1

G.R. No. 114920 August 23, 1995 SECOND DIVISION

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and EDUARDO V. MATURAN, respondents. REGALADO, J.:
The records of this case and UDK-11555 show that on March 23, 1993, petitioner received a copy
of the resolution of the National Labor Relations Commission (NLRC), dated March 23, 1993,
reversing the decision of the labor arbiter and declaring as valid and lawful the dismissal of
private respondent. On motion for reconsideration by the latter, said public respondent modified
its former action in a resolution dated December 15, 1993, a copy whereof was received by
petitioner on February 22, 1994.
Avowedly for the purpose of challenging the said modificatory resolution, petitioner filed two
motions for extension of time to file a petition for certiorari on April 5, 1994 and April 12, 1994,
respectively. On June 8, 1994, the Court, through its First Division in UDK-11555, issued a
resolution denying said motions for extension of time for failure of petitioner to submit an
affidavit of service as required by Circular 19-91.
On April 11, 1994, petitioner filed its present petition for certiorari, in line with its original
objective, which case was raffled to this Division. In a resolution dated June 13, 1994, herein
respondents were ordered to file their respective comments to the petition. On July 29, 1994,
private respondent Eduardo Maturan, through counsel, filed a "Manifestation with Motion for
Clarification" of the allegedly contrasting resolutions issued by the Court which first denied the
motion for extension of time to file petition and thereafter ordered respondents to file their
comments. On the other hand, petitioner's motion for reconsideration of the resolution of June 8,
1994 was denied with finality on September 21, 1994.
In his "Manifestation with Motion to Deny Admission of Petition for Certiorari" filed on March 21,
1995, private respondent avers that he received another resolution, dated December 5, 1994,
requiring him anew to file his comment, despite the aforestated earlier resolution of September
21, 1994 which had not as yet been vacated or set aside. He contends that with the denial of
petitioner's motion for extension, there is no basis for the filing and admission of the petition
for certiorari and, consequently, this makes purposeless the need to file any comment on the
part of both respondents.
Private respondent overlooks, or should now be made aware of, the fact that the filing of the
motions for extension of time to file the petition and the subsequent denial thereof does not
affect the validity of the filing of the present petition for certiorari which, under Rule 65 of the
Rules of Court, should be made within a reasonable time. Petitioner received a copy of the NLRC
resolution denying its motion for reconsideration on February 22, 1994 while the present petition
for certiorari was actually filed on April 26, 1994 which was accordingly done within a reasonable
time.
This is an original action for certiorari which is merely required to be filed within a reasonable
time from receipt of a copy of the questioned decision or resolution. Hence, with or without a
motion for extension of time or the denial thereof, as long as the petition is actually filed within
said reasonable period and complies with all requisites, the petition may be admitted by the
Court. If the petition for certiorari under Rule 65 cannot be filed within said reasonable period,
then a motion for extension of time do so is necessary. It is in petitions for review by certiorari
under Rule 45, as a mode of appeal, where a specific reglementary period is imposed and by
reason of which a motion for extension is indispensable if the petition cannot be seasonably
filed. Consequently, private respondent's motion to deny admission of petition at bar is hereby
denied.

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As of this time, private respondent has not filed his comment. On its part, public respondent
NLRC, though the Solicitor General, filed its comment on October 19, 1994. In the interest of
expedient adjudication of this case, and since the submissions of petitioner and public
respondent sufficiently present the issues and respective arguments of the contending sides, we
will dispense with the comment of private respondent and proceed to decide this controversy.
The instant petition involves the dismissal of private respondent Eduardo Maturan, a bank teller
of petitioner bank's General Santos City branch, whose services were terminated on July 18,
1991 allegedly for incurring a cash shortage in the amount of P10,000.00, for failure to return the
P8,000.00 cash withdrawal of a client, Rebecca Salud, and for extending unauthorized
accommodations to clients. A complaint for illegal dismissal was filed before the NLRC SubRegional Arbitration Branch No. XI in General Santos City which thereafter rendered a
decision, 1 dated May 7, 1992, declaring herein petitioner guilty of illegal dismissal and ordering
the reinstatement of respondent Maturan to his former position without loss of seniority rights
and privileges, and with payment of his back wages, allowances and other benefits from the time
of his illegal dismissal until promulgation of the decision, moral and exemplary damages, and
attorney's fees.
In so ruling, the labor arbiter declared that the penalty of dismissal is too harsh considering that
it had not been shown that private respondent had acted in bad faith and with malice; that, on
the contrary, if respondent was really guilty, he would not have resorted to "client checking"
because it would only expose his anomaly, whereas he could just have immediately declared the
amount he supposedly abstracted as cash shortage; that the shortage had already been paid for;
and that respondent's dismissal is irregular in that it was "union motivated," plus the fact that it
took some time before respondent's immediate superiors and other bank officers actually
conducted an investigation on the matter.
On appeal, public respondent NLRC rendered a resolution 2 promulgated on March 8, 1993 which
reversed and set aside the decision of the labor arbiter, declaring as valid the dismissal of
respondent and, accordingly, dismissing the complaint for lack of merit. However, said resolution
was subsequently reconsidered and modified in another resolution 3 of the same commissioners
promulgated on December 15, 1993, with the following dispositive portion:
WHEREFORE, premises considered, the resolution of the Commission dated March 8, 1993 is
hereby Modified in the sense that respondent bank is hereby ordered to reinstate
complainant but without backwages from the time he was terminated up to the promulgation
of the decision of the Labor Arbiter. Complainant shall be reinstated to a comparable position
like that of a Customer Relations Assistant in lieu of the position of a teller. In case
reinstatement is no longer feasible, the determination of which is tasked to the Labor Arbiter
below during the execution stage, complainant is entitled to separation pay fixed in the
amount of one (1) month salary, inclusive of other fringe benefits based on his latest salary
for every year of service, a fraction of six (6) months to be considered as one (1) whole year.
In the alternative, complainant may be allowed to avail of the company retirement plan if he
qualifies, or whichever has greater benefits.
Finally, respondent is further ordered to pay complainant his accrued backwages from the
time it was withheld during the pendency of the appeal up to the rendition of this judgment.
No costs.
Hence, this petition wherein it is basically contended that respondent NLRC acted arbitrarily and
with grave abuse of discretion in rendering its aforequoted modified resolution, on the
arguments summarized as follows:

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1. Petitioner avers that the P10,000.00 shortage incurred by respondent Maturan was
attended
by
several
irregularities,
such
as:
(a) respondent's failure to rotate/reassign his cash box from August 11 to August 17, 1989; (b)
the discrepancy of the teller's summary with the teller's ticker tape; (c) the respondent's
failure to list the unsorted bills at the back of Summary of Teller's Transactions and Debits
Cash Account Slips; (d) alterations/corrections on the Teller's Blotter were not approved by the
cashier or any officer; (e) keeping money/valuables in his drawer instead of turning them over
to the cashier. Hence, petitioner's loss of trust and confidence in him was justified. This was
affirmed by no less than the NLRC when it stated that "(c)omplainant, however, may not be
reinstated to his former position as teller since management, as we have already pointed out,
had valid grounds to lose trust and confidence in him on said position formerly held. He may
be reinstated to a comparable position that does not involve cash transactions like that of
Customer Relations Assistant which he held when he was suspended pending his
investigation." Petitioner counters that even as Customer Relations Assistant, respondent will
still be handling cash deposits for newly opened accounts. Hence, dismissal is just and proper
under the circumstances.
The NLRC initially found that respondent had repeatedly violated the Company Code of
Discipline which prohibits and penalizes with dismissal the foregoing irregular transactions.
But, despite the absence of new evidence, it reversed itself and declared in its questioned
resolution that such failure to properly observe banking rules and procedures does not
necessarily mean that he intended to commit fraud.
2. As to the P8,000.00 of Rebecca Salud, respondent NLRC declared in its earlier decision that
respondent Maturan misled the labor arbiter and the commission in claiming that the
P8,000.00 was deposited by Salud herself by adding P2,000.00 so as to make it appear that it
represents the P10,000.00 deposited by Salud on August 17, 1989 when, in truth and in fact,
the ledger account of Salud disclosed otherwise. The NLRC further held that the restitution of
the missing amount did not absolve respondent Maturan from administrative liability. Yet,
petitioner avers, the NLRC later ruled in its questioned resolution that dismissal was too harsh
a penalty. Besides, according to petitioner, Miss Salud has never admitted that the P8,000.00
has already been returned to her. In fact, respondent Maturan visited Miss Salud to plead with
her so that she could falsely admit that the P8,000.00 was part of the P10,000.00 deposited to
her account.
3. The findings of respondent NLRC that the accommodations extended to Rebecca Salud was
encouraged or tolerated by management and, in fact was equally extended by bank officers to
other parties, is allegedly not supported by substantial evidence. Accommodations require the
approval of the bank but, in the case of respondent, the accommodations he made were in
violation of banking rules and procedure.
As a whole, these numerous infractions and acts of dishonesty prompted petitioner to dismiss
herein respondent. Petitioner cites the ruling in Allied Banking Corporation vs. Castro, et
al. 4 which held that "(a) bank teller is entrusted with considerable sums of money. The teller
as trustee is expected to possess a high degree of fidelity and trust. The repeated and
numerous infractions committed by the private respondents in handling the moneys entrusted
to them as tellers cannot be considered minor. Taking into account the nature of a teller's job,
the infractions are too numerous to be ignored or treated lightly. The repeated acts of
misconduct and willful breach of trust forfeited the respondent's right to security of tenure."
Petitioner hastens to add that loss of confidence is a valid ground for dismissing an employee
and proof beyond reasonable doubt of the employee's misconduct is not required.

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4. The considerable length of time that respondent has served the bank becomes of no
moment when compared with the numerous violations that respondent has committed. "The
infraction that he committed, vis-a-vis his long years of service with the company, reflect a
regrettable lack of loyalty. If an employee's length of service is to be regarded as a justifying
circumstance in moderating the penalty of dismissal, it will actually be a prize for disloyalty,
perverting the meaning of social justice and undermining the efforts of labor to cleanse its
ranks of all undesirables." 5 Petitioner notes that even in its first resolution, respondent NLRC
has likewise ruled that loss of trust and confidence justifies dismissal.
Since his dismissal is justified, respondent is not entitled to reinstatement, backwages, or
separation pay. The doctrine that employees dismissed for cause are entitled to separation
pay on the ground of social and compassionate justice has been abandoned. 6
5. Assuming arguendo that dismissal is not proper, the relationship between petitioner and
respondent has been so severely strained by reason of their respective imputations of bad
faith that reinstatement is no longer prudent. Instead, respondent will just be entitled to
separation pay so that he can be spared the agony of having to work anew with the employer
under an atmosphere of antipathy and antagonism and the employer does not have to endure
the continued services of the employee in whom it has lost confidence. 7 At any rate,
petitioner would rather pay separation pay to respondent than reinstate him.
Petitioner likewise questions the payment of backwages during the pendency of the appeal up
to the rendition of the resolution of December 15, 1993 on the ground that the NLRC has
initially declared the dismissal of respondent as legal. Where the employee's dismissal was for
a just cause, it would be neither fair nor just to allow the employee to recover something that
he has not earned or could not have earned. 8
The aforecited case of Allied Banking Corporation vs. Castro, et al., which upheld the dismissal of
the bank teller due to numerous infractions committed by him, is not applicable to the present
case of herein respondent Maturan. In that case, the bank tellers there were found to have
incurred several shortages on various dates (around 11 to 12 incidents were reported) within a
span of 5 to 7 months; there were 2 to 4 reported incidents of overages incurred within a period
of 4 months; they allowed encashment of checks over the counter without verification of the
drawer's signature and without the approval of authorized officers; and they did not comply with
instruction of their superiors to report to Central Bank Cash Units. These offenses justified the
dismissal of the employees concerned.
On the contrary, respondent Maturan was involved in a single incident of cash shortage in the
amount of P10,000.00. By petitioner's own admission, the last shortage incurred by respondent
prior to this incident was way back in January, 1988. 9 As correctly found by the labor arbiter,
respondent is not a habitual violator, which undesirable category would have warranted
his dismissal. 10 This is aside from the similar findings made by the labor arbiter and respondent
NLRC that the dismissal was caused by respondent's active involvement in union activities.
Consequently, it is justifiedly believed that the dismissal of the private respondent is not
warranted under the circumstances.
Furthermore, in the aforesaid Allied Banking Corporation case, there was a provision in the
collective bargaining agreement which granted a yearly allowance for tellers to cover shortages
which they may incur during the year. Thus, the NLRC held that this, in effect, is a recognition
that among the hazards of tellers is the incidence of shortages and overages up to a certain
limit. This very provision, therefore, is a clear indication that such errors are understandingly
viewed and forgiven provided they do not go beyond the allowable limit.

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The ruling therein supports the labor arbiter's observation that "(i)n (t)ellering, (r)egardless of
how long one has been in the trade, and how careful one is, there is no guarantee that one can
never incur cash shortage or overage. No teller for that matter can testify that in his stint as
such, everyday his actual cash on hand always tallies with the figure appearing in the teller's
validating machine tape as the 'should be cash on hand'. Cash shortages and overages are but
ordinary and normal banking activities." As a matter of fact, it is not disputed that there were
other shortages or overages incurred by the other tellers in petitioner's General Santos City
branch at about the same time that this particular infraction of private respondent occurred. 11
We must add, however, that these occurrences are subject to certain limitations, depending on
the amount involved as well as the number and the gravity of the infractions. As earlier
explained, we do not find the infraction committed by private respondent to be so grave as to
warrant his dismissal. We are not even inclined to conform with the penalty imposed by
respondent NLRC, that is, the non-payment of back wages from the time of respondent's
dismissal up to the rendition of the decision of the labor arbiter (or from July 18, 1991 to May 7,
1992), considering that he has already paid, through salary deductions, the amount of
P10,000.00. Moreover, this mode of payment was even recommended for approval by no less
than the Manager, Mr. Cubar 12 and, as the records reveal, it can be safely assumed that the
same was approved because the amount was fully paid by respondent on March 28, 1990. The
imposition of a penalty is, therefore, unwarranted.
The labor arbiter and respondent NLRC uniformly found that the missing P8,000.00 of Rebecca
Salud was included in the P10,000.00 deposit reflected in her account ledger. This is a factual
finding which cannot be disturbed unless shown to have been made with grave abuse of
discretion but which, apparently, is absent in this case. Furthermore, the manner by which
private respondent dealt with the missing money only serves to emphasize his good faith.
Thus, as cogently(clearly;strongly) observed by the Solicitor General in his comment:
The record clearly bears out that Salud went to the bank on August 17, 1989 and that she
made a check deposit of P1,250.00 and two cash deposits of P10,000.00 and P11,200.00 that
same day . . . . As a businesswoman who dealt with the bank on a regular basis and who
particularly went to the bank on August 17 to make deposits, she surely would not have
forgotten to include in her transactions the P8,000.00 which she left with respondent Maturan
the day before. But more than a month later, she conveniently claims that the P8,000.00 had
not been credited to her savings account. . . . Respondent Maturan had already demonstrated
his honesty by not appropriating for himself the P8,000.00 which Agustin Bass had already
acknowledged having received and by admitting to Rebecca Salud that he was keeping the
P8,000.00 for her. 13
To be a valid ground for dismissal, loss of trust and confidence must be based on a willful
breach of trust. 14 And, as realistically stressed by the Solicitor General, unless based on a
ground provided by law and supported by substantial evidence, dismissal will be disallowed,
for what is at stake is not only the employee's position, but also his means of
livelihood. 15 Considering that private respondent was acting in good faith, his dismissal would
run counter to such established doctrinal rulings.
Finally, there is the issue as to the long delay in the investigation of the incident and in effecting
the dismissal of respondent only on July 18, 1991, or two years after the commission of the
infraction on August 16, 1989. The Solicitor General ably summed up the suspicious and irregular
circumstances which attended the dismissal of respondent, to wit:

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1. On August 28, 1989, respondent Maturan started paying for the shortage of P10,000.00 he
incurred on August 16, 1989;
2. On September 18, 1989, he was mysteriously required by Susana Go to again explain the
shortage;
3. On September 20, 1989, he was summoned by Porfirio Cubar with whom he had a heated
argument regarding the unauthorized accommodations given to Rebecca Salud;
4. On September 21, 1989, Go reported to Cubar that the circumstances surrounding the
shortage were anomalous and irregular;
5. On September 25, 1989, forty days after the shortage was incurred, Cubar ordered
respondent to explain within 24 hours why no disciplinary action should be taken against him
for the P10,000.00 shortage;
6. On October 11, 1989, respondent Maturan met with an investigating committee which
decided that a special investigation team will conduct an audit of all cash shortages incurred
by the tellers of the General Santos Branch and will look into the complaints of respondent
Maturan who claimed that he was being harassed and intimidated by some bank officials;
7. On October 13, 1989, in a separate report, officials of petitioner's General Santos Branch
submitted to PCIB Vice-President for Consumer Operations, Cristino Panlilio, a report detailing
the irregularities and violations allegedly committed by respondent Maturan which attended
the P10,000.00.
8. On October 20, 1989, an audit was conducted where respondent Maturan was made to
answer a series of questions in a questionnaire on the shortage of P10,000.00 incurred by
him on August 16, 1989, and on the P8,000.00 of Rebecca Salud which the latter personally
deposited, in addition to P2,000.00, into her savings account;
9. On March 1, 1990, respondent Maturan was given a loyalty award, a loyalty bonus of
P4,733.00 and a PCIB ring for having completed 15 years of continued service with the bank;
10. On March 28, 1990, the shortage of P10,000.00 was fully paid by respondent Maturan;
11. On July 31, 1990, respondent Maturan was made a full-(f)ledged Customer Relations
Assistant with a corresponding salary increase . . . retroactive to October 3, 1989;
12. Within a period of almost nine months, respondent Maturan as a PCIBEU Union Steward was
pursuing the grievances and complaints of union members on the irregular banking
transactions and practices allegedly perpetrated by PCIB Accountant Susan Go and PCIB
Cashier Rita Aquino . . . ;
13. On April 22, 1991, respondent Maturan was informed that the Mindanao Division Committee
of petitioner will convene on May 9, 1991, to discuss the shortage of P10,000.00 incurred by
him last August 16, 1989, 16
14. On May 9, 1991, a meeting was held where the investigating committee recommended the
dismissal of respondent Maturan;

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15. On July 18, 1991, respondent Maturan was dismissed by petitioner PCIB, after a lapse of
almost two years (23 months and 2 days) from the time he incurred the P10,000.00
shortage. 17
Even the labor arbiter expressed surprise over the much delayed reaction of the bank officials
concerned over the shortage incurred by private respondent, thus:
. . . What is surprising is the very much delayed reaction on of Actg. Cashier Susan Go and
SM Cubar over the shortage of complainant. The shortage was incurred August 16, 1989, it
was only on September 18, 1989 that complainant was made to explain by Actg. Cashier
Susan Go (the very officer who counter-checked the steps undertaken by complainant in
tracing and establishing his shortage . . . , the circumstances of the shortage, and was
required the same by SM Cubar on Sept. 25, 1989. There was already bad intent on the part
of Actg. Cashier Susan Go, when an attempt was made to alter the date of her memo Annex
E from September 18 to August 18, 1989. Likewise, SM Cubar could have required an earlier
explanation and investigation of the case, he having earlier knowledge of the shortage, as
manifested by his recommendation for approval of the mode of paying the shortage as
proposed by complainant on August 21, 1989 . . . . 18
It is quite interesting and significant that the findings of the labor arbiter and respondent NLRC to
the effect that private respondent's dismissal was by reason of or related to his union activities
were not categorically refuted by petitioner. Neither were the allegations of harassment and
intimidation committed on private respondent by bank officers Go and Cubar ever denied.
To conclude, we hold that there is grossly insufficient evidence to warrant the dismissal of private
respondent on the ground of loss of trust and confidence. We are convinced, however, that the
filing of the complaint for illegal dismissal and the protracted proceedings with confrontational
exchanges therein between the parties have now evidently strained their erstwhile harmonious
relationship. The reinstatement of private respondent would, in our view, no longer be beneficial
to either party. An award of back salaries and severance pay in lieu of reinstatement would thus
appear to be in order. 19
WHEREFORE, the challenged resolution of public respondent National Labor Relations
Commission is hereby MODIFIED, and petitioner Philippine Commercial International Bank (PCIB)
is ordered to pay private respondent Eduardo Maturan (1) backwages from the time of his illegal
dismissal until the rendition of the questioned resolution of public respondent, that is, from July
18, 1991 up to and including December 13, 1993; and (2) separation pay in the amount of one
month's salary for every year of service, inclusive of other fringe benefits based on his latest
salary, a fraction of six months to be considered as one whole year. In all other respects, the
aforesaid resolution is hereby AFFIRMED.
SO ORDERED.

G.R. No. 160618

November 2, 2006 THIRD DIVISION
DENNIS D. SY, Petitioner, vs. METROPOLITAN BANK & TRUST COMPANY, Respondent.
D E C I S I O N - QUISUMBING, J.:
For review on certiorari is the Decision1 dated June 7, 2002 of the Court of Appeals in CA-G.R. SP
No. 68149, which reinstated the Decision2 dated June 19, 2000 of the Labor Arbiter dismissing
petitioners complaint for illegal suspension, illegal dismissal, and money claims.
The pertinent facts are as follows:
Petitioner Dennis D. Sy, herein substituted by his heirs Soledad Y. Sy, Ronald Allan Y. Sy, and
Melinda S. Pompenada, was the branch manager in Bajada, Davao City, of respondent
Metropolitan Bank and Trust Company.
Under the banks Retirement Plan, an employee must retire upon reaching the age of 55 years or
after rendering 30 years of service, whichever comes first. Sy would have rendered 30 years of
service by August 18, 1999. 3However, on February 5, 1999, he was reappointed as branch
manager for a term of one year starting August 18, 1999 until August 18, 2000. 4 His monthly
compensation was accordingly increased from P50,400 to P54,500, effective August 16, 1999.5
Meanwhile, on November 10 and 15, 1999, the bank released the results of the audit conducted
in its Bajada branch. On November 15, 1999, Sy tendered an irrevocable letter of retirement. 6 In

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his letter, he requested the timely release of his retirement pay and other benefits. His request
was denied.7
The bank alleged that Sy allowed spouses Gorgonio and Elizabeth Ong to conduct "kiting"
activities in their account with the bank, to wit:
1. Approving DBP accommodations beyond the authority limits established by Management;
2. Approving DBP accommodations against accounts already found to be engaged (sic) in
irregular and unsound banking practice;
3. Releasing/renewing loans without Head Office approval;
4. Allowing persons other than the depositor to purchase Cashiers Checks without authority;
5. Ignoring previous Banks warning to discontinue granting such accommodations; and
6. Debit of the depositors account as payment for the purchase of Cashiers Check without
conformity or authority.8
Thus, the bank placed Sy under preventive suspension and gave him 48 hours to submit a
written explanation. In response, Sy wrote a letter explaining that he only made a wrong credit
judgment.9 Not satisfied with his answer, the bank notified Sy of other alleged violations of
company policies, to wit:
1. Granting of DBP-Clean accommodations totaling [P9.11M] from March to April 1999 to Sps.
Samuel Aquino and Charito Sy-Aquino, your [brother-in-law] and sister, respectively. This is
in patent abuse of authority as you have knowledge that your branchs lending authority has
been suspended since January 1998.
2. Purchasing checks, Philam Bank and Bank of Commerce under Account Nos. 001103-00467
and 00-9014-31103-4 which are payable to Landcraft Transport Services a company owned
by your aforementioned relatives. Please note that the signatories to the said checks are
also your aforementioned sister and [brother-in-law]. This has allowed your relatives to
conduct kiting activities through your branch with your knowledge and consent. 10
In reply, Sy explained in writing that the accommodation granted to spouses Samuel Aquino and
Charito Sy-Aquino was only P650,000, not P9.11M as claimed by the bank. He added that the
spouses even offered a parcel of land as collateral and were willing to sell a vehicle in settlement
of their obligation with the bank.11
Unconvinced, the bank dismissed Sy on December 15, 1999. The termination letter reads in part:
SPS. GORGONIO & ELIZABETH ONG ACCOUNT
1. Your wanton violations of Bank rules as stated in our November 17, 1999 letter have allowed
the above clients to do kiting activities in your branch and have resulted to a possible loss of
over TEN MILLION PESOS (P10,000,000.00)
2. The account has already become past due and the clients involved have already absconded.
SPS. SAMUEL & CHARITO SY-AQUINO (Your Brother-in-law And Sister)
1. As stated in our letter dated December 3, 1999 evidence shows that you have allowed your
brother-in-law and sister to conduct kiting activities through your branch. Their DBP
accommodations of SIX HUNDRED FIFTY THOUSAND PESOS (P650,000.00) rolled over daily
from March to April 1999 accumulates to over NINE MILLION PESOS (P9,000,000.00);
2. The above account has already become past due in the principal amount of SIX HUNDRED
FIFTY THOUSAND PESOS (P650,000.00).12

10
Sy filed against the bank a complaint for illegal suspension, illegal dismissal and money claims,
docketed as RAB-11-01-00024-0. However, the Labor Arbiter dismissed the case for lack of
merit.13
On appeal, the National Labor Relations Commission (NLRC) deemed Sy compulsorily retired.
Thus, the NLRC awarded him retirement benefits, unpaid salary, monetary value of unused leave
credits, 13th month pay, Christmas bonus, and refund of provident fund.
The parties sought reconsideration, which were both denied for lack of merit. Respondent bank
elevated the matter to the Court of Appeals, which set aside the ruling of the NLRC and
reinstated the Decision of the Labor Arbiter. On motion for reconsideration, however, the Court of
Appeals modified its ruling and ordered the bank to reimburse Sys contribution to the provident
fund.14
Hence, the instant petition raising the following issues:
(1) WHETHER OR NOT AN EMPLOYEE WHOSE COMPULSORY RETIREMENT DATE HAD ALREADY ELAPSED CAN
STILL BE DISMISSED FROM HIS EMPLOYMENT BY HIS EMPLOYER?
(2) WHETHER OR NOT, IF AN EMPLOYEES SERVICE WAS UNILATERALLY EXTENDED BY HIS EMPLOYER
BEYOND HIS COMPULSORY RETIREMENT DATE, THEN SUBSEQUENTLY HE WAS DISMISSED, HIS
DISMISSAL WOULD PERTAIN TO THE "EXTENDED PERIOD" ONLY OR ALSO TO HIS PREVIOUS TENURE OF
EMPLOYMENT FROM WHICH HE WAS SUPPOSED TO COMPULSORILY RETIRE?
(3) WHETHER OR NOT THE EMPLOYMENT OF AN EMPLOYEE WHO IS MERELY PLACED UNDER PREVENTIVE
SUSPENSION IS DEEMED SEVERED?
(4) WHETHER OR NOT METROBANK IS IN ESTOPPEL CONSIDERING THAT IT UNILATERALLY EXTENDED
DENNIS SYS SERVICE BY REASON OF HIS EXEMPLARY PERFORMANCE, AND ON AUGUST 16, 1999 (I.E.
TWO DAYS BEFORE DENNIS SYS COMPULSORY RETIREMENT DATE AUGUST 18, 1999) IT INCREASED
DENNIS SYS COMPENSATION?
(5) WHETHER OR NOT AN EMPLOYEE CAN BE DEPRIVED OF HIS RETIREMENT BENEFITS AND OTHER FRINGE
BENEFITS AFTER RENDERING THE 30-YEAR EMPLOYMENT, A CONDITION SINE QUA NON FOR
COMPULSORY RETIREMENT AS STIPULATED IN HIS EMPLOYERS RETIREMENT PLAN? 15

Petitioner Sy contends that his dismissal pertains solely to his extended one-year term of
employment and should not affect the benefits owing to his 30-year tenure. He points out that
the reappointment letter itself separates his 30-year tenure from his extended employment by
providing that, except for retirement benefits, he was to enjoy the benefits of a regular
employee, thus:
We are pleased to inform you of your [reappointment] for another term from August 18, 1999 to
August 18, 2000.
You will continue to enjoy the benefits of a regular employee except for retirement benefits. 16
He adds that his extension was at the instance of the bank, which was a violation of its own
retirement policy. He also claims that the alleged anomalous transactions were not at all
prohibited, but were allowed on a case-to-case basis; they were, at worst, simple errors of
judgment on his part.

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Respondent bank, however, counters that petitioner Sy committed acts of fraud, dishonesty, and
willful breach of the trust reposed in him, justifying his dismissal. Further, it argues that Sys
reappointment was not a unilateral act, but a consensual agreement to extend his employment.
Lastly, the bank posits that since his termination was for a just cause, which transpired prior to
his retirement, the forfeiture of his retirement benefits was but proper.
Simply put, the issues are: (1) Was petitioner illegally terminated? (2) If his dismissal
was valid, would he still be entitled to retirement benefits?
We hold that petitioner Sy was validly dismissed on the ground of fraud and willful breach of
trust under Article 282 of the Labor Code.17 Records show that as bank manager, he authorized
"kiting" or drawing of checks against uncollected funds18 in wanton violation of the banks
policies.19 It was sufficient basis for the bank to lose trust in him.
Unlike a rank-and-file worker, where breach of trust as a ground for valid dismissal requires proof
of involvement in the alleged anomaly and where mere uncorroborated accusation by the
employer will not suffice, the sheer existence of a basis for believing that the employers trust
has been breached is enough for the dismissal of amanagerial employee.20
Petitioners conduct betrays his culpability. Shortly after the audit conducted in the Bajada
branch, he tendered an "irrevocable letter of retirement." In the said letter, he requested that his
retirement be made effective December 1, 1999. Said request arouses suspicion considering that
he had previously agreed to the extension of his employment as branch manager until August
18, 2000. Petitioners evident failure to offer any reasonable explanation for such sudden shift in
his plans is prejudicial to his cause.
As for the requirement of due process, records21 show that it has been fully satisfied in the
instant case. The bank had complied with the two-notice requirement, i.e.: (a) a written notice of
the cause for his dismissal to afford him ample opportunity to be heard and to defend himself
with the assistance of counsel, if he so desires; and (b) a written notice of the decision to
terminate him, stating clearly the reason therefor. 22
Petitioner, however, theorizes that having been compulsorily retired, he could no longer be
dismissed by the bank. His premise is absurd. Indeed, he would have qualified for compulsory
retirement under the banks Retirement Plan. However, he opted to accept the banks offer of
extending his employment for another year with a corresponding salary increase. Thus, in effect,
he had never retired. Unfortunately for him, while serving such extended term, the bank
discovered his unauthorized grant of accommodation to accounts engaged in "kiting" activity.
Such act is a clear breach of the trust reposed in him by the bank. He cannot now elude
dismissal for a just cause by claiming he was already retired compulsorily.
Is petitioner nevertheless entitled to retirement benefits?
Under the Labor Code, only unjustly dismissed employees are entitled to retirement benefits and
other privileges including reinstatement and backwages.23 Since petitioners dismissal was for a
just cause, he is not entitled to any retirement benefit. To hold otherwise would be to reward acts
of willful breach of trust by the employee. It would also open the floodgate to potential
anomalous banking transactions by bank employees whose employments have been extended.
Since a banks operation is essentially imbued with public interest, it owes great fidelity to the
public it deals with. In turn, it cannot be compelled to continue in its employ a person in whom it
has lost trust and confidence and whose continued employment would patently be inimical to

12
the banks interest.24 While the scale of justice is tilted in favor of workers, the law does not
authorize blind submission to the claim of labor regardless of merit.
While the Court commiserates with petitioner who has spent with the bank the best three
decades of his employable life, we find no room to accord him compassionate justice. Records
showed that he violated the bank policies prior to his compulsory retirement. 25 Thus, there can
be no earned retirement benefits to speak of. No such provision is provided for by the Labor
Code. In fact, even the Civil Service Law imposes forfeiture of retirement benefits in valid
dismissal cases.26
Notably, the Court has also disallowed claims for retirement benefits in valid dismissal
cases because the retirement plan itself precluded employees dismissed for cause from availing
it.27 Although no such prohibition in the retirement plan was alleged or proved in this case, we
nevertheless deny petitioners claims because his offenses, vis--vis his long years of service
with the bank, reflect a regrettable lack of loyalty which he should have strengthened instead of
betrayed.28

WHEREFORE, the petition is hereby DENIED. The Decision dated June 7, 2002 of the
Court of Appeals in CA-G.R. SP No. 68149, which reinstated the Decision dated June 19,
2000 of the Labor Arbiter, is AFFIRMED together with the Court of Appeals Resolution
dated September 30, 2003 thereby ordering the respondent bank to reimburse
petitioners contribution to the provident fund. No pronouncement as to costs.
SO ORDERED.

G.R. No. 156367

May 16, 2005 SECOND DIVISION
AUTO BUS TRANSPORT SYSTEMS, INC., petitioner, vs. ANTONIO BAUTISTA, respondent.
D E C I S I O N - CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari assailing the Decision1 and Resolution2 of the
Court of Appeals affirming the Decision3 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, Baguio- Tuguegarao 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.

13
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.
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.
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.
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:
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:
a. his 13th month pay from the date of his hiring to the date of his dismissal, presently
computed at P78,117.87;
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:
[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.
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.
WHEREFORE, the Decision dated 29 September 2000 is MODIFIED by deleting the award of
13th month pay. The other findings are AFFIRMED.6

14
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.
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, premises considered, the Petition is DISMISSED for lack of merit; and the
assailed Decisionof respondent Commission in NLRC NCR CA No. 026584-2000 is hereby
AFFIRMED in toto. No costs.7
Hence, the instant petition.
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--visSection 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

15
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
Association10 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 once-a-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.

16
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. For if the cause of action accrued more than three (3) years before the filing of the
money claim, said cause of action has already prescribed in accordance 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. 15Furthermore, 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

17
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.
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.
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.

18
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.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

G.R. No. 161366

June 16, 2009 FIRST DIVISION
SYCIP, GORRES, VELAYO & COMPANY, Petitioner, vs. CAROL DE RAEDT, Respondent.
D E C I S I O N - CARPIO, J.:
The Case
Before the Court is a petition for review 1 challenging the 7 October 2003 Decision2 and 17
December 2003 Resolution3 of the Court of Appeals in CA-G.R. SP No. 59916. The Court of
Appeals reversed the 16 February 2000 Decision 4 of the National Labor Relations Commission
and partially reinstated the 14 July 1999 Decision 5 of Labor Arbiter Monroe C. Tabingan holding
that respondent Carol De Raedt (De Raedt) was illegally dismissed by petitioner Sycip, Gorres,
Velayo & Company (SGV).
The Facts
Sometime in June 1989, the Philippine Government and the Commission for European
Communities (Commission) entered into a Financing Memorandum whereby the Commission
undertook to provide financial and technical assistance for the implementation of rural micro
projects in five provinces of the Cordillera area in Northern Luzon. Consequently, the Central

19
Cordillera Agricultural Programme (CECAP) project was launched to be implemented by the
Department of Agriculture (DA).
On 22 May 1989, the DA contracted Travers Morgan International Ltd. (TMI) to provide the
required technical assistance services for CECAP.
On 1 July 1989, TMI and SGV entered into a Sub-Consultancy Agreement for the latter to
undertake part of the technical assistance services requirements of the CECAP. SGV would
provide for the Technical Assistance Services. Hence, SGV proposed qualified consultants as
defined by the Terms of Reference.
The acceptance and appointment of the proposed consultants to the project were subject to the
unanimous approval of the TMI, the DA and the Commission. For the position of Sociologist, SGV
proposed Felino Lorente (Lorente). However, Thomas Gimenez (Gimenez) of the DA disputed the
qualifications of Lorente and recommended instead De Raedt.
Martin Tull (Tull) of TMI replied to Gimenez that TMI would consider De Raedt for the sociologist
position. Thus, Gimenez volunteered to call De Raedt to advise her of a possible assignment to
the CECAP.
Eventually, the DA advised SGV that De Raedts nomination, among others, had been approved
by the Commission and the DA and that she was expected to start her assignment on 3 July
1989.
On 6 July 1989, De Raedt wrote SGV expressing her conformity to the consultancy contract, thus
she was advised to sign the same. De Raedt signed the contract on 14 July 1989 but her start-up
date with the CECAP was moved to 15 August 1989 with the approval of the DA because she was
in Thailand to finish an assignment.
While the CECAP was in progress, TMI received verbal and written complaints from the project
staff regarding De Raedts performance and working relations with them.
An investigation was then conducted by the TMI on the above complaints. Thereafter, the TMI
confirmed that De Raedts retention would be counter-productive to the progress of the project
because a number of project staff found it difficult to work with her. Thus, the TMI directed SGV
to withdraw De Raedt from the CECAP.
In compliance with TMIs instructions, SGV facilitated De Raedts withdrawal from the CECAP.
De Raedt filed a case against SGV for illegal dismissal and damages before the Arbitration
Branch of the NLRC.
The Labor Arbiter rendered a decision in favor of De Raedt.
SGV appealed the decision of the Labor Arbiter to the NLRC, which rendered judgment in favor of
SGV.
De Raedt filed a petition for certiorari with the Court of Appeals, which reversed the NLRC in a
Decision promulgated on 7 October 2003.
SGV filed a motion for reconsideration, which was denied by the Court of Appeals in its
Resolution dated 17 December 2003.
Hence, this petition.

The Ruling of the Labor Arbiter

The Labor Arbiter found De Raedt as an employee of SGV. How she conducted herself and how
she carried out the project were dependent on and prescribed by SGV and TMI, respectively. The

20
Labor Arbiter further ruled that SGV is considered as the employer of De Raedt since it acted
indirectly in the interest of TMI, the entity directly in-charge of the CECAP project for which De
Raedt was hired. Moreover, the Labor Arbiter found SGV as the entity which is the source of De
Raedts income and other benefits.1avvphi1
The Labor Arbiter found no sufficient valid ground to terminate De Raedts services although
procedural due process was observed. The dispositive portion of the 14 July 1999 Decision of the
Labor Arbiter reads:
WHEREFORE, judgment is hereby rendered declaring complainant to have been illegally
dismissed by respondent. Consequently, respondent Sycip, Gorres & Velayo and Co. is hereby
ordered to pay complainant the following:
a) Unpaid salaries corresponding to the unexpired portion of the contract in the amount of Eight
Hundred Two Thousand (P802,000.00) Pesos;
b) Moral damages in the amount of Two Hundred Fifty Thousand (P250,000.00) Pesos;
c) Exemplary damages in the amount of One Hundred Thousand (P100,000.00) Pesos;
d) 10% of the total award as attorneys fees amounting to One Hundred Fifteen Thousand Two
Hundred Pesos (P115,200.00).
The computations of which are hereto attached as Annex "A" and made an integral part hereof.
SO ORDERED.6

The Ruling of the NLRC

The NLRC reversed the ruling of the Labor Arbiter and found that there was no employeremployee relationship between SGV and De Raedt.
The NLRC agreed with the Labor Arbiters finding that SGV had no discretion in the selection of
De Raedt for the position of Sociologist in the CECAP. The selection was made by the TMI, upon
recommendation of Gimenez of the DA, to be approved by the DA and the Commission. The
engagement of De Raedt was coursed through SGV.
The payment of De Raedts service fee was done through SGV but the funds came from the TMI
as shown by SGVs billings to TMI for De Raedts professional fee.
As regards the power of dismissal, SGV merely implemented TMIs instructions to withdraw De
Raedt from the CECAP.
The NLRC found that SGV did not exercise control over De Raedts work. The Sub-Consultancy
Agreement between TMI and SGV clearly required De Raedt to work closely with and under the
direction and supervision of both the Team leader and the Project Coordinator.
Hence, SGVs participation is to merely monitor her attendance, through time records, for the
payment of her retainer fee and to validate the time she expended in the project with her written
reports.
The following circumstances also indicated that no employment relationship existed between the
parties: (1) De Raedt was engaged on a contract basis; (2) the letter-agreement between the
parties clearly states that there is no employer-employee relationship between the parties and
that De Raedt was at all times to be considered an independent contractor; and (3) De Raedt
was allowed to engage in other employment during all the time she was connected with the
project.
The dispositive portion of the 16 February 2000 Decision of the NLRC reads:
WHEREFORE, premises considered, the assailed decision of the Labor Arbiter is REVERSED and
SET ASIDE and the complaint is DISMISSED for lack of jurisdiction.

21
SO ORDERED.7

The Ruling of the Court of Appeals

The Court of Appeals reversed the ruling of the NLRC and reinstated the decision of the Labor
Arbiter insofar as the latter found De Raedt as an employee of SGV.
The Court of Appeals found that based on the letter-agreement between the parties, SGV
engaged De Raedt for the project on a contract basis for 40 months over a period of five years
during which she was to work full time. She could not engage in any other employment. In fact,
she had to resign from her teaching job at the University of the Philippines. She could not leave
her place of assignment without SGVs consent. She must maintain an accurate record of the
time she spent on the job, and prepare reports which may be required by her team leader and
SGV. Whether actual supervision of her work had turned out to be minimal or not, SGV reserved
the right to exercise it at any time. Further, SGV asserted its right to terminate her services. 8
The Court of Appeals found that De Raedt was removed from the project because of personality
differences, which is not one of the grounds for a valid dismissal of an employee. 9
The dispositive portion of the 7 October 2003 Decision of the Court of Appeals reads:
IN VIEW OF THE FOREGOING, the assailed decision of the NLRC dated February 16, 2000 is
REVERSED, and a new one ENTERED partially REINSTATING the Decision of Labor Arbiter Monroe
Tabing[a]n on July 14, 1999, by affirming paragraph (a) thereof, deleting paragraph (b) and (c),
and reducing the award of attorneys fees in paragraph (d) to 5% of the principal award.
SO ORDERED.10

The Issue

The issue in this case is whether De Raedt was an employee of SGV. If so, whether De
Raedt was illegally dismissed by SGV.
The Ruling of the Court
The petition is meritorious.
The existence of an employer-employee relationship is ultimately a question of fact. As a general
rule, factual issues are beyond the province of this Court. However, this rule admits of
exceptions, one of which is where there are conflicting findings of fact, such as in the present
case. Consequently, this Court shall scrutinize the records to ascertain the facts for itself. 11
To determine the existence of an employer-employee relationship, case law has consistently
applied the four-fold test, to wit: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employers power to control the
employee on the means and methods by which the work is accomplished. The so-called "control
test" is the most important indicator of the presence or absence of an employer-employee
relationship.12
A. Selection and Engagement of the Employee
De Raedt was contracted by SGV as part of the latters obligation under the Sub-Consultancy
Agreement with TMI, which was in turn contracted by the DA to provide the services required for
the foreign-assisted CECAP project. De Raedt was neither engaged by SGV as an ordinary
employee, nor was she picked by SGV from a pool of consultants already working for SGV. Hence,
SGV engaged De Raedts services precisely because SGV had an existing Sub-Consultancy
Agreement with TMI to provide such services.1avvphi1
The Labor Arbiter and the NLRC both agree that SGV had no discretion in the selection of De
Raedt for the position of Sociologist in the CECAP. The selection was made by the TMI, upon

22
recommendation of Gimenez of the DA, to be approved by the DA and the Commission. The
engagement of De Raedt was merely coursed through SGV.
Moreover, SGVs first choice for the Sociologist position was Lorente. However, Gimenez
recommended De Raedt to SGV. De Raedts testimony proves that her appointment was
ultimately the DAs decision, and not SGVs, thus:
Q Madam Witness, how did you come to know the vacancy here in CECAP project for a position
of project Sociologist?
A I was contacted when I was in Honolulu. I was contacted by the firm Sarmiento and Company
who asked me if I would list myself for the position of project sociologist for the CECAP project
in 1987 when it was discussed by the NGOs in the Cordillera and finally I was contacted by the
SGV. They asked me if I am interested in the position project sociologist. I was also contacted
by Mr. Gimenez to ask me if SGV had contacted me regarding the position.
Q So among the informants who gave you an idea that the position of project sociologist is the
project director himself, is it not?
A He informed me that I have been considered by the Department of Agriculture for
the position of project sociologist.
Q Before you were considered for the position of (sic) the Department of Agriculture, did you
give them an application?
A No, sir.
Q Do you know who gave your name to them?
A Not sure, may be the Department of Agriculture or Sarmiento, because I was asked by the
consultancy firm Sarmiento if I would be willing to list with their business consultants for the
CECAP project and this was before the bidding and Sarmiento did not make the bidding for the
project.
Q Sarmiento is different from SGV is that correct?
A Yes, sir.13 (Emphasis supplied)
B. Payment of Wages
The letter-agreement between the parties specifies the consideration for De Raedts services as
a retainer fee payable for every day of completed service in the project. In addition to this,
monthly subsistence and housing allowances and medical insurance were to be given to De
Raedt. The retainer fees and privileges given to De Raedt are not commonly given to ordinary
employees, who receive basic monthly salaries and other benefits under labor laws.
The Court notes that the retainer fees paid by SGV to De Raedt ultimately came from its "client,"
TMI. De Raedt was aware that the source of the funds was the grant from the Commission. By
the terms of the Sub-Consultancy Agreement, TMI paid SGV remuneration of the fixed unit rate
component of the part services.
However, whatever amount SGV received from TMI did not necessarily entitle De Raedt to the
entire amount. In the parties letter-agreement, SGV made it clear that payments made by TMI
"should not be construed as being due [De Raedt] since these items are intended for the
administration, overhead expenses, and other related expenses of [SGV] in the development,
management, and supervision of [De Raedts] assignment."

23
C. Power of Dismissal
Under the letter-agreement between the parties, SGV may terminate De Raedts services "at
anytime that the contract between the Department of Agriculture Government of the
Philippines and Travers Morgan International, Consulting Engineers, Planners and Management
Consultants is terminated for any cause whatsoever."
De Raedt failed to show that SGV could terminate her services on grounds other than the end of
the contract between the DA as implementing agency of the CECAP and TMI or the termination
by TMI of the contract with SGV, such as retrenchment to prevent losses as provided under labor
laws.14
Further, under the parties agreement, should De Raedt decide to leave the project for any
reason whatsoever other than a reasonable cause beyond her control which prevents her from
performing the required services, De Raedt shall be liable for liquidated damages for breach of
contract, in an amount equivalent to the retainer fee for a period of one month. This pretermination with penalty clause in the parties agreement clearly negates the existence of an
employment relationship between the parties. If De Raedt were indeed SGVs employee, she
should have been able to resign for whatever professional or personal reason at anytime, even
prior to the end of the contract between the DA and TMI or between TMI and SGV, without
incurring any liability for such resignation.
Besides, it was TMI, through Tull, which instructed SGV to disengage De Raedt from the project.
Terminating De Raedts services was beyond SGVs control, as SGV had no choice but to comply
with the directive of its client (TMI). Clearly, De Raedts retention as a Sociologist in the CECAP
project was dependent on TMIs and DAs decisions. In his letter dated 14 June 1991 addressed
to SGV, Tull wrote the following:
Notwithstanding a number of staff on the project, all employed by the Department of Agriculture,
have confirmed that they have found it difficult to work with Mrs de Raedt over the past few
months which supports the earlier advice from the Department of Agriculture.
In the circumstances I consider we have no alternative but to replace Mrs de
Raedt. Would you please make arrangement for her to be withdrawn from the project by the
end of June 1991. Payment of staff fees and housing allowances under the project in respect of
Mrs de Raedt will be paid up to 30th June 1991.15 (Emphasis supplied)
D. Power of Control
The letter-agreement between the parties required De Raedt to maintain an accurate time
record, notify SGV of delays in De Raedts schedule, secure a prior clearance to leave place of
assignment, and prepare reports. These requirements hardly show that SGV exercises control
over the means and methods in the performance of De Raedts duties as a Sociologist of the
CECAP. SGV was not concerned with De Raedts ways of accomplishing her work as a Sociologist.
Rather, SGV naturally expected to be updated regularly of De Raedts "work progress," if any, on
the project for which she was specifically engaged 16 to ensure SGVs compliance with the terms
and conditions of the Sub-Consultancy Agreement with TMI. The services to be performed by her
specified what she needed to achieve but not on how she was to go about it. 17
In sum, there existed no employer-employee relationship between the parties. De Raedt is an
independent contractor, who was engaged by SGV to render services to SGVs client TMI, and
ultimately to DA on the CECAP project, regarding matters in the field of her special knowledge
and training for a specific period of time. Unlike an ordinary employee, De Raedt received
retainer fees and benefits such as housing and subsistence allowances and medical insurance.
De Raedts services could be terminated on the ground of end of contract between the DA and
TMI, and not on grounds under labor laws. Though the end of the contract between the DA and
TMI was not the ground for the withdrawal of De Raedt from the CECAP, De Raedt was
disengaged from the project upon the instruction of SGVs client, TMI. Most important of all, SGV

24
did not exercise control over the means and methods by which De Raedt performed her duties as
Sociologist. SGV did impose rules on De Raedt, but these were necessary to ensure SGVs faithful
compliance with the terms and conditions of the Sub-Consultancy Agreement it entered into with
TMI.
WHEREFORE, the Court GRANTS the petition. The Court SETS ASIDE the 7 October 2003
Decision and 17 December 2003 Resolution of the Court of Appeals in CA-G.R. SP No. 59916
and REINSTATES the 16 February 2000 Decision of the National Labor Relations Commission.
SO ORDERED. ANTONIO T. CARPIO
Associate Justice

March 12, 2014 G.R. No. 171482 THIRD DIVISION

ASHMOR M. TESORO, PEDRO ANG and GREGORIO SHARP, Petitioners, vs.
METRO MANILA RETREADERS, INC. (BANDAG) and/or NORTHERN LUZON RETREADERS,
INC. (BANDAG) and/or POWER TIRE AND RUBBER CORP. (BANDAG), Respondent.
DISSENTING OPINION - LEONEN, J.:
I dissent.
I disagree with the majority in holding that petitioners ceased to be private respondents'
employees on account of the service franchise agreements they entered into. The rulings of the
National Labor Relations Commission (NLRC) and of the Labor Arbiter have been made with such
disregard of material evidence amounting to an evasion of their positive duty to render judgment
after only a meticulous consideration of the circumstances of a case. As such, the Court of
Appeals is in error for sustaining the Labor Arbiter and the NLRC.
I vote to grant the present petition and to reverse and set aside the assailed decision dated July
29, 2005 and the assailed resolution dated February 7, 2006 of the Court of Appeals.
The July 29, 2005 decision of the Court of Appeals affirmed in toto the June 30, 2003 and
November 28, 2003 resolutions of the National Labor Relations Commission. The resolutions of
the NLRC, in tum, upheld the February 26, 2003 decision of Labor Arbiter Monroe C. Tabingan in
NLRC RAB-CAR Case No. 11-0588-01, which dismissed petitioners' complaint (for
illegal/constructive dismissal) for lack of merit.
The February 7, 2006 resolution of the Court of Appeals denied petitioners' motion for
reconsideration.
Petitioners Ashmor Tesoro, Pedro Ang, and Gregorio Sharp were all employed as sales
representatives/salesmen of respondents Metro Manila Retreaders, Inc. and/or Northern Luzon
Retreaders, Inc. and/or Power Tire and Rubber Corporation (referred here collectively and
interchangeably as "Bandag").1 Petitioners commenced employment with Bandag on various
dates: July 1997 for Tesoro; August 1991 for Ang; and June 3, 1998 for Sharp. 2 Respondent
Bandag is in the business of tire repairs and providing retreading services. 3
On various dates in 1999 and 2000, petitioners entered into separate Service Franchise
Agreements or SFAs with Bandag. These SFAs provided for the terms and conditions of Bandags
grant of service franchises to petitioners. Under the SFAs, petitioners were considered as
Bandags appointed service franchisees within defined territories. 4 From the records, there was
no indication that in the period in which petitioners supposedly transitioned from being
employees to franchisees, petitioners underwent procedures which customarily attend the

25
termination of ones employment, e.g., clearance, turnover of equipment, settlement of
obligations, and receipt of final pay.
Bandag effectively financed petitioners franchise operations. Per Section 4.1 of the SFA, Bandag
was to provide petitioners with revolving funds. These revolving funds, as defined in Section 4.1
of the SFA consisted of a franchisees operating fund and take-home fund.
In its position paper, Bandag emphasized that the revolving funds were subject to periodic
liquidation. The value of the revolving funds was to be deducted from petitioners sales; the
difference constituting petitioners income as franchisees. 5 Bandag asserted that despite a series
of reminders, warnings, and even threats of legal action, petitioners failed to liquidate their
revolving funds and, instead, kept the payments of their clients for themselves. This led Bandag
to consider the SFAs ipso facto terminated per the Service Franchise Manuals provisions on
kiting, unremitted collections, and other related offenses. Bandag then initiated collection suits
against petitioners.6
In their complaint, petitioners claimed that despite the execution of the SFAs, they continued to
be regular employees of Bandag because Bandag remained in control of the manner and method
by which petitioners carried out their franchise operations. 7 Petitioners added that they never
ceased to receive monthly salaries, albeit these were "converted x x x into revolving funds"
under the SFAs.8 Petitioners theorized that the SFAs were nothing more than Bandags means to
disguise its employer-employee relationship with petitioners and to circumvent the requisite
security of tenure by making it appear that petitioners were no longer employees but mere
franchisees.9
To support their assertion that Bandag exercised control over the manner and method by which
they carried out their franchise operations, petitioners pointed to provisions in the SFAs which:
(1) prohibited the sale of competitor products; (2) designated defined areas of operations; (3)
required petitioners to submit reports; (4) required petitioners to meet volume requirements; (5)
provided petitioners with service vehicles; and (6) required the use of uniforms 10
As it is their position that they were constructively dismissed, petitioners claimed that they were
entitled to reinstatement with full backwages, on top of their wage differentials and other
(unpaid) benefits. In lieu of reinstatement, petitioners sought the award of separation pay. 11
While admitting that petitioners used to be their sales personnel, Bandag claimed that
petitioners either resigned or retired from the service. It alleged that petitioners became their
service franchisees under a scheme that would allow employees to own and operate their own
tire repair and retreading businesses.12 It also emphasized that it validly terminated the SFAs as
petitioners failed to properly liquidate their revolving funds.
In his decision, Labor Arbiter Monroe C. Tabingan dismissed petitioners complaint for lack of
merit. He noted that there was no longer any employer-employee relationship between
petitioners and Bandag since petitioners ceased to be route salesmen but became dealers
themselves who procured their own supplies and provided services to their own
customers.13 Labor Arbiter Tabingan held that petitioners could not have been constructively
dismissed as they had either voluntarily resigned or availed of Bandags early retirement
package14 and had become independent franchisees when they entered into the SFAs. 15 Labor
Arbiter Tabingan also emphasized that petitioners were enjoying the status of franchise holders
two (2) years prior to the filing of their complaint.16

26
Aggrieved, petitioners appealed Labor Arbiter Tabingans decision to the NLRC. In a resolution
dated June 30, 2003, the NLRC denied petitioners appeal. The NLRC agreed with Labor Arbiter
Tabingans findings that there was no employer-employee relationship between the parties as
petitioners themselves severed their employment when they voluntarily entered into the SFAs.
The NLRC noted that Bandag did not exercise control over how petitioners operated their
independent franchises Bandag having merely provided guidelines which were necessary both
to protect petitioners and to ensure the viability of its own enterprise. 17 In a resolution dated
November 28, 2003, the NLRC denied petitioners motion for reconsideration.
Petitioners then filed with the Court of Appeals a petition for certiorari under Rule 65, alleging
grave abuse of discretion on the part of the NLRC in upholding the decision of the Labor Arbiter.
Acting on the petition, the Court of Appeals, in a resolution dated March 26, 2004, directed
Bandag to file a comment. However, Bandag failed to file its comment.
In the Court of Appeals assailed decision dated July 29, 2005, the Court of Appeals dismissed the
petition for certiorari and agreed with the findings of Labor Arbiter Tabingan and of the NLRC that
petitioners were independent businesspersons dealing in the products and services of
Bandag.18 The Court of Appeals held that the issue raised by petitioners on the existence of an
employer-employee relationship was fundamentally factual and beyond its power to review since
the findings of the NLRC were in accordance with those of the Labor Arbiter. Nonetheless, the
Court of Appeals reviewed the records of the case and concluded that no employer-employee
relationship existed between the parties because petitioners never disputed Bandags allegation
that they voluntarily severed employment ties with Bandag.19 In the assailed resolution dated
November 28, 2003, the Court of Appeals denied petitioners motion for reconsideration.
Thereafter, petitioners filed the present petition before this court assigning as errors:
1. the Court of Appeals having issued a ruling that is adverse to them despite the
allegations in the petition for certiorari having been (supposedly) deemed admitted and
uncontroverted since Bandag failed to file its comment in compliance with the Court of
Appeals March 26, 2004 resolution;
2. the Court of Appeals failure to appreciate the SFAs as a means to circumvent security
of tenure, despite the SFAs illegality and invalidity for neither having been notarized nor
registered with the Securities and Exchange Commission (SEC) or with any other
government agency; and
3. the Court of Appeals having sustained the findings of the NLRC and of Labor Arbiter
Tabingan that no employeremployee relationship existed between petitioners and Bandag
despite Bandags having (supposedly) exercised control and supervision over petitioners
work.20
Apart from the three errors specifically assigned by petitioners, they also claim that: (1) they
could not have been franchise holders because they are not corporations; (2) neither could they
have been independent contractors because they had no substantial capital. 21 As to the manner
by which they were "dismissed", petitioners also claim that they were not afforded an
opportunity to be heard.22
On June 8, 2006, Bandag filed its opposition to the present petition. 23 In it, Bandag argued that
the Court of Appeals correctly upheld the factual findings of the NLRC despite the lack of
opposition from it.24 It also claimed that the complaint for illegal dismissal was filed by
petitioners merely as leverage for the collection cases filed by Bandag against petitioners. It

27
added that petitioners attempted to have these collection cases suspended on the ground of the
prejudicial question supposedly posed by the present (labor) case. 25 Bandag likewise noted that
petitioners had operated the franchises for at least two (2) years and that it was only upon
Bandags filing of its collection cases that petitioners pursued the present (labor) case. 26
Per the averments in the petition, for resolution are the following issues:
1. Whether the allegations in the petition for certiorari (which was filed with the Court of
Appeals) were deemed admitted and uncontroverted because of Bandags failure to file
its comment;
2. Whether the SFAs are invalid for neither having been notarized nor registered with the
SEC (or other appropriate government agency) or for having natural persons, as opposed
to corporations, as franchisees;
3. Whether there existed an employer-employee relationship between petitioners and
Bandag, notwithstanding the execution of the SFAs; and
4. If an employer-employee relationship existed between petitioners and Bandag, whether
petitioners were dismissed in accordance with the requirements of substantive and
procedural due process.
Bandags failure to file a comment was not fatal to its cause and did not ipso facto
render petitioners allegations admitted and uncontroverted
Petitioners make much of Bandags failure to heed the Court of Appeals March 26, 2004
resolution requiring Bandag to file its comment to the petition for certiorari which petitioners
filed before the Court of Appeals. Specifically, petitioners point to "Rule 9, Section 11 [sic] of the
Rules of Court which supplements the NLRC Rules, which provides that an allegation which is not
specifically denied is deemed admitted."27 Petitioners, without citing any specific legal basis,
further appeal to the "settled policy of this Honorable Court that x x x all matters not included x
x x are deemed waived,"28 and how, as a result of Bandags failure to file a comment, "private
respondents had waived whatever defenses they have and therefore the allegations and
arguments of petitioners were deemed admitted and uncontroverted." 29
In the first place, there is no such provision as "Rule 9, Section 11" in the Rules of Court (Rules).
Rule 9 is comprised of all of three (3) sections. It is true that Rule 9, Section 1 of the Rules
provides that "[d]efenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived." But, precisely, Rule 9, Section 1 of the Rules refers to a motion to
dismiss or an answer, not to a comment to a Rule 65 petition. Petitioners use the words
"comment,"30 "answer,"31 and
"memorandum"32 interchangeably.
With
this,
petitioners
mistakenly suggest that the rules applicable to one are applicable to the others. Indeed,
petitioners indiscriminate recourse to Rule 9 of the Rules reveals petitioners failure to
appreciate the specificity of the rules governing a petition for certiorari under Rule 65 of the
Rules of Court.
Each of the remedies in the Rules is designed for a specific purpose and is calibrated to signal to
a judge and to the other party a genre of issues that may be touched and the most efficient
procedure to deal with them. Counsels of parties are supposed to guide their clients. Sadly, in
this case, counsel for petitioners seems to have obfuscated the issues with her lack of
understanding of the Rules of Court.

28
A petition for certiorari under Rule 65 is a special civil action. As such, while it is also governed
by the general provisions of the Rules of Court which are applicable to ordinary civil actions, the
specific rules prescribed for it take precedence. It follows, therefore, that while a petition for
certiorari under Rule 65 is an original action (as opposed to an appeal) for which a pleading filed
by the adverse party in response to the petition is proper, the specific rules governing responsive
pleadings in Rule 65 petitions take precedence over the rules applicable to ordinary civil actions.
Rule 65, Section 6 provides: Section 6. Order to comment.xxx
In petitions for certiorari before the Supreme Court and the Court of Appeals, the provisions of
section 2, Rule 56, shall be observed. Before giving due course thereto, the court may require
the respondents to file their commentto, and not a motion to dismiss, the petition. Thereafter,
the court may require the filing of a reply and such other responsive or other pleadings as it may
deem necessary and proper. (Emphasis supplied)
Further, Rule 65, Section 8 (as amended by A.M. No. 07-7-12-SC) provides:
Section 8. Proceedings after comment is filed.After the comment or other pleadings required
by the court are filed, or the time for the filing thereof has expired, the court may hear the
case or require the parties to submit memoranda. If, after such hearing or filing of memoranda or
upon the expiration of the period for filing, the court finds that the allegations of the petition are
true, it shall render judgment for such relief to which the petitioner is entitled.
However, the court may dismiss the petition if it finds the same patently without merit or
prosecuted manifestly for delay, or if the questions raised therein are too unsubstantial to
require consideration. In such event, the court may award in favor of the respondent treble costs
solidarily against the petitioner and counsel, in addition to subjecting counsel to administrative
sanctions under Rules 139 and 139-B of the Rules of Court.
The Court may impose motu proprio, based on res ipsa loquitur, other disciplinary sanctions or
measures on erring lawyers for patently dilatory and unmeritorious petitions for certiorari.
(Emphasis supplied)
It is clear from Rule 65, Sections 6 and 8 that a comment is not, in all cases, imperative and that
the respondents failure to file a comment is not necessarily fatal to its cause. Section 6
establishes that the need for a comment rests on the sound discretion of the court. A
respondents noncompliance neither automatically entails its admission of all the averments
made in the petition nor the rendition of a decision adverse to it. Section 8 allows the case to
proceed even after the period for the filing of a comment has lapsed without the respondent
having filed a comment. Even after the lapse of such period, the court may still entertain the
parties memoranda or set the case for hearing and, thereafter, render its decision.
Accordingly, petitioners insinuation that all the allegations in their petition were deemed
admitted and uncontroverted must fail. Again, it betrays a fundamental lack of understanding of
the nature and purpose of a Rule 65 special civil action.
Judicial review of decisions of the National Labor Relations Commission: Procedural
Parameters

29
At this juncture, it is crucial to clarify the procedural context in which this review is being made.
This procedural context defines the parameters of what is permissible in this review.
As established in St. Martin Funeral Home v. NLRC,33 while judicial review of a decision of the
NLRC is permitted, such review is by way of a petition for certiorari (i.e., special civil action for
certiorari) under Rule 65 of the Rules of Court, rather than by way of an appeal. Moreover, even
as this court has concurrent jurisdiction with the Court of Appeals as regards petitions for
certiorari, such petitions (after the NLRCs denial of a motion for reconsideration) are filed with
the Court of Appeals, rather than directly with this court, consistent with the principle of
hierarchy of courts. From an adverse ruling of the Court of Appeals, a party may then come to
this court by way of a petition for review on certiorari (i.e., appeal by certiorari) under Rule 45 of
the Rules of Court.34
As explained in Odango v. NLRC,35 a special civil action for certiorari is an extraordinary remedy
which is allowed "only and restrictively in truly exceptional cases." 36 The remedy of a writ of
certiorari may be availed of only when there is no appeal or any plain, speedy and adequate
remedy in the ordinary course of law. Nevertheless, this requirement has been relaxed in cases
where what is at stake is public welfare and the advancement of public policy. 37
Moreover, when availing of such a remedy, a party is not at liberty to assail an adverse ruling on
grounds of such partys own choosing. A petition for certiorari is "confined to issues of
jurisdiction or grave abuse of discretion." 38Its sole office is "the correction of errors of jurisdiction
including the commission of grave abuse of discretion amounting to lack or excess of
jurisdiction."39
A petition for certiorari under Rule 65 is an original action. It is independent of the action from
which the assailed ruling arose. In contrast, a petition for review on certiorari under Rule 45 is a
mode of appeal. It is, therefore, a continuation of the case subject of the appeal. Being such a
continuation, it cannot go beyond the issues which were properly the subject of the original
action from which it arose.
With these premises, two points must be underscored with respect to reviews of decisions of the
NLRC. First, when a decision of the NLRC is elevated to the Court of Appeals, what is involved is
not an appeal but an entirely independent action where the matter for resolution is limited to
issues of jurisdiction or grave abuse of discretion. Second, any subsequent elevation to this court
of an adverse decision of the Court of Appeals, being by way of an appeal (i.e, continuation) of
the independent action originally lodged with the Court of Appeals is, itself, limited to the issue
which was properly taken up in the Court of Appeals, that is, jurisdiction or grave abuse of
discretion.
In this regard, both the Court of Appeals and this court are to be guided by the established
standard as to what constitutes grave abuse of discretion:
By grave abuse of discretion is meant capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. Mere abuse of discretion is not enough. It must be grave abuse
of discretion as when the power is exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and must be so patent and so gross as to amount to an evasion of a
positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation
of law.40
That the adverse ruling of the Court of Appeals in a petition for certiorari under Rule 65 is
elevated to this court via a petition for review on certiorari under Rule 45 bears significantly on

30
the manner by which this court shall treat findings of fact. As a general rule, it becomes
improper for this court to consider factual issues.
This is for two reasons. First, since the appeal is an offshoot of a Rule 65 petition, as this court
explained inOdango, a petition for certiorari assailing a ruling of the NLRC "does not include
correction of the NLRCs evaluation of the evidence or of its factual findings. Such findings are
generally accorded not only respect but also finality." 41 Second, since the appeal is being made
via a Rule 45 petition, it is elementary that "[a]s a rule, only questions of law, not questions of
fact, may be raised in a Petition for Review on Certiorari under Rule 45."42
Nevertheless, there are exceptions which will allow this court to overturn the factual findings
with which it is confronted. For one, to the extent that petitioner in a Rule 65 petition can show
that "the tribunal acted capriciously and whimsically or in total disregard of evidence material to
the controversy,"43 the assailed Court of Appeals ruling (in the Rule 65 proceedings) will be
reversed and the factual findings on which it rests may be rejected. Moreover, there are the
following recognized exceptions:
1. When the conclusion is a finding grounded entirely on speculation, surmises, and
conjectures;
2. When the inference made is manifestly mistaken, absurd or impossible;
3. Where there is a grave abuse of discretion;
4. When the judgment is based on a misapprehension of facts;
5. When the findings of fact are conflicting;
6. When the Court of Appeals, in making its findings, went beyond the issues of the case and
the same is contrary to the admissions of both appellant and appellee;
7. When the findings are contrary to those of the trial court;
8. When the findings of fact are conclusions without citation of specific evidence on which they
are based;
9. When the facts set forth in the petition as well as in the petitioners' main and reply briefs are
not disputed by the respondents; and
10. When the findings of fact of the Court of Appeals are premised on the supposed absence of
evidence and contradicted by the evidence on record.44
Given these considerations, it must be emphasized that what is involved in the present
petition is a matter of public welfare and public policy. It is settled that relations
pertaining to labor and employment are impressed with public interest. They are deemed
matters of public policy which weigh heavily on public welfare. Article 1700 of the Civil Code is
clear on this point:
Article 1700. The relations between capital and labor are not merely contractual. They
are so impressed with public interest that labor contracts must yield to the common
good. Therefore, such contracts are subject to the special laws on labor unions, collective

31
bargaining, strikes and lockouts, closed shop, wages, working conditions, hours of labor and
similar subjects. (Emphasis supplied)
Moreover, the present petition raises the novel issue of a franchise agreement being utilized to
disguise an employer-employee relationship and to circumvent the requirement of security of
tenure. This court must avail of this opportunity to scrutinize what is assailed to be an innovative
and ingenious way of undermining a persons livelihood as well as the safeguard which our laws
have placed to protect such source of livelihood security of tenure. Needless to say, contracts
designed to circumvent the legal requirement of security of tenure run afoul of our laws and of
public policy.
They are detrimental to the public welfare.
In making a determination of the extent to which the franchise arrangement between petitioners
and Bandag is a circumvention of security of tenure, emphasis must be given to the primacy of
the provisions of the contract entered into by the parties. While Bandag questioned petitioners
motives in filing their complaint, such motives are extraneous to the issue of whether the
franchise arrangement, as spelled out in and carried out under the SFAs, circumvented security
of tenure.
From a careful review of the facts of this case, as borne by the records, and from a thorough
consideration of the arguments of the parties, it will be culled that the rulings of the NLRC and of
the Labor Arbiter have been made with such disregard of material evidence. Properly considered
in their totality, the evidence points to the SFAs as a means to conceal Bandags employeremployee relationship with respondents as well as to subvert their security of tenure. The
inferences and conclusions drawn by the NLRC and by the Labor Arbiter are unsupported by an
exacting and critical scrutiny of the evidence chiefly the SFAs and are, thus, manifestly
mistaken. As such, the NLRC and the Labor Arbiter committed such gross errors amounting to an
evasion of their positive duty to render judgment after only a meticulous consideration of the
circumstances of a case.
The Labor Arbiter, in concluding that petitioners ceased to be route salesmen, failed to realize
that petitioners were actually still performing the same roles and functions. There has not even
been a distinguishable demarcation of the supposed end of their employment as typified by
procedures customarily attending resignation and/or retirement, or otherwise signifying the end
of an employer-employee relationship (such as clearance procedures, settlements of obligations,
and final payments or benefits). That the SFAs had been in effect for about two (2) years when
petitioners filed their complaint is of no consequence. It proves nothing more than the fact of
such duration and does not at all support the conclusion that petitioners employment ceased,
and, more so, that such cessation was out of petitioners own volition.
The NLRCs conclusion that Bandag merely provided guidelines and did not exercise control over
petitioners is not supported by a meticulous and thorough review of the SFAs. A proper reading
of the SFA provisions reveals that petitioners were not independent businessmen but remained
under the employ of Bandag. The NLRC was even all too willing to lend validity to SFAs, not
noticing that the SFA (as submitted to this court) was not even signed by the parties.
As such, the Court of Appeals is in error for sustaining the Labor Arbiter and the NLRC. The Court
of Appeals finding that the Labor Arbiter and the NLRC did not commit grave abuse of discretion
was unwarranted. The Court of Appeals conclusions are borne by the same misapprehension of
facts initiated by the Labor Arbiter and the NLRC.

32
The SFAs validity is not diminished by their nonnotarization and nonregistration nor
by the fact that the franchisees under it are natural persons
The Service Franchise Agreement or SFA attached to the present petition (as Annex "D-1") is not
signed, whether by a representative of Bandag or by the franchisee. While not specifically raised
by petitioners as an issue, this detail, along with other observations (as will be laid out and
explained subsequently), raises questions about the regularity of the circumstances surrounding
the execution of the SFAs and should weigh heavily on this courts appreciation and ultimate
disposition of the present petition.
Likewise, it must be reiterated that there has not been a distinguishable delineation of the
supposed end of petitioners employment through procedures which, in the normal course of
things, are customary to resignation and/or retirement. The regular process would have been for
petitioners to properly end their employment through these procedures and, after which, enter
into new contracts with the former employer which is now a franchisor. Absent these procedures,
it appears that the SFAs did not really signal the start of a significantly new relationship. That the
parties did not even bother to sign the SFAs only buttresses this. For that matter, even if the
parties had signed copies, the fact that they never submitted these signed copies to this court
(as in fact the only copy available for our perusal is an unsigned SFA) only shows the devaluing
with which the SFAs are looked at, not only by the parties in general, but more so by Bandag.
These circumstances, by themselves, would have resolved this case. But, even going beyond
these, and embarking on a more thorough scrutiny of the other facts and the relevant
contractual provisions, there is only greater certainty that the franchise agreement between
petitioners and Bandag is, in fact, a subterfuge for compliance with legal requirements.
Turning however to the specific issues raised by petitioners, neither notarization nor registration
is decisive of the validity of the Service Franchise Agreements.
In Bernardo v. Ramos,45 this court had the occasion to explain the significance of notarization:
Notarization converts a private document into a public document thus making that document
admissible in evidence without further proof of its authenticity. A notarial document is by law
entitled to full faith and credit upon its face.46
Also, in Ruiz, Sr. v. Court of Appeals,47 this court emphasized that:
Documents acknowledged before notaries public are public documents and public documents
are admissible in evidence without necessity of preliminary proof as to their authenticity and due
execution. They have in their favor the presumption of regularity, and to contradict the same,
there must be evidence that is clear, convincing and more than merely preponderant. 48
As is clear from the cited authorities, the import of notarization rests, not on the validity they
lend to private documents, but on bolstering the reliability and evidentiary weight of such
documents. Thus, notarization may be relied upon only with respect to the authenticity and due
execution of a document but not with respect to its intrinsic validity. It is, therefore,
inconsequential, with respect to the validity of the SFAs between the parties, that they have not
been notarized.
Neither is the SFAs non-registration with the Securities and Exchange Commission (or with
another government agency) fatal to the validity of the SFAs.

33
To begin with, petitioners understanding of "franchise" is erroneous.
In arguing against the validity of the SFAs, petitioners rely on the definitions of "franchise" from
two sources: first, Francisco B. Morenos Philippine Law Dictionary which (as cited by petitioners)
defines franchise as "[a] special privilege conferred by governmental authority"; 49 and second,
this courts pronouncement in Del Mar v. Philippine Amusement and Gaming Corporation,50 which
defines franchise as "a special privilege conferred upon a corporation or individual by a
government duly empowered legally to grant it." 51 On the basis of these, petitioners conclude
that "[w]hether it is a corporate franchise, general franchise, primary franchise, secondary
franchise, special franchise, it means the franchise to exist as a corporation."52
Petitioners reasoning is erroneous: first, the definitions they cited are idiosyncratic and
restrictive and are not appropriate to the facts of this case; second, it does not even follow from
the definitions they cited that a franchise must necessarily and exclusively mean "the franchise
to exist as a corporation." Petitioners are insisting upon this court a myopic understanding of
franchise which is clearly not within the ballpark of what the parties may have intended. It is
this erroneous reasoning that cultivates the equally erroneous conclusion that just because the
Securities and Exchange Commission has "jurisdiction and supervision over all corporations,
partnerships or associations who are the grantees or primary franchises and/or a license or
permit issued by the Government"53then, the SFAs, referring, as they do, to franchises, must be
registered with the SEC.
A distinction must be made between franchise as bestowed by government, as against franchise
as the right or license granted by a franchisor company to a "related company." 54 It is the latter
which is involved in the present case.
Franchise, as bestowed by government, refers to "a privilege conferred by government authority,
which does not belong to citizens of the country generally as a matter of common
right."55 Further, a franchise bestowed by government may be either of two kinds: (1) a general
or primary franchise or (2) a special or secondary franchise. As this court explained in National
Power Corporation v. City of Cabanatuan:56
[A general or primary franchise] relates to the right to exist as a corporation, by virtue of duly
approved articles of incorporation, or a charter pursuant to a special law creating the
corporation. The right under a primary or general franchise is vested in the individuals who
compose the corporation and not in the corporation itself. On the other hand, [a special or
secondary franchise] refers to the right or privileges conferred upon an existing corporation such
as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string
wires.57
On the other hand, franchise as granted by a franchisor company to a related company refers to
"the right or license granted to an individual or group to market a companys goods or services
in a particular territory."58 It is a widely recognized commercial practice or means of doing
business. In the United States, the Federal Trade Commission defines franchising as:
x x x any continuing commercial relationship or arrangement, whatever it may be called, in
which the terms of the offer or contract specify, or the franchise seller promises or represents,
orally or in writing, that:
(1) The franchisee will obtain the right to operate a business that is identified or associated with
the franchisors trademark, or to offer, sell, or distribute goods, services, or commodities
that are identified or associated with the franchisors trademark;

34
(2) The franchisor will exert or has authority to exert a significant degree of control over the
franchisees method of operation, or provide significant assistance in the franchisees
method of operation; and
(3) As a condition of obtaining or commencing operation of the franchise, the franchisee makes
a required payment or commits to make a required payment to the franchisor or its
affiliate.59
Through a franchise agreement, parties enter into a commercial arrangement whereby the
franchisee (i.e., related company) is given the right by the franchisor to engage in the
franchisors business, while using the franchisors trademark/s and/or tradename and capitalizing
on the franchisors goodwill, subject to compliance with standards and guidelines established by
the franchisor. In these arrangements, it is recognized that benefits will inure to both parties: to
the franchisee by relieving itself of the need to establish an enterprise from scratch and by
enabling it to utilize the goodwill established by the franchisor; and to the franchisor by enabling
it to enlarge its market and multiply its capacity while minimizing costs.
In this case, what is involved is a franchise as granted by a franchisor company to a related
company. The SFAsostensibly allow petitioners themselves to engage in the business of tire
repairs and providing retreading services. This, they shall do under the name and marks of, as
well as in conformity with the guidelines and standards established by, Bandag. The SFAs
avowedly devise an arrangement whereby petitioners are to operate outlets providing tire repair
and retreading services which are identified by the name and marks of Bandag. On the part of
Bandag, the SFAs enable it to expand its business, reaching more clients through outlets which
act as frontline units.
"Franchise," in this case, simply means dealership. It has nothing to do with the definitions
insisted upon by petitioners. The business of providing tire repairs and retreading services does
not entail an extraordinary privilege, which must be specially conferred or sanctioned by
government. Tire repairs and retreading services, while certainly beneficial to Bandags and
petitioners clientele, do not entail public interest such that engaging in them becomes
impossible unless specially sanctioned by the government.
To disregard the distinction between franchise as bestowed by government, as against
franchise as a right or license granted by a franchisor company to a related company and to
insist on the application of the former to the present case is to insist on an absurd interpretation
which will lead to unjust and unreasonable consequences. Indeed, petitioners call for this court
to vest its imprimatur on their reasoning is, effectively, a call to invalidate, in one fell swoop, all
commercial arrangements configured along the lines of the franchise business model because of
non-registration with the Securities and Exchange Commission.
Republic Act No. 8799, otherwise known as the Securities Regulation Code (SRC), in spelling out
the jurisdiction of the Securities and Exchange Commission is clear. Such jurisdiction is qualified
and extends only to "all corporations, partnerships or associations who are the grantees
of primary franchises and/or a license or permit issued by the Government."60 At no point does
the statutory recital of the Securities and Exchange Commissions jurisdiction claim to cover
dealerships between a franchisor and a related company or franchisee.
There is simply no need to register the SFAs with the Securities and Exchange Commission. The
SFAs do not purport to create a corporation, a partnership or any other artificial being which
requires legal fiat in order that it may juridically exist and be capacitated for rights and
obligations. Being a means to effectuate a business model, neither do the SFAs involve securities
which, per the state policy articulated in Section 2 of the SRC, necessitate full and fair disclosure
to "enabl[e] the public to make an informed investment decision" 61 and for which registration is
necessary as "[t]he principal device to ferret out the truth."62

35
Parenthetically, that a franchise need not be registered with the Securities and Exchange
Commission does not mean that franchises are not subject to appropriate regulation (e.g., by the
Department of Trade and Industry, Intellectual Property Office, and other agencies). In any case,
the records are bereft of any indication that these have been complied with.
Having clarified the concept of franchise, petitioners assertion that the SFAs are invalid
because it makes franchisees out of natural persons, rather than corporations, must also fail. As
will be gleaned from the discussion in National Power Corporation v. City of Cabanatuan,63 the
question of the person/s upon whom the franchise is vested is material when what is involved is
a franchise bestowed by government; that is, in distinguishing between a primary or general
franchise, on the one hand, and a special or secondary franchise, on the other. Here, since what
is involved is a franchise granted by a franchisor to a franchisee, it is of no consequence that the
franchisees are natural persons. Simply, natural persons could, just as easily as juridical persons,
"market a companys goods or services in a particular territory."64
Despite the execution of the SFAs, there continued to be an employer-employee
relationship between petitioners and Bandag
As clarified in Aklan v. San Miguel Corporation, 65 "the existence of an employer-employee
relationship is ultimately a question of fact and the findings by the Labor Arbiter and the NLRC on
that score shall be accorded not only respect but even finality when supported by ample
evidence."66
Given this and the earlier discussed procedural parameters of a judicial review of decisions of the
NLRC, it will be noted that the Court of Appeals, the NLRC, and the Labor Arbiter uniformly ruled
that no employer-employee relationship existed between the parties at the time of the filing of
petitioners complaint.
In the decisions and resolutions rendered by the Court of Appeals, the NLRC and the Labor
Arbiter, it was consistently held that petitioners voluntarily applied for SFAs with Bandag. 67 The
Court of Appeals and the NLRC likewise sustained the Labor Arbiters conclusion that petitioners
entry into the SFAs effectively changed the relationship between petitioners and Bandag; that is,
that petitioners were no longer employees but engaged in their own enterprises.
These findings notwithstanding, petitioners contend that an employer-employee relationship
must have continued to exist. They anchor this contention on Bandags supposedly having
continued to exercise control over the manner and method by which they carried out their
franchise operations. Specifically, petitioners point to provisions in the SFAs which: (1) prohibited
the sale of competitor products; (2) designated defined areas of operations; (3) required
petitioners to submit reports; (4) required petitioners to meet volume requirements; (5) provided
petitioners with service vehicles; and (6) required the use of uniforms, 68 as representing such
degree of control as would validate the existence of an employer-employee relationship.
In addition to Bandags continuing control over their operations, petitioners claim that they
continued to receive salaries, albeit denominated as "revolving funds". Petitioners also add that
they did not have sufficient capital to embark on their own enterprise and that all capital and
equipment were provided by Bandag.
To determine the existence of an employer-employee relationship, the following four-fold test is
generally69applied:
1. the selection and engagement of the employee;

36
2. the payment of wages;
3. the power of dismissal; and
4. the employers power to control the employee with respect to the means and methods by
which the work for which the latter is engaged is to be accomplished. 70
Of these, it is the fourth or the control test "where the person for whom the services are
performed reserves the right to control not only the end to be achieved, but also the manner and
means to be used in reaching that end"71 which assumes primacy. The control test is the
most important element in determining the existence of an employer-employee relationship. 72
However, not every manner of control establishes an employer-employee relationship. As this
court noted inInsular Life Assurance Co., Ltd., v. NLRC:73
Logically, [a] line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the result and the means
used to achieve it.74
A franchise agreement is typified by two features: (1) collaboration and (2) a shared interest (i.e.,
risk) in the success or failure, the gains or losses, of the enterprise. These features indicate that
a franchisee is himself engaged in a business concern, albeit in association with another (i.e., the
franchisor). It is these features which, despite the presence of some degree of control by the
franchisor, negate the existence of an employer-employee relationship.
Since a franchise arrangement is designed to serve the business interests of both the franchisor
and the franchisee, it is but natural that parameters be established to ensure the viability of the
shared enterprise that is, to ensure the attainment of mutually desired results. Moreover, as it
is the franchisee which effectively involves itself with the pre-established enterprise of the
franchisor the benefits it enjoys precisely being that it is relieved of the need to establish an
enterprise from scratch and/or that it is able to utilize the goodwill established by the franchisor
it is a matter of course that the franchisees activities be in line with standards established by
the franchisor.
Conversely, where an arrangement purporting to be a franchise agreement does not cater to the
mutual interests of the franchisor and the franchisee as collaborating entrepreneurs and
instead reveals a lopsided relation that funnels gains only to the supposed franchisor, courts
must decline from recognizing it as a valid franchise agreement. Where a supposed franchise
agreement fails to clearly manifest that a franchisee is pursuing its own business concern, and
shows, instead, that it is an artifice to conceal and circumvent safeguards established by law
such as security of tenure courts must refuse to sanction such an illicit and iniquitous
arrangement. Indeed, tribunals must take caution lest they be reduced to a rubberstamp that
validates unlawful undertakings.
In this case, while the Court of Appeals, the NLRC, and the Labor Arbiter uniformly ruled that no
employer-employee relationship existed between the parties at the time of the filing of
petitioners complaint, such determination is manifestly mistaken and based on a
misapprehension of facts. The rulings of the Court of Appeals, the NLRC, and the Labor Arbiter
must, thus, be reversed.

37
The complete text of the substantive provisions of the Service Franchise Agreements 75 reads:
IT IS AGREED:
1. APPOINTMENT
COMPANY hereby appoints FRANCHISEE, and FRANCHISEE hereby accepts the appointment, as
service franchisee for Sarman- Bandag retreads in Baguio City. ("Territory")
2. TERRITORY
2.1 The Territory shall not be exclusive to FRANCHISEE. COMPANY reserves the right to
maintain its Area Sales Representatives (ASR) in the Territory or grant a service franchise
therein to other ASRs if, in its sole discretion, the Territory will be better served by more than
one (I) ASR or service franchisee.
2.2 FRANCHISEE may likewise solicit and serve accounts beyond the Territory (''Extra
territory"); provided that, the account in the Extra-territory is not served by another ASR or
service franchise. The Territory may be extended to include the Extraterritory if, in
COMPANY's sole discretion, FRANCHISEE has the aptitude for responsibility over a greater
area.
3. CUSTOMERS
3.1 FRANCHISEE's customers in the Territory while still an ASR of COMPANY shall comprise
FRANCHISEEs initial list of accounts. The list shall be updated regularly to include new
accounts solicited by FRANCHISEE.
3.2 A customer shall be credited to FRANCHISEE's account on a "first- come-first-serve" basis,
that is, a customer shall be included in the list of accounts of the first FRANCHISEE to solicit a
paid order for COMPANY's services or products.
3.3 Accounts in FRANCHISEE's list shall be exclusive to FRANCHISEE, unless (i) in COMPANY's
sole discretion, FRANCHISEE's service to his account/s does not meet the service standard
required in the current Company Manual; or (ii) FRANCHISEE is suspended for failure to
observe the credit policies set forth in the current Company Manual; or (iii) the account is
reclassified by COMPANY as a lost account, i.e., a customer who, in the immediately
preceding six (6) months, did not procure any service or obtain any product from COMPANY.
COMPANY shall notify FRANCHISEE in writing of the foregoing, and the account may be
solicited by other ASRs or service franchisees.
4. COMPANY SUPPORT FOR FRANCHISEE
4.1 COMPANY shall advance to FRANCHISEE his revolving fund for the first three (3) months
of operations. The revolving fund consists of FRANCHISEE's take-home fund (approximately
equivalent to the salary, allowance, commission and incentives of an ASR) and operating
fund (for gasoline, repairs and maintenance and other miscellaneous expenses).
4.2 COMPANY shall provide FRANCHISEE a service vehicle through the Bandag Vehicle
Acquisition Plan ("BVAP").

38
4.3 COMPANY shall haul the tires from FRANCHISEE's sales office to the processing plant and
back.
4.4 COMPANY shall conduct year-round training and development programs and seminars for
service franchisees.
4.5 COMPANY shall provide receipts, invoices and other forms, including: (i) selling kits and
testimonials; (ii) information and updates regarding Sarman-Bandag products; (iii)
information and market intelligence on competing products; and (iv) processed tire updates,
customer updates, credit information, etc.
5. MINIMUM REQUIREMENTS
5.1 To remain in good standing, FRANCHISEE shall comply with the monthly minimum
processed tire requirement (MPR) set forth in the current Company Manual. As long as
FRANCHISEE complies with the MPR, FRANCHISEE need not satisfy the ideal tire mix of sixty
percent (60%) truck tire and forty percent (40%) light truck.
5.2 Upon FRANCHISEE's failure to meet the MPR for three (3) consecutive months, COMPANY
may, at its sole option, terminate this Agreement effective upon receipt of written notice
thereof by FRANCHISEE, without prejudice to the rights and obligations accrued as of date
thereof.
6. PRICES AND CHARGES
FRANCHISEE's charges for products and services, inclusive of freight and handling, shall
conform to the rates prescribed by COMPANY set forth in the current Company NY reserves the
right to adjust the rates without prior notice.
7. FRANCHISE DISCOUNTS AND REBATES
7.1 COMPANY shall give FRANCHISEE a franchise discount based on FRANCHISEE's total
equivalent points for processed tires for the past month. The schedule of franchise dis in the
current Company Manual.
7.2 The rebate is computed as follows:
FRANCHISEE shall receive his rebates for the month, net of all amounts due to COMPANY from
FRANCHISEE, on the fifteenth day of the month following.
8. CREDIT TERMS AND LIMITS
8.1 COMPANY shall review and approve customers' credit applications recommended by
FRANCHISEE. However, COMPANY's approval of customer's credit application shall not relieve
FRANCHISEE of his obligations under this Agreement.
8.2 FRANCHISEE shall only render service or sell products on credit to customers with
COMPANY-approved credit applications. FRANCHISEE shall also abide by the credit terms and
limits approved by COMPANY and observe the credit policies set forth in the current Company
Manual.
9. OTHER PROVISIONS

39
9.1 FRANCHISEE shall render service to customers in accordance with the standards and
specifications set forth in the current Company Manual.
9.2 During the term of this Agreement, FRANCHISEE shall not, directly or indirectly, sell,
distribute, promote or solicit orders for the sale of services or products which compete with
the services and products of COMPANY, whether for his own account or on behalf of third
parties, without the prior written approval of COMPANY.
9.3 This Agreement shall not be construed to establish an employer-employee relationship
between (i) COMPANY and FRANCHISEE; or (ii) COMPANY and FRANCHISEE's employees, if
any.
9.4 FRANCHISEE shall hold COMPANY free and harmless from liability for (i) unpaid wages and
benefits of FRANCHISEE's employees, if any; (ii) loss or damage to the property of, or death
or injury to, third parties caused by the acts or omissions of FRANCHISEE or his employees, if
any; (iii) noncompliance with any law, rule or regulation of the government or any of its
subdivisions or agencies; or (iv) non-payment of any tax, fee or assessment.
9.5 FRANCHISEE shall not make any warranties to its customers other than the warranties
stated herein, that is, that SARMANBANDAG retreads, repairs, tread transfers and slightly
used treads shall be free from defects in workmanship and materials for the life of the tread;
there is no warranty on the casing. FRANCHISEE shall hold COMPANY free and harmless from
liability for breach of warranty not expressly allowed herein.
9.6 FRANCHISEE acknowledges COMPANY's ownership of the trademark and service mark
"Sarman-Bandag".
9.7 FRANCHISEE shall attend, participate in and successfully complete the training and
development programs conducted by COMPANY.
9.8 FRANCHISEE shall wear uniforms prescribed by COMPANY and carry calling cards setting
forth the complete company name, address and telephone numbers.
9.9 True and accurate books of account shall be maintained in accordance with generally
accepted accounting principles and the procedures prescribed by COMPANY. The books of
account shall be available for inspection by COMPANY at all times during regular business
hours.
9.10 FRANCHISEE shall submit [monthly/quarterly] financial reports in the form prescribed by
COMPANY.
9.11 COMPANY shall have the right to enter and inspect FRANCHISEE's sales offices to (i)
ascertain FRANCHISEE's compliance with his obligations under this Agreement; and (ii)
evaluate FRANCHISEE's performance.
10. BOND
10.1 FRANCHIISEE shall post a surety bond from a reputable company acceptable to COMPANY
or a cash bond in such amount equivalent to FRANCHISEE's accounts receivable during his last
month as ASR to guarantee the faithful performance of his obligations and the duties and
responsibilities set forth herein.

40
10.2 FRANCHISEE shall, within thirty (30) days from receipt of written notice, pay to COMPANY
such amounts sufficient to replenish the cash bond.
10.3 COMPANY may, at its discretion, increase the amount of the bond by mere written notice.
FRANCHISEE shall pay to COMPANY the increase in the amount of the cash bond or cause the
increase in the surety bond within thirty (30) days from receipt of notice.
10.4 Should FRANCHISEE fail to replenish the cash bond or deposit the amount of the increase
in the cash bond, the amount due shall bear interest of two percent (2%) per month or fraction
thereof until paid in full as and by way of penalty, without prejudice to other remedies available
to COMPANY under the law and this Agreement. In the case of the surety bond, FRANCHISEE
shall pay COMPANY a penalty of _____ PESOS (____) for every [day/week/month] of delay in
effecting the increase in the surety bond, without prejudice to other remedies available to
COMPANY under the law and this Agreement.
10.5 The bond shall be effective for the term of this Agreement. The cash bond shall be
refunded to FRANCHISEE within fifteen (15) days from date of expiration or termination of this
Agreement, less any charges thereto.
11. TERM AND TERMINATION; RENEWAL
11.1 This Agreement shall be effective for a period of one (1) year, commencing on January 1,
2001. Renewal shall be at the option of COMPANY based on its evaluation of FRANCHISEE's
performance.
11.2 Except as otherwise provided, FRANCHISEE shall have thirty (30) days from receipt of
written notice to cure a breach or default in the performance of any term or condit ent or the
Company Manual to the satisfaction of COMPANY, otherwise, the notice shall be deemed
effective, and this Agreement shall terminate forthwith. In either case, FRANCHISEE shall be
liable to pay damages.
11.3 In case of fraud committed by FRANCHISEE, COMPANY shall have the right to terminate
this Agreement effective upon receipt of written notice thereof by FRANCHISEE. COMPANY shall
be entitled to liquidated damages of twenty five percent (25%) of the amount involved but in
no case less than Fifty Thousand Pesos (50,000.00), without prejudice to other remedies
available to COMPANY under the law and this Agreement.
11.4 Within thirty (30) days from the expiration or termination of this Agreement, FRANCHISEE
shall, without need of demand, settle his outstanding obligations to COMPANY. Should
FRANCHISEE fail to settle his outstanding obligations on due date, COMPANY shall be entitled to
a late payment surcharge of two percent (2%) of the outstanding obligations and interest on
the total amount of two percent (2%) per month or fraction thereof until paid in full, without
prejudice to other remedies available to COMPANY under the law and this Agreement.
11.5 Upon expiration or termination of this Agreement, FRANCHISEE shall (i) cease to use the
trademark and service mark of COMPANY in any form or manner and (ii) within fifteen (15)
days, return to COMPANY all forms and material provided by COMPANY to, or otherwise in the
possession of, FRANCHISEE, including copies made thereof.
11.6 The expiration or termination of this Agreement shall be without prejudice to any rights or
obligations accrued as of date thereof.

41
12. GENERAL PROVISIONS
12.1 The provisions of the Company Manual and all subsequent amendments thereto are
deemed incorporated herein and made integral parts of this Agreement by reference.
12.2 The information and materials received by FRANCHISEE from COMPANY pursuant to this
Agreement or which otherwise come to the knowledge or possession of FRANCHISEE shall be
kept strictly confidential for the duration of this Agreement and for a period of three (3) years
after its expiration or termination. Confidential information and materials shall be used only
for the purpose for which it was disclosed and shall be disclosed to third parties only with the
prior written consent of COMPANY. However, confidentiality shall not apply to the following: (i)
those available from generally public sources other than as a result of a breach of this
Agreement; (ii) those received from a third party with a lawful right to disclose such
information; (iii) those which the parties specifically agree upon in writing at the time of
disclosure as not subject to this provision; (iv) those required by law to be submitted to
government regulatory agencies; and (v) those disclosed under legal compulsion; provided
that, FRANCHISEE shall have previously advised COMPANY thereof and consulted in good
faith as to the scope of disclosure.
12.3 Notices required to be served under this Agreement shall be made in writing and
delivered personally or sent by registered mail or courier service at the address of the party
indicated in this Agreement or to such other address designated by the parties in writing.
12.4 This Agreement or any part hereof shall not be assigned by FRANCHISEE.
12.5 This Agreement may be amended only by the written agreement of the parties through
their duly authorized officers or representatives.
12.6 The failure to take any action or assert any right hereunder shall not be deemed a
waiver of such right in the event of the continuation or repetition of the circumstance giving
rise to such right.
12.7 All actions or proceedings arising out of or in connection with this Agreement shall be
brought exclusively before the courts of Pasig City.
A review of the text of the SFAs will lead to the conclusion that Bandag intended to conceal its
employer-employee relationship with petitioners and to undermine petitioners security of
tenure. The SFAs contain provisions which, taken in their totality, do not merely establish
standards of success or facilitate the achievement of desired results, but instead indicate such
an exacting degree of control by Bandag that petitioners become mere subalterns whose own
means and methods must remain compliant with the conventions imposed by Bandag:
1. Section 6 reserves to Bandag the right to adjust prices and rates "without prior notice." 76
2. Subsection 5.1 requires a franchisee to comply with monthly minimum processed tire
requirements (MPR); otherwise, a franchisee must satisfy "the ideal tire mix of sixty percent
(60%) truck tire and forty percent (40%) light truck." 77 Subsection 5.2 of the SFA also vests
upon Bandag the "sole option" to terminate the SFA upon the franchisees failure to meet the
minimum processed tire requirement (MPR) for three consecutive months. 78

42
3. Section 8 makes compulsory the review by Bandag of all credit applications and restrains
the franchisee to provide services (on credit) only to customers with "[Bandag]-approved credit
applications."79
4. Subsection 3.3 enables Bandag, at its "sole discretion" to prevent the franchisee from
providing services to accounts in the latters list should it fail to meet the required service
standard.80
Section 5 does not just set productivity targets. Rather, the franchisee is placed in a predicament
where, if it fails to meet the MPR, Bandag substitutes its judgment for what the franchisee may
otherwise determine to be the proper composition of its clientele and/or mix of services
performed. Section 8 and Subsection 3.3 similarly inhibit the composition of the franchisees
clientele, even going so far as to prohibit the franchisee from doing business with certain parties.
(Worse, Subsection 3.3 places the franchisee on equal footing with and readily replaceable by an
employee of Bandag, i,e., an Area Sales Representative or ASR.) These, taken together with
Section 6 of the SFA, through which the franchisee is able to conduct business only at rates
dictated by Bandag, effectivelydeprive the supposed franchisee of the opportunity to conduct
the business according to its own strategy and acumen. Worse still, should a franchisee fail to
meet the MPR for three (3) consecutive months, Bandag is vested with practically unrestrained
authority to terminate the SFA; that is, to put an end to the franchisees operations.
Also, Section 281 of the SFA practically places the franchisee at Bandags beck and call. A critical
examination of Section 2 of the SFA reveals that it does not merely provide the terms for the
territorial extent of a franchisees operations. Section 2 enables Bandag to unilaterally determine
who will service a given territory. In so doing, Bandag has the option to tap the franchisee or call
upon its ordinary employees. Section 2 also allows Bandag to dictate, the geographical extent of
the activities of its supposed franchisees. Subsection 2.1 provides that a given territory shall not
be exclusive to a franchisee and that Bandag may maintain its own ASRs, or, at its "sole
discretion," grant another person a service franchise if the territory will be better served by more
than one (1) franchisee. Conversely, Subsection 2.2 allows Bandag to, at its "sole discretion,"
extend a franchisees operations beyond its initially defined territory. These provisions reduce
the franchisees supposed territories to nothing more than empty formalities which Bandag may
disregard on its whim.
Also of note are the following: (1) Subsection 4.4 82 which provides for year-round training and
development programs and seminars; (2) Subsection 4.5 83 which makes Bandag responsible for
providing receipts, invoices, and other forms; (3) Subsection 9.8 84 which requires the use of
uniforms and the carrying of calling cards; (4) Subsection 9.9 85 which requires the maintenance
of books of account and their being made available for Bandags inspection at all times during
regular business hours; and (5) Subsection 9.1086 which requires the submission of financial
reports in the form prescribed by Bandag.
It may be true that these provisions cater to valid, common interests between a franchisor and a
franchisee (e.g., transparency, compliance with standards and attainment of targets,
marketing/branding). However, these provisions must not be read in isolation. Read in light of
the SFAs other provisions, they support the finding that the SFA creates a relation that is devised
to favor Bandag and to reduce the supposed franchisees to mere deputies doing Bandags
bidding.
In this regard, Subsections 9.11 and 11.2 are particularly insightful. Subsection 9.11 87 obliges the
franchisee to allow Bandag to enter and inspect its sales offices to ascertain its compliance with
the obligations under the SFA and to evaluate its performance. Further, Subsection 11.2 88 gives

43
the franchisee thirty (30) days from receipt of written notice within which to rectify, to Bandags
satisfaction, a breach or default of the SFA or company manual; otherwise the SFA is deemed
terminated.
The sheer leeway that Subsection 11.2 gives to Bandag for it to terminate its relation with its
supposed franchisees reveals the extent to which an otherwise mutually beneficial commercial
association, marked by collaboration and shared interests, is skewed to favor only
Bandag.1wphi1 It reveals that the standards established in the SFA are intended to serve
Bandags purposes by not just promoting results but in going so far as to restrict the strategies
and systems which the franchisees may use to obtain such results. It reveals that the supposed
franchisees are nothing more than individuals at Bandags employ in order that Bandag may
satisfy its own business objectives.
Similarly, the SFA provisions on revolving funds indicate that indeed, petitioners continued to
receive salaries and that Bandag advanced the costs incurred by petitioners operations.
Subsection 4.1 defines the revolving fund as consisting of the franchisees: (1) take-home fund
which is "approximately equivalent" to the salary, allowance, commission, and incentives of an
Area Sales Representative (i.e, petitioners original designation as employees before they
supposedly became franchisees); and (2) operating fund for gasoline, repairs, and maintenance
and other miscellaneous expenses. Bandags continuing assumption of the burden of shouldering
petitioners operations indicates that petitioners were not engaged in their own enterprise but
were merely in Bandags employ. Also, apart from Bandags continuing control over petitioners
operations, the payment of wages indicates a continuing employer-employee relationship.
It is of no consequence that Subsection 9.3 of the SFA explicitly provides that "[t]his Agreement
shall not be construed to establish an employer-employee relationship between x x x COMPANY
and FRANCHISEE", nor that Subsection 9.4 89 seems to affirm the status of the franchisee as an
independent entity. It is elementary that the status of employment is defined and prescribed by
law and not by what the parties claim.90
Petitioners were unjustly and illegally terminated
To reiterate, relations pertaining to labor and employment are impressed with public interest.
Article 1700 of the Civil Code puts it very clearly: "The relations between capital and labor are
not merely contractual. They are so impressed with public interest that labor contracts must
yield to the common good." As such, contracts designed to circumvent the legal requirement of
security of tenure run afoul of our laws and of public policy. They are detrimental to the public
welfare.
Article 1306 of the Civil Code provides that while the parties to a contract are free to establish
such stipulations, clauses, terms, and conditions as they may deem convenient, such
stipulations, clauses, terms, and conditions must not be contrary to law, morals, good customs,
public order or public policy. Further, Article 1409 of the Civil Code identifies as inexistent and
void from the beginning those contracts whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy. The SFAs are, therefore, void. They are
ineffectual, whether for purposes of terminating petitioners employer-employee relationship
with Bandag or for any other purposes.
It being established that there continued to be an employer-employee relationship between
petitioners and Bandag, it is incumbent upon Bandag to ensure that the termination of
petitioners employment is in accord with the requirements of due process. Hence, they can only

44
be dismissed for just or authorized causes as provided in Articles 282, 283, and 284 of the Labor
Code, and after due notice and hearing.
Petitioners were not served with written notices that: (1) specify the ground/s for termination
and/or (2) formally inform them of Bandags decision to terminate their employment. Neither
were petitioners given an opportunity to respond to whatever charges or to rebut whatever
evidence there may have been against them. While it may be true, as Bandag claims, that it
charged petitioners with failing to properly liquidate their revolving funds, it is not enough that
an employee be charged with wrongdoing. Such "charge must be established in a manner
consistent with due process."91
Moreover, Bandags claim that petitioners committed a wrongdoing is rooted in provisions
contained in the void SFAs. The SFAs, however, do not govern petitioners employer-employee
relationship with Bandag. It is elementary that a void contract produces no effect; it does not
create, modify or extinguish a juridical relation; it cannot be the source of rights. 92
As such, (albeit without meaning to make a pronouncement on the factual veracity of and
ultimate liability arising from Bandags charges against petitioners for failing to liquidate their
revolving funds) even if Bandag attributes wrongdoing to petitioners for their failure to liquidate
their revolving funds, it could not be said that petitioners committed a wrongdoing in relation
to their employment, that is: engaged in serious misconduct in connection with their
employment; willfully disobeyed the lawful orders of their employer (or its representative) in
connection with their employment; grossly and habitually neglected their duties as employees;
committed fraud or willful breach of the trust reposed in them by their employer; or any other
analogous (just) cause for their employment to be terminated. Neither is there any clear
indication that petitioners committed a crime against their employer. Thus, petitioners
termination from employment could not be said to have been for just cause per Article 282 of
the Labor Code.
So too, there is no indication that petitioners employment was terminated because of their
having contracted a disease, or pursuant to the installation of labor-saving devices, out of
redundancy, by way of retrenchment to prevent losses, or as a consequence of the closure or
cessation of their employers business. Thus, such termination could not have been for
authorized cause.
Having been illegally and unjustly dismissed, petitioners are entitled to full backwages and
benefits in the appropriate amount, reckoned from the time of their termination (i.e., March 31,
2001 for petitioner Ashmor Tesoro; September 30, 2001 for petitioner Pedro Ang; and September
16, 2001 for petitioner Gregorio Sharp). They are likewise entitled to appropriate separation pay
in the amount of one (1) months salary for every year of service (counted from July 1997, with
respect to petitioner Tesoro; August 1991 with respect to petitioner Ang; and June 3, 1998 with
respect to petitioner Sharp), with a fraction of a year of at least six (6) months being counted as
one (1) whole year.
Moreover, "[m]oral damages are awarded in termination cases where the employees dismissal
was attended by bad faith, malice or fraud, or where it constitutes an act oppressive to labor, or
where it was done in a manner contrary to morals, good customs or public policy." 93 In this case,
Bandag crafted a novel, inventive way of circumventing the requirement of security of tenure,
thereby running afoul of public policy and acting in a manner that is patently oppressive to
petitioners. As such, petitioners are entitled to moral damages. For the same reasons and, more
specifically, to provide an "example or correction for the public good" as against innovative

45
schemes that circumvent legally established standards and requirements, petitioners are
likewise entitled to exemplary damages.
Having been compelled to litigate to seek reliefs for their having been illegally and unjustly
dismissed, petitioners are likewise entitled to attorney's fees in the amount of ten percent (10%)
of the total monetary award.94
ACCORDINGLY, I vote to GRANT the petition for review on certiorari. The assailed decision dated
July 29, 2005 and the assailed resolution dated February 7, 2006 of the Court of Appeals in CAG.R. SP No. 82447 which affirmed in toto the June 30, 2003 and November 28, 2003 resolutions
of the National Labor Relations Commission (NLRC) and the February 26, 2003 decision of Labor
Arbiter Monroe C. Tabingan in NLRC RAB-CAR Case No. 11-0588-01 must be REVERSED and
SET ASIDE.
Moreover, respondents must pay petitioners: (1) full backwages and other benefits in the
apptopriate amount; (2) separation pay in the appropriate amount; (3) moral damages; (4)
exemplary damages; and (5) attorney's fees.
MARVIC MARIO VICTOR F. LEONEN
Associate Justice

EN BANC G.R. No. 158693

November 17, 2004
LA
Monroe Tabingan
JENNY M. AGABON and VIRGILIO C. AGABON, petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), RIVIERA HOME IMPROVEMENTS,
INC. and VICENTE ANGELES, respondents.
DECISION -YNARES-SANTIAGO, J.:
This petition for review seeks to reverse the decision 1 of the Court of Appeals dated January 23,
2003, in CA-G.R. SP No. 63017, modifying the decision of National Labor Relations Commission
(NLRC) in NLRC-NCR Case No. 023442-00.
Private respondent Riviera Home Improvements, Inc. is engaged in the business of selling and
installing ornamental and construction materials. It employed petitioners Virgilio Agabon and
Jenny Agabon as gypsum board and cornice installers on January 2, 19922 until February 23,
1999 when they were dismissed for abandonment of work.
Petitioners then filed a complaint for illegal dismissal and payment of money claims 3 and on
December 28, 1999, the Labor Arbiter rendered a decision declaring the dismissals illegal and

46
ordered private respondent to pay the monetary claims. The dispositive portion of the decision
states:
WHEREFORE, premises considered, We find the termination of the complainants illegal.
Accordingly, respondent is hereby ordered to pay them their backwages up to November 29,
1999 in the sum of:
1. Jenny M. Agabon - P56, 231.93
2. Virgilio C. Agabon - 56, 231.93
and, in lieu of reinstatement to pay them their separation pay of one (1) month for every year
of service from date of hiring up to November 29, 1999.
Respondent is further ordered to pay the complainants their holiday pay and service incentive
leave pay for the years 1996, 1997 and 1998 as well as their premium pay for holidays and
rest days and Virgilio Agabon's 13th month pay differential amounting to TWO THOUSAND ONE
HUNDRED FIFTY (P2,150.00) Pesos, or the aggregate amount of ONE HUNDRED TWENTY ONE
THOUSAND SIX HUNDRED SEVENTY EIGHT & 93/100 (P121,678.93) Pesos for Jenny Agabon,
and ONE HUNDRED TWENTY THREE THOUSAND EIGHT HUNDRED TWENTY EIGHT & 93/100
(P123,828.93) Pesos for Virgilio Agabon, as per attached computation of Julieta C. Nicolas, OIC,
Research and Computation Unit, NCR.
SO ORDERED.4
On appeal, the NLRC reversed the Labor Arbiter because it found that the petitioners had
abandoned their work, and were not entitled to backwages and separation pay. The other money
claims awarded by the Labor Arbiter were also denied for lack of evidence. 5
Upon denial of their motion for reconsideration, petitioners filed a petition for certiorari with the
Court of Appeals.
The Court of Appeals in turn ruled that the dismissal of the petitioners was not illegal because
they had abandoned their employment but ordered the payment of money claims. The
dispositive portion of the decision reads:
WHEREFORE, the decision of the National Labor Relations Commission is REVERSED only
insofar as it dismissed petitioner's money claims. Private respondents are ordered to pay
petitioners holiday pay for four (4) regular holidays in 1996, 1997, and 1998, as well as their
service incentive leave pay for said years, and to pay the balance of petitioner Virgilio
Agabon's 13th month pay for 1998 in the amount of P2,150.00.
SO ORDERED.6
Hence, this petition for review on the sole issue of whether petitioners were illegally dismissed. 7
Petitioners assert that they were dismissed because the private respondent refused to give them
assignments unless they agreed to work on a "pakyaw" basis when they reported for duty on
February 23, 1999. They did not agree on this arrangement because it would mean losing
benefits as Social Security System (SSS) members. Petitioners also claim that private respondent
did not comply with the twin requirements of notice and hearing. 8
Private respondent, on the other hand, maintained that petitioners were not dismissed but had
abandoned their work.9 In fact, private respondent sent two letters to the last known addresses
of the petitioners advising them to report for work. Private respondent's manager even talked to
petitioner Virgilio Agabon by telephone sometime in June 1999 to tell him about the new
assignment at Pacific Plaza Towers involving 40,000 square meters of cornice installation work.
However, petitioners did not report for work because they had subcontracted to perform
installation work for another company. Petitioners also demanded for an increase in their wage to

47
P280.00 per day. When this was not granted, petitioners stopped reporting for work and filed the
illegal dismissal case.10
It is well-settled that findings of fact of quasi-judicial agencies like the NLRC are accorded not
only respect but even finality if the findings are supported by substantial evidence. This is
especially so when such findings were affirmed by the Court of Appeals. 11 However, if the factual
findings of the NLRC and the Labor Arbiter are conflicting, as in this case, the reviewing court
may delve into the records and examine for itself the questioned findings. 12
Accordingly, the Court of Appeals, after a careful review of the facts, ruled that petitioners'
dismissal was for a just cause. They had abandoned their employment and were already working
for another employer.
To dismiss an employee, the law requires not only the existence of a just and valid cause but also
enjoins the employer to give the employee the opportunity to be heard and to defend
himself.13 Article 282 of the Labor Code enumerates the just causes for termination by the
employer: (a) serious misconduct or willful disobedience by the employee of the lawful orders of
his employer or the latter's representative in connection with the employee's work; (b) gross and
habitual neglect by the employee of his duties; (c) fraud or willful breach by the employee of the
trust reposed in him by his employer or his duly authorized representative; (d) commission of a
crime or offense by the employee against the person of his employer or any immediate member
of his family or his duly authorized representative; and (e) other causes analogous to the
foregoing.
Abandonment is the deliberate and unjustified refusal of an employee to resume his
employment.14 It is a form of neglect of duty, hence, a just cause for termination of employment
by the employer.15 For a valid finding of abandonment, these two factors should be present: (1)
the failure to report for work or absence without valid or justifiable reason; and (2) a clear
intention to sever employer-employee relationship, with the second as the more determinative
factor which is manifested by overt acts from which it may be deduced that the employees has
no more intention to work. The intent to discontinue the employment must be shown by clear
proof that it was deliberate and unjustified.16
In February 1999, petitioners were frequently absent having subcontracted for an installation
work for another company. Subcontracting for another company clearly showed the intention to
sever the employer-employee relationship with private respondent. This was not the first time
they did this. In January 1996, they did not report for work because they were working for
another company. Private respondent at that time warned petitioners that they would be
dismissed if this happened again. Petitioners disregarded the warning and exhibited a clear
intention to sever their employer-employee relationship. The record of an employee is a relevant
consideration in determining the penalty that should be meted out to him. 17
In Sandoval Shipyard v. Clave,18 we held that an employee who deliberately absented from work
without leave or permission from his employer, for the purpose of looking for a job elsewhere, is
considered to have abandoned his job. We should apply that rule with more reason here where
petitioners were absent because they were already working in another company.
The law imposes many obligations on the employer such as providing just compensation to
workers, observance of the procedural requirements of notice and hearing in the termination of
employment. On the other hand, the law also recognizes the right of the employer to expect
from its workers not only good performance, adequate work and diligence, but also good
conduct19 and loyalty. The employer may not be compelled to continue to employ such persons
whose continuance in the service will patently be inimical to his interests. 20
After establishing that the terminations were for a just and valid cause, we now determine if the
procedures for dismissal were observed.

48
The procedure for terminating an employee is found in Book VI, Rule I, Section 2(d) of
the Omnibus Rules Implementing the Labor Code:
Standards of due process: requirements of notice. In all cases of termination of
employment, the following standards of due process shall be substantially observed:
I. For termination of employment based on just causes as defined in Article 282 of the Code:
(a) A written notice served on the employee specifying the ground or grounds for termination,
and giving to said employee reasonable opportunity within which to explain his side;
(b) A hearing or conference during which the employee concerned, with the assistance of
counsel if the employee so desires, is given opportunity to respond to the charge, present
his evidence or rebut the evidence presented against him; and
(c) A written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify his
termination.
In case of termination, the foregoing notices shall be served on the employee's last
known address.
Dismissals based on just causes contemplate acts or omissions attributable to the employee
while dismissals based on authorized causes involve grounds under the Labor Code which allow
the employer to terminate employees. A termination for an authorized cause requires payment
of separation pay. When the termination of employment is declared illegal, reinstatement and full
backwages are mandated under Article 279. If reinstatement is no longer possible where the
dismissal was unjust, separation pay may be granted.
Procedurally, (1) if the dismissal is based on a just cause under Article 282, the employer must
give the employee two written notices and a hearing or opportunity to be heard if requested by
the employee before terminating the employment: a notice specifying the grounds for which
dismissal is sought a hearing or an opportunity to be heard and after hearing or opportunity to
be heard, a notice of the decision to dismiss; and (2) if the dismissal is based on authorized
causes under Articles 283 and 284, the employer must give the employee and the Department
of Labor and Employment written notices 30 days prior to the effectivity of his separation.
From the foregoing rules four possible situations may be derived:
(1) the dismissal is for a just cause under Article 282 of the Labor Code, for an authorized
cause under Article 283, or for health reasons under Article 284, and due process was
observed;
(2) the dismissal is without just or authorized cause but due process was observed;
(3) the dismissal is without just or authorized cause and there was no due process; and
(4) the dismissal is for just or authorized cause but due process was not observed.
In the first situation, the dismissal is undoubtedly valid and the employer will not suffer any
liability.
In the second and third situations where the dismissals are illegal, Article 279 mandates that the
employee is entitled to reinstatement without loss of seniority rights and other privileges and full
backwages, inclusive of allowances, and other benefits or their monetary equivalent computed
from the time the compensation was not paid up to the time of actual reinstatement.
In the fourth situation, the dismissal should be upheld. While the procedural infirmity cannot be
cured, it should not invalidate the dismissal. However, the employer should be held liable
for non-compliance with the procedural requirements of due process .
The present case squarely falls under the fourth situation. The dismissal should be upheld
because it was established that the petitioners abandoned their jobs to work for another

49
company. Private respondent, however, did not follow the notice requirements and instead
argued that sending notices to the last known addresses would have been useless because they
did not reside there anymore. Unfortunately for the private respondent, this is not a valid excuse
because the law mandates the twin notice requirements to the employee's last known
address.21 Thus, it should be held liable for non-compliance with the procedural requirements of
due process.
A review and re-examination of the relevant legal principles is appropriate and timely to clarify
the various rulings on employment termination in the light of Serrano v. National Labor Relations
Commission.22
Prior to 1989, the rule was that a dismissal or termination is illegal if the employee was not given
any notice. In the 1989 case of Wenphil Corp. v. National Labor Relations Commission,23 we
reversed this long-standing rule and held that the dismissed employee, although not given any
notice and hearing, was not entitled to reinstatement and backwages because the dismissal was
for grave misconduct and insubordination, a just ground for termination under Article 282. The
employee had a violent temper and caused trouble during office hours, defying superiors who
tried to pacify him. We concluded that reinstating the employee and awarding backwages "may
encourage him to do even worse and will render a mockery of the rules of discipline that
employees are required to observe."24 We further held that:
Under the circumstances, the dismissal of the private respondent for just cause should be
maintained. He has no right to return to his former employment.
However, the petitioner must nevertheless be held to account for failure to extend to private
respondent his right to an investigation before causing his dismissal. The rule is explicit as
above discussed. The dismissal of an employee must be for just or authorized cause and after
due process. Petitioner committed an infraction of the second requirement. Thus, it must be
imposed a sanction for its failure to give a formal notice and conduct an investigation as
required by law before dismissing petitioner from employment. Considering the circumstances
of this case petitioner must indemnify the private respondent the amount of P1,000.00. The
measure of this award depends on the facts of each case and the gravity of the omission
committed by the employer.25
The rule thus evolved: where the employer had a valid reason to dismiss an employee but did
not follow the due process requirement, the dismissal may be upheld but the employer will be
penalized to pay an indemnity to the employee. This became known as the Wenphil or Belated
Due Process Rule.
On January 27, 2000, in Serrano, the rule on the extent of the sanction was changed. We held
that the violation by the employer of the notice requirement in termination for just or authorized
causes was not a denial of due process that will nullify the termination. However, the dismissal is
ineffectual and the employer must pay full backwages from the time of termination until it is
judicially declared that the dismissal was for a just or authorized cause.
The rationale for the re-examination of the Wenphil doctrine in Serrano was the significant
number of cases involving dismissals without requisite notices. We concluded that the imposition
of penalty by way of damages for violation of the notice requirement was not serving as a
deterrent. Hence, we now required payment of full backwages from the time of dismissal until
the time the Court finds the dismissal was for a just or authorized cause.
Serrano was confronting the practice of employers to "dismiss now and pay later" by imposing
full backwages.
We believe, however, that the ruling in Serrano did not consider the full meaning of
Article 279 of the Labor Code which states:

50
ART. 279. Security of Tenure. In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this Title.
An employee who is unjustly dismissed from work shall be entitled to reinstatement without
loss of seniority rights and other privileges and to his full backwages, inclusive of allowances,
and to his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement.
This means that the termination is illegal only if it is not for any of the justified or authorized
causes provided by law. Payment of backwages and other benefits, including reinstatement, is
justified only if the employee was unjustly dismissed.
The fact that the Serrano ruling can cause unfairness and injustice which elicited strong dissent
has prompted us to revisit the doctrine.
To be sure, the Due Process Clause in Article III, Section 1 of the Constitution embodies a system
of rights based on moral principles so deeply imbedded in the traditions and feelings of our
people as to be deemed fundamental to a civilized society as conceived by our entire history.
Due process is that which comports with the deepest notions of what is fair and right and
just.26 It is a constitutional restraint on the legislative as well as on the executive and judicial
powers of the government provided by the Bill of Rights.
Due process under the Labor Code, like Constitutional due process, has two aspects:
substantive, i.e., the valid and authorized causes of employment termination under the Labor
Code; and procedural, i.e., the manner of dismissal. Procedural due process requirements for
dismissal are found in the Implementing Rules of P.D. 442, as amended, otherwise known as the
Labor Code of the Philippines in Book VI, Rule I, Sec. 2, as amended by Department Order Nos. 9
and
10.27 Breaches
of
these due
process requirements
violate
the
Labor
Code.
Therefore statutory due process should be differentiated from failure to comply
with constitutional due process.
Constitutional due process protects the individual from the government and assures him of his
rights in criminal, civil or administrative proceedings; while statutory due process found in the
Labor Code and Implementing Rules protects employees from being unjustly terminated without
just cause after notice and hearing.
In Sebuguero v. National Labor Relations Commission,28 the dismissal was for a just and valid
cause but the employee was not accorded due process. The dismissal was upheld by the Court
but the employer was sanctioned. The sanction should be in the nature of indemnification or
penalty, and depends on the facts of each case and the gravity of the omission committed by
the employer.
In Nath v. National Labor Relations Commission,29 it was ruled that even if the employee was not
given due process, the failure did not operate to eradicate the just causes for dismissal. The
dismissal being for just cause,albeit without due process, did not entitle the employee to
reinstatement, backwages, damages and attorney's fees.
Mr. Justice Jose C. Vitug, in his separate opinion in MGG Marine Services, Inc. v. National Labor
Relations Commission,30 which opinion he reiterated in Serrano, stated:
C. Where there is just cause for dismissal but due process has not been properly observed by
an employer, it would not be right to order either the reinstatement of the dismissed employee
or the payment of backwages to him. In failing, however, to comply with the procedure
prescribed by law in terminating the services of the employee, the employer must be deemed
to have opted or, in any case, should be made liable, for the payment of separation pay. It
might be pointed out that the notice to be given and the hearing to be conducted generally
constitute the two-part due process requirement of law to be accorded to the employee by the
employer. Nevertheless, peculiar circumstances might obtain in certain situations where to
undertake the above steps would be no more than a useless formality and where, accordingly,

51
it would not be imprudent to apply the res ipsa loquitur rule and award, in lieu of separation
pay, nominal damages to the employee. x x x.31
After carefully analyzing the consequences of the divergent doctrines in the law on employment
termination, we believe that in cases involving dismissals for cause but without observance of
the twin requirements of notice and hearing, the better rule is to abandon the Serrano doctrine
and to follow Wenphil by holding that the dismissal was for just cause but imposing sanctions on
the employer. Such sanctions, however, must be stiffer than that imposed in Wenphil. By doing
so, this Court would be able to achieve a fair result by dispensing justice not just to employees,
but to employers as well.
The unfairness of declaring illegal or ineffectual dismissals for valid or authorized causes but not
complying with statutory due process may have far-reaching consequences.
This would encourage frivolous suits, where even the most notorious violators of company policy
are rewarded by invoking due process. This also creates absurd situations where there is a just or
authorized cause for dismissal but a procedural infirmity invalidates the termination. Let us take
for example a case where the employee is caught stealing or threatens the lives of his coemployees or has become a criminal, who has fled and cannot be found, or where serious
business losses demand that operations be ceased in less than a month. Invalidating the
dismissal would not serve public interest. It could also discourage investments that can generate
employment in the local economy.
The constitutional policy to provide full protection to labor is not meant to be a sword to oppress
employers. The commitment of this Court to the cause of labor does not prevent us from
sustaining the employer when it is in the right, as in this case. 32 Certainly, an employer should
not be compelled to pay employees for work not actually performed and in fact abandoned.
The employer should not be compelled to continue employing a person who is admittedly guilty
of misfeasance or malfeasance and whose continued employment is patently inimical to the
employer. The law protecting the rights of the laborer authorizes neither oppression nor selfdestruction of the employer.33
It must be stressed that in the present case, the petitioners committed a grave offense, i.e.,
abandonment, which, if the requirements of due process were complied with, would undoubtedly
result in a valid dismissal.
An employee who is clearly guilty of conduct violative of Article 282 should not be protected by
the Social Justice Clause of the Constitution. Social justice, as the term suggests, should be used
only to correct an injustice. As the eminent Justice Jose P. Laurel observed, social justice must be
founded on the recognition of the necessity of interdependence among diverse units of a society
and of the protection that should be equally and evenly extended to all groups as a combined
force in our social and economic life, consistent with the fundamental and paramount objective
of the state of promoting the health, comfort, and quiet of all persons, and of bringing about "the
greatest good to the greatest number."34
This is not to say that the Court was wrong when it ruled the way it did in Wenphil, Serrano and
related cases. Social justice is not based on rigid formulas set in stone. It has to allow for
changing times and circumstances.
Justice Isagani Cruz strongly asserts the need to apply a balanced approach to labormanagement relations and dispense justice with an even hand in every case:
We have repeatedly stressed that social justice or any justice for that matter is for the
deserving, whether he be a millionaire in his mansion or a pauper in his hovel. It is true that,
in case of reasonable doubt, we are to tilt the balance in favor of the poor to whom the
Constitution fittingly extends its sympathy and compassion. But never is it justified to give
preference to the poor simply because they are poor, or reject the rich simply because they

52
are rich, for justice must always be served for the poor and the rich alike, according to the
mandate of the law.35
Justice in every case should only be for the deserving party. It should not be presumed that every
case of illegal dismissal would automatically be decided in favor of labor, as management has
rights that should be fully respected and enforced by this Court. As interdependent and
indispensable partners in nation-building, labor and management need each other to foster
productivity and economic growth; hence, the need to weigh and balance the rights and welfare
of both the employee and employer.
Where the dismissal is for a just cause, as in the instant case, the lack of statutory due process
should not nullify the dismissal, or render it illegal, or ineffectual. However, the employer should
indemnify the employee for the violation of his statutory rights, as ruled in Reta v. National Labor
Relations Commission.36 The indemnity to be imposed should be stiffer to discourage the
abhorrent practice of "dismiss now, pay later," which we sought to deter in the Serrano ruling.
The sanction should be in the nature of indemnification or penalty and should depend on the
facts of each case, taking into special consideration the gravity of the due process violation of
the employer.
Under the Civil Code, nominal damages is adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him. 37
As enunciated by this Court in Viernes v. National Labor Relations Commissions,38 an employer is
liable to pay indemnity in the form of nominal damages to an employee who has been dismissed
if, in effecting such dismissal, the employer fails to comply with the requirements of due process.
The Court, after considering the circumstances therein, fixed the indemnity at P2,590.50, which
was equivalent to the employee's one month salary. This indemnity is intended not to penalize
the employer but to vindicate or recognize the employee's right to statutory due process which
was violated by the employer.39
The violation of the petitioners' right to statutory due process by the private respondent
warrants the payment of indemnity in the form of nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances.40 Considering the prevailing circumstances in the case at bar, we deem it proper
to fix it at P30,000.00. We believe this form of damages would serve to deter employers from
future violations of the statutory due process rights of employees. At the very least, it provides a
vindication or recognition of this fundamental right granted to the latter under the Labor Code
and its Implementing Rules.
Private respondent claims that the Court of Appeals erred in holding that it failed to pay
petitioners' holiday pay, service incentive leave pay and 13th month pay.
We are not persuaded.
We affirm the ruling of the appellate court on petitioners' money claims. Private respondent is
liable for petitioners' holiday pay, service incentive leave pay and 13th month pay without
deductions.
As a general rule, one who pleads payment has the burden of proving it. Even where the
employee must allege non-payment, the general rule is that the burden rests on the employer to
prove payment, rather than on the employee to prove non-payment. The reason for the rule is
that the pertinent personnel files, payrolls, records, remittances and other similar documents
which will show that overtime, differentials, service incentive leave and other claims of workers
have been paid are not in the possession of the worker but in the custody and absolute control
of the employer.41

53
In the case at bar, if private respondent indeed paid petitioners' holiday pay and service
incentive leave pay, it could have easily presented documentary proofs of such monetary
benefits to disprove the claims of the petitioners. But it did not, except with respect to the 13th
month pay wherein it presented cash vouchers showing payments of the benefit in the years
disputed.42 Allegations by private respondent that it does not operate during holidays and that it
allows its employees 10 days leave with pay, other than being self-serving, do not constitute
proof of payment. Consequently, it failed to discharge the onus probandi thereby making it liable
for such claims to the petitioners.
Anent the deduction of SSS loan and the value of the shoes from petitioner Virgilio Agabon's 13th
month pay, we find the same to be unauthorized. The evident intention of Presidential Decree
No. 851 is to grant an additional income in the form of the 13th month pay to employees not
already receiving the same43 so as "to further protect the level of real wages from the ravages of
world-wide inflation."44 Clearly, as additional income, the 13th month pay is included in the
definition of wage under Article 97(f) of the Labor Code, to wit:
(f) "Wage" paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money whether fixed or ascertained on a
time, task, piece , 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"
from which an employer is prohibited under Article 113 45 of the same Code from making any
deductions without the employee's knowledge and consent. In the instant case, private
respondent failed to show that the deduction of the SSS loan and the value of the shoes from
petitioner Virgilio Agabon's 13th month pay was authorized by the latter. The lack of authority to
deduct is further bolstered by the fact that petitioner Virgilio Agabon included the same as one of
his money claims against private respondent.
The Court of Appeals properly reinstated the monetary claims awarded by the Labor Arbiter
ordering the private respondent to pay each of the petitioners holiday pay for four regular
holidays from 1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the
same period in the amount of P3,255.00 and the balance of Virgilio Agabon's thirteenth month
pay for 1998 in the amount of P2,150.00.
WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of
Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, finding that petitioners' Jenny and
Virgilio Agabon abandoned their work, and ordering private respondent to pay each of the
petitioners holiday pay for four regular holidays from 1996 to 1998, in the amount of P6,520.00,
service incentive leave pay for the same period in the amount of P3,255.00 and the balance of
Virgilio Agabon's thirteenth month pay for 1998 in the amount of P2,150.00 isAFFIRMED with
the MODIFICATION that private respondent Riviera Home Improvements, Inc. is
furtherORDERED to pay each of the petitioners the amount of P30,000.00 as nominal damages
for non-compliance with statutory due process.
No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Sandoval-Gutierrez, Carpio, Austria-Martinez,
Corona, Carpio-Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, and Garcia, JJ., concur.

54

SEPARATE OPINION -TINGA, J:

I concur in the result, the final disposition of the petition being correct. There is no denying the
importance of the Court's ruling today, which should be considered as definitive as to the effect
of the failure to render the notice and hearing required under the Labor Code when an employee
is being dismissed for just causes, as defined under the same law. The Court emphatically
reaffirms the rule that dismissals for just cause are not invalidated due to the failure of the
employer to observe the proper notice and hearing requirements under the Labor Code. At the
same time, The Decision likewise establishes that the Civil Code provisions on damages serve as
the proper framework for the appropriate relief to the employee dismissed for just cause if the
notice-hearing requirement is not met. Serrano v. NLRC,1 insofar as it is controlling in dismissals
for unauthorized causes, is no longer the controlling precedent. Any and all previous rulings and
statements of the Court inconsistent with these determinations are now deemed inoperative.
My views on the questions raised in this petition are comprehensive, if I may so in all modesty. I
offer this opinion to discuss the reasoning behind my conclusions, pertaining as they do to
questions of fundamental importance.
Prologue

55
The factual backdrop of the present Petition for Review is not novel. Petitioners claim that they
were illegally dismissed by the respondents, who allege in turn that petitioners had actually
abandoned their employment. There is little difficulty in upholding the findings of the NRLC and
the Court of Appeals that petitioners are guilty of abandonment, one of the just causes for
termination under the Labor Code. Yet, the records also show that the employer was remiss in
not giving the notice required by the Labor Code; hence, the resultant controversy as to the legal
effect of such failure vis--vis the warranted dismissal.
Ostensibly, the matter has been settled by our decision in Serrano2, wherein the Court ruled that
the failure to properly observe the notice requirement did not render the dismissal, whether for
just or authorized causes, null and void, for such violation was not a denial of the constitutional
right to due process, and that the measure of appropriate damages in such cases ought to be
the amount of wages the employee should have received were it not for the termination of his
employment without prior notice.3 Still, the Court has, for good reason, opted to reexamine the
so-called Serrano doctrine through the present petition
Antecedent Facts
Respondent Riviera Home Improvements, Inc (Riviera Home) is engaged in the manufacture and
installation of gypsum board and cornice. In January of 1992, the Agabons were hired in January
of 1992 as cornice installers by Riviera Home. According to their personnel file with Riviera
Home, the Agabon given address was 3RDS Tailoring, E. Rodriguez Ave., Moonwalk Subdivision,
P-II Paraaque City, Metro Manila.4
It is not disputed that sometime around February 1999, the Agabons stopped rendering services
for Riviera Home. The Agabons allege that beginning on 23 February 1999, they stopped
receiving assignments from Riviera Home.5 When they demanded an explanation, the manager
of Riviera Homes, Marivic Ventura, informed them that they would be hired again, but on a
"pakyaw" (piece-work) basis. When the Agabons spurned this proposal, Riviera Homes refused to
continue their employment under the original terms and agreement. 6 Taking affront, the Agabons
filed a complaint for illegal dismissal with the National Labor Relations Commission ("NLRC").
Riviera Homes adverts to a different version of events leading to the filing of the complaint for
illegal dismissal. It alleged that in the early quarter of 1999, the Agabons stopped reporting for
work with Riviera. Two separate letters dated 10 March 1999, were sent to the Agabons at the
address indicated in their personnel file. In these notices, the Agabons were directed to report for
work immediately.7 However, these notices were returned unserved with the notation "RTS
Moved." Then, in June of 1999, Virgilio Agabon informed Riviera Homes by telephone that he and
Jenny Agabon were ready to return to work for Riviera Homes, on the condition that their wages
be first adjusted. On 18 June 1999, the Agabons went to Riviera Homes, and in a meeting with
management, requested a wage increase of up to Two Hundred Eighty Pesos (P280.00) a day.
When no affirmative response was offered by Riviera Homes, the Agabons initiated the complaint
before the NLRC.8
In their Position Paper, the Agabons likewise alleged that they were required to work even on
holidays and rest days, but were never paid the legal holiday pay or the premium pay for holiday
or rest day. They also asserted that they were denied Service Incentive Leave pay, and that
Virgilio Agabon was not given his thirteenth (13th) month pay for the year 1998. 9
After due deliberation, Labor Arbiter Daisy G. Cauton-Barcelona rendered a Decision dated 28
December 1999, finding the termination of the Agabons illegal, and ordering Riviera Homes to
pay backwages in the sum of Fifty Six Thousand Two Hundred Thirty One Pesos and Ninety Three
Centavos (P56,231.93) each. The Labor Arbiter likewise ordered, in lieu of reinstatement, the
payment of separation pay of one (1) month pay for every year of service from date of hiring up
to 29 November 1999, as well as the payment of holiday pay, service incentive leave pay, and
premium pay for holiday and restday, plus thirteenth (13th) month differential to Virgilio
Agabon.10

56
In so ruling, the Labor Arbiter declared that Riviera Homes was unable to satisfactorily refute the
Agabons' claim that they were no longer given work to do after 23 February 1999 and that their
rehiring was only on "pakyaw" basis. The Labor Arbiter also held that Riviera Homes failed to
comply with the notice requirement, noting that Riviera Homes well knew of the change of
address of the Agabons, considering that the identification cards it issued stated a different
address from that on the personnel file.11 The Labor Arbiter asserted the principle that in all
termination cases, strict compliance by the employer with the demands of procedural and
substantive due process is a condition sine qua non for the same to be declared valid.12
On appeal, the NLRC Second Division set aside the Labor Arbiter's Decision and ordered the
dismissal of the complaint for lack of merit.13 The NLRC held that the Agabons were not able to
refute the assertion that for the payroll period ending on 15 February 1999, Virgilio and Jenny
Agabon worked for only two and one-half (2) and three (3) days, respectively. It disputed the
earlier finding that Riviera Homes had known of the change in address, noting that the address
indicated in the
identification cards was not the Agabons, but that of the persons who should be notified in case
of emergency concerning the employee.14 Thus, proper service of the notice was deemed to
have been accomplished. Further, the notices evinced good reason to believe that the Agabons
had not been dismissed, but had instead abandoned their jobs by refusing to report for work.
In support of its conclusion that the Agabons had abandoned their work, the NLRC also observed
that the Agabons did not seek reinstatement, but only separation pay. While the choice of relief
was premised by the Agabons on their purported strained relations with Riviera Homes, the NLRC
pointed out that such claim was amply belied by the fact that the Agabons had actually sought a
conference with Riviera Homes in June of 1999. The NLRC likewise found that the failure of the
Labor Arbiter to justify the award of extraneous money claims, such as holiday and service
incentive leave pay, confirmed that there was no proof to justify such claims.
A Petition for Certiorari was promptly filed with the Court of Appeals by the Agabons, imputing
grave abuse of discretion on the part of the NLRC in dismissing their complaint for illegal
dismissal. In a Decision15 dated 23 January 2003, the Court of Appeals affirmed the finding that
the Agabons had abandoned their employment. It noted that the two elements constituting
abandonment had been established, to wit: the failure to report for work or absence without
valid justifiable reason, and; a clear intention to sever the employer-employee relationship. The
intent to sever the employer-employee relationship was buttressed by the Agabon's choice to
seek not reinstatement, but separation pay. The Court of Appeals likewise found that the service
of the notices were valid, as the Agabons did not notify Riviera Homes of their change of
address, and thus the failure to return to work despite notice amounted to abandonment of work.
However, the Court of Appeals reversed the NLRC as regards the denial of the claims for holiday
pay, service incentive leave pay, and the balance of Virgilio Agabon's thirteenth (13th) month
pay. It ruled that the failure to adduce proof in support thereof was not fatal and that the burden
of proving that such benefits had already been paid rested on Riviera Homes. 16 Given that
Riviera Homes failed to present proof of payment to the Agabons of their holiday pay and service
incentive leave pay for the years 1996, 1997 and 1998, the Court of Appeals chose to believe
that such benefits had not actually been received by the employees. It also ruled that the
apparent deductions made by Riviera Homes on the thirteenth (13th) month pay of Virgilio
Agabon violated Section 10 of the Rules and Regulations Implementing Presidential Decree No.
851.17 Accordingly, Riviera Homes was ordered to pay the Agabons holiday for four (4) regular
holidays in 1996, 1997 and 1998, as well as their service incentive leave pay for said years, and
the balance of Virgilio Agabon's thirteenth (13th) month pay for 1998 in the amount of Two
Thousand One Hundred Fifty Pesos (P2,150.00).18
In their Petition for Review, the Agabons claim that they had been illegally dismissed, reasserting
their version of events, thus: (1) that they had not been given new assignments since 23
February 1999; (2) that they were told that they would only be re-hired on a "pakyaw" basis, and;
(3) that Riviera Homes had knowingly sent the notices to their old address despite its knowledge
of their change of address as indicated in the identification cards. 19Further, the Agabons note

57
that only one notice was sent to each of them, in violation of the rule that the employer must
furnish two written notices before termination the first to apprise the employee of the cause
for which dismissal is sought, and the second to notify the employee of the decision of
dismissal.20 The Agabons likewise maintain that they did not seek reinstatement owing to the
strained relations between them and Riviera Homes.
The Agabons present to this Court only one issue, i.e.: whether or not they were illegally
dismissed from their employment.21 There are several dimensions though to this issue which
warrant full consideration.
The Abandonment Dimension
Review of Factual Finding of Abandonment
As the Decision points out, abandonment is characterized by the failure to report for work or
absence without valid or justifiable reason, and a clear intention to sever the employer-employee
relationship. The question of whether or not an employee has abandoned employment is
essentially a factual issue.22 The NLRC and the Court of Appeals, both appropriate triers of fact,
concluded that the Agabons had actually abandoned their employment, thus there is little need
for deep inquiry into the correctness of this factual finding. There is no doubt that the Agabons
stopped reporting for work sometime in February of 1999. And there is no evidence to support
their assertion that such absence was due to the deliberate failure of Riviera Homes to give them
work. There is also the fact, as noted by the NLRC and the Court of Appeals, that the Agabons did
not pray for reinstatement, but only for separation
pay and money claims.23 This failure indicates their disinterest in maintaining the employeremployee relationship and their unabated avowed intent to sever it. Their excuse that strained
relations between them and Riviera Homes rendered reinstatement no longer feasible was hardly
given credence by the NLRC and the Court of Appeals.24
The contrary conclusion arrived at by the Labor Arbiter as regards abandonment is of little
bearing to the case. All that the Labor Arbiter said on that point was that Riviera Homes was not
able to refute the Agabons' claim that they were terminated on 23 February 1999. 25 The Labor
Arbiter did not explain why or how such finding was reachhy or how such finding was reachhe
Agabons was more credible than that of Riviera Homes'. Being bereft of reasoning, the
conclusion deserves scant consideration.
Compliance with Notice Requirement
At the same time, both the NLRC and the Court of Appeals failed to consider the apparent fact
that the rules governing notice of termination were not complied with by Riviera Homes. Section
2, Book V, Rule XXIII of the Omnibus Rules Implementing the Labor Code (Implementing Rules)
specifically provides that for termination of employment based on just causes as defined in
Article 282, there must be: (1) written notice served on the employee specifying the grounds for
termination and giving employee reasonable opportunity to explain his/her side; (2) a hearing or
conference wherein the employee, with the assistance of counsel if so desired, is given
opportunity to respond to the charge, present his evidence or rebut evidence presented against
him/her; and (3) written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify termination.
At the same time, Section 2, Book V, Rule XXIII of the Implementing Rules does not require strict
compliance with the above procedure, but only that the same be "substantially observed."
Riviera Homes maintains that the letters it sent on 10 March 1999 to the Agabons sufficiently
complied with the notice rule. These identically worded letters noted that the Agabons had
stopped working without permission that they failed to return for work despite having been
repeatedly told to report to the office and resume their employment. 26 The letters ended with an
invitation to the Agabons to report back to the office and return to work. 27

58
The apparent purpose of these letters was to advise the Agabons that they were welcome to
return back to work, and not to notify them of the grounds of termination. Still, considering that
only substantial compliance with the notice requirement is required, I am prepared to say that
the letters sufficiently conform to the first notice required under the Implementing Rules. The
purpose of the first notice is to duly inform the employee that a particular transgression is being
considered against him or her, and that an opportunity is being offered for him or her to respond
to the charges. The letters served the purpose of informing the Agabons of the pending matters
beclouding their employment, and extending them the opportunity to clear the air.
Contrary to the Agabons' claim, the letter-notice was correctly sent to the employee's last
known address, in compliance with the Implementing Rules. There is no dispute that these
letters were not actually received by the Agabons, as they had apparently moved out of the
address indicated therein. Still, the letters were sent to what Riviera Homes knew to be the
Agabons' last known address, as indicated in their personnel file. The Agabons insist that Riviera
Homes had known of the change of address, offering as proof their company IDs which
purportedly print out their correct new address. Yet, as pointed out by the NLRC and the Court of
Appeals, the addresses indicated in the IDs are not the Agabons, but that of the person who is to
be notified in case on emergency involve either or both of the Agabons.
The actual violation of the notice requirement by Riviera Homes lies in its failure to serve on the
Agabons the second notice which should inform them of termination. As the Decision notes,
Riviera Homes' argument that sending the second notice was useless due to the change of
address is inutile, since the Implementing Rules plainly require that the notice of termination
should be served at the employee's last known address.
The importance of sending the notice of termination should not be trivialized. The termination
letter serves as indubitable proof of loss of employment, and its receipt compels the employee to
evaluate his or her next options. Without such notice, the employee may be left uncertain of his
fate; thus, its service is mandated by the Implementing Rules. Non-compliance with the notice
rule, as evident in this case, contravenes the Implementing Rules. But does the violation
serve to invalidate the Agabons' dismissal for just cause?
The So-Called Constitutional Law Dimension
Justices Puno and Panganiban opine that the Agabons should be reinstated as a consequence of
the violation of the notice requirement. I respectfully disagree, for the reasons expounded below.
Constitutional Considerations Of Due Process and the Notice-Hearing Requirement in
Labor Termination Cases
Justice Puno proposes that the failure to render due notice and hearing prior to dismissal for just
cause constitutes a violation of the constitutional right to due process. This view, as
acknowledged by Justice Puno himself, runs contrary to the Court's pronouncement in Serrano v.
NLRC28 that the absence of due notice and hearing prior to dismissal, if for just cause, violates
statutory due process.
The ponencia of Justice Vicente V. Mendoza in Serrano provides this cogent overview of the
history of the doctrine:
Indeed, to contend that the notice requirement in the Labor Code is an aspect of due process is
to overlook the fact that Art. 283 had its origin in Art. 302 of the Spanish Code of Commerce of
1882 which gave either party to the employer-employee relationship the right to terminate
their relationship by giving notice to the other one month in advance. In lieu of notice, an
employee could be laid off by paying him a mesadaequivalent to his salary for one month. This
provision was repealed by Art. 2270 of the Civil Code, which took effect on August 30, 1950.
But on June 12, 1954, R.A. No. 1052, otherwise known as the Termination Pay Law, was enacted
reviving the mesada. On June 21, 1957, the law was amended by R.A. No. 1787 providing for
the giving of advance notice for every year of service.29

59
Under Section 1 of the Termination Pay Law, an employer could dismiss an employee without just
cause by serving written notice on the employee at least one month in advance or one-half
month for every year of service of the employee, whichever was longer. 30 Failure to serve such
written notice entitled the employee to compensation equivalent to his salaries or wages
corresponding to the required period of notice from the date of termination of his employment.
However, there was no similar written notice requirement under the Termination Pay Law if the
dismissal of the employee was for just cause. The Court, speaking through Justice JBL Reyes,
ruled in Phil. Refining Co. v. Garcia:31
[Republic] Act 1052, as amended by Republic Act 1787, impliedly recognizes the right of the
employer to dismiss his employees (hired without definite period) whether for just case, as
therein defined or enumerated, or without it. If there be just cause, the employer is not
required to serve any notice of discharge nor to disburse termination pay to the
employee. xxx32
Clearly, the Court, prior to the enactment of the Labor Code, was ill-receptive to the notion that
termination for just cause without notice or hearing violated the constitutional right to due
process. Nonetheless, the Court recognized an award of damages as the appropriate remedy.
In Galsim v. PNB,33 the Court held:
Of course, the employer's prerogative to dismiss employees hired without a definite period
may be with or without cause. But if the manner in which such right is exercised is abusive,
the employer stands to answer to the dismissed employee for damages. 34
The Termination Pay Law was among the repealed laws with the enactment of the Labor Code in
1974. Significantly, the Labor Code, in its inception, did not require notice or hearing before an
employer could terminate an employee for just cause. As Justice Mendoza explained:
Where the termination of employment was for a just cause, no notice was required to be given
to the employee. It was only on September 4, 1981 that notice was required to be given even
where the dismissal or termination of an employee was for cause. This was made in the rules
issued by the then Minister of Labor and Employment to implement B.P. Blg. 130 which
amended the Labor Code. And it was still much later when the notice requirement was
embodied in the law with the amendment of Art. 277(b) by R.A. No. 6715 on March 2, 1989. 35
It cannot be denied though that the thinking that absence of notice or hearing prior to
termination constituted a constitutional violation has gained a jurisprudential foothold with the
Court. Justice Puno, in his Dissenting Opinion, cites several cases in support of this theory,
beginning with Batangas Laguna Tayabas Bus Co. v. Court of Appeals36 wherein we held that "the
failure of petitioner to give the private respondent the benefit of a hearing before he was
dismissed constitutes an infringement on his constitutional right to due process of law. 37
Still, this theory has been refuted, pellucidly and effectively to my mind, by Justice Mendoza's
disquisition inSerrano, thus:
xxx There are three reasons why, on the other hand, violation by the employer of the notice
requirement cannot be considered a denial of due process resulting in the nullity of the
employee's dismissal or layoff.
The first is that the Due Process Clause of the Constitution is a limitation on governmental
powers. It does not apply to the exercise of private power, such as the termination of
employment under the Labor Code. This is plain from the text of Art. III, 1 of the Constitution,
viz.: "No person shall be deprived of life, liberty, or property without due process of law. . . ."
The reason is simple: Only the State has authority to take the life, liberty, or property of the
individual. The purpose of the Due Process Clause is to ensure that the exercise of this power
is consistent with what are considered civilized methods.

60
The second reason is that notice and hearing are required under the Due Process Clause
before the power of organized society are brought to bear upon the individual. This is
obviously not the case of termination of employment under Art. 283. Here the employee is not
faced with an aspect of the adversary system. The purpose for requiring a 30-day written
notice before an employee is laid off is not to afford him an opportunity to be heard on any
charge against him, for there is none. The purpose rather is to give him time to prepare for
the eventual loss of his job and the DOLE an opportunity to determine whether economic
causes do exist justifying the termination of his employment.xxx
The third reason why the notice requirement under Art. 283 can not be considered a
requirement of the Due Process Clause is that the employer cannot really be expected to be
entirely an impartial judge of his own cause. This is also the case in termination of
employment for a just cause under Art. 282 (i.e., serious misconduct or willful disobedience by
the employee of the lawful orders of the employer, gross and habitual neglect of duties, fraud
or willful breach of trust of the employer, commission of crime against the employer or the
latter's immediate family or duly authorized representatives, or other analogous cases). 38
The Court in the landmark case of People v. Marti39 clarified the proper dimensions of the Bill of
Rights.
That the Bill of Rights embodied in the Constitution is not meant to be invoked against acts of
private individuals finds support in the deliberations of the Constitutional Commission. True,
the liberties guaranteed by the fundamental law of the land must always be subject to
protection. But protection against whom? Commissioner Bernas in his sponsorship speech in
the Bill of Rights answers the query which he himself posed, as follows:
"First, the general reflections. The protection of fundamental liberties in the essence of
constitutional democracy. Protection against whom? Protection against the state. The Bill of
Rights governs the relationship between the individual and the state. Its concern is not the
relation between individuals, between a private individual and other individuals. What the
Bill of Rights does is to declare some forbidden zones in the private sphere inaccessible to
any power holder." (Sponsorship Speech of Commissioner Bernas; Record of the
Constitutional Commission, Vol. 1, p. 674; July 17,1986; Italics supplied) 40
I do not doubt that requiring notice and hearing prior to termination for just cause is an
admirable sentiment borne out of basic equity and fairness. Still, it is not a constitutional
requirement that can impose itself on the relations of private persons and entities. Simply put,
the Bill of Rights affords protection against possible State oppression against its citizens, but not
against an unjust or repressive conduct by a private party towards another.
Justice Puno characterizes the notion that constitutional due process limits government action
alone as "pass,"and adverts to nouvelle vague theories which assert that private conduct may
be restrained by constitutional due process. His dissent alludes to the American experience
making references to the post-Civil War/pre-World War II era when the US Supreme Court seemed
overly solicitous to the rights of big business over those of the workers.
Theories, no matter how entrancing, remain theoretical unless adopted by legislation, or more
controversially, by judicial opinion. There were a few decisions of the US Supreme Court that,
ostensibly, imposed on private persons the values of the constitutional guarantees. However, in
deciding the cases, the American High Court found it necessary to link the actors to adequate
elements of the "State" since the Fourteenth Amendment plainly begins with the words "No
State shall"41
More crucially to the American experience, it had become necessary to pass legislation in order
to compel private persons to observe constitutional values. While the equal protection clause
was deemed sufficient by the Warren Court to bar racial segregation in public facilities, it
necessitated enactment of the Civil Rights Acts of 1964 to prohibit segregation as enforced by
private persons within their property. In this jurisdiction, I have trust in the statutory regime that
governs the correction of private wrongs. There are thousands of statutes, some penal or

61
regulatory in nature, that are the source of actionable claims against private persons. There is
even no stopping the State, through the legislative cauldron, from compelling private individuals,
under pain of legal sanction, into observing the norms ordained in the Bill of Rights.
Justice Panganiban's Separate Opinion asserts that corporate behemoths and even individuals
may now be sources of abuses and threats to human rights and liberties. 42 The concern is not
unfounded, but appropriate remedies exist within our statutes, and so resort to the constitutional
trump card is not necessary. Even if we were to engage the premise, the proper juristic exercise
should be to examine whether an employer has taken the attributes of the State so that it could
be compelled by the Constitution to observe the proscriptions of the Bill of Rights. But the
strained analogy simply does not square since the attributes of an employer are starkly
incongruous with those of the State. Employers plainly do not possess the awesome powers and
the tremendous resources which the State has at its command.
The differences between the State and employers are not merely literal, but extend to their very
essences. Unlike the State, the raison d'etre of employers in business is to accumulate profits.
Perhaps the State and the employer are similarly capacitated to inflict injury or discomfort on
persons under their control, but the same power is also possessed by a school principal, hospital
administrator, or a religious leader, among many others. Indeed, the scope and reach of
authority of an employer pales in comparison with that of the State. There is no basis to
conclude that an employer, or even the employer class, may be deemed a de facto state and on
that premise, compelled to observe the Bill of Rights. There is simply no nexus in their functions,
distaff as they are, that renders it necessary to accord the same jurisprudential treatment.
It may be so, as alluded in the dissent of Justice Puno, that a conservative court system overly
solicitous to the concerns of business may consciously gut away at rights or privileges owing to
the labor sector. This certainly happened before in the United States in the early part of the
twentieth century, when the progressive labor legislation such as that enacted during President
Roosevelt's New Deal regime most of them addressing problems of labor were struck down
by an arch-conservative Court.43 The preferred rationale then was to enshrine within the
constitutional order business prerogatives, rendering them superior to the express legislative
intent. Curiously, following its judicial philosophy at the time the U. S. Supreme Court made due
process guarantee towards employers prevail over the police power to defeat the cause of
labor.44
Of course, this Court should not be insensate to the means and methods by which the
entrenched powerful class may maneuver the socio-political system to ensure self-preservation.
However, the remedy to rightward judicial bias is not leftward judicial bias. The more proper
judicial attitude is to give due respect to legislative prerogatives, regardless of the ideological
sauce they are dipped in.
While the Bill of Rights maintains a position of primacy in the constitutional hierarchy, 45 it has
scope and limitations that must be respected and asserted by the Court, even though they may
at times serve somewhat bitter ends. The dissenting opinions are palpably distressed at the
effect of the Decision, which will undoubtedly provoke those reflexively sympathetic to the labor
class. But haphazard legal theory cannot be used to justify the obverse result. The adoption of
the dissenting views would give rise to all sorts of absurd constitutional claims. An
excommunicated Catholic might demand his/her reinstatement into the good graces of the
Church and into communion on the ground that excommunication was violative of the
constitutional right to due process. A celebrity contracted to endorse Pepsi Cola might sue in
court to void a stipulation that prevents him/her from singing the praises of Coca Cola once in a
while, on the ground that such stipulation violates the constitutional right to free speech. An
employee might sue to prevent the employer from reading outgoing e-mail sent through the
company server using the company e-mail address, on the ground that the constitutional right to
privacy of communication would be breached.
The above concerns do not in anyway serve to trivialize the interests of labor. But we must avoid
overarching declarations in order to justify an end result beneficial to labor. I dread the doctrinal
acceptance of the notion that the Bill of Rights, on its own, affords protection and sanctuary not

62
just from the acts of State but also from the conduct of private persons. Natural and juridical
persons would hesitate to interact for fear that a misstep could lead to their being charged in
court as a constitutional violator. Private institutions that thrive on their exclusivity, such as
churches or cliquish groups, could be forced to renege on their traditional tenets, including vows
of secrecy and the like, if deemed by the Court as inconsistent with the Bill of Rights. Indeed,
that fundamental right of all private persons to be let alone would be forever diminished because
of a questionable notion that contravenes with centuries of political thought.
It is not difficult to be enraptured by novel legal ideas. Their characterization is susceptible to the
same marketing traps that hook consumers to new products. With the help of unique wrapping, a
catchy label, and testimonials from professed experts from exotic lands, a malodorous idea may
gain wide acceptance, even among those self-possessed with their own heightened senses of
perception. Yet before we join the mad rush in order to proclaim a theory as "brilliant," a rigorous
test must first be employed to determine whether it complements or contradicts our own system
of laws and juristic thought. Without such analysis, we run the risk of abnegating the doctrines
we have fostered for decades and the protections they may have implanted into our way of life.
Should the Court adopt the view that the Bill of Rights may be invoked to invalidate actions by
private entities against private individuals, the Court would open the floodgates to, and the
docket would be swamped with, litigations of the scurrilous sort. Just as patriotism is the last
refuge of scoundrels, the broad constitutional claim is the final resort of the desperate litigant.
Constitutional Protection of Labor
The provisions of the 1987 Constitution affirm the primacy of labor and advocate a multi-faceted
state policy that affords, among others, full protection to labor. Section 18, Article II thereof
provides:
The State affirms labor as a primary social economic force. It shall protect the rights of workers
and promote their welfare.
Further, Section 3, Article XIII states:
The State shall afford full protection to labor, local and overseas, organized and unorganized,
and promote full employment and equal employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in accordance with
law. They shall be entitled to security to tenure, humane conditions of work, and a living wage.
They shall also participate in policy and decision-making processes affecting their rights and
benefits as may be provided by law.
The State shall promote the principle of shared responsibility between workers and employers
and the preferential use of voluntary modes in settling disputes, including conciliation, and
shall enforce their mutual compliance therewith to foster industrial peace.
The State shall regulate the relations between workers and employers, recognizing the right of
labor to its just share in the fruits of production and the right of enterprises to reasonable
returns on investments, and to expansion and growth.
The constitutional enshrinement of the guarantee of full protection of labor is not novel to the
1987 Constitution. Section 6, Article XIV of the 1935 Constitution reads:
The State shall afford protection to labor, especially to working women, and minors, and shall
regulate the relations between the landowner and tenant, and between labor and capital in
industry and in agriculture. The State may provide for compulsory arbitration.

63
Similarly, among the principles and state policies declared in the 1973 Constitution, is that
provided in Section 9, Article II thereof:
The State shall afford full protection to labor, promote full employment and equality in
employment, ensure equal work opportunities regardless of sex, race or creed, and regulate
the relations between workers and employers. The State shall assure the rights of workers to
self-organization, collective bargaining, security of tenure, and just and humane conditions of
work. The State may provide for compulsory arbitration.
On the other hand, prior to the 1973 Constitution, the right to security of tenure could only be
found in legislative enactments and their respective implementing rules and regulations. It was
only in the 1973 Constitution that security of tenure was elevated as a constitutional right. The
development of the concept of security of tenure as a constitutionally recognized right was
discussed by this Court in BPI Credit Corporation v. NLRC,46 to wit:
The enthronement of the worker's right to security or tenure in our fundamental law was not
achieved overnight. For all its liberality towards labor, our 1935 Constitution did not elevate
the right as a constitutional right. For a long time, the worker's security of tenure had only the
protective mantle of statutes and their interpretative rules and regulations. It was as uncertain
protection that sometimes yielded to the political permutations of the times. It took labor
nearly four decades of sweat and tears to persuade our people thru their leaders, to exalt the
worker's right to security of tenure as a sacrosanct constitutional right. It was Article II, section
2 [9] of our 1973 Constitution that declared as a policy that the State shall assure the right of
worker's to security tenure. The 1987 Constitution is even more solicitous of the welfare of
labor. Section 3 of its Article XIII mandates that the State shall afford full protection to labor
and declares that all workers shall be entitled to security of tenure. Among the enunciated
State policies are the promotion of social justice and a just and dynamic social order. In
contrast, the prerogative of management to dismiss a worker, as an aspect of property right,
has never been endowed with a constitutional status.
The unequivocal constitutional declaration that all workers shall be entitled to security of
tenure spurred our lawmakers to strengthen the protective walls around this hard earned
right. The right was protected from undue infringement both by our substantive and
procedural laws. Thus, the causes for dismissing employees were more defined and restricted;
on the other hand, the procedure of termination was also more clearly delineated. These
substantive and procedural laws must be strictly complied with before a worker can be
dismissed from his employment.47
It is quite apparent that the constitutional protection of labor was entrenched more than eight
decades ago, yet such did not prevent this Court in the past from affirming dismissals for just
cause without valid notice. Nor was there any pretense made that this constitutional maxim
afforded a laborer a positive right against dismissal for just cause on the ground of lack of valid
prior notice. As demonstrated earlier, it was only after the enactment of the Labor Code that the
doctrine relied upon by the dissenting opinions became en vogue. This point highlights my
position that the violation of the notice requirement has statutory moorings, not constitutional.
It should be also noted that the 1987 Constitution also recognizes the principle of shared
responsibility between workers and employers, and the right of enterprise to reasonable returns,
expansion, and growth. Whatever perceived imbalance there might have been under previous
incarnations of the provision have been obviated by Section 3, Article XIII.
In the case of Manila Prince Hotel v. GSIS,48 we affirmed the presumption that all constitutional
provisions are self-executing. We reasoned that to declare otherwise would result in the
pernicious situation wherein by mere inaction and disregard by the legislature, constitutional
mandates would be rendered ineffectual. Thus, we held:
As against constitutions of the past, modern constitutions have been generally ed upon a
different principle and have often become in effect extensive codes of laws intended to operate
directly upon the people in a manner similar to that of statutory enactments, and the function

64
of constitutional conventions has evolved into one more like that of a legislative body. Hence,
unless it is expressly provided that a legislative act is necessary to enforce a constitutional
mandate, the presumption now is that all provisions of the constitution are self-executing. If the
constitutional provisions are treated as requiring legislation instead of self-executing, the
legislature would have the power to ignore and practically nullify the mandate of the
fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always
been, that
. . . in case of doubt, the Constitution should be considered self-executing rather than nonself-executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution
should be considered self-executing, as a contrary rule would give the legislature discretion
to determine when, or whether, they shall be effective. These provisions would be
subordinated to the will of the lawmaking body, which could make them entirely
meaningless by simply refusing to pass the needed implementing statute. 49
In further discussing self-executing provisions, this Court stated that:
In self-executing constitutional provisions, the legislature may still enact legislation to
facilitate the exercise of powers directly granted by the constitution, further the operation of
such a provision, prescribe a practice to be used for its enforcement, provide a convenient
remedy for the protection of the rights secured or the determination thereof, or place
reasonable safeguards around the exercise of the right. The mere fact that legislation may
supplement and add to or prescribe a penalty for the violation of a self-executing
constitutional provision does not render such a provision ineffective in the absence of such
legislation. The omission from a constitution of any express provision for a remedy for
enforcing a right or liability is not necessarily an indication that it was not intended to be selfexecuting. The rule is that a self-executing provision of the constitution does not necessarily
exhaust legislative power on the subject, but any legislation must be in harmony with the
constitution, further the exercise of constitutional right and make it more available.
Subsequent legislation however does not necessarily mean that the subject constitutional
provision is not, by itself, fully enforceable.50
Thus, the constitutional mandates of protection to labor and security of tenure may be deemed
as self-executing in the sense that these are automatically acknowledged and observed without
need for any enabling legislation. However, to declare that the constitutional provisions are
enough to guarantee the full exercise of the rights embodied therein, and the realization of
ideals therein expressed, would be impractical, if not unrealistic. The espousal of such view
presents the dangerous tendency of being overbroad and exaggerated. The guarantees of "full
protection to labor" and "security of tenure", when examined in isolation, are facially unqualified,
and the broadest interpretation possible suggests a blanket shield in favor of labor against any
form of removal regardless of circumstance. This interpretation implies an unimpeachable right
to continued employment-a utopian notion, doubtless-but still hardly within the contemplation of
the framers. Subsequent legislation is still needed to define the parameters of these guaranteed
rights to ensure the protection and promotion, not only the rights of the labor sector, but of the
employers' as well. Without specific and pertinent legislation, judicial bodies will be at a loss,
formulating their own conclusion to approximate at least the aims of the Constitution.
Ultimately, therefore, Section 3 of Article XIII cannot, on its own, be a source of a positive
enforceable right to stave off the dismissal of an employee for just cause owing to the failure to
serve proper notice or hearing. As manifested by several framers of the 1987 Constitution, the
provisions on social justice require legislative enactments for their enforceability. This is reflected
in the record of debates on the social justice provisions of the Constitution:
MS. [FELICITAS S.] AQUINO: We appreciate the concern of the Commissioner. But this
Committee [on Social Justice] has actually become the forum already of a lot of specific
grievances and specific demands, such that understandably, we may have been, at
one time or another, dangerously treading into the functions of legislation. Our only
plea to the Commission is to focus our perspective on the matter of social justice and its
rightful place in the Constitution. What we envision here is a mandate specific enough

65
that would give impetus for statutory implementation. We would caution ourselves
in terms of the judicious exercise of self-censorship against treading into the
functions of legislation. (emphasis supplied)51
xxx
[FLORENZ D.] REGALADO: I notice that the 1935 Constitution had only one section on social
justice; the same is true with the 1973 Constitution. But they seem to have stood us in good
stead; and I am a little surprised why, despite that attempt at self-censorship, there
are certain provisions here which are properly for legislation.52
xxx
BISHOP [TEODORO S.] BACANI: [I] think the distinction that was given during the presentation
of the provisions on the Bill of Rights by Commissioner Bernas is very apropos here. He spoke
of self-executing rights which belong properly to the Bill of Rights, and then he
spoke of a new body of rights which are more of claims and that these have come
about largely through the works of social philosophers and then the teaching of the
Popes. They focus on the common good and hence, it is not as easy to pinpoint
precisely these rights nor the situs of the rights. And yet, they exist in relation to the
common good.53
xxx
MS. [MINDA LUZ M.] QUESADA: I think the nitty-gritty of this kind of collaboration will
be left to legislation but the important thing now is the conservation, utilization or
maximization of the very limited resources. xxx
[RICARDO J.] ROMULO: The other problem is that, by and large, government services are
inefficient. So, this is a problem all by itself. On Section 19, where the report says that people's
organizations as a principal means of empowering the people to pursue and protect through
peaceful means, I do not suppose that the Committee would like to either preempt
or exclude the legislature, because the concept of a representative and democratic
system really is that the legislature is normally the principal means.
[EDMUNDO G.] GARCIA: That is correct. In fact, people cannot even dream of
influencing the composition or the membership of the legislature, if they do not get
organized. It is, in fact, a recognition of the principle that unless a citizenry is organized and
mobilized to pursue its ends peacefully, then it cannot really participate effectively. 54
There is no pretense on the part of the framers that the provisions on Social Justice, particularly
Section 3 of Article XIII, are self-executory. Still, considering the rule that provisions should be
deemed self-executing if enforceable without further legislative action, an examination of Section
3 of Article XIII is warranted to determine whether it is complete in itself as a definitive law, or if
it needs future legislation for completion and enforcement. 55Particularly, we should inquire
whether or not the provision voids the dismissal of a laborer for just cause if no valid notice or
hearing is attendant.
Constitutional Commissioner Fr. Joaquin G. Bernas makes a significant comment on
Section 3, Article XIII of the 1987 Constitution:
The [cluster] of rights guaranteed in the second paragraph are the right "to security of tenure,
humane conditions of work, and a living wage." Again, although these have been set apart by a
period (.) from the next sentence and are therefore not modified by the final phrase "as may be
provided by law," it is not the intention to place these beyond the reach of valid laws.
xxx (emphasis supplied)56
At present, the Labor Code is the primary mechanism to carry out the Constitution's directives.
This is clear from Article 357 under Chapter 1 thereof which essentially restates the policy on the
protection of labor as worded in the 1973 Constitution, which was in force at the time of
enactment of the Labor Code. It crystallizes the fundamental law's policies on labor, defines the
parameters of the rights granted to labor such as the right to security of tenure, and prescribes
the standards for the enforcement of such rights in concrete terms. While not infallible, the
measures provided therein tend to ensure the achievement of the constitutional aims.

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The necessity for laws concretizing the constitutional principles on the protection of labor is
evident in the reliance placed upon such laws by the Court in resolving the issue of the validity of
a worker's dismissal. In cases where that was the issue confronting the Court, it consistently
recognized the constitutional right to security of tenure and employed the standards laid down
by prevailing laws in determining whether such right was violated. 58 The Court's reference to
laws other than the Constitution in resolving the issue of dismissal is an implicit acknowledgment
that the right to security of tenure, while recognized in the Constitution, cannot be implemented
uniformly absent a law prescribing concrete standards for its enforcement.
As discussed earlier, the validity of an employee's dismissal in previous cases was examined by
the Court in accordance with the standards laid down by Congress in the Termination Pay Law,
and subsequently, the Labor Code and the amendments thereto. At present, the validity of an
employee's dismissal is weighed against the standards laid down in Article 279, as well as Article
282 in relation to Article 277(b) of the Labor Code, for a dismissal for just cause, and Article 283
for a dismissal for an authorized cause.
The Effect of Statutory Violation Of Notice and Hearing
There is no doubt that the dismissal of an employee even for just cause, without prior notice or
hearing, violates the Labor Code. However, does such violation necessarily void the dismissal?
Before I proceed with my discussion on dismissals for just causes, a brief comment regarding
dismissals for authorized cause under Article 283 of the Labor Code. While the justiciable
question in Serrano pertained to a dismissal for unauthorized cause, the ruling therein was
crafted as definitive to dismissals for just cause. Happily, the Decision today does not adopt the
same unwise tack. It should be recognized that dismissals for just cause and dismissals for
authorized cause are governed by different provisions, entail divergent requisites, and animated
by distinct rationales. The language of Article 283 expressly effects the termination for
authorized cause to the service of written notice on the workers and the Ministry of Labor at
least one (1) month before the intended date of termination. This constitutes an eminent
difference than dismissals for just cause, wherein the causal relation between the notice and the
dismissal is not expressly stipulated. The circumstances distinguishing just and authorized
causes are too markedly different to be subjected to the same rules and reasoning in
interpretation.
Since the present petition is limited to a question arising from a dismissal for just cause, there is
no reason for making any pronouncement regarding authorized causes. Such declaration would
be merely obiter, since they are neither the law of the case nor dispositive of the present
petition. When the question becomes justiciable before this Court, we will be confronted with an
appropriate factual milieu on which we can render a more judicious disposition of this admittedly
important question.
B. Dismissal for Just Cause
There is no express provision in the Labor Code that voids a dismissal for just cause on the
ground that there was no notice or hearing. Under Section 279, the employer is precluded from
dismissing an employee except for a just cause as provided in Section 282, or an authorized
cause under Sections 283 and 284. Based on reading Section 279 alone, the existence of just
cause by itself is sufficient to validate the termination.
Just cause is defined by Article 282, which unlike Article 283, does not condition the termination
on the service of written notices. Still, the dissenting opinions propound that even if there is just
cause, a termination may be invalidated due to the absence of notice or hearing. This view is
anchored mainly on constitutional moorings, the basis of which I had argued against earlier. For
determination now is whether there is statutory basis under the Labor Code to void a dismissal
for just cause due to the absence of notice or hearing.

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As pointed out by Justice Mendoza in Serrano, it was only in 1989 that the Labor Code was
amended to enshrine into statute the twin requirements of notice and hearing. 59 Such
requirements are found in Article 277 of the Labor Code, under the heading "Miscellaneous
Provisions." Prior to the amendment, the notice-hearing requirement was found under the
implementing rules issued by the then Minister of Labor in 1981. The present-day implementing
rules likewise mandate that the standards of due process, including the requirement of written
notice and hearing, "be substantially observed."60
Indubitably, the failure to substantially comply with the standards of due process, including the
notice and hearing requirement, may give rise to an actionable claim against the employer.
Under Article 288, penalties may arise from violations of any provision of the Labor Code. The
Secretary of Labor likewise enjoys broad powers to inquire into existing relations between
employers and employees. Systematic violations by management of the statutory right to due
process would fall under the broad grant of power to the Secretary of Labor to investigate under
Article 273.
However, the remedy of reinstatement despite termination for just cause is simply not
authorized by the Labor Code. Neither the Labor Code nor its implementing rules states that a
termination for just cause is voided because the requirement of notice and hearing was not
observed. This is not simply an inadvertent semantic failure, but a conscious effort to protect the
prerogatives of the employer to dismiss an employee for just cause. Notably, despite the several
pronouncements by this Court in the past equating the notice-hearing requirement in labor cases
to a constitutional maxim, neither the legislature nor the executive has adopted the same tack,
even gutting the protection to provide that substantial compliance with due process suffices.
The Labor Code significantly eroded management prerogatives in the hiring and firing of
employees. Whereas employees could be dismissed even without just cause under the
Termination Pay Law61, the Labor Code affords workers broad security of tenure. Still, the law
recognizes the right of the employer to terminate for just cause. The just causes enumerated
under the Labor Code serious misconduct or willful disobedience, gross and habitual neglect,
fraud or willful breach of trust, commission of a crime by the employee against the employer,
and other analogous causes are characterized by the harmful behavior of an employee
against the business or the person of the employer.
These just causes for termination are not negated by the absence of notice or hearing. An
employee who tries to kill the employer cannot be magically absolved of trespasses just because
the employer forgot to serve due notice. Or a less extreme example, the gross and habitual
neglect of an employee will not be improved upon just because the employer failed to conduct a
hearing prior to termination.
In fact, the practical purpose of requiring notice and hearing is to afford the employee the
opportunity to dispute the contention that there was just cause in the dismissal. Yet it must be
understood if a dismissed employee is deprived of the right to notice and hearing,
and thus denied the opportunity to present countervailing evidence that disputes the
finding of just cause, reinstatement will be valid not because the notice and hearing
requirement was not observed, but because there was no just cause in the
dismissal. The opportunity to dispute the finding of the just cause is readily available before the
Labor Arbiter, and the subsequent levels of appellate review. Again, as held in Serrano:
Even in cases of dismissal under Art. 282, the purpose for the requirement of notice and hearing
is not to comply with the Due Process Clause of the Constitution. The time for notice and hearing
is at the trial stage. Then that is the time we speak of notice and hearing as the essence of
procedural due process. Thus, compliance by the employer with the notice requirement before
he dismisses an employee does not foreclose the right of the latter to question the legality of his
dismissal. As Art. 277(b) provides, "Any decision taken by the employer shall be without
prejudice to the right of the worker to contest the validity or legality of his dismissal by filing a
complaint with the regional branch of the National Labor Relations Commission. 62

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The Labor Code presents no textually demonstrable commitment to invalidate a dismissal for
just cause due to the absence of notice or hearing. This is not surprising, as such remedy will not
restore the employer or employee into equity. Absent a showing of integral causation, the mutual
infliction of wrongs does not negate either injury, but instead enforces two independent rights of
relief.
The Damages' Dimensions
Award for Damages Must Have Statutory Basis
The Court has grappled with the problem of what should be the proper remedial relief of an
employee dismissed with just cause, but not afforded either notice or hearing. In a long line of
cases, beginning with Wenphil Corp. v. NLRC63 and up until Serrano in 2000, the Court had
deemed an indemnification award as sufficient to answer for the violation by the employer
against the employee. However, the doctrine was modified in Serrano.
I disagree with Serrano insofar as it held that employees terminated for just cause are to be paid
backwages from the time employment was terminated "until it is determined that the
termination is for just cause because the failure to hear him before he is dismissed renders the
termination of his employment without legal effect."64Article 279 of the Labor Code clearly
authorizes the payment of backwages only if an employee is unjustly dismissed. A dismissal for
just cause is obviously antithetical to an unjust dismissal. An award for backwages is not clearly
warranted by the law.
The Impropriety of Award for Separation Pay
The formula of one month's pay for every year served does have statutory basis. It is found
though in the Labor Code though, not the Civil Code. Even then, such computation is made for
separation pay under the Labor Code. But separation pay is not an appropriate as a remedy in
this case, or in any case wherein an employee is terminated for just cause. As Justice Vitug noted
in his separate opinion in Serrano, an employee whose employment is terminated for a just
cause is not entitled to the payment of separation benefits. 65 Separation pay is traditionally a
monetary award paid as an alternative to reinstatement which can no longer be effected in view
of the long passage of time or because of the realities of the situation. 66 However, under Section
7, Rule 1, Book VI of the Omnibus Rules Implementing the Labor Code, "[t]he separation from
work of an employee for a just cause does not entitle him to the termination pay provided in the
Code."67 Neither does the Labor Code itself provide instances wherein separation pay is
warranted for dismissals with just cause. Separation pay is warranted only for dismissals for
authorized causes, as enumerated in Article 283 and 284 of the Labor Code.
The Impropriety of Equity Awards
Admittedly, the Court has in the past authorized the award of separation pay for duly terminated
employees as a measure of social justice, provided that the employee is not guilty of serious
misconduct reflecting on moral character. 68 This doctrine is inapplicable in this case, as the
Agabons are guilty of abandonment, which is the deliberate and unjustified refusal of an
employee to resume his employment. Abandonment is tantamount to serious misconduct, as it
constitutes a willful breach of the employer-employee relationship without cause.
The award of separation pay as a measure of social justice has no statutory basis, but clearly
emanates from the Court's so-called "equity jurisdiction." The Court's equity jurisdiction as a
basis for award, no matter what form it may take, is likewise unwarranted in this case. Easy
resort to equity should be avoided, as it should yield to positive rules which pre-empt and prevail
over such persuasions.69 Abstract as the concept is, it does not admit to definite and objective
standards.
I consider the pronouncement regarding the proper monetary awards in such cases as Wenphil
Corp. v. NLRC,70Reta,71 and to a degree, even Serrano as premised in part on equity. This decision

69
is premised in part due to the absence of cited statutory basis for these awards. In these cases,
the Court deemed an indemnity award proper without exactly saying where in statute could such
award be derived at. Perhaps, equity or social justice can be invoked as basis for the award.
However, this sort of arbitrariness, indeterminacy and judicial usurpation of legislative
prerogatives is precisely the source of my discontent. Social justice should be the aspiration of all
that we do, yet I think it the more mature attitude to consider that it ebbs and flows within our
statutes, rather than view it as an independent source of funding.

Article 288 of the Labor Code as a Source of Liability

Another putative source of liability for failure to render the notice requirement is Article 288 of
the Labor Code, which states:
Article 288 states: Penalties. Except as otherwise provided in this Code, or unless the acts
complained of hinges on a question of interpretation or implementation of ambiguous provisions
of an existing collective bargaining agreement, any violation of the provisions of this Code
declared to be unlawful or penal in nature shall be punished with a fine of not less than One
Thousand Pesos (P1,000.00) nor more than Ten Thousand Pesos (P10,000.00), or imprisonment
of not less than three months nor more than three years, or both such fine and imprisonment at
the discretion of the court.
It is apparent from the provision that the penalty arises due to contraventions of the provisions
of the Labor Code. It is also clear that the provision comes into play regardless of who the
violator may be. Either the employer or the employee may be penalized, or perhaps even
officials tasked with implementing the Labor Code.
However, it is apparent that Article 288 is a penal provision; hence, the prescription for penalties
such as fine and imprisonment. The Article is also explicit that the imposition of fine or
imprisonment is at the "discretion of the court." Thus, the proceedings under the provision is
penal in character. The criminal case has to be instituted before the proper courts, and the Labor
Code violation subject thereof duly proven in an adversarial proceeding. Hence, Article 288
cannot apply in this case and serve as basis to impose a penalty on Riviera Homes.
I also maintain that under Article 288 the penalty should be paid to the State, and not to the
person or persons who may have suffered injury as a result of the violation. A penalty is a sum of
money which the law requires to be paid by way of punishment for doing some act which is
prohibited or for not doing some act which is required to be done. 72 A penalty should be
distinguished from damages which is the pecuniary compensation or indemnity to a person who
has suffered loss, detriment, or injury, whether to his person, property, or rights, on account of
the unlawful act or omission or negligence of another. Article 288 clearly serves as a punitive
fine, rather than a compensatory measure, since the provision penalizes an act that violates the
Labor Code even if such act does not cause actual injury to any private person.
Independent of the employee's interests protected by the Labor Code is the interest of the State
in seeing to it that its regulatory laws are complied with. Article 288 is intended to satiate the
latter interest. Nothing in the language of Article 288 indicates an intention to compensate or
remunerate a private person for injury he may have sustained.
It should be noted though that in Serrano, the Court observed that since the promulgation
of Wenphil Corp. v. NLRC73 in 1989, "fines imposed for violations of the notice requirement have
varied from P1,000.00 to P2,000.00 to P5,000.00 to P10,000.00."74 Interestingly, this range is the
same range of the penalties imposed by Article 288. These "fines" adverted to in Serrano were
paid to the dismissed employee. The use of the term "fines," as well as the terminology
employed a few other cases,75 may have left an erroneous impression that the award
implemented beginning with Wenphil was based on Article 288 of the Labor Code. Yet, an
examination of Wenphilreveals that what the Court actually awarded to the employee was an

70
"indemnity", dependent on the facts of each case and the gravity of the omission committed by
the employer. There is no mention in Wenphil of Article 288 of the Labor Code, or indeed, of any
statutory basis for the award.
The Proper Basis: Employer's Liability under the Civil Code
As earlier stated, Wenphil allowed the payment of indemnity to the employee dismissed for just
cause is dependent on the facts of each case and the gravity of the omission committed by the
employer. However, I considered Wenphil flawed insofar as it is silent as to the statutory basis for
the indemnity award. This failure, to my mind, renders it unwise for to reinstate the Wenphil rule,
and foster the impression that it is the judicial business to invent awards for damages without
clear statutory basis.
The proper legal basis for holding the employer liable for monetary damages to the
employee dismissed for just cause is the Civil Code. The award of damages should be
measured against the loss or injury suffered by the employee by reason of the
employer's violation or, in case of nominal damages, the right vindicated by the
award. This is the proper paradigm authorized by our law, and designed to obtain the
fairest possible relief.
Under Section 217(4) of the Labor Code, the Labor Arbiter has jurisdiction over claims for actual,
moral, exemplary and other forms of damages arising from the employer-employee relations. It
is thus the duty of Labor Arbiters to adjudicate claims for damages, and they should disabuse
themselves of any inhibitions if it does appear that an award for damages is warranted. As triers
of facts in a specialized field, they should attune themselves to the particular conditions or
problems attendant to employer-employee relationships, and thus be in the best possible
position as to the nature and amount of damages that may be warranted in this case.
The damages referred under Section 217(4) of the Labor Code are those available under the Civil
Code. It is but proper that the Civil Code serve as the basis for the indemnity, it being the law
that regulates the private relations of the members of civil society, determining their respective
rights and obligations with reference to persons, things, and civil acts. 76 No matter how
impressed with the public interest the relationship between a private employer and employee is,
it still is ultimately a relationship between private individuals. Notably, even though the Labor
Code could very well have provided set rules for damages arising from the employer-employee
relationship, referral was instead made to the concept of damages as enumerated and defined
under the Civil Code.
Given the long controversy that has dogged this present issue regarding dismissals for just
cause, it is wise to lay down standards that would guide the proper award of damages under the
Civil Code in cases wherein the employer failed to comply with statutory due process in
dismissals for just cause.
First. I believe that it can be maintained as a general rule, that failure to comply with the
statutory requirement of notice automatically gives rise to nominal damages, at the very least,
even if the dismissal was sustained for just cause.
Nominal damages are adjudicated in order that a right of a plaintiff which has been violated or
invaded by another may be vindicated or recognized without having to indemnify the plaintiff for
any loss suffered by him.77 Nominal damages may likewise be awarded in every obligation
arising from law, contracts, quasi-contracts, acts or omissions punished by law, and quasi-delicts,
or where any property right has been invaded.
Clearly, the bare act of failing to observe the notice requirement gives rise to nominal damages
assessable against the employer and due the employee. The Labor Code indubitably entitles the
employee to notice even if dismissal is for just cause, even if there is no apparent intent to void
such dismissals deficiently implemented. It has also been held that one's employment,

71
profession, trade, or calling is a "property right" and the wrongful interference therewith gives
rise to an actionable wrong.78
In Better Buildings, Inc. v. NLRC,79 the Court ruled that the while the termination therein was for
just and valid cause, the manner of termination was done in complete disregard of the necessary
procedural safeguards.80 The Court found nominal damages as the proper form of award, as it
was purposed to vindicate the right to procedural due process violated by the employer. 81 A
similar holding was maintained in Iran v. NLRC82 and Malaya Shipping v. NLRC.83 The doctrine has
express statutory basis, duly recognizes the existence of the right to notice, and vindicates the
violation of such right. It is sound, logical, and should be adopted as a general rule.
The assessment of nominal damages is left to the discretion of the court, 84 or in labor cases, of
the Labor Arbiter and the successive appellate levels. The authority to nominate standards
governing the award of nominal damages has clearly been delegated to the judicial branch, and
it will serve good purpose for this Court to provide such guidelines. Considering that the affected
right is a property right, there is justification in basing the amount of nominal damages on the
particular characteristics attaching to the claimant's employment. Factors such as length of
service, positions held, and received salary may be considered to obtain the proper measure of
nominal damages. After all, the degree by which a property right should be vindicated is affected
by the estimable value of such right.
At the same time, it should be recognized that nominal damages are not meant to be
compensatory, and should not be computed through a formula based on actual losses.
Consequently, nominal damages usually limited in pecuniary value. 85 This fact should be
impressed upon the prospective claimant, especially one who is contemplating seeking
actual/compensatory damages.
Second. Actual or compensatory damages are not available as a matter of right to an employee
dismissed for just cause but denied statutory due process. They must be based on clear factual
and legal bases,86 and correspond to such pecuniary loss suffered by the employee as duly
proven.87 Evidently, there is less degree of discretion to award actual or compensatory damages.
I recognize some inherent difficulties in establishing actual damages in cases for terminations
validated for just cause. The dismissed employee retains no right to continued employment from
the moment just cause for termination exists, and such time most likely would have arrived even
before the employer is liable to send the first notice. As a result, an award of backwages
disguised as actual damages would almost never be justified if the employee was dismissed for
just cause. The possible exception would be if it can be proven the ground for just cause came
into being only after the dismissed employee had stopped receiving wages from the employer.
Yet it is not impossible to establish a case for actual damages if dismissal was for just cause.
Particularly actionable, for example, is if the notices are not served on the employee, thus
hampering his/her opportunities to obtain new employment. For as long as it can be
demonstrated that the failure of the employer to observe procedural due process mandated by
the Labor Code is the proximate cause of pecuniary loss or injury to the dismissed employee,
then actual or compensatory damages may be awarded.
Third. If there is a finding of pecuniary loss arising from the employer violation, but the amount
cannot be proved with certainty, then temperate or moderate damages are available under
Article 2224 of the Civil Code. Again, sufficient discretion is afforded to the adjudicator as
regards the proper award, and the award must be reasonable under the
circumstances.88 Temperate or nominal damages may yet prove to be a plausible remedy,
especially when common sense dictates that pecuniary loss was suffered, but incapable of
precise definition.
Fourth. Moral and exemplary damages may also be awarded in the appropriate circumstances.
As pointed out by the Decision, moral damages are recoverable where the dismissal of the
employee was attended by bad faith, fraud, or was done in a manner contrary to morals, good

72
customs or public policy, or the employer committed an act oppressive to labor. 89 Exemplary
damages may avail if the dismissal was effected in a wanton, oppressive or malevolent manner.
Appropriate Award of Damages to the Agabons
The records indicate no proof exists to justify the award of actual or compensatory damages, as
it has not been established that the failure to serve the second notice on the Agabons was the
proximate cause to any loss or injury. In fact, there is not even any showing that such violation
caused any sort of injury or discomfort to the Agabons. Nor do they assert such causal relation.
Thus, the only appropriate award of damages is nominal damages. Considering the
circumstances, I agree that an award of Fifteen Thousand Pesos (P15,000.00) each for the
Agabons is sufficient.
All premises considered, I VOTE to:
(1) DENY the PETITION for lack of merit, and AFFIRM the Decision of the Court of Appeals dated
23 January 2003, with the MODIFICATION that in addition, Riviera Homes be ORDERED to pay
the petitioners the sum of Fifteen Thousand Pesos (P15,000.00) each, as nominal damages.
(2) HOLD that henceforth, dismissals for just cause may not be invalidated due to the failure to
observe the due process requirements under the Labor Code, and that the only indemnity
award available to the employee dismissed for just cause are damages under the Civil Code
as duly proven. Any and all previous rulings and statements of the Court inconsistent with
this holding are now deemed INOPERATIVE.
DANTE O. TINGA
Associate Justice

EN BANC G.R. No. 192571

July 23, 2013
ABBOTT LABORATORIES, PHILIPPINES, CECILLE A. TERRIBLE, EDWIN D. FEIST, MARIA
OLIVIA
T.
YABUTMISA,
TERESITA
C.
BERNARDO,
AND
ALLAN
G.
ALMAZAR, Petitioners, vs. PEARLIE ANN F. ALCARAZ, Respondent.
D E C I S I O N PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari 1 are the Decision2 dated December 10,2009 and
Resolution3dated June 9, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 101045 which
pronounced that the National Labor Relations Commission (NLRC) did not gravely abuse its
discretion when it ruled that respondent Pearlie Ann F. Alcaraz (Alcaraz) was illegally dismissed
from her employment.
The Facts
On June 27, 2004, petitioner Abbott Laboratories, Philippines (Abbott) caused the publication in a
major broadsheet newspaper of its need for a Medical and Regulatory Affairs Manager
(Regulatory Affairs Manager) who would: (a) be responsible for drug safety surveillance
operations, staffing, and budget; (b) lead the development and implementation of standard
operating procedures/policies for drug safety surveillance and vigilance; and (c) act as the
primary interface with internal and external customers regarding safety operations and
queries.4 Alcaraz - who was then a Regulatory Affairs and Information Manager at Aventis Pasteur
Philippines, Incorporated (another pharmaceutical company like Abbott) showed interest and
submitted her application on October 4, 2004.5

73
On December 7, 2004, Abbott formally offered Alcaraz the abovementioned position which was
an item under the companys Hospira Affiliate Local Surveillance Unit (ALSU) department. 6 In
Abbotts offer sheet.7 it was stated that Alcaraz was to be employed on a probationary
basis.8 Later that day, she accepted the said offer and received an electronic mail (e-mail) from
Abbotts Recruitment Officer, petitioner Teresita C. Bernardo (Bernardo), confirming the same.
Attached to Bernardos e-mail were Abbotts organizational chart and a job description of
Alcarazs work.9
On February 12, 2005, Alcaraz signed an employment contract which stated, inter alia, that she
was to be placed on probation for a period of six (6) months beginning February 15, 2005 to
August 14, 2005. The said contract was also signed by Abbotts General Manager, petitioner
Edwin Feist (Feist):10
PROBATIONARY EMPLOYMENT
Dear Pearl,
After having successfully passed the pre-employment requirements, you are hereby appointed as
follows:
Position Title : Regulatory Affairs Manager
Department : Hospira
The terms of your employment are:
Nature of Employment : Probationary
Effectivity : February 15, 2005 to August 14, 2005
Basic Salary : P110,000.00/ month
It is understood that you agree to abide by all existing policies, rules and regulations of the
company, as well as those, which may be hereinafter promulgated.
Unless renewed, probationary appointment expires on the date indicated subject to earlier
termination by the Company for any justifiable reason.
If you agree to the terms and conditions of your employment, please signify your conformity
below and return a copy to HRD.
Welcome to Abbott!
Very truly yours,
Sgd.
EDWIN D. FEIST General Manager

CONFORME:
Sgd.
PEARLIE ANN FERRER-ALCARAZ

During Alcarazs pre-employment orientation, petitioner Allan G. Almazar (Almazar), Hospiras

Country Transition Manager, briefed her on her duties and responsibilities as Regulatory Affairs
Manager, stating that: (a) she will handle the staff of Hospira ALSU and will directly report to
Almazar on matters regarding Hopiras local operations, operational budget, and performance
evaluation of the Hospira ALSU Staff who are on probationary status; (b) she must implement
Abbotts Code of Good Corporate Conduct (Code of Conduct), office policies on human resources
and finance, and ensure that Abbott will hire people who are fit in the organizational discipline;
(c) petitioner Kelly Walsh (Walsh), Manager of the Literature Drug Surveillance Drug Safety of
Hospira, will be her immediate supervisor; (d) she should always coordinate with Abbotts human
resource officers in the management and discipline of the staff; (e) Hospira ALSU will spin off
from Abbott in early 2006 and will be officially incorporated and known as Hospira, Philippines. In
the interim, Hospira ALSU operations will still be under Abbotts management, excluding the
technical aspects of the operations which is under the control and supervision of Walsh; and (f)
the processing of information and/or raw material data subject of Hospira ALSU operations will be
strictly confined and controlled under the computer system and network being maintained and
operated from the United States. For this purpose, all those involved in Hospira ALSU are
required to use two identification cards: one, to identify them as Abbotts employees and
another, to identify them as Hospira employees.11

74
On March 3, 2005, petitioner Maria Olivia T. Yabut-Misa (Misa), Abbotts Human Resources (HR)
Director, sent Alcaraz an e-mail which contained an explanation of the procedure for evaluating
the performance of probationary employees and further indicated that Abbott had only one
evaluation system for all of its employees. Alcaraz was also given copies of Abbotts Code of
Conduct and Probationary Performance Standards and Evaluation (PPSE) and Performance
Excellence Orientation Modules (Performance Modules) which she had to apply in line with her
task of evaluating the Hospira ALSU staff.12
Abbotts PPSE procedure mandates that the job performance of a probationary employee should
be formally reviewed and discussed with the employee at least twice: first on the third month
and second on the fifth month from the date of employment. The necessary Performance
Improvement Plan should also be made during the third-month review in case of a gap between
the employees performance and the standards set. These performance standards should be
discussed in detail with the employee within the first two (2) weeks on the job. It was equally
required that a signed copy of the PPSE form must be submitted to Abbotts Human Resources
Department (HRD) and shall serve as documentation of the employees performance during
his/her probationary period. This shall form the basis for recommending the confirmation or
termination of the probationary employment.13
During the course of her employment, Alcaraz noticed that some of the staff had disciplinary
problems. Thus, she would reprimand them for their unprofessional behavior such as nonobservance of the dress code, moonlighting, and disrespect of Abbott officers. However,
Alcarazs method of management was considered by Walsh to be "too strict." 14 Alcaraz
approached Misa to discuss these concerns and was told to "lie low" and let Walsh handle the
matter. Misa even assured her that Abbotts HRD would support her in all her management
decisions.15
On April 12, 2005, Alcaraz received an e-mail from Misa requesting immediate action on the
staffs performance evaluation as their probationary periods were about to end. This Alcaraz
eventually submitted.16
On April 20, 2005, Alcaraz had a meeting with petitioner Cecille Terrible (Terrible), Abbotts
former HR Director, to discuss certain issues regarding staff performance standards. In the
course thereof, Alcaraz accidentally saw a printed copy of an e-mail sent by Walsh to some staff
members which essentially contained queries regarding the formers job performance. Alcaraz
asked if Walshs action was the normal process of evaluation. Terrible said that it was not. 17
On May 16, 2005, Alcaraz was called to a meeting with Walsh and Terrible where she was
informed that she failed to meet the regularization standards for the position of Regulatory
Affairs Manager.18 Thereafter, Walsh and Terrible requested Alcaraz to tender her resignation,
else they be forced to terminate her services. She was also told that, regardless of her choice,
she should no longer report for work and was asked to surrender her office identification cards.
She requested to be given one week to decide on the same, but to no avail. 19
On May 17, 2005, Alcaraz told her administrative assistant, Claude Gonzales (Gonzales), that she
would be on leave for that day. However, Gonzales told her that Walsh and Terrible already
announced to the whole Hospira ALSU staff that Alcaraz already resigned due to health
reasons.20
On May 23, 2005, Walsh, Almazar, and Bernardo personally handed to Alcaraz a letter stating
that her services had been terminated effective May 19, 2005. 21 The letter detailed the reasons
for Alcarazs termination particularly, that Alcaraz: (a) did not manage her time effectively; (b)
failed to gain the trust of her staff and to build an effective rapport with them; (c) failed to train
her staff effectively; and (d) was not able to obtain the knowledge and ability to make sound
judgments on case processing and article review which were necessary for the proper
performance of her duties.22 On May 27, 2005, Alcaraz received another copy of the said
termination letter via registered mail.23

75
Alcaraz felt that she was unjustly terminated from her employment and thus, filed a complaint
for illegal dismissal and damages against Abbott and its officers, namely, Misa, Bernardo,
Almazar, Walsh, Terrible, and Feist. 24 She claimed that she should have already been considered
as a regular and not a probationary employee given Abbotts failure to inform her of the
reasonable standards for her regularization upon her engagement as required under Article
29525 of the Labor Code. In this relation, she contended that while her employment contract
stated that she was to be engaged on a probationary status, the same did not indicate the
standards on which her regularization would be based. 26 She further averred that the individual
petitioners maliciously connived to illegally dismiss her when: (a) they threatened her with
termination; (b) she was ordered not to enter company premises even if she was still an
employee thereof; and (c) they publicly announced that she already resigned in order to
humiliate her.27
On the contrary, petitioners maintained that Alcaraz was validly terminated from her
probationary employment given her failure to satisfy the prescribed standards for her
regularization which were made known to her at the time of her engagement. 28

The LA Ruling
In a Decision dated March 30, 2006,29 the LA dismissed Alcarazs complaint for lack of merit.
The LA rejected Alcarazs argument that she was not informed of the reasonable standards to
qualify as a regular employee considering her admissions that she was briefed by Almazar on her
work during her pre-employment orientation meeting30 and that she received copies of Abbotts
Code of Conduct and Performance Modules which were used for evaluating all types of Abbott
employees.31 As Alcaraz was unable to meet the standards set by Abbott as per her performance
evaluation, the LA ruled that the termination of her probationary employment was
justified.32 Lastly, the LA found that there was no evidence to conclude that Abbotts officers and
employees acted in bad faith in terminating Alcarazs employment. 33
Displeased with the LAs ruling, Alcaraz filed an appeal with the National Labor Relations
Commission (NLRC).
The NLRC Ruling
On September 15, 2006, the NLRC rendered a Decision, 34 annulling and setting aside the LAs
ruling, the dispositive portion of which reads:
WHEREFORE, the Decision of the Labor Arbiter dated 31 March 2006 [sic] is hereby reversed,
annulled and set aside and judgment is hereby rendered:
1. Finding respondents Abbot [sic] and individual respondents to have committed illegal
dismissal;
2. Respondents are ordered to immediately reinstate complainant to her former position without
loss of seniority rights immediately upon receipt hereof;
3. To jointly and severally pay complainant backwages computed from 16 May 2005 until finality
of this decision. As of the date hereof the backwages is computed at
a. Backwages for 15 months -

PhP 1,650,000.00

b. 13th month pay -

110,000.00

TOTAL

PhP 1,760,000.0

4. Respondents are ordered to pay complainant moral damages of P50,000.00 and exemplary
damages ofP50,000.00.
5. Respondents are also ordered to pay attorneys fees of 10% of the total award.
6. All other claims are dismissed for lack of merit.

76
SO ORDERED.35
The NLRC reversed the findings of the LA and ruled that there was no evidence showing that
Alcaraz had been apprised of her probationary status and the requirements which she should
have complied with in order to be a regular employee.36 It held that Alcarazs receipt of her job
description and Abbotts Code of Conduct and Performance Modules was not equivalent to her
being actually informed of the performance standards upon which she should have been
evaluated on.37 It further observed that Abbott did not comply with its own standard operating
procedure in evaluating probationary employees.38 The NLRC was also not convinced that Alcaraz
was terminated for a valid cause given that petitioners allegation of Alcarazs "poor
performance" remained unsubstantiated.39
Petitioners filed a motion for reconsideration which was denied by the NLRC in a Resolution dated
July 31, 2007.40
Aggrieved, petitioners filed with the CA a Petition for Certiorari with Prayer for Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction, docketed as CA G.R. SP No.
101045 (First CA Petition), alleging grave abuse of discretion on the part of NLRC when it ruled
that Alcaraz was illegally dismissed.41
Pending resolution of the First CA Petition, Alcaraz moved for the execution of the NLRCs
Decision before the LA, which petitioners strongly opposed. The LA denied the said motion in an
Order dated July 8, 2008 which was, however, eventually reversed on appeal by the NLRC. 42 Due
to the foregoing, petitioners filed another Petition for Certiorari with the CA, docketed as CA G.R.
SP No. 111318 (Second CA Petition), assailing the propriety of the execution of the NLRC
decision.43
The CA Ruling
With regard to the First CA Petition, the CA, in a Decision44 dated December 10, 2009, affirmed
the ruling of the NLRC and held that the latter did not commit any grave abuse of discretion in
finding that Alcaraz was illegally dismissed.
It observed that Alcaraz was not apprised at the start of her employment of the reasonable
standards under which she could qualify as a regular employee. 45 This was based on its
examination of the employment contract which showed that the same did not contain any
standard of performance or any stipulation that Alcaraz shall undergo a performance evaluation
before she could qualify as a regular employee.46 It also found that Abbott was unable to prove
that there was any reasonable ground to terminate Alcarazs employment. 47 Abbott moved for
the reconsideration of the aforementioned ruling which was, however, denied by the CA in a
Resolution48 dated June 9, 2010.
The CA likewise denied the Second CA Petition in a Resolution dated May 18, 2010 (May 18, 2010
Resolution) and ruled that the NLRC was correct in upholding the execution of the NLRC
Decision.49 Thus, petitioners filed a motion for reconsideration.
While the petitioners motion for reconsideration of the CAs May 18, 2010 Resolution was
pending, Alcaraz again moved for the issuance of a writ of execution before the LA. On June 7,
2010, petitioners received the LAs order granting Alcarazs motion for execution which they in
turn appealed to the NLRC through a Memorandum of Appeal dated June 16, 2010 (June 16,
2010 Memorandum of Appeal ) on the ground that the implementation of the LAs order would
render its motion for reconsideration moot and academic.50
Meanwhile, petitioners motion for reconsideration of the CAs May 18, 2010 Resolution in the
Second CA Petition was denied via a Resolution dated October 4, 2010. 51 This attained finality on
January 10, 2011 for petitioners failure to timely appeal the same. 52 Hence, as it stands, only the
issues in the First CA petition are left to be resolved.
Incidentally, in her Comment dated November 15, 2010, Alcaraz also alleges that petitioners
were guilty of forum shopping when they filed the Second CA Petition pending the resolution of

77
their motion for reconsideration of the CAs December 10, 2009 Decision i.e., the decision in the
First CA Petition.53 She also contends that petitioners have not complied with the certification
requirement under Section 5, Rule 7 of the Rules of Court when they failed to disclose in the
instant petition the filing of the June 16, 2010 Memorandum of Appeal filed before the NLRC. 54
The Issues Before the Court
The following issues have been raised for the Courts resolution: (a) whether or not petitioners
are guilty of forum shopping and have violated the certification requirement under Section 5,
Rule 7 of the Rules of Court; (b) whether or not Alcaraz was sufficiently informed of the
reasonable standards to qualify her as a regular employee; (c) whether or not Alcaraz was validly
terminated from her employment; and (d) whether or not the individual petitioners herein are
liable.
The Courts Ruling
A. Forum Shopping and Violation of Section 5, Rule 7 of the Rules of Court.
At the outset, it is noteworthy to mention that the prohibition against forum shopping is different
from a violation of the certification requirement under Section 5, Rule 7 of the Rules of Court. In
Sps. Ong v. CA,55 the Court explained that:
x x x The distinction between the prohibition against forum shopping and the certification
requirement should by now be too elementary to be misunderstood. To reiterate, compliance
with the certification against forum shopping is separate from and independent of the avoidance
of the act of forum shopping itself. There is a difference in the treatment between failure to
comply with the certification requirement and violation of the prohibition against forum shopping
not only in terms of imposable sanctions but also in the manner of enforcing them. The former
constitutes sufficient cause for the dismissal without prejudice to the filing of the complaint or
initiatory pleading upon motion and after hearing, while the latter is a ground for summary
dismissal thereof and for direct contempt. x x x. 56
As to the first, forum shopping takes place when a litigant files multiple suits involving the same
parties, either simultaneously or successively, to secure a favorable judgment. It exists where
the elements of litis pendentia are present, namely: (a) identity of parties, or at least such
parties who represent the same interests in both actions; (b) identity of rights asserted and relief
prayed for, the relief being founded on the same facts; and (c) the identity with respect to the
two preceding particulars in the two (2) cases is such that any judgment that may be rendered in
the pending case, regardless of which party is successful, would amount to res judicata in the
other case.57
In this case, records show that, except for the element of identity of parties, the elements of
forum shopping do not exist. Evidently, the First CA Petition was instituted to question the ruling
of the NLRC that Alcaraz was illegally dismissed. On the other hand, the Second CA Petition
pertains to the propriety of the enforcement of the judgment award pending the resolution of the
First CA Petition and the finality of the decision in the labor dispute between Alcaraz and the
petitioners. Based on the foregoing, a judgment in the Second CA Petition will not constitute res
judicata insofar as the First CA Petition is concerned. Thus, considering that the two petitions
clearly cover different subject matters and causes of action, there exists no forum shopping.
As to the second, Alcaraz further imputes that the petitioners violated the certification
requirement under Section 5, Rule 7 of the Rules of Court 58 by not disclosing the fact that it filed
the June 16, 2010 Memorandum of Appeal before the NLRC in the instant petition.
In this regard, Section 5(b), Rule 7 of the Rules of Court requires that a plaintiff who files a case
should provide a complete statement of the present status of any pending case if the latter
involves the same issues as the one that was filed. If there is no such similar pending case,

78
Section 5(a) of the same rule provides that the plaintiff is obliged to declare under oath that to
the best of his knowledge, no such other action or claim is pending.
Records show that the issues raised in the instant petition and those in the June 16, 2010
Memorandum of Appeal filed with the NLRC likewise cover different subject matters and causes
of action. In this case, the validity of Alcarazs dismissal is at issue whereas in the said
Memorandum of Appeal, the propriety of the issuance of a writ of execution was in question.
Thus, given the dissimilar issues, petitioners did not have to disclose in the present petition the
filing of their June 16, 2010 Memorandum of Appeal with the NLRC. In any event, considering
that the issue on the propriety of the issuance of a writ of execution had been resolved in the
Second CA Petition which in fact had already attained finality the matter of disclosing the June
16, 2010 Memorandum of Appeal is now moot and academic.
Having settled the foregoing procedural matter, the Court now proceeds to resolve the
substantive issues.
B. Probationary employment; grounds for termination.
A probationary employee, like a regular employee, enjoys security of tenure. However, in
cases of probationary employment, aside from just or authorized causes of termination, an
additional ground is provided under Article 295 of the Labor Code, i.e., the probationary
employee may also be terminated for failure to qualify as a regular employee in
accordance with the reasonable standards made known by the employer to the
employee at the time of the engagement.59 Thus, the services of an employee who has
been engaged on probationary basis may be terminated for any of the following:
(a) a just or (b) an authorized cause; and (c) when he fails to qualify as a regular
employee in accordance with reasonable standards prescribed by the employer. 60
Corollary thereto, Section 6(d), Rule I, Book VI of the Implementing Rules of the Labor Code
provides that if the employer fails to inform the probationary employee of the reasonable
standards upon which the regularization would be based on at the time of the engagement, then
the said employee shall be deemed a regular employee, viz.:
(d) In all cases of probationary employment, the employer shall make known to the employee
the standards under which he will qualify as a regular employee at the time of his engagement.
Where no standards are made known to the employee at that time, he shall be deemed a regular
employee.
In other words, the employer is made to comply with two (2) requirements when dealing with a
probationary employee: first, the employer must communicate the regularization standards to
the probationary employee; and second, the employer must make such communication at the
time of the probationary employees engagement. If the employer fails to comply with either, the
employee is deemed as a regular and not a probationary employee.
Keeping with these rules, an employer is deemed to have made known the standards that would
qualify a probationary employee to be a regular employee when it has exerted reasonable efforts
to apprise the employee of what he is expected to do or accomplish during the trial period of
probation. This goes without saying that the employee is sufficiently made aware of his
probationary status as well as the length of time of the probation.
The exception to the foregoing is when the job is self-descriptive in nature, for instance, in the
case of maids, cooks, drivers, or messengers.61 Also, in Aberdeen Court, Inc. v. Agustin,62 it has
been held that the rule on notifying a probationary employee of the standards of regularization
should not be used to exculpate an employee who acts in a manner contrary to basic knowledge
and common sense in regard to which there is no need to spell out a policy or standard to be
met. In the same light, an employees failure to perform the duties and responsibilities which

79
have been clearly made known to him constitutes a justifiable basis for a probationary
employees non-regularization.
In this case, petitioners contend that Alcaraz was terminated because she failed to qualify as a
regular employee according to Abbotts standards which were made known to her at the time of
her engagement. Contrarily, Alcaraz claims that Abbott never apprised her of these standards
and thus, maintains that she is a regular and not a mere probationary employee.
The Court finds petitioners assertions to be well-taken.
A punctilious examination of the records reveals that Abbott had indeed complied with the
above-stated requirements. This conclusion is largely impelled by the fact that Abbott clearly
conveyed to Alcaraz her duties and responsibilities as Regulatory Affairs Manager prior to, during
the time of her engagement, and the incipient stages of her employment. On this score, the
Court finds it apt to detail not only the incidents which point out to the efforts made by Abbott
but also those circumstances which would show that Alcaraz was well-apprised of her employers
expectations that would, in turn, determine her regularization:
(a) On June 27, 2004, Abbott caused the publication in a major broadsheet newspaper of its
need for a Regulatory Affairs Manager, indicating therein the job description for as well as
the duties and responsibilities attendant to the aforesaid position; this prompted Alcaraz to
submit her application to Abbott on October 4, 2004;
(b) In Abbotts December 7, 2004 offer sheet, it was stated that Alcaraz was to be employed on
a probationary status;
(c) On February 12, 2005, Alcaraz signed an employment contract which specifically stated,
inter alia, that she was to be placed on probation for a period of six (6) months beginning
February 15, 2005 to August 14, 2005;
(d) On the day Alcaraz accepted Abbotts employment offer, Bernardo sent her copies of
Abbotts organizational structure and her job description through e-mail;
(e) Alcaraz was made to undergo a pre-employment orientation where Almazar informed her
that she had to implement Abbotts Code of Conduct and office policies on human
resources and finance and that she would be reporting directly to Walsh;
(f) Alcaraz was also required to undergo a training program as part of her orientation;
(g) Alcaraz received copies of Abbotts Code of Conduct and Performance Modules from Misa
who explained to her the procedure for evaluating the performance of probationary
employees; she was further notified that Abbott had only one evaluation system for all of
its employees; and
(h) Moreover, Alcaraz had previously worked for another pharmaceutical company and had
admitted to have an "extensive training and background" to acquire the necessary skills for
her job.63
Considering the totality of the above-stated circumstances, it cannot, therefore, be doubted that
Alcaraz was well-aware that her regularization would depend on her ability and capacity to fulfill
the requirements of her position as Regulatory Affairs Manager and that her failure to perform
such would give Abbott a valid cause to terminate her probationary employment.
Verily, basic knowledge and common sense dictate that the adequate performance of ones
duties is, by and of itself, an inherent and implied standard for a probationary employee to be
regularized; such is a regularization standard which need not be literally spelled out or mapped
into technical indicators in every case. In this regard, it must be observed that the assessment of
adequate duty performance is in the nature of a management prerogative which when
reasonably exercised as Abbott did in this case should be respected. This is especially true of
a managerial employee like Alcaraz who was tasked with the vital responsibility of handling the
personnel and important matters of her department.
In fine, the Court rules that Alcarazs status as a probationary employee and her consequent
dismissal must stand. Consequently, in holding that Alcaraz was illegally dismissed due to her
status as a regular and not a probationary employee, the Court finds that the NLRC committed a
grave abuse of discretion.

80
To elucidate, records show that the NLRC based its decision on the premise that Alcarazs receipt
of her job description and Abbotts Code of Conduct and Performance Modules was not
equivalent to being actually informed of the performance standards upon which she should have
been evaluated on.64 It, however, overlooked the legal implication of the other attendant
circumstances as detailed herein which should have warranted a contrary finding that Alcaraz
was indeed a probationary and not a regular employee more particularly the fact that she was
well-aware of her duties and responsibilities and that her failure to adequately perform the same
would lead to her non-regularization and eventually, her termination.
Accordingly, by affirming the NLRCs pronouncement which is tainted with grave abuse of
discretion, the CA committed a reversible error which, perforce, necessitates the reversal of its
decision.
C. Probationary employment; termination procedure.
A different procedure is applied when terminating a probationary employee; the usual
two-notice rule does not govern.65 Section 2, Rule I, Book VI of the Implementing Rules of the
Labor Code states that "if the termination is brought about by the x x x failure of an employee to
meet the standards of the employer in case of probationary employment, it shall be sufficient
that a written notice is served the employee, within a reasonable time from the
effective date of termination."
As the records show, Alcaraz's dismissal was effected through a letter dated May 19, 2005 which
she received on May 23, 2005 and again on May 27, 2005. Stated therein were the reasons for
her termination, i.e., that after proper evaluation, Abbott determined that she failed to meet the
reasonable standards for her regularization considering her lack of time and people management
and decision-making skills, which are necessary in the performance of her functions as
Regulatory Affairs Manager.66 Undeniably, this written notice sufficiently meets the criteria set
forth above, thereby legitimizing the cause and manner of Alcarazs dismissal as a probationary
employee under the parameters set by the Labor Code.67
D. Employers violation of company policy and procedure.
Nonetheless, despite the existence of a sufficient ground to terminate Alcarazs employment and
Abbotts compliance with the Labor Code termination procedure, it is readily apparent that
Abbott breached its contractual obligation to Alcaraz when it failed to abide by its own procedure
in evaluating the performance of a probationary employee.
Veritably, a company policy partakes of the nature of an implied contract between the employer
and employee. In Parts Depot, Inc. v. Beiswenger,68 it has been held that:
Employer statements of policy . . . can give rise to contractual rights in employees without
evidence that the parties mutually agreed that the policy statements would create contractual
rights in the employee, and, hence, although the statement of policy is signed by neither party,
can be unilaterally amended by the employer without notice to the employee, and contains no
reference to a specific employee, his job description or compensation, and although no reference
was made to the policy statement in pre-employment interviews and the employee does not
learn of its existence until after his hiring. Toussaint, 292 N.W .2d at 892. The principle is akin to
estoppel. Once an employer establishes an express personnel policy and the employee continues
to work while the policy remains in effect, the policy is deemed an implied contract for so long as
it remains in effect. If the employer unilaterally changes the policy, the terms of the implied
contract are also thereby changed.1wphi1 (Emphasis and underscoring supplied.)
Hence, given such nature, company personnel policies create an obligation on the part of both
the employee and the employer to abide by the same.
Records show that Abbotts PPSE procedure mandates, inter alia, that the job performance of a
probationary employee should be formally reviewed and discussed with the employee at least

81
twice: first on the third month and second on the fifth month from the date of employment.
Abbott is also required to come up with a Performance Improvement Plan during the third month
review to bridge the gap between the employees performance and the standards set, if any. 69 In
addition, a signed copy of the PPSE form should be submitted to Abbotts HRD as the same
would serve as basis for recommending the confirmation or termination of the probationary
employment.70
In this case, it is apparent that Abbott failed to follow the above-stated procedure in
evaluating Alcaraz. For one, there lies a hiatus of evidence that a signed copy of Alcarazs
PPSE form was submitted to the HRD. It was not even shown that a PPSE form was completed to
formally assess her performance. Neither was the performance evaluation discussed with her
during the third and fifth months of her employment. Nor did Abbott come up with the necessary
Performance Improvement Plan to properly gauge Alcarazs performance with the set company
standards.
While it is Abbotts management prerogative to promulgate its own company rules
and even subsequently amend them, this right equally demands that when it does create
its own policies and thereafter notify its employee of the same, it accords upon itself the
obligation to faithfully implement them. Indeed, a contrary interpretation would entail a
disharmonious relationship in the work place for the laborer should never be mired by the
uncertainty of flimsy rules in which the latters labor rights and duties would, to some extent,
depend.
In this light, while there lies due cause to terminate Alcarazs probationary employment for her
failure to meet the standards required for her regularization, and while it must be further pointed
out that Abbott had satisfied its statutory duty to serve a written notice of termination, the fact
that it violated its own company procedure renders the termination of Alcarazs employment
procedurally infirm, warranting the payment of nominal damages. A further exposition is
apropos.
Case law has settled that an employer who terminates an employee for a valid cause
but does so through invalid procedure is liable to pay the latter nominal damages.
In Agabon v. NLRC (Agabon),71 the Court pronounced that where the dismissal is for a
just cause, the lack of statutory due process should not nullify the dismissal, or render it illegal,
or ineffectual. However, the EMPLOYER SHOULD INDEMNIFY THE EMPLOYEE FOR THE VIOLATION
OF HIS STATUTORY RIGHTS.72 Thus, in Agabon, the employer was ordered to pay the employee
nominal damages in the amount of P30,000.00.73
Proceeding from the same ratio, the Court modified Agabon in the case of Jaka Food Processing
Corporation v. Pacot (Jaka) 74 where it created a distinction between procedurally defective
dismissals due to a just cause, on one hand, and those due to an authorized cause, on the other.
It was explained that if the dismissal is based on a just cause under Article 282 of the Labor Code
(now Article 296) but the employer failed to comply with the notice requirement, the sanction to
be imposed upon him should be tempered because the dismissal process was, in effect, initiated
by an act imputable to the employee; if the dismissal is based on an authorized cause under
Article 283 (now Article 297) but the employer failed to comply with the notice requirement, the
sanction should be stiffer because the dismissal process was initiated by the employers exercise
of his management prerogative.75 Hence, in Jaka, where the employee was dismissed for an
authorized cause of retrenchment76 as contradistinguished from the employee in Agabon who
was dismissed for a just cause of neglect of duty 77 the Court ordered the employer to pay the
employee nominal damages at the higher amount of P50,000.00.
Evidently, the sanctions imposed in both Agabon and Jaka proceed from the necessity to deter
employers from future violations of the statutory due process rights of employees. 78 In similar
regard, the Court deems it proper to apply the same principle to the case at bar for the reason
that an employers contractual breach of its own company procedure albeit not statutory in
source has the parallel effect of violating the laborers rights. Suffice it to state, the contract is

82
the law between the parties and thus, breaches of the same impel recompense to vindicate a
right that has been violated. Consequently, while the Court is wont to uphold the dismissal of
Alcaraz because a valid cause exists, the payment of nominal damages on account of Abbotts
contractual breach is warranted in accordance with Article 2221 of the Civil Code. 79
Anent the proper amount of damages to be awarded, the Court observes that Alcarazs dismissal
proceeded from her failure to comply with the standards required for her regularization. As such,
it is undeniable that the dismissal process was, in effect, initiated by an act imputable to the
employee, akin to dismissals due to just causes under Article 296 of the Labor Code. Therefore,
the Court deems it appropriate to fix the amount of nominal damages at the amount
of P30,000.00, consistent with its rulings in both Agabon and Jaka.
E. Liability of individual petitioners as corporate officers.
It is hornbook principle that personal liability of corporate directors, trustees or officers attaches
only when: (a) they assent to a patently unlawful act of the corporation, or when they are guilty
of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons; (b) they consent to
the issuance of watered down stocks or when, having knowledge of such issuance, do not
forthwith file with the corporate secretary their written objection; (c) they agree to hold
themselves personally and solidarily liable with the corporation; or (d) they are made by specific
provision of law personally answerable for their corporate action. 80
In this case, Alcaraz alleges that the individual petitioners acted in bad faith with regard to the
supposed crude manner by which her probationary employment was terminated and thus,
should be held liable together with Abbott. In the same vein, she further attributes the loss of
some of her remaining belongings to them.81
Alcarazs contention fails to persuade.
A judicious perusal of the records show that other than her unfounded assertions on the matter,
there is no evidence to support the fact that the individual petitioners herein, in their capacity as
Abbotts officers and employees, acted in bad faith or were motivated by ill will in terminating
Alcarazs services. The fact that Alcaraz was made to resign and not allowed to enter the
workplace does not necessarily indicate bad faith on Abbotts part since a sufficient ground
existed for the latter to actually proceed with her termination. On the alleged loss of her personal
belongings, records are bereft of any showing that the same could be attributed to Abbott or any
of its officers. It is a well-settled rule that bad faith cannot be presumed and he who alleges bad
faith has the onus of proving it. All told, since Alcaraz failed to prove any malicious act on the
part of Abbott or any of its officers, the Court finds the award of moral or exemplary damages
unwarranted.
WHEREFORE, the petition is GRANTED. The Decision dated December 10, 2009 and Resolution
dated June 9, 2010 of the Court of Appeals in CA-G.R. SP No. 101045 are hereby REVERSED and
SET ASIDE. Accordingly, the Decision dated March 30, 2006 of the Labor Arbiter is REINSTATED
with the MODIFICATION that petitioner Abbott Laboratories, Philippines be ORDERED to pay
respondent Pearlie Ann F. Alcaraz nominal damages in the amount of P30,000.00 on account of
its breach of its own company procedure.
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice

83

G.R. No. 175855

October 2, 2009 THIRD DIVISION

CELEBES JAPAN FOODS CORPORATION, represented by KANEMITSU YAMAOKA and

CESAR ROMERO,Petitioner, vs. SUSAN YERMO, ORSON MAMALIS, BAI ANNIE ALANO,
MICHIE ALFANTA, GINALYN PANILAGAO, ANNALIE AYAG, JOCELYN AGTON, JOSE JURIE
SURIGAO,
GILDA
SERRANO,
JOY
REMARGA,
ERICK
TAC-AN
and
JENNE
CARLOS, Respondents.
D E C I S I O N -DEL CASTILLO, J.:
Assailed in this petition for review on certiorari are the Decision 1 dated June 27, 2005 and the
Resolution2 dated September 22, 2006 of the Court of Appeals, Mindanao Station, Cagayan de
Oro City, in CA-G.R. SP No. 73093.
Petitioner Celebes Japan Foods Corporation is engaged in the business of buying, processing and
exporting of tuna fish, with buying station and plant located at the Davao Fish Port Complex,
Daliao, Toril, Davao City. Kanemitsu Yamaoka, Cesar Romero and Kenji Fuji were the Chairman,
Office Manager and Plant Supervisor, respectively, of petitioner Celebes. Petitioner contracted
with Penta Manpower and Allied Resources to provide manpower services for the former's
business, with the latter recruiting people to work for the former, people who included
respondents Susan Yermo, Orson Mamalis, Bai Annie Alano, Michie Alfanta, Ginalyn Panilagao,

84
Annalie Ayag, Jocelyn Agton, Jose Jurie Surigao, Gilda Serrano, Joy Remarca, Erick Tac-An, and
Jenne Carlos. Respondents performed jobs such as slicer, laboratory crew packers,
recorders/encoders, loiners, vinyl bag openers/receivers or storage persons, and who were
necessary and desirable to the main business of petitioner.
On November 7, 2000, respondents were refused entrance by the guards manning the gate of
the Davao Fish Port Complex, as they were already terminated from work effective November 1,
2000 based on a memorandum3dated November 7, 2000 issued by Romero, petitioner's office
manager. The memorandum was posted in the guardhouse.
On November 16, 2000, respondents filed with the Labor Arbiter (LA), Davao City, a Complaint
for illegal dismissal with money claims for holiday pay, service incentive, leave pay, allowances,
unpaid salaries, damages and attorney's fees against petitioner and Penta Manpower, alleging
that they were dismissed without just and valid cause and due process. Petitioner was served a
summons and a complaint.
On December 11, 2000, a mandatory conference was ordered but the amicable settlement
failed. The LA then ordered all the parties to file their respective position papers. Respondents
and Penta Manpower filed their position papers, while petitioner did not file any despite receipt
of notice.
On July 2, 2001, the LA rendered a decision4 in favor of respondents, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the dismissal of complainants as illegal; and
2. Ordering respondents Celebes Japan Foods Corp., Kenji Fuji, Kanemitsu Yamaoka and Cesar B.
Romero to pay to complainants the award above set forth in the total amount of P838,642.90
only.
SO ORDERED.5
The LA found that there was an employer-employee relationship between respondents and
petitioner; that respondents' works were necessary to petitioner's business of processing tuna
fish; that as regular employees, respondents were entitled to security of tenure; that Penta
Manpower was a labor-only contractor, since it did not have substantial capital or investment in
the form of tools, equipment and machineries, which were necessary for the performance of the
required services; and that it was petitioner that actually managed, supervised and controlled
respondents' employment. The LA found respondents' dismissal to be illegal, i.e., without cause
and due process, and proceeded to compute respondents' money claims.
Petitioner filed an appeal with the National Labor Relations Commission (NLRC), Cagayan de Oro
City, on the ground that the former was deprived of its right to due process, and that the LA
rendered its decision contrary to law and applicable jurisprudence.
On April 16, 2002, the NLRC rendered its Resolution, 6 the dispositive portion of which reads:
WHEREFORE, the judgment appealed from is VACATED and SET ASIDE in favor of REMANDING
the entire records to the arbitration branch of origin. The Labor Arbiter below is hereby directed
to accord respondent Celebes Japan Foods Corporation and the other respondents their right to
due process by allowing them to submit their position paper, copy furnished the complainants
and other respondent (PENTA), and after all the parties are heard, for the Labor Arbiter to render
its decision accordingly.
SO ORDERED.7

85
Respondents filed their motion for reconsideration, which the NLRC denied in a Resolution 8 dated
June 18, 2002.
Aggrieved, respondents filed a petition for certiorari with the CA, alleging that the NLRC gravely
abused its discretion in finding that petitioner was denied due process and in remanding the
case to the LA for further reception of evidence.
On June 27, 2005, the CA, Mindanao Station, Cagayan de Oro City, issued its assailed Decision,
the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, the petition is GRANTED in part. This Court hereby
DECLARES the legality of the dismissal but ORDERS Celebes Japan Foods Corporation to PAY each
petitioner herein P50,000.00 as NOMINAL DAMAGES for violation of statutory due process.
Further, this Court FINDS no cogent reason to remand the case to the Labor Arbiter. 9
The CA found that petitioner was not denied due process, since the latter was duly informed that
it was a party to the illegal dismissal case filed by respondents, as shown by its receipt of the
summons, together with the complaint, as well as the LA Orders directing the submission of
position papers and informing the parties that the case was considered submitted for decision;
that petitioner was given ample opportunities to defend its interest, but it chose not to
participate, which constrained the LA to resolve the case based on available evidence; and that
it was only after an adverse decision by the LA that petitioner came out and claimed denial of
due process. The CA further found that the NLRC erred in remanding the case to the LA for
further proceeding, since the NLRC was in a position to resolve the dispute based on the records
before it.
The CA then proceeded to decide the case by agreeing with the LAs finding that respondents
were petitioner's employees and not of Penta Manpower, as the latter was merely engaged in
labor-only contracting. However, the CA found that respondents' dismissal was for an authorized
cause, as petitioner asserted that the absence or termination of their work was caused by a
cessation of its operation as a consequence of prolonged lack of adequate supply for high-quality
fresh tuna. Although respondents were dismissed for an authorized cause, the CA found that
petitioner did not comply with the statutory requirement of due process; thus, it ordered
petitioner to pay each of the respondents nominal damages in the amount of P50,000.00.
Petitioner filed a motion for reconsideration, praying for the reduction of the nominal damages
awarded fromP50,000.00 to P5,000.00 for each respondent, claiming that the financial condition
of the employer must be considered in fixing the amount of nominal damages. It then submitted
an audited financial statement for the period ending December 31, 2004, comparative financial
statements from the years 2000 to 2004, and its annual income tax returns for the same period,
which all showed that the company incurred capital deficits.
The CA denied the motion for reconsideration in a Resolution dated September 22, 2006.
Petitioner is before us raising a lone assignment of error, thus:
WHETHER OR NOT THE COURT OF APPEALS GROSSLY ERRED AND/OR GRAVELY ABUSED ITS
DISCRETION IN MISAPPLYING THE DOCTRINES IN AGABON v. NLRC, JAKA v. PACOT AND VIERNES
v. NLRC BY REFUSING TO MODIFY AND/OR REDUCE THE AWARD OF NOMINAL DAMAGES
FROM P50,000.00 TOP5,000.00 PER EMPLOYEE TERMINATED AND IN THE ABSENCE OF ANY
SPECIFIC FACTUAL FINDING THAT THIS IS A CASE OF "DISMISS NOW, PAY LATER" TERMINATION. 10
The petition has no merit.
The CA ruled that respondents, who were petitioner's employees, were terminated from work
due to an authorized cause; and this finding was never assailed by them, thus, already attained
finality. In fact, respondents in their Comment filed before us, accept such finding by stating that
there is no question that they have been severed from their employment due to an authorized

86
cause. The CA also found that procedural due process was not observed in the termination of
respondents, since the latter was not served by petitioner the required notice as provided under
Article 283 of the Labor Code; i.e., a written notice must be served on the worker and the
Department of Labor and Employment at least one month before the intended date of
termination. This finding was not disputed at all by petitioner. Thus, it is settled that respondents
were terminated due to an authorized cause without petitioner complying with procedural due
process.
Where an employee was terminated for cause, but the employer failed to comply with the notice
requirement, the employee is entitled to the payment of nominal damages pursuant to our ruling
in Agabon v. National Labor Relations Commission 11 and Jaka Food Processing Corporation v.
Pacot.12
In Agabon, we found the dismissal of the employees therein to be valid and for a just cause,
since abandonment was duly established. However, we held the employer liable, because
procedural due process was not observed. We ordered the employer to pay, in lieu of backwages,
indemnity in the form of nominal damages, and we said:
The violation of the petitioners right to statutory due process by the private respondent
warrants the payment of indemnity in the form of nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances. x x x We believe this form of damages would serve to deter employers from
future violations of the statutory due process rights of employees. At the very least, it provides a
vindication or recognition of this fundamental right granted to the latter under the Labor Code
and its Implementing Rules.13
The Agabon ruling was qualified in Jaka which declared the dismissal of the employees valid as it
was due to an authorized cause under Article 283 of the Labor Code, i.e., retrenchment, as it was
proven that Jaka was suffering from serious business losses at the time it terminated
respondents employment. However, Jaka failed to comply with the notice requirement under the
same rule. We then distinguished the case from Agabon stating:
The difference between Agabon and the instant case is that in the former, the dismissal was
based on a just cause under Article 282 of the Labor Code while in the present case, respondents
were dismissed due to retrenchment, which is one of the authorized causes under Article 283 of
the same Code.
At this point, we note that there are divergent implications of dismissal for just cause under
Article 282, on one hand, and a dismissal for authorized cause under Article 283, on the other.
A dismissal for just cause under Article 282 implies that the employee concerned has
committed, or is guilty of, some violation against the employer, i.e. the employee has committed
some serious misconduct, is guilty of some fraud against the employer, or, as in Agabon, he has
neglected his duties. Thus, it can be said that the employee himself initiated the dismissal
process.
On another breath, a dismissal for an authorized cause under Article 283 does not
necessarily imply delinquency or culpability on the part of the employee. Instead, the dismissal
process is initiated by the employers exercise of his management prerogative, i.e., when the
employer opts to install labor-saving devices, when he decides to cease business operations or
when, as in this case, he undertakes to implement a retrenchment program. x x x x
Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282
but the employer failed to comply with the notice requirement, the sanction to be imposed upon
him should be tempered because the dismissal process was, in effect, initiated by an act
imputable to the employee; and (2) if the dismissal is based on an authorized cause under
Article 283 but the employer failed to comply with the notice requirement, the sanction should

87
be stiffer because the dismissal process was initiated by the employers exercise of his
management prerogative.14
In Agabon, the nominal damages awarded to the employees for a dismissal based on a just
cause without the notice requirement was P30,000.00; while in Jaka, where the dismissal of the
employees was based on an authorized cause under Article 283, but without the required notice
under the same rule, we fixed the amount atP50,000.00.
Petitioner claims that in the above-mentioned cases, the relevant circumstances surrounding the
case, particularly the financial condition of the employer, were taken into consideration in fixing
the amount of nominal damages; that the amount of P50,000.00 for nominal damages awarded
to the 12 employees in this case is not reasonable, since petitioner has been having a capital
deficit of P43,629,974.46 for the last three years, with a stockholders equity of
only P2,750,000.00 or a capital impairment equivalent to more than 15 times its stockholders
equity. This impairment differs from that of Jaka, since the latter has a P200 million equity and
only a 47% impairment of capital, with six employees terminated.
Petitioner's argument fails to persuade.
Jaka has presented its audited financial statement to show that it was in such serious financial
distress as to justify the retrenchment of the employees concerned. As its retrenchment program
was undertaken in 1997, its deficit had ballooned to 123.61% of the stockholders equity; thus, a
capital deficiency or impairment of equity ensued; in 1998, the deficit grew to P355,794,897.00
or 177% of the stockholder's equity. The deficit was shown to prove the ground for the
employees' dismissal, but it was not the sole basis of the court in fixing the nominal damages in
the amount of P50,000.00 for each employee for Jaka's failure to comply with the notice
requirement. In the same manner, while petitioner in this case incurred a capital impairment
which was much higher than its stockholders' equity, the same should not be the only basis for
determining the amount of nominal damages that should be awarded. The gravity of the dueprocess violation should be taken into special consideration; 15 and, just like in Jaka, the sanction
should be stiffer, because the dismissal process was initiated by the employers exercise of its
management prerogative.
Significantly, there was no bona fide attempt on the part of petitioner to comply with the notice
requirements under Article 283 of the Labor Code. Records show that on November 7, 2000,
respondents were refused entrance by the guards manning the gate of the Davao Fish Port
Complex, based on a memorandum of even date issued by Romero, petitioner's Office Manager,
stating that respondents had been terminated effective November 1, 2000. Respondents learned
of the existence of such memorandum, which was posted only in the guardhouse on the day
they were refused entrance to the gate. There was indeed no notice at all to respondents.
Notably, there was not even any reason stated in the memorandum why they were being
terminated. We cannot overemphasize the importance of the requirement of the notice of
termination, for we have ruled in a number of cases that non-compliance therewith is
tantamount to deprivation of the employees right to due process.16
Nominal damages are adjudicated in order that a right of the plaintiff that has been violated or
invaded by the defendant may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.17 Considering the circumstances in this
case, we find no error committed by the CA in fixing the award of nominal damages in the
amount of P50,000.00 for each respondent as indemnity for the violation of the latters statutory
rights.
Petitioner's reliance on Viernes v. National Labor Relations Commission18 to support its claim for
the reduction of the award of nominal damages is misplaced. The factual circumstances are
different. Viernes is an illegal dismissal case, since there was no authorized cause for the
dismissal of the employees; and the employer was ordered to pay backwages inclusive of
allowances and other benefits, computed from the time the compensation was withheld up to
the actual reinstatement. In addition, since the dismissal was done without due process, the
nominal damages awarded was only P2,590.00 equivalent to one-month salary of the employee.

88
In this case, the dismissal was valid, as it was due to an authorized cause, but without the
observance of procedural due process, and the only award given was nominal damages.
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2005 and the Resolution dated
September 22, 2006 of the Court of Appeals, Mindanao Station, Cagayan de Oro City, in CA-G.R.
SP No. 73093 are AFFIRMED.
SO ORDERED.

G.R. No. 173151

March 28, 2008 THIRD DIVISION
EDUARDO BUGHAW, JR., Petitioner, vs. TREASURE ISLAND INDUSTRIAL
CORPORATION, Respondent.
D E C I S I O N -CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court, filed by petitioner Eduardo Bughaw, Jr., seeking to reverse and set aside the
Decision,1 dated 14 June 2005 and the Resolution,2 dated 8 May 2006 of the Court of Appeals in
CA-G.R. SP No. 85498. The appellate court reversed the Decision dated 28 August 2003 and
Resolution dated 27 February 2004 of the National Labor Relations Commission (NLRC) in NLRC
Case No. V-000231-02 that found the petitioner to be illegally dismissed from employment by
respondent Treasure Island Industrial Corporation. The dispositive portion of the assailed
appellate courts Decision thus reads:
WHEREFORE, discussion considered, the decision dated August 28, 2003 of the National Labor
Relations Commission, Fourth Division, Cebu City, in NLRC Case No. V-000231-02 (RAB VII-061171-01), is hereby VACATED and SET ASIDE en toto.
The award of money claims to [herein petitioner] is NULLIFIED and RECALLED. 3
The factual and procedural antecedents of the instant Petition are as follows:
Sometime in March 1986, petitioner was employed as production worker by respondent.
Respondent was receiving information that many of its employees were using prohibited drugs
during working hours and within the company premises.4
On 5 June 2001, one of its employees, Erlito Loberanes (Loberanes) was caught in flagrante
delicto by the police officers while in possession of shabu. Loberanes was arrested and sent to
jail. In the course of police investigation, Loberanes admitted the commission of the crime. He
implicated petitioner in the crime by claiming that part of the money used for buying the illegal
drugs was given by the latter, and the illegal drugs purchased were for their consumption for the
rest of the month.5
In view of Loberaness statement, respondent, on 29 June 2001, served a Memo for
Explanation6 to petitioner requiring him to explain within 120 hours why no disciplinary action
should be imposed against him for his alleged involvement in illegal drug activities. Petitioner
was further directed to appear at the office of respondents legal counsel on 16 June 2001 at
9:00 oclock in the morning for the hearing on the matter. For the meantime, petitioner was
placed under preventive suspension for the period of 30 days effective upon receipt of the
Notice.
Notwithstanding said Memo, petitioner failed to appear before the respondents legal counsel on
the scheduled hearing date and to explain his side on the matter.
On 19 July 2001, respondent, through legal counsel, sent a second letter 7 to petitioner directing
him to attend another administrative hearing scheduled on 23 July 2001 at 11:00 oclock in the
morning at said legal counsels office but petitioner once again failed to show up.

89
Consequently, respondent, in a third letter8 dated 21 August 2001 addressed to petitioner,
terminated the latters employment retroactive to 11 June 2001 for using illegal drugs within
company premises during working hours, and for refusal to attend the administrative hearing
and submit written explanation on the charges hurled against him.
On 20 July 2001, petitioner filed a complaint9 for illegal dismissal against respondent and its
President, Emmanuel Ong, before the Labor Arbiter. Petitioner alleged that he had been working
for the respondent for 15 years and he was very conscientious with his job. He was suspended
for 30 days on 11 June 2001 based on the unfounded allegation of his co-worker that he used
illegal drugs within company premises. When petitioner reported back to work after the
expiration of his suspension, he was no longer allowed by respondent to enter the work premises
and was told not to report back to work.
On 8 January 2002, the Labor Arbiter rendered a Decision 10 in favor of petitioner since the
respondent failed to present substantial evidence to establish the charge leveled against the
petitioner. Apart from Loberaness statements on petitioners alleged illegal drug use, no other
corroborating proof was offered by respondent to justify petitioners dismissal. Further,
respondent failed to comply with due process when it immediately suspended petitioner and
eventually dismissed him from employment. Petitioners immediate suspension was not justified
since no evidence was submitted by the respondent to establish that petitioners continued
employment pending investigation poses a serious and imminent threat to respondents life or
property or to the life or property of petitioners co-workers. Finally, the Labor Arbiter observed
that the notices of hearing sent by respondent to petitioner were not duly received by the latter.
The Labor Arbiter was not swayed by respondents explanation that the reason therefor was that
petitioner refused to receive said notices. The Labor Arbiter thus ruled:
WHEREFORE, premises considered, judgment is hereby rendered ordering [herein respondent] to
pay [herein petitioner] the following:
1. Separation pay

P 74,100.00

2. Backwages

P 27,550.00

3. Unpaid wages

P 4,940.00

Total

P 106,590.00

The case against respondent Emmanuel Ong is dismissed for lack of merit. 11
On appeal, the NLRC affirmed the Labor Arbiters Decision in its Decision dated 28 August 2003.
The NLRC decreed that respondent failed to accord due process to petitioner when it dismissed
him from employment. The use of illegal drugs can be a valid ground for terminating
employment only if it is proven true. An accusation of illegal drug use, standing alone, without
any proof or evidence presented in support thereof, would just remain an accusation. 12
The Motion for Reconsideration filed by respondent was denied by the NLRC in a
Resolution13 dated 27 February 2004.
Resolving respondents Petition for Certiorari, the Court of Appeals reversed the Decisions of the
Labor Arbiter and NLRC on the grounds of patent misappreciation of evidence and misapplication
of law. The appellate court found that petitioner was afforded the opportunity to explain and
defend himself from the accusations against him when respondents gave him notices of hearing,
but petitioner repeatedly ignored them, opting instead to file an illegal dismissal case against
respondent before the Labor Arbiter. The essence of due process in administrative proceedings is
simply an opportunity to explain ones side or to seek reconsideration of the action or ruling
complained of. Due process is not violated where one is given the opportunity to be heard but he
chooses not to explain his side.14

90
Similarly ill-fated was petitioners Motion for Reconsideration which was denied by the Court of
Appeals in its Resolution15 dated 8 May 2006.
Hence, this instant Petition for Review on Certiorari16 under Rule 45 of the Revised Rules of
Court filed by petitioner impugning the foregoing Court of Appeals Decision and Resolution, and
raising the sole issue of:
WHETHER OR NOT PETITIONER WAS ILLEGALLY DISMISSED FROM EMPLOYMENT.
Time and again we reiterate the established rule that in the exercise of the Supreme Courts
power of review, the Court is not a trier of facts 17 and does not routinely undertake the
reexamination of the evidence presented by the contending parties during the trial of the case
considering that the findings of facts of labor officials who are deemed to have acquired
expertise in matters within their respective jurisdiction are generally accorded not only respect,
but even finality, and are binding upon this Court,18 when supported by substantial evidence.19
The Labor Arbiter and the NLRC both ruled that petitioner was illegally dismissed from
employment and ordered the payment of his unpaid wages, backwages, and separation pay,
while the Court of Appeals found otherwise. The Labor Arbiter and the NLRC, on one hand, and
the Court of Appeals, on the other, arrived at divergent conclusions although they considered the
very same evidences submitted by the parties. It is, thus, incumbent upon us to determine
whether there is substantial evidence to support the finding of the Labor Arbiter and the NLRC
that petitioner was illegally dismissed. Substantial evidence is such amount of relevant evidence
which a reasonable mind might accept as adequate to support a conclusion, even if other equally
reasonable minds might conceivably opine otherwise.20
Under the Labor Code, the requirements for the lawful dismissal of an employee are two-fold, the
substantive and the procedural aspects. Not only must the dismissal be for a just 21 or authorized
cause,22 the rudimentary requirements of due process - notice and hearing23 must, likewise, be
observed before an employee may be dismissed. Without the concurrence of the two, the
termination would, in the eyes of the law, be illegal,24 for employment is a property right of which
one cannot be deprived of without due process.25
Hence, the two (2) facets of a valid termination of employment are: (a) the legality of the act of
dismissal, i.e., the dismissal must be under any of the just causes provided under Article 282 of
the Labor Code; and (b) the legality of the manner of dismissal, which means that there must be
observance of the requirements of due process, otherwise known as the two-notice rule. 26
Article 282 of the Labor Code enumerates the JUST CAUSES FOR TERMINATING THE
SERVICES OF AN EMPLOYEE:
ART. 282. Termination by employer. - An employer may terminate an employment for any of
the following causes:
(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or his
duly authorized representative;
(d) Commission of a crime or offense by the employee against the person of his employer or any
immediate member of his family or his duly authorized representative; and
(e) Other causes analogous to the foregoing.
The charge of drug abuse inside the companys premises and during working hours against
petitioner constitutes serious misconduct, which is one of the just causes for termination.
Misconduct is improper or wrong conduct. It is the transgression of some established and definite
rule of action, a forbidden act, a dereliction of duty, willful in character, and implies wrongful
intent and not merely an error in judgment. The misconduct to be serious within the meaning of

91
the Act must be of such a grave and aggravated character and not merely trivial or unimportant.
Such misconduct, however serious, must nevertheless, in connection with the work of the
employee, constitute just cause for his separation. 27 This Court took judicial notice of scientific
findings that drug abuse can damage the mental faculties of the user. It is beyond question
therefore that any employee under the influence of drugs cannot possibly continue doing his
duties without posing a serious threat to the lives and property of his co-workers and even his
employer.
Loberaness statements given to police during investigation is evidence which can be considered
by the respondent against the petitioner. Petitioner failed to controvert Loberanes claim that he
too was using illegal drugs. Records reveal that respondent gave petitioner a first notice dated
11 June 2001, giving him 120 hours within which to explain and defend himself from the charge
against him and to attend the administrative hearing scheduled on 16 June 2001. There is no
dispute that petitioner received said notice as evidenced by his signature appearing on the lower
left portion of a copy thereof together with the date and time of his receipt. 28 He also admitted
receipt of the first notice in his Memorandum before this Court. 29 Despite his receipt of the
notice, however, petitioner did not submit any written explanation on the charge against him,
even after the lapse of the 120-day period given him. Neither did petitioner appear in the
scheduled administrative hearing to personally present his side. Thus, the respondent cannot be
faulted for considering only the evidence at hand, which was Loberanes statement, and
conclude therefrom that there was just cause for petitioners termination.
We thus quote with approval the disquisition of the Court of Appeals:
The [NLRC] did not find substantial evidence in order to establish the charge leveled against
[herein petitioner] claiming that the statement of Loberanes is legally infirm as it was an
admission made under custodial investigation; and there has been no corroborating evidence. In
administrative proceedings, technical rules of procedure and evidence are not strictly applied
and administrative due process cannot be fully equated with due process in its strict judicial
sense. Xxx It is sufficient that [herein petitioner] was implicated in the use of illegal drugs and,
more importantly, there is no counter-statement from [herein petitioner] despite opportunities
granted to him submit to an investigation.30
It was by petitioners own omission and inaction that he was not able to present evidence to
refute the charge against him.
Now we proceed to judge whether the manner of petitioners dismissal was legal; stated
otherwise, whether petitioner was accorded procedural due process.
In Pastor Austria v. National Labor Relations Commission,31 the Court underscored the
significance of the two-notice rule in dismissing an employee:
The first notice, which may be considered as the proper charge, serves to apprise the
employee of the particular acts or omissions for which his dismissal is sought. The second
notice on the other hand seeks to inform the employee of the employers decision to dismiss
him. This decision, however, must come only after the employee is given a reasonable period
from receipt of the first notice within which to answer the charge and ample opportunity to be
heard and defend himself with the assistance of a representative if he so desires. This is in
consonance with the express provision of the law on the protection to labor and the broader
dictates of procedural due process. Non-compliance therewith is fatal because these
requirements are conditions sine qua non before dismissal may be validly effected. (Emphases
supplied.)
While there is no dispute that respondent fully complied with the first-notice requirement
apprising petitioner of the cause of his impending termination and giving him the opportunity to
explain his side, we find that it failed to satisfy the need for a second notice informing petitioner
that he was being dismissed from employment.

92
We cannot give credence to respondents allegation that the petitioner refused to receive the
third letter dated 21 August 2001 which served as the notice of termination. There is nothing on
record that would indicate that respondent even attempted to serve or tender the notice of
termination to petitioner.1No affidavit of service was appended to the said notice attesting to the
reason for failure of service upon its intended recipient. Neither was there any note to that effect
by the server written on the notice itself.
The law mandates that it is incumbent upon the employer to prove the validity of the termination
of employment.32 Failure to discharge this evidentiary burden would necessarily mean that the
dismissal was not justified and, therefore, illegal. 33 Unsubstantiated claims as to alleged
compliance with the mandatory provisions of law cannot be favored by this Court. In case of
doubt, such cases should be resolved in favor of labor, pursuant to the social justice policy of our
labor laws and Constitution.34
The burden therefore is on respondent to present clear and unmistakable proof that petitioner
was duly served a copy of the notice of termination but he refused receipt. Bare and vague
allegations as to the manner of service and the circumstances surrounding the same would not
suffice. A mere copy of the notice of termination allegedly sent by respondent to petitioner,
without proof of receipt, or in the very least, actual service thereof upon petitioner, does not
constitute substantial evidence. It was unilaterally prepared by the petitioner and, thus,
evidently self-serving and insufficient to convince even an unreasonable mind.
We cannot overemphasize the importance of the requirement on the notice of termination, for
we have ruled in a number of cases35 that non-compliance therewith is tantamount to
deprivation of the employees right to due process.
This is not the first time that the Court affirmed that there was just cause for dismissal, but held
the employer liable for non-compliance with the procedural due process. In Agabon v. National
Labor Relations Commission,36we found that the dismissal of the employees therein was for valid
and just cause because their abandonment of their work was firmly established. Nonetheless,
the employer therein was held liable because it was proven that it did not comply with the twin
procedural requirements of notice and hearing for a legal dismissal. However, in lieu of payment
of backwages, we ordered the employer to pay indemnity to the dismissed employees in the
form of nominal damages, thus:
The violation of the petitioners right to statutory due process by the private respondent
warrants the payment of indemnity in the form of nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances. We believe this form of damages would serve to deter employers from future
violations of the statutory due process rights of employees. At the very least, it provides a
vindication or recognition of this fundamental right granted to the latter under the Labor Code
and its Implementing Rules.37
The above ruling was further clarified in Jaka Food Processing Corporation v. Pacot. 38
In Jaka, the employees were terminated because the corporation was financially distressed.
However, the employer failed to comply with Article 283 of the Labor Code which requires the
employer to serve a written notice upon the employees and the Department of Labor and
Employment (DOLE) at least one month before the intended date of termination. We first
distinguished the case from Agabon, to wit:
The difference between Agabon and the instant case is that in the former, the dismissal was
based on a just cause under Article 282 of the Labor Code while in the present case, respondents
were dismissed due to retrenchment, which is one of the authorized causes under Article 283 of
the same Code.
xxxx
A dismissal for just cause under Article 282 implies that the employee concerned has committed,
or is guilty of, some violation against the employer, i.e., the employee has committed some

93
serious misconduct, is guilty of some fraud against the employer, or, as in Agabon, he has
neglected his duties. Thus, it can be said that the employee himself initiated the dismissal
process.
On another breath, a dismissal for an authorized cause under Article 283 does not necessarily
imply delinquency or culpability on the part of the employee. Instead, the dismissal process is
initiated by the employers exercise of his management prerogative, i.e., when the employer
opts to install labor saving devices, when he decides to cease business operations or when, as in
this case, he undertakes to implement a retrenchment program. 39
Then we elucidated on our ruling in Agabon in this wise:
Accordingly, it is wise to hold that:
(1) if the dismissal is based on a just cause under Article 282 but the employer failed to comply
with the notice requirement, the sanction to be imposed upon him should be tempered
because the dismissal process was, in effect, initiated by an act imputable to the employee;
and
(2) if the dismissal is based on an authorized cause under Article 283 but the employer failed to
comply with the notice requirement, the sanction should be stiffer because the dismissal
process was initiated by the employers exercise of his management prerogative. 40
The Agabon doctrine enunciates the rule that if the dismissal was for just cause but
procedural due process was not observed, the dismissal should be upheld. Where the
dismissal is for just cause, as in the instant case, the lack of statutory due process should
not nullify the dismissal or render it illegal or ineffectual. However, the employer should
indemnify the employee for the violation of his right to procedural due process. The indemnity to
be imposed should be stiffer to discourage the abhorrent practice of "dismiss now, pay later,"
which we sought to deter in the Serrano 41 ruling. In Agabon42 the nominal damages awarded
was P30,000.00.
Conformably, the award of backwages by the Labor Arbiter and the NLRC should be deleted and,
instead, private respondent should be indemnified in the amount of P30,000.00 as nominal
damages.43
WHEREFORE, premises considered, the instant Petition is DENIED. The Court of Appeals Decision
dated 14 June 2005 is hereby AFFIRMED WITH MODIFICATION in the sense that while there was a
valid ground for dismissal, the procedural requirements for termination as mandated by law and
jurisprudence were not observed. Respondent Treasure Island Corporation is ORDERED to pay
the amount of P30,000.00 as nominal damages. No costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
FIRST DIVISION [G.R. No. 112630. September 5, 1997]
CORAZON JAMER and CRISTINA AMORTIZADO, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, ISETANN DEPARTMENT STORE and/or JOHN GO, respondents.
D E C I S I O N -HERMOSISIMA, JR., J.:
The decision[1] of public respondent National Labor Relations Commission (NLRC) [2] in NLRC NCR CA
002074-91,[3] promulgated on November 12 1993, is herein sought to be annulled for having been rendered
with grave abuse of discretion, it having reversed and set aside the decision [4] of Labor Arbiter Pablo C.
Espiritu, Jr. by dismissing the petitioners complaint for illegal dismissal against private respondent Isetann
Department Store (Isetann, for brevity). The decretal part of the NLRC decision reads:

94
WHEREFORE, premises considered, the appealed decision is hereby set aside and new one promulgated declaring that
the dismissal from the service of complainants Corazon Jamer and Cristina Amortizado was valid and for cause.
Consequently, the order of reinstatement with backwages and attorneys fees are likewise vacated and set aside. [5]
Although the Labor Arbiter[6] and the NLRC reached contrary conclusions, both agree on the following
facts:
Complainant, Corazon Jamer was employed on February 10, 1976 as a Cashier at Joy Mart, a sister company of Isetann.
After two (2) years, she was later on promoted to the position of counter supervisor. She was transferred to Isetann,
Carriedo Branch, as a money changer. In 1982 she was transferred to the Cubao Branch of Isetann, as a money changer,
till her dismissal on August 31, 1990.
Complainant Cristina Amortizado, on the other hand, was employed also at Joy Mart in May, 1977 as a sales clerk. In
1980 she was promoted to the position as counter cashier. Thereafter, she was transferred to Young Un Department Store
as an assistant to the money changer. Later on, or in 1985, she transferred to Isetann, Cubao Branch where she worked as
a Store Cashier till her dismissal on August 31, 1990.
Both complainants were receiving a salary of P4,182.00 for eight (8) hours work at the time of their dismissal.
Respondent Isetann Department Store on the other hand, is a corporation duly organized and existing under laws of the
Philippines and is engaged in retail trade and the department store business. Individual respondent, John Go is the
President/General (Manager) of respondent Department Store.
This complaint arose from the dismissal of the complainants by the respondents. They were both dismissed on August
31, 1990 on the alleged ground of dishonesty in their work as Store Cashiers.
Complainants (sic) function as Store Cashiers is to accumulate, at the end of daily operations, the cash sales receipts of
the selling floor cash register clerks. At the close of business hours, all the cash sales of the floor cash register clerks are
turned over by them to the Store Cashiers, complainants herein, together with the tally sheets prepared by the cash
register clerks. Thereafter, complainants will reconcile the cash sales with the tally sheets to determine shortages or
coverages(sic) and deposit the same with the bank depositor(sic) of respondents company. Thereafter, the recorded
transactions are forwarded to the main branch of respondents company at Carriedo for counter-checking.
On July 16, 1990, complainants discovered a shortage of P15,353.78. It was complainant Corazon Jamer who first
discovered the shortage. In fact at first, she thought that it was merely a P1,000.00 shortage but when she reconciled the
cash receipts, from the cash register counters, with the tally sheets and the actual money on hand, the shortage amounted
to P15,353.78. She informed her co-store cashier, complainant Cristina Amortizado, about the shortage. Cristina
Amortizado also reconciled and re-counted the sale previous to July 16, 1990 and she also confirmed that there was a
discrepancy or a shortage of P15,353.78.. They did not, (sic) immediately report the shortage to management hoping to
find the cause of the shortage but to no avail they failed to reconcile the same. Hence, they had no other alternative but to
report the same to the management on July 17, 1990.
Complainants, together with another Store Cashier, Lutgarda Inducta, were asked to explain and they submitted their
respective written explanations for the shortage of P15,353.78. and the P450.00 under deposit last July 14, 1990.
Respondents placed both complainants and their co-store cashier Lutgarda Inducta under preventive suspension for the
alleged shortages. Thereafter, respondents conducted an administrative investigation. Finding the explanation of the
complainants to be unsatisfactory, respondent dismissed the complainants from the service on August 31, 1990.
Aggrieved and not satisfied with the decision of management terminating their services, complainant instituted this
present action on September 26, 1990 for illegal dismissal praying for reinstatement with payment of backwages and
other benefits. [7]
In justifying complainants dismissal from their employment, respondents alleged:

95
When the transactions for July 15, 1990 were being reconciled, a shortage of P15,353.78 was discovered. Also uncovered
was an under-deposit of P450.00 of cash receipts for July 14, 1990.
Considering that the foregoing deficits were attributable to herein appellees and to another store cashier, Mrs. Lutgarda
Inducta, who were the ones on duty those days respondent Isetanns Human Resources Division Manager, Teresita A.
Villanueva, issued letters (Exh. 1 and 5) individually addressed to herein appellees and Mrs. Inducta requiring them to
submit written explanations in regard to their above malfeasance within 48 hours from receipt thereof. Pursuant to said
letters, they were likewise placed under preventive suspension.
Thereafter, the Committee o Discipline of appellant Isetann conducted a series of investigations probing appellees and
Mrs. Inductas aforestated shortages. In addition to the shortage of P15,353.78(sic) and underdeposit of P450.00, said
investigation also included the following sums which appellees failed to turnover or account for:
a) P1,000.00- amount borrowed by Lutgarda Inducta from Corazon Jamer;
b) P 70.00- over replenishment of petty cash expenses incurred by Cristina Amortizado.
After the administrative investigation, the Committee on Discipline rendered its decision (Exhs. 3, 3-A, to 3-D) dated
August 23, 1990 duly approved by the General Manager of respondent Isetann, finding the appellees and Mrs. Inducta
responsible for said shortages and consequently requiring them to restitute the same to respondent Isetann. This Decision
and the notices of termination were sent by respondent Isetann to the appellees, and which the latter admittedly received.
On the other hand, the complainants account of the factual antecedents that let (sic) to their dismissal is as follows:
Aside from the foregoing persons, Alex Mejia had and was allowed by management to have uncontrolled access to the
said room including the vault. Ostensibly, the purpose was to assist in the bringing in or taking out of coin bags, monies,
etc.
There were therefore, at a minimum at least six (6) persons who could have had access to the company funds. To ascribe
liability to the store cashiers alone, in the absence of a clear proof of any wrongdoing is not only unfair and
discriminatory but is likewise illegal.
Parenthetically, and within the parameters of their assigned tasks, herein complainants could not be faulted in any way for
the said shortage as there is no showing that the loss occurred at the time they were in control of the funds concerned.
Complainants do not dispute the fact that there appeared to be a shortage of P15.373.78(sic) for the July 15, 1990 (a
Sunday) sales and which were tallied and the loss discovered on the following day, July 16, 1990. They however
vehemently deny any culpability or participation in any kind, directly or indirectly, in regard to the said loss or shortage.
Given the kind of trust reposed upon them by respondents for fourteen and thirteen years respectively they were not
about, although they could have done so before given the negligence and laxity of management in regard to the control
and handling of funds of the store, to break said trust.
At the time the persons who had access either to the vault the money and/or the keys aside from herein complainants,
were: 1) Lutgarda Inducta, also a store cashier on duty at the time; 2) the SOM Mrs. Samonte, the supervisor in charge; 3)
Alex Mejia, an employee assigned as utility man; and 4) Boy Cabatuando.
There were (sic) three (3) keys to the money changers room, and these keys were assigned and distributed to: a) master
key is or was with the SOMs (Mrs. Samonte) room at the 3rd floor of the building; b) another key is or was in the
possession of the keeper of the keys, i.e. Boy Cabatuando; and c) the third and last key is any of the store cashiers
depending on who is on duty at the time.
Likewise, there were four (4) persons who were aware and knew of the vault combination. These were the three store
cashiers, i.e. herein complainants, Lutgarda Inducta and their SOM, Mrs. Samonte.[8]

96
On July 23, 1991, Labor Arbiter Nieves V. de Castro, to whom the instant contoversy was originally assigned,
rendered a decision[9] in favor of herein petitioners, finding that petitioners had been illegally dismissed, the dispositive
portion of which reads:

WHEREFORE, respondents are hereby directed to reinstate complainants to service effective August 1, 1991 with full
backwages and without loss of seniority rights.
SO ORDERED.[10]
Expectedly, respondents Isetann and John Go appealed the aforesaid decision to the NLRC. On January 31, 1992,
the NLRC issued a resolution[11] remanding this case to the NLRC National Capital Region Arbitrattion Branch for further
proceedings in the following manner:

WHEREFORE, premises considered, the challenged decision is hereby SET ASIDE and VACATED.
The entire records of this case is hereby remanded to the NLRC National Capital Region Arbitration Branch for further
proceedings.
Considering that the Labor Arbiter a quo rendered a decision in this case and in order to dispel any suspicion of prejudgment of this case, the Executive Labor Arbiter is hereby directed to have this case re-raffled to another Labor Arbiter.
SO ORDERED.[12]
Consequently, the present case was then re-raffled to Labor Arbiter Pablo C. Espiritu, Jr. After a full-blown trial, the
said Labor Arbiter found for the petitioners and declared that there was no justification, whether in fact or in law, for their
dismissal. The decretal part of the decision[13] dated March 31, 1993, states:

WHEREFORE, above premises considered, judgement(sic) is hereby rendered finding the dismissal of complainants,
Cristina Amortizado and Corazon Jamer to be illegal and concomitantly, (r)espondents are hereby ordered to pay
complainants, Corazon Jamer the amount of P125,460.00 and Cristina Amortizado the amount of P125,460.00,
representing full backwages from the time of their dismissal (August 31, 1990) till actual or payroll reinstatement at the
option of the respondent (computed until promulgation only). Respondents are also hereby further ordered to reinstate the
complainants to their former position as Store Cashiers without loss of seniority rights, privileges and benefits, failure to
do so backwages shall continue to run but in no case to exceed three (3) years.
Respondents are also ordered to pay complainants the amount of P25,092.00 representing 10% attorneys fees based in the
total judgement(sic) award of P250,920.00.
SO ORDERED.[14]
Dissatisfied over the decision of the Labor Arbiter which struck private respondents as grossly contrary to
the evidence presented, the herein private respondents once again appealed to the NLRC. And, as earlier stated,
the NLRC rendered the challenged decision [15] on November 12, 1993, vacating the decision of the Labor Arbiter
and entering a new one dismissing the petitioners complaint.
Hence, this petition wherein the main issue to be resolved is whether NLRC committed grave abuse of
discretion in finding that petitioners were validly dismissed on the ground of loss of trust and confidence.
At the outset, the Court notes petitioners inexcusable failure to move for the reconsideration of respondent
NLRCs decision. Thus, the present petition suffers from a procedural defect that warrants its outright dismissal.
While in some exceptional cases we allowed the immediate recourse to this Court, we find nothing herein that
could warrant an exceptional treatment to this petition which will justify the omission. This premature action of
petitioners constitutes a fatal infirmity as ruled in a long line of decisions, [16] most recently in the case of Building
Care Corporation vs. National Labor Relations Commission, et al.:[17]

97
the filing of such a motion is intended to afford public respondent an opportunity to correct any actual or fancied error
attributed to it by way of a re-examination of the legal and factual aspects of the case. Petitioners inaction or negligence
under the circumstances is tantamount to a deprivation of the right and opportunity of the respondent Commission to
cleanse itself of an error unwittingly committed or to vindicate itself of an act unfairly imputed. xxx
xxx And for failure to avail of the correct remedy expressly provided by law, petitioner has permitted the subject
Resolution to become final and executory after the lapse of the ten day period within which to file such motion for
reconsideration.
Likewise, a motion for reconsideration is an adequate remedy; hence certiorari proceedings,as in this case,
will not prosper.[18] Rule 65, Section 1 of the Rules of Civil Procedure, as amended, clearly provides that :

When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of its or
his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or
any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, xxx
The unquestioned rule in this jurisdiction is that certiorari will lie only if there is no appeal or any other plain, speedy
and adequate remedy in the ordinary course of law against the acts of respondent. [19] In the case at bench, the plain and
adequate remedy referred to in Rule 65, Section 1, is a motion for reconsideration of the challenged decision and the
resolution thereof, which was expected to provide an adequate and a more speedy remedy than the present petition
for certiorari.
Petitioners asseverate that respondent NLRC committed a grave abuse of discretion when it reversed the findings of
facts of the Labor Arbiter.
We find said submissions untenable.
In asserting that there was a grave abuse of discretion, petitioners advert to alleged variances in the factual findings
of the Labor Arbiter and the respondent NLRC. This is inept and erroneous. Firstly, errors of judgment, as distinguished
from errors of jurisdiction, are not within the province of a special civil action for certiorari.[20] Secondly, a careful reading of
the records of this case would readily show that there is any error by public respondent in its analysis of the facts and its
evaluation of the evidence, it is not of such a degree as may be stigmatized as a grave abuse of discretion does not
necessarily follow just because there is a reversal by the NLRC of the decision of the Labor Arbiter. Neither does the mere
variance in the evidentiary assessment of the NLRC and that of the Labor Arbiter would, as a matter of course, so warrant
another full review of the facts. The NLRCs decision, so long as it is not bereft of support from the records, deserves
respect from the Court.[21]
We must once more reiterate our much repeated but not well-heeded rule that the special civil action for certiorari is a
remedy designed for the correction of errors of jurisdiction and not errors of judgment. The rationale for this rule is simple.
When a court exercises its jurisdiction being exercised when the error is committed. If it did, every error committed by a
court would deprive it of its jurisdiction and every erroneous judgment would be a void judgment. This cannot be allowed.
The administration of justice would not countenance such a rule. Consequently, an error of judgment that the court may
commit in the exercise of its jurisdiction is not correctible through the original special civil action of certiorari.[22]
On the merits, we find and so hold that substantial evidence exists to warrant the finding that petitioners were validly
dismissed for just cause and after observance of due process.
Under the Labor Code, as amended, the requirements for the lawful dismissal of an employee by his employer are
two-fold: the substantive and the procedural. Not only must the dismissal be for a valid or authorized cause as provided by
law (Articles 282, 283 and 284, of the Labor Code, as amended), but the rudimentary requirements of due process, basic
of which are the opportunity to be heard and to defend himself, must be observed before an employee may be dismissed.
[23]

With respect to the first requisite, Article 282 of the Labor Code, as amended, provides:

98
ART. 282. Termination by Employer.- An employer may terminate an employment for any of the following causes:
(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in
connection with his work;
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized
representative;
(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of
his family or his duly authorized representative; and
(e) Other causes analogous to the foregoing. (Italics supplied)
In the instant case, we find no difficulty in agreeing with the findings of the public respondent that the
herein petitioners were guilty of acts of dishonesty by incurring several occurrences of shortages in the
amounts of P15,353.78, P1,000.00, P450.00 and P70.00 which they failed to turnover and account for/and in
behalf of respondent Isetann. Fittingly, the findings of the NLRC are worth stressing at this point, to wit:
With regard to the several occurrences of shortages of the amounts of P15,353.78, P1,000.00, P450.00 and P70.00 , the
Labor Arbiter has failed to consider the fact that complainants-appellees were accorded the chance to explain their side as
to the shortages and that they have utterly failed to do so providing basis for their valid dismissal. This fact has been
established by the respondents-appellants in the findings of the Committee on Discipline on Exhibits 3, 3-A to 3-D, as
follows:
a) On the Shortage of P15,353.78:
The 3 respondents, Lutgarda Inducta, Cristy Amortizado and Corazon Jamer denied any involvement in the loss
of P15,353.78. Although the money, is under their responsibility, not one of them gave any explanation about the shortage
or loss.
b) On the amount of P1,000.00 borrowed by Inducta from Jamer:
On July 18, 1990, Lutgarda Inducta borrowed money from respondents (sic) Jamer amounting to P1,000.00 to cover her
shortage.
Ms. Jamer said that Ms. Inducta paid the amount on that day. But Ms. Jamer did not report the shortage.
c) On the Underdeposit of Cash = P450.00.
The computation of Ms. Amortizado s sales collections last July 14, 1990 resulted to an overage of P350.00. Amortizado
turned over the amount of P350.00, to cover up a shortage incurred by her and Mrs. Inducta.
Jamer used the money given to her by Amortizado (P350.00), and borrowed (P150.00) from the change fund to cover the
total shortage amounting to P500.00 which she had then.
Jamer cannot trace how the shortage came about. Inducta and Jamer shouldered the total shortage amounting
to P500.00, P330.00 for Jamer and P200.00 for Inducta. Jamer claimed that she returned theP350.00 in the box. However,
the claim of respondent was further verified from the payroll section which revealed that a value slip was issued last July
1990. Jamer and Inducta were charged for P200.00 each. A value slip was issued last August 10, 1990 charging P100.00
to Amortizado.

99
Jamer admitted that she failed to inform the Audit Staff regarding the P350.00 overage which she received from
Amortizado. A(s) per report of Ms. Agnes Gonzales dated 26 July 1990, there was a total under deposit of cash amounting
to P450.00.
Total cash admitted P65,428.05

(cash in drawer)

Total cash remitted P64,978.05

(per tally sheet)

Overage P 450.00
d) On the P70.00 Replenishment of Petty Cash Expenses:
During the 3rd Administrative hearing, the Committee informed Ms. Amortizado regarding the over replenishment of petty
cash expenses as revealed by the Finance Manager last August 10, 1990.
Mrs. Amortizado readily admitted and explained that she forgot to inform Mrs. Inducta regarding the P70.00. She
admitted her failure to correct the amount from P100.00 to P30.00 (total expenses spent for the taxi fair).
She added that she previously incurred a shortage amounting to P100.00. Then she used the P70.00 to cover for the
shortage. The remaining balance of P30.00 was paid by Amortizado.
Amortizado informed the Committee that she is willing to refund the P70.00 shortage. (Underscoring supplied).[24]
From the foregoing premises, it is crystal clear that the failure of petitioners to report the aforequoted
shortages and overages to management as soon as they arose resulted in the breach of the fiduciary trust
reposed in them by respondent company, thereby causing the latter to lose confidence in them. This warrants
their dismissal. Moreover, it must be pointed out that herein petitioners have in fact admitted the
underpayment of P450.00 not only in their Sinumpaang Salaysay but also during the hearing conducted before
Labor Arbiter Pablo C. Espiritu. [25] And, the record shows that the petitioners in fact made a last ditch effort to
conceal the same. Were it not for its timely discovery by private respondents trusted employees, the incident
could not have been discovered at all. Furthermore, it is worth stressing at this juncture that the petitioners
have also expressly admitted the shortage of P15,353.78a substantial amountin their respective sworn
statements, and they were not able to satisfactorily explain such shortage. [26] The Court is convinced that these
particular acts or omissions provided Isetann with enough basis to forfeit its trust and confidence over herein
petitioners.
The NLRC, therefore, did not act with grave abuse of discretion in declaring that petitioners were legally
dismissed from employment. The failure of petitioners to report to management the aforementioned
irregularities constitute fraud or willful breach of the trust reposed in them by their employer or duly authorized
representative one of the just causes in terminating employment as provided for by paragraph (c), Article 282
of the Labor Code, as amended.
In other words, petitioners admissions in their sworn statements, together with the other documentary
evidences on record, constituted breach of trust on their part which justifies their dismissal. Private
respondents Isetann Department Store and Mr. John Go cannot be compelled to retain employees who are
clearly guilty of malfeasance as their continued employment will be prejudicial to the formers best interest.
[27]
The law, I protecting the rights of the employees, authorizes neither oppression nor self-destruction of the
employer.[28]
The cause of social justice is not served by upholding the interest of petitioners in disregard of the right of
private respondents. Social justice ceases to be an effective instrument for the equalization of the social and
economic forces by the State when it is used to shield wrongdoing. [29] While it is true that compassion and

100
human consideration should guide the disposition of cases involving termination of employment since it affects
ones source or means of livelihood, it should not be overlooked that the benefits accorded to labor do not
include compelling an employer to retain the services of an employee who has been shown to be a gross
liability to the employer. It should be made clear that when the law tilts the scale of justice in favor of labor, it is
but a recognition of the inherent economic inequality between labor and management. The intent is to balance
the scale of justice; to put up the two parties on relatively equal positions. There may be cases where the
circumstances warrant favoring labor over the interests of management but never should the scale be so tilted
if the result is an injustice to the employer, Justicia remini regarda est (Justice is to be denied to none).[30]
Thus, this Court has held time and again, in a number of decisions, [31] that:
Loss of confidence is a valid ground for dismissing an employee and proof beyond reasonable doubt of the employees
misconduct is not required to dismiss him on this charge. It is sufficient if there is some basis for such loss of confidence
or if the employer has reasonable ground to believe or to entertain the moral conviction that the employee concerned is
responsible for the misconduct and that the nature of his participation therein rendered him absolutely unworthy of the
trust and confidence demanded by his position.[32]
Parenthetically, the fact that petitioners Jamer and Amortizado had worked for respondent company for
fourteen (14) and thirteen (13) years, respectively, should be taken against them. The infractions that they
committed, notwithstanding their long years of service with the company, reflects a regrettable lack of
loyaltyloyalty that they should have shouldered instead of betrayed. If the petitioners length of service is to be
regarded as a justifying circumstance in moderating the dismissal, it will actually become a prize for disloyalty,
perverting the meaning of social justice and undermining the efforts of labor to cleanse its ranks of all
undesirables.[33]
Petitioners also maintain that the NLRC acted with grave abuse of discretion when it failed to consider the
fact that, other than petitioners themselves, there were four (4) other persons who had access to the company
vaults, and hence, could have been responsible for the aforesaid cash shortages imputed to them. They aver
therefore, that there was a serious flaw and laxity in the supervision and handling of company funds by
respondent Isetann.[34]
We also find this contention devoid of merit.
First, it must pointed out that the petitioners remark that there was laxity in the accounting procedures of
the company is a matter addressed to the respondent employer. However, this does not excuse dishonesty of
employees and should not in any case hamper the right of the employer to terminate the employment of
petitioners on the ground of loss of confidence or breach of trust. Precisely, the accounting procedure which
called for improvements was based primarily on trust and confidence. [35]
Secondly, it must be noted that the herein petitioners were store cashiers and as such, a special and
unique employment relationship exists between them and the respondent company. More than most key
positions, that of cashier calls for the utmost trust and confidence because their primary function involves
basically the handling of a highly essential property of the respondent employer --- the sales and revenues of
the store. Employers are consequently given wider latitude of discretion in terminating the employment of
managerial employees or other personnel occupying positions of responsibility, such as in the instant case,
than in the case of ordinary rank-and-file employees, whose termination on the basis of these same grounds
requires proof of involvement in the malfeasance in question. Mere uncorroborated assertions and accusations
by the employer will not suffice.[36] In that respect , we quote with approval the observations of the NLRC:
To expound further, for the position of a cashier, the honesty and integrity of the persons assuming said position are the
primary considerations for the nature of her work requires that her actuations should be beyond suspicion as they are
accorded the responsibility of handling money and whatever they would do to such property of the employer largely

101
depend on their trustworthiness. Hence, the right of the employer to dismiss a cashier guilty of breach and trust and
confidence should be recognized. In a case decided by the Supreme Court it has been ruled that:
Honesty and integrity are the primary considerations in petitioners position. The nature of his work requires that the
actuations should be beyond suspicion, our empathy with the cause of labor should not blind us to the rights of
management. As we have held, this Court should help stamp out, rather than tolerate, the commission of irregular acts
whenever these are noted. Malpractices should not be allowed to continue but should be rebuked. (Del Carmen vs. NLRC,
203 SCRA 245)[37]
Finally, we are convinced that the NLRC did not commit grave abuse of discretion in evaluating the
evidence. Petitioners merely denied the charges against them. Denials are weak forms of defenses,
particularly when they are not substantiated by clear and convincing evidence. [38] The petitioners failure to
satisfactorily explain the cash shortages, for which sums they are responsible, given their respective positions
in respondent company, is enough reason to warrant their dismissal on the ground of loss of confidence. They
cannot place the burden on somebody else given the factual circumstances of this case. As succinctly put by
the NLRC:
That there were other persons who had access to the vaults of the appellant company implying that these other persons
could have been responsible for the loss of the P15,353.78 is of no moment inasmuch as the appellees were the ones who
took first custody of the possession of said collections. As store cashiers, it is expected of them to exercise ordinary
prudence to count the collection and record the same in the tally sheet before depositing to said vault to avoid a slightest
suspicion of having pocketed part of it should a shortage arise. They did not exert efforts to exercise such prudence
demanded of their positions hence, appellants should not be blamed when they were called for an investigation when said
shortage was discovered.
xxx xxx xxx
That the occurrence of shortages is merely an isolated one and therefore should not be taken against the complainantappellees as a ground for loss of trust and confidence that would cause their termination cannot be given any credence.
The shortages having been established and admitted has provided the employer sufficient basis for loss of confidence and
whether such occurrence is merely an isolated one or has been repeatedly committed is no longer material. The bone of
contention here is whether there is some basis for such loss of trust and confidence and if the employer has reasonable
ground to believe or to entertain the moral conviction that the employee concerned is responsible for the misconduct
which in the instant case has been established.[39]
We reiterate the rule that in cases of dismissal for breach of trust and confidence, proof beyond
reasonable doubt of the employees misconduct is not required. It is sufficient that the employer had
reasonable ground to believe that the employees are responsible for the misconduct which renders him
unworthy of the trust and confidence demanded by their position. [40] In the case at hand, it cannot be doubted
that respondents succeeded in discharging its burden of proof.
As regards to the second requisite, the law requires that the employer must furnish the worker sought to
be dismissed with two (2) written notices before termination may be validly effected: first, a notice apprising the
employee of the particular acts or omission for which his dismissal is sought and, second, a subsequent notice
informing the employee of the decision to dismiss him. [41]
In accordance with this requirement, petitioners were given the required notices, on August 2, 1990 and
then on August 23, 1990. The Court finds that petitioners were accorded due process before they were
dismissed on August 31, 1990. It is a well-established rule that the essence of due process is simply an
opportunity to be heard, or as applied to administrative proceedings, an opportunity to explain ones side or an
opportunity to seek a reconsideration of the action or ruling complained of. [42] It is evident from the records ,
that herein petitioners were given all the opportunities to defend themselves and air their side before the
Committee on Discipline, having been notified by respondent Isetanns Human Resources Division Manager,

102
Teresita A. Villanueva, on August 2, 1990 through letters individually sent to them. However, offered no
explanation or theory which could account for money lost in their possession. Hence, the company had no
other alternative but to terminate their employment. As we elucidated in the case of Philippine Savings Bank
vs. National Labor Relations Commission,[43] to wit:
xxx the requirement of due process is satisfied when a fair and reasonable opportunity to explain his side of the
controversy is afforded the party. A formal or trial-type hearing is not at all times and in all circumstances essential,
especially when the employee chooses not to speak,
WHEREFORE, the assailed decision of the National Labor Relations Commission in NLRC NCR CA
002074-91 is hereby AFFIRMED. The petition is DISMISSED for lack of merit.
SO ORDERED.
Bellosillo, (Chairman), Vitug, and Kapunan, JJ., concur

DOLE Issues New Rules on Contracting

On 14 November 2011, the Department of Labor and Employment (DOLE) issued Department
Order No. 18-A, which becomes effective fifteen (15) days after completion of its publication in a
newspaper of general circulation. Considering that Department Order 18-A was published on 19
November 2011, it shall take effect on 4 December 2011.
What is contracting or subcontracting?

103
Contracting or subcontracting refers to an arrangement whereby a principal agrees to put
out or farm out with a contractor the performance or completion of a specific job, work or service
within a definite or predetermined period, regardless of whether such job, work or service is to
be performed or completed within or outside the premises of the principal.
Contracting or subcontracting shall be legitimate if all the following circumstances concur:
1. The contractor must be registered in accordance with these Rules and carries a distinct and
independent business and undertakes to perform the job, work or service on its own
responsibility, according to its own manner and method, and free from control and direction of
the principal in all matters connected with the performance of the work except as to the results
thereof;
2. The contractor has substantial capital and/or investment; and
3. The Service Agreement ensures compliance with all the rights and benefits under Labor Laws.
A service agreement refers to the contract between the principal and contractor containing the
terms and conditions governing the performance or completion of a specific job, work or service
being farmed out for a definite or predetermined period.
What is substantial capital?
Substantial capital refers to paid-up capital stocks/shares of at least Three Million Pesos
(P3,000,000.00) in the case of corporations, partnerships and cooperatives; in the case of single
proprietorship, a net worth of at least Three Million Pesos (P3,000,000.00). What constitutes
substantial capital previously vary, as fixed by the court, as there was no specific threshhold
provided under the law or the implementing guidelines.
It is also important to note that the registration fee is Twenty-Five Thousand Pesos (P25,000.00).
Prohibition on labor-only contracting
While the law recognizes contracting and subcontracting arrangements, in prohibits labor-only
contracting. It is important, therefore, to know the differences between the two types of
contracting.
What is labor-only contracting?
There are two general criteria to determine the existence of labor-only contracting. There is
labor-only contracting when:
1. The contractor does not have substantial capital or investments in the form of tools,
equipment, machineries, work premises, among others, and the employees recruited and placed

104
are performing activities which are usually necessary or desirable to the operation of the
company, or directly related to the main business of the principal within a definite or
predetermined period, regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal; or
2. The contractor does not exercise the right to control over the performance of the work of the
employee.
What are the other prohibited acts?
In addition to the prohibition on labor-only contracting, the new issuance also declared as
contrary to law the contracting out of jobs, works or services when not done in good faith and
not justified by the exigencies of the business, including the following:
1. Contracting out of jobs, works or services when the same results in the termination or
reduction of regular employees and reduction of work hours or reduction or splitting of the
bargaining unit.
2. Contracting out of work with a cabo, which refers to a person or group of persons or to a
labor group which, in the guise of a labor organization, cooperative or any entity, supplies
workers to an employer, with or without any monetary or other consideration, whether in the
capacity of an agent of the employer or as an ostensible independent contractor.
3. Taking undue advantage of the economic situation or lack of bargaining strength of the
contractors employees, or undermining their security of tenure or basic rights, or circumventing
the provisions of regular employment, in any of the following instances:
(i) Requiring them to perform functions which are currently being performed by the regular
employees of the principal; and
(ii) Requiring them to sign, as a precondition to employment or continued employment, an
antedated resignation letter; a blank payroll; a waiver of labor standards including minimum
wages and social or welfare benefits; or a quitclaim releasing the principal, contractor or from
any liability as to payment of future claims.
4. Contracting out of a job, work or service through an in-house agency.
5. Contracting out of a job, work or service that is necessary or desirable or directly related to
the business or operation of the principal by reason of a strike or lockout whether actual or
imminent.

105
6. Contracting out of a job, work or service being performed by union members when such will
interfere with, restrain or coerce employees in the exercise of their rights to self-organization as
provided in Art. 248 (c) of the Labor Code, as amended.
7. Repeated hiring of employees under an employment contract of short duration or under a
Service Agreement of short duration with the same or different contractors, which circumvents
the Labor Code provisions on Security of Tenure.
8. Requiring employees under a subcontracting arrangement to sign a contract fixing the period
of employment to a term shorter than the term of the Service Agreement, unless the contract is
divisible into phases for which substantially different skills are required and this is made known
to the employee at the time of engagement.
9. Refusal to provide a copy of the Service Agreement and the employment contracts between
the contractor and the employees deployed to work in the bargaining unit of the principals
certified bargaining agent to the sole and exclusive bargaining agent (SEBA).
10. Engaging or maintaining by the principal of subcontracted employees in excess of those
provided for in the applicable Collective Bargaining Agreement (CBA) or as set by the Industry
Tripartite Council (ITC).
What happens if theres a finding that labor-only contracting exists?
A finding by competent authority of labor-only contracting shall render the principal jointly and
severally liable with the contractor to the latters employees, in the same manner and extent
that the principal is liable to employees directly hired by him/her. On the other hand, a finding of
commission of any of the prohibited activities renders the principal the direct employer of the
employees of the contractor or subcontractor.
What happens if an independent contractor is not registered with the DOLE?
It is mandatory for all persons or entities, including cooperatives, acting as contractors, to
register with the Regional Office of the DOLE where it principally operates. Failure to register
shall give rise to the presumption that the contractor is engaged in labor-only contracting.

DO No. 18-A: Strengthening the Rights of Contractual Employees & Imposing Obligations on the
Contractors

106
Contracting and sub-contracting arrangements are commonplace in most business transactions.
Instead of hiring their own messengers, janitors and security guards, among others,
entrepreneurs have learned the value of outsourcing these services to contractors. Truth be told,
contracting out these jobs is actually more cost-efficient in terms of time and money for the
usual businessman. However, contracting arrangements are regulated by Philippine labor laws to
ensure that these arrangements do not result in the exploitation of contractual employees.
Last 14 November 2011, the Department of Labor & Employment (DOLE) issued Department
Order No. 18-A, Series of 2011 (DO 18-A). Section 4 of DO 18-A states that contracting or
subcontracting shall be legitimate if all the following circumstances concur:
(a) The contractor is registered with DOLE and carries a distinct and independent business and
undertakes to perform the job, work or service on its own responsibility, according to its own
manner and method, and free from control and direction of the principal in all matters connected
with the performance of the work except as to the results thereof;
(b) The contractor has substantial capital and/or investment; and
(c) The Service Agreement ensures compliance with all the rights and benefits under Labor Laws.
Furthermore, the contractors employees shall be entitled to all the rights and privileges as
provided for in the Labor Code to include the following:
(a) Safe and healthful working conditions;
(b) Labor standards such as but not limited to service incentive leave, rest days, overtime pay,
holiday pay, 13th month pay, and separation pay as may be provided in the Service
Agreement or under the Labor Code;
(c) Retirement benefits under the SSS or retirement plans of the contractor, if there is any;
(d) Social security and welfare benefits;
(e) Self-organization, collective bargaining and peaceful concerted activities; and
(f) (f) Security of tenure.
In fact, it is required that the Employment Contract between the Contractor and Employee
include the following terms and conditions:
(a) The specific description of the job, work or service to be performed by the employee;
(b) The place of work and terms and conditions of employment, including a statement of the
wage rate applicable to the individual employee; and
(c) The term or duration of employment that must be co-extensive with the Service Agreement
or with the specific phase of work for which the employee is engaged.
A salient feature of DO 18-A is the mandatory registration of all contractors with the DOLE. A
Certificate of Registration is good for 3 years. Failure to register shall give rise to the
presumption that the contractor is engaged in labor-only contracting, which is prohibited. Hence,
it is strongly advised that contractors register with DOLE, not only in compliance with DO 18-A
but also as a preventive measure to avoid problems in the future concerning labor claims and
cases filed by employees.
If you need help in registering your company with DOLE, our lawyers, attorneys and consultants
may be able to help. Nicolas & De Vega Law Offices is a full-service firm located at the 16th Flr.,
Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, Pasig City, Metro Manila,
Philippines. You may e-mail us at info@ndvlaw.com To speak with a Philippine lawyer or attorney,
call us at +632 4706126 or +632 4706130