PCIBank expired on July
15, 2000. The record shows that after said expiration, respondent HI offered the petitioners new
work assignments to various establishments which are HI’s clients. The petitioners, therefore,
were not even placed on "floating status." They simply refused, without justifiable reason, to
assume their new work assignments which refusal was tantamount to abandonment. There being
no illegal dismissal, petitioners are not entitled to backwages or separation pay.26
The fallo of the 24 April 2006 Decision of the appellate court reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us DENYING
the petition filed in this case and AFFIRMING the decision of the NLRC, Fourth Division, in NLRC
Case No. V-000145-2003 promulgated on June 22, 2003.27
Petitioners now come before us via the instant Petition raising the following issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ACTED IN EXCESS OF THEIR
JURISDICTION AND/OR COMMITTED GRAVE ABUSE OF DISCRETION IN UPHOLDING THE
NLRC 4TH DIVISION’S DECISION AND GRAVELY ERRED IN:
I. ACCEPTING AND APPRECIATING THE PIECES OF EVIDENCE SUBMITTED BY
RESPONDENTS DURING APPEAL, ALL EXISTING DURING THE TIME THE NLRC RAB 7’S
TRIAL, CONTRARY TO THIS HONORABLE COURT’S PREVIOUS ESTABLISHED DECISIONS.
II. REVERSING, WITHOUT ANY LEGAL BASIS, THE FACTUAL FINDING OF NLRC RAB 7
THAT THE RESPONDENT HI WAS LABOR ONLY CONTRACTOR.
52
III. RULING, WITHOUT ANY LEGAL BASIS, THAT THE ILLEGAL DISMISSAL COMPLAINTS
WERE PREMATURELY FILED.28
Page
Before proceeding to the substantive issues, we first address the procedural issues raised by
petitioners.
Petitioners object to the acceptance and consideration by the NLRC of the evidence presented by
HI for the first time on appeal. This is not a novel procedural issue, however, and our
jurisprudence is already replete with cases29allowing the NLRC to admit evidence, not presented
before the Labor Arbiter, and submitted to the NLRC for the first time on appeal. Technical rules
of evidence are not binding in labor cases. Labor officials should use every reasonable means to
ascertain the facts in each case speedily and objectively, without regard to technicalities of law or
procedure, all in the interest of due process.30
The submission of additional evidence before the NLRC is not prohibited by its New Rules of
Procedure. After all, rules of evidence prevailing in courts of law or equity are not controlling in
labor cases. The NLRC and labor arbiters are directed to use every and all reasonable means to
ascertain the facts in each case speedily and objectively, without regard to technicalities of law
and procedure all in the interest of substantial justice. In keeping with this directive, it has been
held that the NLRC may consider evidence, such as documents and affidavits, submitted by the
parties for the first time on appeal. The submission of additional evidence on appeal does not
prejudice the other party for the latter could submit counter-evidence.31
In Clarion Printing House, Inc. v. National Labor Relations Commission,32 we again emphasized
that:
[T]he NLRC is not precluded from receiving evidence, even for the first time on appeal, because
technical rules of procedure are not binding in labor cases.
The settled rule is that the NLRC is not precluded from receiving evidence on appeal as technical
rules of evidence are not binding in labor cases. In fact, labor officials are mandated by the Labor
Code to use every and all reasonable means to ascertain the facts in each case speedily and
objectively, without regard to technicalities of law or procedure, all in the interest of due process.
Thus, in Lawin Security Services v. NLRC, and Bristol Laboratories Employees’ Association-DFA
v. NLRC, we held that even if the evidence was not submitted to the labor arbiter, the fact that it
was duly introduced on appeal to the NLRC is enough basis for the latter to be more judicious in
admitting the same, instead of falling back on the mere technicality that said evidence can no
longer be considered on appeal. Certainly, the first course of action would be more consistent
with equity and the basic notions of fairness.
For the same reasons, we cannot find merit in petitioners’ protestations against the documentary
evidence submitted by HI because they were mere photocopies. Evidently, petitioners are
invoking the best evidence rule, espoused in Section 3, Rule130 of the Rules of Court. It provides
that:
Section 3. – Original document must be produced; exceptions. – When the subject of inquiry is
the contents of a document, no evidence shall be admissible other than the original document
itself x x x.
The above provision explicitly mandates that when the subject of inquiry is the contents of a
document, no evidence shall be admissible other than the original document itself.
Notably, certified true copies of these documents, acceptable under the Rules of Court33 were
furnished to the petitioners. Even assuming that petitioners were given mere photocopies, again,
 we stress that proceedings before the NLRC are not covered by the technical rules of evidence
and procedure as observed in the regular courts. Technical rules of evidence do not apply if the
decision to grant the petition proceeds from an examination of its sufficiency as well as a careful
look into the arguments contained in position papers and other documents. 34
Petitioners had more than adequate opportunity when they filed their motion for reconsideration
before the NLRC, their Petition to the Court of Appeals and even to this Court, to refute or present
their counter-evidence to the documentary evidence presented by HI. Having failed in this
respect, petitioners cannot now be heard to complain about these documentary evidences
presented by HI upon which the NLRC and the Court of Appeals based its finding that HI is a
legitimate job contractor.
The essence of due process is simply an opportunity to be heard, or as applied to administrative
proceedings, a fair and reasonable opportunity to explain one's side. It is also an opportunity to
seek a reconsideration of the action or ruling complained of. It is not the denial of the right to be
heard but denial of the opportunity to be heard that constitutes violation of due process of law.
Petitioners herein were afforded every opportunity to be heard and to seek reconsideration of the
adverse judgment against them. They had every opportunity to strengthen their positions by
presenting their own substantial evidence to controvert those submitted by E-PCIBank and HI
before the NLRC, and even before the Court of Appeals. It cannot win its case by merely raising
unsubstantiated doubt or relying on the weakness of the adverse parties’ evidence.
(a) The contractor or subcontractor does not have substantial capital or investment to actually
perform the job, work or service under its own account and responsibility; and
(b) The employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal.38
In distinguishing between permissible job contracting and prohibited labor-only contracting,39 we
elucidated in Vinoya v. National Labor Relations Commission,40 that it is not enough to show
substantial capitalization or investment in the form of tools, equipment, etc. Other facts that may
be considered include the following: 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 specified pieces 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 premises,
tools, appliances, materials and labor; and the mode and manner or terms of payment. 41 Simply
put, the totality of the facts and the surrounding circumstances of the case are to be
considered.42 Each case must be determined by its own facts and all the features of the
relationship are to be considered.43
In the case at bar, we find substantial evidence to support the finding of the NLRC, affirmed by
the Court of Appeals, that HI is a legitimate job contractor.

We now proceed to the resolution of the substantive issues submitted by petitioners for our
We take note that HI has been issued by the Department of Labor and Employment (DOLE)
consideration, particularly, whether HI is a labor-only contactor and E-PCIBank should be deemed
Certificate of Registration44 Numbered VII-859-1297-048. The said certificate states among other
petitioners’ principal employer; and whether petitioners were illegally dismissed from their
things:
employment.

"CERTIFICATE OF REGISTRATION
Permissible job contracting or subcontracting refers to an arrangement whereby a principal
agrees to put out or farm out to a contractor or subcontractor the performance or completion of a
specific job, work or service within a definite or predetermined period, regardless of whether such Numbered VII-859-1297-048
job, work or service is to be performed or completed within or outside the premises of the
principal.35 A person is considered engaged in legitimate job contracting or subcontracting if the
following conditions concur: is issued to

HELPMATE, INCORPORATED
(a) The contractor or subcontractor carries on a distinct and independent business and
undertakes to perform the job, work or service on its own account and under its own responsibility
according to its own manner and method, and free from the control and direction of the principal 330 N. Bacalso Avenue, Cebu City
in all matters connected with the performance of the work except as to the results thereof;
for having complied with the requirements as provided for under the Labor Code, as amended,
(b) The contractor or subcontractor has substantial capital or investment; and and its Implementing Rules and having paid the registration fee in the amount of ONE HUNDRED
PESOS (P100.00) per Official Receipt Number 9042769, dated October 16, 1997.
(c) The agreement between the principal and contractor or subcontractor assures the contractual
employees entitlement to all labor and occupational safety and health standards, free exercise of In witness whereof, and by authority vested in me by the Labor Code, as amended, and its
the right to self-organization, security of tenure, and social and welfare benefits. 36 Implementing Rules specifically Department Order No. 10 series of 1997, I have hereunto set my
hand and affixed the Official on this 23rd day of December 1997."45
In contrast, labor-only contracting, a prohibited act, is an arrangement where the contractor or
53

subcontractor merely recruits, supplies or places workers to perform a job, work or service for a Having been issued by a public officer, this certification carries with it the presumption that it was
principal.37 In labor-only contracting, the following elements are present: issued in the regular performance of official duty.46 In the absence of proof, petitioner’s bare
Page

assertion cannot prevail over this presumption. Moreover, the DOLE being the agency primarily
responsible for regulating the business of independent job contractors, we can presume in the
 absence of evidence to the contrary that it thoroughly evaluated the requirements submitted by HI
as a precondition to the issuance of the Cerificate of Registration.
The evidence on record also shows that HI is carrying on a distinct and independent business
from E-PCIBank. The employees of HI are assigned to clients to perform janitorial and
messengerial services, clearly distinguishable from the banking services in which E-PCIBank is
engaged.
Despite the afore-mentioned compliance by HI with the requisites for permissible job contracting,
Labor Arbiter Gutierrez still declared that HI was engaged in prohibited labor-only contracting
because it did not possess substantial capital or investment to actually perform the job, work or
service under its own account or responsibility. Both the NLRC and the Court of Appeals ruled to
the contrary, and we agree.
"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the
case of corporations, tools, equipments, implements, machineries and work premises, actually
and directly used by the contractor or subcontractor in the performance or completion of the job,
work or service contracted out.47 An independent contractor must have either substantial capital
or investment in the form of tools, equipment, machineries, work premises, among others. The
law does not require both substantial capital and investment in the form of tools, equipment,
machineries, etc.48 It is enough that it has substantial capital. In the case of HI, it has proven both.
We have expostulated that once it is established that an entity such as in this case, HI has
substantial capital, it was no longer necessary to adduce further evidence to prove that it does not
fall within the purview of "labor-only" contracting.49 There is even no need for HI to refute the
contention of petitioners that some of the activities they performed such as those of messengerial
services are directly related to the principal business of E- PCIBank.
In any event, we have earlier declared that while these services rendered by the petitioners as
janitors, messengers and drivers are considered directly related to the principal business of a
bank, in this case E-PCIBank, nevertheless, they are not necessary in the conduct of its (E-
PCIBANK’s) principal business.50
HI has substantial capital in the amount of ₱20,939,935.72. It has its own building where it holds
office and it has been engaged in business for more than a decade now. 51 As observed by the
Court of Appeals, surely, such a well-established business entity cannot be considered a labor-
only contractor.
Etched in an unending stream of cases are four standards in determining the existence of an
employer-employee relationship, namely: (a) the manner of selection and engagement of the
putative employee; (b) the mode of payment of wages; (c) the presence or absence of power of
dismissal; and, (d) the presence or absence of control of the putative employee’s conduct. Most
determinative among these factors is the so-called "control test."52
The presence of the first requisite for the existence of an employer-employee relationship to wit,
the selection and engagement of the employee is shown by the fact that it was HI which selected
54
and engaged the services of petitioners as its employees. This is fortified by the provision in the
contract of services between HI and E-PCIBank which states:
Page
Selection, Engagement, Discharge. [HI] shall have exclusive discretion in the selection,
engagement, investigation, discipline and discharge of its employees.53
On the second requisite regarding the payment of wages, it was HI who paid petitioners their
wages and who provided their daily time records and uniforms and other materials necessary for
the work they performed. Therefore, it is HI who is responsible for petitioner’s claims for wages
and other employee’s benefits. Precisely, the contract of services between HI and E-PCIBank
reveals the following:
Indemnity for Salaries and Benefits, etc. [HI] shall be responsible for the salaries, allowances,
overtime and holiday pay, and other benefits of its personnel including withholding taxes.54
As to the third requisite on the power to control the employee’s conduct, and the fourth requisite
regarding the power of dismissal, again E-PCIBank did not have the power to control petitioners
with respect to the means and methods by which their work was to be accomplished. It likewise
had no power of dismissal over the petitioners. All that E-PCIBank could do was to report to HI
any untoward act, negligence, misconduct or malfeasance of any employee assigned to the
premises. The contract of services between E-PCIBank and HI is noteworthy. It states:
[HI] shall have the entire charge, control and supervision over all its employees who may be
fielded to [E-PCIBank]. For this purpose, [HI] shall assign a regular supervisor of its employees
who may be fielded to the Bank and which regular supervisor shall exclusively supervise and
control the activities and functions defined in Section 1 hereof. x x x.55
All these circumstances establish that HI undertook said contract on its account, under its own
responsibility, according to its own manner and method, and free from the control and direction of
E-PCIBank. Where the control of the principal is limited only to the result of the work, independent
job contracting exists. The janitorial service agreement between E-PCIBank and HI is definitely a
case of permissible job contracting.
Considering the foregoing, plus taking judicial notice of the general practice in private, as well as
in government institutions and industries, of hiring an independent contractor to perform special
services,56 ranging from janitorial, security and even technical services, we can only conclude that
HI is a legitimate job contractor. As such legitimate job contractor, the law creates an employer-
employee relationship between HI and petitioners57 which renders HI liable for the latter’s claims.
In view of the preceding conclusions, petitioners will never become regular employees of E-
PCIBank regardless of how long they were working for the latter. 58
We further rule that petitioners were not illegally dismissed by HI. Upon the termination of the
Contract of Service between HI and E-PCIBank, petitioners cannot insist to continue to work for
the latter. Their pull-out from E-PCIBank did not constitute illegal dismissal since, first, petitioners
were not employees of E-PCIBank; and second, they were pulled out from said assignment due
to the non-renewal of the Contract of Service between HI and E-PCIBank. At the time they filed
their complaints with the Labor Arbiter, petitioners were not even dismissed by HI; they were only
"off-detail" pending their re-assignment by HI to another client. And when they were actually given
new assignments by HI with other clients,59 petitioners even refused the same. As the NLRC
pronounced, petitioners’ complaint for illegal dismissal is apparently premature.
 WHEREFORE, premises considered, the Petition is DENIED for lack of merit. The Decision dated CONTRACT OF EMPLOYMENT FOR A FIXED PERIOD
24 April 2006 and Resolution dated 31 October 2006 of the Court of Appeals are AFFIRMED.
Costs against petitioners.
xxxx

SO ORDERED.
WITNESSETH: That

CHERRY J. PRICE, STEPHANIE G. DOMINGO G.R. No. 178505 WHEREAS, the EMPLOYEE has applied for the position of FORMATTER and in the course
AND LOLITA ARBILERA, Petitioners, thereof and represented himself/herself to be fully qualified and skilled for the said position;
Present:
- versus - WHEREAS, the EMPLOYER, by reason of the aforesaid representations, is desirous of engaging
YNARES-SANTIAGO, J., that the (sic) services of the EMPLOYEE for a fixed period;
INNODATA PHILS. INC.,/ INNODATA Chairperson,
CORPORATION, LEO RABANG AND JANE NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have
NAVARETTE, Respondents. mutually agreed as follows:
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and TERM/DURATION
REYES, JJ.

The EMPLOYER hereby employs, engages and hires the EMPLOYEE and the EMPLOYEE
Promulgated: hereby accepts such appointment as FORMATTER effective FEB. 16, 1999 to FEB. 16, 2000 a
September 30, 2008 period of ONE YEAR.

x------------------------------------------------x xxxx

DECISION TERMINATION

CHICO-NAZARIO, J.:
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the
Decision1 dated 25 September 2006 and Resolution2 dated 15 June 2007 of the Court of Appeals
in CA-G.R. SP No. 72795, which affirmed the Decision dated 14 December 2001 of the National
Labor Relations Commission (NLRC) in NLRC NCR Case No. 30-03-01274-2000 finding that
petitioners were not illegally dismissed by respondents.
6.1 In the event that EMPLOYER shall discontinue operating its business, this CONTRACT shall
also ipso facto terminate on the last day of the month on which the EMPLOYER ceases
operations with the same force and effect as is such last day of the month were originally set as
the termination date of this Contract. Further should the Company have no more need for the
EMPLOYEE’s services on account of completion of the project, lack of work (sic) business losses,
introduction of new production processes and techniques, which will negate the need for
personnel, and/or overstaffing, this contract maybe pre-terminated by the EMPLOYER upon
giving of three (3) days notice to the employee.

The factual antecedents of the case are as follows:

Respondent Innodata Philippines, Inc./Innodata Corporation (INNODATA) was a domestic
corporation engaged in the data encoding and data conversion business. It employed encoders,
indexers, formatters, programmers, quality/quantity staff, and others, to maintain its business and
accomplish the job orders of its clients. Respondent Leo Rabang was its Human Resources and
Development (HRAD) Manager, while respondent Jane Navarette was its Project Manager.
INNODATA had since ceased operations due to business losses in June 2002.
Petitioners Cherry J. Price, Stephanie G. Domingo, and Lolita Arbilera were employed as
55
6.2 In the event period stipulated in item 1.2 occurs first vis-à-vis the completion of the project,
this contract shall automatically terminate.
6.3 COMPANY’s Policy on monthly productivity shall also apply to the EMPLOYEE.
6.4 The EMPLOYEE or the EMPLOYER may pre-terminate this CONTRACT, with or without
cause, by giving at least Fifteen – (15) notice to that effect. Provided, that such pre-termination
shall be effective only upon issuance of the appropriate clearance in favor of the said
EMPLOYEE.

formatters by INNODATA. The parties executed an employment contract denominated as a

"Contract of Employment for a Fixed Period," stipulating that the contract shall be for a period of 6.5 Either of the parties may terminate this Contract by reason of the breach or violation of the
Page

one year,3 to wit: terms and conditions hereof by giving at least Fifteen (15) days written notice. Termination with
cause under this paragraph shall be effective without need of judicial action or approval. 4
 During their employment as formatters, petitioners were assigned to handle jobs for various
clients of INNODATA, among which were CAS, Retro, Meridian, Adobe, Netlib, PSM, and
Earthweb. Once they finished the job for one client, they were immediately assigned to do a new
job for another client.
On 16 February 2000, the HRAD Manager of INNODATA wrote petitioners informing them of their
last day of work. The letter reads:
RE: End of Contract
Date: February 16, 2000
Please be informed that your employment ceases effective at the end of the close of business
hours on February 16, 2000.5
According to INNODATA, petitioners’ employment already ceased due to the end of their contract.
On 22 May 2000, petitioners filed a Complaint6 for illegal dismissal and damages against
respondents. Petitioners claimed that they should be considered regular employees since their
positions as formatters were necessary and desirable to the usual business of INNODATA as an
encoding, conversion and data processing company. Petitioners also averred that the decisions in
Villanueva v. National Labor Relations Commission7 and Servidad v. National Labor Relations
Commission,8 in which the Court already purportedly ruled "that the nature of employment at
Innodata Phils., Inc. is regular,"9 constituted stare decisis to the present case. Petitioners finally
argued that they could not be considered project employees considering that their employment
was not coterminous with any project or undertaking, the termination of which was predetermined.
On the other hand, respondents explained that INNODATA was engaged in the business of data
processing, typesetting, indexing, and abstracting for its foreign clients. The bulk of the work was
data processing, which involved data encoding. Data encoding, or the typing of data into the
computer, included pre-encoding, encoding 1 and 2, editing, proofreading, and scanning. Almost
half of the employees of INNODATA did data encoding work, while the other half monitored
quality control. Due to the wide range of services rendered to its clients, INNODATA was
constrained to hire new employees for a fixed period of not more than one year. Respondents
asserted that petitioners were not illegally dismissed, for their employment was terminated due to
the expiration of their terms of employment. Petitioners’ contracts of employment with INNODATA
were for a limited period only, commencing on 6 September 1999 and ending on 16 February
2000.10 Respondents further argued that petitioners were estopped from asserting a position
contrary to the contracts which they had knowingly, voluntarily, and willfully agreed to or entered
into. There being no illegal dismissal, respondents likewise maintained that petitioners were not
entitled to reinstatement and backwages.
On 17 October 2000, the Labor Arbiter11 issued its Decision12 finding petitioners’ complaint for
illegal dismissal and damages meritorious. The Labor Arbiter held that as formatters, petitioners
occupied jobs that were necessary, desirable, and indispensable to the data processing and
encoding business of INNODATA. By the very nature of their work as formatters, petitioners
56
should be considered regular employees of INNODATA, who were entitled to security of tenure.
Thus, their termination for no just or authorized cause was illegal. In the end, the Labor Arbiter
Page
decreed:
FOREGOING PREMISES CONSIDERED, judgment is hereby rendered declaring complainants’
dismissal illegal and ordering respondent INNODATA PHILS. INC./INNODATA CORPORATION
to reinstate them to their former or equivalent position without loss of seniority rights and benefits.
Respondent company is further ordered to pay complainants their full backwages plus ten percent
(10%) of the totality thereof as attorney’s fees. The monetary awards due the complainants as of
the date of this decision are as follows:
A. Backwages
1. Cherry J. Price
2/17/2000 – 10/17/2000 at 223.50/day
P5,811.00/mo/ x 8 mos. P46,488.00
2. Stephanie Domingo 46,488.00
(same computation)
3. Lolita Arbilera 46,488.00
(same computation)
Total Backwages P139,464.00
B. Attorney’s fees (10% of total award) 13,946.40
Total Award P153,410.40
Respondent INNODATA appealed the Labor Arbiter’s Decision to the NLRC. The NLRC, in its
Decision dated 14 December 2001, reversed the Labor Arbiter’s Decision dated 17 October 2000,
and absolved INNODATA of the charge of illegal dismissal.
The NLRC found that petitioners were not regular employees, but were fixed-term employees as
stipulated in their respective contracts of employment. The NLRC applied Brent School, Inc. v.
Zamora13 and St. Theresa’s School of Novaliches Foundation v. National Labor Relations
Commission,14 in which this Court upheld the validity of fixed-term contracts. The determining
factor of such contracts is not the duty of the employee but the day certain agreed upon by the
parties for the commencement and termination of the employment relationship. The NLRC
observed that the petitioners freely and voluntarily entered into the fixed-term employment
contracts with INNODATA. Hence, INNODATA was not guilty of illegal dismissal when it
terminated petitioners’ employment upon the expiration of their contracts on 16 February 2000.
The dispositive portion of the NLRC Decision thus reads:
 WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and SET
ASIDE and a new one entered DISMISSING the instant complaint for lack of merit.15
The NLRC denied petitioners’ Motion for Reconsideration in a Resolution dated 28 June 2002. 16
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW
AND GRAVE ABUSE OF DISCRETION WHEN IT DID NOT APPLY THE SUPREME
COURT RULING IN THE CASE OF NATIVIDAD & QUEJADA THAT THE NATURE OF
EMPLOYMENT OF RESPONDENTS IS REGULAR NOT FIXED, AND AS SO RULED
IN AT LEAST TWO OTHER CASES AGAINST INNODATA PHILS. INC.

In a Petition for Certiorari under Rule 65 of the Rules of Court filed before the Court of Appeals,
II.
petitioners prayed for the annulment, reversal, modification, or setting aside of the Decision dated
14 December 2001 and Resolution dated 28 June 2002 of the NLRC.lawphil.net
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW
IN RULING THAT THE STIPULATION OF CONTRACT IS GOVERNING AND NOT
On 25 September 2006, the Court of Appeals promulgated its Decision sustaining the ruling of the
THE NATURE OF EMPLOYMENT AS DEFINED BY LAW.
NLRC that petitioners were not illegally dismissed.

III.
The Court of Appeals ratiocinated that although this Court declared in Villanueva and Servidad
that the employees of INNODATA working as data encoders and abstractors were regular, and
not contractual, petitioners admitted entering into contracts of employment with INNODATA for a THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
term of only one year and for a project called Earthweb. According to the Court of Appeals, there DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT DID NOT
was no showing that petitioners entered into the fixed-term contracts unknowingly and CONSIDER THE EVIDENCE ON RECORD SHOWING THAT THERE IS CLEAR
involuntarily, or because INNODATA applied force, duress or improper pressure on them. The CIRCUMVENTION OF THE LAW ON SECURITY OF TENURE THROUGH
appellate court also observed that INNODATA and petitioners dealt with each other on more or CONTRACT MANIPULATION.18
less equal terms, with no moral dominance exercised by the former on latter. Petitioners were
therefore bound by the stipulations in their contracts terminating their employment after the lapse
The issue of whether petitioners were illegally dismissed by respondents is ultimately dependent
of the fixed term.
on the question of whether petitioners were hired by INNODATA under valid fixed-term
employment contracts.
The Court of Appeals further expounded that in fixed-term contracts, the stipulated period of
employment is governing and not the nature thereof. Consequently, even though petitioners were
After a painstaking review of the arguments and evidences of the parties, the Court finds merit in
performing functions that are necessary or desirable in the usual business or trade of the
the present Petition. There were no valid fixed-term contracts and petitioners were regular
employer, petitioners did not become regular employees because their employment was for a
employees of the INNODATA who could not be dismissed except for just or authorized cause.
fixed term, which began on 16 February 1999 and was predetermined to end on 16 February
2000.
The employment status of a person is defined and prescribed by law and not by what the parties
say it should be.19 Equally important to consider is that a contract of employment is impressed
The appellate court concluded that the periods in petitioners’ contracts of employment were not
with public interest such that labor contracts must yield to the common good. 20 Thus, provisions of
imposed to preclude petitioners from acquiring security of tenure; and, applying the ruling of this
applicable statutes are deemed written into the contract, and the parties are not at liberty to
Court in Brent, declared that petitioners’ fixed-term employment contracts were valid. INNODATA
insulate themselves and their relationships from the impact of labor laws and regulations by
did not commit illegal dismissal for terminating petitioners’ employment upon the expiration of
simply contracting with each other.21
their contracts.

Regular employment has been defined by Article 280 of the Labor Code, as amended, which
The Court of Appeals adjudged:
reads:

WHEREFORE, the instant petition is hereby DENIED and the Resolution dated December 14,
2001 of the National Labor Relations Commission declaring petitioners were not illegally
dismissed is AFFIRMED.17
The petitioners filed a Motion for Reconsideration of the afore-mentioned Decision of the Court of
Appeals, which was denied by the same court in a Resolution dated 15 June 2007.
57
Art. 280. Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be
deemed to be regular where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer, except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of engagement of the employee or where the work or
services to be performed is seasonal in nature and employment is for the duration of the season.

Petitioners are now before this Court via the present Petition for Review on Certiorari, based on
the following assignment of errors: An employment shall be deemed to be casual if it is not covered by the preceding paragraph.
Page

Provided, That, any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered a regular employee with respect to the
I.
 activity in which he is employed and his employment shall continue while such activity exists.
(Underscoring ours).
Based on the afore-quoted provision, the following employees are accorded regular status: (1)
those who are engaged to perform activities which are necessary or desirable in the usual
business or trade of the employer, regardless of the length of their employment; and (2) those
who were initially hired as casual employees, but have rendered at least one year of service,
whether continuous or broken, with respect to the activity in which they are employed.
Undoubtedly, petitioners belong to the first type of regular employees.
Under Article 280 of the Labor Code, the applicable test to determine whether an employment
should be considered regular or non-regular is the reasonable connection between the particular
activity performed by the employee in relation to the usual business or trade of the employer.22
In the case at bar, petitioners were employed by INNODATA on 17 February 1999 as formatters.
The primary business of INNODATA is data encoding, and the formatting of the data entered into
the computers is an essential part of the process of data encoding. Formatting organizes the data
encoded, making it easier to understand for the clients and/or the intended end users thereof.
Undeniably, the work performed by petitioners was necessary or desirable in the business or
trade of INNODATA.
However, it is also true that while certain forms of employment require the performance of usual
or desirable functions and exceed one year, these do not necessarily result in regular
employment under Article 280 of the Labor Code.23 Under the Civil Code, fixed-term employment
contracts are not limited, as they are under the present Labor Code, to those by nature seasonal
or for specific projects with predetermined dates of completion; they also include those to which
the parties by free choice have assigned a specific date of termination.24
The decisive determinant in term employment is the day certain agreed upon by the parties for
the commencement and termination of their employment relationship, a day certain being
understood to be that which must necessarily come, although it may not be known when.
Seasonal employment and employment for a particular project are instances of employment in
which a period, where not expressly set down, is necessarily implied.25
Respondents maintain that the contracts of employment entered into by petitioners with
INNDOATA were valid fixed-term employment contracts which were automatically terminated at
the expiry of the period stipulated therein, i.e., 16 February 2000.
The Court disagrees.
While this Court has recognized the validity of fixed-term employment contracts, it has
consistently held that this is the exception rather than the general rule. More importantly, a fixed-
term employment is valid only under certain circumstances. In Brent, the very same case invoked
by respondents, the Court identified several circumstances wherein a fixed-term is anessential
58
and natural appurtenance, to wit:
Page
Some familiar examples may be cited of employment contracts which may be neither for seasonal
work nor for specific projects, but to which a fixed term is an essential and natural appurtenance:
overseas employment contracts, for one, to which, whatever the nature of the engagement, the
concept of regular employment with all that it implies does not appear ever to have been applied,
Article 280 of the Labor Code notwithstanding; also appointments to the positions of dean,
assistant dean, college secretary, principal, and other administrative offices in educational
institutions, which are by practice or tradition rotated among the faculty members, and where fixed
terms are a necessity without which no reasonable rotation would be possible. Similarly, despite
the provisions of Article 280, Policy Instructions No. 8 of the Minister of Labor implicitly recognize
that certain company officials may be elected for what would amount to fixed periods, at the
expiration of which they would have to stand down, in providing that these officials, "x x may lose
their jobs as president, executive vice-president or vice president, etc. because the stockholders
or the board of directors for one reason or another did not reelect them." 26
As a matter of fact, the Court, in its oft-quoted decision in Brent, also issued a stern admonition
that where, from the circumstances, it is apparent that the period was imposed to preclude the
acquisition of tenurial security by the employee, then it should be struck down as being contrary to
law, morals, good customs, public order and public policy.27
After considering petitioners’ contracts in their entirety, as well as the circumstances surrounding
petitioners’ employment at INNODATA, the Court is convinced that the terms fixed therein were
meant only to circumvent petitioners’ right to security of tenure and are, therefore, invalid.
The contracts of employment submitted by respondents are highly suspect for not only being
ambiguous, but also for appearing to be tampered with.
Petitioners alleged that their employment contracts with INNODATA became effective 16
February 1999, and the first day they reported for work was on 17 February 1999. The Certificate
of Employment issued by the HRAD Manager of INNODATA also indicated that petitioners Price
and Domingo were employed by INNODATA on 17 February 1999.
However, respondents asserted before the Labor Arbiter that petitioners’ employment contracts
were effective only on 6 September 1999. They later on admitted in their Memorandum filed with
this Court that petitioners were originally hired on 16 February 1999 but the project for which they
were employed was completed before the expiration of one year. Petitioners were merely rehired
on 6 September 1999 for a new project. While respondents submitted employment contracts with
6 September 1999 as beginning date of effectivity, it is obvious that in one of them, the original
beginning date of effectivity, 16 February 1999, was merely crossed out and replaced with 6
September 1999. The copies of the employment contracts submitted by petitioners bore similar
alterations.
The Court notes that the attempt to change the beginning date of effectivity of petitioners’
contracts was very crudely done. The alterations are very obvious, and they have not been
initialed by the petitioners to indicate their assent to the same. If the contracts were truly fixed-
term contracts, then a change in the term or period agreed upon is material and would already
constitute a novation of the original contract.
Such modification and denial by respondents as to the real beginning date of petitioners’
employment contracts render the said contracts ambiguous. The contracts themselves state that
they would be effective until 16 February 2000 for a period of one year. If the contracts took effect
only on 6 September 1999, then its period of effectivity would obviously be less than one year, or
for a period of only about five months.
 Obviously, respondents wanted to make it appear that petitioners worked for INNODATA for a overstaffing, this contract maybe pre-terminated by the EMPLOYER upon giving of three (3) days
period of less than one year. The only reason the Court can discern from such a move on notice to the employee.
respondents’ part is so that they can preclude petitioners from acquiring regular status based on
their employment for one year. Nonetheless, the Court emphasizes that it has already found that
xxxx
petitioners should be considered regular employees of INNODATA by the nature of the work they
performed as formatters, which was necessary in the business or trade of INNODATA. Hence, the
total period of their employment becomes irrelevant. 6.4 The EMPLOYEE or the EMPLOYER may pre-terminate this CONTRACT, with or without
cause, by giving at least Fifteen – (15) [day] notice to that effect. Provided, that such pre-
termination shall be effective only upon issuance of the appropriate clearance in favor of the said
Even assuming that petitioners’ length of employment is material, given respondents’ muddled
EMPLOYEE. (Emphasis ours.)
assertions, this Court adheres to its pronouncement in Villanueva v. National Labor Relations
Commission,28 to the effect that where a contract of employment, being a contract of adhesion, is
ambiguous, any ambiguity therein should be construed strictly against the party who prepared it. Pursuant to the afore-quoted provisions, petitioners have no right at all to expect security of
The Court is, thus, compelled to conclude that petitioners’ contracts of employment became tenure, even for the supposedly one-year period of employment provided in their contracts,
effective on 16 February 1999, and that they were already working continuously for INNODATA because they can still be pre-terminated (1) upon the completion of an unspecified project; or (2)
for a year. with or without cause, for as long as they are given a three-day notice. Such contract provisions
are repugnant to the basic tenet in labor law that no employee may be terminated except for just
or authorized cause.
Further attempting to exonerate itself from any liability for illegal dismissal, INNODATA contends
that petitioners were project employees whose employment ceased at the end of a specific
project or undertaking. This contention is specious and devoid of merit. Under Section 3, Article XVI of the Constitution, it is the policy of the State to assure the workers
of security of tenure and free them from the bondage of uncertainty of tenure woven by some
employers into their contracts of employment. This was exactly the purpose of the legislators in
In Philex Mining Corp. v. National Labor Relations Commission,29 the Court defined "project
drafting Article 280 of the Labor Code – to prevent the circumvention by unscrupulous employers
employees" as those workers hired (1) for a specific project or undertaking, and wherein (2) the
of the employee’s right to be secure in his tenure by indiscriminately and completely ruling out all
completion or termination of such project has been determined at the time of the engagement of
written and oral agreements inconsistent with the concept of regular employment.
the employee.

Scrutinizing petitioners’ employment contracts with INNODATA, however, failed to reveal any
mention therein of what specific project or undertaking petitioners were hired for. Although the
contracts made general references to a "project," such project was neither named nor described
at all therein. The conclusion by the Court of Appeals that petitioners were hired for the Earthweb
project is not supported by any evidence on record. The one-year period for which petitioners
were hired was simply fixed in the employment contracts without reference or connection to the
period required for the completion of a project. More importantly, there is also a dearth of
evidence that such project or undertaking had already been completed or terminated to justify the
dismissal of petitioners. In fact, petitioners alleged - and respondents failed to dispute that
petitioners did not work on just one project, but continuously worked for a series of projects for
various clients of INNODATA.
In Magcalas v. National Labor Relations Commission,30 the Court struck down a similar claim by
the employer therein that the dismissed employees were fixed-term and project employees. The
Court here reiterates the rule that all doubts, uncertainties, ambiguities and insufficiencies should
be resolved in favor of labor. It is a well-entrenched doctrine that in illegal dismissal cases, the
employer has the burden of proof. This burden was not discharged in the present case.
As a final observation, the Court also takes note of several other provisions in petitioners’
employment contracts that display utter disregard for their security of tenure. Despite fixing a
period or term of employment, i.e., one year, INNODATA reserved the right to pre-terminate
petitioners’ employment under the following circumstances:
59
In all, respondents’ insistence that it can legally dismiss petitioners on the ground that their term
of employment has expired is untenable. To reiterate, petitioners, being regular employees of
INNODATA, are entitled to security of tenure. In the words of Article 279 of the Labor Code:
ART. 279. Security of Tenure. – In cases of regular employment, the employer shall not terminate
the services of an employee except for a just cause or when authorized by this Title. 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.
By virtue of the foregoing, an illegally dismissed employee is entitled to reinstatement without loss
of seniority rights and other privileges, with full back wages computed from the time of dismissal
up to the time of actual reinstatement.
Considering that reinstatement is no longer possible on the ground that INNODATA had ceased
its operations in June 2002 due to business losses, the proper award is separation pay equivalent
to one month pay31 for every year of service, to be computed from the commencement of their
employment up to the closure of INNODATA.
The amount of back wages awarded to petitioners must be computed from the time petitioners

were illegally dismissed until the time INNODATA ceased its operations in June 2002. 32

6.1 x x x Further should the Company have no more need for the EMPLOYEE’s services on
Page

account of completion of the project, lack of work (sic) business losses, introduction of new
production processes and techniques, which will negate the need for personnel, and/or
 Petitioners are further entitled to attorney’s fees equivalent to 10% of the total monetary award
herein, for having been forced to litigate and incur expenses to protect their rights and interests
herein.

Finally, unless they have exceeded their authority, corporate officers are, as a general rule, not
personally liable for their official acts, because a corporation, by legal fiction, has a personality
separate and distinct from its officers, stockholders and members. Although as an exception,
corporate directors and officers are solidarily held liable with the corporation, where terminations
of employment are done with malice or in bad faith,33 in the absence of evidence that they acted
with malice or bad faith herein, the Court exempts the individual respondents, Leo Rabang and
Jane Navarette, from any personal liability for the illegal dismissal of petitioners.

WHEREFORE, the Petition for Review on Certiorari is GRANTED. The Decision dated 25
September 2006 and Resolution dated 15 June 2007 of the Court of Appeals in CA-G.R. SP No.
72795are hereby REVERSED and SET ASIDE. RespondentInnodata Philippines, Inc./Innodata
Corporation is ORDERED to pay petitioners Cherry J. Price, Stephanie G. Domingo, and Lolita
Arbilera: (a) separation pay, in lieu of reinstatement, equivalent to one month pay for every year of
service, to be computed from the commencement of their employment up to the date respondent
Innodata Philippines, Inc./Innodata Corporation ceased operations; (b) full backwages, computed
from the time petitioners’ compensation was withheld from them up to the time respondent
Innodata Philippines, Inc./Innodata Corporation ceased operations; and (3) 10% of the total
monetary award as attorney’s fees. Costs against respondent Innodata Philippines, Inc./Innodata
Corporation.

SO ORDERED.
60
Page