LABOR STANDARDS - Midterms

Table of Contents

METROPOLITAN BANK and TRUST COMPANY, INC., Petitioner, vs. NATIONAL WAGES AND PRODUCTIVITY COMMISSION and REGIONAL
TRIPARTITE WAGES AND PRODUCTIVITY BOARD - REGION II, Respondents.2
PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING, INC. and ALVIN LEE, Plant
Manager, respondents................................................................6
SENTINEL SECURITY AGENCY, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, ADRIANO CABANO JR., VERONICO C.
ZAMBO, HELCIAS ARROYO, RUSTICO ANDOY, and MAXIMO ORTIZ, respondents. 10
PETROLEUM SHIPPING LIMITED (formerly ESSO INTERNATIONAL SHIPPING (BAHAMAS) CO., LTD.) and TRANS-GLOBAL MARITIME
AGENCY, INC., Petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and FLORELLO W. TANCHICO, Respondents.
11
NIA JEWELRY MANUFACTURING OF METAL ARTS, INC. (otherwise known as NIA MANUFACTURING AND METAL ARTS, INC.) and ELISEA
B. ABELLA, Petitioners, vs. MADELINE C. MONTECILLO and LIZA M. TRINIDAD, Respondents.
15
FIVE J TAXI and/or JUAN S. ARMAMENTO, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, DOMINGO MALDIGAN and
GILBERTO SABSALON,respondents.........................................21
JETHRO INTELLIGENCE & SECURITY CORPORATION and YAKULT PHILS., INC. Petitioners, vs. THE HON. SECRETARY OF LABOR AND
EMPLOYMENT, FREDERICK GARCIA, GIL CORDERO, LEONIELYN UDALBE, MICHAEL BENOZA, EDWIN ABLITER, CELEDONIO SUBERE
and MA. CORAZON LANUZA,Respondents................................23
ALEXANDER VINOYA, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD CORPORATION AND/OR RICKY SEE
(PRESIDENT), respondents......................................................25
EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN, SR., EDWIN JAVIER, SANDI BERMEO, REX ALLESA, MAXIMO SORIANO, JR.,
ARSENIO ESTORQUE, and FELIXBERTO ANAJAO, Petitioners, vs. LORENZO SHIPPING CORPORATION, Respondent. 29

Page 1 of 36

The Wage Order was published in a newspaper of general circulation on December 2,

19954 and took effect on January 1, 1996.5 Its Implementing Rules6 were approved on February
14, 1996.7 Per Section 13 of the Wage Order, any party aggrieved by the Wage Order may file
an appeal with the National Wages and Productivity Commission (NWPC) through the RTWPB
within 10 calendar days from the publication of the Wage Order.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. NO. 144322

In a letter-inquiry to the NWPC dated May 7, 1996, the Bankers' Council for Personnel
Management (BCPM), on behalf of its member-banks, requested for a ruling on the eligibility of
establishments with head offices outside Region II to seek exemption from the coverage of the
Wage Order since its member-banks are already paying more than the prevailing minimum
wage rate in the National Capital Region (NCR), which is their principal place of business. 8
In a letter-reply dated July 16, 1996, the NWPC stated that the member-banks of BCPM are
covered by the Wage Order and do not fall under the exemptible categories listed under the
Wage Order.9

February 6, 2007
In a letter-inquiry to the NWPC dated July 23, 1996, petitioner sought for interpretation of the
applicability of said Wage Order.10 The NWPC referred petitioner's inquiry to the RTWPB.

METROPOLITAN BANK and TRUST COMPANY, INC., Petitioner,

vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION and REGIONAL TRIPARTITE
WAGES AND PRODUCTIVITY BOARD - REGION II, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court seeking the reversal of the Decision1 of the Court of Appeals (CA) dated July 19, 2000 in
CA-G.R. SP No. 42240 which denied the petition for certiorari and prohibition of Metropolitan
Bank and Trust Company, Inc. (petitioner).
The procedural antecedents and factual background of the case are as follows:
On October 17, 1995, the Regional Tripartite Wages and Productivity Board, Region II,
Tuguegarao, Cagayan (RTWPB), by virtue of Republic Act No. 6727 (R.A. No. 6727), otherwise
known as the Wage Rationalization Act,2issued Wage Order No. R02-03 (Wage Order), as
follows:
Section 1. Upon effectivity of this Wage Order, all employees/workers in the private sector
throughout Region II, regardless of the status of employment are granted an across-the-board
increase of P15.00 daily.3

In a letter-reply dated August 12, 1996, the RTWPB clarified that the Wage Order covers all
private establishments situated in Region II, regardless of the voluntary adoption by said
establishments of the wage orders established in Metro Manila and irrespective of the amounts
already paid by the petitioner.11
On October 15, 1996, the petitioner filed a Petition for Certiorari and Prohibition with the CA
seeking nullification of the Wage Order on grounds that the RTWPB acted without authority
when it issued the questioned Wage Order; that even assuming that the RTWPB was vested
with the authority to prescribe an increase, it exceeded its authority when it did so without any
ceiling or qualification; that the implementation of the Wage Order will cause the petitioner, and
other similarly situated employers, to incur huge financial losses and suffer labor unrest.12
On March 24, 1997, the Office of the Solicitor General (OSG) filed a Manifestation and Motion in
lieu of Comment affirming the petitioner's claim that the RTWPB acted beyond its authority in
issuing the Wage Order prescribing an across-the-board increase to all workers and employees
in Region II, effectively granting additional or other benefits not contemplated by R.A. No.
6727.13
In view of the OSG's manifestation, the CA directed respondents NWPC and RTWPB to file their
comment.14
On September 22, 1997, respondents filed their Comment praying that the petition should be
dismissed outright for petitioner's procedural lapses; that certiorari and prohibition are unavailing
since petitioner failed to avail of the remedy of appeal prescribed by the Wage Order; that the
Wage Order has long been in effect; and that the issuance of the Wage Order was performed in
the exercise of a purely administrative function.15

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On July 19, 2000, the CA rendered its Decision denying the petition. The appellate court held
that a writ of prohibition can no longer be issued since implementation of the Wage Order had
long become fait accompli, the Wage Order having taken effect on January 1, 1996 and its
implementing rules approved on February 14, 1996; that a writ of certiorari is improper since the
Wage Order was issued in the exercise of a purely administrative function, not judicial or quasijudicial; that the letter-query did not present justiciable controversies ripe for consideration by the
respondents in the exercise of their wage-fixing function, since no appeal from the Wage Order
was filed; that petitioner never brought before the said bodies any formal and definite challenge
to the Wage Order and it cannot pass off the letter-queries as actual applications for relief; that
even if petitioner's procedural lapse is disregarded, a regional wage order prescribing a wage
increase across-the-board applies to banks adopting a unified wage system and a disparity in
wages between employees holding similar positions in different regions is not wage distortion.16
Hence, the present petition anchored on the following grounds:
4.1 THE COURT OF APPEALS ERRED IN REFUSING TO DECLARE WAGE ORDER
NO. R02-03 NULL AND VOID AND OF NO LEGAL EFFECT.
4.1.1 THE BOARD, IN ISSUING WAGE ORDER NO. R02-03, EXCEEDED
THE AUTHORITY DELEGATED TO IT BY CONGRESS.
4.1.2 WAGE ORDER NO. R02-03 IS AN UNREASONABLE INTRUSION
INTO THE PROPERTY RIGHTS OF PETITIONER.
4.1.3 WAGE ORDER NO. R02-03 UNDERMINES THE VERY ESSENCE
OF COLLECTIVE BARGAINING.
4.1.4 WAGE ORDER NO. R02-03 FAILS TO TAKE INTO ACCOUNT THE
VERY RATIONALE FOR A UNIFIED WAGE STRUCTURE.
4.2 PETITIONER'S RECOURSE TO A WRIT OF CERTIORARI AND PROHIBITION
WAS PROPER.17
Following the submission of the Comment18 and Reply19 thereto, the Court gave due course to
the petition and required both parties to submit their respective memoranda.20 In compliance
therewith, petitioner and respondents submitted their respective memoranda. 21
Petitioner poses two issues for resolution, to wit: (1) whether Wage Order No. R02-03 is void
and of no legal effect; and (2) whether petitioner's recourse to a petition for certiorari and
prohibition with the CA was proper.
Anent the first issue, petitioner maintains that the RTWPB, in issuing said Wage Order,
exceeded the authority delegated to it under R.A. No. 6727, which is limited to determining and
fixing the minimum wage rate within their respective territorial jurisdiction and with respect only
to employees who do not earn the prescribed minimum wage rate; that the RTWPB is not

authorized to grant a general across-the-board wage increase for non-minimum wage earners;
that Employers Confederation of the Philippines v. National Wages and Productivity
Commission22(hereafter referred to as "ECOP") is not authority to rule that respondents have
been empowered to fix wages other than the minimum wage since said case dealt with an
across-the-board increase with a salary ceiling, where the wage adjustment is applied to
employees receiving a certain denominated salary ceiling; that the Wage Order is an
unreasonable intrusion into its property rights; that the Wage Order undermines the essence of
collective bargaining; that the Wage Order fails to take into account the rationale for a unified
wage structure.
As to the second issue, petitioner submits that ultra vires acts of administrative agencies are
correctible by way of a writ of certiorari and prohibition; that even assuming that it did not
observe the proper remedial procedure in challenging the Wage Order, the remedy
of certiorari and prohibition remains available to it by way of an exception, on grounds of justice
and equity; that its failure to observe procedural rules could not have validated the manner by
which the disputed Wage Order was issued.
Respondents counter that the present petition is fatally defective from inception since no appeal
from the Wage Order was filed by petitioner; that the letter-query to the NWPC did not constitute
the appeal contemplated by law; that the validity of the Wage Order was never raised before the
respondents; that the implementation of the Wage Order had long become fait accompli for
prohibition to prosper. Respondents insist that, even if petitioner's procedural lapses are
disregarded, the Wage Order was issued pursuant to the mandate of R.A. No. 6727 and in
accordance with the Court's pronouncements in the ECOP case;23 that the Wage Order is not an
intrusion on property rights since it was issued after the required public hearings; that the Wage
Order does not undermine but in fact recognizes the right to collective bargaining; that the Wage
Order did not result in wage distortion.
The Court shall first dispose of the procedural matter relating to the propriety of petitioner's
recourse to the CA before proceeding with the substantive issue involving the validity of the
Wage Order.
Certiorari as a special civil action is available only if the following essential requisites concur: (1)
it must be directed against a tribunal, board, or officer exercising judicial or quasi-judicial
functions; (2) the tribunal, board, or officer must have acted without or in excess of jurisdiction or
with grave abuse of discretion amounting lack or excess of jurisdiction; and (3) there is no
appeal nor any plain, speedy, and adequate remedy in the ordinary course of law.24
On the other hand, prohibition as a special civil action is available only if the following essential
requisites concur: (1) it must be directed against a tribunal, corporation, board, officer, or person
exercising functions, judicial, quasi-judicial, or ministerial; (2) the tribunal, corporation, board or
person has acted without or in excess of its jurisdiction, or with grave abuse of discretion
amounting lack or excess of jurisdiction; and (3) there is no appeal or any other plain, speedy,
and adequate remedy in the ordinary course of law.25

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A respondent is said to be exercising judicial function where he has the power to determine what
the law is and what the legal rights of the parties are, and then undertakes to determine these
questions and adjudicate upon the rights of the parties.26 Quasi-judicial function is a term which
applies to the action, discretion, etc., of public administrative officers or bodies, who are required
to investigate facts or ascertain the existence of facts, hold hearings, and draw conclusions from
them as a basis for their official action and to exercise discretion of a judicial nature.27 Ministerial
function is one which an officer or tribunal performs in the context of a given set of facts, in a
prescribed manner and without regard to the exercise of his own judgment upon the propriety or
impropriety of the act done.28
In the issuance of the assailed Wage Order, respondent RTWPB did not act in any judicial,
quasi-judicial capacity, or ministerial capacity. It was in the nature of subordinate legislation,
promulgated by it in the exercise of delegated power under R.A. No. 6727. It was issued in the
exercise of quasi-legislative power. Quasi-legislative or rule-making power is exercised by
administrative agencies through the promulgation of rules and regulations within the confines of
the granting statute and the doctrine of non-delegation of certain powers flowing from the
separation of the great branches of the government.29
Moreover, the rule on the special civil actions of certiorari and prohibition equally mandate that
these extra-ordinary remedies are available only when "there is no appeal or any other plain,
speedy, and adequate remedy in the ordinary course of law." A remedy is considered plain,
speedy and adequate if it will promptly relieve the petitioner from the injurious effects of the
judgment or rule, order or resolution of the lower court or agency.30
Section 13 of the assailed Wage Order explicitly provides that any party aggrieved by the Wage
Order may file an appeal with the NWPC through the RTWPB within 10 days from the
publication of the wage order.31 The Wage Order was published in a newspaper of general
circulation on December 2, 1995.32
In this case, petitioner did not avail of the remedy provided by law. No appeal to the NWPC was
filed by the petitioner within 10 calendar days from publication of the Wage Order on December
2, 1995. Petitioner was silent until seven months later, when it filed a letter-inquiry on July 24,
1996 with the NWPC seeking a clarification on the application of the Wage Order. Evidently, the
letter-inquiry is not an appeal.
It must also be noted that the NWPC only referred petitioner's letter-inquiry to the RTWPB.
Petitioner did not appeal the letter-reply dated August 12, 1996 of the RTWPB to the NWPC. No
direct action was taken by the NWPC on the issuance or implementation of the Wage Order.
Petitioner failed to invoke the power of the NWPC to review regional wage levels set by the
RTWPB to determine if these are in accordance with prescribed guidelines. Thus, not only was it
improper to implead the NWPC as party-respondent in the petition before the CA and this Court,
but also petitioner failed to avail of the primary jurisdiction of the NWPC under Article 121 of the
Labor Code, to wit:
ART. 121. Powers and Functions of the Commission. - The Commission shall have the following
powers and functions:

xxxx
(d) To review regional wage levels set by the Regional Tripartite Wages and
Productivity Boards to determine if these are in accordance with prescribed guidelines
and national development plans;
xxxx
(f) To review plans and programs of the Regional Tripartite Wages and Productivity
Boards to determine whether these are consistent with national development plans;
(g) To exercise technical and administrative supervision over the Regional Tripartite
Wages and Productivity Boards;
xxxx
(Emphasis supplied)
Under the doctrine of primary jurisdiction, courts cannot and will not resolve a controversy
involving a question which is within the jurisdiction of an administrative tribunal, especially where
the question demands the exercise of sound administrative discretion requiring the special
knowledge, experience and services of the administrative tribunal to determine technical and
intricate matters of fact.33
Nevertheless, the Court will proceed to resolve the substantial issues in the present petition
pursuant to the well-accepted principle that acceptance of a petition for certiorari or prohibition
as well as the grant of due course thereto is addressed to the sound discretion of the court. 34 It is
a well-entrenched principle that rules of procedure are not inflexible tools designed to hinder or
delay, but to facilitate and promote the administration of justice. Their strict and rigid application,
which would result in technicalities that tend to frustrate, rather than promote substantial justice,
must always be eschewed.35
As to respondents' submission that the implementation of the Wage Order can no longer be
restrained since it has become fait accompli, the Wage Order having taken effect on January 1,
1996 and its implementing rules approved on February 14, 1996, suffice it to state that courts
will decide a question otherwise moot if it is capable of repetition yet evading review.36 Besides,
a case becomes moot and academic only when there is no more actual controversy between the
parties or no useful purpose can be served in passing upon the merits. Such circumstances do
not obtain in the present case. The implementation of the Wage Order does not in any way
render the case moot and academic, since the issue of the validity of the wage order subsists
even after its implementation and which has to be determined and passed upon to resolve
petitioner's rights and consequent obligations therein.
It is worthy to quote the Court's pronouncements in Tan v. Commission on Elections,37 thus:

Page 4 of 36

For this Honorable Court to yield to the respondents' urging that, as there has been fait
accompli, then this Honorable Court should passively accept and accede to the prevailing
situation is an unacceptable suggestion. Dismissal of the instant petition, as respondents so
propose is a proposition fraught with mischief. Respondents' submission will create a dangerous
precedent. Should this Honorable Court decline now to perform its duty of interpreting and
indicating what the law is and should be, this might tempt again those who strut about in the
corridors of power to recklessly and with ulterior motives commit illegal acts, either brazenly or
stealthily, confident that this Honorable Court will abstain from entertaining future challenges to
their acts if they manage to bring about a fait accompli.38
Having disposed of this procedural issue, the Court now comes to the substance of the petition.
R.A. No. 6727 declared it a policy of the State to rationalize the fixing of minimum wages and to
promote productivity-improvement and gain-sharing measures to ensure a decent standard of
living for the workers and their families; to guarantee the rights of labor to its just share in the
fruits of production; to enhance employment generation in the countryside through industrial
dispersal; and to allow business and industry reasonable returns on investment, expansion and
growth.39
In line with its declared policy, R.A. No. 672740 created the NWPC,41 vested with the power to
prescribe rules and guidelines for the determination of appropriate minimum wage and
productivity measures at the regional, provincial or industry levels;42 and authorized the RTWPB
to determine and fix the minimum wage rates applicable in their respective regions, provinces, or
industries therein and issue the corresponding wage orders, subject to the guidelines issued by
the NWPC.43 Pursuant to its wage fixing authority, the RTWPB may issue wage orders which set
the daily minimum wage rates,44 based on the standards or criteria set by Article 12445 of the
Labor Code.
In ECOP,46 the Court declared that there are two ways of fixing the minimum wage: the "floorwage" method and the "salary-ceiling" method. The "floor-wage" method involves the fixing of a
determinate amount to be added to the prevailing statutory minimum wage rates. On the other
hand, in the "salary-ceiling" method, the wage adjustment was to be applied to employees
receiving a certain denominated salary ceiling. In other words, workers already being paid more
than the existing minimum wage (up to a certain amount stated in the Wage Order) are also to
be given a wage increase.47
To illustrate: under the "floor wage method", it would have been sufficient if the Wage Order
simply set P15.00 as the amount to be added to the prevailing statutory minimum wage rates,
while in the "salary-ceiling method", it would have been sufficient if the Wage Order states a
specific salary, such as P250.00, and only those earning below it shall be entitled to the salary
increase.
In the present case, the RTWPB did not determine or fix the minimum wage rate by the "floorwage method" or the "salary-ceiling method" in issuing the Wage Order. The RTWPB did not set
a wage level nor a range to which a wage adjustment or increase shall be added. Instead, it
granted an across-the-board wage increase of P15.00 to all employees and workers of Region

2. In doing so, the RTWPB exceeded its authority by extending the coverage of the Wage Order
to wage earners receiving more than the prevailing minimum wage rate, without a denominated
salary ceiling. As correctly pointed out by the OSG, the Wage Order granted additional benefits
not contemplated by R.A. No. 6727.
In no uncertain terms must it be stressed that the function of promulgating rules and regulations
may be legitimately exercised only for the purpose of carrying out the provisions of a law. The
power of administrative agencies is confined to implementing the law or putting it into effect.
Corollary to this guideline is that administrative regulation cannot extend the law and amend a
legislative enactment.48 It is axiomatic that the clear letter of the law is controlling and cannot be
amended by a mere administrative rule issued for its implementation.49 Indeed, administrative or
executive acts, orders, and regulations shall be valid only when they are not contrary to the laws
or the Constitution.50
Where the legislature has delegated to an executive or administrative officers and boards
authority to promulgate rules to carry out an express legislative purpose, the rules of
administrative officers and boards, which have the effect of extending, or which conflict with the
authority-granting statute, do not represent a valid exercise of the rule-making power but
constitute an attempt by an administrative body to legislate.51
It has been said that when the application of an administrative issuance modifies existing laws or
exceeds the intended scope, as in this case, the issuance becomes void, not only for being ultra
vires, but also for being unreasonable.52
Thus, the Court finds that Section 1, Wage Order No. R02-03 is void insofar as it grants a wage
increase to employees earning more than the minimum wage rate; and pursuant to the
separability clause53 of the Wage Order, Section 1 is declared valid with respect to employees
earning the prevailing minimum wage rate.1awphi1.net
Prior to the passage of the Wage Order, the daily minimum wage rates in Region II was set
at P104.00 for the Province of Isabela, P103.00 for the Province of Cagayan, P101.00 for the
Province of Nueva Vizcaya, andP100.00 for the Provinces of Quirino and Batanes.54 Only
employees earning the above-stated minimum wage rates are entitled to the P15.00 mandated
increase under the Wage Order.
Although the concomitant effect of the nullity of the Wage Order to those employees who have
received the mandated increase was not put in issue, this Court shall make a definite
pronouncement thereon to finally put this case to rest. As ruled by the Court in Latchme
Motoomull v. Dela Paz,55 "the Court will always strive to settle the entire controversy in a single
proceeding leaving no root or branch to bear the seeds of future litigation." 56
Applying by analogy, the Court's recent pronouncement in Philippine Ports Authority v.
Commission on Audit,57thus:
In regard to the refund of the disallowed benefits, this Court holds that petitioners need not
refund the benefits received by them based on our rulings in Blaquera v. Alcala, De Jesus v.

Page 5 of 36

Commission on Audit and Kapisanan ng mga Manggagawa sa Government Service Insurance

System (KMG) v. Commission on Audit.
In Blaquera, the petitioners, who were officials and employees of several government
departments and agencies, were paid incentive benefits pursuant to EO No. 292 and the
Omnibus Rules Implementing Book V of EO No. 292. On January 3, 1993, then President Fidel
V. Ramos issued Administrative Order (AO) No. 29 authorizing the grant of productivity incentive
benefits for the year 1992 in the maximum amount of P1,000. Section 4 of AO No. 29 directed all
departments, offices and agencies which authorized payment of CY 1992 Productivity Incentive
Bonus in excess of P1,000 to immediately cause the refund of the excess. Respondent heads of
the departments or agencies of the government concerned caused the deduction from
petitioners' salaries or allowances of the amounts needed to cover the overpayments.
Petitioners therein filed a petition for certiorari and prohibition before this Court to prevent
respondents therein from making further deductions from their salaries or allowances. The Court
ruled against the refund, thus:
Considering, however, that all the parties here acted in good faith, we cannot
countenance the refund of subject incentive benefits for the year 1992, which amounts
the petitioners have already received. Indeed, no indicia of bad faith can be detected
under the attendant facts and circumstances. The officials and chiefs of offices
concerned disbursed such incentive benefits in the honest belief that the amounts given
were due to the recipients and the latter accepted the same with gratitude, confident that
they richly deserve such benefits.

The Court however finds that the DOH and GSIS officials concerned who granted hazard
pay under R.A. No. 7305 to the SIG personnel acted in good faith, in the honest belief that
there was legal basis for such grant. The SIG personnel in turn accepted the hazard pay
benefits likewise believing that they were entitled to such benefit. At that time, neither the
concerned DOH and GSIS officials nor the SIG personnel knew that the grant of hazard
pay to the latter is not sanctioned by law. Thus, following the rulings of the Court in De
Jesus v. Commission on Audit, and Blaquera v. Alcala, the SIG personnel who previously
received hazard pay under R.A. No. 7305 need not refund such benefits.
In the same vein, the rulings in Blaquera, De Jesus and KMG apply to this case. Petitioners
received the hazard duty pay and birthday cash gift in good faith since the benefits were
authorized by PPA Special Order No. 407-97 issued pursuant to PPA Memorandum Circular No.
34-95 implementing DBM National Compensation Circular No. 76, series of 1995, and PPA
Memorandum Circular No. 22-97, respectively. Petitioners at that time had no knowledge that
the payment of said benefits lacked legal basis. Being in good faith, petitioners need not refund
the benefits they received.58 (Emphasis supplied)
employees, other than minimum wage earners, who received the wage increase mandated by
the Wage Order need not refund the wage increase received by them since they received the
wage increase in good faith, in the honest belief that they are entitled to such wage increase and
without any knowledge that there was no legal basis for the same.
Considering the foregoing, the Court need not delve on the other arguments raised by the
parties.

The said ruling in Blaquera was applied in De Jesus.

In De Jesus, COA disallowed the payment of allowances and bonuses consisting of
representation and transportation allowance, rice allowance, productivity incentive bonus,
anniversary bonus, year-end bonus and cash gifts to members of the interim Board of Directors
of the Catbalogan Water District. This Court affirmed the disallowance because petitioners
therein were not entitled to other compensation except for payment of per diemunder PD No.
198. However, the Court ruled against the refund of the allowances and bonuses received by
petitioners, thus:

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals
dated July 19, 2000 in CA-G.R. SP No. 42240 is MODIFIED. Section 1 of Wage Order No. R0203 issued on October 17, 1995 by the Regional Tripartite Wages and Productivity Board for
Region II, Tuguegarao, Cagayan is declared VALID insofar as the mandated increase applies to
employees earning the prevailing minimum wage rate at the time of the passage of the Wage
Order and VOID with respect to its application to employees receiving more than the prevailing
minimum wage rate at the time of the passage of the Wage Order.
No costs.

This ruling in Blaquera applies to the instant case. Petitioners here received the additional
allowances and bonuses in good faith under the honest belief that LWUA Board
Resolution No. 313 authorized such payment. At the time petitioners received the
additional allowances and bonuses, the Court had not yet decided Baybay Water District.
Petitioners had no knowledge that such payment was without legal basis. Thus, being in
good faith, petitioners need not refund the allowances and bonuses they received but
disallowed by the COA.
Further, in KMG, this Court applied the ruling in Blaquera and De Jesus in holding that the Social
Insurance Group (SIG) personnel of the Government Service Insurance System need not refund
the hazard pay received by them although said benefit was correctly disallowed by COA. The
Court ruled:

SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

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G.R. No. 146530

January 17, 2005

PEDRO CHAVEZ, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING, INC. and ALVIN
LEE, Plant Manager, respondents.
DECISION

The respondents, for their part, denied the existence of an employer-employee relationship
between the respondent company and the petitioner. They averred that the petitioner was an
independent contractor as evidenced by the contract of service which he and the respondent
company entered into. The said contract provided as follows:
That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to hire and
the Contractor [referring to Pedro Chavez], by nature of their specialized line or service jobs,
accepts the services to be rendered to the Principal, under the following terms and covenants
heretofore mentioned:

CALLEJO, SR., J.:

1

Before the Court is the petition for review on certiorari of the Resolution dated December 15,
2000 of the Court of Appeals (CA) reversing its Decision dated April 28, 2000 in CA-G.R. SP No.
52485. The assailed resolution reinstated the Decision dated July 10, 1998 of the National Labor
Relations Commission (NLRC), dismissing the complaint for illegal dismissal filed by herein
petitioner Pedro Chavez. The said NLRC decision similarly reversed its earlier Decision dated
January 27, 1998 which, affirming that of the Labor Arbiter, ruled that the petitioner had been
illegally dismissed by respondents Supreme Packaging, Inc. and Mr. Alvin Lee.
The case stemmed from the following facts:
The respondent company, Supreme Packaging, Inc., is in the business of manufacturing cartons
and other packaging materials for export and distribution. It engaged the services of the
petitioner, Pedro Chavez, as truck driver on October 25, 1984. As such, the petitioner was
tasked to deliver the respondent companys products from its factory in Mariveles, Bataan, to its
various customers, mostly in Metro Manila. The respondent company furnished the petitioner
with a truck. Most of the petitioners delivery trips were made at nighttime, commencing at 6:00
p.m. from Mariveles, and returning thereto in the afternoon two or three days after. The
deliveries were made in accordance with the routing slips issued by respondent company
indicating the order, time and urgency of delivery. Initially, the petitioner was paid the sum
of P350.00 per trip. This was later adjusted to P480.00 per trip and, at the time of his alleged
dismissal, the petitioner was receiving P900.00 per trip.
Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent companys
plant manager, his (the petitioners) desire to avail himself of the benefits that the regular
employees were receiving such as overtime pay, nightshift differential pay, and 13th month pay,
among others. Although he promised to extend these benefits to the petitioner, respondent Lee
failed to actually do so.
On February 20, 1995, the petitioner filed a complaint for regularization with the Regional
Arbitration Branch No. III of the NLRC in San Fernando, Pampanga. Before the case could be
heard, respondent company terminated the services of the petitioner. Consequently, on May 25,
1995, the petitioner filed an amended complaint against the respondents for illegal dismissal,
unfair labor practice and non-payment of overtime pay, nightshift differential pay, 13th month
pay, among others. The case was docketed as NLRC Case No. RAB-III-02-6181-95.

1. That the inland transport delivery/hauling activities to be performed by the

contractor to the principal, shall only cover travel route from Mariveles to Metro Manila.
Otherwise, any change to this travel route shall be subject to further agreement by the
parties concerned.
2. That the payment to be made by the Principal for any hauling or delivery transport
services fully rendered by the Contractor shall be on a per trip basis depending on the
size or classification of the truck being used in the transport service, to wit:
a) If the hauling or delivery service shall require a truck of six wheeler, the
payment on a per trip basis from Mariveles to Metro Manila shall be THREE
HUNDRED PESOS (P300.00) and EFFECTIVE December 15, 1984.
b) If the hauling or delivery service require a truck of ten wheeler, the
payment on a per trip basis, following the same route mentioned, shall be
THREE HUNDRED FIFTY (P350.00) Pesos and Effective December 15,
1984.
3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at least
two (2) helpers;
4. The Contractor shall exercise direct control and shall be responsible to the Principal
for the cost of any damage to, loss of any goods, cargoes, finished products or the
like, while the same are in transit, or due to reckless [sic] of its men utilized for the
purpose above mentioned;
5. That the Contractor shall have absolute control and disciplinary power over its men
working for him subject to this agreement, and that the Contractor shall hold the
Principal free and harmless from any liability or claim that may arise by virtue of the
Contractors non-compliance to the existing provisions of the Minimum Wage Law, the
Employees Compensation Act, the Social Security System Act, or any other such law
or decree that may hereafter be enacted, it being clearly understood that any truck
drivers, helpers or men working with and for the Contractor, are not employees who
will be indemnified by the Principal for any such claim, including damages incurred in
connection therewith;

Page 7 of 36

6. This contract shall take effect immediately upon the signing by the parties, subject
to renewal on a year-to-year basis.2

c) 13th month pay .P 10,800.00

d) Service Incentive Leave Pay .. 2,040.00

This contract of service was dated December 12, 1984. It was subsequently renewed twice, on
July 10, 1989 and September 28, 1992. Except for the rates to be paid to the petitioner, the
terms of the contracts were substantially the same. The relationship of the respondent company
and the petitioner was allegedly governed by this contract of service.
The respondents insisted that the petitioner had the sole control over the means and methods
by which his work was accomplished. He paid the wages of his helpers and exercised control
over them. As such, the petitioner was not entitled to regularization because he was not an
employee of the respondent company. The respondents, likewise, maintained that they did not
dismiss the petitioner. Rather, the severance of his contractual relation with the respondent
company was due to his violation of the terms and conditions of their contract. The petitioner
allegedly failed to observe the minimum degree of diligence in the proper maintenance of the
truck he was using, thereby exposing respondent company to unnecessary significant expenses
of overhauling the said truck.
After the parties had filed their respective pleadings, the Labor Arbiter rendered the Decision
dated February 3, 1997, finding the respondents guilty of illegal dismissal. The Labor Arbiter
declared that the petitioner was a regular employee of the respondent company as he was
performing a service that was necessary and desirable to the latters business. Moreover, it was
noted that the petitioner had discharged his duties as truck driver for the respondent company
for a continuous and uninterrupted period of more than ten years.
The contract of service invoked by the respondents was declared null and void as it constituted
a circumvention of the constitutional provision affording full protection to labor and security of
tenure. The Labor Arbiter found that the petitioners dismissal was anchored on his insistent
demand to be regularized. Hence, for lack of a valid and just cause therefor and for their failure
to observe the due process requirements, the respondents were found guilty of illegal dismissal.
The dispositive portion of the Labor Arbiters decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent
SUPREME PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with business address at
BEPZ, Mariveles, Bataan guilty of illegal dismissal, ordering said respondent to pay complainant
his separation pay equivalent to one (1) month pay per year of service based on the average
monthly pay of P10,800.00 in lieu of reinstatement as his reinstatement back to work will not do
any good between the parties as the employment relationship has already become strained and
full backwages from the time his compensation was withheld on February 23, 1995 up to
January 31, 1997 (cut-off date) until compliance, otherwise, his backwages shall continue to run.
Also to pay complainant his 13th month pay, night shift differential pay and service incentive
leave pay hereunder computed as follows:
a) Backwages .. P248,400.00
b) Separation Pay .... P140,400.00

TOTAL P401,640.00
Respondent is also ordered to pay ten (10%) of the amount due the complainant as attorneys
fees.
SO ORDERED.3
The respondents seasonably interposed an appeal with the NLRC. However, the appeal was
dismissed by the NLRC in its Decision4 dated January 27, 1998, as it affirmed in toto the
decision of the Labor Arbiter. In the said decision, the NLRC characterized the contract of
service between the respondent company and the petitioner as a "scheme" that was resorted to
by the respondents who, taking advantage of the petitioners unfamiliarity with the English
language and/or legal niceties, wanted to evade the effects and implications of his becoming a
regularized employee.5
The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC. Acting
thereon, the NLRC rendered another Decision6 dated July 10, 1998, reversing its earlier decision
and, this time, holding that no employer-employee relationship existed between the respondent
company and the petitioner. In reconsidering its earlier decision, the NLRC stated that the
respondents did not exercise control over the means and methods by which the petitioner
accomplished his delivery services. It upheld the validity of the contract of service as it pointed
out that said contract was silent as to the time by which the petitioner was to make the deliveries
and that the petitioner could hire his own helpers whose wages would be paid from his own
account. These factors indicated that the petitioner was an independent contractor, not an
employee of the respondent company.
The NLRC ruled that the contract of service was not intended to circumvent Article 280 of the
Labor Code on the regularization of employees. Said contract, including the fixed period of
employment contained therein, having been knowingly and voluntarily entered into by the parties
thereto was declared valid citing Brent School, Inc. v. Zamora.7 The NLRC, thus, dismissed the
petitioners complaint for illegal dismissal.
The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied by the
NLRC in its Resolution dated September 7, 1998. He then filed with this Court a petition for
certiorari, which was referred to the CA following the ruling in St. Martin Funeral Home v.
NLRC .8
The appellate court rendered the Decision dated April 28, 2000, reversing the July 10, 1998
Decision of the NLRC and reinstating the decision of the Labor Arbiter. In the said decision, the
CA ruled that the petitioner was a regular employee of the respondent company because as its
truck driver, he performed a service that was indispensable to the latters business. Further, he

Page 8 of 36

had been the respondent companys truck driver for ten continuous years. The CA also
reasoned that the petitioner could not be considered an independent contractor since he had no
substantial capital in the form of tools and machinery. In fact, the truck that he drove belonged to
the respondent company. The CA also observed that the routing slips that the respondent
company issued to the petitioner showed that it exercised control over the latter. The routing
slips indicated the chronological order and priority of delivery, the urgency of certain deliveries
and the time when the goods were to be delivered to the customers.
The CA, likewise, disbelieved the respondents claim that the petitioner abandoned his job noting
that he just filed a complaint for regularization. This actuation of the petitioner negated the
respondents allegation that he abandoned his job. The CA held that the respondents failed to
discharge their burden to show that the petitioners dismissal was for a valid and just cause.
Accordingly, the respondents were declared guilty of illegal dismissal and the decision of the
Labor Arbiter was reinstated.
In its April 28, 2000 Decision, the CA denounced the contract of service between the respondent
company and the petitioner in this wise:
In summation, we rule that with the proliferation of contracts seeking to prevent workers from
attaining the status of regular employment, it is but necessary for the courts to scrutinize with
extreme caution their legality and justness. Where from the circumstances it is apparent that a
contract has been entered into to preclude acquisition of tenurial security by the employee, they
should be struck down and disregarded as contrary to public policy and morals. In this case, the
"contract of service" is just another attempt to exploit the unwitting employee and deprive him of
the protection of the Labor Code by making it appear that the stipulations of the parties were
governed by the Civil Code as in ordinary transactions.9
However, on motion for reconsideration by the respondents, the CA made a complete turn
around as it rendered the assailed Resolution dated December 15, 2000 upholding the contract
of service between the petitioner and the respondent company. In reconsidering its decision, the
CA explained that the extent of control exercised by the respondents over the petitioner was only
with respect to the result but not to the means and methods used by him. The CA cited the
following circumstances: (1) the respondents had no say on how the goods were to be delivered
to the customers; (2) the petitioner had the right to employ workers who would be under his
direct control; and (3) the petitioner had no working time.
The fact that the petitioner had been with the respondent company for more than ten years was,
according to the CA, of no moment because his status was determined not by the length of
service but by the contract of service. This contract, not being contrary to morals, good customs,
public order or public policy, should be given the force and effect of law as between the
respondent company and the petitioner. Consequently, the CA reinstated the July 10, 1998
Decision of the NLRC dismissing the petitioners complaint for illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000
Resolution of the appellate court alleging that:

(A)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING
TO EXCESS OF JURISDICTION IN GIVING MORE CONSIDERATION TO THE "CONTRACT
OF SERVICE" ENTERED INTO BY PETITIONER AND PRIVATE RESPONDENT THAN
ARTICLE 280 OF THE LABOR CODE OF THE PHILIPPINES WHICH CATEGORICALLY
DEFINES A REGULAR EMPLOYMENT NOTWITHSTANDING ANY WRITTEN AGREEMENT
TO THE CONTRARY AND REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;
(B)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING
TO EXCESS OF JURISDICTION IN REVERSING ITS OWN FINDINGS THAT PETITIONER IS
A REGULAR EMPLOYEE AND IN HOLDING THAT THERE EXISTED NO EMPLOYEREMPLOYEE RELATIONSHIP BETWEEN PRIVATE RESPONDENT AND PETITIONER IN AS
MUCH AS THE "CONTROL TEST" WHICH IS CONSIDERED THE MOST ESSENTIAL
CRITERION IN DETERMINING THE EXISTENCE OF SAID RELATIONSHIP IS NOT
PRESENT.10
The threshold issue that needs to be resolved is whether there existed an employer-employee
relationship between the respondent company and the petitioner. We rule in the affirmative.
The elements to determine the existence of an employment relationship are: (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4)
the employers power to control the employees conduct. 11 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.12 All the four elements are present in this
case.
First. Undeniably, it was the respondents who engaged the services of the petitioner without the
intervention of a third party.
Second. Wages are defined as "remuneration or earnings, however designated, capable of
being expressed in terms of money, whether fixed or ascertained on a time, task, piece or
commission basis, or other method of calculating the same, which is payable by an employer to
an employee under a written or unwritten contract of employment for work done or to be done,
or for service rendered or to be rendered."13 That the petitioner was paid on a per trip basis is
not significant. This is merely a method of computing compensation and not a basis for
determining the existence or absence of employer-employee relationship. One may be paid on
the basis of results or time expended on the work, and may or may not acquire an employment
status, depending on whether the elements of an employer-employee relationship are present or
not.14 In this case, it cannot be gainsaid that the petitioner received compensation from the
respondent company for the services that he rendered to the latter.
Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his
employees by means of payroll.15 The payroll should show, among other things, the employees

Page 9 of 36

rate of pay, deductions made, and the amount actually paid to the employee. Interestingly, the
respondents did not present the payroll to support their claim that the petitioner was not their
employee, raising speculations whether this omission proves that its presentation would be
adverse to their case.16
Third. The respondents power to dismiss the petitioner was inherent in the fact that they
engaged the services of the petitioner as truck driver. They exercised this power by terminating
the petitioners services albeit in the guise of "severance of contractual relation" due allegedly to
the latters breach of his contractual obligation.
Fourth. As earlier opined, of the four elements of the employer-employee relationship, the
"control test" is the most important. Compared to an employee, an independent contractor is one
who carries on a distinct and independent business and undertakes to perform the job, work, or
service on its own account and under its own responsibility according to its own manner and
method, free from the control and direction of the principal in all matters connected with the
performance of the work except as to the results thereof.17 Hence, while an independent
contractor enjoys independence and freedom from the control and supervision of his principal,
an employee is subject to the employers power to control the means and methods by which the
employees work is to be performed and accomplished.18
Although the respondents denied that they exercised control over the manner and methods by
which the petitioner accomplished his work, a careful review of the records shows that the latter
performed his work as truck driver under the respondents supervision and control. Their right of
control was manifested by the following attendant circumstances:
1. The truck driven by the petitioner belonged to respondent company;
2. There was an express instruction from the respondents that the truck shall be used
exclusively to deliver respondent companys goods; 19
3. Respondents directed the petitioner, after completion of each delivery, to park the
truck in either of two specific places only, to wit: at its office in Metro Manila at 2320
Osmea Street, Makati City or at BEPZ, Mariveles, Bataan;20 and
4. Respondents determined how, where and when the petitioner would perform his
task by issuing to him gate passes and routing slips. 21
a. The routing slips indicated on the column REMARKS, the chronological
order and priority of delivery such as 1st drop, 2nd drop, 3rd drop, etc. This
meant that the petitioner had to deliver the same according to the order of
priority indicated therein.
b. The routing slips, likewise, showed whether the goods were to be
delivered urgently or not by the word RUSH printed thereon.

c. The routing slips also indicated the exact time as to when the goods were
to be delivered to the customers as, for example, the words "tomorrow
morning" was written on slip no. 2776.
These circumstances, to the Courts mind, prove that the respondents exercised control over the
means and methods by which the petitioner accomplished his work as truck driver of the
respondent company. On the other hand, the Court is hard put to believe the respondents
allegation that the petitioner was an independent contractor engaged in providing delivery or
hauling services when he did not even own the truck used for such services. Evidently, he did
not possess substantial capitalization or investment in the form of tools, machinery and work
premises. Moreover, the petitioner performed the delivery services exclusively for the
respondent company for a continuous and uninterrupted period of ten years.
The contract of service to the contrary notwithstanding, the factual circumstances earlier
discussed indubitably establish the existence of an employer-employee relationship between the
respondent company and the petitioner. It bears stressing that the existence of an employeremployee relationship cannot be negated by expressly repudiating it in a contract and providing
therein that the employee is an independent contractor when, as in this case, the facts clearly
show otherwise. Indeed, the employment status of a person is defined and prescribed by law
and not by what the parties say it should be.22
Having established that there existed an employer-employee relationship between the
respondent company and the petitioner, the Court shall now determine whether the respondents
validly dismissed the petitioner.
As a rule, the employer bears the burden to prove that the dismissal was for a valid and just
cause.23 In this case, the respondents failed to prove any such cause for the petitioners
dismissal. They insinuated that the petitioner abandoned his job. To constitute abandonment,
these two factors must concur: (1) the failure to report for work or absence without valid or
justifiable reason; and (2) a clear intention to sever employer-employee relationship. 24Obviously,
the petitioner did not intend to sever his relationship with the respondent company for at the time
that he allegedly abandoned his job, the petitioner just filed a complaint for regularization, which
was forthwith amended to one for illegal dismissal. A charge of abandonment is totally
inconsistent with the immediate filing of a complaint for illegal dismissal, more so when it
includes a prayer for reinstatement.25
Neither can the respondents claim that the petitioner was guilty of gross negligence in the
proper maintenance of the truck constitute a valid and just cause for his dismissal. Gross
negligence implies a want or absence of or failure to exercise slight care or diligence, or the
entire absence of care. It evinces a thoughtless disregard of consequences without exerting any
effort to avoid them.26 The negligence, to warrant removal from service, should not merely
be gross but also habitual.27 The single and isolated act of the petitioners negligence in the
proper maintenance of the truck alleged by the respondents does not amount to "gross and
habitual neglect" warranting his dismissal.
The Court agrees with the following findings and conclusion of the Labor Arbiter:

Page 10 of 36

 As against the gratuitous allegation of the respondent that complainant was not dismissed
from the service but due to complainants breach of their contractual relation, i.e., his violation of
the terms and conditions of the contract, we are very much inclined to believe complainants
story that his dismissal from the service was anchored on his insistent demand that he be
considered a regular employee. Because complainant in his right senses will not just abandon
for that reason alone his work especially so that it is only his job where he depends chiefly his
existence and support for his family if he was not aggrieved by the respondent when he was told
that his services as driver will be terminated on February 23, 1995.28
Thus, the lack of a valid and just cause in terminating the services of the petitioner renders his
dismissal illegal. Under Article 279 of the Labor Code, an employee who is unjustly dismissed is
entitled to reinstatement, without loss of seniority rights and other privileges, and to the payment
of full backwages, inclusive of allowances, and other benefits or their monetary equivalent,
computed from the time his compensation was withheld from him up to the time of his actual
reinstatement.29 However, as found by the Labor Arbiter, the circumstances obtaining in this case
do not warrant the petitioners reinstatement. A more equitable disposition, as held by the Labor
Arbiter, would be an award of separation pay equivalent to one month for every year of service
from the time of his illegal dismissal up to the finality of this judgment in addition to his full
backwages, allowances and other benefits.
WHEREFORE, the instant petition is GRANTED. The Resolution dated December 15, 2000 of
the Court of Appeals reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is
REVERSED and SET ASIDE. The Decision dated February 3, 1997 of the Labor Arbiter in
NLRC Case No. RAB-III-02-6181-5, finding the respondents guilty of illegally terminating the
employment of petitioner Pedro Chavez, is REINSTATED.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 122468 November 16, 1998

SENTINEL SECURITY AGENCY, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, ADRIANO CABANO JR., VERONICO C.
ZAMBO, HELCIAS ARROYO, RUSTICO ANDOY, and MAXIMO ORTIZ, respondents.
G.R. No. 122716 November 16, 1998
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, VERONICO ZAMBO, HELCIAS ARROYO,
ADRIANO CABANO, MAXIMO ORTIZ, and RUSTICO ANDOY, respondents.
RESOLUTION

PANGANIBAN, J.:
Separately filed before us by Petitioners Sentinel Security Agency, Inc. and Philippine American
Life Insurance Company (hereafter referred to as the Agency and the Client, respectively) are
two Motions for Reconsideration of this Court's September 3, 1998 Decision in GR Nos. 122468
and 122716.
Petitioner Agency, in its Motion for Reconsideration, merely reiterates the same basic issues and
arguments already submitted to the Court, which has sufficiently passed upon them in the
assailed Decision. Thus, they cannot warrant a modification, much less a reversal, of our
dispositions therein.
On the other hand, Petitioner Client requests a clarification of its own liability. That the
complainants' illegal dismissal was the sole responsibility of the Agency was clearly stated by
the Court in the assailed Decision, which we quote hereunder:
. . . [T]here was no suspension of operation, business or undertaking, bona
fide or not, that would have justified placing the complainants off-detail and
making them wait for a period of six months. . . . The only logical conclusion
from the foregoing discussion is that the Agency illegally dismissed the
complainants. Hence, as a necessary consequence, the complainants are
entitled to . . . back wages. . . . . 1
Relevant to this controversy is the recent pronouncement of the Court in Rosewood v. National
Labor Relations Commission: 2
. . . [A]n order to pay back wages and separation pay is invested with a
punitive character, such that an indirect employer should not be made liable
without a finding that it had committed or conspired in the illegal dismissal.

Page 11 of 36

In the present case, the Court held that the Client was not responsible for the illegal dismissal of
the complainants and, thus, not liable for the payment of back wages and separation pay, viz.:

THIRD DIVISION
G.R. No. 148130

June 16, 2006

The Client did not, as it could not, illegally dismiss the complainants. Thus, if
should not be held liable for separation pay and back wages. 3
In sum, while the exoneration of the Client from the payment of separation pay and back wages
was clearly stated in the body of our Decision, such fact was not included in the dispositive
portion. In this sense, the Motion for Reconsideration has merit.
However, the Decision did not completely exonerate the Client which, as an indirect employer, is
solidarily liable with Petitioner Agency for the complainants' unpaid service incentive leave,
pursuant to Articles 106, 107 and 109 of the Code. As clarified by the Court in Rosewood:
. . . Under these cited provisions of the Labor Code should the contractor fail
to pay the wages of its employees in accordance with law, the indirect
employer (the petitioner in this case), is jointly and severally liable with the
contractor, but such responsibility should be understood to be limited to the
extent of the work performed under the contract, in the same manner and
extent that he is liable to the employees directly employed by him. This
liability of petitioner covers the payment of the workers' performance of any
work, task, job or project. So long as the work, task, job or project has been
performed for petitioner's benefit or on its behalf, the liability accrues for
such period even if, later on, the employees are eventually transferred or
reassigned elsewhere.
The complainants' service incentive leave pay accrued to them during the years 1991-1993; that
is, before they were illegally dismissed by the Agency on January 16, 1994, as clearly shown in
the labor arbiter's computation (see last page of Annex "A" to the Petition; rollo, p. 31).
WHEREFORE, the Motion for Reconsideration filed by the Agency is hereby DENIED, as it (1)
raises the same basic issues already sufficiently passed upon in the Court's Decision and (2)
fails to submit any substantial argument to warrant reversal or modification thereof insofar as its
liabilities are concerned. The Motion for Reconsideration filed by the Client is GRANTED IN
PART. We hereby CLARIFY that for complainants' back wages and separation pay, Philippine
American Life Insurance Company is ABSOLVED from liability; but for complainants' service
incentive leave pay, its solidary liability with the Agency is REITERATED.
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

PETROLEUM SHIPPING LIMITED (formerly ESSO INTERNATIONAL SHIPPING

(BAHAMAS) CO., LTD.) and TRANS-GLOBAL MARITIME AGENCY, INC., Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FLORELLO W.
TANCHICO, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing the 25 January 2001 Decision2 and 7 May
2001 Resolution3 of the Court of Appeals in CA-G.R. SP No. 54756.
The Antecedent Facts
On 6 March 1978, Esso International Shipping (Bahamas) Co., Ltd., ("Esso") through TransGlobal Maritime Agency, Inc. ("Trans-Global") hired Florello W. Tanchico ("Tanchico") as First
Assistant Engineer. In 1981, Tanchico became Chief Engineer. On 13 October 1992, Tanchico
returned to the Philippines for a two-month vacation after completing his eight-month
deployment.
On 8 December 1992, Tanchico underwent the required standard medical examination prior to
boarding the vessel. The medical examination revealed that Tanchico was suffering from
"Ischemic Heart Disease, Hypertensive Cardio-Muscular Disease and Diabetes Mellitus."
Tanchico took medications for two months and a subsequent stress test showed a negative
result. However, Esso no longer deployed Tanchico. Instead, Esso offered to pay him benefits
under the Career Employment Incentive Plan. Tanchico accepted the offer.
On 26 April 1993, Tanchico filed a complaint against Esso, Trans-Global and Malayan Insurance
Co., Inc. ("Malayan") before the Philippine Overseas Employment Administration (POEA) for
illegal dismissal with claims for backwages, separation pay, disability and medical benefits and
13th month pay. In view of the enactment of Republic Act No. 8042 ("RA 8042")4 transferring to
the National Labor Relations Commission (NLRC) the jurisdiction over money claims of
overseas workers, the case was indorsed to the Arbitration Branch of the National Capital
Region. In a Decision5 dated 16 October 1996, Labor Arbiter Jose G. De Vera ("Labor Arbiter De
Vera") dismissed the complaint for lack of merit. Tanchico appealed to the NLRC.
The Ruling of the NLRC

Page 12 of 36

In its Resolution6 of 3 September 1998, the NLRC affirmed the Decision of Labor Arbiter De
Vera. Tanchico filed a motion for reconsideration. In a Resolution7 promulgated on 29 March
1999, the NLRC reconsidered its 3 September 1998 Resolution, as follows:
On the claim of illegal dismissal, the same is unavailing as complainant had been declared as
one with partial permanent disability. Thus, he should be entitled to disability benefit of 18 days
for every year of credited service of fourteen (14) years less the amount he already received
under the Companys Disability Plan.

WHEREFORE, our decision is hereby MODIFIED. The petitioners are ordered to pay to the
private respondent the following: (1) disability wages equivalent to 18 days per year multiplied by
10 years less any amount already received under the companys disability plan; prorated 13th
month pay corresponding to eight (8) months of actual work; and attorneys fee equivalent to
10% of the total award.
SO ORDERED.12
Petitioners went to this Court for relief on the following grounds:

On the claim of 13th month pay, the respondent Agency not falling under the enumerated
exempted employers under P.D. 851 and in the absence of any proof that respondent is already
paying its employees a 13th month pay or more in a calendar year, perforce, respondent agency
should pay complainant his monthly pay computed at [sic] the actual month [sic] worked, which
is 8 months.

I. The Court of Appeals decided a question of substance not in accord with law,
applicable decision of this Court and International Maritime Law when it ruled that
private respondent, a seafarer, was a regular employee;

Since complainant was forced to litigate his case, he is hereby awarded 10% of the total award
as attorneys fees.

II. The Court of Appeals decided a question of substance not in accord with law when
it held that the private respondent was entitled to greater disability benefit than he was
[sic];

SO ORDERED.8
Esso and Trans-Global moved for the reconsideration of the 29 March 1999 Resolution.9 In its
27 July 1999 Resolution,10 the NLRC denied their motion.

III. The Court of Appeals decided a question of substance not heretofore determined
by this Court when it ruled that private respondent was entitled to 13th month pay
although it was not provided for in the contract of employment between petitioners and
private respondent; and

Esso, now using the name Petroleum Shipping Limited ("Petroleum Shipping"), and TransGlobal (collectively referred to as "petitioners") filed a petition for certiorari before the Court of
Appeals assailing the 29 March 1999 and 27 July 1999 Resolutions of the NLRC.

IV. The Court of Appeals decided a question of substance not in accord with law when
it awarded private respondent attorneys fees despite the Labor Arbiters and the
public respondents, albeit initially, dismissal of the complaint.13

The Ruling of the Court of Appeals

In its Decision promulgated on 25 January 2001, the Court of Appeals affirmed in toto the 29
March 1999 Resolution of the NLRC.

The Issues
The issues are as follows:
1. Whether Tanchico is a regular employee of petitioners; and

The Court of Appeals ruled that Tanchico was a regular employee of Petroleum Shipping. The
Court of Appeals held that petitioners are not exempt from the coverage of Presidential Decree
No. 851, as amended ("PD 851")11which mandates the payment of 13th month pay to all
employees. The Court of Appeals further ruled that Tanchico is entitled to disability benefits
based on his 14 years of tenure with petitioners. The Court of Appeals stated that the employeremployee relationship subsisted even during the period of Tanchicos vacation. The Court of
Appeals noted that petitioners were aware of Tanchicos medical history yet they still deployed
him for 14 years. Finally, the Court of Appeals sustained the award of attorneys fees.
Petitioners moved for the reconsideration of the Decision. In its 7 May 2001 Resolution, the
Court of Appeals modified its Decision by deducting Tanchicos vacation from his length of
service. Thus:

2. Whether Tanchico is entitled to 13th month pay, disability benefits and attorneys
fees.
The Ruling of This Court
The petition is partly meritorious.
Seafarers are Contractual Employees
The issue on whether seafarers are regular employees is already a settled matter.

Page 13 of 36

In Ravago v. Esso Eastern Marine, Ltd.,14 the Court traced its ruling in a number of cases that
seafarers are contractual, not regular, employees. Thus, in Brent School, Inc. v. Zamora,15 the
Court cited overseas employment contract as an example of contracts where the concept of
regular employment does not apply, whatever the nature of the engagement and despite the
provisions of Article 280 of the Labor Code. In Coyoca v. NLRC,16 the Court held that the
agency is liable for payment of a seamans medical and disability benefits in the event that the
principal fails or refuses to pay the benefits or wages due the seaman although the seaman may
not be a regular employee of the agency.

Moreover, it is an accepted maritime industry practice that employment of seafarers are for a
fixed period only. Constrained by the nature of their employment which is quite peculiar and
unique in itself, it is for the mutual interest of both the seafarer and the employer why the
employment status must be contractual only or for a certain period of time. Seafarers spend
most of their time at sea and understandably, they can not stay for a long and an indefinite
period of time at sea. Limited access to shore society during the employment will have an
adverse impact on the seafarer. The national, cultural and lingual diversity among the crew
during the COE is a reality that necessitates the limitation of its period.

The Court squarely passed upon the issue in Millares v. NLRC17 where one of the issues raised
was whether seafarers are regular or contractual employees whose employment are terminated
everytime their contracts of employment expire. The Court explained:

Petitioners make much of the fact that they have been continually re-hired or their contracts
renewed before the contracts expired (which has admittedly been going on for twenty (20)
years). By such circumstance they claim to have acquired regular status with all the rights and
benefits appurtenant to it.

[I]t is clear that seafarers are considered contractual employees. They can not be considered as
regular employees under Article 280 of the Labor Code. Their employment is governed by the
contracts they sign everytime they are rehired and their employment is terminated when the
contract expires. Their employment is contractually fixed for a certain period of time. They fall
under the exception of Article 280 whose employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of
engagement of the employee or where the work or services to be performed is seasonal in
nature and the employment is for the duration of the season. We need not depart from the
rulings of the Court in the two aforementioned cases which indeed constitute stare decisis
with respect to the employment status of seafarers.
Petitioners insist that they should be considered regular employees, since they have rendered
services which are usually necessary and desirable to the business of their employer, and that
they have rendered more than twenty (20) years of service. While this may be true,
the Brent case has, however, held that there are certain forms of employment which also require
the performance of usual and desirable functions and which exceed one year but do not
necessarily attain regular employment status under Article 280. Overseas workers including
seafarers fall under this type of employment which are governed by the mutual agreements of
the parties.
In this jurisdiction and as clearly stated in the Coyoca case, Filipino seamen are governed by the
Rules and Regulations of the POEA. The Standard Employment Contract governing the
employment of All Filipino Seamen on Board Ocean-Going Vessels of the POEA, particularly in
Part I, Sec. C specifically provides that the contract of seamen shall be for a fixed period. And in
no case should the contract of seamen be longer than 12 months. It reads:
Section C. Duration of Contract
The period of employment shall be for a fixed period but in no case to exceed 12 months and
shall be stated in the Crew Contract. Any extension of the Contract period shall be subject to the
mutual consent of the parties.

Such contention is untenable. Undeniably, this circumstance of continuous re-hiring was dictated
by practical considerations that experienced crew members are more preferred. Petitioners were
only given priority or preference because of their experience and qualifications but this does not
detract the fact that herein petitioners are contractual employees. They can not be considered
regular employees. x x x18
The Court reiterated the Millares ruling in Gu-Miro v. Adorable19 where it held that a radio
officer on board a vessel cannot be considered as a regular employee notwithstanding that the
work he performs is necessary and desirable in the business of the company.
Thus, in the present case, the Court of Appeals erred in ruling that Tanchico was a regular
employee of Petroleum Shipping.
On 13th Month Pay
The Court of Appeals premised its grant of 13th month pay on its ruling that Tanchico was a
regular employee. The Court of Appeals also ruled that petitioners are not exempt from the
coverage of PD 851 which requires all employers to pay their employees a 13th month pay.
We do not agree with the Court of Appeals. Again, Tanchico was a contractual, not a regular,
employee. Further, PD 851 does not apply to seafarers. The WHEREAS clauses of PD 851
provides:
WHEREAS, it is necessary to further protect the level of real wages from ravages of world-wide
inflation;
WHEREAS, there has been no increase in the legal minimum wage rates since 1970;
WHEREAS, the Christmas season is an opportune time for society to show its concern for the
plight of the working masses so they may properly celebrate Christmas and New Year.

Page 14 of 36

PD 851 contemplates the situation of land-based workers, and not of seafarers who generally
earn more than domestic land-based workers.
Tanchicos employment is governed by his Contract of Enlistment ("Contract").20 The Contract
has been approved by the POEA in accordance with Title I, Book One of the Labor Code and the
POEA Rules Governing Employment.21 The coverage of the Contract includes Compensation,
Overtime, Sundays and Holidays, Vacations, Living Allowance, Sickness, Injury and Death,
Transportation and Travel Expense, Subsistence and Living Quarters. It does not provide for the
payment of 13th month pay. The Contract of Employment,22 which is the standard employment
contract of the POEA, likewise does not provide for the payment of 13th month pay.
In Coyoca v. NLRC which involves a claim for separation pay, this Court held:
Furthermore, petitioners contract did not provide for separation benefits. In this connection, it is
important to note that neither does POEA standard employment contract for Filipino seamen
provide for such benefits.
As a Filipino seaman, petitioner is governed by the Rules and Regulations Governing Overseas
Employment and the said Rules do not provide for separation or termination pay. x x x23
Hence, in the absence of any provision in his Contract governing the payment of 13th month
pay, Tanchico is not entitled to the benefit.
On Disability Benefits
Petitioners allege that Tanchicos Contract ended on 13 October 1992 when he returned to
Manila. They allege that the vacation period is not part of the period of employment.
We cannot accept petitioners contention.
The duration of the Contract was for eight months. The Contract also provides:
Article V
VACATIONS
Vacation days shall be earned at the rate of seven and one-half days (7.5) days for each thirty
(30) days of continuous service, calculated from date of departure from Manila and until date of
return to Manila. Vacation begins on the day following arrival in Manila.
Every effort will be made to grant earned vacations promptly after eight (8) months of service;
however, the COMPANY shall have the right to advance or delay vacations to coincide with
vessel repairs, for operational reasons or due to personal requirements. SEAFARER shall
receive vacation compensation for each thirty (30) days of continuous service in accordance
with the rates listed in Addendum No. 1, Column (12), to be paid in Manila. Amounts shall be

pro-rated according to the ranks/ratings and period of time in which the SEAFARER served. For
period of less than thirty (30) days service, vacations and compensation shall be reduced
proportionately.
Time off for illness, injury, vacation, leave of absence or stand-by shall not be considered service
under the provisions of this Article.
It is the COMPANYs intention that each SEAFARER enjoy his full vacation period. Because of
urgent fleet needs, however, it occasionally may be necessary to recall a SEAFARER early from
vacation.24
Since Tanchico received compensation during his vacation, the Contract did not terminate on the
day he returned to Manila. The Contract remained in force during Tanchicos vacation period.
However, the Court of Appeals erred when it ruled that Tanchico is entitled to disability benefits
of 18 days for every year of service. The Court of Appeals ruled that Tanchicos employment was
continuous and that his tenure with petitioners was for 14 years. Again, the Court of Appeals
assumed that Tanchico was a regular employee. The Court of Appeals failed to consider that
Tanchicos employment terminated with the end of each contract.
The Contract provides:
Article VIII
SICKNESS-INJURY/DEATH
A. The COMPANY shall provide, during the period of the Contract, Insurance
coverage for the SEAFARER against loss of life, permanent disability, temporary
disability, injury, occupational illness, hospital and medical expense in such amounts
as the COMPANY shall determine but not lower than what the COMPANY would have
to pay under the Philippine Overseas Employment Administrations requirements or
the vessels flag state requirements (whichever is higher).
B. If SEAFARER is removed from a vessel for medical treatment he shall be entitled to
receive a disability benefit equal to his monthly wage rate (or pro-rata thereof) from
date of disembarkation until date of rejoining his vessel, assignment to another vessel
or until date of repatriation to Manila if still disabled. Medical, surgical, hospital, or
clinical treatment shall be recommended by a doctor approved by the COMPANY and
SEAFARER must follow all medical advices. SEAFARER will not be entitled to
disability benefit payments for disability resulting from his own misconduct,
negligence, unlawful acts, altercations, vice, etc.
C. After disembarkation from a vessel, the SEAFARER is entitled to one hundred
percent (100%) of his wages until he is declared fit or the degree of permanent
disability has been assessed by the COMPANYs physician for a maximum period of
120 days commencing on date of such disembarkation. Upon the expiration of such

Page 15 of 36

120 days and if the SEAFARER is still disabled, the SEAFARER shall be paid his
wages equivalent to 18 days for every year of credited service.

hypertensive since 1983 and diabetic since 1987. In the absence of concrete proof that Tanchico
acquired his disability during

In special instances and at the discretion of the COMPANY, the maximum number of
days of COMPANY benefits may be extended beyond 120 days for a SEAFARER with
over 80 months credited COMPANY service, or in such other case as may be
determined by the COMPANY.

his last deployment and not during his vacation, he is only entitled to disability benefits for 18
days.

Upon expiration of COMPANY benefits and if still disabled, the following amounts shall
be paid up to maximum of 365 days, inclusive of the period of the above benefits.
All Ranks ................................................ US $10 per day
D. If disability should occur while SEAFARER is on vacation, he must, within 3
days from date thereof, notify the COMPANYs Agent in the Philippines in order
that the latter shall be able to certify as to his condition. Certification of
disability required for payment of any disability benefits must be approved by a
doctor appointed by the COMPANY and SEAFARER must be disabled seven (7)
days or more to be eligible to benefits and sick leave status, COMPANY benefits
shall be limited to a maximum of 18 days.
Benefits under the COMPANY Disability Plan shall be made only to the extent and in
such amounts as are equal to the differential between any payments which may be
due SEAFARER under COMPANYs obligation as set forth in the 1st paragraph of this
Article VIII and 90 percent of SEAFARERs last wage rate.

Petitioners claim that they already paid Tanchico his disability benefits for 18 days but he refused
to sign the receipt.27 Tanchico alleged that he was only paid under the Career Employment
Incentive Plan.28 This is a factual matter which this Court cannot resolve. This matter has to be
remanded to the Labor Arbiter for resolution.
WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 25 January 2001
Decision and 7 May 2001 Resolution of the Court of Appeals in CA-G.R. SP No. 54756.
We REINSTATE the 16 October 1996 Decision of Labor Arbiter Jose G. De Vera dismissing the
complaint for illegal dismissal and the claims for backwages, separation pay and 13th month
pay. We REMAND the case to the Labor Arbiter to determine if Florello Tanchico has been paid
his disability benefits for 18 days in accordance with his Contract of Enlistment. If no payment
has been made, the Labor Arbiter is DIRECTED to determine the amount Tanchico is entitled.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila

E. In case of death at sea or at a foreign port, the tradition of the sea and
requirements of the laws of such foreign port will be observed. If practical, every effort
will be made on the part of the COMPANY to return the remains of a deceased
SEAFARER to Manila at COMPANY expense.
F. The SEAFARER acknowledges that even without signed receipts, any wage
payments made to him for a period during which he is entitled to benefits under any
law by reason of death, temporary or permanent disability, shall be deemed an
advance payment of compensation benefits due to him under such law, but only to the
extent of benefits due for the period of disability during which wages are paid.
Wages, as set forth in Addendum No. 1, Column (1), shall be the basis for any calculation of
benefits due SEAFARER under this Article VIII.25 (Emphasis supplied)
Indications that Tanchico was suffering from ischemia were detected on 8 December 1992
during Tanchicos vacation period. Thus, petitioners paid him disability benefits for 18 days in
accordance with the Contract. Tanchico cannot claim that he only acquired the illness during his
last deployment since the Medical Report26 he submitted to the NLRC showed that he has been

SECOND DIVISION
G.R. No. 188169

November 28, 2011

NIA JEWELRY MANUFACTURING OF METAL ARTS, INC. (otherwise known as NIA

MANUFACTURING AND METAL ARTS, INC.) and ELISEA B. ABELLA, Petitioners,
vs.
MADELINE C. MONTECILLO and LIZA M. TRINIDAD, Respondents.
DECISION
REYES, J.:
The Case

Page 16 of 36

Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assailing the
January 9, 2009 Decision2 and the May 26, 2009 Resolution3 of the Court of Appeals (CA) in CAG.R. SP No. 01755. The dispositive portion of the assailed Decision reads:
WHEREFORE, the Decision dated August 31, 2005 and Resolution dated October 28, 2005 of
the National Labor Relations Commission (NLRC), Fourth Division, Cebu City, in NLRC Case
No. V-000363-2005 are REVERSED and SET ASIDE, and a new one rendered ordering Nia
Jewelry Manufacturing:
(1) to reinstate petitioners to their respective positions as goldsmiths without loss of
seniority rights and other privileges; and
(2) to pay petitioners their full backwages inclusive of allowances and other benefits or
their monetary equivalent computed from the time their compensation was withheld up
to their actual reinstatement.
The case is REMANDED to the Labor Arbiter for the RECOMPUTATION of the total monetary
award due to petitioners in accord with this decision. The Labor Arbiter is ORDERED to submit
his compliance within thirty (30) days from notice of this decision, with copies furnished to the
parties.4 (citations omitted)
The assailed Resolution denied the petitioners' Motion for Reconsideration. 5
The Factual Antecedents
Madeline Montecillo (Madeline) and Liza Trinidad (Liza), hereinafter referred to collectively as
the respondents, were first employed as goldsmiths by the petitioner Nia Jewelry
Manufacturing of Metal Arts, Inc. (Nia Jewelry) in 1996 and 1994, respectively. Madeline's
weekly rate was P1,500.00 while Liza's was P2,500.00. Petitioner Elisea Abella (Elisea) is Nia
Jewelry's president and general manager.
There were incidents of theft involving goldsmiths in Nia Jewelry's employ.
On August 13, 2004, Nia Jewelry imposed a policy for goldsmiths requiring them to post cash
bonds or deposits in varying amounts but in no case exceeding 15% of the latter's salaries per
week. The deposits were intended to answer for any loss or damage which Nia Jewelry may
sustain by reason of the goldsmiths' fault or negligence in handling the gold entrusted to them.
The deposits shall be returned upon completion of the goldsmiths' work and after an accounting
of the gold received.
Nia Jewelry alleged that the goldsmiths were given the option not to post deposits, but to sign
authorizations allowing the former to deduct from the latter's salaries amounts not exceeding
15% of their take home pay should it be found that they lost the gold entrusted to them. The
respondents claimed otherwise insisting that Nia Jewelry left the goldsmiths with no option but
to post the deposits. The respondents alleged that they were constructively dismissed by Nia

Jewelry as their continued employments were made dependent on their readiness to post the
required deposits.
Nia Jewelry averred that on August 14, 2004, the respondents no longer reported for work and
signified their defiance against the new policy which at that point had not even been
implemented yet.
On September 7, 2004, the respondents filed against Nia Jewelry complaints 6 for illegal
dismissal and for the award of separation pay.
On September 20, 2004, the respondents filed their amended complaints 7 which excluded their
earlier prayer for separation pay but sought reinstatement and payment of backwages,
attorney's fees and 13th month pay.
Labor Arbiter Jose Gutierrez (LA Gutierrez) dismissed the respondents' complaints for lack of
merit but ordered Nia Jewelry to pay Madeline the sum of P3,750.00, and Liza, P6,250.00,
representing their proportionate entitlements to 13th month pay for the year 2004. LA Gutierrez
ratiocinated that:
Their [respondents] claim is self-serving. As evidence to (sic) their claims that they were made to
sign blank trust receipts, complainants presented Annexes 'A'[,] 'B' and 'C'. Our examination,
however, shows that they are not blank trust receipts but rather they are filled up trust receipts.
The undisputed facts show that complainants were piece workers of the respondent who are
engaged in the processing of gold into various jewelry pieces. Because of the nature of its
business, respondent was plagued with too many incidents of theft from its piece workers. x x x
This deposit [not exceeding 15% of the salary for the week of the piece worker] is released back
upon completion of work and after accounting of the gold received by him or her. There is an
alternative, however, the piece worker may opt not to give a deposit, instead sign an
authorization to allow the respondent to deduct from the salary an amount not to exceed 15% of
his take home pay, should it be found out that he lost the gold [entrusted] to him or her due to his
or her fault or negligence. The complainants did not like to post a deposit, or sign an
authorization. They instead told their fellow goldsmiths that they will bring the matter to the Labor
Commission. Complainants did not anymore report for work and did not anymore perform their
tasks. The fact of complainants not being dismissed from employment was duly attested to by
his co-workers who executed their Joint Affidavit under oath, Annex '4'.
As further evidence to prove that they were dismissed, complainants presented the minutes of
[the] Sept. 7, 2004 conference.
We examined the statements therein, we find that there is no admission on the part of the
respondents that they terminate[d] the complainants from employment. Respondents only
inform[ed] the complainants to put up the appropriate cash bond before they could be allowed to
return back to work which they previously refused to perform, as a sign of their protest to the
requirement to post cash bond or to sign an authorization.

Page 17 of 36

xxxx

ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any person, shall
make any deduction from the wages of his employees, except:

x x x It is clearly shown that complainants were paid with their 13th month pay for the year 2001,
2002 and 2003. However, for the year 2004, considering that complainants have worked until
the month of August, we rule to grant them the proportionate 13th month pay as there is no
showing that they were already paid. The other money claims are denied for lack of merit. x x x.8

(a) In cases where the worker is insured with his consent by the employer, and the
deduction is to recompense the employer for the amount paid by him as premium on
the insurance;

The respondents filed an appeal before the NLRC which affirmed LA Gutierrez's dismissal of the
amended complaints but deleted the award of 13th month pay based on findings that the former
had contracted unpaid individual loans from Nia Jewelry. The NLRC found that:

(b) For union dues, in cases where the right of the worker or his union to check-off has
been recognized by the employer or authorized in writing by the individual worker
concerned; and

x x x [I]t was complainants who refused to work with the respondents when they were required to
post cash bond or sign an authorization for deduction for the gold material they received and to
be manufactured into various jewelries. x x x We find it logically sound for the latter [Nia
Jewelry] to innovate certain policy or rule to protect its own business. To deprive them of such
prerogative [management prerogative] will be likened to 'killing the goose that lays the golden
eggs.'

(c) In cases where the employer is authorized by law or regulations issued by the
Secretary of Labor.

x x x [C]omplainants failed to prove their affirmative allegations in the respective complaints that
they were indeed dismissed. On the contrary, respondents have convincingly shown that if (sic)
were complainants who voluntarily abandoned from (sic) their work by refusing to abide with the
newly adopted company policy of putting up a cash bond or signing an authorization for
deduction for the gold materials entrusted to them in case of loss or pilferage.
x x x [B]oth complainants are still indebted with (sic) the respondents in the amounts
of P5,118.63 in the case of Madeline Montecillo and P7,963.11 in the case of Liza Montecillo.
Such being the case[,] Madeline Montecillo has still on account payable of P1,368.63 while Liza
Montecillo is still indebted of P1,713.71. This principle of offsetting of credit should be allowed to
preclude unjust enrichment at the expense of the respondents.9
The respondents filed a Petition for Certiorari10 before the CA ascribing patent errors in the
appreciation of facts and application of jurisprudence on the part of the NLRC when it ruled that
what occurred was not a case of illegal dismissal but of abandonment of work.
On January 9, 2009, the CA rendered the now assailed Decision11 reversing the findings of the
LA and the NLRC. The CA ruled:
According to [the] private respondents, they required a deposit or cash bond from [the]
petitioners in order to secure their interest against gold thefts committed by some of their
employees. If the employee fails to make the required deposit, he will not be given gold to work
on. Further, [the] private respondents admitted during the conciliation proceedings before
Executive Labor Arbiter Violeta Ortiz-Bantug that [the] petitioners would only be allowed back to
work after they had posted the proportionate cash bond.
The Labor Code of the Philippines provides:

Article 114. Deposits for loss or damage. No employer shall require his worker to make
deposits from which deductions shall be made for the reimbursement of loss of or damage to
tools, materials, or equipment supplied by the employer, except when the employer is engaged
in such trades, occupations or business where the practice of making deposits is a recognized
one, or is necessary or desirable as determined by the Secretary of Labor in appropriate rules
and regulations.
Applying these provisions to the case at bar, before [the] petitioners may be required to deposit
cash or agree to a salary deduction proportionate to the value of gold delivered to them, the
employer must comply with the relevant conditions imposed by law. Hence, the latter must prove
that there is an existing law or regulation authorizing it to impose such burden on its employees.
And, in case of deposit, that it is engaged in a trade, occupation or business where such
requirement is a recognized practice. Nia Jewelry obviously failed in this
respect.1wphi1 Surely, mere invocation of management prerogative cannot exempt it from
compliance with the strict requirements of law. Accordingly, [w]e hold that Nia Jewelry's
unilateral imposition of cash deposit or salary deduction on [the] petitioners is illegal. For that
matter, when Ni[]a Jewelry refused to give assignment to [the] petitioners or to admit them back
to work because they failed to give cash deposit or agree to a salary deduction, it was deemed
to have constructively dismissed [the] petitioners. Obviously, such deposit or salary deduction
was imposed as a condition for [the] petitioners' continuing employment. Non-compliance
indubitably meant termination of [the] petitioners' employment. Suldao vs. Cimech System
Construction, Inc.12 enunciated:
Constructive dismissal or a constructive discharge has been defined as quitting because
continued employment is rendered impossible, unreasonable or unlikely, as an offer involving a
demotion in rank and a diminution in pay.There is constructive dismissal when the continued
employment is rendered impossible so as to foreclose any choice on the employee's part except
to resign from such employment.
The fact that [the] petitioners lost no time in filing the complaint for illegal dismissal lucidly
negates [the] private respondents' claim that the former had abandoned their work. A contrary

Page 18 of 36

notion would not only be illogical but also absurd.13 Indeed, prompt filing of a case for illegal
dismissal, on one hand, is anathema to the concept of abandonment, on the other.
Finally, under Article 279 of the Labor Code, an illegally dismissed employee is entitled to
reinstatement without loss of seniority rights and other privileges; full backwages, inclusive of
allowances; and other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement.14 x x x.
As for damages, it is a rule that moral damages may be recovered where the dismissal of the
employee was attended by bad faith or fraud or constituted an act oppressive to labor, or was
done in a manner contrary to morals, good customs or public policy. x x x [w]e find that private
respondents did not act with oppression, bad faith or fraud. They imposed a cash bond or
deposit on herein petitioners in the honest belief that it was the best way to protect their interest
against gold theft in the company. x x x.15 (some citations omitted)
The Issues
The following are to be resolved in the instant Petition for Review: 16
I.
WHETHER OR NOT THE COURT OF APPEALS GROSSLY ERRED IN GIVING DUE
COURSE TO THE PETITION [under Rule 65 of the Rules of Court], IN EFFECT,
FINDING GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OR EXCESS
OF JURISDICTION ON THE PART OF THE NLRC, DESPITE THE FACT THAT THE
SUBJECT DECISION AND RESOLUTION THEREIN ARE IN PERFECT ACCORD
WITH THE EVIDENCE ON RECORD AND APPLICABLE LAWS.
II.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING
THAT THERE WAS CONSTRUCTIVE DISMISSAL IN THE PRESENT CASE AND
ORDERING RESPONDENTS' REINSTATEMENT AS WELL AS THE PAYMENT OF
THEIR BACKWAGES AND OTHER MONETARY BENEFITS WITHOUT FACTUAL OR
LEGAL BASES.17
The petitioners now argue that the CA should have outrightly dismissed the petition filed before it
as the respondents had resorted to an erroneous mode of appeal. The arguments raised in the
petition were the same ones already passed upon by the LA and the NLRC. What the
respondents sought was the CA's re-evaluation of the facts and evidence. The petition was thus
based on purported errors of judgment which are beyond the province of a petition for certiorari.
The petitioners likewise insist that the respondents abandoned their work without due notice and
to the prejudice of the former. The respondents' co-workers attested to the foregoing
circumstance.18 The respondents are goldsmiths whose skills are indispensable to a jewelry

manufacturing business, thus, it is not in accord with both logic and experience for the
petitioners to just fire them only to train new workers. Moreover, in the complaints and amended
complaints, the respondents did not claim for reinstatement, hence, implying their admission that
they were not terminated.
Further, under Articles 114 and 11519 of the Labor Code, an employer may require a worker to
post a deposit even before a loss or damage has occurred, provided that deductions from the
deposit can be made only upon proof that the worker is liable for the loss or damage. In case no
loss or damage is incurred, the deposit shall be returned to the worker after the conduct of an
accounting which was what happened in the case at bar. This is a valid exercise of management
prerogative the scope of which includes the setting of policies relative to working methods,
procedures to be followed and working regulations.20
The petitioners stress that they did not transgress the respondents' rights. The respondents, who
expressed to their co-workers their lack of fear to have their employment severed, are motivated
by their greed to extract money from the petitioners.
The petitioners conclude that the CA should have accorded respect to the findings of the LA and
the NLRC especially since they were not arrived at arbitrarily or in disregard of the evidence on
record.
In the respondents' Comment,21 they reiterate the arguments they had presented in the
proceedings below. The respondents emphasize that when they pleaded for reinstatement
during the conference with the petitioners on September 7, 2004, the latter openly admitted
without reservation that the former will only be allowed to return to work if they will post the
required cash bond.
Further, the respondents claim that there was no plausible reason for them to abandon their
employment considering the length of their service and the fact that they were being paid rates
above the minimum wage. Citing Hantex Trading Co. Inc. v. Court of Appeals,22 the respondents
argue that no employee in his right mind would recklessly abandon his job to join the ranks of
the unemployed and choose to unduly expose his family to hunger and untold hardship.
Besides, in Anflo Management & Investment Corp. v. Rodolfo Bolanio,23 this Court had the
occasion to state that the filing of a complaint for illegal dismissal is inconsistent with a charge of
abandonment, for an employee who takes steps to protest his lay off cannot by any logic be said
to have abandoned his work.
The respondents also claim that the petitioners misrepresented to this Court that the former did
not pray for reinstatement as the dorsal portions of the amended complaints indicate otherwise.
Moreover, the petitioners failed to prove their authority granted by either the law, or regulations
issued by the Secretary of Labor, allowing them to require their workers to post deposits. The
petitioners also failed to establish that Nia Jewelry is engaged in a trade, occupation or
business where the practice of making deposits is a recognized one or is considered as
necessary or desirable by the Secretary of Labor.

Page 19 of 36

Citing Sections 12,24 1325 and 14,26 Book III, Rule VIII of the Omnibus Rules Implementing the
Labor Code (Omnibus Rules), the respondents posit that salary deductions made prior to the
occurrence of loss or damage are illegal and constitute as undue interferences in the workers'
disposal of their wages. Further, the workers must first be given the opportunity to show cause
why deductions should not be made. If to be made, deductions should be fair, reasonable and
should not exceed the actual loss or damage. In the case at bar, the respondents were required
to post cash bonds even when there is no proof yet of their fault or negligence.
In the petitioners' Reply,27 they averred that the day after Nia Jewelry required from its
employees the posting of deposits and even before the policy was actually implemented, the
respondents promptly stopped reporting for work despite Elisea's attempt to get in touch with
them. The petitioners convened the employees to discuss the propriety of imposing the new
policy and to afford them ample opportunity to air their concerns. The respondents' acts
contravene Article 19 of the New Civil Code (NCC) which requires every person to act with
justice, give everyone his due and observe honesty and good faith.
Further, it is clear in the Minutes of the Conciliation Proceedings 28 before the LA that the
respondents were not willing to be reinstated and preferred instead the payment of separation
pay. Hence, no prayer for reinstatement was indicated in the original complaints filed by them.
As an afterthought, however, they amended their complaints to reflect that they were likewise
seeking for reinstatement.
The petitioners also point out that the doctrines in Hantex29 and Anflo Management30 cited by the
respondents find no application in the case at bar. In Hantex, the employer presented mere cash
vouchers to prove abandonment by the employee. In the case before us, sufficient evidence
show that the respondents abandoned their work. In Anflo Management, the employer expressly
uttered words terminating the employee who in turn filed a complaint the day right after the
incident. In the case now under our consideration, the respondents merely made a bare claim of
illegal dismissal. Rightly so in Abad v. Roselle Cinema,31 it was ruled that an employer's claim of
not having terminated an employee, when supported by substantial evidence, should not be
outrightly overcome by the argument that an employee would not have filed a complaint for
illegal dismissal if he were not really dismissed. The circumstances surrounding the separation
from employment should be taken into account.
Under Article 114 of the Labor Code, the Secretary of Labor is conferred the authority to
promulgate rules determining the circumstances when the making of deposits is deemed
recognized, necessary or desirable. However, Section 14,32 Book III, Rule VIII of the Omnibus
Rules does not define those circumstances. What is defined is the circumstances when
deductions can be made. It can thus be inferred that the intention is for the courts to determine
on a case to case basis what should be considered as recognized, necessary or
desirableespecially in the light of the existence of myriads of businesses which are practically
impossible to enumerate in modern society. The petitioners hence argue that the validity of
requiring cash deposits should be scrutinized withdue consideration of its reasonableness and
necessity. Further, Article 1306 of the NCC allows contracting parties to establish stipulations,
clauses, terms and conditions which they may deem convenient provided they do not
contravene the law, morals, good customs, public order or public policy. In the case at bar, the

policy adopted by the petitioners was neither unreasonable nor oppressive. It was intended to
benefit all the contracting parties.
Lastly, while the respondents raise the issue of the illegality of deductions, the petitioners stress
that it is academic because no deduction was actually made yet.
The Court's Ruling
The instant petition is partially meritorious.
The petitioners raise the procedural issue of whether or not the CA validly gave due course to
the petition forcertiorari filed before it under Rule 65 of the Rules of Court. As the substantive
issue of whether or not the petitioners constructively dismissed the respondents is closelyintertwined with the procedural question raised, they will be resolved jointly.
Yolanda Mercado, et al. v. AMA Computer College-Paraaque City, Inc.33 is instructive as to the
nature of a petition for review on certiorari under Rule 45, and a petition for certiorari under Rule
65, viz:
x x x [R]ule 45 limits us to the review of questions of law raised against the assailed CA decision.
In ruling for legal correctness, we have to view the CA decision in the same context that the
petition for certiorari it ruled upon was presented to it; we have to examine the CA decision from
the prism of whether it correctly determined the presence or absence of grave abuse of
discretion in the NLRC decision before it, not on the basis of whether the NLRC decision on the
merits of the case was correct. In other words, we have to be keenly aware that the CA
undertook a Rule 65 review, not a review on appeal, of the NLRC decision challenged before it.
This is the approach that should be basic in a Rule 45 review of a CA ruling in a labor case. In
question form, the question to ask is: Did the CA correctly determine whether the NLRC
committed grave abuse of discretion in ruling on the case?34
It is thus settled that this Court is bound by the CA's factual findings. The rule, however, admits
of exceptions, among which is when the CA's findings are contrary to those of the trial court or
administrative body exercising quasi-judicial functions from which the action originated.35 The
case before us falls under the aforementioned exception.
The petitioners argue that the respondents resorted to an erroneous mode of appeal as the
issues raised in the petition lodged before the CA essentially sought a re-evaluation of facts and
evidence, hence, based on purported errors of judgment which are outside the ambit of actions
which can be aptly filed under Rule 65.
We agree.
Again in Mercado,36 we ruled that:

Page 20 of 36

x x x [I]n certiorari proceedings under Rule 65 of the Rules of Court, the appellate court does not
assess and weigh the sufficiency of evidence upon which the Labor Arbiter and the NLRC based
their conclusion. The query in this proceeding is limited to the determination of whether or not
the NLRC acted without or in excess of its jurisdiction or with grave abuse of discretion in
rendering its decision. However, as an exception, the appellate court may examine and measure
the factual findings of the NLRC if the same are not supported by substantial evidence. x x x.37
In the case at bench, in the petition for certiorari under Rule 65 filed by the respondents before
the CA, the following issues were presented for resolution:
I.
WHETHER OR NOT PUBLIC RESPONDENT [NLRC] committed patent errors in the
appreciation of facts and application of pertinent jurisprudence amounting to grave
abuse of discretion or lack or in excess of jurisdiction WHEN IT HELD THAT PRIVATE
RESPONDENTS [herein petitioners] ARE NOT GUILTY OF ILLEGAL DISMISSAL
BECAUSE IT WAS THE PETITIONERS [herein private respondents] WHO
ABANDONED THEIR JOB AND REFUSED TO WORK WITH RESPONDENTS
WHEN THEY WERE REQUIRED TO PUT UP CASH BOND OR SIGN AN
AUTHORIZATION FOR DEDUCTION.
II.
WHETHER OR NOT PUBLIC RESPONDENT committed patent errors in the
appreciation of facts and application of pertinent jurisprudence amounting to grave
abuse of discretion or lack or in excess of jurisdiction WHEN IT DID NOT ORDER
THE REINSTATEMENT OF HEREIN PETITIONERS AND DELETED THE AWARD OF
13th MONTH PAY AND DENIED THE CLAIMS OF ATTORNEY'S FEES, DAMAGES
AND FULL BACKWAGES.38
Essentially, the issues raised by the respondents for resolution by the CA were anchored on an
alleged misappreciation of facts and evidence by the NLRC and the LA when they both ruled
that abandonment of work and not constructive dismissal occurred.
We agree with the petitioners that what the respondents sought was a re-evaluation of evidence,
which as a general rule cannot be properly done in a petition for certiorari under Rule 65, save in
cases where substantial evidence to support the NLRC's findings are wanting.
In Honorable Ombudsman Simeon Marcelo v. Leopoldo Bungubung,39 the Court defined
substantial evidence and laid down guidelines relative to the conduct of judicial review of
decisions rendered by administrative agencies in the exercise of their quasi-judicial power, viz:
x x x Substantial evidence is more than a mere scintilla of evidence. It means such relevant
evidence as a reasonable mind might accept as adequate to support a conclusion, even if other
minds equally reasonable might conceivably opine otherwise. Second, in reviewing

administrative decisions of the executive branch of the government, the findings of facts made
therein are to be respected so long as they are supported by substantial evidence. Hence, it is
not for the reviewing court to weigh the conflicting evidence, determine the credibility of
witnesses, or otherwise substitute its judgment for that of the administrative agency with respect
to the sufficiency of evidence. Third, administrative decisions in matters within the executive
jurisdiction can only be set aside on proof of gross abuse of discretion, fraud, or error of law.
These principles negate the power of the reviewing court to re-examine the sufficiency of the
evidence in an administrative case as if originally instituted therein, and do not authorize the
court to receive additional evidence that was not submitted to the administrative agency
concerned.40 (citations omitted)
We find the factual findings of the LA and the NLRC that the respondents were not dismissed
are supported by substantial evidence.
In the Joint Affidavit41 executed by Generoso Fortunaba, Erdie Pilares and Crisanto Ignacio, all
goldsmiths under Nia Jewelry's employ, they expressly stated that they have personal
knowledge of the fact that the respondents were not terminated from employment. Crisanto
Ignacio likewise expressed that after Elisea returned from the United States in the first week of
September of 2004, the latter even called to inquire from him why the respondents were not
reporting for work. We observe that the respondents had neither ascribed any ill-motive on the
part of their fellow goldsmiths nor offered any explanation as to why the latter made declarations
adverse to their cause. Hence, the statements of the respondents' fellow goldsmiths deserve
credence. This is especially true in the light of the respondents' failure to present any notice of
termination issued by the petitioners. It is settled that there can be dismissal even in the
absence of a termination notice.42 However, in the case at bench, we find that the acts of the
petitioners towards the respondents do not at all amount to constructive dismissal.
Constructive dismissal occurs when there is cessation of work because continued employment
is rendered impossible, unreasonable or unlikely; when there is a demotion in rank or diminution
in pay or both; or when a clear discrimination, insensibility, or disdain by an employer becomes
unbearable to the employee.43
In the case now under our consideration, the petitioners did not whimsically or arbitrarily impose
the policy to post cash bonds or make deductions from the workers' salaries. As attested to by
the respondents' fellow goldsmiths in their Joint Affidavit, the workers were convened and
informed of the reason behind the implementation of the new policy. Instead of airing their
concerns, the respondents just promptly stopped reporting for work.
Although the propriety of requiring cash bonds seems doubtful for reasons to be discussed
hereunder, we find no grounds to hold that the respondents were dismissed expressly or even
constructively by the petitioners. It was the respondents who merely stopped reporting for work.
While it is conceded that the new policy will impose an additional burden on the part of the
respondents, it was not intended to result in their demotion. Neither is a diminution in pay
intended because as long as the workers observe due diligence in the performance of their
tasks, no loss or damage shall result from their handling of the gold entrusted to them, hence, all
the amounts due to the goldsmiths shall still be paid in full. Further, the imposition of the new
policy cannot be viewed as an act tantamount to discrimination, insensibility or disdain against

Page 21 of 36

the respondents. For one, the policy was intended to be implemented upon all the goldsmiths in
Nia Jewelry's employ and not solely upon the respondents. Besides, as stressed by the
petitioners, the new policy was intended to merely curb the incidences of gold theft in the work
place. The new policy can hardly be said to be disdainful or insensible to the workers as to
render their continued employment unreasonable, unlikely or impossible.

desirable. The petitioners then argue that the intention of the law is for the courts to determine
on a case to case basis what should be regarded as recognized, necessary or desirable and to
test an employer's policy of requiring deposits on the bases of its reasonableness and necessity.

On September 7, 2004, or more or less three weeks after the imposition of the new policy, the
respondents filed their complaints for illegal dismissal which include their prayer for the payment
of separation pay. On September 20, 2004, they filed amended complaints seeking for
reinstatement instead.

Articles 113 and 114 of the Labor Code are clear as to what are the exceptions to the general
prohibition against requiring deposits and effecting deductions from the employees' salaries.
Hence, a statutory construction of the aforecited provisions is not called for. Even if we were
however called upon to interpret the provisions, our inclination would still be to strictly construe
the same against the employer because evidently, the posting of cash bonds and the making of
deductions from the wages would inarguably impose an additional burden upon the employees.

The CA favored the respondents' argument that the latter could not have abandoned their work
as it can be presumed that they would not have filed complaints for illegal dismissal had they not
been really terminated and had they not intended themselves to be reinstated. We find that the
presumption relied upon by the CA pales in comparison to the substantial evidence offered by
the petitioners that it was the respondents who stopped reporting for work and were not
dismissed at all.
In sum, we agree with the petitioners that substantial evidence support the LA's and the NLRC's
findings that no dismissal occurred. Hence, the CA should not have given due course to and
granted the petition for certiorariunder Rule 65 filed by the respondents before it.
In view of our disquisition above that the findings of the LA and the NLRC that no constructive
dismissal occurred are supported by substantial evidence, the CA thus erred in giving due
course to and granting the petition filed before it. Hence, it is not even necessary anymore to
resolve the issue of whether or not the policy of posting cash bonds or making deductions from
the goldsmiths' salaries is proper. However, considering that there are other goldsmiths in Nia
Jewelry's employ upon whom the policy challenged by the respondents remain to be enforced,
in the interest of justice and to put things to rest, we shall resolve the issue.
Article 113 of the Labor Code is clear that there are only three exceptions to the general rule that
no deductions from the employees' salaries can be made. The exception which finds application
in the instant petition is in cases where the employer is authorized by law or regulations issued
by the Secretary of Labor to effect the deductions. On the other hand, Article 114 states that
generally, deposits for loss or damages are not allowed except in cases where the employer is
engaged in such trades, occupations or business where the practice of making deposits is a
recognized one, or is necessary or desirable as determined by the Secretary of Labor in
appropriate rules or regulations.
While employers should generally be given leeways in their exercise of management
prerogatives, we agree with the respondents and the CA that in the case at bar, the petitioners
had failed to prove that their imposition of the new policy upon the goldsmiths under Nia
Jewelry's employ falls under the exceptions specified in Articles 113 and 114 of the Labor Code.

We are not persuaded.

While the petitioners are not absolutely precluded from imposing the new policy, they can only
do so upon compliance with the requirements of the law.44 In other words, the petitioners should
first establish that the making of deductions from the salaries is authorized by law, or regulations
issued by the Secretary of Labor. Further, the posting of cash bonds should be proven as a
recognized practice in the jewelry manufacturing business, or alternatively, the petitioners should
seek for the determination by the Secretary of Labor through the issuance of appropriate rules
and regulations that the policy the former seeks to implement is necessary or desirable in the
conduct of business. The petitioners failed in this respect. It bears stressing that without proofs
that requiring deposits and effecting deductions are recognized practices, or without securing the
Secretary of Labor's determination of the necessity or desirability of the same, the imposition of
new policies relative to deductions and deposits can be made subject to abuse by the
employers. This is not what the law intends.
In view of the foregoing, we hold that no dismissal, constructive or otherwise, occurred. The
findings of the NLRC and the LA that it was the respondents who stopped reporting for work are
supported by substantial evidence. Hence, the CA erred when it re-evaluated the parties'
respective evidence and granted the petition filed before it. However, we agree with the CA that
it is baseless for Nia Jewelry to impose its new policy upon the goldsmiths under its employ
without first complying with the strict requirements of the law.
WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and
Resolution of the CA dated January 9, 2009 and May 26, 2009, respectively,
are REVERSED only in so far as they declared that the respondents were constructively
dismissed and entitled to reinstatement and payment of backwages, allowances and benefits.
However, the CA's ruling that the petitioners' imposition of its new policy upon the respondents
lacks legal basis, stands.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice

The petitioners point out that Section 14, Book III, Rule VIII of the Omnibus Rules does not
define the circumstances when the making of deposits is deemed recognized, necessary or

Page 22 of 36

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

In less than 4 months after Maldigan was hired as an extra driver by the petitioners, he already
failed to report for work for unknown reasons. Later, petitioners learned that he was working for
"Mine of Gold" Taxi Company. With respect to Sabsalon, while driving a taxicab of petitioners on
September 6, 1983, he was held up by his armed passenger who took all his money and
thereafter stabbed him. He was hospitalized and after his discharge, he went to his home
province to recuperate.

G.R. No. 111474 August 22, 1994

In January, 1987, Sabsalon was re-admitted by petitioners as a taxi driver under the same terms
and conditions as when he was first employed, but his working schedule was made on an
"alternative basis," that is, he drove only every other day. However, on several occasions, he
failed to report for work during his schedule.

FIVE J TAXI and/or JUAN S. ARMAMENTO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, DOMINGO MALDIGAN and GILBERTO
SABSALON,respondents.
Edgardo G. Fernandez for petitioners.

On September 22, 1991, Sabsalon failed to remit his "boundary" of P700.00 for the previous
day. Also, he abandoned his taxicab in Makati without fuel refill worth P300.00. Despite repeated
requests of petitioners for him to report for work, he adamantly refused. Afterwards it was
revealed that he was driving a taxi for "Bulaklak Company."

R E SO L U T I O N

REGALADO, J.:
Petitioners Five J Taxi and/or Juan S. Armamento filed this special civil action for certiorari to
annul the decision 1of respondent National Labor Relations Commission (NLRC) ordering
petitioners to pay private respondents Domingo Maldigan and Gilberto Sabsalon their
accumulated deposits and car wash payments, plus interest thereon at the legal rate from the
date of promulgation of judgment to the date of actual payment, and 10% of the total amount as
and for attorney's fees.
We have given due course to this petition for, while to the cynical the de minimis amounts
involved should not impose upon the valuable time of this Court, we find therein a need to clarify
some issues the resolution of which are important to small wage earners such as taxicab
drivers. As we have heretofore repeatedly demonstrated, this Court does not exist only for the
rich or the powerful, with their reputed monumental cases of national impact. It is also the Court
of the poor or the underprivileged, with the actual quotidian problems that beset their individual
lives.
Private respondents Domingo Maldigan and Gilberto Sabsalon were hired by the petitioners as
taxi drivers 2 and, as such, they worked for 4 days weekly on a 24-hour shifting schedule. Aside
from the daily "boundary" of P700.00 for air-conditioned taxi or P450.00 for non-air-conditioned
taxi, they were also required to pay P20.00 for car washing, and to further make a P15.00
deposit to answer for any deficiency in their "boundary," for every actual working day.

Sometime in 1989, Maldigan requested petitioners for the reimbursement of his daily cash
deposits for 2 years, but herein petitioners told him that not a single centavo was left of his
deposits as these were not even enough to cover the amount spent for the repairs of the taxi he
was driving. This was allegedly the practice adopted by petitioners to recoup the expenses
incurred in the repair of their taxicab units. When Maldigan insisted on the refund of his deposit,
petitioners terminated his services. Sabsalon, on his part, claimed that his termination from
employment was effected when he refused to pay for the washing of his taxi seat covers.
On November 27, 1991, private respondents filed a complaint with the Manila Arbitration Office
of the National Labor Relations Commission charging petitioners with illegal dismissal and illegal
deductions. That complaint was dismissed, the labor arbiter holding that it took private
respondents two years to file the same and such unreasonable delay was not consistent with the
natural reaction of a person who claimed to be unjustly treated, hence the filing of the case could
be interpreted as a mere afterthought.
Respondent NLRC concurred in said findings, with the observation that private respondents
failed to controvert the evidence showing that Maldigan was employed by "Mine of Gold" Taxi
Company from February 10, 1987 to December 10, 1990; that Sabsalon abandoned his taxicab
on September 1, 1990; and that they voluntarily left their jobs for similar employment with other
taxi operators. It, accordingly, affirmed the ruling of the labor arbiter that private respondents'
services were not illegally terminated. It, however, modified the decision of the labor arbiter by
ordering petitioners to pay private respondents the awards stated at the beginning of this
resolution.
Petitioners' motion for reconsideration having been denied by the NLRC, this petition is now
before us imputing grave abuse of discretion on the part of said public respondent.
This Court has repeatedly declared that the factual findings of quasi-judicial agencies like the
NLRC, which have acquired expertise because their jurisdiction is confined to specific matters,

Page 23 of 36

are generally accorded not only respect but, at times, finality if such findings are supported by
substantial evidence. 3 Where, however, such conclusions are not supported by the evidence,
they must be struck down for being whimsical and capricious and, therefore, arrived at with
grave abuse of discretion. 4
Respondent NLRC held that the P15.00 daily deposits made by respondents to defray any
shortage in their "boundary" is covered by the general prohibition in Article 114 of the Labor
Code against requiring employees to make deposits, and that there is no showing that the
Secretary of Labor has recognized the same as a "practice" in the taxi industry. Consequently,
the deposits made were illegal and the respondents must be refunded therefor.
Article 114 of the Labor Code provides as follows:
Art. 114. Deposits for loss or damage. No employer shall require his
worker to make deposits from which deductions shall be made for the
reimbursement of loss of or damage to tools, materials, or equipment
supplied by the employer, except when the employer is engaged in such
trades, occupations or business where the practice of making deposits is a
recognized one, or is necessary or desirable as determined by the
Secretary of Labor in appropriate rules and regulations.
It can be deduced therefrom that the said article provides the rule on deposits for loss or
damage to tools, materials or equipments supplied by the employer. Clearly, the same does not
apply to or permit deposits to defray any deficiency which the taxi driver may incur in the
remittance of his "boundary." Also, when private respondents stopped working for petitioners, the
alleged purpose for which petitioners required such unauthorized deposits no longer existed. In
other case, any balance due to private respondents after proper accounting must be returned to
them with legal interest.
However, the unrebutted evidence with regard to the claim of Sabsalon is as follows:
YEAR DEPOSITS SHORTAGES VALES

P 3,579.00 P 4,327.00 P 2,700.00

The foregoing accounting shows that from 1987-1991, Sabsalon was able to withdraw his
deposits through valesor he incurred shortages, such that he is even indebted to petitioners in
the amount of P3,448.00. With respect to Maldigan's deposits, nothing was mentioned
questioning the same even in the present petition. We accordingly agree with the
recommendation of the Solicitor General that since the evidence shows that he had not
withdrawn the same, he should be reimbursed the amount of his accumulated cash deposits. 5
On the matter of the car wash payments, the labor arbiter had this to say in his decision: "Anent
the issue of illegal deductions, there is no dispute that as a matter of practice in the taxi industry,
after a tour of duty, it is incumbent upon the driver to restore the unit he has driven to the same
clean condition when he took it out, and as claimed by the respondents (petitioners in the
present case), complainant(s) (private respondents herein) were made to shoulder the expenses
for washing, the amount doled out was paid directly to the person who washed the unit, thus we
find nothing illegal in this practice, much more (sic) to consider the amount paid by the driver as
illegal deduction in the context of the law." 6 (Words in parentheses added.)
Consequently, private respondents are not entitled to the refund of the P20.00 car wash
payments they made. It will be noted that there was nothing to prevent private respondents from
cleaning the taxi units themselves, if they wanted to save their P20.00. Also, as the Solicitor
General correctly noted, car washing after a tour of duty is a practice in the taxi industry, and is,
in fact, dictated by fair play.
On the last issue of attorney's fees or service fees for private respondents' authorized
representative, Article 222 of the Labor Code, as amended by Section 3 of Presidential Decree
No. 1691, states that non-lawyers may appear before the NLRC or any labor arbiter only (1) if
they represent themselves, or (2) if they represent their organization or the members thereof.
While it may be true that Guillermo H. Pulia was the authorized representative of private
respondents, he was a non-lawyer who did not fall in either of the foregoing categories. Hence,
by clear mandate of the law, he is not entitled to attorney's fees.
Furthermore, the statutory rule that an attorney shall be entitled to have and recover from his
client a reasonable compensation for his services 7 necessarily imports the existence of an
attorney-client relationship as a condition for the recovery of attorney's fees, and such
relationship cannot exist unless the client's representative is a lawyer. 8

1987 P 1,403.00 P 567.00 P 1,000.00

1988 720.00 760.00 200.00

WHEREFORE, the questioned judgment of respondent National Labor Relations Commission is

hereby MODIFIED by deleting the awards for reimbursement of car wash expenses and
attorney's fees and directing said public respondent to order and effect the computation and
payment by petitioners of the refund for private respondent Domingo Maldigan's deposits, plus
legal interest thereon from the date of finality of this resolution up to the date of actual payment
thereof.

1989 686.00 130.00 1,500.00

1990 605.00 570.00
1991 165.00 2,300.00

SO ORDERED.

Page 24 of 36

Narvasa, C.J., Padilla, Puno and Mendoza, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila

calendar days, failing which the entire award would be doubled, pursuant to Republic Act No.
8188, and the corresponding writs of execution and garnishment would be issued.
Jethro appealed4 to the Secretary of Labor and Employment (SOLE), faulting the Regional
Director for, among other things, basing the computation of the judgment award on Garcias
affidavit instead of on the data reflected in the payrolls for 2001 to 2004.5

SECOND DIVISION
G.R. No. 172537

August 14, 2009

JETHRO INTELLIGENCE & SECURITY CORPORATION and YAKULT PHILS.,

INC. Petitioners,
vs.
THE HON. SECRETARY OF LABOR AND EMPLOYMENT, FREDERICK GARCIA, GIL
CORDERO, LEONIELYN UDALBE, MICHAEL BENOZA, EDWIN ABLITER, CELEDONIO
SUBERE and MA. CORAZON LANUZA,Respondents.
DECISION
CARPIO MORALES, J.:
Petitioner Jethro Intelligence and Security Corporation (Jethro) is a security service contractor
with a security service contract agreement with co-petitioner Yakult Phils., Inc. (Yakult). On the
basis of a complaint1 filed by respondent Frederick Garcia (Garcia), one of the security guards
deployed by Jethro, for underpayment of wages, legal/special holiday pay, premium pay for rest
day, 13th month pay, and night shift differential, the Department of Labor and Employment
(DOLE)-Regional Office No. IV conducted an inspection at Yakults premises in Calamba,
Laguna in the course of which several labor standards violations were noted, including keeping
of payrolls and daily time records in the main office, underpayment of wages, overtime pay and
other benefits, and non-registration with the DOLE as required under Department Order No. 18022.
Hearings on Garcias complaint and on the subsequent complaints of his co-respondents Gil
Cordero et al. were conducted during which Jethro submitted copies of payrolls covering June
16 to 30, 2003, February to May 16-31, 2004, June 16-30, 2003, and February 1-15, 2004.
Jethro failed to submit daily time records of the claimants from 2002 to June 2004, however,
despite the order for it to do so.

By Decision6 dated May 27, 2005, then SOLE Patricia A. Sto. Tomas partially granted petitioner
Jethros appeal by affirming with modification the Regional Directors Order dated September 9,
2004 by deleting the penalty of double indemnity and setting aside the writs of execution and
garnishment, without prejudice to the subsequent issuance by the Regional Director of the writs
necessary to implement the said Decision.
Petitioners Motion for Reconsideration7 of the SOLE Decision having been denied,8 they filed a
petition for certiorari before the Court of Appeals, insisting that the affidavit of Garcia should not
have been given evidentiary weight in computing the judgment award.
By Decision9 of January 24, 2006, the appellate court denied the petition, it holding that contrary
to petitioners contention, Garcias affidavit has probative weight for under Art. 221 of the Labor
Code, the rules of evidence are not controlling, and pursuant to Rule V of the National Labor
Relations Commission (NLRC) Rules of Procedure, labor tribunals may accept affidavits in lieu
of direct testimony. Petitioners motion for reconsideration having been denied by
Resolution10 dated April 28, 2006, they filed the present petition for review on certiorari.
Petitioners attribute grave abuse of discretion on the part of the DOLE Regional Director and the
SOLE in this wise: (1) the SOLE has no jurisdiction over the case because, following Article 129
of the Labor Code, the aggregate money claim of each employee exceeded P5,000.00; (2)
petitioner Jethro, as the admitted employer of respondents, could not be expected to keep
payrolls and daily time records in Yakults premises as its office is in Quezon City, hence, the
inspection conducted in Yakults plant had no basis; and (3) having filed the required bond
equivalent to the judgment award, and as the Regional Directors Order of September 9, 2004
was not served on their counsel of record, the writs of execution and garnishment subsequently
issued were not in order.
And petitioners maintain that Garcias affidavit should not have been given weight, they not
having been afforded the opportunity to cross-examine him.
The petition is bereft of merit.

By Order3 of September 9, 2004, the DOLE Regional Director, noting petitioners failure to rectify
the violations noted during the above-stated inspection within the period given for the purpose,
found them jointly and severally liable to herein respondents for the aggregate amount of EIGHT
HUNDRED NINE THOUSAND TWO HUNDRED TEN AND 16/100 PESOS (P809,210.16)
representing their wage differentials, regular holiday pay, special day premium pay, 13th month
pay, overtime pay, service incentive leave pay, night shift differential premium and rest day
premium. Petitioners were also ordered to submit proof of payment to the claimants within ten

The sole office of a writ of certiorari is the correction of errors of jurisdiction including the
commission of grave abuse of discretion amounting to lack of jurisdiction. It does not include the
correction of a tribunals evaluation of the evidence and factual findings thereon, especially since
factual findings of administrative agencies are generally held to be binding and final so long as
they are supported by substantial evidence in the record of the case. 11

Page 25 of 36

In dismissing petitioners petition for certiorari and thus affirming the SOLE Decision, the
appellate court did not err. The scope of the visitorial powers of the SOLE and his/her duly
authorized representatives was clarified in Allied Investigation Bureau, Inc. v. Secretary of Labor
and Employment,12 viz:
While it is true that under Articles 129 and 217 of the Labor Code, the Labor Arbiter has
jurisdiction to hear and decide cases where the aggregate money claims of each employee
exceeds P5,000.00, said provisions do not contemplate nor cover the visitorial and enforcement
powers of the Secretary of Labor or his duly authorized representatives.
Rather, said powers are defined and set forth in Article 128 of the Labor Code (as amended by
R.A. No. 7730) thus:
Art. 128. Visitorial and enforcement power.
xxxx
(b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in
cases where the relationship of employer-employee exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have the power to issue compliance
orders to give effect to the labor standards provisions of this Code and other labor legislation
based on the findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection. The Secretary or his duly authorized
representatives shall issue writs of execution to the appropriate authority for the enforcement of
their orders, except in cases where the employer contests the finding of the labor employment
and enforcement officer and raises issues supported by documentary proofs which were not
considered in the course of inspection. [Emphasis, underscoring and italics supplied]
xxxx
The aforequoted [Art. 128] explicitly excludes from its coverage Articles 129 and 217 of the
Labor Code by the phrase "(N)otwithstanding the provisions of Articles 129 and 217 of this Code
to the contrary xxx" thereby retaining and further strengthening the power of the Secretary of
Labor or his duly authorized representative to issue compliance orders to give effect to the labor
standards provisions of said Code and other labor legislation based on the findings of labor
employment and enforcement officers or industrial safety engineers made in the course of
inspection.13 (Emphasis and underscoring supplied.)

there is a need to examine evidentiary matters; and (c) that such matters are not verifiable in the
normal course of inspection. The rules also provide that the employer shall raise such objections
during the hearing of the case or at any time after receipt of the notice of inspection results.14
In the case at bar, the Secretary of Labor correctly assumed jurisdiction over the case as it does
not come under the exception clause in Art. 128(b) of the Labor Code. While petitioner Jethro
appealed the inspection results and there is a need to examine evidentiary matters to resolve
the issues raised, the payrolls presented by it were considered in the ordinary course of
inspection. While the employment records of the employees could not be expected to be found
in Yakults premises in Calamba, as Jethros offices are in Quezon City, the records show that
Jethro was given ample opportunity to present its payrolls and other pertinent documents during
the hearings and to rectify the violations noted during the ocular inspection. It, however, failed to
do so, more particularly to submit competent proof that it was giving its security guards the
wages and benefits mandated by law.
Jethros failure to keep payrolls and daily time records in Yakults premises was not the only
labor standard violation found to have been committed by it; it likewise failed to register as a
service contractor with the DOLE, pursuant to Department Order No. 18-02 and, as earlier
stated, to pay the wages and benefits in accordance with the rates prescribed by law.
Respecting petitioners objection to the weight given to Garcias affidavit, it bears noting that said
affidavit was not the only basis in arriving at the judgment award. The payrolls for June 16-30,
2003 and February 1-15, 2004 reveal that the overtime rates were below the required
rate.15 That Garcia was not cross-examined on his affidavit is of no moment. For, as Mayon
Hotel and Restaurant vs. Adana16 instructs:
Article 221 of the Labor Code is clear: technical rules are not binding, and the application of
technical rules of procedure may be relaxed in labor cases to serve the demand of substantial
justice. The rule of evidence prevailing in court of law or equity shall not be controlling in labor
cases and it is the spirit and intention of the Labor Code that the Labor Arbiter shall use every
and all reasonable means to ascertain the facts in each case speedily and objectively and
without regard to technicalities of law or procedure, all in the interest of due process. Labor laws
mandate the speedy administration of justice, with least attention to technicalities but without
sacrificing the fundamental requisites of due process.17 (Emphasis and underscoring supplied)
It bears noting that while Jethro claims that it did not cross-examine Garcia, the minutes of the
July 5, 2004 hearing at which Jethros counsel was present indicate that Garcias affidavit
was presented.18 Jethro had thus the opportunity to controvert the contents of the affidavit, but it
failed.

In Ex-Bataan Veterans Security Agency, Inc. v. Laguesma case, the Court went on to hold that
x x x if the labor standards case is covered by the exception clause in Article 128(b) of the Labor
Code, then the Regional Director will have to endorse the case to the appropriate Arbitration
Branch of the NLRC. In order to divest the Regional Director or his representatives of
jurisdiction, the following elements must be present: (a) that the employer contests the findings
of the labor regulations officer and raises issues therein; (b) that in order to resolve such issues,

Respecting the fact that Jethros first counsel of record, Atty. Benjamin Rabuco III, was not
furnished a copy of the September 9, 2004 Order of the Director, the SOLE noted in her assailed
Decision that since Atty. Thaddeus Venturanza formally entered his appearance as Jethros new
counsel on appeal and an appeal was indeed filed and duly verified by Jethros
owner/manager, for all practical purposes, the failure to furnish Atty. Rabuco a copy of the said
Order had been rendered moot. For, on account of such lapse, the SOLE deleted the double

Page 26 of 36

indemnity award and held that the writs issued in implementation of the September 9, 2004
Order were null and void, "without prejudice to the subsequent issuance by the Regional
Director of the writs necessary to implement" the SOLE Decision.1avvphi1
Thus, the DOLE-Regional Office subsequently issued the following Orders: Order 19 of July 31,
2006 holding in abeyance the release of the amount equivalent to the judgment award out of
Yakult accounts pending the receipt of the supersedeas bond; and Order20 of February 27, 2007
ordering the immediate release of the garnished amount.
It bears emphasis that the SOLE, under Article 106 of the Labor Code, as amended, exercises
quasi-judicial power, at least to the extent necessary to determine violations of labor standards
provisions of the Code and other labor legislation. He/she or the Regional Directors can issue
compliance orders and writs of execution for the enforcement thereof. The significance of and
binding effect of the compliance orders of the DOLE Secretary is enunciated in Article 128 of the
Labor Code, as amended, viz:
ART. 128. Visitorial and enforcement power.
xxxx
(d) It shall be unlawful for any person or entity to obstruct, impede, delay or otherwise render
ineffective the orders of the Secretary of Labor or his duly authorized representatives issued
pursuant to the authority granted under this article, and no inferior court or entity shall issue
temporary or permanent injunction or restraining order or otherwise assume jurisdiction over any
case involving the enforcement orders issued in accordance with this article.
And Sec. 5, Rule V (Execution) of the Rules on Disposition of Labor Standards Cases in
Regional Offices provides that the filing of a petition for certiorari shall not stay the execution of
the appealed order or decision, unless the aggrieved party secures a temporary restraining
order (TRO) from the Court. In the case at bar, no TRO or injunction was issued, hence, the
issuance of the questioned writs of execution and garnishment by the DOLE-Regional Director
was in order.
WHEREFORE, the petition is DENIED and the Court of Appeals Decision dated January 24,
2006 and Resolution dated April 28, 2006 are AFFIRMED.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 126586

February 2, 2000

ALEXANDER VINOYA, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD CORPORATION AND/OR
RICKY SEE (PRESIDENT), respondents.
KAPUNAN, J.:
This petition for certiorari under Rule 65 seeks to annul and set aside the decision,1 promulgated
on 21 June 1996, of the National Labor Relations Commission ("NLRC") which reversed the
decision2 of the, Labor Arbiter, rendered on 15 June 1994, ordering Regent Food Corporation
("RFC") to reinstate Alexander Vinoya to his former position and pay him backwages.
Private respondent Regent Food Corporation is a domestic corporation principally engaged in
the manufacture and sale of various food products. Private respondent Ricky See, on the other
hand, is the president of RFC and is being sued in that capacity.
Petitioner Alexander Vinoya, the complainant, worked with RFC as sales representative until his
services were terminated on 25 November 1991.
The parties presented conflicting versions of facts.
Petitioner Alexander Vinoya claims that he applied and was accepted by RFC as sales
representative on 26 May 1990. On the same date, a company identification card3 was issued to
him by RFC. Petitioner alleges that he reported daily to the office of RFC, in Pasig City, to take
the latter's van for the delivery of its products. According to petitioner, during his employ, he was
assigned to various supermarkets and grocery stores where he booked sales orders and
collected payments for RFC. For this task, he was required by RFC to put up a monthly bond of
P200.00 as security deposit to guarantee the performance of his obligation as sales
representative. Petitioner contends that he was under the direct control and supervision of Mr.
Dante So and Mr. Sadi Lim, plant manager and senior salesman of RFC, respectively. He avers
that on 1 July 1991, he was transferred by RFC to Peninsula Manpower Company, Inc.
("PMCI"), an agency which provides RFC with additional contractual workers pursuant to a
contract for the supply of manpower services (hereinafter referred to as the "Contract of
Service").4 After his transfer to PMCI, petitioner was allegedly reassigned to RFC as sales
representative. Subsequently, on 25 November 1991, he was informed by Ms. Susan Chua,
personnel manager of RFC, that his services were terminated and he was asked to surrender
his ID card. Petitioner was told that his dismissal was due to the expiration of the Contract of
Service between RFC and PMCI. Petitioner claims that he was dismissed from employment
despite the absence of any notice or investigation. Consequently, on 3 December 1991,
petitioner filed a case against RFC before the Labor Arbiter for illegal dismissal and nonpayment of 13th month pay.5

Page 27 of 36

Private respondent Regent Food Corporation, on the other hand, maintains that no employeremployee relationship existed between petitioner and itself. It insists that petitioner is actually an
employee of PMCI, allegedly an independent contractor, which had a Contract of Service 6 with
RFC. To prove this fact, RFC presents an Employment Contract7 signed by petitioner on 1 July
1991, wherein PMCI appears as his employer. RFC denies that petitioner was ever employed by
it prior to 1 July 1991. It avers that petitioner was issued an ID card so that its clients and
customers would recognize him as a duly authorized representative of RFC. With regard to the
P200.00 pesos monthly bond posted by petitioner, RFC asserts that it was required in order to
guarantee the turnover of his collection since he handled funds of RFC. While RFC admits that it
had control and supervision over petitioner, it argues that such was exercised in coordination
with PMCI. Finally, RFC contends that the termination of its relationship with petitioner was
brought about by the expiration of the Contract of Service between itself and PMCI and not
because petitioner was dismissed from employment.
On 3 December 1991, when petitioner filed a complaint for illegal dismissal before the Labor
Arbiter, PMCI was initially impleaded as one of the respondents. However, petitioner thereafter
withdrew his charge against PMCI and pursued his claim solely against RFC. Subsequently,
RFC filed a third party complaint against PMCI. After considering both versions of the parties,
the Labor Arbiter rendered a decision,8 dated 15 June 1994, in favor of petitioner. The Labor
Arbiter concluded that RFC was the true employer of petitioner for the following reasons: (1)
Petitioner was originally with RFC and was merely transferred to PMCI to be deployed as an
agency worker and then subsequently reassigned to RFC as sales representative; (2) RFC had
direct control and supervision over petitioner; (3) RFC actually paid for the wages of petitioner
although coursed through PMCI; and, (4) Petitioner was terminated per instruction of RFC. Thus,
the Labor Arbiter decreed, as follows:
ACCORDINGLY, premises considered respondent RFC is hereby declared guilty of
illegal dismissal and ordered to immediately reinstate complainant to his former
position without loss of seniority rights and other benefits and pay him backwages in
the amount of P103,974.00.
The claim for 13th month pay is hereby DENIED for lack of merit.
This case, insofar as respondent PMCI [is concerned] is DISMISSED, for lack of merit.
SO ORDERED.9
RFC appealed the adverse decision of the Labor Arbiter to the NLRC. In a decision, 10 dated 21
June 1996, the NLRC reversed the findings of the Labor Arbiter. The NLRC opined that PMCI is
an independent contractor because it has substantial capital and, as such, is the true employer
of petitioner. The NLRC, thus, held PMCI liable for the dismissal of petitioner. The dispositive
portion of the NLRC decision states:
WHEREFORE, premises considered, the appealed decision is modified as follows:

2. Peninsula is ordered to pay complainant his separation pay of P3,354.00 and his
proportionate 13th month pay for 1991 in the amount of P2,795.00 or the total amount
of P6,149.00.
SO ORDERED.11
Separate motions for reconsideration of the NLRC decision were filed by petitioner and PMCI. In
a resolution,12dated 20 August 1996, the NLRC denied both motions. However, it was only
petitioner who elevated the case before this Court.
In his petition for certiorari, petitioner submits that respondent NLRC committed grave abuse of
discretion in reversing the decision of the Labor Arbiter, and asks for the reinstatement of the
latter's decision.
Principally, this petition presents the following issues:
1. Whether petitioner was an employee of RFC or PMCI.
2. Whether petitioner was lawfully dismissed.
The resolution of the first issue initially boils down to a determination of the true status of PMCI,
whether it is a labor-only contractor or an independent contractor.
In the case at bar, RFC alleges that PMCI is an independent contractor on the sole ground that
the latter is a highly capitalized venture. To buttress this allegation, RFC presents a copy of the
Articles of Incorporation and the Treasurer's Affidavit13 submitted by PMCI to the Securities and
Exchange Commission showing that it has an authorized capital stock of One Million Pesos
(P1,000,000.00), of which Three Hundred Thousand Pesos (P300,000.00) is subscribed and
Seventy-Five Thousand Pesos (P75,000.00) is paid-in. According to RFC, PMCI is a duly
organized corporation engaged in the business of creating and hiring a pool of temporary
personnel and, thereafter, assigning them to its clients from time to time for such duration as
said clients may require. RFC further contends that PMCI has a separate office, permit and
license and its own organization.
Labor-only contracting, a prohibited act, is an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work or service for a
principal.14 In labor-only contracting, the following elements are present:
(a) The contractor or subcontractor does not have substantial capital or investment to
actually perform the job, work or service under its own account and responsibility;
(b) The employees recruited, supplied or placed by such contractor or subcontractor
are performing activities which are directly related to the main business of the
principal.15

1. Peninsula Manpower Company Inc. is declared as employer of the complainant;

Page 28 of 36

On the other hand, permissible job contracting or subcontracting refers to an arrangement

whereby a principal agrees to put out or farm out with a contractor or subcontractor the
performance or completion of a specific job, work or service within a definite or predetermined
period, regardless of whether such job, work or service is to be performed or completed within or
outside the premises of the principal.16 A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions concur:
(a) The contractor or subcontractor carries on a distinct and independent business and
undertakes to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the control and
direction of the principal in all matters connected with the performance of the work
except as to the results thereof;
(b) The contractor or subcontractor has substantial capital or investment; and
(c) The agreement between the principal and contractor or subcontractor assures the
contractual employees entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization, security of tenure, and social
and welfare benefits.17
Previously, in the case of Neri vs. NLRC,18 we held that in order to be considered as a job
contractor it is enough that a contractor has substantial capital. In other words, once substantial
capital established it is no longer necessary for the contractor to show evidence that it has
investment in the form of tools, equipment, machineries, work premises, among others. The
rational for this is that Article 106 of the Labor Code does not require that the contractor possess
both substantial capital and investment in the form of tools, equipment, machineries, work
premises, among others.19 The decision of the Court in Neri, thus, states:
Respondent BCC need not prove that it made investments in the form of tools,
equipment, machineries, work premises, among others, because it has established
that it has sufficient capitalization. The Labor Arbiter and the NLRC both determined
that BCC had a capital stock of P1 million fully subscribed and paid for. BCC is
therefore a highly capitalized venture and cannot be deemed engaged in "labor-only"
contracting.20
However, in declaring that Building Care Corporation ("BCC") was an independent contractor,
the Court considered not only the fact that it had substantial capitalization. The Court noted that
BCC carried on an independent business and undertook the performance of its contract
according to its own manner and method, free from the control and supervision of its principal in
all matters except as to the results thereof.21 The Court likewise mentioned that the employees
of BCC were engaged to perform specific special services for its principal.22 Thus, the Court
ruled that BCC was an independent contractor.
The Court further clarified the import of the Neri decision in the subsequent case of Philippine
Fuji Xerox Corporation vs. NLRC.23 In the said case, petitioner Fuji Xerox implored the Court to
apply the Neri doctrine to its alleged job-contractor, Skillpower, Inc., and declare the same as an

independent contractor. Fuji Xerox alleged that Skillpower, Inc. was a highly capitalized venture
registered with the Securities and Exchange Commission, the Department of Labor and
Employment, and the Social Security System with assets exceeding P5,000,000.00 possessing
at least 29 typewriters, office equipment and service vehicles, and its own pool of employees
with 25 clerks assigned to its clients on a temporary basis.24 Despite the evidence presented by
Fuji Xerox the Court refused to apply the Neri case and explained:
Petitioners cite the case of Neri v. NLRC, in which it was held that the Building Care
Corporation (BCC) was an independent contractor on the basis of finding that it had
substantial capital, although there was no evidence that it had investments in the form
of tools, equipment, machineries and work premises. But the Court in that case
considered not only the capitalization of the BCC but also the fact that BCC was
providing specific special services (radio/telex operator and janitor) to the employer;
that in another case, the Court had already found that BCC was an independent
contractor; that BCC retained control over the employees and the employer was
actually just concerned with the end-result; that BCC had the power to reassign the
employees and their deployment was not subject to the approval of the employer; and
that BCC was paid in lump sum for the services it rendered. These features of that
case make it distinguishable from the present one.25
Not having shown the above circumstances present in Neri, the Court declared Skillpower, Inc.
to be engaged in labor-only contracting and was considered as a mere agent of the employer.
From the two aforementioned decisions, it may be inferred that it is not enough to show
substantial capitalization or investment in the form of tools, equipment, machineries and work
premises, among others, to be considered as an independent contractor. In fact, jurisprudential
holdings are to the effect that in determining the existence of an independent contractor
relationship, several factors might be considered such as, but not necessarily confined to,
whether the contractor is carrying on an independent business; the nature and extent of the
work; the skill required; the term and duration of the relationship; the right to assign the
performance of specified pieces of work; the control and supervision of the workers; the power
of the employer with respect to the hiring, firing and payment of the workers of the contractor;
the control of the premises; the duty to supply premises, tools, appliances, materials and labor;
and the mode, manner and terms of payment.26
Given the above standards and the factual milieu of the case, the Court has to agree with the
conclusion of the Labor Arbiter that PMCI is engaged in labor-only contracting.
First of all, PMCI does not have substantial capitalization or investment in the form of tools,
equipment, machineries, work premises, among others, to qualify as an independent contractor.
While it has an authorized capital stock of P1,000,000.00, only P75,000.00 is actually paid-in,
which, to our mind, cannot be considered as substantial capitalization. In the case of Neri, which
was promulgated in 1993, BCC had a capital stock of P1,000,000.00 which was fully subscribed
and paid-for. Moreover, when the Neri case was decided in 1993, the rate of exchange between
the dollar and the peso was only P27.30 to $127 while presently it is at P40.390 to $1.28 The
Court takes judicial notice of the fact that in 1993, the economic situation in the country was not
as adverse as the present, as shown by the devaluation of our peso. With the current economic

Page 29 of 36

atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000,00 cannot
be considered as substantial capital and, as such, PMCI cannot qualify as an independent
contractor.

2. Promo Girl

Second, PMCI did not carry on an independent business nor did it undertake the performance of
its contract according to its own manner and method, free from the control and supervision of its
principal, RFC. The evidence at hand shows that the workers assigned by PMCI to RFC were
under the control and supervision of the latter. The Contract of Service itself provides that RFC
can require the workers assigned by PMCI to render services even beyond the regular eight
hour working day when deemed necessary.29 Furthermore, RFC undertook to assist PMCI in
making sure that the daily time records of its alleged employees faithfully reflect the actual
working hours.30 With regard to petitioner, RFC admitted that it exercised control and supervision
over him.31 These are telltale indications that PMCI was not left alone to supervise and control its
alleged employees. Consequently, it can be, concluded that PMCI was not an independent
contractor since it did not carry a distinct business free from the control and supervision of RFC.

4. Driver33

Third, PMCI was not engaged to perform a specific and special job or service, which is one of
the strong indicators that an entity is an independent contractor as explained by the Court in the
cases of Neri and Fuji. As stated in the Contract of Service, the sole undertaking of PMCI was to
provide RFC with a temporary workforce able to carry out whatever service may be required by
it.32 Such venture was complied with by PMCI when the required personnel were actually
assigned to RFC. Apart from that, no other particular job, work or service was required from
PMCI. Obviously, with such an arrangement, PMCI merely acted as a recruitment agency for
RFC. Since the undertaking of PMCI did not involve the performance of a specific job, but rather
the supply of manpower only, PMCI clearly conducted itself as labor-only contractor.
Lastly, in labor-only contracting, the employees recruited, supplied or placed by the contractor
perform activities which are directly related to the main business of its principal. In this case, the
work of petitioner as sales representative is directly related to the business of RFC. Being in the
business of food manufacturing and sales, it is necessary for RFC to hire a sales representative
like petitioner to take charge of booking its sales orders and collecting payments for such. Thus,
the work of petitioner as sales representative in RFC can only be categorized as clearly related
to, and in the pursuit of the latter's business. Logically, when petitioner was assigned by PMCI to
RFC, PMCI acted merely as a labor-only contractor.
Based on the foregoing, PMCI can only be classified as a labor-only contractor and, as such,
cannot be considered as the employer of petitioner.
However, even granting that PMCI is an independent contractor, as RFC adamantly suggests,
still, a finding of the same will not save the day for RFC. A perusal of the Contract of Service
entered into between RFC and PMCI reveals that petitioner is actually not included in the
enumeration of the workers to be assigned to RFC. The following are the workers enumerated in
the contract:
1. Merchandiser

3. Factory Worker

Obviously, the above enumeration does not include the position of petitioner as sales
representative. This only shows that petitioner was never intended to be a part of those to be
contracted out. However, RFC insists that despite the absence of his position in the
enumeration, petitioner is deemed included because this has been agreed upon between itself
and PMCI. Such contention deserves scant consideration. Had it really been the intention of
both parties to include the position of petitioner they should have clearly indicated the same in
the contract. However, the contract is totally silent on this point which can only mean that
petitioner was never really intended to be covered by it.
Even if we use the "four-fold test" to ascertain whether RFC is the true employer of petitioner
that same result would be achieved. In determining the existence of employer-employee
relationship the following elements of the "four-fold test" are generally considered, namely: (1)
the selection and engagement of the employee or the power to hire; (2) the payment of wages;
(3) the power to dismiss; and (4) the power to control the employee.34 Of these four, the "control
test" is the most important.35 A careful study of the evidence at hand shows that RFC possesses
the earmarks of being the employer of petitioner.
With regard to the first element, the power to hire, RFC denies any involvement in the
recruitment and selection of petitioner and asserts that petitioner did not present any proof that
he was actually hired and employed by RFC.
It should be pointed out that no particular form of proof is required to prove the existence of an
employer-employee relationship.36 Any competent and relevant evidence may show the
relationship.37 If only documentary evidence would be required to demonstrate that relationship,
no scheming employer would ever be brought before bar of justice.38 In the case at bar,
petitioner presented the identification card issue to him on 26 May 1990 by RFC as proof that it
was the latter who engaged his services. To our mind, the ID card is enough proof that petitioner
was previously hired by RFC prior to his transfer as agency worker to PMCI. It must be noted
that the Employment Contract between petitioner and PMCI was dated 1 July 1991. On the
other hand, the ID card issued by RFC to petitioner was dated 26 May 1990, or more than one
year before the Employment Contract was signed by petitioner in favor of PMCI. It makes one
wonder why, if petitioner was indeed recruited by PMCI as its own employee on 1 July 1991,
how come he had already been issued an ID card by RFC a year earlier? While the Employment
Contract indicates the word "renewal," presumably an attempt to show that petitioner had
previously signed a similar contract with PMCI, no evidence of a prior contract entered into
petitioner and PMCI was ever presented by RFC. In fact, despite the demand made by the
counsel of petitioner for production of the contract which purportedly shows that prior to 1 July
1991 petitioner was already connected with PMCI, RFC never made a move to furnish the
counsel of petitioner a copy of the alleged original Employment Contract. The only logical
conclusion which may be derived from such inaction is that there was no such contract end that

Page 30 of 36

the only Employment Contract entered into between PMCI and petitioner was the 1 July 1991
contract and no other. Since, as shown by the ID card, petitioner was already with RFC on 26
May 1990, prior to the time any Employment Contract was agreed upon between PMCI and
petitioner, it follows that it was RFC who actually hired and engaged petitioner to be its
employee.

PMCI. We are inclined to believe the findings of the Labor Arbiter which is supported not only by
the admission of RFC but also by the evidence on record. Besides, to our mind, the admission of
RFC that it exercised control and supervision over petitioner, the same being a declaration
against interest, is sufficient enough to prove that the power of control truly exists.
We, therefore, hold that an employer-employee relationship exists between petitioner and RFC.

With respect to the payment of wages, RFC disputes the argument of petitioner that it paid his
wages on the ground that petitioner did not submit any evidence to prove that his salary was
paid by it, or that he was issued payslip by the company. On the contrary, RFC asserts that the
invoices39 presented by it, show that it was PMCI who paid petitioner his wages through its
regular monthly billings charged to RFC.
The Court takes judicial notice of the practice of employers who, in order to evade the liabilities
under the Labor Code, do not issue payslips directly to their employees.40 Under the current
practice, a third person, usually the purported contractor (service or manpower placement
agency), assumes the act of paying the wage.41 For this reason, the lowly worker is unable to
show proof that it was directly paid by the true employer. Nevertheless, for the workers, it is
enough that they actually receive their pay, oblivious of the need for payslips, unaware of its
legal implications.42 Applying this principle to the case at bar, even though the wages were
coursed through PMCI, we note that the funds actually came from the pockets of RFC. Thus, in
the end, RFC is still the one who paid the wages of petitioner albeit indirectly.
As to the third element, the power to dismiss, RFC avers that it was PMCI who terminated the
employment of petitioner. The facts on record, however, disprove the allegation of RFC. First of
all, the Contract of Service gave RFC the right to terminate the workers assigned to it by PMCI
without the latter's approval. Quoted hereunder is the portion of the contract stating the power of
RFC to dismiss, to wit:
7. The First party ("RFC") reserves the right to terminate the services of any worker
found to be unsatisfactory without the prior approval of the second party ("PMCI").43
In furtherance of the above provision, RFC requested PMCI to terminate petitioner from his
employment with the company. In response to the request of RFC, PMCI terminated petitioner
from service. As found by the Labor Arbiter, to which we agree, the dismissal of petitioner was
indeed made under the instruction of RFC to PMCI.
The fourth and most important requirement in ascertaining the presence of employer-employee
relationship is the power of control. The power of control refers to the authority of the employer
to control the employee not only with regard to the result of work to be done but also to the
means and methods by which the work is to be accomplished.44 It should be borne in mind, that
the "control test" calls merely for the existence of the right to control the manner of doing the
work, and not necessarily to the actual exercise of the right.45 In the case at bar, we need not
belabor ourselves in discussing whether the power of control exists. RFC already admitted that it
exercised control and supervision over petitioner.46 RFC, however, raises the defense that the
power of control was jointly exercised with PMCI. The Labor Arbiter, on the other hand, found
that petitioner was under the direct control and supervision of the personnel of RFC and not

Having determined the real employer of petitioner, we now proceed to ascertain the legality of
his dismissal from employment.
Since petitioner, due to his length of service, already attained the status of a regular
employee,47 he is entitled to the security of tenure provided under the labor laws. Hence, he may
only be validly terminated from service upon compliance with the legal requisites for dismissal.
Under the Labor Code, the requirements for the lawful dismissal of an employee are two-fold,
the substantive and the procedural aspects. Not only must the dismissal be for a valid or
authorized cause,48 the rudimentary requirements of due process notice and hearing49
must, likewise, be observed before an employee may be dismissed. Without the concurrence of
the two, the termination would, in the eyes of the law, be illegal. 50
As the employer, RFC has the burden of proving that the dismissal of petitioner was for a cause
allowed under the law and that petitioner was afforded procedural due process. Sad to say, RFC
failed to discharge this burden. Indeed, RFC never pointed to any valid or authorized cause
under the Labor Code which allowed it to terminate the services of petitioner. Its lone allegation
that the dismissal was due to the expiration or completion of contract is not even one of the
grounds for termination allowed by law. Neither did RFC show that petitioner was given ample
opportunity to contest the legality of his dismissal. In fact, no notice of such impending
termination was ever given him. Petitioner was, thus, surprised that he was already terminated
from employment without any inkling as to how and why it came about. Petitioner was definitely
denied due process. Having failed to establish compliance with the requirements on termination
of employment under the Labor Code, the dismissal of petitioner is tainted with illegality.
An employee who has been illegally dismissed is entitled to reinstatement to his former position
without loss of seniority rights and to payment of full backwages corresponding to the period
from his illegal dismissal up to actual reinstatement.51 Petitioner is entitled to no less.
WHEREFORE, the petition is GRANTED. The decision of the NLRC, dated 21 June 1996, as
well as its resolution, promulgated on 20 August 1996, are ANNULLED and SET ASIDE. The
decision of the Labor Arbiter, rendered on 15 June 1994, is hereby REINSTATED and
AFFIRMED.1wphi1.nt
SO ORDERED.
Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.

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Republic of the Philippines

SUPREME COURT
Manila

BMSI asserted that it is an independent contractor. It averred that it was willing to regularize
petitioners; however, some of them lacked the requisite qualifications for the job. BMSI was
willing to reassign petitioners who were willing to accept reassignment. BMSI denied petitioners
claim for underpayment of wages and non-payment of 13th month pay and other benefits.

SECOND DIVISION
G.R. No. 186091

December 15, 2010

EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN, SR., EDWIN JAVIER,

SANDI BERMEO, REX ALLESA, MAXIMO SORIANO, JR., ARSENIO ESTORQUE, and
FELIXBERTO ANAJAO, Petitioners,
vs.
LORENZO SHIPPING CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi
Bermeo, Rex Allesa, Maximo Soriano, Jr., Arsenio Estorque, and Felixberto Anajao appeal by
certiorari under Rule 45 of the Rules of Court the October 10, 2008 Decision1 of the Court of
Appeals (CA) in CA-G.R. SP. No. 103804, and the January 21, 2009 Resolution, 2 denying its
reconsideration.
Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic corporation
engaged in the shipping industry; it owns several equipment necessary for its business. On
September 29, 1997, LSC entered into a General Equipment Maintenance Repair and
Management Services Agreement3 (Agreement) with Best Manpower Services, Inc. (BMSI).
Under the Agreement, BMSI undertook to provide maintenance and repair services to LSCs
container vans, heavy equipment, trailer chassis, and generator sets. BMSI further undertook to
provide checkers to inspect all containers received for loading to and/or unloading from its
vessels.
Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and tractors
to BMSI.4 The period of lease was coterminous with the Agreement.

LSC, on the other hand, averred that petitioners were employees of BMSI and were assigned to
LSC by virtue of the Agreement. BMSI is an independent job contractor with substantial capital
or investment in the form of tools, equipment, and machinery necessary in the conduct of its
business. The Agreement between LSC and BMSI constituted legitimate job contracting. Thus,
petitioners were employees of BMSI and not of LSC.
After due proceedings, the LA rendered a decision6 dismissing petitioners complaint. The LA
found that petitioners were employees of BMSI. It was BMSI which hired petitioners, paid their
wages, and exercised control over them.
Petitioners appealed to the National Labor Relations Commission (NLRC), arguing that BMSI
was engaged in labor-only contracting. They insisted that their employer was LSC.
On January 16, 2008, the NLRC promulgated its decision.7 Reversing the LA, the NLRC held:
We find from the records of this case that respondent BMSI is not engaged in legitimate job
contracting.
First, respondent BMSI has no equipment, no office premises, no capital and no investments as
shown in the Agreement itself which states:
xxxx
VI. RENTAL OF EQUIPMENT
[6.01.] That the CLIENT has several forklifts and truck tractor, and has offered to the
CONTRACTOR the use of the same by way of lease, the monthly rental of which shall be
deducted from the total monthly billings of the CONTRACTOR for the services covered by this
Agreement.

BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men,
clerks, forklift operators, motor pool and machine shop workers, technicians, trailer drivers, and
mechanics. Six years later, or on May 1, 2003, LSC entered into another contract with BMSI, this
time, a service contract.5

6.02. That the CONTRACTOR has agreed to rent the CLIENTs forklifts and truck tractor.

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for regularization
against LSC and BMSI. On October 1, 2003, LSC terminated the Agreement, effective October
31, 2003. Consequently, petitioners lost their employment.

True enough, parties signed a Lease Contract (p. 392, Records) wherein respondent BMSI
leased several excess equipment of LSC to enable it to discharge its obligation under the
Agreement. So without the equipment which respondent BMSI leased from respondent LSC, the
former would not be able to perform its commitments in the Agreement.

6.03. The parties herein have agreed to execute a Contract of Lease for the forklifts and truck
tractor that will be rented by the CONTRACTOR. (p. 389, Records)

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In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:

Inc. is engaged in prohibited labor-only-contracting and finding respondent Lorenzo Shipping

Corp. as the employer of the following [petitioners]:

x x x. The phrase "substantial capital and investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business," in the Implementing Rules clearly contemplates tools, equipment, etc., which are
directly related to the service it is being contracted to render. One who does not have an
independent business for undertaking the job contracted for is just an agent of the employer.
(underscoring ours)

1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier

Second, respondent BMSI has no independent business or activity or job to perform in

respondent LSC free from the control of respondent LSC except as to the results thereof. In view
of the absence of such independent business or activity or job to be performed by respondent
BMSI in respondent LSC [petitioners] performed work that was necessary and desirable to the
main business of respondent LSC. Respondents were not able to refute the allegations of
[petitioners] that they performed the same work that the regular workers of LSC performed and
they stood side by side with regular employees of respondent LSC performing the same work.
Necessarily, the control on the manner and method of doing the work was exercised by
respondent LSC and not by respondent BMSI since the latter had no business of its own to
perform in respondent LSC.

4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
7. Arsenio Estorque
8. Maximo N. Soriano, Jr.

Lastly, respondent BMSI has no other client but respondent LSC. If respondent BMSI were a
going concern, it would have other clients to which to assign [petitioners] after its Agreement
with LSC expired. Since there is only one client, respondent LSC, it is easy to conclude that
respondent BMSI is a mere supplier of labor.
After concluding that respondent BMSI is engaged in prohibited labor-only contracting,
respondent LSC became the employer of [petitioners] pursuant to DO 18-02.
[Petitioners] therefore should be reinstated to their former positions or equivalent positions in
respondent LSC as regular employees with full backwages and other benefits without loss of
seniority rights from October 31, 2003, when they lost their jobs, until actual reinstatement
(Vinoya v. NLRC, 324 SCRA 469). If reinstatement is not feasible, [petitioners] then should be
paid separation pay of one month pay for every year of service or a fraction of six months to be
considered as one year, in addition to full backwages.
Concerning [petitioners] prayer to be paid wage differentials and benefits under the CBA, We
have no doubt that [petitioners] would be entitled to them if they are covered by the said CBA.
For this purpose, [petitioners] should first enlist themselves as union members if they so desire,
or pay agency fee. Furthermore, only [petitioners] who signed the appeal memorandum are
covered by this Decision. As regards the other complainants who did not sign the appeal, the
Decision of the Labor Arbiter dismissing this case became final and executory.8

9. Sandi G. Bermeo
Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] to their
former positions as regular employees and pay their wage differentials and benefits under the
CBA.
If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and Best Manpower
Services are adjudged jointly and solidarily to pay [petitioners] separation pay of one month for
every year of service, a fraction of six months to be considered as one year.
In addition, respondent LSC and BMSI are solidarily liable to pay [petitioners] full backwages
from October 31, 2003 until actual reinstatement or, if reinstatement is not feasible, until finality
of this Decision.
Respondent LSC and respondent BMSI are likewise adjudged to be solidarily liable for
attorneys fees equivalent to ten (10%) of the total monetary award.
xxxx
SO ORDERED.9

The NLRC disposed thus:

WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision of the Labor Arbiter is
hereby REVERSED, and a NEW ONE rendered finding respondent Best Manpower Services,

LSC went to the CA via certiorari. On October 10, 2008, the CA rendered the now challenged
Decision,10reversing the NLRC. In holding that BMSI was an independent contractor, the CA
relied on the provisions of the Agreement, wherein BMSI warranted that it is an independent

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contractor, with adequate capital, expertise, knowledge, equipment, and personnel necessary for
the services rendered to LSC. According to the CA, the fact that BMSI entered into a contract of
lease with LSC did not ipso facto make BMSI a labor-only contractor; on the contrary, it proved
that BMSI had substantial capital. The CA was of the view that the law only required substantial
capital or investment. Since BMSI had substantial capital, as shown by its ability to pay rents to
LSC, then it qualified as an independent contractor. It added that even under the control test,
BMSI would be the real employer of petitioners, since it had assumed the entire charge and
control of petitioners services. The CA further held that BMSIs Certificate of Registration as an
independent contractor was sufficient proof that it was an independent contractor. Hence, the CA
absolved LSC from liability and instead held BMSI as employer of petitioners.

is an independent contractor, with adequate capital and investment. LSC capitalizes on the
ratiocination made by the CA.

The fallo of the CA Decision reads:

be measured in terms of, and determined by, the criteria set by statute. The parties cannot
dictate by the mere expedience of a unilateral declaration in a contract the character of their
business.

WHEREFORE, premises considered, the instant petition is GRANTED and the assailed decision
and resolution of public respondent NLRC are REVERSED and SET ASIDE. Consequently, the
decision of the Labor Arbiter dated September 29, 2004 is REINSTATED.
SO ORDERED.11
Petitioners filed a motion for reconsideration, but the CA denied it on January 21, 2009.

12

Hence, this appeal by petitioners, positing that:

THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE CLEAR EVIDENCE OF
RECORD THAT RESPONDENT WAS ENGAGED IN LABOR-ONLY CONTRACTING TO
DEFEAT PETITIONERS RIGHT TO SECURITY OF TENURE.13
Before resolving the petition, we note that only seven (7) of the nine petitioners signed the
Verification and Certification.14 Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao
(Anajao) did not sign the Verification and Certification, because they could no longer be located
by their co-petitioners.15
In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor Relations
Commission,16citing Loquias v. Office of the Ombudsman,17 we stated that the petition satisfies
the formal requirements only with regard to the petitioner who signed the petition, but not his copetitioner who did not sign nor authorize the other petitioner to sign it on his behalf. Thus, the
petition can be given due course only as to the parties who signed it. The other petitioners who
did not sign the verification and certificate against forum shopping cannot be recognized as
petitioners and have no legal standing before the Court. The petition should be dismissed
outright with respect to the non-conforming petitioners.

In declaring BMSI as an independent contractor, the CA, in the challenged Decision, heavily
relied on the provisions of the Agreement, wherein BMSI declared that it was an independent
contractor, with substantial capital and investment.
De Los Santos v. NLRC18 instructed us that the character of the business, i.e., whether as laboronly contractor or as job contractor, should

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan
Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,19 this Court explained:
Despite the fact that the service contracts contain stipulations which are earmarks of
independent contractorship, they do not make it legally so. The language of a contract is neither
determinative nor conclusive of the relationship between the parties. Petitioner SMC and
AMPCO cannot dictate, by a declaration in a contract, the character of AMPCO's business, that
is, whether as labor-only contractor, or job contractor. AMPCO's character should be measured
in terms of, and determined by, the criteria set by statute.
Thus, in distinguishing between prohibited labor-only contracting and permissible job
contracting, the totality of the facts and the surrounding circumstances of the case are to be
considered.
Labor-only contracting, a prohibited act, is an arrangement where the contractor or
subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a
principal. In labor-only contracting, the following elements are present: (a) the contractor or
subcontractor does not have substantial capital or investment to actually perform the job, work,
or service under its own account and responsibility; and (b) the employees recruited, supplied,
or placed by such contractor or subcontractor perform activities which are directly related to the
main business of the principal.20
On the other hand, permissible job contracting or subcontracting refers to an arrangement
whereby a principal agrees to put out or farm out with the contractor or subcontractor the
performance or completion of a specific job, work, or service within a definite or predetermined
period, regardless of whether such job, work, or service is to be performed or completed within
or outside the premises of the principal. 21

Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are concerned.
Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an
independent contractor, but a labor-only contractor. LSC, on the other hand, maintains that BMSI

A person is considered engaged in legitimate job contracting or subcontracting if the following

conditions concur:

Page 34 of 36

(a) The contractor carries on a distinct and independent business and undertakes the
contract work on his 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 his work except as to the results
thereof;

The CA erred in considering BMSIs Certificate of Registration as sufficient proof that it is an

independent contractor. In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas,
Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio, 24 we held that
a Certificate of Registration issued by the Department of Labor and Employment is not
conclusive evidence of such status. The fact of registration simply prevents the legal
presumption of being a mere labor-only contractor from arising.251avvphi1

(b) The contractor has substantial capital or investment; and

(c) The agreement between the principal and the contractor or subcontractor assures
the contractual employees' entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization, security of tenure, and social
welfare benefits.22
Given the above standards, we sustain the petitioners contention that BMSI is engaged in laboronly contracting.
First, petitioners worked at LSCs premises, and nowhere else. Other than the provisions of the
Agreement, there was no showing that it was BMSI which established petitioners working
procedure and methods, which supervised petitioners in their work, or which evaluated the
same. There was absolute lack of evidence that BMSI exercised control over them or their work,
except for the fact that petitioners were hired by BMSI.
Second, LSC was unable to present proof that BMSI had substantial capital. The record before
us is bereft of any proof pertaining to the contractors capitalization, nor to its investment in tools,
equipment, or implements actually used in the performance or completion of the job, work, or
service that it was contracted to render. What is clear was that the equipment used by BMSI
were owned by, and merely rented from, LSC.
In Mandaue Galleon Trade, Inc. v. Andales,23 we held:
The law casts the burden on the contractor to prove that it has substantial capital, investment,
tools, etc.Employees, on the other hand, need not prove that the contractor does not have
substantial capital, investment, and tools to engage in job-contracting.
Third, petitioners performed activities which were directly related to the main business of LSC.
The work of petitioners as checkers, welders, utility men, drivers, and mechanics could only be
characterized as part of, or at least clearly related to, and in the pursuit of, LSCs business.
Logically, when petitioners were assigned by BMSI to LSC, BMSI acted merely as a labor-only
contractor.
Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor
LSC refuted this finding, thereby bolstering the NLRC finding that BMSI is a labor-only
contractor.

Indubitably, BMSI can only be classified as a labor-only contractor. The CA, therefore, erred
when it ruled otherwise. Consequently, the workers that BMSI supplied to LSC became regular
employees of the latter.26Having gained regular status, petitioners were entitled to security of
tenure and could only be dismissed for just or authorized causes and after they had been
accorded due process.
Petitioners lost their employment when LSC terminated its Agreement with BMSI. However, the
termination of LSCs Agreement with BMSI cannot be considered a just or an authorized cause
for petitioners dismissal. In Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass Philippines,
Inc.,27 this Court declared:
The sole reason given for the dismissal of petitioners by SSASI was the termination of its service
contract with respondent. But since SSASI was a labor-only contractor, and petitioners were to
be deemed the employees of respondent, then the said reason would not constitute a just or
authorized cause for petitioners dismissal. It would then appear that petitioners were summarily
dismissed based on the aforecited reason, without compliance with the procedural due process
for notice and hearing.
Herein petitioners, having been unjustly dismissed from work, are entitled to reinstatement
without loss of seniority rights and other privileges and to full back wages, inclusive of
allowances, and to other benefits or their monetary equivalents computed from the time
compensation was withheld up to the time of actual reinstatement. Their earnings elsewhere
during the periods of their illegal dismissal shall not be deducted therefrom.
Accordingly, we hold that the NLRC committed no grave abuse of discretion in its decision.
Conversely, the CA committed a reversible error when it set aside the NLRC ruling.
WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of
Appeals in CA-G.R. SP. No. 103804 are REVERSED and SET ASIDE. Petitioners Emmanuel
Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, and
Arsenio Estorque are declared regular employees of Lorenzo Shipping Corporation. Further,
LSC is ordered to reinstate the seven petitioners to their former position without loss of seniority
rights and other privileges, and to pay full backwages, inclusive of allowances, and other
benefits or their monetary equivalent, computed from the time compensation was withheld up to
the time of actual reinstatement.
No pronouncement as to costs.
SO ORDERED.

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ANTONIO EDUARDO B. NACHURA

Associate Justice

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