FIRST DIVISION

[G.R. No. 170087. August 31, 2006.] ANGELINA FRANCISCO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA, respondents. DECISION YNARES-SANTIAGO, J :
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This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision and Resolution of the Court of Appeals dated October 29, 2004 1 and October 7, 2005, 2 respectively, in CA-G.R. SP No. 78515 dismissing the complaint for constructive dismissal filed by herein petitioner Angelina Francisco. The appellate court reversed and set aside the Decision of the National Labor Relations Commission (NLRC) dated April 15, 2003, 3 in NLRC NCR CA No. 032766-02 which affirmed with modification the decision of the Labor Arbiter dated July 31, 2002, 4 in NLRC-NCR Case No. 30-10-0-489-01, finding that private respondents were liable for constructive dismissal. In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was designated as Accountant and Corporate Secretary and was assigned to handle all the accounting needs of the company. She was also designated as Liaison Officer to the City of Makati to secure business permits, construction permits and other licenses for the initial operation of the company. 5 Although she was designated as Corporate Secretary, she was not entrusted with the corporate documents; neither did she attend any board meeting nor required to do so. She never prepared any legal document and never represented the company as its Corporate Secretary. However, on some occasions, she was prevailed upon to sign documentation for the company. 6

In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle recruitment of all employees and perform management administration functions; represent the company in all dealings with government agencies, especially with the Bureau of Internal Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to administer all other matters pertaining to the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. 7 For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of Kasei Corporation. 8 In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that she was required to sign a prepared resolution for her replacement but she was assured that she would still be connected with Kasei Corporation. Timoteo Acedo, the designated Treasurer, convened a meeting of all employees of Kasei Corporation and announced that nothing had changed and that petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji Kamura and in charge of all BIR matters. 9 Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to September 2001 for a total reduction of P22,500.00 as of September 2001. Petitioner was not paid her mid-year bonus allegedly because the company was not earning well. On October 2001, petitioner did not receive her salary from the company. She made repeated follow-ups with the company cashier but she was advised that the company was not earning well. 10 On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she was informed that she is no longer connected with the company.11 Since she was no longer paid her salary, petitioner did not report for work and filed an action for constructive dismissal before the labor arbiter.
EHASaD

Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged that petitioner was hired in 1995 as one of its technical consultants on accounting matters and act concurrently as Corporate Secretary. As technical consultant, petitioner performed her work at her own discretion without control and supervision of Kasei Corporation. Petitioner had no daily time record and she came to the office any time she wanted. The company

never interfered with her work except that from time to time, the management would ask her opinion on matters relating to her profession. Petitioner did not go through the usual procedure of selection of employees, but her services were engaged through a Board Resolution designating her as technical consultant. The money received by petitioner from the corporation was her professional fee subject to the 10% expanded withholding tax on professionals, and that she was not one of those reported to the BIR or SSS as one of the company's employees. 12 Petitioner's designation as technical consultant depended solely upon the will of management. As such, her consultancy may be terminated any time considering that her services were only temporary in nature and dependent on the needs of the corporation. To prove that petitioner was not an employee of the corporation, private respondents submitted a list of employees for the years 1999 and 2000 duly received by the BIR showing that petitioner was not among the employees reported to the BIR, as well as a list of payees subject to expanded withholding tax which included petitioner. SSS records were also submitted showing that petitioner's latest employer was Seiji Corporation. 13 The Labor Arbiter found that petitioner was illegally dismissed, thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows: 1.finding complainant an employee of respondent corporation; 2.declaring complainant's dismissal as illegal; 3.ordering respondents to reinstate complainant to her former position without loss of seniority rights and jointly and severally pay complainant her money claims in accordance with the following computation: a.Backwages 10/2001 07/2002275,000.00 (27,500 x 10 mos.) b.Salary Differentials (01/2001 09/2001)22,500.00 c.Housing Allowance (01/2001 07/2002)57,000.00 d.Midyear Bonus 200127,500.00

e.13th Month Pay27,500.00 f.10% share in the profits of Kasei Corp. from 1996-2001361,175.00 g.Moral and exemplary damages100,000.00 h.10% Attorney's fees87,076.50 P957,742.50 If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay with additional backwages that would accrue up to actual payment of separation pay. SO ORDERED.
14

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the dispositive portion of which reads:
PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows: 1)Respondents are directed to pay complainant separation pay computed at one month per year of service in addition to full backwages from October 2001 to July 31, 2002; 2)The awards representing moral and exemplary damages and 10% share in profit in the respective accounts of P100,000.00 and P361,175.00 are deleted; 3)The award of 10% attorney's fees shall be based on salary differential award only; 4)The awards representing salary differentials, housing allowance, mid year bonus and 13th month pay are AFFIRMED. SO ORDERED.
15

On appeal, the Court of Appeals reversed the NLRC decision, thus:

WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a new one is hereby rendered dismissing

the complaint filed by private respondent against Kasei Corporation, et al. for constructive dismissal. SO ORDERED.
16

The appellate court denied petitioner's motion for reconsideration, hence, the present recourse. The core issues to be resolved in this case are (1) whether there was an employer-employee relationship between petitioner and private respondent Kasei Corporation; and if in the affirmative, (2) whether petitioner was illegally dismissed. Considering the conflicting findings by the Labor Arbiter and the National Labor Relations Commission on one hand, and the Court of Appeals on the other, there is a need to reexamine the records to determine which of the propositions espoused by the contending parties is supported by substantial evidence. 17 We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test to determine the existence of an employer-employee relation. Generally, courts have relied on the so-called right of control test where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end. In addition to the standard of right-of-control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, can help in determining the existence of an employer-employee relationship. However, in certain cases the control test is not sufficient to give a complete picture of the relationship between the parties, owing to the complexity of such a relationship where several positions have been held by the worker. There are instances when, aside from the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished, economic realities of the employment relations help provide a comprehensive analysis of the true classification of the individual, whether as employee, independent contractor, corporate officer or some other capacity.
caIEAD

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employer's power to control the employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying economic realities of the activity or relationship.

This two-tiered test would provide us with a framework of analysis, which would take into consideration the totality of circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate in this case where there is no written agreement or terms of reference to base the relationship on; and due to the complexity of the relationship based on the various positions and responsibilities given to the worker over the period of the latter's employment. The control test initially found application in the case of Viaa v. Al-Lagadan and Piga, 19 and lately in Leonardo v. Court of Appeals, 20 where we held that 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. In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic conditions prevailing between the parties, in addition to the standard of right-of-control like the inclusion of the employee in the payrolls, to give a clearer picture in determining the existence of an employer-employee relationship based on an analysis of the totality of economic circumstances of the worker. Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole economic activity, 22 such as: (1) the extent to which the services performed are an integral part of the employer's business; (2) the extent of the worker's investment in equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the worker's opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight required for the success of the claimed independent enterprise; (6) the permanency and duration of the relationship between the worker and the employer; and (7) the degree of dependency of the worker upon the employer for his continued employment in that line of business. 23 The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued employment in that line of business. 24 In the United States, the touchstone of economic reality in analyzing possible employment relationships for purposes of the Federal Labor Standards Act is dependency.25 By analogy, the benchmark of economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to be the economic dependence of the worker on his employer.

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation because she was under the direct control and supervision of Seiji Kamura, the corporation's Technical Consultant. She reported for work regularly and served in various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate Secretary, with substantially the same job functions, that is, rendering accounting and tax services to the company and performing functions necessary and desirable for the proper operation of the corporation such as securing business permits and other licenses over an indefinite period of engagement. Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation because she had served the company for six years before her dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions from August 1, 1999 to December 18, 2000. 26 When petitioner was designated General Manager, respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner's membership in the SSS as manifested by a copy of the SSS specimen signature card which was signed by the President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an employer-employee relationship between petitioner and respondent corporation. 27 It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment in the latter's line of business. In Domasig v. National Labor Relations Commission, 28 we held that in a business establishment, an identification card is provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that issues it. Together with the cash vouchers covering petitioner's salaries for the months stated therein, these matters constitute substantial evidence adequate to support a conclusion that petitioner was an employee of private respondent. We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the SSS is proof that the latter were the former's employees. The coverage of Social Security Law is predicated on the existence of an employeremployee relationship. Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that petitioner never acted as Corporate Secretary and that her

designation as such was only for convenience. The actual nature of petitioner's job was as Kamura's direct assistant with the duty of acting as Liaison Officer in representing the company to secure construction permits, license to operate and other requirements imposed by government agencies. Petitioner was never entrusted with corporate documents of the company, nor required to attend the meeting of the corporation. She was never privy to the preparation of any document for the corporation, although once in a while she was required to sign prepared documentation for the company. 30 The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001 affidavit has been allegedly withdrawn by Kamura himself from the records of the case. 31 Regardless of this fact, we are convinced that the allegations in the first affidavit are sufficient to establish that petitioner is an employee of Kasei Corporation. Granting arguendo, that the second affidavit validly repudiated the first one, courts do not generally look with favor on any retraction or recanted testimony, for it could have been secured by considerations other than to tell the truth and would make solemn trials a mockery and place the investigation of the truth at the mercy of unscrupulous witnesses. 32 A recantation does not necessarily cancel an earlier declaration, but like any other testimony the same is subject to the test of credibility and should be received with caution. 33 Based on the foregoing, there can be no other conclusion that petitioner is an employee of respondent Kasei Corporation. She was selected and engaged by the company for compensation, and is economically dependent upon respondent for her continued employment in that line of business. Her main job function involved accounting and tax services rendered to respondent corporation on a regular basis over an indefinite period of engagement. Respondent corporation hired and engaged petitioner for compensation, with the power to dismiss her for cause. More importantly, respondent corporation had the power to control petitioner with the means and methods by which the work is to be accomplished.
aHTEIA

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month from January to September 2001. This amounts to an illegal termination of employment, where the petitioner is entitled to full backwages. Since the position of petitioner as accountant is one of trust and confidence, and under the principle of strained relations, petitioner is further entitled to separation pay, in lieu of reinstatement. 34

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. FlorendoFlores, 36 we ruled that where an employee ceases to work due to a demotion of rank or a diminution of pay, an unreasonable situation arises which creates an adverse working environment rendering it impossible for such employee to continue working for her employer. Hence, her severance from the company was not of her own making and therefore amounted to an illegal termination of employment. In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are mindful of the fact that the policy of the law is to apply the Labor Code to a greater number of employees. This would enable employees to avail of the benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and protection to labor, promoting their welfare and reaffirming it as a primary social economic force in furtherance of social justice and national development. WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Francisco's full backwages from the time she was illegally terminated until the date of finality of this decision, and separation pay representing one-half month pay for every year of service, where a fraction of at least six months shall be considered as one whole year.

EN BANC
[G.R. No. 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.] 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.
SYLLABUS 1.LABOR LAW AND SOCIAL LEGISLATIONS; LABOR CODE; DISMISSAL; NOTICE OF DISMISSAL TO EMPLOYEES BEFORE TERMINATION REQUIRED. The guidelines provided in Rule XIV, Book V, Implementing Rules and Regulations, particularly Sections 2, 5 and 6 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. 2.ID.; ID.; ID.; DECISION TO DISMISS MAY ONLY BE ISSUED AFTER EMPLOYEES WAS AFFORDED DUE PROCESS. A reading of the guidelines in

consonance with the express provisions of law on protection to labor (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. 3.ID.; ID.; ID.; SEVERE PENALTY OF DISMISSAL NOT WARRANTED IN CASE AT BAR. Besides, Credo's mere non-compliance with Lloren's memorandum regarding the entry procedures in the company's Statement of Billings Adjustment did not warrant the severe penalty of dismissal. 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 workingman. There is, in addition, his family to consider. Unemployment brings untold hardships and sorrows on those dependent on the wage-earner." 4.ID.; ID.; ID.; REINSTATEMENT AND BACKWAGES, PROPER IN CASE OF UNJUSTIFIED DISMISSAL. 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." And, as a result of having been wrongfully dismissed, Credo is entitled to three (3) years of backwages without deduction and qualification. 5.ID.; ID.; ID.; EXEMPLARY DAMAGES AWARDED IF DISMISSAL WAS EFFECTED IN A WANTON, FRAUDULENT, OPPRESSIVE OR MALEVOLENT MANNER. 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. 6.ID.; ID.; ID.; MORAL DAMAGES AWARDED AS DISMISSAL WAS EFFECTED WITHOUT DUE PROCESS. 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. 7.ID.; ID.; ID.; ATTORNEY'S FEES AWARDED AS EMPLOYEE WAS COMPELLED TO LITIGATE. 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.

8.ID.; ID.; ID.; RULING IN NATIONAL HOUSING CORPORATION VS. JUCO, NOT GIVEN RETROACTIVE EFFECT. 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). 9.CONSTITUTIONAL LAW; CIVIL SERVICE; SUBSIDIARIES OF GOVERNMENT OWNED OR CONTROLLED CORPORATION NOT INCLUDED IN THE AMBIT OF CIVIL SERVICE. 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 appear relegated to relative insignificance by the 1987 Constitutional provision that the Civil Service embraces government-owned or controlled corporationswith original charter; and, therefore, by clear implication, the Civil Service does not include governmentowned or controlled corporations which are organized as subsidiaries of government-owned or controlled corporations under the general corporation law. DECISION PADILLA, J :
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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 15 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.That, respondent [Credo] committed the following offenses in the Code of Discipline, viz: 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 again 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. 14 Petitioners 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 . . . "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 Lloren's memorandum regarding the entry procedures in the company's Statement of Billings Adjustment did not warrant the severe penalty of dismissal. 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 some 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 workingman. 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" 28 as 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. 31 A 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 cites National 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 rules 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). 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 1 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 government-owned 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 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 CBAs 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 government-owned or controlled corporations." MR. ROMULO. Would the Committee indicate that 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. So as not to delay the proceedings, I will reserve my right to submit such an amendment. xxx xxx xxx THE PRESIDING OFFICE (Mr. Trenas) Commissioner Romulo is recognized. 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 governmentowned 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. We mean that they were created by law, by an act of Congress, or by special law. MR. FOZ. And not under the general corporation law. MR. ROMULO. That is correct. Mr. Presiding Officer. MR. FOZ. With that understanding and clarification, the Committee accepts the amendment. MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are 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 changed 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, Grio-Aquino, Medialdea and Regalado, JJ., concur.

Narvasa, J., is on leave. Gutierrez, Jr., J., concurs in the result. Cruz, J., see separate concurrence.