Serrano v.

Severino Santos

inadvertently not included because some index cards

DECISION

containing his records had been lost.

CARPIO MORALES, J.:

By Decision[2] of February 15, 2007, Labor

Petitioner Rodolfo J. Serrano was hired on

September 28, 1992 as bus conductor by respondent
Severino Santos Transit, a bus company owned and
operated by its co-respondent Severino Santos.

Arbiter Cresencio Ramos, Jr. ruled in favor of petitioner,

awarding

himP116,135.45

as

retirement

differential, and 10% of the total monetary award as

attorneys fees. In arriving at such computation, the
Labor Arbiter ratiocinated:

After 14 years of service or on July 14, 2006,

petitioner applied for optional retirement from the
company whose representative advised him that he
must first sign the already prepared Quitclaim before
his retirement pay could be released. As petitioners
request to first go over the computation of his
retirement pay was denied, he signed the Quitclaim on
which he wrote U.P. (under protest) after his signature,
indicating his protest to the amount of P75,277.45
which he received, computed by the company at 15
days per year of service.

Petitioner soon after filed a complaint [1] before

the Labor Arbiter, alleging that the company erred in
its computation since under Republic Act No. 7641,
otherwise known as the Retirement Pay Law, his
retirement pay should have been computed at 22.5
days per year of service to include the cash equivalent
of the 5-day service incentive leave (SIL) and 1/12 of the
13th month pay which the company did not.

The company maintained, however, that the

Quitclaim signed by petitioner barred his claim and, in
any event, its computation was correct since petitioner
was not entitled to the 5-day SIL and pro-rated
13th month pay for, as a bus conductor, he was paid on
commission
retirement

basis.

Respondents,

differential

noting

pay

that

amounted

the
to

only P1,431.15, explained that in the computation of

petitioners

retirement

pay,

five

months

pay

were

In the same Labor Advisory on

Retirement Pay Law, it was likewise
decisively made clear that the law
expanded the concept of one-half
month salary from the usual one-month
salary divided by two, to wit:
B.
COMPUTATION
RETIREMENT PAY

OF

A
covered
employee who retires
pursuant to RA 7641
shall be entitled to
retirement
pay
equivalent to at least
one-half (1/12) month
salary for every year of
service, a fraction of at
least six (6) months
being considered as
one whole year.
The
law
is
explicit that one-half
month
salary
shall
mean fifteen (15) days
plus one-twelfth (1/12) of
the 13thmonth pay and
the cash equivalent of
not more than five (5)
days service incentive
leaves
unless
the
parties
provide
for
broader
inclusions. Evidently,
the law expanded the
concept of one-half
month salary from the
usual one-month salary
divided by two.
The retirement pay is equal to
half-months
pay
per
year
of
service. But
half-months
pay
is
expanded because it means not just
the salary for 15 days but also onetwelfth of the 13th-month pay and the
cash value of five-day service incentive

leave. THIS IS THE MINIMUM. The

retirement pay package can be
improved upon by voluntary company
policy, or particular agreement with the
employee, or through a collective
bargaining agreement. (The Labor
Code with Comments and Cases, C.A.
Azcunea, Vol. II, page 765, Fifth Edition
2004).
Thus,
having
established
that 22.5 days pay per year of service
is the correct formula in arriving at the
complete
retirement
pay
of
complainant
and
inasmuch
as
complainants daily earning is based on
commission earned in a day, which
varies each day, the next critical issue
that
needs
discernment
is
the
determination of what is a fair and
rational amount of daily earning of
complainant to be used in the
computation of his retirement pay.
While complainant endeavored
to substantiate his claim that he
earned average daily commission
of P700.00, however, the documents
he presented are not complete, simply
representative
copies,
therefore
unreliable. On the other haNd, while
respondents question complainants use
of P700.00 (daily income) as basis in
determining
the
latters
correct
retirement pay, however it does not
help their defense that they did not
present a single Conductors Trip Report
to
contradict
the
claim
of
complainant. Instead,
respondents
adduced a handwritten summary of
complainants monthly income from
1993 until June 2006. It must be noted
also that complainant did not contest
the amounts stated on the summary of
his monthly income as reported by
respondents. Given
the
above
considerations, and most importantly
that complainant did not dispute the
figures stated in that document, we
find it logical, just and equitable for
both parties to rely on the summary of
monthly
income
provided
by
respondent,
thus,
we
added
complainants monthly income from
June 2005 until June 2006 or the last
twelve
months
and
we
arrived
at P189,591.30) and we divided it by
twelve (12) to arrive at complainants
average
monthly
earning
of P15,799.28. Thereafter, the average
monthly of P15,799.28 is divided by
twenty-six (26) days, the factor
commonly used in determining the
regular working days in a month, to
arrive at his average daily income
of P607.66. Finally, P607.66
(average
daily
income)
x
22.5
days
= P13,672.35 x 14 (length of service)

= P191,412.90
(COMPLETE
RETIREMENT
PAY). However,
inasmuch as
complainant
already
received P75,277.45, the retirement
differential pay due him is P116,135.45
(P191,412.90P75,277.45). (underscorin
g partly in the original and partly
supplied)

The

National

Labor

Relations

Commission

(NLRC) to which respondents appealed reversed the

Labor

Arbiters

complaint
however,

by

ruling

and

dismissed

Decision[3] dated

ordered

April

respondents

to

petitioners

23,

pay

2008. It,

retirement

differential in the amount of P2,365.35.

Citing R & E Transport, Inc. v. Latag, [4] the NLRC

held

that

since

petitioner

was

paid

on

purely

commission basis, he was excluded from the coverage

of the laws on 13th month pay and SIL pay, hence,
the 1/12 of the 13th month pay and the 5-day SIL should
not be factored in the computation of his retirement
pay.

Petitioners motion for reconsideration having

been denied by Resolution[5] of June 27, 2008, he
appealed to the Court of Appeals.

By the assailed Decision[6] of February 11,

2009, the appellate court affirmed the NLRCs ruling, it
merely holding that it was based on substantial
evidence, hence, should be respected.

Petitioners

motion

for

reconsideration

was

denied, hence, the present petition for review on

certiorari.

The petition is meritorious.

Republic Act No. 7641 which was enacted on

December 9, 1992 amended Article 287 of the Labor
Code by providing for retirement pay to qualified

private sector employees in the absence of any

retirement plan in the establishment. The pertinent
provision of said law reads:
Section 1.
Article 287 of
Presidential Decree No. 442, as
amended, otherwise known as the
Labor Code of the Philippines, is hereby
amended to read as follows:
xxxx
In the absence of a
retirement plan or
agreement providing
for
retirement
benefits
of
employees in
the
establishment,
an
employee
upon
reaching the age of
sixty (60) years or
more,
but
not
beyond
sixty-five
(65) years which is
hereby declared the
compulsory
retirement age, who
has served at least
five (5) years in the
said establishment,
may retire and shall
be
entitled
to
retirement
pay
equivalent
to
at
least one-half (1/2)
month
salary
for
every
year
of
service, a fraction of
at
least
six
(6)
months
being
considered as one
whole year.
Unless the parties
provide for broader
inclusions, the term
one-half (1/2) month
salary shall mean
fifteen
(15)
days
plus one-twelfth (1/12)
of the 13th month
pay and the cash
equivalent
of
not
more than five (5)
days
of
service
incentive leaves.
Retail, service and
agricultural
establishments
or
operations
employing not more
than (10) employees
or
workers
are
exempted from the

coverage
provision.

of

this

x x x x (emphasis and
underscoring supplied)

Further, the Implementing Rules of said law provide:

RULE II
Retirement Benefits
SECTION 1.
General Statement on Coverage. This
Rule shall apply to all employees
in the private sector, regardless of
their
position,
designation
or
status and irrespective of the
method by which their wages are
paid, except to those specifically
exempted under Section 2 hereof.
As used herein, the term Act shall refer
to Republic Act No. 7641 which took
effect on January 7, 1993.
SECTION 2
Exemptions.
This
Rule shall
not
apply to the following employees:
2.1 Employees of the National
Government and
its
political
subdivisions, including Governmentowned and/or controlled corporations,
if they are covered by the Civil Service
Law and its regulations.
2.2 Domestic helpers and persons in
the personal service of another.
2.3 Employees of retail, service
and agricultural establishment or
operations regularly employing not
more than ten (10) employees. As
used in this sub-section;
xxxx
SECTION 5
Retirement Benefits.
5.1 In the absence of an applicable
agreement or retirement plan, an
employee who retires pursuant to the
Act shall be entitled to retirement pay
equivalent to at least one-half ()
month salary for every year of service,
a fraction of at least six (6) months
being considered as one whole year.
5.2 Components of One-half ()
Month Salary. For the purpose of
determining the minimum retirement
pay due an employee under this Rule,
the term one-half month salary shall
include all of the following:

(a) Fifteen (15) days salary

of the employee based on his
latest
salary
rate.
As
used
herein, the term salary includes all
remunerations
paid
by
an
employer to his employees for
services rendered during normal
working days and hours, whether
such
payments
are
fixed
or
ascertained on a time, task, piece
of commission basis, or other
method of calculating the same, and
includes the fair and reasonable value,
as determined by the Secretary of
Labor and Employment, of food,
lodging or other facilities customarily
furnished by the employer to his
employees. The term does not include
cost of living allowances, profit-sharing
payments and other monetary benefits
which are not considered as part of or
integrated into the regular salary of the
employees.
(b) The cash equivalent of
not more than five (5) days of
service incentive leave;
(c) One-twelfth of the 13th
month pay due the employee.
(d) All other benefits that the
employer and employee may agree
upon that should be included in the
computation
of
the
employees
retirement pay.
x x x x (emphasis supplied)

Admittedly, petitioner worked for 14 years for

the bus company which did not adopt any retirement
scheme. Even if petitioner as bus conductor was paid
on commission basis then, he falls within the coverage
of R.A. 7641 and its implementing rules. As thus
correctly

ruled

by

the

Labor

Arbiter,

petitioners

retirement pay should include the cash equivalent of

the 5-day SIL and 1/12 of the 13th month pay.

The affirmance by the appellate court of the

reliance by the NLRC on R & E Transport, Inc. is
erroneous. In said case, the Court held that a taxi

For purposes, however, of applying the law on

SIL, as well as on retirement, the Court notes that there
is

a difference

between

drivers

paid

under

the

boundary system and conductors who are paid on

commission basis.

In practice, taxi drivers do not receive fixed

wages. They retain only those sums in excess of the
boundary or fee they pay to the owners or operators of
the vehicles.[7] Conductors, on the other hand, are paid
a certain percentage of the bus earnings for the day.

It bears emphasis that under P.D. 851 or the

SIL Law, the exclusion from its coverage of workers
who are paid on a purely commission basis is only with
respect to field personnel. The more recent case
of Auto

Bus

Transport

Systems,

Inc.,

v.

Bautista[8]clarifies that an employee who is paid on

purely commission basis is entitled to SIL:
A
careful
perusal
of
said
provisions of law will result in the
conclusion that the grant of service
incentive leave has been delimited by
the
Implementing
Rules
and
Regulations of the Labor Code to
apply only to those employees not
explicitly excluded by Section 1 of
Rule
V. According
to
the
Implementing
Rules,
Service
Incentive Leave shall not apply to
employees classified as field
personnel. The
phrase
other
employees whose performance is
unsupervised by the employer must
not be understood as a separate
classification of employees to which
service incentive leave shall not be
granted. Rather, it serves as an
amplification of the interpretation of
the definition of field personnel under
the Labor Code as those whose actual
hours of work in the field cannot be
determined with reasonable certainty.

driver paid according to the boundary system is not ent

itled to the 13th month and the SIL pay, hence, his
retirement pay should be computed on the sole basis
of his salary.

to

The same is true with respect

the phrase those who are

engaged
on
task
or
contract basis,
purely commission basis. Said
phrase should be related with
field personnel, applying the rule
on ejusdem generis that general and
unlimited terms are restrained and
limited by the particular terms that
they
follow. Hence,
employees
engaged on task or contract basis
or paid
on
purelycommission basis are not
automatically exempted from the
grant of service incentive leave,
unless, they
fall under the
classification of field personnel.
xxxx
According to Article 82 of the
Labor Code, field personnel shall
refer
to
non-agricultural
employees who regularly perform
their duties away from the
principal place of business or
branch office of the employer and
whose actual hours of work in the
field cannot be determined with
reasonable
certainty.
This
definition is further elaborated in
the Bureau of Working Conditions
(BWC), Advisory Opinion to Philippine
Technical-Clerical
Commercial
Employees Association which states
that:
As a general rule,
[field personnel] are those
whose performance of
their job/service is not
supervised
by
the
employer
or
his
representative,
the
workplace being away
from the principal office
and whose hours and days
of
work
cannot
be
determined
with
reasonable
certainty;
hence, they are paid
specific
amount
for
rendering specific service
or
performing
specific
work. If required to be
at specific places at
specific
times, employees
including
drivers
cannot be said to be
field personnel despite
the fact that they are
performing work away
from
the
principal
office of the employee.

x x x x (emphasis, italics and

underscoring supplied)
WHEREFORE, the petition is GRANTED. The Court of
Appeals Decision of February 11, 2009 and Resolution
of April 28, 2009 are REVERSED and SET ASIDE and
the Labor Arbiters Decision dated February 15, 2007
is REINSTATED.

SO ORDERED.

AUTO

BUS
TRANSPORT
SYSTEMS,
INC.,
petitioner,
vs. ANTONIO
BAUTISTA, respondent.
DECISION

CHICO-NAZARIO, J.:
Before
Us
is
a
Petition
for
Review
on Certiorari assailing
the
Decision[1] and
Resolution[2] of the Court of Appeals affirming the
Decision[3] of the National Labor Relations Commission
(NLRC). The NLRC ruling modified the Decision of the
Labor Arbiter (finding respondent entitled to the award
of 13th month pay and service incentive leave pay) by
deleting the award of 13th month pay to respondent.
THE FACTS
Since 24 May 1995, respondent Antonio Bautista
has been employed by petitioner Auto Bus Transport
Systems, Inc. (Autobus), as driver-conductor with travel
routes
Manila-Tuguegarao
via
Baguio,
BaguioTuguegarao via Manila and Manila-Tabuk via Baguio.
Respondent was paid on commission basis, seven
percent (7%) of the total gross income per travel, on a
twice a month basis.
On 03 January 2000, while respondent was driving
Autobus No. 114 along Sta. Fe, Nueva Vizcaya, the bus
he was driving accidentally bumped the rear portion of
Autobus No. 124, as the latter vehicle suddenly
stopped at a sharp curve without giving any warning.

Respondent averred that the accident happened

because he was compelled by the management to go
back to Roxas, Isabela, although he had not slept for
almost twenty-four (24) hours, as he had just arrived in
Manila from Roxas, Isabela. Respondent further alleged
that he was not allowed to work until he fully paid the
amount of P75,551.50, representing thirty percent
(30%) of the cost of repair of the damaged buses and
that despite respondents pleas for reconsideration, the
same was ignored by management. After a month,
management sent him a letter of termination.
Thus, on 02 February 2000, respondent instituted
a Complaint for Illegal Dismissal with Money Claims for
nonpayment of 13th month pay and service incentive
leave pay against Autobus.

[T]he Rules and Regulations Implementing Presidential

Decree No. 851, particularly Sec. 3 provides:
Section 3. Employers covered. The Decree shall apply
to all employers except to:
xxx xxx xxx
e) employers of those who are paid on purely
commission, boundary, or task basis, performing a
specific work, irrespective of the time consumed in the
performance thereof. xxx.
Records show that complainant, in his position paper,
admitted that he was paid on a commission basis.

Petitioner, on the other hand, maintained that

respondents employment was replete with offenses
involving reckless imprudence, gross negligence, and
dishonesty. To support its claim, petitioner presented
copies of letters, memos, irregularity reports, and
warrants of arrest pertaining to several incidents
wherein respondent was involved.

In view of the foregoing, we deem it just and equitable

to modify the assailed Decision by deleting the award
of 13th month pay to the complainant.

Furthermore, petitioner avers that in the exercise

of
its
management
prerogative,
respondents
employment was terminated only after the latter was
provided with an opportunity to explain his side
regarding the accident on 03 January 2000.

In other words, the award of service incentive

leave pay was maintained. Petitioner thus sought a
reconsideration of this aspect, which was subsequently
denied in a Resolution by the NLRC dated 31 October
2001.

On 29 September 2000, based on the pleadings

and supporting evidence presented by the parties,
Labor Arbiter Monroe C. Tabingan promulgated a
Decision,[4] the dispositive portion of which reads:

Displeased with only the partial grant of its appeal

to the NLRC, petitioner sought the review of said
decision with the Court of Appeals which was
subsequently denied by the appellate court in a
Decision dated 06 May 2002, the dispositive portion of
which reads:

WHEREFORE, all premises considered, it is hereby

found that the complaint for Illegal Dismissal has no
leg to stand on. It is hereby ordered DISMISSED, as it is
hereby DISMISSED.
However, still based on the above-discussed premises,
the respondent must pay to the complainant the
following:

WHEREFORE, the Decision dated 29 September 2000 is

MODIFIED by deleting the award of 13th month pay. The
other findings are AFFIRMED.[6]

WHEREFORE, premises considered, the Petition is

DISMISSED for lack of merit; and the
assailed Decision of respondent Commission in NLRC
NCR CA No. 026584-2000 is hereby AFFIRMED in toto.
No costs.[7]
Hence, the instant petition.

a. his 13 month pay from the date of his

hiring to the date of his dismissal,
presently computed at P78,117.87;
th

b. his service incentive leave pay for all

the years he had been in service
with the respondent, presently
computed at P13,788.05.
All other claims of both complainant and respondent
are hereby dismissed for lack of merit.[5]
Not satisfied with the decision of the Labor Arbiter,
petitioner appealed the decision to the NLRC which
rendered its decision on 28 September 2001, the
decretal portion of which reads:

ISSUES
1. Whether or not respondent is entitled to service
incentive leave;
2. Whether or not the three (3)-year prescriptive
period provided under Article 291 of the Labor
Code,
as
amended,
is
applicable
to
respondents claim of service incentive leave
pay.
RULING OF THE COURT
The disposition of the first issue revolves around
the proper interpretation of Article 95 of the Labor

Code vis--vis Section 1(D), Rule V, Book III of the

Implementing Rules and Regulations of the Labor Code
which provides:
Art. 95. RIGHT TO SERVICE INCENTIVE LEAVE
(a) Every employee who has rendered at least
one year of service shall be entitled to a
yearly service incentive leave of five
days with pay.
Book III, Rule V: SERVICE INCENTIVE LEAVE
SECTION 1. Coverage. This rule shall apply to all
employees except:
(d) Field personnel and other employees
whose performance is unsupervised by
the employer including those who are
engaged on task or contract basis, purely
commission basis, or those who are paid
in a fixed amount for performing work
irrespective of the time consumed in the
performance thereof; . . .
A careful perusal of said provisions of law will
result in the conclusion that the grant of service
incentive leave has been delimited by the
Implementing Rules and Regulations of the Labor Code
to apply only to those employees not explicitly
excluded by Section 1 of Rule V. According to the
Implementing Rules, Service Incentive Leave shall not
apply to employees classified as field personnel. The
phrase other employees whose performance is
unsupervised by the employer must not be understood
as a separate classification of employees to which
service incentive leave shall not be granted. Rather, it
serves as an amplification of the interpretation of the
definition of field personnel under the Labor Code as
those whose actual hours of work in the field cannot be
determined with reasonable certainty. [8]
The same is true with respect to the phrase those
who are engaged on task or contract basis, purely
commission basis. Said phrase should be related with
field personnel, applying the rule on ejusdem
generis that general and unlimited terms are restrained
and limited by the particular terms that they follow.
[9]
Hence, employees engaged on task or contract basis
or paid on purely commission basis are not
automatically exempted from the grant of service
incentive leave, unless, they fall under the
classification of field personnel.
Therefore, petitioners contention that respondent
is not entitled to the grant of service incentive leave
just because he was paid on purely commission basis is
misplaced. What must be ascertained in order to
resolve the issue of propriety of the grant of service
incentive leave to respondent is whether or not he is a
field personnel.

According to Article 82 of the Labor Code, field

personnel shall refer to non-agricultural employees
who regularly perform their duties away from the
principal place of business or branch office of the
employer and whose actual hours of work in the field
cannot be determined with reasonable certainty. This
definition is further elaborated in the Bureau of
Working Conditions (BWC), Advisory Opinion to
Philippine Technical-Clerical Commercial Employees
Association[10] which states that:
As a general rule, [field personnel] are those whose
performance of their job/service is not supervised by
the employer or his representative, the workplace
being away from the principal office and whose hours
and days of work cannot be determined with
reasonable certainty; hence, they are paid specific
amount for rendering specific service or performing
specific work. If required to be at specific places at
specific times, employees including drivers cannot be
said to be field personnel despite the fact that they are
performing work away from the principal office of the
employee. [Emphasis ours]
To this discussion by the BWC, the petitioner
differs and postulates that under said advisory opinion,
no employee would ever be considered a field
personnel because every employer, in one way or
another, exercises control over his employees.
Petitioner further argues that the only criterion that
should be considered is the nature of work of the
employee in that, if the employees job requires that he
works away from the principal office like that of a
messenger or a bus driver, then he is inevitably a field
personnel.
We are not persuaded. At this point, it is necessary
to stress that the definition of a field personnel is not
merely concerned with the location where the
employee regularly performs his duties but also with
the fact that the employees performance is
unsupervised by the employer. As discussed above,
field personnel are those who regularly perform their
duties away from the principal place of business of the
employer and whose actual hours of work in the field
cannot be determined with reasonable certainty. Thus,
in order to conclude whether an employee is a field
employee, it is also necessary to ascertain if actual
hours of work in the field can be determined with
reasonable certainty by the employer. In so doing, an
inquiry must be made as to whether or not the
employees time and performance are constantly
supervised by the employer.
As observed by the Labor Arbiter and concurred in
by the Court of Appeals:
It is of judicial notice that along the routes that are
plied by these bus companies, there are its inspectors
assigned at strategic places who board the bus and
inspect the passengers, the punched tickets, and the
conductors reports. There is also the mandatory oncea-week car barn or shop day, where the bus is regularly

checked as to its mechanical, electrical, and hydraulic

aspects, whether or not there are problems thereon as
reported by the driver and/or conductor. They too,
must be at specific place as [sic] specified time, as
they generally observe prompt departure and arrival
from their point of origin to their point of destination. In
each and every depot, there is always the Dispatcher
whose function is precisely to see to it that the bus and
its crew leave the premises at specific times and arrive
at the estimated proper time. These, are present in the
case at bar. The driver, the complainant herein, was
therefore under constant supervision while in the
performance of this work. He cannot be considered a
field personnel.[11]
We agree in the above disquisition. Therefore, as
correctly concluded by the appellate court, respondent
is not a field personnel but a regular employee who
performs tasks usually necessary and desirable to the
usual trade of petitioners business. Accordingly,
respondent is entitled to the grant of service incentive
leave.
The question now that must be addressed is up to
what amount of service incentive leave pay respondent
is entitled to.
The response to this query inevitably leads us to
the correlative issue of whether or not the three (3)year prescriptive period under Article 291 of the Labor
Code is applicable to respondents claim of service
incentive leave pay.
Article 291 of the Labor Code states that all
money claims arising from employer-employee
relationship shall be filed within three (3) years from
the time the cause of action accrued; otherwise, they
shall be forever barred.
In the application of this section of the Labor
Code, the pivotal question to be answered is when
does the cause of action for money claims accrue in
order to determine the reckoning date of the three-year
prescriptive period.
It is settled jurisprudence that a cause of action
has three elements, to wit, (1) a right in favor of the
plaintiff by whatever means and under whatever law it
arises or is created; (2) an obligation on the part of the
named defendant to respect or not to violate such
right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or
constituting a breach of the obligation of the defendant
to the plaintiff.[12]
To properly construe Article 291 of the Labor Code,
it is essential to ascertain the time when the third
element of a cause of action transpired. Stated
differently, in the computation of the three-year
prescriptive period, a determination must be made as
to the period when the act constituting a violation of
the workers right to the benefits being claimed was

committed.
than three
claim, said
accordance

For if the cause of action accrued more

(3) years before the filing of the money
cause of action has already prescribed in
with Article 291.[13]

Consequently, in cases of nonpayment of

allowances and other monetary benefits, if it is
established that the benefits being claimed have been
withheld from the employee for a period longer than
three (3) years, the amount pertaining to the period
beyond the three-year prescriptive period is therefore
barred by prescription. The amount that can only be
demanded by the aggrieved employee shall be limited
to the amount of the benefits withheld within three (3)
years before the filing of the complaint.[14]
It is essential at this point, however, to recognize
that the service incentive leave is a curious animal in
relation to other benefits granted by the law to every
employee. In the case of service incentive leave, the
employee may choose to either use his leave credits or
commute it to its monetary equivalent if not exhausted
at the end of the year. [15] Furthermore, if the employee
entitled to service incentive leave does not use or
commute the same, he is entitled upon his resignation
or separation from work to the commutation of his
accrued service incentive leave. As enunciated by the
Court in Fernandez v. NLRC:[16]
The clear policy of the Labor Code is to grant service
incentive leave pay to workers in all establishments,
subject to a few exceptions. Section 2, Rule V, Book III
of the Implementing Rules and Regulations provides
that [e]very employee who has rendered at least one
year of service shall be entitled to a yearly service
incentive leave of five days with pay. Service incentive
leave is a right which accrues to every employee who
has served within 12 months, whether continuous or
broken reckoned from the date the employee started
working, including authorized absences and paid
regular holidays unless the working days in the
establishment as a matter of practice or policy, or that
provided in the employment contracts, is less than 12
months, in which case said period shall be considered
as one year. It is also commutable to its money
equivalent if not used or exhausted at the end of the
year. In other words, an employee who has served for
one year is entitled to it. He may use it as leave days
or he may collect its monetary value. To limit the award
to three years, as the solicitor general recommends, is
to unduly restrict such right.[17] [Italics supplied]
Correspondingly, it can be conscientiously
deduced that the cause of action of an entitled
employee to claim his service incentive leave pay
accrues from the moment the employer refuses to
remunerate its monetary equivalent if the employee
did not make use of said leave credits but instead
chose to avail of its commutation. Accordingly, if the
employee wishes to accumulate his leave credits and
opts for its commutation upon his resignation or
separation from employment, his cause of action to
claim the whole amount of his accumulated service

incentive leave shall arise when the employer fails to

pay such amount at the time of his resignation or
separation from employment.

ARIEL L. DAVID, DOING BUSINESS UNDER THE

NAME AND STYLE YIELS HOG DEALER,
PETITIONER, VS. JOHN G. MACASIO, Respondent.

Applying Article 291 of the Labor Code in light of

this peculiarity of the service incentive leave, we can
conclude that the three (3)-year prescriptive period
commences, not at the end of the year when the
employee becomes entitled to the commutation of his
service incentive leave, but from the time when the
employer refuses to pay its monetary equivalent after
demand of commutation or upon termination of the
employees services, as the case may be.

DECISION

The above construal of Art. 291, vis--vis the rules

on service incentive leave, is in keeping with the
rudimentary principle that in the implementation and
interpretation of the provisions of the Labor Code and
its implementing regulations, the workingmans welfare
should be the primordial and paramount consideration.
[18]
The policy is to extend the applicability of the
decree to a greater number of employees who can
avail of the benefits under the law, which is in
consonance with the avowed policy of the State to give
maximum aid and protection to labor.[19]
In the case at bar, respondent had not made use
of his service incentive leave nor demanded for its
commutation until his employment was terminated by
petitioner. Neither did petitioner compensate his
accumulated service incentive leave pay at the time of
his dismissal. It was only upon his filing of a complaint
for illegal dismissal, one month from the time of his
dismissal, that respondent demanded from his former
employer commutation of his accumulated leave
credits. His cause of action to claim the payment of his
accumulated service incentive leave thus accrued from
the time when his employer dismissed him and failed
to pay his accumulated leave credits.
Therefore, the prescriptive period with respect to
his claim for service incentive leave pay only
commenced from the time the employer failed to
compensate his accumulated service incentive leave
pay at the time of his dismissal. Since respondent had
filed his money claim after only one month from the
time of his dismissal, necessarily, his money claim was
filed within the prescriptive period provided for by
Article 291 of the Labor Code.
WHEREFORE, premises considered, the instant
petition is hereby DENIED. The assailed Decision of the
Court of Appeals in CA-G.R. SP. No. 68395 is hereby
AFFIRMED. No Costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 195466, July 02, 2014

BRION, J.:
We resolve in this petition for review on certiorari1 the
challenge to the November 22, 2010 decision 2and the
January 31, 2011 resolution3 of the Court of
Appeals (CA) in CA-G.R. SP No. 116003. The CA
decision annulled and set aside the May 26, 2010
decision4 of the National Labor Relations
Commission (NLRC)5 which, in turn, affirmed the April
30, 2009 decision6 of the Labor Arbiter (LA). The LAs
decision dismissed respondent John G. Macasios
monetary claims.
The Factual Antecedents
In January 2009, Macasio filed before the LA a
complaint7 against petitioner Ariel L. David, doing
business under the name and style Yiels Hog Dealer,
for non-payment of overtime pay, holiday
pay and 13th month pay. He also claimed payment
for moral and exemplary damages andattorneys
fees. Macasio also claimed payment for service
incentive leave (SIL).8
Macasio alleged9 before the LA that he had been
working as a butcher for David since January 6, 1995.
Macasio claimed that David exercised effective control
and supervision over his work, pointing out that David:
(1) set the work day, reporting time and hogs to be
chopped, as well as the manner by which he was to
perform his work; (2) daily paid his salary of P700.00,
which was increased from P600.00 in 2007, P500.00 in
2006 and P400.00 in 2005; and (3) approved and
disapproved his leaves. Macasio added that David
owned the hogs delivered for chopping, as well as the
work tools and implements; the latter also rented the
workplace. Macasio further claimed that David
employs about twenty-five (25) butchers and delivery
drivers.
In his defense,10 David claimed that he started his hog
dealer business in 2005 and that he only has ten
employees. He alleged that he hired Macasio as a
butcher or chopper on pakyaw or task basis who is,
therefore, not entitled to overtime pay, holiday pay and
13th month pay pursuant to the provisions of the
Implementing Rules and Regulations (IRR) of the Labor
Code. David pointed out that Macasio: (1) usually
starts his work at 10:00 p.m. and ends at 2:00 a.m. of
the following day or earlier, depending on the volume
of the delivered hogs; (2) received the fixed amount of
P700.00 per engagement, regardless of the actual
number of hours that he spent chopping the delivered
hogs; and (3) was not engaged to report for work and,
accordingly, did not receive any fee when no hogs were
delivered.
Macasio disputed Davids allegations.11 He argued
that, first, David did not start his business only in
2005. He pointed to the Certificate of
Employment12 that David issued in his favor which

placed the date of his employment, albeit erroneously,

in January 2000. Second, he reported for work every
day which the payroll or time record could have easily
proved had David submitted them in evidence.
Refuting Macasios submissions,13 David claims that
Macasio was not his employee as he hired the latter on
pakyaw or task basis. He also claimed that he issued
the Certificate of Employment, upon Macasios request,
only for overseas employment purposes. He pointed to
the Pinagsamang Sinumpaang Salaysay,14 executed
by Presbitero Solano and Christopher (Antonio
Macasios co-butchers), to corroborate his claims.
In the April 30, 2009 decision,15 the LA dismissed
Macasios complaint for lack of merit. The LA gave
credence to Davids claim that he engaged Macasio on
pakyaw or task basis. The LA noted the following
facts to support this finding: (1) Macasio received the
fixed amount of P700.00 for every work done,
regardless of the number of hours that he spent in
completing the task and of the volume or number of
hogs that he had to chop per engagement; (2) Macasio
usually worked for only four hours, beginning from
10:00 p.m. up to 2:00 a.m. of the following day; and (3)
the P700.00 fixed wage far exceeds the then prevailing
daily minimum wage of P382.00. The LA added that
the nature of Davids business as hog dealer supports
this pakyaw or task basis arrangement.
The LA concluded that as Macasio was engaged on
pakyaw or task basis, he is not entitled to overtime,
holiday, SIL and 13th month pay.
The NLRCs Ruling
In its May 26, 2010 decision,16 the NLRC affirmed the
LA ruling.17 The NLRC observed that David did not
require Macasio to observe an eight-hour work
schedule to earn the fixed P700.00 wage; and that
Macasio had been performing a non-time work,
pointing out that Macasio was paid a fixed amount for
the completion of the assigned task, irrespective of the
time consumed in its performance. Since Macasio was
paid by result and not in terms of the time that he
spent in the workplace, Macasio is not covered by the
Labor Standards laws on overtime, SIL and holiday pay,
and 13th month pay under the Rules and Regulations
Implementing the 13th month pay law.18
Macasio moved for reconsideration19 but the NLRC
denied his motion in its August 11, 2010
resolution,20 prompting Macasio to elevate his case to
the CA via a petition for certiorari.21
The CAs Ruling
In its November 22, 2010 decision,22 the CA partly
granted Macasios certiorari petition and reversed the
NLRCs ruling for having been rendered with grave
abuse of discretion.
While the CA agreed with the LA and the NLRC that
Macasio was a task basis employee, it nevertheless
found Macasio entitled to his monetary claims following
the doctrine laid down inSerrano v. Severino Santos
Transit.23 The CA explained that as a task basis
employee, Macasio is excluded from the coverage of

holiday, SIL and 13th month pay only if he is likewise a

field personnel. As defined by the Labor Code, a
field personnel is one who performs the work away
from the office or place of work and whose regular
work hours cannot be determined with reasonable
certainty. In Macasios case, the elements that
characterize a field personnel are evidently lacking
as he had been working as a butcher at Davids Yiels
Hog Dealer business in Sta. Mesa, Manila under
Davids supervision and control, and for a fixed working
schedule that starts at 10:00 p.m.
Accordingly, the CA awarded Macasios claim for
holiday, SIL and 13th month pay for three years, with
10% attorneys fees on the total monetary award. The
CA, however, denied Macasios claim for moral and
exemplary damages for lack of basis.
David filed the present petition after the CA denied his
motion for reconsideration24 in the CAs January 31,
2011 resolution.25
The Petition
In this petition,26 David maintains that Macasios
engagement was on a pakyaw or task basis. Hence,
the latter is excluded from the coverage of holiday, SIL
and 13th month pay.
David reiterates his submissions before the lower
tribunals27 and adds that he never had any control over
the manner by which Macasio performed his work and
he simply looked on to the end-result. He also
contends that he never compelled Macasio to report for
work and that under their arrangement, Macasio was at
liberty to choose whether to report for work or not as
other butchers could carry out his tasks. He points out
that Solano and Antonio had, in fact, attested to their
(David and Macasios) established pakyawan
arrangement that rendered a written contract
unnecessary. In as much as Macasio is a task basis
employee who is paid the fixed amount of P700.00
per engagement regardless of the time consumed in
the performance David argues that Macasio is not
entitled to the benefits he claims. Also, he posits that
because he engaged Macasio on pakyaw or task
basis then no employer-employee relationship exists
between them.
Finally, David argues that factual findings of the LA,
when affirmed by the NLRC, attain finality especially
when, as in this case, they are supported by
substantial evidence. Hence, David posits that the CA
erred in reversing the labor tribunals findings and
granting the prayed monetary claims.
The Case for the Respondent
Macasio counters that he was not a task basis
employee or a field personnel as David would have
this Court believe.28 He reiterates his arguments before
the lower tribunals and adds that, contrary to Davids
position, the P700.00 fee that he was paid for each day
that he reported for work does not indicate a pakyaw
or task basis employment as this amount was paid
daily, regardless of the number or pieces of hogs that
he had to chop. Rather, it indicates a daily-wage
method of payment and affirms his regular

employment status. He points out that David did not

allege or present any evidence as regards the quota or
number of hogs that he had to chop as basis for the
pakyaw or task basis payment; neither did David
present the time record or payroll to prove that he
worked for less than eight hours each day. Moreover,
David did not present any contract to prove that his
employment was on task basis. As David failed to
prove the alleged task basis or pakyawan
agreement, Macasio concludes that he was Davids
employee.
Procedurally, Macasio points out that Davids
submissions in the present petition raise purely factual
issues that are not proper for a petition for review
on certiorari. These issues whether he (Macasio) was
paid by result or on pakyaw basis; whether he was a
field personnel; whether an employer-employee
relationship existed between him and David; and
whether David exercised control and supervision over
his work are all factual in nature and are, therefore,
proscribed in a Rule 45 petition. He argues that the
CAs factual findings bind this Court, absent a showing
that such findings are not supported by the evidence or
the CAs judgment was based on a misapprehension of
facts. He adds that the issue of whether an employeremployee relationship existed between him and David
had already been settled by the LA29 and the
NLRC30 (as well as by the CA per Macasios
manifestation before this Court dated November 15,
2012),31 in his favor, in the separate illegal case that he
filed against David.
The Issue
The issue revolves around the proper application and
interpretation of the labor law provisions on holiday,
SIL and 13th month pay to a worker engaged on
pakyaw or task basis. In the context of the Rule 65
petition before the CA, the issue is whether the CA
correctly found the NLRC in grave abuse of discretion in
ruling that Macasio is entitled to these labor standards
benefits.
The Courts Ruling
We partially grant the petition.
Preliminary considerations: the
Montoya ruling and the factualissue-bar rule
In this Rule 45 petition for review on certiorari of the
CAs decision rendered under a Rule 65 proceeding,
this Courts power of review is limited to resolving
matters pertaining to any perceived legal errors that
the CA may have committed in issuing the assailed
decision. This is in contrast with the review for
jurisdictional errors, which we undertake in an
original certiorari action. In reviewing the legal
correctness of the CA decision, we examine the CA
decision based on how it determined the presence or
absence of grave abuse of discretion in the NLRC
decision before it and not on the basis of whether the
NLRC decision on the merits of the case was correct. 32
In other words, we have to be keenly aware that the CA
undertook a Rule 65 review, not a review on appeal, of
the NLRC decision challenged before it.33

Moreover, the Courts power in a Rule 45 petition limits

us to a review of questions of law raised against the
assailed CA decision.34
In this petition, David essentially asks the question
whether Macasio is entitled to holiday, SIL and
13th month pay. This one is a question of law. The
determination of this question of law however is
intertwined with the largely factual issue of whether
Macasio falls within the rule on entitlement to these
claims or within the exception. In either case, the
resolution of this factual issue presupposes another
factual matter, that is, the presence of an employeremployee relationship between David and Macasio.
In insisting before this Court that Macasio was not his
employee, David argues that he engaged the latter on
pakyaw or task basis. Very noticeably, David
confuses engagement on pakyaw or task basis with
the lack of employment relationship. Impliedly, David
asserts that their pakyawan or task basis
arrangement negates the existence of employment
relationship.
At the outset, we reject this assertion of the petitioner.
Engagement on pakyaw or task basis does not
characterize the relationship that may exist between
the parties, i.e., whether one of employment or
independent contractorship. Article 97(6) of the Labor
Code defines wages as xxx theremuneration 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[.]35 In relation to
Article 97(6), Article 10136 of the Labor Code speaks of
workers paid by results or those whose pay is
calculated in terms of the quantity or quality of their
work output which includes pakyaw work and other
non-time work.
More importantly, by implicitly arguing that his
engagement of Macasio on pakyaw or task basis
negates employer-employee relationship, David would
want the Court to engage on a factual appellate review
of the entire case to determine the presence or
existence of that relationship. This approach however
is not authorized under a Rule 45 petition for review of
the CA decision rendered under a Rule 65 proceeding.
First, the LA and the NLRC denied Macasios
claim not because of the absence of an employeremployee but because of its finding that since Macasio
is paid on pakyaw or task basis, then he is not entitled
to SIL, holiday and 13th month pay. Second, we
consider it crucial, that in the separate illegal dismissal
case Macasio filed with the LA, the LA, the NLRC and
the CA uniformly found the existence of an employeremployee relationship.37
In other words, aside from being factual in nature, the
existence of an employer-employee relationship is in
fact a non-issue in this case. To reiterate, in deciding a
Rule 45 petition for review of a labor decision rendered

by the CA under 65, the narrow scope of inquiry is

whether the CA correctly determined the presence or
absence of grave abuse of discretion on the part of the
NLRC. In concrete question form, did the NLRC gravely
abuse its discretion in denying Macasios claims simply
because he is paid on a non-time basis?
At any rate, even if we indulge the petitioner, we find
his claim that no employer-employee relationship
exists baseless. Employing the control test,38 we find
that such a relationship exist in the present case.
Even a factual review shows that
Macasio is Davids employee
To determine the existence of an employer-employee
relationship, four elements generally need to be
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. These elements or indicators
comprise the so-called four-fold test of employment
relationship. Macasios relationship with David satisfies
this test.
First, David engaged the services of Macasio, thus
satisfying the element of selection and engagement of
the employee. David categorically confirmed this fact
when, in his Sinumpaang Salaysay, he stated that
nag apply po siya sa akin at kinuha ko siya na
chopper[.]39 Also, Solano and Antonio stated in their
Pinagsamang Sinumpaang Salaysay40 that [k]ami po
ay nagtratrabaho sa Yiels xxx na pag-aari ni Ariel David
bilang butcher and kilala namin si xxx Macasio na isa
ring butcher xxx ni xxx David at kasama namin siya sa
aming trabaho.
Second, David paid Macasios wages. Both David and
Macasio categorically stated in their respective
pleadings before the lower tribunals and even before
this Court that the former had been paying the latter
P700.00 each day after the latter had finished the
days task. Solano and Antonio also confirmed this fact
of wage payment in their Pinagsamang Sinumpaang
Salaysay.41 This satisfies the element of payment of
wages.
Third, David had been setting the day and time when
Macasio should report for work. This power to
determine the work schedule obviously implies power
of control. By having the power to control Macasios
work schedule, David could regulate Macasios work
and could even refuse to give him any assignment,
thereby effectively dismissing him.
And fourth, David had the right and power to control
and supervise Macasios work as to the means and
methods of performing it. In addition to setting the day
and time when Macasio should report for work, the
established facts show that David rents the place
where Macasio had been performing his tasks.
Moreover, Macasio would leave the workplace only
after he had finished chopping all of the hog meats
given to him for the days task. Also, David would still
engage Macasios services and have him report for
work even during the days when only few hogs were
delivered for butchering.

Under this overall setup, all those working for David,

including Macasio, could naturally be expected to
observe certain rules and requirements and David
would necessarily exercise some degree of control as
the chopping of the hog meats would be subject to his
specifications. Also, since Macasio performed his tasks
at Davids workplace, David could easily exercise
control and supervision over the former. Accordingly,
whether or not David actually exercised this right or
power to control is beside the point as the law simply
requires the existence of this power to control 4243 or, as
in this case, the existence of the right and opportunity
to control and supervise Macasio.44
In sum, the totality of the surrounding circumstances of
the present case sufficiently points to an employeremployee relationship existing between David and
Macasio.
Macasio is engaged on pakyaw or task basis
At this point, we note that all three tribunals the LA,
the NLRC and the CA found that Macasio was
engaged or paid on pakyaw or task basis. This
factual finding binds the Court under the rule that
factual findings of labor tribunals when supported by
the established facts and in accord with the laws,
especially when affirmed by the CA, is binding on this
Court.
A distinguishing characteristic of pakyaw or task
basis engagement, as opposed to straight-hour wage
payment, is the non-consideration of the time spent in
working. In a task-basis work, the emphasis is on the
task itself, in the sense that payment is reckoned in
terms of completion of the work, not in terms of the
number of time spent in the completion of work.45 Once
the work or task is completed, the worker receives a
fixed amount as wage, without regard to the standard
measurements of time generally used in pay
computation.
In Macasios case, the established facts show that he
would usually start his work at 10:00 p.m. Thereafter,
regardless of the total hours that he spent at the
workplace or of the total number of the hogs assigned
to him for chopping, Macasio would receive the fixed
amount of P700.00 once he had completed his task.
Clearly, these circumstances show a pakyaw or task
basis engagement that all three tribunals uniformly
found.
In sum, the existence of employment relationship
between the parties is determined by applying the
four-fold test; engagement on pakyaw or task basis
does not determine the parties relationship as it is
simply a method of pay computation. Accordingly,
Macasio is Davids employee, albeit engaged on
pakyaw or task basis.
As an employee of David paid on pakyaw or task basis,
we now go to the core issue of whether Macasio is
entitled to holiday, 13th month, and SIL pay.
On the issue of Macasios
entitlement to holiday, SIL
and 13th month pay

The LA dismissed Macasios claims pursuant to Article

94 of the Labor Code in relation to Section 1, Rule IV of
the IRR of the Labor Code, and Article 95 of the Labor
Code, as well as Presidential Decree (PD) No. 851. The
NLRC, on the other hand, relied on Article 82 of the
Labor Code and the Rules and Regulations
Implementing PD No. 851. Uniformly, these provisions
exempt workers paid on pakyaw or task basis from
the coverage of holiday, SIL and 13th month pay.
In reversing the labor tribunals rulings, the CA
similarly relied on these provisions, as well as on
Section 1, Rule V of the IRR of the Labor Code and the
Courts ruling in Serrano v. Severino Santos Transit.46
These labor law provisions, when read together with
the Serrano ruling, exempt those engaged on
pakyaw or task basis only if they qualify as field
personnel.
In other words, what we have before us is largely a
question of law regarding the correct interpretation of
these labor code provisions and the implementing
rules; although, to conclude that the worker is
exempted or covered depends on the facts and in this
sense, is a question of fact: first, whether Macasio is a
field personnel; and second, whether those engaged
on pakyaw or task basis, but who are not field
personnel, are exempted from the coverage of
holiday, SIL and 13th month pay.
To put our discussion within the perspective of a Rule
45 petition for review of a CA decision rendered under
Rule 65 and framed in question form, the legal
question is whether the CA correctly ruled that it was
grave abuse of discretion on the part of the NLRC to
deny Macasios monetary claims simply because he is
paid on a non-time basis without determining whether
he is a field personnel or not.
To resolve these issues, we need to re-visit the
provisions involved.
Provisions governing SIL and holiday pay
Article 82 of the Labor Code provides the exclusions
from the coverage of Title I, Book III of the Labor Code provisions governing working conditions and rest
periods.
Art. 82. Coverage. The provisions of [Title I]
shall apply to employees in all establishments and
undertakings whether for profit or not, but not
to government employees, managerial
employees, field personnel, members of the family of
the employer who are dependent on him for support,
domestic helpers, persons in the personal service of
another, and workers who are paid by results as
determined by the Secretary of Labor in
appropriate regulations.

Among the Title I provisions are the provisions on

holiday pay (under Article 94 of the Labor Code) and
SIL pay (under Article 95 of the Labor Code). Under
Article 82, field personnel on one hand and workers
who are paid by results on the other hand, are not
covered by the Title I provisions. The wordings of
Article 82 of the Labor Code additionally categorize
workers paid by results and field personnel as
separate and distinct types of employees who are
exempted from the Title I provisions of the Labor Code.
The pertinent portion of Article 94 of the Labor Code
and its corresponding provision in the
IRR47reads:chanroblesvirtuallawlibrary
Art. 94. Right to holiday pay. (a) Every worker shall be
paid his regular daily wage during regular holidays,
except in retail and service establishments regularly
employing less than (10) workers[.] [emphasis ours]
xxxx
SECTION 1. Coverage. This Rule shall apply to all
employees except:
xxxx
(e) Field personnel and other employees whose
time and performance is unsupervised by the
employer including those who are engaged on
task or contract basis, purely commission basis, or
those who are paid a fixed amount for performing work
irrespective of the time consumed in the performance
thereof. [emphases ours]
On the other hand, Article 95 of the Labor Code and its
corresponding provision in the IRR48pertinently
provides:chanroblesvirtuallawlibrary
Art. 95. Right to service incentive. (a) Every employee
who has rendered at least one year of service shall be
entitled to a yearly service incentive leave of five days
with pay.
(b) This provision shall not apply to those who are
already enjoying the benefit herein provided, those
enjoying vacation leave with pay of at least five days
and those employed in establishments regularly
employing less than ten employees or in
establishments exempted from granting this benefit by
the Secretary of Labor and Employment after
considering the viability or financial condition of such
establishment. [emphases ours]
xxxx
Section 1. Coverage. This rule shall apply to all
employees except:

xxxx
Field personnel shall refer to non-agricultural
employees who regularly perform their duties away
from the principal place of business or branch office of
the employer and whose actual hours of work in the
field cannot be determined with reasonable certainty.
[emphases and underscores ours]

xxxx
(e) Field personnel and other employees whose
performance is unsupervised by the
employer including those who are engaged on
task or contract basis, purely commission basis,
or those who are paid a fixed amount for performing

work irrespective of the time consumed in the

performance thereof. [emphasis ours]

2005 in Auto Bus Transport Systems, Inc., v.

Bautista:chanroblesvirtuallawlibrary

Under these provisions, the general rule is that

holiday and SIL pay provisions cover all employees. To
be excluded from their coverage, an employee must be
one of those that these provisions expressly exempt,
strictly in accordance with the exemption.

A careful perusal of said provisions of law will result in

the conclusion that the grant of service incentive leave
has been delimited by the Implementing Rules and
Regulations of the Labor Code to apply only to those
employees not explicitly excluded by Section 1 of Rule
V. According to the Implementing Rules, Service
Incentive Leave shall not apply to employees classified
as field personnel. The phrase other employees
whose performance is unsupervised by the employer
must not be understood as a separate classification of
employees to which service incentive leave shall not
be granted. Rather, it serves as an amplification of the
interpretation of the definition of field personnel under
the Labor Code as those whose actual hours of work in
the field cannot be determined with reasonable
certainty.

Under the IRR, exemption from the coverage of holiday

and SIL pay refer to field personnel andother
employees whose time and performance is
unsupervised by the employer including those who are
engaged on task or contract basis[.] Note that unlike
Article 82 of the Labor Code, the IRR on holiday and
SIL pay do not exclude employees engaged on task
basis as a separate and distinct category from
employees classified as field personnel. Rather,
these employees are altogether merged into one
classification of exempted employees.
Because of this difference, it may be argued that the
Labor Code may be interpreted to mean that those who
are engaged on task basis, per se, are excluded from
the SIL and holiday payment since this is what the
Labor Code provisions, in contrast with the IRR,
strongly suggest. The arguable interpretation of this
rule may be conceded to be within the discretion
granted to the LA and NLRC as the quasi-judicial bodies
with expertise on labor matters.
However, as early as 1987 in the case of Cebu Institute
of Technology v. Ople49 the phrase those who are
engaged on task or contract basis in the rule has
already been interpreted to mean as
follows:chanroblesvirtuallawlibrary
[the phrase] should however, be related with "field
personnel" applying the rule onejusdem generis that
general and unlimited terms are restrained and limited
by the particular terms that they follow xxx Clearly,
petitioner's teaching personnel cannot be deemed field
personnel which refers "to non-agricultural employees
who regularly perform their duties away from the
principal place of business or branch office of the
employer and whose actual hours of work in the field
cannot be determined with reasonable certainty. [Par.
3, Article 82, Labor Code of the Philippines]. Petitioner's
claim that private respondents are not entitled to the
service incentive leave benefit cannot therefore be
sustained.
In short, the payment of an employee on task
or pakyaw basis alone is insufficient to exclude one
from the coverage of SIL and holiday pay. They are
exempted from the coverage of Title I (including the
holiday and SIL pay) only if they qualify as field
personnel. The IRR therefore validly qualifies and
limits the general exclusion of workers paid by
results found in Article 82 from the coverage of
holiday and SIL pay. This is the only reasonable
interpretation since the determination of excluded
workers who are paid by results from the coverage of
Title I is determined by the Secretary of Labor in
appropriate regulations.
The Cebu Institute Technology ruling was reiterated in

The same is true with respect to the phrase those who

are engaged on task or contract basis, purely
commission basis. Said phrase should be related with
field personnel, applying the rule on ejusdem
generis that general and unlimited terms are restrained
and limited by the particular terms that they follow.
The Autobus ruling was in turn the basis of Serrano v.
Santos Transit which the CA cited in support of
granting Macasios petition.
In Serrano, the Court, applying the rule on ejusdem
generis50 declared that employees engaged on
task or contract basis xxx are not automatically
exempted from the grant of service incentive
leave, unless, they fall under the classification of
field personnel.51 The Court explained that the
phrase including those who are engaged on task or
contract basis, purely commission basis found in
Section 1(d), Rule V of Book III of the IRR should not be
understood as a separate classification of employees to
which SIL shall not be granted. Rather, as with its
preceding phrase - other employees whose
performance is unsupervised by the employer - the
phrase including those who are engaged on task or
contract basis serves to amplify the interpretation of
the Labor Code definition of field personnel as those
whose actual hours of work in the field cannot be
determined with reasonable certainty.
In contrast and in clear departure from settled case
law, the LA and the NLRC still interpreted the Labor
Code provisions and the IRR as exempting an
employee from the coverage of Title I of the Labor
Code based simply and solely on the mode of payment
of an employee. The NLRCs utter disregard of this
consistent jurisprudential ruling is a clear act of
grave abuse of discretion.52 In other words, by
dismissing Macasios complaint without considering
whether Macasio was a field personnel or not,
the NLRC proceeded based on a significantly
incomplete consideration of the case. This action
clearly smacks of grave abuse of discretion.
Entitlement to holiday pay
Evidently, the Serrano ruling speaks only of SIL pay.

However, if the LA and the NLRC had only taken

counsel from Serrano and earlier cases, they would
have correctly reached a similar conclusion regarding
the payment of holiday pay since the rule exempting
field personnel from the grant of holiday pay is
identically worded with the rule exempting field
personnel from the grant of SIL pay. To be clear, the
phrase employees engaged on task or contract basis
found in the IRR on both SIL pay and holiday pay
should be read together with the exemption of field
personnel.
In short, in determining whether workers engaged on
pakyaw or task basis is entitled to holiday and SIL
pay, the presence (or absence) of employer
supervision as regards the workers time and
performance is the key: if the worker is simply engaged
on pakyaw or task basis, then the general rule is that
he is entitled to a holiday pay and SIL pay unless
exempted from the exceptions specifically provided
under Article 94 (holiday pay) and Article 95 (SIL pay)
of the Labor Code. However, if the worker engaged
on pakyaw or task basis also falls within the meaning
of field personnel under the law, then he is not
entitled to these monetary benefits.
Macasio does not fall under the
classification of field personnel
Based on the definition of field personnel under Article
82, we agree with the CA that Macasio does not fall
under the definition of field personnel. The CAs
finding in this regard is supported by the established
facts of this case: first, Macasio regularly performed his
duties at Davids principal place of business; second,
his actual hours of work could be determined with
reasonable certainty; and,third, David supervised his
time and performance of duties. Since Macasio cannot
be considered a field personnel, then he is not
exempted from the grant of holiday, SIL pay even as he
was engaged on pakyaw or task basis.
Not being a field personnel, we find the CA to be
legally correct when it reversed the NLRCs ruling
dismissing Macasios complaint for holiday and SIL pay
for having been rendered with grave abuse of
discretion.
Entitlement to 13th month pay
With respect to the payment of 13th month pay
however, we find that the CA legally erred in finding
that the NLRC gravely abused its discretion in denying
this benefit to Macasio.
The governing law on 13th month pay is PD No.
851.53 As with holiday and SIL pay, 13th month pay
benefits generally cover all employees; an employee
must be one of those expressly enumerated to be
exempted. Section 3 of the Rules and Regulations
Implementing P.D. No. 85154 enumerates the
exemptions from the coverage of 13th month pay
benefits. Under Section 3(e), employers of those who
are paid on xxx task basis, and those who are
paid a fixed amount for performing a specific
work, irrespective of the time consumed in the
performance thereof55 are exempted.

Note that unlike the IRR of the Labor Code on holiday

and SIL pay, Section 3(e) of the Rules and Regulations
Implementing PD No. 851 exempts employees paid on
task basis without any reference to field personnel.
This could only mean that insofar as payment of the
13th month pay is concerned, the law did not intend to
qualify the exemption from its coverage with the
requirement that the task worker be a field personnel
at the same time.
WHEREFORE, in light of these considerations, we
hereby PARTIALLY GRANT the petition insofar as the
payment of 13th month pay to respondent is concerned.
In all other aspects, we AFFIRM the decision dated
November 22, 2010 and the resolution dated January
31, 2011 of the Court of Appeals in CA-G.R. SP No.
116003.
SO ORDERED.
G.R. No. 194352

January 30, 2013

MAXICARE PCIB CIGNA HEALTHCARE (now

MAXICARE HEALTHCARE CORPORATION), ERIC S.
NUBLA, JR. M.D. and RUTH A. ASIS,
M.D., Petitioners,
vs.
MARIAN BRIGITTE A. CONTRERAS,
M.D., Respondent.
DECISION
MENDOZA, J.:
Challenged in this petition are the January 28, 2010
Decision1 of the Court of Appeals (CA) and its October
27, 2010 Resolution,2 in CA-G.R. SP No. 101066, which
affirmed the March 16, 2007 Decision3 and June 29,
2007 Resolution4 of the National Labor Relations
Com;nission (NLRC), reversing the decision 5 of the
Labor Arbiter (LA) in this illegal dismissal case, entitled
"Marian Brigitte Contreras v. A1axiCare PCJB CJGNA
Health Care, et. al."
The Facts
Sometime in March 2003, Maxicare Healthcare
Corporation (Maxicare) hired Dr. Marian Brigitte A.
Contreras (Dr. Contreras) as a retainer doctor at the
Philippine National Bank (PNB) Head Office, Macapagal
Avenue, Roxas Boulevard, Manila. Under their verbal
agreement, Dr. Contreras would render medical
services for one year atP250.00 per hour. Her retainer
fee would be paid every 15th and 30th of each month
based on her work schedule which was every Tuesday,
Thursday and Friday from 6:00 oclock in the morning
to 5:00 oclock in the afternoon.6
The controversy started when, on July 3, 2003, Dr. Ruth
A. Asis, Maxicares medical specialist on Corporate
Accounts, informed Dr. Contreras that she was going to
be transferred to another account after a month. On
August 4, 2003, the Service Agreement between Dr.

Contreras and Dr. Eric S. Nubla, Maxicares VicePresident for Medical Services, was executed, effecting
the transfer of the former to Maybank Philippines
(Maybank) for a period of four (4) months, from August
5, 2003 to November 29, 2003, with a retainer fee
of P168.00 per hour.
Dr. Contreras reported to Maybank for one (1) day only.
On August 8, 2003, she filed a complaint before the LA
claiming that she was constructively dismissed.
Maxicare, on the other hand, insisted that there was no
constructive dismissal.
Ruling of the Labor Arbiter
On November 29, 2005, the LA rendered a decision
dismissing the complaint of Dr. Contreras for lack of
merit. The pertinent portions of the LAs ruling read:
If indeed complainant was forced to sign the contract
of August 4, 2003, she could not have reported to that
assignment under it in the first place. In reporting so,
she not only ratified the contract of service she signed
but also waived all her rights under their previous
agreement she is supposed to be entitled to enforce. It
may be that there present under the circumstance of a
breach of contractual obligation under the previous
undertaking which partakes the nature of constructive
dismissal based on evidence at hand. At that then,
complainant should have at such point ventilated the
matter before this forum. She did not. Instead, she
proceeded to sign or execute the questioned Service
Agreement with the respondent under the terms and
conditions therein stated. To a professional like her, a
Doctor, complainant should have refused as she is at
liberty, in refusing to sign even if what she claimed
there appears a threat of dismissal. In this case, she
even confirmed what she signed by reporting to duty
thereafter. And only after examining what she signed
that she realized she thought of initiating the present
complaint. In this regard, absent any showing that she
was forced to execute the disputed service agreement
of August 4, 2003, complainants complaint for
constructive dismissal can hardly be sustained by a
later change of heart.
Finding substantial basis to support the validity of the
Service Agreement of August 4, 2003 entered into by
the parties, the present complaint for constructive
dismissal must necessarily fail. Consequent claim as
relief therefor has no basis.7
Ruling of the NLRC
On March 16, 2007, upon appeal, the NLRC rendered a
decision8 reversing and setting aside the LAs decision.
It declared that Dr. Contreras was illegally dismissed
and ordered her reinstatement to her former or
substantially equivalent position and the payment of
her backwages.

The NLRC explained that the "execution of a Service

Agreement for another retainership with lower salary
does not negate constructive dismissal arising from the
termination of complainants PNB retainership without
either just or authorized cause but simply is anchored
on alleged complaints which even Dr. Eric Nubla
recognize to be fictitious."9 Dr. Contreras signed the
Service Agreement on August 4, 2003, and later
repudiated it with a notice to Maxicare that she could
not go on serving under such a disadvantageous
situation. The disadvantage she was referring to was
the disparity in remuneration between the PNB
retainership with 250.00 per hour and that of
Maybank with 168.00 per hour. The clear economic
prejudice validated her claim of having reservation on
the Service Agreement prior to her signature. She
signed the new agreement because it, being a contract
of adhesion, gave her no realistic chance to haggle for
her job. Thus, the NLRC disposed:
WHEREFORE, premises considered, the Decision
appealed from is hereby REVERSED and SET ASIDE and
a new one entered declaring complainant was illegally
dismissed. Accordingly, respondents are hereby
ordered to reinstate complainant to her former or
substantially equivalent position and to pay her
backwages from the time her PNB retainership was
terminated until the finality of this Decision.
SO ORDERED.10
Ruling of the Court of Appeals
On January 28, 2010, the CA affirmed the conclusions
reached by the NLRC.
On the issue regarding the existence or non-existence
of an employer-employee relationship, the CA ruled
that Maxicare could not raise the said issue for the first
time on appeal. Nonetheless, the CA ruled that the
records showed that there existed an employeremployee relationship between Maxicare and Dr.
Contreras for the following reasons: 1] Maxicare
exercised significant control in her hiring and the
conduct of her work; 2] Maxicare was the one who
engaged her services; 3] Maxicare determined and
prepared her work assignments, like attending to PNB
members needing medical consultation and performing
such other duties as may be assigned by
Maxicare to her from time to time; 4] Maxicare
determined her specific work schedules, which was for
her to render services from 1:00 to 5:00 oclock in the
afternoon "every Tuesday and Thursday;"11 and 5]
Maxicare prescribed the conditions of work for her,
which were a) that she had to abide by the company
rules and regulations, b) that she would keep inviolate
all company records, documents, and properties and
from disclosing or reproducing these records and
documents to anyone without proper authority, c) that
she had to surrender upon request for, or upon
termination of her services, such records, documents,

and properties to Maxicare; d) that Maxicare, through

its Customer Care coordinator, Ms. Cecile Samonte,
would monitor her work; and e) that she was
compensated not according to the result of her efforts,
but according to the amount of time she spent at the
PNB clinic.12
The CA added that Maxicare impliedly admitted that an
employer-employee relationship existed between both
parties by arguing that she was not constructively
dismissed. Hence, Maxicare was estopped from
questioning her status as its employee.13
On the issue of whether or not Dr. Contreras was
constructively dismissed, the CA ruled that her transfer
to Maybank, which resulted in a diminution of her
salary, was prejudicial to her interest and amounted to
a constructive dismissal. It stated that Maxicare, as
employer, had the burden of proving that not only was
her transfer made for valid or legitimate grounds, such
as genuine business necessity, but also that such
transfer was not unreasonable, inconvenient, or
prejudicial to her.14
Maxicare filed a motion for reconsideration but it was
denied by the CA in its Resolution,15 dated October 27,
2010.
Not in conformity with the adverse decision, Maxicare
filed this petition anchored on the following
GROUNDS
I
THE COURT OF APPEALS, IN RENDERING THE
ASSAILED DECISION, ERRONEOUSLY SET ASIDE,
EVEN CONTRADICTED, A PLETHORA OF
JURISPRUDENCE THAT LACK OR ABSENCE OF
JURISDICTION MAY BE RAISED FOR THE FIRST
TIME EVEN ON APPEAL.
II
THE COURT OF APPEALS MISAPPLIED THE 4TIERED TEST TO DETERMINE THE EXISTENCE
OF EMPLOYER-EMPLOYEE RELATIONSHIP
WITHOUT CONCRETE BASIS.16

petition, the said issue has been raised in the

pleadings before the appellate court."17
Considering that Dr. Contreras submitted evidence to
support not only her claim of constructive dismissal but
also the existence of an employer-employee
relationship, its act of raising said issue should be
sufficient ground for the CA to consider and rule on the
issue of jurisdiction.18
Maxicare claims that there could have been no
employer-employee relationship arising from the oral
medical retainership agreement between the parties. It
contends that it could not have effectively exercised
control over the means and method adopted by Dr.
Contreras in accomplishing her work as a medical
retainer; that it did not determine the manner in which
she conducted physical examination, immunized,
diagnosed, or treated her patients; that Dr. Contreras
confirmed that it paid her retainer fees and deducted
only 10% "withholding tax payable-expanded;" that
she was not in the list of Maxicares payroll; and that
Maxicare did not deduct SSS contributions from the
retainer fees that Dr. Contreras received. Hence, the
above circumstances disprove the presence of
employer-employee relationship. On the contrary, they
strongly indicate a case of an independent contractor. 19
Maxicare went on further by stating that Dr. Contreras
was an independent contractor because she rendered
services for a few hours a week, giving her free time to
pursue her private practice as a physician and that
upon the terms of their agreement, either party could
terminate the arrangement upon one months advance
notice.20
Finally, Maxicare contends that Dr. Contreras is a highly
educated person who freely, willingly and voluntarily
signed the new Medical Retainership
Agreement.21 Therefore, there is no truth to her claim
that she was forced to sign said agreement. 22
Dr. Contrerass position
On the other hand, Dr. Contreras basically counters
that Maxicare did not raise the issue of the existence of
an employer-employee relationship before the LA. It
also did not question such point in the NLRC. Maxicare
brought up the matter for the first time only in the CA.

Maxicares position

The Courts Ruling

Maxicare argues that questions on jurisdiction "may be

raised at any stage of the proceedings, even on
appeal, and the right to do so is not lost by waiver or
by estoppel." Maxicare likewise asserts that "if the
issue on jurisdiction may be resolved by an appellate
tribunal motu propio when the same has not been
raised in the courts below, with more reason that the
same should be allowed to be considered and decided
upon by the appellate court when, as in the present

The petition has no merit at all.

As a rule, a party who deliberately adopts a certain
theory upon which the case is tried and decided by the
lower court, will not be permitted to change theory on
appeal. Points of law, theories, issues and arguments
not brought to the attention of the lower court need
not be, and ordinarily will not be, considered by a
reviewing court, as these cannot be raised for the first
time at such late stage. It would be unfair to the

adverse party who would have no opportunity to

present further evidence material to the new theory,
which it could have done had it been aware of it at the
time of the hearing before the trial court. To permit
Maxicare in this case to change its theory on appeal
would thus be unfair to Dr. Contreras, and would offend
the basic rules of fair play, justice and due process.
Indeed, Maxicare is already estopped from belatedly
raising the issue of lack of jurisdiction considering that
it has actively participated in the proceedings before
the LA and the NLRC. The Court has consistently held
that "while jurisdiction may be assailed at any stage, a
partys active participation in the proceedings before a
court without jurisdiction will estop such party from
assailing the lack of it." It is an undesirable practice of
a party to participate in the proceedings, submit his
case for decision and then accept the judgment, if
favorable, but attack it for lack of jurisdiction, when
adverse.23
In the case at bench, it may be recalled that Dr.
Contreras filed a complaint for illegal dismissal against
Maxicare before the LA. Maxicare was given the chance
to defend its case before the LA. In fact, the LA
decision favored Maxicare when it ruled that there was
no illegal dismissal. On appeal, however, the NLRC
reversed and set aside the LAs decision and ordered
Dr. Contrerass reinstatement with payment of
backwages. Upon the denial of its motion for
reconsideration, Maxicare elevated its case to the CA
raising the issue of jurisdiction for the first time.
Undeniably, Maxicare never questioned the LAs
jurisdiction from the very beginning and never raised
the issue of employer-employee relationship
throughout the LA proceedings. Surely, Maxicare is not
unaware of Article 217 of the Labor Code which
enumerates the cases where the LA has exclusive and
original jurisdiction. Maxicare definitely knows the
basic rule that the LA can exercise jurisdiction over
cases only when there is an employer-employee
relationship between the parties in dispute.
If Maxicare was of the position that there was no
employer-employee relationship existing between
Maxicare and Dr. Contreras, it should have questioned
the jurisdiction of the LA right away. Surprisingly, it
never did. Instead, it actively participated in the LA
proceedings without bringing to the LAs attention the
issue of employer-employee relationship.
On appeal before the NLRC, the subject issue was
never raised either. Maxicare only raised the subject
issue for the first time when it filed a petition in the CA
challenging the adverse decision of the NLRC. It is,
therefore, estopped from assailing the jurisdiction of
the LA and the NLRC.
It is true that questions of jurisdiction may be raised at
any stage. It is also true, however, that in the interest
of fairness, questions challenging the jurisdiction of

courts will not be tolerated if the party questioning

such jurisdiction actively participates in the court
proceedings and allows the court to pass judgment on
the case, and then questions the propriety of said
judgment after getting an unfavorable decision. It must
be noted that Maxicare had two (2) chances of raising
the issue of jurisdiction: first, in the LA level and
second, in the NLRC level. Unfortunately, it remained
silent on the issue of jurisdiction while actively
participating in both tribunals. It was definitely too late
for Maxicare to open up the issue of jurisdiction in the
CA.
The Court cannot tolerate this kind of procedural
strategy on Maxicares part because it would be unfair
to Dr. Contreras who would no longer be able to
present further evidence material to the new issue
raised on appeal. Maxicares lapse in procedure has
proved fatal to its cause and therefore, it should suffer
the consequences. The Court has been consistent in its
ruling in a long line of cases, the latest of which is Duty
Free Philippines Services, Inc., v. Manolito Q.
Tria,24 where it was written:
It was only in petitioners Petition for Certiorari before
the CA did it impute liability on DFP as respondents
direct employer and as the entity who conducted the
investigation and initiated respondents termination
proceedings. Obviously, petitioner changed its theory
when it elevated the NLRC decision to the CA. The
appellate court, therefore, aptly refused to consider the
new theory offered by petitioner in its petition. As the
object of the pleadings is to draw the lines of battle, so
to speak, between the litigants, and to indicate fairly
the nature of the claims or defenses of both parties, a
party cannot subsequently take a position contrary to,
or inconsistent, with its pleadings. It is a matter of law
that when a party adopts a particular theory and the
case is tried and decided upon that theory in the court
below, he will not be permitted to change his theory on
appeal. The case will be reviewed and decided on that
theory and not approached and resolved from a
different point of view.
The review of labor cases is confined to questions of
jurisdiction or grave abuse of discretion. The alleged
absence of employer-employee relationship cannot be
raised for the first time on appeal. The resolution of
this issue requires the admission and calibration of
evidence and the LA and the NLRC did not pass upon it
in their decisions. We cannot permit petitioner to
change its theory on appeal. It would be unfair to the
adverse party who would have no more opportunity to
present further evidence, material to the new theory,
which it could have done had it been aware earlier of
the new theory before the LA and the NLRC. More so in
this case as the supposed employer of respondent
which is DFP was not and is not a party to the present
case.
In Pamplona Plantation Company v. Acosta, petitioner
therein raised for the first time in its appeal to the
NLRC that respondents therein were not its employees

but of another company. In brushing aside this defense,

the Court held:
x x x Petitioner is estopped from denying that
respondents worked for it.1wphi1 In the first place, it
never raised this defense in the proceedings before the
Labor Arbiter. Notably, the defense it raised pertained
to the nature of respondents' employment, i.e.,
whether they are seasonal employees, contractors, or
worked under the pakyaw system. Thus, in its Position
Paper, petitioner alleged that some of the respondents
are coconut filers and copra hookers or sakadors; some
are seasonal employees who worked as scoopers or
lugiteros; some are contractors; and some worked
under the pakyaw system. In support of these
allegations, petitioner even presented the company's
payroll which will allegedly prove its allegations.
By setting forth these defenses, petitioner, in effect,
admitted that respondents worked for it, albeit in
different capacities. Such allegations are negative
pregnant - denials pregnant with the admission of the
substantial facts in the pleading responded to which
are not squarely denied, and amounts to an
acknowledgment that respondents were indeed
employed by petitioner.
Also in Telephone Engineering & Service Co., Inc. v.
WCC, et al., the Court held that the lack of employeremployee relationship is a matter of defense that the
employer should properly raise in the proceedings
below. The determination of this relationship involves a
finding of fact, which is conclusive and binding and not
subject to review by this Court.
In this case, petitioner insisted that respondent was
dismissed from employment for cause and after the
observance of the proper procedure for termination.
Consequently, petitioner cannot now deny that
respondent is its employee. While indeed, jurisdiction
cannot be conferred by acts or omission of the parties,
petitioner's belated denial that it is the employer of
respondent is obviously an afterthought, a devise to
defeat the law and evade its obligations.
It is a fundamental rule of procedure that higher courts
are precluded from entertaining matters neither
alleged in the pleadings nor raised during the
proceedings below, but ventilated for the first time only
in a motion for reconsideration or on appeal. Petitioner
is bound by its submissions that respondent is its
employee and it should not be permitted to change its
theory. Such change of theory cannot be tolerated on
appeal, not due to the strict application of procedural
rules, but as a matter of fairness. [Emphases supplied]
WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. 196426

August 15, 2011

MARTICIO SEMBLANTE and DUBRICK

PILAR, Petitioners,
vs.
COURT OF APPEALS, 19th DIVISION, now SPECIAL
FORMER 19th DIVISION, GALLERA DE MANDAUE /
SPOUSES VICENTE and MARIA LUISA
LOOT, Respondents.
DECISION
VELASCO, JR., J.:
Before Us is a Petition for Review on Certiorari under
Rule 45, assailing and seeking to set aside the
Decision1and Resolution2 dated May 29, 2009 and
February 23, 2010, respectively, of the Court of
Appeals (CA) in CA-G.R. SP No. 03328. The CA affirmed
the October 18, 2006 Resolution3 of the National Labor
Relations Commission (NLRC), Fourth Division (now
Seventh Division), in NLRC Case No. V-000673-2004.
Petitioners Marticio Semblante (Semblante) and
Dubrick Pilar (Pilar) assert that they were hired by
respondents-spouses Vicente and Maria Luisa Loot, the
owners of Gallera de Mandaue (the cockpit), as the
official masiador and sentenciador, respectively, of the
cockpit sometime in 1993.
As the masiador, Semblante calls and takes the bets
from the gamecock owners and other bettors and
orders the start of the cockfight. He also distributes the
winnings after deducting the arriba, or the commission
for the cockpit. Meanwhile, as the sentenciador, Pilar
oversees the proper gaffing of fighting cocks,
determines the fighting cocks physical condition and
capabilities to continue the cockfight, and eventually
declares the result of the cockfight.4
For their services as masiador and sentenciador,
Semblante receives PhP 2,000 per week or a total of
PhP 8,000 per month, while Pilar gets PhP 3,500 a week
or PhP 14,000 per month. They work every Tuesday,
Wednesday, Saturday, and Sunday every week,
excluding monthly derbies and cockfights held on
special holidays. Their working days start at 1:00 p.m.
and last until 12:00 midnight, or until the early hours of
the morning depending on the needs of the cockpit.
Petitioners had both been issued employees
identification cards5 that they wear every time they
report for duty. They alleged never having incurred any
infraction and/or violation of the cockpit rules and
regulations.
On November 14, 2003, however, petitioners were
denied entry into the cockpit upon the instructions of
respondents, and were informed of the termination of
their services effective that date. This prompted
petitioners to file a complaint for illegal dismissal
against respondents.
In answer, respondents denied that petitioners were
their employees and alleged that they were associates

of respondents independent contractor, Tomas Vega.

Respondents claimed that petitioners have no regular
working time or day and they are free to decide for
themselves whether to report for work or not on any
cockfighting day. In times when there are few
cockfights in Gallera de Mandaue, petitioners go to
other cockpits in the vicinity. Lastly, petitioners, so
respondents assert, were only issued identification
cards to indicate that they were free from the normal
entrance fee and to differentiate them from the general
public.6
In a Decision dated June 16, 2004, Labor Arbiter Julie C.
Rendoque found petitioners to be regular employees of
respondents as they performed work that was
necessary and indispensable to the usual trade or
business of respondents for a number of years. The
Labor Arbiter also ruled that petitioners were illegally
dismissed, and so ordered respondents to pay
petitioners their backwages and separation pay.7
Respondents counsel received the Labor Arbiters
Decision on September 14, 2004. And within the 10day appeal period, he filed the respondents appeal
with the NLRC on September 24, 2004, but without
posting a cash or surety bond equivalent to the
monetary award granted by the Labor Arbiter. 8
It was only on October 11, 2004 that respondents filed
an appeal bond dated October 6, 2004. Hence, in a
Resolution9 dated August 25, 2005, the NLRC denied
the appeal for its non-perfection.
Subsequently, however, the NLRC, acting on
respondents Motion for Reconsideration, reversed its
Resolution on the postulate that their appeal was
meritorious and the filing of an appeal bond, albeit
belated, is a substantial compliance with the rules. The
NLRC held in its Resolution of October 18, 2006 that
there was no employer-employee relationship between
petitioners and respondents, respondents having no
part in the selection and engagement of petitioners,
and that no separate individual contract with
respondents was ever executed by petitioners.10
Following the denial by the NLRC of their Motion for
Reconsideration, per Resolution dated January 12,
2007, petitioners went to the CA on a petition for
certiorari. In support of their petition, petitioners
argued that the NLRC gravely abused its discretion in
entertaining an appeal that was not perfected in the
first place. On the other hand, respondents argued that
the NLRC did not commit grave abuse of discretion,
since they eventually posted their appeal bond and
that their appeal was so meritorious warranting the
relaxation of the rules in the interest of justice.11
In its Decision dated May 29, 2009, the appellate court
found for respondents, noting that referees and bettakers in a cockfight need to have the kind of expertise
that is characteristic of the game to interpret messages
conveyed by mere gestures. Hence, petitioners are

akin to independent contractors who possess unique

skills, expertise, and talent to distinguish them from
ordinary employees. Further, respondents did not
supply petitioners with the tools and instrumentalities
they needed to perform work. Petitioners only needed
their unique skills and talents to perform their job as
masiador and sentenciador.12 The CA held:
In some circumstances, the NLRC is allowed to be
liberal in the interpretation of the rules in deciding
labor cases. In this case, the appeal bond was filed,
although late. Moreover, an exceptional circumstance
obtains in the case at bench which warrants a
relaxation of the bond requirement as a condition for
perfecting the appeal. This case is highly meritorious
that propels this Court not to strictly apply the rules
and thus prevent a grave injustice from being done.
As elucidated by the NLRC, the circumstances
obtaining in this case wherein no actual employeremployee exists between the petitioners and the
private respondents [constrain] the relaxation of the
rules. In this regard, we find no grave abuse
attributable to the administrative body.
xxxx
Petitioners are duly licensed "masiador" and
"sentenciador" in the cockpit owned by Lucia Loot.
Cockfighting, which is a part of our cultural heritage,
has a peculiar set of rules. It is a game based on the
fighting ability of the game cocks in the cockpit. The
referees and bet-takers need to have that kind of
expertise that is characteristic of the cockfight
gambling who can interpret the message conveyed
even by mere gestures. They ought to have the talent
and skill to get the bets from numerous cockfighting
aficionados and decide which cockerel to put in the
arena. They are placed in that elite spot where they
can control the game and the crowd. They are not
given salaries by cockpit owners as their compensation
is based on the "arriba". In fact, they can offer their
services everywhere because they are duly licensed by
the GAB. They are free to choose which cockpit arena
to enter and offer their expertise. Private respondents
cannot even control over the means and methods of
the manner by which they perform their work. In this
light, they are akin to independent contractors who
possess unique skills, expertise and talent to
distinguish them from ordinary employees.
Furthermore, private respondents did not supply
petitioners with the tools and instrumentalities they
needed to perform their work. Petitioners only needed
their talent and skills to be a "masiador" and
"sentenciador". As such, they had all the tools they
needed to perform their work. (Emphasis supplied.)
The CA refused to reconsider its Decision. Hence,
petitioners came to this Court, arguing in the main that
the CA committed a reversible error in entertaining an
appeal, which was not perfected in the first place.

Indeed, the posting of a bond is indispensable to the

perfection of an appeal in cases involving monetary
awards from the Decision of the Labor Arbiter. 13 Article
223 of the Labor Code provides:
Article 223. Appeal. Decisions, awards, or orders of
the Labor Arbiter are final and executory unless
appealed to the Commission by any or both parties
within ten (10) calendar days from receipt of such
decisions, awards, or orders. Such appeal may be
entertained only on any of the following grounds:
xxxx
In case of a judgment involving a monetary award, an
appeal by the employer may be perfected only upon
the posting of a cash or surety bond issued by a
reputable bonding company duly accredited by the
Commission in the amount equivalent to the monetary
award in the judgment appealed from. (Emphasis
supplied.)
Time and again, however, this Court, considering the
substantial merits of the case, has relaxed this rule on,
and excused the late posting of, the appeal bond when
there are strong and compelling reasons for the
liberality,14such as the prevention of miscarriage of
justice extant in the case15 or the special circumstances
in the case combined with its legal merits or the
amount and the issue involved.16 After all, technical
rules cannot prevent courts from exercising their duties
to determine and settle, equitably and completely, the
rights and obligations of the parties.17 This is one case
where the exception to the general rule lies.
While respondents had failed to post their bond within
the 10-day period provided above, it is evident, on the
other hand, that petitioners are NOT employees of
respondents, since their relationship fails to pass
muster the four-fold test of employment We have
repeatedly mentioned in countless decisions: (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, which is
the most important element.18 1avvphi1
As found by both the NLRC and the CA, respondents
had no part in petitioners selection and
management;19petitioners compensation was paid out
of the arriba (which is a percentage deducted from the
total bets), not by petitioners;20 and petitioners
performed their functions as masiador and
sentenciador free from the direction and control of
respondents.21 In the conduct of their work, petitioners
relied mainly on their "expertise that is characteristic
of the cockfight gambling,"22 and were never given by
respondents any tool needed for the performance of
their work.23
Respondents, not being petitioners employers, could
never have dismissed, legally or illegally, petitioners,
since respondents were without power or prerogative

to do so in the first place. The rule on the posting of an

appeal bond cannot defeat the substantive rights of
respondents to be free from an unwarranted burden of
answering for an illegal dismissal for which they were
never responsible.1avvphi1
Strict implementation of the rules on appeals must give
way to the factual and legal reality that is evident from
the records of this case.24 After all, the primary
objective of our laws is to dispense justice and equity,
not the contrary.
WHEREFORE, We DENY this petition and AFFIRM the
May 29, 2009 Decision and February 23, 2010
Resolution of the CA, and the October 18, 2006
Resolution of the NLRC.
SO ORDERED.
G.R. No. 126297

January 31, 2007

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
x-----------------------x
G.R. No. 126467

January 31, 2007

NATIVIDAD (Substituted by her children

MARCELINO AGANA III, ENRIQUE AGANA, JR.,
EMMA AGANA ANDAYA, JESUS AGANA, and
RAYMUND AGANA) and ENRIQUE
AGANA, Petitioners,
vs.
JUAN FUENTES, Respondent.
x- - - - - - - - - - - - - - - - - - - -- - - - x
G.R. No. 127590

January 31, 2007

MIGUEL AMPIL, Petitioner,

vs.
NATIVIDAD AGANA and ENRIQUE
AGANA, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Hospitals, having undertaken one of mankinds most
important and delicate endeavors, must assume the
grave responsibility of pursuing it with appropriate
care. The care and service dispensed through this high
trust, however technical, complex and esoteric its
character may be, must meet standards of
responsibility commensurate with the undertaking to
preserve and protect the health, and indeed, the very
lives of those placed in the hospitals keeping. 1
Assailed in these three consolidated petitions for
review on certiorari is the Court of Appeals

Decision2 dated September 6, 1996 in CA-G.R. CV No.

42062 and CA-G.R. SP No. 32198 affirming with
modification the Decision3 dated March 17, 1993 of the
Regional Trial Court (RTC), Branch 96, Quezon City in
Civil Case No. Q-43322 and nullifying its Order dated
September 21, 1993.
The facts, as culled from the records, are:
On April 4, 1984, Natividad Agana was rushed to the
Medical City General Hospital (Medical City Hospital)
because of difficulty of bowel movement and bloody
anal discharge. After a series of medical examinations,
Dr. Miguel Ampil, petitioner in G.R. No. 127590,
diagnosed her to be suffering from "cancer of the
sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical
staff4 of the Medical City Hospital, performed an
anterior resection surgery on Natividad. He found that
the malignancy in her sigmoid area had spread on her
left ovary, necessitating the removal of certain portions
of it. Thus, Dr. Ampil obtained the consent of
Natividads husband, Enrique Agana, to permit Dr. Juan
Fuentes, respondent in G.R. No. 126467, to perform
hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr.
Ampil took over, completed the operation and closed
the incision.
However, the operation appeared to be flawed. In the
corresponding Record of Operation dated April 11,
1984, the attending nurses entered these remarks:
"sponge count lacking 2
"announced to surgeon searched (sic) done but to no
avail continue for closure."
On April 24, 1984, Natividad was released from the
hospital. Her hospital and medical bills, including the
doctors fees, amounted to P60,000.00.
After a couple of days, Natividad complained of
excruciating pain in her anal region. She consulted
both Dr. Ampil and Dr. Fuentes about it. They told her
that the pain was the natural consequence of the
surgery. Dr. Ampil then recommended that she consult
an oncologist to examine the cancerous nodes which
were not removed during the operation.

managed to extract by hand a piece of gauze

measuring 1.5 inches in width. He then assured her
that the pains would soon vanish.
Dr. Ampils assurance did not come true. Instead, the
pains intensified, prompting Natividad to seek
treatment at the Polymedic General Hospital. While
confined there, Dr. Ramon Gutierrez detected the
presence of another foreign object in her vagina -- a
foul-smelling gauze measuring 1.5 inches in width
which badly infected her vaginal vault. A recto-vaginal
fistula had formed in her reproductive organs which
forced stool to excrete through the vagina. Another
surgical operation was needed to remedy the damage.
Thus, in October 1984, Natividad underwent another
surgery.
On November 12, 1984, Natividad and her husband
filed with the RTC, Branch 96, Quezon City a complaint
for damages against the Professional Services, Inc.
(PSI), owner of the Medical City Hospital, Dr. Ampil, and
Dr. Fuentes, docketed as Civil Case No. Q-43322. They
alleged that the latter are liable for negligence for
leaving two pieces of gauze inside Natividads body
and malpractice for concealing their acts of negligence.
Meanwhile, Enrique Agana also filed with the
Professional Regulation Commission (PRC) an
administrative complaint for gross negligence and
malpractice against Dr. Ampil and Dr. Fuentes,
docketed as Administrative Case No. 1690. The PRC
Board of Medicine heard the case only with respect to
Dr. Fuentes because it failed to acquire jurisdiction over
Dr. Ampil who was then in the United States.
On February 16, 1986, pending the outcome of the
above cases, Natividad died and was duly substituted
by her above-named children (the Aganas).
On March 17, 1993, the RTC rendered its Decision in
favor of the Aganas, finding PSI, Dr. Ampil and Dr.
Fuentes liable for negligence and malpractice, the
decretal part of which reads:
WHEREFORE, judgment is hereby rendered for the
plaintiffs ordering the defendants PROFESSIONAL
SERVICES, INC., DR. MIGUEL AMPIL and DR. JUAN
FUENTES to pay to the plaintiffs, jointly and severally,
except in respect of the award for exemplary damages
and the interest thereon which are the liabilities of
defendants Dr. Ampil and Dr. Fuentes only, as follows:
1. As actual damages, the following amounts:

On May 9, 1984, Natividad, accompanied by her

husband, went to the United States to seek further
treatment. After four months of consultations and
laboratory examinations, Natividad was told she was
free of cancer. Hence, she was advised to return to the
Philippines.
On August 31, 1984, Natividad flew back to the
Philippines, still suffering from pains. Two weeks
thereafter, her daughter found a piece of gauze
protruding from her vagina. Upon being informed about
it, Dr. Ampil proceeded to her house where he

a. The equivalent in Philippine Currency

of the total of US$19,900.00 at the rate
of P21.60-US$1.00, as reimbursement
of actual expenses incurred in the
United States of America;
b. The sum of P4,800.00 as travel taxes
of plaintiffs and their physician
daughter;

c. The total sum of P45,802.50,

representing the cost of hospitalization
at Polymedic Hospital, medical fees,
and cost of the saline solution;
2. As moral damages, the sum of
P2,000,000.00;
3. As exemplary damages, the sum of
P300,000.00;
4. As attorneys fees, the sum of P250,000.00;
5. Legal interest on items 1 (a), (b), and (c); 2;
and 3 hereinabove, from date of filing of the
complaint until full payment; and
6. Costs of suit.

DISMISSED, and with the pronouncement that

defendant-appellant Dr. Miguel Ampil is liable to
reimburse defendant-appellant Professional Services,
Inc., whatever amount the latter will pay or had paid to
the plaintiffs-appellees, the decision appealed from is
hereby AFFIRMED and the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari
and prohibition filed by herein defendant-appellant Dr.
Juan Fuentes in CA-G.R. SP No. 32198 is hereby
GRANTED and the challenged order of the respondent
judge dated September 21, 1993, as well as the alias
writ of execution issued pursuant thereto are hereby
NULLIFIED and SET ASIDE. The bond posted by the
petitioner in connection with the writ of preliminary
injunction issued by this Court on November 29, 1993
is hereby cancelled.
Costs against defendants-appellants Dr. Miguel Ampil
and Professional Services, Inc.

SO ORDERED.
SO ORDERED.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an
appeal to the Court of Appeals, docketed as CA-G.R. CV
No. 42062.
Incidentally, on April 3, 1993, the Aganas filed with the
RTC a motion for a partial execution of its Decision,
which was granted in an Order dated May 11, 1993.
Thereafter, the sheriff levied upon certain properties of
Dr. Ampil and sold them for P451,275.00 and delivered
the amount to the Aganas.
Following their receipt of the money, the Aganas
entered into an agreement with PSI and Dr. Fuentes to
indefinitely suspend any further execution of the RTC
Decision. However, not long thereafter, the Aganas
again filed a motion for an alias writ of execution
against the properties of PSI and Dr. Fuentes. On
September 21, 1993, the RTC granted the motion and
issued the corresponding writ, prompting Dr. Fuentes to
file with the Court of Appeals a petition for certiorari
and prohibition, with prayer for preliminary injunction,
docketed as CA-G.R. SP No. 32198. During its
pendency, the Court of Appeals issued a
Resolution5 dated October 29, 1993 granting Dr.
Fuentes prayer for injunctive relief.
On January 24, 1994, CA-G.R. SP No. 32198 was
consolidated with CA-G.R. CV No. 42062.
Meanwhile, on January 23, 1995, the PRC Board of
Medicine rendered its Decision6 in Administrative Case
No. 1690 dismissing the case against Dr. Fuentes. The
Board held that the prosecution failed to show that Dr.
Fuentes was the one who left the two pieces of gauze
inside Natividads body; and that he concealed such
fact from Natividad.
On September 6, 1996, the Court of Appeals rendered
its Decision jointly disposing of CA-G.R. CV No. 42062
and CA-G.R. SP No. 32198, thus:
WHEREFORE, except for the modification that the case
against defendant-appellant Dr. Juan Fuentes is hereby

Only Dr. Ampil filed a motion for reconsideration, but it

was denied in a Resolution7 dated December 19, 1996.
Hence, the instant consolidated petitions.
In G.R. No. 126297, PSI alleged in its petition that the
Court of Appeals erred in holding that: (1) it is
estopped from raising the defense that Dr. Ampil is not
its employee; (2) it is solidarily liable with Dr. Ampil;
and (3) it is not entitled to its counterclaim against the
Aganas. PSI contends that Dr. Ampil is not its
employee, but a mere consultant or independent
contractor. As such, he alone should answer for his
negligence.
In G.R. No. 126467, the Aganas maintain that the Court
of Appeals erred in finding that Dr. Fuentes is not guilty
of negligence or medical malpractice, invoking the
doctrine of res ipsa loquitur. They contend that the
pieces of gauze are prima facie proofs that the
operating surgeons have been negligent.
Finally, in G.R. No. 127590, Dr. Ampil asserts that the
Court of Appeals erred in finding him liable for
negligence and malpractice sans evidence that he left
the two pieces of gauze in Natividads vagina. He
pointed to other probable causes, such as: (1) it was
Dr. Fuentes who used gauzes in performing the
hysterectomy; (2) the attending nurses failure to
properly count the gauzes used during surgery; and (3)
the medical intervention of the American doctors who
examined Natividad in the United States of America.
For our resolution are these three vital issues: first,
whether the Court of Appeals erred in holding Dr. Ampil
liable for negligence and malpractice; second, whether
the Court of Appeals erred in absolving Dr. Fuentes of
any liability; and third, whether PSI may be held
solidarily liable for the negligence of Dr. Ampil.
I - G.R. No. 127590

Whether the Court of Appeals Erred in Holding Dr.

Ampil
Liable for Negligence and Malpractice.
Dr. Ampil, in an attempt to absolve himself, gears the
Courts attention to other possible causes of
Natividads detriment. He argues that the Court should
not discount either of the following possibilities: first,
Dr. Fuentes left the gauzes in Natividads body after
performing hysterectomy; second, the attending
nurses erred in counting the gauzes; and third, the
American doctors were the ones who placed the
gauzes in Natividads body.
Dr. Ampils arguments are purely conjectural and
without basis. Records show that he did not present
any evidence to prove that the American doctors were
the ones who put or left the gauzes in Natividads body.
Neither did he submit evidence to rebut the
correctness of the record of operation, particularly the
number of gauzes used. As to the alleged negligence of
Dr. Fuentes, we are mindful that Dr. Ampil examined
his (Dr. Fuentes) work and found it in order.
The glaring truth is that all the major circumstances,
taken together, as specified by the Court of Appeals,
directly point to Dr. Ampil as the negligent party, thus:
First, it is not disputed that the surgeons used
gauzes as sponges to control the bleeding of
the patient during the surgical operation.
Second, immediately after the operation, the
nurses who assisted in the surgery noted in
their report that the sponge count (was)
lacking 2; that such anomaly was announced
to surgeon and that a search was done but to
no avail prompting Dr. Ampil to continue for
closure x x x.
Third, after the operation, two (2) gauzes were
extracted from the same spot of the body of
Mrs. Agana where the surgery was performed.
An operation requiring the placing of sponges in the
incision is not complete until the sponges are properly
removed, and it is settled that the leaving of sponges
or other foreign substances in the wound after the
incision has been closed is at least prima facie
negligence by the operating surgeon.8 To put it simply,
such act is considered so inconsistent with due care as
to raise an inference of negligence. There are even
legions of authorities to the effect that such act is
negligence per se.9

patient within a reasonable time thereafter by advising

her of what he had been compelled to do. This is in
order that she might seek relief from the effects of the
foreign object left in her body as her condition might
permit. The ruling in Smith v. Zeagler 10 is explicit, thus:
The removal of all sponges used is part of a surgical
operation, and when a physician or surgeon fails to
remove a sponge he has placed in his patients body
that should be removed as part of the operation, he
thereby leaves his operation uncompleted and creates
a new condition which imposes upon him the legal duty
of calling the new condition to his patients attention,
and endeavoring with the means he has at hand to
minimize and avoid untoward results likely to ensue
therefrom.
Here, Dr. Ampil did not inform Natividad about the
missing two pieces of gauze. Worse, he even misled
her that the pain she was experiencing was the
ordinary consequence of her operation. Had he been
more candid, Natividad could have taken the
immediate and appropriate medical remedy to remove
the gauzes from her body. To our mind, what was
initially an act of negligence by Dr. Ampil has ripened
into a deliberate wrongful act of deceiving his patient.
This is a clear case of medical malpractice or more
appropriately, medical negligence. To successfully
pursue this kind of case, a patient must only prove that
a health care provider either failed to do something
which a reasonably prudent health care provider would
have done, or that he did something that a reasonably
prudent provider would not have done; and that failure
or action caused injury to the patient.11 Simply put, the
elements are duty, breach, injury and proximate
causation. Dr, Ampil, as the lead surgeon, had the duty
to remove all foreign objects, such as gauzes, from
Natividads body before closure of the incision. When
he failed to do so, it was his duty to inform Natividad
about it. Dr. Ampil breached both duties. Such breach
caused injury to Natividad, necessitating her further
examination by American doctors and another surgery.
That Dr. Ampils negligence is the proximate cause12 of
Natividads injury could be traced from his act of
closing the incision despite the information given by
the attending nurses that two pieces of gauze were still
missing. That they were later on extracted from
Natividads vagina established the causal link between
Dr. Ampils negligence and the injury. And what further
aggravated such injury was his deliberate concealment
of the missing gauzes from the knowledge of Natividad
and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving

Of course, the Court is not blind to the reality that

there are times when danger to a patients life
precludes a surgeon from further searching missing
sponges or foreign objects left in the body. But this
does not leave him free from any obligation. Even if it
has been shown that a surgeon was required by the
urgent necessities of the case to leave a sponge in his
patients abdomen, because of the dangers attendant
upon delay, still, it is his legal duty to so inform his

Dr. Fuentes of any Liability

The Aganas assailed the dismissal by the trial court of
the case against Dr. Fuentes on the ground that it is
contrary to the doctrine of res ipsa loquitur. According
to them, the fact that the two pieces of gauze were left
inside Natividads body is a prima facie evidence of Dr.
Fuentes negligence.

We are not convinced.

Literally, res ipsa loquitur means "the thing speaks for
itself." It is the rule that the fact of the occurrence of an
injury, taken with the surrounding circumstances, may
permit an inference or raise a presumption of
negligence, or make out a plaintiffs prima facie case,
and present a question of fact for defendant to meet
with an explanation.13 Stated differently, where the
thing which caused the injury, without the fault of the
injured, is under the exclusive control of the defendant
and the injury is such that it should not have occurred
if he, having such control used proper care, it affords
reasonable evidence, in the absence of explanation
that the injury arose from the defendants want of care,
and the burden of proof is shifted to him to establish
that he has observed due care and diligence.14
From the foregoing statements of the rule, the
requisites for the applicability of the doctrine of res
ipsa loquitur are: (1) the occurrence of an injury; (2)
the thing which caused the injury was under the
control and management of the defendant; (3) the
occurrence was such that in the ordinary course of
things, would not have happened if those who had
control or management used proper care; and (4) the
absence of explanation by the defendant. Of the
foregoing requisites, the most instrumental is the
"control and management of the thing which caused
the injury."15
We find the element of "control and management of
the thing which caused the injury" to be wanting.
Hence, the doctrine of res ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the lead
surgeon during the operation of Natividad. He
requested the assistance of Dr. Fuentes only to perform
hysterectomy when he (Dr. Ampil) found that the
malignancy in her sigmoid area had spread to her left
ovary. Dr. Fuentes performed the surgery and
thereafter reported and showed his work to Dr. Ampil.
The latter examined it and finding everything to be in
order, allowed Dr. Fuentes to leave the operating room.
Dr. Ampil then resumed operating on Natividad. He was
about to finish the procedure when the attending
nurses informed him that two pieces of gauze were
missing. A "diligent search" was conducted, but the
misplaced gauzes were not found. Dr. Ampil then
directed that the incision be closed. During this entire
period, Dr. Fuentes was no longer in the operating
room and had, in fact, left the hospital.
Under the "Captain of the Ship" rule, the operating
surgeon is the person in complete charge of the
surgery room and all personnel connected with the
operation. Their duty is to obey his orders.16 As stated
before, Dr. Ampil was the lead surgeon. In other words,
he was the "Captain of the Ship." That he discharged
such role is evident from his following conduct: (1)
calling Dr. Fuentes to perform a hysterectomy; (2)
examining the work of Dr. Fuentes and finding it in
order; (3) granting Dr. Fuentes permission to leave;
and (4) ordering the closure of the incision. To our
mind, it was this act of ordering the closure of the
incision notwithstanding that two pieces of gauze

remained unaccounted for, that caused injury to

Natividads body. Clearly, the control and management
of the thing which caused the injury was in the hands
of Dr. Ampil, not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of
substantive law, hence, does not per se create or
constitute an independent or separate ground of
liability, being a mere evidentiary rule.17 In other
words, mere invocation and application of the doctrine
does not dispense with the requirement of proof of
negligence. Here, the negligence was proven to have
been committed by Dr. Ampil and not by Dr. Fuentes.
III - G.R. No. 126297
Whether PSI Is Liable for the Negligence of Dr. Ampil
The third issue necessitates a glimpse at the historical
development of hospitals and the resulting theories
concerning their liability for the negligence of
physicians.
Until the mid-nineteenth century, hospitals were
generally charitable institutions, providing medical
services to the lowest classes of society, without
regard for a patients ability to pay.18 Those who could
afford medical treatment were usually treated at home
by their doctors.19 However, the days of house calls
and philanthropic health care are over. The modern
health care industry continues to distance itself from
its charitable past and has experienced a significant
conversion from a not-for-profit health care to for-profit
hospital businesses. Consequently, significant changes
in health law have accompanied the business-related
changes in the hospital industry. One important legal
change is an increase in hospital liability for medical
malpractice. Many courts now allow claims for hospital
vicarious liability under the theories of respondeat
superior, apparent authority, ostensible authority, or
agency by estoppel. 20
In this jurisdiction, the statute governing liability for
negligent acts is Article 2176 of the Civil Code, which
reads:
Art. 2176. Whoever by act or omission causes damage
to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by
the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule
governing vicarious liability under the doctrine of
respondeat superior, thus:
ART. 2180. The obligation imposed by Article 2176 is
demandable not only for ones own acts or omissions,
but also for those of persons for whom one is
responsible.
x x x
x x

The owners and managers of an establishment or

enterprise are likewise responsible for damages caused
by their employees in the service of the branches in
which the latter are employed or on the occasion of
their functions.
Employers shall be liable for the damages caused by
their employees and household helpers acting within
the scope of their assigned tasks even though the
former are not engaged in any business or industry.
x x x
x x x
The responsibility treated of in this article shall cease
when the persons herein mentioned prove that they
observed all the diligence of a good father of a family
to prevent damage.
A prominent civilist commented that professionals
engaged by an employer, such as physicians, dentists,
and pharmacists, are not "employees" under this
article because the manner in which they perform their
work is not within the control of the latter (employer).
In other words, professionals are considered personally
liable for the fault or negligence they commit in the
discharge of their duties, and their employer cannot be
held liable for such fault or negligence. In the context
of the present case, "a hospital cannot be held liable
for the fault or negligence of a physician or surgeon in
the treatment or operation of patients."21
The foregoing view is grounded on the traditional
notion that the professional status and the very nature
of the physicians calling preclude him from being
classed as an agent or employee of a hospital,
whenever he acts in a professional capacity.22 It has
been said that medical practice strictly involves highly
developed and specialized knowledge, 23 such that
physicians are generally free to exercise their own skill
and judgment in rendering medical services sans
interference.24 Hence, when a doctor practices
medicine in a hospital setting, the hospital and its
employees are deemed to subserve him in his
ministrations to the patient and his actions are of his
own responsibility.25
The case of Schloendorff v. Society of New York
Hospital26 was then considered an authority for this
view. The "Schloendorff doctrine" regards a physician,
even if employed by a hospital, as an independent
contractor because of the skill he exercises and the
lack of control exerted over his work. Under this
doctrine, hospitals are exempt from the application of
the respondeat superior principle for fault or
negligence committed by physicians in the discharge
of their profession.
However, the efficacy of the foregoing doctrine has
weakened with the significant developments in medical
care. Courts came to realize that modern hospitals are
increasingly taking active role in supplying and
regulating medical care to patients. No longer were a
hospitals functions limited to furnishing room, food,
facilities for treatment and operation, and attendants
for its patients. Thus, in Bing v. Thunig,27 the New York

Court of Appeals deviated from the Schloendorff

doctrine, noting that modern hospitals actually do far
more than provide facilities for treatment. Rather, they
regularly employ, on a salaried basis, a large staff of
physicians, interns, nurses, administrative and manual
workers. They charge patients for medical care and
treatment, even collecting for such services through
legal action, if necessary. The court then concluded
that there is no reason to exempt hospitals from the
universal rule of respondeat superior.
In our shores, the nature of the relationship between
the hospital and the physicians is rendered
inconsequential in view of our categorical
pronouncement in Ramos v. Court of Appeals28 that for
purposes of apportioning responsibility in medical
negligence cases, an employer-employee relationship
in effect exists between hospitals and their attending
and visiting physicians. This Court held:
"We now discuss the responsibility of the hospital in
this particular incident. The unique practice (among
private hospitals) of filling up specialist staff with
attending and visiting "consultants," who are allegedly
not hospital employees, presents problems in
apportioning responsibility for negligence in medical
malpractice cases. However, the difficulty is more
apparent than real.
In the first place, hospitals exercise significant control
in the hiring and firing of consultants and in the
conduct of their work within the hospital premises.
Doctors who apply for consultant slots, visiting or
attending, are required to submit proof of completion
of residency, their educational qualifications, generally,
evidence of accreditation by the appropriate board
(diplomate), evidence of fellowship in most cases, and
references. These requirements are carefully
scrutinized by members of the hospital administration
or by a review committee set up by the hospital who
either accept or reject the application. x x x.
After a physician is accepted, either as a visiting or
attending consultant, he is normally required to attend
clinico-pathological conferences, conduct bedside
rounds for clerks, interns and residents, moderate
grand rounds and patient audits and perform other
tasks and responsibilities, for the privilege of being
able to maintain a clinic in the hospital, and/or for the
privilege of admitting patients into the hospital. In
addition to these, the physicians performance as a
specialist is generally evaluated by a peer review
committee on the basis of mortality and morbidity
statistics, and feedback from patients, nurses, interns
and residents. A consultant remiss in his duties, or a
consultant who regularly falls short of the minimum
standards acceptable to the hospital or its peer review
committee, is normally politely terminated.
In other words, private hospitals, hire, fire and exercise
real control over their attending and visiting
consultant staff. While consultants are not,
technically employees, x x x, the control exercised, the
hiring, and the right to terminate consultants all fulfill
the important hallmarks of an employer-employee
relationship, with the exception of the payment of

wages. In assessing whether such a relationship in fact

exists, the control test is determining. Accordingly, on
the basis of the foregoing, we rule that for the purpose
of allocating responsibility in medical negligence cases,
an employer-employee relationship in effect exists
between hospitals and their attending and visiting
physicians. "
But the Ramos pronouncement is not our only basis in
sustaining PSIs liability. Its liability is also anchored
upon the agency principle of apparent authority or
agency by estoppel and the doctrine of corporate
negligence which have gained acceptance in the
determination of a hospitals liability for negligent acts
of health professionals. The present case serves as a
perfect platform to test the applicability of these
doctrines, thus, enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as
the "holding
out" theory, or doctrine of ostensible agency or agency
by estoppel,29 has its origin from the law of agency. It
imposes liability, not as the result of the reality of a
contractual relationship, but rather because of the
actions of a principal or an employer in somehow
misleading the public into believing that the
relationship or the authority exists.30 The concept is
essentially one of estoppel and has been explained in
this manner:
"The principal is bound by the acts of his agent with
the apparent authority which he knowingly permits the
agent to assume, or which he holds the agent out to
the public as possessing. The question in every case is
whether the principal has by his voluntary act placed
the agent in such a situation that a person of ordinary
prudence, conversant with business usages and the
nature of the particular business, is justified in
presuming that such agent has authority to perform
the particular act in question.31
The applicability of apparent authority in the field of
hospital liability was upheld long time ago in Irving v.
Doctor Hospital of Lake Worth, Inc.32 There, it was
explicitly stated that "there does not appear to be any
rational basis for excluding the concept of apparent
authority from the field of hospital liability." Thus, in
cases where it can be shown that a hospital, by its
actions, has held out a particular physician as its agent
and/or employee and that a patient has accepted
treatment from that physician in the reasonable belief
that it is being rendered in behalf of the hospital, then
the hospital will be liable for the physicians
negligence.
Our jurisdiction recognizes the concept of an agency by
implication or estoppel. Article 1869 of the Civil Code
reads:
ART. 1869. Agency may be express, or implied from the
acts of the principal, from his silence or lack of action,
or his failure to repudiate the agency, knowing that
another person is acting on his behalf without
authority.

In this case, PSI publicly displays in the lobby of the

Medical City Hospital the names and specializations of
the physicians associated or accredited by it, including
those of Dr. Ampil and Dr. Fuentes. We concur with the
Court of Appeals conclusion that it "is now estopped
from passing all the blame to the physicians whose
names it proudly paraded in the public directory
leading the public to believe that it vouched for their
skill and competence." Indeed, PSIs act is tantamount
to holding out to the public that Medical City Hospital,
through its accredited physicians, offers quality health
care services. By accrediting Dr. Ampil and Dr. Fuentes
and publicly advertising their qualifications, the
hospital created the impression that they were its
agents, authorized to perform medical or surgical
services for its patients. As expected, these patients,
Natividad being one of them, accepted the services on
the reasonable belief that such were being rendered by
the hospital or its employees, agents, or servants. The
trial court correctly pointed out:
x x x regardless of the education and status in life of
the patient, he ought not be burdened with the defense
of absence of employer-employee relationship between
the hospital and the independent physician whose
name and competence are certainly certified to the
general public by the hospitals act of listing him and
his specialty in its lobby directory, as in the case
herein. The high costs of todays medical and health
care should at least exact on the hospital greater, if not
broader, legal responsibility for the conduct of
treatment and surgery within its facility by its
accredited physician or surgeon, regardless of whether
he is independent or employed."33
The wisdom of the foregoing ratiocination is easy to
discern. Corporate entities, like PSI, are capable of
acting only through other individuals, such as
physicians. If these accredited physicians do their job
well, the hospital succeeds in its mission of offering
quality medical services and thus profits financially.
Logically, where negligence mars the quality of its
services, the hospital should not be allowed to escape
liability for the acts of its ostensible agents.
We now proceed to the doctrine of corporate
negligence or corporate responsibility.
One allegation in the complaint in Civil Case No. Q43332 for negligence and malpractice is that PSI as
owner, operator and manager of Medical City Hospital,
"did not perform the necessary supervision nor
exercise diligent efforts in the supervision of Drs. Ampil
and Fuentes and its nursing staff, resident doctors, and
medical interns who assisted Drs. Ampil and Fuentes in
the performance of their duties as
surgeons."34 Premised on the doctrine of corporate
negligence, the trial court held that PSI is directly liable
for such breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate
negligence as the judicial answer to the problem of
allocating hospitals liability for the negligent acts of
health practitioners, absent facts to support the

application of respondeat superior or apparent

authority. Its formulation proceeds from the judiciarys
acknowledgment that in these modern times, the duty
of providing quality medical service is no longer the
sole prerogative and responsibility of the physician.
The modern hospitals have changed structure.
Hospitals now tend to organize a highly professional
medical staff whose competence and performance
need to be monitored by the hospitals commensurate
with their inherent responsibility to provide quality
medical care.35
The doctrine has its genesis in Darling v. Charleston
Community Hospital.36 There, the Supreme Court of
Illinois held that "the jury could have found a hospital
negligent, inter alia, in failing to have a sufficient
number of trained nurses attending the patient; failing
to require a consultation with or examination by
members of the hospital staff; and failing to review the
treatment rendered to the patient." On the basis of
Darling, other jurisdictions held that a hospitals
corporate negligence extends to permitting a physician
known to be incompetent to practice at the
hospital.37 With the passage of time, more duties were
expected from hospitals, among them: (1) the use of
reasonable care in the maintenance of safe and
adequate facilities and equipment; (2) the selection
and retention of competent physicians; (3) the
overseeing or supervision of all persons who practice
medicine within its walls; and (4) the formulation,
adoption and enforcement of adequate rules and
policies that ensure quality care for its patients.38 Thus,
in Tucson Medical Center, Inc. v. Misevich,39 it was held
that a hospital, following the doctrine of corporate
responsibility, has the duty to see that it meets the
standards of responsibilities for the care of patients.
Such duty includes the proper supervision of the
members of its medical staff. And in Bost v. Riley, 40 the
court concluded that a patient who enters a hospital
does so with the reasonable expectation that it will
attempt to cure him. The hospital accordingly has the
duty to make a reasonable effort to monitor and
oversee the treatment prescribed and administered by
the physicians practicing in its premises.
In the present case, it was duly established that PSI
operates the Medical City Hospital for the purpose and
under the concept of providing comprehensive medical
services to the public. Accordingly, it has the duty to
exercise reasonable care to protect from harm all
patients admitted into its facility for medical treatment.
Unfortunately, PSI failed to perform such duty. The
findings of the trial court are convincing, thus:
x x x PSIs liability is traceable to its failure to conduct
an investigation of the matter reported in the nota
bene of the count nurse. Such failure established PSIs
part in the dark conspiracy of silence and concealment
about the gauzes. Ethical considerations, if not also
legal, dictated the holding of an immediate inquiry into
the events, if not for the benefit of the patient to whom
the duty is primarily owed, then in the interest of
arriving at the truth. The Court cannot accept that the
medical and the healing professions, through their
members like defendant surgeons, and their
institutions like PSIs hospital facility, can callously turn
their backs on and disregard even a mere probability of

mistake or negligence by refusing or failing to

investigate a report of such seriousness as the one in
Natividads case.
It is worthy to note that Dr. Ampil and Dr. Fuentes
operated on Natividad with the assistance of the
Medical City Hospitals staff, composed of resident
doctors, nurses, and interns. As such, it is reasonable
to conclude that PSI, as the operator of the hospital,
has actual or constructive knowledge of the procedures
carried out, particularly the report of the attending
nurses that the two pieces of gauze were missing. In
Fridena v. Evans,41 it was held that a corporation is
bound by the knowledge acquired by or notice given to
its agents or officers within the scope of their authority
and in reference to a matter to which their authority
extends. This means that the knowledge of any of the
staff of Medical City Hospital constitutes knowledge of
PSI. Now, the failure of PSI, despite the attending
nurses report, to investigate and inform Natividad
regarding the missing gauzes amounts to callous
negligence. Not only did PSI breach its duties to
oversee or supervise all persons who practice medicine
within its walls, it also failed to take an active step in
fixing the negligence committed. This renders PSI, not
only vicariously liable for the negligence of Dr. Ampil
under Article 2180 of the Civil Code, but also directly
liable for its own negligence under Article 2176. In
Fridena, the Supreme Court of Arizona held:
x x x In recent years, however, the duty of care owed
to the patient by the hospital has expanded. The
emerging trend is to hold the hospital responsible
where the hospital has failed to monitor and review
medical services being provided within its walls. See
Kahn Hospital Malpractice Prevention, 27 De Paul . Rev.
23 (1977).
Among the cases indicative of the emerging trend is
Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335
(1972). In Purcell, the hospital argued that it could not
be held liable for the malpractice of a medical
practitioner because he was an independent contractor
within the hospital. The Court of Appeals pointed out
that the hospital had created a professional staff whose
competence and performance was to be monitored and
reviewed by the governing body of the hospital, and
the court held that a hospital would be negligent where
it had knowledge or reason to believe that a doctor
using the facilities was employing a method of
treatment or care which fell below the recognized
standard of care.
Subsequent to the Purcell decision, the Arizona Court
of Appeals held that a hospital has certain inherent
responsibilities regarding the quality of medical care
furnished to patients within its walls and it must meet
the standards of responsibility commensurate with this
undertaking. Beeck v. Tucson General Hospital, 18 Ariz.
App. 165, 500 P. 2d 1153 (1972). This court has
confirmed the rulings of the Court of Appeals that a
hospital has the duty of supervising the competence of
the doctors on its staff. x x x.
x

In the amended complaint, the plaintiffs did plead that

the operation was performed at the hospital with its
knowledge, aid, and assistance, and that the
negligence of the defendants was the proximate cause
of the patients injuries. We find that such general
allegations of negligence, along with the evidence
produced at the trial of this case, are sufficient to
support the hospitals liability based on the theory of
negligent supervision."
Anent the corollary issue of whether PSI is solidarily
liable with Dr. Ampil for damages, let it be emphasized
that PSI, apart from a general denial of its
responsibility, failed to adduce evidence showing that
it exercised the diligence of a good father of a family in
the accreditation and supervision of the latter. In
neglecting to offer such proof, PSI failed to discharge
its burden under the last paragraph of Article 2180
cited earlier, and, therefore, must be adjudged
solidarily liable with Dr. Ampil. Moreover, as we have
discussed, PSI is also directly liable to the Aganas.
One final word. Once a physician undertakes the
treatment and care of a patient, the law imposes on
him certain obligations. In order to escape liability, he
must possess that reasonable degree of learning, skill
and experience required by his profession. At the same
time, he must apply reasonable care and diligence in
the exercise of his skill and the application of his
knowledge, and exert his best judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the
challenged Decision of the Court of Appeals in CA-G.R.
CV No. 42062 and CA-G.R. SP No. 32198.
Costs against petitioners PSI and Dr. Miguel Ampil.

The work schedules of the members of the team of

resident physicians were fixed by petitioner's medical
director Dr. Raul Desipeda (Dr. Desipeda). And they
were issued identification cards3 by petitioner and were
enrolled in the Social Security System (SSS).4 Income
taxes were withheld from them.5
On March 7, 1998, Dr. Meluz Trinidad (Dr. Trinidad), also
a resident physician at the hospital, inadvertently
overheard a telephone conversation of respondent Dr.
Lanzanas with a fellow employee, Diosdado Miscala,
through an extension telephone line. Apparently, Dr.
Lanzanas and Miscala were discussing the low "census"
or admission of patients to the hospital.6
Dr. Desipeda whose attention was called to the abovesaid telephone conversation issued to Dr. Lanzanas a
Memorandum of March 7, 1998 reading:
As a Licensed Resident
Physician employed in Calamba Medical
Center since several years ago, the hospital
management has committed upon you utmost
confidence in the performance of duties
pursuant thereto. This is the reason why you
were awarded the privilege to practice in the
hospital and were entrusted hospital functions
to serve the interest of both the hospital and
our patients using your capability for
independent judgment.
Very recently though and unfortunately, you
have committed acts inimical to the interest of
the hospital, the details of which are contained
in the hereto attached affidavit of witness.

SO ORDERED.
G.R. No. 176484

November 25, 2008

CALAMBA MEDICAL CENTER, INC., petitioner

vs.
NATIONAL LABOR RELATIONS COMMISSION,
RONALDO LANZANAS AND
MERCEDITHA*LANZANAS, respondents.
DECISION
CARPIO MORALES, J.:
The Calamba Medical Center (petitioner), a privatelyowned hospital, engaged the services of medical
doctors-spouses Ronaldo Lanzanas (Dr. Lanzanas) and
Merceditha Lanzanas (Dr. Merceditha) in March 1992
and August 1995, respectively, as part of its team of
resident physicians. Reporting at the hospital twice-aweek on twenty-four-hour shifts, respondents were paid
a monthly "retainer" of P4,800.00 each.1 It appears
that resident physicians were also given a percentage
share out of fees charged for out-patient treatments,
operating room assistance and discharge billings, in
addition to their fixed monthly retainer. 2

You are therefore given 24 hours to

explain why no disciplinary action should
be taken against you.
Pending investigation of your case, you
are hereby placed under 30-days [sic]
preventive suspension effective upon
receipt hereof.7 (Emphasis, italics and
underscoring supplied)
Inexplicably, petitioner did not give respondent Dr.
Merceditha, who was not involved in the said incident,
any work schedule after sending her husband Dr.
Lanzanas the memorandum,8 nor inform her the reason
therefor, albeit she was later informed by the Human
Resource Department (HRD) officer that that was part
of petitioner's cost-cutting measures.9
Responding to the memorandum, Dr. Lanzanas, by
letter of March 9, 1998,10 admitted that he spoke with
Miscala over the phone but that their conversation was
taken out of context by Dr. Trinidad.
On March 14, 1998,11 the rank-and-file employees
union of petitioner went on strike due to unresolved
grievances over terms and conditions of employment. 12

On March 20, 1998, Dr. Lanzanas filed a complaint for

illegal suspension13 before the National Labor Relations
Commission (NLRC)-Regional Arbitration Board (RAB)
IV. Dr. Merceditha subsequently filed a complaint for
illegal dismissal.14
In the meantime, then Sec. Cresenciano Trajano of the
Department of Labor and Employment (DOLE) certified
the labor dispute to the NLRC for compulsory
arbitration and issued on April 21, 1998 return-to-work
Order to the striking union officers and employees of
petitioner pending resolution of the labor dispute.15
In a memorandum16 of April 22, 1998, Dr. Desipeda
echoed the April 22, 1998 order of the Secretary of
Labor directing all union officers and members to
return-to-work "on or April 23, 1998, except those
employees that were already terminated or are serving
disciplinary actions." Dr. Desipeda thus ordered the
officers and members of the union to "report for work
as soon as possible" to the hospital's personnel officer
and administrator for "work scheduling, assignments
and/or re-assignments."
Petitioner later sent Dr. Lanzanas a notice of
termination which he received on April 25, 1998,
indicating as grounds therefor his failure to report back
to work despite the DOLE order and his supposed role
in the striking union, thus:
On April 23, 1998, you still did not report for
work despite memorandum issued by the CMC
Medical Director implementing the Labor
Secretary's ORDER. The same is true on April
24, 1998 and April 25, 1998,--you still did not
report for work [sic].
You are likewise aware that you
were observed (re: signatories [sic] to
the Saligang Batas of BMCMC-UWP) to be
unlawfully participating as member in the
rank-and-file union's concerted
activities despite knowledge that your position
in the hospital is managerial in nature (Nurses,
Orderlies, and staff of the Emergency Room
carry out your orders using your independent
judgment) which participation is expressly
prohibited by the New Labor Code and which
prohibition was sustained by the MedArbiter's ORDER dated February 24, 1998.
(Emphasis and italics in the original;
underscoring partly in the original and partly
supplied)
For these reasons as grounds for
termination, you are hereby terminated
for cause from employment effective
today, April 25, 1998, without prejudice to
further action for revocation of your license
before the Philippine [sic] Regulations [sic]
Commission.17 (Emphasis and underscoring
supplied)

Dr. Lanzanas thus amended his original complaint to

include illegal dismissal.18 His and Dr. Merceditha's
complaints were consolidated and docketed as NLRC
CASE NO. RAB-IV-3-9879-98-L.
By Decision19 of March 23, 1999, Labor Arbiter Antonio
R. Macam dismissed the spouses' complaints for want
of jurisdiction upon a finding that there was no
employer-employee relationship between the parties,
the fourth requisite or the "control test" in the
determination of an employment bond being absent.
On appeal, the NLRC, by Decision20 of May 3,
2002, reversed the Labor Arbiter's findings, disposing
as follows:
WHEREFORE, the assailed decision is set aside.
The respondents are ordered to pay the
complainants their full backwages; separation
pay of one month salary for every year of
service in lieu of reinstatement; moral
damages of P500,000.00 each; exemplary
damages ofP250,000.00 each plus ten percent
(10%) of the total award as attorney's fees.
SO ORDERED.21
Petitioner's motion for reconsideration having been
denied, it brought the case to the Court of Appeals on
certiorari.
The appellate court, by June 30, 2004
Decision,22 initially granted petitioner's petition and set
aside the NLRC ruling. However, upon a subsequent
motion for reconsideration filed by respondents,
itreinstated the NLRC decision in an Amended
Decision23 dated September 26, 2006 but tempered the
award to each of the spouses of moral and exemplary
damages to P100,000.00 and P50,000.00, respectively
and omitted the award of attorney's fees.
In finding the existence of an employer-employee
relationship between the parties, the appellate court
held:
x x x. While it may be true that the
respondents are given the discretion to decide
on how to treat the petitioner's patients,
the petitioner has not denied nor explained
why its Medical Director still has the direct
supervision and control over the
respondents. The fact is the petitioner's
Medical Director still has to approve the
schedule of duties of the respondents. The
respondents stressed that the petitioner's
Medical Director also issues instructions or
orders to the respondents relating to the
means and methods of performing their
duties,i.e. admission of patients, manner of
characterizing cases, treatment of cases, etc.,
and may even overrule, review or revise
the decisions of the resident physicians.

This was not controverted by the

petitioner. The foregoing factors taken together
are sufficient to constitute the fourth element,
i.e. control test, hence, the existence of the
employer-employee relationship. In denying
that it had control over the respondents, the
petitioner alleged that the respondents were
free to put up their own clinics or to accept
other retainership agreement with the other
hospitals. But, the petitioner failed to
substantiate the allegation with substantial
evidence. (Emphasis and underscoring
supplied)24

Denying the existence of such relationship, petitioner

argues that the appellate court, as well as the NLRC,
overlooked its twice-a-week reporting arrangement
with respondents who are free to practice their
profession elsewhere the rest of the week. And it
invites attention to the uncontroverted allegation that
respondents, aside from their monthly retainers, were
entitled to one-half of all suturing, admitting,
consultation, medico-legal and operating room
assistance fees.28 These circumstances, it stresses, are
clear badges of the absence of any employment
relationship between them.
This Court is unimpressed.

The appellate court thus declared that respondents

were illegally dismissed.
x x x. The petitioner's ground for dismissing
respondent Ronaldo Lanzanas was based on his
alleged participation in union activities,
specifically in joining the strike and failing to
observe the return-to-work order issued by the
Secretary of Labor. Yet, the petitioner did not
adduce any piece of evidence to show that
respondent Ronaldo indeed participated in the
strike. x x x.
In the case of respondent Merceditha
Lanzanas, the petitioner's explanation that "her
marriage to complainant Ronaldo has given
rise to the presumption that her sympat[hies]
are likewise with her husband" as a ground for
her dismissal is unacceptable. Such is not one
of the grounds to justify the termination of her
employment.25 (Underscoring supplied)
The fallo of the appellate court's decision reads:
WHEREFORE, the instant Motion for
Reconsideration is GRANTED, and the Court's
decision dated June 30, 2004, is SET ASIDE. In
lieu thereof, a new judgment is entered, as
follows:
WHEREFORE, the petition is
DISMISSED. The assailed decision
dated May 3, 2002 and order dated
September 24, 2002 of the NLRC in
NLRC NCR CA No. 019823-99 are
AFFIRMED with the MODIFICATION that
the moral and exemplary damages are
reduced to P100,000.00 each
and P50,000.00 each, respectively.
SO ORDERED.26 (Emphasis and italics in the
original; underscoring supplied)
Preliminarily, the present petition calls for a
determination of whether there exists an employeremployee relationship27 between petitioner and the
spouses-respondents.

Under the "control test," an employment relationship

exists between a physician and a hospital if the
hospital controls both the means and the details of the
process by which the physician is to accomplish his
task.29
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 is compensated
according to the result of his efforts and not the
amount thereof, the element of control is absent.30
As priorly stated, private respondents maintained
specific work-schedules, as determined by petitioner
through its medical director, which consisted of 24hour shifts totaling forty-eight hours each week and
which were strictly to be observed under pain of
administrative sanctions.
That petitioner exercised control over respondents
gains light from the undisputed fact that in the
emergency room, the operating room, or any
department or ward for that matter, respondents' work
is monitored through its nursing supervisors, charge
nurses and orderlies. Without the approval or consent
of petitioner or its medical director, no operations can
be undertaken in those areas. For control test to apply,
it is not essential for the employer to actually supervise
the performance of duties of the employee, it being
enough that it has the right to wield the power.31
With respect to respondents' sharing in some hospital
fees, this scheme does not sever the employment tie
between them and petitioner as this merely mirrors
additional form or another form of compensation or
incentive similar to what commission-based employees
receive as contemplated in Article 97 (f) of the Labor
Code, thus:
"Wage" paid to any employee shall mean the
remuneration or earning, 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. x x
x (Emphasis and underscoring supplied),
Respondents were in fact made subject to petitionerhospital's Code of Ethics,32 the provisions of which
cover administrative and disciplinary measures on
negligence of duties, personnel conduct and behavior,
and offenses against persons, property and the
hospital's interest.
More importantly, petitioner itself provided
incontrovertible proof of the employment status of
respondents, namely, the identification cards it issued
them, the payslips33 and BIR W-2 (now 2316) Forms
which reflect their status as employees, and the
classification as "salary" of their remuneration.
Moreover, it enrolled respondents in the SSS and
Medicare (Philhealth) program. It bears noting at this
juncture that mandatory coverage under the SSS
Law34 is premised on the existence of an employeremployee relationship,35 except in cases of compulsory
coverage of the self-employed. It would be
preposterous for an employer to report certain persons
as employees and pay their SSS premiums as well as
their wages if they are not its employees.36
And if respondents were not petitioner's employees,
how does it account for its issuance of the earlierquoted March 7, 1998 memorandum explicitly stating
that respondent is "employed" in it and of the
subsequent termination letter indicating respondent
Lanzanas' employment status.
Finally, under Section 15, Rule X of Book III of
the Implementing Rules of the Labor Code, an
employer-employee relationship exists between the
resident physicians and the training hospitals, unless
there is a training agreement between them, and the
training program is duly accredited or approved by the
appropriate government agency. In respondents' case,
they were not undergoing any specialization training.
They were considered non-training general
practitioners,37 assigned at the emergency rooms and
ward sections.
Turning now to the issue of dismissal, the Court
upholds the appellate court's conclusion that private
respondents were illegally dismissed.
Dr. Lanzanas was neither a managerial nor supervisory
employee but part of the rank-and-file. This is the
import of the Secretary of Labor's Resolution of May
22, 1998 in OS A-05-15-98 which reads:
xxxx

In the motion to dismiss it filed before the MedArbiter, the employer (CMC) alleged that 24
members of petitioner are supervisors, namely
x x x Rolando Lanzonas [sic] x x x.
A close scrutiny of the job descriptions of the
alleged supervisors narrated by the employer
only proves that except for the contention that
these employees allegedly supervise, they do
not however recommend any managerial
action. At most, their job is merely routinary in
nature and consequently, they cannot be
considered supervisory employees.
They are not therefore barred from
membership in the union of
rank[-]and[-]file, which the petitioner [the
union] is seeking to represent in the instant
case.38 (Emphasis and underscoring supplied)
xxxx
Admittedly, Dr. Lanzanas was a union member in the
hospital, which is considered indispensable to the
national interest. In labor disputes adversely affecting
the continued operation of a hospital, Article 263(g) of
the Labor Code provides:
ART. 263. STRIKES, PICKETING, AND
LOCKOUTS.
xxxx
(g) x x x x
x x x x. In labor disputes adversely
affecting the continued operation of such
hospitals, clinics or medical institutions, it
shall be the duty of the striking union or
locking-out employer to provide and maintain
an effective skeletal workforce of medical and
other health personnel, whose movement and
services shall be unhampered and unrestricted,
as are necessary to insure the proper and
adequate protection of the life and health of its
patients, most especially emergency cases, for
the duration of the strike or lockout. In such
cases, the Secretary of Labor and Employment
is mandated to immediately assume, within
twenty-four hours from knowledge of the
occurrence of such strike or lockout, jurisdiction
over the same or certify to the Commission for
compulsory arbitration. For this purpose, the
contending parties are strictly enjoined to
comply with such orders, prohibitions
and/or injunctions as are issued by the
Secretary of Labor and Employment or
the Commission, under pain of immediate
disciplinary action, including dismissal or
loss of employment status or payment by
the locking-out employer of backwages,
damages and other affirmative relief,

even criminal prosecution against either

or both of them.

the medical doctor, he was presumed to be speaking

for himself [and] for his wife Merceditha."46

x x x x (Emphasis and underscoring supplied)

Petitioner's contention that Dr. Merceditha was a

member of the union or was a participant in the strike
remained just that. Its termination of her employment
on the basis of her conjugal relationship is not
analogous to

An assumption or certification order of the DOLE

Secretary automatically results in a return-to-work of
all striking workers, whether a corresponding return-towork order had been issued.39 The DOLE Secretary in
fact issued a return-to-work Order, failing to comply
with which is punishable by dismissal or loss of
employment status.40
Participation in a strike and intransigence to a returnto-work order must, however, be duly proved in order
to justify immediate dismissal in a "national interest"
case. As the appellate court as well as the NLRC
observed, however, there is nothing in the records that
would bear out Dr. Lanzanas' actual participation in the
strike. And the medical director's Memorandum41 of
April 22, 1998 contains nothing more than a general
directive to all union officers and members to return-towork. Mere membership in a labor union does not ipso
facto mean participation in a strike.
Dr. Lanzanas' claim that, after his 30-day preventive
suspension ended on or before April 9, 1998, he was
never given any work schedule42 was not refuted by
petitioner. Petitioner in fact never released any findings
of its supposed investigation into Dr. Lanzanas' alleged
"inimical acts."
Petitioner thus failed to observe the two
requirements,before dismissal can be effected notice
and hearing which constitute essential elements of
the statutory process; the first to apprise the employee
of the particular acts or omissions for which his
dismissal is sought, and the second to inform the
employee of the employer's decision to dismiss
him.43 Non-observance of these requirements runs
afoul of the procedural mandate.44
The termination notice sent to and received by Dr.
Lanzanas on April 25, 1998 was the first and only time
that he was apprised of the reason for his dismissal. He
was not afforded, however, even the slightest
opportunity to explain his side. His was a "termination
upon receipt" situation. While he was priorly made to
explain on his telephone conversation with
Miscala,45 he was not with respect to his supposed
participation in the strike and failure to heed the
return-to-work order.
As for the case of Dr. Merceditha, her dismissal was
worse, it having been effected without any just or
authorized cause and without observance of due
process. In fact, petitioner never proferred any valid
cause for her dismissal except its view that "her
marriage to [Dr. Lanzanas] has given rise to the
presumption that her sympath[y] [is] with her husband;
[and that when [Dr. Lanzanas] declared that he was
going to boycott the scheduling of their workload by

any of the causes enumerated in Article 28247 of the

Labor Code. Mere suspicion or belief, no matter how
strong, cannot substitute for factual findings carefully
established through orderly procedure.48
The Court even notes that after the proceedings at the
NLRC, petitioner never even mentioned Dr.
Merceditha's case. There is thus no gainsaying that her
dismissal was both substantively and procedurally
infirm.
Adding insult to injury was the circulation by petitioner
of a "watchlist" or "watch out list"49 including therein
the names of respondents. Consider the following
portions of Dr. Merceditha's Memorandum of Appeal:
3. Moreover, to top it all, respondents have
circulated a so called "Watch List" to other
hospitals, one of which [was] procured from
Foothills Hospital in Sto. Tomas, Batangas [that]
contains her name. The object of the said list is
precisely to harass Complainant and malign
her good name and reputation. This is not only
unprofessional, but runs smack of oppression
as CMC is trying permanently deprived [sic]
Complainant of her livelihood by ensuring that
she is barred from practicing in other hospitals.
4. Other co-professionals and brothers in the
profession are fully aware of these "watch out"
lists and as such, her reputation was not only
besmirched, but was damaged, and she
suffered social humiliation as it is of public
knowledge that she was dismissed from work.
Complainant came from a reputable and
respected family, her father being a retired full
Colonel in the Army, Col. Romeo A. Vente, and
her brothers and sisters are all professionals,
her brothers, Arnold and Romeo Jr., being
engineers. The Complainant has a family
protection [sic] to protect. She likewise has a
professional reputation to protect, being a
licensed physician. Both her personal and
professional reputation were damaged as a
result of the unlawful acts of the respondents.50
While petitioner does not deny the existence of such
list, it pointed to the lack of any board action on its part
to initiate such listing and to circulate the same, viz:
20. x x x. The alleged watchlist or "watch out
list," as termed by complainants, were merely
lists obtained by one Dr. Ernesto Naval of

PAMANA Hospital. Said list was given by a

stockholder of respondent who was at the
same time a stockholder of PAMAN[A]
Hospital. The giving of the list was not a Board
action.51 (Emphasis and underscoring supplied)
The circulation of such list containing names of alleged
union members intended to prevent employment of
workers for union activities similarly constitutes unfair
labor practice, thereby giving a right of action for
damages by the employees prejudiced.52

awarded,53 the award of attorney's fees should be

reinstated.
WHEREFORE, the Decision of the Court of Appeals in
CA-G.R. SP No. 75871
is AFFIRMED withMODIFICATION in that the award
by the National Labor Relations Commission of 10% of
the total judgment award as attorney's fees is
reinstated. In all other aspects, the decision of the
appellate court is affirmed.
SO ORDERED.

A word on the appellate court's deletion of the award of

attorney's fees. There being no basis advanced in
deleting it, as exemplary damages were correctly