Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-28952 December 29, 1971 BENITO C.

MANUEL, petitioner, vs. GENERAL AUDITING OFFICE, respondent. Bengzon, Villegas & Zarraga for petitioner. Office of the Solicitor General Antonio P. Barredo and Solicitor Buenaventura J. Guerrero for respondent. FERNANDO, J.: This Court is faced with a question raised for the first time in this petition for the review of a ruling of an order of respondent General Auditing Office. It is whether or not an elective official may be entitled in the event that he voluntarily retires or be separated from the service without fault on his part to the commutation of his vacation and sick leave. The answer of respondent was in the negative, relying primarily on a civil service rule purportedly in accordance with the applicable Administrative Code provision. In thus denying the claim of petitioner, there was a neglect or disregard of the controlling section of such Code 1 as well as of the equally controlling statutory language in another enactment, which specifically speaks of both an elective or appointive official as being entitled, to such benefits under such circumstances. 2 A reversal is thus indicated. The facts are undisputed. Petitioner Benito C. Manuel applied for retirement, effective December 31, 1967, according to law, 3 after having to his credit more than (20) years of service in the government, included in which were four successive terms as Mayor of Lingayen, Pangasinan from January 1, 1952 to December 31, 1967. Such application was approved on December 5, 1967. He had likewise sought the commutation of his vacation and sick leave, filing with the Municipal Treasurer of Lingayen, Pangasinan on December 22, 1967 a communication to that effect. In his memorandum filed with respondent General Auditing Office to which the matter was referred, he stressed that he was entitled to unused vacation and sick leave earned from May 31, 1957 (date of effectivity Republic Act No. 1616) to December 31, 1967, or a period of 10 years and 7 months, and since his highest salary was P600.00 a month, the total amount which should accrue to him is P6,000.00, (one month for every year). Respondent Office in turn asked for the view of the Commission of Civil Service in an indorsement dated January 25, 196 The reply, coming on February 22, 1968 was that such claim for the commutation of the money value of his leave from January 1, 1952 to December 31, 1967 could not favorably considered. Such a conclusion was based on his reading of Section 2187 of the Revised Administrate Code, 4 which for him implied that such a leave must be enjoyed during the year in which earned and that it could not be cumulative. There was likewise reliance on Section 9 of Civil Service Rule XVI which speaks categorically to that effect. 5 Respondent General Auditing Office on March 1, 1968 ruled that his application for commutation of his leave earned as Mayor during the period from January 1, 1952 to December 31, 1967 could not thus be allowed in audit. Hence this appeal to this Court.

The appeal is meritorious. As was clearly pointed out in the able brief of counsel for petitioner, the Bengzon, Villegas & Zarraga Law Firm, the controlling statutory provisions call for a reversal of the ruling of respondent. 1. It is expressly provided under Section 286 of the Revised Administrative Code that vacation and sick leave shall be cumulative, any part thereof not taken within the calendar year earned being carried over the succeeding years with the employee voluntarily retiring or being separated from the service without fault on his part, being entitled to the commutation of all such accumulated vacation or sick leave to his credit provided that it shall in no case exceed ten (10) months. 6 The statute 7 providing for voluntary retirement is even more explicit. Thus: "Retirement is likewise allowed to any official or employee, appointive or elective, regardless of age and employment status, who has rendered a total of at least twenty years of service, the last three years of which are continuous. 8 Further: "Officials and employees retired under this Act shall be entitled to the commutation of the unused vacation and sick leave, based on the highest rate received, which they have to their credit at the time of retirement." 9 There cannot be the least doubt therefore that the petitioner, who was a municipal mayor and as such an elective official for sixteen (16) years, having to his credit four (4) successive terms as Mayor of Lingayen, Pangasinan could not be denied his plea for the commutation for vacation and sick leave. The law speaks categorically including him within its terms. It must, as insisted by counsel for petitioner, be obeyed. Whatever rights are granted petitioner must be respected. There is here no room interpretation, simply the application of legal norms from any ambiguity. 10 2. Why then did respondent decide otherwise? It may have been due to a misreading of Section 2187 of the Revised Administrative Code. What must have misled respondent was a failure to take due note that this section deals solely with a situation when a municipal mayor is absent from his office because of illness. It does not cover therefore the specific case here presented of the right of the elective official to a commutation of his vacation and sick leave upon his retirement or separation from the service through no fault of his own. Moreover it must have felt justified in view of the endorsement of the Commission of the Civil Service, who applied Section 9 of Civil Service Rule XVI, included in which is the express injunction that the leave is not cumulative. Further reflection ought to have cautioned it that certainly this rule is far from being applicable as on its face it is based on the aforesaid Section 2187, which as noted is not in point. If, however, to be considered as having pertinence and relevance, it cannot as an administrative order supplant the plain and explicit statutory command. Why such should be the case is explained in a recent decision, Teoxon v. Member of the Board of Administrators. 11 Thus: "The recognition of the power of administrative officials to promulgate rules in the implementation of the statute, necessarily limited to what is provided for in the legislative enactment, may be found in the early case of United States v. Barrias decided in 1908. Then came, in a 1914 decision, United States v. Tupasi Molina, a delineation of the scope of such competence. Thus: 'Of course the regulations adopted under legislative authority by a particular department must be in harmony with the provisions of the law, and for the sole purpose of carrying into effect its general provisions. By such regulations, of course, the law itself can not be extended. So long, however, as the regulations relate solely to carrying into effect the provisions of the law, they are valid.' In 1936, in People v. Santos, this Court expressed its disapproval of an administrative order that would amount to an excess of the regulatory power vested in an administrative official. We reaffirmed such a doctrine in a 1951 decision, where we again made clear that where an administrative order betrays inconsistency or repugnancy to the provisions of the Act, 'the

mandate of the Act must prevail and must be followed.' Justice Barrera, speaking for the Court in Victorias Milling Company, Inc. v. Social Security Commission, citing Parker as well as Davis did tersely sum up the matter thus: 'A rule is binding on the courts so long as the procedure fixed for its promulgation is followed and its scope is within the statutory granted by the legislature, even if the courts are not in agreement with the policy stated therein or its innate wisdom ... . On the other hand, administrative interpretation of the law is at best merely advisory, for it is the courts that finally determine what the law means.' " 12 The succeeding paragraph in such a decision is likewise in point. Thus: "It cannot be otherwise as the Constitution limits the authority of the President, in whom all executive power resides, to take care that the laws be faithfully executed. No lesser administrative executive office or agency then can, contrary to the express language of the Constitution, assert for itself a more extensive prerogative. Necessarily, it is bound to observe the constitutional mandate. There must be strict compliance with the legislative enactment. Its terms must be followed. The statute requires adherence to, departure from, its provisions. No deviation is allowable. In the terse language of the present Chief Justice, administrative agency 'cannot amend an act of Congress.' " 13 3. Nothing can be clearer therefore than that the claim of petitioner to a commutation of his vacation and sick leave not exceeding ten (10) months must be upheld, inasmuch as the facts show that the total amount sought to be paid to him was precisely in accordance with the controlled legal provisions. The ruling now on review must be versed and petitioner's plea granted. WHEREFORE, the ruling of March 1, 1968 of respondent office refusing to allow in audit the claim of petitioner Benito C. Manuel for commutation of his leave earned as Mayor for the period January 1, 1952 to December 31, 1967 is reversed and the application of petition for such commutation granted. Without pronouncement as to costs. Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-63915 April 24, 1985 LORENZO M. TAADA, ABRAHAM F. SARMIENTO, and MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. [MABINI], petitioners, vs. HON. JUAN C. TUVERA, in his capacity as Executive Assistant to the President, HON. JOAQUIN VENUS, in his capacity as Deputy Executive Assistant to the President , MELQUIADES P. DE LA CRUZ, in his capacity as Director, Malacaang Records Office, and FLORENDO S. PABLO, in his capacity as Director, Bureau of Printing, respondents. ESCOLIN, J.: Invoking the people's right to be informed on matters of public concern, a right recognized in Section 6, Article IV of the 1973 Philippine Constitution, 1 as well as the principle that laws to be valid and enforceable must be published in the Official Gazette or otherwise effectively

promulgated, petitioners seek a writ of mandamus to compel respondent public officials to publish, and/or cause the publication in the Official Gazette of various presidential decrees, letters of instructions, general orders, proclamations, executive orders, letter of implementation and administrative orders. Specifically, the publication of the following presidential issuances is sought: a] Presidential Decrees Nos. 12, 22, 37, 38, 59, 64, 103, 171, 179, 184, 197, 200, 234, 265, 286, 298, 303, 312, 324, 325, 326, 337, 355, 358, 359, 360, 361, 368, 404, 406, 415, 427, 429, 445, 447, 473, 486, 491, 503, 504, 521, 528, 551, 566, 573, 574, 594, 599, 644, 658, 661, 718, 731, 733, 793, 800, 802, 835, 836, 923, 935, 961, 1017-1030, 1050, 1060-1061, 1085, 1143, 1165, 1166, 1242, 1246, 1250, 1278, 1279, 1300, 1644, 1772, 1808, 1810, 1813-1817, 1819-1826, 18291840, 1842-1847. b] Letter of Instructions Nos.: 10, 39, 49, 72, 107, 108, 116, 130, 136, 141, 150, 153, 155, 161, 173, 180, 187, 188, 192, 193, 199, 202, 204, 205, 209, 211-213, 215-224, 226-228, 231-239, 241-245, 248, 251, 253-261, 263-269, 271-273, 275283, 285-289, 291, 293, 297-299, 301-303, 309, 312-315, 325, 327, 343, 346, 349, 357, 358, 362, 367, 370, 382, 385, 386, 396-397, 405, 438-440, 444- 445, 473, 486, 488, 498, 501, 399, 527, 561, 576, 587, 594, 599, 600, 602, 609, 610, 611, 612, 615, 641, 642, 665, 702, 712-713, 726, 837-839, 878-879, 881, 882, 939-940, 964,997,1149-1178,1180-1278. c] General Orders Nos.: 14, 52, 58, 59, 60, 62, 63, 64 & 65. d] Proclamation Nos.: 1126, 1144, 1147, 1151, 1196, 1270, 1281, 1319-1526, 1529, 1532, 1535, 1538, 1540-1547, 1550-1558, 1561-1588, 1590-1595, 15941600, 1606-1609, 1612-1628, 1630-1649, 1694-1695, 1697-1701, 1705-1723, 1731-1734, 1737-1742, 1744, 1746-1751, 1752, 1754, 1762, 1764-1787, 17891795, 1797, 1800, 1802-1804, 1806-1807, 1812-1814, 1816, 1825-1826, 1829, 1831-1832, 1835-1836, 1839-1840, 1843-1844, 1846-1847, 1849, 1853-1858, 1860, 1866, 1868, 1870, 1876-1889, 1892, 1900, 1918, 1923, 1933, 1952, 1963, 1965-1966, 1968-1984, 1986-2028, 2030-2044, 2046-2145, 2147-2161, 21632244. e] Executive Orders Nos.: 411, 413, 414, 427, 429-454, 457- 471, 474-492, 494507, 509-510, 522, 524-528, 531-532, 536, 538, 543-544, 549, 551-553, 560, 563, 567-568, 570, 574, 593, 594, 598-604, 609, 611- 647, 649-677, 679-703, 705707, 712-786, 788-852, 854-857. f] Letters of Implementation Nos.: 7, 8, 9, 10, 11-22, 25-27, 39, 50, 51, 59, 76, 8081, 92, 94, 95, 107, 120, 122, 123. g] Administrative Orders Nos.: 347, 348, 352-354, 360- 378, 380-433, 436-439. The respondents, through the Solicitor General, would have this case dismissed outright on the ground that petitioners have no legal personality or standing to bring the instant petition. The view is submitted that in the absence of any showing that petitioners are personally and directly affected or prejudiced by the alleged non-publication of the presidential issuances in question 2 said petitioners are without the requisite legal personality to institute this mandamus proceeding, they are not being "aggrieved parties" within the meaning of Section 3, Rule 65 of the Rules of Court, which we quote:

SEC. 3. Petition for Mandamus.When any tribunal, corporation, board or person unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust, or station, or unlawfully excludes another from the use a rd enjoyment of a right or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in the ordinary course of law, the person aggrieved thereby may file a verified petition in the proper court alleging the facts with certainty and praying that judgment be rendered commanding the defendant, immediately or at some other specified time, to do the act required to be done to Protect the rights of the petitioner, and to pay the damages sustained by the petitioner by reason of the wrongful acts of the defendant. Upon the other hand, petitioners maintain that since the subject of the petition concerns a public right and its object is to compel the performance of a public duty, they need not show any specific interest for their petition to be given due course. The issue posed is not one of first impression. As early as the 1910 case of Severino vs. Governor General, 3 this Court held that while the general rule is that "a writ of mandamus would be granted to a private individual only in those cases where he has some private or particular interest to be subserved, or some particular right to be protected, independent of that which he holds with the public at large," and "it is for the public officers exclusively to apply for the writ when public rights are to be subserved [Mithchell vs. Boardmen, 79 M.e., 469]," nevertheless, "when the question is one of public right and the object of the mandamus is to procure the enforcement of a public duty, the people are regarded as the real party in interest and the relator at whose instigation the proceedings are instituted need not show that he has any legal or special interest in the result, it being sufficient to show that he is a citizen and as such interested in the execution of the laws [High, Extraordinary Legal Remedies, 3rd ed., sec. 431]. Thus, in said case, this Court recognized the relator Lope Severino, a private individual, as a proper party to the mandamus proceedings brought to compel the Governor General to call a special election for the position of municipal president in the town of Silay, Negros Occidental. Speaking for this Court, Mr. Justice Grant T. Trent said: We are therefore of the opinion that the weight of authority supports the proposition that the relator is a proper party to proceedings of this character when a public right is sought to be enforced. If the general rule in America were otherwise, we think that it would not be applicable to the case at bar for the reason 'that it is always dangerous to apply a general rule to a particular case without keeping in mind the reason for the rule, because, if under the particular circumstances the reason for the rule does not exist, the rule itself is not applicable and reliance upon the rule may well lead to error' No reason exists in the case at bar for applying the general rule insisted upon by counsel for the respondent. The circumstances which surround this case are different from those in the United States, inasmuch as if the relator is not a proper party to these proceedings no other person could be, as we have seen that it is not the duty of the law officer of the Government to appear and represent the people in cases of this character.

The reasons given by the Court in recognizing a private citizen's legal personality in the aforementioned case apply squarely to the present petition. Clearly, the right sought to be enforced by petitioners herein is a public right recognized by no less than the fundamental law of the land. If petitioners were not allowed to institute this proceeding, it would indeed be difficult to conceive of any other person to initiate the same, considering that the Solicitor General, the government officer generally empowered to represent the people, has entered his appearance for respondents in this case. Respondents further contend that publication in the Official Gazette is not a sine qua non requirement for the effectivity of laws where the laws themselves provide for their own effectivity dates. It is thus submitted that since the presidential issuances in question contain special provisions as to the date they are to take effect, publication in the Official Gazette is not indispensable for their effectivity. The point stressed is anchored on Article 2 of the Civil Code: Art. 2. Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided, ... The interpretation given by respondent is in accord with this Court's construction of said article. In a long line of decisions, 4 this Court has ruled that publication in the Official Gazette is necessary in those cases where the legislation itself does not provide for its effectivity date-for then the date of publication is material for determining its date of effectivity, which is the fifteenth day following its publication-but not when the law itself provides for the date when it goes into effect. Respondents' argument, however, is logically correct only insofar as it equates the effectivity of laws with the fact of publication. Considered in the light of other statutes applicable to the issue at hand, the conclusion is easily reached that said Article 2 does not preclude the requirement of publication in the Official Gazette, even if the law itself provides for the date of its effectivity. Thus, Section 1 of Commonwealth Act 638 provides as follows: Section 1. There shall be published in the Official Gazette [1] all important legisiative acts and resolutions of a public nature of the, Congress of the Philippines; [2] all executive and administrative orders and proclamations, except such as have no general applicability; [3] decisions or abstracts of decisions of the Supreme Court and the Court of Appeals as may be deemed by said courts of sufficient importance to be so published; [4] such documents or classes of documents as may be required so to be published by law; and [5] such documents or classes of documents as the President of the Philippines shall determine from time to time to have general applicability and legal effect, or which he may authorize so to be published. ... The clear object of the above-quoted provision is to give the general public adequate notice of the various laws which are to regulate their actions and conduct as citizens. Without such notice and publication, there would be no basis for the application of the maxim "ignorantia legis non excusat." It would be the height of injustice to punish or otherwise burden a citizen for the transgression of a law of which he had no notice whatsoever, not even a constructive one.

Perhaps at no time since the establishment of the Philippine Republic has the publication of laws taken so vital significance that at this time when the people have bestowed upon the President a power heretofore enjoyed solely by the legislature. While the people are kept abreast by the mass media of the debates and deliberations in the Batasan Pambansaand for the diligent ones, ready access to the legislative recordsno such publicity accompanies the law-making process of the President. Thus, without publication, the people have no means of knowing what presidential decrees have actually been promulgated, much less a definite way of informing themselves of the specific contents and texts of such decrees. As the Supreme Court of Spain ruled: "Bajo la denominacion generica de leyes, se comprenden tambien los reglamentos, Reales decretos, Instrucciones, Circulares y Reales ordines dictadas de conformidad con las mismas por el Gobierno en uso de su potestad. 5 The very first clause of Section I of Commonwealth Act 638 reads: "There shall be published in the Official Gazette ... ." The word "shall" used therein imposes upon respondent officials an imperative duty. That duty must be enforced if the Constitutional right of the people to be informed on matters of public concern is to be given substance and reality. The law itself makes a list of what should be published in the Official Gazette. Such listing, to our mind, leaves respondents with no discretion whatsoever as to what must be included or excluded from such publication. The publication of all presidential issuances "of a public nature" or "of general applicability" is mandated by law. Obviously, presidential decrees that provide for fines, forfeitures or penalties for their violation or otherwise impose a burden or. the people, such as tax and revenue measures, fall within this category. Other presidential issuances which apply only to particular persons or class of persons such as administrative and executive orders need not be published on the assumption that they have been circularized to all concerned. 6 It is needless to add that the publication of presidential issuances "of a public nature" or "of general applicability" is a requirement of due process. It is a rule of law that before a person may be bound by law, he must first be officially and specifically informed of its contents. As Justice Claudio Teehankee said in Peralta vs. COMELEC 7: In a time of proliferating decrees, orders and letters of instructions which all form part of the law of the land, the requirement of due process and the Rule of Law demand that the Official Gazette as the official government repository promulgate and publish the texts of all such decrees, orders and instructions so that the people may know where to obtain their official and specific contents. The Court therefore declares that presidential issuances of general application, which have not been published, shall have no force and effect. Some members of the Court, quite apprehensive about the possible unsettling effect this decision might have on acts done in reliance of the validity of those presidential decrees which were published only during the pendency of this petition, have put the question as to whether the Court's declaration of invalidity apply to P.D.s which had been enforced or implemented prior to their publication. The answer is all too familiar. In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County Drainage District vs. Baxter Bank 8 to wit: The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the

challenged decree. Norton v. Shelby County, 118 U.S. 425, 442; Chicago, 1. & L. Ry. Co. v. Hackett, 228 U.S. 559, 566. It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to such a determination, is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects-with respect to particular conduct, private and official. Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and acted upon accordingly, of public policy in the light of the nature both of the statute and of its previous application, demand examination. These questions are among the most difficult of those which have engaged the attention of courts, state and federal and it is manifest from numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified. Consistently with the above principle, this Court in Rutter vs. Esteban 9 sustained the right of a party under the Moratorium Law, albeit said right had accrued in his favor before said law was declared unconstitutional by this Court. Similarly, the implementation/enforcement of presidential decrees prior to their publication in the Official Gazette is "an operative fact which may have consequences which cannot be justly ignored. The past cannot always be erased by a new judicial declaration ... that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified." From the report submitted to the Court by the Clerk of Court, it appears that of the presidential decrees sought by petitioners to be published in the Official Gazette, only Presidential Decrees Nos. 1019 to 1030, inclusive, 1278, and 1937 to 1939, inclusive, have not been so published. 10 Neither the subject matters nor the texts of these PDs can be ascertained since no copies thereof are available. But whatever their subject matter may be, it is undisputed that none of these unpublished PDs has ever been implemented or enforced by the government. In Pesigan vs. Angeles,11 the Court, through Justice Ramon Aquino, ruled that "publication is necessary to apprise the public of the contents of [penal] regulations and make the said penalties binding on the persons affected thereby. " The cogency of this holding is apparently recognized by respondent officials considering the manifestation in their comment that "the government, as a matter of policy, refrains from prosecuting violations of criminal laws until the same shall have been published in the Official Gazette or in some other publication, even though some criminal laws provide that they shall take effect immediately. WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished presidential issuances which are of general application, and unless so published, they shall have no binding force and effect. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila

EN BANC G.R. No. L-69870 November 29, 1988

NATIONAL SERVICE CORPORATION (NASECO) AND ARTURO L. PEREZ, petitioners, vs. THE HONORABLE THIRD DIVISION, NATIONAL LABOR RELATIONS COMMISSION, MINISTRY OF LABOR AND EMPLOYMENT, MANILA AND EUGENIA C. CREDO, respondents. G.R. No. 70295 November 29,1988

EUGENIA C. CREDO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, NATIONAL SERVICES CORPORATION AND ARTURO L. PEREZ, respondents. The Chief Legal Counsel for respondents NASECO and Arturo L. Perez. Melchor R. Flores for petitioner Eugenia C. Credo.

PADILLA, J.: Consolidated special civil actions for certiorari seeking to review the decision * of the Third Division, National Labor Relations Commission in Case No. 11-4944-83 dated 28 November 1984 and its resolution dated 16 January 1985 denying motions for reconsideration of said decision. Eugenia C. Credo was an employee of the National Service Corporation (NASECO), a domestic corporation which provides security guards as well as messengerial, janitorial and other similar manpower services to the Philippine National Bank (PNB) and its agencies. She was first employed with NASECO as a lady guard on 18 July 1975. Through the years, she was promoted to Clerk Typist, then Personnel Clerk until she became Chief of Property and Records, on 10 March 1980. 1 Sometime before 7 November 1983, Credo was administratively charged by Sisinio S. Lloren, Manager of Finance and Special Project and Evaluation Department of NASECO, stemming from her non-compliance with Lloren's memorandum, dated 11 October 1983, regarding certain entry procedures in the company's Statement of Billings Adjustment. Said charges alleged that Credo "did not comply with Lloren's instructions to place some corrections/additional remarks in the Statement of Billings Adjustment; and when [Credo] was called by Lloren to his office to explain further the said instructions, [Credo] showed resentment and behaved in a scandalous manner by shouting and uttering remarks of disrespect in the presence of her co-employees." 2

On 7 November 1983, Credo was called to meet Arturo L. Perez, then Acting General Manager of NASECO, to explain her side before Perez and NASECO's Committee on Personnel Affairs in connection with the administrative charges filed against her. After said meeting, on the same date, Credo was placed on "Forced Leave" status for 1 5 days, effective 8 November 1983. 3 Before the expiration of said 15-day leave, or on 18 November 1983, Credo filed a complaint, docketed as Case No. 114944-83, with the Arbitration Branch, National Capital Region, Ministry of Labor and Employment, Manila, against NASECO for placing her on forced leave, without due process. 4 Likewise, while Credo was on forced leave, or on 22 November 1983, NASECO's Committee on Personnel Affairs deliberated and evaluated a number of past acts of misconduct or infractions attributed to her. 5 As a result of this deliberation, said committee resolved: 1. viz: That, respondent [Credo] committed the following offenses in the Code of Discipline,

OFFENSE vs. Company Interest & Policies No. 3 Any discourteous act to customer, officer and employee of client company or officer of the Corporation. OFFENSE vs. Public Moral No. 7 Exhibit marked discourtesy in the course of official duties or use of profane or insulting language to any superior officer. OFFENSE vs. Authority No. 3 Failure to comply with any lawful order or any instructions of a superior officer. 2. That, Management has already given due consideration to respondent's [Credo] scandalous actuations for several times in the past. Records also show that she was reprimanded for some offense and did not question it. Management at this juncture, has already met its maximum tolerance point so it has decided to put an end to respondent's [Credo] being an undesirable employee. 6 The committee recommended Credo's termination, with forfeiture of benefits. 7 On 1 December 1983, Credo was called age to the office of Perez to be informed that she was being charged with certain offenses. Notably, these offenses were those which NASECO's Committee on Personnel Affairs already resolved, on 22 November 1983 to have been committed by Credo. In Perez's office, and in the presence of NASECO's Committee on Personnel Affairs, Credo was made to explain her side in connection with the charges filed against her; however, due to her

failure to do so, 8 she was handed a Notice of Termination, dated 24 November 1983, and made effective 1 December 1983. 9 Hence, on 6 December 1983, Credo filed a supplemental complaint for illegal dismissal in Case No. 11-4944-83, alleging absence of just or authorized cause for her dismissal and lack of opportunity to be heard. 10 After both parties had submitted their respective position papers, affidavits and other documentary evidence in support of their claims and defenses, on 9 May 1984, the labor arbiter rendered a decision: 1) dismissing Credo's complaint, and 2) directing NASECO to pay Credo separation pay equivalent to one half month's pay for every year of service. 11 Both parties appealed to respondent National Labor Relations Commission (NLRC) which, on 28 November 1984, rendered a decision: 1) directing NASECO to reinstate Credo to her former position, or substantially equivalent position, with six (6) months' backwages and without loss of seniority rights and other privileges appertaining thereto, and 2) dismissing Credo's claim for attorney's fees, moral and exemplary damages. As a consequence, both parties filed their respective motions for reconsideration, 12 which the NLRC denied in a resolution of 16 January 1985. 13 Hence, the present recourse by both parties. In G.R. No. 68970, petitioners challenge as grave abuse of discretion the dispositive portion of the 28 November 1984 decision which ordered Credo's reinstatement with backwages. 14Petitioners contend that in arriving at said questioned order, the NLRC acted with grave abuse of discretion in finding that: 1) petitioners violated the requirements mandated by law on termination, 2) petitioners failed in the burden of proving that the termination of Credo was for a valid or authorized cause, 3) the alleged infractions committed by Credo were not proven or, even if proved, could be considered to have been condoned by petitioners, and 4) the termination of Credo was not for a valid or authorized cause. 15 On the other hand, in G.R. No. 70295, petitioner Credo challenges as grave abuse of discretion the dispositive portion of the 28 November 1984 decision which dismissed her claim for attorney's fees, moral and exemplary damages and limited her right to backwages to only six (6) months. 16 As guidelines for employers in the exercise of their power to dismiss employees for just causes, the law provides that: Section 2. Notice of dismissal. Any employer who seeks to dismiss a worker shall furnish him a written notice stating the particular acts or omission constituting the grounds for his dismissal. xxx xxx xxx

Section 5. Answer and Hearing. The worker may answer the allegations stated against him in the notice of dismissal within a reasonable period from receipt of such notice. The employer shall afford the worker ample opportunity to be heard and to defend himself with the assistance of his representative, if he so desires.

Section 6. Decision to dismiss. The employer shall immediately notify a worker in writing of a decision to dismiss him stating clearly the reasons therefor. 17 These guidelines mandate that the employer furnish an employee sought to be dismissed two (2) written notices of dismissal before a termination of employment can be legally effected. These are the notice which apprises the employee of the particular acts or omissions for which his dismissal is sought and the subsequent notice which informs the employee of the employer's decision to dismiss him. Likewise, a reading of the guidelines in consonance with the express provisions of law on protection to labor 18(which encompasses the right to security of tenure) and the broader dictates of procedural due process necessarily mandate that notice of the employer's decision to dismiss an employee, with reasons therefor, can only be issued after the employer has afforded the employee concerned ample opportunity to be heard and to defend himself. In the case at bar, NASECO did not comply with these guidelines in effecting Credo's dismissal. Although she was apprised and "given the chance to explain her side" of the charges filed against her, this chance was given so perfunctorily, thus rendering illusory Credo's right to security of tenure. That Credo was not given ample opportunity to be heard and to defend herself is evident from the fact that the compliance with the injunction to apprise her of the charges filed against her and to afford her a chance to prepare for her defense was dispensed in only a day. This is not effective compliance with the legal requirements aforementioned. The fact also that the Notice of Termination of Credo's employment (or the decision to dismiss her) was dated 24 November 1983 and made effective 1 December 1983 shows that NASECO was already bent on terminating her services when she was informed on 1 December 1983 of the charges against her, and that any hearing which NASECO thought of affording her after 24 November 1983 would merely be pro forma or an exercise in futility. Besides, Credo's mere non-compliance with Lorens memorandum regarding the entry procedures in the company's Statement of Billings Adjustment did not warrant the severe penalty of dismissal of the NLRC correctly held that: ... on the charge of gross discourtesy, the CPA found in its Report, dated 22 November 1983 that, "In the process of her testimony/explanations she again exhibited a conduct unbecoming in front of NASECO Officers and argued to Mr. S. S. Lloren in a sarcastic and discourteous manner, notwithstanding, the fact that she was inside the office of the Acctg. General Manager." Let it be noted, however, that the Report did not even describe how the so called "conduct unbecoming" or "discourteous manner" was done by complainant. Anent the "sarcastic" argument of complainant, the purported transcript 19 of the meeting held on 7 November 1983 does not indicate any sarcasm on the part of complainant. At the most, complainant may have sounded insistent or emphatic about her work being more complete than the work of Ms. de Castro, yet, the complaining officer signed the work of Ms. de Castro and did not sign hers.

As to the charge of insubordination, it may be conceded, albeit unclear, that complainant failed to place same corrections/additional remarks in the Statement of Billings Adjustments as instructed. However, under the circumstances obtaining, where complainant strongly felt that she was being discriminated against by her superior in relation to other employees, we are of the considered view and so hold, that a reprimand would have sufficed for the infraction, but certainly not termination from services. 20 As this Court has ruled: ... where a penalty less punitive would suffice, whatever missteps may be committed by labor ought not to be visited with a consequence so severe. It is not only because of the law's concern for the working man. There is, in addition, his family to consider. Unemployment brings untold hardships and sorrows on those dependent on the wage-earner. 21 Of course, in justifying Credo's termination of employment, NASECO claims as additional lawful causes for dismissal Credo's previous and repeated acts of insubordination, discourtesy and sarcasm towards her superior officers, alleged to have been committed from 1980 to July 1983. 22 If such acts of misconduct were indeed committed by Credo, they are deemed to have been condoned by NASECO. For instance, sometime in 1980, when Credo allegedly "reacted in a scandalous manner and raised her voice" in a discussion with NASECO's Acting head of the Personnel Administration 23 no disciplinary measure was taken or meted against her. Nor was she even reprimanded when she allegedly talked 'in a shouting or yelling manner" with the Acting Manager of NASECO's Building Maintenance and Services Department in 1980 24 or when she allegedly "shouted" at NASECO's Corporate Auditor "in front of his subordinates displaying arrogance and unruly behavior" in 1980, or when she allegedly shouted at NASECO's Internal Control Consultant in 1981. 25 But then, in sharp contrast to NASECO's penchant for ignoring the aforesaid acts of misconduct, when Credo committed frequent tardiness in August and September 1983, she was reprimanded. 26 Even if the allegations of improper conduct (discourtesy to superiors) were satisfactorily proven, NASECO's condonation thereof is gleaned from the fact that on 4 October 1983, Credo was given a salary adjustment for having performed in the job "at least [satisfactorily]" 27 and she was then rated "Very Satisfactory" 28as regards job performance, particularly in terms of quality of work, quantity of work, dependability, cooperation, resourcefulness and attendance. Considering that the acts or omissions for which Credo's employment was sought to be legally terminated were insufficiently proved, as to justify dismissal, reinstatement is proper. For "absent the reason which gave rise to [the employee's] separation from employment, there is no intention on the part of the employer to dismiss the employee concerned." 29 And, as a result of having been wrongfully dismissed, Credo is entitled to three (3) years of backwages without deduction and qualification. 30 However, while Credo's dismissal was effected without procedural fairness, an award of exemplary damages in her favor can only be justified if her dismissal was effected in a wanton,

fraudulent, oppressive or malevolent manner. 31A judicious examination of the record manifests no such conduct on the part of management. However, in view of the attendant circumstances in the case, i.e., lack of due process in effecting her dismissal, it is reasonable to award her moral damages. And, for having been compelled to litigate because of the unlawful actuations of NASECO, a reasonable award for attorney's fees in her favor is in order. In NASECO's comment 32 in G.R. No. 70295, it is belatedly argued that the NLRC has no jurisdiction to order Credo's reinstatement. NASECO claims that, as a government corporation (by virtue of its being a subsidiary of the National Investment and Development Corporation (NIDC), a subsidiary wholly owned by the Philippine National Bank (PNB), which in turn is a government owned corporation), the terms and conditions of employment of its employees are governed by the Civil Service Law, rules and regulations. In support of this argument, NASECO citesNational Housing Corporation vs. JUCO, 33 where this Court held that "There should no longer be any question at this time that employees of government-owned or controlled corporations are governed by the civil service law and civil service rifles and regulations." It would appear that, in the interest of justice, the holding in said case should not be given retroactive effect, that is, to cases that arose before its promulgation on 17 January 1985. To do otherwise would be oppressive to Credo and other employees similarly situated, because under the same 1973 Constitution ,but prior to the ruling in National Housing Corporation vs. Juco, this Court had recognized the applicability of the Labor Code to, and the authority of the NLRC to exercise jurisdiction over, disputes involving terms and conditions of employment in government owned or controlled corporations, among them, the National Service Corporation (NASECO).<re||an1w> 34 Furthermore, in the matter of coverage by the civil service of government-owned or controlled corporations, the 1987 Constitution starkly varies from the 1973 Constitution, upon which National Housing Corporation vs. Juco is based. Under the 1973 Constitution, it was provided that: The civil service embraces every branch, agency, subdivision, and instrumentality of the Government, including every government-owned or controlled corporation. ... 35 On the other hand, the 1987 Constitution provides that: The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charter. 36 (Emphasis supplied) Thus, the situations sought to be avoided by the 1973 Constitution and expressed by the Court in the National Housing . Corporation case in the following manner The infirmity of the respondents' position lies in its permitting a circumvention or emasculation of Section 1, Article XII-B of the constitution. It would be possible for a regular ministry of government to create a host of subsidiary corporations under the Corporation Code funded by a willing legislature. A government-owned corporation could create several subsidiary

corporations. These subsidiary corporations would enjoy the best of two worlds. Their officials and employees would be privileged individuals, free from the strict accountability required by the Civil Service Decree and the regulations of the Commission on Audit. Their incomes would not be subject to the competitive restrains of the open market nor to the terms and conditions of civil service employment. Conceivably, all government-owned or controlled corporations could be created, no longer by special charters, but through incorporations under the general law. The Constitutional amendment including such corporations in the embrace of the civil service would cease to have application. Certainly, such a situation cannot be allowed to exist. 37 appear relegated to relative insignificance by the 1987 Constitutional provision that the Civil Service embraces government-owned or controlled corporations with original charter; and, therefore, by clear implication, the Civil Service does not include government-owned or controlled corporations which are organized as subsidiaries of government-owned or controlled corporations under the general corporation law. The proceedings in the 1986 Constitutional Commission also shed light on the Constitutional intent and meaning in the use of the phrase "with original charter." Thus THE PRESIDING OFFICER (Mr. Trenas) Commissioner Romulo is recognized. MR. ROMULO. I beg the indulgence of the Committee. I was reading the wrong provision.

I refer to Section 1, subparagraph I which reads: The Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the government, including government-owned or controlled corporations. My query: Is Philippine Airlines covered by this provision? MR. FOZ. Will the Commissioner please state his previous question? MR. ROMULO. The phrase on line 4 of Section 1, subparagraph 1, under the Civil Service Commission, says: "including government-owned or controlled corporations.' Does that include a corporation, like the Philippine Airlines which is government-owned or controlled? MR. FOZ. I would like to throw a question to the Commissioner. Is the Philippine Airlines controlled by the government in the sense that the majority of stocks are owned by the government? MR. ROMULO. It is owned by the GSIS. So, this is what we might call a tertiary corporation. The GSIS is owned by the government. Would this be covered because the provision says "including government-owned or controlled corporations." MR. FOZ. The Philippine Airlines was established as a private corporation. Later on, the government, through the GSIS, acquired the controlling stocks. Is that not the correct situation?

MR. ROMULO. That is true as Commissioner Ople is about to explain. There was apparently a Supreme Court decision that destroyed that distinction between a governmentowned corporation created under the Corporation Law and a government-owned corporation created by its own charter. MR. FOZ. Yes, we recall the Supreme Court decision in the case of NHA vs. Juco to the effect that all government corporations irrespective of the manner of creation, whether by special charter or by the private Corporation Law, are deemed to be covered by the civil service because of the wide-embracing definition made in this section of the existing 1973 Constitution. But we recall the response to the question of Commissioner Ople that our intendment in this provision is just to give a general description of the civil service. We are not here to make any declaration as to whether employees of government-owned or controlled corporations are barred from the operation of laws, such as the Labor Code of the Philippines. MR. ROMULO. Yes.

MR. OPLE. May I be recognized, Mr. Presiding Officer, since my name has been mentioned by both sides. MR. ROMULO. I yield part of my time.

THE PRESIDING OFFICER (Mr.Trenas). Commissioner Ople is recognized. MR. OPLE. In connection with the coverage of the Civil Service Law in Section 1 (1), may I volunteer some information that may be helpful both to the interpellator and to the Committee. Following the proclamation of martial law on September 21, 1972, this issue of the coverage of the Labor Code of the Philippines and of the Civil Service Law almost immediately arose. I am, in particular, referring to the period following the coming into force and effect of the Constitution of 1973, where the Article on the Civil Service was supposed to take immediate force and effect. In the case of LUZTEVECO, there was a strike at the time. This was a government-controlled and government-owned corporation. I think it was owned by the PNOC with just the minuscule private shares left. So, the Secretary of Justice at that time, Secretary Abad Santos, and myself sat down, and the result of that meeting was an opinion of the Secretary of Justice which 9 became binding immediately on the government that government corporations with original charters, such as the GSIS, were covered by the Civil Service Law and corporations spun off from the GSIS, which we called second generation corporations functioning as private subsidiaries, were covered by the Labor Code. Samples of such second generation corporations were the Philippine Airlines, the Manila Hotel and the Hyatt. And that demarcation worked very well. In fact, all of these companies I have mentioned as examples, except for the Manila Hotel, had collective bargaining agreements. In the Philippine Airlines, there were, in fact, three collective bargaining agreements; one, for the ground people or the PALIA one, for the flight attendants or the PASAC and one for the pilots of the ALPAC How then could a corporation like that be covered by the Civil Service law? But, as the Chairman of the Committee pointed out, the Supreme Court decision in the case of NHA vs. Juco unrobed the whole thing. Accordingly, the Philippine Airlines, the Manila Hotel and the

Hyatt are now considered under that decision covered by the Civil Service Law. I also recall that in the emergency meeting of the Cabinet convened for this purpose at the initiative of the Chairman of the Reorganization Commission, Armand Fabella, they agreed to allow the CBA's to lapse before applying the full force and effect of the Supreme Court decision. So, we were in the awkward situation when the new government took over. I can agree with Commissioner Romulo when he said that this is a problem which I am not exactly sure we should address in the deliberations on the Civil Service Law or whether we should be content with what the Chairman said that Section 1 (1) of the Article on the Civil Service is just a general description of the coverage of the Civil Service and no more. Thank you, Mr. Presiding Officer. MR. ROMULO. Mr. Presiding Officer, for the moment, I would be satisfied if the Committee puts on records that it is not their intent by this provision and the phrase "including government-owned or controlled corporations" to cover such companies as the Philippine Airlines. MR. FOZ. Personally, that is my view. As a matter of fact, when this draft was made, my proposal was really to eliminate, to drop from the provision, the phrase "including governmentowned or controlled corporations." MR. ROMULO. Would the Committee indicate that is the intent of this provision?

MR. MONSOD. Mr. Presiding Officer, I do not think the Committee can make such a statement in the face of an absolute exclusion of government-owned or controlled corporations. However, this does not preclude the Civil Service Law to prescribe different rules and procedures, including emoluments for employees of proprietary corporations, taking into consideration the nature of their operations. So, it is a general coverage but it does not preclude a distinction of the rules between the two types of enterprises. MR. FOZ. In other words, it is something that should be left to the legislature to decide. As I said before, this is just a general description and we are not making any declaration whatsoever. MR. MONSOD. Perhaps if Commissioner Romulo would like a definitive understanding of the coverage and the Gentleman wants to exclude government-owned or controlled corporations like Philippine Airlines, then the recourse is to offer an amendment as to the coverage, if the Commissioner does not accept the explanation that there could be a distinction of the rules, including salaries and emoluments. MR. ROMULO. an amendment. xxx xxx xxx Commissioner Romulo is recognized. So as not to delay the proceedings, I will reserve my right to submit such

THE PRESIDING OFFICE (Mr. Trenas)

MR. ROMULO. On page 2, line 5, I suggest the following amendment after "corporations": Add a comma (,) and the phrase EXCEPT THOSE EXERCISING PROPRIETARY FUNCTIONS. THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say? SUSPENSION OF SESSION MR. MONSOD. May we have a suspension of the session?

THE PRESIDING OFFICER (Mr. Trenas). The session is suspended. It was 7:16 p.m. RESUMPTION OF SESSION At 7:21 p.m., the session was resumed. THE PRESIDING OFFICER (Mr. Trenas). The session is resumed. Commissioner Romulo is recognized. MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: "including government-owned or controlled corporations WITH ORIGINAL CHARTERS." The purpose of this amendment is to indicate that government corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service. However, corporations which are subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service. THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say? MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what exactly do we mean? MR. ROMULO. special law. MR. FOZ. We mean that they were created by law, by an act of Congress, or by

And not under the general corporation law. That is correct. Mr. Presiding Officer.

MR. ROMULO. MR. FOZ.

With that understanding and clarification, the Committee accepts the amendment. Mr. Presiding officer, so those created by the general corporation law are

MR. NATIVIDAD. out.

MR. ROMULO.

That is correct: 38

On the premise that it is the 1987 Constitution that governs the instant case because it is the Constitution in place at the time of decision thereof, the NLRC has jurisdiction to accord relief to the parties. As an admitted subsidiary of the NIDC, in turn a subsidiary of the PNB, the NASECO is a government-owned or controlled corporation without original charter. Dr. Jorge Bocobo, in his Cult of Legalism, cited by Mr. Justice Perfecto in his concurring opinion in Gomez vs. Government Insurance Board (L-602, March 31, 1947, 44 O.G. No. 8, pp. 2687, 2694; also published in 78 Phil. 221) on the effectivity of the principle of social justice embodied in the 1935 Constitution, said: Certainly, this principle of social justice in our Constitution as generously conceived and so tersely phrased, was not included in the fundamental law as a mere popular gesture. It was meant to (be) a vital, articulate, compelling principle of public policy. It should be observed in the interpretation not only of future legislation, but also of all laws already existing on November 15, 1935. It was intended to change the spirit of our laws, present and future. Thus, all the laws which on the great historic event when the Commonwealth of the Philippines was born, were susceptible of two interpretations strict or liberal, against or in favor of social justice, now have to be construed broadly in order to promote and achieve social justice. This may seem novel to our friends, the advocates of legalism but it is the only way to give life and significance to the above-quoted principle of the Constitution. If it was not designed to apply to these existing laws, then it would be necessary to wait for generations until all our codes and all our statutes shall have been completely charred by removing every provision inimical to social justice, before the policy of social justice can become really effective. That would be an absurd conclusion. It is more reasonable to hold that this constitutional principle applies to all legislation in force on November 15, 1935, and all laws thereafter passed. WHEREFORE, in view of the foregoing, the challenged decision of the NLRC is AFFIRMED with modifications. Petitioners in G.R. No. 69870, who are the private respondents in G.R. No. 70295, are ordered to: 1) reinstate Eugenia C. Credo to her former position at the time of her termination, or if such reinstatement is not possible, to place her in a substantially equivalent position, with three (3) years backwages, from 1 December 1983, without qualification or deduction, and without loss of seniority rights and other privileges appertaining thereto, and 2) pay Eugenia C. Credo P5,000.00 for moral damages and P5,000.00 for attorney's fees. If reinstatement in any event is no longer possible because of supervening events, petitioners in G.R. No. 69870, who are the private respondents in G.R. No. 70295 are ordered to pay Eugenia C. Credo, in addition to her backwages and damages as above described, separation pay equivalent to one-half month's salary for every year of service, to be computed on her monthly salary at the time of her termination on 1 December 1983. SO ORDERED.

Fernan, C.J., Melencio-Herrera, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes, GrioAquino, Medialdea and Regalado, JJ., concur. Narvasa, J., is on leave. Gutierrez, Jr., J., in the result.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-49677 May 4, 1989

TRADE UNIONS OF THE PHILIPPINES AND ALLIED SERVICES, petitioner, vs. NATIONAL HOUSING CORPORATION and ATTY. VIRGILIO SY, as Officer-in-Charge of the Bureau of Labor Relations, respondents. Bonifacio V. Tupaz for petitioner. The Government Corporate Counsel for respondent NHC. Raul E. Espinosa for intervenor PACIWU.

REGALADO, J.: The employees of the public sector comprise the largest bloc of workers in our national work force. Governmental bureaucracy is continually being reorganized to cope with the growing complexity of the problems and needs of political and administrative governance. As the increase in the number of government employees grows space, the need to enhance their welfare correspondingly becomes more imperative. While it may be assumed that the Government is exerting efforts to advance the interests of its employees, it is quite understandable that the employees themselves should actively seek arrangements where by they can participate more meaningfully in management and employment relationships. There is, thus, a proliferation of unions or employees' organizations, each seeking concomitant representational recognition. The antecedent facts which led to the filing of this special civil action for certiorari are clear and undisputed. The juridical status and relevant circumstances of respondent corporation have been established in a case of illegal dismissal filed against it, as previously decided by the Court and hereinafter discussed. However, submitted this time for Our resolution is a controversy on the

propriety of and requirements for certification elections in government-owned or controlled corporations like the respondent. Respondent National Housing Corporation (hereinafter referred to as NHC) is a corporation organized in 1959 in accordance with Executive Order No. 399, otherwise known as the Uniform Charter of Government Corporations, dated January 1, 1951. Its shares of stock are and have been one hundred percent (100%) owned by the Government from its incorporation under Act 459, the former corporation law. The government entities that own its shares of stock are the Government Service Insurance System, the Social Security System, the Development Bank of the Philippines, the National Investment and Development Corporation and the People's Homesite and Housing Corporation. 1 Petitioner Trade Unions of the Philippines and Allied Services (TUPAS, for brevity) is a legitimate labor organization with a chapter in NHC. On July 13, 1977, TUPAS filed a petition for the conduct of a certification election with Regional Office No. IV of the Department of Labor in order to determine the exclusive bargaining representative of the workers in NHC. It was claimed that its members comprised the majority of the employees of the corporation. 2 The petition was dismissed by med-arbiter Eusebio M. Jimenez in an order, dated November 7, 1977, holding that NHC "being a government-owned and/or controlled corporation its employees/workers are prohibited to form, join or assist any labor organization for purposes of collective bargaining pursuant to Section 1, Rule II, Book V of the Rules and Regulations Implementing the Labor Code." 3 From this order of dismissal, TUPAS appealed to the Bureau of Labor Relations 4 where, acting thereon in BLR Case No. A-984-77 (RO4-MED-1090-77), Director Carmelo C. Noriel reversed the order of dismissal and ordered the holding of a certification election. 5 This order was, however, set aside by Officer-in-Charge Virgilio S.J. Sy in his resolution of November 21, 1978 6 upon a motion for reconsideration of respondent NHC. In the instant petition for certiorari, TUPAS seeks the reversal of the said resolution and prays that a certification election be held among the rank and file employees of NHC. In retrospect, it will be recalled that in a former case of illegal dismissal involving the same respondent corporation, 7We had ruled that the employees of NHC and of other government owned or controlled corporations were governed by civil service laws, rules and regulations pursuant to the 1973 Constitution which provided that "the civil service embraces every branch, agency, subdivision and instrumentality of the government, including government-owned or controlled corporations." 8 It was therein stressed that to allow subsidiary corporations to be excluded from the civil service laws would be to permit the circumvention or emasculation of the above-quoted constitutional provision. As perceptively analyzed therein, "(i)t would be possible for a regular ministry of government to create a host of subsidiary corporations under the Corporation Code funded by a willing legislature. A government-owned corporation could create several subsidiary corporations. These subsidiary corporation rations would enjoy the best of two worlds. Their officials and employees would be privileged individuals, free from the strict accountability required by the Civil Service Decree and the regulations of the Commission on Audit. Their

incomes would not be subject to the competitive restraints of the open market nor to the terms and conditions of civil service employment." The rule, however, was modified in the 1987 Constitution, the corresponding provision whereof declares that "(t)he civil service embraces all branches, subdivisions, instrumentalities and agencies of the government, including government-owned or controlled corporations with original charters." 9 Consequently, the civil service now covers only government owned or controlled corporations with original or legislative charters, that is those created by an act of Congress or by special law, and not those incorporated under and pursuant to a general legislation. As We recently held ..., the situations sought to be avoided by the 1973 Constitution and expressed by this Court in the National Housing Corporation case ... appear relegated to relative insignificance by the 1987 Constitutional provision that the Civil Service embraces government-owned controlled corporations with original charters and therefore, by clear implication, the Civil Service does not include government-owned or controlled corporations which are organized as subsidiaries of government-owned or controlled corporations under the general corporation law.10 While the aforecited cases sought different reliefs, that is, reinstatement consequent to illegal dismissal, the same lis mota determinative of the present special civil action was involved therein. The workers or employees of NHC undoubtedly have the right to form unions or employees' organizations. The right to unionize or to form organizations is now explicitly recognized and granted to employees in both the governmental and the private sectors. The Bill of Rights provides that "(t)he right of the people, including those employed in the public and private sectors, to form unions, associations or societies for purposes not contrary to law shall not be abridged" 11 This guarantee is reiterated in the second paragraph of Section 3, Article XIII, on Social Justice and Human Rights, which mandates that the State "shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law ...." Specifically with respect to government employees, the right to unionize is recognized in Paragraph (5), Section 2, Article IX B 12 which provides that "(t)he right to self-organization shall not be denied to government employees." The rationale of and justification for this innovation which found expression in the aforesaid provision was explained by its proponents as follows: ... The government is in a sense the repository of the national sovereignty and, in that respect, it must be held in reverence if not in awe. It symbolizes the unity of the nation, but it does perform a mundane task as well. It is an employer in every sense of the word except that terms and conditions of work are set forth through a Civil Service Commission. The government is the biggest employer in the Philippines. There is an employer-employee relationship and we all

know that the accumulated grievances of several decades are now beginning to explode in our faces among government workers who feel that the rights afforded by the Labor Code, for example, to workers in the private sector have been effectively denied to workers in government in what looks like a grotesque, (sic) a caricature of the equal protection of the laws. For example, ... there were many occasions under the old government when wages and cost of living allowances were granted to workers in the private sector but denied to workers in the government for some reason or another, and the government did not even state the reasons why. The government employees were being discriminated against. As a general rule, the majority of the world's countries now entertain public service unions. What they really add up to is that the employees of the government form their own association. Generally, they do not bargain for wages because these are fixed in the budget but they do acquire a forum where, among other things, professional and self-development is (sic) promoted and encouraged. They also act as watchdogs of their own bosses so that when graft and corruption is committed, generally, it is the unions who are no longer afraid by virtue of the armor of self-organization that become the public's own allies for detecting graft and corruption and for exposing it.... 13 There is, therefore, no impediment to the holding of a certification election among the workers of NHC for it is clear that they are covered by the Labor Code, the NHC being a governmentowned and/or controlled corporation without an original charter. Statutory implementation of the last cited section of the Constitution is found in Article 244 of the Labor Code, as amended by Executive Order No. 111, thus: ... Right of employees in the public service Employees of the government corporations established under the Corporation Code shall have the right to organize and to bargain collectively with their respective employers. All other employees in the civil service shall have the right to form associations for purposes not contrary to law. The records do not show that supervening factual events have mooted the present action. It is meet, however, to also call attention to the fact that, insofar as certification elections are concerned, subsequent statutory developments have rendered academic even the distinction between the two types of government-owned or controlled corporations and the laws governing employment relations therein, as hereinbefore discussed. For, whether the employees of NHC are covered by the Labor Code or by the civil service laws, a certification election may be conducted. For employees in corporations and entities covered by the Labor Code, the determination of the exclusive bargaining representative is particularly governed by Articles 255 to 259 of said Code. Article 256 provides for the procedure when there is a representation issue in organized establishments, while Article 257 covers unorganized establishments. These Labor Code provisions are fleshed out by Rules V to VII, Book V of the Omnibus Implementing Rules. With respect to other civil servants, that is, employees of all branches, subdivisions, instrumentalities and agencies of the government including government-owned or controlled corporations with original charters and who are, therefore, covered by the civil service laws, the guidelines for the exercise of their right to organize is provided for under Executive Order No. 180. Chapter IV thereof, consisting of Sections 9 to 12, regulates the determination of the "sole

and exclusive employees representative"; Under Section 12, "where there are two or more duly registered employees' organizations in the appropriate organization unit, the Bureau of Labor Relations shall, upon petition order the conduct of certification election and shall certify the winner as the exclusive representative of the rank-and-file employees in said organizational unit." Parenthetically, note should be taken of the specific qualification in the Constitution that the State "shall guarantee the rights of all workers to self-organization, collective bargaining, and peaceful concerted activities, including the right to strike in accordance with law" and that they shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law." 14 (Emphasis supplied.) ON THE FOREGOING CONSIDERATIONS, the assailed resolution of the Bureau of Labor Relations, dated November 21, 1978, is ANNULLED and SET ASIDE and the conduct of a certification election among the affected employees of respondent National Housing Corporation in accordance with the rules therefor is hereby GRANTED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 98107

August 18, 1997

BENJAMIN C. JUCO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and NATIONAL HOUSING CORPORATION, respondents.

HERMOSISIMA, JR., J.: This is a petition for certiorari to set aside the Decision of the National Labor Relations Commission (NLRC) dated March 14, 1991, which reversed the Decision dated May 21, 1990 of Labor Arbiter Manuel R Caday, on the ground of lack of jurisdiction. Petitioner Benjamin C. Juco was hired as a project engineer of respondent National Housing Corporation (NHC) from November 16, 1970 to May 14, 1975. On May 14, 1975, he was

separated from the service for having been implicated in a crime of theft and/or malversation of public funds. On March 25, 1977, petitioner filed a complaint for illegal dismissal against the NHC with the Department of Labor. On September 17, 1977, the Labor Arbiter rendered a decision dismissing the complaint on the ground that the NLRC had no jurisdiction over the case. 1 Petitioner then elevated the case to the NLRC which rendered a decision on December 28, 1982, reversing the decision of the Labor Arbiter. 2 Dissatisfied with the decision of the NLRC, respondent NHC appealed before this Court and on January 17, 1985, we rendered a decision, the dispositive portion thereof reads as follows: WHEREFORE, the petition is hereby GRANTED. The questioned decision of the respondent National Labor Relations Commission is SET ASIDE. The decision of the Labor Arbiter dismissing the case before it for lack of jurisdiction is REINSTATED. 3 On January 6, 1989, petitioner filed with the Civil Service Commission a complaint for illegal dismissal, with preliminary mandatory injunction. 4 On February 6, 1989, respondent NHC moved for the dismissal of the complaint on the ground that the Civil Service Commission has no jurisdiction over the case. 5 On April 11, 1989, the Civil Service Commission issued an order dismissing the complaint for lack of jurisdiction. It ratiocinated that: The Board finds the comment and/or motion to dismiss meritorious. It was not disputed that NHC is a government corporation without an original charter but organized/created under the Corporation Code. Article IX, Section 2 (1) of the 1987 Constitution provides: The civil service embraces all branches, subdivisions, instrumentalities and agencies of the Government, including government owned and controlled corporations with original charters. (emphasis supplied) From the aforequoted constitutional provision, it is clear that respondent NHC is not within the scope of the civil service and is therefore beyond the jurisdiction of this Board. Moreover, it is pertinent to state that the 1987 Constitution was ratified and became effective on February 2, 1987. WHEREFORE, for lack of jurisdiction, the instant complaint is hereby dismissed. 6

On April 28, 1989, petitioner filed with respondent NLRC a complaint for illegal dismissal with preliminary mandatory injunction against respondent NHC. 7 On May 21, 1990, respondent NLRC thru Labor Arbiter Manuel R. Caday ruled that petitioner was illegally dismissed from his employment by respondent as there was evidence in the record that the criminal case against him was purely fabricated, prompting the trial court to dismiss the charges against him. Hence, he concluded that the dismissal was illegal as it was devoid of basis, legal or factual. He further ruled that the complaint is not barred by prescription considering that the period from which to reckon the reglementary period of four years should be from the date of the receipt of the decision of the Civil Service Commission promulgated on April 11, 1989. He also ratiocinated that: It appears . . . complainant filed the complaint for illegal dismissal with the Civil Service Commission on January 6, 1989 and the same was dismissed on April 11, 1989 after which on April 28, 1989, this case was filed by the complainant. Prior to that, this case was ruled upon by the Supreme Court on January 17, 1985 which enjoined the complainant to go to the Civil Service Commission which in fact, complainant did. Under the circumstances, there is merit on the contention that the running of the reglementary period of four (4) years was suspended with the filing of the complaint with the said Commission. Verily, it was not the fault of the respondent for failing to file the complaint as alleged by the respondent but due to, in the words of the complainant, a "legal knot" that has to be untangled. 8 Thereafter, the Labor Arbiter rendered a decision, the dispositive portion of which reads: Premises considered, judgment is hereby rendered declaring the dismissal of the complainant as illegal and ordering the respondent to immediately reinstate him to his former position without loss of seniority rights with full back wages inclusive of allowance and to his other benefits or equivalent computed from the time it is withheld from him when he was dismissed on March 27, 1977, until actually reinstated. 9 On June 1, 1990, respondent NHC filed its appeal before the NLRC and on March 14, 1991, the NLRC promulgated a decision which reversed the decision of Labor Arbiter Manuel R. Caday on the ground of lack of jurisdiction. 10 The primordial issue that confronts us is whether or not public respondent committed grave abuse of discretion in holding that petitioner is not governed by the Labor Code. Under the laws then in force, employees of government-owned and/or controlled corporations were governed by the Civil Service Law and not by the Labor Code. Hence, Article 277 of the Labor Code (PD 442) then provided:

The terms and conditions of employment of all government employees, including employees of government-owned and controlled corporations shall be governed by the Civil Service Law, rules and regulations . . . . The 1973 Constitution, Article II-B, Section 1(1), on the other hand provided: The Civil Service embraces every branch, agency, subdivision and instrumentality of the government, including government-owned or controlled corporations. Although we had earlier ruled in National Housing Corporation v. Juco, 11 that employees of government-owned and/or controlled corporations, whether created by special law or formed as subsidiaries under the general Corporation Law, are governed by the Civil Service Law and not by the Labor Code, this ruling has been supplanted by the 1987 Constitution. Thus, the said Constitution now provides: The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government owned or controlled corporations with original charter. (Article IX-B, Section 2[1]) In National Service Corporation (NASECO) v. National Labor Relations Commission, 12 we had the occasion to apply the present Constitution in deciding whether or not the employees of NASECO are covered by the Civil Service Law or the Labor Code notwithstanding that the case arose at the time when the 1973 Constitution was still in effect. We ruled that the NLRC has jurisdiction over the employees of NASECO on the ground that it is the 1987 Constitution that governs because it is the Constitution in place at the time of the decision. Furthermore, we ruled that the new phrase "with original charter" means that government-owned and controlled corporations refer to corporations chartered by special law as distinguished from corporations organized under the Corporation Code. Thus, NASECO which had been organized under the general incorporation statute and a subsidiary of the National Investment Development Corporation, which in turn was a subsidiary of the Philippine National Bank, is exluded from the purview of the Civil Service Commission. We see no cogent reason to depart from the ruling in the aforesaid case. In the case at bench, the National Housing Corporation is a government owned corporation organized in 1959 in accordance with Executive Order No. 399, otherwise known as the Uniform Charter of Government Corporation, dated January 1, 1959. Its shares of stock are and have been one hundred percent (100%) owned by the Government from its incorporation under Act 1459, the former corporation law. The government entities that own its shares of stock are the Government Service Insurance System, the Social Security System, the Development Bank of the Philippines, the National Investment and Development Corporation and the People's Homesite and Housing Corporation. 13 Considering the fact that the NHA had been incorporated under Act 1459, the former corporation law, it is but correct to say that it is a government-owned or controlled corporation whose employees are subject to the provisions of the Labor Code. This observation is reiterated in the recent case of Trade Union of the Philippines and Allied Services (TUPAS) v. National Housing

Corporation, 14 where we held that the NHA is now within the jurisdiction of the Department of Labor and Employment, it being a government-owned and/or controlled corporation without an original charter. Furthermore, we also held that the workers or employees of the NHC (now NHA) undoubtedly have the right to form unions or employee's organization and that there is no impediment to the holding of a certification election among them as they are covered by the Labor Code. Thus, the NLRC erred in dismissing petitioner's complaint for lack of jurisdiction because the rule now is that the Civil Service now covers only government-owned or controlled corporations with original charters. 15 Having been incorporated under the Corporation Law, its relations with its personnel are governed by the Labor Code and come under the jurisdiction of the National Labor Relations Commission. One final point. Petitioners have been tossed from one forum to another for a simple illegal dismissal case. It is but apt that we put an end to his dilemna in the interest of justice. WHEREFORE, the decision of the NLRC in NLRC NCR-04-02036089 dated March 14, 1991 is hereby REVERSED and the Decision of the Labor Arbiter dated May 21, 1990 is REINSTATED. SO ORDERED. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. L-75038

August 23, 1993

ELIAS VILLUGA, RENATO ABISTADO, JILL MENDOZA, ANDRES ABAD, BENJAMIN BRIZUELA, NORLITO LADIA, MARCELO AGUILAN, DAVID ORO, NELIA BRIZUELA, FLORA ESCOBIDO, JUSTILITA CABANIG, and DOMINGO SAGUIT, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) and BROAD STREET TAILORING and/or RODOLFO ZAPANTA, respondents. Balguma, Macasaet & Associates for petitioners. Teresita Gandionco Oledan for private respondents.

NOCON, J.:

A basic factor underlying the exercise of rights and the filing of claims for benefits under the Labor Code and other presidential issuances or labor legislations is the status and nature of one's employment. Whether an employer-employee relationship exist and whether such employment is managerial in character or that of a rank and file employee are primordial considerations before extending labor benefits. Thus, petitioners in this case seek a definitive ruling on the status and nature of their employment with Broad Street Tailoring and pray for the nullification of the resolution dated May 12, 1986 of the National Labor Relations Commissions in NLRC Case No. RB-IV- 21558-78-T affirming the decision of Labor Arbiter Ernilo V. Pealosa dated May 28, 1979, which held eleven of them as independent contractors and the remaining one as employee but of managerial rank. The facts of the case shows that petitioner Elias Villuga was employed as cutter in the tailoring shop owned by private respondent Rodolfo Zapanta and known as Broad Street Tailoring located at Shaw Boulevard, Mandaluyong, Metro Manila. As cutter, he was paid a fixed monthly salary of P840.00 and a monthly transportation allowance of P40.00. In addition to his work as cutter, Villuga was assigned the chore of distributing work to the shop's tailors or sewers when both the shop's manager and assistant manager would be absent. He saw to it that their work conformed with the pattern he had prepared and if not, he had them redone, repaired or resewn. The other petitioners were either ironers, repairmen and sewers. They were paid a fixed amount for every item ironed, repaired or sewn, regardless of the time consumed in accomplishing the task. Petitioners did not fill up any time record since they did not observe regular or fixed hours of work. They were allowed to perform their work at home especially when the volume of work, which depended on the number of job orders, could no longer be coped up with. From February 17 to 22, 1978, petitioner Villuga failed to report for work allegedly due to illness. For not properly notifying his employer, he was considered to have abandoned his work. In a complaint dated March 27, 1978, filed with the Regional Office of the Department of Labor, Villuga claimed that he was refused admittance when he reported for work after his absence, allegedly due to his active participation in the union organized by private respondent's tailors. He further claimed that he was not paid overtime pay, holiday pay, premium pay for work done on rest days and holidays, service incentive leave pay and 13th month pay. Petitioners Renato Abistado, Jill Mendoza, Benjamin Brizuela and David Oro also claimed that they were dismissed from their employment because they joined the Philippine Social Security Labor Union (PSSLU). Petitioners Andres Abad, Norlito Ladia, Marcelo Aguilan, Nelia Brizuela, Flora Escobido, Justilita Cabaneg and Domingo Saguit claimed that they stopped working because private respondents gave them few pieces of work to do after learning of their membership with PSSLU. All the petitioners laid claims under the different labor standard laws which private respondent allegedly violated. On May 28, 1979, Labor Arbiter Ernilo V. Pealosa rendered a decision ordering the dismissal of the complaint for unfair labor practices, illegal dismissal and other money claims except petitioner Villuga's claim for 13th month pay for the years 1976, 1977 and 1980. The dispositive portion of the decision states as follows:

WHEREFORE, premises considered, the respondent Broad Street Tailoring and/or Rodolfo Zapanta are hereby ordered to pay complainant Elias Villuga the sum of ONE THOUSAND TWO HUNDRED FORTY-EIGHT PESOS AND SIXTY-SIX CENTAVOS (P1,248.66) representing his 13th month pay for the years 1976, 1977 and 1978. His other claims in this case are hereby denied for lack of merit. The complaint insofar as the other eleven (11) complainants are concerned should be, as it is hereby dismissed for want of jurisdiction. 1 On appeal, the National Labor Relations Commission affirmed the questioned decision in a resolution dated May 12, 1986, the dispositive portion of which states as follows: WHEREFORE, premises considered, the decision appealed from is, as it is hereby AFFIRMED, and the appeal dismissed. 2 Presiding Commissioner Guillermo C. Medina merely concurred in the result while Commissioner Gabriel M. Gatchalian rendered a dissenting opinion which states as follows: I am for upholding employer-employee relationship as argued by the complainants before the Labor Arbiter and on appeal. The further fact that the proposed decision recognizes complainant's status as piece-rate worker all the more crystallizes employer-employee relationship the benefits prayed for must be granted. 3 Hence, petitioners filed this instant certiorari case on the following grounds: 1. That the respondent National Labor Relations Commission abused its discretion when it ruled that petitioner/complainant, Elias Villuga falls within the category of a managerial employee; 2. . . . when it ruled that the herein petitioners were not dismissed by reason of their union activities; 3. . . . when it ruled that petitioners Andres Abad, Benjamin Brizuela, Norlito Ladia, Marcelo Aguilan, David Oro, Nelia Brizuela, Flora Escobido, Justilita Cabaneg and Domingo Saguit were not employees of private respondents but were contractors. 4. . . . when it ruled that petitioner Elias Villuga is not entitled to overtime pay and services for Sundays and Legal Holidays; and 5. . . . when it failed to grant petitioners their respective claims under the provisions of P.D. Nos. 925, 1123 and 851. 4 Under Rule 1, Section 2(c), Book III of the Implementing Rules of Labor Code, to be a member of a managerial staff, the following elements must concur or co-exist, to wit: (1) that his primary duty consists of the performance of work directly related to management policies; (2) that he

customarily and regularly exercises discretion and independent judgment in the performance of his functions; (3) that he regularly and directly assists in the management of the establishment; and (4) that he does not devote his twenty per cent of his time to work other than those described above. Applying the above criteria to petitioner Elias Villuga's case, it is undisputed that his primary work or duty is to cut or prepare patterns for items to be sewn, not to lay down or implement any of the management policies, as there is a manager and an assistant manager who perform said functions. It is true that in the absence of the manager the assistant manager, he distributes and assigns work to employees but such duty, though involving discretion, is occasional and not regular or customary. He had also the authority to order the repair or resewing of defective item but such authority is part and parcel of his function as cutter to see to it that the items cut are sewn correctly lest the defective nature of the workmanship be attributed to his "poor cutting." Elias Villuga does not participate in policy-making. Rather, the functions of his position involve execution of approved and established policies. In Franklin Baker Company of the Philippines v. Trajano, 5 it was held that employees who do not participate in policy-making but are given ready policies to execute and standard practices to observe are not managerial employees. The test of "supervisory or managerial status" depends on whether a person possesses authority that is not merely routinary or clerical in nature but one that requires use of independent judgment. In other words, the functions of the position are not managerial in nature if they only execute approved and established policies leaving little or no discretion at all whether to implement said policies or not. 6 Consequently, the exclusion of Villuga from the benefits claimed under Article 87 (overtime pay and premium pay for holiday and rest day work), Article 94, (holiday pay), and Article 95 (service incentive leave pay) of the Labor Code, on the ground that he is a managerial employee is unwarranted. He is definitely a rank and file employee hired to perform the work of the cutter and not hired to perform supervisory or managerial functions. The fact that he is uniformly paid by the month does not exclude him from the benefits of holiday pay as held in the case of Insular Bank of America Employees Union v. Inciong. 7 He should therefore be paid in addition to the 13th month pay, his overtime pay, holiday pay, premium pay for holiday and rest day, and service incentive leave pay. As to the dismissal of the charge for unfair labor practices of private respondent consisting of termination of employment of petitioners and acts of discrimination against members of the labor union, the respondent Commission correctly held the absence of evidence that Mr. Zapanta was aware of petitioners' alleged union membership on February 22, 1978 as the notice of union existence in the establishment with proposal for recognition and collective bargaining negotiation was received by management only an March 3, 1978. Indeed, self-serving allegations without concrete proof that the private respondent knew of their membership in the union and accordingly reacted against their membership do not suffice. Nor is private respondent's claim that petitioner Villuga abandoned his work acceptable. For abandonment to constitute a valid cause for dismissal, there must be a deliberate and unjustified refusal of the employee to resume his employment. Mere absence is not sufficient, it must be accompanied by overt acts unerringly pointing to the fact that the employee simply does not

want to work anymore. 8 At any rate, dismissal of an employee due to his prolonged absence without leave by reason of illness duly established by the presentation of a medical certificate is not justified. 9 In the case at bar, however, considering that petitioner Villuga absented himself for four (4) days without leave and without submitting a medical certificate to support his claim of illness, the imposition of a sanction is justified, but surely, not dismissal, in the light of the fact that this is petitioner's first offense. In lieu of reinstatement, petitioner Villuga should be paid separation pay where reinstatement can no longer be effected in view of the long passage of time or because of the realities of the situation. 10 But petitioner should not be granted backwages in addition to reinstatement as the same is not just and equitable under the circumstances considering that he was not entirely free from blame. 11 As to the other eleven petitioners, there is no clear showing that they were dismissed because the circumstances surrounding their dismissal were not even alleged. However, we disagree with the finding of respondent Commission that the eleven petitioners are independent contractors. For an employer-employee relationship to exist, the following elements are generally considered: "(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 employee's conduct." 12 Noting that the herein petitioners were oftentimes allowed to perform their work at home and were paid wages on a piece-rate basis, the respondent Commission apparently found the second and fourth elements lacking and ruled that "there is no employer-employee relationship, for it is clear that respondents are interested only in the result and not in the means and manner and how the result is obtained." Respondent Commission is in error. The mere fact that petitioners were paid on a piece-rate basis is no argument that herein petitioners were not employees. The term "wage" has been broadly defined in Article 97 of the Labor Code as remuneration or earnings, capable of being expressed in terms of money whether fixed or ascertained on a time, task, piece or commission basis. . . ." The facts of this case indicate that payment by the piece is just a method of compensation and does not define the essence of the relation. 13 The petitioners were allowed to perform their work at home does not likewise imply absence of control and supervision. The control test calls merely for the existence of a right to control the manner of doing the work, not the actual exercise of the right. 14 In determining whether the relationship is that of employer and employee or one of an independent contractor, "each case must be determined on its own facts and all the features of the relationship are to be considered." 15Considering that petitioners who are either sewers, repairmen or ironer, have been in the employ of private respondent as early as 1972 or at the latest in 1976, faithfully rendering services which are desirable or necessary for the business of private respondent, and observing management's approved standards set for their respective lines of work as well as the customers' specifications, petitioners should be considered employees, not independent contractors. Independent contractors are those who exercise independent employment, contracting to do a piece of work according to their own methods and without being subjected to control of their employer except as to the result of their work. By the nature of the different phases of work in a

tailoring shop where the customers' specifications must be followed to the letter, it is inconceivable that the workers therein would not be subjected to control. In Rosario Brothers, Inc. v. Ople, 16 this Court ruled that tailors and similar workers hired in the tailoring department, although paid weekly wages on piece work basis, are employees not independent contractors. Accordingly, as regular employees, paid on a piece-rate basis, petitioners are not entitled to overtime pay, holiday pay, premium pay for holiday/rest day and service incentive leave pay. Their claim for separation pay should also be defined for lack of evidence that they were in fact dismissed by private respondent. They should be paid, however, their 13th month pay under P.D. 851, since they are employees not independent contractors. WHEREFORE, in view of the foregoing reasons, the assailed decision of respondent National Labor Relations Commission is hereby MODIFIED by awarding (a) in favor of petitioner Villuga, overtime pay, holiday pay, premium pay for holiday and rest day, service incentive leave pay and separation pay, in addition to his 13th month pay; and (b) in favor of the rest of the petitioners, their respective 13th month pay.

The case is hereby REMANDED to the National Labor Relations Commission for the computation of the claims herein-above mentioned. SO ORDERED. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 104658. April 7, 1993. PILIPINAS SHELL PETROLEUM CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS and CLARITA T. CAMACHO, respondents. Angara, Abello, Concepcion, Regala & Cruz for petitioner. Yolanda Quisumbing-Javellana & Associates for private respondent. SYLLABUS 1. LABOR LAWS AND SOCIAL LEGISLATION; EMPLOYER-EMPLOYEE RELATIONSHIP; FACTORS CONSIDERED IN DETERMINING EXISTENCE THEREOF; CASE AT BAR. It is firmly settled that the existence or non-existence of the employer-

employee relationship is commonly to be determined by examination of certain factors or aspects of that relationship. These include: (a) the manner of selection and engagement of the putative employee; (b) the mode of payment of wages; (c) the presence or absence of a power to control the putative employee's conduct, although the latter is the most important element . . . As aptly held by the trial court, petitioner did not exercise control and supervision over Feliciano with regard to the manner in which he conducted the hydro-pressure test. All that petitioner did, through its Field Engineer, Roberto Mitra, was relay to Feliciano the request of private respondent for a hydro-pressure test, to determine any possible leakages in the storage tanks in her gasoline station. The mere hiring of Feliciano by petitioner for that particular task is not the form of control and supervision contemplated by law which may be the basis for establishing an employer-employee relationship between petitioner and Feliciano. The fact that there was no such control is further amplified by the absence of any shell representative in the job site at the time when the test was conducted. Roberto Mitra was never there. Only Feliciano and his men were. True, it was petitioner who sent Feliciano to private respondent's gasoline station to conduct the hydro-pressure test as per the request of private respondent herself. But this single act did not automatically make Feliciano an employee of petitioner. As discussed earlier, more than mere hiring is required. It must further be established that petitioner is the one who is paying Feliciano's salary on a regular basis; that it has the power to dismiss said employee, and more importantly, that petitioner has control and supervision over the work of Feliciano. The last requisite was sorely missing in the instant case. 2. ID.; JOB CONTRACTING; REQUISITES; HALLMARKS OF INDEPENDENT CONTRACTOR. Section 8 of Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code provides: "Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are met: (1) The contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and (2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business." Feliciano is independently maintaining a business under a duly registered business name, "JFS Repair and Maintenance Service," and is duly registered with the Bureau of Domestic Trade. He does not enjoy a fixed salary but instead charges a lump sum consideration for every piece of work he accomplishes. If he is not able to finish his work, he does not get paid, as what happened in this case. Further, Feliciano utilizes his own tools and equipment and has a complement of workers. Neither is he required to work on a regular basis. Instead, he merely awaits calls from clients such as petitioner whenever repairs and maintenance services are requested. Moreover, Feliciano does not exclusively service petitioner because he can accept other business but not from other oil companies. All these are the hallmarks of an independent contractor. 3. CIVIL LAW; QUASI-DELICTS; INDEPENDENT CONTRACTOR RESPONSIBLE FOR HIS OWN ACTS AND OMISSIONS. Being an independent contractor, Feliciano is responsible for his own acts and omissions. As he alone was in control over the manner of how he was to undertake the hydro-pressure test, he alone must bear the consequences of his negligence, if any, in the conduct of the same.

DECISION CAMPOS, JR., J p: Was the hydro-pressure test of the underground storage tank in private respondent Clarita T. Camacho's gasoline station conducted by an independent contractor or not? A negative answer will make petitioner Pilipinas Shell Petroleum Corporation (Shell, for brevity) liable for the said independent contractor's acts or omissions; otherwise, no. This is the issue that this Court is called upon to resolve in this case. The facts are as follows: Private respondent Clarita T. Camacho (private respondent for short) was the operator of a gasoline station in Naguilian Road, Baguio City, wherein she sells petitioner Shell's petroleum products. Sometime in April 1983, private respondent requested petitioner to conduct a hydropressure test on the underground storage tanks of the said station in order to determine whether or not the sales losses she was incurring for the past several months were due to leakages therein. Petitioner acceded to the said request and on April 27, 1983, one Jesus "Jessie" Feliciano together with other workers, came to private respondent's station with a Job Order from petitioner to perform the hydro-pressure test. On the same day, Feliciano and his men drained the underground storage tank which was to be tested of its remaining gasoline. After which, they filled the tank with water through a water hose from the deposit tank of private respondent. Then, after requesting one of private respondent's gasoline boys to shut off the water when the tank was filled, Feliciano and his men left. At around 2:00 a.m. the following day, private respondent saw that the water had reached the lip of the pipe of the underground storage tank and so, she shut off the water faucet. At around 5:30 a.m., private respondent's husband opened the station and started selling gasoline. But at about 6:00 a.m., the customers who had bought gasoline returned to the station complaining that their vehicles stalled because there was water in the gasoline that they bought. On account of this, private respondent was constrained to replace the gasoline sold to the said customers. However, a certain Eduardo Villanueva, one of the customers, filed a complaint with the police against private respondent for selling the adulterated gasoline. In addition, he caused the incident to be published in two local newspapers. Feliciano, who arrived later that morning, did not know what caused the water pollution of the gasoline in the adjacent storage tank. So he called up Nick Manalo, Superintendent of Shell's Poro Point Installation at San Fernando, La Union, and referred the matter to the latter. Manalo went up to Baguio in the afternoon to investigate. Thereafter, he and Feliciano again filled with water the underground storage tank undergoing hydro-pressure test whereat they noticed that the water was transferring to the other tanks from whence came the gasoline being sold. Manalo asked permission from Shell's Manila Office to excavate the underground pipes of the station. Upon being granted permission to do so, Feliciano and his men began excavating the driveway of private respondent's station in order to expose the underground pipeline. The task was

continued by one Daniel "Danny" Pascua who replaced Feliciano, Pascua removed the corroded pipeline and installed new independent vent pipe for each storage tank. Meanwhile, petitioner undertook to settle the criminal complaint filed by Villanueva. Subsequently, Villanueva filed an Affidavit of Desistance, 1 declaring, inter alia "THAT, after careful evaluation of the surrounding circumstances, especially the explanation of the representatives of SHELL Phils., that the gasoline tanks of Mrs. Camacho were subject to Hydro test, in such a way that water was used for the said test, I believe that she may not have had anything to do with the filling of water in the tank of my car; xxx xxx xxx THAT, said representatives of SHELL Phils. have interceded for and in behalf of Mrs. Camacho and have fully satisfied my claim against her. THAT, in view of all the foregoing I do not intend to prosecute the case and I am therefore asking for the dismissal of the case against Mrs. Camacho." Thereafter, private respondent demanded from petitioner the payment of damages in the amount of P10,000.00. Petitioner, instead, offered private respondent additional credit line and other beneficial terms, which offer was, however, rejected. cdrep Subsequently, or on October 12, 1983, private respondent filed before the trial court a complaint for damages against petitioner due to the latter's alleged negligence in the conduct of the hydropressure test in her gasoline station. For its part, petitioner denied liability because, according to it, the hydro-pressure test on the underground storage tanks was conducted by an independent contractor. The trial court dismissed private respondent's complaint for damages for the reason that: "The hydro-pressure test which brought about the incident was conducted by Jesus Feliciano, who was neither an employee nor agent nor representative of the defendant. Jesus Feliciano is responsible for his own acts and omissions. He alone was in control of the manner of how he is to undertake the hydro-pressure test. Considering that the conduct of said hydro-pressure test was under the sole and exclusive control and supervision of Jesus Feliciano, the overflow with water causing the same to sip into the adjoining tank cannot be attributed to the fault or negligence of defendant. 2 From the adverse decision of the trial court, private respondent appealed to the Court of Appeals which court reversed the decision of the trial court. Thus, "PREMISES CONSIDERED, the decision being appealed from is hereby SET ASIDE and, in lieu thereof, another rendered ordering defendant to pay plaintiff:

1.

P100,000.00 as moral damages;

2. P2,639.25 and P15,000.00 representing the actual losses suffered by plaintiff as a result of the water pollution of the gasoline. No costs. SO ORDERED." 3 Petitioner moved to have the above decision reconsidered but the same was denied in a Resolution dated March 9, 1992. Hence, this recourse. As stated at the very outset, the pivotal issue in this case is whether or not petitioner should be held accountable for the damage to private respondent due to the hydro-pressure test conducted by Jesus Feliciano. It is a well-entrenched rule that an employer-employee relationship must exist before an employer may be held liable for the negligence of his employee. It is likewise firmly settled that the existence or non-existence of the employer-employee relationship is commonly to be determined by examination of certain factors or aspects of that relationship. These include: (a) the manner of selection and engagement of the putative employee; (b) the mode of payment of wages; (c) the presence or absence of a power to control the putative employee's conduct, 4 although the latter is the most important element. 5 In this case, respondent Court of Appeals held petitioner liable for the damage caused to private respondent as a result of the hydro-pressure test conducted by Jesus Feliciano due to the following circumstances: 6 1. 2. Feliciano was hired by petitioner; He received his instructions from the Field Engineer of petitioner, Mr. Roberto Mitra;

3. While he was at private respondent's service station, he also received instructions from Nick Manalo, petitioner's Poro Point Depot Superintendent; 4. Instructions from petitioner's Manila Office were also relayed to him while he was at .the job site at Baguio City; 5. His work was under the constant supervision of petitioner's engineer;

6. Before he could complete the work, he was instructed by Mr. Manalo, petitioner's Superintendent, to discontinue the same and it was turned over to Daniel Pascua, who was likewise hired by petitioner. Based on the foregoing, respondent Court of Appeals concluded that Feliciano was not an independent contractor but was under the control and supervision of petitioner in the

performance of the hydro-pressure test, hence, it held petitioner liable for the former's acts and omissions. We are not in accord with the above finding of respondent Court of Appeals. As aptly held by the trial court, petitioner did not exercise control and supervision over Feliciano with regard to the manner in which he conducted the hydro-pressure test. All that petitioner did, through its Field Engineer, Roberto Mitra, was relay to Feliciano the request of private respondent for a hydro-pressure test, to determine any possible leakages in the storage tanks in her gasoline station. The mere hiring of Feliciano by petitioner for that particular task is not the form of control and supervision contemplated by may be the basis for establishing an employeremployee relationship between petitioner and Feliciano. The fact that there was no such control is further amplified by the absence of any Shell representative in the job site time when the test was conducted. Roberto Mitra was never there. Only Feliciano and his men were. True, it was petitioner who sent Feliciano to private respondent's gasoline station in conduct the hydro-pressure test as per the request of private respondent herself. But this single act did not automatically make Feliciano an employee of petitioner. As discussed earlier, more than mere hiring is required. It must further be established that petitioner is the one who is paying Felicia's salary on a regular basis; that it has the power to dismiss said employee, and more importantly, that petitioner has control and supervision over the work of Feliciano. The last requisite was sorely missing in the instant case. A careful perusal of the records will lead to the conclusion that Feliciano is an independent contractor. Section 8 of Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code provides: "Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are met: (1) The contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and (2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business." Feliciano is independently maintaining a business under a duly registered business name, "JFS Repair and Maintenance Service," and is duly registered with the Bureau of Domestic Trade. 7 He does not enjoy a fixed salary but instead charges a lump sum consideration for every piece of work he accomplishes. 8 If he is not able to finish his work, he does not get paid, as what happened in this case. 9 Further, Feliciano utilizes his own tools and equipment and has a complement of workers. Neither is he required to work on a regular basis. Instead, he merely awaits calls from clients such as petitioner whenever repairs and maintenance services are requested. Moreover, Feliciano does not exclusively service petitioner because he can accept

other business but not from other oil companies. 10 All these are the hallmarks of an independent contractor. Being an independent contractor, Feliciano is responsible for his own acts and omissions. As he alone was in control over the manner of how he was to undertake the hydro-pressure test, he alone must bear the consequences of his negligence, if any, in the conduct of the same. Anent the issue of damages, the same has been rendered moot by the failure of private respondent to establish an employer-employee relationship between petitioner and Feliciano. Absent said relationship, petitioner cannot be held liable for the acts and omissions of the independent contractor, Feliciano. WHEREFORE, premises considered, the appealed decision of respondent Court of Appeals is hereby SET ASIDE and the decision of the trial court REINSTATED. Without pronouncement as to costs. SO ORDERED.

THIRD DIVISION EMELITA LEONARDO, CONRADO BARGAMENTO, EMELITA NUEZ, RODOLFO GRABAN, and ROBERTO GRABAN, Petitioners, - versus COURT OF APPEALS and DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC., Respondents. G.R. No. 152459 Present: QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ. Promulgated: June 15, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECISION CARPIO, J.:

The Case Before the Court is a petition for review assailing the 29 June 2001 Decision[1] and 20 February 2002 Resolution[2] of the Court of Appeals in CA-G.R. SP No. 51160. The Court of Appeals set aside the Decision of the National Labor Relations Commission (NLRC) which sustained the Labor Arbiters Decision holding Digital Telecommunications Philippines, Inc. (DIGITEL) jointly and severally liable with Balagtas Telephone Company (BALTEL) and its proprietor Domingo de Asis.[3] The Antecedent Facts BALTEL holds the franchise from the Municipality of Balagtas, Bulacan to operate a telephone service in the municipality. BALTEL also has authority from the National Telecommunications Commission (NTC) to operate in the municipality. BALTEL hired Emelita Leonardo, Conrado Bargamento, Emelita Nuez, Rodolfo Graban, and Roberto Graban (petitioners) for various positions[4] in the company. On 22 April 1991, [5] BALTEL[6] and DIGITEL entered into a management contract.[7] Under the terms of the contract, DIGITEL was to provide personnel, consultancy and technical expertise in the management, administration, and operation of BALTELs telephone service in Balagtas, Bulacan. DIGITEL also undertook to improve the internal and external plants of BALTELs telephone system and to handle customer relations and such other matters necessary for the efficient management and operation of the telephone system. In a letter[8] dated 27 January 1994, BALTEL informed the NTC that it would cease to operate effective 28 February 1994 because it was no longer in a financial position to continue its operations. On 17 February 1994, BALTEL assigned to DIGITEL its buildings and other improvements on a parcel of land in Balagtas, Bulacan covered by OCT No. O-7280 where BALTEL conducted its business operations. The assignment was in partial payment of BALTELs obligation to DIGITEL which as of 31 December 1993 amounted to P712,471.74. On 28 February 1994, petitioners employment ceased. They executed separate, undated and similarly worded quitclaims acknowledging receipt of various amounts representing their claims from BALTEL. In their quitclaims, petitioners absolved and released BALTEL from all monetary claims that arose out of their employer-employee relationship with the company. Petitioners also acknowledged that BALTEL closed its operations due to serious business losses. On 1 March 1994, petitioners filed a complaint against BALTEL and Domingo De Asis for recovery of salary differential and attorneys fees. Petitioners later filed a supplemental complaint to include illegal dismissal as additional cause of action and to implead DIGITEL as additional respondent. DIGITEL denied having any liability on the ground that it was not petitioners employer. In its 29 May 1995 Decision,[9] Labor Arbiter Dominador B. Saludares ruled as follows:

WHEREFORE, premises considered, judgment is hereby entered in favor of the complainants and against respondents Balagtas Telephone System and/or Domingo de Asis and Digital Telecommunications Phils., Inc. ordering the latter, jointly and severally as follows: 1. To pay the sum of P14,950.00 representing the unpaid salaries of all the five (5) complainants for the month of February 1994; 2. To pay another sum of P4,486.44 representing the unpaid overtime pay of complainants Emelita Leonardo, Conrado Bargamento and Emelita Nuez for February 1994; 3. To pay the sum of P71,400.00 as salary differential of the complainants;

4. To pay the backwages of all complainants from the date they were dismissed on February 28, 1994 up to this writing computed in the sum total of P224,250.00, less their separation pay which they have received; 5. To pay the sum of P31,508.64 as attorneys fees which is equivalent to ten (10%) percent of the amount of the award; and 6. To immediately reinstate all the complainants to their former or equivalent positions under the same terms and conditions prevailing prior to their dismissal or separation including payment of their prevailing basic salaries and all other benefits or at the option of the employer merely reinstate in the payroll also with the payment of their salaries and all other benefits in accordance with Article 223 of the Labor Code, as amended by R.A. No. 6715. Respondents are further ordered to submit upon receipt hereof their compliance with the reinstatement aspect. SO DECIDED.[10] DIGITEL appealed the Labor Arbiters Decision before the NLRC. In its 29 December 1997 Decision,[11] the NLRC dismissed the appeal. DIGITEL moved for the reconsideration of the NLRC Decision. In its 29 July 1998 Decision,[12]the NLRC denied DIGITELs motion for reconsideration. DIGITEL filed a petition for review before this Court. In its 2 December 1998 Resolution, this Court referred the case to the Court of Appeals pursuant to St. Martin Funeral Homes v. NLRC.[13] The Ruling of the Court of Appeals In its 29 June 2001 Decision, the Court of Appeals reversed and set aside the NLRC Decision insofar as it held DIGITEL severally liable with BALTEL and Domingo de Asis. The Court of Appeals ruled that DIGITEL is not the successor-in-interest of BALTEL. The Court of Appeals held that the records do not show that DIGITEL became the absolute owner of BALTEL, or that DIGITEL absorbed BALTELs employees. The Court of Appeals further

ruled that there was no showing that DIGITEL acquired BALTELs franchise. The Court of Appeals ruled: WHEREFORE, the petition is GRANTED. The assailed decision of the National Labor Relations Commission is ANNULLED and SET ASIDE insofar as it held petitioner jointly and severally liable with Balagtas Telephone Company and Domingo de Asis for the obligations of the two to private respondents, with the result that private respondents complaint against petitioner before the labor arbiter is DISMISSED. SO ORDERED.[14] Petitioners moved for the reconsideration of the Court of Appeals Decision. In its 20 February 2002 Resolution, the Court of Appeals denied petitioners motion for reconsideration for lack of merit. Hence, the petition before this Court. Petitioners allege that the Court of Appeals erred in disregarding the factual findings of both the Labor Arbiter and the NLRC which should have been given more weight by appellate tribunals. The Issues The petition raises the following issues: 1. Whether DIGITEL is the successor-in-interest of BALTEL; and 2. Whether an employer-employee relationship exists between petitioners and DIGITEL. The Ruling of This Court The petition has no merit. The Court of Appeals has the power to review the decisions of the NLRC and to pass upon factual issues raised by the parties. In R & E Transport, Inc. v. Latag,[15] this Court held: The power of the CA to review NLRC decisions via a Rule 65 petition is now a settled issue. As early as St. Martin Funeral Homes v. NLRC, we have definitively ruled that the proper remedy to ask for the review of a decision of the NLRC is a special civil action for certiorari under Rule 65 of the Rules of Court, and that such petition should be filed with the CA in strict observance of the doctrine on the hierarchy of courts. Moreover, it has already been explained that under Section 9 of Batas Pambansa (BP) 129, as amended by Republic Act 7902, the CA pursuant to the exercise of its original jurisdiction over petitions for certiorari was

specifically given the power to pass upon the evidence, if and when necessary, to resolve factual issues.

We agree with petitioners that factual findings of quasi-judicial and administrative bodies are accorded great respect and even finality by the courts. However, this rule is not absolute. When there is a showing that the factual findings of administrative bodies were arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the courts.[16] In this case, the Court of Appeals found nothing in the records [to support] the conclusion that DIGITEL became the absolute owner of BALTEL or that the former absorbed the latters employees. Hence, the Court of Appeals is justified in reviewing the factual findings of both the Labor Arbiter and the NLRC.

DIGITEL is not BALTELs Successor-in-Interest

Petitioners allege that DIGITEL took over the ownership of BALTEL, and as the new owner, DIGITEL then absorbed petitioners as employees. The Court of Appeals correctly held that DIGITEL is not BALTELs successor-in-interest. It is not disputed that BALTEL has the franchise to operate a telephone system in Balagtas, Bulacan. It is also not disputed that on 21 April 1991, BALTEL and DIGITEL entered into a management contract which: 2. Appoints and contracts Digital Telecommunications Philippines, Inc. (Digitel for short), a corporation organized and existing under the laws of the Philippines, to provide personnel, consultancy and technical expertise in the management, administration and operation of the telephone service/system in Balagtas, Bulacan; to improve the internal and external plants of such system, provided that any improvement, whether by addition or replacement, shall belong to Digitel unless such improvement(s) is fully reimbursed; to handle customer relations and such other matters necessary for the efficient management and operation of said telephone service/system.

3. Subject to paragraph B, defines the terms of this Appointment and Agreement to one (1) year from date hereof unless renewed for another term at the option of Digitel.

4. Agrees to reimburse Digitel for all expenses incurred in the performance of its aforesaid services provided that such expenses do not exceed the net operating cash revenues of said telephone service/system unless otherwise mutually agreed upon by the herein parties in writing.

5. Grants Digitel the right of first option to buy the franchise and the telephone system, provided that the purchase shall be subject to the prior approval of the Municipal Council of Balagtas, Bulacan, the NTC and the DOTC. For this purpose, Digitel shall remit to Estela de Asis as attorney-in-fact of Domingo de Asis the amount of P415,000.00, as option money, which shall be deducted from a mutually agreed purchase price in the event Digitel exercises the option by written notice to Estela or Domingo de Asis within 180 days from date hereof. In the event there is no agreement on the purchase price, then such price shall be the net asset value (original cost less depreciation) of all the serviceable equipment as of the date hereof.[17]

The contract gives DIGITEL the option to buy BALTELs franchise. However, the records do not show that DIGITEL exercised the option. Petitioners failed to show that DIGITEL eventually purchased BALTELs franchise and telephone system. The Court also notes that the purchase shall be subject to the prior approval of the Municipal Council of Balagtas, Bulacan, the NTC and the Department of Transportation and Communications (DOTC). The records do not show that DIGITEL sought the approval of the Municipal Council of Balagtas, Bulacan, the NTC or the DOTC to purchase BALTELsfranchise. When BALTEL eventually discontinued its operations, Estela de Asis informed the NTC of the cessation of its operations. On DIGITELs continued operations in Balagtas, Bulacan, we adopt the findings of the Court of Appeals that it is pursuant to a Financial Lease Agreement[18] entered into by DOTC and DIGITEL. Under the Financial Lease Agreement, the DOTC grants DIGITEL the exclusive right to lease, operate, and develop DOTCs local exchange facilities and to perform the telecommunications services in the cities or municipalities covered by the Financial Lease Agreement. Under Project NTP I-1,[19] Balagtas, Bulacan is among the municipalities covered by the Financial Lease Agreement.

There is No Employer-Employee Relationship Between DIGITEL and Petitioners

To determine the existence of an employer-employee relationship, the Court has to resolve who has the power to select the employees, who pays for their wages, who has the power to dismiss them, and who exercises control in the methods and the results by which the work is accomplished.[20] The most important element of an employer-employee relationship is the control test. Under the control test, there is an employer-employee relationship when the person for whom the services are performed reserves the right to control not only the end achieved but also the manner and means used to achieve that end.[21] In this case, DIGITEL undoubtedly has the power of control. However, DIGITELs exercise of the power of control necessarily flows from the exercise of its responsibilities under the management contract which includes providing for personnel, consultancy and technical expertise in the management, administration, and operation of the telephone system. Thus, the control test has no application in this case.

The Court notes that DIGITEL did not hire petitioners. BALTEL had already employed petitioners when BALTEL entered into the management contract with DIGITEL. We also agree with the Court of Appeals that the fact that DIGITEL uses its payslips does not necessarily imply that DIGITEL pays petitioners salaries. As pointed out by the Court of Appeals, DIGITEL introduced its own financial and accounting systems to BALTEL and it included the use of DIGITELs payslips for accounting purposes. The management contract provides that BALTEL shall reimburse DIGITEL for all expenses incurred in the performance of its services and this includes reimbursement of whatever amount DIGITEL paid or advanced toBALTELs employees. Finally, DIGITEL has no power to dismiss BALTELs employees. When DIGITEL wanted to dismiss Roberto Graban for habitual tardiness, BALTEL did not approve DIGITELs recommendation. In the end, Roberto Graban was just suspended from work. In sum, no employer-employee relationship exists between petitioners and DIGITEL. Hence, DIGITEL is not solidarily liable with BALTEL and Domingo de Asis to petitioners. WHEREFORE, we DENY the petition. We AFFIRM the 29 June 2001 Decision and 20 February 2002 Resolution of the Court of Appeals in CA-G.R. SP No. 51160.

SO ORDERED.

SECOND DIVISION

ARSENIO T. MENDIOLA, Petitioner, - versus COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB, Respondents. G.R. No. 159333 Present: PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ. Promulgated: July 31, 2006 x----------------------------------------------------------- x DECISION PUNO, J.: On appeal are the Decision[1] and Resolution[2] of the Court of Appeals, dated January 30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the ruling[3] of the National Labor Relations Commission (NLRC), which in turn set aside the July 30, 2001 Decision[4] of the labor arbiter. The labor arbiter declared illegal the dismissal of petitioner from employment and awarded separation pay, moral and exemplary damages, and attorneys fees. The facts are as follows: Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing under the laws of California, USA. It is a subsidiary of Cellulose Marketing

International, a corporation duly organized under the laws ofSweden, with principal office in Gothenburg, Sweden. Private respondent Pacfor entered into a Side Agreement on Representative Office known as Pacific Forest Resources (Phils.), Inc.[5] with petitioner Arsenio T. Mendiola (ATM), effective May 1, 1995, assuming that Pacfor-Phils. is already approved by the Securities and Exchange Commission [SEC] on the said date.[6] The Side Agreement outlines the business relationship of the parties with regard to the Philippine operations of Pacfor. Private respondent will establish a Pacfor representative office in the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President. Petitioners base salary and the overhead expenditures of the company shall be borne by the representative office and funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-USA. On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license to transact business in thePhilippines under the name of Pacfor or Pacfor Phils.[7] In its application, private respondent Pacfor proposed to establish its representative office in the Philippines with the purpose of monitoring and coordinating the market activities for paper products. It also designated petitioner as its resident agent in the Philippines, authorized to accept summons and processes in all legal proceedings, and all notices affecting the corporation. [8] In March 1997, the Side Agreement was amended through a Revised Operating and Profit Sharing Agreement for the Representative Office Known as Pacific Forest Resources (Philippines),[9] where the salary of petitioner was increased to $78,000 per annum. Both agreements show that the operational expenses will be borne by the representative office and funded by all parties as equal partners, while the profits and commissions will be shared among them. In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of his 50% equity of Pacfor Phils.[10] Private respondent Pacfor, through William Gleason, its President, replied that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USAs representative office and not an entity separate and distinct from Pacfor-USA. Its simply a theoretical company with the purpose of dividing the income 5050.[11] Petitioner presumably knew of this arrangement from the start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and not a branch office in the Philippines to save on taxes.[12] Petitioner claimed that he was all along made to believe that he was in a joint venture with them. He alleged he would have been better off remaining as an independent agent or representative of Pacfor-USA as ATM Marketing Corp.[13] Had he known that no joint venture existed, he would not have allowed Pacfor to take the profitable business of his own company, ATM Marketing Corp.[14] Petitioner raised other issues, such as the rentals of office furniture, salary of the employees, company car, as well as commissions allegedly due him. The issues were not resolved, hence, in October 2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and office furniture and equipment rentals, amounting to more than one million dollars.[15] On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn over to it all papers, documents, files, records, and other materials in his or ATM Marketing Corporations possession that belong to Pacfor or Pacfor Phils.[16] On December 18, 2000,

private respondent Pacfor also required petitioner to remit more than three hundred thousandpeso Christmas giveaway fund for clients of Pacfor Phils.[17] Lastly, private respondent Pacfor withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it possession of the service car.[18] Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated November 21, 2000, private respondent Pacfor stated: Until further notice, please course all inquiries and communications for Pacific Forest Resources (Philippines) to: Pacific Forest Resources 200 Tamal Plaza, Suite 200 Corte Madera, CA, USA 94925 (415) 927 1700 phone (415) 381 4358 fax Please do not send any communication to Mr. Arsenio Boy T. Mendiola or to the offices of ATM Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City, Philippines.[19] In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December 2000, private respondent directed said client to please communicate directly with us on any further questions associated with these payments or any future business. Do not communicate with [Pacfor] and/or [ATM].[20] Petitioner construed these directives as a severance of the unregistered partnership between him and Pacfor, and the termination of his employment as resident manager of Pacfor Phils.[21] In a memorandum to the employees of Pacfor Phils., dated January 29, 2001, he stated: I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records to them effective December 19, 2000. The company records were turned over only on January 26, 2001. This means our jobs with Pacific Forest were terminated effectiveDecember 19, 2000. I am concerned about your welfare. I would like to help you by offering you to work with ATM Marketing Corporation. Please let me know if you are interested.[22] On the basis of the Side Agreement, petitioner insisted that he and Pacfor equally own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils. office furniture and equipment and the service car. He also reiterated his demand for unpaid commissions, and proposed to offset these with the remaining Christmas giveaway fund in his possession.[23] Furthermore, he did not renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor Phils., wherein he was the signatory to the lease agreement.[24] On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and ordered him to show cause why no disciplinary action should be taken against him. Private respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal to turn over the service car and the Christmas giveaway fund which he applied to his

alleged unpaid commissions. Private respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner for allegedly allowing another corporation owned by petitioners relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to possibly steal and divert the sales and business of private respondent for HEPIs principal, International Forest Products, a competitor of private respondent.[25] Petitioner denied the charges. He reiterated that he considered the import of Pacfor President William Gleasons letters as a cessation of his position and of the existence of Pacfor Phils. He likewise informed private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils. office premises,[26] and demanded payment of his separation pay.[27] On February 15, 2001, petitioner filed his complaint for illegal dismissal, recovery of separation pay, and payment of attorneys fees with the NLRC.[28] In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a memorandum dated March 5, 2001, private respondent directed petitioner to explain why he should not be disciplined for serious misconduct and conflict of interest. Private respondent charged petitioner anew with serious misconduct for the latters alleged act of fraud and misrepresentation in authorizing the release of an additional peso salary for himself, besides the dollar salary agreed upon by the parties. Private respondent also accused petitioner of disloyalty and representation of conflicting interests for having continued using the Pacfor Phils. office for operations of HEPI. In addition, petitioner allegedly solicited business for HEPI from a competitor company of private respondent Pacfor. [29] Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal. By directing petitioner to turn over all office records and materials, regardless of whether he may have retained copies, private respondent Pacfor virtually deprived petitioner of his job by the gradual diminution of his authority as resident manager. Petitioners position as resident manager whose duty, among others, was to maintain the security of its business transactions and communications was rendered meaningless. The dispositive portion of the decision of the Labor Arbiter reads: WHEREFORE, premises considered, judgment is hereby rendered ordering herein respondents Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to compensate complainant Arsenio T. Mendiola separation pay equivalent to at least one month for every year of service, whichever is higher (sic), as reinstatement is no longer feasible by reason of the strained relations of the parties equivalent to five (5) months in the amount of $32,000.00 plus the sum of P250,000.00; pay complainant the sum ofP500,000.00 as moral and exemplary damages and ten percent (10%) of the amounts awarded as and for attorneys fees. All other claims are dismissed for lack of basis. SO ORDERED.[30] Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20, 2001, the NLRC set aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of merit.[31] It held there was no employer-employee relationship between the parties. Based on the two agreements between the parties, it concluded that petitioner is not an employee of private respondent Pacfor, but a full co-owner (50/50 equity). The NLRC denied petitioners Motion for Reconsideration.[32]

Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld the ruling of the NLRC. Petitioners Motion for Reconsideration[33] of the decision of the Court of Appeals was denied. Hence, this appeal.[34] Petitioner assigns the following errors: A. THE RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND ABUSED ITS DISCRETION IN RENDERING JUDGMENT AGAINST PETITIONER SINCE JURISDICTION HAS BEEN ACQUIRED OVER THE SUBJECT MATTER OF THE CASE AS THERE EXISTS EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES. B. THE RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND ABUSED ITS DISCRETION IN RULING THAT JURISDICTION OVER THE SUBJECT MATTER CANNOT BE WAIVED AND MAY BE ALLEGED EVEN FOR THE FIRST TIME ON APPEAL OR CONSIDERED BY THE COURT MOTU PROP[R]IO.[35] The first issue is whether an employer-employee relationship exists between petitioner and private respondent Pacfor. Petitioner argues that he is an industrial partner of the partnership he formed with private respondent Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner may at the same time be an employee of the partnership, provided there is such an agreement, which, in this case, is the Side Agreement and the Revised Operating and Profit Sharing Agreement. The Court of Appeals denied the appeal of petitioner, holding that the legal basis of the complaint is not employment but perhaps partnership, co-ownership, or independent contractorship. Hence, the Labor Code cannot apply. We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-ownership exists between the parties. In a partnership, the members become co-owners of what is contributed to the firm capital and of all property that may be acquired thereby and through the efforts of the members.[36] The property or stock of the partnership forms a community of goods, a common fund, in which each party has a proprietary interest.[37] In fact, the New Civil Code regards a partner as a co-owner of specific partnership property.[38] Each partner possesses a joint interest in the whole of partnership property. If the relation does not have this feature, it is not one of partnership.[39] This essential element, the community of interest, or co-ownership of, or joint interest in partnership property is absent in the relations between petitioner and private respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason, private respondent Pacfors President established this fact when he said that Pacfor Phils. is simply a theoretical company for the purpose of dividing the income 50-50. He stressed that petitioner knew of this arrangement from the very start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and not a branch office in the Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone does not make a partnership.[40] Besides, a corporation cannot become a member of a partnership in the absence of express authorization by statute or charter.[41] This doctrine is based on the following considerations: (1) that the mutual agency between the partners, whereby the corporation would be bound by the

acts of persons who are not its duly appointed and authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively; and, (2) that such an arrangement would improperly allow corporate property to become subject to risks not contemplated by the stockholders when they originally invested in the corporation.[42] No such authorization has been proved in the case at bar. Be that as it may, we hold that on the basis of the evidence, an employer-employee relationship is present in the case at bar. The elements to determine the existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employees conduct. The most important element is the employers control of the employees conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.[43] In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor which selected and engaged the services of petitioner as its resident agent in the Philippines. Second, as stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary amounting to $65,000 per annum which was later increased to $78,000. Third, private respondent Pacfor holds the power of dismissal, as may be gleaned through the various memoranda it issued against petitioner, placing the latter on preventive suspension while charging him with various offenses, including willful disobedience, serious misconduct, and gross neglect of duty, and ordering him to show cause why no disciplinary action should be taken against him. Lastly and most important, private respondent Pacfor has the power of control over the means and method of petitioner in accomplishing his work. The power of control refers merely to the existence of the power, and not to the actual exercise thereof. The principal consideration is whether the employer has the right to control the manner of doing the work, and it is not the actual exercise of the right by interfering with the work, but the right to control, which constitutes the test of the existence of an employer-employee relationship.[44] In the case at bar, private respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as private respondent Pacfors resident agent in the Philippines, is, exactly so, only an agent of the corporation, a representative of Pacfor, who transacts business, and accepts service on its behalf. This right of control was exercised by private respondent Pacfor during the period of November to December 2000, when it directed petitioner to turn over to it all records of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.; and, when it withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it the possession of the service car. It was also during this period when private respondent Pacfor sent letters to its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor replied to the clients request for an invoice payment extension, and formulated a revised payment program for DAVCOR. This is one unmistakable proof that private respondent Pacfor exercises control over the petitioner.

Next, we shall determine if petitioner was constructively dismissed from employment. The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and would not quit however, private respondent Pacfor began to systematically deprive petitioner of his duties and benefits to make him feel that his presence in the company was no longer wanted. First, private respondent Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This would certainly make the work of petitioner very difficult, if not impossible. Second, private respondent Pacfor ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils. Then it ordered petitioner to transfer title and turn over to it the possession of the service car. It also advised its clients in thePhilippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a new resident agent for Pacfor Phils.[45] Although there is no reduction of the salary of petitioner, constructive dismissal is still present because continued employment of petitioner is rendered, at the very least, unreasonable.[46] There is an act of clear discrimination, insensibility or disdain by the employer that continued employment may become so unbearable on the part of the employee so as to foreclose any choice on his part except to resign from such employment.[47] The harassing acts of the private respondent are unjustified. They were undertaken when petitioner sought clarification from the private respondent about his supposed 50% equity on Pacfor Phils. Private respondent Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing directives against petitioner was a valid exercise of management prerogative. We remind private respondent Pacfor that the exercise of management prerogative is not absolute. By its very nature, encompassing as it could be, management prerogative must be exercised in good faith and with due regard to the rights of labor verily, with the principles of fair play at heart and justice in mind. The exercise of management prerogative cannot be utilized as an implement to circumvent our laws and oppress employees.[48] As resident agent of private respondent corporation, petitioner occupied a position involving trust and confidence. In the light of the strained relations between the parties, the full restoration of an employment relationship based on trust and confidence is no longer possible. He should be awarded separation pay, in lieu of reinstatement. IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals January 30, 2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of the National Labor Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter is REINSTATED with theMODIFICATION that the amount of P250,000.00 representing an alleged increase in petitioners salary shall be deducted from the grant of separation pay for lack of evidence. SO ORDERED.