1ST ASSIGN LABOR STAND

G.R. No. L-12582

January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL
RELATIONS, respondents-appellees.
x---------------------------------------------------------x
G.R. No. L-12598

January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL
RELATIONS, respondents-appellees.
Nicanor S. Sison for petitioner-appellant.
Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.
CONCEPCION, J.:
Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review
by certiorari of an order of the Court of Industrial Relations in Case No. 306-MC
thereof, certifying the Philippine Musicians Guild (FFW), petitioner therein and
respondent herein, as the sole and exclusive bargaining agency of all musicians
working with said companies, as well as with the Premiere Productions, Inc., which
has not appealed. The appeal of LVN Pictures, Inc., has been docketed as G.R. No. L12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc.
Involving as they do the same order, the two cases have been jointly heard in this
Court, and will similarly be disposed of.

In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter
referred to as the Guild, averred that it is a duly registered legitimate labor
organization; that LVN Pictures, Inc., Sampaguita Pictures, Inc., and Premiere
Productions, Inc. are corporations, duly organized under the Philippine laws,
engaged in the making of motion pictures and in the processing and distribution
thereof; that said companies employ musicians for the purpose of making music
recordings for title music, background music, musical numbers, finale music and
other incidental music, without which a motion picture is incomplete; that ninetyfive (95%) percent of all the musicians playing for the musical recordings of said
companies are members of the Guild; and that the same has no knowledge of the
existence of any other legitimate labor organization representing musicians in said
companies. Premised upon these allegations, the Guild prayed that it be certified as
the sole and exclusive bargaining agency for all musicians working in the
aforementioned companies. In their respective answers, the latter denied that they
have any musicians as employees, and alleged that the musical numbers in the
filing of the companies are furnished by independent contractors. The lower court,
however, rejected this pretense and sustained the theory of the Guild, with the
result already adverted to. A reconsideration of the order complained of having
been denied by the Court en banc, LVN Pictures, inc., and Sampaguita Pictures, Inc.,
filed these petitions for review forcertiorari.
Apart from impugning the conclusion of the lower court on the status of the Guild
members as alleged employees of the film companies, the LVN Pictures, Inc.,
maintains that a petition for certification cannot be entertained when the existence
of employer-employee relationship between the parties is contested. However, this
claim is neither borne out by any legal provision nor supported by any authority. So
long as, after due hearing, the parties are found to bear said relationship, as in the
case at bar, it is proper to pass upon the merits of the petition for certification.
It is next urged that a certification is improper in the present case, because, "(a) the
petition does not allege and no evidence was presented that the alleged musiciansemployees of the respondents constitute a proper bargaining unit, and (b) said
alleged musicians-employees represent a majority of the other numerous

employees of the film companies constituting a proper bargaining unit under

section 12 (a) of Republic Act No. 875."
The absence of an express allegation that the members of the Guild constitute a
proper bargaining unit is fatal proceeding, for the same is not a "litigation" in the
sense in which this term is commonly understood, but a mere investigation of a
non-adversary, fact finding character, in which the investigating agency plays the
part of a disinterested investigator seeking merely to ascertain the desires of
employees as to the matter of their representation. In connection therewith, the
court enjoys a wide discretion in determining the procedure necessary to insure the
fair and free choice of bargaining representatives by employees. 1 Moreover, it is
alleged in the petition that the Guild it a duly registered legitimate labor
organization and that ninety-five (95%) percent of the musicians playing for all the
musical recordings of the film companies involved in these cases are members of
the Guild. Although, in its answer, the LVN Pictures, Inc. denied both allegations, it
appears that, at the hearing in the lower court it was merely the status of the
musicians as its employees that the film companies really contested. Besides, the
substantial difference between the work performed by said musicians and that of
other persons who participate in the production of a film, and the peculiar
circumstances under which the services of that former are engaged and rendered,
suffice to show that they constitute a proper bargaining unit. At this juncture, it
should be noted that the action of the lower court in deciding upon an appropriate
unit for collective bargaining purposes is discretionary (N.L.R.B. v. May Dept. Store
Co., 66 Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this respect is entitled
to almost complete finality, unless its action is arbitrary or capricious (Marshall Field
& Co. v. N.L.R.B. [C.C.A. 19431, 135 F. 2d. 891), which is far from being so in the
cases at bar.
Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining
agency for the musicians working in the aforesaid film companies. It does not intend
to represent the other employees therein. Hence, it was not necessary for the Guild
to allege that its members constitute a majority of all the employees of said film
companies, including those who are not musicians. The real issue in these cases, is

whether or not the musicians in question are employees of the film companies. In
this connection the lower court had the following to say:
As a normal and usual course of procedure employed by the companies when
a picture is to be made, the producer invariably chooses, from the musical
directors, one who will furnish the musical background for a film. A price is
agreed upon verbally between the producer and musical director for the cost
of furnishing such musical background. Thus, the musical director may
compose his own music specially written for or adapted to the picture. He
engages his own men and pays the corresponding compensation of the
musicians under him.
When the music is ready for recording, the musicians are summoned through
'call slips' in the name of the film company (Exh 'D'), which show the name of
the musician, his musical instrument, and the date, time and place where he
will be picked up by the truck of the film company. The film company provides
the studio for the use of the musicians for that particular recording. The
musicians are also provided transportation to and from the studio by the
company. Similarly, the company furnishes them meals at dinner time.
During the recording sessions, the motion picture director, who is an
employee of the company, supervises the recording of the musicians and
tells what to do in every detail. He solely directs the performance of the
musicians before the camera as director, he supervises the performance of all
the action, including the musicians who appear in the scenes so that in the
actual performance to be shown on the screen, the musical director's
intervention has stopped.
And even in the recording sessions and during the actual shooting of a scene,
the technicians, soundmen and other employees of the company assist in the
operation. Hence, the work of the musicians is an integral part of the entire
motion picture since they not only furnish the music but are also called upon
to appear in the finished picture.

The question to be determined next is what legal relationship exits between

the musicians and the company in the light of the foregoing facts.
We are thus called upon to apply R.A. Act 875. which is substantially the
same as and patterned after the Wagner Act substantially the same as a Act
and the Taft-Hartley Law of the United States. Hence, reference to decisions
of American Courts on these laws on the point-at-issue is called for.
Statutes are to be construed in the light of purposes achieved and the evils
sought to be remedied. (U.S. vs. American Tracking Association, 310 U.S. 534,
84 L. ed. 1345.) .
In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S.
111, the United States Supreme Court said the Wagner Act was designed to
avert the 'substantial obstruction to the free flow of commerce which results
from strikes and other forms of industrial unrest by eliminating the causes of
the unrest. Strikes and industrial unrest result from the refusal of employers'
to bargain collectively and the inability of workers to bargain successfully for
improvement in their working conditions. Hence, the purposes of the Act are
to encourage collective bargaining and to remedy the workers' inability to
bargaining power, by protecting the exercise of full freedom of association
and designation of representatives of their own choosing, for the purpose of
negotiating the terms and conditions of their employment.'
The mischief at which the Act is aimed and the remedies it offers are not
confined exclusively to 'employees' within the traditional legal distinctions,
separating them from 'independent contractor'. Myriad forms of service
relationship, with infinite and subtle variations in the term of employment,
blanket the nation's economy. Some are within this Act, others beyond its
coverage. Large numbers will fall clearly on one side or on the other, by
whatever test may be applied. Inequality of bargaining power in controversies
of their wages, hours and working conditions may characterize the status of
one group as of the other. The former, when acting alone may be as helpless
in dealing with the employer as dependent on his daily wage and as unable
to resist arbitrary and unfair treatment as the latter.'

To eliminate the causes of labor dispute and industrial strike, Congress

thought it necessary to create a balance of forces in certain types of
economic relationship. Congress recognized those economic relationships
cannot be fitted neatly into the containers designated as 'employee' and
'employer'. Employers and employees not in proximate relationship may be
drawn into common controversies by economic forces and that the very
dispute sought to be avoided might involve 'employees' who are at times
brought into an economic relationship with 'employers', who are not their
'employers'. In this light, the language of the Act's definition of 'employee' or
'employer' should be determined broadly in doubtful situations, by underlying
economic facts rather than technically and exclusively established legal
classifications. (NLRB vs. Blount, 131 F [2d] 585.)
In other words, the scope of the term 'employee' must be understood with
reference to the purposes of the Act and the facts involved in the economic
relationship. Where all the conditions of relation require protection, protection
ought to be given .
By declaring a worker an employee of the person for whom he works and by
recognizing and protecting his rights as such, we eliminate the cause of
industrial unrest and consequently we promote industrial peace, because we
enable him to negotiate an agreement which will settle disputes regarding
conditions of employment, through the process of collective bargaining.
The statutory definition of the word 'employee' is of wide scope. As used in
the Act, the term embraces 'any employee' that is all employees in the
conventional as well in the legal sense expect those excluded by express
provision. (Connor Lumber Co., 11 NLRB 776.).
It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes
of industrial unrest by protecting the exercise of their right to selforganization for the purpose of collective bargaining. (b) To promote sound
stable industrial peace and the advancement of the general welfare, and the
best interests of employers and employees by the settlement of issues
respecting terms and conditions of employment through the process of

collective bargaining between employers and representatives of their

employees.
The primary consideration is whether the declared policy and purpose of the
Act can be effectuated by securing for the individual worker the rights and
protection guaranteed by the Act. The matter is not conclusively determined
by a contract which purports to establish the status of the worker, not as an
employee.
The work of the musical director and musicians is a functional and integral
part of the enterprise performed at the same studio substantially under the
direction and control of the company.
In other words, to determine whether a person who performs work for
another is the latter's employee or an independent contractor, the National
Labor Relations relies on 'the right to control' test. Under this test an
employer-employee relationship exist where the person for whom the
services are performed reserves the right to control not only the end to be
achieved, but also the manner and means to be used in reaching the end.
(United Insurance Company, 108, NLRB No. 115.).
Thus, in said similar case of Connor Lumber Company, the Supreme Court
said:.
'We find that the independent contractors and persons working under
them are employees' within the meaning of Section 2 (3) of its Act.
However, we are of the opinion that the independent contractors have
sufficient authority over the persons working under their immediate
supervision to warrant their exclusion from the unit. We shall include in
the unit the employees working under the supervision of the
independent contractors, but exclude the contractors.'
'Notwithstanding that the employees are called independent contractors', the
Board will hold them to be employees under the Act where the extent of the
employer's control over them indicates that the relationship is in reality one

of employment. (John Hancock Insurance Co., 2375-D, 1940, Teller, Labor

Dispute Collective Bargaining, Vol.).
The right of control of the film company over the musicians is shown (1) by
calling the musicians through 'call slips' in 'the name of the company; (2) by
arranging schedules in its studio for recording sessions; (3) by furnishing
transportation and meals to musicians; and (4) by supervising and directing
in detail, through the motion picture director, the performance of the
musicians before the camera, in order to suit the music they are playing to
the picture which is being flashed on the screen.
Thus, in the application of Philippine statutes and pertinent decisions of the
United States Courts on the matter to the facts established in this case, we
cannot but conclude that to effectuate the policies of the Act and by virtue of
the 'right of control' test, the members of the Philippine Musicians Guild are
employees of the three film companies and, therefore, entitled to right of
collective bargaining under Republic Act No. 875.
In view of the fact that the three (3) film companies did not question the
union's majority, the Philippine Musicians Guild is hereby declared as the sole
collective bargaining representative for all the musicians employed by the
film companies."
We are fully in agreement with the foregoing conclusion and the reasons given in
support thereof. Both are substantially in line with the spirit of our decision
in Maligaya Ship Watchmen Agency vs. Associated Watchmen and Security Union, L12214-17 (May 28, 1958). In fact, the contention of the employers in
the Maligaya cases, to the effect that they had dealt with independent contractors,
was stronger than that of the film companies in these cases. The third parties with
whom the management and the workers contracted in the Maligaya cases were
agencies registered with the Bureau of Commerce and duly licensed by the City of
Manila to engage in the business of supplying watchmen to steamship
companies, with permits to engage in said business issued by theCity Mayor and
the Collector of Customs. In the cases at bar, the musical directors with whom the
film companies claim to have dealt with had nothing comparable to the business

standing of said watchmen agencies. In this respect, the status of said musical
directors is analogous to that of the alleged independent contractor in Caro vs.
Rilloraza, L-9569 (September 30, 1957), with the particularity that the Caro case
involved the enforcement of the liability of an employer under the Workmen's
Compensation Act, whereas the cases before us are merely concerned with the right
of the Guild to represent the musicians as a collective bargaining unit. Hence, there
is less reason to be legalistic and technical in these cases, than in the Caro case.
Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe
Coconut Product Co., Inc vs. CIR (46 Off. Gaz., 5506, 5509), Philippine
Manufacturing Co. vs. Santos Vda. de Geronimo, L-6968 (November 29,
1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa Vda. de Cruz vs.
The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the theory of said
petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is authority
for herein respondents-appellees. It was held that, although engaged as pieceworkers, under the "pakiao" system, the "parers" and "shellers" in the case were,
not independent contractor, butemployees of said company, because "the
requirement imposed on the 'parers' to the effect that 'the nuts are pared whole or
that there is not much meat wasted,' in effect limits or controls the means or details
by which said workers are to accomplish their services" as in the cases before us.
The nature of the relation between the parties was not settled in the Viana case, the
same having been remanded to the Workmen's Compensation Commission for
further evidence.
The case of the Philippine Manufacturing Co. involved a contract between said
company and Eliano Garcia, who undertook to paint a tank of the former. Garcia, in
turn engaged the services of Arcadio Geronimo, a laborer, who fell while painting
the tank and died in consequence of the injuries thus sustained by him. Inasmuch
as the company was engaged in the manufacture of soap, vegetable lard, cooking
oil and margarine, it was held that the connection between its business and the
painting aforementioned was purely casual; that Eliano Garcia was an independent
contractor; that Geronimo was not an employee of the company; and that the latter
was not bound, therefore, to pay the compensation provided in the Workmen's

Compensation Act. Unlike the Philippine Manufacturing case, the relation between
the business of herein petitioners-appellants and the work of the musicians is not
casual. As held in the order appealed from which, in this respect, is not contested by
herein petitioners-appellants "the work of the musicians is an integral part of the
entire motion picture." Indeed, one can hardly find modern films without music
therein. Hence, in the Caro case (supra), the owner and operator of buildings for
rent was held bound to pay the indemnity prescribed in the Workmen's
Compensation Act for the injury suffered by a carpenter while working as such in
one of said buildings even though his services had been allegedly engaged by a
third party who had directly contracted with said owner. In other words, the repair
work had not merely a casual connection with the business of said owner. It was a
necessary incident thereof, just as music is in the production of motion pictures.
The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957)
differs materially from the present cases. It involved the interpretation of Republic
Act No. 660, which amends the law creating and establishing the Government
Service Insurance System. No labor law was sought to be construed in that case. In
act, the same was originally heard in the Court of First Instance of Manila, the
decision of which was, on appeal, affirmed by the Supreme Court. The meaning or
scope if the term "employee," as used in the Industrial Peace Act (Republic Act No.
875), was not touched therein. Moreover, the subject matter of said case was a
contract between the management of the Manila Hotel, on the one hand, and Tirso
Cruz, on the other, whereby the latter greed to furnish the former the services of his
orchestra, consisting of 15 musicians, including Tirso Cruz, "from 7:30 p.m. to
closing time daily." In the language of this court in that case, "what pieces the
orchestra shall play, and how the music shall be arranged or directed, the intervals
and other details such are left to the leader'sdiscretion."
This is not situation obtaining in the case at bar. The musical directors above
referred to have no such control over the musicians involved in the present case.
Said musical directors control neither the music to be played, nor the musicians
playing it. The film companies summon the musicians to work, through the musical
directors. The film companies, through the musical directors, fix the date, the time
and the place of work. The film companies, not the musical directors, provide the

transportation to and from the studio. The film companies furnish meal at dinner
time.
What is more in the language of the order appealed from "during the recording
sessions, the motion picture director who is an employee of the company" not the
musical director "supervises the recording of the musicians and tells them what
to do in every detail". The motion picture director not the musical director
"solely directs and performance of the musicians before the camera". The motion
picture director "supervises the performance of all the actors, including the
musicians who appear in the scenes, so that in the actual performance to be shown
in the screen, the musical director's intervention has stopped." Or, as testified to in
the lower court, "the movie director tells the musical director what to do; tells the
music to be cut or tells additional music in this part or he eliminates the entire
music he does not (want) or he may want more drums or move violin or piano, as
the case may be". The movie director "directly controls the activities of the
musicians." He "says he wants more drums and the drummer plays more" or "if he
wants more violin or he does not like that.".
It is well settled that "an employer-employee relationship exists . . .where the
person for whom the services are performed reserves a right to control not only the
end to be achieved but also the means to be used in reaching such end . . . ."
(Alabama Highway Express Co., Express Co., v. Local 612, 108S. 2d. 350.) The
decisive nature of said control over the "means to be used", is illustrated in the case
of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp. 1197, 11991201), in which, by reason of said control, the employer-employee relationship was
held to exist between the management and the workers, notwithstanding the
intervention of an alleged independent contractor, who had, and exercise, the
power to hire and fire said workers. The aforementioned control over the means to
be used" in reading the desired end is possessed and exercised by the film
companies over the musicians in the cases before us.
WHEREFORE, the order appealed from is hereby affirmed, with costs against
petitioners herein. It is so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera,
Paredes and Dizon, JJ., concur.
Gutierrez David, J., took no part.
G.R. No. L-53590 July 31, 1984
ROSARIO BROTHERS INC. (MANILA COD DEPARTMENT STORE), petitioner,
vs.
HON. BLAS F. OPLE, THE NATIONAL LABOR RELATIONS COMMISSION, and
LEONARDO LOVERIA, MARIETTA GALUT, LINDA TAPICERIA, JESUS S. OLIVER,
CLARITA SANGLE, RICARDO ROXAS, ANTONIO MABUTOL, LUZ BAYNO,
NESTOR SANCHEZ, TITO CASTALEDA, EDDIE RODRIGUEZ, MANUEL MEJES,
FRANCISCA TAPICERIA, EDITHA BAYNO, ET AL., respondents.
Bueno & Primicias Law Office for petitioner.
The Solicitor General for respondents.

RELOVA, J.:
The issue raised in this case is whether an employer-employee relationship exists
between the petitioner and the private respondents. It is the submission of
petitioner that no such relationship exists or has been created because the "series
of memoranda" issued by petitioner to the private respondents from 1973 to 1977
would reveal that it had no control and/or supervision over the work of the private
respondents.
Private respondents are tailors, pressers, stitchers and similar workers hired by the
petitioner in its tailoring department (Modes Suburbia). Some had worked there
since 1969 until their separation on January 2, 1978. For their services, they were
paid weekly wages on piece-work basis, minus the withholding tax per Bureau of
Internal Revenue (BIR) rules. Further, they were registered with the Social Security
System (SSS) as employees of petitioner and premiums were deducted from their
wages; they were also members of the Avenida-Cubao Manila COD Department

Store Labor Union which has a Collective Bargaining Agreement with the company
and; they were required to report for work from Monday through Saturday and to
stay in the tailoring shop for no less than eight (8) hours a day, unless no job order
was given them after waiting for two to three hours, in which case, they may leave
and may come back in the afternoon. Their attendance was recorded through a
bundy clock just like the other employees of petitioner. A master cutter distributes
job orders equally, supervises the work and sees to it that they were finished as
soon as possible. Quoting from the comment of the Solicitor General, petitioner, in
its memorandum, said
Once the job orders and the corresponding materials were distributed
to them, private respondents were on their own. They were free to do
their jobs either in the petitioner's shop or elsewhere at their option,
without observing the regular working time of the company provided
that they finished their work on time and in accordance with the
specifications. As a matter of fact, they were allowed to contract other
persons to do the job for them; and also to accept tailoring jobs from
other establishments. (p. 202, Rollo)
On September 7, 1977, the private respondents filed with the Regional Office of the
Department (now Ministry) of Labor a complaint for violation of Presidential Decree
851 (13th month pay) and Presidential Decree 525, as amended by Presidential
Decree 1123 (Emergency Living Allowance) against herein petitioner.
After petitioner had filed its answer, the case was certified for compulsory
arbitration to the Labor Arbiter who, after due hearing, rendered a decision on
December 29, 1977 dismissing "private respondents" claims for unpaid emergency
living allowance and 13th month pay, for lack of merit, upon finding that the
complainants (herein private respondents) are not employees of the respondent
(herein petitioner) within the meaning of Article 267(b)of the Labor Code. As a
consequence, the private respondents were dismissed on January 2, 1978 and this
prompted them to file a complaint for illegal dismissal with the Ministry of Labor.
Meanwhile, the National Labor Relations Commission (NLRC) affirmed the decision of
the Labor Arbiter and dismissed private respondents' appeal for lack of merit.

However, upon appeal to the Minister of Labor, the latter reversed the resolution of
the NLRC in a decision, dated March 27, 1979, holding that
The decision appealed from must be reversed. It is clearly erronious.
Ccmplainants and respondent are correct (sic) in considering their
relationship as one between employees and employer. The labor
arbiter should not have made a different finding.
Complainants were employed as tailors, pressers, stitchers and
coatmakers in the tailoring department of the respondent. They are
hired through a master cutter and the department head and upon the
approval of the personnel department and the management. They
report to the shop from Monday to Saturday and record their
attendance with a bundy clock. They are required to stay in the shop
premises "for no less than 8 hours a day" unless no job is given them
"after waiting for two or three hours" in which case, they are "allowed
to leave."
The employees (tailors, pressers and stitchers) are paid by piece per
week according to the rates established by the company. They are
registered as employees with the Social Security System for which
premiums are deducted from their wages. Taxes are also witheld from
their wages pursuant to BIR rules. Moreover, they enjoy the benefits
due to employees under their collective agreement with the company.
The tailors are given deadlines on their assigned jobs. They are
required to work on job orders as soon as these are given to them. The
master cutter is ordered "to watch out for tailors who postponed their
assigned job up to the last few days of the deadline" and to report
violators "for proper action." Tailors are also required to follow the
company code of discipline and the rules and regulations of the
tailoring department. Outright dismissal is meted on anyone who
brings out company patterns.

Under these facts, the existence of the employment relations can not
be disputed. The respondent itself, in its very first position papers,
accepts this fact. The labor arbiter certainly erred in making a different
finding.
However, respondent contends that the employees are excluded from
the coverage of PD 525, 851 and 1123 because of the nature of their
employment, there being 'no fixed number with regards to entry and
exit and no fixed number of days of work, with respect to said
employees. We have, however, examined carefully the decrees and
find absolutely no indication therein that the employees are indeed
excluded. Nor are the rules implementing the decrees supportive of the
respondent's contention. On the contrary, the rules argue for the
contrary view.
Section 2 of the rules implementing PD 525 provides: "The Decree shall
apply to all employees of covered employers, regardless of their
position, designation or employment status, and irrespective of the
method by which their wages are paid, including temporary, casual,
probationary, and seasonal employees and workers." And Section 3, of
the rules implementing PD 851 provides that "all employees of covered
employers shall be entitled to benefits provided under the Decree ...
regardless of their position, designation or employment status, and
irrespective of the method by which their wages are paid." Section 2 of
the same rules explicitly provides that the rules apply to "workers paid
on piece-rate basis" or "those who are paid a standard amount for
every piece or unit of work produced that is more or less regularly
replicated, without regard to the time spent in producing the same."
WHEREFORE, respondent is hereby ordered to pay the emergency
allowances under PD 525 and 1123 and the 13th month pay under PD
851 from the date of the effectivity of said decrees but not earlier than
September 7, 1974 to the following complainants: Leonardo Loveria,
Editha Bayno, Fe Bonita, Ricardo Roxas, Marietta Galut, Mercedes

Oliver, Antonio Mabutol, Clarita Sangle and Jesus Oliver; and the
emergency allowances and 13th month pay under said decrees from
the date of the effectivity of said decrees but not earlier than the date
of the date of the start of their employment, as indicated in the
parenthesis after their names, to the following complainants: Linda
Tapiceria (July 14, 1975), Luz Bayno, (September 22, 1975), Tito
Castaeda (October 20, 1976), Francisco Tapiceria (February 14, 1977),
Manuel Mejes (February 20, 1977), Eddie Rodriguez (July 4, 1977) and
Nestor Sanchez (July 22, 1977). The Socio-Economic Analyst of the
National Labor Relations Commission is hereby directed to compute
the amount of the awards stated in this order and to submit a report
thereon within 20 calendar days from receipt of this order. (pp. 37-40,
Rollo)
Thereafter, private respondents filed a motion for issuance of a writ of execution of
the aforesaid decision of the Minister of Labor which was granted and, partially
implemented.
On February 28, 1980, the Labor Arbiter, issued an order directing the Chief of the
Research and Information Department of the Commission to designate a SocioEconomic Analyst to compute the balance of private respondents' claims for the
13th month pay and emergency living allowance in accordance with respondent
Minister's decision of March 27, 1979. Pursuant thereto, a report, dated March 4,
1980, was submitted computing the balance of private respondents' claims for
emergency living allowance and 13th month pay up to February 29,1980 in the total
amount of P71,131.14. A writ of execution was issued for the satisfaction of said
amount.
Hence, the filing of this petition for certiorari, praying, among others, to annul and
set aside the decision of public respondent Minister of Labor and to dismiss the
claims of private respondents.
We cannot sustain the petition. It was filed on April 1, 1980 which was too late
because the Labor Minister's decision of March 27, 1979, subject of this judicial
review, had already become final. And, not only that. The questioned decision has

already been partially implemented by the sheriff as shown by his return, dated July
17, 1979 (p. 96, Rollo). What is left for execution is the balance of private
respondents' claim.
Further, the petition is devoid of merit. As held in Mafinco Trading Corporation vs.
Ople, 70 SCRA 139, the existence of employer-employee relationship is determined
by the following elements, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power
to control employees' conduct although the latter is the most important element.
On the other hand, an independent contractor is one who exercises independent
employment and contracts to do a piece of work according to his own methods and
without being subjected to control of his employer except as to the result of his
work.
1. In the case at bar, as found by the public respondent, the selection and hiring of
private respondents were done by the petitioner, through the master cutter of its
tailoring department who was a regular employee. The procedure was modified
when the employment of personnel in the tailoring department was made by the
management itself after the applicants' qualifications had been passed upon by a
committee of four. Later, further approval by the Personnel Department was
required.
2. Private respondents received their weekly wages from petitioner on piece-work
basis which is within the scope and meaning of the term "wage" as defined under
Article 97(f) of the New Labor Code (PD 442), thus
(f) "Wage" paid to any employee shag mean the remuneration or
earnings, however, designated, capable of being expressed in terms of
money, whether fixed or ascertained on a time, task, piece, or
commission basis, or other method of calculating the same, which is
payable by an employer to an employee under a written or unwritten
contract of employment for work done or to be done or for services
rendered or to be rendered, and includes the fair and reasonable value,
as determined by the Secretary of Labor, of board, lodging or other
facilities customarily furnished by the employer to the employee. ...

3. Petitioner had the power to dismiss private respondents, as shown by the various
memoranda issued for strict compliance by private respondents, violations of which,
in extreme cases, are grounds for outright dismissal. In fact, they were dismissed on
January 2, 1978, although, the dismissal was declared illegal by the Labor Arbiter.
The case is pending appeal with the National Labor Relations Commission.
4. Private respondents' conduct in the performance of their work was controlled by
petitioner, such as: (1) they were required to work from Monday through Saturday;
(2) they worked on job orders without waiting for the deadline; (3) they were to
observe cleanliness in their place of work and were not allowed to bring out tailoring
shop patterns; and (4) they were subject to quality control by petitioner.
5. Private respondents were allowed to register with the Social Security System
(SSS) as employees of petitioner and premiums were deducted from their wages
just like its other employees. And, withholding taxes were also deducted from their
wages for transmittal to the Bureau of Internal Revenue (BIR).
6. Well-established is the principle that "findings of administrative agencies which
have acquired expertise because their jurisdiction is confined to specific matters are
generally accorded not only respect but even finality. Judicial review by this Court on
labor cases do not go so far as to evaluate the sufficiency of the evidence upon
which the Deputy Minister and the Regional Director based their determinations but
are limited to issues of jurisdiction or grave abuse of discretion (Special Events &
Central Shipping Office Workers Union vs. San Miguel Corporation, 122 SCRA 557)."
In the case at bar, the questioned decision and order of execution of public
respondents are not tainted with unfairness or arbitrariness that would amount to
abuse of discretion or lack of jurisdiction and, therefore, this Court finds no
necessity to disturb, much less, reverse the same.
WHEREFORE, premises considered, the petition is dismissed for lack of merit.
SO ORDERED.

G.R. No. 64948 September 27, 1994

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

NARVASA, C.J.:
The question before the Court here is whether or not persons rendering caddying
services for members of golf clubs and their guests in said clubs' courses or
premises are the employees of such clubs and therefore within the compulsory
coverage of the Social Security System (SSS).
That question appears to have been involved, either directly or peripherally, in three
separate proceedings, all initiated by or on behalf of herein private respondent and
his fellow caddies. That which gave rise to the present petition for review was
originally filed with the Social Security Commission (SSC) via petition of seventeen
(17) persons who styled themselves "Caddies of Manila Golf and Country ClubPTCCEA" for coverage and availment of benefits under the Social Security Act as
amended, "PTCCEA" being
the acronym of a labor organization, the "Philippine Technical, Clerical, Commercial
Employees Association," with which the petitioners claimed to be affiliated. The
petition, docketed as SSC Case No. 5443, alleged in essence that although the
petitioners were employees of the Manila Golf and Country Club, a domestic
corporation, the latter had not registered them as such with the SSS.
At about the same time, two other proceedings bearing on the same question were
filed or were pending; these were:

(1) a certification election case filed with the Labor Relations Division
of the Ministry of Labor by the PTCCEA on behalf of the same caddies
of the Manila Golf and Country Club, the case being titled "Philippine
Technical, Clerical, Commercial Association vs. Manila Golf and Country
Club" and docketed as Case No. R4-LRDX-M-10-504-78; it appears to
have been resolved in favor of the petitioners therein by Med-Arbiter
Orlando S. Rojo who was thereafter upheld by Director Carmelo S.
Noriel, denying the Club's motion for reconsideration;

(2) a compulsory arbitration case initiated before the Arbitration

Branch of the Ministry of Labor by the same labor organization, titled
"Philippine Technical, Clerical, Commercial Employees Association
(PTCCEA), Fermin Lamar and Raymundo Jomok vs. Manila Golf and
Country Club, Inc., Miguel Celdran, Henry Lim and Geronimo Alejo;" it
was dismissed for lack of merit by Labor Arbiter Cornelio T. Linsangan,
a decision later affirmed on appeal by the National Labor Relations
Commission on the ground that there was no employer-employee
relationship between the petitioning caddies and the respondent
Club.

In the case before the SSC, the respondent Club filed answer praying for the
dismissal of the petition, alleging in substance that the petitioners, caddies by
occupation, were allowed into the Club premises to render services as such to the
individual members and guests playing the Club's golf course and who themselves
paid for such services; that as such caddies, the petitioners were not subject to the
direction and control of the Club as regards the manner in which they performed
their work; and hence, they were not the Club's employees.
Subsequently, all but two of the seventeen petitioners of their own accord withdrew
their claim for social security coverage, avowedly coming to realize that indeed
there was no employment relationship between them and the Club. The case
continued, and was eventually adjudicated by the SSC after protracted proceedings
only as regards the two holdouts, Fermin Llamar and Raymundo Jomok. The
Commission dismissed the petition for lack of merit,

ruling:

. . . that the caddy's fees were paid by the golf players themselves and
not by respondent club. For instance, petitioner Raymundo Jomok
averred that for their services as caddies a caddy's Claim Stub (Exh.
"1-A") is issued by a player who will in turn hand over to management
the other portion of the stub known as Caddy Ticket (Exh. "1") so that
by this arrangement management will know how much a caddy will be
paid (TSN, p. 80, July 23, 1980). Likewise, petitioner Fermin Llamar
admitted that caddy works on his own in accordance with the rules and
regulations (TSN, p. 24, February 26, 1980) but petitioner Jomok could
not state any policy of respondent that directs the manner of caddying
(TSN, pp. 76-77, July 23, 1980). While respondent club promulgates
rules and regulations on the assignment, deportment and conduct of
caddies (Exh. "C") the same are designed to impose personal discipline
among the caddies but not to direct or conduct their actual work. In
fact, a golf player is at liberty to choose a caddy of his preference
regardless of the respondent club's group rotation system and has the
discretion on whether or not to pay a caddy. As testified to by
petitioner Llamar that their income depends on the number of players
engaging their services and liberality of the latter (TSN, pp. 10-11, Feb.
26, 1980). This lends credence to respondent's assertion that the
caddies are never their employees in the absence of two elements,
namely, (1) payment of wages and (2) control or supervision over
them. In this connection, our Supreme Court ruled that in the
determination of the existence of an employer-employee relationship,
the "control test" shall be considered decisive (Philippine
Manufacturing Co. vs. Geronimo and Garcia, 96 Phil. 276; Mansal vs.
P.P. Coheco Lumber Co., 96 Phil. 941; Viana vs.
Al-lagadan, et al., 99 Phil. 408; Vda, de Ang, et al. vs. The Manila Hotel
Co., 101 Phil. 358, LVN Pictures Inc. vs. Phil. Musicians Guild, et al.,
L-12582, January 28, 1961, 1 SCRA 132. . . . (reference being made
also to Investment Planning Corporation Phil. vs. SSS 21 SCRA 925).
Records show the respondent club had reported for SS coverage
Graciano Awit and Daniel Quijano, as bat unloader and helper,

respectively, including their ground men, house and administrative

personnel, a situation indicative of the latter's concern with the rights
and welfare of its employees under the SS law, as amended. The
unrebutted testimony of Col. Generoso A. Alejo (Ret.) that the ID cards
issued to the caddies merely intended to identify the holders as
accredited caddies of the club and privilege(d) to ply their trade or
occupation within its premises which could be withdrawn anytime for
loss of confidence. This gives us a reasonable ground to state that the
defense posture of respondent that petitioners were never its
employees is well taken. 4
From this Resolution appeal was taken to the Intermediate appellate Court by the
union representing Llamar and Jomok. After the appeal was docketed

and some

months before decision thereon was reached and promulgated, Raymundo Jomok's
appeal was dismissed at his instance, leaving Fermin Llamar the lone appellant.

The appeal ascribed two errors to the SSC:

(1) refusing to suspend the proceedings to await judgment by the
Labor Relations Division of National Capital Regional Office in the
certification election case (R-4-LRD-M-10-504-78) supra, on the precise
issue of the existence of employer-employee relationship between the
respondent club and the appellants, it being contended that said issue
was "a function of the proper labor office"; and
(2) adjudicating that self same issue a manner contrary to the ruling of
the Director of the Bureau of Labor Relations, which "has not only
become final but (has been) executed or (become) res adjudicata."

The Intermediate Appellate Court gave short shirt to the first assigned error,
dismissing it as of the least importance. Nor, it would appear, did it find any greater
merit in the second alleged error. Although said Court reserved the appealed SSC
decision and declared Fermin Llamar an employee of the Manila Gold and Country
Club, ordering that he be reported as such for social security coverage and paid any
corresponding benefits,

it conspicuously ignored the issue of res adjudicata raised

in said second assignment. Instead, it drew basis for the reversal from this Court's
ruling in Investment Planning Corporation of the Philippines vs. Social Security
System, supra

and declared that upon the evidence, the questioned employer-

employee relationship between the Club and Fermin Llamar passed the so-called
"control test," establishment in the case i.e., "whether the employer controls or
has reserved the right to control the employee not only as to the result of the work
to be done but also as to the means and methods by which the same is to be
accomplished," the Club's control over the caddies encompassing:
(a) the promulgation of no less than twenty-four (24) rules and
regulations just about every aspect of the conduct that the caddy must
observe, or avoid, when serving as such, any violation of any which
could subject him to disciplinary action, which may include suspending
or cutting off his access to the club premises;
(b) the devising and enforcement of a group rotation system whereby a
caddy is assigned a number which designates his turn to serve a
player;
(c) the club's "suggesting" the rate of fees payable to the caddies.
Deemed of title or no moment by the Appellate Court was the fact that the caddies
were paid by the players, not by the Club, that they observed no definite working
hours and earned no fixed income. It quoted with approval from an American
decision

10

to the effect that: "whether the club paid the caddies and afterward

collected in the first instance, the caddies were still employees of the club." This, no
matter that the case which produced this ruling had a slightly different factual cast,
apparently having involved a claim for workmen's compensation made by a caddy
who, about to leave the premises of the club where he worked, was hit and injured
by an automobile then negotiating the club's private driveway.
That same issue of res adjudicata, ignored by the IAC beyond bare mention thereof,
as already pointed out, is now among the mainways of the private respondent's
defenses to the petition for review. Considered in the perspective of the incidents
just recounted, it illustrates as well as anything can, why the practice of forum-

shopping justly merits censure and punitive sanction. Because the same question of
employer-employee relationship has been dragged into three different fora, willynilly and in quick succession, it has birthed controversy as to which of the resulting
adjudications must now be recognized as decisive. On the one hand, there is the
certification case [R4-LRDX-M-10-504-78), where the decision of the Med-Arbiter
found for the existence of employer-employee relationship between the parties, was
affirmed by Director Carmelo S. Noriel, who ordered a certification election held, a
disposition never thereafter appealed according to the private respondent; on the
other, the compulsory arbitration case (NCR Case No. AB-4-1771-79), instituted by
or for the same respondent at about the same time, which was dismissed for lack of
merit by the Labor Arbiter, which was afterwards affirmed by the NLRC itself on the
ground that there existed no such relationship between the Club and the private
respondent. And, as if matters were not already complicated enough, the same
respondent, with the support and assistance of the PTCCEA, saw fit, also
contemporaneously, to initiate still a third proceeding for compulsory social security
coverage with the Social Security Commission (SSC Case No. 5443), with the result
already mentioned.
Before this Court, the petitioner Club now contends that the decision of the MedArbiter in the certification case had never become final, being in fact the subject of
three pending and unresolved motions for reconsideration, as well as of a later
motion for early resolution.

11

Unfortunately, none of these motions is incorporated

or reproduced in the record before the Court. And, for his part, the private
respondent contends, not only that said decision had been appealed to and been
affirmed by the Director of the BLR, but that a certification election had in fact been
held, which resulted in the PTCCEA being recognized as the sole bargaining agent of
the caddies of the Manila Golf and Country Club with respect to wages, hours of
work, terms of employment, etc.

12

Whatever the truth about these opposing

contentions, which the record before the Court does not adequately disclose, the
more controlling consideration would seem to be that, however, final it may
become, the decision in a certification case, by the
very nature of that proceedings, is not such as to foreclose all further dispute
between the parties as to the existence, or non-existence, of employer-employee
relationship between them.

It is well settled that for res adjudicata, or the principle of bar by prior judgment, to
apply, the following essential requisites must concur: (1) there must be a final
judgment or order; (2) said judgment or order must be on the merits; (3) the court
rendering the same must have jurisdiction over the subject matter and the parties;
and (4) there must be between the two cases identity of parties, identity of subject
matter and identity of cause of action. 13
Clearly implicit in these requisites is that the action or proceedings in which is
issued the "prior Judgment" that would operate in bar of a subsequent action
between the same parties for the same cause, be adversarial, or contentious, "one
having opposing parties; (is) contested, as distinguished from an ex parte hearing
or proceeding. . . . of which the party seeking relief has given legal notice to the
other party and afforded the latter an opportunity to contest it"

14

and a certification

case is not such a proceeding, as this Court already ruled:

A certification proceedings is not a "litigation" in the sense in which the
term is commonly understood, but mere investigation of a nonadversary, fact-finding character, in which the investigating agency
plays the part of a disinterested investigator seeking merely to
ascertain the desires of the employees as to the matter of their
representation. The court enjoys a wide discretion in determining the
procedure necessary to insure the fair and free choice of bargaining
representatives by the employees. 15
Indeed, if any ruling or judgment can be said to operate as res adjudicata on the
contested issue of employer-employee relationship between present petitioner and
the private respondent, it would logically be that rendered in the compulsory
arbitration case (NCR Case No. AB-4-771-79, supra), petitioner having asserted,
without dispute from the private respondent, that said issue was there squarely
raised and litigated, resulting in a ruling of the Arbitration Branch (of the same
Ministry of Labor) that such relationship did not exist, and which ruling was
thereafter affirmed by the National Labor Relations Commission in an appeal taken
by said respondent.

16

In any case, this Court is not inclined to allow private respondent the benefit of any
doubt as to which of the conflicting ruling just adverted to should be accorded
primacy, given the fact that it was he who actively sought them simultaneously, as
it were, from separate fora, and even if the graver sanctions more lately imposed by
the Court for forum-shopping may not be applied to him retroactively.
Accordingly, the IAC is not to be faulted for ignoring private respondent's invocation
of res adjudicata; on contrary, it acted correctly in doing so.
Said Courts holding that upon the facts, there exists (or existed) a relationship of
employer and employee between petitioner and private respondent is, however,
another matter. The Court does not agree that said facts necessarily or logically
point to such a relationship, and to the exclusion of any form of arrangements, other
than of employment, that would make the respondent's services available to the
members and guest of the petitioner.
As long as it is, the list made in the appealed decision detailing the various matters
of conduct, dress, language, etc. covered by the petitioner's regulations, does not,
in the mind of the Court, so circumscribe the actions or judgment of the caddies
concerned as to leave them little or no freedom of choice whatsoever in the manner
of carrying out their services. In the very nature of things, caddies must submit to
some supervision of their conduct while enjoying the privilege of pursuing their
occupation within the premises and grounds of whatever club they do their work in.
For all that is made to appear, they work for the club to which they attach
themselves on sufference but, on the other hand, also without having to observe
any working hours, free to leave anytime they please, to stay away for as long they
like. It is not pretended that if found remiss in the observance of said rules, any
discipline may be meted them beyond barring them from the premises which, it
may be supposed, the Club may do in any case even absent any breach of the rules,
and without violating any right to work on their part. All these considerations clash
frontally with the concept of employment.
The IAC would point to the fact that the Club suggests the rate of fees payable by
the players to the caddies as still another indication of the latter's status as
employees. It seems to the Court, however, that the intendment of such fact is to

the contrary, showing that the Club has not the measure of control over the
incidents of the caddies' work and compensation that an employer would possess.
The Court agrees with petitioner that the group rotation system so-called, is less a
measure of employer control than an assurance that the work is fairly distributed, a
caddy who is absent when his turn number is called simply losing his turn to serve
and being assigned instead the last number for the day.

17

By and large, there appears nothing in the record to refute the petitioner's claim
that:
(Petitioner) has no means of compelling the presence of a caddy. A
caddy is not required to exercise his occupation in the premises of
petitioner. He may work with any other golf club or he may seek
employment a caddy or otherwise with any entity or individual without
restriction by petitioner. . . .
. . . In the final analysis, petitioner has no was of compelling the
presence of the caddies as they are not required to render a definite
number of hours of work on a single day. Even the group rotation of
caddies is not absolute because a player is at liberty to choose a caddy
of his preference regardless of the caddy's order in the rotation.
It can happen that a caddy who has rendered services to a player on
one day may still find sufficient time to work elsewhere. Under such
circumstances, he may then leave the premises of petitioner and go to
such other place of work that he wishes (sic). Or a caddy who is on call
for a particular day may deliberately absent himself if he has more
profitable caddying, or another, engagement in some other place.
These are things beyond petitioner's control and for which it imposes
no direct sanctions on the caddies. . . .

18

WHEREFORE, the Decision of the Intermediate Appellant Court, review of which is

sought, is reversed and set aside, it being hereby declared that the private
respondent, Fermin Llamar, is not an employee of petitioner Manila Golf and

Country Club and that petitioner is under no obligation to report him for compulsory
coverage to the Social Security System. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-55674 July 25, 1983

LA SUERTE CIGAR AND CIGARETTE FACTORY, petitioner,
vs.
DIRECTOR OF THE BUREAU OF LABOR RELATIONS, THE LA SUERTE CIGAR
AND CIGARETTE FACTORY PROVINCIAL (Luzon) AND METRO MANILA SALES
FORCE ASSOCIATION-NATU, and THE NATIONAL ASSOCIATION OF TRADE
UNIONS, respondents.
Angara, Abello, Concepcion, Regala & Cruz Law Office for petitioner.
The Solicitor General for respondents.
Marcelino Lontok, Jr. for respondent NATU.

GUERRERO, J.:
In the determination of the basic issue raised in the case at bar involving the status
of some 14 members of private respondent local union whether they are employees
of petitioner company in which case they should be included in the 30%
jurisdictional requirement necessary to support the petition for certification election,
or independent contractors and hence, excluded therefrom, Our rulings in Mafinco
Trading Corp. vs. Ople, 70 SCRA 139, where We reiterated the "control test" earlier
laid down in Investment Planning Corp. vs. Social Security System, 21 SCRA 924,
and in Social Security System vs. Hon. Court of Appeals and Shriro (Phils.) Inc., 37
SCRA 579 are authoritative and controlling.
In the Mafinco case, the Court, through Justice Aquino, said:

In a petition for certiorari, the issue of whether respondents are

employees or independent contractors should be resolved mainly in
the light of their peddling contracts. Pro hac vice the issue of whether
Repomanta and Moralde were employees of Mafinco or were
independent contractors should be resolved mainly in the light of their
peddling contracts. A different approach would lead this Court astray
into the field of factual controversy where its legal pronouncements
would not rest on solid grounds.
A contract whereby one engages to purchase and sell soft drinks on
trucks supplied by the manufacturer but providing that other party
(peddler) shall have the right to employ his own workers, shall post a
bond to protect the manufacturer against losses, shall be responsible
for damages caused to third persons, shall obtain the necessary
licenses and permits and bear the expenses incurred in the sale of the
soft drinks is not a contract of employment.-We hold that under their
peddling contracts Repomanta and Moralde were not employees of
Mafinco but were independent contractors as found by the NLRC and
its factfinder and by the committee appointed by the Secretary of
Labor to look into the status of Cosmos and Mafinco peddlers. They
were distributors of Cosmos soft drinks with their own capital and
employees. Ordinarily, an employee or a mere peddler does not
execute a formal contract of employment. He is simply hired and he
works under the direction and control of the employer. Repomanta and
Moralde voluntarily executed with Mafinco formal peddling contracts
which indicate the manner in - which they would se Cosmos soft drinks.
That circumstance signifies that they were acting as independent
businessmen. They were free to sign or not to sign that contract. If
they did not want to sell Cosmos products under the conditions defined
in that contract, they were free to reject it. But having signed it, they
were bound by its stipulations and the consequences thereof under
existing labor laws. One such stipulation is the right of the parties to
terminate the contract upon 5 days' prior notice. Whether the
termination in this case was an unwarranted dismissal of an employee,

as contended by Repomanta and Moralde, is a point that cannot be

resolved without submission of evidence. Using the contract itself as
the sole criterion, the termination should perforce be characterized as
simply the exercise of a right freely stipulated upon by the parties.
Tests for determining the existence of employer-employee
relationship.-In determining the existence of employer-employee
relationship, the following elements are generally considered, namely:
(1) the selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the power to control the
employees' conduct-although the latter is the most important element.
Factors to determine existence of independent contract relationship.
An independent contractor is one who exercises independent
employment and contracts to do a piece of work according to his own
methods and without being subject to control of his employer except
as to the result of the work. 'Among the factors to be considered are
whether the contractor is carrying on an independent business;
whether the work is part of the employer's general 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 the work to
another; the power to terminate the relationship; the existence of a
contract for the performance of a specified piece of work; the control
and supervision of the work; the employer's powers and duties with
respect to the hiring, firing, and payment of the contractor's servants;
the control of the premises; the duty to supply the premises, tools,
appliances, material and labor, and the mode, manner, and terms of
payment.'
In the Shriro case, We held that the common law rule of determining the existence
of employer-employee relationship, principally the "control test", applies in its
jurisdiction. Where the element of control is absent; where a person who works for
another does so more or less at his own pleasure and is not subject to definite hours
or conditions of work, and in turn is compensated according to the result of his

efforts and not the amount thereof, relationship of employer and employee does not
exist.
And supplementing the above jurisprudence is Our ruling in Social Security System
vs. The Hon. Court of Appeals, Manila Jockey Club, Inc., Phil. Racing Club, 30 SCRA
210 wherein the Supreme Court, speaking through then Associate Justice, now Chief
Justice Fernando, held:
The question of when there is employer-employee relationship for
purposes of the Social Security Act has been settled in this jurisdiction
in the case of Investment Planning Corp. vs. Social Security System, 21
SCRA 924 which applied the so-called control test, that is, whether the
employer controls or has reserved the right to control the employee
not only as to the result of the work to be done but also as to the
means and methods by which the same is to be accomplished. In other
words, where the element of control is absent; whether a person who
works for another does so more or less at his own pleasure and is not
subject to definite hours or conditions of work, and in turn is
compensated according to the result of his efforts and not the amount
thereof, we should not find that the relationship of employer and
employee exists. This decision rejected the economic facts of the
relation test.
The instant petition for certiorari seeks to reverse the resolution of the Director of
the Bureau of Labor Relations dated January 15, 1980 ordering that a certification
election be conducted among the sales personnel of La Suerte Cigar and Cigarette
Factory, as well as his resolution dated November 18, 1980 denying the motion for
reconsideration and directing that a certification election be conducted immediately.
The said resolutions reversed and set aside the order of dismissal dated August 29,
1979 of the Med-Arbiter.
The antecedent facts show that on April 7, 1979, the La Suerte Cigar and Cigarette
Factory Provincial (Luzon) and Metro Manila Sales Force Association (herein referred
to as the local union) applied for and was granted chapter status by the National
Association of Trade Unions (hereinafter referred to as NATU).

On April 16, 1979, some thirty-one (31) local union members signed a joint letter
withdrawing their membership from NATU.
Nonetheless, on April 18, 1979, the local union and NATU filed a petition for direct
certification or certification election which alleged among others, that forty-eight of
the sixty sales personnel of the Company were members of the local union; that the
petition is supported by no less than 75% of the sales force; that there is no existing
recognized labor union in the Company representing the said sales personnel; that
there is likewise no existing collecting bargaining agreement; and that there had
been no certification election in the last twelve months preceding the filing of the
petition.
The Company then filed a motion to dismiss the petition on June 13, 1979 on the
ground that it is not supported by at least 30% of the members of the proposed
bargaining unit because (a) of the alleged forty-eight (48) members of the local
union, thirty-one (31) had withdrawn prior to the filing of the petition; and (b)
fourteen (14) of the alleged members of the union were not employees of the
Company but were independent contractors.
NATU and the local union opposed the Company's motion to dismiss alleging that
the fourteen dealers are actually employees of the Company because they are
subject to its control and supervision.
On August 29, 1979, the Med-Arbiter issued an order dismissing the petition for lack
of merit as the fourteen dealers who joined the union should not be counted in
determining the 30% consent requirement because they are not employees but
independent contractors and the withdrawal of the 31 salesmen from the union
prior to the filing of the petition for certification election was uncontroverted by the
parties.
Thereafter, on September 24, 1979, the local union on its own signed only by the
local union President, filed a motion for reconsideration and/or appeal from the
order of dismissal on the following grounds: (a) the findings of facts of the medarbiter as it appears on the order are contrary to facts and (b) in finding that no
employer-employee relationship exists between the alleged dealers and respondent

firm, the med-arbiter decided in a manner not in accord with the factual
circumstances attendant to the relationship.
Acting on the motion for reconsideration/appeal, the Director of the Bureau of Labor
Relations, in the Resolution dated January 15, 1980, reversed and set aside the
order of dismissal, holding that the withdrawal of the 31 signatories to the petition
two days prior to the filing of the instant petition did not establish the fact that the
same was executed freely and voluntarily and that the records are replete with
company documents showing that the alleged dealers are in fact employees of the
company.
The Company then filed a motion to set aside the resolution dated January 15, 1980
of the Director of the Bureau of Labor Relations, contending that the appeal was
never perfected or is jurisdictionally defective, copy of the motion for
reconsideration/appeal not having been served upon the Company, and that the
Resolution was based solely on the distorted and self-serving allegations of the
union.
The local union opposed the Company's motion for reconsideration and submitted a
memorandum on April 22, 1980 in amplification of its opposition.
At this juncture, the legal counsel of NATU filed a manifestation on May 15, 1980
stating that the act of the local union of engaging another lawyer to handle the case
amounts to disaffiliation, for which reason said legal counsel was withdrawing from
the case. The local union counter manifested that the local union had not been
officially notified of its expulsion from the NATU; that there was no valid ground for
its expulsion; that the National Executive Council of NATU had not approved such
expulsion; and that it had no objection to the withdrawal of Atty. Marcelino Lontok,
Jr. as its counsel.
Then came a motion of NATU through its President and legal counsel withdrawing as
petitioner and contending that since the local union was no longer affiliated with it,
it was no longer interested in the case. Twelve members of the National Executive
Council then came in and manifested that they constitute a majority of the

Executive Board of NATU and affirmed that the local union was still an affiliate of
NATU.
There followed a counter-manifestation of Atty. Marcelino Lontok, Jr. on August 27,
1980 stating that six signatories to the aforesaid manifestation had no authority to
make the said foregoing statement as they had resigned from the Executive
Board en masse; that the acts of the President may not be reversed by the
Executive Council; and that the twelve signatories did not constitute a majority of
the sixty (60) members of the Executive Council.
The local union made its reply to the counter-manifestation stating that the power
to expel an affiliate exclusively belonged to the National Executive Council of NATU,
under Section 2, Article V of the NATU Constitution and By-Laws; that such power
could only be wielded after due investigation and hearing; that disaffiliation is
effected only by voluntary act of the local union, which is not the case here,
because it is the President and legal counsel who are trying to expel the union.
Simultaneously with said reply, the local union filed an opposition to Atty. Lontok's
motion to dismiss-withdraw petition, stating that Atty. Lontok had no more
personality to file the same inasmuch as he had previously withdrawn as counsel in
his manifestation dated May 7, 1980, and the local union has accepted the same in
its counter-manifestation dated May 16, 1980; that expulsion requires two-thirds
vote of the members of the National Executive Council, as well as investigation and
hearing; that engaging another lawyer is not a ground for expulsion of an affiliate;
and that the local union was compelled to hire another lawyer because up to the
last day of the reglementary period, Atty. Lontok still had not filed an appeal from
the decision of the Med-Arbiter.
On November 18, 1980, the Director of the Bureau of Labor Relations promulgated a
resolution denying the Company's motion for reconsideration and directing that the
certification election be conducted immediately. Hence, this petition.
In the apparently simple task of determining whether the Director of the Bureau of
Labor Relations committed grave abuse of discretion amounting to lack of

jurisdiction in ordering the direct certification election, three difficult issues must be
resolved, namely:
I. Whether or not the 14 dealers are employees or independent contractors.
II. Whether or not the withdrawal of 31 union members from the NATU affected the
petition for certification election insofar as the thirty per cent requirement is
concerned.
III. Whether or not the withdrawal of the petition for certification election by the
NATU, through its President and legal counsel, was valid and effective.
A basic factor underlying the exercise of rights under the Labor Code is status of
employment. The question of whether employer-employee relationship exists is a
primordial consideration before extending labor benefits under the workmen's
compensation, social security, medicare, termination pay and labor relations law. It
is important in the determination of who shall be included in a proposed bargaining
unit because it is the sine qua non, the fundamental and essential condition that a
bargaining unit be composed of employees. Failure to establish this juridical
relationship between the union members and the employer affects the legality of
the union itself. It means the ineligibility of the union members to present a petition
for certification election as well as to vote therein. Corollarily, when a petition for
certification election is supported by 48 signatories in a bargaining unit composed
of 60 salesmen, but 14 of the 48 lacks employee status, the petition is vitiated
thereby. Herein lies the importance of resolving the status of the dealers in this
case.
It is the contention of the company that the dealers in the sale of its tobacco
products are independent contractors. On the other hand, the Union contends that
such dealers are actually employees entitled to the coverage and benefits of labor
relations laws.
According to the petitioner, to effectively market its products, the Company
maintains a network of dealers all over the country. These arrangements are
covered by a dealership agreement signed between the Company and a dealer in a

particular area or territory. And attached to the petition is a representative copy of

the said dealership agreement which We quote below:
DEALERSHIP AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This DEALERSHIP AGREEMENT, executed at Pasay City, Philippines, this
8 day of March 1977, entered into by JOSE TEN SIU KEE, JR., of legal
age, married and a resident of 178-E San Ramon Street, Iloilo City,
hereinafter referred to as DEALER, and TELENGTAN BROTHERS & SONS,
INC., doing business under the style of "LA SUERTE CIGAR &
CIGARETTE FACTORY", hereinafter referred to as FACTORY, bears
witness that:
WHEREAS, JOSE TAN SIU KEE, JR. of 178-E San Ramon Street, Iloilo City,
had applied to be a DEALER of the FACTORY for the territories of ILOILO
and/or such other territories that the FACTORY may designate from
time to time; and
WHEREAS, the FACTORY had accepted the application of JOSE TAN SIU
KEE, JR., and therefore, appointed him as one of its dealers in ILOILO
and/or such other territories that the FACTORY may designate from
time to time, who is willing and able to do so as such for the main
purpose of extensively selling the products of the FACTORY in the said
territories, under the following express terms and conditions, to wit:
1. That the DEALER shall handle for sale and distribution of cigarette
products of the factory covering the territories of ILOILO and/or such
other territories that the FACTORY may designate from time to time, in
accordance with existing laws and regulations of the government,
without however, incurring any expenses in doing so, without the
previous written consent of the FACTORY being first had and obtained;

2. That for the purpose of selling the cigarettes or products of the

FACTORY, the DEALER shall send his orders to the FACTORY plant in
Paraaque, Metro Manila, either in cash or on credit; Provided,
however, that in cases of credit order the DEALER can only get or order
the supply of cigarettes up to the amount of not more than FIFTY
THOUSAND PESOS (P50,000.00) only at any given time during the
existence of this Contract, unless allowed by the FACTORY to get more;
3. That the FACTORY shall supply the DEALER with a truck or panel
delivery and all expenses shall be borne by the FACTORY; driver shall
be borne by the DEALER;
4. That the DEALER shall not receive any commission from the
FACTORY but the latter shall give the DEALER a discount for all sales
either on consignment or in cash, and said discount shall be decided
by the FACTORY from time to time;
5. That the FACTORY shall not be liable for any violation of any law,
which the DEALER may commit, and that the DEALER alone shall be
responsible for any violation;
6. The geographical area (hereinafter referred to as "Territory") covered
by this Agreement in which the DEALER shall undertake the
responsibilities provided herein is ILOILO. It is, however, agreed and
understood that the FACTORY may from time to time, upon written
notice thereof THE DEALER, change or subdivide the Territory as the
business exigencies, and the policy of the FACTORY with respect
thereto will dictate.
7. The DEALER agrees that during the term of this Agreement:
(a) He will diligently, loyally and faithfully serve the
FACTORY as its DEALER and diligently canvass for buyers
of the FACTORY's Products in the Territory;

(b) He shall not sell or distribute goods of a similar nature

or such as would compete and interfere with the sale of
the Products of the FACTORY in the Territory, either on his
account or on behalf of any other person whatsoever;
(c) Furnish to the FACTORY every three (3) months a list of
the buyers/customers in the Territory, specifying the
names and address of such customers as well as their
individual daily supply/stock requirements;
(d) He will faithfully and religiously abide by the FACTORY
policy, rules and regulations, particularly with respect to
the pricing of all Products to be sold and distributed by
him;
(e) He will keep account of all his dealings hereunder and
promptly liquidate his account with the FACTORY with
respect to the Products sold by him in the Territory;
(f) He will not engage in any activity which will in any
manner prejudice either the business or name of the
FACTORY, such as, but not limited to, "black- marketing"
operations;
(g) He will not withdraw cigarettes if the maximum
volume allotted to him by the FACTORY has been
exceeded;
(8) That the DEALER shall sell the Products of the FACTORY at a price to
be agreed upon between both parties;
(9) That the DEALER shall hereby bind and obligate himself to furnish
the FACTORY, within a week from the date of this Contract with Surety
or Cash Bond in the amount of not less than FIFTY THOUSAND PESOS
(P 50,000.00). The surety bond should be issued by one or several

bonding companies acceptable to and approved by the FACTORY to

guarantee and secure complete and faithful performance of the
DEALER and his obligations herein enumerated, particularly the
payment of his financial obligations with the FACTORY. The bond may
be increased as required by the FACTORY;
10. In the event that the DEALER should become incapacitated to
discharge his undertakings and responsibilities under this Agreement,
for any reason whatsoever, the FACTORY may designated, for the
duration of such incapacity, a substitute to handle the sale and
distribution of the Products in the Territory;
11. The FACTORY reserves its right to determine, from time to time, the
amount of credit granted or to be granted to the DEALER with respect
to the Products to be sold and distributed in the Territory;
12. This Agreement may be cancelled and/or terminated by the
FACTORY should the DEALER violate its undertaking under this
Agreement especially with respect to Paragraph 7(f) hereof. It is
understood, however, that the failure of the FACTORY to enforce at any
time or for any period of time, any right, power or remedy accruing to
the FACTORY upon default by the DEALER of his undertakings under
this Agreement shall not impair any such right, power or remedy or to
be construed to be a waver or an acquiescence in such default; nor
shall the action of the FACTORY in respect of any default, or any
acquiescence by it in any default, affect or impair any right, power or
remedy of the FACTORY in respect of any other default.
13. That either party may terminate this Contract without cause by
giving to the other party fifteen (15) days notice in writing but without
prejudice to any right or claim which as of that date may have accrued
to either of the parties hereunder, however, in the event of breach of
this Contract, the FACTORY may terminate this Contract without notice
to the DEALER.

14. That it is hereby finally stipulated and agreed that in case of

litigation arising out of or in connection with this Contract, the
Municipal Court of Paraaque or the Court of First Instance cf Rizal, as
the case may be, shall be the competent court wherein to file such
action or actions.
15. That this Contract shall supersede any Contract which the DEALER
may have with the FACTORY.
IN WITNESS WHEREOF, these presents are signed at Pasay City, Philippines on this 8
day of March 1977.
TELENGTAN BROTHERS & SONS, INC.
(La Suerte Cigar & Cigarette Factory)
FACTORY
By:
(SGD.) LIM HAN ENG (SGD.) JOSE TAN SIU KEE, JR.
Assistant Manager Dealer
Sales Department TAN 5976-397-9
SIGNED IN THE PRESENCE OF:
(SGD.) ILLEGIBLE (SGD.) ILLEGIBLE"
(Acknowledgment omitted)
The records embody standard copies of the Dealership Supplementary Agreement
which We also quote hereunder:
DEALERSHIP SUPPLEMENTARY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:

This Supplementary Agreement, made and entered into this 14th day
of February, 1975 in Pasay City, Philippines, by and between:
TELENGTAN BROTHERS & SONS, INC., a corporation duly
organized and existing under the laws of the Philippines
and doing business under the business name and style of
"LA SUERTE CIGAR & CIGARETTE FACTORY", with principal
place of business at Km. 14 South Super Highway,
Paranaque, Rizal, represented in this act by its duly
authorized Manager, Mr. ROBERT UY, hereinafter referred
to as COMPANY;
and
MR. PURISIMO EMBING of legal age, married, Filipino and
with postal address at 3047 Lawaan, UP II, Paranaque,
Rizal hereinafter referred to as DEALER,
WITNESSETH: That
For and in consideration of the mutual covenants and agreements
made herein, by one to the other, the COMPANY and the DEALER, by
these presents, enter into this Supplementary Agreement whereby the
COMPANY will avail of the services of the DEALER to handle the sale
and distribution of its cigarette products, consisting of MARLBORO
REGULAR, MARLBORO KING SIZE, MARLBORO 100'S; PHILIP MORRIS
REGULAR, PHILIP MORRIS FILTER KING, PHILIP MORRIS 100'S MENTHOL,
PHILIP MORRIS 100'S REGULAR; ALPINE 100'S; MR. SLIM 100'S
REGULAR, MR. SLIM 100'S MENTHOL, subject to the following terms
and conditions:
1. The COMPANY hereby constitutes and appoints the DEALER as its
authorized dealer for the sale and distribution of the COMPANY's
products as enumerated above, (hereinafter referred to as "Products")

and the DEALER hereby accepts such appointment, all upon the terms
and conditions herein contained.
2. The geographical area (hereinafter referred to as "Territory") covered
by this Agreement in which the DEALER shall undertake the
responsibilities provided herein is GREATER MANILA AND SUBURBS. It
is, however, agreed and understood that the COMPANY may from time
to time, upon written notice thereof to the DEALER, change or
subdivide the Territory as the business exigencies, and the policy of the
COMPANY with respect thereto will dictate.
3. The DEALER agrees that during the term of this Agreement:
(a) He will diligently, loyally and faithfully serve the
COMPANY as its DEALER and diligently canvass for buyers
of the COMPANY's Products in the Territory;
(b) He shall not sell or distribute goods of a similar nature
or such as would compete and interfere with the sale or
the Products of the COMPANY in the Territory, either on
this account or on behalf of any other person whatsoever;
(c) Furnish to the COMPANY every three (3) months a list
of the buyers/customers in the Territory, specifying the
names and address of such customers as well as their
individual daily supply/stock requirements;
(d) He will faithfully and religiously abide by the COMPANY
policy, rules and regulations, particularly with respect to
the pricing of all Products to be sold and distributed by
him;
(e) He will keep account of all his dealings hereunder and
promptly liquidate his account with the COMPANY with
respect to the Products sold by him in the Territory;

(f) He will not engage in any activity which will in any

manner prejudice either the business or name of the
COMPANY, such as, but not limited to, "Black marketing"
operations;
(g) He will not withdraw cigarettes if the maximum
volume allotted to him by the COMPANY has been
exceeded;
5. The DEALER shall put up a bond, or additional bond, with the
COMPANY in such amount or amounts, as in the judgment of the
COMPANY, will be satisfactory. It is agreed that the COMPANY can apply
against said bond or additional bond, such damages as may be
suffered by the COMPANY by reason of breach on the part of the
DEALER of any of the latter's undertakings under this Agreement.
6. In the event that the DEALER should become incapacitated to
discharge his undertakings and responsibilities under this Agreement,
for any reason whatsoever, the COMPANY may designate for the
duration of such incapacity, a substitute to handle the sale and
distribution of the Products in the Territory;
7. The COMPANY reserves its right to determine, from time to time, the
amount of credit granted or to be granted to the DEALER with respect
to the Products to be sold and distributed in the Territory.
8. This Agreement may be cancelled and/or terminated by the
COMPANY should the DEALER violate its undertaking under this
Agreement especially with respect to Paragraph 4(f) hereof. It is
understood. however, that the failure of the COMPANY to enforce at
any time or for any period of time, any right, power or remedy accruing
to the COMPANY upon default by the DEALER of his undertakings under
this Agreement shall not impair any such right, power or remedy or be
construed to be a waiver or an acquiescence in such default; nor shall
the action of the COMPANY in respect of any default, or any

acquiescence by it in any default, affect or impair any right, power or

remedy of the COMPANY in respect of any other default.
(9) In the appropriate cases, this Agreement shall constitute as a
supplement, revision or modification of any agreement between the
company and the DEALER now existing. However, should there be a
conflict between the provisions of this Agreement and any such
existing agreement between the COMPANY and the DEALER, this
Agreement shall prevail.
IN WITNESS WHEREOF, the parties hereto have caused these presents
to be signed at the place and on the date hereinabove written.
TELENGTAN BROTHERS & SONS, INC.
(La Suerte Cigar & Cigarette Factory)
By:
(SGD.) ROBERT UY (SGD.) PURISIMO EMBING
Manager DEALER
(Signature of Witnesses & Acknowledgment Omitted)
Following the rule in the Mafinco case that in a petition for certiorari, the issue of
whether respondents are employees or independent contractors should be resolved
mainly in the light of their peddling contracts, so must We likewise resolve the
status of the 14 members of the local union involved herein mainly on their
dealership agreements for verily, "a different approach would lead this Court astray
into the field of factual controversy where its legal pronouncements would not rest
on solid grounds." We must stress the Supreme Court is not a trier of facts.
Accordingly, after considering the terms and stipulations of the Dealership Contracts
which are clear and leave no doubt upon the intention of the contracting parties in
establishing the relationship between the dealers on one hand and the company on

the other as that of buyer and seller, We find that the status thereby created is one
of independent contractorship, pursuant to the first rule in the interpretation of
contracts that the literal meaning of the stipulations shall control. (Article 1370,
New Civil Code)
From the plain language of the Dealership Agreement, We find that the same is
premised with the prefatory statement "the factory has accepted the application of
(name of applicant) and therefore has appointed him as one of its dealers." Its
terms and conditions include the following: that the dealer shall handle the products
in accordance with existing laws and regulations of the government (par. ); that the
dealer shall send his orders to the factory plant in cash in any amount or on credit
up to the amount of not more than P10,000.00 only at any given time (par. 2); that
the factory shall supply the dealer with a truck or a panel delivery and all expenses
for repairs shall be borne by the factory (par. 3); and that the dealer shall not
receive any commission but shall be given a discount for all sales and said discount
shall be decided by the factory from time to time (par. 4).
It also provides that the dealer alone shall be responsible for any violation of any
law (par. 5); that the dealer shall be assigned to a particular territory which the
factory may decide from time to time (par. 6); that the dealer shall sell the products
at the price to be agreed upon between the parties (par. 7); and that the dealer
shall post a surety bond of not less than P10,000.00 to guarantee and secure
complete and faithful performance (par. 8).
Either party may terminate the contract without cause by giving 15 days notice in
writing; however, in the event of breach or failure to comply with any of the
conditions, the factory may terminate or rescind the contract immediately (par. 9
and 10).
The Dealership Supplementary Agreement reiterates that the Company "hereby
constitute and appoints the DEALER as its authorized dealer for the sale and
distribution of the COMPANY products" and "the DEALER hereby accepts such
appointment" (par. 1). It also provides that the geographical area in which the
dealer shall undertake his responsibilities is Greater Manila and Suburbs. However,

the Company may change or subdivide the territory as the business exigencies and
the policy of the Company will dictate (par. 2).
Under said supplementary agreement, the dealer undertakes to: (a) diligently
canvass for buyers of the Company's products; (b) refrain from selling or distributing
goods of similar nature; (c) furnish the Company every 3 months a list of
buyers/customers, specifying their addresses and individual daily supply; (d) abide
by the Company policy, particularly with respect to pricing; (e) keep account of all
his dealings and promptly liquidate his accounts; (f) refrain from engaging in any
activity which will prejudice the Company from withdrawing cigarettes beyond the
maximum volume allotted to him (par. 3.)
In case of incapacity of the dealer, the Company may designate a substitute (par.
6). The Company also reserves the right to determine, from time to time, the
amount of credit granted or to be granted to the dealer (par. 7).
It is likewise immediately noticeable that no such words as "to hire and employ" are
present. The Dealership Agreement uses the words "the factory has accepted the
application of (name of applicant) and therefore has appointed him as one of its
dealers"; whereas the Dealership Supplementary Agreement is prefaced with the
statement: "For and in consideration of the mutual covenants and agreements
made herein, by one to the other, the COMPANY and the DEALER by these presents,
enter into this Supplementary Agreement whereby the COMPANY will avail of the
services of the DEALER to handle the sale and distribution of the cigarette
products". Nothing in the terms and conditions likewise reveals that the dealers
were engaged as employees.
Again, on the basis of the clear terms of the dealership agreements, no mention is
made of the wages of the dealers. In fact, it specifies that the dealer shall not
receive any commission from the factory but the latter shall give the dealer a
discount for all sales either on consignment or in cash (par. 4).
Considering the matter of wages, the term "wages" as defined in Section 2 of the
Minimum Wage Law (Rep. Act No. 602) as amended, is as follows:

(g) 'Wage' paid to any employee shall mean the remuneration or

earnings, however designated, capable of being expressed in terms of
money, whether fixed or ascertained on a time, task, piece,
commission basis, or other method of calculating the same, which is
payable by an employer under a written or unwritten contract of
employment for work done or to be done or for services rendered or to
be rendered, and includes the fair and reasonable value, as determined
by the Secretary of Labor, of board, lodging, or other facilities
customarily furnished by the employer to the employee ...
Section 10(k) of the same law also provides:
(k) Notification of wage conditions. It shall be the duty of every
employer to notify his employees at the time of hiring of the wage
conditions under which they are employed, which shall include the
following(1) The rate of wages payable;
(2) The method of calculation of wages;
(3) The periodicity of wage payment; the day, the hour and place of
payment; and
(4) Any change with respect to any of the foregoing items."
then, par. (h) of Sec. 10 of said law provides that such "wages" must be paid to
them periodically at least once every two weeks or twice a month. Considering the
foregoing, the dealer's discount lacks the foregoing characteristics of the term
"wage". Since it varies from month to month depending on the volume of the sales,
it lacks the characteristic of periodicity in the manner and procedure contemplated
in the Minimum Wage Law.
Respondents, in effect, admit the clarity of the terms and conditions of the
agreements which covenant that the relationship between the dealers and the
Company is one of buyer and seller of La Suerte products, and therefore, one of an

independent contractorship when they claimed that the dealership arrangement as

established under the Dealership Agreement and the Dealership Supplementary
Agreement is essentially a legal cover, cloak or disguise to hide the continuing
Employer-Employee relationship established prior to 1964. (Respondents' Joint
Memorandum, p. 34).
Precisely, there was need to change the contract of employment because of the
change of relationship, from an employee to that of an independent dealer or
contractor. The employees were free to enter into the new status, to sign or not to
sign the new agreement. As in the Mafinco case, the respondents therein as in the
instant case, were free to reject the terms of the dealership but having signed it,
they were bound by its stipulations and the consequences thereof under existing
labor laws. The fact that the 14 local union members voluntarily executed with La
Suerte formal dealership agreements which indicate the distribution and sale of La
Suerte cigarettes signifies that they were acting as independent businessmen.
We ruled earlier that the terms and stipulations of the dealership agreement leave
no room for doubt that the parties entered into a transaction for the distribution and
sale of La Suerte products whereby the distributor/sever or dealer assumes the
status of an independent contractor. We note that the applicant who is appointed
dealer "is willing and able to do as such for the main purpose of
extensively selling the products of the FACTORY in the said territories under certain
expressed terms and conditions" among them: "1. That the DEALER shall handle
for saleand distribution cigarette products of the factory ..."; "2. That for the
purpose of selling cigarettes or products of the factory, the dealer shall send his
order to the factory plant in Paraaque, Metro Manila either in cash or on credit ...";
"4. That the dealer shall not receive any commission from the factory but the latter
shall give the dealer a discount for all sales either on consignment or in cash ..."; "7.
(b) He shall not sell or distribute goods of a similar nature or such as would compete
and interfere with the sale of the products of the factory in the territory, either on
his account or on behalf of any other person whatsoever ..."; "8. That the dealer
shall sell the products of the factory at a price to be agreed upon between both
parties."

It is not disputed that under the dealership agreement, the dealer purchases and
sells the cigarettes manufactured by the company under and for his own account.
The dealer places his order for the purchase of cigarettes to be sold by him in a
particular territory by filling up an Issuance Slip. The Issuance Slip is approved by
the Sales Manager and after the sale is approved, a Sales Invoice is then issued to
the dealer. On the basis of the approved Issuance Slip and the Sales Invoice, the
dealer secures the delivery of his order from the warehouse of the company and
upon delivery of the cigarettes from the warehouse, the dealer has the 'obligation to
pay whether the cigarettes are disposed or not. The dealer on his own account sells
the cigarettes in any manner he deems best without constraint as to time. The
dealers do not devote their full time in selling company products. They are likewise
engaged in other livelihood and businesses while selling cigarettes manufactured by
the company.
The sales to the dealers are either on cash or credit basis. Where it is on cash basis,
the amount is paid immediately upon the delivery of the products from the
company's warehouse. If it is on credit, the dealer would usually settle his account
within one week from the time the credit is extended to him. Upon payment of the
purchase price, a company official receipt is issued to him.
Private respondents contend that there are essential differences between the
dealership agreement and that in actual practice and operation, then proceeded to
point them in the attempt to prove the control of La Suerte over the sales effort of
the dealers. They also contend that the dealership agreement, as stated earlier, is
essentially a legal cover, a cloak or disguise to hide the continuing employeremployee relationship established prior to 1964.
We reject both contentions as being without merit.
In the first place, We cannot accept nor consider evidence varying the terms of the
agreement other than the contents of the writing itself pursuant to Section 7, Rule
130 of the Revised Rules of Court, which provides that:
Section 7. Evidence of written agreements. When the terms of an
agreement have been reduced to writing, it is to be considered as

containing all such terms, and, therefore, there can be, between the
parties and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing except in the
following cases:
(a) Where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties, or the validity of
the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
The term 'agreement' includes wills.
If there are changes by reason of actual practice and operation, certiorari is not the
proper proceeding or remedy therefor.
In the second place, petitioner's claim that respondent local union relies heavily on
evidence dehors the record or extraneous evidence found in cases other than the
one at bar, as the testimony in the Limarez case, NCR Case AB-3-4960-80 cited
extensively (pp. 63, 64, 65-66, 66-67, 68-69, 70-72, 73-76, 77-83, 84-85, 86-87, 89,
90-94, 97-98, 107, Comment of Local Union) and that practically all the appendages
to the Comment of Local Union constituting the main bulk thereof (Annexes 1 to 52)
were evidence introduced in other cases and not in the case at bar, is meritorious.
We reject said evidence dehors the record and the appendages raised for the first
time on appeal as extrinsic, beyond the scope of this review.
Private respondents contend that under the dealership agreement, the totality of
the powers expressly reserved to the company, respecting essential aspects or
facets of the sales operation of the dealers, clearly establish company control over
the manner and details of performance. And they cite the following: "(1) The dealer
shall be assigned to a particular territory which the factory shall decide from time to
time (par. 6); (2) The dealer shall handle for sale and distribution cigarette products
of the company. . . without however incurring any expense in doing so, without
previous written consent of the factory being first had and obtained (par. 1); (3) In
cases of credit order, the dealer can only get or order the supply of cigarettes up to

the amount of not more than P 10,000.00 only at any given time during the
existence of this contract, unless allowed by the factory to get more (par. 2); (4) The
company shall give the dealer a discount for all sales . . . and said discount shall be
decided by the factory from time to time (par. 4); (5) It is however agreed and
understood that the company may, from time to time, upon written notice thereof to
the dealer, change or divide the territory as the business exigencies and policy of
the factory with respect thereto will dictate (par. 2, Annex 10); (6) Each dealer will
faithfully and religiously abide by the company policy, rules and regulations,
particularly with respect to pricing of all products to be sold and distributed by him
(par. 3, sub-par. (d), Annex 10); (7) The dealer shall put up a bond or additional
bond with the company in such amounts as in the judgment of the company may be
satisfactory (par. 5, Annex 10); (8) In the event that the dealer should become
incapacitated for any reason whatsoever, the factory may designate for the
duration of said incapacity a substitute to handle the sale and distribution of the
products in the territory (par. 6, Annex 10); (9) The company reserves the right to
determine, from time to time, the amount of credit granted or to be granted the
dealer (par. 7, Annex 10); (10) This agreement may be cancelled and/or terminated
by the company should the dealer violate its undertaking under this Agreement,
especially par. 7(f) hereof (par. 8, Annex 10); (11) That either party may terminate
this contract without cause by giving to the other party 15 days notice in writing
(par. 9, Annex 9); and (12) In the event of breach of this contract, the company may
terminate this contract without notice to the dealer (proviso in par. 9, Annex 9). "

Disputing private respondents' above contention that the company exercises

company control over the manner and details of the sales operation of the dealers
and not merely over the result of the work of each dealer, petitioner maintains that:
1. The allocation of a definite territory to be assigned to a dealer or distributor is
standard practice in dealership agreements, whether international or domestic.
Allocation of area responsibility and territorial and customer restrictions are
common features of dealership agreements. Thus, a company may be appointed
exclusive distributor or dealer of a product in the Philippines, the Asian region or in
the Far East in the same way that some Philippine manufacturers appoint exclusive
dealers for the United States or Canada;

2. In the Shriro case, the expenses for handling and delivery of the goods to the
customers are all for the account of the company (See Social Security System vs.
Hon. Court of Appeals & Shriro (Phil.) Inc., 37 SCRA 579) and there, the Supreme
Court did not consider the facts as indicia of an employment relation;
3. In limiting a credit order for cigarettes up to the amount of P 10,000.00 only at
any given time during the existence of the contract, unless allowed by the factory to
get more, the company merely controls the result of the work of the dealer. The
credit order is limited because in a dealership contract, the transaction is one of buy
and sell and once an order is made, specially a credit order, the risk of loss is
passed on to the dealer;
4. In the Mafinco case, the peddlers are given also a discount and the Supreme
Court held that the peddling contract is not a contract of employment but signifies
an independent contractor relationship.
5. The change or division of the territory to which a dealer is assigned as the
business exigencies and policy of the factory with respect thereto will dictate from
time to time is no indicia of company control over the means and methods for in
the Mafinco case the peddlers are also assigned definite area routes or zones.
6. That the dealers shall abide with the company policies and rules, particularly in
pricing of products is a standard practice in dealership agreements and more so in
franchising agreements. The fact that a person has to conform with standards of
conduct set by the company does not declassify such a person as an independent
contractor so long as he can determine his own day to day activities. In independent
contracts, there is always the element of control as to what shall be done as
distinguished from how it should be done.
7. The posting of a surety bond under par. 8 of the Dealers Agreement is similar to
the giving of a cash bond under par. 7, Peddlers Contract in the Mafinco case
wherein it is ruled that the Peddlers Contract involved therein is not an employment
agreement.

8. The right to designate a substitute dealer in the event of the incapacity of the
regular dealer is no indication of an employer-employee relationship. It is just
business prudence to provide for substitute dealers in case of the regular dealer's
incapacity.
9. That the company may determine from time to time the amount of credit granted
or to be granted the dealer is more a control over the result rather than the means
as in Shriro case where the company even reserves the right to approve or reject a
sales order, whether on cash or on credit basis.
10. The power to cancel or terminate should the dealer violate its undertaking under
the agreement on the basis of the company's opinion that the dealer must engage
in any activity which will in any manner prejudice either the business or name of the
factory is a standard practice in dealership agreements.
We agree with the petitioner. We hold further that the terms and conditions for the
termination of the contract are the usual and common stipulations in independent
contractorship agreements. In any event, the contention that the totality of the
powers expressly reserved to the company establish company control over the
manner and details of performance is merely speculative and conjectural.
There are indeed striking similarities between the Peddler's Contract in the Mafinco
case and the Dealer's Agreement and Supplementary Dealer's Agreement in the
case at bar. Thus:
1. Use of company facilities La Suerte provides dealers with truck or panel
delivery (par. 3, Dealer's Agreement) whereas in Mafinco, the company also
provides peddler with delivery truck (par. 1, Peddling Contract);
2. Salary of drivers Dealer in this La Suerte case pays salary of driver (par. 3,
Dealer's Agreement). In Mafinco, the salary of drivers is for peddler's account (par.
2, Peddling Contract);
3. Expenses of operation and maintenance La Suerte pays for expenses and repair
pertaining to the truck or panel delivery (par. 3, Dealership Agreement). In Mafinco,

the company furnishes gasoline and oil to run trucks and bear costs of maintenance
and repair (par. 4, Peddling Contract);
4. Profit Margin In instant La Suerte case, no commission given. Company gives a
sales discount (par. 4, Dealership Agreement). In Mafinco, no commission is also
given. Peddler given a sales discount (par. 6, Peddler's Contract);
5. Collateral Dealer in La Suerte gives a surety bond (par. 8, Dealer's Agreement).
In Mafinco, peddler gives a cash bond (par. 7), Peddler's Contract);
6. Payment Dealer required to promptly liquidate account (par. 3, (e),
Supplementary Dealer's Contract). In Mafinco, peddler liquidates everyday at the
end of each day, otherwise his cash bond shall answer for unliquidated account
(par. 8, Peddler's Contract);
7. Termination In La Suerte case, no fixed period but either party may terminate
after 15 days written notice (par. 9, Dealer's Contract). In Mafinco, the contract is for
one year but either party may terminate earlier upon 5-day written notice (par. 9,
Peddler's Contract);
8. Government licenses Dealers secure own municipal license and Mayor's permit
(Annexes 23 to 24, Comment of Local Union). In Mafinco, peddler secure own
licenses to peddle (Committee Report, 70 SCRA 157);
9. Working hours Dealers have to get quotas daily but no fixed time. In Mafinco,
peddlers get their trucks in the morning and have to report daily (Report of
Committee, 70 SCRA 154-156). No fixed time;
10. Territory Dealer assigned a particular territory (par. 6, Dealer's Agreement).
In Mafinco, peddlers have a fixed territory in Manila, see whereas clause of Peddler's
Contract, subject to prearranged routes, areas and zones agreed upon by Peddler's
Association (Committee Report, 70 SCRA 156);
11. Supervision Supervisors also for market analysis in La Suerte case.
In Mafinco, Liaison Officer or Supervisors for market analysis (Committee Report, 70
SCRA 156);

12. Basic Agreement In the instant La Suerte case, the dealer is "appointed" (not
hired as in employment contract) "to handle" products without commission but with
sales discount through sales invoices which state "sold to" dealer (Annex B, Petition;
Annex D, Petition). Payments duly receipted (Annex E, Petition). In Mafinco, the
peddler is "desirous of buying and selling" (70 SCRA 143).
On the second issue-whether or not the withdrawal of 31 union members from NATU
affected the petition for certification election insofar as the 30% requirement is
concerned, We reserve the Order of the respondent Director of the Bureau of Labor
Relations, it appearing undisputably that the 31 union members had withdrawn
their support to the petition before the filing of said petition. It would be otherwise if
the withdrawal was made after the filing of the petition for it would then be
presumed that the withdrawal was not free and voluntary. The presumption would
arise that the withdrawal was procured through duress, coercion or for valuable
consideration. In other words, the distinction must be that withdrawals made before
the filing of the petition are presumed voluntary unless there is convincing proof to
the contrary, whereas withdrawals made after the filing of the petition are deemed
involuntary.
The reason for such distinction is that if the withdrawal or retraction is made before
the filing of the petition, the names of employees supporting the petition are
supposed to be held secret to the opposite party. Logically, any such withdrawal or
retraction shows voluntariness in the absence of proof to the contrary. Moreover, it
becomes apparent that such employees had not given consent to the filing of the
petition, hence the subscription requirement has not been met.
When the withdrawal or retraction is made after the petition is filed, the employees
who are supporting the petition become known to the opposite party since their
names are attached to the petition at the time of filing. Therefore, it would not be
unexpected that the opposite party would use foul means for the subject employees
to withdrawal their support.
In recapitulation, We hold and rule that the 14 members of respondent local union
are dealers or independent contractors. They are not employees of petitioner
company. With the withdrawal by 31 members of their support to the petition prior

to or before the filing thereof, making a total of 45, the remainder of 3 out of the 48
alleged to have supported the petition can hardly be said to represent the union.
Hence, the dismissal of the petition by the Med-Arbiter was correct and justified.
Respondent Director committed grave abuse of discretion in reversing the order of
the Med- Arbiter.
With the above pronouncements, the resolution of the third issue raised herein is
unnecessary.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the Resolution dated January 15,
1980 of respondent Director of the Bureau of Labor Relations and the Resolution
dated November 18,1980 are hereby REVERSED and SET ASIDE, and the petition for
certification election is ordered dismissed.
No costs.
SO ORDERED.

G.R. No. L-80680 January 26, 1989

DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R.
ERISPE, JOEL MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND
CRUZ, FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER ARMADA, EDUARDO
UDOG, PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY
ESTEBAN and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON,
NATIONAL LABOR RELATIONS COMMISSION, and HON. EMERSON C.
TUMANON, respondents.
V.E. Del Rosario & Associates for respondent CMC.
The Solicitor General for public respondent.

Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.
Mildred A. Ramos for respondent Lily Victoria A. Azarcon.

SARMIENTO, J.:
On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the
National Labor Relations Commission for reinstatement and payment of various
benefits, including minimum wage, overtime pay, holiday pay, thirteen-month pay,
and emergency cost of living allowance pay, against the respondent, the California
Manufacturing Company.

On October 7, 1986, after the cases had been consolidated, the California
Manufacturing Company (California) filed a motion to dismiss as well as a position
paper denying the existence of an employer-employee relation between the
petitioners and the company and, consequently, any liability for payment of money
claims.

On motion of the petitioners, Livi Manpower Services, Inc. was impleaded

as a party-respondent.
It appears that the petitioners were, prior to their stint with California, employees of
Livi Manpower Services, Inc. (Livi), which subsequently assigned them to work as
"promotional merchandisers"

for the former firm pursuant to a manpower supply

agreement. Among other things, the agreement provided that California "has no
control or supervisions whatsoever over [Livi's] workers with respect to how they
accomplish their work or perform [Californias] obligation";

the Livi "is an

independent contractor and nothing herein contained shall be construed as creating

between [California] and [Livi] . . . the relationship of principal[-]agent or
employer[-]employee';

that "it is hereby agreed that it is the sole responsibility of

[Livi] to comply with all existing as well as future laws, rules and regulations
pertinent to employment of labor"

and that "[California] is free and harmless from

any liability arising from such laws or from any accident that may befall workers and
employees of [Livi] while in the performance of their duties for [California]. 7

It was further expressly stipulated that the assignment of workers to California shall
be on a "seasonal and contractual basis"; that "[c]ost of living allowance and the 10
legal holidays will be charged directly to [California] at cost "; and that "[p]ayroll for
the preceeding [sic] week [shall] be delivered by [Livi] at [California's] premises."

The petitioners were then made to sign employment contracts with durations of six
months, upon the expiration of which they signed new agreements with the same
period, and so on. Unlike regular California employees, who received not less than
P2,823.00 a month in addition to a host of fringe benefits and bonuses, they
received P38.56 plus P15.00 in allowance daily.
The petitioners now allege that they had become regular California employees and
demand, as a consequence whereof, similar benefits. They likewise claim that
pending further proceedings below, they were notified by California that they would
not be rehired. As a result, they filed an amended complaint charging California with
illegal dismissal.
California admits having refused to accept the petitioners back to work but deny
liability therefor for the reason that it is not, to begin with, the petitioners' employer
and that the "retrenchment" had been forced by business losses as well as
expiration of contracts. 9 It appears that thereafter, Livi re-absorbed them into its
labor pool on a "wait-in or standby" status.

10

Amid these factual antecedents, the Court finds the single most important issue to
be: Whether the petitioners are California's or Livi's employees.
The labor arbiter's decision,

11

a decision affirmed on appeal,

12

ruled against the

existence of any employer-employee relation between the petitioners and California

ostensibly in the light of the manpower supply contract, supra, and consequently,
against the latter's liability as and for the money claims demanded. In the same
breath, however, the labor arbiter absolved Livi from any obligation because the
"retrenchment" in question was allegedly "beyond its control ."

13

He assessed

against the firm, nevertheless, separation pay and attorney's fees.

We reverse.

The existence of an employer-employees relation is a question of law and being

such, it cannot be made the subject of agreement. Hence, the fact that the
manpower supply agreement between Livi and California had specifically
designated the former as the petitioners' employer and had absolved the latter from
any liability as an employer, will not erase either party's obligations as an employer,
if an employer-employee relation otherwise exists between the workers and either
firm. At any rate, since the agreement was between Livi and California, they alone
are bound by it, and the petitioners cannot be made to suffer from its adverse
consequences.
This Court has consistently ruled that the determination of whether or not there is
an employer-employee relation depends upon four standards: (1) the manner of
selection and engagement of the putative employee; (2) the mode of payment of
wages; (3) the presence or absence of a power of dismissal; and (4) the presence or
absence of a power to control the putative employee's conduct.
right-of-control test has been held to be the decisive factor.

14

Of the four, the

15

On the other hand, we have likewise held, based on Article 106 of the Labor Code,
hereinbelow reproduced:
ART. 106. Contractor or sub-contractor. Whenever an employee
enters into a contract with another person for the performance of the
former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of
this Code.
In the event that the contractor or sub-contractor fails to pay wages of
his employees in accordance with this Code, the employer shall be
jointly and severally liable with his contractor or sub-contractor to such
employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly
employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or
prohibit the contracting out of labor to protect the rights of workers

established under this Code. In so prohibiting or restricting, he may

make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting
and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or
circumvention of any provisions of this Code.
There is 'labor-only' contracting where the person supplying workers to
an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
that notwithstanding the absence of a direct employer-employee relationship
between the employer in whose favor work had been contracted out by a "laboronly" contractor, and the employees, the former has the responsibility, together
with the "labor-only" contractor, for any valid labor claims,

16

by operation of law.

The reason, so we held, is that the "labor-only" contractor is considered "merely an

agent of the employer," 17 and liability must be shouldered by either one or shared
by both.

18

There is no doubt that in the case at bar, Livi performs "manpower

services",

19

meaning to say, it contracts out labor in favor of clients. We hold that it

is one notwithstanding its vehement claims to the contrary, and notwithstanding

the provision of the contract that it is "an independent contractor."

20

The nature of

one's business is not determined by self-serving appellations one attaches thereto

but by the tests provided by statute and prevailing case law.

21

The bare fact that

Livi maintains a separate line of business does not extinguish the equal fact that it
has provided California with workers to pursue the latter's own business. In this
connection, we do not agree that the petitioners had been made to perform

activities 'which are not directly related to the general business of

manufacturing,"

22

California's purported "principal operation activity. "

23

The

petitioner's had been charged with "merchandizing [sic] promotion or sale of the
products of [California] in the different sales outlets in Metro Manila including task
and occational [sic] price tagging,"

24

an activity that is doubtless, an integral part of

the manufacturing business. It is not, then, as if Livi had served as its (California's)
promotions or sales arm or agent, or otherwise, rendered a piece of work it
(California) could not have itself done; Livi, as a placement agency, had simply
supplied it with the manpower necessary to carry out its (California's)
merchandising activities, using its (California's) premises and equipment.

25

Neither Livi nor California can therefore escape liability, that is, assuming one
exists.
The fact that the petitioners have allegedly admitted being Livi's "direct
employees"

26

in their complaints is nothing conclusive. For one thing, the fact that

the petitioners were (are), will not absolve California since liability has been
imposed by legal operation. For another, and as we indicated, the relations of
parties must be judged from case to case and the decree of law, and not by
declarations of parties.
The fact that the petitioners have been hired on a "temporary or seasonal" basis
merely is no argument either. As we held in Philippine Bank of Communications v.
NLRC,

27

a temporary or casual employee, under Article 218 of the Labor Code,

becomes regular after service of one year, unless he has been contracted for a
specific project. And we cannot say that merchandising is a specific project for the
obvious reason that it is an activity related to the day-to-day operations of
California.
It would have been different, we believe, had Livi been discretely a promotions firm,
and that California had hired it to perform the latter's merchandising activities. For
then, Livi would have been truly the employer of its employees, and California, its
client. The client, in that case, would have been a mere patron, and not an
employer. The employees would not in that event be unlike waiters, who, although

at the service of customers, are not the latter's employees, but of the restaurant. As
we pointed out in the Philippine Bank of Communicationscase:
xxx xxx xxx
... The undertaking given by CESI in favor of the bank was not the
performance of a specific job for instance, the carriage and delivery of
documents and parcels to the addresses thereof. There appear to be
many companies today which perform this discrete service, companies
with their own personnel who pick up documents and packages from
the offices of a client or customer, and who deliver such materials
utilizing their own delivery vans or motorcycles to the addressees. In
the present case, the undertaking of CESI was to provide its client the
bank with a certain number of persons able to carry out the work of
messengers. Such undertaking of CESI was complied with when the
requisite number of persons were assigned or seconded to the
petitioner bank. Orpiada utilized the premises and office equipment of
the bank and not those of CESI. Messengerial work the delivery of
documents to designated persons whether within or without the bank
premises-is of course directly related to the day-to-day operations of
the bank. Section 9(2) quoted above does not require for its
applicability that the petitioner must be engaged in the delivery of
items as a distinct and separate line of business.
Succinctly put, CESI is not a parcel delivery company: as its name
indicates, it is a recruitment and placement corporation placing bodies,
as it were, in different client companies for longer or shorter periods of
time, ...

28

In the case at bar, Livi is admittedly an "independent contractor providing

temporary services of manpower to its client. "

29

When it thus provided California

with manpower, it supplied California with personnel, as if such personnel had been
directly hired by California. Hence, Article 106 of the Code applies.

The Court need not therefore consider whether it is Livi or California which exercises
control over the petitioner vis-a-vis the four barometers referred to earlier, since by
fiction of law, either or both shoulder responsibility.
It is not that by dismissing the terms and conditions of the manpower supply
agreement, we have, hence, considered it illegal. Under the Labor Code, genuine
job contracts are permissible, provided they are genuine job contracts. But, as we
held in Philippine Bank of Communications, supra, when such arrangements are
resorted to "in anticipation of, and for the very purpose of making possible, the
secondment"

30

of the employees from the true employer, the Court will be justified

in expressing its concern. For then that would compromise the rights of the workers,
especially their right to security of tenure.
This brings us to the question: What is the liability of either Livi or California?
The records show that the petitioners bad been given an initial six-month contract,
renewed for another six months. Accordingly, under Article 281 of the Code, they
had become regular employees-of-California-and had acquired a secure tenure.
Hence, they cannot be separated without due process of law.
California resists reinstatement on the ground, first, and as we Id, that the
petitioners are not its employees, and second, by reason of financial distress
brought about by "unfavorable political and economic atmosphere"
the February Revolution."

32

31

"coupled by

As to the first objection, we reiterate that the

petitioners are its employees and who, by virtue of the required one-year length-ofservice, have acquired a regular status. As to the second, we are not convinced that
California has shown enough evidence, other than its bare say so, that it had in fact
suffered serious business reverses as a result alone of the prevailing political and
economic climate. We further find the attribution to the February Revolution as a
cause for its alleged losses to be gratuitous and without basis in fact.
California should be warned that retrenchment of workers, unless clearly warranted,
has serious consequences not only on the State's initiatives to maintain a stable
employment record for the country, but more so, on the workingman himself, amid
an environment that is desperately scarce in jobs. And, the National Labor Relations

Commission should have known better than to fall for such unwarranted excuses
and nebulous claims.
WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING
ASIDE the decision, dated March 20, 1987, and the resolution, dated August 19,
1987; (2) ORDERING the respondent, the California Manufacturing Company, to
REINSTATE the petitioners with full status and rights of regular employees; and (3)
ORDERING the respondent, the California Manufacturing Company, and the
respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to PAY, jointly
and severally, unto the petitioners: (a) backwages and differential pays effective as
and from the time they had acquired a regular status under the second paragraph,
of Section 281, of the Labor Code, but not to exceed three (3) years, and (b) all such
other and further benefits as may be provided by existing collective bargaining
agreement(s) or other relations, or by law, beginning such time; and (4) ORDERING
the private respondents to PAY unto the petitioners attorney's fees equivalent to ten
(10%) percent of all money claims hereby awarded, in addition to those money
claims. The private respondents are likewise ORDERED to PAY the costs of this suit.
IT IS SO ORDERED.

G.R. No. 138051

June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari 1 assailing the 26 March 1999
Decision2 of the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition

filed by Jose Y. Sonza ("SONZA"). The Court of Appeals affirmed the findings of the
National Labor Relations Commission ("NLRC"), which affirmed the Labor Arbiters
dismissal of the case for lack of jurisdiction.
The Facts
In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an
Agreement ("Agreement") with the Mel and Jay Management and Development
Corporation ("MJMDC"). ABS-CBN was represented by its corporate officers while
MJMDC was represented by SONZA, as President and General Manager, and Carmela
Tiangco ("TIANGCO"), as EVP and Treasurer. Referred to in the Agreement as
"AGENT," MJMDC agreed to provide SONZAs services exclusively to ABS-CBN as
talent for radio and television. The Agreement listed the services SONZA would
render to ABS-CBN, as follows:
a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to
Fridays;
b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays. 3
ABS-CBN agreed to pay for SONZAs services a monthly talent fee of P310,000 for
the first year and P317,000 for the second and third year of the Agreement. ABSCBN would pay the talent fees on the 10th and 25th days of the month.
On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio Lopez III,
which reads:
Dear Mr. Lopez,
We would like to call your attention to the Agreement dated May 1994
entered into by your goodself on behalf of ABS-CBN with our company
relative to our talent JOSE Y. SONZA.
As you are well aware, Mr. Sonza irrevocably resigned in view of recent
events concerning his programs and career. We consider these acts of the
station violative of the Agreement and the station as in breach thereof. In this

connection, we hereby serve notice of rescission of said Agreement at our

instance effective as of date.
Mr. Sonza informed us that he is waiving and renouncing recovery of the
remaining amount stipulated in paragraph 7 of the Agreement but reserves
the right to seek recovery of the other benefits under said Agreement.
Thank you for your attention.
Very truly yours,
(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4
On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department
of Labor and Employment, National Capital Region in Quezon City. SONZA
complained that ABS-CBN did not pay his salaries, separation pay, service incentive
leave pay, 13th month pay, signing bonus, travel allowance and amounts due under
the Employees Stock Option Plan ("ESOP").
On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employeremployee relationship existed between the parties. SONZA filed an Opposition to
the motion on 19 July 1996.
Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees through his
account at PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN
opened a new account with the same bank where ABS-CBN deposited SONZAs
talent fees and other payments due him under the Agreement.
In his Order dated 2 December 1996, the Labor Arbiter 5 denied the motion to
dismiss and directed the parties to file their respective position papers. The Labor
Arbiter ruled:
In this instant case, complainant for having invoked a claim that he was an
employee of respondent company until April 15, 1996 and that he was not

paid certain claims, it is sufficient enough as to confer jurisdiction over the

instant case in this Office. And as to whether or not such claim would entitle
complainant to recover upon the causes of action asserted is a matter to be
resolved only after and as a result of a hearing. Thus, the respondents plea
of lack of employer-employee relationship may be pleaded only as a matter
of defense. It behooves upon it the duty to prove that there really is no
employer-employee relationship between it and the complainant.
The Labor Arbiter then considered the case submitted for resolution. The parties
submitted their position papers on 24 February 1997.
On 11 March 1997, SONZA filed a Reply to Respondents Position Paper with Motion
to Expunge Respondents Annex 4 and Annex 5 from the Records. Annexes 4 and 5
are affidavits of ABS-CBNs witnesses Soccoro Vidanes and Rolando V. Cruz. These
witnesses stated in their affidavits that the prevailing practice in the television and
broadcast industry is to treat talents like SONZA as independent contractors.
The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint
for lack of jurisdiction.6 The pertinent parts of the decision read as follows:
xxx
While Philippine jurisprudence has not yet, with certainty, touched on the
"true nature of the contract of a talent," it stands to reason that a "talent" as
above-described cannot be considered as an employee by reason of the
peculiar circumstances surrounding the engagement of his services.
It must be noted that complainant was engaged by respondent by
reason of his peculiar skills and talent as a TV host and a radio
broadcaster. Unlike an ordinary employee, he was free to perform
the services he undertook to render in accordance with his own
style. The benefits conferred to complainant under the May 1994 Agreement
are certainly very much higher than those generally given to employees. For
one, complainant Sonzas monthly talent fees amount to a
staggering P317,000. Moreover, his engagement as a talent was covered by a

specific contract. Likewise, he was not bound to render eight (8) hours of
work per day as he worked only for such number of hours as may be
necessary.
The fact that per the May 1994 Agreement complainant was accorded some
benefits normally given to an employee is inconsequential. Whatever
benefits complainant enjoyed arose from specific agreement by the
parties and not by reason of employer-employee relationship. As
correctly put by the respondent, "All these benefits are merely talent fees and
other contractual benefits and should not be deemed as salaries, wages
and/or other remuneration accorded to an employee, notwithstanding the
nomenclature appended to these benefits. Apropos to this is the rule that the
term or nomenclature given to a stipulated benefit is not controlling, but the
intent of the parties to the Agreement conferring such benefit."
The fact that complainant was made subject to respondents Rules
and Regulations, likewise, does not detract from the absence of
employer-employee relationship. As held by the Supreme Court, "The line
should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or
methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means.
The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means
to achieve it." (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No.
84484, November 15, 1989).
x x x (Emphasis supplied)7
SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision
affirming the Labor Arbiters decision. SONZA filed a motion for reconsideration,
which the NLRC denied in its Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court
of Appeals assailing the decision and resolution of the NLRC. On 26 March 1999, the
Court of Appeals rendered a Decision dismissing the case. 8
Hence, this petition.
The Rulings of the NLRC and Court of Appeals
The Court of Appeals affirmed the NLRCs finding that no employer-employee
relationship existed between SONZA and ABS-CBN. Adopting the NLRCs decision,
the appellate court quoted the following findings of the NLRC:
x x x the May 1994 Agreement will readily reveal that MJMDC entered into the
contract merely as an agent of complainant Sonza, the principal. By all
indication and as the law puts it, the act of the agent is the act of the
principal itself. This fact is made particularly true in this case, as admittedly
MJMDC is a management company devoted exclusively to managing the
careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco.
(Opposition to Motion to Dismiss)
Clearly, the relations of principal and agent only accrues between
complainant Sonza and MJMDC, and not between ABS-CBN and MJMDC. This
is clear from the provisions of the May 1994 Agreement which specifically
referred to MJMDC as the AGENT. As a matter of fact, when complainant
herein unilaterally rescinded said May 1994 Agreement, it was MJMDC which
issued the notice of rescission in behalf of Mr. Sonza, who himself signed the
same in his capacity as President.
Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact
that historically, the parties to the said agreements are ABS-CBN and Mr.
Sonza. And it is only in the May 1994 Agreement, which is the latest
Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC figured in
the said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere labor-only contractor of

ABS-CBN such that there exist[s] employer-employee relationship between
the latter and Mr. Sonza. On the contrary, We find it indubitable, that MJMDC
is an agent, not of ABS-CBN, but of the talent/contractor Mr. Sonza, as
expressly admitted by the latter and MJMDC in the May 1994 Agreement.
It may not be amiss to state that jurisdiction over the instant controversy
indeed belongs to the regular courts, the same being in the nature of an
action for alleged breach of contractual obligation on the part of respondentappellee. As squarely apparent from complainant-appellants Position Paper,
his claims for compensation for services, 13th month pay, signing bonus and
travel allowance against respondent-appellee are not based on the Labor
Code but rather on the provisions of the May 1994 Agreement, while his
claims for proceeds under Stock Purchase Agreement are based on the latter.
A portion of the Position Paper of complainant-appellant bears perusal:
Under [the May 1994 Agreement] with respondent ABS-CBN, the latter
contractually bound itself to pay complainant a signing bonus
consisting of shares of stockswith FIVE HUNDRED THOUSAND PESOS
(P500,000.00).
Similarly, complainant is also entitled to be paid 13th month pay based
on an amount not lower than the amount he was receiving prior to
effectivity of (the) Agreement.
Under paragraph 9 of (the May 1994 Agreement), complainant is
entitled to a commutable travel benefit amounting to at least One
Hundred Fifty Thousand Pesos (P150,000.00) per year.
Thus, it is precisely because of complainant-appellants own recognition of
the fact that his contractual relations with ABS-CBN are founded on the New
Civil Code, rather than the Labor Code, that instead of merely resigning from
ABS-CBN, complainant-appellant served upon the latter a notice of
rescission of Agreement with the station, per his letter dated April 1, 1996,
which asserted that instead of referring to unpaid employee benefits, he is

waiving and renouncing recovery of the remaining amount stipulated in

paragraph 7 of the Agreement but reserves the right to such recovery of the
other benefits under said Agreement. (Annex 3 of the respondent ABS-CBNs
Motion to Dismiss dated July 10, 1996).
Evidently, it is precisely by reason of the alleged violation of the May 1994
Agreement and/or the Stock Purchase Agreement by respondent-appellee
that complainant-appellant filed his complaint. Complainant-appellants
claims being anchored on the alleged breach of contract on the part of
respondent-appellee, the same can be resolved by reference to civil law and
not to labor law. Consequently, they are within the realm of civil law and,
thus, lie with the regular courts. As held in the case of Dai-Chi Electronics
Manufacturing vs. Villarama, 238 SCRA 267, 21 November 1994, an action
for breach of contractual obligation is intrinsically a civil
dispute.9 (Emphasis supplied)
The Court of Appeals ruled that the existence of an employer-employee relationship
between SONZA and ABS-CBN is a factual question that is within the jurisdiction of
the NLRC to resolve.10 A special civil action for certiorari extends only to issues of
want or excess of jurisdiction of the NLRC.11 Such action cannot cover an inquiry into
the correctness of the evaluation of the evidence which served as basis of the
NLRCs conclusion.12 The Court of Appeals added that it could not re-examine the
parties evidence and substitute the factual findings of the NLRC with its own. 13
The Issue
In assailing the decision of the Court of Appeals, SONZA contends that:
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION
AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP
EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF
CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A
FINDING.14
The Courts Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of
Appeals affirming the NLRC ruling which upheld the Labor Arbiters dismissal of the
case for lack of jurisdiction.
The present controversy is one of first impression. Although Philippine labor laws
and jurisprudence define clearly the elements of an employer-employee
relationship, this is the first time that the Court will resolve the nature of the
relationship between a television and radio station and one of its "talents." There is
no case law stating that a radio and television program host is an employee of the
broadcast station.
The instant case involves big names in the broadcast industry, namely Jose "Jay"
Sonza, a known television and radio personality, and ABS-CBN, one of the biggest
television and radio networks in the country.
SONZA contends that the Labor Arbiter has jurisdiction over the case because he
was an employee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor
Arbiter has no jurisdiction because SONZA was an independent contractor.
Employee or Independent Contractor?
The existence of an employer-employee relationship is a question of fact. Appellate
courts accord the factual findings of the Labor Arbiter and the NLRC not only respect
but also finality when supported by substantial evidence. 15 Substantial evidence
means such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.16 A party cannot prove the absence of substantial evidence by
simply pointing out that there is contrary evidence on record, direct or
circumstantial. The Court does not substitute its own judgment for that of the
tribunal in determining where the weight of evidence lies or what evidence is
credible.17
SONZA maintains that all essential elements of an employer-employee relationship
are present in this case. Case law has consistently held that the elements of an

employer-employee relationship are: (a) the selection and engagement of the

employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employers power to control the employee on the means and methods by which the
work is accomplished.18 The last element, the so-called "control test", is the most
important element.19
A. Selection and Engagement of Employee
ABS-CBN engaged SONZAs services to co-host its television and radio programs
because of SONZAs peculiar skills, talent and celebrity status. SONZA contends that
the "discretion used by respondent in specifically selecting and hiring complainant
over other broadcasters of possibly similar experience and qualification as
complainant belies respondents claim of independent contractorship."
Independent contractors often present themselves to possess unique skills,
expertise or talent to distinguish them from ordinary employees. The specific
selection and hiring of SONZA, because of his unique skills, talent and
celebrity status not possessed by ordinary employees, is a circumstance
indicative, but not conclusive, of an independent contractual relationship. If SONZA
did not possess such unique skills, talent and celebrity status, ABS-CBN would not
have entered into the Agreement with SONZA but would have hired him through its
personnel department just like any other employee.
In any event, the method of selecting and engaging SONZA does not conclusively
determine his status. We must consider all the circumstances of the relationship,
with the control test being the most important element.
B. Payment of Wages
ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going
to MJMDC. SONZA asserts that this mode of fee payment shows that he was an
employee of ABS-CBN. SONZA also points out that ABS-CBN granted him benefits
and privileges "which he would not have enjoyed if he were truly the subject of a
valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that
led to the Agreement. If SONZA were ABS-CBNs employee, there would be no need
for the parties to stipulate on benefits such as "SSS, Medicare, x x x and 13th month
pay"20 which the law automatically incorporates into every employer-employee
contract.21 Whatever benefits SONZA enjoyed arose from contract and not because
of an employer-employee relationship.22
SONZAs talent fees, amounting to P317,000 monthly in the second and third year,
are so huge and out of the ordinary that they indicate more an independent
contractual relationship rather than an employer-employee relationship. ABS-CBN
agreed to pay SONZA such huge talent fees precisely because of SONZAs unique
skills, talent and celebrity status not possessed by ordinary employees. Obviously,
SONZA acting alone possessed enough bargaining power to demand and receive
such huge talent fees for his services. The power to bargain talent fees way above
the salary scales of ordinary employees is a circumstance indicative, but not
conclusive, of an independent contractual relationship.
The payment of talent fees directly to SONZA and not to MJMDC does not negate the
status of SONZA as an independent contractor. The parties expressly agreed on
such mode of payment. Under the Agreement, MJMDC is the AGENT of SONZA, to
whom MJMDC would have to turn over any talent fee accruing under the Agreement.
C. Power of Dismissal
For violation of any provision of the Agreement, either party may terminate their
relationship. SONZA failed to show that ABS-CBN could terminate his services on
grounds other than breach of contract, such as retrenchment to prevent losses as
provided under labor laws.23
During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent fees as
long as "AGENT and Jay Sonza shall faithfully and completely perform each
condition of this Agreement."24 Even if it suffered severe business losses, ABS-CBN
could not retrench SONZA because ABS-CBN remained obligated to pay SONZAs
talent fees during the life of the Agreement. This circumstance indicates an
independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABSCBN still paid him his talent fees. Plainly, ABS-CBN adhered to its undertaking in the
Agreement to continue paying SONZAs talent fees during the remaining life of the
Agreement even if ABS-CBN cancelled SONZAs programs through no fault of
SONZA.25
SONZA assails the Labor Arbiters interpretation of his rescission of the Agreement
as an admission that he is not an employee of ABS-CBN. The Labor Arbiter stated
that "if it were true that complainant was really an employee, he would merely
resign, instead." SONZA did actually resign from ABS-CBN but he also, as president
of MJMDC, rescinded the Agreement. SONZAs letter clearly bears this
out.26 However, the manner by which SONZA terminated his relationship with ABSCBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work
does not determine his status as employee or independent contractor.
D. Power of Control
Since there is no local precedent on whether a radio and television program host is
an employee or an independent contractor, we refer to foreign case law in analyzing
the present case. The United States Court of Appeals, First Circuit, recently held
in Alberty-Vlez v. Corporacin De Puerto Rico Para La Difusin Pblica
("WIPR")27 that a television program host is an independent contractor. We quote
the following findings of the U.S. court:
Several factors favor classifying Alberty as an independent contractor. First,
a television actress is a skilled position requiring talent and training
not available on-the-job. x x x In this regard, Alberty possesses a masters
degree in public communications and journalism; is trained in dance, singing,
and modeling; taught with the drama department at the University of Puerto
Rico; and acted in several theater and television productions prior to her
affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools
and instrumentalities" necessary for her to perform. Specifically, she
provided, or obtained sponsors to provide, the costumes, jewelry, and other
image-related supplies and services necessary for her appearance. Alberty
disputes that this factor favors independent contractor status because WIPR

provided the "equipment necessary to tape the show." Albertys argument is

misplaced. The equipment necessary for Alberty to conduct her job as host of
"Desde Mi Pueblo" related to her appearance on the show. Others provided
equipment for filming and producing the show, but these were not the
primary tools that Alberty used to perform her particular function. If we
accepted this argument, independent contractors could never work on
collaborative projects because other individuals often provide the equipment
required for different aspects of the collaboration. x x x
Third, WIPR could not assign Alberty work in addition to filming
"Desde Mi Pueblo." Albertys contracts with WIPR specifically provided that
WIPR hired her "professional services as Hostess for the Program Desde Mi
Pueblo." There is no evidence that WIPR assigned Alberty tasks in addition to
work related to these tapings. x x x28 (Emphasis supplied)
Applying the control test to the present case, we find that SONZA is not an
employee but an independent contractor. The control test is the most
important test our courts apply in distinguishing an employee from an
independent contractor.29 This test is based on the extent of control the hirer
exercises over a worker. The greater the supervision and control the hirer exercises,
the more likely the worker is deemed an employee. The converse holds true as well
the less control the hirer exercises, the more likely the worker is considered an
independent contractor.30
First, SONZA contends that ABS-CBN exercised control over the means and methods
of his work.
SONZAs argument is misplaced. ABS-CBN engaged SONZAs services specifically to
co-host the "Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA.
To perform his work, SONZA only needed his skills and talent. How SONZA delivered
his lines, appeared on television, and sounded on radio were outside ABS-CBNs
control. SONZA did not have to render eight hours of work per day. The Agreement
required SONZA to attend only rehearsals and tapings of the shows, as well as preand post-production staff meetings.31 ABS-CBN could not dictate the contents of
SONZAs script. However, the Agreement prohibited SONZA from criticizing in his

shows ABS-CBN or its interests.32 The clear implication is that SONZA had a free
hand on what to say or discuss in his shows provided he did not attack ABS-CBN or
its interests.
We find that ABS-CBN was not involved in the actual performance that produced the
finished product of SONZAs work.33 ABS-CBN did not instruct SONZA how to perform
his job. ABS-CBN merely reserved the right to modify the program format and
airtime schedule "for more effective programming." 34 ABS-CBNs sole concern was
the quality of the shows and their standing in the ratings. Clearly, ABS-CBN did not
exercise control over the means and methods of performance of SONZAs work.
SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs
power over the means and methods of the performance of his work. Although ABSCBN did have the option not to broadcast SONZAs show, ABS-CBN was still
obligated to pay SONZAs talent fees... Thus, even if ABS-CBN was completely
dissatisfied with the means and methods of SONZAs performance of his work, or
even with the quality or product of his work, ABS-CBN could not dismiss or even
discipline SONZA. All that ABS-CBN could do is not to broadcast SONZAs show but
ABS-CBN must still pay his talent fees in full. 35
Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by the
obligation to continue paying in full SONZAs talent fees, did not amount to control
over the means and methods of the performance of SONZAs work. ABS-CBN could
not terminate or discipline SONZA even if the means and methods of performance
of his work - how he delivered his lines and appeared on television - did not meet
ABS-CBNs approval. This proves that ABS-CBNs control was limited only to the
result of SONZAs work, whether to broadcast the final product or not. In either
case, ABS-CBN must still pay SONZAs talent fees in full until the expiry of the
Agreement.
In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals
ruled that vaudeville performers were independent contractors although the
management reserved the right to delete objectionable features in their shows.
Since the management did not have control over the manner of performance of the

skills of the artists, it could only control the result of the work by deleting
objectionable features.37
SONZA further contends that ABS-CBN exercised control over his work by supplying
all equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and
airtime needed to broadcast the "Mel & Jay" programs. However, the equipment,
crew and airtime are not the "tools and instrumentalities" SONZA needed to perform
his job. What SONZA principally needed were his talent or skills and the costumes
necessary for his appearance.38Even though ABS-CBN provided SONZA with the
place of work and the necessary equipment, SONZA was still an independent
contractor since ABS-CBN did not supervise and control his work. ABS-CBNs sole
concern was for SONZA to display his talent during the airing of the programs. 39
A radio broadcast specialist who works under minimal supervision is an independent
contractor.40 SONZAs work as television and radio program host required special
skills and talent, which SONZA admittedly possesses. The records do not show that
ABS-CBN exercised any supervision and control over how SONZA utilized his skills
and talent in his shows.
Second, SONZA urges us to rule that he was ABS-CBNs employee because ABS-CBN
subjected him to its rules and standards of performance. SONZA claims that this
indicates ABS-CBNs control "not only [over] his manner of work but also the quality
of his work."
The Agreement stipulates that SONZA shall abide with the rules and standards of
performance "covering talents"41 of ABS-CBN. The Agreement does not require
SONZA to comply with the rules and standards of performance prescribed for
employees of ABS-CBN. The code of conduct imposed on SONZA under the
Agreement refers to the "Television and Radio Code of the Kapisanan ng mga
Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN)
as its Code of Ethics."42 The KBP code applies to broadcasters, not to employees of
radio and television stations. Broadcasters are not necessarily employees of radio
and television stations. Clearly, the rules and standards of performance referred to
in the Agreement are those applicable to talents and not to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate
that the latter is an employee of the former. 43 In this case, SONZA failed to show
that these rules controlled his performance. We find that these general rules are
merely guidelines towards the achievement of the mutually desired result, which
are top-rating television and radio programs that comply with standards of the
industry. We have ruled that:
Further, not every form of control that a party reserves to himself over the conduct
of the other party in relation to the services being rendered may be accorded the
effect of establishing an employer-employee relationship. The facts of this case fall
squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we
held that:
Logically, the line should be drawn between rules that merely serve as
guidelines towards the achievement of the mutually desired result without
dictating the means or methods to be employed in attaining it, and those that
control or fix the methodology and bind or restrict the party hired to the use
of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the
result and the means used to achieve it. 44
The Vaughan case also held that one could still be an independent contractor
although the hirer reserved certain supervision to insure the attainment of the
desired result. The hirer, however, must not deprive the one hired from performing
his services according to his own initiative. 45
Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most
extreme form of control which ABS-CBN exercised over him.
This argument is futile. Being an exclusive talent does not by itself mean that
SONZA is an employee of ABS-CBN. Even an independent contractor can validly
provide his services exclusively to the hiring party. In the broadcast industry,
exclusivity is not necessarily the same as control.

The hiring of exclusive talents is a widespread and accepted practice in the

entertainment industry.46 This practice is not designed to control the means and
methods of work of the talent, but simply to protect the investment of the broadcast
station. The broadcast station normally spends substantial amounts of money, time
and effort "in building up its talents as well as the programs they appear in and thus
expects that said talents remain exclusive with the station for a commensurate
period of time."47 Normally, a much higher fee is paid to talents who agree to work
exclusively for a particular radio or television station. In short, the huge talent fees
partially compensates for exclusivity, as in the present case.
MJMDC as Agent of SONZA
SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which
contracted out his services to ABS-CBN. The Labor Arbiter ruled that as a talent of
MJMDC, SONZA is not an employee of ABS-CBN. SONZA insists that MJMDC is a
"labor-only" contractor and ABS-CBN is his employer.
In a labor-only contract, there are three parties involved: (1) the "labor-only"
contractor; (2) the employee who is ostensibly under the employ of the "labor-only"
contractor; and (3) the principal who is deemed the real employer. Under this
scheme, the "labor-only" contractor is the agent of the principal. The law
makes the principal responsible to the employees of the "labor-only contractor" as if
the principal itself directly hired or employed the employees. 48 These circumstances
are not present in this case.
There are essentially only two parties involved under the Agreement, namely,
SONZA and ABS-CBN. MJMDC merely acted as SONZAs agent. The Agreement
expressly states that MJMDC acted as the "AGENT" of SONZA. The records do not
show that MJMDC acted as ABS-CBNs agent. MJMDC, which stands for Mel and Jay
Management and Development Corporation, is a corporation organized and owned
by SONZA and TIANGCO. The President and General Manager of MJMDC is SONZA
himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and
managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement
with SONZA, who himself is represented by MJMDC. That would make MJMDC the
agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to

managing the careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not
engaged in any other business, not even job contracting. MJMDC does not have any
other function apart from acting as agent of SONZA or TIANGCO to promote their
careers in the broadcast and television industry. 49
Policy Instruction No. 40
SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas
Ople on 8 January 1979 finally settled the status of workers in the broadcast
industry. Under this policy, the types of employees in the broadcast industry are the
station and program employees.
Policy Instruction No. 40 is a mere executive issuance which does not have the force
and effect of law. There is no legal presumption that Policy Instruction No. 40
determines SONZAs status. A mere executive issuance cannot exclude independent
contractors from the class of service providers to the broadcast industry. The
classification of workers in the broadcast industry into only two groups under Policy
Instruction No. 40 is not binding on this Court, especially when the classification has
no basis either in law or in fact.
Affidavits of ABS-CBNs Witnesses
SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes
and Rolando Cruz without giving his counsel the
opportunity to cross-examine these witnesses. SONZA brands these witnesses as
incompetent to attest on the prevailing practice in the radio and television industry.
SONZA views the affidavits of these witnesses as misleading and irrelevant.
While SONZA failed to cross-examine ABS-CBNs witnesses, he was never prevented
from denying or refuting the allegations in the affidavits. The Labor Arbiter has the
discretion whether to conduct a formal (trial-type) hearing after the submission of
the position papers of the parties, thus:
Section 3. Submission of Position Papers/Memorandum

xxx
These verified position papers shall cover only those claims and causes of
action raised in the complaint excluding those that may have been amicably
settled, and shall be accompanied by all supporting documents including the
affidavits of their respective witnesses which shall take the place of the
latters direct testimony. x x x
Section 4. Determination of Necessity of Hearing. Immediately after the
submission of the parties of their position papers/memorandum, the Labor
Arbiter shall motu propio determine whether there is need for a formal trial or
hearing. At this stage, he may, at his discretion and for the purpose of
making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant
documentary evidence, if any from any party or witness. 50
The Labor Arbiter can decide a case based solely on the position papers and the
supporting documents without a formal trial.51 The holding of a formal hearing or
trial is something that the parties cannot demand as a matter of right. 52 If the Labor
Arbiter is confident that he can rely on the documents before him, he cannot be
faulted for not conducting a formal trial, unless under the particular circumstances
of the case, the documents alone are insufficient. The proceedings before a Labor
Arbiter are non-litigious in nature. Subject to the requirements of due process, the
technicalities of law and the rules obtaining in the courts of law do not strictly apply
in proceedings before a Labor Arbiter.
Talents as Independent Contractors
ABS-CBN claims that there exists a prevailing practice in the broadcast and
entertainment industries to treat talents like SONZA as independent contractors.
SONZA argues that if such practice exists, it is void for violating the right of labor to
security of tenure.
The right of labor to security of tenure as guaranteed in the Constitution 53 arises
only if there is an employer-employee relationship under labor laws. Not every

performance of services for a fee creates an employer-employee relationship. To

hold that every person who renders services to another for a fee is an employee - to
give meaning to the security of tenure clause - will lead to absurd results.
Individuals with special skills, expertise or talent enjoy the freedom to offer their
services as independent contractors. The right to life and livelihood guarantees this
freedom to contract as independent contractors. The right of labor to security of
tenure cannot operate to deprive an individual, possessed with special skills,
expertise and talent, of his right to contract as an independent contractor. An
individual like an artist or talent has a right to render his services without any one
controlling the means and methods by which he performs his art or craft. This Court
will not interpret the right of labor to security of tenure to compel artists and talents
to render their services only as employees. If radio and television program hosts can
render their services only as employees, the station owners and managers can
dictate to the radio and television hosts what they say in their shows. This is not
conducive to freedom of the press.
Different Tax Treatment of Talents and Broadcasters
The National Internal Revenue Code ("NIRC") 54 in relation to Republic Act No.
7716,55 as amended by Republic Act No. 8241,56 treats talents, television and radio
broadcasters differently. Under the NIRC, these professionals are subject to the 10%
value-added tax ("VAT") on services they render. Exempted from the VAT are those
under an employer-employee relationship.57 This different tax treatment accorded to
talents and broadcasters bolters our conclusion that they are independent
contractors, provided all the basic elements of a contractual relationship are present
as in this case.
Nature of SONZAs Claims
SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay,
separation pay, service incentive leave, signing bonus, travel allowance, and
amounts due under the Employee Stock Option Plan. We agree with the findings of
the Labor Arbiter and the Court of Appeals that SONZAs claims are all based on
the May 1994 Agreement and stock option plan, and not on the Labor

Code. Clearly, the present case does not call for an application of the Labor Code
provisions but an interpretation and implementation of the May 1994 Agreement. In
effect, SONZAs cause of action is for breach of contract which is intrinsically a civil
dispute cognizable by the regular courts. 58
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals
dated 26 March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against
petitioner.
SO ORDERED.

G.R. No. L-48645 January 7, 1987

"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO
CASBADILLO, PROSPERO TABLADA, ERNESTO BENGSON, PATRICIO
SERRANO, ANTONIO B. BOBIAS, VIRGILIO ECHAS, DOMINGO PARINAS,
NORBERTO GALANG, JUANITO NAVARRO, NESTORIO MARCELLANA, TEOFILO
B. CACATIAN, RUFO L. EGUIA, CARLOS SUMOYAN, LAMBERTO RONQUILLO,
ANGELITO AMANCIO, DANILO B. MATIAR, ET AL., petitioners,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL
AFFAIRS, OFFICE OF THE PRESIDENT, HON. AMADO G. INCIONG,
UNDERSECRETARY OF LABOR, SAN MIGUEL CORPORATION, GENARO
OLIVES, ENRIQUE CAMAHORT, FEDERICO OATE, ERNESTO VILLANUEVA,
ANTONIO BOCALING and GODOFREDO CUETO, respondents.
Armando V. Ampil for petitioners.
Siguion Reyna, Montecillo and Ongsiako Law Office for private respondents.

GUTIERREZ, JR., J.:

The elemental question in labor law of whether or not an employer-employee

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

On February 9, 1976, Labor Arbiter Nestor C. Lim found for

complainants which was concurred in by the NLRC in a decision dated
June 28, 1976. The amount of backwages awarded, however, was
reduced by NLRC to the equivalent of one (1) year salary.
On appeal, the Secretary in a decision dated June 1, 1977, set aside
the NLRC ruling, stressing the absence of an employer-mployee
relationship as borne out by the records of the case. ...
The petitioners strongly argue that there exists an employer-employee relationship
between them and the respondent company and that they were dismissed for
unionism, an act constituting unfair labor practice "for which respondents must be
made to answer."
Unrebutted evidence and testimony on record establish that the petitioners are
workers who have been employed at the San Miguel Parola Glass Factory since
1961, averaging about seven (7) years of service at the time of their termination.
They worked as "cargadores" or "pahinante" at the SMC Plant loading, unloading,
piling or palleting empty bottles and woosen shells to and from company trucks and
warehouses. At times, they accompanied the company trucks on their delivery
routes.
The petitioners first reported for work to Superintendent-in-Charge Camahort. They
were issued gate passes signed by Camahort and were provided by the respondent
company with the tools, equipment and paraphernalia used in the loading,
unloading, piling and hauling operation.
Job orders emanated from Camahort. The orders are then transmitted to an
assistant-officer-in-charge. In turn, the assistant informs the warehousemen and
checkers regarding the same. The latter, thereafter, relays said orders to the
capatazes or group leaders who then give orders to the workers as to where, when
and what to load, unload, pile, pallet or clean.
Work in the glass factory was neither regular nor continuous, depending wholly on
the volume of bottles manufactured to be loaded and unloaded, as well as the

business activity of the company. Work did not necessarily mean a full eight (8) hour
day for the petitioners. However, work,at times, exceeded the eight (8) hour day
and necessitated work on Sundays and holidays. For this, they were neither paid
overtime nor compensation for work on Sundays and holidays.
Petitioners were paid every ten (10) days on a piece rate basis, that is, according to
the number of cartons and wooden shells they were able to load, unload, or pile.
The group leader notes down the number or volume of work that each individual
worker has accomplished. This is then made the basis of a report or statement
which is compared with the notes of the checker and warehousemen as to whether
or not they tally. Final approval of report is by officer-in-charge Camahort. The pay
check is given to the group leaders for encashment, distribution, and payment to
the petitioners in accordance with payrolls prepared by said leaders. From the total
earnings of the group, the group leader gets a participation or share of ten (10%)
percent plus an additional amount from the earnings of each individual.
The petitioners worked exclusive at the SMC plant, never having been assigned to
other companies or departments of SMC plant, even when the volume of work was
at its minimum. When any of the glass furnaces suffered a breakdown, making a
shutdown necessary, the petitioners work was temporarily suspended. Thereafter,
the petitioners would return to work at the glass plant.
Sometime in January, 1969, the petitioner workers numbering one hundred and
forty (140) organized and affiliated themselves with the petitioner union and
engaged in union activities. Believing themselves entitled to overtime and holiday
pay, the petitioners pressed management, airing other grievances such as being
paid below the minimum wage law, inhuman treatment, being forced to borrow at
usurious rates of interest and to buy raffle tickets, coerced by withholding their
salaries, and salary deductions made without their consent. However, their gripes
and grievances were not heeded by the respondents.
On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of
Labor Relations in connection with the dismissal of some of its members who were
allegedly castigated for their union membership and warned that should they
persist in continuing with their union activities they would be dismissed from their

jobs. Several conciliation conferences were scheduled in order to thresh out their
differences, On February 12, 1969, union member Rogelio Dipad was dismissed
from work. At the scheduled conference on February 19, 1969, the complainant
union through its officers headed by National President Artemio Portugal Sr.,
presented a letter to the respondent company containing proposals and/or labor
demands together with a request for recognition and collective bargaining.
San Miguel refused to bargain with the petitioner union alleging that the workers are
not their employees.
On February 20, 1969, all the petitioners were dismissed from their jobs and,
thereafter, denied entrance to respondent company's glass factory despite their
regularly reporting for work. A complaint for illegal dismissal and unfair labor
practice was filed by the petitioners.
The case reaches us now with the same issues to be resolved as when it had begun.
The question of whether an employer-employee relationship exists in a certain
situation continues to bedevil the courts. Some businessmen try to avoid the
bringing about of an employer-employee relationship in their enterprises because
that judicial relation spawns obligations connected with workmen's compensation,
social security, medicare, minimum wage, termination pay, and unionism. (Mafinco
Trading Corporation v. Ople, 70 SCRA 139).
In determining the existence of an employer-employee relationship, the elements
that are generally considered are the following: (a) the selection and engagement of
the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee with respect to the means and methods
by which the work is to be accomplished. It. is the called "control test" that is the
most important element (Investment Planning Corp. of the Phils. v. The Social
Security System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra,and Rosario
Brothers, Inc. v. Ople, 131 SCRA 72).
Applying the above criteria, the evidence strongly indicates the existence of an
employer-employee relationship between petitioner workers and respondent San

Miguel Corporation. The respondent asserts that the petitioners are employees of
the Guaranteed Labor Contractor, an independent labor contracting firm.
The facts and evidence on record negate respondent SMC's claim.
The existence of an independent contractor relationship is generally established by
the following criteria: "whether or not the contractor is carrying on an independent
business; the nature and extent of the work; the skill required; the term and
duration of the relationship; the right to assign the performance of a specified piece
of work; the control and supervision of the work to another; the employer's power
with respect to the hiring, firing and payment of the contractor's workers; the
control of the premises; the duty to supply the premises tools, appliances, materials
and labor; and the mode, manner and terms of payment" (56 CJS Master and
Servant, Sec. 3(2), 46; See also 27 AM. Jur. Independent Contractor, Sec. 5, 485 and
Annex 75 ALR 7260727)
None of the above criteria exists in the case at bar.
Highly unusual and suspect is the absence of a written contract to specify the
performance of a specified piece of work, the nature and extent of the work and the
term and duration of the relationship. The records fail to show that a large
commercial outfit, such as the San Miguel Corporation, entered into mere oral
agreements of employment or labor contracting where the same would involve
considerable expenses and dealings with a large number of workers over a long
period of time. Despite respondent company's allegations not an iota of evidence
was offered to prove the same or its particulars. Such failure makes respondent
SMC's stand subject to serious doubts.
Uncontroverted is the fact that for an average of seven (7) years, each of the
petitioners had worked continuously and exclusively for the respondent company's
shipping and warehousing department. Considering the length of time that the
petitioners have worked with the respondent company, there is justification to
conclude that they were engaged to perform activities necessary or desirable in the
usual business or trade of the respondent, and the petitioners are, therefore regular
employees (Phil. Fishing Boat Officers and Engineers Union v. Court of Industrial

Relations, 112 SCRA 159 and RJL Martinez Fishing Corporation v. National Labor
Relations Commission, 127 SCRA 454).
As we have found in RJL Martinez Fishing Corporation v. National Labor Relations
Commission (supra):
... [T]he employer-employee relationship between the parties herein is
not coterminous with each loading and unloading job. As earlier shown,
respondents are engaged in the business of fishing. For this purpose,
they have a fleet of fishing vessels. Under this situation, respondents'
activity of catching fish is a continuous process and could hardly be
considered as seasonal in nature. So that the activities performed by
herein complainants, i.e. unloading the catch of tuna fish from
respondents' vessels and then loading the same to refrigerated vans,
are necessary or desirable in the business of respondents. This
circumstance makes the employment of complainants a regular one, in
the sense that it does not depend on any specific project or seasonable
activity. (NLRC Decision, p. 94, Rollo).lwphl@it
so as it with petitioners in the case at bar. In fact, despite past shutdowns of the
glass plant for repairs, the petitioners, thereafter, promptly returned to their jobs,
never having been replaced, or assigned elsewhere until the present controversy
arose. The term of the petitioners' employment appears indefinite. The continuity
and habituality of petitioners' work bolsters their claim of employee status vis-a-vis
respondent company,
Even under the assumption that a contract of employment had indeed been
executed between respondent SMC and the alleged labor contractor, respondent's
case will, nevertheless, fail.
Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides:
Job contracting. There is job contracting permissible under the Code
if the following conditions are met:

(1) The contractor carries on an independent business and undertakes

the contract work on his own account under his own responsibility
according to his own manner and method, free from the control and
direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of
tools, equipment, machineries, work premises, and other materials
which are necessary in the conduct of his business.
We find that Guaranteed and Reliable Labor contractors have neither substantial
capital nor investment to qualify as an independent contractor under the law. The
premises, tools, equipment and paraphernalia used by the petitioners in their jobs
are admittedly all supplied by respondent company. It is only the manpower or labor
force which the alleged contractors supply, suggesting the existence of a "labor
only" contracting scheme prohibited by law (Article 106, 109 of the Labor Code;
Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor
Code). In fact, even the alleged contractor's office, which consists of a space at
respondent company's warehouse, table, chair, typewriter and cabinet, are provided
for by respondent SMC. It is therefore clear that the alleged contractors have no
capital outlay involved in the conduct of its business, in the maintenance thereof or
in the payment of its workers' salaries.
The payment of the workers' wages is a critical factor in determining the actuality of
an employer-employee relationship whether between respondent company and
petitioners or between the alleged independent contractor and petitioners. It is
important to emphasize that in a truly independent contractor-contractee
relationship, the fees are paid directly to the manpower agency in lump sum without
indicating or implying that the basis of such lump sum is the salary per worker
multiplied by the number of workers assigned to the company. This is the rule
in Social Security System v. Court of Appeals (39 SCRA 629, 635).
The alleged independent contractors in the case at bar were paid a lump sum
representing only the salaries the workers were entitled to, arrived at by adding the
salaries of each worker which depend on the volume of work they. had

accomplished individually. These are based on payrolls, reports or statements

prepared by the workers' group leader, warehousemen and checkers, where they
note down the number of cartons, wooden shells and bottles each worker was able
to load, unload, pile or pallet and see whether they tally. The amount paid by
respondent company to the alleged independent contractor considers no business
expenses or capital outlay of the latter. Nor is the profit or gain of the alleged
contractor in the conduct of its business provided for as an amount over and above
the workers' wages. Instead, the alleged contractor receives a percentage from the
total earnings of all the workers plus an additional amount corresponding to a
percentage of the earnings of each individual worker, which, perhaps, accounts for
the petitioners' charge of unauthorized deductions from their salaries by the
respondents.
Anent the argument that the petitioners are not employees as they worked on piece
basis, we merely have to cite our rulings in Dy Keh Beng v. International Labor and
Marine Union of the Philippines (90 SCRA 161), as follows:
"[C]ircumstances must be construed to determine indeed if payment
by the piece is just a method of compensation and does not define the
essence of the relation. Units of time . . . and units of work are in
establishments like respondent (sic) just yardsticks whereby to
determine rate of compensation, to be applied whenever agreed upon.
We cannot construe payment by the piece where work is done in such
an establishment so as to put the worker completely at liberty to turn
him out and take in another at pleasure."
Article 106 of the Labor Code provides the legal effect of a labor only contracting
scheme, to wit:
... the person or intermediary shall be considered merely as an agent
of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.
Firmly establishing respondent SMC's role as employer is the control exercised by it
over the petitioners that is, control in the means and methods/manner by which

petitioners are to go about their work, as well as in disciplinary measures imposed

by it.
Because of the nature of the petitioners' work as cargadores or pahinantes,
supervision as to the means and manner of performing the same is practically nil.
For, how many ways are there to load and unload bottles and wooden shells? The
mere concern of both respondent SMC and the alleged contractor is that the job of
having the bottles and wooden shells brought to and from the warehouse be done.
More evident and pronounced is respondent company's right to control in the
discipline of petitioners. Documentary evidence presented by the petitioners
establish respondent SMC's right to impose disciplinary measures for violations or
infractions of its rules and regulations as well as its right to recommend transfers
and dismissals of the piece workers. The inter-office memoranda submitted in
evidence prove the company's control over the petitioners. That respondent SMC
has the power to recommend penalties or dismissal of the piece workers, even as to
Abner Bungay who is alleged by SMC to be a representative of the alleged labor
contractor, is the strongest indication of respondent company's right of control over
the petitioners as direct employer. There is no evidence to show that the alleged
labor contractor had such right of control or much less had been there to supervise
or deal with the petitioners.
The petitioners were dismissed allegedly because of the shutdown of the glass
manufacturing plant. Respondent company would have us believe that this was a
case of retrenchment due to the closure or cessation of operations of the
establishment or undertaking. But such is not the case here. The respondent's
shutdown was merely temporary, one of its furnaces needing repair. Operations
continued after such repairs, but the petitioners had already been refused entry to
the premises and dismissed from respondent's service. New workers manned their
positions. It is apparent that the closure of respondent's warehouse was merely a
ploy to get rid of the petitioners, who were then agitating the respondent company
for benefits, reforms and collective bargaining as a union. There is no showing that
petitioners had been remiss in their obligations and inefficient in their jobs to
warrant their separation.

As to the charge of unfair labor practice because of SMC's refusal to bargain with
the petitioners, it is clear that the respondent company had an existing collective
bargaining agreement with the IBM union which is the recognized collective
bargaining representative at the respondent's glass plant.
There being a recognized bargaining representative of all employees at the
company's glass plant, the petitioners cannot merely form a union and demand
bargaining. The Labor Code provides the proper procedure for the recognition of
unions as sole bargaining representatives. This must be followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel
Corporation is hereby ordered to REINSTATE petitioners, with three (3) years
backwages. However, where reinstatement is no longer possible, the respondent
SMC is ordered to pay the petitioners separation pay equivalent to one (1) month
pay for every year of service.
SO ORDERED.
G.R. No. 167622

June 29, 2010

GREGORIO V. TONGKO, Petitioner,

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A.
VERGEL DE DIOS,Respondents.
RESOLUTION
BRION, J.:
This resolves the Motion for Reconsideration 1 dated December 3, 2008 filed by
respondent The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside
our Decision of November 7, 2008. In the assailed decision, we found that an
employer-employee relationship existed between Manulife and petitioner Gregorio
Tongko and ordered Manulife to pay Tongko backwages and separation pay for
illegal dismissal.
The following facts have been stated in our Decision of November 7, 2008, now
under reconsideration, but are repeated, simply for purposes of clarity.

The contractual relationship between Tongko and Manulife had two basic phases.
The first or initial phase began on July 1, 1977, under a Career Agents Agreement
(Agreement) that provided:
It is understood and agreed that the Agent is an independent contractor and
nothing contained herein shall be construed or interpreted as creating an employeremployee relationship between the Company and the Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group
policies and other products offered by the Company, and collect, in exchange for
provisional receipts issued by the Agent, money due to or become due to the
Company in respect of applications or policies obtained by or through the Agent or
from policyholders allotted by the Company to the Agent for servicing, subject to
subsequent confirmation of receipt of payment by the Company as evidenced by an
Official Receipt issued by the Company directly to the policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation of any of
the provisions hereof by the Agent by giving written notice to the Agent within
fifteen (15) days from the time of the discovery of the breach. No waiver,
extinguishment, abandonment, withdrawal or cancellation of the right to terminate
this Agreement by the Company shall be construed for any previous failure to
exercise its right under any provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any time
without cause, by giving to the other party fifteen (15) days notice in writing. 2
Tongko additionally agreed (1) to comply with all regulations and requirements of
Manulife, and (2) to maintain a standard of knowledge and competency in the sale
of Manulifes products, satisfactory to Manulife and sufficient to meet the volume of
the new business, required by his Production Club membership. 3
The second phase started in 1983 when Tongko was named Unit Manager in
Manulifes Sales Agency Organization. In 1990, he became a Branch Manager. Six
years later (or in 1996), Tongko became a Regional Sales Manager. 4
Tongkos gross earnings consisted of commissions, persistency income, and
management overrides. Since the beginning, Tongko consistently declared himself

self-employed in his income tax returns. Thus, under oath, he declared his gross
business income and deducted his business expenses to arrive at his taxable
business income. Manulife withheld the corresponding 10% tax on Tongkos
earnings.5
In 2001, Manulife instituted manpower development programs at the regional sales
management level. Respondent Renato Vergel de Dios wrote Tongko a letter dated
November 6, 2001 on concerns that were brought up during the October 18, 2001
Metro North Sales Managers Meeting. De Dios wrote:
The first step to transforming Manulife into a big league player has been very clear
to increase the number of agents to at least 1,000 strong for a start. This may seem
diametrically opposed to the way Manulife was run when you first joined the
organization. Since then, however, substantial changes have taken place in the
organization, as these have been influenced by developments both from within and
without the company.
xxxx
The issues around agent recruiting are central to the intended objectives hence the
need for a Senior Managers meeting earlier last month when Kevin OConnor, SVPAgency, took to the floor to determine from our senior agency leaders what more
could be done to bolster manpower development. At earlier meetings, Kevin had
presented information where evidently, your Region was the lowest performer (on a
per Manager basis) in terms of recruiting in 2000 and, as of today, continues to
remain one of the laggards in this area.
While discussions, in general, were positive other than for certain comments from
your end which were perceived to be uncalled for, it became clear that a one-onone meeting with you was necessary to ensure that you and management, were on
the same plane. As gleaned from some of your previous comments in prior
meetings (both in group and one-on-one), it was not clear that we were proceeding
in the same direction.
Kevin held subsequent series of meetings with you as a result, one of which I joined
briefly. In those subsequent meetings you reiterated certain views, the validity of
which we challenged and subsequently found as having no basis.
With such views coming from you, I was a bit concerned that the rest of the Metro
North Managers may be a bit confused as to the directions the company was taking.

For this reason, I sought a meeting with everyone in your management team,
including you, to clear the air, so to speak.
This note is intended to confirm the items that were discussed at the said Metro
North Regions Sales Managers meeting held at the 7/F Conference room last 18
October.
xxxx
Issue # 2: "Some Managers are unhappy with their earnings and would want to
revert to the position of agents."
This is an often repeated issue you have raised with me and with Kevin. For this
reason, I placed the issue on the table before the rest of your Regions Sales
Managers to verify its validity. As you must have noted, no Sales Manager came
forward on their own to confirm your statement and it took you to name Malou
Samson as a source of the same, an allegation that Malou herself denied at our
meeting and in your very presence.
This only confirms, Greg, that those prior comments have no solid basis at all. I now
believe what I had thought all along, that these allegations were simply meant to
muddle the issues surrounding the inability of your Region to meet its agency
development objectives!
Issue # 3: "Sales Managers are doing what the company asks them to do but, in the
process, they earn less."
xxxx
All the above notwithstanding, we had your own records checked and we found that
you made a lot more money in the Year 2000 versus 1999. In addition, you also
volunteered the information to Kevin when you said that you probably will make
more money in the Year 2001 compared to Year 2000. Obviously, your above
statement about making "less money" did not refer to you but the way you argued
this point had us almost believing that you were spouting the gospel of truth when
you were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your ability to lead
this group towards the new direction that we have been discussing these past few
weeks, i.e., Manulifes goal to become a major agency-led distribution company in

the Philippines. While as you claim, you have not stopped anyone from recruiting, I
have never heard you proactively push for greater agency recruiting. You have not
been proactive all these years when it comes to agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next
year and so, we are making the following changes in the interim:
1. You will hire at your expense a competent assistant who can unload you of much
of the routine tasks which can be easily delegated. This assistant should be so
chosen as to complement your skills and help you in the areas where you feel "may
not be your cup of tea."
You have stated, if not implied, that your work as Regional Manager may be too
taxing for you and for your health. The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with
the North Star Branch (NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow
you to concentrate more fully on overseeing the remaining groups under Metro
North, your Central Unit and the rest of the Sales Managers in Metro North. I will
hold you solely responsible for meeting the objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any further. This,
however, is entirely dependent upon you. But you have to understand that meeting
corporate objectives by everyone is primary and will not be compromised. We are
meeting tough challenges next year, and I would want everybody on board. Any
resistance or holding back by anyone will be dealt with accordingly. 6
Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001,
terminating Tongkos services:
It would appear, however, that despite the series of meetings and communications,
both one-on-one meetings between yourself and SVP Kevin OConnor, some of them
with me, as well as group meetings with your Sales Managers, all these efforts have
failed in helping you align your directions with Managements avowed agency
growth policy.

xxxx
On account thereof, Management is exercising its prerogative under Section 14 of
your Agents Contract as we are now issuing this notice of termination of your
Agency Agreement with us effective fifteen days from the date of this letter. 7
Tongko responded by filing an illegal dismissal complaint with the National Labor
Relations Commission (NLRC) Arbitration Branch. He essentially alleged despite
the clear terms of the letter terminating his Agency Agreement that he was
Manulifes employee before he was illegally dismissed. 8
Thus, the threshold issue is the existence of an employment relationship. A finding
that none exists renders the question of illegal dismissal moot; a finding that an
employment relationship exists, on the other hand, necessarily leads to the need to
determine the validity of the termination of the relationship.
A. Tongkos Case for Employment Relationship
Tongko asserted that as Unit Manager, he was paid an annual over-rider not
exceeding P50,000.00, regardless of production levels attained and exclusive of
commissions and bonuses. He also claimed that as Regional Sales Manager, he was
given a travel and entertainment allowance of P36,000.00 per year in addition to his
overriding commissions; he was tasked with numerous administrative functions and
supervisory authority over Manulifes employees, aside from merely selling policies
and recruiting agents for Manulife; and he recommended and recruited insurance
agents subject to vetting and approval by Manulife. He further alleges that he was
assigned a definite place in the Manulife offices when he was not in the field at the
3rd Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts., Salcedo Village,
Makati City for which he never paid any rental. Manulife provided the office
equipment he used, including tables, chairs, computers and printers (and even
office stationery), and paid for the electricity, water and telephone bills. As Regional
Sales Manager, Tongko additionally asserts that he was required to follow at least
three codes of conduct.9
B. Manulifes Case Agency Relationship with Tongko
Manulife argues that Tongko had no fixed wage or salary. Under the Agreement,
Tongko was paid commissions of varying amounts, computed based on the premium
paid in full and actually received by Manulife on policies obtained through an agent.
As sales manager, Tongko was paid overriding sales commission derived from sales

made by agents under his unit/structure/branch/region. Manulife also points out that
it deducted and withheld a 10% tax from all commissions Tongko received; Tongko
even declared himself to be self-employed and consistently paid taxes as suchi.e.,
he availed of tax deductions such as ordinary and necessary trade, business and
professional expenses to which a business is entitled.
Manulife asserts that the labor tribunals have no jurisdiction over Tongkos claim as
he was not its employee as characterized in the four-fold test and our ruling
in Carungcong v. National Labor Relations Commission.10
The Conflicting Rulings of the Lower Tribunals
The labor arbiter decreed that no employer-employee relationship existed between
the parties. However, the NLRC reversed the labor arbiters decision on appeal; it
found the existence of an employer-employee relationship and concluded that
Tongko had been illegally dismissed. In the petition for certiorari with the Court of
Appeals (CA), the appellate court found that the NLRC gravely abused its discretion
in its ruling and reverted to the labor arbiters decision that no employer-employee
relationship existed between Tongko and Manulife.
Our Decision of November 7, 2008
In our Decision of November 7, 2008, we reversed the CA ruling and found that an
employment relationship existed between Tongko and Manulife. We concluded that
Tongko is Manulifes employee for the following reasons:
1. Our ruling in the first Insular11 case did not foreclose the possibility of an
insurance agent becoming an employee of an insurance company; if
evidence exists showing that the company promulgated rules or regulations
that effectively controlled or restricted an insurance agents choice of
methods or the methods themselves in selling insurance, an employeremployee relationship would be present. The determination of the existence
of an employer-employee relationship is thus on a case-to-case basis
depending on the evidence on record.
2. Manulife had the power of control over Tongko, sufficient to characterize
him as an employee, as shown by the following indicators:
2.1 Tongko undertook to comply with Manulifes rules, regulations and
other requirements, i.e., the different codes of conduct such as the

Agent Code of Conduct, the Manulife Financial Code of Conduct, and

the Financial Code of Conduct Agreement;
2.2 The various affidavits of Manulifes insurance agents and
managers, who occupied similar positions as Tongko, showed that they
performed administrative duties that established employment with
Manulife;12 and
2.3 Tongko was tasked to recruit some agents in addition to his other
administrative functions. De Dios letter harped on the direction
Manulife intended to take, viz., greater agency recruitment as the
primary means to sell more policies; Tongkos alleged failure to follow
this directive led to the termination of his employment with Manulife.
The Motion for Reconsideration
Manulife disagreed with our Decision and filed the present motion for
reconsideration on the following GROUNDS:
1. The November 7[, 2008] Decision violates Manulifes right to due process
by: (a) confining the review only to the issue of "control" and utterly
disregarding all the other issues that had been joined in this case; (b)
mischaracterizing the divergence of conclusions between the CA and the
NLRC decisions as confined only to that on "control"; (c) grossly failing to
consider the findings and conclusions of the CA on the majority of the
material evidence, especially [Tongkos] declaration in his income tax returns
that he was a "business person" or "self-employed"; and (d) allowing [Tongko]
to repudiate his sworn statement in a public document.
2. The November 7[, 2008] Decision contravenes settled rules in contract law
and agency, distorts not only the legal relationships of agencies to sell but
also distributorship and franchising, and ignores the constitutional and policy
context of contract law vis--vis labor law.
3. The November 7[, 2008] Decision ignores the findings of the CA on the
three elements of the four-fold test other than the "control" test, reverses
well-settled doctrines of law on employer-employee relationships, and grossly
misapplies the "control test," by selecting, without basis, a few items of
evidence to the exclusion of more material evidence to support its conclusion
that there is "control."

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope
authorized by Articles 8 and 9 of the Civil Code, beyond the powers granted
to this Court under Article VIII, Section 1 of the Constitution and contravenes
through judicial legislation, the constitutional prohibition against impairment
of contracts under Article III, Section 10 of the Constitution.
5. For all the above reasons, the November 7[, 2008] Decision made
unsustainable and reversible errors, which should be corrected, in concluding
that Respondent Manulife and Petitioner had an employer-employee
relationship, that Respondent Manulife illegally dismissed Petitioner, and for
consequently ordering Respondent Manulife to pay Petitioner backwages,
separation pay, nominal damages and attorneys fees. 13
THE COURTS RULING
A. The Insurance and the Civil Codes;
the Parties Intent and Established
Industry Practices
We cannot consider the present case purely from a labor law perspective, oblivious
that the factual antecedents were set in the insurance industry so that the
Insurance Code primarily governs. Chapter IV, Title 1 of this Code is wholly devoted
to "Insurance Agents and Brokers" and specifically defines the agents and brokers
relationship with the insurance company and how they are governed by the Code
and regulated by the Insurance Commission.
The Insurance Code, of course, does not wholly regulate the "agency" that it speaks
of, as agency is a civil law matter governed by the Civil Code. Thus, at the very
least, three sets of laws namely, the Insurance Code, the Labor Code and the Civil
Code have to be considered in looking at the present case. Not to be forgotten,
too, is the Agreement (partly reproduced on page 2 of this Dissent and which no one
disputes) that the parties adopted to govern their relationship for purposes of
selling the insurance the company offers. To forget these other laws is to take a
myopic view of the present case and to add to the uncertainties that now exist in
considering the legal relationship between the insurance company and its "agents."
The main issue of whether an agency or an employment relationship exists depends
on the incidents of the relationship. The Labor Code concept of "control" has to be
compared and distinguished with the "control" that must necessarily exist in a

principal-agent relationship. The principal cannot but also have his or her say in
directing the course of the principal-agent relationship, especially in cases where
the company-representative relationship in the insurance industry is an agency.
a. The laws on insurance and agency
The business of insurance is a highly regulated commercial activity in the country,
in terms particularly of who can be in the insurance business, who can act for and in
behalf of an insurer, and how these parties shall conduct themselves in the
insurance business. Section 186 of the Insurance Code provides that "No person,
partnership, or association of persons shall transact any insurance business in the
Philippines except as agent of a person or corporation authorized to do the business
of insurance in the Philippines." Sections 299 and 300 of the Insurance Code on
Insurance Agents and Brokers, among other provisions, provide:
Section 299. No insurance company doing business in the Philippines, nor any agent
thereof, shall pay any commission or other compensation to any person for services
in obtaining insurance, unless such person shall have first procured from the
Commissioner a license to act as an insurance agent of such company or as an
insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for services in
obtaining insurance, any commission or other compensation from any insurance
company doing business in the Philippines or any agent thereof, without first
procuring a license so to act from the Commissioner x x x The Commissioner shall
satisfy himself as to the competence and trustworthiness of the applicant and shall
have the right to refuse to issue or renew and to suspend or revoke any such license
in his discretion.1avvphi1.net
Section 300. Any person who for compensation solicits or obtains insurance on
behalf of any insurance company or transmits for a person other than himself an
application for a policy or contract of insurance to or from such company or offers or
assumes to act in the negotiating of such insurance shall be an insurance agent
within the intent of this section and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance agent is subject.
The application for an insurance agents license requires a written examination, and
the applicant must be of good moral character and must not have been convicted of

a crime involving moral turpitude.14 The insurance agent who collects premiums
from an insured person for remittance to the insurance company does so in a
fiduciary capacity, and an insurance company which delivers an insurance policy or
contract to an authorized agent is deemed to have authorized the agent to receive
payment on the companys behalf.15 Section 361 further prohibits the offer,
negotiation, or collection of any amount other than that specified in the policy and
this covers any rebate from the premium or any special favor or advantage in the
dividends or benefit accruing from the policy.
Thus, under the Insurance Code, the agent must, as a matter of qualification, be
licensed and must also act within the parameters of the authority granted under the
license and under the contract with the principal. Other than the need for a license,
the agent is limited in the way he offers and negotiates for the sale of the
companys insurance products, in his collection activities, and in the delivery of the
insurance contract or policy. Rules regarding the desired results (e.g., the required
volume to continue to qualify as a company agent, rules to check on the parameters
on the authority given to the agent, and rules to ensure that industry, legal and
ethical rules are followed) are built-in elements of control specific to an insurance
agency and should not and cannot be read as elements of control that attend an
employment relationship governed by the Labor Code.
On the other hand, the Civil Code defines an agent as a "person [who] binds himself
to render some service or to do something in representation or on behalf of another,
with the consent or authority of the latter." 16 While this is a very broad definition
that on its face may even encompass an employment relationship, the distinctions
between agency and employment are sufficiently established by law and
jurisprudence.
Generally, the determinative element is the control exercised over the one
rendering service. The employer controls the employee both in the results and in
the means and manner of achieving this result. The principal in an agency
relationship, on the other hand, also has the prerogative to exercise control over the
agent in undertaking the assigned task based on the parameters outlined in the
pertinent laws.
Under the general law on agency as applied to insurance, an agency must be
express in light of the need for a license and for the designation by the insurance

company. In the present case, the Agreement fully serves as grant of authority to
Tongko as Manulifes insurance agent.17 This agreement is supplemented by the
companys agency practices and usages, duly accepted by the agent in carrying out
the agency.18 By authority of the Insurance Code, an insurance agency is for
compensation,19 a matter the Civil Code Rules on Agency presumes in the absence
of proof to the contrary.20 Other than the compensation, the principal is bound to
advance to, or to reimburse, the agent the agreed sums necessary for the execution
of the agency.21 By implication at least under Article 1994 of the Civil Code, the
principal can appoint two or more agents to carry out the same assigned
tasks,22 based necessarily on the specific instructions and directives given to them.
With particular relevance to the present case is the provision that "In the execution
of the agency, the agent shall act in accordance with the instructions of the
principal."23 This provision is pertinent for purposes of the necessary control that the
principal exercises over the agent in undertaking the assigned task, and is an area
where the instructions can intrude into the labor law concept of control so that
minute consideration of the facts is necessary. A related article is Article 1891 of the
Civil Code which binds the agent to render an account of his transactions to the
principal.
B. The Cited Case
The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to
establish that the company rules and regulations that an agent has to comply with
are indicative of an employer-employee relationship. 24 The Dissenting Opinions of
Justice Presbitero Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular
Life Assurance Co. v. National Labor Relations Commission (second Insular case) 25 to
support the view that Tongko is Manulifes employee. On the other hand, Manulife
cites the Carungcong case and AFP Mutual Benefit Association, Inc. v. National Labor
Relations Commission (AFPMBAI case)26 to support its allegation that Tongko was not
its employee.
A caveat has been given above with respect to the use of the rulings in the cited
cases because none of them is on all fours with the present case; the uniqueness of
the factual situation of the present case prevents it from being directly and readily
cast in the mold of the cited cases. These cited cases are themselves different from

one another; this difference underscores the need to read and quote them in the
context of their own factual situations.
The present case at first glance appears aligned with the facts in the Carungcong,
the Grepalife, and the second Insular Life cases. A critical difference, however,
exists as these cited cases dealt with the proper legal characterization of a
subsequent management contract that superseded the original agency contract
between the insurance company and its agent. Carungcong dealt with a subsequent
Agreement making Carungcong a New Business Manager that clearly superseded
the Agreement designating Carungcong as an agent empowered to solicit
applications for insurance. The Grepalife case, on the other hand, dealt with the
proper legal characterization of the appointment of the Ruiz brothers to positions
higher than their original position as insurance agents. Thus, after analyzing the
duties and functions of the Ruiz brothers, as these were enumerated in their
contracts, we concluded that the company practically dictated the manner by which
the Ruiz brothers were to carry out their jobs. Finally, the second Insular Life case
dealt with the implications of de los Reyes appointment as acting unit manager
which, like the subsequent contracts in the Carungcong and the Grepalife cases,
was clearly defined under a subsequent contract. In all these cited cases, a
determination of the presence of the Labor Code element of control was made on
the basis of the stipulations of the subsequent contracts.
In stark contrast with the Carungcong, the Grepalife, and the second Insular Life
cases, the only contract or document extant and submitted as evidence in the
present case is the Agreement a pure agency agreement in the Civil Code context
similar to the original contract in the first Insular Life case and the contract in the
AFPMBAI case. And while Tongko was later on designated unit manager in 1983,
Branch Manager in 1990, and Regional Sales Manager in 1996, no formal contract
regarding these undertakings appears in the records of the case. Any such contract
or agreement, had there been any, could have at the very least provided the bases
for properly ascertaining the juridical relationship established between the parties.
These critical differences, particularly between the present case and the Grepalife
and the second Insular Life cases, should therefore immediately drive us to be more
prudent and cautious in applying the rulings in these cases.
C. Analysis of the Evidence

c.1. The Agreement

The primary evidence in the present case is the July 1, 1977 Agreement that
governed and defined the parties relations until the Agreements termination in
2001. This Agreement stood for more than two decades and, based on the records
of the case, was never modified or novated. It assumes primacy because it directly
dealt with the nature of the parties relationship up to the very end; moreover, both
parties never disputed its authenticity or the accuracy of its terms.
By the Agreements express terms, Tongko served as an "insurance agent" for
Manulife, not as an employee. To be sure, the Agreements legal characterization of
the nature of the relationship cannot be conclusive and binding on the courts; as the
dissent clearly stated, the characterization of the juridical relationship the
Agreement embodied is a matter of law that is for the courts to determine. At the
same time, though, the characterization the parties gave to their relationship in the
Agreement cannot simply be brushed aside because it embodies their intent at the
time they entered the Agreement, and they were governed by this understanding
throughout their relationship. At the very least, the provision on the absence of
employer-employee relationship between the parties can be an aid in considering
the Agreement and its implementation, and in appreciating the other evidence on
record.
The parties legal characterization of their intent, although not conclusive, is critical
in this case because this intent is not illegal or outside the contemplation of law,
particularly of the Insurance and the Civil Codes. From this perspective, the
provisions of the Insurance Code cannot be disregarded as this Code (as heretofore
already noted) expressly envisions a principal-agent relationship between the
insurance company and the insurance agent in the sale of insurance to the
public.1awph!1 For this reason, we can take judicial notice that as a matter of
Insurance Code-based business practice, an agency relationship prevails in the
insurance industry for the purpose of selling insurance. The Agreement, by its
express terms, is in accordance with the Insurance Code model when it provided for
a principal-agent relationship, and thus cannot lightly be set aside nor simply be
considered as an agreement that does not reflect the parties true intent. This
intent, incidentally, is reinforced by the system of compensation the Agreement

provides, which likewise is in accordance with the production-based sales

commissions the Insurance Code provides.
Significantly, evidence shows that Tongkos role as an insurance agent never
changed during his relationship with Manulife. If changes occurred at all, the
changes did not appear to be in the nature of their core relationship. Tongko
essentially remained an agent, but moved up in this role through Manulifes
recognition that he could use other agents approved by Manulife, but operating
under his guidance and in whose commissions he had a share. For want of a better
term, Tongko perhaps could be labeled as a "lead agent" who guided under his wing
other Manulife agents similarly tasked with the selling of Manulife insurance.
Like Tongko, the evidence suggests that these other agents operated under their
own agency agreements. Thus, if Tongkos compensation scheme changed at all
during his relationship with Manulife, the change was solely for purposes of
crediting him with his share in the commissions the agents under his wing
generated. As an agent who was recruiting and guiding other insurance agents,
Tongko likewise moved up in terms of the reimbursement of expenses he incurred in
the course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of
the Civil Code. Thus, Tongko received greater reimbursements for his expenses and
was even allowed to use Manulife facilities in his interactions with the agents, all of
whom were, in the strict sense, Manulife agents approved and certified as such by
Manulife with the Insurance Commission.
That Tongko assumed a leadership role but nevertheless wholly remained an agent
is the inevitable conclusion that results from the reading of the Agreement (the only
agreement on record in this case) and his continuing role thereunder as sales agent,
from the perspective of the Insurance and the Civil Codes and in light of what
Tongko himself attested to as his role as Regional Sales Manager. To be sure, this
interpretation could have been contradicted if other agreements had been
submitted as evidence of the relationship between Manulife and Tongko on the
latters expanded undertakings. In the absence of any such evidence, however, this
reading based on the available evidence and the applicable insurance and civil law
provisions must stand, subject only to objective and evidentiary Labor Code tests
on the existence of an employer-employee relationship.

In applying such Labor Code tests, however, the enforcement of the Agreement
during the course of the parties relationship should be noted. From 1977 until the
termination of the Agreement, Tongkos occupation was to sell Manulifes insurance
policies and products. Both parties acquiesced with the terms and conditions of the
Agreement. Tongko, for his part, accepted all the benefits flowing from the
Agreement, particularly the generous commissions.
Evidence indicates that Tongko consistently clung to the view that he was an
independent agent selling Manulife insurance products since he invariably declared
himself a business or self-employed person in his income tax returns. This
consistency with, and action made pursuant to the Agreement were pieces
of evidence that were never mentioned nor considered in our Decision of
November 7, 2008. Had they been considered, they could, at the very least, serve
as Tongkos admissions against his interest. Strictly speaking, Tongkos tax returns
cannot but be legally significant because he certified under oath the amount he
earned as gross business income, claimed business deductions, leading to his net
taxable income. This should be evidence of the first order that cannot be brushed
aside by a mere denial. Even on a laymans view that is devoid of legal
considerations, the extent of his annual income alone renders his claimed
employment status doubtful.27
Hand in hand with the concept of admission against interest in considering the tax
returns, the concept of estoppel a legal and equitable concept 28 necessarily must
come into play. Tongkos previous admissions in several years of tax returns as an
independent agent, as against his belated claim that he was all along an employee,
are too diametrically opposed to be simply dismissed or ignored. Interestingly,
Justice Velascos dissenting opinion states that Tongko was forced to declare himself
a business or self-employed person by Manulifes persistent refusal to recognize him
as its employee.29 Regrettably, the dissent has shown no basis for this
conclusion, an understandable omission since no evidence in fact exists on
this point in the records of the case. In fact, what the evidence shows is
Tongkos full conformity with, and action as, an independent agent until his
relationship with Manulife took a bad turn.
Another interesting point the dissent raised with respect to the Agreement is its
conclusion that the Agreement negated any employment relationship between

Tongko and Manulife so that the commissions he earned as a sales agent should not
be considered in the determination of the backwages and separation pay that
should be given to him. This part of the dissent is correct although it went on to
twist this conclusion by asserting that Tongko had dual roles in his relationship with
Manulife; he was an agent, not an employee, in so far as he sold insurance for
Manulife, but was an employee in his capacity as a manager. Thus, the dissent
concluded that Tongkos backwages should only be with respect to his role as
Manulifes manager.
The conclusion with respect to Tongkos employment as a manager is, of course,
unacceptable for the legal, factual and practical reasons discussed in this
Resolution. In brief, the factual reason is grounded on the lack of evidentiary
support of the conclusion that Manulife exercised control over Tongko in the sense
understood in the Labor Code. The legal reason, partly based on the lack of factual
basis, is the erroneous legal conclusion that Manulife controlled Tongko and was
thus its employee. The practical reason, on the other hand, is the havoc that the
dissents unwarranted conclusion would cause the insurance industry that, by the
laws own design, operated along the lines of principal-agent relationship in the sale
of insurance.
c.2. Other Evidence of Alleged Control
A glaring evidentiary gap for Tongko in this case is the lack of evidence on record
showing that Manulife ever exercised means-and-manner control, even to a limited
extent, over Tongko during his ascent in Manulifes sales ladder. In 1983, Tongko
was appointed unit manager. Inexplicably, Tongko never bothered to present any
evidence at all on what this designation meant. This also holds true for Tongkos
appointment as branch manager in 1990, and as Regional Sales Manager in 1996.
The best evidence of control the agreement or directive relating to Tongkos duties
and responsibilities was never introduced as part of the records of the case. The
reality is, prior to de Dios letter, Manulife had practically left Tongko alone not only
in doing the business of selling insurance, but also in guiding the agents under his
wing. As discussed below, the alleged directives covered by de Dios letter,
heretofore quoted in full, were policy directions and targeted results that the
company wanted Tongko and the other sales groups to realign with in their own

selling activities. This is the reality that the parties presented evidence consistently
tells us.
What, to Tongko, serve as evidence of labor law control are the codes of conduct
that Manulife imposes on its agents in the sale of insurance. The mere presentation
of codes or of rules and regulations, however, is not per se indicative of labor law
control as the law and jurisprudence teach us.
As already recited above, the Insurance Code imposes obligations on both the
insurance company and its agents in the performance of their respective obligations
under the Code, particularly on licenses and their renewals, on the representations
to be made to potential customers, the collection of premiums, on the delivery of
insurance policies, on the matter of compensation, and on measures to ensure
ethical business practice in the industry.
The general law on agency, on the other hand, expressly allows the principal an
element of control over the agent in a manner consistent with an agency
relationship. In this sense, these control measures cannot be read as indicative of
labor law control. Foremost among these are the directives that the principal may
impose on the agent to achieve the assigned tasks, to the extent that they do not
involve the means and manner of undertaking these tasks. The law likewise
obligates the agent to render an account; in this sense, the principal may impose on
the agent specific instructions on how an account shall be made, particularly on the
matter of expenses and reimbursements. To these extents, control can be imposed
through rules and regulations without intruding into the labor law concept of control
for purposes of employment.
From jurisprudence, an important lesson that the first Insular Life case teaches us is
that a commitment to abide by the rules and regulations of an insurance company
does not ipso facto make the insurance agent an employee. Neither do guidelines
somehow restrictive of the insurance agents conduct necessarily indicate "control"
as this term is defined in jurisprudence. Guidelines indicative of labor law
"control," as the first Insular Life case tells us, should not merely relate to
the mutually desirable result intended by the contractual relationship;
they must have the nature of dictating the means or methods to be employed
in attaining the result, or of fixing the methodology and of binding or restricting the
party hired to the use of these means. In fact, results-wise, the principal can impose

production quotas and can determine how many agents, with specific territories,
ought to be employed to achieve the companys objectives. These are management
policy decisions that the labor law element of control cannot reach. Our ruling in
these respects in the first Insular Life case was practically reiterated in Carungcong.
Thus, as will be shown more fully below, Manulifes codes of conduct, 30 all of which
do not intrude into the insurance agents means and manner of conducting their
sales and only control them as to the desired results and Insurance Code norms,
cannot be used as basis for a finding that the labor law concept of control existed
between Manulife and Tongko.
The dissent considers the imposition of administrative and managerial functions on
Tongko as indicative of labor law control; thus, Tongko as manager, but not as
insurance agent, became Manulifes employee. It drew this conclusion from what
the other Manulife managers disclosed in their affidavits (i.e., their enumerated
administrative and managerial functions) and after comparing these statements
with the managers in Grepalife. The dissent compared the control exercised by
Manulife over its managers in the present case with the control the managers in the
Grepalife case exercised over their employees by presenting the following matrix: 31
Duties of Manulifes Manager

Duties of Grepalifes
Managers/Supervisors

- to render or recommend

- train understudies for the position of

prospective agents to be licensed,

district manager

trained and contracted to sell

Manulife products and who will be
part of my Unit
- to coordinate activities of the

- properly account, record and document

agents under [the managers] Unit in

the companys funds, spot-check and

[the agents] daily, weekly and

audit the work of the zone supervisors, x

monthly selling activities, making

x x follow up the submission of weekly

sure that their respective sales

remittance reports of the debit agents

targets are met;

and zone supervisors

- to conduct periodic training

- direct and supervise the sales activities

sessions for [the] agents to further

of the debit agents under him, x x x

enhance their sales skill; and

undertake and discharge the functions

- to assist [the] agents with their

of absentee debit agents, spot-check the

sales activities by way of joint

record of debit agents, and insure

fieldwork, consultations and one-on-

proper documentation of sales and

one evaluation and analysis of

collections of debit agents.

particular accounts
Aside from these affidavits however, no other evidence exists regarding the effects
of Tongkos additional roles in Manulifes sales operations on the contractual
relationship between them.
To the dissent, Tongkos administrative functions as recruiter, trainer, or supervisor
of other sales agents constituted a substantive alteration of Manulifes authority
over Tongko and the performance of his end of the relationship with Manulife. We
could not deny though that Tongko remained, first and foremost, an insurance
agent, and that his additional role as Branch Manager did not lessen his main and
dominant role as insurance agent; this role continued to dominate the relations
between Tongko and Manulife even after Tongko assumed his leadership role among
agents. This conclusion cannot be denied because it proceeds from the undisputed
fact that Tongko and Manulife never altered their July 1, 1977 Agreement, a
distinction the present case has with the contractual changes made in the second
Insular Life case. Tongkos results-based commissions, too, attest to the primacy he
gave to his role as insurance sales agent.
The dissent apparently did not also properly analyze and appreciate the great
qualitative difference that exists between:

the Manulife managers role is to coordinate activities of the agents under

the managers Unit in the agents daily, weekly, and monthly selling
activities, making sure that their respective sales targets are met.

the District Managers duty in Grepalife is to properly account, record, and

document the company's funds, spot-check and audit the work of the zone
supervisors, conserve the company's business in the district through
"reinstatements," follow up the submission of weekly remittance reports of
the debit agents and zone supervisors, preserve company property in good

condition, train understudies for the position of district managers, and

maintain his quota of sales (the failure of which is a ground for termination).

the Zone Supervisors (also in Grepalife) has the duty to direct and
supervise the sales activities of the debit agents under him, conserve
company property through "reinstatements," undertake and discharge the
functions of absentee debit agents, spot-check the records of debit agents,
and insure proper documentation of sales and collections by the debit
agents.

These job contents are worlds apart in terms of "control." In Grepalife, the details of
how to do the job are specified and pre-determined; in the present case, the
operative words are the "sales target," the methodology being left undefined except
to the extent of being "coordinative." To be sure, a "coordinative" standard for a
manager cannot be indicative of control; the standard only essentially describes
what a Branch Manager is the person in the lead who orchestrates activities within
the group. To "coordinate," and thereby to lead and to orchestrate, is not so much a
matter of control by Manulife; it is simply a statement of a branch managers role in
relation with his agents from the point of view of Manulife whose business Tongkos
sales group carries.
A disturbing note, with respect to the presented affidavits and Tongkos alleged
administrative functions, is the selective citation of the portions supportive of an
employment relationship and the consequent omission of portions leading to the
contrary conclusion. For example, the following portions of the affidavit of Regional
Sales Manager John Chua, with counterparts in the other affidavits, were not
brought out in the Decision of November 7, 2008, while the other portions
suggesting labor law control were highlighted. Specifically, the following portions of
the affidavits were not brought out:32
1.a. I have no fixed wages or salary since my services are compensated by
way of commissions based on the computed premiums paid in full on the
policies obtained thereat;
1.b. I have no fixed working hours and employ my own method in soliticing
insurance at a time and place I see fit;
1.c. I have my own assistant and messenger who handle my daily work load;

1.d. I use my own facilities, tools, materials and supplies in carrying out my
business of selling insurance;
xxxx
6. I have my own staff that handles the day to day operations of my office;
7. My staff are my own employees and received salaries from me;
xxxx
9. My commission and incentives are all reported to the Bureau of Internal
Revenue (BIR) as income by a self-employed individual or professional with a
ten (10) percent creditable withholding tax. I also remit monthly for
professionals.
These statements, read with the above comparative analysis of the Manulife and
the Grepalife cases, would have readily yielded the conclusion that no employeremployee relationship existed between Manulife and Tongko.
Even de Dios letter is not determinative of control as it indicates the least amount
of intrusion into Tongkos exercise of his role as manager in guiding the sales
agents. Strictly viewed, de Dios directives are merely operational guidelines on how
Tongko could align his operations with Manulifes re-directed goal of being a "big
league player." The method is to expand coverage through the use of more agents.
This requirement for the recruitment of more agents is not a means-and-method
control as it relates, more than anything else, and is directly relevant, to Manulifes
objective of expanded business operations through the use of a bigger sales force
whose members are all on a principal-agent relationship. An important point to note
here is that Tongko was not supervising regular full-time employees of Manulife
engaged in the running of the insurance business; Tongko was effectively guiding
his corps of sales agents, who are bound to Manulife through the same Agreement
that he had with Manulife, all the while sharing in these agents commissions
through his overrides. This is the lead agent concept mentioned above for want of a
more appropriate term, since the title of Branch Manager used by the parties is
really a misnomer given that what is involved is not a specific regular branch of the
company but a corps of non-employed agents, defined in terms of covered territory,
through which the company sells insurance. Still another point to consider is that
Tongko was not even setting policies in the way a regular company manager does;
company aims and objectives were simply relayed to him with suggestions on how

these objectives can be reached through the expansion of a non-employee sales

force.
Interestingly, a large part of de Dios letter focused on income, which Manulife
demonstrated, in Tongkos case, to be unaffected by the new goal and direction the
company had set. Income in insurance agency, of course, is dependent on results,
not on the means and manner of selling a matter for Tongko and his agents to
determine and an area into which Manulife had not waded. Undeniably, de Dios
letter contained a directive to secure a competent assistant at Tongkos own
expense. While couched in terms of a directive, it cannot strictly be understood as
an intrusion into Tongkos method of operating and supervising the group of agents
within his delineated territory. More than anything else, the "directive" was a signal
to Tongko that his results were unsatisfactory, and was a suggestion on how
Tongkos perceived weakness in delivering results could be remedied. It was a
solution, with an eye on results, for a consistently underperforming group; its
obvious intent was to save Tongko from the result that he then failed to grasp that
he could lose even his own status as an agent, as he in fact eventually did.
The present case must be distinguished from the second Insular Life case that
showed the hallmarks of an employer-employee relationship in the management
system established. These were: exclusivity of service, control of assignments and
removal of agents under the private respondents unit, and furnishing of company
facilities and materials as well as capital described as Unit Development Fund. All
these are obviously absent in the present case. If there is a commonality in these
cases, it is in the collection of premiums which is a basic authority that can be
delegated to agents under the Insurance Code.
As previously discussed, what simply happened in Tongkos case was the grant of an
expanded sales agency role that recognized him as leader amongst agents in an
area that Manulife defined. Whether this consequently resulted in the
establishment of an employment relationship can be answered by
concrete evidence that corresponds to the following questions:

as lead agent, what were Tongkos specific functions and the terms of his
additional engagement;

was he paid additional compensation as a so-called Area Sales Manager,

apart from the commissions he received from the insurance sales he
generated;

what can be Manulifes basis to terminate his status as lead agent;

can Manulife terminate his role as lead agent separately from his agency
contract; and

to what extent does Manulife control the means and methods of Tongkos role
as lead agent?

The answers to these questions may, to some extent, be deduced from the
evidence at hand, as partly discussed above. But strictly speaking, the questions
cannot definitively and concretely be answered through the evidence on record. The
concrete evidence required to settle these questions is simply not there, since only
the Agreement and the anecdotal affidavits have been marked and submitted as
evidence.
Given this anemic state of the evidence, particularly on the requisite confluence of
the factors determinative of the existence of employer-employee relationship, the
Court cannot conclusively find that the relationship exists in the present case, even
if such relationship only refers to Tongkos additional functions. While a rough
deduction can be made, the answer will not be fully supported by the substantial
evidence needed.
Under this legal situation, the only conclusion that can be made is that the absence
of evidence showing Manulifes control over Tongkos contractual duties points to
the absence of any employer-employee relationship between Tongko and Manulife.
In the context of the established evidence, Tongko remained an agent all along;
although his subsequent duties made him a lead agent with leadership role, he was
nevertheless only an agent whose basic contract yields no evidence of means-andmanner control.
This conclusion renders unnecessary any further discussion of the question of
whether an agent may simultaneously assume conflicting dual personalities. But to
set the record straight, the concept of a single person having the dual role of agent
and employee while doing the same task is a novel one in our jurisprudence, which
must be viewed with caution especially when it is devoid of any jurisprudential
support or precedent. The quoted portions in Justice Carpio-Morales

dissent,33 borrowed from both the Grepalife and the second Insular Life cases, to
support the duality approach of the Decision of November 7, 2008, are regrettably
far removed from their context i.e., the cases factual situations, the issues they
decided and the totality of the rulings in these cases and cannot yield the
conclusions that the dissenting opinions drew.
The Grepalife case dealt with the sole issue of whether the Ruiz brothers
appointment as zone supervisor and district manager made them employees
of Grepalife. Indeed, because of the presence of the element of control in their
contract of engagements, they were considered Grepalifes employees. This did not
mean, however, that they were simultaneously considered agents as well as
employees of Grepalife; the Courts ruling never implied that this situation existed
insofar as the Ruiz brothers were concerned. The Courts statement the Insurance
Code may govern the licensing requirements and other particular duties of
insurance agents, but it does not bar the application of the Labor Code with regard
to labor standards and labor relations simply means that when an insurance
company has exercised control over its agents so as to make them their employees,
the relationship between the parties, which was otherwise one for agency governed
by the Civil Code and the Insurance Code, will now be governed by the Labor Code.
The reason for this is simple the contract of agency has been transformed into an
employer-employee relationship.
The second Insular Life case, on the other hand, involved the issue of whether the
labor bodies have jurisdiction over an illegal termination dispute involving parties
who had two contracts first, an original contract (agency contract), which was
undoubtedly one for agency, and another subsequent contract that in turn
designated the agent acting unit manager (a management contract). Both the
Insular Life and the labor arbiter were one in the position that both were agency
contracts. The Court disagreed with this conclusion and held that insofar as the
management contract is concerned, the labor arbiter has jurisdiction. It is in this
light that we remanded the case to the labor arbiter for further proceedings. We
never said in this case though that the insurance agent had effectively assumed
dual personalities for the simple reason that the agency contract has been
effectively superseded by the management contract. The management contract
provided that if the appointment was terminated for any reason other than for

cause, the acting unit manager would be reverted to agent status and assigned to
any unit.
The dissent pointed out, as an argument to support its employment relationship
conclusion, that any doubt in the existence of an employer-employee relationship
should be resolved in favor of the existence of the relationship. 34This observation,
apparently drawn from Article 4 of the Labor Code, is misplaced, as Article 4 applies
only when a doubt exists in the "implementation and application" of the Labor Code
and its implementing rules; it does not apply where no doubt exists as in a situation
where the claimant clearly failed to substantiate his claim of employment
relationship by the quantum of evidence the Labor Code requires.
On the dissents last point regarding the lack of jurisprudential value of our
November 7, 2008 Decision, suffice it to state that, as discussed above, the
Decision was not supported by the evidence adduced and was not in accordance
with controlling jurisprudence. It should, therefore, be reconsidered and abandoned,
but not in the manner the dissent suggests as the dissenting opinions are as
factually and as legally erroneous as the Decision under reconsideration.
In light of these conclusions, the sufficiency of Tongkos failure to comply with the
guidelines of de Dios letter, as a ground for termination of Tongkos agency, is a
matter that the labor tribunals cannot rule upon in the absence of an employeremployee relationship. Jurisdiction over the matter belongs to the courts applying
the laws of insurance, agency and contracts.
WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of
November 7, 2008, GRANTManulifes motion for reconsideration and,
accordingly, DISMISS Tongkos petition. No costs.
SO ORDERED.

G.R. No. 167622

January 25, 2011

GREGORIO V. TONGKO, Petitioner,

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A.
VERGEL DE DIOS,Respondents.

RESOLUTION
BRION, J.:
We resolve petitioner Gregorio V. Tongkos bid, through his Motion for
Reconsideration,1 to set aside our June 29, 2010 Resolution that reversed our
Decision of November 7, 2008.2 With the reversal, the assailed June 29, 2010
Resolution effectively affirmed the Court of Appeals ruling 3 in CA-G.R. SP No. 88253
that the petitioner was an insurance agent, not the employee, of the respondent
The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife).
In his Motion for Reconsideration, petitioner reiterates the arguments he had
belabored in his petition and various other submissions. He argues that for 19 years,
he performed administrative functions and exercised supervisory authority over
employees and agents of Manulife, in addition to his insurance agent functions. 4 In
these 19 years, he was designated as a Unit Manager, a Branch Manager and a
Regional Sales Manager, and now posits that he was not only an insurance agent for
Manulife but was its employee as well.
We find no basis or any error to merit the reconsideration of our June 29, 2010
Resolution.
A. Labor Law Control = Employment Relationship
Control over the performance of the task of one providing service both with
respect to the means and manner, and the results of the service is the primary
element in determining whether an employment relationship exists. We resolve the
petitioners Motion against his favor since he failed to show that the control
Manulife exercised over him was the control required to exist in an employeremployee relationship; Manulifes control fell short of this norm and carried only the
characteristic of the relationship between an insurance company and its agents, as
defined by the Insurance Code and by the law of agency under the Civil Code.
The petitioner asserts in his Motion that Manulifes labor law control over him was
demonstrated (1) when it set the objectives and sales targets regarding production,
recruitment and training programs; and (2) when it prescribed the Code of Conduct
for Agents and the Manulife Financial Code of Conduct to govern his activities. 5We
find no merit in these contentions.
In our June 29, 2010 Resolution, we noted that there are built-in elements of control
specific to an insurance agency, which do not amount to the elements of control

that characterize an employment relationship governed by the Labor Code. The

Insurance Code provides definite parameters in the way an agent negotiates for the
sale of the companys insurance products, his collection activities and his delivery of
the insurance contract or policy. 6In addition, the Civil Code defines an agent as a
person who binds himself to do something in behalf of another, with the consent or
authority of the latter.7 Article 1887 of the Civil Code also provides that in the
execution of the agency, the agent shall act in accordance with the instructions of
the principal.
All these, read without any clear understanding of fine legal distinctions, appear to
speak of control by the insurance company over its agents. They are, however,
controls aimed only at specific results in undertaking an insurance agency, and are,
in fact, parameters set by law in defining an insurance agency and the attendant
duties and responsibilities an insurance agent must observe and undertake. They do
not reach the level of control into the means and manner of doing an assigned task
that invariably characterizes an employment relationship as defined by labor law.
From this perspective, the petitioners contentions cannot prevail.
To reiterate, guidelines indicative of labor law "control" do not merely relate to the
mutually desirable result intended by the contractual relationship; they must have
the nature of dictating the means and methods to be employed in attaining the
result.8 Tested by this norm, Manulifes instructions regarding the objectives and
sales targets, in connection with the training and engagement of other agents, are
among the directives that the principal may impose on the agent to achieve the
assigned tasks. They are targeted results that Manulife wishes to attain through its
agents. Manulifes codes of conduct, likewise, do not necessarily intrude into the
insurance agents means and manner of conducting their sales. Codes of conduct
are norms or standards of behavior rather than employer directives into how
specific tasks are to be done. These codes, as well as insurance industry rules and
regulations, are not per se indicative of labor law control under our jurisprudence. 9
The duties10 that the petitioner enumerated in his Motion are not supported by
evidence and, therefore, deserve scant consideration. Even assuming their
existence, however, they mostly pertain to the duties of an insurance agent such as
remitting insurance fees to Manulife, delivering policies to the insured, and aftersale services. For agents leading other agents, these include the task of overseeing

other insurance agents, the recruitment of other insurance agents engaged by

Manulife as principal, and ensuring that these other agents comply with the
paperwork necessary in selling insurance. That Manulife exercises the power to
assign and remove agents under the petitioners supervision is in keeping with its
role as a principal in an agency relationship; they are Manulife agents in the same
manner that the petitioner had all along been a Manulife agent.
The petitioner also questions Manulifes act of investing him with different titles and
positions in the course of their relationship, given the respondents position that he
simply functioned as an insurance agent. 11 He also considers it an unjust and
inequitable situation that he would be unrewarded for the years he spent as a unit
manager, a branch manager, and a regional sales manager. 12
Based on the evidence on record, the petitioners occupation was to sell Manulifes
insurance policies and products from 1977 until the termination of the Career
Agents Agreement (Agreement). The evidence also shows that through the years,
Manulife permitted him to exercise guiding authority over other agents who operate
under their own agency agreements with Manulife and whose commissions he
shared.13 Under this scheme an arrangement that pervades the insurance industry
petitioner in effect became a "lead agent" and his own commissions increased as
they included his share in the commissions of the other agents; 14 he also received
greater reimbursements for expenses and was allowed to use Manulifes facilities.
His designation also changed from unit manager to branch manager and then to
regional sales manager, to reflect the increase in the number of agents he recruited
and guided, as well as the increase in the area where these agents operated.
As our assailed Resolution concluded and as we now similarly conclude, these
arrangements, and the titles and positions the petitioner was invested with, did not
change his status from the insurance agent that he had always been (as evidenced
by the Agreement that governed his relationship with Manulife from the start to its
disagreeable end). The petitioner simply progressed from his individual agency to
being a lead agent who could use other agents in selling insurance and share in the
earnings of these other agents.
In sum, we find absolutely no evidence of labor law control, as extensively
discussed in our Resolution of June 29, 2010, granting Manulifes motion for
reconsideration. The Dissent, unfortunately, misses this point.

B. No Resulting Inequity
We also do not agree that our assailed Resolution has the effect of fostering an
inequitable or unjust situation. The records show that the petitioner was very amply
paid for his services as an insurance agent, who also shared in the commissions of
the other agents under his guidance. In 1997, his income was P2,822,620; in
1998,P4,805,166.34; in 1999, P6,797,814.05; in 2001, P6,214,737.11; and in
2002, P8,003,180.38. All these he earned as an insurance agent, as he failed to
ever prove that he earned these sums as an employee. In technical terms, he could
not have earned all these as an employee because he failed to provide the
substantial evidence required in administrative cases to support the finding that he
was a Manulife employee. No inequity results under this legal situation; what would
be unjust is an award of backwages and separation pay amounts that are not due
him because he was never an employee.
The Dissents discussion on this aspect of the case begins with the wide disparity in
the status of the parties that Manulife is a big Canadian insurance company while
Tongko is but a single agent of Manulife. The Dissent then went on to say that "[i]f is
but just, it is but right, that the Court interprets the relationship between Tongko
and Manulife as one of employment under labor laws and to uphold his
constitutionally protected right, as an employee, to security of tenure and
entitlement to monetary award should such right be infringed." 15 We cannot simply
invoke the magical formula by creating an employment relationship even when
there is none because of the unavoidable and inherently weak position of an
individual over a giant corporation.
The Dissent likewise alluded to an ambiguity in the true relationship of the parties
after Tongkos successive appointments. We already pointed out that the legal
significance of these appointments had not been sufficiently explained and that it
did not help that Tongko never bothered to present evidence on this point. The
Dissent recognized this but tried to excuse Tongko from this failure in the
subsequent discussion, as follows:
[o]ther evidence was adduced to show such duties and responsibilities. For one, in
his letter of November 6, 2001, respondent De Dios addressed petitioner as sales
manager. And as I wrote in my Dissent to the June 29, 2010 Resolution, it is difficult
to imagine that Manulife did not issue promotional appointments to petitioner as

unit manager, branch manager, and, eventually, regional sales manager. Sound
management practice simply requires an appointment for any upward personnel
movement, particularly when additional functions and the corresponding increase in
compensation are involved. Then, too, the adverted affidavits of the managers of
Manulife as to the duties and responsibilities of a unit manager, such as petitioner,
point to the conclusion that these managers were employees of Manulife, applying
the "four-fold" test.16
This Court (and all adjudicators for that matter) cannot and should not fill in the
evidentiary gaps in a partys case that the party failed to support; we cannot and
should not take the cudgels for any party. Tongko failed to support his cause and we
should simply view him and his case as they are; our duty is to sit as a judge in the
case that he and the respondent presented.
To support its arguments on equity, the Dissent uses the Constitution and the Civil
Code, using provisions and principles that are all motherhood statements. The
mandate of the Court, of course, is to decide cases based on the facts and the law,
and not to base its conclusions on fundamental precepts that are far removed from
the particular case presented before it. When there is no room for their application,
of capacity of principles, reliance on the application of these fundamental principles
is misplaced.
C. Earnings were Commissions
That his earnings were agents commissions arising from his work as an insurance
agent is a matter that the petitioner cannot deny, as these are the declarations and
representations he stated in his income tax returns through the years. It would be
doubly unjust, particularly to the government, if he would be allowed at this late
point to turn around and successfully claim that he was merely an employee after
he declared himself, through the years, as an independent self-employed insurance
agent with the privilege of deducting business expenses. This aspect of the case
alone considered together with the probative value of income tax declarations and
returns filed prior to the present controversy should be enough to clinch the
present case against the petitioners favor.
D. The Dissents Solution:
Unwieldy and Legally Infirm

The Dissent proposes that Tongko should be considered as part employee (as
manager) and part insurance agent; hence, the original decision should be modified
to pertain only to the termination of his employment as a manager and not as an
insurance agent. Accordingly, the backwages component of the original award to
him should not include the insurance sales commissions. This solution, according to
the line taken by the Dissent then, was justified on the view that this was made on a
case-to-case basis.
Decisions of the Supreme Court, as the Civil Code provides, form part of the law of
the land. When the Court states that the determination of the existence of an
employment relationship should be on a case-to-case basis, this does not mean that
there will be as many laws on the issue as there are cases. In the context of this
case, the four-fold test is the established standard for determining employeremployee relationship and the existence of these elements, most notably control, is
the basis upon which a conclusion on the absence of employment relationship was
anchored. This simply means that a conclusion on whether employment relationship
exists in a particular case largely depends on the facts and, in no small measure, on
the parties evidence vis--vis the clearly defined jurisprudential standards. Given
that the parties control what and how the facts will be established in a particular
case and/or how a particular suit is to be litigated, deciding the issues on a case-tocase basis becomes an imperative.
Another legal reality, a more important one, is that the duty of a court is to say what
the law is.17 This is the same duty of the Supreme Court that underlies the stare
decisis principle. This is how the public, in general and the insurance industry in
particular, views the role of this Court and courts in general in deciding cases. The
lower courts and the bar, most specially, look up to the rulings of this Court for
guidance. Unless extremely unavoidable, the Court must, as a matter of sound
judicial policy, resist the temptation of branding its ruling pro hac vice.
The compromise solution of declaring Tongko both an employee and an agent is
legally unrealistic, unwieldy and is, in fact, legally infirm, as it goes against the
above basic principles of judicial operation. Likewise, it does not and cannot
realistically solve the problem/issue in this case; it actually leaves more questions
than answers.

As already pointed out, there is no legal basis (be it statutory or jurisprudential) for
the part-employee/part-insurance agent status under an essentially principal-agent
contractual relation which the Dissent proposes to accord to Tongko. If the Dissent
intends to establish one, this is highly objectionable for this would amount to judicial
legislation. A legal relationship, be it one of employment or one based on a contract
other than employment, exists as a matter of law pursuant to the facts, incidents
and legal consequences of the relationship; it cannot exist devoid of these legally
defined underlying facts and legal consequences unless the law itself creates the
relationship an act that is beyond the authority of this Court to do.
Additionally, the Dissents conclusion completely ignores an unavoidable legal
reality that the parties are bound by a contract of agency that clearly subsists
notwithstanding the successive designation of Tongko as a unit manager, a branch
manager and a regional sales manager. (As already explained in our Resolution
granting Manulifes motion for reconsideration, no evidence on record exists to
provide the Court with clues as to the precise impact of all these designations on
the contractual agency relationship.) The Dissent, it must be pointed out, concludes
that Tongkos employment as manager was illegally terminated; thus, he should be
accordingly afforded relief therefor. But, can Tongko be given the remedies
incidental to his dismissal as manager separately from his status as an insurance
agent? In other words, since the respondents terminated all relationships with
Tongko through the termination letter, can we simply rule that his role as a manager
was illegally terminated without touching on the consequences of this ruling on his
status as an insurance agent? Expressed in these terms, the inseparability of his
contract as agent with any other relationship that springs therefrom can thus be
seen as an insurmountable legal obstacle.
The Dissents compromise approach would also sanction split jurisdiction. The labor
tribunals shall have jurisdiction over Tongkos employment as manager while
another entity shall decide the issues/cases arising from the agency relationship. If
the managerial employment is anchored on the agency, how will the labor tribunals
decide an issue that is inextricably linked with a relationship that is outside the loop
of their jurisdiction? As already mentioned in the Resolution granting Manulifes
reconsideration, the DOMINANT relationship in this case is agency and no other.
E. The Dissents Cited Cases

The Dissent cites the cases of Great Pacific Life Assurance Corporation v. National
Labor Relations Commission18 and Insular Life Assurance Co., Ltd. v. National Labor
Relations Commission19 to support the allegation that Manulife exercised control
over the petitioner as an employer.
In considering these rulings, a reality that cannot but be recognized is that cases
turn and are decided on the basis of their own unique facts; the ruling in one case
cannot simply be bodily lifted and applied to another, particularly when notable
differences exist between the cited cases and the case under consideration; their
respective facts must be strictly examined to ensure that the ruling in one applies to
another. This is particularly true in a comparison of the cited cases with the present
case. Specifically, care should be taken in reading the cited cases and applying their
rulings to the present case as the cited cases all dealt with the proper legal
characterization of subsequent management contracts that superseded the original
agency contract between the insurance company and the agent.
In Great Pacific Life, the Ruiz brothers were appointed to positions different from
their original positions as insurance agents, whose duties were clearly defined in a
subsequent contract. Similarly, in Insular, de los Reyes, a former insurance agent,
was appointed as acting unit manager based on a subsequent contract. In both
cases, the Court anchored its findings of labor control on the stipulations of these
subsequent contracts.
In contrast, the present case is remarkable for the absence of evidence of any
change in the nature of the petitioners employment with Manulife. As previously
stated above and in our assailed Resolution, the petitioner had always been
governed by the Agreement from the start until the end of his relationship with
Manulife. His agency status never changed except to the extent of being a lead
agent. Thus, the cited cases where changes in company-agent relationship
expressly changed and where the subsequent contracts were the ones passed upon
by the Court cannot be totally relied upon as authoritative.
We cannot give credit as well to the petitioners claim of employment based on the
affidavits executed by other Manulife agents describing their duties, because these
same affidavits only affirm their status as independent agents, not as employees. To
quote these various claims:20

1.a. I have no fixed wages or salary since my services are compensated by

way of commissions based on the computed premiums paid in full on the
policies obtained thereat;
1.b. I have no fixed working hours and employ my own method in soliciting
insurance at a time and place I see fit;
1.c. I have my own assistant and messenger who handle my daily work load;
1.d. I use my own facilities, tools, materials and supplies in carrying out my
business of selling insurance;
xxxx
6. I have my own staff that handles day to day operations of my office;
7. My staff are my own employees and received salaries from me;
xxxx
9. My commission and incentives are all reported to the Bureau of Internal Revenue
(BIR) as income by a self-employed individual or professional with a ten (10) percent
creditable withholding tax. I also remit monthly for professionals.
The petitioner cannot also rely on the letter written by respondent Renato Vergel de
Dios to prove that Manulife exercised control over him. As we already explained in
the assailed Resolution:
Even de Dios letter is not determinative of control as it indicates the least amount
of intrusion into Tongkos exercise of his role as manager in guiding the sales
agents. Strictly viewed, de Dios directives are merely operational guidelines on how
Tongko could align his operations with Manulifes re-directed goal of being a "big
league player." The method is to expand coverage through the use of more agents.
This requirement for the recruitment of more agents is not a means-and-method
control as it relates, more than anything else, and is directly relevant, to Manulifes
objective of expanded business operations through the use of a bigger sales force
whose members are all on a principal-agent relationship. An important point to note
here is that Tongko was not supervising regular full-time employees of Manulife
engaged in the running of the insurance business; Tongko was effectively guiding
his corps of sales agents, who are bound to Manulife through the same agreement
that he had with manulife, all the while sharing in these agents commissions
through his overrides.21

Lastly, in assailing the Agreement between him and Manulife, the petitioner cites
Paguio v. National Labor Relations Commission22 on the claim that the agreement
that the parties signed did not conclusively indicate the legal relationship between
them.
The evidentiary situation in the present case, however, shows that despite the
petitioners insistence that the Agreement was no longer binding between him and
Manulife, no evidence was ever adduced to show that their relationship changed so
that Manulife at some point controlled the means and method of the petitioners
work. In fact, his evidence only further supports the conclusion that he remained an
independent insurance agent a status he admits, subject only to the qualification
that he is at the same time an employee. Thus, we can only conclude that the
Agreement governed his relations with Manulife.
Additionally, it is not lost on us that Paguio is a ruling based on a different factual
setting; it involves a publishing firm and an account executive, whose repeated
engagement was considered as an indication of employment. Our ruling in the
present case is specific to the insurance industry, where the law permits an
insurance company to exercise control over its agents within the limits prescribed
by law, and to engage independent agents for several transactions and within an
unlimited period of time without the relationship amounting to employment. In light
of these realities, the petitioners arguments on his last argument must also fail.
The dissent also erroneously cites eight other cases Social Security System v.
Court of Appeals,23Cosmopolitan Funeral Homes, Inc. v. Maalat,24 Algon Engineering
Construction Corporation v. National Labor Relations Commission, 25 Equitable
Banking Corporation v. National Labor Relations Commission, 26 Lazaro v. Social
Security Commission,27 Dealco Farms, Inc. v. National Labor Relations
Commission,28 South Davao Development Company, Inc. v. Gamo, 29 and Abante, Jr.
v. Lamadrid Bearing & Parts Corporation.30 The dissent cited these cases to support
its allegation that labor laws and jurisprudence should be applied in cases, to the
exclusion of other laws such as the Civil Code or the Insurance Code, even when the
latter are also applicable.
In Social Security System, Cosmopolitan Funeral Homes, Dealco Farms, and South
Davao Development, the issue that repeats itself is whether complainants were
employees or independent contractors; the legal relationships involved are both

labor law concepts and make no reference to the Civil Code (or even the Insurance
Code). The provisions cited in the Dissent Articles 1458-1637 of the Civil
Code31 and Articles 1713-1720 of the Civil Code

32

do not even appear in the

decisions cited.
In Algon, the issue was whether the lease contract should dictate the legal
relationship between the parties, when there was proof of an employer-employee
relationship. In the cited case, the lease provisions on termination were thus
considered irrelevant because of a substantial evidence of an employment
relationship. The cited case lacks the complexity of the present case; Civil Code
provisions on lease do not prescribe that lessees exercise control over their lessors
in the way that the Insurance Code and the Civil provide that insurance companies
and principals exercised control over their agents.
The issue in Equitable, on the other hand, is whether a lawyer-client relationship or
an employment relationship governs the legal relation between parties. Again, this
case is inapplicable as it does not illustrate the predominance of labor laws and
jurisprudence over other laws, in general, and the Insurance Code and Civil Code, in
particular. It merely weighed the evidence in favor of an employment relationship
over that of a lawyer-client relationship. Similarly in Lazaro, the Court found ample
proof of control determinative of an employer-employee relationship.1wphi1 Both
cases are not applicable to the present case, which is attended by totally different
factual considerations as the petitioner had not offered any evidence of the
companys control in the means and manner of the performance of his work.
On the other hand, we find it strange that the dissent cites Abante as a precedent,
since the Court, in this case, held that an employee-employer relationship is notably
absent in this case as the complainant was a sales agent. This case better supports
the majoritys position that a sales agent, who fails to show control in the concept of
labor law, cannot be considered an employee, even if the company exercised
control in the concept of a sales agent.33
It bears stressing that our ruling in this case is not about which law has primacy
over the other, but that we should be able to reconcile these laws. We are merely
saying that where the law makes it mandatory for a company to exercise control
over its agents, the complainant in an illegal dismissal case cannot rely on these
legally prescribed control devices as indicators of an employer-employee

relationship. As shown in our discussion, our consideration of the Insurance Code

and Civil Code provisions does not negate the application of labor laws and
jurisprudence; ultimately, we dismissed the petition because of its failure to comply
with the control test.
WHEREFORE, premises considered, we hereby DENY the Motion for Reconsideration
WITH FINALITY for lack of merit. No further pleadings shall be entertained. Let entry
of judgment proceed in due course.
SO ORDERED.

G.R. No. 80774 May 31, 1988

SAN MIGUEL CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and RUSTICO
VEGA, respondents.
Siguion Reyna, Montecillo & Ongsiako Law Offices for petitioner.
The Solicitor General for public respondent.

FELICIANO, J.:
In line with an Innovation Program sponsored by petitioner San Miguel Corporation
("Corporation;" "SMC") and under which management undertook to grant cash
awards to "all SMC employees ... except [ED-HO staff, Division Managers and higherranked personnel" who submit to the Corporation Ideas and suggestions found to be
beneficial to the Corporation, private respondent Rustico Vega submitted on 23
September 1980 an innovation proposal. Mr. Vega's proposal was entitled "Modified
Grande Pasteurization Process," and was supposed to eliminate certain alleged
defects in the quality and taste of the product "San Miguel Beer Grande:"
Title of Proposal
Modified Grande Pasteurization Process
Present Condition or Procedure
At the early stage of beer grande production, several cases of beer
grande full goods were received by MB as returned beer fulls (RBF).

The RBF's were found to have sediments and their contents were hazy.
These effects are usually caused by underpasteurization time and the
pasteurzation units for beer grande were almost similar to those of the
steinie.
Proposed lnnovation (Attach necessary information)
In order to minimize if not elienate underpasteurization of beer grande,
reduce the speed of the beer grande pasteurizer thereby, increasing
the pasteurization time and the pasteurization acts for grande beer. In
this way, the self-life (sic) of beer grande will also be increased.

Mr. Vega at that time had been in the employ of petitioner Corporation for thirteen
(1 3) years and was then holding the position of "mechanic in the Bottling
Department of the SMC Plant Brewery situated in Tipolo, Mandaue City.
Petitioner Corporation, however, did not find the aforequoted proposal acceptable
and consequently refused Mr. Vega's subsequent demands for a cash award under
the Innovation Program. On 22 February 1983., a Complaint

(docketed as Case No.

RAB-VII-0170-83) was filed against petitioner Corporation with Regional Arbitration

Branch No. VII (Cebu City) of the then.", Ministry of Labor and Employment. Frivate
respondent Vega alleged there that his proposal "[had] been accepted by the
methods analyst and implemented by the Corporation [in] October 1980," and that
the same "ultimately and finally solved the problem of the Corporation in the
production of Beer Grande." Private respondent thus claimed entitlement to a cash
prize of P60,000.00 (the maximum award per proposal offered under the Innovation
Program) and attorney's fees.
In an Answer With Counterclaim and Position Paper,

petitioner Corporation alleged

that private respondent had no cause of action. It denied ever having approved or
adopted Mr. Vega's proposal as part of the Corporation's brewing procedure in the
production of San Miguel Beer Grande. Among other things, petitioner stated that
Mr. Vega's proposal was tumed down by the company "for lack of originality" and
that the same, "even if implemented [could not] achieve the desired result."
Petitioner further alleged that the Labor Arbiter had no jurisdiction, Mr. Vega having
improperly bypassed the grievance machinery procedure prescribed under a then
existing collective bargaining agreement between management and employees,
and available administrative remedies provided under the rules of the Innovation

Program. A counterclaim for moral and exemplary damages, attorney's fees, and
litigation expenses closed out petitioner's pleading.
In an Order

dated 30 April 1986, the Labor Arbiter, noting that the money claim of

complainant Vega in this case is "not a necessary incident of his employment" and
that said claim is not among those mentioned in Article 217 of the Labor Code,
dismissed the complaint for lack of jurisdiction. However, in a gesture of
"compassion and to show the government's concern for the workingman," the Labor
Arbiter also directed petitioner to pay Mr. Vega the sum of P2,000.00 as "financial
assistance."
The Labor Arbiter's order was subsequently appealed by both parties, private
respondent Vega assailing the dismissal of his complaint for lack of jurisdiction and
petitioner Corporation questioning the propriety of the award of "financial
assistance" to Mr. Vega. Acting on the appeals, the public respondent National Labor
Relations Commission, on 4 September 1987, rendered a Decision,

the dispositive

portion of which reads:

WHEREFORE, the appealed Order is hereby set aside and another
udgment entered, order the respondent to pay the complainant the
amount of P60,000.00 as explained above.
SO ORDERED.
In the present Petition for certiorari filed on 4 December 1987, petitioner
Corporation, invoking Article 217 of the Labor Code, seeks to annul the Decision of
public respondent Commission in Case No. RAB-VII-01 70-83 upon the ground that
the Labor Arbiter and the Commission have no jurisdiction over the subject matter
of the case.
The jurisdiction of Labor Arbiters and the National Labor Relations Commission is
outlined in Article 217 of the Labor Code, as last amended by Batas Pambansa Blg.
227 which took effect on 1 June 1982:
ART. 217. Jurisdiction of Labor Arbiters and the commission. (a) The
Labor Arbiters shall have theoriginal and exclusive jurisdiction to hear
and decide within thirty (30) working days after submission of the case
by the parties for decision, the following cases involving are workers,
whether agricultural or non-agricultural:
1. Unfair labor practice cases;

2. Those that workers may file involving wages, hours of

work and other terms and conditions of employment;
3. All money claims of workers, including those based on
non-payment or underpayment of wages, overtime
compensation, separation pay and other benefits
provided by law or appropriate agreement, except claims
for employees' compensation, social security, medicare
and maternity benefits;
4. Cases involving household services; and
5. Cases arising from any violation of Article 265 of this;
Code, including questions involving the legality of strikes
and lockouts.
(b) The Commission shall have exclusive appellate jurisdiction over all
cases decided by Labor Arbiters. (Emphasis supplied)
While paragraph 3 above refers to "all money claims of workers," it is not necessary
to suppose that the entire universe of money claims that might be asserted by
workers against their employers has been absorbed into the original and exclusive
jurisdiction of Labor Arbiters. In the first place, paragraph 3 should be read not in
isolation from but rather within the context formed by paragraph 1 related to unfair
labor practices), paragraph 2 (relating to claims concerning terms and conditions of
employment), paragraph 4 (claims relating to household services, a particular
species of employer-employee relations), and paragraph 5 (relating to certain
activities prohibited to employees or to employers).<re||an1w> It is evident
that there is a unifying element which runs through paragraphs 1 to 5 and that is,
that they all refer to cases or disputes arising out of or in connection with an
employer-employee relationship. This is, in other words, a situation where the rule
of noscitur a sociis may be usefully invoked in clarifying the scope of paragraph 3,
and any other paragraph of Article 217 of the Labor Code, as amended. We reach
the above conclusion from an examination of the terms themselves of Article 217,
as last amended by B.P. Blg. 227, and even though earlier versions of Article 217 of
the Labor Code expressly brought within the jurisdiction of the Labor Arbiters and
the NLRC "cases arising from employer employee relations,"

which clause was not

expressly carried over, in printer's ink, in Article 217 as it exists today. For it cannot

be presumed that money claims of workers which do not arise out of or in

connection with their employer-employee relationship, and which would therefore
fall within the general jurisdiction of the regular courts of justice, were intended by
the legislative authority to be taken away from the jurisdiction of the courts and
lodged with Labor Arbiters on an exclusive basis. The Court, therefore, believes and
so holds that the money claims of workers" referred to in paragraph 3 of Article 217
embraces money claims which arise out of or in connection with the employeremployee relationship, or some aspect or incident of such relationship. Put a little
differently, that money claims of workers which now fall within the original and
exclusive jurisdiction of Labor Arbiters are those money claims which have some
reasonable causal connection with the employer-employee relationship.
Applying the foregoing reading to the present case, we note that petitioner's
Innovation Program is an employee incentive scheme offered and open only to
employees of petitioner Corporation, more specifically to employees below the rank
of manager. Without the existing employer-employee relationship between the
parties here, there would have been no occasion to consider the petitioner's
Innovation Program or the submission by Mr. Vega of his proposal concerning beer
grande; without that relationship, private respondent Vega's suit against petitioner
Corporation would never have arisen. The money claim of private respondent Vega
in this case, therefore, arose out of or in connection with his employment
relationship with petitioner.
The next issue that must logically be confronted is whether the fact that the money
claim of private respondent Vega arose out of or in connection with his employment
relation" with petitioner Corporation, is enough to bring such money claim within
the original and exclusive jurisdiction of Labor Arbiters.
In Molave Motor Sales, Inc. v. Laron,

the petitioner was a corporation engaged in

the sale and repair of motor vehicles, while private respondent was the sales
Manager of petitioner. Petitioner had sued private respondent for non-payment of
accounts which had arisen from private respondent's own purchases of vehicles and
parts, repair jobs on cars personally owned by him, and cash advances from the
corporation. At the pre-trial in the lower court, private respondent raised the
question of lack of jurisdiction of the court, stating that because petitioner's
complaint arose out of the employer-employee relationship, it fell outside the

jurisdiction of the court and consequently should be dismissed. Respondent Judge

did dismiss the case, holding that the sum of money and damages sued for by the
employer arose from the employer-employee relationship and, hence, fell within the
jurisdiction of the Labor Arbiter and the NLRC. In reversing the order of dismissal
and requiring respondent Judge to take cognizance of the case below, this Court,
speaking through Mme. Justice Melencio-Herrera, said:
Before the enactment of BP Blg. 227 on June 1, 1982, Labor Arbiters,
under paragraph 5 of Article 217 of the Labor Code had jurisdiction
over" all other cases arising from employer-employee relation, unless,
expressly excluded by this Code." Even then, the principle followed by
this Court was that, although a controversy is between an employer
and an employee, the Labor Arbiters have no jurisdiction if the Labor
Code is not involved. In Medina vs. Castro-Bartolome, 11 SCRA 597,
604, in negating jurisdiction of the Labor Arbiter, although the parties
were an employer and two employees, Mr. Justice Abad Santos stated:
The pivotal question to Our mind is whether or not the
Labor Code has any relevance to the reliefs sought by the
plaintiffs. For if the Labor Code has no relevance, any
discussion concerning the statutes amending it and
whether or not they have retroactive effect is
unnecessary.
It is obvious from the complaint that the plaintiffs have
not alleged any unfair labor practice. Theirs is a simple
action for damages for tortious acts allegedly committed
by the defendants. Such being the case, the governing
statute is the Civil Code and not the Labor Code. It results
that the orders under review are based on a wrong
premise.
And in Singapore Airlines Limited v. Pao, 122 SCRA 671, 677, the
following was said:
Stated differently, petitioner seeks protection under the
civil laws and claims no benefits under the Labor Code.
The primary relief sought is for liquidated damages for

breach of a contractual obligation. The other items

demanded are not labor benefits demanded by workers
generally taken cognizance of in labor disputes, such as
payment of wages, overtime compensation or separation
pay. The items claimed are the natural consequences
flowing from breach of an obligation, intrinsically a civil
dispute.
In the case below, PLAINTIFF had sued for monies loaned to
DEFENDANT, the cost of repair jobs made on his personal cars, and for
the purchase price of vehicles and parts sold to him. Those accounts
have no relevance to the Labor Code. The cause of action was one
under the civil laws, and it does not breach any provision of the Labor
Code or the contract of employment of DEFENDANT. Hence the civil
courts, not the Labor Arbiters and the NLRC should have jurisdiction.

It seems worth noting that Medina v. Castro-Bartolome, referred to in the above

excerpt, involved a claim for damages by two (2) employees against the employer
company and the General Manager thereof, arising from the use of slanderous
language on the occasion when the General Manager fired the two (2) employees
(the Plant General Manager and the Plant Comptroller). The Court treated the claim
for damages as "a simple action for damages for tortious acts" allegedly committed
by private respondents, clearly if impliedly suggesting that the claim for damages
did not necessarily arise out of or in connection with the employer-employee
relationship.Singapore Airlines Limited v. Pao, also cited in Molave, involved a
claim for liquidated damages not by a worker but by the employer company,
unlike Medina. The important principle that runs through these three (3) cases is
that where the claim to the principal relief sought

is to be resolved not by

reference to the Labor Code or other labor relations statute or a collective

bargaining agreement but by the general civil law, the jurisdiction over the dispute
belongs to the regular courts of justice and not to the Labor Arbiter and the NLRC. In
such situations, resolution of the dispute requires expertise, not in labor
management relations nor in wage structures and other terms and conditions of
employment, but rather in the application of the general civil law. Clearly, such
claims fall outside the area of competence or expertise ordinarily ascribed to Labor

Arbiters and the NLRC and the rationale for granting jurisdiction over such claims to
these agencies disappears.
Applying the foregoing to the instant case, the Court notes that the SMC Innovation
Program was essentially an invitation from petitioner Corporation to its employees
to submit innovation proposals, and that petitioner Corporation undertook to grant
cash awards to employees who accept such invitation and whose innovation
suggestions, in the judgment of the Corporation's officials, satisfied the standards
and requirements of the Innovation Program

10

and which, therefore, could be

translated into some substantial benefit to the Corporation. Such undertaking,

though unilateral in origin, could nonetheless ripen into an enforceable contractual
(facio ut des)

11

obligation on the part of petitioner Corporation under certain

circumstances. Thus, whether or not an enforceable contract, albeit implied arid

innominate, had arisen between petitioner Corporation and private respondent Vega
in the circumstances of this case, and if so, whether or not it had been breached,
are preeminently legal questions, questions not to be resolved by referring to labor
legislation and having nothing to do with wages or other terms and conditions of
employment, but rather having recourse to our law on contracts.
WEREFORE, the Petition for certiorari is GRANTED. The decision dated 4 September
1987 of public respondent National Labor Relations Commission is SET ASIDE and
the complaint in Case No. RAB-VII-0170-83 is hereby DISMISSED, without prejudice
to the right of private respondent Vega to file a suit before the proper court, if he so
desires. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-59825 September 11, 1982

ERNESTO MEDINA and JOSE G. ONG, petitioners,
vs.
HON. FLORELIANA CASTRO-BARTOLOME in her capacity as Presiding Judge
of the Court of First Instance Cf Rizal, Branch XV, Makati, Metro Manila,
COSME DE ABOITIZ and PEPSI-COLA BOTTLING COMPANY OF THE
PHILIPPINES, INC., respondents.

ABAD SANTOS, J.:

Civil Case No. 33150 of the Court of First Instance of Rizal Branch XV, was filed in
May, 1979, by Ernesto Medina and Jose G. Ong against Cosme de Aboitiz and PepsiCola Bottling Co. of the Philippines, Inc. Medina was the former Plant General
Manager and Ong was the former Plant Comptroller of the company. Among the
averments in the complaint are the following:
3. That on or about 1:00 o'clock in the afternoon of December 20,
1977, defendant Cosme de Aboitiz, acting in his capacity as President
and Chief Executive Officer of the defendant Pepsi-Cola Bottling
Company of the Philippines, Inc., went to the Pepsi-Cola Plant in
Muntinlupa, Metro Manila, and without any provocation, shouted and
maliciously humiliated the plaintiffs with the use of the following
slanderous language and other words of similar import uttered in the
presence of the plaintiffs' subordinate employees, thusGOD DAMN IT. YOU FUCKED ME UP ... YOU SHUT UP! FUCK YOU! YOU
ARE BOTH SHIT TO ME! YOU ARE FIRED (referring to Ernesto Medina).
YOU TOO ARE FIRED! '(referring to Jose Ong )
4. That on January 9, 1978, the herein plaintiffs filed a joint criminal
complaint for oral defamation against the defendant Cosme de Aboitiz
duly supported with respective affidavits and corroborated by the
affidavits of two (2) witnesses: Isagani Hernandez and Jose Ganseco II,
but after conducting a preliminary investigation, Hon. Jose B. Castillo,
dismissed the complaint allegedly because the expression "Fuck you
and "You are both shit to me" were uttered not to slander but to
express anger and displeasure;
5. That on February 8, 1978, plaintiffs filed a Petition for Review with
the office of the Secretary of Justice (now Ministry of Justice) and on
June 13, 1978, the Deputy Minister of Justice, Catalino Macaraig, Jr.,
issued a resolution sustaining the plaintiff's complaint, reversing the
resolution of the Provincial Fiscal and directing him to file against
defendant Cosme de Aboitiz an information for Grave Slander. ... ;
6. That the employment records of plaintiffs show their track
performance and impeccable qualifications, not to mention their long

years of service to the Company which undoubtedly caused their

promotion to the two highest positions in Muntinlupa Plant having
about 700 employees under them with Ernesto Medina as the Plant
General Manager receiving a monthly salary of P6,600.00 excluding
other perquisites accorded only to top executives and having under his
direct supervision other professionals like himself, including the
plaintiff Jose G. Ong, who was the Plant Comptroller with a basic
monthly salary of P4,855.00;
7. That far from taking these matters into consideration, the defendant
corporation, acting through its President, Cosme de Aboitiz, dismissed
and slandered the plaintiffs in the presence of their subordinate
employees although this could have been done in private;
8. That the defendants have evidently enjoyed the act of dismissing
the plaintiffs and such dismissal was planned to make it as humiliating
as possible because instead of allowing a lesser official like the
Regional Vice President to take whatever action was necessary under
the circumstances, Cosme de Aboitiz himself went to the Muntinlupa
Plant in order to publicly upbraid and dismiss the plaintiffs;
9. That the defendants dismissed the plaintiffs because of an alleged
delay in the use of promotional crowns when such delay was true with
respect to the other Plants, which is therefore demonstrative of the
fact that Cosme de Aboitiz did not really have a strong reason for
publicly humiliating the plaintiffs by dismissing them on the spot;
10. That the defendants were moved by evil motives and an anti-social
attitude in dismissing the plaintiffs because the dismissal was effected
on the very day that plaintiffs were awarded rings of loyalty to the
Company, five days before Christmas and on the day when the
employees' Christmas party was held in the Muntinlupa Plant, so that
when plaintiffs went home that day and found their wives and children
already dressed up for the party, they didn't know what to do and so
they cried unashamedly;
xxx xxx xxx

20. That because of the anti-social manner by which the plaintiffs were
dismissed from their employment and the embarrassment and
degradation they experience in the hands of the defendants, the
plaintiffs have suffered and will continue to suffer wounded feelings,
sleepless nights, mental torture, besmirched reputation and other
similar injuries, for which the sum of P150,000.00 for each plaintiff, or
the total amount. of P300,000.00 should be awarded as moral
damages;
21. That the defendants have demonstrated their lack of concern for
the rights and dignity of the Filipino worker and their callous disregard
of Philippine labor and social legislation, and to prevent other persons
from following the footsteps of defendants, the amount of P50,000.00
for each plaintiff, or the total sum of P100,000.00, should be awarded
as exemplary damages;
22. That plaintiffs likewise expect to spend no less than P5,000.00 as
litigation expenses and were constrained to secure the services of
counsel for the protection and enforcement of their rights for which
they agreed to pay the sum of P10,000.00 and P200.00 per
appearance as and for attorney's fees.
The complaint contains the following:
PRAYER
WHEREFORE, in view of all the foregoing. it is most respectfully that
after proper notice and hearing, judgment be rendered for the plaintiffs
and against the defendants ordering them, jointly and solidarily, to pay
the plaintiffs the sums of:
1. Unrealized income in such sum as will be established during the
trial;
2. P300,000.00 as moral damages;
3. P100,000.00 by way of exemplary damages:
4. P5,000.00 as litigation expenses;
5. P10,000.00 and P200.00 per appearance as and for attorney's fees;
and

6. Costs of this suit.

Plaintiffs also pray for such further reliefs and remedies as may be in
keeping with justice and equity.
On June 4, 1979, a motion to dismiss the complaint on the ground of
lack of jurisdiction was filed by the defendants. The trial court denied
the motion on September 6, 1979, in an order which reads as follows:
Up for resolution by the Court is the defendants' Motion to Dismiss
dated June 4, 1979, which is basically anchored on whether or not this
Court has jurisdiction over the instant petition.
The complaint alleges that the plaintiffs' dismissal was without any
provocation and that defendant Aboitiz shouted and maliciously
humiliated plaintiffs and used the words quoted in paragraph 3 thereof.
The plaintiffs further allege that they were receiving salaries of
P6,600.00 and P4,855.00 a month. So the complaint for civil damages
is clearly not based on an employer-employee relationship but on the
manner of plaintiffs' dismissal and the effects flowing therefrom. (Jovito
N. Quisaba vs, Sta. Ines-Melale Veneer & Plywood Co., Inc., et al., No. L38088, Aug. 30,1974.)
This case was filed on May 10, 1979. The amendatory decree, P.D.
1367, which took effect on May 1, 1978 and which provides that
Regional Directors shall not indorse and Labor Arbiters shall not
entertain claims for moral or other forms of damages, now expressly
confers jurisdiction on the courts in these cases, specifically under the
plaintiff's causes of action.
Because of the letter dated January 4, 1978 and the statement of
plaintiff Medina that his receipt of the amount from defendant
company was done "under strong protest," it cannot be said that the
demands set forth in the complaint have been paid, waived or other
extinguished. In fact, in defendants' Motion to Dismiss, it is stated that
'in the absence of a showing that there was fraud, duress or violence
attending said transactions, such Release and Quitclaim Deeds are
valid and binding contracts between them, which in effect admits that

plaintiffs can prove fraud, violence, duress or violence. Hence a cause

of action for plaintiffs exist.
It is noticed that the defamatory remarks standing alone per se had
been made the sole cause under the first cause of action, but it is
alleged in connection with the manner in which the plaintiffs had been
dismissed, and whether the statute of limitations would apply or not
would be a matter of evidence.
IT has been alreadly settled by jurisprudence that mere asking for
reinstatement does not remove from the CFI jurisdiction over the
damages. The case must involve unfair labor practices to bring it
within the jurisdiction of the CIR (now NLRC).
WHEREFORE, the defendants' Motion to Dismiss dated June 4, 1979 is
hereby denied.
The defendants are hereby directed to interpose their answer within
ten (10) days from receipt hereof.
While the trial was underway, the defendants filed a second motion to dismiss the
complaint dated January 23, 1981, because of amendments to the Labor Code
immediately prior thereto. Acting on the motion, the trial court issued on May 23,
1981, the following order:
Up for resolution by the Court is the defendants' Motion to Dismiss
dated January 23, 1981, on grounds not existing when the first Motion
to Dismiss dated June 4, 1979 was interposed. The ground relied upon
is the promulgation of P.D. No. 1691 amending Art. 217 of the Labor
Code of the Philippines and Batasan Pambansa Bldg. 70 which took
effect on May 1, 1980, amending Art. 248 of the Labor Code.
The Court agrees with defendants that the complaint alleges unfair
labor practices which under Art. 217 of the Labor Code, as amended by
P.D. 1691, has vested original and exclusive jurisdiction to Labor
Arbiters, and Art. 248, thereof ... "which may include claims for
damages and other affirmative reliefs." Under the amendment,
therefore, jurisdiction over employee-employer relations and claims of
workers have been removed from the Courts of First Instance. If it is
argued that this case did not arise from employer-employee relation,

but it cannot be denied that this case would not have arisen if the
plaintiffs had not been employees of defendant Pepsi-Cola. Even the
alleged defamatory remarks made by defendant Cosme de Aboitiz
were said to plaintiffs in the course of their employment, and the latter
were dismissed from such employment. Hence, the case arose from
such employer-employee relationship which under the new Presidential
Decree 1691 are under the exclusive, original jurisdiction of the labor
arbiters. The ruling of this Court with respect to the defendants' first
motion to dismiss, therefore, no longer holds as the positive law has
been subsequently issued and being a curative law, can be applied
retroactively (Garcia v. Martinez, et al., L-47629, May 28, 1979; 90
SCRA 331-333).
It will also logically follow that plaintiffs can reinterpose the same
complaint with the Ministry of Labor.
WHEREFORE, let this case be, as it is hereby ordered, dismissed,
without pronouncement as to costs.
A motion to reconsider the above order was filed on July 7, 1981, but it was only on
February 8, 1982, or after a lapse of around seven (7) months when the motion was
denied.
Plaintiffs have filed the instant petition pursuant to R. A. No. 5440 alleging that the
respondent court committed the following errors:
IN DIVESTING ITSELF OF ITS JURISDICTION TO HEAR AND DECIDE CIVIL
CASE NO. 33150 DESPITE THE FACT THAT JURISDICTION HAD ALREADY
ATTACHED WHICH WAS NOT OUSTED BY THE SUBSEQUENT
ENACTMENT OF PRESIDENTIAL DECREE 1691;
IN HOLDING THAT PRESIDENTIAL DECREE 1691 SHOULD BE GIVEN A
RETROSPECTIVE EFFECT WHEN PRESIDENTIAL DECREE 1367 WHICH
WAS IN FORCE WHEN CIVIL CASE NO. 33150 WAS FILED AND TRIAL
THEREOF HAD COMMENCED, WAS NEVER EXPRESSLY REPEALED BY
PRESIDENTIAL DECREE 1691, AND IF EVER THERE WAS AN IMPLIED
REPEAL, THE SAME IS NOT FAVORED UNDER PREVAILED
JURISPRUDENCE;

IN HOLDING THAT WITH THE REMOVAL BY PRESIDENTIAL DECREE 1691

OF THE PROVISO INSERTED IN ARTICLE 217 OF THE LABOR CODE BY
PRESIDENTIAL DECREE 1367, THE LABOR ARBITERS HAVE ACQUIRED
JURISDICTION OVER CLAIMS FOR DAMAGES ARISING FROM EMPLOYEREMPLOYEE RELATIONS TO THE EXCLUSION OF THE REGULAR COURTS,
WHEN A READING OF ARTICLE 217 WITHOUT THE PROVISO IN
QUESTION READILY REVEALS THAT JURISDICTION OVER DAMAGE
CLAIMS IS STILL VESTED WITH THE REGULAR COURTS;
IN DISMISSING FOR LACK OF JURISDICTION CIVIL CASE NO. 33150
THEREBY VIOLATING THE CONSTITUTIONAL RIGHTS OF THE
PETITIONERS NOTABLY THEIR RIGHT TO DUE PROCESS.
The pivotal question to Our mind is whether or not the Labor Code has any
relevance to the reliefs sought by the plaintiffs. For if the Labor Code has no
relevance, any discussion concerning the statutes amending it and whether or not
they have retroactive effect is unnecessary.
It is obvious from the complaint that the plaintiffs have not alleged any unfair labor
practice. Theirs is a simple action for damages for tortious acts allegedly committed
by the defendants. Such being the case, the governing statute is the Civil Code and
not the Labor Code. It results that the orders under review are based on a wrong
premise.
WHEREFORE, the petition is granted; the respondent judge is hereby ordered to
reinstate Civil Case No. 33150 and render a decision on the merits. Costs against
the private respondents.
SO ORDERED.
G.R. No. 157010

June 21, 2005

PHILIPPINE NATIONAL BANK, petitioner,

vs.
FLORENCE O. CABANSAG, respondent.
DECISION
PANGANIBAN, J.:
The Court reiterates the basic policy that all Filipino workers, whether employed
locally or overseas, enjoy the protective mantle of Philippine labor and social

legislations. Our labor statutes may not be rendered ineffective by laws or

judgments promulgated, or stipulations agreed upon, in a foreign country.
The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court,
seeking to reverse and set aside the July 16, 2002 Decision 2 and the January 29,
2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 68403. The assailed
Decision dismissed the CA Petition (filed by herein petitioner), which had sought to
reverse the National Labor Relations Commission (NLRC)s June 29, 2001
Resolution,4 affirming Labor Arbiter Joel S. Lustrias January 18, 2000 Decision. 5
The assailed CA Resolution denied herein petitioners Motion for Reconsideration.
The Facts
The facts are narrated by the Court of Appeals as follows:
"In late 1998, [herein Respondent Florence Cabansag] arrived in Singapore as a
tourist. She applied for employment, with the Singapore Branch of the Philippine
National Bank, a private banking corporation organized and existing under the laws
of the Philippines, with principal offices at the PNB Financial Center, Roxas
Boulevard, Manila. At the time, the Singapore PNB Branch was under the helm of
Ruben C. Tobias, a lawyer, as General Manager, with the rank of Vice-President of
the Bank. At the time, too, the Branch Office had two (2) types of employees: (a)
expatriates or the regular employees, hired in Manila and assigned abroad including
Singapore, and (b) locally (direct) hired. She applied for employment as Branch
Credit Officer, at a total monthly package of $SG4,500.00, effective upon
assumption of duties after approval. Ruben C. Tobias found her eminently qualified
and wrote on October 26, 1998, a letter to the President of the Bank in Manila,
recommending the appointment of Florence O. Cabansag, for the position.
xxxxxxxxx
"The President of the Bank was impressed with the credentials of Florence O.
Cabansag that he approved the recommendation of Ruben C. Tobias. She then filed
an Application, with the Ministry of Manpower of the Government of Singapore, for
the issuance of an Employment Pass as an employee of the Singapore PNB Branch.
Her application was approved for a period of two (2) years.

"On December 7, 1998, Ruben C. Tobias wrote a letter to Florence O. Cabansag

offering her a temporary appointment, as Credit Officer, at a basic salary of
Singapore Dollars 4,500.00, a month and, upon her successful completion of her
probation to be determined solely, by the Bank, she may be extended at the
discretion of the Bank, a permanent appointment and that her temporary
appointment was subject to the following terms and conditions:
1. You will be on probation for a period of three (3) consecutive months from
the date of your assumption of duty.
2. You will observe the Banks rules and regulations and those that may be
adopted from time to time.
3. You will keep in strictest confidence all matters related to transactions
between the Bank and its clients.
4. You will devote your full time during business hours in promoting the
business and interest of the Bank.
5. You will not, without prior written consent of the Bank, be employed in
anyway for any purpose whatsoever outside business hours by any person,
firm or company.
6. Termination of your employment with the Bank may be made by either
party after notice of one (1) day in writing during probation, one month notice
upon confirmation or the equivalent of one (1) days or months salary in lieu
of notice.
"Florence O. Cabansag accepted the position and assumed office. In the meantime,
the Philippine Embassy in Singapore processed the employment contract of
Florence O. Cabansag and, on March 8, 1999, she was issued by the Philippine
Overseas Employment Administration, an Overseas Employment Certificate,
certifying that she was a bona fide contract worker for Singapore.
xxxxxxxxx
"Barely three (3) months in office, Florence O. Cabansag submitted to Ruben C.
Tobias, on March 9, 1999, her initial Performance Report. Ruben C. Tobias was so
impressed with the Report that he made a notation and, on said Report: GOOD
WORK. However, in the evening of April 14, 1999, while Florence O. Cabansag was
in the flat, which she and Cecilia Aquino, the Assistant Vice-President and Deputy

General Manager of the Branch and Rosanna Sarmiento, the Chief Dealer of the said
Branch, rented, she was told by the two (2) that Ruben C. Tobias has asked them to
tell Florence O. Cabansag to resign from her job. Florence O. Cabansag was
perplexed at the sudden turn of events and the runabout way Ruben C. Tobias
procured her resignation from the Bank. The next day, Florence O. Cabansag talked
to Ruben C. Tobias and inquired if what Cecilia Aquino and Rosanna Sarmiento had
told her was true. Ruben C. Tobias confirmed the veracity of the information, with
the explanation that her resignation was imperative as a cost-cutting measure of
the Bank. Ruben C. Tobias, likewise, told Florence O. Cabansag that the PNB
Singapore Branch will be sold or transformed into a remittance office and that, in
either way, Florence O. Cabansag had to resign from her employment. The more
Florence O. Cabansag was perplexed. She then asked Ruben C. Tobias that she be
furnished with a Formal Advice from the PNB Head Office in Manila. However,
Ruben C. Tobias flatly refused. Florence O. Cabansag did not submit any letter of
resignation.
"On April 16, 1999, Ruben C. Tobias again summoned Florence O. Cabansag to his
office and demanded that she submit her letter of resignation, with the pretext that
he needed a Chinese-speaking Credit Officer to penetrate the local market, with the
information that a Chinese-speaking Credit Officer had already been hired and will
be reporting for work soon. She was warned that, unless she submitted her letter of
resignation, her employment record will be blemished with the notation DISMISSED
spread thereon. Without giving any definitive answer, Florence O. Cabansag asked
Ruben C. Tobias that she be given sufficient time to look for another job. Ruben C.
Tobias told her that she should be out of her employment by May 15, 1999.
"However, on April 19, 1999, Ruben C. Tobias again summoned Florence O.
Cabansag and adamantly ordered her to submit her letter of resignation. She
refused. On April 20, 1999, she received a letter from Ruben C. Tobias terminating
her employment with the Bank.
xxxxxxxxx
"On January 18, 2000, the Labor Arbiter rendered judgment in favor of the
Complainant and against the Respondents, the decretal portion of which reads as
follows:

WHEREFORE, considering the foregoing premises, judgment is hereby rendered

finding respondents guilty of Illegal dismissal and devoid of due process, and are
hereby ordered:
1. To reinstate complainant to her former or substantially equivalent position
without loss of seniority rights, benefits and privileges;
2. Solidarily liable to pay complainant as follows:
a) To pay complainant her backwages from 16 April 1999 up to her
actual reinstatement. Her backwages as of the date of the
promulgation of this decision amounted to SGD 40,500.00 or its
equivalent in Philippine Currency at the time of payment;
b) Mid-year bonus in the amount of SGD 2,250.00 or its equivalent in
Philippine Currency at the time of payment;
c) Allowance for Sunday banking in the amount of SGD 120.00 or its
equivalent in Philippine Currency at the time of payment;
d) Monetary equivalent of leave credits earned on Sunday banking in
the amount of SGD 1,557.67 or its equivalent in Philippine Currency at
the time of payment;
e) Monetary equivalent of unused sick leave benefits in the amount of
SGD 1,150.60 or its equivalent in Philippine Currency at the time of
payment.
f) Monetary equivalent of unused vacation leave benefits in the
amount of SGD 319.85 or its equivalent in Philippine Currency at the
time of payment.
g) 13th month pay in the amount of SGD 4,500.00 or its equivalent in
Philippine Currency at the time of payment;
3. Solidarily to pay complainant actual damages in the amount of SGD
1,978.00 or its equivalent in Philippine Currency at the time of payment, and
moral damages in the amount of PhP 200,000.00, exemplary damages in the
amount of PhP 100,000.00;
4. To pay complainant the amount of SGD 5,039.81 or its equivalent in
Philippine Currency at the time of payment, representing attorneys fees.
SO ORDERED."

[Emphasis in the original.]

PNB appealed the labor arbiters Decision to the NLRC. In a Resolution dated June
29, 2001, the Commission affirmed that Decision, but reduced the moral damages
to P100,000 and the exemplary damages to P50,000. In a subsequent Resolution,
the NLRC denied PNBs Motion for Reconsideration.
Ruling of the Court of Appeals
In disposing of the Petition for Certiorari, the CA noted that petitioner bank had
failed to adduce in evidence the Singaporean law supposedly governing the latters
employment Contract with respondent. The appellate court found that the Contract
had actually been processed by the Philippine Embassy in Singapore and approved
by the Philippine Overseas Employment Administration (POEA), which then used
that Contract as a basis for issuing an Overseas Employment Certificate in favor of
respondent.
According to the CA, even though respondent secured an employment pass from
the Singapore Ministry of Employment, she did not thereby waive Philippine labor
laws, or the jurisdiction of the labor arbiter or the NLRC over her Complaint for
illegal dismissal. In so doing, neither did she submit herself solely to the Ministry of
Manpower of Singapores jurisdiction over disputes arising from her employment.
The appellate court further noted that a cursory reading of the Ministrys letter will
readily show that no such waiver or submission is stated or implied.
Finally, the CA held that petitioner had failed to establish a just cause for the
dismissal of respondent. The bank had also failed to give her sufficient notice and
an opportunity to be heard and to defend herself. The CA ruled that she was
consequently entitled to reinstatement and back wages, computed from the time of
her dismissal up to the time of her reinstatement.
Hence, this Petition.7
Issues
Petitioner submits the following issues for our consideration:
"1. Whether or not the arbitration branch of the NLRC in the National Capital
Region has jurisdiction over the instant controversy;
"2. Whether or not the arbitration of the NLRC in the National Capital Region
is the most convenient venue or forum to hear and decide the instant
controversy; and

"3. Whether or not the respondent was illegally dismissed, and therefore,
entitled to recover moral and exemplary damages and attorneys fees." 8
In addition, respondent assails, in her Comment, 9 the propriety of Rule 45 as the
procedural mode for seeking a review of the CA Decision affirming the NLRC
Resolution. Such issue deserves scant consideration. Respondent miscomprehends
the Courts discourse in St. Martin Funeral Home v. NLRC,10 which has indeed
affirmed that the proper mode of review of NLRC decisions, resolutions or orders is
by a special civil action for certiorari under Rule 65 of the Rules of Court. The
Supreme Court and the Court of Appeals have concurrent original jurisdiction over
such petitions for certiorari. Thus, in observance of the doctrine on the hierarchy of
courts, these petitions should be initially filed with the CA. 11
Rightly, the bank elevated the NLRC Resolution to the CA by way of a Petition
for Certiorari. In seeking a review by this Court of the CA Decision -- on questions of
jurisdiction, venue and validity of employment termination -- petitioner is likewise
correct in invoking Rule 45.12
It is true, however, that in a petition for review on certiorari, the scope of the
Supreme Courts judicial review of decisions of the Court of Appeals is generally
confined only to errors of law. It does not extend to questions of fact. This doctrine
applies with greater force in labor cases. Factual questions are for the labor
tribunals to resolve.

13

In the present case, the labor arbiter and the NLRC have

already determined the factual issues. Their findings, which are supported by
substantial evidence, were affirmed by the CA. Thus, they are entitled to great
respect and are rendered conclusive upon this Court, absent a clear showing of
palpable error or arbitrary disregard of evidence. 14
The Courts Ruling
The Petition has no merit.
First Issue:
Jurisdiction
The jurisdiction of labor arbiters and the NLRC is specified in Article 217 of the Labor
Code as follows:
"ART. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as
otherwise provided under this Code the Labor Arbiters shall have original and

exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers
may file involving wage, rates of pay, hours of work and other terms and
conditions of employment
4. Claims for actual, moral, exemplary and other forms of damages arising
from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including
questions involving the legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from employer-employee
relations, including those of persons in domestic or household service,
involving an amount of exceeding five thousand pesos (P5,000.00) regardless
of whether accompanied with a claim for reinstatement.
(b) The commission shall have exclusive appellate jurisdiction over all cases decided
by Labor Arbiters.
x x x x x x x x x."
More specifically, Section 10 of RA 8042 reads in part:
"SECTION 10. Money Claims. Notwithstanding any provision of law to the
contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall
have the original and exclusive jurisdiction to hear and decide, within ninety (90)
calendar days after the filing of the complaint, the claims arising out of an
employer-employee relationship or by virtue of any law or contract involving Filipino
workers for overseas deployment including claims for actual, moral, exemplary and
other forms of damages.
x x x x x x x x x"
Based on the foregoing provisions, labor arbiters clearly have original and
exclusive jurisdiction over claims arising from employer-employee relations,

including termination disputes involving all workers, among whom are overseas
Filipino workers (OFW).15
We are not unmindful of the fact that respondent was directly hired, while on a
tourist status in Singapore, by the PNB branch in that city state. Prior to employing
respondent, petitioner had to obtain an employment pass for her from the
Singapore Ministry of Manpower. Securing the pass was a regulatory requirement
pursuant to the immigration regulations of that country. 16
Similarly, the Philippine government requires non-Filipinos working in the country to
first obtain a local work permit in order to be legally employed here. That permit,
however, does not automatically mean that the non-citizen is thereby bound by
local laws only, as averred by petitioner. It does not at all imply a waiver of ones
national laws on labor. Absent any clear and convincing evidence to the contrary,
such permit simply means that its holder has a legal status as a worker in the
issuing country.1avvphil.zw+
Noteworthy is the fact that respondent likewise applied for and secured an Overseas
Employment Certificate from the POEA through the Philippine Embassy in
Singapore. The Certificate, issued on March 8, 1999, declared her a bona fide
contract worker for Singapore. Under Philippine law, this document authorized her
working status in a foreign country and entitled her to all benefits and processes
under our statutes. Thus, even assuming arguendothat she was considered at the
start of her employment as a "direct hire" governed by and subject to the laws,
common practices and customs prevailing in Singapore 17 she subsequently became
a contract worker or an OFW who was covered by Philippine labor laws and policies
upon certification by the POEA. At the time her employment was illegally
terminated, she already possessed the POEA employment Certificate.
Moreover, petitioner admits that it is a Philippine corporation doing business
through a branch office in Singapore. 18 Significantly, respondents employment by
the Singapore branch office had to be approved by Benjamin P. Palma Gil, 19 the
president of the bank whose principal offices were in Manila. This circumstance
militates against petitioners contention that respondent was "locally hired"; and
totally "governed by and subject to the laws, common practices and customs" of
Singapore, not of the Philippines. Instead, with more reason does this fact reinforce
the presumption that respondent falls under the legal definition of migrant worker,

in this case one deployed in Singapore. Hence, petitioner cannot escape the
application of Philippine laws or the jurisdiction of the NLRC and the labor arbiter.
In any event, we recall the following policy pronouncement of the Court in Royal
Crown Internationale v. NLRC:20
"x x x. Whether employed locally or overseas, all Filipino workers enjoy the
protective mantle of Philippine labor and social legislation, contract stipulations to
the contrary notwithstanding. This pronouncement is in keeping with the basic
public policy of the State to afford protection to labor, promote full employment,
ensure equal work opportunities regardless of sex, race or creed, and regulate the
relations between workers and employers.1awphi1.net For the State assures the
basic rights of all workers to self-organization, collective bargaining, security of
tenure, and just and humane conditions of work [Article 3 of the Labor Code of the
Philippines; See also Section 18, Article II and Section 3, Article XIII, 1987
Constitution]. This ruling is likewise rendered imperative by Article 17 of the Civil
Code which states that laws which have for their object public order, public policy
and good customs shall not be rendered ineffective by laws or judgments
promulgated, or by determination or conventions agreed upon in a foreign country."
Second Issue:
Proper Venue
Section 1(a) of Rule IV of the NLRC Rules of Procedure reads:
"Section 1. Venue (a) All cases which Labor Arbiters have authority to hear and
decide may be filed in the Regional Arbitration Branch having jurisdiction over the
workplace of the complainant/petitioner; Provided, however that cases of Overseas
Filipino Worker (OFW) shall be filed before the Regional Arbitration Branch where the
complainant resides or where the principal office of the respondent/employer is
situated, at the option of the complainant.
"For purposes of venue, workplace shall be understood as the place or locality
where the employee is regularly assigned when the cause of action arose. It shall
include the place where the employee is supposed to report back after a temporary
detail, assignment or travel. In the case of field employees, as well as ambulant or
itinerant workers, their workplace is where they are regularly assigned, or where
they are supposed to regularly receive their salaries/wages or work instructions
from, and report the results of their assignment to their employers."

Under the "Migrant Workers and Overseas Filipinos Act of 1995" (RA 8042),
a migrant worker "refers to a person who is to be engaged, is engaged or has been
engaged in a remunerated activity in a state of which he or she is not a legal
resident; to be used interchangeably with overseas Filipino worker." 21 Undeniably,
respondent was employed by petitioner in its branch office in Singapore.
Admittedly, she is a Filipino and not a legal resident of that state. She thus falls
within the category of "migrant worker" or "overseas Filipino worker."
As such, it is her option to choose the venue of her Complaint against petitioner for
illegal dismissal. The law gives her two choices: (1) at the Regional Arbitration
Branch (RAB) where she resides or (2) at the RAB where the principal office of her
employer is situated. Since her dismissal by petitioner, respondent has returned to
the Philippines -- specifically to her residence at Filinvest II, Quezon City. Thus, in
filing her Complaint before the RAB office in Quezon City, she has made a valid
choice of proper venue.
Third Issue:
Illegal Dismissal
The appellate court was correct in holding that respondent was already a regular
employee at the time of her dismissal, because her three-month probationary
period of employment had already ended. This ruling is in accordance with Article
281 of the Labor Code: "An employee who is allowed to work after a probationary
period shall be considered a regular employee." Indeed, petitioner recognized
respondent as such at the time it dismissed her, by giving her one months salary in
lieu of a one-month notice, consistent with provision No. 6 of her employment
Contract.
Notice and Hearing Not Complied With
As a regular employee, respondent was entitled to all rights, benefits and privileges
provided under our labor laws. One of her fundamental rights is that she may not be
dismissed without due process of law. The twin requirements of notice and hearing
constitute the essential elements of procedural due process, and neither of these
elements can be eliminated without running afoul of the constitutional guarantee. 22
In dismissing employees, the employer must furnish them two written notices: 1)
one to apprise them of the particular acts or omissions for which their dismissal is

sought; and 2) the other to inform them of the decision to dismiss them. As to the
requirement of a hearing, its essence lies simply in the opportunity to be heard. 23
The evidence in this case is crystal-clear. Respondent was not notified of the specific
act or omission for which her dismissal was being sought. Neither was she given any
chance to be heard, as required by law. At any rate, even if she were given the
opportunity to be heard, she could not have defended herself effectively, for she
knew no cause to answer to.
All that petitioner tendered to respondent was a notice of her employment
termination effective the very same day, together with the equivalent of a onemonth pay. This Court has already held that nothing in the law gives an employer
the option to substitute the required prior notice and opportunity to be heard with
the mere payment of 30 days salary.24
Well-settled is the rule that the employer shall be sanctioned for noncompliance
with the requirements of, or for failure to observe, due process that must be
observed in dismissing an employee.25
No Valid Cause for Dismissal
Moreover, Articles 282,26 28327 and 28428 of the Labor Code provide the valid
grounds or causes for an employees dismissal. The employer has the burden of
proving that it was done for any of those just or authorized causes. The failure to
discharge this burden means that the dismissal was not justified, and that the
employee is entitled to reinstatement and back wages. 29
Notably, petitioner has not asserted any of the grounds provided by law as a valid
reason for terminating the employment of respondent. It merely insists that her
dismissal was validly effected pursuant to the provisions of her employment
Contract, which she had voluntarily agreed to be bound to.
Truly, the contracting parties may establish such stipulations, clauses, terms and
conditions as they want, and their agreement would have the force of law between
them. However, petitioner overlooks the qualification that those terms and
conditions agreed upon must not be contrary to law, morals, customs, public policy
or public order.30 As explained earlier, the employment Contract between petitioner
and respondent is governed by Philippine labor laws. Hence, the stipulations,
clauses, and terms and conditions of the Contract must not contravene our labor
law provisions.

Moreover, a contract of employment is imbued with public interest. The Court has
time and time again reminded parties that they "are not at liberty to insulate
themselves and their relationships from the impact of labor laws and regulations by
simply contracting with each other." 31 Also, while a contract is the law between the
parties, the provisions of positive law that regulate such contracts are deemed
included and shall limit and govern the relations between the parties. 32
Basic in our jurisprudence is the principle that when there is no showing of any
clear, valid, and legal cause for the termination of employment, the law considers
the matter a case of illegal dismissal. 33
Awards for Damages Justified
Finally, moral damages are recoverable when the dismissal of an employee is
attended by bad faith or constitutes an act oppressive to labor or is done in a
manner contrary to morals, good customs or public policy. 34 Awards for moral and
exemplary damages would be proper if the employee was harassed and arbitrarily
dismissed by the employer.35
In affirming the awards of moral and exemplary damages, we quote with approval
the following ratiocination of the labor arbiter:
"The records also show that [respondents] dismissal was effected by [petitioners]
capricious and high-handed manner, anti-social and oppressive, fraudulent and in
bad faith, and contrary to morals, good customs and public policy. Bad faith and
fraud are shown in the acts committed by [petitioners] before, during and after
[respondents] dismissal in addition to the manner by which she was dismissed.
First, [respondent] was pressured to resign for two different and contradictory
reasons, namely, cost-cutting and the need for a Chinese[-]speaking credit officer,
for which no written advice was given despite complainants request. Such wavering
stance or vacillating position indicates bad faith and a dishonest purpose. Second,
she was employed on account of her qualifications, experience and readiness for
the position of credit officer and pressured to resign a month after she was
commended for her good work. Third, the demand for [respondents] instant
resignation on 19 April 1999 to give way to her replacement who was allegedly
reporting soonest, is whimsical, fraudulent and in bad faith, because on 16 April
1999 she was given a period of [sic] until 15 May 1999 within which to leave.
Fourth, the pressures made on her to resign were highly oppressive, anti-social and

caused her absolute torture, as [petitioners] disregarded her situation as an

overseas worker away from home and family, with no prospect for another job. She
was not even provided with a return trip fare. Fifth, the notice of termination is an
utter manifestation of bad faith and whim as it totally disregards [respondents]
right to security of tenure and due process. Such notice together with the demands
for [respondents] resignation contravenes the fundamental guarantee and public
policy of the Philippine government on security of tenure.
"[Respondent] likewise established that as a proximate result of her dismissal and
prior demands for resignation, she suffered and continues to suffer mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock and
social humiliation. Her standing in the social and business community as well as
prospects for employment with other entities have been adversely affected by her
dismissal. [Petitioners] are thus liable for moral damages under Article 2217 of the
Civil Code.
xxxxxxxxx
"[Petitioners] likewise acted in a wanton, oppressive or malevolent manner in
terminating [respondents] employment and are therefore liable for exemplary
damages. This should served [sic] as protection to other employees of [petitioner]
company, and by way of example or correction for the public good so that persons
similarly minded as [petitioners] would be deterred from committing the same
acts."36
The Court also affirms the award of attorneys fees. It is settled that when an action
is instituted for the recovery of wages, or when employees are forced to litigate and
consequently incur expenses to protect their rights and interests, the grant of
attorneys fees is legally justifiable.37
WHEREFORE, the Petition is DENIED and the assailed Decision and
Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 122791

February 19, 2003

PLACIDO O. URBANES, JR., doing business under the name & style of
CATALINA SECURITY AGENCY,petitioner,
vs.
THE HONORABLE SECRETARY OF LABOR AND EMPLOYMENT and SOCIAL
SECURITY SYSTEM,respondents.
DECISION
CARPIO-MORALES, J.:
Before this Court is a Petition for Certiorari under Rule 65 of the Revised Rules of
Court assailing the June 22, 1995 Order of the Department of Labor and
Employment (DOLE) Secretary which set aside the September 16, 1994 Order of the
Regional Director, National Capital Region (NCR).
The antecedent facts of the case are as follows:
Petitioner Placido O. Urbanes, Jr., doing business under the name and style of
Catalina Security Agency, entered into an agreement 1 to provide security services to
respondent Social Security System (SSS).
During the effectivity of the agreement, petitioner, by letter of May 16,
1994,2 requested the SSS for the upward adjustment of their contract rate in view of
Wage Order No. NCR-03 which was issued by the Regional Tripartite Wages and
Productivity Board-NCR pursuant to Republic Act 6727 otherwise known as the Wage
Rationalization Act, the pertinent provision of which wage order reads:
Section 9. In the case of contracts for construction projects and for security,
janitorial and similar services, the prescribed amount set forth herein for
covered workers shall be borne by the principals or the clients of the
construction/service contractors and the contract shall be deemed amended
accordingly. In the event, however, that the principal or client failed to pay
the prescribed increase, the construction/service contractors shall be
jointly and severally liable with the principal or client . (Emphasis and
underscoring supplied.)
As his May 16, 1994 letter to the SSS remained unheeded, petitioner sent another
letter,3 dated June 7, 1994, reiterating the request, which was followed by still
another letter,4 dated June 8, 1994.

On June 24, 1994, petitioner pulled out his agencys services from the premises of
the SSS and another security agency, Jaguar, took over. 5
On June 29, 1994, petitioner filed a complaint 6 with the DOLE-NCR against the SSS
seeking the implementation of Wage Order No. NCR-03.
In its position paper,7 the SSS prayed for the dismissal of the complaint on the
ground that petitioner is not the real party in interest and has no legal capacity to
file the same. In any event, it argued that if it had any obligation, it was to the
security guards.
On the other hand, petitioner in his position paper, 8 citing Eagle Security Agency,
Inc. v. NLRC,9 contended that the security guards assigned to the SSS do not have
any legal basis to file a complaint against it for lack of contractual privity.
Finding for petitioner, the Regional Director of the DOLE-NCR issued an Order 10 of
September 16, 1994, the dispositive portion of which reads, quoted verbatim:
WHEREFORE, premises considered, the respondent Social Security System (SSS) is
hereby Ordered to pay Complainant the total sum of ONE MILLION SIX HUNDRED
THOUSAND EIGHT HUNDRED FIFTY EIGHT AND 46/100 (P 1,600,858.46)
representing the wage differentials under Wage Order No. NCR-03 of the ONE
HUNDRED SIXTY EIGHT (168) Security Guards of Catalina Security Agency covering
the period from December 16, 1993 to June 24, 1994, inclusive within ten (10) days
from receipt hereof, otherwise a writ of execution shall be issued to enforce this
Order.
The claims for the payment of interest and Attorneys fees are hereby ordered
dismissed for want of jurisdiction.
SO ORDERED.
The SSS moved to reconsider the September 16, 1994 Order of the Regional
Director, praying that the computation be revised. 11
By Order12 of December 9, 1994, the Regional Director modified his September 16,
1994 Order by reducing the amount payable by the SSS to petitioner. The
dispositive portion of the Regional Directors Order of December 9, 1994 reads:
WHEREFORE, premises considered, the Order of this Office dated September 16,
1994 is hereby modified. Respondent Social Security System is hereby ordered to
pay complainant the amount of ONE MILLION TWO HUNDRED THIRTY SEVEN

THOUSAND SEVEN HUNDRED FORTY PESOS (P 1,237,740.00) representing the wage

differentials under Wage Order No. NCR-03 of the one hundred sixty-eight (168)
security guards of Catalina Security Agency covering the period from December 16,
1993 to June 20, 1994, inclusive, within ten (10) days from receipt of this Order,
otherwise, execution shall issue.
The SSS appealed13 to the Secretary of Labor upon the following assigned errors,
quoted verbatim:
A. THE REGIONAL DIRECTOR HAS NO JURISDICTION OF THE CASE AT BAR.
B. THE HONORABLE REGIONAL DIRECTOR ERRED IN FINDING THAT
COMPLAINANT IS THE REAL PARTY IN INTEREST AND HAS LEGAL CAPACITY TO
FILE THE CASE.
C. THE HONORABLE REGIONAL DIRECTOR ERRED IN ADOPTING
COMPLAINANTS COMPUTATION FOR WAGE ADJUSTMENT UNDER WAGE
ORDER NO. NCR-03 AS BASIS OF RESPONDENTS LIABILITY. 14
The Secretary of Labor, by Order15 of June 22, 1995, set aside the order of the
Regional Director and remanded the records of the case "for recomputation of the
wage differentials using P 5,281.00 as the basis of the wage adjustment." And the
Secretary held petitioners security agency "JOINTLY AND SEVERALLY liable for wage
differentials, the amount of which should be paid DIRECTLY to the security guards
concerned."
Petitioners Motion for Reconsideration of the DOLE Secretarys Order of June 22,
1995 having been denied by Order16 of October 10, 1995, the present petition was
filed, petitioner contending that the DOLE Secretary committed grave abuse of
discretion when he:
1. . . . TOTALLY IGNORED THE PROVISION OF ARTICLE 129 OF THE LABOR CODE FOR
PERFECTING AN APPEAL FROM THE DECISION OF THE REGIONAL DIRECTOR UNDER
ARTICLE 129 INVOKED BY RESPONDENT SSS;
2. . . . DISREGARDED THE PROVISION ON APPEALS FROM THE DECISIONS OR
RESOLUTIONS OF THE REGIONAL DIRECTOR, DOLE, UNDER ARTICLE 129 OF THE
LABOR CODE, AS AMENDED BY REPUBLIC ACT NO. 6715;
3. . . . TOTALLY OVERLOOKED THE LAW AND PREVAILING JURISPRUDENCE WHEN IT
ACTED ON THE APPEAL OF RESPONDENT SSS.17

Petitioner asserts that the Secretary of Labor does not have jurisdiction to review
appeals from decisions of the Regional Directors in complaints filed under Article
129 of the Labor Code18 which provides:
ART. 129. RECOVERY OF WAGES, SIMPLE MONEY CLAIMS AND OTHER BENEFITS.
Upon complaint of any interested party, the regional director of the Department of
Labor and Employment or any duly authorized hearing officers of the Department is
empowered, through summary proceeding and after due notice, to hear and decide
any matter involving the recovery of wages and other monetary claims and
benefits, including legal interest, owing to an employee or person employed in
domestic or household service or househelper under this Code, arising from
employer-employee relations: Provided, That such complaint does not include a
claim for reinstatement; Provided, further, That the aggregate money claim of each
employee or househelper does not exceed Five Thousand pesos (P5,000.00). The
regional director or hearing officer shall decide or resolve the complaint within thirty
(30) calendar days from the date of the filing of the same. Any sum thus recovered
on behalf of any employee or househelper pursuant to this Article shall be held in a
special deposit account by, and shall be paid on order of, the Secretary of Labor and
Employment or the regional director directly to the employee or househelper
concerned. Any such sum not paid to the employee or househelper, because he
cannot be located after diligent and reasonable effort to locate him within a period
of three (3) years, shall be held as a special fund of the Department of Labor and
Employment to be used exclusively for the amelioration and benefit of workers.
Any decision or resolution of the regional director or officer pursuant to this
provision may be appealed on the same grounds provided in Article 223 of this
Code, within five (5) calendar days from receipt of a copy of said decision or
resolution, to the National Labor Relations Commission which shall resolve the
appeal within ten (10) calendar days from submission of the last pleading required
or allowed under its rules.
x x x (Emphasis supplied).
Petitioner thus contends that as the appeal of SSS was filed with the wrong forum, it
should have been dismissed.19
The SSS, on the other hand, contends that Article 128, not Article 129, is applicable
to the case. Article 128 provides:

ART. 128. VISITORIAL AND ENFORCEMENT POWERS

xxx
(b) Notwithstanding the provisions of Article 129 and 217 of this Code to the
contrary, and in cases where the relationship of employer-employee still exists, the
Secretary of Labor and Employment or his duly authorized representatives shall
have the power to issue compliance orders to give effect to labor legislation based
on the findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection.
xxx
An order issued by the duly authorized representative of the Secretary of Labor and
Employment under this article may be appealed to the latter.
x x x (Emphasis supplied).
Neither the petitioners contention nor the SSSs is impressed with merit. Lapanday
Agricultural Development Corporation v. Court of Appeals 20 instructs so. In that
case, the security agency filed a complaint before the Regional Trial Court (RTC)
against the principal or client Lapanday for the upward adjustment of the contract
rate in accordance with Wage Order Nos. 5 and 6. Lapanday argued that it is the
National Labor Relations Commission, not the civil courts, which has jurisdiction to
resolve the issue in the case, it involving the enforcement of wage adjustment and
other benefits due the agencys security guards as mandated by several wage
orders. Holding that the RTC has jurisdiction over the controversy, this Court ruled:
We agree with the respondent that the RTC has jurisdiction over the subject matter
of the present case. It is well settled in law and jurisprudence that where no
employer-employee relationship exists between the parties and no issue is
involved which may be resolved by reference to the Labor Code, other
labor statutes or any collective bargaining agreement, it is the Regional
Trial Court that has jurisdiction. In its complaint, private respondent is not
seeking any relief under the Labor Code but seeks payment of a sum of
money and damages on account of petitioner's alleged breach of its
obligation under their Guard Service Contract. The action is within the
realm of civil law hence jurisdiction over the case belongs to the regular
courts. While the resolution of the issue involves the application of labor
laws, reference to the labor code was only for the determination of the

solidary liability of the petitioner to the respondent where no employeremployee relation exists.21
x x x (Emphasis and underscoring supplied).
In the case at bar, even if petitioner filed the complaint on his and also on behalf of
the security guards,22 the relief sought has to do with the enforcement of the
contract between him and the SSS which was deemed amended by virtue of Wage
Order No. NCR-03. The controversy subject of the case at bar is thus a civil dispute,
the proper forum for the resolution of which is the civil courts.
But even assuming arguendo that petitioners complaint were filed with the proper
forum, for lack of cause of action it must be dismissed.1awphi1.nt
Articles 106, 107 and 109 of the Labor Code provide:
ART. 106. CONTRACTOR OR SUBCONTRACTOR. Whenever an employer enters into
contract with another person for the performance of the formers work, the
employees of the contractor and of the latters subcontractor, if any, shall be paid in
accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wage of his
employees in accordance with this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such employees to the extent of the
work performed under the contract, in the same manner and extent that he is liable
to employees directly employed by him.
xxx (Emphasis and underscoring supplied)
ART. 107 INDIRECT EMPLOYER. The provisions of the immediately preceding Article
shall likewise apply to any person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor for the performance of
any work, task, job or project.
ART. 109. SOLIDARY LIABILTY. The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible with
his contractor or subcontractor for any violation of any provision of this Code. For
purposes of determining the extent of their civil liability under this Chapter, they
shall be considered as direct employers.(Emphasis supplied.)
In the case of Eagle Security Agency, Inc. v. NLRC, 23 this Court held:

The Wage Orders are explicit that payment of the increases are "to be borne" by the
principal or client. "To be borne", however, does not mean that the principal, PTSI in
this case, would directly pay the security guards the wage and allowance increases
because there is no privity of contract between them. The security guards'
contractual relationship is with their immediate employer, EAGLE. As an employer,
EAGLE is tasked, among others, with the payment of their wages [See Article VII
Sec. 3 of the Contract for Security Services, supra and Bautista v. Inciong, G.R. No.
52824, March 16, 1988, 158 SCRA 665].
On the other hand, there existed a contractual agreement between PTSI and EAGLE
wherein the former availed of the security services provided by the latter. In return,
the security agency collects from its client payment for its security services. This
payment covers the wages for the security guards and also expenses for their
supervision and training, the guards' bonds, firearms with ammunitions, uniforms
and other equipments, accessories, tools, materials and supplies necessary for the
maintenance of a security force.
Premises considered, the security guards' immediate recourse for the payment of
the increases is with their direct employer, EAGLE. However, in order for the
security agency to comply with the new wage and allowance rates it has to pay the
security guards, the Wage Orders made specific provision to amend existing
contracts for security services by allowing the adjustment of the consideration paid
by the principal to the security agency concerned. What the Wage Orders require,
therefore, is the amendment of the contract as to the consideration to cover the
service contractor's payment of the increases mandated. In the end, therefore,
ultimate liability for the payment of the increases rests with the principal.
In view of the foregoing, the security guards should claim the amount of the
increases from EAGLE. Under the Labor Code, in case the agency fails to pay them
the amounts claimed, PTSI should be held solidarily liable with EAGLE [Articles 106,
107 and 109]. Should EAGLE pay, it can claim an adjustment from PTSI for an
increase in consideration to cover the increases payable to the security guards.
x x x (Emphasis and underscoring supplied).
Passing on the foregoing disquisition in Eagle, this Court, in Lapanday, 24 held:
It is clear also from the foregoing that it is only when [the] contractor pays the
increases mandated that it can claim an adjustment from the principal to cover the

increases payable to the security guards. The conclusion that the right of the
contractor (as principal debtor) to recover from the principal (as solidary
co-debtor) arises only if he has paid the amounts for which both of them
are jointly and severally liable is in line with Article 1217 of the Civil
Code which provides:
"Art. 1217. Payment made by one the solidary debtors extinguishes the obligation.
If two or more solidary debtors offer to pay, the creditor may choose which offer to
accept.
He who made payment make claim from his co-debtors only the share which
corresponds to each, with interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening period may be
demanded. x x x"25 (Emphasis and underscoring supplied).
In fine, the liability of the SSS to reimburse petitioner arises only if and when
petitioner pays his employee-security guards "the increases" mandated by Wage
Order No. NCR-03.1awphi1.nt
The records do not show that petitioner has paid the mandated increases to the
security guards. The security guards in fact have filed a complaint 26 with the NLRC
against petitioner relative to, among other things, underpayment of wages.
WHEREFORE, the present petition is hereby DISMISSED, and petitioners complaint
before the Regional Director is dismissed for lack of jurisdiction and cause of action.
SO ORDERED.
G.R. No. 154060 August 16, 2005
YUSEN AIR AND SEA SERVICE PHILIPPINES, INCORPORATED, Petitioners,
vs.
ISAGANI A. VILLAMOR, Respondent.
DECISION
GARCIA, J.:
Via this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Yusen Air and Sea Service Philippines, Incorporated, urges us to annul and
set aside the following orders of the Regional Trial Court at Paraaque City, Branch
258, in its Civil Case No. 02-0063, to wit:

1. Order dated March 20, 2002,1 dismissing, on ground of lack of jurisdiction,

petitioners complaint for injunction and damages with prayer for a temporary
restraining order filed by it against herein respondent, Isagani A. Villamor; and
2. Order dated June 21, 2002,2 denying petitioners motion for reconsideration.
The facts:
Petitioner, a corporation organized and existing under Philippines laws, is engaged
in the business of freight forwarding. As such, it is contracted by clients to pick-up,
unpack, consolidate, deliver, transport and distribute all kinds of cargoes, acts as
cargo or freight accommodation and enters into charter parties for the carriage of
all kinds of cargoes or freight.
On August 16, 1993, petitioner hired respondent as branch manager in its Cebu
Office. Later, petitioner reclassified respondents position to that of Division
Manager, which position respondent held until his resignation on February 1, 2002.
Immediately after his resignation, respondent started working for Aspac
International, a corporation engaged in the same line of business as that of
petitioner.
On February 11, 2002, in the Regional Trial Court at Paraaque City, petitioner filed
against respondent a complaint3 for injunction and damages with prayer for a
temporary restraining order. Thereat docketed as Civil Case No. 02-0063 which was
raffled to Branch 258 of the court, the complaint alleged, inter alia, as follows:
7. That [respondent] duly signed an undertaking to abide by the policies of the
[Petitioner] which includes the provision on the employees responsibility and
obligation in cases of conflict of interest, which reads:
No employee may engage in any business or undertaking that is directly or
indirectly in competition with that of the company and its affiliates or engage
directly or indirectly in any undertaking or activity prejudicial to the interests of the
company or to the performance of his/her job or work assignments. The same
provision will be implemented for a period of two (2) years from the date
of an employees resignation, termination or separation from the
company.
8. That in clear violation and breach of his undertaking and agreement with the
policies of [petitioner], [respondent] joined Aspac International, within two years

from [his] date of resignation, whose business is directly in conflict with that of
[petitioner]. (Underscoring supplied; words in bracket ours).
Petitioner thus prayed for a judgment enjoining respondent from "further pursuing
his work at Aspac International", and awarding it P2,000,000 as actual
damages; P300,000 as exemplary damages; and anotherP300,000 as attorneys
fees.
On March 4, 2002, apparently not to be outdone, respondent filed against petitioner
a case for illegal dismissal before the National Labor Relations Commission.
Meanwhile, instead of filing his answer in Civil Case No. 02-0063, respondent filed a
Motion to Dismiss,4 arguing that the RTC has no jurisdiction over the subject matter
of said case because an employer-employee relationship is involved.
On March 20, 2002, the trial court issued the herein first assailed order dismissing
petitioners complaint for lack of jurisdiction over the subject matter thereof on the
ground that the action was for damages arising from employer-employee relations.
Citing Article 217 of the Labor Code, the trial court ruled that it is the labor arbiter
which had jurisdiction over petitioners complaint:
xxx the Court, after going over all the assertions, averments and arguments of the
parties and after carefully evaluating the same, is of the firm and honest opinion
that the arguments raised by [respondent] movant are more in conformity with the
rules and jurisprudence as this case involves an employer-employee relationship
and is within the exclusive original jurisdiction of the NLRC pursuant to Art. 217 of
the Labor Code of the Philippines. Not only that, there is even a pending case for
illegal dismissal against herein [petitioner] filed by [respondent] before the Regional
Arbitration Branch VII in Cebu City.
WHEREFORE, this case is hereby ordered DISMISSED for lack of jurisdiction.
SO ORDERED. (Words in bracket ours).
In time, petitioner moved for a reconsideration but its motion was denied by the
trial court in its subsequent order of June 21, 2002.
Hence, petitioners present recourse, maintaining that its cause of action did not
arise from employer-employee relations even if the claim therein is based on a
provision in its handbook, and praying that Civil Case No. 02-0063 be remanded to
the court a quo for further proceedings.

The petition is impressed with merit.

At the outset, we take note of the fact that the 2-year prohibition against
employment in a competing company which petitioner seeks to enforce thru
injunction, had already expired sometime in February 2004. Necessarily, upon the
expiration of said period, a suit seeking the issuance of a writ of injunction
becomes functus oficio and therefore moot. As things go, however, it was not
possible for us, due to the great number of cases awaiting disposition, to have
decided the instant case earlier. However, the issue of damages remains
unresolved. InPhilippine National Bank v. CA,5 we declared:
In the instant case, aside from the principal action for damages, private respondent
sought the issuance of a temporary restraining order and writ of preliminary
injunction to enjoin the foreclosure sale in order to prevent an alleged irreparable
injury to private respondent. It is settled that these injunctive reliefs are
preservative remedies for the protection of substantive rights and interests.
Injunction is not a cause of action in itself but merely a provisional remedy, an
adjunct to a main suit. When the act sought to be enjoined ha[s] become fait
accompli, only the prayer for provisional remedy should be denied. However, the
trial court should still proceed with the determination of the principal action so that
an adjudication of the rights of the parties can be had.
Along similar vein, the damage aspect of the present suit was never rendered moot
by the lapse of the 2-year prohibitive period against employment in a competing
company.
This brings us to the sole issue of whether petitioner's claim for damages arose from
employer-employee relations between the parties.
We rule in the negative.
Actually, the present case is not one of first impression. In a kindred case, Dai-Chi
Electronics Manufacturing vs. Villarama,6 with a substantially similar factual
backdrop, we held that an action for breach of contractual obligation is intrinsically
a civil dispute.
There, a complaint for damages was filed with the regular court by an employer
against a former employee who allegedly violated the non-compete provision of
their employment contract when, within two years from the date of the employees
resignation, he applied with, and was hired by a corporation engaged in the same

line of business as that of his former employer. The employer sought to recover
liquidated damages. The trial court ruled that it had no jurisdiction over the subject
matter of the controversy because the complaint was for damages arising from
employer-employee relations, citing Article 217 (4) of the Labor Code, as amended
by R.A. No. 6715, which stated that it is the Labor Arbiter who had original and
exclusive jurisdiction over the subject matter of the case.
When the case was elevated to this Court, we held that the claim for damages did
not arise from employer-employee relations, to wit:
Petitioner does not ask for any relief under the Labor Code of the Philippines. It
seeks to recover damages agreed upon in the contract as redress for private
respondents breach of his contractual obligation to its "damage and prejudice".
Such cause of action is within the realm of Civil Law, and jurisdiction over the
controversy belongs to the regular courts. More so when we consider that the
stipulation refers to the post-employment relations of the parties.
[W]hile seemingly the cause of action arose from employer-employee relations, the
employers claim for damages is grounded on wanton failure and refusal without
just cause to report to duty coupled with the averment that the employee
maliciously and with bad faith violated the terms and conditions of the contract to
the damage of the employer. Such averments removed the controversy from the
coverage of the Labor Code of the Philippines and brought it within the purview of
Civil Law.
Indeed, jurisprudence has evolved the rule that claims for damages under
paragraph 4 of Article 217, to be cognizable by the Labor Arbiter, must have a
reasonable causal connection with any of the claims provided for in that article.
Only if there is such a connection with the other claims can a claim for damages be
considered as arising from employer-employee relations.
Article 217, as amended by Section 9 of RA 6715, provides:
Art. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as
otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:

xxx xxx xxx

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;"
xxx xxx xxx
In San Miguel Corporation vs. National Labor Relations Commission, 7 we had
occasion to construe Article 217, as amended by B.P. Blg. 227. Article 217 then
provided that the Labor Arbiter had jurisdiction over all money claims of workers,
but the phrase arising from employer-employee relation was deleted. We ruled
thus:
While paragraph 3 above refers to "all money claims of workers," it is not necessary
to suppose that the entire universe of money claims that might be asserted by
workers against their employers has been absorbed into the original and exclusive
jurisdiction of Labor Arbiters. In the first place, paragraph 3 should be read not in
isolation from but rather within the context formed by paragraph 1 (relating to
unfair labor practices), paragraph 2 (relating to claims concerning terms and
conditions of employment), paragraph 4 (claims relating to household services, a
particular species of employer-employee relations), and paragraph 5 (relating to
certain activities prohibited to employees or employers). It is evident that there is a
unifying element which runs through paragraph 1 to 5 and that is, that they all refer
to cases or disputes arising out of or in connection with an employer-employee
relationship. This is, in other words, a situation where the rule of noscitur a
sociis may be usefully invoked in clarifying the scope of paragraph 3, and any other
paragraph of Article 217 of the Labor Code, as amended. We reach the above
conclusion from an examination of the terms themselves of Article 217, as last
amended by B.P. Blg 227, and even though earlier versions of Article 217 of the
Labor Code expressly brought within the jurisdiction of the Labor Arbiters and the
NLRC "cases arising from employer-employee relations," which clause was not
expressly carried over, in printers ink, in Article 217 as it exists today. For it cannot
be presumed that money claims of workers which do not arise out of or in
connection with their employer-employee relationship, and which would therefore
fall within the general jurisdiction of regular courts of justice, were intended by the
legislative authority to be taken away from the jurisdiction of the courts and lodged
with Labor Arbiters on an exclusive basis. The Court, therefore, believes and so

holds that the "money claims of workers" referred to in paragraph 3 of Article 217
embraces money claims which arise out of or in connection with the employeremployee relationship, or some aspect or incident of such relationship. Put a little
differently, that money claims of workers which now fall within the original and
exclusive jurisdiction of Labor Arbiters are those money claims which have
some reasonable causal connection with the employer-employee relationship.
When, as here, the cause of action is based on a quasi-delict or tort, which has no
reasonable causal connection with any of the claims provided for in Article 217,
jurisdiction over the action is with the regular courts. 8
As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks
to recover damages based on the parties contract of employment as redress for
respondent's breach thereof. Such cause of action is within the realm of Civil Law,
and jurisdiction over the controversy belongs to the regular courts. More so must
this be in the present case, what with the reality that the stipulation refers to the
post-employment relations of the parties.
For sure, a plain and cursory reading of the complaint will readily reveal that the
subject matter is one of claim for damages arising from a breach of contract, which
is within the ambit of the regular courts jurisdiction. 9
It is basic that jurisdiction over the subject matter is determined upon the
allegations made in the complaint, irrespective of whether or not the plaintiff is
entitled to recover upon the claim asserted therein, which is a matter resolved only
after and as a result of a trial. Neither can jurisdiction of a court be made to depend
upon the defenses made by a defendant in his answer or motion to dismiss. If such
were the rule, the question of jurisdiction would depend almost entirely upon the
defendant.10
ACCORDINGLY, the assailed orders of the lower court are SET ASIDE and Civil
Case No. 02-0063 REMANDEDto it for trial on the merits of the main claim for
damages.
SO ORDERED.
G.R. No. 79004-08 October 4, 1991
FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY
MAGALLANES AND 4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES and 4
OTHERS, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL
MILLING CORPORATION and/or FELICIANO LUPO, respondents.
Public Attorney's Office for petitioners.
Joseph M. Baduel & Steve R. Siclot for private respondents.

MELENCIO-HERRERA, J.:
The liability of an employer in job contracting, vis-a-vis his contractor's employees,
is the sole issue brought to the fore in this labor dispute.
This Petition for certiorari seeks to set aside the Resolution, dated 27 February
1987, of public respondent National Labor Relations Commission (NLRC), Third
Division, which reversed the Resolution of its First Division, dated 27 December
1985, and absolved private respondent General Milling Corporation (GMC) from any
and all liability to petitioners.
Sometime in 1983, private respondent Feliciano LUPO, a building contractor,
entered into a contract with GMC, a domestic corporation engaged in flour and
feeds manufacturing, for the construction of an annex building inside the latter's
plant in Cebu City. In connection with the aforesaid contract, LUPO hired herein
petitioners either as carpenters, masons or laborers.
Subsequently, LUPO terminated petitioners' services, on different dates. As a result,
petitioners filed Complaints against LUPO and GMC before the NLRC Regional
Arbitration Branch No. VII, Cebu City, for unpaid wages, COLA differentials, bonus
and overtime pay.
In a Decision, dated 21 November 1984, the Executive Labor Arbiter, Branch VII,
found LUPO and GMC jointly and severally liable to petitioners, premised on Article
109 of the Labor Code, infra, and ordered them to pay the aggregate amount of
P95,382.92. Elevated on appeal on 14 December 1984, the NLRC (First Division)
denied the same for lack of merit in a Resolution, dated 27 December 1985.
Upon Motion for Reconsideration, filed on 27 February 1986, the case was
reassigned to the Third Division. In a Resolution of 27 February 1987, that Division
absolved GMC from any liability. It opined that petitioners were only hired by LUPO

as workers in his construction contract with GMC and were never meant to be
employed by the latter.
Petitioners now assail that judgment in this Petition for Certiorari.
Petitioners contend that GMC is jointly and severally liable with LUPO for the latter's
obligations to them. They seek recovery from GMC based on Article 106 of the Labor
Code, infra, which holds the employer jointly and severally liable with his contractor
for unpaid wages of employees of the latter.
In his "Manifestation in lieu of Comment," the Solicitor General recognizes the
solidary liability of GMC and LUPO but bases recovery on Article 108 of the Labor
Code, infra, contending that inasmuch as GMC failed to require them LUPO a bond
to answer for the latter's obligations to his employees, as required by said provision,
GMC should, correspondingly, be deemed solidarily liable.
In their respective Comments, both GMC and the NLRC maintain that Article 106
finds no application in the instant case because it is limited to situations where the
work being performed by the contractor's employees are directly related to the
principal business of the employer. The NLRC further opines that Article 109 on
"Solidary Liability" finds no application either because GMC was neither petitioners'
employer nor indirect employer.
Upon the facts and circumstances, we uphold the solidary liability of GMC and LUPO
for the latter's liabilities in favor of employees whom he had earlier employed and
dismissed.
Recovery, however, should not be based on Article 106 of the Labor Code. This
provision treats specifically of "labor-only" contracting, which is not the set-up
between GMC and LUPO.
Article 106 provides:
Art. 106. Contractor or subcontractor. Whenever an employer enters
into a contract with another person for the performance of the former's
work, the employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance with the provisions of
this Code.
In the event that the contractor or subcontractor fails to pay the wages
of his employees in accordance with this Code, the employer shall be

jointly and severally liable with his contractor or subcontractor to such

employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly
employed by him.
xxx xxx xxx
There is "labor-only" contracting where the person supplying workers
to an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the
latter were directly employed by him (Emphasis supplied).
In other words, a person is deemed to be engaged in "labor only" contracting where
(1) the person supplying workers to an employer does not have substantial capital
or investment in the form of tools, equipment, machineries, work premises, among
others; and (2) the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer (See
Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code;
emphasis supplied).
Since the construction of an annex building inside the company plant has no
relation whatsoever with the employer's business of flour and feeds manufacturing,
"labor-only" contracting does not exist. Article 106 is thus inapplicable.
Instead, it is "job contracting," covered by Article 107, which is involved, reading:
Art. 107. Indirect Employer. The provisions of the immediately
preceding Article shall likewise apply to any person, partnership,
association or corporation which, not being an employer, contracts
with an independent contractor for the performance of any work, task,
job or project. (Emphasis supplied).
Specifically, there is "job contracting" where (1) the contractor carries on an
independent business and undertakes the contract work on his own account under
his own responsibility according to his own manner and method, free from the

control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and (2) the contractor has
substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business. It
may be that LUPO subsequently ran out of capital and was unable to satisfy the
award to petitioners. That was an after-the-fact development, however, and does
not detract from his status as an independent contractor.
Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a
contract with an independent contractor, LUPO, for the construction of an annex
building, a work, task, job or project not directly related to GMC's business of flour
and feeds manufacturing. Being an "indirect employer," GMC is solidarily liable with
LUPO for any violation of the Labor Code pursuant to Article 109 thereof, reading:
Art. 109. Solidary Liability. The provisions of existing laws to the
contrary notwithstanding, every employer or indirect employer shall be
held responsible with a contractor or subcontractor for any violation of
any provision of this Code. For purposes of determining the extent of
their civil liability under this Chapter, they shall be considered as direct
employers.
The provision of existing law referred to is Article 1728 of the Civil Code, which
states, among others, that "the contractor is liable for all the claims of laborers and
others employed by him ..."
The foregoing interpretation finds a precedent in the case o Deferia v. NLRC (G.R.
No. 78713, 27 February 1991) per Sarmiento, J., where Articles 107 and 109 were
applied as the statutory basis for the joint and several liability of the employer with
his contractor, in addition to Article 106, since the situation in that case was clearly
one of "labor-only" contracting.
The NLRC submission that Article 107 is not applicable in the instant case for the
reason that the coverage thereof is limited to one "not an employer" whereas GMC
is such an employer as defined in Article 97 (b) of the Labor Code, 1 is not welltaken. Under the peculiar set-up herein, GMC is, in fact, "not an employer" (in the
sense of not being a direct employer) as understood in Article 106 of the Labor
Code, but qualifies as an "indirect employer" under Article 107 of said Code.

The distinction between Articles 106 and 107 was in the fact that Article 106 deals
with "labor-only" contracting. Here, by operation of law, the contractor is merely
considered as an agent of the employer, who is deemed "responsible to the workers
to the same extent as if the latter were directly employed by him." On the other
hand, Article 107 deals with "job contracting." In the latter situation, while the
contractor himself is the direct employer of the employees, the employer is
deemed, by operation of law, as an indirect employer.
In other words, the phrase "not an employer" found in Article 107 must be read in
conjunction with Article 106. A contrary interpretation would render the provisions
of Article 107 meaningless considering that everytime an employer engages a
contractor, the latter is always acting in the interest of the former, whether directly
or indirectly, in relation to his employees.
It should be recalled that a finding that a contractor is a "labor-only" contractor is
equivalent to declaring that there is an employer-employee relationship between
the owner of the project and the employees of the "labor-only" contractor
(Associated Anglo-American Tobacco Corp. v. Clave, G.R. No. 50915, 30 August
1990, 189 SCRA 127; Industrial Timber Corp. v. NLRC, G.R. No. 83616, 20 January
1989, 169 SCRA 341). This is evidently because, as heretofore stated, the "laboronly" contractor is considered as a mere agent of an employer. In contrast, in "job
contracting," no employer-employee relationship exists between the owner and the
employees of his contractor. The owner of the project is not the direct employer but
merely an indirect employer, by operation of law, of his contractor's employees.
As an indirect employer, and for purposes of determining the extent of its civil
liability, GMC is deemed a "direct employee" of his contractor's employees pursuant
to the last sentence of Article 109 of the Labor Code. As a consequence, GMC can
not escape its joint and solidary liability to petitioners.
Further, Article 108 of the Labor Code requires the posting of a bond to answer for
wages that a contractor fails to pay, thus:
Article 108. Posting of Bond. An employer or indirect employer may
require the contractor or subcontractor to furnish a bond equal to the
cost of labor under contract, on condition that the bond will answer for
the wages due the employees showed the contractor or subcontractor,
as the case may be, fails to pay the same.

Having failed to require LUPO to post such a bond, GMC must answer for whatever
liabilities LUPO may have incurred to his employees. This is without prejudice to its
seeking reimbursement from LUPO for whatever amount it will have to pay
petitioners.
WHEREFORE, the Petition for certiorari is GRANTED. The Resolution of respondent
NLRC, Third Division, dated 27 February 1987, is hereby SET ASIDE, and the
Decision of the Labor Arbiter, dated 21 November 1984, is hereby REINSTATED.
SO ORDERED.

G.R. No. 68786 July 21, 1989

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HONORABLE NATIONAL LABOR RELATIONS COMMISSION, EDILBERTO
SALAYON, RICARDO ARINDUQUE, GLORIA AUREA, MANUEL DIZON,
RODOLFO ENCARNACION, ROMEO ESPINO, JOSE NARANON, ROLANDO
MARTINEZ, DANILO MEJIA, NICOLAS MERINO, EDUARDO MUOZ,
EVANGELINE NOCON, MODESTO ORDONEZ, MANUEL PELAYO, IRENEO
QUIJANO, PONCIANO ULEP, CONSOLITA VILLAVERT, PACIFICO E. MARCOS,
MARIANITO L. SANTOS, LIONG CIO CHANG, JOSE OSIAS, NAPOLEON M.
GAMO, SALOME L. SANTOS, ENRIQUE BAKING, ZACARIAS DACLISON,
EDUARDO DOBLE, WILSON DULLAS, TEODORO LOPEZ, MARILYN LUSUNG,
TEOFILO MARINGAS, ANDRES MICLAT, MARCIAL PALMA, CLEMENTE
REGALA, JR., ERNESTO ROQUE, and CONSOLIDATED SUGAR CORPORATION
OF THE PHILIPPINES, respondents.

PARAS, J.:
Challenged in this petition for certiorari is the validity of the decision of the National
Labor Relations Commission (NLRC for brevity) dated September 25,1984 in NLRC
Case No. RAB-III-2-492-82 entitled "Edilberto Salayon et al. vs. Development Bank of
the Philippines (DBP for brevity) and Consolidated Sugar Corporation of the
Philippines" which affirmed the decision of the labor arbiter Andres B. Palumbarit

sustaining the complaint for unpaid salaries and wages, allowances and separation
pay against petitioner DBP.
The facts as narrated by the Solicitor General are as follows:
In 1967, CAREBI secured a loan from petitioner DBP, constituting a
mortgage on its sugar mill-refinery in Botolan, Zambales. On July 22,
1977, and upon failure of CAREBI to pay, DBP instituted a foreclosure
sale of the property in which DBP itself was the highest bidder
(Records, Motion for Reconsideration, Annex A; Certificate of Sale, pp.
000113-23).
After the sale, CAREBI continued to manage and operate the business
until it finally ceased operation on April 30, 1978. On the same day,
CAREBI laid off respondent-employees then working in the sugar millrefinery Without, however, paying their separation benefits.
Meantime, Dr. Pacifico E. Marcos, then President of CAREBI, along with
four (4) others, namely: Marianito Santos, Jose Z. Osias, Cesar N.
Barretto, and Liong Cio Chang, formed another corporation, the
Consolidated Sugar Corporation (CSC for brevity), which in turn
proposed a management contract with DBP respecting the same sugar
mill-refinery (Letters dated June 1978 and August 8,1978).
On August 8, 1978, DBP agreed to continue the business under the
management and operation of the newly-organized CSC. In view
thereof, respondent-employees who were previously laid off were
recalled to work (Management Contract, August 8,1978).
The management contract provided among others, that:
1. DBP shall undertake to pay the cost of rehabilitation
and repair of the mill and refinery equipment based on
CSC's prepared estimates to be reviewed by DBP;
2. DBP shall designate a comptroller and an assistant
comptroller to motor the management and operations of
the sugar mill-refinery and to draw checks covering the
operational expenses, respectively;

3. DBP shall approve all monthly budgets and projections

on operations of the sugar-mill refinery;
4. CSC shall handle all operational revenues and income.
All expenses relating to operations shall be deducted
therefrom;
5. Salaries and compensation of the CSC management
group plus a management fee to CSC of P25,000.00 a
month shall be funded out of CAREBI's operations so that
should the net cash balance from CAREBI's operations be
less than P200,000.00 (equivalent to the management fee
for eight month's milling period at P25,000.00 per month),
then such smaller balance is all that shall be paid to CSC
as management fee. Only cash balance in excess of the
foregoing shall accrue to DBP;
6. CSC agrees and binds itself to hold DBP free and
unharmed from any costs, expenses, accountabilities and
other liabilities of any form, kind or character which may
arise from the use, management and operation of the
sugar mill-refinery. (id).
During the operation, DBP, in addition to the foregoing, actually held and controlled
six (6) out of eleven (11) seats in the CSC Board of Directors,
On September 23,1981, or after two years and one month, DBP Board of Governors,
through Resolution No. 3035, resolved and approved the:
1. Termination of the management contract with CSC;
2. Assumption by DBP of the payment of back salaries and
allowances including separation pay of CAREBI employees
entitled thereto. (Resolution No. 3035).
Consequently, in its letter of September 29, 1981 (received by CSC and
respondent employees on September 5 and 7, respectively), DBP
terminated the contract effective on the following day, September 30,
1981 (Letter dated September 29, 1981).

In November 1981 some 77 employees filed a case against petitioner

DBP and respondent CSC, docketed as NLRC Case No. RB-111-10-23881 for backwages, ECOLA (July 1,-Oct. 8, 1981) and separation pay
computed from their original employment with CAREBI.
While the case was pending, DBP, by way of compromise, paid
claimants the collective amount of P164,597.53, entitling each to an
average amount of P2,137.63. In turn, claimants withdrew the case
and executed the corresponding quitclaim in favor of DBP and CSC.
On February 4, 1982, other 18 employees, different from the previous
claimants, filed similar claims against DBP and CSC (Complaint,
February 4, 1982).
CSC and the 18 complainants plus 16 additional claimants (including
the 4 CSC corporate officers not previously included in the complaint,
filed their respective position papers imputing liability to DBP, all
claiming to have become DBP's employees upon its acquisition of the
sugar mill-refinery and subsequent continuation of the business under
the management of CSC.
On the other hand DBP did not file its position paper." (Rollo, pp. 152155).
On April 19, 1982, Labor Arbiter Andres B. Palumbarit rendered a decision the
decretal portion of which reads:
WHEREFORE, premises considered, the complaint is hereby sustained
and respondent DBP is ordered to pay the following:
1. The amount of P 35,198.68 as allowance from July 1 to
October 8,1981 of herein complainants;
2. P170,211.01 as unpaid salaries and wages of herein
complainants from July 1 to October 8, 1981;
3. P507,260.00 as separation or termination pay of herein
complainants for the length of services rendered by them
as indicated in Annex "N" of the complainants position
paper;

4. The amount corresponding to the 10% of the

allowances and wages combined, constituting as
Attorney's fee pursuant to Section II of Rule VII Book II of
the Implementing Rules and Regulations of the Labor
Code or P20,540.96. (lbid., p. 20).
On appeal to the NLRC, aforecited decision was affirmed and the appeal dismissed
for lack of merit.
Hence the instant petition.
Petitioner raised the following assignments of error:
1. RESPONDENT COMMISSION ERRED IN FINDING THAT DBP IS DEEMED
TO HAVE STEPPED INTO THE SHOES OF CAREBI AND ASSUMED ITS
LIABILITIES INSOFAR AS THE EMPLOYEES ARE CONCERNED.
2. RESPONDENT COMMISSION ERRED IN FINDING THAT THE
EMPLOYEES OF CAREBI BECAME EMPLOYEES OF DBP.
3. RESPONDENT COMMISSION ERRED IN FINDING THAT THE
OPERATIONS OF CAREBI SUGAR MILL REFINERY COMPLEX BELONGED
TO AND WERE FOR THE ACCOUNT OF DBP.
4. RESPONDENT COMMISSION ERRED IN NOT SUSTAINING DBP'S STAND
THAT AS PER MANAGEMENT CONTRACT CSC AGREED TO USE, MANAGE
AND OPERATE THE SUGAR MILL REFINERY COMPLEX AND AGREE TO
ABSOLVE DBP FROM ANY COSTS, EXPENSES, ACCOUNTABILITIES AND
OTHER LIABILITIES AND THAT CSC OPERATED THE SUGAR MILL FOR ITS
ACCOUNT.
5. RESPONDENT COMMISSION ERRED IN FINDING THAT CSC ACTIVITIES
WERE LIMITED TO THE OPERATION/MANAGEMENT OF THE SUGAR MILL
REFINERY COMPLEX OR THAT THERE IS UTTERLY WANT OF PROOF THAT
CSC WAS ENGAGED IN ANY OTHER BUSINESS.
6. RESPONDENT COMMISSION ERRED IN CONSIDERING IN THE
COMPUTATION OF THE AWARD SERVICES RENDERED BY THE
AWARDEES TO CAREBI (PHIL.) INC.
7. ASSUMING WITHOUT ADMITTING THAT THE PRIVATE RESPONDENTS
BECAME THE EMPLOYEES OF DBP, THEN IN THIS CASE THE PROVISIONS

OF THE LABOR CODE ARE NOT APPLICABLE IN THIS INSTANT CASE AND
THE LABOR ARBITER AND THE RESPONDENT NLRC HAS NO
JURISDICTION OVER THE PERSONS OF THE PRIVATE RESPONDENTS
AND DBP. (pp. 290-291, Rollo).
The crux of the matter is whether or not the NLRC misappreciated the facts and
proceeded with erroneous conclusions of law.
There is no question that private respondents have not received benefits legally due
them. The question is who between petitioner DBP and respondent CSC is liable to
pay the private respondents.
The Labor Arbiter and the NLRC found as fact that petitioner DBP and not
respondent CSC was the employer of private respondents.
Petitioner, however, insists that respondent CSC is private respondents' employer as
they have been under the direct control and supervision of the said corporation and
that the payment of their salaries were funded out of the CSC's operations as
embodied in the management contract. Moreover, private respondents are the
former employees of the defunct CAREBI (Phil.). Their subsequent re-hiring
undertaken by respondent CSC does not in any way bind the petitioner, much less
makes it liable for the money claims.
It is well-settled that the question of whether or not an employer-employee
relationship exists between the parties is a question of fact and that findings of fact
of the NLRC are accorded by this Court not only respect but finality, if supported by
substantial evidence (Asim et al. v. Castro, G.R. Nos. 7506364, June 30, 1988).
(Italics supplied).
Contrary to the findings of the labor arbiter and the NLRC, the following
circumstances belie the existence of an employer-employee relationship between
the private respondents and petitioner DBP:
1. Upon petitioner DBP's foreclosure of CAREBI's assets and the
consequent expiration of their management contract, private
respondent employees' services were terminated by Carebi President
Pacifico E. Marcos by virtue of a memorandum dated April 29, 1978
(Rollo, p. 90);

2. Respondent CSC conformably agreed to use, manage, and operate

the sugar mill-refinery complex at Botolan, Zambales belonging to
petitioner DBP (Annex "3", supplemental petition, p. 95, Rollo);
3. CAREBI (Phil.) Inc. president Pacifico E. Marcos, who later became
president of respondent CSC personally undertook to obtain the reemployment of private respondents after cessation of operation of
CAREBI (Phil.) Inc. (Annex "l-A", lbid., p. 90);
4. Respondent CSC is an independent contractor which has an
authorized capital of P 20,000,000.00 and already has an initial paid up
capital of P l,000,000.00; (Annex "2", Ibid., p. 91);
5. Respondent CSC admittedly provided the manning requirements of
the sugar mill-refinery complex 'limited to only 446 personnel instead
of Carebi's usual force of 691 or a reduction of 245 men' (lbid., P. 93);
6. The management contract between petitioner DBP and respondent
CSC specifically provided that the 'salaries and compensation of the
CSC management group plus a management fee to CSC of P25,000.00
a month shall be funded out of CAREBI's operations so that should the
net cash balance from CAREBI's operations be less than P200,000.00
(equivalent to the management fee for eight month's milling period at
P25,000.00 per month), then such smaller balance is all that shall be
paid to CSC as management fee. Only cash balance in excess of the
foregoing shall accrue to DBP' (Rollo pp. 153-154);
7. The projected Expenses/Fund Requirements for the months of
September & October 1978 of respondent CSC shows that the latter
shall be responsible for the funding of operating expenses of the sugar
mill-refinery complex such as salaries and wages, SSS, medicare,
Employee compensation, and Maternity Contribution, Emergency
Allowance (PD 525 & 1123), Miscellaneous & Indirect Expenses,
General & Administrative Expenses and Light and Power (Zambales)
(Rollo, p. 104).
In determining the existence of employer-employee relationship, the following
elements are generally considered, namely: (1) the selection and engagement of
the employee; (2) the payment of wages; (3) the power of dismissal; (4) the power

to control the employee's conduct although the latter is the most important element
(Brotherhood Labor Unity Movement of the Philippines v. Zamora, 147 SCRA 49
[1987]; Social Security System v. Court of Appeals, 156 SCRA 383 [1987]; Broadway
Motors Inc. v. NLRC, 156 SCRA 522 [1987]; Bautista v. Inciong, 158 SCRA 668 [1988]
and (Asim et al. v. Castro, supra).
Respondent CSC is an independent contractor which employed the private
respondents for the specific purpose of managing and operating the said sugar millrefinery complex. It was respondent CSC which exercised the right of control over
the conduct of private respondents in the performance of their functions and
petitioner DBP never had a hand over their supervision. The right of control test
"where the person for whom the services are performed reserves a right to control
not only the end to be achieved but also the means to be used in reaching such
end" belonging to respondent CSC is determinative of the existence of an employeremployee relationship (Sevilla vs. Court of Appeals, 160 SCRA 179-180 [1988]).
Absent the power to control the employees with respect to the means and methods
by which their work was to be accomplished, there was no employer-employee
relationship between the petitioner DBP and private respondents. Hence, there is no
basis for an award of unpaid allowances, salaries and wages and separation pay
against petitioner DBP. (Continental Marble Corp., et al., vs. NLRC, G.R. No. L-43825,
May 9,1988).
But respondent CSC which is apparently private respondents' employer is obliged to
pay the same.
Anent the finding of NLRC that petitioner DBP stepped into the shoes of Carebi and
assumed its liabilities insofar as the employees are concerned, the said ruling
appears implausible since the liabilities incurred by the old owner of the
establishment to his employees prior to the sale will not be enforceable against the
transferee unless the latter expressly assumed the same, or the sale was made in
bad faith (Fernando vs. Angat Labor Union 5 SCRA 251 [1962]; Cruz vs. Philippine
Association of Free Labor Unions (PAFLU) 42 SCRA 77 [1971]), which circumstances
are not obtaining in the case at bar.
PREMISES CONSIDERED, (a) The petition is GRANTED; (b) the appealed decision of
the NLRC is REVERSED and SET ASIDE and (c) the complaint against the petitioner
DBP is DISMISSED.

SO ORDERED.

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 decision 2 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 non-payment of 13th month
pay.5
Private respondent Regent Food Corporation, on the other hand, maintains that no
employer-employee 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 Service6 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:
1. Peninsula Manpower Company Inc. is declared as employer of the
complainant;
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
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 $1 27 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 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.
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.
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
2. Promo Girl
3. Factory Worker
4. Driver33
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 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.
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 invoices 39 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 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.

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 hearing 49 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.

G.R. Nos. 97008-09 July 23, 1993

VIRGINIA G. NERI and JOSE CABELIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST
COMPANY (FEBTC) and BUILDING CARE CORPORATION, respondents.
R.L. Salcedo & Improso Law Office for petitioners.
Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for Bldg. Care Corp.
Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.

BELLOSILLO, J.:
Respondents are sued by two employees of Building Care Corporation, which
provides janitorial and other specific services to various firms, to compel Far Bast
Bank and Trust Company to recognize them as its regular employees and be paid
the same wages which its employees receive.
Building Care Corporation (BCC, for brevity), in the proceedings below, established
that it had substantial capitalization of P1 Million or a stockholders equity of P1.5
Million. Thus the Labor Arbiter ruled that BCC was only job contracting and that
consequently its employees were not employees of Far East Bank and Trust
Company (FEBTC, for brevity). on appeal, this factual finding was affirmed by
respondent National Labor Relations Commission (NLRC, for brevity). Nevertheless,
petitioners insist before us that BCC is engaged in "labor-only" contracting hence,
they conclude, they are employees of respondent FEBTC.
Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were
hired by, respondent BCC, a corporation engaged in providing technical,
maintenance, engineering, housekeeping, security and other specific services to its
clientele. They were assigned to work in the Cagayan de Oro City Branch of
respondent FEBTC on 1 May 1979 and 1 August 1980, respectively, Neri an
radio/telex operator and Cabelin as janitor, before being promoted to messenger on
1 April 1989.
On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before
Regional Arbitration Branch No. 10 of the Department of Labor and Employment to

compel the bank to accept them as regular employees and for it to pay the
differential between the wages being paid them by BCC and those received by
FEBTC employees with similar length of service.
On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of
merit. 1 Respondent BCC was considered an independent contractor because it
proved it had substantial capital. Thus, petitioners were held to be regular
employees of BCC, not FEBTC. The dismissal was appealed to NLRC which on 28
September 1990 affirmed the decision on appeal. 2 On 22 October 1990, NLRC
denied reconsideration of its affirmance, 3 prompting petitioners to seek redress
from this Court.
Petitioners vehemently contend that BCC in engaged in "labor-only" contracting
because it failed to adduce evidence purporting to show that it invested in the form
of tools, equipment, machineries, work premises and other materials which are
necessary in the conduct of its business. Moreover, petitioners argue that they
perform duties which are directly related to the principal business or operation of
FEBTC. If the definition of "labor-only" contracting 4 is to be read in conjunction with
job contracting, 5 then the only logical conclusion is that BCC is a "labor only"
contractor. Consequently, they must be deemed employees of respondent bank by
operation of law since BCC is merely an agent of FEBTC following the doctrine laid
down in Philippine Bank of Communications v. National Labor Relations
Commission 6 where we ruled that where "labor-only" contracting exists, the Labor
Code itself establishes an employer-employee relationship between the employer
and the employees of the "labor-only" contractor; hence, FEBTC should be
considered the employer of petitioners who are deemed its employees through its
agent, "labor-only" contractor BCC.
We cannot sustain the petition.
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. 7 BCC is
therefore a highly capitalized venture and cannot be deemed engaged in "laboronly" contracting.

It is well-settled that there is "labor-only" contracting where: (a) the person

supplying workers to an employer does not have substantial capital or investment in
the form of tools, equipment, machineries, work premises, among others; and, (b)
the workers recruited and placed by such person are performing activities which are
directly related to the principal business of the employer. 8
Article 106 of the Labor Code defines "labor-only" contracting thus
Art. 106. Contractor or subcontractor. . . . . There is "labor-only"
contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the
workers recruited by such persons are performing activities which are
directly related to the principal business of such employer . . . .
(emphasis supplied).
Based on the foregoing, BCC cannot be considered a "labor-only" contractor
because it has substantial capital. While there may be no evidence that it has
investment in the form of tools, equipment, machineries, work premises, among
others, it is enough that it has substantial capital, as was established before the
Labor Arbiter as well as the NLRC. In other words, the law does not require both
substantial capital and investment in the form of tools, equipment, machineries, etc.
This is clear from the use of the conjunction "or". If the intention was to require the
contractor to prove that he has both capital and the requisite investment, then the
conjunction "and" should have been used. But, having established that it has
substantial capital, it was no longer necessary for BCC to further adduce evidence
to prove that it does not fall within the purview of "labor-only" contracting. There is
even no need for it to refute petitioners' contention that the activities they perform
are directly related to the principal business of respondent bank.
Be that as it may, the Court has already taken judicial notice of the general practice
adopted in several government and private institutions and industries of hiring
independent contractors to perform special services. 9These services range from
janitorial,

10

security

11

and even technical or other specific services such as those

performed by petitioners Neri and Cabelin. While these services may be considered
directly related to the principal business of the employer,

12

nevertheless, they are

not necessary in the conduct of the principal business of the employer.

In fact, the status of BCC as an independent contractor was previously confirmed by

this Court in Associated Labor Unions-TUCP v. National Labor Relations
Commission,

13

where we held thus

The public respondent ruled that the complainants are not employees
of the bank but of the company contracted to serve the bank. Building
Care Corporation is a big firm which services, among others, a
university, an international bank, a big local bank, a hospital center,
government agencies, etc. It is a qualified independent contractor. The
public respondent correctly ruled against petitioner's contentions . . . .
(Emphasis supplied).
Even assuming ex argumenti that petitioners were performing activities directly
related to the principal business of the bank, under the "right of control" test they
must still be considered employees of BCC. In the case of petitioner Neri, it is
admitted that FEBTC issued a job description which detailed her functions as a
radio/telex operator. However, a cursory reading of the job description shows that
what was sought to be controlled by FEBTC was actually the end-result of the
task, e.g., that the daily incoming and outgoing telegraphic transfer of funds
received and relayed by her, respectively, tallies with that of the register. The
guidelines were laid down merely to ensure that the desired end-result was
achieved. It did not, however, tell Neri how the radio/telex machine should be
operated. In the Shipside case,

14

we ruled

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

workers), SHIPSIDE occasionally issued instructions to them, that alone
does not in the least detract from the fact that only STEVEDORES is the
employer of the private respondents, for in legal contemplation, such
instructions carry no more weight than mere requests, the privity of
contract being between SHIPSIDE and STEVEDORES . . . .
Besides, petitioners do not deny that they were selected and hired by BCC before
being assigned to work in the Cagayan de Oro Branch of FFBTC. BCC likewise
acknowledges that petitioners are its employees. The record is replete with
evidence disclosing that BCC maintained supervision and control over petitioners
through its Housekeeping and Special Services Division: petitioners reported for

work wearing the prescribed uniform of BCC; leaves

of absence were filed directly with BCC; and, salaries were drawn only from BCC.

15

As a matter of fact, Neri even secured a certification from BCC on 16 May 1986 that
she was employed by the latter. On the other hand, on 24 May 1988, Cabelin filed a
complaint for underpayment of wages, non-integration of salary adjustments
mandated by Wage Orders Nos. 5 & 6 and R.A. 6640 as well as for illegal
deduction

16

against BCC alone which was provisionally dismissed on 19 August 1988

upon Cabelin's manifestation that his money claim was negligible.

17

More importantly, under the terms and conditions of the contract, it was BCC alone
which had the power to reassign petitioners. Their deployment to FEBTC was not
subject to the bank's acceptance. Cabelin was promoted to messenger because the
FEBTC branch manager promised BCC that two (2) additional janitors would be hired
from the company if the promotion was to be effected.

18

Furthermore, BCC was to

be paid in lump sum unlike in the situation in Philippine Bank of

Communications

19

where the contractor, CESI, was to be paid at a daily rate on a

per person basis. And, the contract therein stipulated that the CESI was merely to
provide manpower that would render temporary services. In the case at bar, Neri
and Cabelin were to perform specific special services. Consequently, petitioners
cannot be held to be employees of FEBTC as BCC "carries an independent business"
and undertaken the performance of its contract with various clients according to its
"own manner and method, free from the control and supervision" of its principals in
all matters "except as to the results thereof."

20

Indeed, the facts in Philippine Bank of Communications do not square with those of
the instant case. Therein, the Court ruled that CESI was a "labor-only" contractor
because upholding the contract between the contractor and the bank would in
effect permit employers to avoid the necessity of hiring regular or permanent
employees and would enable them to keep their employees indefinitely on a
temporary or casual basis, thus denying them security of tenure in their jobs. This of
course violates the Labor Code. BCC has not committed any violation. Also, the
former case was for illegal dismissal; this case, on the other hand, is for conversion
of employment status so that petitioners can receive the same salary being given to
regular employees of FEBTC. But, as herein determined, petitioners are not regular
employees of FEBTC but of BCC. At any rate, the finding that BCC in a qualified

independent contractor precludes us from applying the Philippine Bank of

Communications doctrine to the instant petition.
The determination of employer-employee relationship involves factual
findings.

21

Absent any grave abuse of discretion, and we find none in the case

before us, we are bound by the findings of the Labor Arbiter as affirmed by
respondent NLRC.
IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.
SO ORDERED.

G.R. No. 144672

July 10, 2003

SAN MIGUEL CORPORATION, petitioner,

vs.
MAERC INTEGRATED SERVICES, INC.; and EMERBERTO ORQUE, ROGELIO
PRADO, JR., EDDIE SELLE, ALEJANDRO ANNABIEZA, ANNIAS JUAMO-AS,
CONSORCIO MANLOLOYO, ANANIAS ALCONTIN, REY GESTOPA, EDGARDO
NUEZ, JUNEL CABATINGAN, PAUL DUMAQUETA, FELIMON ECHAVEZ, VITO
SEALANA, DENECIA PALAO, ROBERTO LAPIZ, BALTAZAR LABIO, LEONARDO
BONGO, EL CID ICALINA, JOSE DIOCAMPO, ADELO CANTILLAS, ISAIAS
BRANZUELA, RAMON ROSALES, GAUDENCIO PESON, HECTOR CABAOG,
EDGARDO DAGMAYAN, ROGELIO CRUZ, ROLANDO ESPINA, BERNARDINO
REGIDOR, ARNELIO SUMALINOG, GUMERSINDO ALCONTIN, LORETO NUEZ,
JOEBE BOY DAYON, CONRADO MESANQUE, MARCELO PESCADOR,
MARCELINO JABAGAT, VICENTE DEVILLERES, VICENTE ALIN, RODOLFO
PAHUGOT, RUEL NAVARES, DANILO ANABIEZA, ALEX JUEN, JUANITO
GARCES, SILVINO LIMBAGA, AURELIO JURPACIO, JOVITO LOON, VICTOR
TENEDERO, SASING MORENO, WILFREDO HORTEZUELA, JOSELITO
MELENDEZ, ALFREDO GESTOPA, REGINO GABUYA, JORGE GAMUZARNO,
LOLITO COCIDO, EFRAIM YUBAL, VENERANDO ROAMAR, GERARDO BUTALID,
HIPOLITO VIDAS, VENGELITO FRIAS, VICENTE CELACIO, CORLITO
PESTAAS, ERVIN HYROSA, ROMMEL GUERERO, RODRIGO ENERLAS,
FRANCISCO CARBONILLA, NICANOR CUIZON, PEDRO BRIONES, RODOLFO
CABALHUG, TEOFILO RICARDO, DANILO R. DIZON, ALBERTO EMBONG,

ALFONSO ECHAVEZ, GONZALO RORACEA, MARCELO CARACINA, RAUL

BORRES, LINO TONGALAMOS, ARTEMIO BONGO, JR., ROY AVILA, MELCHOR
FREGLO, RAUL CABILLADA, EDDIE CATAB, MELENCIO DURANO, ALLAN
RAGO, DOMINADOR CAPARIDA, JOVITO CATAB, ALBERT LASPIAS, ALEX
ANABIEZA, NESTOR REYNANTE, EULOGIO GESTOPA, MARIO BOLO,
EDERLITO A. BALOCANO, JOEL PEPITO, REYNALDO LUDIA, MANUEL CINCO,
ALLAN AGUSTIN, PABLITO POLEGRATES, CLYDE PRADO, DINDO MISA,
ROGER SASING, RAMON ARCALLANA, GABRIEL SALAS, EDWIN SASAN,
DIOSDADO BARRIGA, MOISES SASAN, SINFORIANO CANTAGO, LEONARDO
MARTURILLAS, MARIO RANIS, ALEXANDRO RANIDO, JEROME PRADO, RAUL
OYAO, VICTOR CELACIO, GERALDO ROQUE, ZOSIMO CARARATON, VIRGILIO
ZANORIA, JOSE ZANORIA, ALLAN ZANORIA, VICTORINO SENO, TEODULO
JUMAO-AS, ALEXANDER HERA, ANTHONY ARANETA, ALDRIN SUSON,
VICTOR VERANO, RUEL SUFRERENCIA, ALFRED NAPARATE, WENCESLAO
BACLOHON, EDUARDO LANGITA, FELIX ORDENEZA, ARSENIO LOGARTA,
EDUARDO DELA VEGA, JOVENTINO CANOOG, ROGELIO ABAPO, RICARDO
RAMAS, JOSE BANDIALAN, ANTONIO BASALAN, LYNDON BASALAN,
WILFREDO ALIVIANO, BIENVENIDO ROSARIO, JESUS CAPANGPANGAN,
RENATO MENDOZA, ALEJANDRO CATANDEJAN, RUBEN TALABA, FILEMON
ECHAVEZ, MARCELINO CARACENA, IGNACIO MISA, FELICIANO AGBAY,
VICTOR MAGLASANG, ARTURO HEYROSA, ALIPIO TIROL, ROSENDO
MONDARES, ANICETO LUDIA, REYNALDO LAVANDERO, REUYAN
HERCULANO, TEODULO NIQUE, EMERBERTO ORQUE, ZOSIMO BAOBAO,
MEDARDO SINGSON, ANTONIO PATALINGHUG, ERNESTO SINGSON,
ROBERTO TORRES, CESAR ESCARIO, LEODEGARIO DOLLECIN, ALBERTO
ANOBA, RODRIGO BISNAR, ZOSIMO BINGAS, ROSALIO DURAN, SR.,
ROSALIO DURAN, JR., ROMEO DURAN, ANTONIO ABELLA, MARIANO
REPOLLO, POLEGARPO DEGAMO, MARIO CEREZA, ANTONIO LAOROMILLA,
PROCTUSO MAGALLANES, ELADIO TORRES, WARLITO DEMANA, HENRY
GEDARO, DOISEDERIO GEMPERAO, ANICETO GEMPERAO, JERRY CAPAROSO,
SERLITO NOYNAY, LUCIANO RECOPELACION, JUANITO GARCES, FELICIANO
TORRES, RANILO VILLAREAL, FERMIN ALIVIANO, JUNJIE LAVISTE, TOMACITO
DE CASTRO, JOSELITO CAPILINA, SAMUEL CASQUEJO, LEONARDO NATAD,
BENJAMIN SAYSON, PEDRO INOC, EDWARD FLORES, EDWIN SASAN, JOSE

REY INOT, EDGAR CORTES, ROMEO LOMBOG, NICOLAS RIBO, JAIME RUBIN,
ORLANDO REGIS, RICKY ALCONZA, RUDY TAGALOG, VICTORINO TAGALOG,
EDWARD COLINA, RONIE GONZAGA, PAUL CABILLADA, WILFREDO
MAGALONA, JOEL PEPITO, PROSPERO MAGLASANG, ALLAN AGUSTIN,
FAUSTO BARGAYO, NOMER SANCHEZ, JOLITO ALIN, BIRNING REGIDOR,
GARRY DIGNOS, EDWIN DIGNOS, DARIO DIGNOS, ROGELIO DIGNOS, JIMMY
CABIGAS, FERNANDO ANAJAO, ALEX FLORES, FERNANDO REMEDIO, TOTO
MOSQUIDA, ALBERTO YAGONIA, VICTOR BARIQUIT, IGNACIO MISA, ELISEO
VILLARENO, MANUEL LAVANDERO, VIRCEDE, MARIO RANIS, JAIME
RESPONSO, MARIANITO AGUIRRE, MARCIAL HERUELA, GODOFREDO
TUACAO, PERFECTO REGIS, ROEL DEMANA, ELMER CASTILLO, WINEFREDO
CALAMOHOY, RUDY LUCERNAS, ANTONIO CAETE, EFRAIM YUBAL, JESUS
CAPANGPANGAN, DAMIAN CAPANGPANGAN, TEOFILO CAPANGPANGAN,
NILO CAPANGPANGAN, CORORENO CAPANGPANGAN, EMILIO MONDARES,
PONCIANO AGANA, VICENTE DEVILLERES, MARIO ALIPAN, ROMANITO
ALIPAN, ALDEON ROBINSON, FORTUNATO SOCO, CELSO COMPUESTO,
WILLIAM ITORALDE, ANTONIO PESCADOR, JEREMIAS RONDERO, ESTROPIO
PUNAY, LEOVIJILDO PUNAY, ROMEO QUILONGQUILONG, WILFREDO
GESTOPA, ELISEO SANTOS, HENRY ORIO, JOSE YAP, NICANOR MANAYAGA,
TEODORO SALINAS, ANICETO MONTERO, RAFAELITO VERZOSA, ALEJANDRO
RANIDO, HENRY TALABA, ROMULO TALABA, DIOSDADO BESABELA,
SYLVESTRE TORING, EDILBERTO PADILLA, ALLAN HEROSA, ERNESTO
SUMALINOG, ARISTON VELASCO, JR., FERNANDO LOPEZ, ALFONSO
ECHAVEZ, NICANOR CUIZON, DOMINADOR CAPARIDA, ZOSIMO
CORORATION, ARTEMIO LOVERANES, DIONISIO YAGONIA, VICTOR CELOCIA,
HIPOLITO VIDAS, TEODORO ARCILLAS, MARCELINO HABAGAT, GAUDIOSO
LABASAN, LEOPOLDO REGIS, AQUILLO DAMOLE, WILLY ROBLE and NIEL
ZANORIA,respondents.
BELLOSILLO, J.:
TWO HUNDRED NINETY-ONE (291) workers filed their complaints (nine [9]
complaints in all) against San Miguel Corporation (petitioner herein) and Maerc
Integrated Services, Inc. (respondent herein), for illegal dismissal, underpayment of
wages, non-payment of service incentive leave pays and other labor standards

benefits, and for separation pays from 25 June to 24 October 1991. The
complainants alleged that they were hired by San Miguel Corporation (SMC) through
its agent or intermediary Maerc Integrated Services, Inc. (MAERC) to work in two (2)
designated workplaces in Mandaue City: one, inside the SMC premises at the
Mandaue Container Services, and another, in the Philphos Warehouse owned by
MAERC. They washed and segregated various kinds of empty bottles used by SMC
to sell and distribute its beer beverages to the consuming public. They were paid on
a per piece or pakiao basis except for a few who worked as checkers and were paid
on daily wage basis.
Complainants alleged that long before SMC contracted the services of MAERC a
majority of them had already been working for SMC under the guise of being
employees of another contractor, Jopard Services, until the services of the latter
were terminated on 31 January 1988.
SMC denied liability for the claims and averred that the complainants were not its
employees but of MAERC, an independent contractor whose primary corporate
purpose was to engage in the business of cleaning, receiving, sorting, classifying,
etc., glass and metal containers.
It appears that SMC entered into a Contract of Services with MAERC engaging its
services on a non-exclusive basis for one (1) year beginning 1 February 1988. The
contract was renewed for two (2) more years in March 1989. It also provided for its
automatic renewal on a month-to-month basis after the two (2)-year period and
required that a written notice to the other party be given thirty (30) days prior to
the intended date of termination, should a party decide to discontinue with the
contract.
In a letter dated 15 May 1991, SMC informed MAERC of the termination of their
service contract by the end of June 1991. SMC cited its plans to phase out its
segregation activities starting 1 June 1991 due to the installation of labor and costsaving devices.
When the service contract was terminated, complainants claimed that SMC stopped
them from performing their jobs; that this was tantamount to their being illegally
dismissed by SMC who was their real employer as their activities were directly
related, necessary and desirable to the main business of SMC; and, that MAERC was
merely made a tool or a shield by SMC to avoid its liability under the Labor Code.

MAERC for its part admitted that it recruited the complainants and placed them in
the bottle segregation project of SMC but maintained that it was only conveniently
used by SMC as an intermediary in operating the project or work directly related to
the primary business concern of the latter with the end in view of avoiding its
obligations and responsibilities towards the complaining workers.
The nine (9) cases1 were consolidated. On 31 January 1995 the Labor Arbiter
rendered a decision holding that MAERC was an independent contractor. 2 He
dismissed the complaints for illegal dismissal but ordered MAERC to pay
complainants' separation benefits in the total amount of P2,334,150.00. MAERC and
SMC were also ordered to jointly and severally pay complainants their wage
differentials in the amount of P845,117.00 and to pay attorney's fees in the amount
of P317,926.70.
The complainants appealed the Labor Arbiter's finding that MAERC was an
independent contractor and solely liable to pay the amount representing the
separation benefits to the exclusion of SMC, as well as the Labor Arbiter's failure to
grant the Temporary Living Allowance of the complainants. SMC appealed the award
of attorney's fees.
The National Labor Relations Commission (NLRC) ruled in its 7 January 1997
decision that MAERC was a labor-only contractor and that complainants were
employees of SMC.3 The NLRC also held that whether MAERC was a job contractor or
a labor-only contractor, SMC was still solidarily liable with MAERC for the latter's
unpaid obligations, citing Art. 1094 of the Labor Code. Thus, the NLRC modified the
judgment of the Labor Arbiter and held SMC jointly and severally liable with MAERC
for complainants' separation benefits. In addition, both respondents were ordered to
pay jointly and severally an indemnity fee of P2,000.00 to each complainant.
SMC moved for a reconsideration which resulted in the reduction of the award of
attorney's fees from P317,926.70 to P84,511.70. The rest of the assailed decision
was unchanged.5
On 12 March 1998, SMC filed a petition for certiorari with prayer for the issuance of
a temporary restraining order and/or injunction with this Court which then referred
the petition to the Court of Appeals.
On 28 April 2000 the Court of Appeals denied the petition and affirmed the decision
of the NLRC.6 The appellate court also denied SMC's motion for reconsideration in a

resolution7 dated 26 July 2000. Hence, petitioner seeks a review of the Court of
Appeals' judgment before this Court.
Petitioner poses the same issues brought up in the appeals court and the pivotal
question is whether the complainants are employees of petitioner SMC or of
respondent MAERC.
Relying heavily on the factual findings of the Labor Arbiter, petitioner maintained
that MAERC was a legitimate job contractor. It directed this Court's attention to the
undisputed evidence it claimed to establish this assertion: MAERC is a duly
organized stock corporation whose primary purpose is to engage in the business of
cleaning, receiving, sorting, classifying, grouping, sanitizing, packing, delivering,
warehousing, trucking and shipping any glass and/or metal containers and that it
had listed in its general information sheet two hundred seventy-eight (278) workers,
twenty-two (22) supervisors, seven (7) managers/officers and a board of directors; it
also voluntarily entered into a service contract on a non-exclusive basis with
petitioner from which it earned a gross income of P42,110,568.24 from 17 October
1988 to 27 November 1991; the service contract specified that MAERC had the
selection, engagement and discharge of its personnel, employees or agents or
otherwise in the direction and control thereof; MAERC admitted that it had
machinery, equipment and fixed assets used in its business valued at
P4,608,080.00; and, it failed to appeal the Labor Arbiter's decision which declared it
to be an independent contractor and ordered it to solely pay the separation benefits
of the complaining workers.
We find no basis to overturn the Court of Appeals and the NLRC. Well-established is
the principle that findings of fact of quasi-judicial bodies, like the NLRC, are
accorded with respect, even finality, if supported by substantial
evidence.8 Particularly when passed upon and upheld by the Court of Appeals, they
are binding and conclusive upon the Supreme Court and will not normally be
disturbed.9
This Court has invariably held that in ascertaining an employer-employee
relationship, the following factors are considered: (a) the selection and engagement
of employee; (b) the payment of wages; (c) the power of dismissal; and, (d) the
power to control an employee's conduct, the last being the most

important.10 Application of the aforesaid criteria clearly indicates an employeremployee relationship between petitioner and the complainants.
Evidence discloses that petitioner played a large and indispensable part in the
hiring of MAERC's workers. It also appears that majority of the complainants had
already been working for SMC long before the signing of the service contract
between SMC and MAERC in 1988.
The incorporators of MAERC admitted having supplied and recruited workers for
SMC even before MAERC was created.11 The NLRC also found that when MAERC was
organized into a corporation in February 1988, the complainants who were then
already working for SMC were made to go through the motion of applying for work
with Ms. Olga Ouano, President and General Manager of MAERC, upon the
instruction of SMC through its supervisors to make it appear that complainants were
hired by MAERC. This was testified to by two (2) of the workers who were segregator
and forklift operator assigned to the Beer Marketing Division at the SMC compound
and who had been working with SMC under a purported contractor Jopard Services
since March 1979 and March 1981, respectively. Both witnesses also testified that
together with other complainants they continued working for SMC without break
from Jopard Services to MAERC.
As for the payment of workers' wages, it is conceded that MAERC was paid in lump
sum but records suggest that the remuneration was not computed merely according
to the result or the volume of work performed. The memoranda of the labor rates
bearing the signature of a Vice-President and General Manager for the Vismin Beer
Operations12 as well as a director of SMC13 appended to the contract of service
reveal that SMC assumed the responsibility of paying for the mandated overtime,
holiday and rest day pays of the MAERC workers. 14 SMC also paid the employer's
share of the SSS and Medicare contributions, the 13th month pay, incentive leave
pay and maternity benefits.15 In the lump sum received, MAERC earned a marginal
amount representing the contractor's share. These lend credence to the
complaining workers' assertion that while MAERC paid the wages of the
complainants, it merely acted as an agent of SMC.
Petitioner insists that the most significant determinant of an employer-employee
relationship, i.e., the right to control, is absent. The contract of services between
MAERC and SMC provided that MAERC was an independent contractor and that the

workers hired by it "shall not, in any manner and under any circumstances, be
considered employees of the Company, and that the Company has no control or
supervision whatsoever over the conduct of the Contractor or any of its workers in
respect to how they accomplish their work or perform the Contractor's obligations
under the Contract."16
In deciding the question of control, the language of the contract is not
determinative of the parties' relationship; rather, it is the totality of the facts and
surrounding circumstances of each case.17
Despite SMCs disclaimer, there are indicia that it actively supervised the
complainants. SMC maintained a constant presence in the workplace through its
own checkers. Its asseveration that the checkers were there only to check the end
result was belied by the testimony of Carlito R. Singson, head of the Mandaue
Container Service of SMC, that the checkers were also tasked to report on the
identity of the workers whose performance or quality of work was not according to
the rules and standards set by SMC. According to Singson, "it (was) necessary to
identify the names of those concerned so that the management [referring to
MAERC] could call the attention to make these people improve the quality of
work."18
Viewed alongside the findings of the Labor Arbiter that the MAERC organizational
set-up in the bottle segregation project was such that the segregators/cleaners were
supervised by checkers and each checker was also under a supervisor who was in
turn under a field supervisor, the responsibility of watching over the MAERC workers
by MAERC personnel became superfluous with the presence of additional checkers
from SMC.
Reinforcing the belief that the SMC exerted control over the work performed by the
segregators or cleaners, albeit through the instrumentality of MAERC, were letters
by SMC to the MAERC management. These were letters 19written by a certain Mr. W.
Padin20 addressed to the President and General Manager of MAERC as well as to its
head of operations,21 and a third letter22 from Carlito R. Singson also addressed to
the President and General Manager of MAERC. More than just a mere written report
of the number of bottles improperly cleaned and/or segregated, the letters named
three (3) workers who were responsible for the rejection of several bottles, specified
the infraction committed in the segregation and cleaning, then recommended the

penalty to be imposed. Evidently, these workers were reported by the SMC checkers
to the SMC inspector.
While the Labor Arbiter dismissed these letters as merely indicative of the concern
in the end-result of the job contracted by MAERC, we find more credible the
contention of the complainants that these were manifestations of the right of
petitioner to recommend disciplinary measures over MAERC employees. Although
calling the attention of its contractors as to the quality of their services may
reasonably be done by SMC, there appears to be no need to instruct MAERC as to
what disciplinary measures should be imposed on the specific workers who were
responsible for rejections of bottles. This conduct by SMC representatives went
beyond a mere reminder with respect to the improperly cleaned/segregated bottles
or a genuine concern in the outcome of the job contracted by MAERC.
Control of the premises in which the contractor's work was performed was also
viewed as another phase of control over the work, and this strongly tended to
disprove the independence of the contractor. 23 In the case at bar, the bulk of the
MAERC segregation activities was accomplished at the MAERC-owned PHILPHOS
warehouse but the building along with the machinery and equipment in the facility
was actually being rented by SMC. This is evident from the memoranda of labor
rates which included rates for the use of forklifts and the warehouse at the
PHILPHOS area, hence, the NLRC's conclusion that the payment for the rent was
cleverly disguised since MAERC was not in the business of renting warehouses and
forklifts.24
Other instances attesting to SMC's supervision of the workers are found in the
minutes of the meeting held by the SMC officers on 5 December 1988. Among those
matters discussed were the calling of SMC contractors to have workers assigned to
segregation to undergo and pass eye examination to be done by SMC EENT
company doctor and a review of compensation/incentive system for segregators to
improve the segregation activities.25
But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of
MAERC dated 27 May 1991 addressed to Francisco Eizmendi, SMC President and
Chief Executive Officer, asking the latter to reconsider the phasing out of SMC's
segregation activities in Mandaue City. The letter was not denied but in fact used by
SMC to advance its own arguments. 26

Briefly, the letter exposed the actual state of affairs under which MAERC was formed
and engaged to handle the segregation project of SMC. It provided an account of
how in 1987 Eizmendi approached the would-be incorporators of MAERC and offered
them the business of servicing the SMC bottle-washing and segregation department
in order to avert an impending labor strike. After initial reservations, MAERC
incorporators accepted the offer and before long trial segregation was conducted by
SMC at the PHILPHOS warehouse.27
The letter also set out the circumstances under which MAERC entered into the
Contract of Services in 1988 with the assurances of the SMC President and CEO that
the employment of MAERC's services would be long term to enable it to recover its
investments. It was with this understanding that MAERC undertook borrowings from
banking institutions and from affiliate corporations so that it could comply with the
demands of SMC to invest in machinery and facilities.
In sum, the letter attested to an arrangement entered into by the two (2) parties
which was not reflected in the Contract of Services. A peculiar relationship mutually
beneficial for a time but nonetheless ended in dispute when SMC decided to
prematurely end the contract leaving MAERC to shoulder all the obligations to the
workers.
Petitioner also ascribes as error the failure of the Court of Appeals to apply the
ruling in Neri v. NLRC.28 In that case, it was held that the law did not require one to
possess both substantial capital and investment in the form of tools, equipment,
machinery, work premises, among others, to be considered a job contractor. The
second condition to establish permissible job contracting 29 was sufficiently met if
one possessed either attribute.
Accordingly, petitioner alleged that the appellate court and the NLRC erred when
they declared MAERC a labor-only contractor despite the finding that MAERC had
investments amounting to P4,608,080.00 consisting of buildings, machinery and
equipment.
However, in Vinoya v. NLRC,30 we clarified that it was not enough to show
substantial capitalization or investment in the form of tools, equipment, machinery
and work premises, etc., to be considered an independent contractor. In fact,
jurisprudential holdings were to the effect that in determining the existence of an
independent contractor relationship, several factors may be considered, such as,

but not necessarily confined to, whether the contractor was carrying on an
independent business; the nature and extent of the work; the skill required; the
term and duration of the relationship; the right to assign the performance of
specified pieces of work; the control and supervision of the workers; the power of
the employer with respect to the hiring, firing and payment of the workers of the
contractor; the control of the premises; the duty to supply premises, tools,
appliances, materials and labor; and the mode, manner and terms of payment. 31
In Neri, the Court considered not only the fact that respondent Building Care
Corporation (BBC) had substantial capitalization but noted that BCC carried on an
independent business and performed its contract according to its own manner and
method, free from the control and supervision of its principal in all matters except
as to the results thereof.32 The Court likewise mentioned that the employees of BCC
were engaged to perform specific special services for their principal. 33 The status of
BCC had also been passed upon by the Court in a previous case where it was found
to be a qualified job contractor because it was "a big firm which services among
others, a university, an international bank, a big local bank, a hospital center,
government agencies, etc." Furthermore, there were only two (2) complainants in
that case who were not only selected and hired by the contractor before being
assigned to work in the Cagayan de Oro branch of FEBTC but the Court also found
that the contractor maintained effective supervision and control over them.
In comparison, MAERC, as earlier discussed, displayed the characteristics of a laboronly contractor. Moreover, while MAERC's investments in the form of buildings, tools
and equipment amounted to more than P4 Million, we cannot disregard the fact that
it was the SMC which required MAERC to undertake such investments under the
understanding that the business relationship between petitioner and MAERC would
be on a long term basis. Nor do we believe MAERC to have an independent
business. Not only was it set up to specifically meet the pressing needs of SMC
which was then having labor problems in its segregation division, none of its
workers was also ever assigned to any other establishment, thus convincing us that
it was created solely to service the needs of SMC. Naturally, with the severance of
relationship between MAERC and SMC followed MAERC's cessation of operations, the
loss of jobs for the whole MAERC workforce and the resulting actions instituted by
the workers.

Petitioner also alleged that the Court of Appeals erred in ruling that "whether
MAERC is an independent contractor or a labor-only contractor, SMC is liable with
MAERC for the latter's unpaid obligations to MAERC's workers."
On this point, we agree with petitioner as distinctions must be made. In legitimate
job contracting, the law creates an employer-employee relationship for a limited
purpose, i.e., to ensure that the employees are paid their wages. 34 The principal
employer becomes jointly and severally liable with the job contractor only for the
payment of the employees' wages whenever the contractor fails to pay the same.
Other than that, the principal employer is not responsible for any claim made by the
employees.
On the other hand, in labor-only contracting, the statute creates an employeremployee relationship for a comprehensive purpose: to prevent a circumvention of
labor laws. The contractor is considered merely an agent of the principal employer
and the latter is responsible to the employees of the labor-only contractor as if such
employees had been directly employed by the principal employer. The principal
employer therefore becomes solidarily liable with the labor-only contractor for all
the rightful claims of the employees.
This distinction between job contractor and labor-only contractor, however, will not
discharge SMC from paying the separation benefits of the workers, inasmuch as
MAERC was shown to be a labor-only contractor; in which case, petitioner's liability
is that of a direct employer and thus solidarily liable with MAERC.
SMC also failed to comply with the requirement of written notice to both the
employees concerned and the Department of Labor and Employment (DOLE) which
must be given at least one (1) month before the intended date of
retrenchment.35 The fines imposed for violations of the notice requirement have
varied.36 The measure of this award depends on the facts of each case and the
gravity of the omission committed by the employer.37 For its failure, petitioner was
justly ordered to indemnify each displaced worker P2,000.00.
The NLRC and the Court of Appeals affirmed the Labor Arbiter's award of separation
pay to the complainants in the total amount of P2,334,150.00 and of wage
differentials in the total amount of P845,117.00. These amounts are the aggregate
of the awards due the two hundred ninety-one (291) complainants as computed by

the Labor Arbiter. The following is a summary of the computation of the benefits due
the complainants which is part of the Decision of the Labor Arbiter.
SUMMARY
NAME

SALARY SEPAR TOTAL

DIFFERE ATION
NTIAL

PAY

Case No. 06-1165-9

1 Rogelio Prado,
Jr.
2 Eddie Selle

P3,056.0 P8,190. P11,24

0

00

3,056.00 8,190.0 11,246.

0

3 Alejandro
Annabieza
4 Ananias
Jumao-as
5 Consorcio
Manloloyo
6 Anananias
Alcotin
7 Rey Gestopa

Nuez
9 Junel
Cabatingan
10 Paul
Dumaqueta
11 Felimon
Echavez
12 Vito Sealana

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

2,865.00 8,190.0 11,055.

00

2,865.00 8,190.0 11,055.

0

00

2,865.00 8,190.0 11,055.

0

00

2,865.00 8,190.0 11,055.

0

00

2,843.00 8,190.0 10,673.

0

00

2,843.00 8,190.0 10,673.

0

13 Denecia Palao

00

3,056.00 8,190.0 11,246.

0
8 Edgardo

6.00

00

2,843.00 8,190.0 10,673.

0
14 Roberto Lapiz

3,056.00 8,190.0 11,246.

0

15 Baltazar Labio

Bongo
17 El Cid Icalina

00

3,056.00 8,190.0 11,246.

0

16 Leonardo

00

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

18 Jose Diocampo 3,056.00 8,190.0 11,246.

0

00

19 Adelo Cantillas 3,056.00 8,190.0 11,246.

0
20 Isaias
Branzuela
21 Ramon
Rosales
22 Gaudencio
Peson
23 Hector
Cabaog
24 Edgardo
Dagmayan
25 Rogelio Cruz

3,056.00 8,190.0 11,246.

0

Espina
27 Bernardino
Regidor
28 Arnelio
Sumalinog
29 Gumersindo

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

26 Rolando

00

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

Alcontin
30 Loreto Nuez

3,056.00 8,190.0 11,246.

0

31 Joebe Boy
Dayon
32 Conrado
Mesanque
33 Marcelo
Pescador
34 Marcelino
Jabagat
35 Vicente
Devilleres
36 Vicente Alin

Pahugot
38 Ruel Navares

Anabieza
40 Alex Juen

0
0

Limbaga
43 Aurelio
Jurpacio
44 Jovito Loon

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

45 Victor

00

3,056.00 8,190.0 11,246.

0
42 Silvino

00

3,056.00 8,190.0 11,246.

0
41 Juanito Garces

00

3,056.00 8,190.0 11,246.

0
39 Danilo

00

3,056.00 8,190.0 11,246.

0
37 Rodolfo

00

00

3,056.00 8,190.0 11,246.

Tenedero

00

46 Sasing Moreno 3,056.00 8,190.0 11,246.

0
47 Wilfredo
Hortezuela
48 Joselito
Melendez
49 Alfredo
Gestopa
50 Regino
Gabuya
51 Jorge
Gamuzarno
52 Lolito Cocido

3,056.00 8,190.0 11,246.

0
0

Roamar
55 Gerardo
Butalid
56 Hipolito Vidas

0
0

Celacio
59 Corlito
Pestaas
60 Ervin Hyrosa

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

61 Rommel

00

3,056.00 8,190.0 11,246.

0
58 Vicente

00

3,056.00 8,190.0 11,246.

0
57 Vengelito Frias

00

3,056.00 8,190.0 11,246.

0
54 Venerando

00

3,056.00 8,190.0 11,246.

0
53 Efraim Yubal

00

00

3,056.00 8,190.0 11,246.

Guerero
62 Rodrigo
Enerlas
63 Francisco
Carbonilla
64 Nicanor
Cuizon
65 Pedro Briones

3,056.00 8,190.0 11,246.

0

Cabalhug
67 Teofilo Ricardo

Dizon
69 Alberto
Embong
70 Alfonso
Echavez
71 Gonzalo
Roracea
72 Marcelo
Caracina
73 Raul Borres

Tongalamos
75 Artemio
Bongo, Jr.
76 Roy Avila

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

77 Melchor Freglo

00

3,056.00 8,190.0 11,246.

0
74 Lino

00

3,056.00 8,190.0 11,246.

0
68 Danilo R.

00

3,056.00 8,190.0 11,246.

0
66 Rodolfo

00

00

3,056.00 8,190.0 11,246.

0
78 Raul Cabillada

3,056.00 8,190.0 11,246.

0

79 Eddie Catab

Durano
81 Allan Rago

Caparida
83 Jovito Catab

Laspias
85 Alex Anabieza

Reynante

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

86 Nestor

00

3,056.00 8,190.0 11,246.

0
84 Albert

00

3,056.00 8,190.0 11,246.

0
82 Dominador

00

3,056.00 8,190.0 11,246.

0

80 Melencio

00

00

3,056.00 8,190.0 11,246.

0

00

87 Eulogio Estopa 3,056.00 8,190.0 11,246.

0
88 Mario Bolo

3,056.00 8,190.0 11,246.

0

89 Ederlito A.
Balocano
90 Joel Pepito

Ludia
92 Manuel Cinco

00

3,056.00 8,190.0 11,246.

00

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

93 Allan Agustin

00

3,056.00 8,190.0 11,246.

0
91 Reynaldo

00

3,056.00 8,190.0 11,246.

0
94 Pablito
Polegrates
95 Clyde Prado

3,056.00 8,190.0 11,246.

0

Arcallana
99 Gabriel Salas

0
10 Diosdado
1 Barriga
10 Moises Sasan
2
10 Sinforiano
3 Cantago
10 Leonardo
4 Marturillas
10 Mario Ranis
5
10 Alejandro
6 Ranido
10 Jerome Prado
7
10 Raul Oyao
8
10 Victor Celacio

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

10 Edwin Sasan

00

3,056.00 8,190.0 11,246.

0

98 Ramon

00

3,056.00 8,190.0 11,246.

0

97 Roger Sasing

00

3,056.00 8,190.0 11,246.

0

96 Dindo Misa

00

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 8,190.0 11,246.

0

00

3,056.00 5,460.0 8,516.0

0
TOTAL

P330,62 P884, P1,21

1.00 520.0 5,141.
0

00

Case No. 07-1177-91

11 Gerardo

P3,056.0 P5,460. P8,516.

0 Roque

00

00

Case No. 07-1176-91

11 Zosimo

P3,056.0 P8,192. P11,24

1 Cararaton

00

6.00

Case No. 07-1219-91

11 Virgilio
2 Zanoria
11 Jose Zanoria
3
11 Allan Zanoria
4
11 Victorino Seno
5
11 Teodulo
6 Jumao-as
11 Alexander
7 Hera
11 Anthony
8 Araneta
11 Aldrin Suson
9
12 Victor Verano
0
12 Ruel
1 Sufrerencia
12 Alfred

P3,056.0 P5,460. P8,516.

0

00

00

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

0

3,056.00 5,460.0 8,516.0

2 Naparate
12 Wenceslao

3,056.00 8,190.0 11,246.

3 Baclohon
12 Eduardo

00

3,056.00 8,190.0 11,246.

4 Langita
TOTAL

00

P39,728. P76,4 P116,

00 40.00 168.0
0

Case No. 07-1283-91

12 Feliz Ordeneza

P2,816.0 P8,190. P11,00

12 Arsenio

0
0

00

3,056.00 8,190.0 11,246.

8 Canoog
TOTAL

00

3,056.00 8,190.0 11,246.

7 Vega
12 Joventino

6.00

3,056.00 8,190.0 11,246.

6 Logarta
12 Eduardo dela

00

00

P11,984. P32,7 P44,7

00 60.00 44.00

Case No. 10-1584-91

12 Regelio Abapo

P3,056.0 P8,190. P11,24

00

6.00

Case No. 08-1321-91

13 Ricardo Ramas P3,056.0 P8,190. P11,24
0

00

6.00

Case No. 09-1507-91

13 Jose Bandialan
1
13 Antonio
2 Basalan
13 Lyndon
3 Basalan

P2,816.0 P8,190. P11,00

0

00

6.00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

13 Wilfredo
4 Aliviano
13 Bienvenido
5 Rosario
13 Jesus
6 Capangpanga

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

n
13 Renato
7 Mendoza
13 Alejandro
8 Catandejan
13 Ruben Talaba
9
14 Filemon
0 Echavez
14 Marcelino
1 Caracena
14 Ignacio Misa
2
14 Feliciano
3 Agbay
14 Victor
4 Maglasang
14 Arturo
5 Heyrosa
14 Alipio Tirol
6
14 Rosendo
7 Mondares
14 Aniceto Ludia
8
14 Reynaldo

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

9 Lavandero
15 Reuyan

2,816.00 8,190.0 11,006.

0 Herculano
15 Teodula Nique

00

2,816.00 8,190.0 11,006.

0
TOTAL

00

00

P59,136. P171, P231,

00 990.0 126.0
0

Case No. 06-1145-91

15 Emerberto
2 Orque
15 Zosimo
3 Baobao
15 Medardo
4 Singson
15 Antonio
5 Patalinghug
15 Ernesto
6 Singson
15 Roberto Torres
7
15 Cesar Escario
8
15 Leodegario
9 Dollecin
16 Alberto Anoba
0
16 Rodrigo Bisnar
1

P2,816.0 P8,190. P11,00

0

00

6.00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

16 Zosimo Bingas 2,816.00 8,190.0 11,006.

2
16 Rosalio Duran,

00

2,816.00 8,190.0 11,006.

3 Sr.
16 Rosalio Duran,
4 Jr.
16 Romeo Duran
5
16 Antonio Abella
6
16 Mariano
7 Repollo
16 Polegarpo
8 Degamo
16 Mario Cereza
9
17 Antonio
0 Laoronilla
17 Proctuso
1 Magallanes
17 Eladio Torres
2
17 Warlito
3 Demana
17 Henry Gedaro
4
17 Doisederio
5 Gemperao
17 Aniceto
6 Gemperao
17 Jerry Caparoso
7
17 Serlito Noynay
8
17 Luciano

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

9 Recopelacion
18 Juanito Garces
0
18 Feliciano
1 Torres

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

18 Ranilo Villareal 2,816.00 8,190.0 11,006.

2
18 Fermin
3 Aliviano
18 Junjie Laviste
4
18 Tomacito de
5 Castro
18 Joselito
6 Capilina
18 Samuel
7 Casquejo
18 Leonardo
8 Natad
18 Benjamin
9 Sayson
19 Pedro Inoc
0
19 Edward Flores
1
19 Edwin Sasan
2
19 Jose Rey Inot
3
19 Edgar Cortes
4
19 Romeo

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

5 Lombog
19 Nicolas Ribo
6
19 Jaime Rubin
7
19 Orlando Regis
8
19 Ricky Alconza
9
20 Rudy Tagalog
0
20 Victorino
1 Tagalog
20 Edward Colina
2
20 Ronie
3 Gonzaga
20 Paul Cabillada
4
20 Wilfredo
5 Magalona
20 Joel Pepito
6
20 Prospero
7 Maglasang
20 Allan Agustin
8
20 Fausto
9 Bargayo
21 Nomer
0 Sanchez
21 Jolito Alin

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

1
21 Birning
2 Regidor
21 Garry Dignos
3
21 Edwin Dignos
4
21 Dario Dignos
5

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

21 Rogelio Dignos 2,816.00 8,190.0 11,006.

6

00

21 Jimmy Cabigas 2,816.00 8,190.0 11,006.

7
21 Fernando
8 Anajao
21 Alex Flores
9
22 Fernando
0 Remedio
22 Toto Mosquido
1
22 Alberto
2 Yagonia
22 Victor Bariquit
3
22 Ignacio Misa
4
22 Eliseo
5 Villareno
22 Manuel
6 Lavandero
22 Vircede

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

22 Mario Ranis
8

2,816.00 8,190.0 11,006.

0

22 Jaime
9 Responso
23 Marianito
0 Aguirre
23 Marcial
1 Heruela
23 Godofredo
2 Tuacao
23 Perfecto Regis
3
4

6 Calamohoy
23 Rudy Lucernas
7

8 Caete
23 Efraim Yubal
9

0 Capangpanga

00

2,816.00 8,190.0 11,006.

00

2,816.00 8,190.0 11,006.

00

2,816.00 8,190.0 11,006.

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

24 Jesus

00

2,816.00 8,190.0 11,006.

23 Antonio

00

2,816.00 8,190.0 11,006.

23 Wilfredo

00

2,816.00 8,190.0 11,006.

23 Elmer Castillo

00

2,816.00 8,190.0 11,006.

23 Roel Demana

00

00

2,816.00 8,190.0 11,006.

0

00

n
24 Damian
1 Capangpanga

2,816.00 8,190.0 11,006.

0

00

n
24 Teofilo

2,816.00 8,190.0 11,006.

2 Capangpanga

00

n
24 Nilo
3 Capangpanga

2,816.00 8,190.0 11,006.

0

00

n
24 Cororeno
4 Capangpanga

2,816.00 8,190.0 11,006.

0

00

n
24 Emilio
5 Mondares
24 Ponciano
6 Agana
24 Vicente
7 Devilleres
24 Mario Alipan
8
24 Romanito
9 Alipan
25 Aldeon
0 Robinson
25 Fortunato
1 Soco
25 Celso
2 Compuesto
25 William
3 Itoralde
25 Antonio
4 Pescador
25 Jeremias
5 Rondero

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

25 Estropio Punay 2,816.00 8,190.0 11,006.

6

00

25 Leovijildo
7 Punay
25 Romeo
8 Quilongquilon

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

g
25 Wilfredo
9 Gestopa
26 Eliseo Santos
0
26 Henry Orio
1
26 Jose Yap
2
26 Nicanor
3 Manayaga
26 Teodoro
4 Salinas
26 Aniceto
5 Montero
26 Rafaelito
6 Versoza
26 Alejandro
7 Ranido
26 Henry Talaba
8
26 Romulo Talaba
9
27 Diosdado
0 Besabela
27 Sylvestre
1 Toring
27 Edilberto

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

2 Padilla
27 Allan Herosa
3
27 Ernesto
4 Sumalinog
27 Ariston
5 Velasco, Jr.
27 Fernando
6 Lopez
27 Alfonso
7 Echavez
27 Nicanor
8 Cuizon
27 Dominador
9 Caparida
28 Zosimo
0 Cororation
28 Artemio
1 Loveranes
28 Dionisio
2 Yagonia
28 Victor Celocia
3
28 Hipolito Vidas
4
28 Teodoro
5 Arcillas
28 Marcelino
6 Habagat
28 Gaudioso
7 Labasan
28 Leopoldo

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

0

00

2,816.00 8,190.0 11,006.

8 Regis
28 Aquillo

2,816.00 8,190.0 11,006.

9 Damole
29 Willy Roble

00

2,816.00 8,190.0 11,006.

0
TOTAL

00

00

P391,42 P1,13 P1,52

4.00 8,410. 9,834.
00

00

RECAP
CASE NO.

SALARY SEPAR TOTAL

DIFFERE ATION
NTIAL

06-1165-91

PAY

P330,621 P884,5 P1,215,

.00

07-1177-91

20.00 141.00

3,056.00 5,460.0 8,516.0

0

06-1176-91

3,056.00 8,190.0 11,246.

0

07-1219-91

00
00

TOTAL

0.00

6.00

391,424. 1,138,4 1,529,8

00

GRAND

00

59,136.0 171,99 231,12

0

06-1145-91

00

3,056.00 8,190.0 11,246.

0

09-1507-91

00

3,056.00 8,190.0 11,246.

0

08-1321-91

8.00

11,984.0 32,760. 44,744.

0

10-1584-91

00

39,728.0 76,440. 116,16

0

07-1283-91

10.00

34.00

P845,11 P2,33 P3,17

7.00 4,150. 9,267.

00

00

However, certain matters have cropped up which require a review of the awards to
some complainants and a recomputation by the Labor Arbiter of the total amounts.
A scrutiny of the enumeration of all the complainants shows that some
names38 appear twice by virtue of their being included in two (2) of the nine (9)
consolidated cases. A check of the Labor Arbiter's computation discloses that most
of these names were awarded different amounts of separation pay or wage
differential in each separate case where they were impleaded as parties because
the allegations of the length and period of their employment for the separate cases,
though overlapping, were also different. The records before us are incomplete and
do not aid in verifying whether these names belong to the same persons but at least
three (3) of those names were found to have identical signatures in the complaint
forms they filed in the separate cases. It is likely therefore that the Labor Arbiter
erroneously granted some complainants separation benefits and wage differentials
twice. Apart from this, we also discovered some names that are almost identical. 39 It
is possible that the minor variance in the spelling of some names may have been a
typographical error and refer to the same persons although the records seem to be
inconclusive.
Furthermore, one of the original complainants 40 was inadvertently omitted by the
Labor Arbiter from his computations.41 The counsel for the complainants promptly
filed a motion for inclusion/correction42 which motion was treated as an appeal of
the Decision as the Labor Arbiter was prohibited by the rules of the NLRC from
entertaining any motion at that stage of the proceedings. 43 The NLRC for its part
acknowledged the omission44but both the Commission and subsequently the Court
of Appeals failed to rectify the oversight in their decisions.
Finally, the NLRC ordered both MAERC and SMC to pay P84,511.70 in attorneys fees
which is ten percent (10%) of the salary differentials awarded to the complainants in
accordance with Art. 111 of the Labor Code. The Court of Appeals also affirmed the
award. Consequently, with the recomputation of the salary differentials, the award
of attorney's fees must also be modified.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals
dated 28 April 2000 and the Resolution dated 26 July 2000 are AFFIRMED with
MODIFICATION. Respondent Maerc Integrated Services, Inc. is declared to be a

labor-only contractor. Accordingly, both petitioner San Miguel Corporation and

respondent Maerc Integrated Services, Inc., are ordered to jointly and severally pay
complainants (private respondents herein) separation benefits and wage
differentials as may be finally recomputed by the Labor Arbiter as herein directed,
plus attorney's fees to be computed on the basis of ten percent (10%) of the
amounts which complainants may recover pursuant to Art. 111 of the Labor Code,
as well as an indemnity fee of P2,000.00 to each complainant.
The Labor Arbiter is directed to review and recompute the award of separation pays
and wage differentials due complainants whose names appear twice or are notably
similar, compute the monetary award due to complainant Niel Zanoria whose name
was omitted in the Labor Arbiter's Decision and immediately execute the monetary
awards as found in the Labor Arbiter's computations insofar as those complainants
whose entitlement to separation pay and wage differentials and the amounts
thereof are no longer in question. Costs against petitioner.
SO ORDERED.