SORIANO vs NLRC

Petitioner: Rufina Soriano

Respondent: The National Labor Relations Commission and Kingly Commodities Traders
and Multi-Resources, Inc.
Citation: G.R. No. 75510
Date of Promulgation: October 27, 1987
Ponente: Feliciano, J.

FACTS
1. Soriano started working with Kingly Commodities Traders and Multi-Resources, Inc. in November 1977.
2. On September 18, 1984, she was charged with:
- allowing or failing to supervise and monitor certain activities of investment counselors in her
department which included:
a) signing of a contract opening an account for a client by an investment
counselor without authority from the client,
b) transfers of funds from one account to another without the knowledge
and authority of the clients involved,
c) unauthorized transactions in foreign currency with clients of the
respondent Corporation,
d) unauthorized approval of leave for members of her department
and this resulted to the company's loss of confidence in petitioner.
3. Because of the incident, Soriano was preventively suspended and required to explain her acts and/or failure
to act.
- she submitted her detailed answer two days later
- the executive VP/GM found the answer unsatisfactory and notified Soriano that the corporation has lost
their confidence in her ability and accordingly terminated her services.
4. Soriano filed a complaint for illegal suspension and dismissal against the corporation and Mr. Guil Rivera,
Senior Vice-President, and Mr. Richard Tan, executive VP/GM.
- she asked for 1) reinstatement with backwages, 2) moral and exemplary damages, 3) medical
expenses, 4) attorney's fees and 5) other litigation expenses.
5. Labor Arbiter rendered a Decision on July 8th of 1985, in favor of Soriano and required respondent corporation
to pay petitioner:
- separation pay in the amount of P10,500.00;
- six (6) months backwages in the amount of P120,000.00;
- moral damages in the amount of P500,000.00;
- exemplary damages in the amount of P100,000.00; and
- attorney's fees equivalent to 10% of the award.
6. The corporation appealed the Decision with the NLRC and alleged that Soriano immediately found
employment with Onapal Philippines Commodities, an issue which had not been denied or refuted by petitioner.
Respondent corporation, however, failed to specify the definite date of her employment. To this, the NLRC, in a
Decision dated March 10th 1986, modified the LA's awards/required dues:
- deleted the award for moral and exemplary damages;
- separation pay in the amount of P21,000;
 - three (3) months backwages without qualification;
- 10% of the award as attorney's fees
7. Soriano, in an appeal sought for the annulment of the NLRC's Decision and the revival of the LA's Decision.
She claimed that respondent corporation acted in bad faith in suspending and terminating her services:
- respondent Corporation hadviolated her right to due process by suspending her immediately without
the benefit of hearing; the notice of the preventive suspension was proof that the corporation had already
concluded that she was guilty
- the true reason behind her dismissal was the personal grudge Rivera(SVP) harbored against her
- bad faith was demonstrated through discrimination against her; respondent corporation did not
dismiss the 2 immediate supervisors of the investment counselor who had carried out the unauthorized
manipulations of clients' accounts in her department
- respondent corporation misrepresented the extent of her participation in respect to the
unauthorized acts and transactions of her subordinates

ISSUE
What are the wages the petitioner is entitled to?

HELD
The Court Resolved to DISMISS the Petition for certiorari for lack of merit. The Decision of the respondent NLRC
dated 10 March 1986 is modified so as to award petitioner the following items: a) separation pay in the amount
of P37,800.00; b) backwages for three (3) months in the amount of P16,200.00; and c) attorney's fees of
P1,500.00, making a total of P55,500.00.

Turning to the specific award made by respondent NLRC,

1.The salary base properly used in computing the separation pay and the backwages due to petitioner
should include not just the basic salary but also the regular allowances that petitioner had been
receiving (See Santos v. National Labor Relations Commission G.R. No. 76721, 21 September 1987).
- in petitioner's case, the base figure properly includes her: (a) basic salary of P3,000.00 a month; and
(b) living allowance of P2,400 a month (petitioner's Affidavit, dated 12 April 1985, Exhibit "G", Rollo, p. 105).
2. The commissionsclaimed by petitioner ("override commission" plus "net deposit incentive") are not properly
includible in such base figure since such commissions must be earned by actual market transactions
attributable to petitioner.
3. Neither should "travels equivalent" [an unusual and unexplained term; P10,000.00 a month] and
"commission in trading personal clients" [P3,000.00 a month] be included in such base figure.
4. Considering that the charge of bad faith on the part of private respondents was not proven, the respondent
NLRC having, on the contrary, made a finding that petitioner's dismissal was made in good faith there appears
no real basis for the award of attorney's fees (Art. 2208 5 Civil Code). This award should not exceed a nominal
amount which we set at P1,500.00.

RESPONSE OF THE COURT TO PETITIONERS CLAIMS AND ALLEGATIONS

Preventive suspension does not in itself prove that the company had prejudged that petitioner was guilty of the
charges she was asked to answer and explain.
- Preventive suspension may be necessary for the protection of the company, its operations and
assets, pending investigation of the alleged malfeasance or misfeasance on the part of officers or
employees of the company and pending a decision on the part of the company (See Sec. 3 of Rule XIV,
Book V, of the Omnibus Rules Implementing the Labor Code).
In regard to the alleged personal grudge, Soriano's assertion on this point appears no more than a conjecture
or supposition and does not afford an adequate basis for overturning respondent NLRC's finding on this point.
- if petitioner had clearly proven such personal ill-will on the part of Mr. Rivera, a serious question
would arise as to whether the respondent Corporation (as distinguished from Mr. Rivera) could be held
liable at all for Mr. Rivera's acts in the absence of clear authorization for, or approval or adoption of,
such act by the respondent Corporation with knowledge of the personal malice on the part of Mr. Rivera.

As to the alleged discrimination, the Court believes that respondent corporation must be accorded
reasonable latitude in determining who among erring officers or employees should be punished by the
company and to what extent. In the instant case, respondent Corporation presumably found it was not
necessary to terminate the services of the 2 section heads in petitioner's department, who clearly are much
lower in the corporate hierarchy than petitioner.

With respect to the last and most important of the above listed items, the scope of petitioner's responsibility for
the operations of her department and the extent of her supervisory authority over her subordinates in the
marketing department, respondent NLRC set forth the following discussion and evaluation:
Appellants stressed the point that complainant, as vice president, marketing, is actually a department head of
one of the company's sales department (sic). As such, her basic function is the supervision and monitoring the
daily activities of her department and the employees she supervises (sic). By the nature of the company's
business, complainant as a department head should see to it that the clients' trust and confidence in the
company is upheld through above-board transactions, untainted relations, satisfactory servicing and
unquestioned integrity of its officers and staff, aside from the promotion of cordial employee relations among
her personnel through unbiased and uniform implementation of company policies affecting employee benefits
and welfare.
According to the appellants, the finding of the Labor Arbiter that 'complainant is not expected to keep an eye or
be aware of all day-to-day transactions of her workers particularly Investment Consultants in her department'
does not conform to the facts prevailing in this case.
In the Panemanglor case, which is the crucial point at issue, Panemanglor opened an account with the
respondent corporation on June 28, 1984 by depositing the amount of P50,000.00 through Sofia Nazareno,
investment counselor. Instead of the client signing the Customers Agreement, it was Nazareno who signed the
agreement and the signature card in the name of the client, which is highly irregular. Had she exercised
prudence in the supervision of her investment consultants, the irregularity could hate been earlier detected. As
a result, the sum of P25,000.00 from Panemanglor's account was transferred by Nazareno to the account of
Ramon Lopez, without the knowledge of Panemanglor on July 9, 1984. On July 13, 1984 the said client withdrew
the sum of P25,000.00 through a Payment Instruction Form that was approved by the complainant. On August
6, 1964, the amount of P4,052.59 was transferred by Nazareno to the account of Panemanglor from the account
of Ramon Lopez. This transaction was with the approval of the complainant. On September 3, 1984,
Panemanglor demanded the payment of the balance of P25,000.00 from the respondent company to close his
account and the letter of Panemanglor was referred to complainant by respondent Guil Rivera for necessary
action. In her memorandum to senior vice president Guil Rivera complainant confirmed the irregularity in the
handling of the account of Panemanglor, but she failed to take appropriate action against the erring employee
which was within her power to discipline employees under her supervision ater on February 4, 1985, a complaint
was filed before the Securities and Exchange Commission by Panemanglor for the recovery of the P25,000.00
plus damages against the respondent corporation, contrary to her claim that the client will not file a recovery suit
against the corporation since the obligation was purely personal to Nazareno.
Respondents contend that complainant could have immediately discovered the unauthorized signature of Sofia
Nazareno that led to the illegal transfers of fund, had she followed the company procedure and practice for her
to be personally acquainted with new clients and her admission that she was not aware of the complained acts
has brought to light that she was remiss in her supervisory and monitoring function. On top of this, she failed to
institute disciplinary action
xxx xxx xxx
As head of one of the company's sales department (sic) and a managerial employee at that, complainant is
expected to monitor the daily activities of the investment counselors and the transactions of clients in her
department. As a matter of practice and procedure, complainant, as vice-president marketing, is always
informed of new clients for her to be personally acquainted with the client. We agree with the appellants that
had the complainant adhered to this procedure, she could have immediately noticed the unauthorized signature
by Sofia Nazareno that enabled her to transfer funds from one account to another. Likewise, since the
complainant approved the payment instruction for P25,000.00 on July 13, 1984, the transfer of P4,052.59 on
August 6, 1984 from the account of Ramon Lopez to Panemanglor's account, and the withdrawal of the
transferred amount on August 7, 1984, she could have easily suspected that something was irregular with the
transaction Yet, it took several months before she knew of the anomaly and it took her superior, respondent Guil
Rivera, to bring the matter to her attention. Under the circumstances, it cannot be truthfully said that complainant
has not been without any fault whatsoever. For this reason, the basis for the award of the moral and exemplary
damages has not been suffiiciently or satisfactorily against the erring employee. gently or satisfactorily
established by the complainant. And besides the dismissal of the complainant by the respondent was done in
good faith. ... (Emphasis supplied)

Petitioner's argument that, because she was head of the entire marketing (sales) department, she could not be
expected to monitor the detailed or day-to-day acts and behaviour of the staff members of her department, does
not address what appears to be the thrust of the respondent NLRC's decision, And that is, that as head of the
department, it was her responsibility to adopt ways and means of keeping herself sufficiently informed
of the activities of her staff members so as to prevent or at least discover at an early stage, e.g.,
unauthorized or illegal transactions and manipulation of clients' accounts. On the one hand, the above
position taken by the respondent NLRC cannot be regarded as so obviously unreasonable and despotic as to
constitute a grave abuse of discretion, given the character of the business of a commodities trading company
and the fact that very substantial sums of money are handled daily by petitioner's department. Upon the other
hand, petitioner's logic would lead to the conclusion that the more senior the management position, the
slighter the responsibility for malfeasance or nonfeasance that can be laid upon the position holder; the
chief executive officer of a corporation would effectively have, under this logic, little or no responsibility
at all.

SONGCO vs NLRC
Petitioner: Jose Songco, Romeo Cipres, and Amancio Manuel
Respondent: The National Labor Relations Commission (First Division), Labor Arbiter, Flavio Aguas, F.E.
Zuellig (M) Inc.
Citation: G.R. No. L-50999
Date of Promulgation: March 23, 1990
Ponente:Medialdea, J.

FACTS
1. F.E. Zuellig (M), Inc. filed with the DOLE an application seeking clearance to terminate the services of
petitioners Jose Songco, Romeo Cipres and Amancio Manuel allegedly on the ground of retrenchment due to
financial losses.
2. Petitioners opposed the claims alleging that the company is not suffering from any losses.
- they further claim that they are being dismissed because of their membership in the union.
3. On the last hearing of the case, however, petitioners manifested that they are no longer contesting their
dismissal. The parties have agreed that the sole issue to be resolved is the basis of the separation pay due to
petitioners.
4. The petition for certiorari filed sought to modify the decision of the NLRC dismissing their appeal and in effect
affirmed the Decision of the LA requiring F.E. Zuellig (M), Inc. to pay petitioners their separation pay equivalent
only to their one month salary (exclusive of commissions, allowances, etc.) for every year of service.

ISSUE
Whether or not earned sales commissions and allowances should be included in the monthly salary of petitioners
for the purpose of computation of their separation pay.

HELD
Yes. ACCORDINGLY, the petition is hereby GRANTED. The decision of the respondent National Labor
Relations Commission is MODIFIED by including allowances and commissions in the separation pay of
petitioners Jose Songco and Amancio Manuel. The case is remanded to the Labor Arbiter for the proper
computation of said separation pay.

Petitioners' position was that in arriving at the correct and legal amount of separation pay due them, whether
under the Labor Code or the CBA, their basic salary, earned sales commissions and allowances should be
added together. They cited Article 97(f) of the Labor Code which includes commission as part on one's salary,
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.
'Fair reasonable value' shall not include any profit to the employer or to any person affiliated with the employer.

Insofar as the issue of whether or not allowances should be included in the monthly salary of petitioners
for the purpose of computation of their separation pay is concerned, this has been settled in the case of
Santos v. NLRC, et al., G.R. No. 76721, September 21, 1987, 154 SCRA 166, where We ruled that "in the
computation of backwages and separation pay, account must be taken not only of the basic salary of petitioner
but also of her transportation and emergency living allowances." This ruling was reiterated in Soriano v. NLRC,
et al., G.R. No. 75510, October 27, 1987, 155 SCRA 124 and recently, in Planters Products, Inc. v. NLRC, et
al., G.R. No. 78524, January 20, 1989.

*In the Decisions held by the NLRC and the LA, they claim that although Article 97(f) included commissions in
the definition of wage, correlating it with Article XIV of the Collective Bargaining Agreement, Article 284 of the
Labor Code, and Sec. 9(b) and 10 of the Implementing Rules presents an ambiguity. The LA rationalizes that
wages is a generic term encompassing salary, pay, including commissions. The NLRC ruled that wage is used
in its generic sense and obviously refers to the basic wage rate to be ascertained on a time, task, piece or
commission basis or other method of calculating the same. It does not, however, mean that commission,
allowances or analogous income necessarily forms part of the employee's salary because to do so would lead
to anomalies (sic), if not absurd, construction of the word salary.*

(full text)
As to commissions, Article 97(f) by itself is explicit that commission is included in the definition of the term
"wage". It has been repeatedly declared by the courts that where the law speaks in clear and categorical
language, there is no room for interpretation or construction; there is only room for application. However, it may
be argued that if we correlate Article 97(f) with Article XIV of the Collective Bargaining Agreement, Article 284
of the Labor Code and Sections 9(b) and 10 of the Implementing Rules, there appears to be an ambiguity. The
Labor Arbiter rationalized his decision in this manner:
The definition of 'wage' provided in Article 96 (sic) of the Code can be correctly (sic) stated as a general definition.
It is 'wage ' in its generic sense. A careful perusal of the same does not show any indication that commission is
part of salary. We can say that commission by itself may be considered a wage. This is not something novel for
it cannot be gainsaid that certain types of employees like agents, field personnel and salesmen do not earn any
regular daily, weekly or monthly salaries, but rely mainly on commission earned.
Upon the other hand, the provisions of Section 10, Rule 1, Book VI of the implementing rules in conjunction with
Articles 273 and 274 (sic) of the Code specifically states that the basis of the termination pay due to one who is
sought to be legally separated from the service is 'his latest salary rates.
x x x.
Even Articles 273 and 274 (sic) invariably use 'monthly pay or monthly salary'.
The above terms found in those Articles and the particular Rules were intentionally used to express the intent
of the framers of the law that for purposes of separation pay they mean to be specifically referring to salary only.
.... Each particular benefit provided in the Code and other Decrees on Labor has its own pecularities and
nuances and should be interpreted in that light. Thus, for a specific provision, a specific meaning is attached to
simplify matters that may arise there from. The general guidelines in (sic) the formation of specific rules for
particular purpose. Thus, that what should be controlling in matters concerning termination pay should be the
specific provisions of both Book VI of the Code and the Rules. At any rate, settled is the rule that in matters of
conflict between the general provision of law and that of a particular- or specific provision, the latter should
prevail.

On its part, the NLRC ruled (p. 110, Rollo):

From the aforequoted provisions of the law and the implementing rules, it could be deduced that wage is used
in its generic sense and obviously refers to the basic wage rate to be ascertained on a time, task, piece or
commission basis or other method of calculating the same. It does not, however, mean that commission,
allowances or analogous income necessarily forms part of the employee's salary because to do so would lead
to anomalies (sic), if not absurd, construction of the word "salary." For what will prevent the employee from
insisting that emergency living allowance, 13th month pay, overtime, and premium pay, and other fringe benefits
should be added to the computation of their separation pay. This situation, to our mind, is not the real intent of
the Code and its rules.

*The SC ruled otherwise. Having discussed the etymology and similitude of salary, wages and pay, it has come
up with a conclusion that commission, having been included in the definition of wage, should logically be
included in the computation of the separation pay of petitionerstheir salary base should include their
earned sales commissions.

(full text)
We rule otherwise. The ambiguity between Article 97(f), which defines the term 'wage' and Article XIV of the
Collective Bargaining Agreement, Article 284 of the Labor Code and Sections 9(b) and 10 of the Implementing
Rules, which mention the terms "pay" and "salary", is more apparent than real. Broadly, the word "salary" means
a recompense or consideration made to a person for his pains or industry in another man's business. Whether
it be derived from "salarium," or more fancifully from "sal," the pay of the Roman soldier, it carries with it the
fundamental idea of compensation for services rendered. Indeed, there is eminent authority for holding that the
words "wages" and "salary" are in essence synonymous (Words and Phrases, Vol. 38 Permanent Edition, p. 44
citing Hopkins vs. Cromwell, 85 N.Y.S. 839,841,89 App. Div. 481; 38 Am. Jur. 496). "Salary," the etymology of
which is the Latin word "salarium," is often used interchangeably with "wage", the etymology of which is the
Middle English word "wagen". Both words generally refer to one and the same meaning, that is, a reward or
recompense for services performed. Likewise, "pay" is the synonym of "wages" and "salary" (Black's Law
Dictionary, 5th Ed.). Inasmuch as the words "wages", "pay" and "salary" have the same meaning, and
commission is included in the definition of "wage", the logical conclusion, therefore, is, in the computation of the
separation pay of petitioners, their salary base should include also their earned sales commissions.

We agree with the Solicitor General that granting, in gratia argumenti, that the commissions were in the form
of incentives or encouragement, so that the petitioners would be inspired to put a little more industry
on the jobs particularly assigned to them, still these commissions are direct remuneration services rendered
which contributed to the increase of income of Zuellig . Commission is the recompense, compensation or reward
of an agent, salesman, executor, trustees, receiver, factor, broker or bailee, when the same is calculated as a
percentage on the amount of his transactions or on the profit to the principal (Black's Law Dictionary, 5th Ed.,
citing Weiner v. Swales, 217 Md. 123, 141 A.2d 749, 750). The nature of the work of a salesman and the
reason for such type of remuneration for services rendered demonstrate clearly that commission are
part of petitioners' wage or salary.We take judicial notice of the fact that some salesmen do not receive
any basic salary but depend on commissions and allowances or commissions alone, although an
employer-employee relationship exists. Bearing in mind the preceeding dicussions, if we adopt the
opposite view that commissions, do not form part of wage or salary, then, in effect, We will be saying
that this kind of salesmen do not receive any salary and therefore, not entitled to separation pay in the
event of discharge from employment. Will this not be absurd? This narrow interpretation is not in accord with
the liberal spirit of our labor laws and considering the purpose of separation pay which is, to alleviate the
difficulties which confront a dismissed employee thrown the the streets to face the harsh necessities of life.

Additionally, inSoriano v. NLRC, et al., supra, in resolving the issue of the salary base that should be used in
computing the separation pay, We held that:
The commissions also claimed by petitioner ('override commission' plus 'net deposit incentive') are not properly
includible in such base figure since such commissions must be earned by actual market transactions attributable
to petitioner.
Applying this by analogy, since the commissions in the present case were earned by actual market
transactions attributable to petitioners, these should be included in their separation pay. In the
computation thereof, what should be taken into account is the average commissions earned during their last
year of employment.

The final consideration is, in carrying out and interpreting the Labor Code's provisions and its
implementing regulations, the workingman's welfare should be the primordial and paramount
consideration. This kind of interpretation gives meaning and substance to the liberal and compassionate spirit
of the law as provided for in Article 4 of the Labor Code which states that "all doubts in the implementation
and interpretation of the provisions of the Labor Code including its implementing rules and regulations
shall be resolved in favor of labor" (Abella v. NLRC, G.R. No. 71812, July 30,1987,152 SCRA 140; Manila
Electric Company v. NLRC, et al., G.R. No. 78763, July 12,1989), and Article 1702 of the Civil Code which
provides that "in case of doubt, all labor legislation and all labor contracts shall be construed in favor
of the safety and decent living for the laborer.

JAVIER vs FLYACE
Petitioner: Bitoy Javier
Respondent: Flyace Corporation, Flordelyn Castillo
Citation: G.R. No. 192558
Date of Promulgation: February 15, 2012
Ponente:Mendoza, J.

FACTS
1. Javier alleged that he is an employee of Fly Ace.
- he performs various tasks such as cleaning and arranging the canned items before their
delivery
- he accompanies the company delivery vehicles as pahinante
- he reports to work from Monday to Friday from 7:00am to 5:00pm
2. He filed a case against the company for underpayment of salaries and other labor standard benefits.
- he claims that he was not issued an identification card nor payslips
- that he was not given the opportunity to refute the cause/s of his dismissal
- that on May 6th 2008, he reported to work but was no longer allowed to enter the premises
upon the instruction of Mr. Ong
- he saw Mr. Ong and asked why he was being barred from entering, to which Ong replied,
"Tanungin mo anak mo"
3. Javier discovered that Ong had been courting his daughter, Annalyn, whom the latter met at a fiesta
celebration in Malabon.
4. Fly Ace denied the existence of employer-employee relationship and that they called for Javier's services
roughly 5 to 6 times in a month.
5. Labor Arbiter dismissed the complaint.
- Javier failed to present proof that he was a regular employee of Fly Ace
- Fly Ace is engaged in the importation and sales of groceries and not in the trucking business;
they have a regular hauler to deliver its products
- gives credence to Fly Ace's claim that Javier was contracted on "pakiao" basis.
6. The NLRC reversed the LA's decision and ruled that Javier is entitled to security of tenure, and Fly Ace is
liable for illegal dismissal.
- a "pakiao" basis arrangement does not preclude the existence of an employer-employee
relationship
- payment by result is a method of compensation and does not define the essence of the
relation
- just because the work he was doing was not directly related to the company's business does not
mean that he is but a contractor
- Javier is a regular employee of Fly Ace because there is a reasonable connection between his
tasks (as a pahinante) to the usual business or trade of the Fly Ace (importation, sales and delivery of
groceries)
- he cannot be considered as an independent contractor as he could not exercise any judgment in
the delivery of company products
- he is engaged as a helper
7. The CA annulled the NLRC's Decision and reinstated the dismissal of the complaint as ordered by the LA.
- before a case for illegal dismissal can prosper, the employer-employee relationship must first be
established
 - the burden of proof is incumbent on Javier but he failed to prove that he was an employee of the
company
- Javier's failure to present salary vouchers, payslips, or other pieces of evidence to bolster his
contention, pointed to the inescapable conclusion that he was not an employee of Fly Ace

ISSUE
Whether or not the CA has erred in finding that Javier is not entitled to his monetary claims (backwages, etc.)

HELD
No. Petition is DENIED. The March 18, 2010 Decision of the Court of Appeals and its June 7, 2010 Resolution,
in CA-G.R. SP No. 109975, are hereby AFFIRMED.

As the records bear out, the LA and the CA found Javiers claim of employment with Fly Ace as wanting and
deficient. The Court is constrained to agree. Labor officials are enjoined to use reasonable means to ascertain
the facts speedily and objectively with little regard to technicalities or formalities but nowhere in the rules are
they provided a license to completely discount evidence, or the lack of it. The quantum of proof required,
however, must still be satisfied. Hence, when confronted with conflicting versions on factual matters, it is
for them in the exercise of discretion to determine which party deserves credence on the basis of
evidence received, subject only to the requirement that their decision must be supported by substantial
evidence. Accordingly, the petitioner needs to show by substantial evidence that he was indeed an employee
of the company against which he claims illegal dismissal.

In sum, the rule of thumb remains: the onus probandi falls on petitioner to establish or substantiate such
claim by the requisite quantum of evidence. Whoever claims entitlement to the benefits provided by law
should establish his or her right thereto x x x. Sadly, Javier failed to adduce substantial evidence as basis for
the grant of relief.

The Court is of the considerable view that on Javier lies the burden to pass the well-settled tests to determine
the existence of an employer-employee relationship, viz: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the power to control the employees conduct. Of these
elements, the most important criterion is whether the employer controls or has reserved the right to control the
employee not only as to the result of the work but also as to the means and methods by which the result is to
be accomplished.

All that Javier submitted was statements through affidavits that are self-serving. Hence, the Court sees no
reason to depart from the findings of the CA.'

FACILITIES AND SUPPLEMENTS

SLL INTERNATIONAL CABLES v. NLRC

PETITIONER: SLL International Cables Specialist and Sonny L. Lagon
RESPONDENTS: National Labor Relations Commission, 4th Division, Roldan Lopez, Edgardo Zuiga and
Danilo Caete
DATE: March 2, 2011
PONENTE: J. Mendoza
FACTS:

Petition for review on certiorari

1996 to January 1997 private respondents Lopez and Caete, and Zuiga respectively, were hired
by petitioner Lagon as apprentice or trainee cable/lineman
Paid the full minimum wage and other benefits
They did not report for work regularly but came in as substitutes to the regular workers or in undertakings
that needed extra workers to expedite completion of work
After their training, they were engaged as project employees by the petitioners in their Islacom project in
Bohol
March 15, 1997 to December 1997 worked as project employees
Upon the completion of their project, their employment was also terminated.
They received the amount of P145.00, the minimum prescribed daily wage for Region VII. In July 1997,
the amount of P145 was increased to P150.00 by the Regional Wage Board (RWB) and in October of
the same year, the latter was increased to P155.00
March 1998 were engaged again by Lagon as project employees for its PLDT Antipolo, Rizal project
September 1998 project ended, Caete, and Zuigas employment were terminated
Zuiga and Caete received only the wage of P145.00 daily. The minimum prescribed wage for Rizal at
that time was P160.00
November 1998 private respondents re-applied in the Racitelcom project of Lagon in Bulacan. Zuiga
and Caete were re-employed. Lopez was also hired for the said specific project. private respondents
received the wage of P145.00
May 21, 1999 respondents worked again with Lagons project in Camarin, Caloocan
May 21 to December 1999 private respondents received the wage of P145.00. At this time, the
minimum prescribed rate for Manila was P198.00.
January to February 28 they received the wage of P165.00. The existing rate at that time was
P213.00.
Camarin project was not completed on the scheduled date of completion because of the delay in the
delivery of materials. Faced with economic problems, Lagon was constrained to cut down the overtime
work of its workers, including private respondents.
Respondents were prompted to leave work when they were not allowed to do overtime work
March 3, 2000 respondents filed a complaint for illegal dismissal, non-payment of wages, holiday pay,
13th month pay for 1997 and 1998 and service incentive leave pay as well as damages and attorneys
fees

PETITIONERS CONTENTIONS:

Respondents were only project employees, for their services were merely engaged for a specific project
or undertaking and the same were covered by contracts duly signed by private respondents
food allowance of P63.00 per day as well as private respondents allowance for lodging house,
transportation, electricity, water and snacks allowance should be added to their basic pay
private respondents received higher wage rate than that prescribed in Rizal and Manila
since the workplaces of private respondents were all in Manila, the complaint should be filed there
The value of the facilities that the private respondents enjoyed should be included in the computation of
the "wages" received by them; the lack of written acceptance of the employees of the facilities enjoyed
by them should not mean that the value of the facilities could not be included in the computation of the
private respondents "wages."

ISSUE/S:
 WON the value of the facilities should be included in the computation of the "wages"

LABOR ARBITER DECISION (January 18, 2001)

LA had jurisdiction to hear and decide the complaint filed by private respondents because the
"workplace," as defined in the said rule, included the place where the employee was supposed to report
back after a temporary detail, assignment or travel
Private respondents were regular employees because they were repeatedly hired by petitioners and they
performed activities which were usual, necessary and desirable in the business or trade of the employer
Private respondents were underpaid; free board and lodging, electricity, water, and food enjoyed by them
could not be included in the computation of their wages because these were given without their written
consent.
Petitioners were not liable for illegal dismissal. Private respondents act of going home as an act of
indifference when petitioners decided to prohibit overtime work

NLRC DECISION: (March 31, 2004)

Affirmed LAs decision

Found the petitioners, SLL International Cables Specialist (SLL) and its manager, Sonny L. Lagon
(petitioners), not liable for the illegal dismissal of Roldan Lopez, Danilo Caete and Edgardo Zuiga
(private respondents) but held them jointly and severally liable for payment of certain monetary claims
to said respondents.

CA DECISION: (January 11, 2006)

Affirmed NLRCs Decision

The failure of petitioners to comply with the simple but compulsory requirement to submit a report of
termination to the nearest Public Employment Office every time private respondents employment was
terminated was proof that the latter were not project employees but regular employees.
Respondents are entitled to 13th month pay
It was the petitioners prerogative to grant or deny any request for overtime work and that the private
respondents act of leaving the workplace after their request was denied was an act of abandonment

SC DECISION:

On payment of wages, a party who alleges payment as a defense has the burden of proving it.
Specifically with respect to labor cases, the burden of proving payment of monetary claims rests on the
employer, the rationale being 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. Petitioners, aside from bare allegations that private respondents received wages
higher than the prescribed minimum, failed to present any evidence, such as payroll or payslips, to
support their defense of payment
Private respondents are entitled to be paid the minimum wage, whether they are regular or non-regular
employees.
On whether the value of the facilities should be included in the computation of the "wages" received by
private respondents, Section 1 of DOLE Memorandum Circular No. 2 provides that an employer may
provide subsidized meals and snacks to his employees provided that the subsidy shall not be
less that 30% of the fair and reasonable value of such facilities. In such cases, the employer may
deduct from the wages of the employees not more than 70% of the value of the meals and snacks
 enjoyed by the latter, provided that such deduction is with the written authorization of the employees
concerned.
Before the value of facilities can be deducted from the employees wages, the following requisites must
all be attendant: first, proof must be shown that such facilities are customarily furnished by the
trade; second, the provision of deductible facilities must be voluntarily accepted in writing by the
employee; and finally, facilities must be charged at reasonable value. Mere availment is not sufficient
to allow deductions from employees wages.
Requisites have not been met. SLL failed to present any company policy or guideline showing that
provisions for meals and lodging were part of the employees salaries. It also failed to provide proof of
the employees written authorization, much less show how they arrived at their valuations.
It is of the view that the food and lodging, or the electricity and water allegedly consumed by private
respondents in this case were not facilities but supplements.
SUPPLEMENTS constitute extra remuneration or special privileges or benefits given to or received by
the laborers over and above their ordinary earnings or wages.
FACILITIES items of expense necessary for the laborer's and his family's existence and subsistence
so that by express provision of law, they form part of the wage and when furnished by the employer are
deductible therefrom, since if they are not so furnished, the laborer would spend and pay for them just
the same.
PETITION DENIED.

MAYON HOTEL V ADANA

G.R. No. 157634. May 16, 2005
Ponente: Puno, J.

FACTS:

Petitioner Mayon Hotel & Restaurant is a single proprietor business registered in the name of petitioner Pacita
O. Po,whose mother, petitioner Josefa Po Lam, manages the establishment. There were 16 employees. Hotel
operations of the business were suspended on March 31, 1997 due to the expiration and non-renewal of the
lease contract for the rented space occupied by the said hotel. The operation of the restaurant was continued
in its new location at Elizondo Street, Legazpi City, while waiting for the construction of a new Mayon Hotel &
Restaurant at Pearanda Street, Legazpi City. Only 9 of the 16 employees continued working in the Mayon
Restaurant at its new site.
Labor Arbiter ruled in favor of labor. NLRC reversed the decisin. Ca upheld LA decisin to provide
separation pay, retirement benefits and damages.

ISSUES:
1. WON petitioners sufficiently proved Pacita Pos ownership of the business
2. WON there was ilegal dismissal

RULING:
1. NO. Petitioner Josefa Po Lam is, in fact, the owner of Mayon Hotel & Restaurant. The records of the
case belie petitioner Josefa Po Lams claim that she is merely an overseer. While several documentary
evidences were submitted by Josefa where Pacita was named as owner of the hotel and restaurant there were
also documentary evidences that were submitted by Josefa showing her ownership of said enterprise. Josefa
was requested to produce evidence contrary to her ownership nut none was produced. The labor arbiter relied
also on the testimonies of the witnesses. When the conclusions of the labor arbiter are sufficiently corroborated
by evidence on record, the same should be respected by appellate tribunals, since he is in a better position to
assess and evaluate the credibility of the contending parties.

2. YES. The records are unequivocal that since April 1997, when petitioner Mayon Hotel & Restaurant
suspended its hotel operations and transferred its restaurant operations in Elizondo Street, respondents have
not been permitted to work for petitioners. Respondent Alamares, on the other hand, was also laid-off when
the Elizondo Street operations closed, as were all the other respondents. Since then, respondents have not
been permitted to work nor recalled, even after the construction of the new premises at Pearanda Street and
the reopening of the hotel operations with the restaurant in this new site.
Article 286 of the Labor Code is clear there is termination of employment when an otherwise bona
fide suspension of work exceeds six (6) months. The cessation of employment for more than six months
was patent and the employer has the burden of proving that the termination was for a just or authorized cause.
Even assuming arguendo that the cessation of employment on April 1997 was merely temporary,
it became dismissal by operation of law when petitioners failed to reinstate respondents after the lapse of six (6)
months. In their position paper, they made no mention of any intent to recall these respondents to work upon
completion of the new premises. If it were true that the lay-off was temporary, but then serious business losses
allegedly caused by respondents prevented their reinstatement, then petitioners should have complied with the
requirements of written notice. And even assuming that the closure was due to a reason beyond the control of
the employer, it still has to accord its employees some relief in the form of severance pay.
MONEY CLAIMS (for computation of award): Petitioners claim that the cost of the food and snacks provided
to respondents as facilities should have been included in reckoning the payment of respondents
wages. Respondents testified that they were required to eat in the hotel and restaurant so that they will not go
home and there is no interruption in the service. As ruled in Mabeza, food or snacks or other convenience
provided by the employers are deemed as supplements if they are granted for the convenience of the
employer. The criterion in making a distinction between a supplement and a facility does not so much lie in the
kind (food, lodging) but the purpose.
We also do not agree with petitioners that the 5% of the gross income of the establishment can be considered
as part of the respondents wages. How can the amounts received by respondents be considered as profit share
when it is based on the gross receipt of the hotel? Profits are realized after expenses are deducted from the
gross income.
Petition is denied. LA decision upheld with modification. LA is ordered to recompute monetary claims.

MABEZA V NLRC

PETITIONER: Norma Mabeza

RESPONDENTS: NLRC
Peter Ng
Hotel Supreme
DOCKET NO.: G.R. No. 118506
PROMUL. DATE: April 18, 1997
PONENTE: Kapunan, J.

FACTS
Norma Mabeza contends that around 1st week of May 1991, she and her co-employees at the HOTEL
SUPREME in Baguio City were asked by the mgmt to sign an instrument attesting to the hotels compliance
with minimum wage and other labor standard provisions of law.
Norma signed the affidavit but refused to the OCP to swear to its veracity. Said affidavit was nevertheless
submitted on the same day to the Regional Office of the DOLE in Baguio.
Normas further allegations:
o When she refused to proceed to the OCP, she was ordered by the hotel mgmt to turn over the keys
to her living quarters and to remove her belongings from the hotel premises.
(Mgmt strongly scolded her re: her refusal to go to the OCP.)
o So she reluctantly filed a LOA from her job, which was denied by the mgmt.
 May 10, 1991 she attempted to return to work, Margarita Choy (hotel cashier) informed her that she should
not report to work and just continue with her unofficial LOA.
May 13, 1991 Norma filed a complaint for illegal dismissal before Arbitration branch of NLRC CAR Baguio
City.
o Underpayment of wages
o Non-payment of holiday pay, SIL, 13th month, NSD, and other benefits.

Respondent Peter Ngs allegations, in response to Normas complaint:

o Norma surreptitiously left her job without notice to the management, and that she actually
abandoned her work.
o There was no basis for the money claims for underpayment and other benefits as these were paid in
the form of facilities to petitioner and the hotels other employees.
o He submitted a supplemental answer 11 months after the original complaint for illegal dismissal was
filed. There, he raised a new ground, loss of confidence, which was supported by a criminal complaint
for Qualified Theft he filed before OCP Baguio on July 4, 1991.

LABOR ARBITER FELIPE PATIS DECISION: May 14, 1993

o Dismissed the petitioners complaint for illegal dismissal on the ground of loss of confidence.
o Basis was the criminal complaint of QT filed by Peter Ng against Norma.

NLRC DECISION: April 28, 1994

o Affirmed the LA decision, dismissing the petition.

ISSUE: WON the dismissal by the private respondent (Peter Ng) of the petitioner (Norma Mabeza)
constitutes an unfair labor practice

HELD:
o YES.
o Note: Unfair labor practice on the part of the employer is alleged WON the employer has
exerted pressure, in the form of restraint, interference or coercion, against his employees
right to institute concerted action for better terms and conditions of employment.
o The act of compelling employees to sign an instrument indicating that the employer observed labor
standards provisions of law WHEN HE MIGHT HAVE NOT, together with the act of terminating or
coercing those who refuse to cooperate with the employers scheme CONSTITUES UNFAIR LABOR
PRACTICE.
o The LAs contention that the reason for the monetary benefits received by the petitioner b/w 1981-
1987 were less than the minimum wage was because petitioner did not factor in meals, lodging,
electric consumption, and water she received during the period of computations. Such facilities
could not be deducted without the employer complying first with certain legal requirements.
o Private respondent failed to present any company policy to show that the meal and lodging were part
of the salary.
o It is therefore evident that petitioner is entitled to the payment of deficiency of her wages
equivalent to the full wage applicable from May 13, 1988 up to the date of her illegal dismissal.
o Additionally, petitioner is entitled to payment of SIL pay, emergency cost of living allowance, NSD
pay, and 13th month pay for the periods alleged by the petitioner as the private respondent has
never been able to adduce proof that petitioner was paid the aforestated benefits.
o However, the Court DEPARTS from the settled rule that an employee who is unjustly dismissed from
work normally should be reinstated without loss of seniority rights and other privileges. Owing to the
strained relations between petitioner and private respondent, allowing the former to return to her job
would only subject her to possible harassment and future embarrassment. Separation pay
equivalent to one months salary for every year of continuous service with the private
respondent would be proper, starting with her job at Belfront Hotel.
o In addition to separation pay, backwages are in order. Petitioner is entitled to full backwages from
the time of her illegal dismissal up to the date of the promulgation of this decision without
qualification or deduction.
 o The dismissal of petitioner without the benefit of notice (re: the complaint of qualified theft) and
hearing prior to her termination violated her constitutional right to due process. Under the
circumstances, an award of PhP1,000.00 on top of payment of the deficiency in wages and benefits
for the period aforestated would be proper.
The Resolution of the NLRC dtd April 24, 1994 is REVERSED and SET ASIDE, with costs.

OUR HAUS REALTY v. PARIAN

Petitioner: Our Haus Realty Development Corporation
Respondent: Alexander Parian,
Jay C. Erinco,
Alexander Canlas,
Bernard Tenedero, and
Jerry Sabulao
Citation: G.R. No. 204651
Date of Promulgation: August 6, 2014
Ponente: Brion, J.

FACTS
1. Our Haus Realty Development Corporation is a company engaged in the construction business where
respondents are employed at.
2. The respondents' respective employment records and daily wage rates from 2007-2010 are as follows:
3. In May 2010, the company experienced financial distress and suspended its construction projects and
asked its affected workers, including respondents, to take vacation leaves.
4. When the respondents were asked to report back to work, instead of doing so they filed with the Labor
Arbiter a complaint for underpayment of their daily wages.
- except for Tenedero, their wages were below the minimum rates prescribed in the following wage
orders from 2007 to 2010.
- Wage Order No. NCR-13 (August 28, 2007 - June 13, 2008): P362.00 daily minimum wage for non-
agriculture sector
- Wage Order No. NCR-14 (June 14, 2008 - June 30, 2010): P382.00 daily minimum wage for non-
agriculture sector
- they also alleged that petitioner failed to pay them their holiday, service incentive leave, 13th month
and overtime pays
5. The Labor Arbiter ruled in favor of petitioner.
- petitioner claimed that the respondents' wages complied with the laws minimum requirement because
Our Haus:
a. subsidized their meals
b. gave them free lodging
- in determining the total amount of the respondents' daily wages, the value of these benefits should be
considered in line with Article 97(f) of the Labor Code
- respondents contended that the value of their meals should not be considered in determining their
wages' total amount since the requirements set under Section 413 of DOLE Memorandum Circular No.
215 were not complied with
6. The NLRC reversed the decision in favor of the respondents.
- the laborers did not authorize Our Haus in writing to charge the values of their board and lodging to
their wages
- the laborers are entitled to their 13th month payments for 2010 and SIL payments for at least 3 years
- maintained the Labor Arbiter's decision that laborers are not entitled to overtime pay since the exact
dates and times when they rendered overtime work had not been proven
7. Our Haus moved for the reconsideration of the NLRC's Decision and submitted new evidence (the five
kasunduans) to show that the respondents authorized Our Haus in writing to charge the values their
meals and lodging to their wages.
- NLRC denied this motion.
8. Our Haus filed a petition for certiorari with the CA propounding a new theory that there is a distinction
between deduction and charging
- a written authorization is necessary only if the facility's value will be deducted from the wage
 - it should not be needed if it will merely be charged or included in the computation of wages
- CA dismissed the petition and affirmed the NLRC's rulings in toto, finding that there is no distinction
between deduction and charging and that the legal requirements before any deduction or charging can
be made, apply to both

ISSUE
Whether or not the NLRC committed grave abuse of discretion in its decision favoring the laborers.

HELD
The SC denied the petition and affirmed the Decision of the CA. The NLRC did not abuse its discretion in its
Decision.

Our Haus explains that in deduction, the amount of the wage (which may already be below the minimum) would
still be lessened by the facilitys value, thus needing the employees consent. On the other hand, in charging,
there is no reduction of the employees wage since the facilitys value will just be theoretically added to the wage
for purposes of complying with the minimum wage requirement
- No substantial distinction between deducting and charging a facility's value from the employee's wage;
the legal requirements for creditability apply to both.

The requirements for creditability set by law to apply are:

a. proof must be shown that such facilities are customarily furnished by the trade;
b. the provision of deductible facilities must be voluntarily accepted in writing by the employee;
c. the facilities must be charges at a fair and reasonable value

The Purpose Test

Under the law, only the value of the facilities may be deducted from the employee's wages but not the value of
supplements.
- facilities include articles or services for the benefit of the employee or his family
- supplements are paid to employees on top of their basic pay (may not be included in the determination
of wage compliance)

The Court made a distinction between "facilities" and "supplements". It is of the view that the food and lodging
were not facilities but supplements.

In Atok-Big Wedge Assn. v. Atok-Big Wedge Co., it was held that "Supplements", therefore, constitute extra
remuneration or special privileges or benefits given to or received by the laborers over and above their
ordinary earnings or wages.
"Facilities", on the other hand, are items of expense necessary for the laborer's and his family's existence
and subsistence so that by express provision of law (Sec. 2[g]), they form part of the wage and when
furnished by the employer are deductible therefrom, since if they are not so furnished, the laborer would
spend and pay for them just the same.

The Court concluded, under the purpose test, that the subsidized meals and free lodging provided by Our Haus
are supplements.
- Our Haus is engaged in the construction business, a labor-intensive enterprise. The success of its
projects is largely a function of the physical strength, vitality and efficiency of its laborers. Its business will be
jeopardized if its workers are weak, sickly, and lack the required energy to perform strenuous physical activities.
Thus, by ensuring that the workers are adequately and well fed, the employer is actually investing on its
business.

MINIMUM WAGE RATES

Art. 99 101

Republic of the Philippines

 Congress of the Philippines
Metro Manila

Eighth Congress
Republic Act No. 6727 June 9, 1989

AN ACT TO RATIONALIZE WAGE POLICY DETERMINATION BY ESTABLISHING THE MECHANISM AND

PROPER STANDARDS THEREFOR, AMENDING FOR THE PURPOSE ARTICLE 99 OF, AND
INCORPORATING ARTICLES 120, 121, 122, 123, 124, 126 AND 127 INTO, PRESIDENTIAL DECREE NO.
442, AS AMENDED, OTHERWISE KNOWN AS THE LABOR CODE OF THE PHILIPPINES, FIXING NEW
WAGE RATES, PROVIDING WAGE INCENTIVES FOR INDUSTRIAL DISPERSAL TO THE COUNTRYSIDE,
AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::

Section 1. This Act shall be known as the "Wage Rationalization Act."

Section 2. It is hereby declared the policy of the State to rationalize the fixing of minimum wages and to
promote productivity-improvement and gain-sharing measures to ensure a decent standard of living for the
workers and their families; to guarantee the rights of labor to its just share in the fruits of production; to enhance
employment generation in the countryside through industry dispersal; and to allow business and industry
reasonable returns on investment, expansion and growth.

The State shall promote collective bargaining as the primary mode of settling wages and other terms and
conditions of employment; and whenever necessary, the minimum wage rates shall be adjusted in a fair and
equitable manner, considering existing regional disparities in the cost of living and other socio-economic factors
and the national economic and social development plans.
Section 3. In line with the declared policy under this Act, Article 99 of Presidential Decree No. 442, as
amended, is hereby amended and Articles 120, 121, 122, 123, 124, 126 and 127 are hereby incorporated into
Presidential Decree No. 442, as amended, to read as follows:

"Art. 99. Regional Minimum Wages. The minimum wage rates for agricultural and non-agricultural employees
and workers in each and every region of the country shall be those prescribed by the Regional Tripartite Wages
and Productivity Boards."

"Art. 120. Creation of the National Wages and Productivity Commission. There is hereby created a National
Wages and Productivity Commission, hereinafter referred to as the Commission, which shall be attached to the
Department of Labor and Employment (DOLE) for policy and program coordination."

"Art. 121. Powers and Functions of the Commission. The Commission shall have the following powers and
functions:

"(a) To act as the national consultative and advisory body to the President of the Philippines and Congress on
matters relating to wages, incomes and productivity;

"(b) To formulate policies and guidelines on wages, incomes and productivity improvement at the enterprise,
industry and national levels;
"(c) To prescribe rules and guidelines for the determination of appropriate minimum wage and productivity
measures at the regional, provincial or industry levels;

"(d) To review regional wage levels set by the Regional Tripartite Wages and Productivity Boards to determine
if these are in accordance with prescribed guidelines and national development plans;

"(e) To undertake studies, researches and surveys necessary for the attainment of its functions and objectives,
and to collect and compile data and periodically disseminate information on wages and productivity and other
related information, including, but not limited to, employment, cost-of-living, labor costs, investments and returns;

"(f) To review plans and programs of the Regional Tripartite Wages and Productivity Boards to determine
whether these are consistent with national development plans;

"(g) To exercise technical and administrative supervision over the Regional Tripartite Wages and Productivity
Boards;

"(h) To call, from time to time, a national tripartite conference of representatives of government, workers and
employers for the consideration of measures to promote wage rationalization and productivity; and

"(i) To exercise such powers and functions as may be necessary to implement this Act.

"The Commission shall be composed of the Secretary of Labor and Employment as ex-officio chairman, the
Director-General of the National Economic and Development Authority (NEDA) as ex-officio vice-chairman, and
two (2) members each from workers and employers sectors who shall be appointed by the President of the
Philippines upon recommendation of the Secretary of Labor and Employment to be made on the basis of the list
of nominees submitted by the workers and employers sectors, respectively, and who shall serve for a term of
five (5) years. The Executive Director of the Commission shall also be a member of the Commission.

"The Commission shall be assisted by a Secretariat to be headed by an Executive Director and two (2) Deputy
Directors, who shall be appointed by the President of the Philippines, upon the recommendation of the Secretary
of Labor and Employment.

"The Executive Director shall have the same rank, salary, benefits and other emoluments as that of a
Department Assistant Secretary, while the Deputy Directors shall have the same rank, salary, benefits and other
emoluments as that of a Bureau Director. The members of the Commission representing labor and management
shall have the same rank, emoluments, allowances and other benefits as those prescribed by law for labor and
management representatives in the Employees' Compensation Commission.

"Art. 122. Creation of Regional Tripartite Wages and Productivity Boards. There is hereby created Regional
Tripartite Wages and Productivity Boards, hereinafter referred to as Regional Boards, in all regions, including
autonomous regions as may be established by law. The Commission shall determine the offices/headquarters
of the respective Regional Boards.

"The Regional Boards shall have the following powers and functions in their respective territorial jurisdiction:

"(a) To develop plans, programs and projects relative to wages, incomes and productivity improvement for their
respective regions;
"(b) To determine and fix minimum wage rates applicable in their region, provinces or industries therein and to
issue the corresponding wage orders, subject to guidelines issued by the Commission;

"(c) To undertake studies, researches and surveys necessary for the attainment of their functions, objectives
and programs, and to collect and compile data on wages, incomes, productivity and other related information
and periodically disseminate the same;

"(d) To coordinate with the other Regional Boards as may be necessary to attain the policy and intention of this
Code;

"(e) To receive, process and act on applications for exemption from prescribed wage rates as may be provided
by law or any Wage Order; and

"(f) To exercise such other powers and functions as may be necessary to carry out their mandate under this
Code.

Implementation of the plans, programs and projects of the Regional Boards referred to in the second paragraph,
letter (a) of this Article, shall be through the respective regional offices of the Department of Labor and
Employment within their territorial jurisdiction; Provided, however, That the Regional Boards shall have technical
supervision over the regional office of the Department of Labor and Employment with respect to the
implementation of said plans, programs and projects.

"Each Regional Board shall be composed of the Regional Director of the Department of Labor and Employment
as chairman, the Regional Directors of the National Economic and Development Authority and the Department
of Trade and Industry as vice-chairmen and two (2) members each from workers and employers sectors who
shall be appointed by the President of the Philippines, upon the recommendation of the Secretary of Labor and
Employment, to be made on the basis of the list of nominees submitted by the workers and employers sectors,
respectively, and who shall serve for a term of five (5) years.

"Each Regional Board to be headed by its chairman shall be assisted by a Secretariat.

"Art. 123. Wage Order. Whenever conditions in the region so warrant, the Regional Board shall investigate
and study all pertinent facts; and based on the standards and criteria herein prescribed, shall proceed to
determine whether a Wage Order should be issued. Any such Wage Order shall take effect after fifteen (15)
days from its complete publication in at least one (1) newspaper of general circulation in the region.

"In the performance of its wage determining functions, the Regional Board shall conduct public
hearings/consultations, giving notices to employees' and employers' groups, provincial, city and municipal
officials and other interested parties.

"Any party aggrieved by the Wage Order issued by the Regional Board may appeal such order to the
Commission within ten (10) calendar days from the publication of such order. It shall be mandatory for the
Commission to decide such appeal within sixty (60) calendar days from the filing thereof.
"The filing of the appeal does not stay the order unless the person appealing such order shall file with the
Commission an undertaking with a surety or sureties satisfactory to the Commission for the payment to the
employees affected by the order of the corresponding increase, in the event such order is affirmed."

"Art. 124. Standards/Criteria for Minimum Wage Fixing. The regional minimum wages to be established by
the Regional Board shall be as nearly adequate as is economically feasible to maintain the minimum standards
of living necessary for the health, efficiency and general well-being of the employees within the framework of
the national economic and social development program. In the determination of such regional minimum wages,
the Regional Board shall, among other relevant factors, consider the following:

"(a) The demand for living wages;

"(b) Wage adjustment vis-a-vis the consumer price index;

"(c) The cost of living and changes or increases therein;

"(d) The needs of workers and their families;

"(e) The need to induce industries to invest in the countryside;

"(f) Improvements in standards of living;

"(g) The prevailing wage levels;

"(h) Fair return of the capital invested and capacity to pay of employers;

"(i) Effects on employment generation and family income; and

"(j) The equitable distribution of income and wealth along the imperatives of economic and social development.

"The wages prescribed in accordance with the provisions of this Title shall be the standard prevailing minimum
wages in every region. These wages shall include wages varying within industries, provinces or localities if in
the judgment of the Regional Board conditions make such local differentiation proper and necessary to
effectuate the purpose of this Title.

"Any person, company, corporation, partnership or any other entity engaged in business shall file and register
annually with the appropriate Regional Board, Commission and the National Statistics Office an itemized listing
of their labor component, specifying the names of their workers and employees below the managerial level,
including learners, apprentices and disabled/handicapped workers who were hired under the terms prescribed
in the employment contracts, and their corresponding salaries and wages.

"Where the application of any prescribed wage increase by virtue of law or Wage order issued by any Regional
Board results in distortions of the wage structure within an establishment, the employer and the union shall
negotiate to correct the distortions. Any dispute arising from wage distortions shall be resolved through the
grievance procedure under their collective bargaining agreement and, if it remains unresolved, through voluntary
arbitration. Unless otherwise agreed by the parties in writing, such dispute shall be decided by the voluntary
arbitrator or panel of voluntary arbitrators within ten (10) calendar days from the time said dispute was referred
to voluntary arbitration.
"In cases where there are no collective agreements or recognized labor unions, the employers and workers shall
endeavor to correct such distortions. Any dispute arising therefrom shall be settled through the National
Conciliation and Mediation Board and, if it remains unresolved after ten (10) calendar days of conciliation, shall
be referred to the appropriate branch of the National Labor Relations Commission (NLRC). It shall be mandatory
for the NLRC to conduct continuous hearings and decide the dispute within twenty (20) calendar days from the
time said dispute is submitted for compulsory arbitration.

"The pendency of a dispute arising from a wage distortion shall not in any way delay the applicability of any
increase in prescribed wage rates pursuant to the provisions of law or Wage Order.

"As used herein, a wage distortion shall mean a situation where an increase in prescribed wage rates results in
the elimination or severe contraction of intentional quantitative differences in wage or salary rates between and
among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage
structure based on skills, length of service, or other logical bases of differentiation.

"All workers paid by result, including those who are paid on piecework, takay, pakyaw or task basis, shall receive
not less than the prescribed wage rates per eight (8) hours work a day, or a proportion thereof for working less
than eight (8) hours.

"All recognized learnership and apprenticeship agreements shall be considered automatically modified insofar
as their wage clauses are concerned to reflect the prescribed wage rates."

"Art. 126. Prohibition Against Injunction. No preliminary or permanent injunction or temporary restraining
order may be issued by any court, tribunal or other entity against any proceedings before the Commission or
the Regional Boards."

"Art. 127. Non-diminution of Benefits. No Wage Order issued by any Regional Board shall provide for wage
rates lower than the statutory minimum wage rates prescribed by Congress."

Section 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates of all workers and
employees in the private sector, whether agricultural or non-agricultural, shall be increased by twenty-five pesos
(P25.00) per day, except that workers and employees in plantation agricultural enterprises outside of the
National Capital Region (NCR) with an annual gross sales of less than five million pesos (P5,000,000.00) in the
preceding year shall be paid an increase of twenty pesos (P20.00), and except further that workers and
employees of cottage/handicraft industries, non-plantation agricultural enterprises, retail/service establishments
regularly employing not more than ten (10) workers, and business enterprises with a capitalization of not more
than five hundred thousand pesos (P500,000.00) and employing not more than twenty (20) employees, which
are located or operating outside the NCR, shall be paid only an increase of fifteen pesos (P15.00): Provided,
That those already receiving above the minimum wage rates up to one hundred pesos (P100.00) shall also
receive an increase of twenty-five pesos (P25.00) per day, except that the workers and employees mentioned
in the first exception clause of this Section shall also be paid only an increase of twenty pesos (P20.00), and
except further that those employees enumerated in the second exception clause of this Section shall also be
paid an increase of fifteen pesos (P15.00): Provided, further, That the appropriate Regional Board is hereby
authorized to grant additional increases to the workers and employees mentioned in the exception clauses of
this Section if, on the basis of its determination pursuant to Article 124 of the Labor Code such increases are
necessary.
(b) The increase of twenty-five pesos (P25.00) prescribed under this Section shall apply to all workers and
employees entitled to the same in private educational institutions as soon as they have increased or are granted
authority to increase their tuition fees during school year 1989-1990. Otherwise, such increase shall be so
applicable not later than the opening of the next school year beginning 1990.

(c) Exempted from the provisions of this Act are household or domestic helpers and persons employed in the
personal service of another, including family drivers.

Retail/service establishments regularly employing not more than ten (10) workers may be exempted from the
applicability of this Act upon application with and as determined by the appropriate Regional Board in
accordance with the applicable rules and regulations issued by the Commission. Whenever an application for
exemption has been duly filed with the appropriate Regional Board, action on any complaint for alleged non-
compliance with this Act shall be deferred pending resolution of the application for exemption by the appropriate
Regional Board.

In the event that applications for exemptions are not granted, employees shall receive the appropriate
compensation due them as provided for by this Act plus interest of one per cent (1%) per month retroactive to
the effectivity of this Act.

(d) If expressly provided for and agreed upon in the collective bargaining agreements, all increases in the daily
basic wage rates granted by the employers three (3) months before the effectivity of this Act shall be credited
as compliance with the increases in the wage rates prescribed herein, provided that, where such increases are
less than the prescribed increases in the wage rates under this Act, the employer shall pay the difference. Such
increases shall not include anniversary wage increases, merit wage increases and those resulting from the
regularization or promotion of employees.

Where the application of the increases in the wage rates under this Section results in distortions as defined
under existing laws in the wage structure within an establishment and gives rise to a dispute therein, such
dispute shall first be settled voluntarily between the parties and in the event of a deadlock, the same shall be
finally resolved through compulsory arbitration by the regional branches of the National Labor Relations
Commission (NLRC) having jurisdiction over the workplace.

It shall be mandatory for the NLRC to conduct continuous hearings and decide any dispute arising under this
Section within twenty (20) calendar days from the time said dispute is formally submitted to it for arbitration. The
pendency of a dispute arising from a wage distortion shall not in any way delay the applicability of the increase
in the wage rates prescribed under this Section.

Section 5. Within a period of four (4) years from the effectivity of this Act and without prejudice to collective
bargaining negotiations or agreements or other employment contracts between employers and workers, new
business enterprises that may be established outside the NCR and export processing zones whose operation
or investments need initial assistance as may be determined by the Department of Labor and Employment in
consultation with the Department of Trade and Industry or the Department of Agriculture, as the case may be,
shall be exempt from the applicability of this Act for not more than three (3) years from the start of their
operations: Provided, That such new business enterprises established in Region III (Central Luzon) and Region
IV (Southern Tagalog) shall be exempt from such increases only for two (2) years from the start of their
operations, except those established in the Provinces of Palawan, Oriental Mindoro, Occidental Mindoro,
Marinduque, Romblon, Quezon and Aurora, which shall enjoy such exemption for not more than three (3) years
from the start of their operations.
Section 6. In the case of contracts for construction projects and for security, janitorial and similar services,
the prescribed increases in the wage rates of the workers shall be borne by the principals or clients of the
construction/service contractors and the contract shall be deemed amended accordingly. In the event, however,
that the principal or client fails to pay the prescribed wage rates, the construction/service contractor shall be
jointly and severally liable with his principal or client.

Section 7. Upon written permission of the majority of the employees or workers concerned, all private
establishments, companies, businesses, and other entities with twenty five (25) or more employees and located
within one (1) kilometer radius to a commercial, savings or rural bank shall pay the wages and other benefits of
their employees through any of said banks and within the period of payment of wages fixed by Presidential
Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines.

Section 8. Whenever applicable and upon request of a concerned worker or union, the bank shall issue a
certification of the record of payment of wages of a particular worker or workers for a particular payroll period.

Section 9. The Department of Labor and Employment shall conduct inspections as often as possible within
its manpower constraint of the payroll and other financial records kept by the company or business to determine
whether the workers are paid the prescribed minimum wage rates and other benefits granted by law or any
Wage Order. In unionized companies, the Department of Labor and Employment inspectors shall always be
accompanied by the president or any responsible officer of the recognized bargaining unit or of any interested
union in the conduct of the inspection. In non-unionized companies, establishments or businesses, the
inspection should be carried out in the presence of a worker representing the workers in the said company. The
workers' representative shall have the right to submit his own findings to the Department of Labor and
Employment and to testify on the same if he cannot concur with the findings of the labor inspector.

Section 10. The funds necessary to carry out the provisions of this Act shall be taken from the Compensation
and Organizational Adjustment Fund, the Contingent Fund, and other savings under the Republic Act No. 6688,
otherwise known as the General Appropriations Act of 1989, or from any unappropriated funds of the National
Treasury: Provided, That the funding requirements necessary to implement this Act shall be included in the
annual General Appropriations Act for the succeeding years.

Section 11. The National Wages Council created under Executive Order No. 614 and the National
Productivity Commission created under Executive Order No. 615 are hereby abolished. All properties, records,
equipment, buildings, facilities, and other assets, liabilities and appropriations of and belonging to the
abovementioned offices, as well as other matters pending therein, shall be transferred to the Commission. All
personnel of the above abolished offices shall continue to function in a holdover capacity and shall be
preferentially considered for appointments to or placement in the Commission.

Any official or employee separated from the service as a result of the abolition of office pursuant to this Act shall
be entitled to appropriate separation pay and retirement and other benefits accruing to them under existing laws.
In lieu, thereof, at the option of the employee, he shall be preferentially considered for employment in the
government or in any of its subdivisions, instrumentalities, or agencies, including government-owned or
controlled corporations and their subsidiaries.

Section 12. Any person, corporation, trust, firm, partnership, association or entity which refuses or fails to pay
any of the prescribed increases or adjustments in the wage rates made in accordance with this Act shall be
punished by a fine not exceeding twenty five thousand pesos (P25,000.00) and/or imprisonment of not less than
one (1) year nor more than two (2) years: Provided, That any person convicted under this Act shall not be entitled
to the benefits provided for under the Probations Law.

If the violation is committed by a corporation, trust or firm, partnership, association or any other entity, the penalty
of imprisonment shall be imposed on the entity's responsible officers, including, but not limited to, the president,
vice-president, chief executive officer, general manager, managing director or partner.

Section 13. The Secretary of Labor and Employment shall promulgate the necessary rules and regulations
to implement the provisions of this Act.

Section 14. Al laws, orders, issuances, rules and regulations or parts thereof inconsistent with the provisions
of this Act are hereby repealed, amended or modified accordingly. If any provision or part of this Act, or the
application thereof to any person or circumstance, is held invalid or unconstitutional, the remainder of this Act
or the application of such provision or part thereof to other persons or circumstances shall not be affected
thereby.

Nothing in this Act shall be construed to reduce any existing wage rates, allowances and benefits of any form
under existing laws, decrees, issuances, executive orders, and/or under any contract or agreement between the
workers and the employers.

Section 15. This Act take effect fifteen (15) days after its complete publication in the Official Gazette or in at
least two (2) national newspapers of general circulation, whichever comes earlier.

Approved: June 9, 1989

Republic of the Philippines Congress of the Philippines Metro Manila First Special Session
First Special Session
Begun and held in Metro Manila on Friday the seventh day of June nineteen hundred and ninety-six.

REPUBLIC ACT NO. 8188 AN ACT INCREASING THE PENALTY AND INCREASING DOUBLE INDEMNITY
FOR VIOLATION OF THE PRESCRIBED INCREASES OR ADJUSTMENT IN THE WAGE RATES,
AMENDING FOR THE PURPOSE SECTION TWELVE OF REPUBLIC ACT NUMBERED SIXTY-SEVEN
HUNDRED TWENTY-SEVEN, OTHERWISE KNOWN AS THE WAGE RATIONALIZATION ACT
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
SECTION 1. Section 12 of Republic Act Numbered Sixty-seven hundred twenty-seven is hereby amended to
read to as follows:
"Section 12. Any person, corporation, trust, firm, partnership, association or entity which refuses or fails to
pay any of the prescribed increases or adjustments in the wage rates made in accordance with this Act shall
be punished by a fine not less than Twentyfive thousand pesos (P25,000) nor more than One hundred thousand
pesos (P100,000) or imprisonment of not less than two (2) years nor more than four (4) years, or both such fine
and imprisonment at the discretion of the court: Provided, That any person convicted under this Act shall not
be entitled to the benefits provided for under the Probation Law.
"The employer concerned shall be ordered to pay an amount equivalent to double the unpaid benefits owing
to the employees: Provided, That payment of indemnity shall not absolve the employer from the criminal liability
imposable under this Act.
 "If the violation is committed by a corporation, trust or firm, partnership, association or any other entity the
penalty of imprisonment shall be imposed upon the entity's responsible officers, including, but not limited to, the
president, vice-president, chief executive officer, general manager, managing director or partner."
SECTION 2. All laws, presidential decrees, executive orders, rules and regulations or
parts thereof inconsistent with the provisions of this Act are hereby repealed or modified accordingly.
SECTION 3. This Act shall take effect fifteen (15) days after its complete publication in a newspaper of
general circulation.

Republic of the Philippines

DEPARTMENT OF LABOR AND EMPLOYMENT Manila
DEPARTMENT ORDER NO. 10 Series of 1998
Guidelines on the imposition of Double Indemnity For Non-Compliance with the Prescribed Increases
or Adjustments In Wage Rates
Pursuant to the rule-making authority of the Secretary of Labor and Employment under Article 5 of the Labor
Code, as amended, and Section 13 of the Republic Act No. 6727, and to ensure uniformity in the implementation
of the provisions of Republic Act No. 8188 entitled "An Act Increasing the Penalty and Imposing Double
Indemnity for Violation of the Prescribed Increases or Adjustments in the Wage Rates, amending for the Purpose
Section Twelve of Republic Act Numbered Sixty-Seven Hundred Twenty Seven. Otherwise known as Wage
Rationalization Act". This Guidelines is hereby promulgated for the guidelines of and compliance by all
concerned.
SECTION 1. Coverage - This Guidelines shall apply to any person, corporation, trust, firm, partnership,
association, organization, or entity in the capacity of an employer.
SECTION 2. Definition of Terms - As used in this Guidelines, the following terms shall mean:
a. "Act" refers to Republic Act No. 8188.
b. "Department" refers to the Department of Labor and Employment.
c. "Regional Director" refers to the Director of the Regional Office of the Department.
d. "Board" refers to the Regional Tripartite Wages and Productivity Board.
e. "Employer" refers to any person, corporation, trust, firm, partnership association or entity acting directly or
indirectly in the interest of the employer in relation to an employee.
f. "Employee" refers to any individual employed by an employer.
g. "Wage Rates" refers to the lowest basic pay that the employer can pay his workers including cost of living
allowances as fixed by the Board, but excludes other wage-related benefits such as overtime pay, bonuses,
night shift differential pay, holiday pay, premium pay, 13th month pay, premium pay, leave benefits, among
others.
h. "Wage Order " refers to the order promulgated by the board pursuant to its wage fixing authority.
i. "Prescribed increases or Adjustments" refer to the amount of increase or adjustment in the wage rate of
workers fixed by the Board which the Employer is mandated to pay upon effectivity of a wage order
j. "Violation" refers to the refusal or failure to pay an employee of the prescribed increases or adjustments as
may be established by the Regional Director.
k. "Unpaid Benefits" refer to the prescribed wage rates which the employer failed to pay upon the effectivity of
a wage order exclusive of other wage-related benefits. "Unpaid benefits" as herein understood shall be the
principal basis for computing the double indemnity.
l. "Double Indemnity" refers to the payment to a concerned employee of the prescribed increases or adjustments
in the wage rates, which was not paid by an employer in amount equivalent to twice the unpaid benefits owing
to such employee.
m. "Notice of Inspection Result" refers to the inspection form duly accomplished and issued by the labor
standards enforcement officer to the employer or his representative after the completion of the inspection. The
notice shall specify the violations discovered, if any, together with the officers recommendation and computation
of the unpaid benefits due each worker with an advice that the employer shall be liable for double indemnity in
case of refusal or failure to correct the violation within five (5) calendar days from receipt of notice.
n. "Compliance order" refers to the order issued by the regional director, after due notice and hearing conducted
by himself or a duly authorized hearing officer finding that a violation has been committed and directing the
employer to pay the amount due each worker within ten (10) calendar days from receipt thereof.
SECTION 3. Issuance of a Compliance Order. In cases where the Secretary of Labor and Employment of the
Regional Director has acquired jurisdiction over a violation as defined herein pursuant to the visitorial
and enforcement powers vested upon him by Article 128 (b) of the Labor Code as amended, he shall have the
power to issue a compliance order to give effect to the provisions of the Act. Such order shall be subject to the
following principles.
a. In case of routine inspection where the violation has been established after due notice and hearing where
appropriate the Regional Director shall, after (7) calendar days from the employer's receipt of the notice of
inspection result, issue a compliance order. b. Ion case of complaint inspection, the Regional Director shall call
for summary investigation and after due notice and hearing shall, where appropriate issue a compliance order.
c. The compliance order shall directly the employer to pay the amount due each worker within ten (10) days
from receipt thereof and to submit proof of compliance. The order shall specify the amount due each worker and
shall include the computation on which the order was based. d. Upon the finality of the compliance order, the
Regional Director shall cause the issuance of a writ of execution for its enforcement. e. No compliance order
shall be issued during the pendency of an application for exemption from a wage order duly filed with the
appropriate board.
SECTION 4. Double Indemnity, when to Start Period of Compution.
a. The computation for double indemnity as herein defined shall start from the effectivity of the prescribed
increases or adjustments as indicated in the wage order. b. The basis for the computation of double indemnity
shall be limited to the unpaid benefits as defined herein. c. Where there is partial compliance with the prescribed
increase or adjustment the basis for computing double indemnity shall be the balance of unpaid benefits
reckoned from the effectivity of the wage order.
SECTION 5. Supersession Clause - All rules, regulations, issuances, or parts thereof which are consistent with
this guidelines are deemed superseded or modified accordingly.
SECTION 6. Separability Clause - If any provision or portion of this guidelines is declared void or
unconstitutional, the remaining portions or provisions hereof shall continue to be valid and effective.
SECTION 7. Effectivity - This Guidelines shall take effect fifteen (15) days after after its complete publication in
at least one (1) newspaper of general circulation.

WAGE DISTORTION

MANILA MANDARIN UNION vs NLRC

Petitioner: Manila Mandarin Employees Union
Respondent: The National Labor Relations Commission (2nd Division) and the Manila Mandarin Hotel
Citation: G.R. No. 108556
Date of Promulgation: November 19, 1996
Ponente:Narvasa, J.

FYI: Wage Distortion - It is a situation where an increase in prescribed minimum wage rates results in the
elimination or severe contraction of intentional quantitative differences in wage or salary rates between and
among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage
structure based on skills, length of service, or other logical bases of differentiation.

FACTS
1. On October 30th 1986, Manila Mandarin Employees Union filed a complaint with the NLRC to compel Manila
Mandarin Hotel to pay the salary differentials of certain employees because of wage distortions in their salary
structure.
2. The relevant Presidential Decrees and Wage Orders were specified by the UNION as follows:
a. PD 1389, amending PD 928, mandating an increase in the statutory minimum wage by P3.00
spread out over a period of three years, as follows: P1.00 starting July 1, 1978; P1.00 starting May 1, 1979;
and P1.00 starting May 1, 1980.
b. PD 1614, providing that workers covered by PD 1389, whether agricultural or non- agricultural,
should receive an increase of P2.00 in their statutory minimum wage effective April 1, 1979, the same
representing an acceleration of the remaining increases under PD 1389; and that all non-agricultural workers in
Metro Manila shall receive a minimum wage of P12.00;
c. PD 1713, issued on august 18, 1980 providing an increase in the minimum daily wage rates
and for additional allowance; increasing the minimum daily wage rates by P1.00 and providing that all
private employers shall pay their employees with wages or salaries not exceeding P1,500.00 a month, an
additional mandatory living allowance of P60.00 a month for non-agricultural workers, P45.00 for plantation
workers and P30.00 a month for agricultural non-plantation workers;
d. PD 1751, issued on December 14, 1980, increasing the statutory daily minimum wages by
integrating the P4.00 mandatory allowance under PD 525 and PD 1123 into the basic pay of all covered
workers;
e. Wage Order No. 1, issued on March 26, 1981, increasing the mandatory emergency living
allowance of all workers with salaries or wages of P1,500.00 a month by P2.00 a day for non-agricultural
workers, P1.50 a day for agricultural plantation workers, P1.00 a day for agricultural non-plantation workers,
effective March 22, 1981;
f. Wage Order No. 2 issued on July 6, 1983 increasing the mandatory basic minimum wage and
living allowance for non-agricultural and agricultural workers in the following manner:
1) For non-agricultural employees, receiving not more than P1,800.00 monthly,
P1.00 a day as minimum wage and P1.50 a day as cost of living allowance;
2) For plantation agricultural employees, P1.00 a day as minimum wage and P0.50
a day as cost of living allowance subject to the same salary ceiling provided in the
immediately preceding section; and
3) For non-plantation agricultural employees, P1.00 a day as minimum wage; and
also, providing that effective October 1, 1983, the living allowances rates as
adjusted in the preceding section shall be further increased subject to the same salary
ceiling, for non-agricultural employees, by P1.00.
g. Wage Order No. 3 issued November 7, 1983 increasing the statutory minimum wage rates for
workers in the private sector by P1.00 per day effective November 1, 1983, and also increasing the statutory
wage rates by P1.00 per day, effective December 1, 1983;
h. Wage Order No. 4 issued on May 1, 1984 increasing the statutory daily minimum wages, after
integrating the mandatory living allowance under PDs 1614, 1634, 1678 and 1713 into the basic pay of all
covered employees, effective May 1, 1984; -- after the integration, the minimum daily wage rate was
increased by P11.00 for non-agricultural workers.
i. Wage Order No. 5 issued on June 11, 1984 increasing the statutory daily minimum wage rates
and living allowances of workers in the private sector by P3.00 effective June 16, 1984 -- the minimum daily
wage rates became P35.00 for Metro Manila and P34.00 for outside Metro Manila; and
j. Wage Order No. 6, effective November 1, 1984, increasing the statutory minimum wage rate by
P2.00 per day
3. The Labor Arbiter ruled in favor of the UNION holding that there were in fact wage distortions entitling its
members to salary adjustments.
4. The 2nd Division of the NLRC set aside the LA's judgement and dismissed the UNION's complaint.

ISSUE
Whether or not there exists a wage distortion, and if any, should an across-the-board increase be implemented
as ruled by the LA.

HELD
No. There was no wage distortion. The UNION who asserted such shall have to prove the existence of the
same, and it failed.

No. An across-the-board increase is not the solution. There are other means prescribed by law.

The issue of whether or not a wage distortion exists as a consequence of the grant of a wage increase to certain
employees, is a question of fact; and as a rule, factual findings in labor cases, where grounded on
substantial evidence, are not reviewed. However, a disharmony such as exists here, between the factual
findings of the Labor Arbiter and those of the NLRC, opens the door to a review thereof by this Court.
The LA ruled that a wage distortion existed and the only logical way to correct it is to apply the
corresponding increase across-the-board so that employees whose salaries are above minimum set by
law who have already been long in the service will not be discriminated against.
The NLRC, however, found no wage distortion warranting an across-the-board increase to all
employees. The mandate of the issuances is to increase the prevailing minimum wages of
particular employee groups.There were no across-the-board increase to all employees.
It was incorrect for the UNION to claim that all its members became automatically entitled to across-the-board
increases upon the effectivity of the Decrees and Wage Orders. And even if there were wage distortions, which
is not the case here, the appropriate remedy prescribed is for the employer and the union to negotiate to
correct them; or, if the dispute be not thereby resolved, to thresh out the controversy through the
grievance procedure in the collective bargaining agreement, or through conciliation or arbitration.

A review of the records convinces this Court that respondent NLRC committed no grave abuse of discretion in
holding that no wage distortion was demonstrated by the UNION. It was, to be sure, incumbent on the UNION
to prove by substantial evidence its assertion of the existence of a wage distortion. This it failed to do.
It presented no such evidence to establish, as required by the law, what, if any, were the designed quantitative
differences in wage or salary rates between employee groups, and if there were any severe contractions or
elimination of these quantitative differences.
The UNIONs effort to prove wage distortion consisted only of the presentation of an unverified list of
thirteen (13) employees denominated a Sample Comparison of Salary Rates Affected by Wage
Distortion
Respondent Commission however found that as explained by respondents, such disparity was due simply to
the fact that the employees mentioned
1) had been hired on different dates and were thus receiving different salaries;
2) or that an employee was hired initially at a position level carrying a hiring rate than the others;
3) or that an employee failed to meet the cut-off date in the grant of yearly CBA increase;

4) or that the union did not get the correct data on salaries.

Finally, the records show that the matter of wage distortion, actual or imputed under the various
issuances up to Wage Order No. 6, had been settled by the parties as early as July 30, 1985. On that day
they executed a Compromise Agreement with the assistance of the then Regional Director of the National
Capital Region, Severo M. Pucan in which they affirmed that with the implementation by MANDARIN of Wage
Order Nos. 4 and 6 as well as P.D. 1634, the latter was deemed for all legal and purposes to have fully satisfied
all its legal and contractual obligations to its employees under all presidential issuances on wages,
The Compromise Agreement pertinently states:
1. That the respondent shall implement Wage Order No. 6 effective July 1, 1985, without prejudice to the
outcome of the application for exemption as distressed employer filed by said respodent with the National Wage
Council as regards benefits that might be due between November 1, 1985 and June 30, inclusive;
2. The the respondent shall also implement effective August 1, 1985 the integration of the P90.00 a month cost
of living allowance under P.D. 1634 into the basic wages of its employees as called for under Wage Order No.
4 in accordance with the Guidelines contained in the Explanatory Bulletin issued by the Bureau of Working
Conditions on August 8, 1985;
3. That as soon as the respondent shall have complied with the above terms of this Compromise Agreement,
said respondent shall be deemed for all legal intents and puposes to have fully satisfied all the legal and
contractual obligations to its employees under all presidential issuances on wages, including Wage Orders No.
4 and 6, and Article XI of the collective bargaining agreement,

The Labor Code recognizes the conclusiveness of compromises as a means to settle and end labor
disputes. Article 227 provides that (a)ny compromise settlement, including those involving labor standard laws,
voluntary agreed upon by the parties with the assistance of the Bureau or the regional office of the Department
of Labor, shall be final and binding upon the parties. The National Labor Relations Commission or any court
shall not assume jurisdiction over issues involved therein except in case of non-compliance thereof or if there is
prima facie evidence that the settlement was obtained through fraud, misrepresentation or coercion.

Thus, and again assuming arguendo the existence of a wage distortion, this was corrected under the fully
implemented Compromise Agreement; and such correction having been explicitly acknowledge by the
UNION, it is now estopped from claiming that a distortion still subsists. In the same manner, when the UNION
entered into a new collective agreement with MANDARIN, providing for wage increases in 1987, it is deemed to
have thereby settled any remaining question of wage distortion, since the subject of wages and wage distortions
were plainly and unavoidably an economic issue and the proper subject of collective bargaining.

ISSUE
Whether or not the NLRC had jurisdiction to take cognizance of Mandarin Hotel's appeal from the LA decision.

HELD
Yes. The issue of jurisdiction is grounded on the posited tardiness of Mandarin Hotel's appeal from the LA's
judgment and Hon. Domingo Zapanta's alleged assistance to the appeal.

But being that there was sufficient reason to such delay--there was no cashier on the last day of filing their
appeal and Mandarin Hotel's lawyer was allowed to pay the appeal fee 3 days later. As to the alleged assistance,
on the last day of filing their appeal, no one was around to receive the pleadings so Hon. Domingo Zapanta
received and signed them.

NFL vs NLRC
Petitioner: National Federation of Labor
Respondent: The National Labor Relations Commission and Franklin Baker Company of the Philippines (Davao
Plant)
Citation: G.R. No. 103586
Date of Promulgation: July 21, 1994
Ponente:Feliciano, J.

FACTS
1. President Ferdinand Marcos promulgated Wage Orders Nos. 3, 4, 5 and 6 between November 1st 1983 and
November 1st, 1984 which increased the statutory minimum wages of workers.
2. In Franklin Baker Corp., the wage rates of the regular employees and casuals were such that there was a
positive differential between the 2 groups in the amount of P4.56 after the implementation of Wage No. 3.
- after Wage Order No. 4, P1.64
- after Wage Order No. 5, P0.00
3. Upon the effectivity of Wage Order No. 5, grievance meetings were held addressing the impact of such Orders
on the wage structure of the company.
- as a result, the following actions were done by Franklin Baker Corp:
a) regularization of all casual employees,
b) increase in the wages of the regular employees by P1.84 (upon the Collective Bargaining
Agreement between NFL and Franklin Baker Corp.)
4. When Wage Order No. 6 was implemented, both casual and regular employees received an increase of
P2.00.
5. On July 1st 1985, the anniversary date of the increase under the Collective Bargaining Agreement, all regular
employees who were a part thereof got a raise of P1.76.
6. By November of 1987, the lowest paid regular employee had a basic salary of P64.64 which is P10.64 more
than the statutory minimum wage paid to a non-regular employee.
7. However, the company experienced a work output slowdown. It directed 205 of its workers to explain the
reduction in their work output but they failed to comply and they were issued notices of dismissal.
8. The company suspended operations on August 16th 1984 due to its decreasing productivity levels. They
resumed on September 14th 1984 but refused to take back the 205 dismissed employees.
9. The NFL then went on strike alleging a lock-out on the part of the company and demanding rectification of
the wage distortion. The case was certified by the Secretary of Labor to the NLRC for compulsory conciliation.
10. The NFL and Franklin Baker Corp. reached an agreement on the lock-out issue approved by the NLRC En
Banc on June 19th 1985.
- the 205 employees were granted financial assistance equivalent to 30 days' separation pay.
11. The NLRC on November 11th 1987 rendered a Decision, having found the existence of wage distortion,
requiring company to pay P1.00 wage increase effective May of 1984.
12. On motion for partial reconsideration filed by the company, the NLRC En Banc's decision was reconsidered
and set aside b y the NLRC 5th division
- the 5th division found that while a wage distortion did exist, it only lasted 15 days
- it required the company to pay a wage increase of P2.00 per day to all regular workers for 15 days.
13. The NFL filed a petition to the Court alleging that the NLRC committed grave abuse of discretion when it
concluded that the wage distortion had ceased to exist after July 1st 1984.
- their principal contention is to re-create the differential between regular and casual
employees (before Wage Order No.3 became effective) now between the "newly regularized"
employees and the "old regular" employees (regulars for at least 3 years before the regularization of the
casuals)
- NFL stresses that seniority is a valid basis of distinction between differing groups of employees
under the Labor Code

ISSUE
Whether or not the NLRC 5th division committed grave abuse of discretion when it concluded that the wage
distortion ceased to exist after July 1st, 1984.

HELD
No. The Petition for Certiorari is DISMISSED for lack of merit. No pronouncement as to costs.

It is important to note that the remedy contemplated in the Wage Orders, and now in Article 124 of the
Labor Code, for a wage distortion consisted of negotiations between employer and employees for the
rectification of the distortion by re-adjusting the wage rates of the differing classes of employees. As a
practical matter, this ordinarily meant a wage increase for one or more of the affected classes of employees
so that some gap or differential would be re-established.There was no legal requirement that the historical
gap which existed before the implementation of the Wage Orders be restored in precisely the same form or
amount.

Applying the above concept to the case at bar, we note that there did exist a two-fold classification of employees
within the private respondent Company: regular employees on the one hand and casual (or non-regular)
employees on the other. As can be seen from the figures referred to earlier, the differential between these two
(2) classes of employees existing before Wage Order No. 3 was reduced to zero upon the effectivity of Wage
Order No. 5 on 16 June 1984. Obviously, distortion consisting of complete elimination of the wage rate
differential had occurred. It is equally clear, however, that fifteen (15) days later, on 1 July 1984, upon
effectivity of the wage increase stipulated in the collective bargaining agreement between the parties, a
gap or differential of P1.84 was re-created.This restored differential persisted after the effectivity of
Wage Order No. 6 on 1 November 1984. By operation of the same CBA, by 1 July 1985, the wage
differential had grown to P3.60.

Petitioner NFL's principal contention that the wage distortion persisted with respect to the "old" regular
employees and the "newly regularized" employees, is realistically a claim or demand that the classification of
"regular" employees be broken down into a sub-classification of "new regulars" and "old regulars." A basic
problem with this contention is that, per the record of this case and during the period of time here relevant, there
was in fact no pre-existing sub-classification of regular employees into "new regulars" and "old regulars" (i.e.,
on the basis of seniority or longevity) in the Company.
The basic point which needs to be stressed is that whether or not a new or additional scheme of
classification of employees for compensation purposes should be established by the Company is
properly a matter for management judgment and discretion, and ultimately, perhaps, a subject matter
for bargaining negotiations between employer and employees. It is assuredly something that falls outside
the concept of "wage distortion." The Wage Orders and Article 124 as amended do not require the establishment
of new classifications or sub-classifications by the employer. The NLRC is not authorized unilaterally to impose,
directly or indirectly, under the guise of rectifying a "wage distortion," upon an employer a new scheme of
classification of employees where none has been established either by management decision or by collective
bargaining.

BANKARD EMPLOYEES UNION VS NLRC

Petitioner: Bankard Employees Union-Workers Alliance Trade Unions

Respondents: NLRC and Bankard, Inc
Citation: GR No. 140689
Date of Promulgation: February 17, 2004
Ponente: Carpio-Morales

FACTS:
Bankard Inc classifies its employees by levels, to wit: Level I, II, III, IV and V
May 28, 1993: The Board of Directors approved a New Salary Scale, made retroactive to April 1, 1993
for the purpose of making its hiring rate competitive in the industrys labor market
New Salary Scale: increased the hiring rates of new employees to wit: Level I and V by 1k, and Levels
II, III and IV by 900
Salaries of employees who fell below the new minimum rates were also adjusted to reach such rates
under their levels
Bankards move drew the Bankard Employees Uunion (duly certified bargaining agent of the rank and
file employees) to press for the increase in the salary of its old regular employees
Bankard: no obligation to grant to all of its employees the same increase in an across-the-board-manner
Since the increase was remain unheeded, the union filed a Notice of Strike on August 26, 1993 on the
ground of discrimination and other acts of unfair labor practice
Natl Conciliation and Mediation Board: treated the Notice of Strike as a preventive mediation case
based on the finding that the issues were not strikeable
Union: filed another Notice of Strike on October 8, 1993
- Grounds: refusal to bargain, discrimination, and other acts of ULP union busting
Strike was averted when the dispute was certified by DOLE for compulsory arbitration
NLRC: Order stating that there was no wage distortion, dismissed the case for lack of merit
MR: denied
Petition for Certiorari: case was elevated at CA --- denied

ISSUE:
 1. W/N the unilateral adoption by an employer of an upgraded salary scale that increased the hiring rates
of new employees without increasing the salary rates of old employees resulted in wage distortion with
the completion of Article 124 of the Labor Code?

HELD:
Upon the enactment of R.A. No. 6727 (WAGE RATIONALIZATION ACT, amending, among others, Article 124
of the Labor Code) on June 9, 1989, the term "wage distortion" was explicitly defined as:
... a situation where an increase in prescribed wage rates results in the elimination or severe contraction
of intentional quantitative differences in wage or salary rates between and among employee groups in
an establishment as to effectively obliterate the distinctions embodied in such wage structure based on
skills, length of service, or other logical bases of differentiation.4
Prubankers Association v. Prudential Bank and Trust Company5 laid down the four elements of wage
distortion, to wit: (1.) An existing hierarchy of positions with corresponding salary rates; (2) A significant
change in the salary rate of a lower pay class without a concomitant increase in the salary rate of a
higher one; (3) The elimination of the distinction between the two levels; and (4) The existence of the
distortion in the same region of the country.
Normally, a company has a wage structure or method of determining the wages of its employees. In a problem
dealing with "wage distortion," the basic assumption is that there exists a grouping or classification of employees
that establishes distinctions among them on some relevant or legitimate bases.6
Involved in the classification of employees are various factors such as the degrees of responsibility, the skills
and knowledge required, the complexity of the job, or other logical basis of differentiation. The differing wage
rate for each of the existing classes of employees reflects this classification.
Petitioner maintains that for purposes of wage distortion, the classification is not one based on "levels" or "ranks"
but on two groups of employees, the newly hired and the old, in each and every level, and not between and
among the different levels or ranks in the salary structure.
Public respondent National Labor Relations Commission (NLRC) refutes petitioners position, however. It,
through the Office of the Solicitor General, essays in its Comment of April 12, 2000 as follows:
To determine the existence of wage distortion, the "historical" classification of the employees prior to the wage
increase must be established. Likewise, it must be shown that as between the different classification of
employees, there exists a "historical" gap or difference.
xxx
 Hiring Minimum Maximum

The classification preferred by petitioner is belied Level From To From To From To

by the wage structure of private respondent as
shown in the new salary scale it adopted on May 4,10 4,20
I 3,100 3,200 7,200 9,250
28, 1993, retroactive to April 1, 1993, which 0 0
provides, thus:
4,10 4,20
II 3,200 3,300 7,500 9,500
0 0
Thus the employees of private respondent have
been "historically" classified into levels, i.e. I to 4,20 4,30
III 3,300 3,400 8,000 10,000
V, and not on the basis of their length of 0 0
service. Put differently, the entry of new
employees to the company ipso facto place[s] 4,40 4,50
IV 3,500 3,600 8,500 10,500
them under any of the levels mentioned in the new 0 0
salary scale which private respondent adopted
retroactive [to] April 1, 1993. Petitioner cannot V 4,70 4,80
3,700 3,800 9,000 11,000
make a contrary classification of private 0 0
respondents employees without encroaching upon
recognized management prerogative of formulating a wage structure, in this case, one based on
level.7 (Emphasis and underscoring supplied)
The issue of whether wage distortion exists being a question of fact that is within the jurisdiction of quasi-judicial
tribunals,8 and it being a basic rule that findings of facts of quasi-judicial agencies, like the NLRC, are generally
accorded not only respect but at times even finality if they are supported by substantial evidence, as are the
findings in the case at bar, they must be respected. For these agencies have acquired expertise, their jurisdiction
being confined to specific matters.9
It is thus clear that there is no hierarchy of positions between the newly hired and regular employees of Bankard,
hence, the first element of wage distortion provided in Prubankers is wanting.lawphi1.nt
While seniority may be a factor in determining the wages of employees, it cannot be made the sole basis in
cases where the nature of their work differs.
Moreover, for purposes of determining the existence of wage distortion, employees cannot create their own
independent classification and use it as a basis to demand an across-the-board increase in salary.
As National Federation of Labor v. NLRC, et al.10 teaches, the formulation of a wage structure through the
classification of employees is a matter of management judgment and discretion.
[W]hether or not a new additional scheme of classification of employees for compensation purposes should be
established by the Company (and the legitimacy or viability of the bases of distinction there embodied) is
properly a matter of management judgment and discretion, and ultimately, perhaps, a subject matter for
bargaining negotiations between employer and employees. It is assuredly something that falls outside the
concept of "wage distortion."11 (Emphasis and underscoring supplied)
As did the Court of Appeals, this Court finds that the third element provided in Prubankers is also wanting. For,
as the appellate court explained:
In trying to prove wage distortion, petitioner union presented a list of five (5) employees allegedly affected by
the said increase:

Pay of
Pay of Newly Difference
Old/

Regular Employees Hired Employees

A. Prior to April 1, 1993

 Level P4,518.75 P3,100 P1,418.75
I (Sammy
Guce)

Level P6,242.00 P3,200 P3,042.00

II (Nazario
Abello)

Level P4,850.00 P3,300 P1,550.00

III (Arthur
Chavez)

Level P5,339.00 P3,500 P1,839.00

IV Melissa
Cordero)

Level P7,090.69 P3,700 P3,390.69

V (Ma. Lourdes
Dee)

B. Effective April 1, 1993

Level P4,518.75 P4,100 P418.75

I Sammy
Guce)

Level P6,242.00 P4,100 P2,142.00

II (Nazario
Abello)

Level P4,850.00 P4,200 P650.00

III (Arthur
Chavez)

Level P5,330.00 P4,400 P939.00

IV (Melissa
Cordero)

Level P7,090.69 P4,700 P2,390.69

V (Ma. Lourdes
Dee)

Even assuming that there is a decrease in the wage gap between the pay of the old employees and the newly
hired employees, to Our mind said gap is not significant as to obliterate or result in severe contraction of the
intentional quantitative differences in the salary rates between the employee group. As already stated, the
classification under the wage structure is based on the rank of an employee, not on seniority. For this reason,
,wage distortion does not appear to exist.12 (Emphasis and underscoring supplied)
Apart from the findings of fact of the NLRC and the Court of Appeals that some of the elements of wage distortion
are absent, petitioner cannot legally obligate Bankard to correct the alleged "wage distortion" as the increase in
the wages and salaries of the newly-hired was not due to a prescribed law or wage order.
The wordings of Article 124 are clear. If it was the intention of the legislators to cover all kinds of wage
adjustments, then the language of the law should have been broad, not restrictive as it is currently phrased:
Article 124. Standards/Criteria for Minimum Wage Fixing.
xxx
Where the application of any prescribed wage increase by virtue of a law or Wage Order issued by any
Regional Board results in distortions of the wage structure within an establishment, the employer and the union
shall negotiate to correct the distortions. Any dispute arising from the wage distortions shall be resolved through
the grievance procedure under their collective bargaining agreement and, if it remains unresolved, through
voluntary arbitration.
x x x (Italics and emphasis supplied)
Article 124 is entitled "Standards/Criteria for Minimum Wage Fixing." It is found in CHAPTER V on "WAGE
STUDIES, WAGE AGREEMENTS AND WAGE DETERMINATION" which principally deals with the fixing of
minimum wage. Article 124 should thus be construed and correlated in relation to minimum wage fixing, the
intention of the law being that in the event of an increase in minimum wage, the distinctions embodied in the
wage structure based on skills, length of service, or other logical bases of differentiation will be preserved.
If the compulsory mandate under Article 124 to correct "wage distortion" is applied to voluntary and
unilateral increases by the employer in fixing hiring rates which is inherently a business judgment prerogative,
then the hands of the employer would be completely tied even in cases where an increase in wages of a
particular group is justified due to a re-evaluation of the high productivity of a particular group, or as in the
present case, the need to increase the competitiveness of Bankards hiring rate. An employer would be
discouraged from adjusting the salary rates of a particular group of employees for fear that it would result to a
demand by all employees for a similar increase, especially if the financial conditions of the business cannot
address an across-the-board increase.
Petitioner cites Metro Transit Organization, Inc. v. NLRC13 to support its claim that the obligation to rectify wage
distortion is not confined to wage distortion resulting from government decreed law or wage order.
Reliance on Metro Transit is however misplaced, as the obligation therein to rectify the wage distortion was not
by virtue of Article 124 of the Labor Code, but on account of a then existing "company practice" that whenever
rank-and-file employees were paid a statutorily mandated salary increase, supervisory employees were, as a
matter of practice, also paid the same amount plus an added premium. Thus this Court held in said case:
We conclude that the supervisory employees, who then (i.e., on April 17, 1989) had, unlike the rank-and-file
employees, no CBA governing the terms and conditions of their employment, had the right to rely on
the company practice of unilaterally correcting the wage distortion effects of a salary increase given to the
rank-and-file employees, by giving the supervisory employees a corresponding salary increase plus a premium.
. . .14 (Emphasis supplied)
Wage distortion is a factual and economic condition that may be brought about by different causes. In Metro
Transit, the reduction or elimination of the normal differential between the wage rates of rank-and-file and those
of supervisory employees was due to the granting to the former of wage increase which was, however, denied
to the latter group of employees.
The mere factual existence of wage distortion does not, however, ipso facto result to an obligation to rectify it,
absent a law or other source of obligation which requires its rectification.
Unlike in Metro Transit then where there existed a "company practice," no such management practice is herein
alleged to obligate Bankard to provide an across-the-board increase to all its regular employees.
Bankards right to increase its hiring rate, to establish minimum salaries for specific jobs, and to adjust the rates
of employees affected thereby is embodied under Section 2, Article V (Salary and Cost of Living Allowance) of
the parties Collective Bargaining Agreement (CBA), to wit:
Section 2. Any salary increase granted under this Article shall be without prejudice to the right of the Company
to establish such minimum salaries as it may hereafter find appropriate for specific jobs, and to adjust the rates
of the employees thereby affected to such minimum salaries thus established.15 (Italics and underscoring
supplied)
This CBA provision, which is based on legitimate business-judgment prerogatives of the employer, is a valid
and legally enforceable source of rights between the parties.
In fine, absent any indication that the voluntary increase of salary rates by an employer was done arbitrarily and
illegally for the purpose of circumventing the laws or was devoid of any legitimate purpose other than to
discriminate against the regular employees, this Court will not step in to interfere with this management
prerogative. Employees are of course not precluded from negotiating with its employer and lobby for wage
increases through appropriate channels, such as through a CBA.
This Court, time and again, has shown concern and compassion to the plight of workers in adherence to the
Constitutional provisions on social justice and has always upheld the right of workers to press for better terms
and conditions of employment. It does not mean, however, that every dispute should be decided in favor of
labor, for employers correspondingly have rights under the law which need to be respected.
WHEREFORE, the present petition is hereby DENIED.

PRUBANKERS ASSOCIATION v PRUDENTIAL BANK

Petitioner: Prubankers Association

Respondents: Prudential Bank & Trust Company
Citation: GR No. 131247
Date of Promulgation: January 25, 1999
Ponente: Panganiban

FACTS:
November 18, 1993: Regional Tripartite Wages and Productivity Board of Region V issued Wage Order
No. RB 05-03 which provided for a Cost of Living Allowance (COLA) to workers in the private sector who
had rendered service for at least 3 months before its effectivity and for the same period, in the ff
categories:
i. 17.50 in the Cities of Naga and Legaspi
ii. 15.50 in the municipalities of Tabaco, Daraga, Pili and City of Iriga
iii. 10.00 for all other areas in the Bicol Region
November 23, 1993: Regional Tripartite Wages and Productivity Board of Region VII issued Wage Order
No. RB VII-03 which directed the integration of the COLA mandated pursuant to Wage Order No. RO
VII-02-A into the basic pay of all workers
- It also established an increase in the minimum wage rates for all workers and employees un the private
sector as follows:
i. 10.00 in the cities of Cebu, Mandaue and Lapulapu
ii. 5.00 in the municipalities of Compostela, Liloan, Consolacion, Cordova, Talisay, Minglanilla,
Naga and the cities of Davao, Toledo, Dumaguete, Bais, Canlaon and Tagbilaran
Petitioner then granted a COLA of 17.50 to its employees at its Naga Branch, the only branch covered
by Wage No. RB 5-03, and integrated the 150.00 per month COLA into the basic pay of its rank and file
employees at its Cebu, Mabolo and P. del Rosario branches, the branches covered by Wage Order No.
RB VII-03
June 7, 1994: Prubankers Association wrote the petitioner requesting that the Labor Management
Committee be immediately convened to discuss and resolve the alleged wage distortion created in the
salary structure upon the implementation of the said wage orders.
 Prubankers demanded that petitioner extend the application of the wage orders to its employees outside
Regions V and VII, claiming that the regional implementation of said orders created a wage distortion in
the wage rates of petitioners employees nationwide.
As the grievance could not be settled in said meetings, the parties agreed to submit the matter to
voluntary arbitration
CA: no wage distortion. Variance in the salary rates of employees in different regions of the country was
justified by RA 6727.
- The underlying circumstances in issuing the Wage Orders are diverse, based on the distinctive situations
and needs existing in each region
- No basis to apply the salary increases imposed by Wage Order No. VII-03 to employees outside of
Region VII
- The distinctions between each employee group in the region are maintained, as all employees were
granted an increase in minimum wage rate

ISSUE: W/N the banks separate and regional implementation of Wage Order No. 5-03 at its Naga Branch and
Wage Order No. VII-03 at its Cebu. Mabolo and P. del Rosario branches, created a wage distortion in the bank
nationwide?

HELD:
Preliminary Issue: Forum-Shopping
Respondent asks for the dismissal of the petition because petitioner allegedly engaged in forum-shopping. It
maintains that petitioner failed to comply with Section 2 of Rule 42 of the Rules of Court, which requires that
parties must certify under oath that they have not commenced any other action involving the same issues in the
Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency; if there is
such other action or proceeding, they must state the status of the same; and if they should thereafter learn that
a similar action or proceeding has been filed or is pending before the said courts, they should promptly inform
the aforesaid courts or any other tribunal or agency within five days therefrom. Specifically, petitioner accuses
respondent of failing to inform this Court of the pendency of NCMB-NCR-RVA-O4-012-97 entitled "In Re:
Voluntary Arbitration between Prudential Bank and Prubankers Association" (hereafter referred to as "voluntary
arbitration case"), an action involving issues allegedly similar to those raised in the present controversy.
In its Reply, petitioner effectively admits that the voluntary arbitration case was already pending when it filed the
present petition. However, it claims no violation of the rule against forum-shopping, because there is no identity
of causes of action and issues between the two cases.
We sustain the respondent. The rule on forum-shopping was first included in Section 17 of the Interim Rules
and Guidelines issued by this Court on January 11, 1983, which imposed a sanction in this wise: "A violation of
the rule shall constitute contempt of court and shall be a cause for the summary dismissal of both petitions,
without prejudice to the taking of appropriate action against the counsel or party concerned." Thereafter, the
Court restated the rule in Revised Circular No. 28-91 and Administrative Circular No. 04-94. Ultimately, the rule
was embodied in the 1997 amendments to the Rules of Court.
As explained by this Court in First Philippine International Bank v. Court of Appeals, 8 forum-shopping exists
where the elements of litis pendentia are present, and where a final judgment in one case will amount to res
judicata in the other. Thus, there is forum-shopping when, between an action pending before this Court and
another one, there exist: "a) identity of parties, or at least such parties as 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 of the two preceding particulars is such that any judgement rendered in the other action, will, regardless
of which party is successful amount to res judicata in the action under consideration; said requisites also
constitutive of the requisites for auter action pendant or lis pendens." 9 Another case elucidates the consequence
of forum-shopping: "[W]here a litigant sues the same party against whom another action or actions for the alleged
violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis
pendentia in one case is a bar to the others; and, a final judgment in one would constitute res judicata and thus
would cause the dismissal of the rest." 10
The voluntary arbitration case involved the issue of whether the adoption by the Bank of regionalized hiring rates
was valid and binding. On the other hand, the issue now on hand revolves around the existence of a wage
distortion arising from the Bank's separate and regional implementation of the two Wage Orders in the affected
branches. A closer look would show that, indeed, the requisites of forum-shopping are present.
First, there is identity of parties. Both cases are between the Bank and the Association acting on behalf of all its
members. Second, although the respective issues and reliefs prayed for in the two cases are stated differently,
both actions boil down to one single issue: the validity of the Bank's regionalization of its wage structure based
on RA 6727. Even if the voluntary arbitration case calls for striking, down the Bank's regionalized hiring scheme
while the instant petition calls for the correction of the alleged wage distortion caused by the regional
implementation of Wage Order No. VII-03, the ultimate relief prayed for in both cases is the maintenance of the
Bank's national wage structure. Hence, the final disposition of one would constitute res judicata in the other.
Thus, forum-shopping is deemed to exist and, on this basis, the summary dismissal of both actions is indeed
warranted.
Nonetheless, we deem it appropriate to pass upon the main issue on its merit in view of its importance.
Main Issue: Wage Distortion
The statutory definition of wage distortion is found in Article 124 of the Labor Code, as amended by Republic
Act No. 6727, which reads:
Art. 124. Standards/Criteria for Minimum Wage Fixing . . .
As used herein, a wage distortion shall mean a situation where an increase in prescribed wage results in
the elimination of severe contraction of intentional quantitative differences in wage or salary rates
between and among employee groups in an establishment as to effectively obliterate the distinctions
embodied in such wage structure based on skills, length of service, or other logical bases of
differentiation.
Elaborating on this statutory definition, this Court ruled: "Wage distortion presupposes a classification of
positions and ranking of these positions at various levels. One visualizes a hierarchy of positions with
corresponding ranks basically in terms of wages and other emoluments. Where a significant change occurs at
the lowest level of positions in terms of basic wage without a corresponding change in the other level in the
hierarchy of positions, negating as a result thereof the distinction between one level of position from the next
higher level, and resulting in a parity between the lowest level and the next higher level or rank, between new
entrants and old hires, there exists a wage distortion. The concept of a wage distortion assumes an existing
grouping or classification of employees which establishes distinctions among such employees on some relevant
or legitimate basis. This classification is reflected in a differing wage rate for each of the existing classes of
employees" 11
Wage distortion involves four elements:
1. An existing hierarchy of positions with corresponding salary rates
2. A significant change in the salary rate of a lower pay class without a concomitant increase in the
salary rate of a higher one
3. The elimination of the distinction between the two levels
4. The existence of the distortion in the same region of the country
In the present case, it is clear that no wage distortion resulted when respondent implemented the subject Wage
Orders in the covered branches. In the said branches, there was an increase in the salary rates of all pay
classes. Furthermore, the hierarchy of positions based on skills, lengh of service and other logical bases
of differentiation was preserved. In other words, the quantitative difference in compensation between
different pay classes remained the same in all branches in the affected region. Put differently, the
distinction between Pay Class 1 and Pay Class 2, for example, was not eliminated as a result of the
implementation of the two Wage Orders in the said region. Hence, it cannot be said that there was a
wage distortion.
Petitioner argues that a wage distortion exists, because the implementation of the two Wage Orders has resulted
in the discrepancy in the compensation of employees of similar pay classification in different regions. Hence,
petitioner maintains that, as a result of the two Wage Orders, the employees in the affected regions have higher
compensation than their counterparts of the same level in other regions. Several tables are presented by
petitioner to illustrate that the employees in the regions covered by the Wage Orders are receiving more than
their counterparts in the same pay scale in other regions.
The Court is not persuaded. A wage parity between employees in different rungs, is not at issue here, but a
wage disparity between employees in the same rung but located in different regions of the country.
Contrary to petitioner's postulation, a disparity in wages between employees holding similar positions but in
different regions does not constitute wage distortion as contemplated by law. As previously enunciated, it is the
hierarchy of positions and the disparity of their corresponding wages and other emoluments that are sought to
be preserved by the concept of wage distortion. Put differently, a wage distortion arises when a wage order
engenders wage parity between employees in different rungs of the organizational ladder of the same
establishment. It bears emphasis that wage distortion involves a parity in the salary rates of different pay classes
which, as a result, eliminates the distinction between the different ranks in the same region.
Different Regional Wages
Mandated by RA 6727
Petitioner's claim of wage distortion must also be denied for one other reason. The difference in wages between
employees in the same pay scale in different regions is not the mischief sought to be banished by the law. In
fact, Republic Act No. 6727 (the Wage Rationalization Act), recognizes "existing regional disparities in the cost
of living." Section 2 of said law provides:
Sec 2. It is hereby declared the policy of the State to rationalize the fixing of minimum wages and to promote
productivity-improvement and gain-sharing measures to ensure a decent standard of living for the workers and
their families; to guarantee the rights of labor to its just share in the fruits of production; to enhance employment
generation in the countryside through industry dispersal; and to allow business and industry reasonable returns
on investment, expansion and growth.
The State shall promote collective bargaining as the primary mode of settling wages and other terms and
conditions of employment; and whenever necessary, the minimum wage rates shall be adjusted in a fair and
equitable manner, considering existing regional disparities in the cost of living and other socio-economic factors
and the national economic and social development plans.
RA 6727 also amended Article 124 of the Labor Code, thus:
Art. 124. Standards/Criteria for Minimum Wage Fixing. The regional minimum wages to be established by
the Regional Board shall be as nearly adequate as is economically feasible to maintain the minimum standards
of living necessary for the health, efficiency and general well-being of the employees within the frame work of
the national economic and social development program. In the determination of such regional minimum wages,
the Regional Board shall, among other relevant factors, consider the following:
a. The demand for living wages;
b. Wage adjustment vis-a-vis the consumer price index;
c. The cost of living and changes or increases therein;
d. The needs of workers and their families;
e. The need to induce industries to invest in the countryside;
f. Improvements in standards of living;
g. The prevailing wage levels;
h. Fair return of the capital invested and capacity to pay of employers;
 I. Effects on employment generation and family income; and
II. The equitable distribution of income and wealth along the imperatives of social and economic
development.
From the above-quoted rationale of the law, as well as the criteria enumerated, a disparity in wages between
employees with similar positions in different regions is necessarily expected. In insisting that the employees of
the same pay class in different regions should receive the same compensation, petitioner has apparently
misunderstood both the meaning of wage distortion and the intent of the law to regionalize wage rates.
It must be understood that varying in each region of the country are controlling factors such as the cost of living;
supply and demand of basic goods, services and necessities; and the purchasing power of the peso. Other
considerations underscore the necessity of the law. Wages in some areas may be increased in order to prevent
migration to the National Capital Region and, hence, to decongest the metropolis. Therefore, what the petitioner
herein bewails is precisely what the law provides in order to achieve its purpose.
Petitioner claims that it "does not insist that the Regional Wage Boards created pursuant to RA 6727 do not
have the authority to issue wage orders based on the distinctive situations and needs existing in each region.
So also, . . . it does not insist that the [B]ank should not implement regional wage orders. Neither does it seek
to penalize the Bank for following Wage Order VII-03. . . . What it simply argues is that it is wrong for the Bank
to peremptorily abandon a national wage structure and replace the same with a regionalized structure in violation
of the principle of equal pay for equal work. And, it is wrong to say that its act of abandoning its national wage
structure is mandated by law."
As already discussed above, we cannot sustain this argument. Petitioner contradicts itself in not objecting, on
the one hand, to the right of the regional wage boards to impose a regionalized wage scheme; while insisting,
on the other hand, on a national wage structure for the whole Bank. To reiterate, a uniform national wage
structure is antithetical to the purpose of RA 6727.
The objective of the law also explains the wage disparity in the example cited by petitioner: Armae Librero,
though only in Pay Class 4 in Mabolo, was, as a result of the Wage Order, receiving more than Bella Cristobal,
who was already in Pay Class 5 in Subic. 12 RA 6727 recognizes that there are different needs for the different
situations in different regions of the country. The fact that a person is receiving more in one region does not
necessarily mean that he or she is better off than a person receiving less in another region. We must consider,
among others, such factors as cost of living, fulfillment of national economic goals, and standard of living. In any
event, this Court, in its decisions, merely enforces the law. It has no power to pass upon its wisdom or propriety.
Equal Pay for Equal Work
Petitioner also avers that the implementation of the Wage Order in only one region violates the equal-pay-for-
equal-work principle. This is not correct. At the risk of being repetitive, we stress that RA 6727 mandates that
wages in every region must be set by the particular wage board of that region, based on the prevailing situation
therein. Necessarily, the wages in different regions will not be uniform. Thus, under RA 6727, the minimum wage
in Region 1 may be different from that in Region 13, because the socioeconomic conditions in the two regions
are different.
Meaning of "Establishment"
Petitioner further contends that the Court of Appeals erred in interpreting the meaning of "establishment" in
relation to wage distortion. It quotes the RA 6727 Implementing Rules, specifically Section 13 thereof which
speaks of "workers working in branches or agencies of establishments in or outside the National Capital Region."
Petitioner infers from this that the regional offices of the Bank do not themselves constitute, but are simply
branches of, the establishment which is the whole bank. In effect, petitioner argues that wage distortion covers
the pay scales even of employees in different regions, and not only those of employees in the same region or
branch. We disagree.
Sec. 13 provides that the "minimum wage rates of workers working in branches or agencies of establishments
in or outside the National Capital Region shall be those applicable in the place where they are sanctioned" The
last part of the sentence was omitted by petitioner in its argument. Given the entire phrase, it is clear that the
statutory provision does not support petitioner's view that "establishment" includes all branches and offices in
different regions.
Further negating petitioner's theory is NWPC Guideline No. 1 (S. 1992) entitled "Revised Guidelines on
Exemption From Compliance With the Prescribed Wage/Cost of Living Allowance Increases Granted by the
Regional Tripartite Wages and Productivity Board," which states that "establishment" "refers to an economic
unit which engages in one or predominantly one kind of economic activity with a single fixed location."
Management Practice
Petitioner also insists that the Bank has adopted a uniform wage policy, which has attained the status of an
established management practice; thus, it is estopped from implementing a wage order for a specific region
only. We are not persuaded. Said nationwide uniform wage policy of the Bank had been adopted prior to the
enactment of RA 6727. After the passage of said law, the Bank was mandated to regionalize its wage structure.
Although the Bank implemented Wage Order Nos. NCR-01 and NCR-02 nationwide instead of regionally even
after the effectivity of RA 6727, the Bank at the time was still uncertain about how to follow the new law. In any
event, that single instance cannot be constitutive of "management practice."
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioner.
SO ORDERED.

NON-DIMINUTION OF BENEFITS

PHIL. JOURNALIST, INC. VS JOURNAL EMPLOYEES UNION, FOR MICHAEL ALFANTE

G.R. No. 192601, June 3, 2013

Summary Labor Standards Concepts

Michael Alfante was illegally dismissed due to
his opposition with the newly appointed
supervisor of the Management Information
System Department. He claims for funeral and
bereavement aid from his employer and was
deprived of it by his employer in violation of
Article 100 of the Labor Code.
Pursuant to Article 100 of the Labor Code,
petitioner as the employer could not reduce,
diminish, discontinue or eliminate any benefit
and supplement being enjoyed by or granted to
its employees. This prohibition against the
diminution of benefits is founded on the
constitutional mandate to protect the rights of
workers and to promote their welfare and to
afford labor full protection. The application of
the prohibition against the diminution of benefits
presupposes that a company practice, policy or
tradition favorable to the employees has been
clearly established; and that the payments
made by the employer pursuant to the practice,
policy, or tradition have ripened into benefits
enjoyed by them. To be considered as a
practice, policy or tradition, however, the giving
of the benefits should have been done over a
long period of time, and must be shown to have
been consistent and deliberate.

FACTS:
In the case of Judith Pulido:
 Was hired as proofreader on January 10, 1991 with a salary of Php 15, 493.66 plus Php 155 longetivity
pay and other benefits granted by law and the CBA
As the president of the Union, she sent President Gloria Macapagal-Arroyo two letters regarding the
mismanagement of the PIJ Executive; The letter was endorsed to Ombudsman Simeon V. Marcelo which
started the harassments from the respondents.
Received a letter from Fundador Soriano on May 30, 2003 regarding her attendance record; submitted
a reply on June 2, 2003
Received a memorandum of reprimand on June 6,2003
Received memorandum from Mr. Soriano for not wearing her ID; she immediately relied on the next day
July 5
Received memo regarding her tardiness on August 4,2003
August 5: Received memorandum asking her to explain why he should not be accused of fraud; she
replied on August 7
August 7, 2003, between 3:00-4:00pm, she was handed her termination paper by Mr. Ernesto San
Agustin
In the case of Michael Alfante:
Started to work with respondents as Computer Technician at Management Information System under
Neri Torrecampo
Regularized on July 15,2001 with monthly salary of Php 9,070 plus other monetary benefits.
Sometime in 2001, Rico Pagkalinawan replaced Torrecampo which was objected by Alfante
On October 22, 2002, Alfante received a memorandum regarding his excessive tardiness
On June 10, 2003, received a memorandum from Executive Vice President Arnold Banares requiring
him to explain his side on the evaluation of his performance
One week after submission, he was handed his notice of dismissal on the ground of poor performance;
was dismissed effectively on July 28,2003

Both Pulido and Alfante averred that they were dismissed without just cause and non-adjustment of longetivity
pay and burial aid.

LA: Judith Puliod had been illegally dismissed and is entitled to reinstatement and backwages amounting to
Php 294, 379.54. The charge of illegal dismissal by Alfante is dismissed for lack of merit
Alfante, joined by the Journal Employees Union, filed a partial appeal in NLRC.
NLRC: Dismissed the partial appeal for lack of merit.
CA: The petition is PARTLY GRANTED. The Resolutions are MODIFIED insofar as the funeral or bereavement
aid is concerned, is GRANTED, but only after submission of conclusive proofs that the deceased is a parent,
either father or mother, of the employees concerned, as well as the death certificate to establish the fact of
death of the deceased legal dependent.

JEU and Alfante appealed to the court to challenge the CAs disposition regarding the legality of (a) Alfantes
dismissal, (b) non-compliance with Minimum Wage Order No. 9 and (c) the non-payment of the rest day.

SC: Denied due to failure to sufficiently show that CA committed any reversible error.
Petitioner appealed seeking to review CAs disposition in granting the funeral and bereavement aid stipulated
in CBA.
ISSUE: Whether or not petitioners denial of respondents claims for funeral and bereavement aid granted under
Section 4, Article XIII of their CBA constituted diminution of benefits in violation of Article 100 of the Labor Code

HELD:
The Court affirms the decision of the CA. The petition for review lacks merit.
A conflict has arisen regarding the interpretation of the term legal department in connection with he grant
of funeral and bereavement aid to a regular employee under Section 4, Article XIII of the CBA, which stipulates:

SECTION 4. Funeral/Bereavement Aid. The COMPANY agrees to

grant a funeral/bereavement aid in the following instances:
a. Death of a regular employee in line of duty P50,000
b. Death of a regular employee not in line of duty P40,000
c. Death of legal dependent of a regular employee P15,000.
(Emphasis supplied)

From the statutory definitions of legal dependent, civil status of the employee as either married or single is not
the controlling consideration in order that a person may qualify as the employees legal dependent. What is
rather decidedly controlling is the fact that the spouse, child, or parent is actually dependent for support upon
the employee. Considering that Section 4, Article XIII of the CBA has not included the differentiation of primary
and secondary dependents; petitioner had no basis to deny the claim for funeral and bereavement aid of Alfante
for the death of his parent whose death and fact of legal dependency on him could be substantially proved.

Pursuant to Article 100 of the Labor Code, petitioner as the employer could not reduce, diminish, discontinue or
eliminate any benefit and supplement being enjoyed by or granted to its employees. This prohibition against the
diminution of benefits is founded on the constitutional mandate to protect the rights of workers and to promote
their welfare and to afford labor full protection. The application of the prohibition against the diminution of benefits
presupposes that a company practice, policy or tradition favorable to the employees has been clearly
established; and that the payments made by the employer pursuant to the practice, policy, or tradition have
ripened into benefits enjoyed by them. To be considered as a practice, policy or tradition, however, the giving of
the benefits should have been done over a long period of time, and must be shown to have been consistent and
deliberate.

The voluntariness of the grant of the benefit became manifest from petitioners admission that, despite the
memorandum it issued in 2003 in order to correct the interpretation of the term legal dependent, it still approved
in 2003 the claims for funeral and bereavement aid of two employees, namely: (a) Cecille Bulacan, for the death
of her father; and (b) Charito Cartel, for the death of her mother, based on its supposedly mistaken interpretation.
It is further worthy to note that petitioner granted claims for funeral and bereavement aid as early as 1999, then
issued a memorandum in 2000 to correct its erroneous interpretation of legal dependent under Section 4, Article
XIII of the CBA. With that, the denial of Alfante's qualified claim for such benefit pursuant to Section 4,
Article XIII of the CBA violated the law prohibiting the diminution of benefits.

OCTAVIO vs. PLDT

Petitioner: Carlos
Respondent: Philippine Long Distance Telephone Company
Docket No.: G.R. No. 175492
Date of Promulgation: February 27, 2013
Ponente: Del Castillo, J.
Summary
Every Collective Bargaining Agreement (CBA)
shall provide a grievance machinery to which all
disputes arising from its implementation or
interpretation will be subjected to compulsory
negotiations. This essential feature of a CBA
provides the parties with a simple, inexpensive
and expedient system of finding reasonable
and acceptable solutions to disputes and helps
in the attainment of a sound and stable
industrial peace.
L. Octavio
Labor Standards Concepts
Grievance Procedures & Collective Bargaining
Agreements (CBA):
Under Article 260 of the Labor Code,
grievances arising from the interpretation or
implementation of the parties Collective
Bargaining Agreement should be resolved in
accordance with the grievance procedure
embodied therein. Under Article 260 of the
Labor Code, grievances arising from the
interpretation or implementation of the parties
CBA should be resolved in accordance with the
grievance procedure embodied therein. It also
provides that all unsettled grievances shall be
automatically referred for voluntary arbitration
as prescribed in the CBA.
Grievance Procedures:
When parties have validly agreed on a
procedure for resolving grievances and to
submit a dispute to voluntary arbitration then
that procedure should be strictly observed.
Moreover, we have held time and again that
before a party is allowed to seek the
intervention of the court, it is a precondition that
he should have availed of all the means of
administrative processes afforded him. It is
settled that when parties have validly agreed
on a procedure for resolving grievances and to
submit a dispute to voluntary arbitration then
that procedure should be strictly observed.
Moreover, we have held time and again that
before a party is allowed to seek the
intervention of the court, it is a precondition that
he should have availed of all the means of
administrative processes afforded him. Hence,
if a remedy within the administrative machinery
can still be resorted to by giving the
administrative officer concerned every
opportunity to decide on a matter that comes
within his jurisdiction [,then] such remedy
should be exhausted first before the courts
 judicial power can be sought. The premature
invocation of [the] courts judicial intervention is
fatal to ones cause of action. The underlying
principle of the rule on exhaustion of
administrative remedies rests on the
presumption that when the administrative body,
or grievance machinery, is afforded a chance to
pass upon the matter, it will decide the same
correctly.

FACTS:
Petition for Review on Certiorari.
May 28, 1999
o PLDT and Gabay ng Unyon sa Telekominaksyon ng mga Superbisor (GUTS) entered into a CBA
covering the period January 1, 1999 to December 31, 2001 (CBA of 1999-2001).
o Article VI, Section I thereof provides:
Section 1. The COMPANY agrees to grant the following across-the board salary increase during the three years
covered by this Agreement to all employees covered by the bargaining unit as of the given dates:
1. Effective January 1, 1999 10% of basic wage or P2,000.00 whichever is higher
2. Effective January 1, 2000 11% of basic wage or P2,250.00 whichever is higher
3. Effective January 1, 2001 12% of basic wage or P2,500.00 whichever is higher
October 1, 2000
o PLDT hired Octavio as Sales System Analyst I on a probationary status.
o He became a member of GUTS.
January 1, 2001
o Octavio was regularized and was receiving a monthly basic salary of P10,000.00.
February 1, 2002
o Octavio was promoted to the position of Sales System Analyst 2 and his salary was increased
to P13,730.00.
May 31, 2002
o PLDT and GUTS entered into another CBA covering the period January 1, 2002 to December
31, 2004 (CBA of 2002-2004) which provided for the following salary increases:
1. 8% of basic wage or P2,000.00 whichever is higher for the first year (2002)
2. 10% of basic wage or P2,700.00 whichever is higher for the second year (2003)
3. 10% of basic wage or P2,400.00 whichever is higher for the third year (2004)
However, Octavio claimed that he was not given the salary increases of P2,500.00 effective January 1,
2001 and P2,000.00 effective January 1, 2002.
He, then, wrote the President of GUTS, Adolfo Fajardo (Fajardo).
Acting thereon and on similar grievances from other GUTS members, Fajardo wrote the PLDT Human
Resource Head to inform management of the GUTS members claim for entitlement to the across-the-
board salary increases.
October 7, 2002
 o The Grievance Committee convened on consisting of representatives from PLDT and GUTS.
Labor Arbiters Level
o Octavio claimed that he was entitled to the salary increases per the CBAs agreed upon. However,
PLDT refuses to grant him such increases and such results to his diminution of benefits. He also
averred that PLDT committed an act of unfair labor practice for granting the claim for salary
increase of 18 supervisory employees who were regularized on January 1, 2002 and onwards, it
discriminated against him by refusing to grant him the same salary increase. He prayed for an
additional award of damages and attorneys fees.
o PLDT countered that the issues advanced by Octavio had already been resolved by the Union-
Management Grievance Committee. Moreover, they stated that their act do not constitute an act
of unfair labor practice as would result in any discrimination or encourage or discourage
membership in a labor organization. In fact, they considered the same as the most practicable
and reasonable solution for both management and union. PLDT also claimed that the NLRC has
no jurisdiction to hear and decide Octavios claims.
o August 30, 2004 Decision
Labor Arbiter dismissed the Complaint of Octavio and upheld the Committee Resolution.
NLRCs Level
o September 30, 2005
NLRC affirmed the Labor Arbiters Decision.
NLRCs findings states that the salary of Octavio has been adjusted accordingly.
NLRC also ruled that it has no jurisdiction to decide the issues presented by Octavio, as
the same involved the interpretation and implementation of the CBA.
o November 21, 2005
o Octavios Motion for Reconsideration was likewise dismissed.
Court of Appeals Level
o Octavio filed a Petition for Certiorari which the CA found to be without merit.
o August 31, 2006
CA declared the Committee Resolution to be binding on Octavio, he being a member of
GUTS, and because he failed to question its validity and enforceability.
o November 15, 2006
CA denied his Motion for Reconsideration.

ISSUE:
Whether or not the decision of the Grievance Committee is binding in this case and that the LA, NLRC and CA
made an error in its judgment.

HELD:
YES. The Committees decision is binding.
Under Article 260 of the Labor Code, grievances arising from the interpretation or implementation of the parties
CBA should be resolved in accordance with the grievance procedure embodied therein. It also provides that all
unsettled grievances shall be automatically referred for voluntary arbitration as prescribed in the CBA.
Indisputably, the present controversy involves the determination of an employees salary increases as provided
in the CBAs. When Octavios claim for salary increases was referred to the Union-Management Grievance
Committee, the clear intention of the parties was to resolve their differences on the proper interpretation and
implementation of the pertinent provisions of the CBAs. And in accordance with the procedure prescribed
therein, the said committee made up of representatives of both the union and the management convened.
Unfortunately, it failed to reach an agreement. Octavios recourse pursuant to the CBA was to elevate his
grievance to the Board of Arbitrators for final decision. Instead, nine months later, Octavio filed a Complaint
before the NLRC.
It is settled that "when parties have validly agreed on a procedure for resolving grievances and to submit a
dispute to voluntary arbitration then that procedure should be strictly observed." Moreover, the Court held time
and again that "before a party is allowed to seek the intervention of the court, it is a precondition that he should
have availed of all the means of administrative processes afforded him. Hence, if a remedy within the
administrative machinery can still be resorted to by giving the administrative officer concerned every opportunity
to decide on a matter that comes within his jurisdiction, then such remedy should be exhausted first before the
courts judicial power can be sought. The premature invocation of the courts judicial intervention is fatal to ones
cause of action." "The underlying principle of the rule on exhaustion of administrative remedies rests on the
presumption that when the administrative body, or grievance machinery, is afforded a chance to pass upon the
matter, it will decide the same correctly."
By failing to question the Committee Resolution through the proper procedure prescribed in the CBA, that is, by
raising the same before a Board of Arbitrators, Octavio is deemed to have waived his right to question the same.
Clearly, he departed from the grievance procedure mandated in the CBA and denied the Board of Arbitrators
the opportunity to pass upon a matter over which it has jurisdiction. Hence, and as correctly held by the CA,
Octavios failure to assail the validity and enforceability of the Committee Resolution makes the same binding
upon him. On this score alone, Octavios recourse to the labor tribunals below, as well as to the CA, and, finally,
to this Court, must therefore fail.
At any rate, Octavio cannot claim that the Committee Resolution is not valid, binding and conclusive as to him
for being a modification of the CBA in violation of Article 253 of the Labor Code. It bears to stress that the said
resolution is a product of the grievance procedure outlined in the CBA itself. It was arrived at after the
management and the union through their respective representatives conducted negotiations in accordance with
the CBA. On the other hand, Octavio never assailed the competence of the grievance committee to take
cognizance of his case. Neither did he question the authority or credibility of the union representatives; hence,
the latter are deemed to have properly bargained on his behalf since "unions are the agent of its members for
the purpose of securing just and fair wages and good working conditions." In fine, it cannot be gainsaid that the
Committee Resolution is a modification of the CBA. Rather, it only provides for the proper implementation of the
CBA provision respecting salary increases.
Finally, Octavios argument that the denial of his claim for salary increases constitutes a violation of Article 100of
the Labor Code is devoid of merit. Even assuming that there has been a diminution of benefits on his part, Article
100 does not prohibit a union from offering and agreeing to reduce wages and benefits of the employees as the
right to free collective bargaining includes the right to suspend it. PLDT averred that one of the reasons why
Octavios salary was recomputed as to include in his salary of P13,730.00 the P2,000.00 increase for 2002 is to
avoid salary distortion. At this point, it is well to emphasize that bargaining should not be equated to an
"adversarial litigation where rights and obligations are delineated and remedies applied. Instead, it covers a
process of finding a reasonable and acceptable solution to stabilize labor-management relations to promote
stable industrial peace. Clearly, the Committee Resolution was arrived at after considering the intention of both
PLDT and GUTS to foster industrial peace.
The LA, NLRC and CA committed no error in affirming the Committees decision.
Hence, current petition is denied.

ROYAL PLANT WORKERS UNION, vs. COCA-COLA BOTTLERS PHILIPPINES, INC.-CEBU PLANT
Summary Labor Standards Concepts
 The issue of the removal of chairs in the bottling Management prerogatives:
plant of Coca-Cola Bottlers Philippines, Inc. 1. That it was part of its inherent right to
(CCBPI). The Court held that removal of the control and manage its enterprise
chair is a valid exercise of Management effectively
Prerogative and Benefits under Article 100 of
2. That since it was the employers
the Labor Code only refers to monetary
discretion to constantly develop
equivalents.
measures or means to optimize the
efficiency of its employees and to keep
its machineries and equipment in the
best of conditions, it was only
appropriate that it should be given wide
latitude in exercising it.
The operators chairs cannot be considered
as one of the employee benefits covered in
Article 100 of the Labor Code. The term
"benefits" mentioned in the non-diminution rule
refers to monetary benefits or privileges given
to the employee with monetary equivalents.
Such benefits or privileges form part of the
employees wage, salary or compensation
making them enforceable obligations.

Facts:
Coca-Cola Bottlers Philippines, Inc. (CCBPI) is a domestic corporation engaged in the manufacture, sale and
distribution of softdrink products. In Cebu City, there are 20 bottling operators who work for its Bottling Line 1
while there are 12-14 bottling operators who man its Bottling Line 2. All of them are male and they are members
of herein respondent Royal Plant Workers Union (ROPWU).
The bottling operators work in two shifts.
FIRST SHIFT SECOND SHIFT
from 8 a.m. to 5 p.m from 8 a.m. to 5 p.m
The second shift varies and may end beyond eight (8) hours. However, the bottling operators are compensated
with overtime pay if the shift extends beyond eight (8) hours.
For Bottling Line 1, 10 bottling operators work for each shift while 6 to 7 bottling operators work for each shift for
Bottling Line 2.
Each shift has rotations of work time and break time.
Prior to September 2008 September 2008 and up to the present
after two and a half (2 ) hours of work, the operators are given a 30-minute break after one
bottling operators are given a 30-minute break and one half (1 ) hours of work.
and this goes on until the shift ends
In 1974, the bottling operators of then Bottling Line 2 were provided with chairs upon their request. In 1988, the
bottling operators of then Bottling Line 1 followed suit and asked to be provided also with chairs. Their request
was likewise granted.
Sometime in September 2008, the chairs provided for the operators were removed pursuant to a national
directive of petitioner. This directive is in line with the "I Operate, I Maintain, I Clean" program of petitioner for
bottling operators, wherein every bottling operator is given the responsibility to keep the machinery and
equipment assigned to him clean and safe. The program reinforces the task of bottling operators to
constantly move about in the performance of their duties and responsibilities.
With this task of moving constantly to check on the machinery and equipment assigned to him, a bottling operator
does not need a chair anymore, hence, petitioners directive to remove them. Furthermore, CCBPI rationalized
that the removal of the chairs is implemented so that the bottling operators will avoid sleeping, thus, prevent
injuries to their persons. As bottling operators are working with machines which consist of moving parts, it is
imperative that they should not fall asleep as to do so would expose them to hazards and injuries. In addition,
sleeping will hamper the efficient flow of operations as the bottling operators would be unable to perform their
duties competently.
The bottling operators took issue with the removal of the chairs. Through the representation of herein
respondent, they initiated the grievance machinery of the Collective Bargaining Agreement (CBA) in
November 2008. Even after exhausting the remedies contained in the grievance machinery, the parties were
still at a deadlock with petitioner still insisting on the removal of the chairs and respondent still against such
measure. As such, respondent sent a Notice to Arbitrate, dated 16 July 2009, to petitioner stating its position to
submit the issue on the removal of the chairs for arbitration. Nevertheless, before submitting to arbitration the
issue, both parties availed of the conciliation/mediation proceedings before the National Conciliation and
Mediation Board (NCMB) Regional Branch No. VII. They failed to arrive at an amicable settlement.
Thus, the process of arbitration continued and the parties appointed the chairperson and members of the
Arbitration Committee as outlined in the CBA. Petitioner and respondent respectively appointed as members to
the Arbitration Committee Mr. Raul A. Kapuno, Jr. and Mr. Luis Ruiz while they both chose Atty. Alice Morada
as chairperson thereof. They then executed a Submission Agreement which was accepted by the Arbitration
Committee on 01 October 2009. As contained in the Submission Agreement, the sole issue for arbitration is
whether the removal of chairs of the operators assigned at the production/manufacturing line while performing
their duties and responsibilities is valid or not.
Petitioners Argument:
The removal of the chairs is valid as it is a legitimate exercise of management prerogative, it does not violate
the Labor Code and it does not violate the CBA it contracted with the respondents.
Respondents Argument:
The bottling operators have been performing their assigned duties satisfactorily with the presence of the chairs;
the removal of the chairs constitutes a violation of the Occupational Health and Safety Standards, the policy of
the State to assure the right of workers to just and humane conditions of work as stated in Article 3 of the Labor
Code and the Global Workplace Rights Policy.
Arbitration Committee
On June 11, 2010, the Arbitration Committee rendered a decision that the removal of the operators chairs is
not valid and ordered to restore the same for the use of the operators as before their removal in 2008.
Reason for decision:
1. The use of chairs by the operators had been a company practice for 34 years in Bottling Line 2, from
1974 to 2008, and 20 years in Bottling Line 1, from 1988 to 2008; that the use of the chairs by the
operators constituted a company practice favorable to the Union; that it ripened into a benefit after it had
been enjoyed by it; that any benefit being enjoyed by the employees could not be reduced, diminished,
discontinued, or eliminated by the employer.
Law Cited:
Article 100 of the Labor Code: prohibited the diminution or elimination by the employer of the employees
benefit; and that jurisprudence had not laid down any rule requiring a specific minimum number of years before
a benefit would constitute a voluntary company practice which could not be unilaterally withdrawn by the
employer.
2. Although the removal of the chairs was done in good faith, CCBPI failed to:
a. Present evidence regarding instances of sleeping while on duty.
b. Provide specific details as to the number of incidents of sleeping on duty, who were involved, when
these incidents happened, and what actions were taken.
 c. Present evidence either of any accident or injury in the many years that the bottling operators used
chairs.
3. Efficiency is the result of many factors and it could not be attributed solely to one such as the removal of
the chairs.
Court of Appeals
On May 24, 2011, the CA held the removal of the chairs from the manufacturing/production lines by CCBPI is
within the province of management prerogatives:
3. That it was part of its inherent right to control and manage its enterprise effectively
4. That since it was the employers discretion to constantly develop measures or means to optimize the
efficiency of its employees and to keep its machineries and equipment in the best of conditions, it was
only appropriate that it should be given wide latitude in exercising it.
Reason for the Decision:
The removal of the chairs was solely motivated by the best intentions for both the Union and CCBPI, in line with
the "I Operate, I Maintain, I Clean" program for bottling operators, wherein every bottling operator was given the
responsibility to keep the machinery and equipment assigned to him clean and safe. The program would
reinforce the task of bottling operators to constantly move about in the performance of their duties and
responsibilities.
Without the chairs, the bottling operators could efficiently supervise these machineries operations and
maintenance. It would also be beneficial for them because the working time before the break in each rotation
for each shift was substantially reduced from two and a half hours (2 ) to one and a half hours (1 ) before
the 30-minute break.
This scheme was clearly advantageous to the bottling operators as the number of resting periods was
increased. CCBPI had the best intentions in removing the chairs because some bottling operators had the
propensity to fall asleep while on the job and sleeping on the job ran the risk of injury exposure and removing
them reduced the risk.
The removal of the chairs were not done for the purpose of defeating or circumventing the rights of its employees
under the special laws, the Collective Bargaining Agreement (CBA) or the general principles of justice and fair
play. It opined that the principles of justice and fair play were not violated because, when the chairs were
removed, there was a commensurate reduction of the working time for each rotation in each shift. The
provision of chairs for the bottling operators was never part of the CBAs contracted between the Union and
CCBPI. The chairs were not provided as a benefit because such matter was dependent upon the exigencies of
the work of the bottling operators. As such, CCBPI could withdraw this provision if it was not necessary in the
exigencies of the work, if it was not contributing to the efficiency of the bottling operators or if it would expose
them to some hazards.
The provision of chairs to the bottling operators cannot be covered by Article 100 of the Labor Code on
elimination or diminution of benefits because the employees benefits referred to therein mainly involved
monetary considerations or privileges converted to their monetary equivalent.
Supreme Court Ruling
The Court ruled in favor of Respondent CCBPI.
A Valid Exercise of Management Prerogative:
Management is free to regulate, according to its own discretion and judgment, all aspects of employment,
including hiring, work assignments, working methods, time, place, and manner of work, processes to be
followed, supervision of workers, working regulations, transfer of employees, work supervision, lay-off of
workers, and discipline, dismissal and recall of workers. The exercise of management prerogative, however, is
not absolute as it must be
1. The chairs were not removed indiscriminately. They were carefully studied with due regard to the welfare
of the members of the Union. The removal of the chairs was compensated by:
a) A reduction of the operating hours of the bottling operators from a two-and-one-half (2 )-hour rotation period
to a one-and-a-half (1 ) hour rotation period.
b) An increase of the break period from 15 to 30 minutes between rotations.
2. The decision to remove the chairs was done with good intentions as CCBPI wanted to avoid instances
of operators sleeping on the job while in the performance of their duties and responsibilities and because
of the fact that the chairs were not necessary considering that the operators constantly move about while
working. In short, the removal of the chairs was designed to increase work efficiency. Hence, CCBPIs
exercise of its management prerogative was made in good faith without doing any harm to the workers
rights

3. The fact that there is no proof of any operator sleeping on the job is of no moment. There is no guarantee
that such incident would never happen as sitting on a chair is relaxing. Besides, the operators constantly
move about while doing their job. The ultimate purpose is to promote work efficiency.
B. No Violation of Labor Laws
The rights of the Union under any labor law were not violated. There is no law that requires employers to
provide chairs for bottling operators. Article 132 the Labor Code only requires employers to provide seats
for women. No similar requirement is mandated for men or male workers. It must be stressed that all concerned
bottling operators in this case are men.
There was no violation either of the Health, Safety and Social Welfare Benefit provisions under Book IV
of the Labor Code of the Philippines. As shown in the foregoing, the removal of the chairs was compensated by
the reduction of the working hours and increase in the rest period. The directive did not expose the bottling
operators to safety and health hazards.
C. No Violation of the CBA.
The CBA between the Union and CCBPI contains no provision whatsoever requiring the management to
provide chairs for the operators in the production/manufacturing line while performing their duties and
responsibilities.
D. No Violation of the general principles of justice and fair play
The removal of the chairs did not violate the general principles of justice and fair play because the bottling
operators working time was considerably reduced from two and a half (2 ) hours to just one and a half (1 )
hours and the break period, when they could sit down, was increased to 30 minutes between rotations. The
bottling operators new work schedule is certainly advantageous to them because it greatly increases their rest
period and significantly decreases their working time. A break time of thirty (30) minutes after working for only
one and a half (1 ) hours is a just and fair work schedule.
E No Violation of Article 100 of the Labor Code
The operators chairs cannot be considered as one of the employee benefits covered in Article 100 of
the Labor Code. The term "benefits" mentioned in the non-diminution rule refers to monetary benefits or
privileges given to the employee with monetary equivalents.
Such benefits or privileges form part of the employees wage, salary or compensation making them enforceable
obligations.

VERGARA vs COCA-COLA
G.R. NO. 176985 : April 1, 2013

Summary Labor Standards Concepts

 The petitioner insists his entitlement on Sales
Management Incentives in the computation of
retirement benefits alleging that it is the
practice of the employer to give such benefit to
all retired DSSs. However, the petitioner failed
to establish such practice as the grant thereof
to Velasquez is just an isolated case.
Generally, employees have a vested right over
existing benefits voluntarily granted to them by
their employer. Thus, any benefit and
supplement being enjoyed by the employees
cannot be reduced, diminished, discontinued or
eliminated by the employer.15 The principle of
non-diminution of benefits is actually founded
on the Constitutional mandate to protect the
rights of workers, to promote their welfare, and
to afford them full protection.16 In turn, said
mandate is the basis of Article 4 of the Labor
Code which states that "all doubts in the
implementation and interpretation of this Code,
including its implementing rules and
regulations, shall be rendered in favor of labor."
There is diminution of benefits when the
following requisites are present: (1) the grant or
benefit is founded on a policy or has ripened
into a practice over a long period of time; (2) the
practice is consistent and deliberate; (3) the
practice is not due to error in the construction or
application of a doubtful or difficult question of
law; and (4) the diminution or discontinuance is
done unilaterally by the employer.
To be considered as a regular company
practice, the employee must prove by
substantial evidence that the giving of the
benefit is done over a long period of time, and
that it has been made consistently and
deliberately.

FACTS: Petitioner Ricardo E. Vergara, Jr. was an employee of respondent Coca-Cola Bottlers Philippines, Inc.
from May 1968 until he retired on January 31, 2002 as a District Sales Supervisor (DSS) for Las Pias City,
Metro Manila. As stipulated in respondent's existing Retirement Plan Rules and Regulations at the time, the
Annual Performance Incentive Pay of RSMs, DSSs, and SSSs shall be considered in the computation of
retirement benefits, as follows: Basic Monthly Salary + Monthly Average Performance Incentive (which is the
total performance incentive earned during the year immediately preceding 12 months) No. of Years in Service.
Claiming his entitlement to an additional PhP474,600.00 as Sales Management Incentives(SMI) and to the
amount of PhP496,016.67 which respondent allegedly deducted illegally, representing the unpaid accounts of
two dealers within his jurisdiction, petitioner filed a complaint before the NLRC on June 11, 2002 for the payment
of his "Full Retirement Benefits, Merit Increase, Commission/Incentives, Length of Service, Actual, Moral and
Exemplary Damages, and Attorney's Fees."
After a series of mandatory conference, both parties partially settled with regard the issue of merit increase and
length of service. Subsequently, they filed their respective Position Paper and Reply thereto dealing on the two
remaining issues of SMI entitlement and illegal deduction.
LA rendered a Decision in favor of petitioner, directing respondent to reimburse the amount illegally deducted
from petitioner's retirement package and to integrate therein his SMI privilege. The NLRC modified the award
and deleted the payment of SMI. On appeal, the CA dismissed petitioner's case and denied his motion for
reconsideration.
ISSUE: Whether or not the SMI should be included in the computation of petitioner's retirement benefits on the
ground of consistent company practice.
HELD: No. Generally, employees have a vested right over existing benefits voluntarily granted to them by their
employer. Thus, any benefit and supplement being enjoyed by the employees cannot be reduced, diminished,
discontinued or eliminated by the employer.15 The principle of non-diminution of benefits is actually founded on
the Constitutional mandate to protect the rights of workers, to promote their welfare, and to afford them full
protection.16 In turn, said mandate is the basis of Article 4 of the Labor Code which states that "all doubts in the
implementation and interpretation of this Code, including its implementing rules and regulations, shall be
rendered in favor of labor."
There is diminution of benefits when the following requisites are present: (1) the grant or benefit is founded on
a policy or has ripened into a practice over a long period of time; (2) the practice is consistent and deliberate;
(3) the practice is not due to error in the construction or application of a doubtful or difficult question of law; and
(4) the diminution or discontinuance is done unilaterally by the employer.
To be considered as a regular company practice, the employee must prove by substantial evidence that the
giving of the benefit is done over a long period of time, and that it has been made consistently and
deliberately.19 Jurisprudence has not laid down any hard-and-fast rule as to the length of time that company
practice should have been exercised in order to constitute voluntary employer practice. 20 The common
denominator in previously decided cases appears to be the regularity and deliberateness of the grant of benefits
over a significant period of time.21 It requires an indubitable showing that the employer agreed to continue giving
the benefit knowing fully well that the employees are not covered by any provision of the law or agreement
requiring payment thereof.22 In sum, the benefit must be characterized by regularity, voluntary and deliberate
intent of the employer to grant the benefit over a considerable period of time.
Upon review of the entire case records, we find no substantial evidence to prove that the grant of SMI to
all retired DSSs regardless of whether or not they qualify to the same had ripened into company practice.
Despite more than sufficient opportunity given him while his case was pending before the NLRC, the CA, and
even to this Court, petitioner utterly failed to adduce proof to establish his allegation that SMI has been
consistently, deliberately and voluntarily granted to all retired DSSs without any qualification or conditions
whatsoever. The only two pieces of evidence that he stubbornly presented throughout the entirety of this case
are the sworn statements of Renato C. Hidalgo (Hidalgo) and Ramon V. Velazquez (Velasquez), former DSSs
of respondent who retired in 2000 and 1998, respectively. They claimed that the SMI was included in their
retirement package even if they did not meet the sales and collection qualifiers. 24 However, juxtaposing these
with the evidence presented by respondent would reveal the frailty of their statements.
Therefore, respondent's isolated act of including the SMI in the retirement package of Velazquez could
hardly be classified as a company practice that may be considered an enforceable obligation. To repeat,
the principle against diminution of benefits is applicable only if the grant or benefit is founded on an express
policy or has ripened into a practice over a long period of time which is consistent and deliberate; it presupposes
that a company practice, policy and tradition favorable to the employees has been clearly established; and that
the payments made by the company pursuant to it have ripened into benefits enjoyed by them. 26 Certainly, a
practice or custom is, as a general rule, not a source of a legally demandable or enforceable right. 27 Company
practice, just like any other fact, habits, customs, usage or patterns of conduct, must be proven by the offering
party who must allege and establish specific, repetitive conduct that might constitute evidence of habit or
company practice.
WHEREFORE, the petition is DENIED.

Supreme Steel Corporation v. Nagkakaisang Manggagawa ng Supreme Independent Union

Facts:
 Respondent Union filed a notice of strike on the ground that petitioner corporation violated certain
provisions of the CBA. Respondent alleged eleven CBA violations stated as follows:

A. Denial to four employees of the CBA-provided wage increase

B. aContracting-out labor
C. Failure to provide shuttle service
D. Refusal to answer for the medical expenses incurred by three employees
E. Failure to comply with the time-off with pay provision
F. Visitors free access to company premises
G. Failure to comply with reporting time-off prevision
H. Dismissal of Diosdado Madayag
I. Denial of paternity leave benefit to two employees
J. Discrimination and harassment
K. Non-implementation of COLA in Wage Order Nos. RBIII-10 and 11

Respondent cited petitioners compliance with Wage Order Nos RBIII-10 and grant of the mandated
P15.00 cost of living allowance (COLA) to all its employees. Petitioner, however, stopped implementing it to
non-minimum wage earners on July 24, 2005. It contended that this violates Article 100 of the Labor Code which
prohibits the diminution of benefits had already enjoyed by the workers and that such grant of benefits had
already ripened into a company practice.

Petitioner explained that the COLA provided under Wage Order applies to minimum wage earners only
and that by employees. After realizing its mistake, it implemented the same across the board or to all its
employees. After realizing its mistake, it stopped integrating the COLA to the basic pay of the workers who were
earning above the minimum wage.

NLRCs Ruling:

Out of 11 issues raised, 8 were decided in its favor; 2 (Denial of paternity leave benefit and discrimination
of union members) were decided in favor of petitioner; while issue in visitors free access to company premises
was deemed settled during the mandatory conference.

CAs Ruling

NLRCs Ruling were Affirmed. In the issue of Non-implementation of COLA, it pointed out that there was
no ambiguity or doubt as to who were covered by the wage order. Petitioner, therefore, may not invoke error or
mistake in extending the COLA to all employees and such act can only be construed as as a voluntary act on
the part of the employer.

Issue: W/N petitioners should continue to implement COLA to non-minimum wage earners.
Held:
 No. the SC dismissed the claim for implementation of Wage Order Nos. RBIII-10 and 11 to the employees
who are not minimum wage earners.

Diminution of benefits is the unilateral withdrawal by the employer of benefits already enjoyed by the
employees. There is diminution of benefits when it is shown that:
(1) the grant or benefit is founded on a policy or has ripened into a practice over a long period of time;
(2) the practice is consistent and deliberate;
(3) the practice is not due to error in the construction or application of a doubtful or difficult question of law; and
(4) the diminution or discontinuance is done unilaterally by the employer.

The fact that the practice should have been practiced over a long period of time, whereas in this case,
implementation of COLA only lasted for less than a year. Additionally, it must not have been due to error in the
construction or application of a doubtful or difficult question of law. Respondent failed to prove repetitive conduct
that might constitute evidence of the practice.

UE V UEEA GR. NO. 179593

Summary Labor Standards Concepts

Employees have a vested right over existing
benefits voluntarily granted to them by their
employer, thus, said benefits cannot be
reduced, diminished, discontinued or
eliminated by the latter. This principle against
diminution of benefits, however, is applicable
only if the grant or benefit is founded on an
express policy or has ripened into a practice
over a long period of time which is consistent
and deliberate
Grant by an employer of benefits through an
erroneous application of the law due to absence of
clear administrative guidelines is not considered a
voluntary act which cannot be unilaterally
discontinued
Article 291 of the Labor Code provides that money
claims arising from an employer-employee
relationship must be filed within three (3) years from
the time the cause of action accrued.

Facts:

Prior to school year (SY) 1983-1984, the 70% incremental proceeds from tuition fee increases as mandated by
Presidential Decree No. 451 (P.D. No. 451), as amended, was distributed by petitioner UE in proportion to the
average number of academic and non-academic personnel. The distribution scheme became the subject of an
Agreement signed by the management, faculty association and respondent. Starting SY 1994-1995, however,
the 70% incremental proceeds from the tuition fee increase was distributed by UE to its covered employees
based on a new formula of percentage of salary.
Not in conformity, UEEA, sent a letter[ to then UE President, questioning the manner of distribution of the
employees share in the 1994-1995 tuition fee increase. UEEA questioned the University unilaterally institution
of partial distribution of FIVE PERCENT (5%) only of the basic wage of employees, faculty members and
administration personnel. For UEEA this was quite irregular and unfair because they had all along instituted the
practice of having a Tripartite Meeting where the three (3) sectors involved, i.e. management, faculty and
employees representatives go over the incremental proceeds that have been realized and come to an
agreement on the distribution of the share whether partial or total in nature; second, the accepted and traditional
practice was that for every 1.00 per share of faculty members based on the full load equivalent, management
personnel and rank-and-file employees receive 100.00 a month; third, using as a basis 5% of the wages of
University personnel entitled besides being a departure from past practices, creates that unfair situation where
those who have higher salaries receive more to the prejudice of low salaried employees and faculty members;
lastly, the existing Tripartite Agreement clearly specifies the agreed manner of distribution. Thus, it qualifies the
distribution or manner of remittance thereof with the phrase (except where it forms part of a collective bargaining
agreement but accrues to school personnel in any case), the UNIVERSITY agrees to continue the
implementation of all benefits enjoyed by the employees not embodied herein and are the subject of
communication between the UNIVERSITY and the ASSOCIATION provided they are not inconsistent with the
provisions of the Agreement or of the Labor Code.
A tripartite meeting was held among the representatives of management, faculty union and UEEA. In the said
meeting, it was agreed that the distribution of the incremental proceeds would now be based on percentage of
salary, and not anymore on the average number of personnel.

UEEA filed a complaint before the NLRC for non-payment/underpayment of the rank-and-file employees share
of the tuition fee increases against UE pursuant to P.D. No. 451, as amended, and Republic Act (R.A.) No. 6728
otherwise known as Government Assistance to Students and Teachers in Private Education Act.

UEEA alleged that starting SY 1994-1995, UE had been withholding from the rank-and-file employees a sizeable
portion of their share in the tuition fee increases as mandated by P.D. No. 451, as amended. It asserted that
before SY 1994-1995, shares of tuition fee increases were distributed proportionately among the management,
faculty and rank-and-file employees based on equal sharing or on a share-and-share alike basis. In SY 1994-
1995, however, UE arbitrarily and unilaterally distributed the tuition fee increase proceeds through percentage
based on salaries, thereby reducing the shares of the rank-and-file employees, while increasing those of the
management personnel.

UE denied that the implementation of the new scheme in the distribution of the 70% incremental proceeds
derived from tuition fee increases starting SY 1994-1995 was made arbitrarily and/or unilaterally. It explained
that the distribution scheme was only implemented after inquiry from the Department of Education, Culture and
Sports (DECS) regarding the provision of R.A. No. 6728. DECS explained that the law was silent on the manner
of the distribution of the 70% incremental proceeds and stated that discretion in the distribution was vested in
the school authorities. What the law clearly required was that the incremental proceeds from the tuition fee
increases should be allocated for the payment of salaries/wages, allowances and other benefits of the teaching
and non-teaching personnel except the administrators who were principal stockholders of the school. Thus, UE
insisted that it may distribute the entire 70% incremental proceeds for an across-the-board salary increase, or
for merit increase, or for allowances and other employment benefits. Furthermore, UE pointed out that the new
distribution scheme was implemented after a tripartite meeting among the representatives of the management.
Lastly, UE asserted that the claim of the UEEA was already barred since it was filed three (3) years from the
time its supposed cause of action accrued.

Labor Arbiter rendered a decision favoring UEEA ordering the respondent University of the East, to pay the
members of University of the East Employees Association (UEEA) the amount of TWENTY-FIVE MILLION
SEVEN HUNDRED FORTY-NINE THOUSAND NINE HUNDRED NINETY-FIVE PESOS AND 40/100
(25,749,995.40). It ruled that the equal sharing distribution scheme in relation to the incremental proceeds from
the tuition fee increases had been adopted as a matter of policy by UE since 1983 and was made part of its
collective bargaining agreement with the UEEA. In addition, the LA noted that the existence of the said policy or
practice in the university was made part of the tripartite agreement dated October 18, 1983, among UE, UEFA
and UEEA. There was no evidence on record that the said agreement was superseded by another agreement
between UE and UEEA. Furthermore, UEs reliance on the letter-reply of then DECS Secretary Armand V.
Fabella was misplaced as the law imposed a limitation on the extent of the discretionary authority given to the
school officials such as when the disposition had been agreed upon in a collective bargaining agreement. The
LA concluded that UE was legally bound to keep and maintain the established practice of distributing equally
among its employees the incremental proceeds from the tuition fee increases particularly in light of the aforesaid
tripartite agreement and the provisions of Article XX, Section 5 of the UE-UEEA collective bargaining agreement.

Undaunted, UE interposed an appeal before the NLRC. NLRC, dismissed the appeal and sustained the LA
decision. It gave due course to the second motion for reconsideration, reversed its earlier ruling and declared
valid the distribution of the 70% incremental proceeds from tuition fee increases based on the percentage of
salary of the covered employees.

Aggrieved, UEEA filed a petition before the CA. The appellate court granted the petition and set aside the
questioned decision and resolution of the NLRC. The CA declared that since the second motion for
reconsideration was a prohibited pleading, it did not interrupt the running of the reglementary period. Therefore,
the NLRC Resolution dated August 24, 2004 became final and executory after ten (10) days from receipt of the
copy thereof by the parties. Accordingly, the said resolution had attained finality and could no longer be modified
in any respect, even if the modification was meant to correct what was perceived to be an erroneous conclusion
of fact or law.

Issue:
Whether or not the change in the scheme of distribution of the incremental proceeds from tuition fee increase
is a diminution of benefit.

Held:

The Court finds the position of the petitioner meritorious.

The Court agrees with petitioner UE that the change in the distribution of the 70% incremental proceeds from
tuition fee increase from equal sharing to percentage of salaries is not a diminution of benefits. Its distribution to
covered employees based on equal sharing scheme cannot be considered to have ripened into a company
practice that the respondents have a right to demand.

Generally, employees have a vested right over existing benefits voluntarily granted to them by their employer,
thus, said benefits cannot be reduced, diminished, discontinued or eliminated by the latter. This principle against
diminution of benefits, however, is applicable only if the grant or benefit is founded on an express policy or has
ripened into a practice over a long period of time which is consistent and deliberate. It does not contemplate the
continuous grant of unauthorized or irregular compensation but it presupposes that a company practice, policy
and tradition favourable to the employees has been clearly established; and that the payments made by the
company pursuant to it have ripened into benefits enjoyed by the.] The test or rationale of this rule on long
practice requires an indubitable showing that the employer agreed to continue giving the benefits knowing fully
well that said employees are not covered by the law requiring payment thereof. In sum, the benefit must be
characterized by regularity, voluntary and deliberate intent of the employer to grant the benefits over a significant
period of time.

In the case at bench, contrary to UEEAs claim, the distribution of the 70% incremental proceeds based on equal
sharing scheme cannot be held to have ripened into a company practice that the respondents have a right to
demand. Jurisprudence is replete with the rule specifying a minimum number of years within which a company
practice must be exercised in order to constitute voluntary company practice. Even if UE had been continuously
distributing the 70% incremental proceeds based on equal sharing scheme to all its covered employees, the
same could not have ripened into a vested right because such grant would not have been characterized by a
deliberate and voluntary act on the part of the petitioner.

As pronounced by the Court in the case of Globe Mackay Cable and Radio Corporation v. NLRC,[35] the grant
by an employer of benefits through an erroneous application of the law due to absence of clear administrative
guidelines is not considered a voluntary act which cannot be unilaterally discontinued. Here, no vested rights
accrued to respondents. R.A. No. 6728 simply mandates that the 70% incremental proceeds arising from tuition
fee increases should go to the payment of salaries, wages, allowances, and other benefits of the teaching and
non-teaching personnel except administrators who are principal stockholders of the school. As to the manner of
its distribution, however, the law is silent. The letter[ of then DECS Secretary Armand Fabella, correctly stated
that the discretion on what distribution scheme to adopt is vested upon the school authorities. In fact, the school
can distribute the entire 70% for an across-the-board salary increase, for merit increase and/or for allowances
or other benefits. The only limitations provided are [1] the benefit must accrue to specific individual school
personnel; and [2] the benefit once given for a specific year cannot be revoked for that same year.

Consequently, a tripartite meeting was held on June 19, 1995. Clearly, the said agreement only pertains to the
distribution of incremental proceeds for SY 1982-83. Besides, such agreement is deemed superseded by
another agreement taken up during tripartite meeting held on June 19, 1995.

The Court agrees with UE and holds that UEEAs right to question the distribution of the incremental proceeds
for SY 1994-1995 has already prescribed. Article 291 of the Labor Code provides that money claims arising
from an employer-employee relationship must be filed within three (3) years from the time the cause of action
accrued. In the present case, the cause of action accrued when the distribution of the incremental proceeds
based on percentage of salary of the covered employees was discussed in the tripartite meeting held on June
19, 1995. UEEA did not question the manner of its distribution and only on April 27, 1999 did it file an action
based therein. Hence, prescription had set in.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP
No. 90740 are REVERSED and SET ASIDE. The Decision of the National Labor Relations Commission
dated February 28, 2005 is REINSTATED.

GENESIS v. UNYON
G.R. No. 182114, April 5, 2010, 617 SCRA 352

Summary Labor Standards Concepts

Juan Taroy claims that the deduction on tollgate
fees from his weekly earnings are illegal and
contrary to company practice. The Court ruled
in favour of Taroy, the rule on company
practice is generally used with respect to the
grant of additional benefits to employees, not
on issues involving diminution of benefits.
The invocation of the rule on company
practice is generally used with respect to the
grant of additional benefits to employees, not
on issues involving diminution of benefits.
Issues not raised below cannot be raised for the
first time on appeal. Genesis Transport Service,
 Inc. vs. Unyon ng Malayang Manggagawa ng
Genesis Transport.

If the suspension exceeds the 30-day period

without any corresponding action on the part of
the employer, the employer must reinstate the
employee or extend the period of suspension,
provided the employees wages and benefits
are paid in the interim.

Facts: Juan Taroy was hired by petitioner Genesis Transport as a driver on commission basis on February 2,
1992. He was dismissed after due notice and hearing on May 10, 2002, after an accident on April 20, 2002
where it was found that he had been driving recklessly.

He filed on June 7, 2002 for illegal dismissal and payment of service incentive leave, unfair labor practice, and
reimbursement of illegal deductions on tollgate fees. He stated that petitioner deducted from his weekly earnings
an amount ranging from P160 to P190 representing toll fees, without his consent and written authorization as
required by Article 113 of the Labor Code and contrary to company practice.

Labor Arbiter: Taroys dismissal was on a valid cause. Petitioner complied with the twin requirements of notice
and hearing. However, LA ordered Petitioner to refund to complainant the underpayment/differential due to him
as a result of the deduction of the tollgate fees from the gross receipts and attorneys fees.
NLRC: Affirmed LAs decision with modification. It deleted the award on attorneys fees.
CA: Affirmed LAs decision to refund Taroy underpayment.

Issue: WON petitioner should refund Taroys underpayment as a result of the deduction of the tollgate fees.

Ruling: Yes. Albeit the amounts representing tollgate fees were deducted from gross revenues and not directly
from Taroys commissions, the labor tribunal and the appellate court correctly held that the withholding of those
amounts reduced the amount from which Taroys 9% commission would be computed. Such a computation not
only marks a change in the method of payment of wages, resulting in a diminution of Taroys wages in violation
of Article 113 vis--vis Article 100 of the Labor Code, as amended. It need not be underlined that without Taroys
written consent or authorization, the deduction is considered illegal.

Besides, the invocation of the rule on company practice is generally used with respect to the grant
of additional benefits to employees, not on issues involving diminution of benefits.

ARCO METAL VS SAMAHAN

G.R. No. 170734
May 14, 2008
Ponente: TINGA, J.:

SUMMARY Labor Standards Concepts

 Petitioner paid the 13th month pay, bonus, and
leave encashment to 3 union members in
amounts proportional to the service they
actually rendered in a year, which is less than a
full twelve (12) months the respondent
protested the prorated scheme, according to
respondent, the prorated payment violates the
rule against diminution of benefits under Article
100 of the Labor Code. The petition was denied
and the previous ruling of the Court of Appeals
favoring the respondent was Affirmed.
Principle of non-diminution of benefits
isfounded on the Constitutional mandate to
"protect the rights of workers and promote their
welfare, and to afford labor full protection.
Said mandate in turn is the basis of Article 4 of
the Labor Code which states that all doubts in
the implementation and interpretation of this
Code, including its implementing rules and
regulations shall be rendered in favor of labor.

Facts: Petitioner is a company engaged in the manufacture of metal products, whereas respondent is the labor
union of petitioners rank and file employees. Sometime in December 2003, petitioner paid the 13th month pay,
bonus, and leave encashment of three union members in amounts proportional to the service they actually
rendered in a year, which is less than a full twelve (12) months.
Respondent protested the prorated scheme, claiming that on several occasions petitioner did not prorate the
payment of the same benefits to seven (7) employees who had not served for the full 12 months. The payments
were made in 1992, 1993, 1994, 1996, 1999, 2003, and 2004. According to respondent, the prorated payment
violates the rule against diminution of benefits under Article 100 of the Labor Code. Thus, they filed a complaint
before the National Conciliation and Mediation Board (NCMB). The parties submitted the case for voluntary
arbitration.
Voluntary arbitrator: Ruled in favor of petitioner and found that the giving of the contested benefits in full,
irrespective of the actual service rendered within one year has not ripened into a practice. He noted the affidavit
of Joselito Baingan, manufacturing group head of petitioner, which states that the giving in full of the benefit was
a mere error. He also interpreted the phrase for each year of service found in the pertinent CBA provisions to
mean that an employee must have rendered one year of service in order to be entitled to the full benefits provided
in the CBA.
Court of Appeals: Ruled that the CBA did not intend to foreclose the application of prorated payments of leave
benefits to covered employees. The appellate court found that petitioner, however, had an existing voluntary
practice of paying the aforesaid benefits in full to its employees, thereby rejecting the claim that petitioner erred
in paying full benefits to its seven employees. The appellate court noted that aside from the affidavit of
petitioners officer, it has not presented any evidence in support of its position that it has no voluntary practice
of granting the contested benefits in full and without regard to the service actually rendered within the year. It
also questioned why it took petitioner eleven (11) years before it was able to discover the alleged error.
Petitioner moved for the reconsideration of the decision but its motion was denied, hence this petition.
Issue: Whether or not the grant of 13th month pay, bonus, and leave encashment in full regardless of actual
service rendered constitutes voluntary employer practice and, consequently, the prorated payment of the said
benefits does not constitute diminution of benefits under Article 100 of the Labor Code.
Held: Any benefit and supplement being enjoyed by employees cannot be reduced, diminished, discontinued
or eliminated by the employer.
The principle of non-diminution of benefits is founded on the Constitutional mandate to "protect the rights of
workers and promote their welfare, and to afford labor full protection. Said mandate in turn is the basis of
Article 4 of the Labor Code which states that all doubts in the implementation and interpretation of this Code,
including its implementing rules and regulations shall be rendered in favor of labor.
Jurisprudence is replete with cases which recognize the right of employees to benefits which were voluntarily
given by the employer and which ripened into company practice. Thus in Davao Fruits Corporation v. Associated
Labor Unions, et al. where an employer had freely and continuously included in the computation of the 13th
month pay those items that were expressly excluded by the law, we held that the act which was favorable to
the employees though not conforming to law had thus ripened into a practice and could not be withdrawn,
reduced, diminished, discontinued or eliminated. In Sevilla Trading Company v. Semana, we ruled that the
employers act of including non-basic benefits in the computation of the 13th month pay was a voluntary act and
had ripened into a company practice which cannot be peremptorily withdrawn.
Meanwhile in Davao Integrated Port Stevedoring Services v. Abarquez, the Court ordered the payment of the
cash equivalent of the unenjoyed sick leave benefits to its intermittent workers after finding that said workers
had received these benefits for almost four years until the grant was stopped due to a different interpretation of
the CBA provisions. We held that the employer cannot unilaterally withdraw the existing privilege of
commutation or conversion to cash given to said workers, and as also noted that the employer had in fact
granted and paid said cash equivalent of the unenjoyed portion of the sick leave benefits to some intermittent
workers.
In the years 1992, 1993, 1994, 1999, 2002 and 2003, petitioner had adopted a policy of freely, voluntarily and
consistently granting full benefits to its employees regardless of the length of service rendered. True, there were
only a total of seven employees who benefited from such a practice, but it was an established practice
nonetheless.
Jurisprudence has not laid down any rule specifying a minimum number of years within which a company
practice must be exercised in order to constitute voluntary company practice.[20] Thus, it can be six (6)
years,[21] three (3) years,[22] or even as short as two (2) years.[23] Petitioner cannot shirk away from its
responsibility by merely claiming that it was a mistake or an error, supported only by an affidavit of its
manufacturing group head.
In cases involving money claims of employees, the employer has the burden of proving that the employees
did receive the wages and benefits and that the same were paid in accordance with law.
IN VIEW HEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 85089
dated 29 September 2005 is and its Resolution dated 9 December 2005 are hereby AFFIRMED.

TSPIC CORPORATION vs. TSPIC EMPLOYEES UNION

G.R No. 163419. February 13, 2008
Summary
A Collective Bargaining Agreement (CBA) is the
law between the parties and they are obliged to
comply with its provisions.
1.
Labor Standards Concepts
1. Collective Bargaining AgreementIt is
a familiar and fundamental doctrine in
labor law that the CBA is the law
between the parties and they are
obliged to comply with its provisions.
We said so in Honda Phils., Inc. v.
Samahan ng Malayang Manggagawa
sa Honda, 460 SCRA 187 (2005): A
collective bargaining agreement or CBA
refers to the negotiated contract
between a legitimate labor organization
and the employer concerning wages,
hours of work and all other terms and
conditions of employment in a
bargaining unit. As in all contracts, the
parties in a CBA may establish such
stipulations, clauses, terms and
conditions as they may deem
 convenient provided these are not
contrary to law, morals, good customs,
public order or public policy. Thus,
where the CBA is clear and
unambiguous, it becomes the law
between the parties and compliance
therewith is mandated by the express
policy of the law.

2. Diminution of Benefits - the unilateral

withdrawal by the employer of benefits
already enjoyed by the employees.
There is diminution of benefits when it is
shown that: (1) the grant or benefit is
founded on a policy or has ripened into
a practice over a long period; (2) the
practice is consistent and deliberate; (3)
the practice is not due to error in the
construction or application of a doubtful
or difficult question of law; and (4) the
diminution or discontinuance is done
unilaterally by the employer.

3. An erroneously granted benefit may be

withdrawn without violating the
prohibition against non-diminution of
benefits.As correctly pointed out by
TSPIC, the overpayment of its
employees was a result of an error. This
error was immediately rectified by
TSPIC upon its discovery. We have
ruled before that an erroneously granted
benefit may be withdrawn without
violating the prohibition against non-
diminution of benefits. We ruled in
GlobeMackay Cable and Radio Corp. v.
NLRC, 163 SCRA 71 (1988): Absent
clear administrative guidelines,
Petitioner Corporation cannot be faulted
for erroneous application of the law.
Payment may be said to have been
made by reason of a mistake in the
construction or application of a doubtful
or difficult question of law. (Article
2155, in relation to Article 2154 of the
Civil Code) Since it is a past error that is
being corrected, no vested right may be
said to have arisen nor any diminution
of benefit under Article 100 of the Labor
Code may be said to have resulted by
virtue of the correction.
FACTS: TSPI Corporation entered into a Collective Bargaining Agreement with the Corporation Union for the
increase of salary for the latters members for the year 2000 to 2002 starting from January 2000. Thus, the
increase in salary was materialized on January 1, 2000. However, on October 6, 2000, the Regional Tripartite
Wage and Production Board raised daily minimum wage from P 223.50 to P 250.00 starting November 1, 2000.
Conformably, the wages of the 17 probationary employees were increased to P250.00 and became regular
employees therefore receiving another 10% increase in salary. In January 2001, TSPIC implemented the new
wage rates as mandated by the CBA. As a result, the nine employees who were senior to the 17 recently
regularized employees received less wages. On January 19, 2001, TSPICs HRD notified the 24 employees
who are private respondents, that due to an error in the automated payroll system, they were overpaid and the
overpayment would be deducted from their salaries starting February 2001. The Union on the other hand,
asserted that there was no error and the deduction of the alleged overpayment constituted diminution of pay.

ISSUE: Whether or not the alleged overpayment constitutes diminution of pay as alleged by the Union.

HELD: Yes, because it is considered that Collective Bargaining Agreement entered into by unions and their
employers are binding upon the parties and be acted in strict compliance therewith. Thus, the CBA in this case
is the law between the employers and their employees.

Therefore, there was no overpayment when there was an increase of salary for the members of the union
simultaneous with the increasing of minimum wage for workers in the National Capital Region. The CBA should
be followed thus, the senior employees who were first promoted as regular employees shall be entitled for the
increase in their salaries and the same with lower rank workers.

Metropolitan Bank and Trust Company vs. National Labor Relations Commission,
589 SCRA 376, G.R. No. 152928 June 18, 2009

SUMMARY LABOR STANDARDS CONCEPTS

The respondents, who were the former
employees of the petitioner, requested the
benefits endowed by the 1998 CBA but they
were denied by the petitioner because the latter
resigned prior to the settled date conditioned by
the said CBA. The Court ruled in favor of the
respondents by stating that the long practice of
the petitioner of voluntarily covering the
employees benefits in every CBA for 11 years
from 1986 to 1997 every 1st of January without
any conditions must apply also to the 1998
CBA.
1.) It is a jurisprudential rule that where
there is an established employer
practice of regularly, knowingly and
voluntarily granting benefits to
employees over a significant period of
time, despite the lack of a legal or
contractual obligation on the part of the
employer to do so, the grant of such
benefits ripens into a vested right of the
employees and can no longer be
unilaterally reduced or withdrawn by the
employer
 2.) Wages and Benefits and Retirement -
To be considered a company practice,
the giving of the benefits should have
been done over a long period of time,
and must be shown to have been
consistent and deliberate.

3.) The right to file a labor complaint or

assert a cause of action against an
employer is a personal right of each
employee

4.) It is a time-honored rule that in

controversies between a laborer and his
master, doubts reasonably arising from
the evidence or in the interpretation of
agreements and writings should be
resolved in the formers favor

FACTS:
Respondents Patag and Flora were former employees of petitioner Metrobank. Both respondents availed of the
banks compulsory retirement plan in accordance with the 1995 Officers Benefits Memorandum. Patag retired
on February 1, 1998 as an Assistant Manager with a monthly salary of P32,100.00. Flora retired on April 1, 1998
as a Senior Manager with a monthly salary of P48,500.00. Consequently, the new 1998 CBA was issued
increasing the retirement benefits from 185% to 200%. The 1998 CBA covers employees for year 1998-2000
provided that they should not resign before June 15, 1998. With this, the private respondents requested to
extend the benefits of the 1998 CBA to them but they were denied by the petitioner because they had already
resigned before June 15, 1998. The LA dismissed the complaint. NLRC reversed the LA by granting the
respondents the benefits endowed by the 1998 CBA. The CA affirmed the NLRC by stating that notwithstanding
the stipulation of the 1998 CBA, it has been the petitioners long practice to extend the newly issued CBAs
towards its employees every 1st of January for 11 years from 1986 to 1997 without any conditions that an
employee must not resign prior to a settled date. Hence, this petition.
ISSUE:
Whether respondents can still recover higher benefits under the 1998 Officers Benefits Memorandum despite
the fact that they have compulsorily retired prior to the issuance of said memorandum
RULING:
YES. It is a jurisprudential rule that where there is an established employer practice of regularly, knowingly
and voluntarily granting benefits to employees over a significant period of time, despite the lack of a
legal or contractual obligation on the part of the employer to do so, the grant of such benefits ripens
into a vested right of the employees and can no longer be unilaterally reduced or withdrawn by the
employer
To be considered a company practice, the giving of the benefits should have been done over a long period of
time, and must be shown to have been consistent and deliberate. The test or rationale of this rule on long
practice requires an indubitable showing that the employer agreed to continue giving the benefits knowing fully
well that said employees are not covered by the law requiring payment thereof.
In the case at bar, petitioner Metrobank favorably adjusted its officers benefits, including retirement benefits,
after the approval of each CBA with the rank and file employees, to be effective every January 1st of the same
year as the CBAs approval, and without any condition regarding the date of employment of the officer, from
1986 to 1997 or for about eleven (11) years. This constitutes voluntary employer practice which cannot be
unilaterally withdrawn or diminished by the employer without violating the spirit and intent of Art. 100
of the Labor Code which prohibits the diminution of benefits of the employee. The condition that an officer
must still be in the service of petitioner bank as of June 15, 1998 effectively reduced benefits of employees who
retired prior to the issuance of the 1998 Officers Benefits Memorandum despite the fact in the past no such
condition was imposed by the bank and previous retirees presumably enjoyed the higher benefits regardless of
their date of retirement as long as they were still employees of petitioner as of the January 1st effectivity date.

INSULAR HOTEL EMPLOYEES UNION-NFL VS WATERFRONT INSULAR HOTEL DAVAO

G.R. Nos. 174040-41, September 22, 2010

SUMMARY LABOR STANDARDS CONCEPTS

Waterfront Insular Hotel Davao filed a Notice of
Suspension on Operations to DOLE. Due to
this, its employees offered lowering their salary
and other benefits to help the company sustain
its operations despite its financial standing. This
is proven by the MOA signed by both parties.
With the MOA, Joves and Planas, filed a Notice
of Mediation. The alleged diminution of wages
is without merit as the DIHFEU-NFL voluntarily
offered and agreed to reduce the wages and
benefits of the employees.
Article 100 of the Labor Code provides:
PROHIBITION AGAINST ELIMINATION
OR DIMINUTION OF BENEFITS- Nothing in
this Book shall be construed to eliminate or in
any way diminish supplements, or other
employee benefits being enjoyed at the time of
the promulgation of this Code.
A CBA is "a contract executed upon request
of either the employer or the exclusive
bargaining representative in corporating the
agreement reached after negotiations with
respect to wages, hours of work and all other
terms and conditions of employment, including
proposals for adjusting any grievances or
questions arising under such agreement." The
primary purpose of a CBA is the stabilization of
labor-management relations in order to create
a climate of a sound and stable industrial
peace. In construing a CBA, the courts must be
practical and realistic and give due
consideration to the context in which it is
negotiated and the purpose which it is intended
to serve.

FACTS:
 On November 6, 2000, respondent Waterfront Insular Hotel Davao (respondent) sent the Department of
Labor and Employment (DOLE), Region XI, Davao City, a Notice of Suspension of Operations notifying the
same that it will suspend its operations for a period of six months due to severe and serious business losses. In
said notice, respondent assured the DOLE that if the company could not resume its operations within the six-
month period, the company would pay the affected employees all the benefits legally due to them. During the
period of the suspension, Domy R. Rojas (Rojas), the President of Davao Insular Hotel Free Employees Union
(DIHFEU-NFL), the recognized labor organization in Waterfront Davao, sent respondent a number of letters
asking management to reconsider its decision. After series of negotiations, respondent and DIHFEU-NFL,
represented by its President, Rojas, and Vice-Presidents, Exequiel J. Varela Jr. and Avelino C. Bation,Jr., signed
a Memorandum of Agreement (MOA) wherein respondent agreed to re-open the hotel subject to certain
concessions offered by DIHFEU-NFL in its
Manifesto. Accordingly, respondent downsized its manpowerstructure to 100 rank-and-file employees as set
forth in the terms of the MOA. Moreover, as agreed upon in the MOA, a new pay scale was also prepared by
respondent. The retained employees individually signed a "Reconfirmation of Employment" which embodied the
new terms and conditions of their continued employment. Each employee was assisted by Rojas who also
signed the document. On June 15, 2001, respondent resumed its business operations.

Issue: whether or not a union is prohibited from offering and agreeing to reduce wages and benefits of the
employees?

Held: Article 100 of the Labor Code provides:

PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF BENEFITS- Nothing in this Book shall be
construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the
time of the promulgation of this Code.
Clearly, the prohibition against elimination or diminution of benefits set out in Article 100 of the
Labor Code is specifically concerned with benefits already enjoyed at the time of the promulgation of the Labor
Code. Article 100 does not, in other words, purport to apply to situations arising after the promulgation date
of the Labor Code x x Even assuming arguendo that Article 100 applies to the case at bar, the Court agrees
with respondent that the same does not prohibit a union from offering and agreeing to reduce wages and benefits
of the employees .In Rivera v. Espiritu, this Court ruled that the right to free collective bargaining, after all,
includes the right to suspend it, thus:

A CBA is "a contract executed upon request of either the employer or the exclusive bargaining representative
in corporating the agreement reached after negotiations with respect to wages, hours of work and all other terms
and conditions of employment, including proposals for adjusting any grievances or questions arising under such
agreement." The primary purpose of a CBA is the stabilization of labor-management relations in order to create
a climate of a sound and stable industrial peace. In construing a CBA, the courts must be practical and realistic
and give due consideration to the context in which it is negotiated and the purpose which it is intended to serve.

While the scales of justice usually tilt in favor of labor, the peculiar circumstances herein prevent this Court from
applying the same in the instant petition. Even if our laws endeavor to give life to the constitutional policy on
social justice and on the protection of labor, it does not mean that every labor dispute will be decided in favor of
the workers. The law also recognizes that management has rights which are also entitled to respect and
enforcement in the interest of fair play.

CENTRAL AZUCARERA vs. CA LABOR

Petitioner: Central AzucareraDe Tarlac
Respondent: Central AzucareraDe Tarlac Labor Union-NLU
Docket No.: G.R. No. 188949
Date of Promulgation: July 26, 2010
Ponente: Nachura, J.

Summary Labor Standards Concepts

th
In the computation of the 13 -month pay, it shall
be equivalent to one-twelfth (1/12) of the total
basic salary earned by an employee within a
calendar year. All rank-and-file employees,
regardless of their designation or employment
status and irrespective of the method by which
their wages are paid, are entitled to this benefit,
provided that they have worked for at least one
month during the calendar year. However, if the
employee worked for only a portion of the year,
the 13th-month pay is computed pro rata.
(Computation of pro-rata is according to the
number of months within a year that the
employee has rendered service to the
employer.)
Distressed employees
exemptions
Computation of 13th-month pay should
be pro-rated.
Overtime pay, earnings, and other
remuneration that are not part of the
basic salary shall not be included in the
computation of the 13th-month pay.
The minimum 13th-month pay required
by the law shall not be less than one-
twelfth (1/12) of the total basic salary
earned by an employee within a
calendar year.
Benefits given to employees cannot be
taken back or reduced unilaterally by
the employer because the benefit has
become a part of the employment
contract, written or unwritten.
shall qualify for

FACTS:
Petition for review on certiorari under Rule 45 of the Rules of Court.
o Petitioner is a domestic corporation engaged in the business of sugar manufacturing, while
respondent is a legitimate labor organization which serves as the exclusive bargaining
representative of petitioners rank-and-file employees.
o Controversy stems from the interpretation of the term basic pay, essential in the computation of
the 13th-month pay.
In compliance with Presidential Decree (P.D.) No. 851, petitioner granted its employees the mandatory
thirteenth-month pay since 1975.
Formula used until 2006 in computing the 13th-month pay: Total Basic Annual Salary divided by twelve
(12); included are computation of the Total Basic Annual Salary were the following: basic monthly salary;
first eight (8) hours overtime pay on Sunday and legal/special holiday; night premium pay; and vacation
and sick leaves for each year.
November 6, 2004
o Respondent staged a strike.
o During the strike, petitioner declared a temporary cessation of operations.
December 2005
o All the striking union members were allowed to return to work.
 o Subsequently, petitioner declared another temporary cessation of operations for the months of
April and May 2006.
June 2006
o Suspension of operation was lifted but the rank-and-file employees were allowed to report for
work on a fifteen (15) day-per-month rotation basis that lasted until September 2006.
December 2006
o Petitioner gave the employees their 13th-month pay based on the employees total earnings during
the year divided by 12.
o However, respondent objected to this computation.
Respondent claimed that petitioner did not adhere to the usual computation of the 13th-
month pay because the divisor should have been eight (8) instead of 12, because the
employees worked for only 8 months in 2006.
It asserted that petitioner did not observe the company practice of giving its employees
the guaranteed amount equivalent to their one month pay, in instances where the
computed 13th-month pay was less than their basic monthly pay.
Petitioner and respondent tried to thresh out their differences in accordance with the grievance procedure
as provided in their collective bargaining agreement.
o During the grievance meeting, the representative of petitioner explained that the change in the
computation of the 13th-month pay was intended to rectify an error in the computation, particularly
the concept of basic pay which should have included only the basic monthly pay of the
employees.
However, as the parties failed to arrive at a settlement, respondent applied for preventive mediation
before the National Conciliation and Mediation Board but still failed to settle the dispute after four (4)
meetings.
March 29, 2007
o Respondent filed a complaint against petitioner for money claims based on the alleged diminution
of benefits/erroneous computation of 13th-month pay before the Regional Arbitration Branch of
the National Labor Relations Commission (NLRC).
Labor Arbiters Level
o October 31, 2007
Labor Arbiter dismissed the complaint and declared that the petitioner had the right to
rectify the error in the computation of the 13th-month pay of its employees.
NLRCs Level
o Respondents filed an appeal.
o August 14, 2008
NLRC reversed the Labor Arbiters decision.
Petitioner was ordered to compute the 13th-month pay according to the number of months
the respondents reported for work.
o November 27, 2008
Petitioner filed a motion for reconsideration but was denied.
Court of Appeals Level
o Petitioner then filed a petition for certiorari under Rule 65.
o May 28, 2009
CA dismissed the petition, and affirmed the decision and resolution of the NLRC.
ISSUE:
Whether or not the CA committed a reversible error in affirming the decision of NLRC.
HELD:
No. The computation prayed for by the respondents is the correct computation for 13th-month pay.
The 13th-month pay mandated by Presidential Decree (P.D.) No. 851 represents an additional income based on
wage but not part of the wage. It is equivalent to one-twelfth (1/12) of the total basic salary earned by an
employee within a calendar year. All rank-and-file employees, regardless of their designation or employment
status and irrespective of the method by which their wages are paid, are entitled to this benefit, provided that
they have worked for at least one month during the calendar year. If the employee worked for only a portion of
the year, the 13th-month pay is computed pro rata.
The computation used by petitioner was an error that was repeatedly committed for almost thirty (30)
years. Petitioner insists that the length of time during which an employer has performed a certain act beneficial
to the employees, does not prove that such an act was not done in error. It maintains that for the claim of mistake
to be negated, there must be a clear showing that the employer had freely, voluntarily, and continuously
performed the act, knowing that he is under no obligation to do so. Petitioner asserts that such voluntariness
was absent in this case.
"Thirteenth-month pay" shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year;
the term "basic salary" of an employee for the purpose of computing the 13th-month pay was interpreted to
include all remuneration or earnings paid by the employer for services rendered, but does not include allowances
and monetary benefits which are not integrated as part of the regular or basic salary, such as the cash equivalent
of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-
living allowances. However, these salary-related benefits should be included as part of the basic salary in the
computation of the 13th-month pay if, by individual or collective agreement, company practice or policy, the
same are treated as part of the basic salary of the employees.
It is clear that there could have no erroneous interpretation or application of what is included in the term basic
salary for purposes of computing the 13th-month pay of employees. From the inception of P.D. No. 851 on
December 16, 1975, clear-cut administrative guidelines have been issued to insure uniformity in the
interpretation, application, and enforcement of the provisions of P.D. No. 851 and its implementing regulations.
As correctly ruled by the CA, the practice of petitioner in giving 13th-month pay based on the employees gross
annual earnings which included the basic monthly salary, premium pay for work on rest days and special
holidays, night shift differential pay and holiday pay continued for almost thirty (30) years and has ripened into
a company policy or practice which cannot be unilaterally withdrawn.
Article 100 of the Labor Code, otherwise known as the Non-Diminution Rule, mandates that benefits given to
employees cannot be taken back or reduced unilaterally by the employer because the benefit has become part
of the employment contract, written or unwritten. The rule against diminution of benefits applies if it is shown
that the grant of the benefit is based on an express policy or has ripened into a practice over a long period of
time and that the practice is consistent and deliberate. Nevertheless, the rule will not apply if the practice is due
to error in the construction or application of a doubtful or difficult question of law. But even in cases of error, it
should be shown that the correction is done soon after discovery of the error.
The argument of petitioner that the grant of the benefit was not voluntary and was due to error in the
interpretation of what is included in the basic salary deserves scant consideration. No doubtful or difficult
question of law is involved in this case. The guidelines set by the law are not difficult to decipher. The
voluntariness of the grant of the benefit was manifested by the number of years the employer had paid the
benefit to its employees. Petitioner only changed the formula in the computation of the 13 th-month pay after
almost 30 years and only after the dispute between the management and employees erupted. This act of
petitioner in changing the formula at this time cannot be sanctioned, as it indicates a badge of bad faith.
Furthermore, petitioner cannot use the argument that it is suffering from financial losses to claim exemption from
the coverage of the law on 13th-month pay, or to spare it from its erroneous unilateral computation of the 13th-
month pay of its employees. Under Section 7 of the Rules and Regulations Implementing P.D. No. 851,
distressed employers shall qualify for exemption from the requirement of the Decree only upon prior
authorization by the Secretary of Labor. In this case, no such prior authorization has been obtained by petitioner;
thus, it is not entitled to claim such exemption.
This petition is denied and the Court affirmed the Court of Appeals decision.

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC v. EASTERN TELECOMS EMPLOYEES UNION

Summary Labor Standards Concepts

The deferment of payment of the 2003 14th,
15th and 16th month bonuses of ETPI to
respondent Union. The Court held that bonuses
given to the respondent was part of the CBA, it
was clearly phrased and does not include the
condition of the financial condition of the
company and refusal to provide constitute a
violation of Article 100 of the Labor Code.
A bonus is a gratuity or act of liberality of the
giver which the recipient has no right to demand
as a matter of right. The grant of a bonus is
basically a management prerogative which
cannot be forced upon the employer who may
not be obliged to assume the onerous burden
of granting bonuses or other benefits aside from
the employees basic salaries or wages.

A bonus, however, becomes a demandable or

enforceable obligation when it is made part of
the wage or salary or compensation of the
employee.

The Facts

Petitioner Respondent
A corporation engaged in the business of The certified exclusive bargaining agent of the
providing telecommunications facilities, companys rank and file employees with a
particularly leasing international date lines or strong following of 147 regular members. It has
circuits, regular landlines, internet and data an existing collective bargaining agreement
services, employing approximately 400 with the company to expire in the year 2004 with
employees. a Side Agreement signed on September 3,
2001.

Dispute:

The companys plan to defer payment of the 2003 14th, 15th and 16th month bonuses sometime in April 2004.
Reason: due to allege continuing deterioration of companys financial position which started in the year 2000.
However, ETPI while postponing payment of bonuses sometime in April 2004, such payment would also be
subject to availability of funds.

The union strongly opposed the deferment in payment of the bonuses by filing a preventive mediation complaint
with the NCMB on July 3, 2003, the purpose of which complaint is to determine the date when the bonus should
be paid.

In the conference held at the NCMB, ETPI reiterated its stand that payment of the bonuses would only be made
in April 2004 to which date of payment, the union agreed. Thus, considering the agreement forged between the
parties, the said agreement was reduced to a Memorandum of Agreement. The union requested that the
President of the company should be made a signatory to the agreement, however, the latter refused to sign. In
addition to such a refusal, the company made a sudden turnaround in its position by declaring that they will no
longer pay the bonuses until the issue is resolved through compulsory arbitration.

The companys change in position was contained in a letter dated April 14, 2004 written to the union by Mr.
Sonny Javier, Vice-President for Human Resources and Administration, stating that the deferred release of
bonuses had been superseded and voided due to the unions filing of the issue to the NCMB onJuly 18, 2003.
He declared that until the matter is resolved in a compulsory arbitration, the company cannot and will not pay
any bonuses to any and all union members.

Thus, on April 26, 2004, ETEU filed a Notice of Strike on the ground of unfair labor practice for failure of ETPI
to pay the bonuses in gross violation of the economic provision of the existing CBA.

On May 19, 2004, the Secretary of Labor and Employment, finding that the company is engaged in an industry
considered vital to the economy and any work disruption thereat will adversely affect not only its operation but
also that of the other business relying on its services, certified the labor dispute for compulsory arbitration
pursuant to Article 263 (q) of the Labor Code as amended.

Respondents Argument:

1. Claimed that Eastern Telecommunications Philippines, Inc. (ETPI) had consistently and voluntarily been
giving out 14th month bonus during the month of April, and 15th and 16th month bonuses every December
of each year (subject bonuses) to its employees from 1975 to 2002, even when it did not realize any net
profits.
2. The unjustified and malicious refusal of the company to pay the subject bonuses was a clear violation of
the economic provision of the CBA and constitutes unfair labor practice (ULP).
Petitioners Arguments:
1. Questioned the authority of the NLRC to take cognizance of the case contending that it had no
jurisdiction over the issue which merely involved the interpretation of the economic provision of the
2001-2004 CBA Side Agreement. Nonetheless, it maintained that the complaint for nonpayment of
14th, 15th and 16th month bonuses for 2003 and 14th month bonus for 2004 was bereft of any legal
and factual basis.
 2. It averred that the subject bonuses were not part of the legally demandable wage and the grant
thereof to its employees was an act of pure gratuity and generosity on its part, involving the
exercise of management prerogative and always dependent on the financial performance and
realization of profits. It posited that it resorted to the discontinuance of payment of the bonuses due
to the unabated huge losses that the company had continuously experienced.
3. It claimed that it had been suffering serious business losses since 2000 and to require the
company to pay the subject bonuses during its dire financial straits would in effect penalize it for its
past generosity. It alleged that the non-payment of the subject bonuses was neither flagrant nor
malicious and, hence, would not amount to unfair labor practice.
4. The bonus provision in the 2001-2004 CBA Side Agreement was a mere affirmation that the
distribution of bonuses was discretionary to the company, premised and conditioned on the success
of the business and availability of cash.

NLRCs Decision

On April 28, 2005, the NLRC issued its Resolution dismissing ETEUs complaint and held that:
1. ETPI could not be forced to pay the union members the 14th, 15th and 16th month bonuses for the year
2003 and the 14th month bonus for the year 2004 inasmuch as the payment of these additional benefits
was basically a management prerogative, being an act of generosity and munificence on the part of the
company and contingent upon the realization of profits.
2. ETPI may not be obliged to pay these extra compensations in view of the substantial decline in its
financial condition.
3. ETPI was not guilty of the ULP charge elaborating that no sufficient and substantial evidence was
adduced to attribute malice to the company for its refusal to pay the subject bonuses.

Court of Appeals Decision

On June 25, 2008 Decision, the CA declared that the Side Agreements of the 1998 and 2001 CBA created a
contractual obligation on ETPI to confer the subject bonuses to its employees without qualification or condition.
It also found that the grant of said bonuses has already ripened into a company practice and their denial
would amount to diminution of the employees benefits.

It held that ETPI could not seek refuge under Article 1267 of the Civil Code because this provision would apply
only when the difficulty in fulfilling the contractual obligation was manifestly beyond the contemplation of the
parties, which was not the case therein.

The CA, however, sustained the NLRC finding that the allegation of ULP was devoid of merit.

Issue:

Whether or not petitioner ETPI is liable to pay 14th, 15th and 16th month bonuses for the year 2003 and 14th month
bonus for the year 2004 to the members of respondent union.

Supreme Courts Decision

The Court sustained the ruling of the Court of Appeals

A bonus is a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of
right. The grant of a bonus is basically a management prerogative which cannot be forced upon the employer
who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the
employees basic salaries or wages.

A bonus, however, becomes a demandable or enforceable obligation when it is made part of the wage or salary
or compensation of the employee.

ETPI and ETEU agreed on the inclusion of a provision for the grant of 14th, 15th and 16th month bonuses in the
1998-2001 CBA Side Agreement, as well as in the 2001-2004 CBA Side Agreement, which was signed
on September 3, 2001.

The agreement reveals that the giving of 14th, 15th and 16th month bonuses is without qualification.
1. There were no conditions specified in the CBA Side Agreements for the grant of the benefits contrary
to the claim of ETPI that the same is justified only when there are profits earned by the company.
2. The agreement does not state that the subject bonuses shall be made to depend on the ETPIs
financial standing or that their payment was contingent upon the realization of profits. Neither does
it state that if the company derives no profits, no bonuses are to be given to the employees. In fine,
the payment of these bonuses was not related to the profitability of business operations.

ETPI appears to be well aware of its deteriorating financial condition when it entered into the 2001-2004 CBA
Side Agreement with ETEU and obliged itself to pay bonuses to the members of ETEU. Considering that ETPI
had been continuously suffering huge losses from 2000 to 2002, its business losses in the year 2003 were not
exactly unforeseen or unexpected. Consequently, it cannot be said that the difficulty in complying with its
obligation under the Side Agreement was manifestly beyond the contemplation of the parties.

The giving of the subject bonuses cannot be peremptorily withdrawn by ETPI without violating Article 100 of the
Labor Code:

Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to
eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of
promulgation of this Code.

The rule is settled that any benefit and supplement being enjoyed by the employees cannot be reduced,
diminished, discontinued or eliminated by the employer. The principle of non-diminution of benefits is founded
on the constitutional mandate to protect the rights of workers and to promote their welfare and to afford labor
full protection.

ETPI never presented countervailing evidence to refute ETEUs claim that the company has been
continuously paying bonuses since 1975 up to 2002 regardless of its financial state. Its failure to controvert the
allegation, when it had the opportunity and resources to do so, works in favor of ETEU. Time and again, it has
been held that should doubts exist between the evidence presented by the employer and the employee, the
scales of justice must be tilted in favor of the latter.

WESLEYAN vs WESLEYAN FACULTY

GR. 181806 March 12, 2014
Article 100: Non-Diminution of Benefits (Error in Construction)
Summary
The one retirement policy is contrary to law for
this violate the rule on non-diminution of
benefits for the practice of giving two
retirement benefits to employees is supported
by substantial evidence. Likewise, the
Memorandum issued by the petitioner on the
implementation of sick and vacation leave
policy is contrary to law as this is violates the
CBA.
Labor Standards Concepts
The Non-Diminution Rule found in Article 100 of
the Labor Code explicitly prohibits employers
from eliminating or reducing the benefits
received by their employees. This rule,
however, applies only if the benefit is based on
an express policy, a written contract, or has
ripened into a practice. To be considered a
practice, it must be consistently and
deliberately made by the employer over a long
period of time. An exception to the rule is when
the practice is due to error in the construction
or application of a doubtful or difficult question
of law. The error, however, must be corrected
immediately after its discovery; otherwise, the
rule on Non-Diminution of Benefits would still
apply.

Any doubt in the interpretation of the provisions

of the CBA should be resolved in favor of
respondent

When the provision of the CBA is clear, leaving

no doubt on the intention of the parties, the
literal meaning of the stipulation shall govern.
However, if there is doubt in its interpretation, it
should be resolved in favor of labor, as this is
mandated by no less than the Constitution.

FACTS: Petitioner Wesleyan University-Philippines is a non-stock, non-profit educational institution duly

organized and existing under the laws of the Philippines. Respondent Wesleyan University-Philippines Faculty
and Staff Association, on the other hand, is a duly registered labor organization acting as the sole and exclusive
bargaining agent of all rank-and-file faculty and staff employees of petitioner.
In December 2003, the parties signed a 5-year CBA effective June 1, 2003 until May 31, 2008. On August 16,
2005, petitioner issued a Memorandum providing guidelines on the implementation of vacation and sick leave
credits as well as vacation leave commutation. The pertinent portions of the Memorandum read:
1. VACATION AND SICK LEAVE CREDITS
Vacation and sick leave credits are not automatic. They have to be earned. Monthly, a qualified employee earns
an equivalent of 1.25 days credit each for VL and SL. Vacation Leave and Sick Leave credits of 15 days become
complete at the cut off date of May 31 of each year. (Example, only a total of 5 days credit will be given to an
employee for each of sick leave [or] vacation leave, as of month end September, that is, 4 months from June to
September multiplied by 1.25 days). An employee, therefore, who takes VL or SL beyond his leave credits as
of date will have to file leave without pay for leaves beyond his credit.
2. VACATION LEAVE COMMUTATION
Only vacation leave is commuted or monetized to cash. Vacation leave commutation is effected after the second
year of continuous service of an employee. Hence, an employee who started working June 1, 2005 will get his
commutation on May 31, 2007 or thereabout.

The respondent questioned the guidelines for being violative of existing practices and the CBA, specifically
Sections 1 and 2, Article XII of the CBA, to wit:
ARTICLE XII
VACATION LEAVE AND SICK LEAVE
SECTION 1. VACATION LEAVE - All regular and non-tenured rank and-file faculty and staff who are entitled to
receive shall enjoy fifteen (15) days vacation leave with pay annually.
1.1 All unused vacation leave after the second year of service shall be converted into cash and be paid to the
entitled employee at the end of each school year to be given not later than August 30 of each year.
SECTION 2. SICK LEAVE - All regular and non-tenured rank-and-file faculty and staff shall enjoy fifteen (15)
days sick leave with pay annually.

On February 8, 2006, a Labor Management Committee (LMC) Meeting was held during which petitioner advised
respondent to file a grievance complaint on the implementation of the vacation and sick leave policy. In the
same meeting, petitioner announced its plan of implementing a one-retirement policy, which was unacceptable
to respondent.
Unable to settle their differences at the grievance level, the parties referred the matter to a Voluntary Arbitrator.
During the hearing, respondent submitted affidavits to prove that there is an established practice of giving two
retirement benefits, one from the Private Education Retirement Annuity Association (PERAA) Plan and another
from the CBA Retirement Plan.
Ruling of the Voluntary Arbitrator
On November 2, 2006, the Voluntary Arbitrator rendered a Decision declaring the one-retirement policy and the
Memorandum dated August 16, 2005 contrary to law.
Ruling of the Court of Appeals
The CA affirmed the nullification of the one-retirement policy and the Memorandum dated August 16, 2005 on
the ground that these unilaterally amended the CBA without the consent of respondent.

ISSUES:
1. Whether or not the one retirement policy is contrary to law for there is substantial evidence to prove that
there is an existing practice of giving two retirement benefits.
2. Whether or not Memorandum dated August 6, 2005 on the availment of vacation and sick leave credits and
vacation leave commutation contrary to law.

HELD: Both the one retirement policy and the Memorandum on the implementation of vacation and sick leave
policy are contrary to law.
1. The practice of giving two retirement benefits to petitioners employees is supported by substantial
evidence.
The Non-Diminution Rule found in Article 100 of the Labor Code explicitly prohibits employers from eliminating
or reducing the benefits received by their employees. This rule, however, applies only if the benefit is based on
an express policy, a written contract, or has ripened into a practice. To be considered a practice, it must
be consistently and deliberately made by the employer over a long period of time. An exception to the rule is
when the practice is due to error in the construction or application of a doubtful or difficult question of law. The
error, however, must be corrected immediately after its discovery; otherwise, the rule on Non-Diminution of
Benefits would still apply.
In this case, respondent was able to present substantial evidence in the form of affidavits to support its claim
that there are two retirement plans. Based on the affidavits, petitioner has been giving two retirement benefits
as early as 1997. Petitioner, on the other hand, failed to present any evidence to refute the veracity of these
affidavits. Petitioners contention that these affidavits are self-serving holds no water. The retired employees of
petitioner have nothing to lose or gain in this case as they have already received their retirement benefits. Thus,
they have no reason to perjure themselves. Obviously, the only reason they executed those affidavits is to bring
out the truth. As we see it then, their affidavits, corroborated by the affidavits of incumbent employees, are more
than sufficient to show that the granting of two retirement benefits to retiring employees had already ripened into
a consistent and deliberate practice.
Moreover, petitioners assertion that there is only one retirement plan as the CBA Retirement Plan and the
PERAA Plan are one and the same is not supported by any evidence. There is nothing in Article XVI of the CBA
to indicate or even suggest that the Plan referred to in the CBA is the PERAA Plan. Besides, any doubt in the
interpretation of the provisions of the CBA should be resolved in favor of respondent. In fact, petitioners
assertion is negated by the announcement it made during the LMC Meeting on February 8, 2006 regarding its
plan of implementing a one-retirement plan. For if it were true that petitioner was already implementing a one-
retirement policy, there would have been no need for such announcement. Equally damaging is the letter-
memorandum dated May 11, 2006, entitled Suggestions on the defenses we can introduce to justify the
abolition of double retirement policy, prepared by the petitioners legal counsel. These circumstances, taken
together, bolster the finding that the two-retirement policy is a practice. Thus, petitioner cannot, without the
consent of respondent, eliminate the two-retirement policy and implement a one-retirement policy as
this would violate the rule on non-diminution of benefits.
As a last ditch effort to abolish the two-retirement policy, petitioner contends that such practice is illegal or
unauthorized and that the benefits were erroneously given by the previous administration. No evidence,
however, was presented by petitioner to substantiate its allegations. Considering the foregoing disquisition, we
agree with the findings of the Voluntary Arbitrator, as affirmed by the CA,that there is substantial evidence to
prove that there is an existing practice of giving two retirement benefits, one under the PERAA Plan and
another under the CBA Retirement Plan.

2. The Memorandum dated August 16, 2005 is contrary to the existing CBA.
Sections 1 and 2 of Article XII of the CBA provide that all covered employees are entitled to 15 days sick leave
and 15 days vacation leave with pay every year and that after the second year of service, all unused vacation
leave shall be converted to cash and paid to the employee at the end of each school year, not later than August
30 of each year.
The Memorandum dated August 16, 2005, however, states that vacation and sick leave credits are not automatic
as leave credits would be earned on a month-to-month basis. This, in effect, limits the available leave credits of
an employee at the start of the school year. For example, for the first four months of the school year or from
June to September, an employee is only entitled to five days vacation leave and five days sick leave.
Considering that the Memorandum dated August 16, 2005 imposes a limitation not agreed upon by the
parties nor stated in the CBA, we agree with the CA that it must be struck down.
In closing, it may not be amiss to mention that when the provision of the CBA is clear, leaving no doubt on the
intention of the parties, the literal meaning of the stipulation shall govern. However, if there is doubt in its
interpretation, it should be resolved in favor of labor, as this is mandated by no less than the Constitution.
WHEREFORE, the Petition is hereby DENIED.

Netlink Computer Inc. v. Eric Delmo

Summary Labor Standards Concepts

Delmo as account managerable to generate As a general rule, all obligations shall be paid in
sales worth P35,000,000.00, more or less, from Philippine currency. However, contracting
which he earned commissions amounting to parties may stipulate that foreign currencies
P993,558.89 and US$7,588.30. He then may be used for settling obligations.
requested payment of his commissions, but
Netlink refused and only gave him partial cash
advances chargeable to his commissions.

Facts:

On November 3, 1991, Netlink hired Delmo as account manager tasked to canvass and source clients
and convince them to purchase the products and services of Netlink. Delmo worked in the field most of the time.
He and his fellow account managers were not required to accomplish time cards to record their personal
presence in the office of Netlink. He was able to generate sales worth P35,000,000.00, more or less, from which
he earned commissions amounting to P993,558.89 and US$7,588.30. He then requested payment of his
commissions, but Netlink refused and only gave him partial cash advances chargeable to his commissions. In
order to force him to resign, Netlink issued several memoranda detailing his supposed infractions of the
companys attendance policy. Thereafter, Delmo was shocked when he was refused entry into the company
premises by the security guard pursuant to a memorandum to that effect. His personal belongings were still
inside the company premises and he sought their return to him. This incident prompted Delmo to file a complaint
for illegal dismissal.

Labor Arbiter ruled that Delmo was illegally and unjustly dismissed by the respondent. However, upon
appeal to NLRC, it ruled that there is a valid and just causes for the termination of Delmos employment however,
the respondent company failed to observe procedural due process.

In other arguments of the petitioner, CA ruled that Nettling failed to refute by evidence that Delmo is not
entitled to the commissions payable in US dollars. Neither is there any reason that thee computation of
commissions must be based at the time of sale.

Issue: W/N the payment of the commissions should be in dollars

Held:

Yes. SC affirmed the ruling of CA.

 As a general rule, all obligations shall be paid in Philippine currency. However, contracting parties may
stipulate that foreign currencies may be used for settling obligations.

There was no written contract between Netlink and Delmo stipulating that the latters commissions would
be paid in US dollars. The absence of the contractual stipulation notwithstanding, Netlink was still liable to pay
Delmo in US dollars because the practice of paying its sales agents in US dollars for their US dollar-
denominatedsales had become a company policy.

The principle of non-diminution of benefits, which has been incorporated in Article 10013 of the Labor
Code, forbade Netlink from unilaterally reducing, diminishing, discontinuing or eliminating the practice. Verily,
the phrase "supplements, or other employee benefits" in Article 100 is construed to mean the compensation and
privileges received by an employee aside from regular salaries or wages.

With the payment of US dollar commissions having ripened into a company practice, there is no way that
the commissions due to Delmo were to be paid in US dollars or their equivalent in Philippine currency determined
at the time of the sales. To rule otherwise would be to cause an unjust diminution of the commissions due and
owing to Delmo.

Supreme Steel Corporation v. Nagkakaisang Manggagawa ng Supreme Independent Union

Summary Labor Standards Concepts

Respondent Union filed a notice of strike on the Diminution of benefits is the unilateral
ground that petitioner failed to implement COLA withdrawal by the employer of benefits already
in Wage Order Nos. RBIII-10 and 11 enjoyed by the employees. There is diminution
of benefits when it is shown that:
(1) the grant or benefit is founded on a policy or
has ripened into a practice over a long period of
time;
(2) the practice is consistent and deliberate;
(3) the practice is not due to error in the
construction or application of a doubtful or
difficult question of law; and
(4) the diminution or discontinuance is done
unilaterally by the employer.

Facts:

Respondent Union filed a notice of strike on the ground that petitioner corporation violated certain
provisions of the CBA. Respondent alleged eleven CBA violations stated as follows:

A. Denial to four employees of the CBA-provided wage increase

B. Contracting-out labor
C. Failure to provide shuttle service
D. Refusal to answer for the medical expenses incurred by three employees
E. Failure to comply with the time-off with pay provision
F. Visitors free access to company premises
G. Failure to comply with reporting time-off prevision
H. Dismissal of Diosdado Madayag
I. Denial of paternity leave benefit to two employees
J. Discrimination and harassment
K. Non-implementation of COLA in Wage Order Nos. RBIII-10 and 11

Respondent cited petitioners compliance with Wage Order Nos RBIII-10 and grant of the mandated
P15.00 cost of living allowance (COLA) to all its employees. Petitioner, however, stopped implementing it to
non-minimum wage earners on July 24, 2005. It contended that this violates Article 100 of the Labor Code which
prohibits the diminution of benefits had already enjoyed by the workers and that such grant of benefits had
already ripened into a company practice.

Petitioner explained that the COLA provided under Wage Order applies to minimum wage earners only
and that by employees. After realizing its mistake, it implemented the same across the board or to all its
employees. After realizing its mistake, it stopped integrating the COLA to the basic pay of the workers who were
earning above the minimum wage.

NLRCs Ruling:

Out of 11 issues raised, 8 were decided in its favor; 2 (Denial of paternity leave benefit and discrimination
of union members) were decided in favor of petitioner; while issue in visitors free access to company premises
was deemed settled during the mandatory conference.

CAs Ruling

NLRCs Ruling were Affirmed. In the issue of Non-implementation of COLA, it pointed out that there was
no ambiguity or doubt as to who were covered by the wage order. Petitioner, therefore, may not invoke error or
mistake in extending the COLA to all employees and such act can only be construed as as a voluntary act on
the part of the employer.

Issue: W/N petitioners should continue to implement COLA to non-minimum wage earners.

Held:

No. the SC dismissed the claim for implementation of Wage Order Nos. RBIII-10 and 11 to the employees
who are not minimum wage earners.
 Diminution of benefits is the unilateral withdrawal by the employer of benefits already enjoyed by the
employees. There is diminution of benefits when it is shown that:
(1) the grant or benefit is founded on a policy or has ripened into a practice over a long period of time;
(2) the practice is consistent and deliberate;
(3) the practice is not due to error in the construction or application of a doubtful or difficult question of law; and
(4) the diminution or discontinuance is done unilaterally by the employer.

The fact that the practice should have been practiced over a long period of time, whereas in this case,
implementation of COLA only lasted for less than a year. Additionally, it must not have been due to error in the
construction or application of a doubtful or difficult question of law. Respondent failed to prove repetitive conduct
that might constitute evidence of the practice.

Netlink Computer Inc. v. Eric Delmo

Summary Labor Standards Concepts

Delmo as account managerable to generate As a general rule, all obligations shall be paid in
sales worth P35,000,000.00, more or less, from Philippine currency. However, contracting
which he earned commissions amounting to parties may stipulate that foreign currencies
P993,558.89 and US$7,588.30. He then may be used for settling obligations.
requested payment of his commissions, but
Netlink refused and only gave him partial cash
advances chargeable to his commissions.

Facts:

On November 3, 1991, Netlink hired Delmo as account manager tasked to canvass and source clients
and convince them to purchase the products and services of Netlink. Delmo worked in the field most of the time.
He and his fellow account managers were not required to accomplish time cards to record their personal
presence in the office of Netlink. He was able to generate sales worth P35,000,000.00, more or less, from which
he earned commissions amounting to P993,558.89 and US$7,588.30. He then requested payment of his
commissions, but Netlink refused and only gave him partial cash advances chargeable to his commissions. In
order to force him to resign, Netlink issued several memoranda detailing his supposed infractions of the
companys attendance policy. Thereafter, Delmo was shocked when he was refused entry into the company
premises by the security guard pursuant to a memorandum to that effect. His personal belongings were still
inside the company premises and he sought their return to him. This incident prompted Delmo to file a complaint
for illegal dismissal.

Labor Arbiter ruled that Delmo was illegally and unjustly dismissed by the respondent. However, upon
appeal to NLRC, it ruled that there is a valid and just causes for the termination of Delmos employment however,
the respondent company failed to observe procedural due process.

In other arguments of the petitioner, CA ruled that Nettling failed to refute by evidence that Delmo is not
entitled to the commissions payable in US dollars. Neither is there any reason that thee computation of
commissions must be based at the time of sale.
Issue: W/N the payment of the commissions should be in dollars

Held:

Yes. SC affirmed the ruling of CA.

As a general rule, all obligations shall be paid in Philippine currency. However, contracting parties may
stipulate that foreign currencies may be used for settling obligations.

There was no written contract between Netlink and Delmo stipulating that the latters commissions would
be paid in US dollars. The absence of the contractual stipulation notwithstanding, Netlink was still liable to pay
Delmo in US dollars because the practice of paying its sales agents in US dollars for their US dollar-
denominatedsales had become a company policy.

The principle of non-diminution of benefits, which has been incorporated in Article 10013 of the Labor
Code, forbade Netlink from unilaterally reducing, diminishing, discontinuing or eliminating the practice. Verily,
the phrase "supplements, or other employee benefits" in Article 100 is construed to mean the compensation and
privileges received by an employee aside from regular salaries or wages.

With the payment of US dollar commissions having ripened into a company practice, there is no way that
the commissions due to Delmo were to be paid in US dollars or their equivalent in Philippine currency determined
at the time of the sales. To rule otherwise would be to cause an unjust diminution of the commissions due and
owing to Delmo.

MANAGEMENT PREROGATIVE

CAONG vs REGUALOS

Petitioner: Primo E. Caong, Jr., Alexander Tresquio and Loriano Daluyon

Respondents: Avelino Regualos
Citation: GR No. 179428
Date of Promulgation: January 26, 2011
Ponente: Nachura

FACTS:
Petitioners employed by Avelino Regualos under a boundary agreement as drivers of his jeepneys
November 2001: filed separate complaints for illegal dismissal against respondent who barred them
from driving the vehicles due to deficiencies in their boundary payments
Caong was hired on September 1998 and became a permanent driver in 2000
July 2001 He was assigned as a brand new jeepney for a boundary fee of P550 per day
He got suspended on October 9-15, 2001 for failure to remit the full amount of the boundary
 He filed a Complaint for Illegal Suspension
Upon expiration period, he was readmitted, but was reassigned to an older jeepney for a boundary
fee of P500 per day
Nov. 9, 2001 due to scarcity of passengers, he was only able to remit P400
Nov. 11, 2001 he returned to work after his rest day, but respondent barred him from driving
because of the deficiency in the boundary payment
He pleaded with respondent, but to no avail
Tresquio employed as driver in August 1996 and became a permanent driver in 1997
1998 was assigned to drive a new jeepney for a boundary fee of P500 a day
Nov. 6, 2001 - due to scarcity of passengers, he was only able to remit P450
Nov. 8, 2001 after his rest day, he was barred by respondent because of the deficiency of P50
He pleaded, but not the respondent was adamant
Daluyon started working in March 1998, and became a permanent driver in July 1998
He was assigned to a relatively new jeepney for a boundary of P500 a day
Nov. 7, 2001 due to scarcity of passengers, he was only able to remit P470
Next day, he was barred from driving his jeepney
He pleaded, but of no avail
Mandatory Conference respondent manifested that petitioners were not dismissed and that they
could drive his jeepneys once they paid their arrears; however, they failed to do so
Petitioners Contentions:
1. Respondent did not comply with the due process requirement before terminating their employment, as
they were not furnished with notice apprising them of their infractions and another informing them of their
dismissal
2. Respondents offer during the mandatory conference to reinstate them was an insincere afterthought as
shown by the warning given by respondent that, if they fail to remit the full amount of the boundary yet
again, they will be barred from driving the jeepneys
3. They questioned respondents policy of automatically dismissing the drivers who fail to remit the full
amount of the boundary as it: violates their right to due process, does not constitute a just cause for
dismissal, disregards the reality that there are days when they could not raise the full amount of the
boundary because of the scarcity of passengers
Respondents Contentions:
1. Petitioners were lessees of his vehicles, not employees. Hence, LA had no jurisdiction
2. He claimed that he noticed that some of his lessees were not fully paying the daily rental of his jeepneys
3. In a list he attached to the Position Paper, it was shown that petitioners had actually incurred arrears
since they started working
4. The list showed that Caongs total arrears amounted to P10,315.00, that of Tresquio was P10,760.00,
while that of Daluyon was P6,890.00.
5. He made inquiries and discovered that his lessees contracted loans with third parties and used the
income of the jeepneys in paying the loans.
6. Thus, on November 4, 2001, he gathered all the lessees in a meeting and informed them that, effective
November 5, 2001, those who would fail to fully pay the daily rental would not be allowed to rent a
jeepney on the following day. He explained to them that the jeepneys were acquired on installment basis,
and that he was paying the monthly amortizations through the lease income. Most of the lessees
 allegedly accepted the condition and paid their arrears. Petitioners, however, did not settle their arrears.
Worse, their remittances were again short of the required boundary fee.
7. Petitioner Daluyons rent payment was short of P20.00 on November 5, 2001 and P80.00 on November
7, 2001.
8. On November 6, 2001, it was Tresquio who incurred an arrear of P100.00.
9. On November 7 and 9, 2001, petitioner Caong was in arrear of P50.00 and P100.00, respectively.
10. Respondent stressed that, during the mandatory conference, he manifested that he would renew his
lease with petitioners if they would pay the arrears they incurred during the said dates
LA: decided in favor of respondents
- E-E existed
- They were not dismissed considering that they could not go back to work once they have paid
their arrears
NLRC: agreed with LA
CA: E-E relationship has not been severed but merely suspended when respondent refused to allow
petitioners to drive the jeepneys while there were unpaid boundary obligationno termination of
employment

ISSUE: W/N petitioners were illegally dismissed, and that such dismissal was mad in violation of the due process
requirements of the law?

HELD:
The petition is without merit.
In an action for certiorari, petitioner must prove not merely reversible error, but grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of respondent. Mere abuse of discretion is not enough. It
must be shown that public respondent exercised its power in an arbitrary or despotic manner by reason of
passion or personal hostility, and this 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.
As correctly held by the CA, petitioners failed to establish that the NLRC committed grave abuse of discretion
in affirming the Labor Arbiters ruling, which is supported by the facts on record.
It is already settled that the relationship between jeepney owners/operators and jeepney drivers under
the boundary system is that of employer-employee and not of lessor-lessee. The fact that the drivers do
not receive fixed wages but only get the amount in excess of the so-called "boundary" that they pay to
the owner/operator is not sufficient to negate the relationship between them as employer and employee.
The Labor Arbiter, the NLRC, and the CA uniformly declared that petitioners were not dismissed from
employment but merely suspended pending payment of their arrears. Findings of fact of the CA,
particularly where they are in absolute agreement with those of the NLRC and the Labor Arbiter, are
accorded not only respect but even finality, and are deemed binding upon this Court so long as they are
supported by substantial evidence.
We have no reason to deviate from such findings. Indeed, petitioners suspension cannot be categorized as
dismissal, considering that there was no intent on the part of respondent to sever the employer-employee
relationship between him and petitioners. In fact, it was made clear that petitioners could put an end to the
suspension if they only pay their recent arrears. As it was, the suspension dragged on for years because of
petitioners stubborn refusal to pay. It would have been different if petitioners complied with the condition and
respondent still refused to readmit them to work. Then there would have been a clear act of dismissal. But such
was not the case. Instead of paying, petitioners even filed a complaint for illegal dismissal against respondent.
Respondents policy of suspending drivers who fail to remit the full amount of the boundary was fair and
reasonable under the circumstances. Respondent explained that he noticed that his drivers were getting lax in
remitting their boundary payments and, in fact, herein petitioners had already incurred a considerable amount
of arrears. He had to put a stop to it as he also relied on these boundary payments to raise the full amount of
his monthly amortizations on the jeepneys. Demonstrating their obstinacy, petitioners, on the days immediately
following the implementation of the policy, incurred deficiencies in their boundary remittances.
It is acknowledged that an employer has free rein and enjoys a wide latitude of discretion to regulate all
aspects of employment, including the prerogative to instill discipline on his employees and to impose
penalties, including dismissal, if warranted, upon erring employees. This is a management prerogative.
Indeed, the manner in which management conducts its own affairs to achieve its purpose is within the
managements discretion. The only limitation on the exercise of management prerogative is that the
policies, rules, and regulations on work-related activities of the employees must always be fair and
reasonable, and the corresponding penalties, when prescribed, commensurate to the offense involved
and to the degree of the infraction.18
Petitioners argue that the policy is unsound as it does not consider the times when passengers are scarce and
the drivers are not able to raise the amount of the boundary.
Petitioners concern relates to the implementation of the policy, which is another matter. A company policy must
be implemented in such manner as will accord social justice and compassion to the employee. In case of
noncompliance with the company policy, the employer must consider the surrounding circumstances and the
reasons why the employee failed to comply. When the circumstances merit the relaxation of the application of
the policy, then its noncompliance must be excused.
In the present case, petitioners merely alleged that there were only few passengers during the dates in question.
Such excuse is not acceptable without any proof or, at least, an explanation as to why passengers were scarce
at that time. It is simply a bare allegation, not worthy of belief. We also find the excuse unbelievable considering
that petitioners incurred the shortages on separate days, and it appears that only petitioners failed to remit the
full boundary payment on said dates.
Under a boundary scheme, the driver remits the "boundary," which is a fixed amount, to the owner/operator and
gets to earn the amount in excess thereof. Thus, on a day when there are many passengers along the route, it
is the driver who actually benefits from it. It would be unfair then if, during the times when passengers are scarce,
the owner/operator will be made to suffer by not getting the full amount of the boundary. Unless clearly shown
or explained by an event that irregularly and negatively affected the usual number of passengers within the
route, the scarcity of passengers should not excuse the driver from paying the full amount of the boundary.
Finally, we sustain the CAs finding that petitioners were not denied the right to due process. We thus quote with
approval its discussion on this matter:
Having established that the case at bench does not involve termination of employment, We find that the strict,
even rigid, application of the twin-notice rule is not warranted.
But the due process safeguards are nonetheless still available to petitioners.
Due process is not a matter of strict or rigid or formulaic process.The essence of due process is simply the
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. A formal or trial-type hearing is not
at all times and in all instances essential, as the due process requirements are satisfied where the parties are
afforded fair and reasonable opportunity to explain their side of the controversy at hand. x x x.
xxxx
In the case at bench, private respondent, upon finding that petitioners had consistently failed to remit the full
amount of the boundary, conducted a meeting on November 4, 2001 informing them to strictly comply with the
policy regarding their remittances and warned them to discontinue driving if they still failed to remit the full
amount of the boundary.19
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated December
14, 2006 and Resolution dated July 16, 2007 are AFFIRMED.
SO ORDERED.

DELES JR vs NLRC

Petitioner: Angelito Deles Jr

Respondents: NLRC, First Phil Industrial Corp and/or Flaviano C. Santos
Citation: GR No. 121348
Date of Promulgation: March 9, 2000
Ponente: Quisumbing

FACTS:
Respondent Company operates a pipeline system which transports petroleum products from the
refineries by Caltex and Shell in Batangas to terminal receiving facilities in Metro Manila
Angelito Deles employed by respondent company as shift supervisor. He was assigned at its joint terminal
facility in Pandacan, Manila where he was the highest ranking officer at the terminal during his shift. Primary
Task: oversee the entire pipeline operation in the terminal. MEMBER OF THE MANAGEMENT TEAM
March 19, 1993: Deles was the shift supervisor on duty while Eduardo Yumul and Leonardo Espejon were
assigned shift operator and gauger
During said shift, there was a scheduled delivery for Shell through respondent companys pipeline of about
3000 barrels of kerosene, to be followed by a delivery of aviation turbine fuel
Deles then instructed his Chief Operator Yumul to effect a batch change from the kerosene tank to the
aviation fuel tank when the joint terminal facility turbine meters registers 2, 944 barrels of kerosene delivered
Yumul failed to execute Deles order. He caused the batch change when the reading already reached 3341
barrels. Thus, about 397 barrels of the succeeding batch of aviation turbine fuel went to the kerosene batch
thereby downgrading the former
When informed of the incident, respondent company required Deles to explain why he should not be charged
administratively for neglect of duty for the ff:
1. Failure to witness the actual batch change cutting
2. Failure to see that a batch change checklist was prepared and followed
3. Failure to see to it that a batch change report was prepared
Deles was placed under preventive suspension pending the outcome of the investigation
Yumul and Espejon were also asked to explain for having been remiss in their duties
March 30, 1993: respondent company conducted a joint formal investigation of this case
- FINDINGS:
1. Deles, Yumul and Espejon = guilty as charged
Flaviano Santos informed Deles that he was found to have violated the Section on Neglect of Duty of
respondent companys Code of Discipline
Deles suspended for 3 months
Yumul dismissal
Espejon suspended for 1 months
Deles believes that the suspension was too harsh- sought consideration of the penalty imposed filed a
case at NLRC questioning the legality of the suspension
 While under suspension, respondent company received reports that Deles allowed the entry of 2 bar girl at
the terminal at on Feb. 23, 1993, 4am
Deles says that they were just her relatives
He was asked to explain --- Deles failed to explain
Formal Inquiry was held. Findings:
- Deles tampered with the automatic shutdown feauture of Gravitometer No. 5 at the terminal on March
19, 1993
- He also opened the terminals motor operated valve between 6am and 6:35am which caused the
gravitation of the contents of Shell kerosene tank to aviation fuel tank
Deles was asked again to explain preventive suspension effective June 23, 1993, pending the outcome of
the probe on the latest charges against him
June 24, 1993: Deles was reinstated in the payroll
After the formal investigation, Deles was dismissed via a letter
Deles then amended his Complaint by including the charge of illegal dismissal with a claim for unpaid wages
LA: dismissed the complaint
NLRC: upheld LAs ruling that the 3 months suspension is a reasonable disciplinary measure
ISSUE:
1. W/N NLRC committed grave abuse of discretion in affirming the decision of LA finding that petitioners
suspension is legal and that his dismissal is for valid and just cause on account of loss of confidence
HELD:
First, regarding the legality of petitioner's suspension, we note that petitioner was found remiss in his duties in
connection with the wrong batch change operation on March 19, 1993. He contends though that his suspension
for three months is too harsh, whimsical and biased.In essence, he decries the penalty imposed on him which
he considered too severe.
However, petitioner loses sight of the fact that the right of an employer to regulate all aspects of employment is
well settled. This right, aptly called management prerogative, gives employers the freedom to regulate,
according to their discretion and best judgment, all aspects of employment, including work assignment,
working methods, processes to be followed, working regulations, transfer of employees, work
supervision, lay-off of workers and the discipline, dismissal and recall of workers. In general,
management has the prerogative to discipline its employees and to impose appropriate penalties on erring
workers pursuant to company rules and regulations. Thus, we find petitioner's protestation unfounded. For,
based on the record, respondent company imposed said penalty pursuant to the Company Code of Discipline
which the labor agencies find to be fair and in accordance with law. In fact, the penalty for violating the provision
on Neglect of Duty ranges from warning to dismissal depending on the gravity of the offense.Respondent
company explained that mishandling the delivery of highly flammable petroleum products could result in
enormous damage to properties and loss of lives at the terminal and surrounding areas. Hence, it has to exercise
extraordinary diligence in conducting its operations in view of the delicate nature of its business. Considering
the attendant circumstances, we are constrained to agree that the penalty of suspension first imposed on
petitioner is reasonable and appropriate as well as legally unassailable.
Next, petitioner challenges the legality of his dismissal from the service. He insists that respondent company
has no ground to lose trust and confidence on him to justify his dismissal. He vehemently denies tampering with
the gravitometer, much less admitting doing it. He also avers that it is inconceivable for him to do so since he
was with his co-workers, Noel Valle and Edgardo Yumul, at the time of said incident. Further, he claims that
there is no reason for him to commit such transgression.12
On its face, petitioner's contention would require the Court to delve into the findings of fact a quo. This we cannot
do. In the review of NLRC decisions through a special civil action for certiorari, we are confined only to issues
of want of jurisdiction and grave abuse of discretion on the part of the labor tribunal. We are precluded from
inquiring unto the correctness of the evaluation of that evidence that underpins the labor tribunal's conclusion
on matters of fact. Nor could we re-examine the evidence, re-evaluate the credibility of the witnesses, nor
substitute our findings of fact for those of an administrative body which has the authority and expertise in its
specialized field. Arguably, there may even be an error in judgment. This however is not within the ambit of the
extraordinary remedy of certiorari.13
Nevertheless, in this case, we note that the labor arbiter used every reasonable means to ascertain the facts by
giving the parties ample opportunity to present evidence. After both parties were heard, they filed their respective
affidavits, position papers and memoranda. In our view, the labor arbiter properly found that despite considering
these documentary evidence, averments of Flaviano Santos in his affidavit indicting petitioner for tampering with
the gravitometer and admitting the wrongdoing14 stand on solid ground. Further, petitioner did not quite succeed
to convince the respondent NLRC to rule otherwise.
Now, it must be emphasized that loss of trust and confidence constitutes a valid ground for dismissing an
employee. As provided for in the Labor Code: "ART. 282. Termination by employer. An employer may
terminate an employment for any of the following causes: . . . (c) Fraud or willful breach by the employee of the
trust reposed in him by his employer or duly authorized representative. . . ." Of course, it must be stressed also
that loss of confidence as a just cause for termination of employment is premised on the fact that an employee
concerned holds a position of trust and confidence. This situation holds where an employee or official of the
company is entrusted with responsibility involving delicate matters, such as the custody, handling, or care and
protection of the employer's property. In the case of company personnel occupying such positions of
responsibility, the Court has repeatedly held that loss of trust and confidence justifies termination. 15
As regards a managerial employee, moreover, mere existence of a basis for believing that such employee has
breached the trust of his employer would suffice for his dismissal. Proof beyond reasonable doubt is not required,
it being sufficient that there is some basis for such loss of confidence, such as when the employer has
reasonable ground to believe that the employee concerned is responsible for the purported misconduct, and the
nature of his participation therein renders him unworthy of the trust and confidence demanded by his position.16
In the case at bar, petitioner, is tasked to perform key functions; he is bound by an exacting work
ethic.1wphi1 He should have realized that his position requires the full trust and confidence of his employer in
every exercise of managerial discretion insofar as the conduct of his employer's business is concerned.
However, as found a quo, he committed acts which betrayed the trust and confidence reposed on him by
tampering with very sensitive equipment at the joint terminal facility. In doing so, he exposed the terminal
complex and the residents in adjacent communities to the danger of a major disaster that may be caused by
tank explosions and conflagration. Verily, he committed acts inimical to the interest of his employer which is
mandated by law to observe extraordinary diligence in its operations to ensure the safety of the public. Indeed,
we are constrained to conclude that petitioner's admitted infraction as well his past violation of safety regulations
is more than sufficient ground for respondent company to terminate the employment of petitioner.
In sum, public respondent NLRC could not be faulted for any grave abuse of discretion in ruling that petitioner's
suspension is legal and his dismissal well justified on the ground of loss of trust and confidence.
As regards the procedural aspect of petitioner's dismissal, it appears clear to us that petitioner was given ample
opportunity to present his side and to defend himself against the charges against him. Respondent company
sent petitioner a letter dated June 2, 1993, requiring him to answer the charges hurled against him. He
participated in the formal investigation conducted by respondent company on July 23 and August 3, 1993. After
the investigation was concluded, petitioner was notified of his dismissal. Under these attendant circumstances,
we find no basis for public respondent's ruling that respondent company breached legal procedure prior to
termination. Consequently, the award of indemnity for non-observance of due process is bereft of legal basis
and must be deleted.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of public respondent
NLRC, which upheld the Labor Arbiter's decision dismissing petitioner's complaint, is AFFIRMED with the
MODIFICATION that the award of indemnity in the amount equivalent to petitioner's one (1) month salary is
DELETED. No pronouncement as to costs
CAVITE APPAREL vs MARQUEZ

Petitioner: Cavite Apparel, Incorporated and Adriano Timoteo

Respondents: Michelle Marquez
Citation: GR No. 172044
Date of Promulgation: February 06, 2013
Ponente: Brion

FACTS:
Cavite Apparel domestic corporation engaged in the manufacture garments for export
August 22, 1994 Michelle was hired as a regular employee under the Finishing Department. She receives
among other benefits, VL and SL of 7 days per year
Prior to her dismissal on June 8, 2000, she committed the ff infractions
1. AWOL on Dec. 6, 1999 written warning
2. AWOL on Dec. 12, 2000 stern warning with 3 days suspension
3. AWOL on April 27, 2000 suspension for 6 days
May 8, 2000 Michelle got sick and did not report for work. When she returned, she submitted a medical
certificate
Cavite Apparel denied the receipt of Med Cert
May 15-27, 2000 She did not report to work due to illness
Despite submitting the necessary medcerts, she was suspended for 6 days (June 1-7, 2000)
When she returned on June 8, 2000, Michelle was dismissed for habitual absenteeism
July 4, 2000: Complaint for Illegal Dismissal with Prayer of Reinstatement, Backwages and Attorneys Fees
LA: dismissed her 4 absences without official leave = habitual and constitutive of gross neglect of duty;
her dismissal was valid
NLRC: reversed LAs decision --- 3 absences were already penalized by the 6 days suspension
CA: agrees with NLRC

ISSUE: W/N CA correctly found no grave abuse of discretion when the NLRC ruled that Cavite Apparel illegally
terminated Michelles employment?

HELD:

Michelles four absences were not habitual; "totality of infractions" doctrine not applicable

Cavite Apparel argues that Michelles penchant for incurring unauthorized and unexcused absences despite its
warning constituted gross and habitual neglect of duty prejudicial to its business operations. It insists that by
going on absence without official leave four times, Michelle disregarded company rules and regulations; if
condoned, these violations would render the rules ineffectual and would erode employee discipline.

Cavite Apparel disputes the CAs conclusion that Michelles four absences without official leave were not
habitual since she was able to submit a medical certificate for her May 8, 2000 absence. It asserts that, on the
contrary, no evidence exists on record to support this conclusion. It maintains that it was in the exercise of its
management prerogative that it dismissed Michelle; thus, it is not barred from dismissing her for her fourth
offense, although it may have previously punished her for the first three offenses. Citing the Courts ruling
in Mendoza v. NLRC,21 it contends that the totality of Michelles infractions justifies her dismissal.

We disagree and accordingly consider the companys position unmeritorious.

Neglect of duty, to be a ground for dismissal under Article 282 of the Labor Code, must be both gross
and habitual.Gross negligence implies want of care in the performance of ones duties. Habitual neglect
imparts repeated failure to perform ones duties for a period of time, depending on the
circumstances. Under these standards and the circumstances obtaining in the case, we agree with the CA that
Michelle is not guilty of gross and habitual neglect of duties.
Cavite Apparel faults the CA for giving credit to Michelles argument that she submitted a medical certificate to
support her absence on May 8, 2000; there was in fact no such submission, except for her bare allegations. It
thus argues that the CA erred in holding that since doubt exists between the evidence presented by the
employee and that presented by the employer, the doubt should be resolved in favor of the employee. The
principle, it contends, finds no application in this case as Michelle never presented a copy of the medical
certificate. It insists that there was no evidence on record supporting Michelles claim, thereby removing the
doubt on her being on absence without official leave for the fourth time, an infraction punishable with dismissal
under the company rules and regulations.

Cavite Apparels position fails to convince us. Based on what we see in the records, there simply cannot be
a case of gross and habitual neglect of duty against Michelle. Even assuming that she failed to present
a medical certificate for her sick leave on May 8, 2000, the records are bereft of any indication that apart
from the four occasions when she did not report for work, Michelle had been cited for any infraction
since she started her employment with the company in 1994. Four absences in her six years of service,
to our mind, cannot be considered gross and habitual neglect of duty, especially so since the absences
were spread out over a six-month period.

Michelles penalty of dismissal too harsh or not proportionate to the infractions she committed

Although Michelle was fully aware of the company rules regarding leaves of absence, and her dismissal might
have been in accordance with the rules, it is well to stress that we are not bound by such rules. In Caltex Refinery
Employees Association v. NLRCand in the subsequent case of Gutierrez v. Singer Sewing Machine
Company,we held that "[e]ven when there exist some rules agreed upon between the employer and employee
on the subject of dismissal, x x x the same cannot preclude the State from inquiring on whether [their] rigid
application would work too harshly on the employee." This Court will not hesitate to disregard a penalty that is
manifestly disproportionate to the infraction committed.

Michelle might have been guilty of violating company rules on leaves of absence and employee discipline, still
we find the penalty of dismissal imposed on her unjustified under the circumstances. As earlier mentioned,
Michelle had been in Cavite Apparels employ for six years, with no derogatory record other than the four
absences without official leave in question, not to mention that she had already been penalized for the first three
absences, the most serious penalty being a six-day suspension for her third absence on April 27, 2000.

While previous infractions may be used to support an employees dismissal from work in connection
with a subsequent similar offense, we cautioned employers in an earlier case that although they enjoy
a wide latitude of discretion in the formulation of work-related policies, rules and regulations, their
directives and the implemtation of their policies must be fair and reasonable; at the very least, penalties
must be commensurate to the offense involved and to the degree of the infraction.

As we earlier expressed, we do not consider Michelles dismissal to be commensurate to the four absences she
incurred for her six years of service with the company, even granting that she failed to submit on time a medical
certificate for her May 8, 2000 absence. We note that she again did not report for work on May 15 to 27, 2000
due to illness. When she reported back for work, she submitted the necessary medical certificates. The reason
for her absence on May 8, 2000 due to illness and not for her personal convenience all the more rendered
her dismissal unreasonable as it is clearly disproportionate to the infraction she committed.
Finally, we find no evidence supporting Cavite Apparels claim that Michelles absences prejudiced its
operations; there is no indication in the records of any damage it sustained because of Michelles absences.
Also, we are not convinced that allowing Michelle to remain in employment even after her fourth absence or the
imposition of a lighter penalty would result in a breakdown of discipline in the employee ranks. What the company
fails to grasp is that, given the unreasonableness of Michelles dismissal i.e., one made after she had already
been penalized for her three previous absences, with the fourth absence imputed to illness confirming the
validity of her dismissal could possibly have the opposite effect. It could give rise to belief that the company is
heavy-handed and may only give rise to sentiments against it.

In fine, we hold that Cavite Apparel failed to discharge the burden of proving that Michelles dismissal was for a
lawful cause. We, therefore, find her to have been illegally dismissed.

As a final point, we reiterate that while we recognize managements prerogative to discipline its
employees, the exercise of this prerogative should at all times be reasonable and should be tempered
with compassion and understanding. Dismissal is the ultimate penalty that can be imposed on an
employee. Where a penalty less punitive may suffice, whatever missteps may be committed by labor
ought not to be visited with a consequence so severe for what is at stake is not merely the employees
position but his very livelihood and perhaps the life and subsistence of his family.

WHEREFORE, premises considered, the petition is DENIED. The assailed January 23, 2006 decision and
March 23, 2006 resolution of the Court of Appeals in CA-G.R. SP No. 89819 are AFFIRMED. Costs against
Cavite Apparel, Incorporated.
SO ORDERED.

POLLO V CONSTANTINO-DAVID

PETITIONER: Briccio Ricky Pollo

RESPONDENTS: Chairperson Karina Constantino- David
Dir. IV Racquel De Guzman Buensalida
Dir. IV Lydia A. Castillo
Dir. III Engelbert Anthony D. Unite
 The Civil Service Commission
DOCKET NO.: G.R. No. 181881
PROMUL. DATE: Oct. 18, 2011
PONENTE: Villarama, Jr., J

FACTS:
January 3, 2007 - an unsigned letter-complaint addressed to respondent Civil Service Commission (CSC)
Chairperson Karina Constantino-David which was marked Confidential was received by the Integrated
Records Management Office (IRMO) at the CSC Central Office. The aforesaid letter was given directly to
Chairperson David.
The letter reads:
I would like to ask from you personally if it is just alright for an employee of your agency to be a lawyer of an
accused gov't employee having a pending case in the [CSC]. I honestly think this is a violation of law and unfair
to others and your office.
I have known that a person have been lawyered by one of your attorn[e]y in the [R]egion 4 office. He is the chief
of the ]Mamamayan Muna Hindi Mamaya Na Division]. He have been helping many who have pending cases
in the [CSC].
Chairperson David immediately formed a team of four personnel with background in information technology (IT),
and issued a memo directing them to conduct an investigation and specifically "to back up all the files in the
computers found in the Mamamayan Muna (PALD) and Legal divisions.

It was found that most of the files in the 17 diskettes containing files copied from the computer assigned to
and being used by the petitioner, numbering about 40 to 42 documents, were draft pleadings or letters in
connection with administrative cases in the CSC and other tribunals.
On the basis of this finding, Chairperson David issued the Show-Cause Order requiring the petitioner, who
had gone on extended leave, to submit his explanation or counter-affidavit within five days from notice.

PETITIONERS COMMENT:
He denied that he is the person referred to in the anonymous letter-complaint which had no attachments to
it, because he is not a lawyer and neither is he "lawyering" for people with cases in the CSC.
He asserted that he had protested the unlawful taking of his computer done while he was on leave, citing
the letter dated January 8, 2007 in which he informed Director Castillo that the files in his computer were his
personal files and those of his sister, relatives, friends and some associates and that he is not authorizing
their sealing, copying, duplicating and printing as these would violate his constitutional right to privacy and
protection against self-incrimination and warrantless search and seizure.
He pointed out that though government property, the temporary use and ownership of the computer issued
under a Memorandum of Receipt (MR) is ceded to the employee who may exercise all attributes of
ownership, including its use for personal purposes.

ISSUE: WON the search conducted by the CSC on the computer of the petitioner constituted an illegal
search and was a violation of his constitutional right to privacy

HELD:
 o Under the facts obtaining, the search conducted on petitioners computer was justified at its inception
and scope. We quote with approval the CSCs discussion on the reasonableness of its actions,
consistent as it were with the guidelines established by OConnor:
Even conceding for a moment that there is no such administrative policy, there is no doubt in
the mind of the Commission that the search of Pollos computer has successfully passed the
test of reasonableness for warrantless searches in the workplace as enunciated in the above-
discussed American authorities. It bears emphasis that the Commission pursued the search
in its capacity as a government employer and that it was undertaken in connection with an
investigation involving a work-related misconduct, one of the circumstances exempted from
the warrant requirement. At the inception of the search, a complaint was received recounting
that a certain division chief in the CSCRO No. IV was lawyering for parties having pending
cases with the said regional office or in the Commission. The nature of the imputation was
serious, as it was grievously disturbing. If, indeed, a CSC employee was found to be furtively
engaged in the practice of lawyering for parties with pending cases before the Commission
would be a highly repugnant scenario, then such a case would have shattering repercussions.
It would undeniably cast clouds of doubt upon the institutional integrity of the Commission as
a quasi-judicial agency, and in the process, render it less effective in fulfilling its mandate as
an impartial and objective dispenser of administrative justice. It is settled that a court or an
administrative tribunal must not only be actually impartial but must be seen to be so, otherwise
the general public would not have any trust and confidence in it.

o Considering the damaging nature of the accusation, the Commission had to act fast, if only to arrest
or limit any possible adverse consequence or fall-out. Thus, on the same date that the complaint was
received, a search was forthwith conducted involving the computer resources in the concerned
regional office. That it was the computers that were subjected to the search was justified since these
furnished the easiest means for an employee to encode and store documents. Indeed, the computers
would be a likely starting point in ferreting out incriminating evidence. Concomitantly, the ephemeral
nature of computer files, that is, they could easily be destroyed at a click of a button, necessitated
drastic and immediate action. Pointedly, to impose the need to comply with the probable cause
requirement would invariably defeat the purpose of the wok-related investigation.
o Worthy to mention, too, is the fact that the Commission effected the warrantless search in an open
and transparent manner. Officials and some employees of the regional office, who happened to be
in the vicinity, were on hand to observe the process until its completion. In addition, the respondent
himself was duly notified, through text messaging, of the search and the concomitant retrieval of files
from his computer.
o All in all, the Commission is convinced that the warrantless search done on computer assigned to
Pollo was not, in any way, vitiated with unconstitutionality. It was a reasonable exercise of the
managerial prerogative of the Commission as an employer aimed at ensuring its operational
effectiveness and efficiency by going after the work-related misfeasance of its employees.
Consequently, the evidence derived from the questioned search are deemed admissible.
o Petitioners claim of violation of his constitutional right to privacy must necessarily fail. His other
argument invoking the privacy of communication and correspondence under Section 3(1), Article III
of the 1987 Constitution is also untenable considering the recognition accorded to certain legitimate
intrusions into the privacy of employees in the government workplace under the aforecited
authorities.

EMIRATE V MENESE
PETITIONERS: Emirate Security and
Maintenance, Inc.
Roberto A. Yan
RESPONDENT: Glenda M. Menese
DOCKET NO.: G.R. No. 182848
PROMUL. DATE: October 5, 2011
PONENTE: Brion, J.

FACTS
GLENDA M. MENESE On June 5, 2001, filed a complaint for constructive dismissal; illegal reduction of
salaries and allowances; separation pay; refund of contribution to cash bond; overtime, holiday, rest day and
premium pay; damages; and attorneys fees

PETITIONERS ALLEGATIONS:
o On April 1, 1999 the agency engaged her services as payroll and billing clerk. She was assigned
to the agencys security detachment at the Philippine General Hospital (PGH).
o Monthly salary P9,200. Allowance P2,500, a total of P11,700.
o May 2001 allowance was reduced to P1,500, and P100 was deducted from her salary every month
as her contribution to a cash bond which lasted throughout her employment.
o Required to work 7d/week, from 8AM-5PM. Required to report for work on holidays, except on New
Years Day and Christmas.
o May 4, 2001 - she started getting pressures from the agency for her to resign from her position
because it had been committed to a certain Amy Claro, a protge of Mrs. Violeta G. Dapula (Dapula)
the new chief of the Security Division of the University of the Philippines (UP) Manila and PGH.
o Menese raised the matter with Yan who told her that the agency was in the process of establishing
goodwill with Dapula, so it had to sacrifice her position to accommodate Dapulas request to hire
Claro.
o Menese claimed that she was told not to worry because if she was still interested in working with the
agency, she could still be retained as a lady guard with a salary equivalent to the minimum wage.
She would then be detailed to another detachment because Dapula did not like to see her around
anymore. If the offer was acceptable to her, she should report to the agencys personnel officer for
the issuance of the necessary duty detail order. Menese thought about the offer and soon realized
that she was actually being demoted in rank and salary. She eventually decided to decline the offer.
She continued reporting to the PGH detachment and performed her usual functions as if nothing
happened.
o Menese alleged that at this juncture, Claro reported at the agencys PGH detachment and performed
the functions she was doing. She bewailed that thereafter she continuously received harassment
calls and letters. She was also publicly humiliated and badly treated at the detachment. The agency,
through Security Officer Alton Acab, prohibited her from using the office computer.
o May 18, 2001 Jose Dante Chan (PGH detachment commander), arrogantly told her to leave PGH.
o May 25, 2001 Chan shouted at her and told her to pack her things and to leave immediately, and
not to return to the detachment anymore; otherwise, she would be physically driven out of the office.
o The petitioners allegedly withheld her salary for May 16-31, 2001.
 RESPONDENTS DEFENSE:
o May 8, 2001 - Dapula informed the agency in writing, through Yan, that she had been receiving
numerous complaints from security guards and other agency employees about Meneses
unprofessional conduct.
o She told the petitioners that she was not tolerating Meneses negative work attitude despite the fact
that she is the wife of Special Police Major Divino Menese who is a member of the UP Manila police
force, and that as a matter of policy and out of delicadeza, she does not condone nepotism in her
division.
o On the basis of Dapulas letter, Yan sent Menese a memorandum dated May 16, 2001, instructing
her to report to the agencys head office and, there and then, discussed with her Dapulas letter. Yan
informed Menese that upon Dapulas request, she would be transferred to another assignment which
would not involve any demotion in rank or diminution in her salary and other benefits.
o Although Menese said that she would think about the matter, the petitioners were surprised to receive
summons from the labor arbiter regarding the complaint.

LABOR ARBITER
o Mar. 14, 2002 LA Jovencio LL Mayor, Jr. DECLARED MENESE TO HAVE BEEN
CONSTRUCTIVELY DISMISSED.
o He found the petitioners wanting in good faith in transferring Menese to another detachment as she
would be suffering a demotion in rank and a diminution in pay.

NLRC
o GRANTING THE APPEAL AND REVERSING THE LABOR ARBITERS DECISION. It ruled that
Menese was not constructively dismissed but was merely transferred to another detachment. It
opined that the transfer was a valid exercise of the petitioners management prerogative.
o However, it ruled that despite Meneses refusal to accept the transfer, she cannot be made liable for
abandonment as her refusal was based on her honest belief that she was being constructively
dismissed.
o However, it ruled that despite Meneses refusal to accept the transfer, she cannot be made liable for
abandonment as her refusal was based on her honest belief that she was being constructively
dismissed.
o The NLRC ordered Menese, at her option, to immediately report to the agencys head office and the
agency to accept her back to work. It absolved Yan from liability, and deleted the award of
backwages, overtime pay and damages.

COURT OF APPEALS
o GRANTED THE PETITION, on its decision dtd Feb. 28, 2008.
o It set aside the assailed resolutions of the NLRC and reinstated the March 14, 2002 decision of the
labor arbiter.
o As the labor arbiter did, the CA found Menese to have been constructively, and therefore illegally,
dismissed. It noted that the memoranda on Meneses transfer were prompted by Daculas letter, dated
May 8, 2001, to Yan, which contained allegations on Meneses supposed unprofessional conduct and
involvement in nepotism. It further noted that when Yan asked Dapula in writing to provide the agency
with documents/evidence that would support her allegations, she failed to do so. The CA thus
concluded that the reasons for Meneses transfer did not exist or that no substantial evidence was
presented in that regard.
 o The CA sustained all the other findings of the labor arbiter. On the whole, it ruled that the NLRC
misappreciated the evidence in the case. The petitioners moved for reconsideration, but the CA
denied the motion in its resolution of May 14, 2008.

ISSUE: WON Mense was illegally dismissed

RULING
o We deny the petition for lack of merit. The evidence of Meneses unwarranted, unjustified and, in her
own language, unceremonious dismissal is so glaring that to ignore it is to commit, as the NLRC did,
grave abuse of discretion.
o We note as a starting point that at the time material to the case, Menese ceased to be the agencys
payroll and billing clerk at its PGH detachment. The position was taken away from her as she had
been transferred to the agencys main office on Ortigas Avenue, Mandaluyong City, upon the request
of Dapula, the new chief of the UP-PGH Security Division. The transfer was to be carried out through
a memorandum dated May 16, 2001 issued by Yan; a second memorandum dated May 22, 2001
issued by Personnel Officer Edwin J. Yabes, reminding Menese of Yans instruction for her to report
to the main office; and a third memorandum dated May 28, 2001, also issued by Yabes informing
Menese that it was her second notice to assume her work detail at the main office. Yabes instructed
her to report for work on May 30, 2001.
o On a superficial consideration, the petitioners position looks unassailable as indeed an employer can
regulate, generally without restraint and according to its own discretion and judgment, every aspect
of its business, including work assignments and transfer of employees, subject only to limitations
imposed by law. This submission, however, glossed over or suppressed a crucial factor in the present
labor controversy. We refer to Dapulas letter to Yan in early May 2001, asking for Meneses transfer
allegedly due to numerous complaints from security guards and co-workers regarding her
unprofessionalism and because of nepotism; Menese is the wife of a member of the UP Manila police
force.
o Had Yan inquired into Dapulas claim of Meneses alleged unprofessionalism, ideally through an
administrative investigation, he could have been provided with a genuine reason assuming proof of
Dapulas accusation existed for Meneses transfer or even for her dismissal, if warranted. That the
agency did not get into the bottom of Dapulas letter before it implemented Meneses transfer is
indicative of the sheer absence of an objective justification for the transfer. The most that the agency
did was to write Dapula a letter, through Yan, asking her to provide documents/evidence in support
of her request for Meneses transfer. Significantly, Yans request came after the labor arbiters
summons to Yan regarding Meneses complaint. Dapula never responded to Yans letter and neither
did she provide the evidence needed for the agencys defense in the complaint.
o As Menese noted, the petitioners did not submit as annex to the petition Yans letter to Dapula, and
the reason appears to be obvious they were trying to avoid calling attention to the absence of proof
of Meneses alleged unprofessionalism and her involvement in nepotism. Evidently, the basis for
Dapulas request did not exist. We thus find credible Meneses contention that her transfer was a ploy
to remove her from the PGH detachment to accommodate the entry of Dapulas protge. In short, the
agency wanted to create a vacancy for Claro, the protge. Confronted with this clear intent of the
petitioners, we cannot see how Meneses transfer could be considered a valid exercise of
management prerogative. As Menese rightly put it, her transfer was arbitrarily done, motivated no
less by ill will and bad faith.
o We cannot blame Menese for refusing Yans offer to be transferred. Not only was the transfer arbitrary
and done in bad faith, it would also result, as Menese feared, in a demotion in rank and a diminution
in pay. Although Yan informed Menese that based on the request of the client, she will be transferred
to another assignment which however will not involve any demotion in rank nor diminution in her
 salaries and other benefits, the offer was such as to invite reluctance and suspicion as it was couched
in a very general manner. We find credible Meneses submission on this point, i.e., that under the
offered transfer: (1) she would hold the position of lady guard and (2) she would be paid in
accordance with the statutory minimum wage, or from P11,720.00 to P7,500.00.
o In these lights, Meneses transfer constituted a constructive dismissal as it had no justifiable basis
and entailed a demotion in rank and a diminution in pay for her. For a transfer not to be considered
a constructive dismissal, the employer must be able to show that the transfer is for a valid reason,
entails no diminution in the terms and conditions of employment, and must be unreasonably
inconvenient or prejudicial to the employee. If the employer fails to meet these standards, the
employees transfer shall amount, at the very least, to constructive dismissal.
o Yan had been aware all the time of the utter lack of a valid reason for Meneses transfer. He had been
aware all the time that Dapulas charges against Menese the ostensible reason for the transfer were
nonexistent as Dapula failed to substantiate the charges. He was very much a part of the flagrant
and duplicitous move to get rid of Menese to give way to Claro, Dapulas protge.
o Based on the facts, Yan is as guilty as the agency in causing the transfer that was undertaken in bad
faith and in a wanton and oppressive manner. Thus, he should be solidarily liable with the agency
for Meneses monetary awards.
o While the labor arbiter declared that Meneses claim for overtime pay is unrebutted and, indeed,
nowhere in the petitioners position paper did they controvert Meneses claim, we hold that the claim
must still be substantiated. In Global Incorporated v. Commissioner Atienza, a claim for overtime pay
will not be granted for want of factual and legal basis. In this respect, the records indicate that the
labor arbiter granted Meneses claim for holiday pay, rest day and premium pay on the basis of
payrolls. There is no such proof in support of Meneses claim for overtime pay other than her
contention that she worked from 8:00 a.m. up to 5:00 p.m. She presented no evidence to show that
she was working during the entire one hour meal break. We thus find the NLRCs deletion of the
overtime pay award in order.
o Also, the NLRC noted that the award of P2,600.00 for the refund of the cash bond deposit is
overstated and should be adjusted to P600.00 only, as indicated by the payrolls. We likewise find the
adjustment in order.
o All told, except for the above clarifications on the overtime pay award and the refund of the cash
bond deposit, we reiterate and so declare the petition to be devoid of merit.
o WHEREFORE, premises considered, except for the overtime pay award and the refund of deposit
for the cash bond, the petition is DENIED for lack of merit. The assailed decision and resolution
of the Court of Appeals are AFFIRMED, with the following modifications:
1) The deletion of the overtime pay award; and
2) Adjustment of the refund of the cash or surety bond deposit award from P2,500.00 to P600.00.

PECKSON V ROBINSONS

PETITIONER: Jenny F. Peckson

RESPONDENTS: Robinsons Supermarket Corporation
Jody Gadia
Roena Sarte
Ruby Alex
DOCKET NO.: G.R. No. 198534
PROMUL. DATE: July 3, 2013
PONENTE: Reyes, J.

FACTS
JENNY F. PECKSON first joined RSC as a Sales Clerk on Nov. 23, 1987
o Oct. 26, 2006 - she was holding the position of Category Buyer when respondent Roena Sarte
(Sarte), RSCs Assistant Vice-President for Merchandising, reassigned her to the position of
Provincial Coordinator, effective November 1, 2006.
o Claiming that her new assignment was a demotion because it was non-supervisory and clerical
in nature, the petitioner refused to turn over her responsibilities to the new Category Buyer, or to
accept her new responsibilities as Provincial Coordinator. Jody Gadia (Gadia) and Ruby Alex (Alex)
were impleaded because they were corporate officers of the RSC.
o November 13, 2006 RSC, through Sarte, demanded an explanation from her within 48 hours for
her refusal to accept her new assignment despite written and verbal demands. Sarte cited a company
rule, Offenses Subject to Disciplinary Action No. 4.07, which provided that [d]isobedience, refusal
or failure to do assigned task or to obey superiors/officials orders/instructions, or to follow
established procedures or practices without valid reason would be meted the penalty of suspension.
The petitioner ignored the 48-hour deadline to explain imposed by Sarte.
o November 23, 2006 - Sarte issued her another memorandum, reiterating her demand to explain in
writing within 48 hours why she persistently refused to assume her new position, and warning her
that this could be her final chance to present her side or be deemed to have waived her right to be
heard.
o November 27, 2006 one-paragraph reply. The petitioner stated that she could not accept the
position of Provincial Coordinator since she saw it as a demotion. As it turned out, however, on
November 9, 2006, the petitioner had already filed a complaint for constructive dismissal against
RSC, Sarte, Gadia and Alex (respondents).
o November 30, 2006 - Sarte issued an instruction to the petitioner to report to RSCs Metroeast Depot
to help prepare all shipping manifests for Cagayan de Oro and Bacolod, but as witnessed by RSC
employees Raquel Torrechua and Alex, she did not obey as instructed.
o Dec. 8, 2006 - Sarte issued a similar instruction, citing the need for certain tasks from the petitioner
in preparation for the coming Christmas holidays, but the petitioner again refused to heed.

PETITIONERS ARGUMENTS
o the petitioner argued before the LA that the true organizational chart of the RSC showed that the
position of Category Buyer was one level above that of the Provincial Coordinator, and that moreover,
the job description of a Provincial Coordinator was largely clerical and did not require her to analyze
stock levels and order points, or source new local and international suppliers, or monitor stock level
per store and recommend items for replenishment, or negotiate better items and discounts from
suppliers, duties which only a Category Buyer could perform.
o She also claimed that she was instructed to file a courtesy resignation in exchange for a separation
pay of one-half salary per year of service.

RESPONDENTS DENIAL IN THEIR POSITION PAPER

o denied the correctness of the organizational chart presented by the petitioner.
o They maintained that her transfer was not a demotion since the Provincial Coordinator occupied a
Level 5 position like the Category Buyer, with the same work conditions, salary and benefits.
o The respondents also raised the petitioners record of habitual tardiness as far back as 1999, as well
as poor performance rating in 2005.
 o In addition to her performance rating of 2.8 out of 4.0 in 2005 equivalent to below expectation,
the petitioner was found to be tardy in June and July 2005, 13 times, and for the entire 2005, 57
times; that she was suspended twice in 2006 for 20 instances of tardiness and absences from July
to September 2006 alone. We also note that the petitioner was suspended for seven (7) days in
September and October 2005 for deliberately violating a company policy after she was seen having
lunch with a company supplier.

LABOR ARBITER
o In dismissing the petitioners complaint, the LA in its Decision dated May 30, 2007 ruled that job
reassignment or classification is a strict prerogative of the employer, and that the petitioner cannot
refuse her transfer from Category Buyer to Provincial Coordinator since both positions commanded
the same salary structure, high degree of responsibility and impeccable honesty and integrity.
o Moreover, the LA ruled that her persistent refusal to accept her new position amounted to
insubordination, entitling the RSC to dismiss her from employment.

NLRC
o the NLRC in its Decision dated February 25, 2009 sustained the findings of the LA.
o It agreed that the lateral transfer of the petitioner from Category Buyer to Provincial Coordinator was
not a demotion amounting to constructive dismissal, since both positions belonged to Job Level 5
and between them there is no significant disparity in terms of the requirements of skill, experience
and aptitude.
o The NLRC then reiterated the settled rule that management may transfer an employee from one
office to another within the business establishment, provided there is no demotion in rank or
diminution of salary, benefits, and other privileges, and the action is not motivated by discrimination
or bad faith or effected as a form of punishment without sufficient cause.

COURT OF APPEALS
o In its Decision dated June 8, 2011, the CA found no basis to deviate from the oft-repeated tenet that
the findings of fact and conclusions of the NLRC when supported by substantial evidence are
generally accorded not only great weight and respect but even finality, and are thus deemed binding.

ISSUE: WON the petitioners lateral transfer from Category Buyer to Provincial Coordinator was a demotion
amounting to constructive dismissal

HELD:
o This Court has consistently refused to interfere with the exercise by management of its prerogative
to regulate the employees work assignments, the working methods and the place and manner of
work.
o As a privilege inherent in the employers right to control and manage its enterprise effectively,
its freedom to conduct its business operations to achieve its purpose cannot be denied. We
agree with the appellate court that the respondents are justified in moving the petitioner to another
equivalent position, which presumably would be less affected by her habitual tardiness or
inconsistent attendance than if she continued as a Category Buyer, a frontline position in the day-
to-day business operations of a supermarket such as Robinsons.
 o If the transfer of an employee is not unreasonable, or inconvenient, or prejudicial to him, and
it does not involve a demotion in rank or a diminution of his salaries, benefits and other
privileges, the employee may not complain that it amounts to a constructive dismissal.
o Interestingly, although the petitioner claims that she was constructively dismissed, yet until the
unfavorable decision of the LA on May 30, 2007, for 7 months she continued to collect her salary
while also adamantly refusing to heed the order of Sarte to report to the Metroeast Depot. It was only
on June 22, 2007, after the LAs decision, that she filed her forced resignation. Her deliberate and
unjustified refusal to assume her new assignment is a form of neglect of duty, and according to the
LA, an act of insubordination. We saw how the company sought every chance to hear her out on her
grievances and how she ignored the memoranda of Sarte asking her to explain her refusal to accept
her transfer. All that the petitioner could say was that it was a demotion and that her floating status
embarrassed her before the suppliers and her co-employees.

ORCHARD GOLF V FRANCISCO

PETITIONERS: The Orchard Golf & Country Club, Inc.,

Exequiel D. Robles
Carlo R.H. Magno
Conrado L. Benitez II
Vicente R. Santos
Henry Cua Loping
Mariza Santos-Tan
Tomas B. Clemente III
Francis C. Montallana
RESPONDENTS: Ernesto V. Yu
Manuel C. Yuhico
DOCKET NO.: G.R. No. 191033
PROMUL. DATE: January 11, 2016
PONENTE: Peralta, J.

FACTS
May 28, 2000 - Ernesto Yu and Manuel Yuhico went to the Orchard Golf & Country Club to play a round of
golf with another member of the club.
At the last minute, however, that other member informed them that he could not play with them. Due to the
"no twosome" policy of the Orchard contained in the membership handbook prohibiting groups of less than
three players from teeing off on weekends and public holidays before 1:00 p.m., [respondents] requested
management to look for another player to join them.
Because [Orchard] were unable to find their third player, [respondent] Yu tried to convince Francis
Montallana, Orchard's assistant golf director, to allow them to play twosome, even if they had to tee off from
hole no. 10 of the Palmer golf course. Montallana refused, stating that the flights which started from the first
nine holes might be disrupted.
[Respondent] Yu then shouted invectives at Montallana, at which point he told [respondent] Yuhico that they
should just tee off anyway, regardless of what management's reaction would be. [Respondents] then teed
off without permission from Montallana.
 They were thus able to play, although they did so without securing a tee time control slip before teeing off,
again in disregard of a rule in the handbook. As a result of [respondents] actions, Montallana filed a report
on the same day with the board of directors (the board).
May 31, 2000 the board, through Clemente, requested [respondents] to submit their written comments on
Montallanas incident report dated May 28, 2000. The report was submitted for the consideration of the
board.
June 29, 2000 - the board resolved to suspend [respondents] from July 16 to October 15, 2000, and
served notice thereof on them.
July 11, 2000 - [respondents] filed separate petitions for injunction with application for temporary restraining
order (TRO) and/or preliminary injunction with the Securities Investigation and Clearing Department (SICD)
of the Securities and Exchange Commission (SEC), at that time the tribunal vested by law with jurisdiction
to hear and decide intra-corporate controversies.
July 14, 2000 the SEC-SICD issued a TRO effective for 20 days from issuance, restraining and
enjoining [petitioners], their agents or representatives from implementing or executing the
suspension of [respondents].
August 2, 2000 - After hearing [respondents] applications for preliminary injunction, the SEC-SICD directed
the issuance of a writ of preliminary injunction enjoining the individual [petitioners], their agents and
representatives from suspending [respondents], upon the latter's posting of separate bonds of P40,000. This
[respondents] did on August 4, 2000.
August 7, 2000 - the SEC-SICD issued a writ of preliminary injunction against [petitioners] directing them to
strictly observe the order dated August 2, 2000.
December 4, 2000 - [petitioner] Clemente informed them through separate letters addressed to each
respondent, that the board was implementing their suspensions.
December 12, 2000 - [respondents] filed a petition for indirect contempt against [petitioners] in the Regional
Trial Court (RTC) of Dasmarinas, Cavite
December 13, 2000 - the Dasmarinas, Cavite RTC, Branch 90, through Judge Dolores [L.] Espaol,
directed the parties to maintain the last, actual, peaceable and uncontested state of things,
effectively restoring the writ of preliminary injunction, and also ordered [petitioners] to file their
answer to the petition.
CA REVERSED THE DASMARINAS, CAVITE RTC IN THE DECISION DATED August 27, 2001.
o In view of the CAs decision in CA-G.R. SP No. 62309, [petitioners] finally implemented
[respondents] suspension.
In the meantime, [respondents] filed a motion ad cautelam dated August 30, 2001 in the RTC of Imus, Cavite,
Branch 21, praying for the issuance of a TRO and/or writ of injunction to enjoin [petitioners] from
implementing the suspension orders.
Sept. 7, 2001 - the Imus, Cavite RTC issued a TRO. [Petitioners] filed a motion for reconsideration on
September [11,] 2001.
Sept. 12, 2001 respondents filed a motion for reconsideration of the CA decision. CA denied the MR.
More importantly, the substantive merits of the case deserve Our utmost consideration.

In the present case, Yu acknowledged that there was an offense committed. Similarly, Yuhico admitted that he
was aware or had prior knowledge of the Club's "no twosome" policy as contained in the Club's Membership
Handbook and that they teed off without the required tee time slip. Also, while Yu recognized telling Montallana
"kamote ka," Yuhico heard him also say that he (Montallana) is "gago."
Respondents assert that the "no twosome" policy was relaxed by the management when a member or player
would not be prejudiced or, in the words of Yu, allowed when "maluwag." Yet a thorough reading of the transcript
of stenographic records (TSN) disclosed that such claim is based not on concrete examples. No specific instance
as to when and under what circumstance the supposed relaxation took place was cited. Yuhico roughly
recollected two incidents but, assuming them to be true, these happened only after May 28, 2000. Further, the
tee pass or control slip and the Club's Palmer Course Card, which was identified by respondents' witness, Pepito
Dimabuyo, to prove that he and another member were allowed to play twosome on June 13, 2004, a Sunday,
indicated that they were allowed to tee off only at 1:45 p.m. Lastly, granting, for the sake of argument, that the
"no twosome" policy had been relaxed in the past, Montallana cannot be faulted in exercising his prerogative to
disallow respondents from playing since they made no prior reservation and that there were standing flights
waiting for tee time. Per Cipriano Santos' Report, May 28, 2000 was a relatively busy day as it had 200 registered
players to accommodate as of 8:00 a.m.

It was averred that respondents teed off without the required tee time slip based on the thinking that it was no
longer necessary since Santos, the Club's Manager, allowed them by waving his hands when Yuhico's caddie
tried to pick up the slip in the registration office. Such excuse is flimsy because it ignored the reality that Santos,
a mere subordinate of Montallana who already earned the ire of Yu, was practically more helpless to contain
the stubborn insistence of respondents.

Definitely, the contentions that respondents were not stopped by the management when they teed off and that
they did not cause harm to other members playing golf at the time for absence of any complaints are completely
immaterial to the fact that transgressions to existing Club rules and regulations were committed. It is highly
probable that they were tolerated so as to restore the peace and avoid further confrontation and inconvenience
to the parties involved as well as to the Club members in general.

With regard to the purported damages they incurred, respondents testified during the trial to support their
respective allegations. Yuhico stated that he distanced himself from his usual group (the "Alabang Boys") and
that he became the butt of jokes of fellow golfers. On the other hand, Yu represented that some of his friends in
the business like Freddy Lim, a certain Atty. Benjie, and Jun Ramos started to evade or refuse to have dealings
with him after his suspension. Apart from these self-serving declarations, respondents presented neither
testimonial nor documentary evidence to bolster their claims. Worse, Yu even admitted that Freddy Lim and
Atty. Benjie did not tell him that his suspension was the reason why they did not want to transact with him.

Records reveal that respondents were given due notice and opportunity to be heard before the Board of
Directors imposed the penalty of suspension as Club members. Respondent Yu was served with the May 31,
2000 letter signed by then Acting General Manager Tomas B. Clemente III informing that he violated the "no
twosome" policy, teed off without the required tee time slip, and uttered derogatory remarks to Montallana in
front of another member and the caddies. In response, Yu's counsel asked for a copy of Montallana's report and
a formal hearing to confront the complainant and all the witnesses. Subsequently, on June 13, 2000, Yu, through
counsel, submitted his explanation that included an admission of the "no twosome" policy. Finally, on September
15, 2000, Yu was advised of the Board resolution to give him another opportunity to present his side in a meeting
supposed to be held on September 20, 2000. It appears, however, that Yu refused to attend.

Likewise, respondent Yuhico was given by Clemente a letter dated May 31, 2000 informing him of violating the
"no twosome" policy and teeing, off without the required tee time slip. After receiving the same, Yuhico called
up Clemente to hear his side. Like Yu, however, Yuhico later refused to attend a meeting with the Board.

Respondents were suspended in accordance with the procedure set forth in the Club's By-laws. There is no
merit on their insistence that their suspension is invalid on the ground that the affirmative vote of eight (8)
members is required to support a decision suspending or expelling a Club member. Both the provisions of
Articles of Incorporation and By-Laws of the Club expressly limit the number of directors to seven (7); hence,
the provision on suspension and expulsion of a member which requires the affirmative vote of eight (8) members
is obviously a result of an oversight. Former Senator Helena Z. Benitez, the Honorary Chairperson named in
the Membership Handbook, could not be included as a regular Board member since there was no evidence
adduced by respondents that she was elected as such pursuant to the Corporation Code and the By-laws of the
Club or that she had the right and authority to attend and vote in Board meetings. In addition, at the time the
Board resolved to suspend respondents, the affirmative votes of only six (6) Board members already sufficed.
The testimony of Jesus A. Liganor, who served as Assistant Corporate Secretary, that Rodrigo Francisco had
not attended a single Board meeting since 1997 remains uncontroverted.49 The Court agrees with petitioners
that the Club should not be powerless to discipline its members and be helpless against acts inimical to its
interest just because one director had been suspended and refused to take part in the management affairs.

Lastly, contrary to respondents' position, the recommendation of the House Committee to suspend a Club
member is not a pre-requisite. Section 1, Article XIV, not Section 2 (b), Article XI, of the By-Laws governs as it
outlines the procedure for the suspension of a member. Even assuming that the recommendation of the House
Committee is mandatory, respondents failed to prove, as a matter of fact, that petitioners acted in bad faith in
relying on the subject provision, which employs the permissive word "may" in reference to the power of the
House Committee to recommend anytime the suspension of a Club member.

WHEREFORE, premises considered, the petition is GRANTED. The Resolutions dated September 16, 2009
and January 21, 2010 of the Court of Appeals in CA-G.R. SP No. 106918, which reconsidered and set aside
its Resolution dated January 15, 2009, granting petitioners a fifteen-day period within which to file a petition
for review under Rule 43 of the Rules, is ANNULLED AND SET ASIDE. SEC Case Nos. 001-01 and 002-01
filed and raffled before the Regional Trial Court, Branch 21 of Imus, Cavite are hereby DISMISSED for lack
of merit. Respondents are ORDERED TO RETURN to petitioners the total amount of P9,200,000.00 or
P4,600,000.00 each, within THIRTY (30) DAYS from the time this decision becomes final and executory.
Thereafter, said amount shall earn legal interest of six percent (6%) per annum until fully paid.

NORKIS V GNILO

PETITIONER: Norkis Trading Co.,

Inc. and/or
Manuel Gaspar E. Albos, Jr.,
RESPONDENT: Melvin Gnilo
DOCKET NO.: G.R. No. 159730
PROMUL. DATE: February 11, 2008
PONENTE: Austria-Martinez, J

FACTS:
MELVIN GNILO - was initially hired by Norkis Trading Co., Inc. (petitioner Norkis) as Norkis Installment
Collector (NIC) in April 1988.
o Manuel Gaspar E. Albos, Jr. (petitioner Albos) is the Senior Vice-President of petitioner Norkis.
o Respondent held various positions in the company until he was appointed as Credit and Collection
Manager of Magna Financial Services Group, Inc.-Legaspi Branch, petitioner Norkis sister company,
 in charge of the areas of Albay and Catanduanes with travel and transportation allowances and a
service car.
A special audit team was conducted in respondents office in Legaspi, Albay from March 13 to April 5, 2000
when it was found out that respondent forwarded the monthly collection reports of the NICs under his
supervision without checking the veracity of the same.
o It appeared that the monthly collection highlights for the months of April to September 1999 submitted
by respondent to the top management were all overstated particularly the account handled by NIC
Dennis Cadag, who made it appear that the collection efficiency was higher than it actually was; and
that the top management was misled into believing that respondents area of responsibility obtained
a favorable collection efficiency.
Respondent was then charged by petitioners' Inquiry Assistance Panel (Panel) with negligence of
basic duties and responsibilities resulting in loss of trust and confidence and laxity in directing and
supervising his own subordinates.
o During the investigation, respondent admitted that he was negligent for failing to regularly check the
report of each NIC under his supervision; that he only checked at random the NIC's monthly collection
highlight reports; and that as a leader, he is responsible for the actions of his subordinates. He
however denied being lax in supervising his subordinates, as he imposed discipline on them if the
need arose.
May 30, 2000 Norkis issued a memorandum placing respondent under 15 days suspension without
pay, travel and transportation allowance, effective upon receipt thereof.
o Respondent filed a letter protesting his suspension and seeking a review of the penalty imposed.
June 30, 2000 another memo was issued to respondent requiring him to report on July 5, 2000 to the head
office of petitioner Norkis in Mandaluyong City for a re-training or a possible new assignment without
prejudice to his request for a reconsideration or an appeal of his suspension.
July 27, 2000 - respondent requested petitioner Albos that he be assigned as Sales Engineer or to any
position commensurate with his qualifications. However, on July 28, 2000, respondent was formally
appointed as Marketing Assistant to petitioner Albos, which position respondent subsequently assumed.
October 4, 2000, respondent filed with the Labor Arbiter (LA) a complaint for illegal suspension, constructive
dismissal, non-payment of allowance, vacation/sick leave, damages and attorney's fees against petitioners.

LABOR ARBITER
o March 30, 2001, the LA rendered his decision dismissing the complaint for lack of merit.
o The LA found that the position of Credit and Collection Manager held by respondent involved a high
degree of responsibility requiring trust and confidence; that his failure to observe the required
procedure in the preparation of reports, which resulted in the overstated collection reports
continuously for more than six months, was sufficient to breach the trust and confidence of petitioners
and was a valid ground for termination; that instead of terminating him, petitioners merely imposed a
15-day suspension which was not illegal; and that petitioners exercised their inherent prerogative as
an employer when they appointed respondent as a Marketing Assistant.

NLRC DECISION
o In a Resolution dated January 29, 2002, the NLRC reversed the LA.
WHEREFORE, premises considered, complainant's appeal is partly GRANTED. The Labor
Arbiter's decision in the above-entitled case is REVERSED. It is hereby declared that
complainant was constructively dismissed from his employment. Respondent Norkis Trading
Co., Inc is ordered to pay complainant the amount of P411,796.00 as backwages and
separation pay, plus ten percent (10%) thereof as attorney's fees.
 o the NLRC found that the 15-day suspension cannot be considered harsh and unconscionable as
petitioners validly exercised their management prerogative to impose discipline on an erring
employee for negligence by submitting unreliable and inaccurate reports for six consecutive months
to the top management who used the reports in their planning and decision-making activities, and
thus caused damage or injury one way or another to petitioners. It however held that the transfer of
respondent from the position of Credit and Collection Manager to Marketing Assistant resulted in his
demotion in rank from Manager to a mere rank and file employee, which was tantamount to
constructive dismissal and therefore illegal.
o The NLRC ruled that respondent was constructively dismissed and therefore he was entitled to
reinstatement and payment of full backwages from the time he quit working on October 19, 2000 due
to his demotion up to the time of his actual reinstatement. However, it found that the parties'
relationship was already strained on account of this case; thus, it ordered the payment of respondents
separation pay equivalent to his one-month salary for every year of service. It upheld the LA's
dismissal of respondent's prayer for damages for failure to submit substantial evidence to support
the same, but awarded attorney's fees.

COURT OF APPEALS
o On June 20, 2003, the CA rendered its assailed Decision denying the petition and affirming the NLRC
Resolutions.

ISSUE: whether respondent's transfer from the position of Credit and Collection Manager to that of a
Marketing Assistant amounts to a constructive dismissal.

HELD:
o Well-settled is the rule that it is the prerogative of the employer to transfer and reassign employees
for valid reasons and according to the requirement of its business.[13] An owner of a business
enterprise is given considerable leeway in managing his business. Our law recognizes certain rights,
collectively called management prerogative as inherent in the management of business enterprises.
We have consistently recognized and upheld the prerogative of management to transfer an employee
from one office to another within the business establishment, provided that there is no demotion in
rank or diminution of his salary, benefits and other privileges[14] and the action is not motivated by
discrimination, made in bad faith, or effected as a form of punishment or demotion without sufficient
cause.[15] This privilege is inherent in the right of employers to control and manage their enterprises
effectively.[16]

o The right of employees to security of tenure does not give them vested rights to their positions to the
extent of depriving management of its prerogative to change their assignments or to transfer them.
Managerial prerogatives, however, are subject to limitations provided by law, collective bargaining
agreements, and general principles of fair play and justice.[17]

o The employer bears the burden of showing that the transfer is not unreasonable, inconvenient or
prejudicial to the employee; and does not involve a demotion in rank or a diminution of his salaries,
privileges and other benefits.[18] Should the employer fail to overcome this burden of proof, the
employees transfer shall be tantamount to constructive dismissal.

o Constructive dismissal is defined as a quitting because continued employment is rendered

impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution of pay.[20]
Likewise, constructive dismissal exists when an act of clear discrimination, insensibility or disdain by
 an employer becomes unbearable to the employee, leaving him with no option but to forego his
continued employment.[21]
o
o A transfer is defined as a movement from one position to another which is of equivalent rank, level
or salary, without break in service.[22] Promotion, on the other hand, is the advancement from one
position to another with an increase in duties and responsibilities as authorized by law, and usually
accompanied by an increase in salary.[23] Conversely, demotion involves a situation in which an
employee is relegated to a subordinate or less important position constituting a reduction to a lower
grade or rank, with a corresponding decrease in duties and responsibilities, and usually accompanied
by a decrease in salary.[24]
o
o In this case, while the transfer of respondent from Credit and Collection Manager to Marketing
Assistant did not result in the reduction of his salary, there was a reduction in his duties and
responsibilities which amounted to a demotion tantamount to a constructive dismissal as correctly
held by the NLRC and the CA.
o
o A comparison in the nature of work of these two positions shows a great difference. As Credit and
Collection Manager, respondent was clothed with all the duties and responsibilities of a managerial
employee. He could devise and implement action plans to meet his objectives and exercise
independent judgment in resolving problem accounts. He had power and control over NICs, Branch
Control Officers (BCOs) and Cashiers under his supervision, and he provided them training in the
performance of their respective works. Further, he had the authority to ensure reserves in the NICs,
BCOs and Cashiers in case of expansion, reassignment and/or termination. There is no doubt that
said position of Credit and Collection Manager entails great duties and responsibilities and involves
discretionary powers. In fact, even in petitioners pleadings, they repeatedly stated that the position
involved a high degree of responsibility requiring trust and confidence as it relates closely to the
financial interest of the company.
o
o On the other hand, the work of a Marketing Assistant is clerical in nature, which does not involve the
exercise of any discretion. Such job entails mere data gathering on vital marketing informations
relevant to petitioners' motorcycles and making reports to his direct supervisor. He is a mere staff
member in the office of the Senior Vice-President for Marketing. While petitioners claim that the
position of a Marketing Assistant covers a wide area as compared with the position of Credit and
Collection Manager, the latter is reposed with managerial duties in overseeing petitioners business
in his assigned area, unlike the former in which he merely collates raw data. These two positions are
not of the same level of authority.

o There is constructive dismissal when an employee's functions, which were originally supervisory in
nature, were reduced; and such reduction is not grounded on valid grounds such as genuine
business necessity.

o Petitioners argue that it is patently inimical to their interest if respondent would be maintained in the
position of Credit and Collection Manager, as he was negligent in the performance of his duties as
such; that the 1999 incident was not the first time that respondent forwarded to top management
overstated collection reports, since three of the NICs under respondent's supervision committed
similar misrepresentations in 1997; and that it has been held that the mere existence of a basis for
believing that the supervisor or other personnel occupying positions of responsibility has breached
the trust and confidence reposed in him by his employer is a sufficient ground for dismissal.
 o
o While petitioners have the prerogative to transfer respondent to another position, such transfer
should be done without diminution of rank and benefits which has been shown to be present in
respondent's case. He could have been transferred to a job of managerial position and not to that of
a Marketing Assistant. Moreover, petitioners failed to substantiate their claim that respondent was
weak in the financial aspect of operation, but he was good in marketing, as the performance
evaluation report relied upon by petitioners would not suffice. On the other hand, the evaluation report
dated March 10, 1997 stated that respondent's track records in sales and collection showed his
potential for advancement and could be the basis for his promotion to Marketing Manager.
o
o We note that the alleged overstated collection reports of three NICs under respondent's supervision
submitted in 1997, were already mentioned in the IAP report of the 1999 incident for which
respondent was meted the penalty of 15- day suspension without salary, travel and transportation
allowance; thus, the same could no longer be used to justify his transfer. Moreover, respondent's
demotion, which was a punitive action, was, in effect, a second penalty for the same negligent act of
respondent.
o
o Finally, we find no error committed by the NLRC in awarding attorney's fees. In San Miguel
Corporation v. Aballa,[29] we held that in actions for recovery of wages or where an employee was
forced to litigate and thus incur expenses to protect his rights and interests, a maximum of 10% of
the total monetary award by way of attorney's fees is justifiable under Article 111 of the Labor
Code,[30] Section 8, Rule VIII, Book III of its Implementing Rules;[31] and paragraph 7, Article 2208
of the Civil Code.[32] The award of attorney's fees is proper and there need not be any showing that
the employer acted maliciously or in bad faith when it withheld the wages. There need only be a
showing that the lawful wages were not paid accordingly.[33]
o
o WHEREFORE, the petition is DENIED. The Decision dated June 20, 2003 and the Resolution dated
August 25, 2003 of the Court of Appeals are AFFIRMED.

COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner, v. ANGEL U. DEL VILLAR, Respondent.

G.R. No. 163091: October 6, 2010
LEONARDO-DE CASTRO, J.:

FACTS: In 1992, as part of the reorganization of the Company, Del Villar became the Transportation Services
Manager, under the Business Logistic Directorate, headed by Director Edgardo I. San Juan (San Juan). As
Transportation Services Manager, Del Villar prepares the budget for the vehicles of the Company nationwide.

While serving as Transportation Services Manager, Del Villar submitted a Report to the Company President,
Natale J. Di Cosmo (Di Cosmo), detailing an alleged fraudulent scheme undertaken by certain Company officials
in conspiracy with local truck manufacturers, overpricing the trucks purchased by the Company by as much
asP70,000.00 each. In the same Report, Del Villar implicated San Juan and Jose L. Pineda, Jr. (Pineda), among
other Company officials, as part of the conspiracy.

After the Company embarked on a reorganization of the Business Logistic Directorate, was was then appointed
as the Corporate Purchasing and Materials Control Manager, while Del Villar as Pinedas Staff Assistant.

Seven months after he submitted his report on the fraudulent scheme, Del Villar received a memorandum from
San Juan, informing him of his designation as Staff Assistant to the Corporate Purchasing and Materials Control
Manager. With this new assignment, Del Villar ceased to be entitled to the benefits accruing to an S-7 position
under existing company rules and policies and he was ordered to turn over the vehicle assigned to him as
Transportation Services Manager to Pineda.
Del Villar believed that he was demoted by the Company to force him to resign. Unable to endure any further
the harassment, Del Villar filed with the Arbitration Branch of the NLRC on November 11, 1996 a complaint
against the Company for illegal demotion and forfeiture of company privileges.

The Company filed a Motion to Dismiss, instead of a position paper, praying for the dismissal of Del Villars
complaint on the ground that Del Villar had no cause of action.

The Labor Arbiter rendered a Decision in Del Villars favor. The Labor Arbiter held that the allegations in Del
Villars complaint sufficiently presented a cause of action against the Company. The company appealed to the
NLRC. Pending the appeal, Del Villar received a letter from the company, stating that his services are no longer
needed by the company. Thereafter, the NLRC reversed the ruling of the LA. Unsatisfied, Del Villar brought his
case before the Court of Appeals via Petition for Certiorari.

The appellate court ruled in favor of Del Villar. Petitioner filed a motion for reconsideration but the same was
denied.

ISSUE: Whether or not Del Villar was demoted?

HELD: YES. The issue of whether the Company, in transferring Del Villar from the position of Transportation
Services Manager to Staff Assistant to the Corporate Purchasing and Materials Control Manager, validly
exercised its management prerogative or committed constructive dismissal, is a factual matter. It is a settled
rule that factual findings of labor officials, who are deemed to have acquired expertise in matters within their
respective jurisdictions, are generally accorded not only respect but even finality. Moreover, in a petition for
review on certiorari under Rule 45 of the Rules of Court, the Supreme Court reviews only errors of law and not
errors of facts. However, where there is divergence in the findings and conclusions of the NLRC, on the one
hand, from those of the Labor Arbiter and the Court of Appeals, on the other, the Court is constrained to examine
the evidence,[22] to determine which findings and conclusion are more conformable with the evidentiary
facts. Hence, in the instant Petition, we embark on addressing not only the legal, but the factual issues as well.

Jurisprudence recognizes the exercise of management prerogative. For this reason, courts often decline to
interfere in legitimate business decisions of employers. In fact, labor laws discourage interference in employers
judgment concerning the conduct of their business.[23]

In the pursuit of its legitimate business interest, management has the prerogative to transfer or assign employees
from one office or area of operation to another provided there is no demotion in rank or diminution of salary,
benefits, and other privileges; and the action is not motivated by discrimination, made in bad faith, or effected
as a form of punishment or demotion without sufficient cause. The right of employees to security of tenure does
not give them vested rights to their positions to the extent of depriving management of its prerogative to change
their assignments or to transfer them.

Managerial prerogatives, however, are subject to limitations provided by law, collective bargaining agreements,
and general principles of fair play and justice. In the case ofBlue Dairy Corporation v. National Labor Relations
Commission, we described in more detail the limitations on the right of management to transfer employees:

But, like other rights, there are limits thereto. The managerial prerogative to transfer personnel must be
exercised without grave abuse of discretion, bearing in mind the basic elements of justice and fair
play. Having the right should not be confused with the manner in which that right is exercised. Thus, it
cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. In particular,
the employer must be able to show that the transfer is not unreasonable, inconvenient or prejudicial to
the employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other
benefits. Should the employer fail to overcome this burden of proof, the employees transfer shall be
tantamount to constructive dismissal, which has been defined as a quitting because continued
employment is rendered impossible, unreasonable or unlikely; as an offer involving a demotion in rank
and diminution in pay. Likewise, constructive dismissal exists when an act of clear discrimination,
insensibility or disdain by an employer has become so unbearable to the employee leaving him with no
option but to forego with his continued employment.

In the case at bar, there is no dispute that Del Villar was transferred by the Company from the position of
Transportation Services Manager to the position of Staff Assistant to the Corporate Purchasing and Materials
Control Manager. The burden thus falls upon the Company to prove that Del Villars transfer was not tantamount
to constructive dismissal.After a careful scrutiny of the records, we agree with the Labor Arbiter and the Court
of Appeals that the Company failed to discharge this burden of proof.

The Company and its officials attempt to justify the transfer of Del Villar by alleging his unsatisfactory
performance as Transportation Services Manager. In its Petition, the Company disclosed that:

4.1. As Transportation Services Manager, [Del Villar] displayed an utterly woeful performance. He was
unable to submit basic data as to type and brand of vehicles with highest/lowest maintenance cost as
requested. [Del Villar] could not even update the records of his office. He never complied with his
commitments on submission of reports and his claims of the availability of such reports were never
substantiated.

4.2. [Del Villar] could not work with minimum or no supervision. His activities needed to be closely and
constantly monitored by his superiors. [Del Villar] lacked initiative and had to be constantly reminded of
what to do. The work he performed and/or submitted, more often than not, had to be redone. In his
Performance and Potential Evaluation Sheet for 1995, [Del Villar] merited a mediocre grade of 2 in a
scale of one (1) to five (5), the latter number being the highest grade. Copies of the Affidavit of Edgardo
I. San Juan [San Juan], the Companys then Business Logistic Director, and respondents Performance
and Potential Evaluation Sheet for 1995 are attached as Annexes B and C, respectively.

San Juan averred in his Affidavit that Del Villar was inept and incompetent as Transportation Services Manager;
and was even more unqualified to take over the new position of Transportation and Refrigeration Services
Manager, which involved additional functions related to Refrigeration. It was for this reason that Del Villar was
transferred to the position of Staff Assistant to the Corporate Purchasing and Materials Control Manager.

In his Counter-Affidavit submitted before the NLRC, Pineda, the Corporate Purchasing and Materials Control
Manager, claimed that:

3. As his evaluation would show, Mr. del Villar was not a well-motivated employee. He could not perform
his job well and promptly with minimum or no supervision and follow-up from his superiors. He repeatedly
failed to observe the deadlines which I set for the submission of his reports and often procrastinates. His
work product likewise suffered from accuracy and thoroughness. Despite several admonitions and
guidance from me as his immediate superior, he simply refused to change his work attitude. [29]

We are unconvinced. The dismal performance evaluations of Del Villar were prepared by San Juan and Pineda
after Del Villar already implicated his two superiors in his Report dated January 4, 1996 in an alleged fraudulent
scheme against the Company. More importantly, we give weight to the following instances establishing that Del
Villar was not merely transferred from the position of Transportation Services Manager to the position of Staff
Assistant to the Corporate Purchasing and Materials Control Manager; he was evidently demoted.

A transfer is a movement from one position to another which is of equivalent rank, level or salary,
without break in service. Promotion, on the other hand, is the advancement from one position to another
with an increase in duties and responsibilities as authorized by law, and usually accompanied by an
increase in salary. Conversely,demotion involves a situation where an employee is relegated to a
subordinate or less important position constituting a reduction to a lower grade or rank, with a
corresponding decrease in duties and responsibilities, and usually accompanied by a decrease in
salary.
First, as the Court of Appeals observed, Del Villars demotion is readily apparent in his new
designation. Formerly, he was the Transportation Services Manager; then he was made a Staff Assistant a
subordinate to another manager, particularly, the Corporate Purchasing and Materials Control Manager

Second, the two posts are not of the same weight in terms of duties and responsibilities. Del Villars position as
Transportation Services Manager involved a high degree of responsibility, he being in charge of preparing the
budget for all of the vehicles of the Company nationwide. As Staff Assistant of the Corporate Purchasing and
Materials Control Manager, Del Villar contended that he was not assigned any meaningful work at all. The
Company utterly failed to rebut Del Villars contention. It did not even present, at the very least, the job description
of such a Staff Assistant. The change in the nature of work resulted in a degrading work condition and reduction
of duties and responsibility constitute a demotion in rank. In Globe Telecom, Inc. v. Florendo-Flores, we found
that there was a demotion in rank even when the respondent therein continued to enjoy the rank of a supervisor,
but her function was reduced to a mere house-to-house or direct sales agent.
Third, while Del Villars transfer did not result in the reduction of his salary, there was a diminution in his
benefits. The Company admits that as Staff Assistant of the Corporate Purchasing and Materials Control
Manager, Del Villar could no longer enjoy the use of a company car, gasoline allowance, and annual foreign
travel, which Del Villar previously enjoyed as Transportation Services Manager.

Fourth, it was not bad enough that Del Villar was demoted, but he was even placed by the Company under the
control and supervision of Pineda as the latters Staff Assistant. To recall, Pineda was one of the Company officials who
Del Villar accused of defrauding the Company in his Report dated January 4, 1996. It is not too difficult to imagine
that the working relations between Del Villar, the accuser, and Pineda, the accused, had been strained and
hostile. The situation would be more oppressive for Del Villar because of his subordinate position vis--
vis Pineda.

Fifth, all the foregoing caused Del Villar inconvenience and prejudice, so unbearable for him that he was
constrained to seek remedy from the NLRC. The Labor Arbiter was correct in his observation that had Del Villar
resigned immediately after his transfer, he could be said to have been constructively dismissed. There is
constructive dismissal when there is a demotion in rank and/or diminution in pay; or when a clear discrimination,
insensibility or disdain by an employer becomes unbearable to the employee.

Eventually, however, the Company actually terminated Del Villars services effective May 31, 1998, as his
position was no longer necessary or was considered redundant due to the reorganization of the Business
Logistic Directorate.

Redundancy is one of the authorized causes for the dismissal of an employee. It is governed by Article 283 of the Labor
Code, which reads:

ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate
the employment of any employee due to the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving
a written notice on the workers and the Department of Labor and Employment at least one (1) month
before the intended date thereof. In case of termination due to the installation of labor-saving devices or
redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his
one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case
of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment
or undertaking not due to serious business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

Redundancy, for purposes of the Labor Code, exists where the services of an employee are in excess of what
is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a position is redundant
where it is superfluous, and superfluity of a position or positions may be the outcome of a number of factors,
such as over hiring of workers, decreased volume of business, or dropping of a particular product line or service
activity previously manufactured or undertaken by the enterprise.
The determination that the employee's services are no longer necessary or sustainable and, therefore, properly
terminable for being redundant is an exercise of business judgment of the employer. The wisdom or soundness
of this judgment is not subject to discretionary review of the Labor Arbiter and the NLRC, provided there is no
violation of law and no showing that it was prompted by an arbitrary or malicious act. In other words, it is not
enough for a company to merely declare that it has become overmanned. It must produce adequate proof of
such redundancy to justify the dismissal of the affected employees.
We mentioned in Panlilio v. National Labor Relations Commission that an employer may proffer new staffing
pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the
approval by the management of the restructuring as evidence of redundancy. We further explained in AMA
Computer College Inc. v. Garcia what constitutes substantial evidence of redundancy:

ACC attempted to establish its streamlining program by presenting its new table of organization. ACC
also submitted a certification by its Human Resources Supervisor, Ma. Jazmin Reginaldo, that the
functions and duties of many rank and file employees, including the positions of Garcia and Balla as
Library Aide and Guidance Assistant, respectively, are now being performed by the supervisory
employees. These, however, do not satisfy the requirement of substantial evidence that a reasonable
mind might accept as adequate to support a conclusion. As they are, they are grossly inadequate and
mainly self-serving. More compelling evidence would have been a comparison of the old and new
staffing patterns, a description of the abolished and newly created positions, and proof of the set
business targets and failure to attain the same which necessitated the reorganization or
streamlining.[37] (Emphases ours.)

In this case, other than its own bare and self-serving allegation that Del Villars position as Staff Assistant of
Corporate Purchasing and Materials Control Manager had already become redundant, no other evidence was
presented by the Company. Neither did the Company present proof that it had complied with the procedural
requirement in Article 283 of prior notice to the Department of Labor and Employment (DOLE) of the termination
of Del Villars employment due to redundancy one month prior to May 31, 1998. The notice to the DOLE would
have afforded the labor department the opportunity to look into and verify whether there is truth as to the claim
of the Company that Del Villars position had become redundant with the implementation of new distribution
systems, utilization of improved operational processes, and functional reorganization of the
Company. Compliance with the required notices would have also established that the Company abolished Del
Villars position in good faith.

Del Villars poor employee performance is irrelevant as regards the issue on redundancy. Redundancy arises
because there is no more need for the employees position in relation to the whole business organization, and
not because the employee unsatisfactorily performed the duties and responsibilities required by his position.

There being no authorized cause for the termination of Del Villars employment, then he was illegally dismissed.
An employee who is illegally dismissed is entitled to the twin reliefs of full backwages and reinstatement. If
reinstatement is not viable, separation pay is awarded to the employee. In awarding separation pay to an illegally
dismissed employee, in lieu of reinstatement, the amount to be awarded shall be equivalent to one month salary
for every year of service.[40] Under Republic Act No. 6715, employees who are illegally dismissed are entitled to
full backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from the time
their actual compensation was withheld from them up to the time of their actual reinstatement but if reinstatement
is no longer possible, the backwages shall be computed from the time of their illegal termination up to the finality
of the decision. We note that Del Villars reinstatement is no longer possible because the position he previously
occupied no longer exists, per San Juans Affidavit dated October 15, 1998. Also, Del Villar had already received
his separation pay sometime in October 1998.

Because of his unjustified dismissal, we likewise award in Del Villars favor moral and exemplary
damages. Award of moral and exemplary damages for an illegally dismissed employee is proper where the
employee had been harrassed and arbitrarily terminated by the employer. Moral damages may be awarded to
compensate one for diverse injuries such as mental anguish, besmirched reputation, wounded feelings, and
social humiliation occasioned by the employers unreasonable dismissal of the employee. We have consistently
accorded the working class a right to recover damages for unjust dismissals tainted with bad faith; where the
motive of the employer in dismissing the employee is far from noble. The award of such damages is based not
on the Labor Code but on Article 220 of the Civil Code. These damages, however, are not intended to enrich
the illegally dismissed employee, such that, after deliberations, we find the amount of P100,000.00 for moral
damages and P50,000.00 for exemplary damages sufficient to assuage the sufferings experienced by Del Villar
and by way of example or correction for the public good.
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The Decision dated
October 30, 2003 and Resolution dated March 29, 2004 of the Court of Appeals in CA-G.R. SP No. 53815 are
hereby AFFIRMED with the following MODIFICATIONS: 1) the amount of backwages shall be computed from
the date of Del Villars illegal dismissal until the finality of this judgment; and 2) the amount of moral and
exemplary damages are reduced to P100,000.00 and P50,000.00, respectively. For this purpose, the case is
hereby REMANDED to the Labor Arbiter for the computation of the amounts due Angel U. del Villar.

Bisig Manggagawa sa Tryco vs. NLRC

G.R. No. 151309
NACHURA, J.:

FACTS: This petition seeks a review of the Decision of the Court of Appeals (CA) dated July 24, 2001 and
Resolution dated December 20, 2001, which affirmed the finding of the National Labor Relations Commission
(NLRC) that the petitioners transfer to another workplace did not amount to a constructive dismissal and an
unfair labor practice.
Tryco Pharma Corp. is a manufacturer of veterinary medicines. Tryco and BMT (rank-in-file union) signed
separate MOA, providing for a compressed workweek. The MOA was entered into pursuant to DO No. 21, Series
of 1990, Guidelines on the Implementation of Compressed Workweek. As provided in the MOA, 8:00 a.m. to
6:12 p.m., from Monday to Friday, shall be considered as the regular working hours, and no overtime pay shall
be due and payable to the employee for work rendered during those hours. However, should an employee be
permitted or required to work beyond 6:12 p.m., such employee shall be entitled to overtime pay. Tryco informed
the BWC of the DOLE of the implementation of a compressed workweek in the company. Meantime, Tryco
received a Letter from the Bureau of Animal Industry of the Department of Agriculture reminding it that its
production should be conducted in San Rafael, Bulacan, not in its main office in Caloocan City. The concerned
employees were directed to report at the companys plant site. BMT opposed the transfer of its members to San
Rafael, Bulacan, contending that it constitutes unfair labor practice. In protest, BMT declared a strike, claiming
that the transfer was inconvenient and amounts to Unfair Labor Practice. The content of the letter is the ff:
MR. WILFREDO C. RIVERA
President, Tryco Pharma Corporation
San Rafael, Bulacan

Subject: LTO as VDAP Manufacturer at San Rafael, Bulacan

Dear Mr. Rivera:

This is to remind you that your License to Operate as Veterinary Drug and Product Manufacturer is addressed
at San Rafael, Bulacan, and so, therefore, your production should be done at the above mentioned address only.
Further, production of a drug includes propagation, processing, compounding, finishing, filling, repacking,
labeling, advertising, storage, distribution or sale of the veterinary drug product. In no instance, therefore, should
any of the above be done at your business office at 117 M. Ponce St., EDSA, Caloocan City.

Please be guided accordingly.

Thank you.
Very truly yours,

(sgd.)
EDNA ZENAIDA V. VILLACORTE, D.V.M.
Chief, Animal Feeds Standard Division

ISSUE: WON the transfer of workplace amounts to constructive dismissal and unfair labor practice?
HELD:The petition has no merit. We have no reason to deviate from the well-entrenched rule that findings of
fact 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 bind us when supported by substantial evidence.
This is particularly true when the findings of the Labor Arbiter, the NLRC and the CA are in absolute
agreement. In this case, the Labor Arbiter, the NLRC, and the CA uniformly agreed that the petitioners were not
constructively dismissed and that the transfer orders did not amount to an unfair labor practice. But if only to
disabuse the minds of the petitioners who have persistently pursued this case on the mistaken belief that the
labor tribunals and the appellate court committed grievous errors, this Court will go over the issues raised in this
petition.
Petitioners mainly contend that the transfer orders amount to a constructive dismissal. They maintain that the
letter of the Bureau of Animal Industry is not credible because it is not authenticated; it is only a ploy, solicited
by respondents to give them an excuse to effect a massive transfer of employees. They point out that
the Caloocan City office is still engaged in production activities until now and respondents even hired new
employees to replace them.
We do not agree.

We refuse to accept the petitioners wild and reckless imputation that the Bureau of Animal Industry conspired
with the respondents just to effect the transfer of the petitioners. There is not an iota of proof to support this
outlandish claim. Absent any evidence, the allegation is not only highly irresponsible but is grossly unfair to the
government agency concerned. Even as this Court has given litigants and counsel a relatively wide latitude to
present arguments in support of their cause, we will not tolerate outright misrepresentation or baseless
accusation. Let this be fair warning to counsel for the petitioners.

Furthermore, Trycos decision to transfer its production activities to San Rafael, Bulacan, regardless of whether
it was made pursuant to the letter of the Bureau of Animal Industry, was within the scope of its inherent right to
control and manage its enterprise effectively. While the law is solicitous of the welfare of employees, it must also
protect the right of an employer to exercise what are clearly management prerogatives. The free will of
management to conduct its own business affairs to achieve its purpose cannot be denied.

This prerogative extends to the managements right to regulate, according to its own discretion and judgment,
all aspects of employment, including the freedom to transferand reassign employees according to the
requirements of its business. Managements prerogative of transferring and reassigning employees from one
area of operation to another in order to meet the requirements of the business is, therefore, generally not
constitutive of constructive dismissal. Thus, the consequent transfer of Trycos personnel, assigned to the
Production Department was well within the scope of its management prerogative.

When the transfer is not unreasonable, or inconvenient, or prejudicial to the employee, and it does not
involve a demotion in rank or diminution of salaries, benefits, and other privileges, the employee may
not complain that it amounts to a constructive dismissal. However, the employer has the burden of proving
that the transfer of an employee is for valid and legitimate grounds. The employer must show that the transfer is
not unreasonable, inconvenient, or prejudicial to the employee; nor does it involve a demotion in rank or a
diminution of his salaries, privileges and other benefits.

Indisputably, in the instant case, the transfer orders do not entail a demotion in rank or diminution of salaries,
benefits and other privileges of the petitioners. Petitioners, therefore, anchor their objection solely on the ground
that it would cause them great inconvenience since they are all residents of Metro Manila and they would incur
additional expenses to travel daily from Manila to Bulacan. The Court has previously declared that mere
incidental inconvenience is not sufficient to warrant a claim of constructive dismissal. Objection to a
transfer that is grounded solely upon the personal inconvenience or hardship that will be caused to the
employee by reason of the transfer is not a valid reason to disobey an order of transfer.

Incidentally, petitioners cite Escobin v. NLRC where the Court held that the transfer of the employees therein
was unreasonable. However, the distance of the workplace to which the employees were being transferred can
hardly compare to that of the present case. In that case, the employees were being transferred from Basilan
to Manila; hence, the Court noted that the transfer would have entailed the separation of the employees from
their families who were residing in Basilan and accrual of additional expenses for living accommodations
in Manila. In contrast, the distance from Caloocan to San Rafael, Bulacan is not considerably great so as to
compel petitioners to seek living accommodations in the area and prevent them from commuting to Metro Manila
daily to be with their families.
Petitioners, however, went further and argued that the transfer orders amounted to unfair labor practice because
it would paralyze and render the union ineffective.

To begin with, we cannot see how the mere transfer of its members can paralyze the union. The union was not
deprived of the membership of the petitioners whose work assignments were only transferred to another
location.
More importantly, there was no showing or any indication that the transfer orders were motivated by an intention
to interfere with the petitioners right to organize. Unfair labor practice refers to acts that violate the workers right
to organize. With the exception of Article 248(f) of the Labor Code of the Philippines, the prohibited acts are
related to the workers right to self-organization and to the observance of a CBA. Without that element, the acts,
no matter how unfair, are not unfair labor practices.

Finally, we do not agree with the petitioners assertion that the MOA is not enforceable as it is contrary to law.
The MOA is enforceable and binding against the petitioners. Where it is shown that the person making
the waiver did so voluntarily, with full understanding of what he was doing, and the consideration for
the quitclaim is credible and reasonable, the transaction must be recognized as a valid and binding
undertaking.

D.O. No. 21 sanctions the waiver of overtime pay in consideration of the benefits that the employees will
derive from the adoption of a compressed workweek scheme, thus:

The compressed workweek scheme was originally conceived for establishments wishing to save
on energy costs, promote greater work efficiency and lower the rate of employee absenteeism,
among others. Workers favor the scheme considering that it would mean savings on the
increasing cost of transportation fares for at least one (1) day a week; savings on meal and snack
expenses; longer weekends, or an additional 52 off-days a year, that can be devoted to rest,
leisure, family responsibilities, studies and other personal matters, and that it will spare them for
at least another day in a week from certain inconveniences that are the normal incidents of
employment, such as commuting to and from the workplace, travel time spent, exposure to dust
and motor vehicle fumes, dressing up for work, etc. Thus, under this scheme, the generally
observed workweek of six (6) days is shortened to five (5) days but prolonging the working hours
from Monday to Friday without the employer being obliged for pay overtime premium
compensation for work performed in excess of eight (8) hours on weekdays, in exchange for the
benefits abovecited that will accrue to the employees.

Moreover, the adoption of a compressed workweek scheme in the company will help temper any inconvenience
that will be caused the petitioners by their transfer to a farther workplace.

Notably, the MOA complied with the following conditions set by the DOLE, under D.O. No. 21, to protect
the interest of the employees in the implementation of a compressed workweek scheme:
1. The employees voluntarily agree to work more than eight (8) hours a day the total in
a week of which shall not exceed their normal weekly hours of work prior to adoption of the
compressed workweek arrangement;

2. There will not be any diminution whatsoever in the weekly or monthly take-home pay
and fringe benefits of the employees;

3. If an employee is permitted or required to work in excess of his normal weekly hours

of work prior to the adoption of the compressed workweek scheme, all such excess hours shall
be considered overtime work and shall be compensated in accordance with the provisions of the
Labor Code or applicable Collective Bargaining Agreement (CBA);

4. Appropriate waivers with respect to overtime premium pay for work performed in
excess of eight (8) hours a day may be devised by the parties to the agreement.

5. The effectivity and implementation of the new working time arrangement shall be by
agreement of the parties.

PESALA v. NLRC, cited by the petitioners, is not applicable to the present case. In that case, an employment
contract provided that the workday consists of 12 hours and the employee will be paid a fixed monthly salary
rate that was above the legal minimum wage. However, unlike the present MOA which specifically states that
the employee waives his right to claim overtime pay for work rendered beyond eight hours, the employment
contract in that case was silent on whether overtime pay was included in the payment of the fixed monthly salary.
This necessitated the interpretation by the Court as to whether the fixed monthly rate provided under the
employment contract included overtime pay. The Court noted that if the employee is paid only the minimum
wage but with overtime pay, the amount is still greater than the fixed monthly rate as provided in the employment
contract. It, therefore, held that overtime pay was not included in the agreed fixed monthly rate.
Considering that the MOA clearly states that the employee waives the payment of overtime pay in exchange of
a five-day workweek, there is no room for interpretation and its terms should be implemented as they are written.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated July 24, 2001 and Resolution
dated December 20, 2001 are AFFIRMED.

ZAYBER JOHN B. PROTACIO, Petitioner,

vs.
LAYA MANANGHAYA & CO. and/or MARIO T. MANANGHAYA, Respondents.

G.R. No. 168654 March 25, 2009TINGA, J.:

FACTS: Before the Court is a petition for review on certiorari, assailing the decision and resolution of the CA.
The Court of Appeals decision reduced the monetary award granted to petitioner by the National Labor
Relations Commission (NLRC) while the resolution denied petitioners motion for reconsideration for lack of
merit.

Respondent KPMG Laya Mananghaya & Co. (respondent firm) is a general professional partnership duly
organized under the laws of the Philippines. Respondent firm hired petitioner Zayber John B. Protacio as Tax
Manager on 01 April 1996. He was subsequently promoted to the position of Senior Tax Manager. On 01
October 1997, petitioner was again promoted to the position of Tax Principal.

However, on 30 August 1999, petitioner tendered his resignation effective 30 September 1999. Then, on 01
December 1999, petitioner sent a letter to respondent firm demanding the immediate payment of his 13th month
pay, the cash commutation of his leave credits and the issuance of his 1999 Certificate of Income Tax Withheld
on Compensation. Petitioner sent to respondent firm two more demand letters for the payment of his
reimbursement claims under pain of the legal action.

Respondent firm failed to act upon the demand letters. Thus, on 15 December 1999, petitioner filed before the
NLRC a complaint for the non-issuance of petitioners W-2 tax form for 1999 and the non-payment of the
following benefits: (1) cash equivalent of petitioners leave credits in the amount of P55,467.60; (2) proportionate
13th month pay for the year 1999; (3) reimbursement claims in the amount of P19,012.00; and (4) lump sum
pay for the fiscal year 1999 in the amount of P674,756.70. Petitioner also sought moral and exemplary damages
and attorneys fees. Respondent Mario T. Managhaya was also impleaded in his official capacity as respondent
firms managing partner.

In his complaint, petitioner averred, inter alia, that when he was promoted to the position of Tax Principal in
October 1997, his compensation package had consisted of a monthly gross compensation of P60,000.00, a
13th month pay and a lump sum payment for the year 1997 in the amount of P240,000.00 that was paid to him
on 08 February 1998.

According to petitioner, beginning 01 October 1998, his compensation package was revised as follows: (a)
monthly gross compensation of P95,000.00, inclusive of nontaxable allowance; (b) 13th month pay; and (c) a
lump sum amount in addition to the aggregate monthly gross compensation. On 12 April 1999, petitioner
received the lump sum amount of P573,000.00 for the fiscal year ending 1998.

Respondent firm denied it had intentionally delayed the processing of petitioners claims but alleged that the
abrupt departure of petitioner and three other members of the firms Tax Division had created problems in the
determination of petitioners various accountabilities, which could be finished only by going over voluminous
documents.

During the pendency of the case before the Labor Arbiter, respondent firm on three occasions sent check
payments to petitioner in the following amounts: (1) P71,250.00, representing petitioners 13th month pay;
(2)P54,824.18, as payments for the cash equivalent of petitioners leave credits and reimbursement claims; and
(3)P10,762.57, for the refund of petitioners taxes withheld on his vacation leave credits. Petitioners copies of
his withholding tax certificates were sent to him along with the check payments. Petitioner acknowledged the
receipt of the 13th month pay but disputed the computation of the cash value of his vacation leave credits
and reimbursement claims. On 07 June 2002, Labor Arbiter Eduardo J. Carpio rendered a decision,the
dispositive portion of which reads:

The Labor Arbiter awarded petitioners reimbursement claims on the ground that respondent firms refusal to
grant the same was not so much because the claim was baseless but because petitioner had failed to file the
requisite reimbursement forms. He held that the formal defect was cured when petitioner filed several demand
letters as well as the case before him.

The Labor Arbiter held that petitioner was not fully paid of the cash equivalent of the leave credits due him
because respondent firm had erroneously based the computation on a basic pay of P61,000.00. He held that
the evidence showed that petitioners monthly basic salary was P95,000.00 inclusive of the other benefits that
were deemed included and integrated in the basic salary and that respondent firm had computed petitioners
13th month pay based on a monthly basic pay of P95,000.00; thus, the cash commutation of the leave credits
should also be based on this figure.

The Labor Arbiter also ruled that petitioner was entitled to a year-end payment of P573,000.00 on the basis of
the company policy of granting yearly lump sum payments to petitioner during all the years of service and that
respondent firm had failed to give petitioner the same benefit for the year 1999 without any explanation.

Aggrieved, respondent firm appealed to the NLRC. On 21 August 2003, the NLRC rendered a modified
judgment, the dispositive portion of which states: WHEREFORE, the Decision dated June 7, 2002 is hereby
Affirmed with the modification that the complainant is only entitled to receive P2,301.00 as reimbursement
claims. The award of P12,681.00 representing the reimbursement claims of complainant is set aside for lack of
basis.

From the amount of P12,681.00 awarded by the Labor Arbiter as payment for the reimbursement claims, the
NLRC lowered the same to P2,301.00 representing the amount which remained unpaid. As regards the issues
on the lump sum payments and cash equivalent of the leave credits, the NLRC affirmed the findings of the Labor
Arbiter.

Respondents filed a motion for reconsideration but the NLRC denied the motion for lack of merit. Hence,
respondents elevated the matter to the Court of Appeals via a petition for certiorari.

In the assailed Decision dated 19 April 2005, the Court of Appeals further reduced the total money award to
petitioner, to wit: WHEREFORE, in the light of the foregoing, the assailed resolution of public respondent NLRC
dated August 21, 2003 in NLRC NCR Case No. 30-12-00927-99 (CA No. 032304-02) is hereby MODIFIED,
ordering petitioner firm to pay private respondent the following:

(1) P2,301.00 representing private respondents reimbursement claims;

(2) P9,802.83 representing the underpayment of the cash equivalent of private respondents unused leave
credits;

(3) P10,000.00 attorneys fees.

Petitioner sought reconsideration. In the assailed Resolution dated 27 June 2005, the Court of Appeals denied
petitioners motion for reconsideration for lack of merit.

ISSUE: WON Petitioner is entitled for more underpayment of his leave credits?

Note: (Yung case nakafocus siya sa Rule 65 of the Rules of Court)

HELD: Yes. Before delving into the merits of the petition, the issues raised by petitioner adverting to the
Constitution must be addressed. Petitioner contends that the Court of Appeals resolution which denied his
motion for reconsideration violated Article VIII, Section 14 of the Constitution, which states:

Section 14. No decision shall be rendered by any court without expressing therein clearly and distinctly the facts
and the law on which it is based.

No petition for review or motion for reconsideration of a decision of the court shall be refused due
course or denied without stating the legal basis therefor.

Obviously, the assailed resolution is not a "decision" within the meaning of the Constitutional requirement. This
mandate is applicable only in cases "submitted for decision," i.e., given due course and after filing of briefs or
memoranda and/or other pleadings, as the case may be. The requirement is not applicable to a resolution
denying a motion for reconsideration of the decision. What is applicable is the second paragraph of the above-
quoted Constitutional provision referring to "motion for reconsideration of a decision of the court." The assailed
resolution complied with the requirement therein that a resolution denying a motion for reconsideration should
state the legal basis of the denial. It sufficiently explained that after reading the pleadings filed by the parties,
the appellate court did not find any cogent reason to reverse itself.

Next, petitioner argues that the Court of Appeals erred in giving due course to the petition for certiorari when the
resolution thereof hinged on mere evaluation of evidence. Petitioner opines that respondents failed to make its
case in showing that the Labor Arbiter and the NLRC had exercised their discretion in an arbitrary and despotic
manner.
As a general rule, in certiorari proceedings under Rule 65 of the Rules of Court, the appellate court does
not assess and weigh the sufficiency of evidence upon which the Labor Arbiter and the NLRC based
their conclusion. The query in this proceeding is limited to the determination of whether or not the NLRC
acted without or in excess of its jurisdiction or with grave abuse of discretion in rendering its decision.
However, as an exception, the appellate court may examine and measure the factual findings of the
NLRC if the same are not supported by substantial evidence. The Court has not hesitated to affirm the
appellate courts reversals of the decisions of labor tribunals if they are not supported by substantial
evidence.

The Court is not unaware that the appellate court had reexamined and weighed the evidence on record in
modifying the monetary award of the NLRC. The Court of Appeals held that the amount of the year-end lump
sum compensation was not fully justified and supported by the evidence on record. The Court fully agrees that
the lump sum award of P573,000.00 to petitioner seemed to have been plucked out of thin air. Noteworthy is
the fact that in his position paper, petitioner claimed that he was entitled to the amount of P674,756.70. The
variance between the claim and the amount awarded, with the record bereft of any proof to support either amount
only shows that the appellate court was correct in holding that the award was a mere speculation devoid of any
factual basis. In the exceptional circumstance as in the instant case, the Court finds no error in the appellate
courts review of the evidence on record.

After an assessment of the evidence on record, the Court of Appeals reversed the findings of the NLRC and the
Labor Arbiter with respect to the award of the year-end lump sum pay and the cash value of petitioners leave
credits. The appellate court held that while the lump sum payment was in the nature of a proportionate share in
the firms annual income to which petitioner was entitled, the payment thereof was contingent upon the financial
position of the firm. According to the Court of Appeals, since no evidence was adduced showing the net income
of the firm for fiscal year ending 1999 as well as petitioners corresponding share therein, the amount awarded
by the labor tribunals was a baseless speculation and as such must be deleted.

On the other hand, the NLRC affirmed the Labor Arbiters award of the lump sum payment in the amount
ofP573,000.00 on the basis that the payment thereof had become a company policy which could not be
withdrawn arbitrarily. Furthermore, the NLRC held that respondent firm had failed to controvert petitioners claim
that he was responsible for generating some P7,365,044.47 in cash revenue during the fiscal year ending 1999.

The evidence on record establishes that aside from the basic monthly compensation, petitioner received a yearly
lump sum amount during the first two years of his employment, with the payments made to him after the annual
net incomes of the firm had been determined. Thus, the amounts thereof varied and were dependent on the
firms cash position and financial performance. In one of the letters of respondent Mananghaya to petitioner, the
amount was referred to as petitioners "share in the incentive compensation program.

While the amount was drawn from the annual net income of the firm, the distribution thereof to non-partners or
employees of the firm was not, strictly speaking, a profit-sharing arrangement between petitioner and respondent
firm contrary to the Court of Appeals finding. The payment thereof to non-partners of the firm like herein
petitioner was discretionary on the part of the chairman and managing partner coming from their authority to fix
the compensation of any employee based on a share in the partnerships net income.34 The distribution being
merely discretionary, the year-end lump sum payment may properly be considered as a year-end bonus or
incentive. Contrary to petitioners claim, the granting of the year-end lump sum amount was precisely dependent
on the firms net income; hence, the same was payable only after the firms annual net income and cash position
were determined.

By definition, a "bonus" is a gratuity or act of liberality of the giver. It is something given in addition to
what is ordinarily received by or strictly due the recipient. A bonus is granted and paid to an employee
for his industry and loyalty which contributed to the success of the employers business and made
possible the realization of profits. Generally, a bonus is not a demandable and enforceable obligation.
It is so only when it is made part of the wage or salary or compensation. When considered as part of the
compensation and therefore demandable and enforceable, the amount is usually fixed. If the amount
would be a contingent one dependent upon the realization of the profits, the bonus is also not
demandable and enforceable.
In the instant case, petitioners claim that the year-end lump sum represented the balance of his total
compensation package is incorrect. The fact remains that the amounts paid to petitioner on the two occasions
varied and were always dependent upon the firms financial position.

Moreover, in Philippine Duplicators, Inc. v. NLRC, the Court held that if the bonus is paid only if profits are
realized or a certain amount of productivity achieved, it cannot be considered part of wages. If the
desired goal of production is not obtained, of the amount of actual work accomplished, the bonus does
not accrue. Only when the employer promises and agrees to give without any conditions imposed for
its payment, such as success of business or greater production or output, does the bonus become part
of the wage. Petitioners assertion that he was responsible for generating revenues amounting to more
than P7 million remains a mere allegation in his pleadings. The records are absolutely bereft of any
supporting evidence to substantiate the allegation.

The granting of a bonus is basically a management prerogative which cannot be forced upon the
employer who may not be obliged to assume the onerous burden of granting bonuses or other benefits
aside from the employees basic salaries or wages. Respondents had consistently maintained from the
start that petitioner was not entitled to the bonus as a matter of right. The payment of the year-end lump
sum bonus based upon the firms productivity or the individual performance of its employees was well
within respondent firms prerogative. Thus, respondent firm was also justified in declining to give the
bonus to petitioner on account of the latters unsatisfactory performance.

Petitioner failed to present evidence refuting respondents allegation and proof that they received a number of
complaints from clients about petitioners "poor services." For purposes of determining whether or not petitioner
was entitled to the year-end lump sum bonus, respondents were not legally obliged to raise the issue of
substandard performance with petitioner, unlike what the Labor Arbiter had suggested. Of course, if what was
in question was petitioners continued employment vis--vis the allegations of unsatisfactory performance, then
respondent firm was required under the law to give petitioner due process to explain his side before instituting
any disciplinary measure. However, in the instant case, the granting of the year-end lump sum bonus was
discretionary and conditional, thus, petitioner may not question the basis for the granting of a mere
privilege.1avvph!1

With regard to the computation of the cash equivalent of petitioners leave credits, the Court of Appeals used a
base figure of P71,250.00 representing petitioners monthly salary as opposed to P95,000.00 used by the Labor
Arbiter and NLRC. Meanwhile, respondents insist on a base figure of only P61,000.00, which excludes the
advance incentive pay of P15,000.00, transportation allowance of P15,000.00 and representation allowance
ofP4,000.00, which petitioner regularly received every month. Because of a lower base figure (representing the
monthly salary) used by the appellate court, the cash equivalent of petitioners leave credits was lowered
fromP28,407.08 to P9,802.83.lawphil.net

The monthly compensation of P71,250.00 used as base figure by the Court of Appeals is totally without basis.
As correctly held by the Labor Arbiter and the NLRC, the evidence on record reveals that petitioner was receiving
a monthly compensation of P95,000.00 consisting of a basic salary of P61,000.00, advance incentive pay
ofP15,000.00, transportation allowance of P15,000.00 and representation allowance of P4,000.00. These
amounts totaling P95,000.00 are all deemed part of petitioners monthly compensation package and, therefore,
should be the basis in the cash commutation of the petitioners leave credits. These allowances were customarily
furnished by respondent firm and regularly received by petitioner on top of the basic monthly pay of P61,000.00.
Moreover, the Labor Arbiter noted that respondent firms act of paying petitioner a 13th month-pay at the rate
of P95,000.00 was an admission on its part that petitioners basic monthly salary was P95,000.00

The Court of Appeals, Labor Arbiter and NLRC used a 30-working day divisor instead of 26 days which
petitioner insists. The Court of Appeals relied on Section 2, Rule IV, Book III of the implementing rules
of the Labor Code in using the 30-working day divisor. The provision essentially states that monthly-
paid employees are presumed to be paid for all days in the month whether worked or not.

The provision has long been nullified in Insular Bank of Asia and American Employees Union (IBAAEU) v. Hon.
Inciong, etc., et al., where the Court ruled that the provision amended the Labor Codes provisions on
holiday pay by enlarging the scope of their exclusion. In any case, the provision is inapplicable to the
instant case because it referred to the computation of holiday pay for monthly-paid employees.

Petitioners claim that respondent firm used a 26-working day divisor is supported by the evidence on
record. In a letter addressed to petitioner, respondents counsel expressly admitted that respondent
used a 26-working day divisor. The Court is perplexed why the tribunals below used a 30-day divisor
when there was an express admission on respondents part that they used a 26-day divisor in the cash
commutation of leave credits. Thus, with a monthly compensation of P95,000.00 and using a 26-working
day divisor, petitioners daily rate is P3,653.85. Based on this rate, petitioners cash equivalent of his
leave credits of 23.5 is P85,865.48. Since petitioner has already received the amount P46,009.67, a
balance of P39,855.80 remains payable to petitioner.

WHEREFORE, the instant petition for review on certiorari is PARTLY GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 85038 is AFFIRMED with the MODIFICATION that respondents are liable for the
underpayment of the cash equivalent of petitioners leave credits in the amount of P39,855.80.

PHILIPPINE AIRLINES, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, LABOR
ARBITER ROMULUS PROTACIO and DR. HERMINIO A. FABROS, respondents.
[G.R. No. 132805. February 2, 1999]
PUNO, J.:
FACTS: Petitioner Philippine Airlines, Inc. assails the decision of the National Labor Relations Commission
dismissing its appeal from the decision of Labor Arbiter Romulus S. Protacio which declared the suspension of
private respondent Dr. Herminio A. Fabros illegal and ordered petitioner to pay private respondent the amount
equivalent to all the benefits he should have received during his period of suspension plus P500,000.00 moral
damages.
Private respondent was employed as flight surgeon at petitioner company. He was assigned at the PAL Medical
Clinic at Nichols and was on duty from 4:00 in the afternoon until 12:00 midnight.
On February 17, 1994, at around 7:00 in the evening, private respondent left the clinic to have his dinner at his
residence, which was about five-minute drive away. A few minutes later, the clinic received an emergency call
from the PAL Cargo Services. One of its employees, Mr. Manuel Acosta, had suffered a heart attack. The nurse
on duty, Mr. Merlino Eusebio, called private respondent at home to inform him of the emergency. The patient
arrived at the clinic at 7:50 in the evening and Mr. Eusebio immediately rushed him to the hospital. When private
respondent reached the clinic at around 7:51 in the evening, Mr. Eusebio had already left with the patient. Mr.
Acosta died the following day.
Upon learning about the incident, PAL Medical Director Dr. Godofredo B. Banzon ordered the Chief Flight
Surgeon to conduct an investigation. The Chief Flight Surgeon, in turn, required private respondent to explain
why no disciplinary sanction should be taken against him.
In his explanation, private respondent asserted that he was entitled to a thirty-minute meal break; that he
immediately left his residence upon being informed by Mr. Eusebio about the emergency and he arrived at the
clinic a few minutes later; that Mr. Eusebio panicked and brought the patient to the hospital without waiting for
him. Finding private respondents explanation unacceptable, the management charged private respondent with
abandonment of post while on duty. He was given ten days to submit a written answer to the administrative
charge.
In his answer, private respondent reiterated the assertions in his previous explanation. He further denied that
he abandoned his post on February 17, 1994. He said that he only left the clinic to have his dinner at home. In
fact, he returned to the clinic at 7:51 in the evening upon being informed of the emergency.
After evaluating the charge as well as the answer of private respondent, petitioner company decided to
suspend private respondent for three months effective December 16, 1994.
Private respondent filed a complaint for illegal suspension against petitioner.
On July 16, 1996, Labor Arbiter Romulus A. Protasio rendered a decision declaring the suspension of private
respondent illegal. It also ordered petitioner to pay private respondent the amount equivalent to all the benefits
he should have received during his period of suspension plus P500,000.00 moral damages. The dispositive
portion of the decision reads:
Petitioner appealed to the NLRC. The NLRC, however, dismissed the appeal after finding that the decision of
the Labor Arbiter is supported by the facts on record and the law on the matter. The NLRC likewise denied
petitioners motion for reconsideration.
ISSUE: WON the Suspension is Illegal?
HELD: Yes.We find that public respondents did not err in nullifying the three-month suspension of private
respondent. They, however, erred in awarding moral damages to private respondent.
First, as regards the legality of private respondents suspension. The facts do not support petitioners allegation
that private respondent abandoned his post on the evening of February 17, 1994. Private respondent left the
clinic that night only to have his dinner at his house, which was only a few minutes drive away from the clinic. His
whereabouts were known to the nurse on duty so that he could be easily reached in case of emergency. Upon
being informed of Mr. Acostas condition, private respondent immediately left his home and returned to the
clinic. These facts belie petitioners claim of abandonment.
Petitioner argues that being a full-time employee, private respondent is obliged to stay in the company premises
for not less than eight (8) hours. Hence, he may not leave the company premises during such time, even to take
his meals.
We are not impressed.
Articles 83 and 85 of the Labor Code read:

Art. 83. Normal hours of work.The normal hours of work of any employee shall not exceed eight (8)
hours a day.

Health personnel in cities and municipalities with a population of at least one million (1,000,000) or in
hospitals and clinics with a bed capacity of at least one hundred (100) shall hold regular office hours for
eight (8) hours a day, for five (5) days a week, exclusive of time for meals, except where the exigencies
of the service require that such personnel work for six (6) days or forty-eight (48) hours, in which case
they shall be entitled to an additional compensation of at least thirty per cent (30%) of their regular wage
for work on the sixth day. For purposes of this Article, health personnel shall include: resident
physicians, nurses, nutritionists, dieticians, pharmacists, social workers, laboratory technicians,
paramedical technicians, psychologists, midwives, attendants and all other hospital or clinic
personnel.(emphasis supplied)

Art. 85. Meal periods.Subject to such regulations as the Secretary of Labor may prescribe, it shall be the
duty of every employer to give his employees not less than sixty (60) minutes time-off for their regular
meals.

Section 7, Rule I, Book III of the Omnibus Rules Implementing the Labor Code further states:

Sec. 7. Meal and Rest Periods.Every employer shall give his employees, regardless of sex, not less than
one (1) hour time-off for regular meals, except in the following cases when a meal period of not less
than twenty (20) minutes may be given by the employer provided that such shorter meal period is
credited as compensable hours worked of the employee;

(a) Where the work is non-manual work in nature or does not involve strenuous physical exertion;

(b) Where the establishment regularly operates not less than sixteen hours a day;
(c) In cases of actual or impending emergencies or there is urgent work to be performed on machineries,
equipment or installations to avoid serious loss which the employer would otherwise suffer; and

(d) Where the work is necessary to prevent serious loss of perishable goods.

Rest periods or coffee breaks running from five (5) to twenty (20) minutes shall be considered as
compensable working time.

Thus, the eight-hour work period does not include the meal break. Nowhere in the law may it be inferred
that employees must take their meals within the company premises. Employees are not prohibited from
going out of the premises as long as they return to their posts on time. Private respondents act,
therefore, of going home to take his dinner does not constitute abandonment.
We now go to the award of moral damages to private respondent.
Not every employee who is illegally dismissed or suspended is entitled to damages. As a rule, moral damages
are recoverable only where the dismissal or suspension of the employee was attended by bad faith or fraud, or
constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public
policy.[6] Bad faith does not simply mean negligence or bad judgment. It involves a state of mind dominated by
ill will or motive. It implies a conscious and intentional design to do a wrongful act for a dishonest purpose or
some moral obliquity.[7] The person claiming moral damages must prove the existence of bad faith by clear and
convincing evidence for the law always presumes good faith.
In the case at bar, there is no showing that the management of petitioner company was moved by some evil
motive in suspending private respondent. It suspended private respondent on an honest, albeiterroneous, belief
that private respondents act of leaving the company premises to take his meal at home constituted abandonment
of post which warrants the penalty of suspension. Also, it is evident from the facts that petitioner gave private
respondent all the opportunity to refute the charge against him and to defend himself. These negate the
existence of bad faith on the part of petitioner. Under the circumstances, we hold that private respondent is not
entitled to moral damages.
IN VIEW WHEREOF, the petition is PARTIALLY GRANTED. The portion of the assailed decision awarding
moral damages to private respondent is DELETED. All other aspects of the decision are AFFIRMED.

SIME DARBY PILIPINAS, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (2ND
DIVISION) and SIME DARBY SALARIED EMPLOYEES ASSOCIATION (ALU-TUCP), respondents.
[G.R. No. 119205. April 15, 1998]
BELLOSILLO, J.:

Sime Darby Pilipinas, Inc., petitioner, is engaged in the manufacture of automotive tires, tubes and other
rubber products. Sime Darby Salaried Employees Association (ALU-TUCP), private respondent, is an
association of monthly salaried employees of petitioner at its Marikina factory. Prior to the present
controversy, all company factory workers in Marikina including members of private respondent union worked
from 7:45 a.m. to 3:45 p.m. with a 30 minute paid on call lunch break.

On 14 August 1992 petitioner issued a memorandum to all factory-based employees advising all its monthly
salaried employees in its Marikina Tire Plant, except those in the Warehouse and Quality Assurance Department
working on shifts, a change in work schedule effective 14 September 1992 thus

TO: ALL FACTORY-BASED EMPLOYEES

RE: NEW WORK SCHEDULE

Effective Monday, September 14, 1992, the new work schedule factory office will be as follows:

7:45 A.M. 4:45 P.M. (Monday to Friday)

7:45 A.M. 11:45 P.M. (Saturday).

Coffee break time will be ten minutes only anytime between:

9:30 A.M. 10:30 A.M. and

2:30 P.M. 3:30 P.M.

Lunch break will be between:

12:00 NN 1:00 P.M. (Monday to Friday).

Excluded from the above schedule are the Warehouse and QA employees who are on shifting. Their work
and break time schedules will be maintained as it is now.
Since private respondent felt affected adversely by the change in the work schedule and discontinuance of the
30-minute paid on call lunch break, it filed on behalf of its members a complaint with the Labor Arbiter for unfair
labor practice, discrimination and evasion of liability pursuant to the resolution of this Court in Sime Darby
International Tire Co., Inc. v. NLRC. However, the Labor Arbiter dismissed the complaint on the ground
that the change in the work schedule and the elimination of the 30-minute paid lunch break of the factory
workers constituted a valid exercise of management prerogative and that the new work schedule, break
time and one-hour lunch break did not have the effect of diminishing the benefits granted to factory
workers as the working time did not exceed eight (8) hours.
The Labor Arbiter further held that the factory workers would be justly enriched if they continued to be
paid during their lunch break even if they were no longer on call or required to work during the break. He
also ruled that the decision in the earlier Sime Darby case was not applicable to the instant case because the
former involved discrimination of certain employees who were not paid for their 30-minute lunch break while the
rest of the factory workers were paid; hence, this Court ordered that the discriminated employees be similarly
paid the additional compensation for their lunch break.
Private respondent appealed to respondent National Labor Relations Commission (NLRC) which sustained the
Labor Arbiter and dismissed the appeal. However, upon motion for reconsideration by private respondent, the
NLRC, this time with two (2) new commissioners replacing those who earlier retired, reversed its earlier decision
of 20 April 1994 as well as the decision of the Labor Arbiter. The NLRC considered the decision of this Court
in the Sime Darby case of 1990 as the law of the case wherein petitioner was ordered to pay the money
value of these covered employees deprived of lunch and/or working time breaks. The public respondent
declared that the new work schedule deprived the employees of the benefits of time-honored company
practice of providing its employees a 30-minute paid lunch break resulting in an unjust diminution of
company privileges prohibited by Art. 100 of the Labor Code, as amended.
ISSUE: WON the act of management in revising the work schedule of its employees and discarding their paid
lunch break constitutive of unfair labor practice?

HELD: No. The Office of the Solicitor General filed in lieu of comment a manifestation and motion recommending
that the petition be granted, alleging that the 14 August 1992 memorandum which contained the new work
schedule was not discriminatory of the union members nor did it constitute unfair labor practice on the part of
petitioner.

We agree, hence, we sustain petitioner. The right to fix the work schedules of the employees rests principally
on their employer. In the instant case petitioner, as the employer, cites as reason for the adjustment the efficient
conduct of its business operations and its improved production. It rationalizes that while the old work schedule
included a 30-minute paid lunch break, the employees could be called upon to do jobs during that period as they
were on call. Even if denominated as lunch break, this period could very well be considered as working time
because the factory employees were required to work if necessary and were paid accordingly for working. With
the new work schedule, the employees are now given a one-hour lunch break without any interruption from their
employer. For a full one-hour undisturbed lunch break, the employees can freely and effectively use this hour
not only for eating but also for their rest and comfort which are conducive to more efficiency and better
performance in their work. Since the employees are no longer required to work during this one-hour lunch break,
there is no more need for them to be compensated for this period. We agree with the Labor Arbiter that the new
work schedule fully complies with the daily work period of eight (8) hours without violating the Labor
Code. Besides, the new schedule applies to all employees in the factory similarly situated whether they are
union members or not.

Consequently, it was grave abuse of discretion for public respondent to equate the earlier Sime Darby case with
the facts obtaining in this case. That ruling in the former case is not applicable here. The issue in that case
involved the matter of granting lunch breaks to certain employees while depriving the other employees of such
breaks. This Court affirmed in that case the NLRCs finding that such act of management was discriminatory and
constituted unfair labor practice.

The case before us does not pertain to any controversy involving discrimination of employees but only the issue
of whether the change of work schedule, which management deems necessary to increase production,
constitutes unfair labor practice. As shown by the records, the change effected by management with regard to
working time is made to apply to all factory employees engaged in the same line of work whether or not they
are members of private respondent union. Hence, it cannot be said that the new scheme adopted by
management prejudices the right of private respondent to self-organization.
Every business enterprise endeavors to increase its profits. In the process, it may devise means to
attain that goal. Even as the law is solicitous of the welfare of the employees, it must also protect the
right of an employer to exercise what are clearly management prerogatives. Thus, management is free
to regulate, according to its own discretion and judgment, all aspects of employment, including hiring,
work assignments, working methods, time, place and manner of work, processes to be followed,
supervision of workers, working regulations, transfer of employees, work supervision, lay off of workers
and discipline, dismissal and recall of workers. Further, management retains the prerogative, whenever
exigencies of the service so require, to change the working hours of its employees. So long as such
prerogative is exercised in good faith for the advancement of the employers interest and not for the
purpose of defeating or circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold such exercise.
While the Constitution is committed to the policy of social justice and the protection of the working
class, it should not be supposed that every dispute will be automatically decided in favor of
labor. Management also has right which, as such, are entitled to respect and enforcement in the interest
of simple fair play. Although this Court has inclined more often than not toward the worker and has
upheld his cause in his conflicts with the employer, such as favoritism has not blinded the Court to the
rule that justice is in every case for the deserving, to be dispensed in the light of the established facts
and the applicable law and doctrine.
WHEREFORE, the Petition is GRANTED. The Resolution of the National Labor Relations Commission dated
29 November 1994 is SET ASIDE and the decision of the Labor Arbiter dated 26 November 1993 dismissing
the complaint against petitioner for unfair labor practice is AFFIRMED.

DUSIT HOTEL v. NUWHRAIN

FACTS (According to Hotel)
Petitioner Hotel, formerly known as Hotel Nikko Manila Garden, was owned and managed by the PHI, a
corporation substantially owned by Japan Airlines (JAL). In November 1995, JAL formally turned over its
majority shareholdings in PHI to a Thai corporation, Dusit Thani Public Co., Ltd. (Dusit). This gave Dusit
the managerial control over the Hotel, which was then renamed Dusit Hotel Nikko.
Dusit set a two-fold objective to cope with the strict hotel competition, (1) the total renovation of the Hotel;
and (2) a complete reorganization of the Hotels manpower complement.
The reorganization was done to standardize the Hotels organizational set-up with all Dusit Hotels around
the world and train the employees for their eventual deployment to its other chain of hotels. The
 reorganization program started with a staff reduction program wherein employees were given the chance
to voluntarily avail of the SERP.
A reclassification of positions ensued upon resumption of the Hotels operation. Consequently, the
position of Agoncillo as Senior Front Office Cashier was abolished and a new position of Guest Services
Agent absorbing its functions was created. Considering that the new position requires skills in both
reception and cashiering operations, respondent Hotel deemed it necessary to transfer Agoncillo to
another position as Outlet Cashier, which does not require other skills aside from cashiering

LABOR ARBITER Dismissed the complaint for unfair labor practice and constructive dismissal. It ruled that
the reassignment of the complainant was done by management in the valid exercise of management
prerogative, and that management has not dismissed her in any way.

NLRC Agoncillo was illegally dismissed. LAs decision was reversed.

CA dismissed the petition on the ground that no grave abuse of discretion was committed by the NLRC

ISSUE:
Whether or not it is within the managements prerogative to transfer its employees

HELD:
The petition is unmeritorious.
The issues for resolution are factual and Rule 45 of the Rules of Court provides that only questions of law may
be raised in a petition for review on certiorari. The raison detre is that the Court is not a trier of facts. It is not to
reexamine and reevaluate the evidence on record. Moreover, the factual findings of the NLRC, as affirmed by
the CA, are accorded high respect and finality unless the factual findings and conclusions of the Labor Arbiter
clash with those of the NLRC and the CA in which case, the Court will have to review the records and the
arguments of the parties to resolve the factual issues and render substantial justice to the parties.
The petitioners reiterate their submission that respondent Agoncillo had never been dismissed; she was merely
transferred to another position, that of Outlet Cashier. She had been temporarily laid off because of the
renovation of the hotel but she remained as an employee of the hotel. Following the completion of the renovation
of the hotel, she was offered the position of outlet cashier; but she already filed her complaint before the Hotel
was able to determine what position she could occupy which was mutually acceptable. The petitioners aver that
the transfer of the respondent to the position of Outlet Cashier was a valid exercise of management prerogative
based on its assessment of her qualification, aptitude and competence, absent any showing to be contrary to
law, morals or public policy, unreasonable, inconvenient and prejudicial to the employee. The petitioners insist
that the transfer of Agoncillo was pursuant to its objective of completely reorganizing its manpower component.
It did not entail any diminution in salary, benefits, privileges or job level. The petitioners also maintain that even
if the respondent was separated from the Hotel, it was justified to do so due to redundancy. The validity of the
said program was even recognized by the respondents in the MOA executed by petitioner Hotel and the
respondent Union. The petitioners maintain that the respondents are bound by the MOA.
The contentions are untenable. It is plain as day that the petitioners terminated the employment of
respondent Agoncillo effective April 30, 1996, as evidenced by their letter which reads:
April 1, 1996
Ms. Rowena Agoncillo
26 A. Soriano, B.F. Homes
Paraaque, Metro Manila
Dear Ms. Agoncillo:
We have recently conducted a study of the Hotels organizational structure and found the need to reorganize the
same and eliminate many positions that have become redundant.
As a result of such study, it was determined that your position as Senior Front Office Cashier is redundant. In
this connection, please be advised of your separation from service due to redundancy, effective close of office
hours of April 30, 1996. You will receive not later than April 30, 1996 the separation pay provided for under the
law, plus the amount of P19,000.00.
We take this opportunity to thank you for your service to Hotel Nikko Manila Garden and extend to you our best
wishes for your next endeavors.
Very truly yours,

(Sgd.)
PEARL V. ARAGON
Director for Administration
The letter of the petitioners terminating the employment of Agoncillo on the ground of redundancy was rejected
by the Order of the SOLE in NCMB-NCR-NS-11-425-96 where he ruled that the petitioners redundancy program
was but a ploy, a contrivance cunningly scripted by them to subvert the Union and unlawfully dismiss many of
its employees. The SOLE declared that, by their acts, the petitioners were guilty of unfair labor practice.
Redundancy exists when the service capability of the workforce is in excess of what is reasonably
needed to meet the demands of the business enterprise. A reasonably redundant position is one
rendered superfluous by any number of factors, such as overhiring of workers, decreased volume of
business, dropping of a particular product line previously manufactured by the company or phasing out
of service activity priorly undertaken by the business. Among the requisites of a valid redundancy
program are: (1) the good faith of the employer in abolishing the redundant position; and (2) fair and
reasonable criteria in ascertaining what positions are to be declared redundant and accordingly
abolished. As found by the SOLE, the NLRC and the CA, the position of respondent Agoncillo was not abolished
or declared redundant. In fact, the petitioners hired an entirely new set of employees to perform the tasks of
respondent Agoncillo, namely:
Don Vincent Hembrador - hired on October 1, 1996
Reynaldo Pajarito - hired on October 1, 1996
Eliza De Venecia - hired on October 1, 1996
Scarlet Galve - hired on October 1, 1996
Dheeny Laggui - hired on October 1, 1996
Eric Galos - hired on October 1, 1996
Carlota Pineda - hired on January 25, 1997
We agree with the contention of the petitioners that it is the prerogative of management to transfer an
employee from one office to another within the business establishment based on its assessment and
perception of the employees qualification, aptitude and competence, and in order to ascertain where he
can function with the maximum benefit to the company. However, this Court emphasized that:
But, like other rights, there are limits thereto. The managerial prerogative to transfer personnel must be
exercised without grave abuse of discretion, bearing in mind the basic elements of justice and fair play.
Having the right should not be confused with the manner in which that right is exercised. Thus, it cannot
be used as a subterfuge by the employer to rid himself of an undesirable worker. In particular, the
employer must be able to show that the transfer is not unreasonable, inconvenient or prejudicial to the
employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other
benefits. Should the employer fail to overcome this burden of proof, the employees transfer shall be
tantamount to constructive dismissal, which has been defined as a quitting because continued
employment is rendered impossible, unreasonable or unlikely; as an offer involving a demotion in rank
and diminution in pay.
There is constructive dismissal when there is a demotion in rank and/or diminution in pay; or when a
clear discrimination, insensibility or disdain by an employer becomes unbearable to the employee.
In the present case, the petitioners recalled the termination of respondent Agoncillo when they learned that she
was going to file a complaint against them with the NLRC for illegal dismissal. However, instead of reinstating
her to her former position, she was offered the position of Linen Dispatcher in the hotel basement or Secretary
of the Roomskeeping Section, positions much lower than that of a Supervisor of Outlet Cashiers which the
respondent held before she was promoted as Senior Front Office Cashier. With the said positions, the
respondent would not certainly be receiving the same salary and other benefits as Senior Front Office Cashier.
We agree with the ruling of the NLRC that the offers by the petitioners to transfer respondent Agoncillo to other
positions were made in bad faith, a ploy to stave off a suit for illegal dismissal. In fact, respondent Agoncillo had
not been transferred to another position at all.
Six months from the time the petitioners made offers to respondent Agoncillo, the latter never heard from the
petitioners again.
While the hotel gave complainant Rowena Agoncillo a second letter advising her that she was still an employee
who was merely on temporary lay-off, the circumstances surrounding the issuance of such second letter is highly
suspicious. To date, complainant Agoncillos affidavit (Annex F) on the issuance of the second letter remains
undisputed. It cannot be gainsaid that the second letter was issued merely to entice complainant Agoncillo to
return the termination letter. The said second letter did not make mention of the termination letter. If, as claimed
by the hotel, the second letter was a withdrawal of the first letter, why was there no clear statement to this effect
when it could have easily been done? Why was it also necessary for the hotels officers to retrieve the termination
letter that it had issued to complainant? What we can gather from here is that the hotel had tried to cover its
tracks in order to rectify an error. Certainly, good faith cannot be attributed on the part of the hotel in issuing the
second letter.
Even assuming, for the sake of argument, that the hotel had a valid ground for dismissing [the] complainant and
that it had merely spared her such fate, the hotel is still guilty of illegal dismissal. Had the hotel made the transfer
of complainant in good faith and in the normal course of its operation, it would have been justified. In this case,
however, the supposed transfer was made only after complainant had been earlier terminated. Complainants
statement in her affidavit that she was summoned by the hotel after news of her plan to contest her dismissal
circulated remains unrefuted. Furthermore, the hotel has not explained why there was no official memorandum
issued to complainant formally informing her of her transfer. All these lead to only one conclusion that the alleged
transfer was not made in good faith as a valid exercise of management prerogative but was intended as a
settlement offer to complainant to prevent her from filing a case.
The offers made by the petitioners could not have the effect of validating an otherwise arbitrary dismissal.
We reject the contention of the petitioners that respondent Agoncillo is bound by the MOA executed by the
petitioners and respondent Union. There is no denying the right of the Union and the petitioners under Article
227 of the Labor Code to enter into and execute a compromise agreement with the assistance of the DOLE;
and that such agreement is binding not only on the Union generally but on its individual members.
However, a plain reading of the MOA will readily show that it is not binding on respondent Agoncillo. The MOA
reads:
1. The Hotel shall pay the amount of P15,000.00 each to the members of the bargaining unit who are
represented by the Union in this case by way of amicable settlement of the case and in addition to the
redundancy pay already earlier given to such members.
2. For security purposes and an orderly proceeding, only claimants or their authorized representatives shall be
allowed entry into the premises of the Hotel accompanied by Union representative.
3. On the date of application and actual payment, the claimants shall execute sworn release, waiver and
quitclaim as well as a special power of attorney authorizing the Union president to amicably settle this case.
4. Unclaimed settlement pay after 15 April 2000 shall be turned over to the Union for its disposition on condition
that the Union shall take care of paying other claimants if any should show up to lay their claim thereafter.
5. Following the execution of this Agreement, the Union and the Hotel shall file a manifestation and motion with
the DOLE, attached this Agreement, praying for the following:
a. Dismissal of the case with prejudice in regard to:
(i.) illegal redundancy as to those who have received the settlement pay above and signed the Special Power
of Attorney and Release, Waiver and Quitclaim;
(ii.) all ULP charges; and
b. Dismissal of the case without prejudice as to those who have not yet received the settlement pay.
The Union executed the MOA in behalf of the members of the bargaining unit. There is no showing that
Agoncillo is a member of that unit. The MOA applies only to the members of the bargaining unit who agreed
to the termination of their employment based on redundancy and received redundancy pay. Agoncillo did not
receive any redundancy pay or any monetary benefits under the MOA or executed any deed or waiver or release
in favor of the petitioners.
The MOA executed by the petitioners and the Union settled only the case of the parties before the SOLE for
unfair labor practice and for illegal redundancy. It did not settle the case between the petitioners and
Agoncillo before the NLRC. This is the reason why the MOA was never submitted by the parties therein to the
NLRC for its approval. Although the petitioners sought a reconsideration of the decision of the NLRC based,
inter alia, on the MOA, the NLRC denied the said motion. Indeed, the NLRC acted in accord with case law that:
First, even if a clear majority of the union members agreed to a settlement with the employer, the union has no
authority to compromise the individual claims of members who did not consent to such settlement. Rule 138,
Section 23 of the 1964 Revised Rules of Court requires a special authority before an attorney may compromise
his clients litigation. The authority to compromise cannot lightly be presumed and should be duly
established by evidence.
In the case at bar, minority union members did not authorize the union to compromise their individual claims.
Absent a showing of the unions special authority to compromise the individual claims of private respondents for
reinstatement and back wages, there is no valid waiver of the aforesaid rights. As private respondents did not
authorize the union to represent them in the compromise settlement, they are not bound by the terms thereof.
Second, whether minority union members who did not consent to a compromise agreement are bound by the
majority decision approving a compromise settlement has been resolved in the negative.
In La Campana, we explicitly declared:
Money claims due to laborers cannot be the object of settlement or compromise effected by a union or
counsel without the specific individual consent of each laborer concerned. The beneficiaries are the
individual complainants themselves. The union to which they belong can only assist them but cannot
decide for them.
The case of La Campana was re-affirmed in the General Rubber case as follows:
In the instant case, there is no dispute that private respondent has not ratified the Return-to-Work Agreement.
It follows, and we so hold, that private respondents cannot be held bound by the Return-to-Work Agreement.
The waiver of money claims, which in this case were accrued money claims, by workers and employees must
be regarded as a personal right, that is, a right that must be personally exercised. For a waiver thereof to be
legally effective, the individual consent or ratification of the workers or employees involved must be shown.
Neither the officers nor the majority or the union had any authority to waive the accrued rights pertaining to the
dissenting minority members, even under a collective bargaining agreement which provided for a union shop.
The same considerations of public policy which impelled the Court to reach the conclusion it did in La Campana,
are equally compelling in the present case. The members of the union need the protective shield of this doctrine
not only vis--vis their employer but also, at times, vis-a-vis the management of their own union, and at other
times even against their own imprudence impecuniousness.
We have consistently ruled that a compromise is governed by the basic principle that the obligations
arising therefrom have the force of law between the parties.
Consequently, private respondents may pursue their individual claims against petitioners before the Labor
Arbiter.
The judgment of the Labor Arbiter based on the compromise agreement in question does not have the effect of
res judicata upon private respondent who did not agree thereto.
A compromise, once approved by final orders of the court has the force of res judicata between the parties and
should not be disturbed except for vices of consent or forgery. A compromise is basically a contract perfected
by mere consent. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. A compromise agreement is not valid when a party in the
case has not signed the same or when someone signs for and in behalf of such party without authority
to do so.
In SMI Fish Industries, Inc. vs. NLRC, this Court declared that where the compromise agreement was signed
by only three of the five respondents, the non-signatories cannot be bound by that amicable settlement. This is
so as a compromise agreement is a contract and cannot affect third persons who are not parties to it.
Private respondents were not parties to the compromise agreement. Hence, the judgment approving such
agreement cannot have the effect of res judicata upon them since the requirement of identity of parties is not
satisfied. A judgment upon a compromise agreement has all the force and effect of any other judgment, hence,
conclusive only upon parties thereto and their privies.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.
SO ORDERED.

MENDOZA v. RURAL BANK OF LUCBAN

FACTS:
On April 25, 1999, the Board of Directors of the Rural Bank of Lucban, Inc., issued Board Resolution in line with
the policy of the bank to familiarize bank employees with the various phases of bank operations and further
strengthen the existing internal control system, all officers and employees are subject to reshuffle of
assignments. On May 3, 1999, in an undated letter addressed to Daya, Petitioner Elmer Mendoza expressed
his opinion on the reshuffle that it is deemed a demotion without a legal basis. Petitioner applied for ten-day sick
leave effective June 7, 1999. On June 21, 1999, petitioner again submitted a letter asking for another leave of
absence for twenty days effective on the same date. On June 24, 1999, while on his second leave of absence,
petitioner filed a Complaint before the National Labor Relations Commission (NLRC). The Complaint -- for illegal
dismissal, underpayment, separation pay and damages.
ISSUE:
Whether or not the reshuffling of private respondent[s] employees was done in good faith and cannot be made
as the basis of a finding of constructive dismissal

HELD:
The Petition has no merit.
Main Issue:
Constructive Dismissal
Constructive dismissal is defined as an involuntary resignation resorted to when continued employment
is rendered impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution of
pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to the
employee. Petitioner argues that he was compelled to file an action for constructive dismissal, because he had
been demoted from appraiser to clerk and not given any work to do, while his table had been placed near the
toilet and eventually removed. He adds that the reshuffling of employees was done in bad faith, because it was
designed primarily to force him to resign.

Management Prerogative to Transfer Employees

Jurisprudence recognizes the exercise of management prerogatives. For this reason, courts often decline to
interfere in legitimate business decisions of employers. Indeed, labor laws discourage interference in employers
judgments concerning the conduct of their business. The law must protect not only the welfare of employees,
but also the right of employers.

In the pursuit of its legitimate business interest, management has the prerogative to transfer or assign
employees from one office or area of operation to another -- provided there is no demotion in rank or
diminution of salary, benefits, and other privileges; and the action is not motivated by discrimination,
made in bad faith, or effected as a form of punishment or demotion without sufficient cause. This privilege
is inherent in the right of employers to control and manage their enterprise effectively. The right of employees
to security of tenure does not give them vested rights to their positions to the extent of depriving management
of its prerogative to change their assignments or to transfer them.

Managerial prerogatives, however, are subject to limitations provided by law, collective bargaining agreements,
and general principles of fair play and justice. The test for determining the validity of the transfer of
employees was explained in Blue Dairy Corporation v. NLRC as follows:

[L]ike other rights, there are limits thereto. The managerial prerogative to transfer personnel must be
exercised without grave abuse of discretion, bearing in mind the basic elements of justice and fair play.
Having the right should not be confused with the manner in which that right is exercised. Thus, it cannot
be used as a subterfuge by the employer to rid himself of an undesirable worker. In particular, the
employer must be able to show that the transfer is not unreasonable, inconvenient or prejudicial to the
employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other
benefits. Should the employer fail to overcome this burden of proof, the employees transfer shall be
tantamount to constructive dismissal, which has been defined as a quitting because continued
employment is rendered impossible, unreasonable or unlikely; as an offer involving a demotion in rank
and diminution in pay. Likewise, constructive dismissal exists when an act of clear discrimination,
insensibility or disdain by an employer has become so unbearable to the employee leaving him with no
option but to forego with his continued employment.

Petitioners Transfer Lawful

The employer bears the burden of proving that the transfer of the employee has complied with the
foregoing test. In the instant case, we find no reason to disturb the conclusion of the NLRC and the CA that
there was no constructive dismissal. Their finding is supported by substantial evidence -- that amount of
relevant evidence that a reasonable mind might accept as justification for a conclusion.
Petitioners transfer was made in pursuit of respondents policy to familiarize bank employees with the
various phases of bank operations and further strengthen the existing internal control system of all
officers and employees. We have previously held that employees may be transferred -- based on their
qualifications, aptitudes and competencies -- to positions in which they can function with maximum
benefit to the company. There appears no justification for denying an employer the right to transfer employees
to expand their competence and maximize their full potential for the advancement of the establishment.
Petitioner was not singled out; other employees were also reassigned without their express consent.
Neither was there any demotion in the rank of petitioner; or any diminution of his salary, privileges and other
benefits. This fact is clear in respondents Board Resolutions, the April 30, 1999 letter of Bank President Daya
to Branch Manager Cada, and the May 10, 1999 letter of Daya to petitioner.
On the other hand, petitioner has offered no sufficient proof to support his allegations. Given no credence by
both lower tribunals was his bare and self-serving statement that he had been positioned near the comfort room,
made to work without a table, and given no work assignment.[35] Purely conjectural is his claim that the reshuffle
of personnel was a harassment in retaliation for an alleged falsification case filed by his relatives against a public
official.[36] While the rules of evidence prevailing in courts of law are not controlling in proceedings before the
NLRC,[37] parties must nonetheless submit evidence to support their contentions.

Secondary Issues:

Serrano v. NLRC Inapplicable

Serrano v. NLRC[38] does not apply to the present factual milieu. The Court ruled therein that the lack of notice
and hearing made the dismissal of the employee ineffectual, but not necessarily illegal.[39] Thus, the procedural
infirmity was remedied by ordering payment of his full back wages from the time of his dismissal.[40] The
absence of constructive dismissal in the instant case precludes the application of Serrano. Because herein
petitioner was not dismissed, then he is not entitled to his claimed monetary benefits.

Alleged Nullity of NLRC and CA Proceedings

Petitioner argues that the proceedings before the NLRC and the CA were void, since respondents appeal before
the NLRC had allegedly been filed beyond the reglementary period.[41] A careful scrutiny of his Petition for
Review[42] with the appellate court shows that this issue was not raised there. Inasmuch as the instant Petition
challenges the Decision of the CA, we cannot rule on arguments that were not brought before it. This ruling is
consistent with the due-process requirement that no question shall be entertained on appeal, unless it has been
raised in the court below.[43]

WHEREFORE, this Petition is DENIED, and the June 14, 2002 Decision and the September 25, 2002 Resolution
of the Court of Appeals are AFFIRMED. Costs against petitioner.
GENERAL MILLING v. VIAJAR
FACTS:
GMC is a domestic corporation with principal office in Makati City and a manufacturing plant in Lapu-Lapu City.
In October 2003, GMC terminated the services of thirteen (13) employees for redundancy, including herein
respondent, Violeta Viajar (Viajar). GMC alleged that it has been gradually downsizing its Vismin (Visayas-
Mindanao) Operations in Cebu where a sizeable number of positions became redundant over a period of time.
On December 2, 2003, Viajar filed a Complaint7 for Illegal Dismissal with damages against GMC, its Human
Resource Department (HRD) Manager, Johnny T. Almocera (Almocera), and Purchasing Manager, Joel Paulino
before the Regional Arbitration Branch (RAB) No. VII, NLRC, Cebu City.
On October 30, 2003, Viajar received a Letter-Memorandum dated October 27, 2003 from GMC, through
Almocera, informing her that her services were no longer needed, effective November 30, 2003 because her
position as Purchasing Staff at the Purchasing Group, Cebu Operations was deemed redundant.
When Viajar reported for work on October 31, 2003, almost a month before the effectivity of her severance from
the company, the guard on duty barred her from entering GMCs premises. She was also denied access to her
office computer and was restricted from punching her daily time record in the bundy clock.
On November 7, 2003, Viajar was invited to the HRD Cebu Office where she was asked to sign certain
documents, which turned out to be an Application for Retirement and Benefits. The respondent refused to sign
and sought clarification because she did not apply for retirement and instead asserted that her services were
terminated for alleged redundancy. Almocera told her that her signature on the Application for Retirement and
Benefits was needed to process her separation pay. The respondent also claimed that between the period of
July 4, 2003 and October 13, 2003, GMC hired fifteen (15) new employees which aroused her suspicion that
her dismissal was not necessary.
Petitioner insisted that Viajars dismissal was due to the redundancy of her position. GMC reasoned out that it
was forced to terminate the services of the respondent because of the economic setbacks the company was
suffering which affected the companys profitability, and the continuing rise of its operating and interest
expenditures. Redundancy was part of the petitioners concrete and actual cost reduction measures.
ISSUE:
Whether or not Viajar was illegally dismissed
Whether or not the management validly exercised its prerogative to dismiss employees based on redundancy
HELD:
The petition is denied.
The petitioner argues that the factual findings of the NLRC, affirming that of the LA must be accorded respect
and finality as it is supported by evidence on record. Both the LA and the NLRC found the petitioners evidence
sufficient to terminate the employment of respondent on the ground of redundancy. The evidence also shows
that GMC has complied with the procedural and substantive requirements for a valid termination. There was,
therefore, no reason for the CA to disturb the factual findings of the NLRC.
The rule is that factual findings of quasi-judicial agencies such as the NLRC are generally accorded not only
respect, but at times, even finality because of the special knowledge and expertise gained by these agencies
from handling matters falling under their specialized jurisdiction. It is also settled that this Court is not a trier of
facts and does not normally embark in the evaluation of evidence adduced during trial.
This rule, however, allows for exceptions. One of these exceptions covers instances when the findings of fact of
the trial court, or of the quasi-judicial agencies concerned, are conflicting or contradictory with those of the CA.
When there is a variance in the factual findings, it is incumbent upon the Court to re-examine the facts once
again. Furthermore, another exception to the general rule is when the said findings are not supported by
substantial evidence or if on the basis of the available facts, the inference or conclusion arrived at is manifestly
erroneous. Factual findings of administrative agencies are not infallible and will be set aside when they fail the
test of arbitrariness.
In the instant case, the Court agrees with the CA that the conclusions arrived at by the LA and the NLRC are
manifestly erroneous. GMC claims that Viajar was validly dismissed on the ground of redundancy which is one
of the authorized causes for termination of employment. The petitioner asserts that it has observed the
procedure provided by law and that the same was done in good faith. To justify the respondents dismissal, the
petitioner presented: (i) the notification Letter Memorandum dated October 27, 2003 addressed to the
respondent which was received on October 30, 2003;29 (ii) the Establishment Termination Report as
prescribed by the DOLE;30 (iii) the two (2) checks issued in the respondents name amounting to P440,253.02
and P21,211.35 as separation pay;31 and (iv) the list of dismissed employees as of June 6, 2006 to show that
GMC was in a reduction mode.32 Both the LA and the NLRC found these sufficient to prove that the dismissal
on the ground of redundancy was done in good faith.
The Court does not agree.
Article 283 of the Labor Code provides that redundancy is one of the authorized causes for dismissal. It reads:
Article 283. Closure of establishment and reduction of personnel. The employer may also terminate the
employment of any employee due to the installment of labor-saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is
for the purpose of circumventing the provisions of this Title, by serving a written notice on the worker and the
Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination
due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a
separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of
service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business losses or reverses, the separation pay
shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever
is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (Emphasis supplied)
From the above provision, it is imperative that the employer must comply with the requirements for a valid
implementation of the companys redundancy program, to wit: (a) the employer must serve a written
notice to the affected employees and the DOLE at least one (1) month before the intended date of
retrenchment; (b) the employer must pay the employees a separation pay equivalent to at least one
month pay or at least one month pay for every year of service, whichever is higher; (c) the employer
must abolish the redundant positions in good faith; and (d) the employer must set fair and reasonable
criteria in ascertaining which positions are redundant and may be abolished.
In Smart Communications, Inc., v. Astorga, the Court held that: The nature of redundancy as an authorized
cause for dismissal is explained in the leading case of Wiltshire File Co., Inc. v. National Labor Relations
Commission, viz:
x x x redundancy in an employers personnel force necessarily or even ordinarily refers to duplication
of work. That no other person was holding the same position that private respondent held prior to termination
of his services does not show that his position had not become redundant. Indeed, in any well-organized
business enterprise, it would be surprising to find duplication of work and two (2) or more people doing the work
of one person. We believe that redundancy, for purposes of the Labor Code, exists where the services of
an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise.
Succinctly put, a position is redundant where it is superfluous, and superfluity of a position or positions may be
the outcome of a number of factors, such as overhiring of workers, decreased volume of business, or dropping
of a particular product line or service activity previously manufactured or undertaken by the enterprise.
The characterization of an employees services as superfluous or no longer necessary and, therefore, properly
terminable, is an exercise of business judgment on the part of the employer. The wisdom and soundness of
such characterization or decision is not subject to discretionary review provided, of course, that a violation of
law or arbitrary or malicious action is not shown.35 (Emphasis supplied and citations omitted)
While it is true that the characterization of an employees services as superfluous or no longer necessary and,
therefore, properly terminable, is an exercise of business judgment on the part of the employer,36 the exercise
of such judgment, however, must not be in violation of the law, and must not be arbitrary or malicious. The Court
has always stressed that a company cannot simply declare redundancy without basis. To exhibit its good faith
and that there was a fair and reasonable criteria in ascertaining redundant positions, a company claiming to be
over manned must produce adequate proof of the same.
We reiterate what was held in Caltex (Phils.), Inc. v. NLRC:
In Asufrin, Jr. v. San Miguel Corporation, we ruled that it is not enough for a company to merely declare that it
has become overmanned (sic). It must produce adequate proof of such redundancy to justify the dismissal of
the affected employees. In Panlilio v. National Labor Relations Commission, we held that evidence must be
presented to substantiate redundancy such as but not limited to the new staffing pattern, feasibility
studies/proposal, on the viability of the newly created positions, job description and the approval by the
management of the restructuring. (Emphasis supplied and citations omitted)
In the instant case, the Court agrees with the CA when it held that the petitioner failed to present substantial
proof to support GMCs general allegations of redundancy. As shown from the records, the petitioner simply
presented as its evidence of good faith and compliance with the law the notification letter to respondent Viajar;
the Establishment Termination Report it submitted to the DOLE Office; the two (2) checks issued in the
respondents name amounting to P440,253.02 and P21,211.35; and the list of terminated employees as of June
6, 2006. We agree with the CA that these are not enough proof for the valid termination of Viajars employment
on the ground of redundancy.
The letter-memorandum which contains general allegations is not enough to convince this Court that Viajars
termination of employment due to redundancy was warranted under the circumstances. There is no showing
that GMC made an evaluation of the existing positions and their effect to the company. Neither did GMC exert
efforts to present tangible proof that it was experiencing business slow down or over hiring. The Establishment
Termination Report it submitted to the DOLE Office did not account for anything to justify declaring the positions
redundant. The Court notes that the list of terminated employees presented by GMC was a list taken as of June
6, 2006 or almost three years after the respondent was illegally dismissed and almost a year after the LA
promulgated its decision. While the petitioner had been harping that it was on a reduction mode of its
employees, it has not presented any evidence (such as new staffing pattern, feasibility studies or proposal,
viability of newly created positions, job description and the approval of the management of the restructuring,
audited financial documents like balance sheets, annual income tax returns and others) which could readily
show that the companys declaration of redundant positions was justified. Such proofs, if presented, would
suffice to show the good faith on the part of the employer or that this business prerogative was not whimsically
exercised in terminating respondents employment on the ground of redundancy. Unfortunately, these are
wanting in the instant case. The petitioner only advanced a self-serving general claim that it was experiencing
business reverses and that there was a need to reduce its manpower complement.
On the other hand, the respondent presented proof that the petitioner had been hiring new employees while it
was firing the old ones, negating the claim of redundancy. It must, however, be pointed out that in termination
cases, like the one before us, the burden of proving that the dismissal of the employees was for a valid and
authorized cause rests on the employer. It was incumbent upon the petitioner to show by substantial evidence
that the termination of the employment of the respondent was validly made and failure to discharge that duty
would mean that the dismissal is not justified and therefore illegal.
Furthermore, the Court cannot overlook the fact that Viajar was prohibited from entering the company premises
even before the effectivity date of termination; and was compelled to sign an Application for Retirement and
Benefits. These acts exhibit the petitioners bad faith since it cannot be denied that the respondent was still
entitled to report for work until November 30, 2003. The demand for her to sign the Application for Retirement
and Benefits also contravenes the fact that she was terminated due to redundancy. Indeed, there is a difference
between voluntary retirement of an employee and forced termination due to authorized causes.
In Quevedo v. Benguet Electric Cooperative, Incorporated, this Court explained the difference between
retirement and termination due to redundancy, to wit:
While termination of employment and retirement from service are common modes of ending employment, they
are mutually exclusive, with varying juridical bases and resulting benefits. Retirement from service is contractual
(i.e. based on the bilateral agreement of the employer and employee), while termination of employment is
statutory (i.e. governed by the Labor Code and other related laws as to its grounds, benefits and procedure).
The benefits resulting from termination vary, depending on the cause. For retirement, Article 287 of the Labor
Code gives leeway to the parties to stipulate above a floor of benefits.
xxxx
The line between voluntary and involuntary retirement is thin but it is one which this Court has drawn. Voluntary
retirement cuts employment ties leaving no residual employer liability; involuntary retirement amounts to a
discharge, rendering the employer liable for termination without cause. The employees intent is the focal point
of analysis. In determining such intent, the fairness of the process governing the retirement decision, the
payment of stipulated benefits, and the absence of badges of intimidation or coercion are relevant parameters.48
(Emphasis supplied and citations omitted)
Clearly, the instant case is not about retirement since the term has its peculiar meaning and is governed by
Article 287 of the Labor Code. Rather, this is a case of termination due to redundancy under Article 283 of the
Labor Code. Thus, the demand of GMC for the respondent to sign an Application for Retirement and Benefits
is really suspect.
Finally, the Court agrees with the CA that the award of moral and exemplary damages is proper. The Court has
awarded moral damages in termination cases when bad faith, malice or fraud attend the employees dismissal
or where the act oppresses labor, or where it was done in a manner contrary to morals, good customs or public
policy. We quote with favor the findings of the CA:
We also award moral and exemplary damages to petitioner. While it is true that good faith is presumed, the
circumstances surrounding the dismissal of petitioner negate its existence. Moral damages may be recovered
only where the dismissal of the employee was tainted by bad faith or fraud, or where it constituted an act
oppressive to labor, and done in a manner contrary to morals, good customs or public policy while exemplary
damages are recoverable only if the dismissal was done in a wanton, oppressive, or malevolent manner. To
reiterate, immediately after receipt of her termination letter which was effective on 30 November 2003, petitioner
was no longer treated as an employee of respondent as early as the 31st of October 2003; she was already
barred from entering the company premises; she was deprived access to her office computer; and she was
excluded from the bandy [sic] clock. She was also made to sign documents, including an APPLICATION FOR
RETIREMENT AND BENEFITS in the guise of payment of her separation pay. When petitioner confronted her
immediate superior regarding her termination, the latters shock aggravated her confusion and suffering. She
also learned about the employment of a number of new employees, several of whom were even employed in
her former department. Petitioner likewise suffered mental torture brought about by her termination even though
its cause was not clear and substantiated.50 (Citations omitted)
WHEREFORE, the petition is DENIED. The Decision dated September 21, 2007 of the Court of Appeals, as
well as its Resolution dated January 30, 2008 in CA-G.R. SP No. 01734, are hereby AFFIRMED.

GOYA v. GOYA UNION

FACTS:
Sometime in January 2004, petitioner Goya, Inc. (Company), a domestic corporation engaged in the
manufacture, importation, and wholesale of top quality food products, hired contractual employees from PESO
Resources Development Corporation (PESO) to perform temporary and occasional services in its factory in
Parang, Marikina City. This prompted respondent Goya, Inc. Employees UnionFFW (Union) to request for a
grievance conference on the ground that the contractual workers do not belong to the categories of employees
stipulated in the existing Collective Bargaining Agreement (CBA). When the matter remained unresolved, the
grievance was referred to the National Conciliation and Mediation Board (NCMB) for voluntary arbitration.
The Union asserted that the hiring of contractual employees from PESO is not a management prerogative
and in gross violation of the CBA tantamount to unfair labor practice (ULP). It noted that the contractual workers
engaged have been assigned to work in positions previously handled by regular workers and Union members,
in effect violating Section 4, Article I of the CBA, which provides for three categories of employees in the
Company, to wit:

Section 4. Categories of Employees. The parties agree on the following categories of employees:
(a) Probationary Employee. One hired to occupy a regular rank-and-file position in the Company and is serving
a probationary period. If the probationary employee is hired or comes from outside the Company (non-Goya,
Inc. employee), he shall be required to undergo a probationary period of six (6) months, which period, in the
sole judgment of management, may be shortened if the employee has already acquired the knowledge or skills
required of the job. If the employee is hired from the casual pool and has worked in the same position at any
time during the past two (2) years, the probationary period shall be three (3) months.
(b) Regular Employee. An employee who has satisfactorily completed his probationary period and automatically
granted regular employment status in the Company.
(c) Casual Employee, One hired by the Company to perform occasional or seasonal work directly connected
with the regular operations of the Company, or one hired for specific projects of limited duration not connected
directly with the regular operations of the Company.
It was averred that the categories of employees had been a part of the CBA since the 1970s and that due to this
provision, a pool of casual employees had been maintained by the Company from which it hired workers who
then became regular workers when urgently necessary to employ them for more than a year. Likewise, the
Company sometimes hired probationary employees who also later became regular workers after passing the
probationary period. With the hiring of contractual employees, the Union contended that it would no longer have
probationary and casual employees from which it could obtain additional Union members; thus, rendering inutile
Section 1, Article III (Union Security) of the CBA, which states:
Section 1. Condition of Employment. As a condition of continued employment in the Company, all regular rank-
and-file employees shall remain members of the Union in good standing and that new employees covered by
the appropriate bargaining unit shall automatically become regular employees of the Company and shall remain
members of the Union in good standing as a condition of continued employment.
The Union moreover advanced that sustaining the Companys position would easily weaken and ultimately
destroy the former with the latters resort to retrenchment and/or retirement of employees and not filling up the
vacant regular positions through the hiring of contractual workers from PESO, and that a possible scenario could
also be created by the Company wherein it could "import" workers from PESO during an actual strike.
In countering the Unions allegations, the Company argued that: (a) the law expressly allows contracting and
subcontracting arrangements through Department of Labor and Employment (DOLE) Order No. 18-02; (b) the
engagement of contractual employees did not, in any way, prejudice the Union, since not a single employee
was terminated and neither did it result in a reduction of working hours nor a reduction or splitting of the
bargaining unit; and (c) Section 4, Article I of the CBA merely provides for the definition of the categories of
employees and does not put a limitation on the Companys right to engage the services of job contractors or its
management prerogative to address temporary/occasional needs in its operation.
ISSUE:
Whether or not management prerogative overrules the CBA
HELD:
We confirm that the VA ruled on a matter that is covered by the sole issue submitted for voluntary arbitration.
Resultantly, the CA did not commit serious error when it sustained the ruling that the hiring of contractual
employees from PESO was not in keeping with the intent and spirit of the CBA. Indeed, the opinion of the VA is
germane to, or, in the words of the CA, "interrelated and intertwined with," the sole issue submitted for resolution
by the parties. This being said, the Companys invocation of Sections 4 and 5, Rule IV20 and Section 5, Rule
VI21 of the Revised Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings dated October
15, 2004 issued by the NCMB is plainly out of order.
Likewise, the Company cannot find solace in its cited case of Ludo & Luym Corporation v. Saornido. In Ludo,
the company was engaged in the manufacture of coconut oil, corn starch, glucose and related products. In the
course of its business operations, it engaged the arrastre services of CLAS for the loading and unloading of its
finished products at the wharf. The arrastre workers deployed by CLAS to perform the services needed were
subsequently hired, on different dates, as Ludos regular rank-and-file employees. Thereafter, said employees
joined LEU, which acted as the exclusive bargaining agent of the rank-and-file employees. When LEU entered
into a CBA with Ludo, providing for certain benefits to the employees (the amount of which vary according to
the length of service rendered), it requested to include in its members period of service the time during which
they rendered arrastre services so that they could get higher benefits. The matter was submitted for voluntary
arbitration when Ludo failed to act. Per submission agreement executed by both parties, the sole issue for
resolution was the date of regularization of the workers. The VA Decision ruled that: (1) the subject employees
were engaged in activities necessary and desirable to the business of Ludo, and (2) CLAS is a labor-only
contractor of Ludo. It then disposed as follows: (a) the complainants were considered regular employees six
months from the first day of service at CLAS; (b) the complainants, being entitled to the CBA benefits during the
regular employment, were awarded sick leave, vacation leave, and annual wage and salary increases during
such period; (c) respondents shall pay attorneys fees of 10% of the total award; and (d) an interest of 12% per
annum or 1% per month shall be imposed on the award from the date of promulgation until fully paid. The VA
added that all separation and/or retirement benefits shall be construed from the date of regularization subject
only to the appropriate government laws and other social legislation. Ludo filed a motion for reconsideration, but
the VA denied it. On appeal, the CA affirmed in toto the assailed decision; hence, a petition was brought before
this Court raising the issue, among others, of whether a voluntary arbitrator can award benefits not claimed in
the submission agreement. In denying the petition, We ruled:

Generally, the arbitrator is expected to decide only those questions expressly delineated by the submission
agreement. Nevertheless, the arbitrator can assume that he has the necessary power to make a final settlement
since arbitration is the final resort for the adjudication of disputes. The succinct reasoning enunciated by the CA
in support of its holding, that the Voluntary Arbitrator in a labor controversy has jurisdiction to render the
questioned arbitral awards, deserves our concurrence, thus:

In general, the arbitrator is expected to decide those questions expressly stated and limited in the submission
agreement. However, since arbitration is the final resort for the adjudication of disputes, the arbitrator can
assume that he has the power to make a final settlement. Thus, assuming that the submission empowers the
arbitrator to decide whether an employee was discharged for just cause, the arbitrator in this instance can
reasonably assume that his powers extended beyond giving a yes-or-no answer and included the power to
reinstate him with or without back pay.

In one case, the Supreme Court stressed that "xxx the Voluntary Arbitrator had plenary jurisdiction and authority
to interpret the agreement to arbitrate and to determine the scope of his own authority subject only, in a proper
case, to the certiorari jurisdiction of this Court. The Arbitrator, as already indicated, viewed his authority as
embracing not merely the determination of the abstract question of whether or not a performance bonus was to
be granted but also, in the affirmative case, the amount thereof.

By the same token, the issue of regularization should be viewed as two-tiered issue. While the submission
agreement mentioned only the determination of the date or regularization, law and jurisprudence give the
voluntary arbitrator enough leeway of authority as well as adequate prerogative to accomplish the reason for
which the law on voluntary arbitration was created speedy labor justice. It bears stressing that the underlying
reason why this case arose is to settle, once and for all, the ultimate question of whether respondent
employees are entitled to higher benefits. To require them to file another action for payment of such benefits
would certainly undermine labor proceedings and contravene the constitutional mandate providing full protection
to labor.

Indubitably, Ludo fortifies, not diminishes, the soundness of the questioned VA Decision. Said case reaffirms
the plenary jurisdiction and authority of the voluntary arbitrator to interpret the CBA and to determine the scope
of his/her own authority. Subject to judicial review, the leeway of authority as well as adequate prerogative is
aimed at accomplishing the rationale of the law on voluntary arbitration speedy labor justice. In this case, a
complete and final adjudication of the dispute between the parties necessarily called for the resolution of the
related and incidental issue of whether the Company still violated the CBA but without being guilty of ULP
as, needless to state, ULP is committed only if there is gross violation of the agreement.
Lastly, the Company kept on harping that both the VA and the CA conceded that its engagement of contractual
workers from PESO was a valid exercise of management prerogative. It is confused. To emphasize, declaring
that a particular act falls within the concept of management prerogative is significantly different from
acknowledging that such act is a valid exercise thereof. What the VA and the CA correctly ruled was that
the Companys act of contracting out/outsourcing is within the purview of management prerogative. Both did not
say, however, that such act is a valid exercise thereof. Obviously, this is due to the recognition that the CBA
provisions agreed upon by the Company and the Union delimit the free exercise of management
prerogative pertaining to the hiring of contractual employees. Indeed, the VA opined that "the right of the
management to outsource parts of its operations is not totally eliminated but is merely limited by the CBA," while
the CA held that "this management prerogative of contracting out services, however, is not without limitation. x
x x These categories of employees particularly with respect to casual employees serve as limitation to the
Companys prerogative to outsource parts of its operations especially when hiring contractual employees
A collective bargaining agreement is the law between the parties:
It is familiar and fundamental doctrine in labor law that the CBA is the law between the parties and they are
obliged to comply with its provisions. We said so in Honda Phils., Inc. v. Samahan ng Malayang
Manggagawa sa Honda:
A collective bargaining agreement or CBA refers to the negotiated contract between a legitimate labor
organization and the employer concerning wages, hours of work and all other terms and conditions of
employment in a bargaining unit. As in all contracts, the parties in a CBA may establish such stipulations,
clauses, terms and conditions as they may deem convenient provided these are not contrary to law, morals,
good customs, public order or public policy. Thus, where the CBA is clear and unambiguous, it becomes the law
between the parties and compliance therewith is mandated by the express policy of the law.
Moreover, if the terms of a contract, as in a CBA, are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of their stipulations shall control. x x x.
In this case, Section 4, Article I (on categories of employees) of the CBA between the Company and the Union
must be read in conjunction with its Section 1, Article III (on union security). Both are interconnected and must
be given full force and effect. Also, these provisions are clear and unambiguous. The terms are explicit and the
language of the CBA is not susceptible to any other interpretation. Hence, the literal meaning should prevail. As
repeatedly held, the exercise of management prerogative is not unlimited; it is subject to the limitations
found in law, collective bargaining agreement or the general principles of fair play and justice Evidently,
this case has one of the restrictions- the presence of specific CBA provisions-unlike in San Miguel Corporation
Employees Union-PTGWO v. Bersamira, De Ocampo v. NLRC, Asian Alcohol Corporation v. NLRC, and
Serrano v. NLRC29cited by the Company. To reiterate, the CBA is the norm of conduct between the parties and
compliance therewith is mandated by the express policy of the law.

WHEREFORE, the petition is DENIED. The assailed June 16, 2005 Decision, as well as the October 12, 2005
Resolution of the Court of Appeals, which sustained the October 26, 2004 Decision of the Voluntary Arbitrator,
are hereby AFFIRMED.

MEGA MAGAZINE v. DEFENSOR

FACTS:
Petitioner Mega Magazine Publications, Inc. (MMPI) first employed the respondent as an Associate Publisher
in 1996, and later promoted her as a Group Publisher
In a memorandum dated February 25, 1999, the respondent proposed to MMPIs Executive Vice-President
Sarita V. Yap (Yap) year-end commissions for herself and a special incentive plan for the Sales Department.
The respondent sent another memorandum on April 5, 1999 setting out the 1999 advertisement sales, target
and commissions, and proposing that the schedule of her outright commissions should start at .05% of P34.5
million total revenue, or P175,000.00;6 and further proposing that the special incentives be given when total
revenues reached P35-P38 million.
On August 31, 1999, the respondent sent Yap a report on sales and sales targets.
On October 1999, the respondent tendered her letter of resignation effective at the end of December 1999. Yap
accepted the resignation. Before leaving MMPI, the respondent sent Yap another report on the sales and
advertising targets for 1999.9 On December 8, 1999, Yap responded with a "formalization" of her approval of
the 1999 special incentive scheme proposed by the respondent through her memorandum dated February 25,
1999, revising anew the schedule by starting commissions at.05% of P35-P38 million gross advertising revenue
(including barter), and the proposed special incentives at P35-P38 million with P8,500.00 bonus.
The respondent replied to Yap, pointing out that her memorandum dated April 5, 1999 had been the result of
Yaps own comments on the special incentive scheme she had proposed, and that she had assumed that Yap
had been amenable to the proposal when she did not receive any further reaction from the latter. On May 2000,
after the respondent had left the company, she filed a complaint for payment of bonus and incentive
compensation with damages, specifically demanding the payment ofP271,264.68 as sales commissions,
P60,000.00 as 14th month pay, and P8,500.00 as her share in the incentive scheme for the advertising and
sales staff.
ISSUE:
Whether or not respondent was entitled to commissions and incentive bonus
HELD:
The appeal is partly meritorious.
The grant of a bonus or special incentive, being a management prerogative, is not a demandable and
enforceable obligation, except when the bonus or special incentive is made part of the wage, salary or
compensation of the employee, or is promised by the employer and expressly agreed upon by the
parties. By its very definition, bonus is a gratuity or act of liberality of the giver, and cannot be considered
part of an employees wages if it is paid only when profits are realized or a certain amount of productivity
is achieved. If the desired goal of production or actual work is not accomplished, the bonus does not
accrue.
Due to the nature of the bonus or special incentive being a gratuity or act of liberality on the part of the giver,
the respondent could not validly insist on the schedule proposed in her memorandum of April 5, 1999
considering that the grant of the bonus or special incentive remained a management prerogative.
However, the Court agrees with the CAs ruling that the petitioners had already exercised the management
prerogative to grant the bonus or special incentive. At no instance did Yap flatly refuse or reject the respondents
request for commissions and the bonus or incentive. This is plain from the fact that Yap even "bargained" with
the respondent on the schedule of the rates and the revenues on which the bonus or incentive would be pegged.
What remained contested was only the schedule of the rates and the revenues. In her initial memorandum of
February 25, 1999, the respondent had suggested the following schedule, namely: (a) 0.05% outright
commission on total revenue of P28-P29 million; (b) 0.075% on P30-P34 million; (c) 0.1% on P35-P38 million;
(d) 0.1% on P39-P41 million pesos; and (f) 0.1% on P41 million or higher, but Yap had countered by revising
the schedule to start at 0.1% as outright commissions on a total revenue of P35-P38 million, and the special
incentive bonus to start at revenues of P35-P38 million. Moreover, on December 8, 1999, Yap sent to the
respondent a memorandum entitled Re: Formalization of my handwritten approval of 1999 Incentive scheme
dated 25 February 1999. Such actuations and actions by Yap indicated that, firstly, the petitioners had already
acceded to the grant of the special incentive bonus; and, secondly, the only issue still to be threshed out was at
which point and at what rate the respondents outright commissions and the special incentive bonus for the sales
staff should be given.
For sure, Yaps memorandum dated December 8, 1999, aside from being the petitioners categorical admission
of the grant of the commissions and the bonus or incentives, laid down the petitioners own schedule of the
commissions and the bonus or incentives, to wit:
Re: Formalization of my handwritten approval of 1999 incentive scheme dated 25 February 1999

1999 Incentive Scheme for Group Publisher

 MMPI Gross Advertising Revenue
(includes barter) P35-38 M
P39-41 M
P41 M .05%
.075%
up 1%
Commissionable ad revenue is net of advertising agency commission and absorbed production costs.
Commission will be paid in bartered goods and cash in direct proportion to percentage of cash and bartered
goods revenue for the year. This amount will be paid by January 30, 2000 if the documents (contracts, P.O.s)
to support the gross revenue claim are in order and submitted to Finance.

Group Incentive for Sale and Traffic Team

MMPI Gross Advertising Revenue P35-38 M

P39-41 M
P41 M up P8,500.00 each
P10,000.00 each
P10,000.00 each
+ incentive trip abroad
Concerning the remand of the case to the NLRC for reception of additional evidence at the instance of the
respondent, we hold that the CA committed a reversible error. Although, as a rule, the submission to the NLRC
of additional evidence like documents and affidavits is not prohibited, so that the NLRC may properly consider
such evidence for the first time on appeal,33 the circumstances of the case did not justify the application of the
rule herein.

The additional evidence the respondent has sought to be admitted (i.e., Tabingos affidavit executed on October
14, 2002) was already attached to the pleadings filed in the NLRC, and was part of the records thereat. Its
introduction was apparently aimed to rebut the petitioners claim that its gross revenue was only P31,947,677.00
and did not reach the minimum P35 million necessary for the grant of the respondents outright commissions
and the special incentive bonus for the sales staff (inclusive of the respondent). Tabingos affidavit corroborated
her memorandum to the Accounting Department dated December 10, 1999 stating that MMPIs revenue for
1999 was P36,216,624.07.341wphi1
Confronted with the conflicting claims on MMPIs gross revenue realized in 1999, the question is which
evidence must be given more weight?
The resolution of the question requires the re-examination and calibration of evidence. Such re-examination and
calibration, being of a factual nature, ordinarily lies beyond the purview of the Courts authority in this appeal.
Yet, because the documents are already before the Court, we hereby treat the situation as an exception in order
to resolve the question promptly and finally instead of still remanding the case to the CA for the reevaluation
and calibration.

We start by observing that the degree of proof required in labor cases is not as stringent as in other types
of cases.This liberal approach affords to the employee every opportunity to level the playing field in which her
employer is pitted against her. Here, on the one hand, were Tabingos memorandum and affidavit indicating that
MMPIs revenues in 1999 totaled P36,216,624.07, and, on the other, the audit report showing MMPIs gross
revenues amounting to only P31,947,677.00 in the same year. That the audit report was rendered by the auditing
firm of Punongbayan & Araullo did not make it weightier than Tabingos memorandum and affidavit, for only
substantial evidence that amount of relevant evidence which a reasonable mind might accept as adequate to
justify a conclusion37 was required in labor adjudication. Moreover, whenever the evidence presented by
the employer and that by the employee are in equipoise, the scales of justice must tilt in favor of the
latter. For purposes of determining whether or not the petitioners gross revenue reached the minimum target
of P35 million, therefore, Tabingos memorandum and affidavit sufficed to positively establish that it did,
particularly considering that Tabingos memorandum was made in the course of the performance of her official
tasks as a traffic clerk of MMPI. In her affidavit, too, Tabingo asserted that her issuance of the memorandum
was pursuant to MMPIs year-end procedures, an assertion that the petitioners did not refute. In any event,
Tabingos categorical declaration in her affidavit that "[because] of that achievement, as part of the Sales and
Traffic Team of MMPI, in addition to my other bonuses that year, I received P8,500.00 in gift certificates as my
share in the Group Incentive for the Sales and Traffic Team for gross advertising revenue of P35 to P38 million
xxx,"39 aside from the petitioners not refuting it, was corroborated by the 1999 Advertising Target sent by the
respondent to Yap on December 2, 1999, in which the respondent reported a gross revenue of P36,216,624.07
as of December 1, 1999.40

Accordingly, the Court concludes that the respondent was entitled to her 0.05% outright commissions and
to the special incentive bonus of P8,500.00 based on MMPI having reached the minimum target of P35 million
in gross revenues paid in "bartered goods and cash in direct proportion to percentage of cash and bartered
goods revenue for the year," as provided in Yaps memorandum of December 8, 1999.41

WHEREFORE, the Court REVERSES AND SETS ASIDE the amended decision promulgated on November 19,
2003; ENTERS a new decision granting respondent Margaret A. Defensors claim for outright commissions in
the amount of P 181,083 .12 and special incentive bonus of P8,500.00, or a total of 1!189,583.12; and DIRECTS
petitioner Mega Magazine Publications, Inc. to pay the costs of suit.

MIRANT PH v CARO
Petioner: Mirant (Philippines) Corporation And Edgardo A. Bautista,
Respondent: Joselito CAro
Citation:G.R. No. 181490
Date of Promulgation: April 23, 2014
Ponente: Villarama,J

FACTS:
On January 3, 1994, respondent was hired by petitioner corporation as its Logistics Officer . At the time of
the filing of the complaint, respondent was already a Supervisor at the Logistics and Purchasing Department
with a monthly salary of P39,815.00.
On November 3, 2004, petitioner corporation conducted a random drug test where respondent was
randomly chosen among its employees who would be tested for illegal drug use. Through an Intracompany
Correspondence, Respondent was duly notified that he was scheduled to be tested after lunch on that day.
His receipt of the notice was evidenced by his signature on the correspondence.
 Respondent received a phone call from his wifes colleague who informed him that a bombing incident
occurred near his wifes work station in Tel Aviv, Israel where his wife was then working as a caregiver.
Respondent attached to his Position Paper a Press Release of the Department of Foreign Affairs (DFA) in
Manila to prove the occurrence of the bombing incident and a letterfrom the colleague of his wife who
allegedly gave him a phone call from Tel Aviv.
Respondent iimmediately proceeded to the Israeli Embassy to confirm the news on the alleged bombing
incident. Respondent further claims that before he left the office on the day of the random drug test, he first
informed the secretary of his Department, Irene Torres (Torres), at around 12:30 p.m. He also told Torres
that he would be back at the office as soon as he has resolved his predicament.
On that same day, at around 6:15 p.m., respondent returned to petitioner corporations office. He received
a text message from Tina Cecilia (Cecilia), a member of the Drug Watch Committee that conducted the
drug test, informing him to participate in the said drug test.
He immediately called up Cecilia to explain the reasons for his failure to submit himself to the random drug
test that day. He also proposed that he would submit to a drug test the following day at his own expense.
Respondent never heard from Cecilia again.
On November 8, 2004, respondent received a Show Cause Notice from petitioner corporation through Jaime
Dulot (Dulot), his immediate supervisor, requiring him to explain in writing why he should not be charged
with "unjustified refusal to submit to random drug testing." Respondent submitted his written explanation on
November 11, 2004.
Petitioner corporation further required respondent on December 14, 2004 to submit additional pieces of
supporting documents to prove that respondent was at the Israeli Embassy in the afternoon of November
3, 2004 and that the said bombing incident actually occurred. Respondent requested for a hearing to explain
that he could not submit proof that he was indeed present at the Israeli Embassy during the said day
because he was not allegedly allowed entry by the embassy due to security reasons.
On January 13, 2005, petitioner corporations Investigating Panel issued an Investigating Report finding
respondent guilty of "unjustified refusal to submit to random drug testing" and recommended a penalty of
four working weeks suspension without pay, instead of termination, due to the presence of mitigating
circumstances. In the same Report, the Investigating Panel also recommended that petitioner corporation
should review its policy on random drug testing, especially of the ambiguities cast by the term "unjustified
refusal."
On February 14, 2005, respondent received a letter from petitioner corporations Vice President for
Operations, Tommy J. Sliman (Sliman), terminating him on the same date. Respondent filed a Motion to
Appeal his termination on February 23, 2005. The motion was denied by petitioner corporation on March 1,
2005.
It is the contention of respondent that he was illegally dismissed by petitioner corporation due to the latters
non-compliance with the twin requirements of notice and hearing. He asserts that while there was a notice
charging him of "unjustified refusal to submit to random drug testing," there was no notice of hearing and
petitioner corporations investigation was not the equivalent of the "hearing" required under the law which
should have accorded respondent the opportunity to be heard.

RULING OF THE LA
The Labor Arbiter stated that while petitioner corporation observed the proper procedure in the termination of
an employee for a purported authorized cause, such just cause did not exist in the case at bar. The decision did
not agree with the conclusions reached by petitioner corporations own Investigating Panel that while respondent
did not refuse to submit to the questioned drug test and merely "avoided" it on the designated day, "avoidance"
and "refusal" are one and the same. It also held that the terms "avoidance" and "refusal" are separate and
distinct and that "the two words are not even synonymous with each other."31 The Labor Arbiter considered as
more tenable the stance of respondent that his omission merely resulted to a "failure" to submit to the said drug
test and not an "unjustified refusal." Even if respondents omission is to be considered as refusal, the Labor
Arbiter opined that it was not tantamount to "unjustified refusal" which constitutes as just cause for his
termination. Finally, the Labor Arbiter found that respondent was entitled to moral and exemplary damages and
attorneys fees.

RULING OF THE NLRC

The NLRC found that respondent was not only validly dismissed for cause he was also properly accorded his
constitutional right to due process. The NLRC, notwithstanding its finding that respondent was dismissed for
cause and with due process, granted financial assistance to respondent on equitable grounds. It invoked the
past decisions of this Court which allowed the award of financial assistance due to factors such as long years
of service or the Courts concern and compassion towards labor where the infraction was not so serious. Thus,
considering respondents 10 years of service with petitioner corporation without any record of violation of
company policies, the NLRC ordered petitioner corporation to pay respondent financial assistance equivalent to
one-half (1/2) month pay for every year of service in the amount of One Hundred Ninety-Nine Thousand Seventy-
Five Pesos (P199,075.00)

RULING OF THE CA
The CA disagreed with the NLRC and ruled that it was immaterial whether respondent failed, refused, or avoided
being tested. To the appellate court, the singular fact material to this case was that respondent did not get
himself tested in clear disobedience of company instructions and policy. Despite such disobedience, however,
the appellate court considered the penalty of dismissal to be too harsh to be imposed on respondent

ISSUE:
Whether or not the petitioner corporations enforcement of its Anti-Drugs Policy is an exercise of its management
prerogative

RULING:
We shall first rule on the issue raised by petitioners that the petition for certiorari filed by respondent with the CA
should have been summarily dismissed as it lacked the requisite verification and certification against forum
shopping under Sections 4 and 5, Rule 7 of the Rules, viz.:

SEC. 4. Verification. Except when otherwise specifically required by law or rule, pleadings need not be under
oath, verified or accompanied by affidavit.

A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein are
true and correct of his knowledge and belief.

A pleading required to be verified which contains a verification based on "information and belief," or upon
"knowledge, information and belief," or lacks a proper verification, shall be treated as an unsigned pleading.
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving
the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other
action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the
present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been
filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid
complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or
other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise
provided, upon motion and after hearing. The submission of a false certification or noncompliance with any of
the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate
forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct
contempt, as well as a cause for administrative sanctions.

It is the contention of petitioners that due to respondents failure to subscribe the Verification and Certification
of Non-Forum Shopping before a Notary Public, the said verification and certification cannot be considered to
have been made under oath. Accordingly, such omission is fatal to the entire petition for not being properly
verified and certified. The CA therefore erred when it did not dismiss the petition.

This jurisdiction has adopted in the field of labor protection a liberal stance towards the construction of the rules
of procedure in order to serve the ends of substantial justice. This liberal construction in labor law emanates
from the mandate that the workingmans welfare should be the primordial and paramount consideration.45 Thus,
if the rules of procedure will stunt courts from fulfilling this mandate, the rules of procedure shall be relaxed if
the circumstances of a case warrant the exercise of such liberality. If we sustain the argument of petitioners in
the case at bar that the petition for certiorari should have been dismissed outright by the CA, the NLRC decision
would have reached finality and respondent would have lost his remedy and denied his right to be protected
against illegal dismissal under the Labor Code, as amended.

It is beyond debate that petitioner corporations enforcement of its Anti-Drugs Policy is an exercise of
its management prerogative. It is also a conceded fact that respondent "failed" to take the random drug test
as scheduled, and under the said company policy, such failure metes the penalty of termination for the first
offense. A plain, simple and literal application of the said policy to the omission of respondent would have
warranted his outright dismissal from employment if the facts were that simple in the case at bar. Beyond
debate the facts of this case are not and this disables the Court from permitting a straight application of an
otherwise prima facie straightforward rule if the ends of substantial justice have to be served.

It is the crux of petitioners argument that respondents omission amounted to "unjust refusal" because he could
not sufficiently support with convincing proof and evidence his defenses for failing to take the random drug test.
For petitioners, the inconsistencies in respondents explanations likewise operated to cast doubt on his real
reasons and motives for not submitting to the random drug test on schedule. In recognition of these
inconsistencies and the lack of convincing proof from the point of view of petitioners, the NLRC reversed the
decision of the Labor Arbiter. The CA found the ruling of the Labor Arbiter to be more in accord with the facts,
law and existing jurisprudence.

We agree with the disposition of the appellate court that there was illegal dismissal in the case at bar.

While the adoption and enforcement by petitioner corporation of its Anti-Drugs Policy is recognized as a valid
exercise of its management prerogative as an employer, such exercise is not absolute and unbridled. Managerial
prerogatives are subject to limitations provided by law, collective bargaining agreements, and the general
principles of fair play and justice.46 In the exercise of its management prerogative, an employer must therefore
ensure that the policies, rules and regulations on work-related activities of the employees must always be fair
and reasonable and the corresponding penalties, when prescribed, commensurate to the offense involved and
to the degree of the infraction.47 The Anti-Drugs Policy of Mirant fell short of these requirements.

Petitioner corporations subject Anti-Drugs Policy fell short of being fair and reasonable.

First. The policy was not clear on what constitutes "unjustified refusal" when the subject drug policy prescribed
that an employees "unjustified refusal" to submit to a random drug test shall be punishable by the penalty of
termination for the first offense. To be sure, the term "unjustified refusal" could not possibly cover all forms of
"refusal" as the employees resistance, to be punishable by termination, must be "unjustified." To the mind of
the Court, it is on this area where petitioner corporation had fallen short of making it clear to its employees as
well as to management as to what types of acts would fall under the purview of "unjustified refusal." Even
petitioner corporations own Investigating Panel recognized this ambiguity, viz.:

The Panel also recommends that Management review the Mirant Drug Policy specifically "Unjustified [R]efusal
to submit to random drug testing." The Panel believes that the term "refusal" casts certain ambiguities and
should be clearly defined.

The fact that petitioner corporations own Investigating Panel and its Vice President for Operations, Sliman,
differed in their recommendations regarding respondents case are first-hand proof that there, indeed, is
ambiguity in the interpretation and application of the subject drug policy. The fact that petitioner corporations
own personnel had to dissect the intended meaning of "unjustified refusal" is further proof that it is not clear on
what context the term "unjustified refusal" applies to. It is therefore not a surprise that the Labor Arbiter, the
NLRC and the CA have perceived the term "unjustified refusal" on different prisms due to the lack of parameters
as to what comes under its purview. To be sure, the fact that the courts and entities involved in this case had to
engage in semantics and come up with different constructions is yet another glaring proof that the subject
policy is not clear creating doubt that respondents dismissal was a result of petitioner corporations valid
exercise of its management prerogative.

It is not a mere jurisprudential principle, but an enshrined provision of law, that all doubts shall be resolved in
favor of labor. Thus, in Article 4 of the Labor Code, as amended, "[a]ll doubts in the implementation and
interpretation of the provisions of [the Labor] Code, including its implementing rules and regulations, shall be
resolved in favor of labor." In Article 1702 of the New Civil Code, a similar provision states that "[i]n case of
doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for
the laborer." Applying these provisions of law to the circumstances in the case at bar, it is not fair for this Court
to allow an ambiguous policy to prejudice the rights of an employee against illegal dismissal. To hold otherwise
and sustain the stance of petitioner corporation would be to adopt an interpretation that goes against the very
grain of labor protection in this jurisdiction. As correctly stated by the Labor Arbiter, "when a conflicting interest
of labor and capital are weighed on the scales of social justice, the heavier influence of the latter must be
counter-balanced by the sympathy and compassion the law must accord the underprivileged worker."49

Second. The penalty of termination imposed by petitioner corporation upon respondent fell short of being
reasonable. Company policies and regulations are generally valid and binding between the employer and the
employee unless shown to be grossly oppressive or contrary to law50 as in the case at bar. Recognizing the
ambiguity in the subject policy, the CA was more inclined to adopt the recommendation of petitioner corporations
own Investigating Panel over that of Sliman and the NLRC. The appellate court succinctly but incisively pointed
out, viz.:

x x x We find, as correctly pointed out by the investigating panel, that the [petitioner corporations] Anti-Drug
Policy is excessive in terminating an employee for his "unjustified refusal" to subject himself to the random drug
test on first offense, without clearly defining what amounts to an "unjustified refusal."

Thus, We find that the recommended four (4) working weeks suspension without pay as the reasonable penalty
to be imposed on [respondent] for his disobedience. x x x51 (Additional emphasis supplied.)

To be sure, the unreasonableness of the penalty of termination as imposed in this case is further highlighted by
a fact admitted by petitioner corporation itself: that for the ten-year period that respondent had been employed
by petitioner corporation, he did not have any record of a violation of its company policies.

As to the other issue relentlessly being raised by petitioner corporation that respondents petition for certiorari
before the CA should have been considered moot as respondent had already previously executed a quitclaim
discharging petitioner corporation from all his monetary claims, we cannot agree. Quitclaims executed by
laborers are ineffective to bar claims for the full measure of their legal rights,52 especially in this case where the
evidence on record shows that the amount stated in the quitclaim exactly corresponds to the amount claimed
as unpaid wages by respondent under Annex A53 of his Reply54 filed with the Labor Arbiter. Prima facie, this
creates a false impression that respondents claims have already been settled by petitioner corporation
discharging the latter from all of respondents monetary claims. In truth and in fact, however, the amount paid
under the subject quitclaim represented the salaries of respondent that remained unpaid at the time of his
termination not the amounts being claimed in the case at bar.

We believe that this issue was extensively discussed by both the Labor Arbiter and the CA and we find no
reversible error on the disposition of this issue, viz.:

A review of the records show that the alluded quitclaim, which was undated and not even notarized although
signed by the petitioner, was for the amount of P59,630.05. The said quitclaim was attached as Annex 26 in the
[petitioners] Position Paper filed before the Labor Arbiter. As fully explained by [respondent] in his Reply filed
with the Labor Arbiter, the amount stated therein was his last pay due to him when he was terminated, not the
amount representing his legitimate claims in this labor suit x x x. To bolster his defense, [respondent] submitted
the pay form issued to him by the [petitioner corporation], showing his net pay at P59,630.05 exactly the amount
stated in the quitclaim x x x. Then, too, as stated on the quitclaim itself, the intention of the waiver executed by
the [respondent] was to release [petitioner corporation] from any liability only on the said amount representing
[respondents] "full and final payment of [his] last salary/separation pay" x x x. It did not in any way waive
[respondents] right to pursue his legitimate claims regarding his dismissal in a labor suit. Thus, We gave no
credence to [petitioners] private defense that alleged quitclaim rendered the instant petition moot.55

Finally, the petition avers that petitioner Bautista should not be held personally liable for respondents dismissal
as he acted in good faith and within the scope of his official functions as then president of petitioner corporation.
We agree with petitioners.1wphi1 Both decisions of the Labor Arbiter and the CA did not discuss the basis of
the personal liability of petitioner Bautista, and yet the dispositive portion of the decision of the Labor Arbiter -
which was affirmed by the appellate court - held him jointly and severally liable with petitioner corporation, viz.:

WHEREFORE, premises considered, this Office finds respondents GUILTY of illegal dismissal, and hereby
ordered to jointly and severally reinstate complainant back to his former position without loss on seniority rights
and benefits and to pay him his backwages and other benefits from the date he was illegally dismissed up to
the time he is actually reinstated, partially computed as of this date in the amount of P258,797.50 (P39,815.00
x 6.5 mos.) plus his 13th and 14th month pay in the amount of P43,132.91 or in the total amount of P301,930.41.
Respondents are also ordered to pay complainant the amount of P3,000,000.00 as and by way of moral and
exemplary damages, and to pay complainant the amount equivalent to ten percent (10%) of the total awards as
and by way of attorney's fees.

SO ORDERED.56 (Emphasis supplied.)

A corporation has a personality separate and distinct from its officers and board of directors who may only be
held personally liable for damages if it is proven that they acted with malice or bad faith in the dismissal of an
employee.57 Absent any evidence on record that petitioner Bautista acted maliciously or in bad faith in effecting
the termination of respondent, plus the apparent lack of allegation in the pleadings of respondent that petitioner
Bautista acted in such manner, the doctrine of corporate fiction dictates that only petitioner corporation should
be held liable for the illegal dismissal of respondent.

WHEREFORE, the petition for review on certiorari is DENIED. The assailed Decision dated June 26, 2007
and the Resolution dated January 11, 2008 in CA-G.R. SP No. 96153 are AFFIRMED with the
MODIFICATION that only petitioner corporation is found GUILTY of the illegal dismissal of respondent
Joselito A. Caro. Petitioner Edgardo A. Bautista is not held personally liable as then President of
petitioner corporation at the time of the illegal dismissal.

ARTS. 106 109

Petron Corp. v Caberte GR 182255; June 15, 2015

Summary: The Principal Company bears the burden of proving that the contractor is not engaging in labor-only
contractor, but rather a legitimate independent contractor.
Facts: Petron, a domestic corporation engaged in the manufacture and distribution to the general public of
various petroleum products, hired the respondents to work at Petrons Bulk Plant in San Patrick, Bacolod City,
and Negros Occidental from 1979 to 1998.
For the periods from March 1, 1996 to February 28, 1999 and November 1, 1996 to June 30, 1999, Petron and
ABC, a labor contracting business owned and operated by Caberte Sr., entered into a Contract for Services and
a Contract for LPG Assistance Services.Under both service contracts, ABC undertook to provide utility and
maintenance services to Petron in its Bacolod Bulk Plant.
On July 1, 1999, Petron no longer allowed them to enter and work in the premises of its Bacolod Bulk Plant.
Hence, eight respondents were filed a complaint for illegal dismissal, underpayment of wages and non-payment
of allowances, 13th month pay, overtime pay, holiday pay, service incentive leave pay, moral and exemplary
damages and attorney's fees against Petron before the Labor Arbiter.
On March 7, 2002, LA Danilo C. Acosta held that ABC is an independent contractor that has substantial capital
and that respondents were its employees. He likewise ruled that ABC's cessation of operation is a force majeure
that justifies respondents' dismissal. Hence, the petition is dismissed.
The case elevated to the NLRC, but, the NLRC affirmed the decision of Labor Arbiter.
Thereafter, the respondents filed a petition for certiorari before the Court of Appeals. In their decision, the CA
ruled that ABC is engaged in labor-only contracting because: first, it did not have substantial capital or
investment in the form of tools, equipment, implements, machineries and work premises, actually and directly
used in the performance or completion of the job it contracted out from Petron; second, the work assigned to
respondents were directly related to Petron's business; and, third, the nature of Petron's business requires it to
exercise control over the performance of respondents' work. Consequently, the CA declared respondents as
Petron's regular employees.
As a result, the petitioner Petron filed a petition for review on certiorari before the Supreme Court.
Issue: Whether or not the Court of Appeals seriously erred and decided a question of substance in a manner
not in accord with law and with applicable jurisprudence in finding that ABC Contracting Services is a mere
labor-only contractor and in holding that respondents are thus regular employees of the company.
Held: No The Court of appeals did not err in finding that ABC Contracting Services is a mere labor-only
contractor and holding that respondents are regular employees of the Petron.
Under Article 106 of the Labor Code, a contractor is deemed to be a labor-only contractor if the following
elements are present:
(i) the contractor does not have substantial capital or investment to actually perform the job, work
or service under its own account and responsibility; and
(ii) the employees recruited, supplied or placed by such contractor are performing activities which
are directly related to the main business of the principal.
The law presumes a contractor to be a labor-only contractor and the employees are not expected to prove the
negative fact that the contractor is a labor-only contractor. Therefore, the Petron, principal, bears the burden of
establishing that ABC is no a labor-only contractor but a legitimate independent contractor.
In order to be a legitimate independent contractor, the following conditions concur:
a) the contractor carries on a distinct and independent business and partakes the contract work on his
account under his own responsibility according to his own manner and method, free from the control and
direction of his employer or principal in all matters connected with the performance of his work except
as to the results thereof;
b) the contractor has substantial capital or investment; and
c) the agreement between the principal and the contractor or subcontractor assures the contractual
employees' entitlement to all labor and occupational safety and health standards, free exercise of the
right to self-organization, security of tenure, and social welfare benefits.
In the case at bar, Gestupa, Ponteras, Develos, Blanco and Mariano were LPG fillers and maintenance crew;
Caberte was an LPG operator supervisor; Te was a warehouseman and utility worker; and Servicio and
Galorosa were tanker receiving crew and utility workers. Undoubtedly, the work they rendered were directly
related to Petron's main business, vital as they are in the manufacture and distribution of petroleum products.
Besides, it is clear that Petron failed to discharge its burden of proving that ABC is not a labor-only contractor.
Therefore, Petron is declared to be the true employer of respondents who are considered regular employees in
view of the fact that they have been regularly performing activities which are necessary and desirable to the
usual business of Petron for a number of years.
WHEREFORE, the petition is DENIED. The November 14, 2007 Decision and the March 4, 2008 Resolution of
the Court of Appeals in CA-G.R. SP No. 82356 are MODIFIED in that: (1) the Complaint of respondent Antonio
Caberte, Jr. against petitioner Petron Corporation is dismissed; and (2) petitioner Petron Corporation is ordered
to reinstate all of the respondents, except for Antonio Caberte, Jr., to their former positions with the same rights
and benefits and the same salary rates as its regular employees, or if reinstatement is no longer feasible, to
separation pay equivalent to one month salary for every year of service and to pay them their full backwages
from July 1, 1999 until actual reinstatement or upon finality of this Decision as the case may be, as well as
attorney's fees equivalent to 10% of the monetary award, with costs against Petron Corporation.
Concept:
LABOR-ONLY vs. PERMISSIBLE/LEGITIMATE:
As defined under Article 106 of the Labor Code, labor-only contracting, a prohibited act, is an arrangement
where the contractor, who does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, supplies workers to an employer and the workers recruited are
performing activities which are directly related to the principal business of such employer.

Permissible or legitimate job contracting or subcontracting, on the other hand, "refers to an arrangement
whereby a principal agrees to put out or farm out with the contractor or subcontractor the performance or
completion of a specific job, work, or service within a definite or predetermined period, regardless of whether
such job, work, or service is to be performed or completed within or outside the premises of the principal. A
person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:
(a) the contractor carries on a distinct and independent business and partakes the contract work on his account
under his own responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of his work except as to the results thereof;
(b) the contractor has substantial capital or investment; and (c) the agreement between the principal and the
contractor or subcontractor assures the contractual employees' entitlement to all labor and occupational safety
and health standards, free exercise of the right to self-organization, security of tenure, and social welfare
benefits.

CUSAP v ADIDAS G.R. No. 201494, July 29, 2015

Facts:The petitioner and 27 other employees (complainants) filed a complaint for illegal dismissal against the
respondents Adidas, PRIME and JCA. They prayed for reinstatement with back wages, separation pay (should
reinstatement be no longer feasible), 13th month pay, service incentive leave pay, and damages.

The complainants alleged that they were regular employees of Adidas after having worked as promo girls and
stockmen for years, ranging from one year to seven years. The record shows that Adidas contracted JCA to be
its exclusive distributor nationwide. In turn, JCA entered into a Promotional Contract with PRIME to meet the
promotional requirements in the distribution of Adidas products. PRIME supposedly assigned the complainants
to JCA for the purpose. The complainants claimed that they were dismissed from employment when the service
contract between PRIME and JCA was terminated.

They pointed out that for the years that they were employed, they worked for Adidas, under the supervision and
control of Adidas and JCA personnel. They stressed that their work was related to and in pursuit of Adidas'
principal business activity (the marketing of its products), thereby making them regular employees of the
company. This was their reason for demanding their regularization by Adidas. Further, the complainants
maintained that JCA was a mere alter ego of Adidas and was being used to further muddle the employment
relationship between them and Adidas. It was evidenced by the fact that JCA and Adidas occupied the same
office.
Under their supposed Distribution Agreement of Adidas and JCA, the "Distributor shall purchase the Products
only from Adidas or any other sources expressly designated by Adidas and sell the Products in its own name
and for its own account x x x. ", however, the complainants asserted that the products they were selling remained
the property and under the control of Adidas - it was Adidas that provided the warehouse, leased the outlets
from department stores, and that provided regular training. Also, the proceeds of the sales were directly
deposited to the bank account of Adidas. Moreover, their salaries and other monetary benefits supposedly paid
by PRIME were charged to the account of Adidas, as indicated in their pay slips.

To substantiate their assertion that PRIME was just an intermediary of Adidas, they submitted documentary
proof that it was not even a registered corporation, labor recruiter, or agency when it supposedly entered into a
contract with JCA; neither with the Securities and Exchange Commission nor with the Department of Trade and
Industry. It was registered as a "job contractor/subcontractor" only. They thus maintained that PRIME was just
a labor-only contractor at the time it claimed it had employed them for its supposed undertaking with JCA.

In defense, Adidas argued that it amended its Articles of Incorporation to enable it to engage in the retail
business without the need to contract the services of distributors such as JCA, following the approval by the
Board of Investments of the application of its mother company, Adidas Solomon AG, to operate as a foreign
retailer in the country. As a consequence, it no longer renewed its Distribution Agreement with JCA when it
expired. Necessarily, the Promotion Contract between JCA and PRIME was also terminated, resulting in the
complainants' dismissal.

Also, Adidas turned down the complainants' demand for regularization as they were employees of PRIME. It
claimed it was PRIME who exercised control over their work; at most, the supervision it exercised over the
complainants was only to provide them guidelines in aid of their marketing work. It added that neither could it
satisfy their money claims because they were legally dismissed when their contracts with PRIME expired.

For its part, JCA prayed for the dismissal of the complaint as far as it was concerned in view of what it claimed
- its valid job contract with PRIME, the complainants' employer. It averred that it was PRIME who exercised the
power to select, engage, and dismiss the complainants, and who assumed the obligation to pay their wages. To
bolster its position, JCA presented quitclaim and release papers executed by some employees in favor of
PRIME.

As its co-respondents did, PRIME denied liability, contending that it hired the complainants as contractual
employees for its project with JCA to promote Adidas products. It maintained that their employment was
terminated when its contract with JCA expired and was not renewed. Thus, the petitioner and the other
complainants were not illegally dismissed and were not therefore entitled to reinstatement and back wages. On
the issue of its legal personality as an independent contractor, it submitted certificates of registration from the
DTI, DOLE, and SEC to establish that it had been in operation earlier than May 20, 2002.

The Rulings on Compulsory Arbitration (LA and NLRC)

In a decision, Labor Arbiter dismissed the complaint for lack of merit. He found the complainants' dismissal valid
in view of the termination and nonrenewal of the contract.

The petitioner and 15 of the other complainants appealed. The 15 however moved to withdraw their appeal
leaving only the petitioner to pursue the case. Eventually, NLRC denied the appeal. It also denied the petitioner's
motion for reconsideration.

The CA Decision

The CA denied the petition in its decision and affirmed the assailed NLRC rulings as they were not rendered
with grave abuse of discretion. It held that the rulings were supported by evidence establishing PRIME to be a
"legitimate job contractor" as it possessed substantial capital to finance its promotions undertaking with JCA.
The evidence, the CA explained, consisted of remittances to Philhealth, SSS and Pag-ibig which showed that
PRIME fulfilled its obligations toward its employees under the government's welfare programs.
Applying the four-fold employer-employee relationship test, the CA found PRIME to be the complainants' and
the petitioner's employer as it was PRIME which (1) hired the complainants; (2) paid their wages; (3) dismissed
them upon the expiration of the contract for which they were hired; and (4) exercised control over them with
respect to the conduct of the work to be performed.

The petitioner moved for reconsideration of the CA decision, to no avail, as the CA denied the motion.

Issues: WON, PRIME was a labor-only contractor and JCA was only an agent/intermediary of Adidas

WON, the petitioner was illegally dismissed

Ruling of the SC

Article 106 of the Labor Code provides that "There is 'labor-only' contracting where the person supplying workers
to an employer does not have substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and placed by such person are performing activities
which are directly related to the principal business of the employer.

Sec. 5, Department Order No. 18-02, s. of 2002, implementing Articles 106 to 109 of the Labor Code, prohibits
labor-only contracting and defines it as "an arrangement where the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or service for a principal, and any of the following is present:
(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work
or service to be performed and the workers recruited, supplied or placed by such contractor or sub-contractor
are performing activities which are directly related to the principal business of the employer; or (ii) the contractor
does not exercise the right to control over the performance of the work of the contractual employee. x x x

Aside from PRIME's remittances of employee contributions to Philhealth, SSS, and Pag-ibig and the payment
for the complainants' and the petitioner's wages, we find no indication that PRIME possessed substantial capital
or investment to operate as a legitimate job contractor or subcontractor.

While the payment of wages and workers' benefits is one of the determinants of an employer-employee
relationship, we do not find it a reliable basis in this case.1wphi1 In fact, a closer look at the pay slips of
PRIME's supposed employees reveals that the complainants' salaries and benefits were under the account of
Adidas,

Under these circumstances, we have reason to believe that PRIME, the supposed JCA subcontractor, just
assumed the act of paying the complainants' wages and benefits on behalf of Adidas, indicating thereby that it
was a mere agent of Adidas or a labor-only contractor.

Moreover, if in fact Adidas entered a distribution agreement with JCA, we wonder why the products the petitioner
and the other supposed "contractual employees" were selling were retained and remained to be under the
control of Adidas, and also, why the proceeds of the sales went into Adidas' bank account. The answer is
because JCA itself is not an independent contractor. It was merely an agent or intermediary of Adidas, despite
the distribution agreement between them which they did not even honor since.

Thus, the petitioner and the complainants (who withdrew from the case) were performing activities that were
necessary to market the products that Adidas itself manufactured. The petitioner had become an Adidas regular
employee a long time before she was supposedly made a "contractual employee" of PRIME. Adidas exercised
control and supervision over the performance of the petitioner's work through its Sales Manager and its
President.

In sum, we hold that PRIME failed to satisfy the four-fold employer-employee relationship test, making it a labor-
only contractor under the law and the rules. Like JCA, it was merely an agent. Adidas, therefore, is petitioner's
real employer who shall be responsible to her in the same manner and extent as if she were directly employed
by the company. In this light, we find the petitioner to have been illegally dismissed, there being obviously no
valid cause to and absent due process in her dismissal.

Consequently, the petitioner is entitled to reinstatement, without loss of seniority rights and other privileges, and
with full back wages. Should reinstatement no longer be feasible, she shall be entitled to full back wages and
separation pay at one month's pay for every year of service. However, her claim for other monetary benefits is
denied as she failed to refute LA Salinas' ruling that she had been paid her 13th month pay and service incentive
leave pay. Further, we find the respondents to have shown bad faith in the petitioner's dismissal as it resulted
from the prohibited labor-only contracting arrangement. Thus, the petitioner is also entitled to damages and to
attorney's fees as she was compelled to litigate to protect her rights.

Premises considered, the petition is GRANTED.

FPIC v Calimbas GR179256 July 10, 2013

Facts: Private respondent First Philippine Industrial Corporation (FPIC) is a corporation engaged in the
transportation of petroleum products by pipeline. On the other hand, Raquel Calimbas and Luisa Mahilom were
engaged by De Gusman Manpower Services (DGMS) to perform secretarial and clerical jobs for FPIC. DGMS
is engaged in the business of supplying manpower.
FPIC entered into a Contract of Special Services with DGMS, wherein the latter agreed to undertake some
aspects of building and grounds maintenance at FPIC's premises, offices and facilities, as well as to provide
clerical and other utility services as may required from time to time by FPIC. The important portions of the said
contract are as follows:
B. Terms of Payment
FIRST PARTY [FPIC] shall pay the SECOND PARTY [DGMS] a contract price for services rendered based on
individual timesheets prepared and submitted by the SECOND PARTY....
xxx
C. Other Terms and Conditions
SECOND PARTY shall undertake FIRST PARTYs projects only if covered by an approved Project Contract
(Appendix-B) which the FIRST PARTY will issue to the SECOND PARTY when the need arises. The Project
Contract shall indicate the scope of work to be done, duration and the manpower required to undertake the
work. The composition of the workers to be assigned to a specific undertaking shall be agreed upon between
the FIRST PARTY and the SECOND PARTY;
SECOND PARTY shall assign to FIRST PARTY competent personnel to do what is required in accordance with
the Project Contract. FIRST PARTY shall have the right to request for replacement of an assigned personnel
who is observed to be non-productive or unsafe, and if confirmed by its own investigation and findings, SECOND
PARTY shall replace such personnel;
SECOND PARTY shall provide the maintenance equipment and tools necessary to complete assigned works.
Parties hereto shall agree on the equipment, tools and supplies to be provided by SECOND PARTY prior to the
start of assigned work;
SECOND PARTY shall be liable for loss and/or damage to SECOND PARTYs property, found caused by willful
act or negligence of SECOND PARTYs personnel; and
There shall be no employer-employee relationship between the FIRST PARTY, on the one hand, and the
SECOND PARTY, and the person who the SECOND PARTY may assign to perform the services called for, on
the other....
xxx
Pursuant to the said Contract, petitioner Raquel Calimbas and Luisa Mahilom were engaged by the DGMS to
render services to FPIC. Thereat, petitioner Calimbas was assigned as a department secretary at the Technical
Services Department beginning June 3, 1996, while petitioner Mahilom served as a clerk at the Money
Movement Section of the Finance Division starting February 13, 1996.
On June 21, 2001, FPIC, through its Human Resources Manager, Lorna Young, informed the petitioners that
their services to the company would no longer be needed by July 31, 2001 as a result of the "Pace-Setting"
Study conducted by an outside consultant. Accordingly, on July 9, 2001, Priscilla de Leon, Treasurer of DGMS,
formally notified both the petitioners that their respective work assignments in FPIC were no longer available to
them effective July 31, 2001, citing the termination of the Project Contract with FPIC as the main reason thereof.
On August 3, 2001, petitioners Calimbas and Mahilom signed quitclaims, releasing and discharging DGMS from
whatever claims that they might have against it by virtue of their past employment, upon receipt of the sums
of P17,343.10 and P23,459.14, respectively.
Despite having executed the said quitclaims, the petitioners still filed a Complaint against FPIC for illegal
dismissal and for the collection of monetary benefits, damages and attorneys fees, alleging that they were
regular employees of FPIC after serving almost five (5) years, and that they were dismissed without cause.
Postition of the Petitioners: They claimed that they were regular employees of FPIC for having served the same
for almost five years. Also, claimed that they were illegally dismissed when they were relieved from their work
assignments without valid and serious resons therefor.
The petitioners averred that DGMS did not have substantial capital or investment by way of tools, equipment,
machines, work places and other materials. They claimed that they only used office equipment and materials
owned by FPIC at its offices in Ortigas Center, Pasig City. DGMS never exercised control over them in all
matters related to the performance of their work. In fact, DGMS never maintained any representative at the
FPICs office to supervise or oversee their work. They insisted that their direct superiors, who were managerial
employees of FPIC, had control over them since the latter made sure that they always complied with the policies
of FPIC.
Position of Respondents: FPIC insisted that the complaint should be dismissed because there were no
employer-employee relationship between them. FPIC claimed that the petitioners were never been their
employees. FPIC insisted that their true employer was DGMS considering that the petitioners were hired by
DGMS and assigned them to FPIC to render such services.
LA's Decision: holding that respondents were regular employees of petitioner, and that they were illegally
dismissed when their employment was terminated without just or authorized cause.
The fallo reads:
WHEREFORE, premises considered, let the judgment be, as it is hereby rendered, declaring complainants
dismissal illegal, and ordering the respondent, as follows:
1) To reinstate complainants to their former positions without loss of seniority rights and other privileges;
2) To pay complainants, Raquel M. Calimbas the amount of P131,555.19; and Luisa P. Mahilom, the amount
of P115,403.14 representing their full backwages, from the time their salaries were withheld from them up to the
date of their actual reinstatement;
3) To pay the complainants the amount equivalent to ten (10%) percent of the total judgment award, as and for
attorneys fees.
The amount received by complainants, Raquel M. Calimbas in the amount of P17,343.10, and Luisa P. Mahilom,
the amount of P23,459.14 under the quitclaims that they signed must be deducted from the awards herein made.
NLRC's Decision: dismissed the appeal of FPIC and upheld LA's decision.
MR w/ NLRC: NLRC found that FPIC is free from any liability because DGMS was the employer of the
petitioners.
Another MR w/ NLRC: affirmed the latest decision.
CA's Decision: NLRC's resolutions were reversed and set aside. and reinstating the LA's Resolution, in favor
of the laborers.
Issues: (1) WON respondents are employees of FPIC; and
(2) WON respondents were lawfully dismissed from their employment
Held: (1) Yes. the court found that DGMS is under a "labor-only" contractor. Which makes them a mere agent
and the court reiterated that the employer of the herein laborers is FPIC.
Article 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for
the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any,
shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting-out of labor to protect
the rights of workers established under the Code. In so prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job-contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the employer for purposes of
this Code, to prevent any violation or circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such person are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be considered merely as an agent
of the employer who shall be responsible to the workers in the same manner and extent as if the latter were
directly employed by him.
In the same manner, Sections 8 and 9 of DOLE Department Order No. 10, Series of 1997, state:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are
met;
(1) The contractor carries on an independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free from the control and direction
of his employer or principal in all matters connected with the performance of the work except as to the
results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business.
Sec. 9. Labor-only contracting.
(a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-
only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work
premises and other materials; and
(2) The workers recruited and placed by such persons are performing activities which are directly related to
the principal or operations of the employer in which workers are habitually employed.
(b)Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed by him.
(c) For cases not falling under this Article, the Secretary of Labor shall determine through appropriate orders
whether or not the contracting out of labor is permissible in the light of the circumstances of each case and
 after considering the operating needs of the employer and the rights of the workers involved. In such case,
he may prescribe conditions and restrictions to insure the protection and welfare of the workers.
(2) No. FPIC failed to show any valid or just cause under the Labor Code on which it may justify the
termination of services of respondents. Also, apart from notifying that their services had already
been terminated, petitioner failed to comply with the rudimentary requirement of notifying
respondents regarding the acts or omissions which led to the termination of their services as well
as giving them an ample opportunity to contest the legality of their dismissal. Having failed to
establish compliance with the requirements of termination of employment under the Labor Code,
respondents dismissal is tainted with illegality.

VIGILLA, ET. AL., V. PCCr GR 200094 June 10, 2013

Facts: Petitioners were janitors, janitress and supervisor in the Maintenance Department of PCCr, a non-stock
educational institution. However, petitioners were made to understand that they were under MBMSI, a
corporation engaged in providing janitorial services. Upon knowledge of the PCCr that MBMSIs certificate of
incorporation had been revoked, they immediately terminated their relationship with the latter resulting to the
dismissal of the petitioners. The dismissed employers filed their respective complaints for illegal dismissal,
reinstatement and money claims. In their complaints, they alleged that it was the school, not the MBMSI, which
was their real employer, applying the four-fold test. It was, then, denied by the PCCr that the petitioners were
their direct employers. On the decision of the Labor Arbiter, they held that PCCr was the real employer of the
petitioners. It was further affirmed by the NLRC. NLRC further stated that Respondent MBMSI and Atty. Seril,
together are found to be labor only contractor, they are solidarily [liable] with Respondent PCCr for the valid
claims of petitioners pursuant to Article 109 of the Labor Code on the [solidary] liability of the employer and
indirect employer. Not contended with the decision of NLRC, petitioners filed a petition for certiorari in the CA.
Furthermore, MBMSI filed a motion for reconsideration questioning the NLRCs decision that they were solidarily
liable with PCCr. However, the CA denied the petition and affirmed the decision of NLRC. The CA pointed out
that based on the principle of solidary liability and Article 1217 of the New Civil Code, petitioners respective
releases, waivers and quitclaims in favor of MBMSI and Atty. Seril redounded to the benefit of the respondents
(PCCr). Hence, this petition.
Issue: Whether or not a labor-only contractor (MBMSI) is solidarily liable with the employer (PCCr)
HELD: Yes. MBMSI is solidarily liable with the respondents for the valid claims of petitioners pursuant to Article
109 of the Labor Code. the basis of the solidary liability of the principal with those engaged in labor-only
contracting is the last paragraph of Article 106 of the Labor Code, which in part provides: In such cases [labor-
only contracting], the person or intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
Section 19 of Department Order No. 18-02 issued by the Department of Labor and Employment (DOLE), which
was still in effect at the time of the promulgation of the subject decision and resolution, interprets Article 106 of
the Labor Code in this wise:
Section 19. Solidary liability. The principal shall be deemed as the direct employer of the contractual employees
and therefore, solidarily liable with the contractor or subcontractor for whatever monetary claims the contractual
employees may have against the former in the case of violations as provided for in Sections 5 (Labor-Only
contracting), 6 (Prohibitions), 8 (Rights of Contractual Employees) and 16 (Delisting) of these Rules. In addition,
the principal shall also be solidarily liable in case the contract between the principal and contractor or
subcontractor is preterminated for reasons not attributable to the fault of the contractor or subcontractor. The
DOLE recognized anew this solidary liability of the principal employer and the labor-only contractor when it
issued Department Order No. 18-A, series of 2011, which is the latest set of rules implementing Articles 106-
109 of the Labor Code. Section 27 thereof reads:
Section 27. Effects of finding of labor-only contracting and/or violation of Sections 7, 8 or 9 of the Rules. 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, as provided in Article 106 of the Labor Code, as amended.
In labor-only contractor, the employer-employee relationship exists between the company and the contractor.
Thus, the employees of the contractor who worked for the company are not considered employees of the
company itself.
Therefore, the money claims of the petitioners against to the PCCr were denied.
Aliviado v. P&G ; GR160506 ; June 6, 2011
FACTS: On March 9, 2010, the Court rendered a Decision holding: (a) that Promm-Gem, Inc. (Promm-Gem) is
a legitimate independent contractor; (b) that Sales and Promotions Services (SAPS) is a labor-only contractor
consequently its employees are considered employees of Procter & Gamble Phils., Inc. (P&G); (c) that Promm-
Gem is guilty of illegal dismissal; (d) that SAPS/P&G is likewise guilty of illegal dismissal; (e) that petitioners are
entitled to reinstatement; and (f) that the dismissed employees of SAPS/P&G are entitled to moral damages and
attorneys fees there being bad faith in their dismissal. P&G filed a Motion for Reconsideration, an Opposition,
and Supplemental Opposition. On the other hand, petitioners filed a Motion for Partial Reconsideration and
Comment/Opposition (to P&G's motion for reconsideration).The Court denied all these Motions. Entry of
Judgment was made on July 27, 2010. Before parties received the notice, P&G filed a Motion for Leave to File
Motion to Refer the Case to the Supreme Court En Banc with Second Motion for Reconsideration and Motion
for Clarification and a Motion to Refer the Case to the Supreme Court En Banc with Second Motion for
Reconsideration and Motion for Clarification. On October 4, 2010, P&G filed a Motion for Leave to Admit the
Attached Supplement to the Motion to Refer the Case to the Supreme Court En Banc with Second Motion for
Reconsideration and Motion for Clarification as well as a Supplement to the Motion to Refer the Case to the
Supreme Court En Banc with Second Motion for Reconsideration and Motion for Clarification. Thereafter, P&G
filed a Manifestation and Motion praying that its pleadings be resolved as they were filed before it received notice
of the entry of judgment. In a Resolution, the Court resolved to note the aforesaid pleadings and at the same
time to require the petitioners to file their comment thereto. The Court reiterated its directive for petitioners to
file their comment . Petitioners filed a Very Urgent Manifestation in lieu of their comment. In gist, they reminded
the Court of the Entry of Judgment made on July 27, 2010 and argued that the motions filed by P&G are frivolous
and dilatory.
ISSUE:(1) W/N SAPS is a labor-only contractor. (2) W/N the Court erred in finding that SAPS has no substantial
capital. (3) W/N the awards of moral damages and attorney's fees are proper.
HELD:(1) YES, the Court correctly determined that SAPS is a labor-only contractor. There is no basis for P&G's
claim that the Court erred in not applying the four-fold test, particularly the control test in determining whether
SAPS is a legitimate independent contractor or a labor-only contractor. Article 106 defines labor-only
contracting, viz: There is labor-only contracting where the person supplying workers to an employer does not
have substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such person are performing activities which are directly related
to the principal business of such employer. In such cases, the person or intermediary shall be considered merely
as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him. On the same vein, Rule VIII-A, Book III of the Omnibus Rules
Implementing the Labor Code, as amended by Department Order No. 18-02, pertinently provides: Section 5.
Prohibition against labor-only contracting. Labor only contracting is hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a principal, and ANY of the following elements
are present:
i)The contractor or subcontractor does not have substantial capital or investment which relates to the job, work
or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor
are performing activities which are directly related to the main business of the principal; OR
ii) [T]he contractor does not exercise the right to control over the performance of the work of the contractual
employee.
Therefore, the control test is merely one of the factors to consider. As stated, labor-only contracting exists when
any of the two elements is present. It was established that SAPS has no substantial capitalization and it was
performing merchandising and promotional activities which are directly related to P&G's business. Since SAPS
met one of the requirements, it was enough basis to hold that it is a labor-only contractor. Consequently, P&G
(its principal) is considered the employer of its employees. This is pursuant to the ruling in Aklan v. San Miguel
Corporation: finding that a contractor is a labor-only contractor, as opposed to permissible job
contracting, is equivalent to declaring that there is an employer-employee relationship between the
principal and the employees of the supposed contractor, and the labor-only contractor is considered as
a mere agent of the principal, the real employer.
(2) NO, the Court did not err in finding that SAPS has no substantial capital. In Vinoya v. National Labor Relations
Commission, the Court held that with the current economic atmosphere in the country, the paid-in capitalization
of PMCI amounting to P75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify
as an independent contractor. Applying the same rationale, it is clear that SAPS having a paid-in capital of only
P31,250 has no substantial capital. SAPS' lack of substantial capital is underlined by the records which show
that its payroll for its merchandisers alone for one month would already total P44,561.00. It has 6-month
contracts with P&G. Yet SAPS failed to show that it could complete the 6-month contracts using its own capital
and investment. Its capital is not even sufficient for one month's payroll. SAPS failed to show that its paid-in
capital of P31,250.00 is sufficient for the period required for it to generate needed revenue to sustain its
operations independently. Substantial capital refers to capitalization used in the performance or
completion of the job, work or service contracted out. In the present case, SAPS failed to show
substantial capital.
(3) YES, the awards of moral damages and attorney's fees are proper. It must be emphasized that in labor-only
contracting, the labor-only contractor is considered merely an agent of the principal employer. The principal
employer is responsible to the employees of the labor-only contractor as if such employees had been directly
employed by the principal employer. The principal employer therefore becomes solidarily liable with the labor-
only contractor for all the rightful claims of the employees. P&G's assertions that it was held responsible for 10
employees despite their having no record of having been assigned by SAPS to P&G and that petitioners could
not be reinstated because there are no available positions for them in the existing plantilla of P&G are belatedly
raised.
ADDITIONAL CONCEPTS: (1) Once a judgment has become final and executory, it may no longer be modified
in any respect, even if the modification is meant to correct an erroneous conclusion of fact or law, and regardless
of whether the modification is attempted to be made by the court rendering it or by the highest court of the land.
Exception: (1) the correction of clerical errors, (2) the so-called nunc pro tunc entries which cause no prejudice
to any party, and (3) void judgments. The object of a judgment nunc pro tunc is not the rendering of a new
judgment and the ascertainment and determination of new rights, but is one placing in proper form on the record,
the judgment that had been previously rendered, to make it speak the truth, so as to make it show what the
judicial action really was, not to correct judicial errors, such as to render a judgment which the court ought to
have rendered, in place of the one it did erroneously render, nor to supply nonaction by the court, however
erroneous the judgment may have been. A nunc pro tunc entry in practice is an entry made now of something
which was actually previously done, to have effect as of the former date. Its office is not to supply omitted action
by the court, but to supply an omission in the record of action really had, but omitted through inadvertence or
mistake.
(2) A second motion for reconsideration is a prohibited pleading pursuant to Section 2, Rule 52 of the Rules
of Court.
PAL v. LIGAN July 14, 2008
SUMMARY: Respondents were consequently declared as petitioners regular employees who are entitled to
the salaries, allowances, and other employment benefits under the pertinent Collective Bargaining Agreement.
Herein, petitioner prays for a reconsideration while respondents for clarification and/or reconsideration of the
Decision.
FACTS: Petitioners are maintaining its position that respondents were employed by Synergy, and to reinstate
respondents as regular employees is iniquitous since it would be compelled to employ personnel more than
what its operations require. It adds that the Court should declare that reinstatement is no longer an appropriate
relief in view of the long period of time that had elapsed.
For their part, respondents, deducing from the Decision that their termination was found to be illegal, posit that
the portion of the Decision ordering petitioner to accept them should also mean to reinstate them with
backwages. Respondents additionally pray for the award to them of attorneys fees, albeit they admit that they
failed to raise it as an issue.
Both parties point out that the Courts Decision presupposes or was based on the erroneous assumption that
respondents are still in the actual employ of petitioner.
Respondents disclose that respondents have all been terminated in the guise of retrenchment. Joining such
account, petitioner reveals that 13 out of the 25 respondents filed an illegal dismissal case, which is pending
before the CA. Respondents add that the CA held the illegal dismissal case in abeyance until after this Court
rules on the present case.
Petitioner also urges the Court to examine the cases of respondents Roque Pilapil and Benedicto Auxtero.
Pilapil was later terminated for submitting falsified academic credentials. Pilapils complaint for illegal dismissal
was dismissed by the labor arbiter, whose decision was reinstated with modification by the CA. On Pilapils
appeal, this Court declared the case terminated when Pilapil failed to file his intended petition. With this,
petitioner claims that it already complied with the judgment awarding separation pay representing financial
assistance to Pilapil during the pendency of the present case. Petitioner also informs the Court that Auxtero
already satisfied the judgment rendered in the amount of P1.3 Million, and that Auxtero had waived
reinstatement.
ISSUE: (1) WON the cases of Pilapil and Auxtero should affect the courts decision
(2) WON the courts decision on the regular status of respondents should be deemed to be without prejudice to
the resolution of the issue of illegal dismissal in the proper case
(3) WON award of attorneys fees be granted to respondents, albeit they admit that they failed to raise it as an
issue.
HELD:(1) YES. The Court finds that a modification of the Decision is in order, the claims with respect to Pilapil
and Auxtero having been deemed extinguished even before the promulgation of the Decision. That Pilapil was
a regular employee yields to the final finding of a valid dismissal in the supervening case involving his own
misconduct, while Auxteros attempt at forum-shopping should not be countenanced.
(2) YES. While this Courts Decision ruled on the regular status of respondents, it must be deemed to be without
prejudice to the resolution of the issue of illegal dismissal in the proper case. The subject of the Decision
was respondents complaints for regularization and under-/non-payment of benefits. The Court did not and
could not take cognizance of the validity of the eventual dismissal of respondents because the matter
of just or authorized cause is beyond the issues of the case. That is why the Court did not order
reinstatement for such relief presupposes a finding of illegal dismissal in the proper case which, as the
parties now manifest, pends before the appellate court.
Petitioner, for the first time, revealed the matter of termination and the allegation of financial woes in its MR
before the CA not by way of defense to a charge of illegal dismissal but to manifest that supervening
events have rendered it impossible for petitioner to comply with the order to accept respondents as
regular employees.
The Courts finding that respondents are regular employees of petitioner neither frustrates nor preempts
the CA proceedings in resolving the issue of retrenchment as an authorized cause for termination. If an
authorized cause for dismissal is later found to exist, petitioner would still have to pay respondents their
corresponding benefits and salary differential up to June 30, 1998. Otherwise, if there is a finding of illegal
dismissal, an order for reinstatement with full backwages does not conflict with the Courts declaration of the
regular employee status of respondents.
(3) NO. As to the belated plea of respondents for attorneys fees, suffice it to state that parties who have not
appealed cannot obtain from the appellate court any affirmative reliefs other than those granted, if any, in the
decision of the lower tribunal. Since respondents did not file a motion for reconsideration of the appellate courts
decision, much less appeal therefrom, they can advance only such arguments as may be necessary to defeat
petitioners claims or to uphold the appealed decision, and cannot ask for a modification of the judgment in their
favor in order to obtain other positive reliefs.
WHEREFORE, the Decision is MODIFIED.
Dispositive portion: Petitioner is ORDERED to recognize respondents as its regular employees in their same
or substantially equivalent positions, and pay the wages and benefits due them as regular employees plus salary
differential corresponding to the difference between the wages and benefits given them and those granted to
petitioners other regular employees of the same or substantially equivalent rank, up to June 30, 1998, without
prejudice to the resolution of the illegal dismissal case.
There being no data from which this Court may determine the monetary liabilities of petitioner, the case is
REMANDED to the Labor Arbiter solely for that purpose.

Garcia vs. PAL July 14, 2008

Summary: A previous judgment holding there is no EE-ER relationship between PAL and Stellar employees
constitutes res judicata on the issue at hand.

Facts: Stellar had an agreement to supply PAL with workers for janitorial and sanitation functions. Garcia was
assigned by Stellar to PAL to perform janitorial services at the companys in-flight kitchen. Later, he received a
warning from Stellar for absences incurred. Petitioner was transferred to PALs Catering Operations as a kitchen
busboy in the sanitizing section. PAL requested Stellar for a replacement for petitioner. Stellar, demanded from
petitioner a written explanation why no disciplinary action should be taken against him, in view of the following
charges:

(1) poor performance/negligence of duty; and

(2) selling of cigarettes while on duty. Stellar subsequently terminated his employment. Petitioner filed a
complaint for illegal dismissal against Stellar as well as PAL.

Issue: whether PAL is petitioners employer and solidarily liable with Stellar for illegal dismissal.

Held: PETITION DENIED. The CA correctly found that PAL is not petitioners employer and cannot thus be held
solidarily liable with Stellar for illegal dismissal. The issue on the existence of an employer-employee relationship
between petitioner and PAL has long been resolved in the case entitled Stellar Employees Association v.
Philippine Airlines and Stellar Industrial Services, Inc.: no employer-employee relationship exists
between PAL and the Stellar employees.
With respect to the issue of whether or not SISI is a legitimate independent contractor, SEA admits
that SISI provides its employees with soap, cleansers, mops, lawn mowers, brooms, dust pans, etc. More telling
is SEAs admission that SISI has several clients other than PAL. SISI has substantial authorized capital in the
amount of P1.0 Million, since this not limited to its janitorial department. This is evidenced by SISIs Amended
Articles of Incorporation.

Art. 106 of the Labor Code and Sec. 9, Rule VIII of its Implementing Rules. In view of SISIs possession of
substantial capital, it cannot be considered a labor-only contractor. Aside from its capital, it also maintains an
independent business as admittedly shown by its diversified clientele and the supervision and control as to the
means of work as provided by its own timekeepers, foremen, etc. There is even no need for it to refute
petitioner,s contention that the activities are directly related to the principal business of respondent bank.
The CBA is a clear admission of an employment relationship with SISI.

Because of the absence of a juridical tie with them, PALs instructions cannot be considered control under the
four-fold test of employment relationship

We hereby rule that SISI is a legitimate independent contractor and is the true employer of the individual
complainants, not PAL. Consequently, the holding that PAL is not petitioners employer constitutes res
judicata on the same issue in this petition.

Petitioner does not deny that he was selected and engaged by Stellar when he was assigned to PAL. Moreover,
while petitioner claims that the funds for his salary came from PAL, he did not adduce proof to support his
allegation. In any event, he admits that it was Stellar that paid his wages. The evidence further shows that it was
Stellar, not PAL, that disciplined petitioner. It was Stellar that issued to petitioner various memoranda asking for
an explanation about his infractions, and petitioner explained himself to that company, not PAL. In fine, petitioner
recognized the disciplinary authority of Stellar over him, and not that of the air carrier.

Concepts: In the absence of a juridical tie with them, PALs instructions to petitioner cannot be considered control
under the four-fold test of employment relationship.

GSIS v NLRC and Lanting

Summary: GSIS and Lanting Security and Watchman Agency was held jointly and severally liable for the
payment of complainants' salary differentials as the joint and several liability of the employer or principal was
enacted to ensure compliance with the provisions of the Labor Code particularly on statutory minimum wage.
Facts: Tomas Lanting, doing business under the name Lanting Security and Watchman Agency (LSWA) entered
into a Security Service Contract to provide security guards to the properties of the Government Service
Insurance System (GSIS) at the contract rate of P3,000.00 per guard per month. During the effectivity of the
contract, LSWA requested the GSIS for an upward adjustment of the contract rate which was subsequently
approved pursuant to RA 6727 known as the Wage Rationalization Act. In 1993, GSIS terminated the Security
Service Contract with LSWA. Complainants then filed separate complaints against LSWA for underpayment of
wages and non-payment of labor standard benefits from 1991 to 1993.
LSWA alleged that complainants were estopped from claiming that they were underpaid because they were
informed that the pay and benefits given to them were based on the contract rate of P103.00 per eight hours of
work or about P3,100.00 per month. GSIS alleged that the Third-Party Complaint states no cause of action
against it; that LSWA obligated itself in the Security Service Contract to be solely liable for the enforcement of
and compliance with all existing labor laws, rules and regulations and that GSIS fully paid the services of the
security guards as agreed upon in the Security Service Contract.
Labor Arbiter rendered a Decision in favor of complainants. NLRC upheld the ruling of the Labor Arbiter. CA
held the GSIS jointly and severally liable with LSWA for complainants' money claims pursuant to Articles 106
and 107 of the Labor Code.

GSIS v NLRC and Lanting Oct. 15, 2007

Summary: GSIS and Lanting Security and Watchman Agency was held jointly and severally liable for the
payment of complainants' salary differentials as the joint and several liability of the employer or principal was
enacted to ensure compliance with the provisions of the Labor Code particularly on statutory minimum wage.
Facts: Tomas Lanting, doing business under the name Lanting Security and Watchman Agency (LSWA)
entered into a Security Service Contract to provide security guards to the properties of the Government Service
Insurance System (GSIS) at the contract rate of P3,000.00 per guard per month. During the effectivity of the
contract, LSWA requested the GSIS for an upward adjustment of the contract rate which was subsequently
approved pursuant to RA 6727 known as the Wage Rationalization Act. In 1993, GSIS terminated the Security
Service Contract with LSWA. Complainants then filed separate complaints against LSWA for underpayment of
wages and non-payment of labor standard benefits from 1991 to 1993.
LSWA alleged that complainants were estopped from claiming that they were underpaid because they were
informed that the pay and benefits given to them were based on the contract rate of P103.00 per eight hours of
work or about P3,100.00 per month. GSIS alleged that the Third-Party Complaint states no cause of action
against it; that LSWA obligated itself in the Security Service Contract to be solely liable for the enforcement of
and compliance with all existing labor laws, rules and regulations and that GSIS fully paid the services of the
security guards as agreed upon in the Security Service Contract.
Labor Arbiter rendered a Decision in favor of complainants. NLRC upheld the ruling of the Labor Arbiter. CA
held the GSIS jointly and severally liable with LSWA for complainants' money claims pursuant to Articles 106
and 107 of the Labor Code.
Issue: Whether or not petitioner GSIS and respondent Lanting Security and Watchman Agency should be held
jointly and severally liable for the payment of complainants' salary differentials.
Held: Yes. Articles 106 and 107 of the Labor Code provide:
ART. 106. Contractor or subcontractor. Whenever an employer enters into contract with another person for the
performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall
be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wage of his employeesin accordance
with this Code, the employer shall be jointly and severally liable with his contractor or subcontractorto
such employees to the extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him
ART. 107 Indirect employer. The provisions of the immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not being an employer, contracts with an independent
contractor for the performance of any work, task, job or project.
GSIS cannot evade liability by claiming that it had fully paid complainants' salaries by incorporating in the
Security Service Contract the salary rate increases mandated.
The joint and several liability of the employer or principal was enacted to ensure compliance with the
provisions of the Code, principally those on statutory minimum wage. The contractor or subcontractor is
made liable by virtue of his or her status as a direct employer, and the principal as the indirect employer of the
contractors employees. This liability facilitates, if not guarantees, payment of the workers compensation,
thus, giving the workers ample protection as mandated by the 1987 Constitution. This is not unduly
burdensome to the employer. Should the indirect employer be constrained to pay the workers, it can
recover whatever amount it had paid in accordance with the terms of the service contract between itself
and the contractor.
Joint and solidary liability is simply meant to assure aggrieved workers of immediate and sufficient payment of
what is due them. This is in line with the policy of the State to protect and alleviate the plight of the working
class. WHEREFORE, the petition is DENIED.
: Whether or not petitioner GSIS and respondent Lanting Security and Watchman Agency should be held jointly
and severally liable for the payment of complainants' salary differentials.
Held: Yes. Articles 106 and 107 of the Labor Code provide:
ART. 106. Contractor or subcontractor. Whenever an employer enters into contract with another person for the
performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall
be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wage of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him
ART. 107 Indirect employer. The provisions of the immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not being an employer, contracts with an independent
contractor for the performance of any work, task, job or project.
GSIS cannot evade liability by claiming that it had fully paid complainants' salaries by incorporating in the
Security Service Contract the salary rate increases mandated.
The joint and several liability of the employer or principal was enacted to ensure compliance with the provisions
of the Code, principally those on statutory minimum wage. The contractor or subcontractor is made liable by
virtue of his or her status as a direct employer, and the principal as the indirect employer of the contractors
employees. This liability facilitates, if not guarantees, payment of the workers compensation, thus, giving the
workers ample protection as mandated by the 1987 Constitution. This is not unduly burdensome to the employer.
Should the indirect employer be constrained to pay the workers, it can recover whatever amount it had paid in
accordance with the terms of the service contract between itself and the contractor.
Joint and solidary liability is simply meant to assure aggrieved workers of immediate and sufficient payment of
what is due them. This is in line with the policy of the State to protect and alleviate the plight of the working
class. WHEREFORE, the petition is DENIED.
MIESCOR v. NLRC, G.R. No. 145402, March 14, 2008
Summary: An indirect employer (as defined by Article 107) can only be held solidarily liable with the independent
contractor or subcontractor (as provided under Article 109) in the event that the latter fails to pay the wages of
its employees (as described in Article 106).
Facts: Petitioner Meralco Industrial Engineering Services Corporation (MIESCOR), a company; and private
respondents Ofelia P. Landrito General Services (OPLGS), a firm engaged in providing services such as
janitorial services and maintenance work to its clients, and Ofelia P. Landrito, its Proprietor and General Manager
executed a contract on November 7, 1984 whereby the latter would supply the petitioner janitorial services,
which include labor, materials, tools and equipment, as well as supervision of its assigned employees, at
petitioners Rockwell Thermal Plant in Makati City. Pursuant thereto, private respondents assigned their 49
employees as janitors to petitioners Rockwell Thermal Plant.
However, on September 20, 1989, the aforesaid 49 employees (complainants) lodged a Complaint for illegal
deduction, underpayment, non-payment of overtime pay, legal holiday pay, premium pay for holiday and rest
day and night differentials against the private respondents before the Labor Arbiter. The latter found petitioner
jointly and severally liable with private respondents in the (1) judgement award on underpayment and (2) non-
payment of overtime pay. However, it found the judgment award on the payment of separation pay as sole
liability of private respondents.
NLRC rendered a decision holding petitioner as jointly and severally liable with private respondents in the
judgment award on underpayment and on the non-payment of overtime pay, its directive being that the Arbiter
should now satisfy said labor-standards award, as well as that of the separation pay, exclusively through the
surety bond posted by private respondents.
The Court of Appeals (CA) rendered the assailed Decision on 24 April 2000, modifying the Decision of the NLRC
dated 30 January 1996 and holding the petitioner solidarily liable with the private respondents for the satisfaction
of the laborers separation pay.
Issue: Whether or not the CA erred when it ruled that the petitioner was jointly and solidarily liable with the
private respondents as regards the payment of separation pay.
Held: Yes. The appellate court used as basis Article 109 of the Labor Code, as amended, in holding the
petitioner solidarily liable with the private respondents for the payment of separation pay:
ART. 109. Solidary Liability. - The provisions of existing laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision
of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be
considered as direct employers. [Emphasis supplied].
However, the afore-quoted provision must be read in conjunction with Articles 106 and 107 of the Labor Code,
as amended.
Article 107 of the Labor Code, as amended, defines an indirect employer as any person, partnership,
association or corporation which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project. To ensure that the contractors employees are paid their
appropriate wages, Article 106 of the Labor Code, as amended, provides:
ART. 106. CONTRACTOR OR SUBCONTRACTOR. x x x.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him. [Emphasis supplied].
Taken together, an indirect employer (as defined by Article 107) can only be held solidarily liable with the
independent contractor or subcontractor (as provided under Article 109) in the event that the latter fails to pay
the wages of its employees (as described in Article 106).
Hence, while it is true that the petitioner was the indirect employer of the complainants, it cannot be held liable
in the same way as the employer in every respect. The petitioner may be considered an indirect employer only
for purposes of unpaid wages.
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision and Resolution of
the Court of Appeals dated 24 April 2000 and 27 September 2000, respectively, in CA-G.R. SP No. 50806, are
hereby REVERSED AND SET ASIDE. The Decision dated 30 January 1996 of the National Labor Relations
Commission in NLRC NCR CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89) is hereby REINSTATED.
No costs.
Concepts: 1. Law of the Case The opinion delivered on a former appeal. It is a term applied to an established
rule that when an appellate court passes on a question and remands the case to the lower court for further
proceedings, the question there settled becomes the law of the case upon subsequent appeal. It means that
whatever is once irrevocably established as the controlling legal rule or decision between the same parties in
the same case continues to be the law of the case, whether correct on general principles or not, so long as the
facts on which such decision was predicated continue to be the facts of the case before the court.
2. The only instance when the principal can also be held liable with the independent contractor or subcontractor
for the backwages and separation pay of the latters employees is when there is proof that the principal conspired
with the independent contractor or subcontractor in the illegal dismissal of the employees.
Escasinas v Shangri-la GR 178827 March 4, 2009
Summary: Under Article 157 is that the employer should provide the services of medical personnel to its
employees, but nowhere in said article is a provision that nurses are required to be employed.
Facts: Registered nurses Jeromie D. Escasinas and Evan Rigor Singco (petitioners) were engaged in 1999 and
1996, respectively, by Dr. Jessica Joyce R. Pepito (respondent doctor) to work in her clinic at respondent
Shangri-las Mactan Island Resort (Shangri-la) in Cebu of which she was a retained physician.
In late 2002, petitioners filed with the National Labor Relations Commission (NLRC) a complaint for
regularization, underpayment of wages, non-payment of holiday pay, night shift differential and 13th month pay
differential against respondents, claiming that they are regular employees of Shangri-la.
Shangri-la claimed, however, that petitioners were not its employees but of respondent doctor whom it retained
via Memorandum of Agreement (MOA), that Article 157 of the Labor Code, as amended, does not make it
mandatory for a covered establishment to employ health personnel, that the services of nurses is not germane
nor indispensable to its operations, and that respondent doctor is a legitimate individual contractor who has the
power to hire, fire and supervise the work of nurses under her.
Labor Arbiter Ernesto F. Carreon declared petitioners to be regular employees of Shangri-la. He noted that they
usually perform work which is necessary and desirable to Shangri-las business. Hence, ordered Shangri-la to
grant them the wages and benefits due them as regular employees from the time their services were engaged.
Upon appeal, NRLC found out that that no employer-employee relationship exists between petitioner and
Shangri-la. The NLRC held that the Arbiter erred in interpreting Article 157 in relation to Article 280 of the Labor
Code, as what is required under Article 157 is that the employer should provide the services of medical personnel
to its employees, but nowhere in said article is a provision that nurses are required to be employed. Contrary to
the finding of the LA, even if Article 280 states that if a worker performs work usually necessary or desirable in
the business of the employer, he cannot be automatically deemed a regular employee.
The Court of Appeals (CA) affirmed the NLRC decision, concluding that all aspects of employment of petitioners
being under the supervision and control of respondent doctor and since Shangri-la is not principally engaged in
the business of providing medical or healthcare services, petitioners could not be regarded as regular employees
of Shangri-la.
Issue: Whether or not respondent doctor can be considered a legitimate independent contractor.
Held: Yes The court holds that respondent doctor is a legitimate independent contractor.
The existence of an independent and permissible contractor relationship is generally established by considering
the following determinants: whether the contractor is carrying on an independent business; the nature and extent
of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a
specified piece of work; the control and supervision of the work to another; the employer's power with respect
to the hiring, firing and payment of the contractor's workers; the control of the premises; the duty to supply the
premises, tools, appliances, materials and labor; and the mode, manner and terms of payment.
In the case at bar, the respondent doctor is a legitimate independent contractor as when the Shangri-la provides
the clinic premises and medical supplies for use of its employees and guests does not necessarily prove that
respondent doctor lacks substantial capital and investment. Besides, the maintenance of a clinic and provision
of medical services to its employees is required under Art. 157, which are not directly related to Shangri-las
principal business operation of hotels and restaurants. In addition, the respondent doctor, as to the payment of
wages, the one who underwrites the SSS contribution and takes charge of their wages.
With respect to the supervision and control of the nurses and clinic staff, it is not disputed that a document, Clinic
Policies and Employee Manualclaimed to have been prepared by respondent doctor exists, to which petitioners
gave their conformityand in which they acknowledged their co-terminus employment status. It is thus presumed
that said document, and not the employee manual being followed by Shangri-las regular workers, governs how
they perform their respective tasks and responsibilities.
WHEREFORE, the petition is hereby DENIED. The Decision of the Court of Appeals dated May 22, 2007 and
the Resolution dated July 10, 2007 are AFFIRMED.
Concept:
The existence of an independent and permissible contractor relationship is generally established by considering
the following determinants:
a) whether the contractor is carrying on an independent business;
b) the nature and extent of the work;
c) the skill required;
d) the term and duration of the relationship;
e) the right to assign the performance of a specified piece of work;
f) the control and supervision of the work to another;
g) the employer's power with respect to the hiring, firing and payment of the contractor's workers; the control
of the premises; the duty to supply the premises, tools, appliances,

ILIGAN CEMENT CORPORATION v ILIASCOR EMPLOYEES G.R. No. 158956, April 24, 2009

Facts: Iligan Industrial and Agency Services Corporation (ILIASCOR), is the accredited job contractor of
petitioner which provided stevedoring and arrastre services to the latter since its operations in the 1970s at its
private pier in Kiwalan, Iligan City. Respondent ILIASCOR Employees and Workers Union- Southern Philippines
Federation of Labor (IEWU-SPFL) is the certified bargaining representative of ILIASCORs arrastre and
stevedoring workers.

On November 11, 1999, Blue Circle Philippines, Inc. took over the management of petitioners business, and
decided to bid out the services at petitioners private pier. Before the actual bidding, respondent requested that
the employment of ILIASCORs workers be continued. Peter Brinkley, petitioners Vice-President for Operations
denied respondents request as the contract with ILIASCOR had already expired.

ILIASCOR lost the bidding to Luzon Visayas Mindanao Arrastre and Stevedoring, Inc. (LVMASI). Consequently,
ILIASCOR paid the individual respondents their separation pay of half-month (1/2) pay for every year of service,
contrary to the stipulation in the Collective Bargaining Agreement (CBA), which is one-month pay for every year
of service.
The contract between petitioner and LVMASI was not perfected when it was discovered that LVMASI was a
dormant corporation which was neither a stevedoring company nor possessed with sufficient capital to engage
in the stevedoring and arrastre works. To ensure that its operations would not be hampered, petitioner issued a
service order to Vedali General Services (Vedali). The latter fielded stevedores, including herein respondents.
Petitioners Packhouse Manager Alex Sagario readily engaged stevedores. Vedali issued Charge Invoices No.
to the petitioner demanding payment for services rendered.

Individual respondents filed a complaint with the National Labor Relations Commission (NLRC). Pursuant to
Article 109 of the Labor Code respondents demanded for the declaration of their status as regular employees
and for the payment of the half of their separation pay which ILIASCOR previously withheld.

On November 15, 2000, petitioner entered into a stevedoring and arrastre contract with Northern Mindanao
Industrial and Port Services Corporation (NMIPSC). Thereafter, NMIPSC took over the stevedoring duties of
individual respondents.

Hence, individual respondents filed a Supplemental Complaint with the NLRC Sub-Regional Arbitration Branch
XII for violation of Article 246 of the Labor Code, illegal dismissal, with prayer for preliminary injunction, damages
and attorneys fees.

Ruling of the LA and NLRC

Labor Arbiter Guardson A. Siao rendered a Decision dismissing the complaint for lack of merit,

x x x, this office believes that respondent ICC is not liable to pay the unpaid portion of complainants separation
pay representing differentials since respondent is not the employer of the former.

Another point worth discussing is that, the separation pay is based on the collective bargaining agreement
entered into between the individual complainants and the complaining union, ILIASCOR IEWU-SPFL.
Respondent ICC is not a privy to that CBA, thus the former cannot be held liable or be demanded upon to pay
the same to the complainants.

On appeal, the National Labor Relations Commission (NLRC), issued a Resolution reversing the Decision of
the Labor Arbiter and declaring, among others, that respondents are regular employees of petitioner, thus:

The contention of complainants that they were directly employed with respondent ICC, stressing that they were
in fact hired by its Packhouse Manager, Alex Sagario, is found credible. Besides, we note that respondent has
avowed Vedali was a legitimate contractor which it could and in fact contracted with to provide stevedoring
services, though it was only on temporary basis.

Hired by respondents representative and working at its premises as stevedores and piers, services which were
undoubtedly necessary in its business, complainants are thereby declared regular employees of respondent
ICC during the period claimed. That, by the take-over of their jobs by the workforce of the Northern Mindanao
Industrial and Port Services Corporation (NMIPSC) on November 15, 2000, complainants were evidently
dismissed as a result. Bereft of any cause nor notice other than the actual take-over by another corporation of
their jobs, the dismissal of complainants is clearly illegal.

This being the case, complainants are entitled to the reliefs of reinstatement with full backwages pursuant to
Art. 279 of the Labor Code. However, the reinstatement of complainants to their previous positions is rendered
impossible by the takeover of NMIPSC manpower. Thus, in lieu of thereof, the payment of separation pay
proportionate to their length of service with respondent ICC is warranted.

Ruling of the CA

The complainants petitioned to the CA. The CA issued the assailed Resolution dismissing the petition, thus:
The Court resolves to DISMISS the petition based on the following legal infirmities: (1) The verification and
certification of non-forum-shopping was signed by Renato C. Sunico, however, petitioner failed to attach a copy
of the board resolution authorizing him to sign the same in behalf of the corporation. (2) Petitioner failed to
explain why service was done through mail as required by Section 3, Rule 13 of the 1997 Rules of Civil
Procedure..

Petitioners subsequent Motion for Reconsideration was denied in the other assailed Resolution.

Issue: WON, Vedali is a labor-only contractor

Decision of the SC

We note that petitioner subsequently made up for its earlier lapse when it submitted a Secretarys Certificate.
While the authorization was submitted to the CA only after the issuance of the Resolution dismissing the petition,
in view of the peculiar circumstances of the case and in the interest of substantial justice, the initial procedural
lapse may be excused. It is well settled that the application of technical rules of procedure may be relaxed in
labor cases to serve the demand of substantial justice.

The CAs second ground for dismissal of the petition, that petitioner failed to explain why service was done
through mail, was not passed upon by the CA in its second Resolution. The CA must have found the explanation
of petitioner in its motion for reconsideration acceptable. Petitioners argument that the failure to file an
explanation on non-personal service of the petition should not automatically result to the outright dismissal of
the petition, is meritorious.

_________________________

Labor-only contracting, which is prohibited, is an arrangement where the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or service for a principal. In labor-only contracting,
the following elements are present: (a) The contractor or subcontractor does not have substantial capital or
investment to actually perform the job, work or service under its own account and responsibility; and (b) The
employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are
directly related to the main business of the principal.

On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby a
principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a
specific job, work or service within a definite or predetermined period, regardless of whether such job, work or
service is to be performed or completed within or outside the premises of the principal. A person is considered
engaged in legitimate job contracting or subcontracting if the following conditions concur: (a) The contractor or
subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service
on its own account and under its own responsibility according to its own manner and method, and free from the
control and direction of the principal in all matters connected with the performance of the work except as to the
results thereof; (b) The contractor or subcontractor has substantial capital or investment; and (c) The agreement
between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor
and occupational safety and health standards, free exercise of the right to self-organization, security of tenure,
and social and welfare benefits.33

Taking into account the above mentioned elements and the facts obtaining in the present case, we are not
convinced that Vedali is an independent contractor. Petitioner failed to present any service contract with Vedali
in the proceedings with the Labor Arbiter. There is nothing on record that Vedali has a substantial capital or
investment to actually perform the service under its own account and responsibility. The Charge Invoices, billing
statements and certificate of payment and inspection, instead of strengthening petitioners argument, weakened
its defense and bolstered the claims of individual respondents. The Charge Invoices, billing statements and
certificates of payments only show that the wages of individual respondents were paid by petitioner.
Petitioner is a mere labor-only contractor because it only supplied workers to petitioner to work at its pier. In a
labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the employee who is
ostensibly under the employ of the "labor-only" contractor; and (3) the principal who is deemed the real employer.
Under this scheme, the "labor-only" contractor is the agent of the principal. Here, Vedali is the "labor-only"
contractor; individual respondents are the employees and petitioner is the principal. The law makes the principal
responsible to the employees of the "labor-only contractor" as if the principal itself directly hired or employed the
employees.

Taking into consideration the factual milieu of this case, the Court agrees with the conclusion of the NLRC that
petitioner and not Vedali, is the employer of individual respondents and the latter are employees of petitioner.
Individual respondents work as stock-pilers, arrastre and stevedores were undoubtedly directly related to and
in pursuit of the cement manufacturing and sales business of petitioner. Petitioners packing plant operations
would have been hampered were it not for the work rendered by individual respondents.1awphi1.zw+

Under the Labor Code, as amended, the requirements for the lawful dismissal of an employee are two-fold, the
substantive and the procedural. Not only must the dismissal be for a valid or authorized cause, the rudimentary
requirements of due process - notice and hearing must, likewise, be observed before an employee may be
dismissed.

As the employer, petitioner has the burden of proving that the dismissal of petitioner was for a cause allowed
under the law and that petitioner was afforded procedural due process. Petitioner failed to discharge this burden.
Indeed, it failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the
services of individual respondents. Neither did petitioner show that individual respondents were given ample
opportunity to contest the legality of their dismissal. No notice of such impending termination was ever given to
them. Individual respondents were definitely denied due process. Having failed to establish compliance with the
requirements on termination of employment under the Labor Code, the dismissal of individual respondents was
tainted with illegality.

The petition is hereby DENIED.

Vallum v NLRC GR nos 97320-27 July 30, 1993

Facts: On 1 September 1986, petitioner Baguio Leisure Corporation (Hyatt Terraces Baguio) ("Hyatt Baguio")
and petitioner Vallum Security Services ("Vallum") entered into a contract for security services under the terms
of which Vallum agreed to protect the properties and premises of Hyatt Baguio by providing fifty (50) security
guards, on a 24-hour basis, a day.
On 1 June, 1988, Hyatt Baguio's General Manager wrote the President of Vallum advising that effective 1 july
1988, the contract of security services would be terminated.
Vallum informed Mr. Maulbecker, on 22 June 1988, that it was agreeable to the termination of the contract.
On 30 June 1988, private respondents, who were security guards provided by Vallum to Hyatt Baguio, were
informed by Vallum's Personnel Officer that the contract between the two (2) had already expired. Private
respondents were directed to report to Vallum's head office at Sucat Road, in Muntinlupa, Metropolitan Manila,
not later than 15 July 1988 for re-assignment. They were also told that failure to report at Sucat would be taken
to mean that they were no longer interested in being re-assigned to some other client of Vallum.
None of the private respondents reported at Sucat for re-assignment. Instead, between July and September
1988, private respondents filed several complaints against petitioners in the National Labor Relations
Commission's Office ("NLRC") in Baguio City for illegal dismissal and unfair labor practices; for violation of labor
standards relating to underpayment of wages, premium holiday and restday pay, uniform allowances and meal
allowances. They prayed for reinstatement with full backwages. The several cases were consolidated together.
Labor Arbiter: rendered a decision dismissing the complaints. He found Vallum to be an independent contractor
and, consequently declined to hold Hyatt Baguio liable for dismissal of private respondents.
NLRC: reveresed and set aside the resolution of the LA. adding that respondent Hyatt Terraces Baguio to
reinstate the complainant from their former positions with full backwages limited to 1 year.
Issue: WON the security guards are employees of Hyatt Baguio.
Held: Yes. The court found that there is an employer-employee relationship between the laborers and Hyatt
Baguio.
In determining whether a given set of circumstances constitute or exhibit an employer-employee relationship,
the accepted rule is that the elements or circumstances relating to the following matters shall be examined and
considered:
1. the selection and engagement of the employee;.
2. the payment of wages;
3. the power of dismissal; and
4. the power to control the employees' conduct.
In respect of the selection and engagement of the employees, the records here show that private respondents
filled up Hyatt employment application forms and submitted the executed forms directly to the Security
Department of Hyatt Baguio.

In respect of the mode or manner of payment of wages, private respondents submitted in evidence four hundred
twenty-three (423) pay slips (Exhibits "A" for complainants-private respondents), which bore Hyatt Baguio's logo.
Turning to the matter of location of the power of dismissal, we note that the contract provided that upon loss of
confidence on the part of Hyatt Baguio vis-a-vis any security guard furnished by Vallum, such security guard
"may be changed immediately upon the request to [Vallum] by [Hyatt Baguio]." Notwithstanding the terms of the
formal contract between petitioners, the NLRC found that, in operative fact, it was Hyatt Baguio's Chief Security
Officer
who exercised the power of enforcing disciplinary measures over the security guards.
Coming then to the location of the power of control over the activities of the security guards, the following factors
lead us to the conclusion that power was effectively located in Hyatt Baguio rather than in Vallum:
(a) the assignments of particular security guards was subject to the approval of Hyatt Baguio's Chief Security
Officer;
(b) promotions of the security guards from casual to regular employees were approved or ratified by the Chief
Security Officer of Hyatt Baguio;
(c) Hyatt Baguio's Chief Security Officer decided who among the various security guards should be an duty
or on call, as well as who, in cases of disciplinary matters, should be suspended or dismissed;
(d) the petitioners themselves admitted that Hyatt Baguio, through its Chief Security Officer, awarded citations
to individual security guards for meritorious services.
We find no basis for overturning the conclusions reached by the NLRC that Vallum, in the specific circumstances
of this case, was not an independent contractor but was, rather, a "labor-only" contracor. Section 9 of Rule VII
of Book III entitled "Conditions of Employment" of the Omnibus Rules Implementing the Labor Code provides
as follows:
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work
premises and other materials; and
(2) The workers recruited and placed by such person are performing activities which are directly related to the
principal business or operations of the employer in which workers are habitually employed.
 (b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly employed by him.
xxx xxx xxx
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are
met:
(1) The contractor carries on an independent business and undertakes the contract work on his own account
under his own responsibility according his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to results thereof;
and
(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business.
In the case at bar, we noted that Vallum did not have a branch office in Baguio City and that Hyatt Baguio
provided Vallum with offices at Hyatt's own premises and allowed Vallum to use its Security Department in the
processing of applications.
WHEREFORE, premises considered, the Petition for Certiorari is hereby DISMISSED for lack of merit. Costs
against petitioners.
COCA-COLA BOTTLERS V. AGITO
Facts: Herein respondents were salesmen of the petitioner, a domestic corporation engaged in manufacturing,
bottling and distributing soft drink beverages. In their allegation, respondents stated that despite of their
employment in the Coca-Cola for year, they had never been regularized. Furthermore, they assailed that they
were illegally dismissed by the petitioner. They, then, filed a complaint against the petitioner, Interserve,
Peerless Integrated Services, Inc., Better Builders, Inc., and Excellent Partners, Inc. On the contrary, the
petitioner filed its petition paper averring that the respondent were employers of Interserve given that it is the
latter which hired them, paid their wages and supervised their work. They further explained that they are not
liable to the respondents given that they dont have contract with the respondent themselves but to the
Interserve. Petitioner, thus, sought the dismissal of respondents' complaint against it on the ground that the
Labor Arbiter did not acquire jurisdiction over the same in the absence of an employer-employee relationship
between petitioner and the respondents. On the decision of the Labor Arbiter, it found that respondents were
indeed employees of the Interserve and not of the petitioners. This was further affirmed by the NLRC and
ordered the Interserve to pay the respondents 13th month pay. However, the decision of the NLRC were
reversed by the CA, it stated that the Interserve was a labor-only contractor, with insufficient capital and
investments for the services which it was contracted to perform. Furthermore, the appellate court deemed that
the respondents, who were tasked to deliver, distribute, and sell Coca-Cola products, carried out functions
directly related and necessary to the main business of petitioner. Hence, this petition.
Issue: Whether or not Interserve is a labor-only contractor.
HELD: Yes. Article 106 of the Labor Code categorically states: "There is `labor-only' contracting where the
person supplying workers to an employee does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers recruited and placed by such persons
are performing activities which are directly related to the principal business of such employer." Thus, performing
activities directly related to the principal business of the employer is only one of the two indicators that "labor-
only" contracting exists; the other is lack of substantial capital or investment. The Court finds that both indicators
exist in the case at bar. Hence, the contention of the petitioner that there has no labor-only contractor given that
respondents did not perform activities that were indispensable to petitioner's principal business, is untenable.
Therefore, the petition was denied.

Almeda v. Asahi ; GR 177785 ; Sept 3, 2008

CONCEPTS: (1) Job contracting or subcontracting - an arrangement where a principal agrees to put out or farm
out to a contractor or subcontractor the performance or completion of a specific job, work or service within a
definite or predetermined period, regardless of whether such job, work or service is to be performed or completed
within or outside the premises of the principal. This conditions must concur: - The contractor or subcontractor
carries on a distinct and independent business and undertakes to perform the job, work or service on its own
account and under its own responsibility according to its own manner and method, and free from the control and
direction of the principal in all matters connected with the performance of the work except as to the results
thereof; - The contractor or subcontractor has substantial capital or investment ; - The agreement between the
principal and contractor or subcontractor assures the contractual employees entitlement to all labor and
occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and
social and welfare benefits
(2) Labor-only contracting - a prohibited act, an arrangement in which the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or service for a principal. Its elements are: - The
contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or
service under its own account and responsibility; - The employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are directly related to the main business of the
principal.
(3) In labor-only contracting, the statutes create an employer-employee relationship for a comprehensive
purpose: to prevent circumvention of labor laws. The contractor is considered as merely the agent of the principal
employer and the latter is responsible to the employees of the labor-only contractor as if such employees are
directly employed by the principal employer.
FACTS: Petitioners Randy Almeda, Edwin Audencial, Nolie Ramirez, Ernesto Calicagan and Reynaldo
Calicagan filed a complaint for illegal dismissal against respondent Asahi Glass Philippines, Inc. (Asahi) and
SSASI. They alleged that respondent (domestic corporation engaged in the business of glass manufacturing)
and SSASI (labor-only contractor) entered into a service contract where the latter provide the former with the
necessary manpower for its operations. When Asahi terminated its service contract with SSASI, it in turn,
terminated the employment of petitioners. Believing that SSASI was a labor-only contractor, and having
continuously worked as glass cutters and quality controllers for the respondent functions which are directly
related to its main line of business as glass manufacturer for 3-11 years, petitioners asserted that they should
be considered regular employees of the respondent. Respondent, on the other hand, refuted petitioners
allegations that they were its regular employees. Instead, respondent claimed that petitioners were employees
of SSASI and were merely assigned by SSASI to work for respondent to perform intermittent services pursuant
to an Accreditation Agreement. Respondent likewise denied exercising control over petitioners and asserted
that such was wielded by SSASI. SSASI averred that it was the one who hired petitioners and assigned them to
work for respondent on occasions that the latters workforce could not meet the demands of its customers.
Eventually, however, respondent ceased to give job orders to SSASI, constraining the latter to terminate
petitioners employment. The Labor Arbiter dismissed the complaint for lack of merit. However, NLRC reversed
Labor Arbiters decision and gave more evidentiary weight to petitioners testimonies, declaring that SSASI was
engaged in labor-only contracting since it did not have substantial capital and investment in the form of tools,
equipment and machineries. CA reversed NLRCs decision and found that there was a legitimate job contracting
between respondent and SSASI.
ISSUE: (1) W/N petitioners were employees of Asahi. (2) W/N petitioners were illegally dismissed.
HELD: (1)YES. The Court held that petitioners were employees of Asahi, as SSASI is a labor-only contractor;
hence, it is considered as the agent of respondent. Note: The Court would only be able to deem petitioners as
employees of respondent if it is established that SSASI was a labor-only contractor, and not a legitimate job
contractor or subcontractor. An important element of legitimate job contracting is that the contractor has
substantial capital or investment, which respondent failed to prove. Theres lack of evidence to show that SSASI
possessed substantial capital or investment when its contractual relations began. Also, the Court is unconvinced
by respondents argument that petitioners were performing jobs that were not directly related to respondents
main line of business. Petitioners supplemented the regular workforce when the latter could not comply with the
markets demand; necessarily, therefore, petitioners performed the same functions as the regular workforce. The
crucial element of control over petitioners also rested in respondent. Petitioners worked at the respondents
premises, followed the work schedule prepared by respondent, and were required to observe all rules and
regulations pertaining to the quality of job performance, regularity of job output, and the manner and method of
accomplishing the jobs.
(2) YES, petitioners were illegally dismissed. Respondent, as petitioners employer, has the burden of proving
that the dismissal was for a cause allowed under the law, and that they were afforded procedural due process.
However, respondent failed to discharge this burden with substantial evidence as it noticeably narrowed its
defense to the denial of any employer-employee relationship between it and petitioners. The sole reason given
for the dismissal of petitioners by SSASI was the termination of its service contract with respondent. But since
SSASI was a labor-only contractor, and petitioners were to be deemed the employees of respondent, then the
said reason would not constitute a just or authorized cause for petitioners dismissal. It would then appear that
petitioners were summarily dismissed based on the afore-cited reason, without compliance with the procedural
due process for notice and hearing.
AKLAN v. SAN MIGUEL
SUMMARY: The dichotomy between impermissible labor-only contracting and legitimate job contracting was
discussed in this labor case.
FACTS: Respondent BMA Philasia, Inc. (BMA) is a domestic corporation engaged in the business of
transporting and hauling of cargoes, goods, and commodities of all kinds with Arlene Eusebio as its President.
Petitioners, numbering forty-seven (47) in all, are the former employees of respondent BMA at respondent San
Miguel Corporations (SMC) warehouse. Subsequently, a number of petitioners went to DOLE District Office to
file a complaint against BMA and Eusebio for underpayment of wages and non-payment of premium pay for rest
day, 13th month pay, and service incentive leave pay.
Thereafter, Petitioner Elmer Caboteja was charged with insubordination and disrespect to superior, failure to
properly perform his job assignment, and unauthorized change of schedule. He was directed to submit his written
explanation within forty-eight (48) hours. His job was then terminated for the offenses he committed. He then
filed a complaint for illegal dismissal against BMA.
On various dates thereafter, BMA agreed to a settlement with some of the complainants in the case for
underpayment of wages. 11 of the present petitioners executed quitclaims and releases in favor of BMA and
Eusebio in the presence of DOLE district officers. BMA refused to settle the claim of other complainants.
Thereafter, petitioners Joan Erico Dumalagan and Ronaldo Salvador were also terminated for failure to perform
their job responsibilities. They also filed complaints for illegal dismissal against BMA.
Petitioners held a picket at the warehouse premises to protest BMAs refusal to pay the claim for underpayment
of the rest of the workers. This picket disrupted the business operations of private respondents, prompting BMA
to terminate their services. Subsequently, petitioners filed separate complaints against BMA, Eusebio, and SMC
for illegal dismissal. All the complaints for illegal dismissal were consolidated.
Petitioners alleged that they were illegally dismissed after filing a complaint for underpayment of wages and
non-payment of benefits before the DOLE; they were terminated after staging a peaceful picket to protest the
non-payment of their claims. According to them, BMA is a labor-only contractor and SMC was their true
employer. The manner and means by which they performed their work were controlled by SMC through its Sales
Logistic Coordinator who was overseeing their performance everyday.
Private respondents BMA and Eusebio countered that petitioners Caboteja, Dumalagan, and Salvador were
validly and justly dismissed. They were among the eleven who already signed quitclaims and releases before
the DOLE district office after receiving an amount in settlement of their claims. As for the rest of petitioners (36
complainants), there was no illegal dismissal to speak of. Said employees simultaneously did not go back to
work for no apparent reason on October 18, 2001.
Private respondent SMC maintained that it had no employer-employee relationship with petitioners who were
hired and supervised exclusively by BMA pursuant to a warehousing and delivery agreement in consideration
of a fixed monthly fee.
Labor Arbiter and NLRC Ruling
Labor Arbiter Veneranda C. Guerrero found respondent BMA liable for illegal dismissal and ordered the
reinstatement of petitioners. She ruled that the evidence presented duly established that BMA was a legitimate
independent contractor and the actual employer of petitioners. Its failure, however, to comply with the
registration and reportorial requirements of the DOLE rendered SMC, its principal, directly liable to the claims of
petitioners. Thus, BMA and SMC were found jointly and severally liable for the payment of petitioners backwages
and money claims.
Respondents appealed the decision of the Labor Arbiter to the NLRC. The NLRC reversed the Labor Arbiter
disposition and ruled that there was no illegal dismissal. The NLRC found that petitioners Caboteja, Dumalagan,
and Salvador were separated from their jobs for just and valid causes. They were given the opportunity to explain
their sides. They were asked to explain and finding their explanations unacceptable, respondents dismissed
them. Hence, they are not entitled to separation pay.
As regards the other complainants, there is no showing that they were illegally dismissed from their jobs by
BMA. They have not given details on to whom they reported for work, who barred them from entering the
respondents premises and from working, in so many words how they were told that they were already dismissed.
The only evident fact is that they just stopped reporting for work beginning October 18, 2001 without informing
BMA why there were doing so.
CAs Ruling
Petitioners filed a Rule 65 petition with the CA. The CA denied the petition, affirming in full the NLRCs decision.
In ruling against petitioners, the CA found that the NLRC committed no reversible error or grave abuse of
discretion in ruling that petitioners were not illegally dismissed but actually refused to report back to work after
staging a surprise stoppage that paralyzed respondent BMAs business operations at the Pasig warehouse.
ISSUE: (1) WON the CA committed a serious legal error in not ruling that respondent San Miguel Corporationand
respondent Arlene Eusebioare all solidarily liable for petitioners money claims.
(2) WON the CA committed a serious legal error in refusing to hold that respondent SMC was petitioners real
employer despite the fact that respondent BMA was not duly registered with the DOLE and caused the workers
to perform tasks directly related to the business of SMC and under the latters supervision.
(3) WON the CA committed a legal error and acted with grave abuse of discretion in holding that petitioners
Elmer Caboteja, Joan Erico Dumalagan, and Ronaldo Salvador were not illegally dismissed from their jobs,
despite a previous ruling of the Labor Arbiter to the contrary.
(4) WON the CA seriously committed an error of law in holding that the rest of the petitioners abandoned their
jobs and were not dismissed therefrom, contrary to the findings of the Labor Arbiter who heard the case.
(5) The CA committed a serious legal error in ruling that the quitclaims executed by eleven (11) of the petitioners,
in relation to their claims for underpayment of wages before the DOLE, also barred their subsequent complaint
for illegal dismissal, despite the fact that the said complaint was not yet in existence at the time the quitclaims
were executed.
HELD: (1) NO. The Court affirmed the CAs observation that respondent BMA is the true employer of petitioners
who should be held directly liable for their claims.
A finding that a contractor is a labor-only contractor, as opposed to permissible job contracting, is
equivalent to declaring that there is an employer-employee relationship between the principal and the
employees of the supposed contractor, and the labor-only contractor is considered as a mere agent of
the principal, the real employer.
Both the Labor Arbiter and the NLRC found that the employment contracts of petitioners duly prove that an
employer-employee relationship existed between petitioners and BMA. In its ruling, the NLRC considered the
following elements to determine the existence of an employer-employee relationship: (1) the selection and
engagement of the workers; (2) power of dismissal; (3) the payment of wages by whatever means; and (4) the
power to control the workers conduct. All four elements were found by the NLRC to be vested in BMA. This
NLRC finding was affirmed by the CA.
(2) NO. The Court ruled that the employer-employee relationship between BMA and petitioners is not tarnished
by the absence of registration with DOLE as an independent job contractor on the part of BMA. The absence of
registration only gives rise to the presumption that the contractor is engaged in labor-only contracting, a
presumption that respondent BMA ably refuted.
(3) NO. The Court affirmed the CA when it ruled that illegal dismissal was absent.
The records fully disclose that petitioners Caboteja, Dumalagan, and Salvador were separated from their jobs
for just and valid causes. Caboteja was cited for violation of company rules and regulations and disrespectful
conduct. Dumalagan and Salvador were investigated for failure to perform duties and responsibilities. After their
explanations were found unacceptable, they were accordingly dismissed.
(4) NO. The Court ruled that it was shown in the records that petitioners simply stopped reporting for work
starting October 18, 2001 when they staged a picket. The CA observed under the factual circumstances, it
clearly appears that petitioners refused to report back to their work in order to force their employer BMA to give
in to their immediate demand for the salary differentials and unpaid benefits subject of their complaint with the
DOLE. Hence, BMA cannot be held liable for illegal dismissal.
Their claim of having been prevented from entering the work premises was not given due weight for no
particulars was even alleged by them in their report back to their jobs, who prevented their entry to the company
premises and details as to what steps they took to bring the matter to the attention of DOLE District Office
wherein their complaint for labor standards violation was already pending.
(5) NO. The Court ruled that unless there is a showing that the employee signed involuntarily or under
duress, quitclaims and releases are upheld by this Court as the law between the parties. If the agreement
was voluntarily entered into by the employee, with full understanding of what he was doing, and represents a
reasonable settlement of the claims of the employee, it is binding on the parties and may not be later disowned
simply because of a change of mind. Thus, the quitclaims effectively barred petitioners from questioning their
dismissal.
WHEREFORE, the petition is DENIED and the assailed Decision of the CA is AFFIRMED.

Mandaue vs. Andales

Summary: The contractors are labor-only contractors since they do not have substantial capital and respondents performed
activities which were directly related to MGTI's main business.
Facts: Petitioners MGTI and GTI are business entities engaged in rattan furniture manufacturing for export. Andales filed a
complaint with the LA against both petitioners for illegal dismissal and non-payment of 13th month pay and SIL pay. His other
co-workers numbering 260 filed a similar complaint against petitioner MGTI only.

The complainants alleged that MGTI hired them on various dates as weavers, grinders, sanders and finishers; Later, workers
in the were told that they would be transferred to a contractor; others were told to look for work elsewhere as the company
had no work for them; Later, others were not allowed to enter the company premises; they were dismissed without notice
and just cause.

They further alleged that they are regular employees of MGTI because: (a) they performed their work inside the company
premises (b) they were issued uniforms by MGTI and were told to strictly follow company rules and regulations; (c) they were
under the supervision of MGTI's foremen, quality control personnel and checkers; (d) MGTI supplied the materials, designs,
tools and equipment in the production of furniture; (e) MGTI conducts orientations on how the work was to be done and the
safe and efficient use of tools and equipment; (f) MGTI issues memoranda regarding absences and waste of materials; and
(g) MGTI exercises the power to discipline them.

MGTI denied the existence of employer-employee relationship, claiming that they are workers of independent contractors
whose services were engaged temporarily and seasonally when the demands for its products are high and could not be met
by its regular workforce.

Issue: WON there is labor only contracting

Ruling: YES. The general rule is that a principal is permitted by law to engage the services of a contractor for the performance
of a particular job, but the principal, nevertheless, becomes solidarily liable with the contractor for the wages of the contractors
employees. The third paragraph of Article 106, however, empowers the Secretary of Labor to make distinctions between
permissible job contracting and labor-only contracting, which is a prohibited act further defined under the last paragraph.

A finding that a contractor is a labor-only contractor is equivalent to declaring that there is an employer-employee relationship
between the principal and the employees of the supposed contractor, and the labor-only contractor is considered as a mere
agent of the principal, the real employer.
Based on Article 106 of the Labor Code and Sections 5 and 7 of the Implementing Rules, labor-only contracting exists when
the following criteria are present: (1) where the contractor or subcontractor supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among other things; and the
workers recruited and placed by the contractor or subcontractor are performing activities which are directly related to the
principal business of such employer; or (2) where the contractor does not exercise the right to control the performance of
the work of the contractual employee.

The contractors are labor-only contractors since they do not have substantial capital or investment which relates to the service
performed and respondents performed activities which were directly related to MGTI's main business.

First, respondents work as weavers, grinders, sanders and finishers is directly related to MGTI's principal business of rattan
furniture manufacturing. Where the employees are tasked to undertake activities usually desirable or necessary in the usual
business of the employer, the contractor is considered as a labor-only contractor and such employees are considered as
regular employees of the employer.

Second, MGTI was unable to present any proof that its contractors had substantial capital. There The law casts the burden
on the contractor to prove that it has substantial capital, investment, tools, etc

Thus, the MGTI, the principal employer, is solidarily liable with the labor-only contractors, for the rightful claims of the
employees. Under this set-up, labor-only contractors are deemed agents of the principal, MGTI, and the law makes the
principal responsible to the employees of the labor-only contractor as if the principal itself directly hired or employed the
employees. In prohibiting labor-only contracting and creating an employer-employee relationship between the principal and
the supposed contractors employees, the law intends to prevent employers from circumventing labor laws intended to protect
employees.

Concepts: In prohibiting labor-only contracting and creating an employer-employee relationship between the principal and
the supposed contractors employees, the law intends to prevent employers from circumventing labor laws intended to protect
employees.
WACK WACK GOLF & COUNTRY CLUB v NLRC
Summary: Respondents were held to have no cause of action against the petitioner for illegal dismissal and
damages since they availed the special separation package. Consequently, BSMI was ruled to be an
independent contractor as it satisfied the requisites of an independent contractor and it exercised control over
the employees.
Facts: In 1996, a fire destroyed a large portion of the main clubhouse of the Wack Wack Golf and Country Club
(Wack Wack), including its kitchen which prompted it to suspend the operations of the Food and Beverage (F &
B) Department one (1) month thereafter. Notices to 54 employees (out of a complement of 85 employees in the
department) were also sent out. The Wack Wack Golf Employees Union branded the suspension of operations
of the F & B Department as arbitrary, discriminatory and constitutive of union-busting, so they filed a notice of
strike with the DOLEs National Conciliation and Mediation Board (NCMB). An Agreement was forged whereby
a special separation benefit/retirement package for interested Wack Wack employees. One of the agreed terms
and condition states that All qualified employees who may have been separated from the service under the
above package shall be considered under a priority basis for employment by concessionaires and/or contractors.
In 1997, Wack Wack entered into a Management Contract with Business Staffing and Management, Inc. (BSMI),
a corporation engaged in the business as Management Service Consultant undertaking and managing for a fee
projects which are specialized and technical in character. Pursuant to the Agreement, the retired employees of
Wack Wack by reason of their experience were given priority by BSMI in hiring. BSMI then undertook an
organizational analysis and manpower evaluation to determine its efficacy, and to streamline its operations. In
the course of its assessment, BSMI saw that the positions of Respondents Cagasan and Dominguez were
redundant, thus they were terminated. With respect to Baluyot, he applied for the position of Chief Porter. The
position, however, was among those recommended to be abolished by the BSMI, so he was offered the position
of Caddie Master Aide. Baluyot decided not to accept the position prompting BSMI to abolish the said position
and Baluyot was dismissed from the service.
Thereafter, the three employees filed their respective complaints with the National Labor Relations Commission
(NLRC) for illegal dismissal and damages against Wack Wack and BSMI. Labor Arbiter found that the dismissal
of Dominguez and Cagasan was for a valid and authorized cause, and dismissed their complaints. The Labor
Arbiter however, found that the dismissal of Baluyot as Chief Porter was unjustified and can not be considered
redundant in the case at bar. NLRC rendered its Decision ordering Wack Wack to reinstate Dominguez and
Cagasan to their positions as they held that BSMI is a contractor who merely supplies workers to respondent
Wack Wack. Wack Wack and BMSI filed a petition for certiorari with the Court of Appeals which it subsequently
dismissed on the ground that the petitioner therein failed to attach an Affidavit of Service.
Issue: (1) Whether or not respondents Dominguez and Cagasan should be reinstated to their positions
(2) Whether or not respondent BSMI is an independent contractor
Held: (1) No. Respondents had no cause of action against the petitioner for illegal dismissal and damages.
Respondents availed the special separation package offered by the petitioner. This special separation package
was thought of and agreed by the two parties (Wack Wack and the Union) after a series of discussions and
negotiations to avert any labor unrest due to the closure of Wack Wack. When the respondents voluntarily signed
their quitclaims and accepted the separation package offered by the petitioner, they, thenceforth, already ceased
to be employees of the petitioner. It is only where there is clear proof that the waiver was wangled from an
unsuspecting or gullible person, or the terms of settlement are unconscionable on its face, that the law will step
in to annul the questionable transaction. There being no employer-employee relationship between the petitioner
and respondents Cagasan and Dominguez, the latter have no cause of action for illegal dismissal and damages
against the petitioner.
(2) Yes. The ruling of the NLRC is wrong. An independent contractor is one who undertakes job contracting,
i.e., a person who: (a) carries on an independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the results thereof;
and (b) has substantial capital or investment in the form of tools, equipments, machineries, work premises and
other materials which are necessary in the conduct of the business. Jurisprudence enumerates several factors
which may be considered in determining whether or not the contractor is carrying on an independent business;
the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign
the performance of specified pieces of work; the control and supervision of the work to another; the employers
power with respect to the hiring, firing, and payment of the contractors workers; the control of the premises; the
duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment.
There is indubitable evidence showing that BSMI is an independent contractor, engaged in the management of
projects, business operations, functions, jobs and other kinds of business ventures, and has sufficient capital
and resources to undertake its principal business. It had provided management services to various industrial
and commercial business establishments. As a legitimate job contractor, there can be no doubt as to the
existence of an employer-employee relationship between the contractor and the workers. The right to hire and
fire is another element of the employer-employee relationship which actually existed between the respondents
and BSMI, and not with Wack Wack.

Manila Electric Co. v. Benamira, G.R. No. 145271, July 14, 2005
Summary: When MERALCO contracted for security services with ASDAI as the security agency that hired
individual respondents to work as guards for it, MERALCO became an indirect employer of individual
respondents pursuant to Article 107 of the Labor Code, thus, making it liable as to the monetary claims of the
individual respondents.
Facts: The individual respondents are licensed security guards formerly employed by People's Security, Inc.
(PSI) and deployed as such at MERALCO's head office. On November 30, 1990, the security service agreement
between PSI and MERALCO was terminated.
Immediately thereafter, fifty-six of PSI's security guards, including eight individual respondents, filed a complaint
for unpaid monetary benefits against PSI and MERALCO. Meanwhile, the security service agreement between
respondent Armed Security & Detective Agency, Inc., (ASDAI) and MERALCO took effect on December 1, 1990.
Subsequently, the individual respondents were absorbed by ASDAI and retained at MERALCO's head office.
On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered a decision in favor of the former PSI security
guards, including the individual respondents.
Less than a month later, or on July 21, 1992, the individual respondents filed another complaint for unpaid
monetary benefits, this time against ASDAI and MERALCO.
ASDAI denied in general terms any liability for the claims of the individual respondents, claiming that there is
nothing due them in connection with their services.
On the other hand, MERALCO denied liability on the ground of lack of employer-employee relationship with
individual respondents. It averred that the individual respondents are the employees of the security agencies it
contracted for security services; and that it has no existing liability for the individual respondents' claims since
said security agencies have been fully paid for their services per their respective security service agreement.
Labor Arbiter Pablo C. Espiritu, Jr. rendered a Decision holding ASDAI and MERALCO jointly and solidarily
liable to the monetary claims of individual respondents. NLRC affirmed in toto the decision of the Labor Arbiter.
Court of Appeals (CA) modified the decision of the NLRC by declaring MERALCO as the direct employer of the
individual respondents.
Issue: 1. Whether or not ASDAI is a labor-only contractor since, as MERALCO insisted, they have their own
equipment, machineries and work premises which are necessary in the conduct of their business and the duties
performed by the security guards are not necessary in the conduct of MERALCOs principal business.
2. Whether or not MERALCO, as principal, becomes jointly and severally liable for the individual respondents
wages, under Article 106 and 109 of the Labor Code.
Held: 1. No, ASDAI are not "labor-only" contractors. There is "labor only" contract when the person acting as
contractor is considered merely as an agent or intermediary of the principal who is responsible to the workers
in the same manner and to the same extent as if they had been directly employed by him. On the other hand,
"job (independent) contracting" is present if the following conditions are met: (a) the contractor carries on an
independent business and undertakes the contract work on his own account under his own responsibility
according to his own manner and method, free from the control and direction of his employer or principal in all
matters connected with the performance of the work except to the result thereof; and (b) the contractor has
substantial capital or investments in the form of tools, equipment, machineries, work premises and other
materials which are necessary in the conduct of his business. Given the above distinction and the provisions of
the security service agreements entered into by petitioner with ASDAI, the Court is convinced that ASDAI was
engaged in job contracting.
2. Yes. The fact that there is no actual and direct employer-employee relationship between MERALCO and the
individual respondents does not exonerate MERALCO from liability as to the monetary claims of the individual
respondents. When MERALCO contracted for security services with ASDAI as the security agency that hired
individual respondents to work as guards for it, MERALCO became an indirect employer of individual
respondents pursuant to Article 107 of the Labor Code, which reads:
ART. 107. Indirect employer.The provisions of the immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not being an employer, contracts with an independent
contractor for the performance of any work, task, job or project.
When ASDAI as contractor failed to pay the individual respondents, MERALCO as principal becomes jointly and
severally liable for the individual respondents' wages, under Articles 106 and 109 of the Labor Code, which
provide:
ART. 106. Contractor or subcontractor.Whenever an employer enters into a contract with another person for
the performance of the former['s] work, the employees of the contractor and of the latter[`s] subcontractor, if any,
shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him. xxx
ART. 109. Solidary liability.The provisions of existing laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision
of this Code. For purpose of determining the extent of their civil liability under this Chapter, they shall be
considered as direct employers.
ASDAI is held liable by virtue of its status as direct employer, while MERALCO is deemed the indirect employer
of the individual respondents for the purpose of paying their wages in the event of failure of ASDAI to pay them.
WHEREFORE, the present petition is GRANTED. The assailed Decision, dated September 27, 2000, of the CA
is REVERSED and SET ASIDE. The Decision of the Labor Arbiter dated January 3, 1994 and the Resolution of
the NLRC dated April 10, 1995 are AFFIRMED with the MODIFICATION that the joint and solidary liability of
ASDAI and MERALCO to pay individual respondents' monetary claims for underpayment of actual regular hours
and overtime hours rendered, and premium pay for holiday and rest day, as well as attorney's fees, shall be
without prejudice to MERALCO's right of reimbursement from ASDAI.
Concepts: It is a settled rule that in the exercise of the Supreme Court's power of review, the Court is not a trier
of facts and does not normally undertake the re-examination of the evidence presented by the contending parties
during the trial of the case considering that the findings of facts of the CA are conclusive and binding on the
Court. However, jurisprudence has recognized several exceptions in which factual issues may be resolved by
this Court, to wit:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when
the findings 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 petitioner's main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion.

South Davao v Gamo GR 171814; May 8, 2009

Summary: Gamo and the copra workers did not exercise independent judgment in the performance of their
tasks as per their tools used are not sufficient to complete their job.
Facts: Petitioner South Davao Development Company (petitioner or petitioner corporation) is the operator of a
coconut and mango farm in San Isidro, Davao Oriental and Inawayan/Baracatan, Davao del Sur. On August
1963 petitioner hired respondent Sergio L. Gamo (Gamo) as a foreman. Sometime in 1987, petitioner appointed
Gamo as a copra maker contractor. Respondents Ernesto Belleza, Carlos Rojas, Maximo Malinao were all
employees in petitioners coconut farm, while respondents Felix Terona, Virgilio Cosep, Maximo Tolda, and
Nelson Bagaan were assigned to petitioners mango farm. All of the abovenamed respondents (copra workers)
were later transferred by petitioner to Gamo as the latters copraceros. From 1987 to 1999, Gamo and petitioner
entered into a profit-sharing agreement wherein 70% of the net proceeds of the sale of copra went to petitioner
and 30% to Gamo. The copra workers were paid by Gamo from his 30% share.
Petitioner wanted to standardize payments to its contractors in its coconut farms. On 2 October 1999, petitioner
proposed a new payment scheme to Gamo. The new scheme provided a specific price for each copra making
activity. Gamo submitted his counter proposal.[6] Petitioner did not accept Gamos counter proposal since it was
higher by at least fifty percent (50%) from its original offer. Without agreeing to the new payment scheme, Gamo
and his copra workers started to do harvesting work. Petitioner told them to stop. Eventually, petitioner and
Gamo agreed that the latter may continue with the harvest provided that it would be his last contract with
petitioner. Gamo suggested to petitioner to look for a new contractor since he was not amenable to the new
payment scheme.[7]
Gamo and petitioner failed to agree on a payment scheme, thus, petitioner did not renew the contract of Gamo.
Gamo and the copra workers alleged that they were illegally dismissed.
The Labor Arbiter ruled that there was no employee-employer relationship between petitioner and respondents.
Upon Appeal, NLRC reversed the decision of the LA and ruled that respondents were petitioners employees.
Petitioners filed a motion for reconsideration, which was granted by NLRC. Upon granted, NLRC ruled that the
nature of the job of the respondents could not result in an employer-employee relationship. Respondents moved
for reconsideration which was denied.
Respondent filed a petition on certiorari before the Court of Appeals. The Court of Appeals ruled that there
existed an employer-employee relationship. It declared that respondents were regular seasonal employees who
can be dismissed by the petitioner at the end of the season provided due process is observed.
Hence this case elevated before the Supreme Court.
Issue: Whether or not Gamo is an independent contractor.
Held: No To establish the existence of an independent contractor, we apply the following conditions:
First, the contractor carries on an independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except to the result thereof; and
Second, the contractor has substantial capital or investments in the form of tools, equipment, machineries, work
premises and other materials which are necessary in the conduct of his business.
In the case at bar, Gamo and the copra workers did not exercise independent judgment in the performance of
their tasks. The tools used by Gamo and his copra workers like
the karit, bolo, pangbunot, panglugit and pangtapok are not sufficient to enable them to complete the
job. Reliance on these primitive tools is not enough. In fact, the accomplishment of their task required more
expensive machineries and equipment, like the trucks to haul the harvests and the drying facility, which petitioner
corporation owns.
Concept: The Implementing Rules and Regulation of the Labor Code defines investmentas tools, equipment,
implements, machineries and work premises, actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work, or service contracted out. The investment must be sufficient to
carry out the job at hand.

G.R. No. 161366, June 16, 2009

SYCIP, GORRES, VELAYO & COMPANYvs. CAROL DE RAEDT

Facts 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 Cordillera Agricultural Programme (CECAP) project was launched to be implemented
by the Department of Agriculture (DA). The DA contracted Travers Morgan International Ltd. (TMI) to provide
the required technical assistance services for CECAP to which the latter entered into a Sub-Consultancy
Agreement with SGV.

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. Eventually, the DA advised SGV that De Raedts nomination, among others,
had been approved by the Commission and the DA

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.

The Ruling of the Labor Arbiter and the NLRC

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 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. The Labor Arbiter found no sufficient
valid ground to terminate De Raedts services although procedural due process was observed.

The NLRC reversed the ruling of the Labor Arbiter and found that there was no employer-employee 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 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.

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.
Issue: WON, was an employee of SGV and if so, whether De Raedt was illegally dismissed by SGV.

Decision of the Supreme Court

To determine the existence of an employer-employee relationship, case law has consistently applied the four-
fold test. The so-called "control test" is the most important indicator of the presence or absence of an employer-
employee relationship.

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 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.

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.

C. Power of Dismissal

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 pre-termination 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.

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. The services to be performed by her specified what she needed to
achieve but not on how she was to go about it.
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 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.

The Court GRANTS the petition.

Locsin v PLDT GR 185251 Oct. 2, 2009

Facts: On November 1, 1990, respondent Philippine Long Distance Telephone Company (PLDT) and the
Security and Safety Corporation of the Philippines (SSCP) entered into a Security Services
Agreement3 (Agreement) whereby SSCP would provide armed security guards to PLDT to be assigned to its
various offices.
Pursuant to such agreement, petitioners Raul Locsin and Eddie Tomaquin, among other security guards, were
posted at a PLDT office.
On August 30, 2001, respondent issued a Letter dated August 30, 2001 terminating the Agreement effective
October 1, 2001.
Despite the termination of the Agreement, however, petitioners continued to secure the premises of their
assigned office. They were allegedly directed to remain at their post by representatives of respondent. In support
of their contention, petitioners provided the Labor Arbiter with copies of petitioner Locsins pay slips for the period
of January to September 2002.
Then, on September 30, 2002, petitioners services were terminated.
Thus, petitioners filed a complaint before the Labor Arbiter for illegal dismissal and recovery of money claims
such as overtime pay, holiday pay, premium pay for holiday and rest day, service incentive leave pay,
Emergency Cost of Living Allowance, and moral and exemplary damages against PLDT.
LA's Decision: Found PLDT liable for illegal dismissal. It was explained in the Decision that petitioners were
found to be employees of PLDT and not of SSCP. Such conclusion was arrived at with the factual finding that
petitioners continued to serve as guards of PLDTs offices. As such employees, petitioners were entitled to
substantive and procedural due process before termination of employment. The Labor Arbiter held that
respondent failed to observe such due process requirements.
Awarding Raul Locsin and Eddie Tomaquin, P127,500 each as Separation Pay, and P240, 954.67 each as
Backwages. Total of P736, 909.34
NLRC: affirmed LA's Decision
CA: applied the four-fold test to determine the existence of an employer-employee relationship but did not find
such relationship. It determined that SSCP was not a labor-only contractor and was an independent contractor
having substantial capital to operate and conduct its own business.
CA granted the appeal of PLDT.
Issues: (1) WON complainants' extended services to the respondent for one year from the effectivity of the
termination of the contract from the agency SSPC constitutes an employer-employee relationship between
respondent and the complainant.
(2) WON complainants are illegally dismissed
Held. (1) Yes. An Employer-Employee Relationship Existed Between the Parties.
It is beyond cavil that there was no employer-employee relationship between the parties from the time of
petitioners first assignment to respondent by SSCP in 1988 until the alleged termination of the Agreement
between respondent and SSCP. In fact, this was the conclusion that was reached by this Court in Abella v.
Philippine Long Distance Telephone Company,7 where we ruled that petitioners therein, including herein
petitioners, cannot be considered as employees of PLDT. It bears pointing out that petitioners were among those
declared to be employees of their respective security agencies and not of PLDT.
The only issue in this case is whether petitioners became employees of respondent after the Agreement between
SSCP and respondent was terminated.
This must be answered in the affirmative.
Notably, respondent does not deny the fact that petitioners remained in the premises of their offices even after
the Agreement was terminated. And it is this fact that must be explained.
To recapitulate, the CA, in rendering a decision in favor of respondent, found that: (1) petitioners failed to prove
that SSCP was a labor-only contractor; and (2) petitioners are employees of SSCP and not of PLDT.
In arriving at such conclusions, the CA relied on the provisions of the Agreement, wherein SSCP undertook to
supply PLDT with the required security guards, while furnishing PLDT with a performance bond in the amount
of PhP 707,000. Moreover, the CA gave weight to the provision in the Agreement that SSCP warranted that it
"carry on an independent business and has substantial capital or investment in the form of equipment, work
premises, and other materials which are necessary in the conduct of its business."
Further, in determining that no employer-employee relationship existed between the parties, the CA quoted the
express provision of the Agreement, stating that no employer-employee relationship existed between the parties
herein. The CA disregarded the pay slips of Locsin considering that they were in fact issued by SSCP and not
by PLDT.
From the foregoing explanation of the CA, the fact remains that petitioners remained at their post after the
termination of the Agreement. Notably, in its Comment dated March 10, 2009, 8 respondent never denied that
petitioners remained at their post until September 30, 2002. While respondent denies the alleged circumstances
stated by petitioners, that they were told to remain at their post by respondents Security Department and that
they were informed by SSCP Operations Officer Eduardo Juliano that their salaries would be coursed through
SSCP as per arrangement with PLDT, it does not state why they were not made to vacate their posts.
Respondent said that it did not know why petitioners remained at their posts.
(2) Yes. Evidently, respondent having the power of control over petitioners must be considered as petitioners
employerfrom the termination of the Agreement onwardsas this was the only time that any evidence of
control was exhibited by respondent over petitioners and in light of our ruling in Abella.12 Thus, as aptly declared
by the NLRC, petitioners were entitled to the rights and benefits of employees of respondent, including due
process requirements in the termination of their services.
Both the Labor Arbiter and NLRC found that respondent did not observe such due process requirements. Having
failed to do so, respondent is guilty of illegal dismissal.
WHEREFORE, we SET ASIDE the CAs Decision and Resolution. We hereby REINSTATE the Labor Arbiters
Decision and the NLRCs Resolutions.
TRAVENO, ET. AL., V. BOBONGAN BANANA GROWERS
Fact: Companies Timog Agricultural Corporation (TACOR) and Diamond Farms, Inc. (DFI) hired the petitioners
as the one who will prepare the lands for the planting of banana suckers and carry out the planting as well.
However, the companies made it appear that petitioners were hired through independent contractors and that
they were required to join a cooperative and thus became members of respondent Bobongon Banana Multi-
purpose Cooperative (petitioners). As alleged by the petitioners, respondents began utilizing harassment tactics
to ease them out of their jobs; among of these tactics is that the respondent changed the respondents
compensation package from being based on a daily rate to pakyawan rate and soon thereafter they stopped
paying the respondents salaries which prompted them to stop working. Hence, the petitioners filed a complaint
for illegal dismissal. On the decision of the Labor Arbiter, it found the Cooperative guilty of illegal dismissal. This
was further affirmed by the NLRC by ordering the Cooperative to pay the petitioners monetary claims. However,
because of lack of sign by the petitioners in the petition for certiorari, having 19 signatures out of 22 petitioners,
the appellate court dismissed the petition. Hence, this petition.
ISSUE: Whether or not DPI should be held solidarily liable with the Cooperative for petitioners illegal dismissal
and money claims
HELD: No. DFI did not farm out to the Cooperative the performance of a specific job, work, or service. Instead,
it entered into a Banana Production and Purchase Agreement (Contract) with the Cooperative, under which the
Cooperative would handle and fund the production of bananas and operation of the plantation covering lands
owned by its members in consideration of DFI's commitment to provide financial and technical assistance as
needed, including the supply of information and equipment in growing, packing, and shipping bananas. The
Cooperative would hire its own workers and pay their wages and benefits, and sell exclusively to DFI all export
quality bananas produced that meet the specifications agreed upon. This instance does not create a labor-only
contractor but rather it appears to be a business partnership between the Cooperative and DFI.
On the claims of the petitioners, the Court held that there are no employer-employee relationship between the
petitioners and DFI. There being no employer-employee relationship between petitioners and the Cooperative's
co-respondents (DFI and TACOR), the latter are not solidarily liable with the Cooperative for petitioners' illegal
dismissal and money claims.
Therefore, the petition is dismissed.

Polyfoam v. Concepcion ; GR 172349 ; June 13, 2012

FACTS: It started when Respondent Edgardo Concepcion discovered that his time card was not in the rack and
when he protested to his supervisor, the latter allegedly told him that the management decided to dismiss him
due to an infraction of a company rule. Natividad Cheng, the companys manager, refused to face him. And so,
Concepcion filed a Complaint for illegal dismissal against Polyfoam and Cheng. Thereafter, Precilla Gramaje
(also a petitioner) filed a Motion for Intervention claiming to be the real employer of respondent. Also, Polyfoam
and Cheng alleged that NLRC has no jurisdiction over the case because of the absence of employer-employee
relationship. The Labor Arbiter found respondent to have been illegally dismissed from employment. It further
held that petitioners are solidarily liable to respondent, considering that Gramaje (the contractor) was not
enrolled as private employment agency and that respondent performed a job directly related to the main
business of Polyfoam. NLRC modified the LA decision by exonerating Polyfoam from liability for respondents,
and found Gramaje to be an independent contractor who contracted the packaging aspect of the finished foam
products of Polyfoam. CA, on the other hand, agreed with the LAs conclusion that Gramaje is not a legitimate
job contractor but only a labor-only contractor.
ISSUE:(1) W/N Gramaje is an independent job contractor. (2) W/N an employer-employee relationship exists
between Polyfoam and respondent. (3) W/N respondent was illegally dismissed from employment.
HELD: (1) NO. The Court held that Gramaje is a Labor-only contractor pursuant to Art. 106 of the Labor Code.
First, Gramaje has no substantial capital or investment. The presumption is that a contractor is a labor-only
contractor unless he overcomes the burden of proving that it has substantial capital, investment, tools, and the
like. Second, Gramaje did not carry on an independent business or undertake the performance of its service
contract according to its own manner and method, free from the control and supervision of its principal
(Polyfoam), its apparent role having been merely to recruit persons to work for Polyfoam.
(2) YES, an employer-employee relationship exists between respondent and Polyfoam. Finding that a contractor
is a labor-only contractor is equivalent to declaring that there is an employer-employee relationship between the
principal and the employees of the supposed contractor, and the labor-only contractor is considered as a mere
agent of the principal, the real employer. In this case, Polyfoam is the principal employer and Gramaje is the
labor-only contractor. Polyfoam and Gramaje are, therefore, solidarily liable for the rightful claims of respondent.
(3) YES, respondent was illegally dismissed from employment. Respondents time card was suddenly taken off
the rack. His supervisor informed him that Polyfoams management decided to dismiss him due to infraction of
company rule. Polyfoam did not offer any explanation of such dismissal. It, instead, explained that respondents
real employer is Gramaje. Gramaje, on the other hand, denied the claim of illegal dismissal. She shifted the
blame on respondent claiming that the latter in fact abandoned his work. And yet, respondents actions clearly
negate the intention to abandon his work. Petitioners failed to show any valid or authorized cause under the
Labor Code which allowed it to terminate the services of respondent. Neither was it shown that respondent was
given ample opportunity to contest the legality of his dismissal. No notice of termination was given to him.
Clearly, respondent was not afforded due process.
CONCEPTS: (1) The test of independent contractorship is whether one claiming to be an independent contractor
has contracted to do the work according to his own methods and without being subject to the control of the
employer, except only as to the results of the work.
(2) Criteria in determining the existence of an independent and permissible contractor relationship: [W]hether
or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required;
the term and duration of the relationship; the right to assign the performance of a specified piece of work; the
control and supervision of the work to another; the employers power with respect to the hiring, firing and payment
of the contractors workers; the control of the premises; the duty to supply the premises, tools, appliances,
materials, and labor; and the mode, manner and terms of payment.
Garden of Memoirs v NLRC
SUMMARY: This is a petition for review under Rule 45 of the Rules of Court seeking nullification of the CAs
decision in finding that petitioner Garden of Memories Memorial Park and Life Plan, Inc. was the employer of
respondent Hilaria Cruz, and that Garden of Memories and petitioner Paulina Requio, were jointly and severally
liable for the money claims of Cruz.
FACTS: Petitioner Garden of Memories is engaged in the business of operating a memorial park situated at
Calsadang Bago, Pateros, Metro-Manila and selling memorial Plan and services. Respondent Cruz, on the other
hand, worked at the Garden of Memories Memorial Park as a utility worker from August 1991 until her
termination in February 1998.
Cruz filed a complaint for illegal dismissal, underpayment of wages, non-inclusion in the Social Security
Services, and non-payment of legal/special holiday, premium pay for rest day, 13th month pay and service
incentive leave pay against Garden of Memories before the DOLE.
Upon motion of Garden of Memories, Requio was impleaded as respondent on the alleged ground that she was
its service contractor and the employer of Cruz.
In her position paper, Cruz averred that she worked as a utility worker of Garden of Memories and was in charge,
among others, of the cleaning and maintenance of the ground facilities of the memorial park.
Sometime in February 1998, she had a misunderstanding with a co-worker. When the misunderstanding came
to the knowledge of Requio, the latter instructed them to go home and not to return anymore. After three (3)
days, Cruz reported for work but she was told that she had been replaced by another worker. She immediately
reported the matter of her replacement to the personnel manager of Garden of Memories and manifested her
protest.
Cruz argued that as a regular employee of the Garden of Memories, she could not be terminated without just or
valid cause. Also, her dismissal was violative of due process as she was not afforded the opportunity to explain
her side before her employment was terminated.
In its Answer, Garden of Memories claimed that Requio was a service contractor who carried an independent
business and undertook the contract of work on her own account, under her own responsibility and according
to her own manner and method, except as to the results thereof.
In her defense, Requio prayed for the dismissal of the complaint stating that Cruz was not dismissed from her
employment but that she abandoned her work.
The LA ruled that Requio was not an independent contractor but a labor-only contractor and that her defense
that Cruz abandoned her work was negated by the filing of the present case. The LA declared both Garden of
Memories and Requio, jointly and severally, liable for the monetary claims of Cruz.
Garden of Memories and Requio appealed the decision to the NLRC. The NLRC affirmed the ruling of the LA,
stating that Requio had no substantial capital or investments in the form of tools, equipment, machineries, and
work premises, among others, for her to qualify as an independent contractor. It declared the dismissal of Cruz
illegal reasoning out that there could be no abandonment of work on her part since Garden of Memories and
Requio failed to prove that there was a deliberate and unjustified refusal on the part of the employee to go back
to work and resume her employment. Garden of Memories moved for a reconsideration of the NLRC decision
but it was denied for lack of merit.
Consequently, Garden of Memories and Requio filed before the CA a petition for certiorari under Rule 65 of the
Rules of Court. The CA dismissed the petition and affirmed the NLRC decision.
The petitioners claim that there was a service contract between Garden of Memories and Requio for the latter
to provide maintenance work for the former and that the power of control, the most important element in
determining the presence of such a relationship was missing. Furthermore, Garden of Memories alleges that it
did not participate in the selection or dismissal of Requios employees.
ISSUE: (1) WON petitioner Requio is not a legitimate contractor but is only a labor-only contractor
(2) WON respondent Cruz is a regular employee of Garden of Memories
(3) WON respondent Cruz was illegally dismissed
HELD: (1) YES. In the present case, the LA, the NLRC, and the CA are one in declaring that petitioner Requio
was not a legitimate contractor. Echoing the decision of the LA and the NLRC, the CA reasoned out that Requio
was not a licensed contractor and had no substantial capital or investment in the form of tool, equipment and
work premises, among others.
Section 106 of the Labor Code on contracting and subcontracting provides:
Article 106. Contractor or subcontractor. - Whenever, an employer enters into a contract with another person
for the performance of the formers work, the employees of the contractor and of the latters subcontractor shall
be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect
the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the employer for purposes of
this Code, to prevent any violation or circumvention of any provision of this Code.
There is labor-only contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such persons are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be considered merely as an agent
of the employer who shall be responsible to the workers in the same manner and extent as if the latter were
directly employed by him.
In the same vein, Sections 8 and 9, DOLE Department Order No. 10, Series of 1997, state that:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are
met:
(1) The contractor carries on an independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all
matters connected with the performance of the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business.
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises
and other materials; and
(2) The workers recruited and placed by such persons are performing activities which are directly related to the
principal business or operations of the employer in which workers are habitually employed.
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor
shall be considered merely as an agent or intermediary of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him.
(c) For cases not falling under this Article, the Secretary of Labor shall determine through appropriate orders
whether or not the contracting out of labor is permissible in the light of the circumstances of each case and after
considering the operating needs of the employer and the rights of the workers involved. In such case, he may
prescribe conditions and restrictions to insure the protection and welfare of the workers.
On the matter of labor-only contracting, Section 5 of Rule VIII-A of the Omnibus Rules Implementing the Labor
Code, provides:
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited.
For this purpose, labor-only contracting shall refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work or service for a
principal, and any of the following elements are present:
i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work
or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor
are performing activities related to the main business of the principal, or
ii) The contractor does not exercise the right to control over the performance of the work of the contractual
employee.
Xxxx
Thus, in determining the existence of an independent contractor relationship, several factors may be
considered, such as, but not necessarily confined to, whether or not the contractor is carrying on an
independent business; the nature and extent of the work; the skill required; the term and duration of the
relationship; the right to assign the performance of specified pieces of work; the control and supervision
of the work to another; the employers power with respect to the hiring, firing and payment of the
contractors workers; the control of the premises; the duty to supply premises, tools, appliances,
materials and labor; and the mode, manner and terms of payment.
On the other hand, there is labor-only contracting where: (a) the person supplying workers to an employer
does not have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others; and (b) the workers recruited and placed by such person are performing
activities which are directly related to the principal business of the employer.
Another determinant factor that classifies petitioner Requio as a labor-only contractor was her failure
to exercise the right to control the performance of the work of Cruz. This can be gleaned from the Service
Contract Agreement between Garden of Memories and Requio, to wit:
xxxx
NOW THEREFORE, premises considered, the parties hereto have hereunto agreed on the following terms and
conditions:
1. That the Contractor shall undertake the maintenance of the above-mentioned works in strict compliance with
and subject to all the requirements and standards of GMMPLPI.
xxxx
The requirement of the law in determining the existence of independent contractorship is that the contractor
should undertake the work on his own account, under his own responsibility, according to his own manner and
method, free from the control and direction of the employer except as to the results thereof. In this case,
however, the Service Contract Agreement clearly indicates that Requio has no discretion to determine the
means and manner by which the work is performed. Rather, the work should be in strict compliance with, and
subject to, all requirements and standards of Garden of Memories.
Under these circumstances, there is no doubt that Requio is engaged in labor-only contracting, and is considered
merely an agent of Garden of Memories. As such, the workers she supplies should be considered as employees
of Garden of Memories.
(2) YES. The Court observed that Cruz was hired as a utility worker tasked to clean, sweep and water the lawn
of the memorial park. She performed activities which were necessary or desirable to its principal trade or
business. Thus, she was a regular employee of Garden of Memories and cannot be dismissed except for just
and authorized causes.
(3) YES. The Court agrees with the findings of the tribunals below that respondent Cruz did not abandon her
work but was illegally dismissed.
As the employer, Garden of Memories has the burden of proof to show the employee's deliberate and unjustified
refusal to resume his employment without any intention of returning. For abandonment to exist, two factors
must 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 element as the more
determinative factor being manifested by some overt acts. It has been said that abandonment of position
cannot be lightly inferred, much less legally presumed from certain equivocal acts. Mere absence is not
sufficient.
On the contrary, her reporting to the personnel manager that she had been replaced and the immediate filing of
the complaint before the DOLE demonstrated a desire on her part to continue her employment with Garden of
Memories. As correctly pointed out by the CA, the filing of the case for illegal dismissal negated the allegation
of abandonment.
WHEREFORE, the petition is DENIED. The Decision of the CA is AFFIRMED

WM MFG vs. DALAG and Golden Rock

Summary: Notwithstanding the contract stipulation leaving Golden Rock the exclusive right to control the
working warm bodies it provides WM MFG, evidence irresistibly suggests that it was WM MFG who actually
exercised supervision over Dalag's work performance.
Facts: Petitioner, as client, and respondent Golden Rock, as contractor, executed a contract denominated as
"Service Agreement Notwithstanding the 5-month duration stipulated in the contract, Dalag alleged that one of
WM MFCs security guards prevented him from going to his work station and, instead, escorted him to the locker
room and limited his activity to withdrawing his belongings therefrom. Dalag further claimed that his assignment
at WM MFG as side seal machine operator was necessary and desirable for the company's plastic
manufacturing business, making him a regular employee entitled to benefits under such classification. He
likewise alleged that WM MFG and Golden Rock engaged in the illegal act of labor-only contracting based on
the following circumstances: that all the equipment, machine and tools that he needed to perform his job were
furnished by WM MFG; that the jobs are to be performed at WM MFCs workplace; and that he was under the
supervision of WM MFCs team leaders and supervisors.
Issue: WON WM MFG and Golden Rock are engaged in labor-only contracting
Held: Yes. The essential element in labor-only contracting is that the contractor merely recruits, supplies or
places workers to perform a job, work or service for a principal. However, it must be accompanied by any one
of the confirmatory elements(DO 18-02) to be considered a labor-only contractor within the contemplation of the
rule.58 The essential element is present in the service agreement between WM MFG and Golden Rock: The
CONTRACTOR shall render, undertake, perform and employ the necessary number of workers as the
CLIENT may need, at such dates and times as the CLIENT may deem necessary.
Presence of the confirmatory elements:
 (1) Golden Rock lacked substantial capital. A Certificate of Registration from the DOLE Regional Office
prevents the presumption of labor-only contracting from arising. The basis for determining the substantiality of
a company's "capital" rests not only thereon but also on the tools and equipment it owns in relation to the job,
work, or service it provides. Here, the evidence Dalag adduced was sufficient to overcome the disputable
presumption. To be sure, in performing his tasks, Dalag made use of the raw materials and equipment that WM
MFG supplied. He also operated the side-seal machine in the workplace of WM MFG, not of Golden Rock.

(2)WM MFG exercised control over the employees supplied by Golden Rock
The second confirmatory element does not require the application of the economic test or four-fold test to
determine labor-only contracting. All it requires is that the contractor does not exercise control over the
employees it supplies, making the control test of paramount consideration. The fact that Golden Rock pays for
Dalag's wages and salaries then has no bearing in resolving the issue. Here, As culled from the records, Dalag
was supervised by WM MFG's employees. WM MFG furnished Dalag with not less than seven (7) memos for
his alleged work infractions and issued investigation reports on Dalag's culpability.
Golden Rock engaged in labor-only contracting. As such, they are, by legal fiction, considered principal and
agent, respectively, jointly and severally liable to their illegally dismissed employees, in accordance with Art.
109 of the Labor Code66 and Sec. 19 of DO 18-02.
MANILA MEMORIAL PARK CEMETERY, INC. v.EZARD D. LLUZ
Summary: An employer-employee relationship exists between Manila Memorial and respondent employees as
Ward Trading does not have substantial capital to be an independent contractor nor is it duly registered as a
contractor with DOLE.
Facts: Petitioner Manila Memorial Park Cemetery, Inc. (Manila Memorial) entered into a Contract of Services
with respondent Ward Trading and Services (Ward Trading). The Contract of Services provided that Ward
Trading, as an independent contractor, will render interment and exhumation services and other related work to
Manila Memorial in order to supplement operations at Manila Memorial Park, Paranaque City. Among those
assigned by Ward Trading to perform services at the Manila Memorial Park were respondents Lluz, Corral,
Fugaban, Balisi, Fabon, Aplicador, Curioso, Espares, and Farinas. In 2007, respondents filed a Complaint for
regularization and Collective Bargaining Agreement benefits against Manila Memorial. Manila Memorial refused
the request since respondents were employed by Ward Trading, an independent labor contractor. Subsequently,
respondents were dismissed by Manila Memorial. Thus, respondents amended the complaint to include the
prayer for their reinstatement and payment of back wages.
The Labor Arbiter dismissed the complaint for failing to prove the existence of an employer-employee
relationship. NLRC reversed the Labor Arbiter's findings. The NLRC ruled that Ward Trading was a labor-only
contractor and an agent of Manila Memorial. The CA affirmed the ruling of the NLRC and found the existence
of an employer-employee relationship between Manila Memorial and respondents.
Issue: Whether or not an employer-employee relationship exists between Manila Memorial and respondents for
the latter to be entitled to their claim for wages and other benefits
Held: Yes. Article 106 of the Labor Code states:
Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the
performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall
be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.
Labor-only contracting exists when the contractor or subcontractor merely recruits, supplies or places workers
to perform a job, work or service for a principal and any of the following elements are present:
1) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work
or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor
are performing activities which are directly related to the main business of the principal; or
2) The contractor does not exercise the right to control the performance of the work of the contractual employee.
In the present case, Ward Trading does not have substantial capital or investment in the form of tools,
equipment, machinery, work premises and other materials since it is Manila Memorial which owns the equipment
used in the performance of work needed for interment and exhumation services. While the Contract of Service
implies that respondent MMPCI would sell subject equipment to Ward at some future time, the former failed to
present any contract of sale as proof that, indeed, it actually sold said equipment to Ward.
A perusal of the Service Contract would also reveal that respondent Ward is still subject to petitioner's control
as it specifically provides that although Ward shall be in charge of the supervision over individual respondents,
the exercise of its supervisory function is heavily dependent upon the needs of petitioner Memorial Park. The
contract further provides that petitioner has the option to take over the functions of Ward's personnel if it finds
any part or aspect of the work or service provided to be unsatisfactory.
Petitioner as well failed to present any proof that Ward is duly registered as a contractor with the Department of
Labor and Employment. Section 11 of Department Order No. 18-02 mandates registration of contractors or
subcontractors with the DOLE. Failure to register shall give rise to the presumption that the contractor is engaged
in labor-only contracting.
In this case, Manila Memorial failed to adduce evidence to prove that Ward Trading had any substantial capital,
investment or assets to perform the work contracted for. Thus, the presumption that Ward Trading is a labor-
only contractor stands. Consequently, Manila Memorial is deemed the employer of respondents. As regular
employees of Manila Memorial, respondents are entitled to their claims for wages and other benefits as awarded
by the NLRC and affirmed by the CA.
Diamond Farms v. Southern Phils. Fed., G.R. No. 173254, January 13, 2016
Summary: Since respondent-contractors (1) does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises and other materials; and (2) the workers recruited and placed by such
person are performing activities which are directly related to the principal business or operations of the employer
in which workers are habitually employed, the Court ruled that they are labor-only contractors.
Facts: Diamond Farms, Inc. (DFI) owns an 800-hectare banana plantation in Davao. Pursuant to
Comprehensive Agrarian Reform Law (CARL), the plantation became subject to compulsory acquisition and
distribution. It was granted by the Department of Agrarian Reform (DAR) a deferment privilege to continue
operations. DFI then closed some areas of operations and laid off employees which resulted to a petition to the
DAR to cancel the deferment privilege. The DAR approved the petition and recalled the deferment privilege
resulting in the plantations automatic compulsory acquisition and distribution under the CARL.
The awarded plantation was turned over to qualified agrarian reform beneficiaries ("ARBs") under the CARL.
These ARBs are the same farmers who were working in the original plantation. They subsequently organized
themselves into a multi-purpose cooperative named "DARBMUPCO," which is one of the respondents in this
case.
From the start, DARBMUPCO was hampered by lack of manpower to undertake the agricultural operation under
the BPPA because some of its members were not willing to work. Hence, to assist DARBMUPCO in meeting its
production obligations under the BPPA, DFI engaged the services of the respondent-contractors, who in turn
recruited the respondent-workers.
The engagement of the respondent-workers started a series of labor disputes among DARBMUPCO, DFI and
the respondent-contractors.
On February 10, 1997, respondent Southern Philippines Federation of Labor ("SPFL")a legitimate labor
organization with a local chapter in the awarded plantationfiled a petition for certification election in the Office
of the Med-Arbiter in Davao City. SPFL filed the petition on behalf of some 400 workers (the respondent-workers
in this petition) "jointly employed by DFI and DARBMUPCO" working in the awarded plantation.
DARBMUPCO and DFI denied that they are the employers of the respondent-workers. They claimed, instead,
that the respondent-workers are the employees of the respondent-contractors.
Meanwhile, on June 20, 1997 and September 15, 1997, SPFL, together with more than 300 workers, filed a
case for underpayment of wages, non-payment of 13th month pay and service incentive leave pay and attorneys
fees against DFI, DARBMUPCO and the respondent-contractors before the National Labor Relations
Commission ("NLRC") in Davao City. DARBMUPCO averred that it is not the employer of respondent-workers;
neither is DFI. It asserted that the money claims should be directed against the true employerthe respondent-
contractors.
The CA agreed with the ruling of the SOLE that DFI is the statutory employer of the respondent-workers. It also
ruled that DFI is the true employer of the respondent-workers because the respondent-contractors are not
independent contractors.
DFI is now in Court by way of Petition for Review on Certiorari praying that DARBMUPCO be declared the true
employer of the respondent-workers.
DARBMUPCO filed a Comment maintaining that under the control test, DFI is the true employer of the
respondent-workers.
Respondent-contractors filed a Verified Explanation and Memorandum asserting that they were labor-only
contractors; hence, they are merely agents of the true employer of the respondent-workers.
Issue: The issue before this Court is who among DFI, DARBMUPCO and the respondent-contractors is the
employer of the respondent-workers.
Held: The Court denied DFIs petition. It held that DFI is the principal or employer of the respondent-workers.
Job contracting shall be deemed as labor-only contracting, an arrangement prohibited by law, if a person who
undertakes to supply workers to an employer:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises
and other materials; and
(2) The workers recruited and placed by such person are performing activities which are directly related to the
principal business or operations of the employer in which workers are habitually employed.
As a general rule, a contractor is presumed to be a labor-only contractor, unless such contractor overcomes the
burden of proving that it has the substantial capital, investment, tools and the like.
Based on the conditions for permissible job contracting, the Court ruled that respondent-contractors are labor-
only contractors.
There is no evidence showing that respondent-contractors are independent contractors. To support its argument
that respondent-contractors are the employers of respondent-workers, and not merely labor-only contractors,
DFI should have presented proof showing that respondent-contractors carry on an independent business and
have sufficient capitalization. The record, however, is bereft of showing of even an attempt on the part of DFI to
substantiate its argument.
Further, respondent-contractors admit, and even insist that they are engaged in labor-only contracting. As said
by Court, respondent-contractors made the admissions and declarations on two occasions: first was in their
Formal Appearance of Counsel and Motion for Exclusion of Individual Party-Respondents filed before the LA;
and second was in their Verified Explanation and Memorandum filed before this Court.
A finding that a contractor is a labor-only contractor is equivalent to a declaration that there is an employer-
employee relationship between the principal, and the workers of the labor-only contractor; the labor-only
contractor is deemed only as the agent of the principal. Thus, in this case, respondent-contractors are the labor-
only contractors and either DFI or DARBMUPCO is their principal.
The Court held that DFI is the principal.
Under Article 106 of the Labor Code, a principal or employer refers to the person who enters into an agreement
with a job contractor, either for the performance of a specified work or for the supply of manpower. In this regard,
the Court quoted with approval the findings of the CA, to wit:
The records show that it is DFI which hired the individual [respondent-contractors] who in turn hired their own
men to work in the 689.88 hectares land of DARBMUPCO as well as in the managed area of the plantation. DFI
admits [that] these [respondent-contractors] worked under the direction and supervision of the DFI managers
and personnel. DFI paid the [respondent-contractors] for the services rendered in the plantation and the
[respondent-contractors] in turn pay their workers after they [respondent-contractors] received payment from
DFI. xxx DARBMUPCO did not have anything to do with the hiring, supervision and payment of the wages of
the workers-respondents thru the contractors-respondents. xxx87 (Emphasis supplied.)
WHEREFORE, the petition is DENIED for lack of merit. The March 31, 2006 Decision and the May 30, 2006
Resolution of the Court of Appeals in C.A.-G.R. SP Nos. 53806, 61607 and 59958 are hereby AFFIRMED.
Concepts: 1. Contracting or subcontracting - an arrangement whereby a principal (or employer) agrees to put
out or farm out with a contractor or subcontractor the performance or completion of a specific job, work or service
within a definite or predetermined period, regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal. It involves a trilateral relationship among the principal
or employer, the contractor or subcontractor, and the workers engaged by the contractor or subcontractor.
2. There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such person are performing activities which are directly related to the
principal business of such employer. In such cases, the person or intermediary shall be considered merely as
an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter
were directly employed by him.
3. Job contracting is permissible under the Code if the following conditions are met:
(a) The contractor carries on an independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the results thereof;
and
(b) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business.
4. Job contracting shall be deemed as labor-only contracting, an arrangement prohibited by law, if a person who
undertakes to supply workers to an employer:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises
and other materials; and
(2) The workers recruited and placed by such person are performing activities which are directly related to the
principal business or operations of the employer in which workers are habitually employed.
5. As a general rule, a contractor is presumed to be a labor-only contractor, unless such contractor overcomes
the burden of proving that it has the substantial capital, investment, tools and the like.
6. In labor-only contracting, it is the law which creates an employer-employee relationship between the principal
and the workers of the labor-only contractor.

CHEVRON v Galit G.R. No. 186114, October 07, 2015

Facts: On March 20, 2006, herein respondent (Galit) filed against Caltex Philippines, Inc., now Chevron
(Phils.), Inc., SJS and Sons Construction Corporation (SJS), and its president, Reynaldo Salomon (Salomon),
a Complaint for illegal dismissal, underpayment/non-payment of 13th month pay, separation pay and
emergency cost of living allowance.
Galit alleged that: he is a regular and permanent employee of Chevron since 1982, having been assigned at
the company's Pandacan depot; he is an "all-around employee" whose job consists of cleaning the premises
of the depot, changing malfunctioning oil gaskets, transferring oil from containers and other tasks that
management would assign to him; in the performance of his duties, he was directly under the control and
supervision of Chevron supervisors; on January 15, 2005, he was verbally informed that his employment is
terminated but was promised that he will be reinstated soon; for several months, he followed up his
reinstatement but was not given back his job.

SJS claimed that: it is a company which was established in 1993 and was engaged in the business of
providing manpower to its clients on a "per project/contract" basis; Galit was hired by SJS in 1993 as a project
employee and was assigned to Chevron, as a janitor, based on a contract between the two companies;
contrary to Galit's allegation, he started working for SJS only in 1993; the manpower contract between SJS
and Chevron eventually ended on November 30, 2004 which resulted in the severance of Galit's employment;
SJS finally closed its business operations in December 2004; it retired from doing business in Manila on
January 21, 2005; Galit was paid separation pay of P11,000.00.

On the other hand, petitioner contended in its Position Paper with Motion to Dismiss7 that: it entered into two
(2) contracts for-janitorial services with SJS from May 1, 2001 to April 30, 2003 and from June 1, 2003 to June
1, 2004; under these contracts, SJS undertook to "assign such number of its employees, upon prior
agreement with [petitioner], as would be sufficient to fully and effectively render the work and services
undertaken" and to "supply the equipment, tools and materials, which shall, by all means, be effective and
efficient, at its own expense, necessary for the performance" of janitorial services; Galit, who was employed by
SJS, was assigned to petitioner's Pandacan depot as a janitor; his wages and all employment benefits were
paid by SJS; he was subject to the supervision, discipline and control of SJS; on November 30, 2004, the
extended contract between petitioner and SJS expired; subsequently, a new contract for janitorial services
was awarded by petitioner to another independent contractor; petitioner was surprised that Galit filed an action
impleading it; despite several conferences, the parties were not able to arrive at an amicable settlement.

The ruling of the LA and NLRC

The Labor Arbiter (LA) assigned to the case rendered a Decision DISMISSING the Complaint against
respondent Chevron for lack of jurisdiction, and against respondents SJS and Reynaldo Salomon for lack of
merit. The LA found that SJS is a legitimate contractor and that it was Galit's employer, not petitioner. The LA
dismissed Galit's complaint for illegal dismissal against petitioner for lack of jurisdiction on the ground that
there was no employer-employee relationship between petitioner and Galit. The LA likewise dismissed the
complaint against SJS and Salomon for lack of merit on the basis of his finding that Galit's employment with
SJS simply expired as a result of the completion of the project for which he was engaged.

The NLRC MODIFIED the decision of the LA in terms of the monetary awards. In all other respects, the
appealed decision so stands as AFFIRMED. The NLRC affirmed the findings of the LA that SJS was a
legitimate job contractor and that it was Galit's employer. However, the NLRC found that Gal it was a regular,
and not a project employee, of SJS, whose employment was effectively terminated when SJS ceased to
operate.

The respondent filed a Motion for Reconsideration but the NLRC denied
The Ruling of the CA

Respondent then filed a petition for certiorari with the CA assailing the above NLRC Decision and Resolution.
The CA promulgated its assailed Decision granting the petition and ordering petitioner Galit's reinstatement
without loss of seniority rights and other privileges and payment of his full backwages, inclusive of allowances
and to other benefits or their monetary equivalents computed from the time compensation was withheld up to
the time of actual reinstatement. Private respondent Chevron Phils, is also hereby ordered to pay 10% of the
amount due petitioner Galit as attorney's fees.

Contrary to the- findings of the LA and the NLRC, the CA held that SJS was a labor-only contractor, that
petitioner is Galit's actual employer and that the latter was unjustly dismissed from his employment.

Herein petitioner filed a motion for reconsideration, but the CA denied

Issue:WON, SJS is a legitimate independent contractor
Held:At the outset, the Court notes that the first ground raised by petitioner consists of factual issues. It is
settled that this Court is not a trier of facts, and this applies with greater force in labor cases.Corollary thereto,
this Court has held in a number of cases that factual findings of administrative or quasi-judicial bodies, which
are deemed to have acquired expertise in matters within their respective jurisdictions, are generally accorded
not only respect but even finality, and bind the Court when supported by substantial evidence.However, it is
equally settled that the foregoing principles admit of certain exceptions, to wit: (1) the findings are grounded
entirely on speculation, surmises or conjectures; (2) the inference made is manifestly mistaken, absurd or
impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5)
the findings of fact are conflicting; (6) in making its findings, the Court of Appeals went beyond the issues of
the case, or its findings are contrary to the admissions of both appellant and appellee; (7) the findings are
contrary to those of the trial court; (8) the findings are conclusions without citation of specific evidence on
which they are based; (9) the facts set forth in the petition, as well as in petitioners main and reply briefs, are
not disputed by respondent; (10) the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) the Court of Appeals manifestly overlooked certain relevant
facts not disputed by the parties, which, if properly considered, would justify a different conclusion.In the
instant case, the Court gives due course to the instant petition considering that the findings of fact and
conclusions of law of the LA and the NLRC differ from those of the CA.

Thus, the primordial question that confronts the Court is whether there existed an employer-employee
relationship between petitioner and Galit, and whether the former is liable to the latter for the termination of his
employment. Corollary to this, is the issue of whether or not SJS is an independent contractor or a labor only
contractor.

To ascertain the existence of an employer-employee relationship, jurisprudence has invariably adhered to the
four-fold test or the so-called "control test."Of these four, the last one is the most important.The so-called
"control test" is commonly regarded as the most crucial and determinative indicator of the presence or
absence of an employer-employee relationship.Under the control test, an employer-employee relationship
exists where the person for whom the services are performed reserves the right to control not only the end
achieved, but also the manner and means to be used in reaching that end.

The provisions of the Job Contract between petitioner and SJS demonstrate that the latter possessed the
following earmarks of an employer. As to SJS' power of selection and engagement, Galit himself admitted in
his own affidavit that it was SJS which assigned him to work at Chevron's Pandacan depot.As such, there is
no question that it was SJS which selected and engaged Galit as its employee.

With respect to the payment of wages, the Court finds no error in the findings of the LA that Galit admitted that
it was SJS which paid his wages. It is unlikely that SJS would report Galit as its worker, pay his SSS,
Philhealth and Pag-IBIG premiums, as well as his wages, if it were not true that he was indeed its employee.
In the same manner, the Quitclaim and Release, which was undisputedly signed by Galit, acknowledging
receipt of his separation pay from SJS, is an indirect admission or recognition of the fact that the latter was
indeed his employer. Again, it would be unlikely for SJS to pay Galit his separation pay if it is not the latter's
employer.

Galit also did not dispute the fact that he was dismissed from employment by reason of the termination of the
service contract between SJS and petitioner. In other words, it was not petitioner which ended his
employment. He was dismissed therefrom because petitioner no longer renewed its contract with SJS and that
the latter subsequently ceased to operate.
Anent the power of control, the Court again finds no cogent reason to depart from the findings of the NLRC
that in case of matters that needed to be addressed with respect to employee performance, petitioner dealt
directly with SJS and not with the employee concerned. In any event, it is settled that such power merely calls
for the existence of the right to control and not necessarily the exercise thereof. In the' present case, the Job
Contract between petitioner and SJS clearly provided that SJS "shall retain the right to control the manner and
the means of performing the work, with [petitioner] having the control or direction only as to the results to be
accomplished.

In addition, it would bear to point out that contrary to the ruling of the CA, the work performed by Galit, which is
the "scooping of slop of oil water separator,"33 has no direct relation to petitioner's business, which is the
importation, refining and manufacture of petroleum products.

As to whether or not SJS is an independent contractor, jurisprudence has invariably ruled that an independent
contractor carries on an independent business and undertakes the contract work on his own account, under his
own responsibility, according to his own manner and method, and free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the results thereof.
This embodies what has long been jurisprudentially recognized as the control test, as discussed above. In the
instant case, SJS presented evidence to show that it had an independent business by paying business taxes
and fees and that it was registered as an employer with the Social Security System. Moreover, there was no
evidence to show that SJS and its employees were ever subject to the control of petitioner. On the contrary, as
shown above, SJS possessed the right to control its employees' manner and means of performing their work,
including herein respondent Galit.

As to its capital, there is no dispute that SJS generated an income of P1,523,575.81 for the year 2004.In Neri v.
National Labor Relations Commission,this Court held that a business venture which had a capitalization of
P1,000,000.00 was considered as highly capitalized and cannot be deemed engaged in labor-only contracting.
In the present case, while SJS' income of more than P1,500,000.00 was not shown to be equivalent to its
authorized capital stock, such income is an indication of how much capital was put into its business to generate
such amount of revenue. Thus, the Court finds no sufficient reason to disturb the findings of the LA and the
NLRC that SJS had substantial capital.
The instant petition is GRANTED.
Alilin v Petron GR 177592 June 9, 2014
Note: A contractor is presumed to be a labor-only contractor, unless it proves that it has the substantial capital,
investment, tools and the like. However, where the principal is the one claiming that the contractor is a legitimate
contractor, the burden of proving the supposed status of the contractor rests on the principal.
Facts:Petron is a domestic corporation engaged in the oil business. It owns several bulk plants in the country
for receiving, storing and distributing its petroleum products.
In 1968, Romualdo D. Gindang Contractor, which was owned and operated by Romualdo D. Gindang
(Romualdo), started recruiting laborers for fielding to Petrons Mandaue Bulk Plant. When Romualdo died
in1989, his son Romeo D. Gindang (Romeo), through Romeo D. Gindang Services(RDG), took over the
business and continued to provide manpower services to Petron. Petitioners were among those recruited by
Romualdo D. Gindang Contractor and RDG to work in the premises of the said bulk plant, together with the
other employees that were hired by RDG.
On June 1, 2000, Petron and RDG entered into a Contract for Services. for the period from June 1, 2000 to May
31, 2002, whereby RDG undertook to provide Petron with janitorial, maintenance, tanker receiving, packaging
and other utility services in its Mandaue Bulk Plant. This contract was extended on July 31, 2002 and further
extended until September 30, 2002. Upon expiration thereof, no further renewal of the service contract was
done.
Petitioners filed complaints against Petron and RDG contending that they were illegally dismissed, praying for
money claims.
LA:ruled that petitioners are regular employees of Petron. It found that their jobs were directly related to Petrons
business operations; they worked under the supervision of Petrons foreman and supervisor; and they were
using Petrons tools and equipment in the performance of their works. The Labor Arbiter also found that Petron
merely utilized RDG in its attempt to hide the existence of employee-employer relationship between it and
petitioners and avoid liability under labor laws. And there being no showing that petitioners dismissal was for
just or authorized cause, the Labor Arbiter declared them to have been illegally dismissed.
Awarding the petitioners in total of P 1M.
NLRC and MR: Dismissed for lack of merit
CA: found no employer-employee relationship between the parties. Due to the cases that doesnt show that
petitioners were directly hired, selected or employed by Petron. Also, RDG is responsible for paying the
petitioners' wages. CA ruled that CA is an independent labor contractor with sufficient capitalization and
investment.
Issue: Wether RDG is an independent labor contractor or or a labor-only contractor.
Held: Court ruled that RDG is a labor-only contractor, reinstating the labor arbiter's decision.
Petron failed to discharge the burden of proving that RDG is a legitimate contractor. Hence, the presumption
that RDG is a labor-only contractor stands.
The Court also finds, as will be discussed below, that the works performed by petitioners were directly related
to Petrons business, another factor which negates Petrons claim that RDG is an independent contractor.
Petrons power of control over petitioners exists in this case.
"[A] finding that a contractor is a labor-only contractor is equivalent to declaring that there is an employer-
employee relationship between the principal and the employees of the supposed contractor." In this case, the
employer employee relationship between Petron and petitioners becomes all the more apparent due to the
presence of the power of control on the part of the former over the latter.
In sum, the Court finds that RDG is a labor-only contractor. As such, it is considered merely as an agent of
Petron. Consequently, the employer-employee relationship which the Court finds to exist in this case is between
petitioners as employees and Petron as their employer. Petron therefore, being the principal employer and RDG,
being the labor-only contractor, are solidarily liable for petitioners' illegal dismissal and monetary claims.

DBP v. NLRC up to Tangga-an v. Phil. Transmarine (NO DIGESTS)

ARTS 112 119

SHS Perforated v Diaz

Petioner: SHS Perforated Materials, inc., Winfried Hartmannshenn, and Hnrich Johann Schumacher
Respondent: Manuel Diaz
Citation:G.R. No. 185814
Date of Promulgation: October 13, 2010
Ponente: Mendoza, J

FACTS:

Petitioner SHS Perforated Materials, Inc. (SHS) is a start-up corporation. Petitioner Winfried
Hartmannshenn (Hartmannshenn), a German national, is its president, in which capacity he determines the
administration and direction of the day-to-day business affairs of SHS.
Petitioner Hinrich Johann Schumacher (Schumacher), also a German national, is the treasurer and one of
the board directors. As such, he is authorized to pay all bills, payrolls, and other just debts of SHS of
whatever nature upon maturity. Schumacher is also the Executive Vice-President of the European Chamber
of Commerce of the Philippines (ECCP) which is a separate entity from SHS.
Both entities have an arrangement where ECCP handles the payroll requirements of SHS to simplify
business operations and minimize operational expenses. Thus, the wages of SHS employees are paid out
by ECCP, through its Accounting Services Department headed by Juliet Taguiang (Taguiang).
Manuel F. Diaz was hired by petitioner SHS as Manager for Business Development on probationary status
from July 18, 2005 to January 18, 2006, with a monthly salary of P100,000.00. Respondents duties,
responsibilities, and work hours were described in the Contract of Probationary Employment,5cra1aw
JOB DESCRIPTION AND RESPONSIBILITIES:chanroblesvilawlibrary

DAILY/GENERAL h) (h) Perform other

DUTIES:chanroblesvirtualawlibr related duties and
ary responsibilities.

a) (a) Represent the

company in any
event organized by OTHER
PEZA; RESPONSIBILITIES:chanrobles
b) (b) Perform virtualawlib
sales/marketing
functions; i) (a) abide by and
c) (c) Monitor/follow-up perform to the best of
customers inquiry on his abilities all
EMPLOYERs functions, duties and
services; responsibilities to be
d) (d) Monitor on-going assigned by the
job orders/projects; EMPLOYER in due
e) (e) Submit course;
requirements as j) (b) comply with the
needed in orders and
application/renewal instructions given
of necessary permits; from time to time by
f) (f) Liaise closely with the EMPLOYER,
the other commercial INC. through its
and technical staff of authorized
the company; representatives;
g) (g) Accomplish PEZA k) (c) will not disclose
documents/requirem any confidential
ents for every sales information in respect
made; with legal of the affairs of the
assistance where EMPLOYER to any
necessary at unauthorized person;
EMPLOYERs l) (d) perform any other
expense; and administrative or
non-administrative
duties, as assigned
by any of the
EMPLOYERs
representative from
time to time either
through direct written
order or by verbal
assignment. The
EMPLOYER may
take into account
EMPLOYEEs
training and expertise
when assigning
additional tasks.
 In addition to the above-mentioned responsibilities, respondent was also instructed by Hartmannshenn to
report to the SHS office and plant at least two (2) days every work week to observe technical processes
involved in the manufacturing of perforated materials, and to learn about the products of the company, which
respondent was hired to market and sell.
During respondents employment,Hartmannshenn wasoften abroadand, becauseof businessexigencies,
hisinstructions to respondent were either sent byelectronic mail or relayed throughtelephone or mobile
phone.
When he would bein the Philippines, he and the respondent heldmeetings. As torespondents work, therewas
no close supervision by him. However, during meetingswith therespondent, Hartmannshennexpressed his
dissatisfaction overrespondents poorperformance.
Respondent allegedly failedto make any concrete business proposal orimplement anyspecific measure to
improve the productivity of the SHS office.
In addition, respondent was said not tohave returned Hartmannshenn's calls and e-mails, towhich Diaz
denied.Hartmannshenn instructed Taguiang not torelease respondents salary. Laterthat
afternoon,respondent called and inquired about his salary.
Taguiang informedhim that it was being withheldand that he had to immediately communicatewith
Hartmannshenn.
The next day, respondent servedon SHS a demand letter and a resignantion letter, citing illegal and unfait
labor practices.

RULING OF THE LABOR ARBITER:

The LA found that respondent was constructively dismissed because the withholding of his salary was
contrary to Article 116 of the Labor Code as it was not one of the exceptions for allowable wage deduction by
the employer under Article 113 of the Labor Code. The LA also held that respondents probationary employment
was deemed regularized because petitioners failed to conduct a prior evaluation of his performance and to give
notice two days prior to his termination as required by the Probationary Contract of Employment and Article 281
of the Labor Code. Petitioners contention that they lost trust and confidence in respondent as a managerial
employee was not given credence for lack of notice to explain the supposed loss of trust and confidence and
absence of an evaluation of respondents performance.

The LA believed that the respondent complied with the obligations in his contract as evidenced by his
electronic mail messages to petitioners. He ruled that petitioners are jointly and severally liable to respondent for
backwages including 13th month pay as there was no showing in the salary vouchers presented that such was
integrated in the salary; for moral and exemplary damages for having in bad faith harassed respondent into
resigning; and for attorneys fees.

THE RULING OF THE NLRC:

The NLRC explained that the withholding of respondents salary was a valid exercise of management
prerogative. The act was deemed justified as it was reasonable to demand an explanation for failure to report to
work and to account for his work accomplishments. The NLRC held that the respondent voluntarily resigned as
evidenced by the language used in his resignation letter and demand letters. Given his professional and
educational background, the letters showed respondents resolve to sever the employer-employee relationship,
and his understanding of the import of his words and their consequences. Consequently, respondent could not
have been regularized having voluntarily resigned prior to the completion of the probationary period. The NLRC
further noted that respondents 13th month pay was already integrated in his salary in accordance with his
Probationary Contract of Employment and, therefore, no additional amount should be due him.

RULING OF THE CA:

The CA held that withholding respondents salary was not a valid exercise of management prerogative as
there is no such thing as a management prerogative to withhold wages temporarily. Petitioners averments of
respondents failure to report to work were found to be unsubstantiated allegations not corroborated by any other
evidence, insufficient to justify said withholding and lacking in probative value. The malicious withholding of
respondents salary made it impossible or unacceptable for respondent to continue working, thus, compelling him

Page 198 of 222

to resign. The respondents immediate filing of a complaint for illegal dismissal could only mean that his
resignation was not voluntary. As a probationary employee entitled to security of tenure, respondent was illegally
dismissed. The CA ruled out actual reinstatement, however, reasoning out that antagonism had caused a severe
strain in their relationship. It was of the view that separation pay equivalent to at least one month pay would be
a more equitable disposition.

ISSUE:
WON the temporary withholding of respondents salary/wages by petitioners was a valid exercise of management
prerogative

RULING:
As a rule, the factual findings of the courts below are conclusive in a petition for review on certiorari where only
errors of law should be reviewed. The case, however, is an exception because the factual findings of the CA and
the LA are contradictory to that of the NLRC. Thus, a review of the records is necessary to resolve the factual
issues involved and render substantial justice to the parties.

Petitioners contend that withholding respondents salary from November 16 to November 30, 2005, was justified
because respondent was absent and did not show up for work during that period. He also failed to account for
his whereabouts and work accomplishments during said period. When there is an issue as to whether an
employee has, in fact, worked and is entitled to his salary, it is within management prerogative to temporarily
withhold an employees salary/wages pending determination of whether or not such employee did indeed work.

We disagree with petitioners.

Management prerogative refers "to the right of an employer to regulate all aspects of employment, such
as the freedom to prescribe work assignments, working methods, processes to be followed, regulation
regarding transfer of employees, supervision of their work, lay-off and discipline, and dismissal and
recall of work." Although management prerogative refers to "the right to regulate all aspects of
employment," it cannot be understood to include the right to temporarily withhold salary/wages without
the consent of the employee. To sanction such an interpretation would be contrary to Article 116 of the
Labor Code, which provides:

ART. 116. Withholding of wages and kickbacks prohibited. It shall be unlawful for any person, directly or
indirectly, to withhold any amount from the wages of a worker or induce him to give up any part of his wages by
force, stealth, intimidation, threat or by any other means whatsoever without the workers consent.

Any withholding of an employees wages by an employer may only be allowed in the form of wage deductions
under the circumstances provided in Article 113 of the Labor Code, as set forth below:
ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any person, shall make any deduction
from the wages of his employees, except:chanroblesvirtualawlibrary

Page 199 of 222

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

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

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

As correctly pointed out by the LA, "absent a showing that the withholding of complainants wages falls under the
exceptions provided in Article 113, the withholding thereof is thus unlawful."

Petitioners argue that Article 116 of the Labor Code only applies if it is established that an employee is entitled
to his salary/wages and, hence, does not apply in cases where there is an issue or uncertainty as to whether an
employee has worked and is entitled to his salary/wages, in consonance with the principle of "a fair days wage
for a fair days work." Petitioners contend that in this case there was precisely an issue as to whether respondent
was entitled to his salary because he failed to report to work and to account for his whereabouts and work
accomplishments during the period in question.

To substantiate their claim, petitioners presented hard copies of the electronic mail messages sent to respondent
on November 22 and 24, 2005, directing the latter to contact Hartmannshenn; the Affidavit of Taguiang stating
that she advised respondent on or about November 29, 2005 to immediately communicate with Mr.
Hartmannshenn at the SHS office; Hartmannshenns Counter-Affidavit stating that he exerted earnest efforts to
contact respondent through mobile phone; Schumachers Counter-Affidavit stating that respondent had not filed
any request for official leave; and respondents admission in his Position Paper that he found it absurd to report
to the SHS plant when only security guards and machinists were present.

Respondent, on the other hand, presented reports prepared by him and submitted to Hartmannshenn on
November 18 and 25, 2005; a receipt issued to him by Taguiang for a clients payment during the subject period;
and eight notarized letters of prospective clients vouching for meetings they had with the respondent during the
subject period.

The Court finds petitioners evidence insufficient to prove that respondent did not work from November 16 to
November 30, 2005. As can be gleaned from respondents Contract of Probationary Employment and the
exchanges of electronic mail messages between Hartmannshenn and respondent, the latters duties as manager
for business development entailed cultivating business ties, connections, and clients in order to make sales.
Such duties called for meetings with prospective clients outside the office rather than reporting for work on a
regular schedule. In other words, the nature of respondents job did not allow close supervision and monitoring
by petitioners. Neither was there any prescribed daily monitoring procedure established by petitioners to ensure
that respondent was doing his job. Therefore, granting that respondent failed to answer Hartmannshenns mobile
calls and to reply to two electronic mail messages and given the fact that he admittedly failed to report to work
at the SHS plant twice each week during the subject period, such cannot be taken to signify that he did not work
from November 16 to November 30, 2005.

Page 200 of 222

Furthermore, the electronic mail reports sent to Hartmannshenn and the receipt presented by respondent as
evidence of his having worked during the subject period were not controverted by petitioners. The eight notarized
letters of prospective clients vouching for meetings they had with respondent during the subject period may also
be given credence. Although respondent only presented such letters in support of his Motion for Reconsideration
filed with the NLRC, they may be considered by this Court in light of Section 10, Rule VII, of the 2005 New Rules
of Procedure of the NLRC, which provides in part that "the rules of procedure and evidence prevailing in courts
of law and equity shall not be controlling and the Commission shall use every and all reasonable means to
ascertain the facts in each case speedily and objectively, without regard to technicalities of law or procedure, all
in the interest of due process." While administrative tribunals exercising quasi-judicial functions are free from the
rigidity of certain procedural requirements, they are bound by law and practice to observe the fundamental and
essential requirements of due process in justiciable cases presented before them. In this case, due process was
afforded petitioners as respondent filed with the NLRC a Motion to Set Case for Reception of Additional Evidence
as regards the said letters, which petitioners had the opportunity to, and did, oppose.

Although it cannot be determined with certainty whether respondent worked for the entire period from November
16 to November 30, 2005, the consistent rule is that if doubt exists between the evidence presented by the
employer and that by the employee, the scales of justice must be tilted in favor of the latter24cra1aw in line with
the policy mandated by Articles 2 and 3 of the Labor Code to afford protection to labor and construe doubts in
favor of labor. For petitioners failure to satisfy their burden of proof, respondent is presumed to have worked
during the period in question and is, accordingly, entitled to his salary. Therefore, the withholding of respondents
salary by petitioners is contrary to Article 116 of the Labor Code and, thus, unlawful.

Petitioners contend that respondent could not have been constructively dismissed because he voluntarily
resigned as evidenced by his resignation letter. They assert that respondent was not forced to draft the letter
and his intention to resign is clear from the contents and terms used, and that given respondents professional
and educational background, he was fully aware of the import and consequences of the said letter. They maintain
that respondent resigned to save face and avoid disciplinary measures due to his allegedly dismal work
performance and failure to report to work.

The Court, however, agrees with the LA and the CA that respondent was forced to resign and was, thus,
constructively dismissed. In Duldulao v. Court of Appeals, it was written:

There is constructive dismissal if an act of clear discrimination, insensibility, or disdain by an employer becomes
so unbearable on the part of the employee that it would foreclose any choice by him except to forego his
continued employment. It exists where there is cessation of work because continued employment is rendered
impossible, unreasonable or unlikely, as an offer involving a demotion in rank and a diminution in pay.

What made it impossible, unreasonable or unlikely for respondent to continue working for SHS was the unlawful
withholding of his salary. For said reason, he was forced to resign. It is of no moment that he served his
resignation letter on November 30, 2005, the last day of the payroll period and a non-working holiday, since his
salary was already due him on November 29, 2005, being the last working day of said period. In fact, he was
then informed that the wages of all the other SHS employees were already released, and only his was being
withheld. What is significant is that the respondent prepared and served his resignation letter right after he was
informed that his salary was being withheld. It would be absurd to require respondent to tolerate the unlawful
withholding of his salary for a longer period before his employment can be considered as so impossible,
unreasonable or unlikely as to constitute constructive dismissal. Even granting that the withholding of
respondents salary on November 30, 2005, would not constitute an unlawful act, the continued refusal to release

Page 201 of 222

his salary after the payroll period was clearly unlawful. The petitioners claim that they prepared the check ready
for pick-up cannot undo the unlawful withholding.

It is worthy to note that in his resignation letter, respondent cited petitioners "illegal and unfair labor practice"as
his cause for resignation. As correctly noted by the CA, respondent lost no time in submitting his resignation
letter and eventually filing a complaint for illegal dismissal just a few days after his salary was withheld. These
circumstances are inconsistent with voluntary resignation and bolster the finding of constructive dismissal.

Petitioners cite the case of Solas v. Power & Telephone Supply Phils., Inc. to support their contention that the
mere withholding of an employees salary does not by itself constitute constructive dismissal. Petitioners are
mistaken in anchoring their argument on said case, where the withholding of the salary was deemed lawful. In
the above-cited case, the employees salary was withheld for a valid reason - it was applied as partial payment
of a debt due to the employer, for withholding taxes on his income and for his absence without leave. The partial
payment of a debt due to the employer and the withholding of taxes on income were valid deductions under
Article 113 paragraph (c) of the Labor Code. The deduction from an employees salary for a due and demandable
debt to an employer was likewise sanctioned under Article 1706 of the Civil Code. As to the withholding for
income tax purposes, it was prescribed by the National Internal Revenue Code. Moreover, the employee therein
was indeed absent without leave.

In this case, the withholding of respondents salary does not fall under any of the circumstances provided under
Article 113. Neither was it established with certainty that respondent did not work from November 16 to November
30, 2005. Hence, the Court agrees with the LA and the CA that the unlawful withholding of respondents salary
amounts to constructive dismissal.

Respondent was constructively dismissed and, therefore, illegally dismissed. Although respondent was a
probationary employee, he was still entitled to security of tenure. Section 3 (2) Article 13 of the Constitution
guarantees the right of all workers to security of tenure. In using the expression "all workers," the Constitution
puts no distinction between a probationary and a permanent or regular employee. This means that probationary
employees cannot be dismissed except for cause or for failure to qualify as regular employees.

This Court has held that probationary employees who are unjustly dismissed during the probationary period are
entitled to reinstatement and payment of full backwages and other benefits and privileges from the time they
were dismissed up to their actual reinstatement. Respondent is, thus, entitled to reinstatement without loss of
seniority rights and other privileges as well as to full backwages, inclusive of allowances, and other benefits or
their monetary equivalent computed from the time his compensation was withheld up to the time of actual
reinstatement. Respondent, however, is not entitled to the additional amount for 13th month pay, as it is clearly
provided in respondents Probationary Contract of Employment that such is deemed included in his salary. Thus:

EMPLOYEE will be paid a net salary of One Hundred Thousand (Php100,000.00) Pesos per month payable
every 15th day and end of the month.

The compensation package defined in this paragraph shall represent all that is due and demandable under this
Contract and includes all benefits required by law such as the 13th month pay. No other benefits, bonus or
allowance shall be due the employee.

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(emphasis supplied)

Respondents reinstatement, however, is no longer feasible as antagonism has caused a severe strain in their
working relationship. Under the doctrine of strained relations, the payment of separation pay is considered an
acceptable alternative to reinstatement when the latter option is no longer desirable or viable. Payment liberates
the employee from what could be a highly oppressive work environment, and at the same time releases the
employer from the obligation of keeping in its employ a worker it no longer trusts. Therefore, a more equitable
disposition would be an award of separation pay equivalent to at least one month pay, in addition to his full
backwages, allowances and other benefits.

With respect to the personal liability of Hartmannshenn and Schumacher, this Court has held that corporate
directors and officers are only solidarily liable with the corporation for termination of employment of corporate
employees if effected with malice or in bad faith. Bad faith does not connote bad judgment or negligence; it
imports dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of unknown
duty through some motive or interest or ill will; it partakes of the nature of fraud.33cra1aw To sustain such a
finding, there should be evidence on record that an officer or director acted maliciously or in bad faith in
terminating the employee.

Petitioners withheld respondents salary in the sincere belief that respondent did not work for the period in
question and was, therefore, not entitled to it. There was no dishonest purpose or ill will involved as they believed
there was a justifiable reason to withhold his salary. Thus, although they unlawfully withheld respondents salary,
it cannot be concluded that such was made in bad faith. Accordingly, corporate officers, Hartmannshenn and
Schumacher, cannot be held personally liable for the corporate obligations of SHS.

WHEREFORE, the assailed December 23, 2008 Decision of the Court of Appeals in CA-G.R. SP No.
100015 is hereby AFFIRMED with MODIFICATION. The additional amount for 13th month pay is deleted.
Petitioners Winfried Hartmannshenn and Hinrich Johann Schumacher are not solidarily liable with
petitioner SHS Perforated Materials, Inc.

SO ORDERED.

SOLAS v POWER TELEPHONE

Petioner: Herbert Solas
Respondent: Power & Telephone Supply Phils., Inc., Derwin Otwell,* Pelagio Battung, Jr.* And Franklin
Quiachon,*
Citation:G.R. No. 162332
Date of Promulgation: August 28, 2008
Ponente: Austria-Martinez, J

FACTS:

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 On 16 August 1997, Herbert Solas entered into a contract of employment with Power and Telephone /Supply
Philippines, Inc., to be the Assistant Sales Manager of the company with a monthly salary of P21,600.00,
excluding bonuses and commission.
On 06 November 1998, private respondent company granted petitioner Herbert Solas and Franklin D.
Quiachon an amount of P85,418.00 each, corresponding to their sales commission from the month of
January to June of 1998. From that time up to the present, no other sales commission was ever again given
to them.
On 04 February 2000, petitioner requested for the release of his alleged commission which had already
accumulated since July of 1998. However, in an inter-office memorandum, said request was denied, and
instead, petitioner was even mandated to settle his outstanding obligation with the company.
On 07 February 2000, petitioner likewise received another memorandum requiring him to return the issued
cellular phone, car and key to his office, which he allegedly all complied.
Petitioner averred that these were all forms of harassment including the non-payment of his salary for the
month of February 2000, and onwards. Hence, on 15 February 2000, he instituted a case for illegal
constructive dismissal, recovery of 10% sales commission on gross sales, and attorney's fees.
In response, private respondents maintained that there was no agreement, written or oral, which talked of
the grant of 10% commission on gross sales to sales agent, nor was there a CBA on the matter.
The company gave bonuses when there was an income, but these were purely on the liberality of the
company, subject to the availability of funds and profits. Besides, petitioner has actually no client of his own
from whom he could close sales, thus the claim for commission was utterly baseless.
Private respondents maintained also that the claim of petitioner that he was constructively dismissed, was
without basis. Beginning 02 February 2000, petitioner's attendance was already irregular. On 11 February
2000, he was on absence without leave. He was sick and had a growing lump on his left shoulder. It was
this absence without leave which prompted private respondents to write several memoranda to petitioner,
one advising him to return to work immediately, as his continued absence was inimical to the company; the
other, directing him to explain his continued unauthorized absences within 24 hours from receipt of the
memo.
Private respondents asserted further that neither the order directing petitioner to return the company car,
the issued cellular phone and keys, nor the deductions made on his salary, could constitute as basis for his
alleged constructive dismissal, all allegations being baseless and without merit. Thus, private respondents
prayed for an order directing petitioner to pay the latter's debt with the company, and an award amounting
to P100,000.00 as attorney's fees, as well as the dismissal of petitioner from employment.

RULING OF THE LA
The Labor Arbiter rendered a decision finding for the petitioner Herbert Solas.

RULING OF THE NLRC:

Reversed and set aside the decision of the Labor Arbiter (LA).

RULING OF THE CA:

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Affirmed the decision of the NLRC

ISSUE:
Whether or not the respondents committed acts of harassment, i.e., the withholding of his salary for the month
of February and directing him to return the company car, cellphone and office keys

RULING:
The Court finds the petition unmeritorious.

However, at the outset, respondents must be disabused of their belief that since no appeal may be taken from
the NLRC Decision, then the same can no longer be altered. In Panuncillo v. CAP Philippines, Inc.,[7] the
Court explained that:

x x x while under the sixth paragraph of Article 223 of the Labor Code, the decision of the NLRC becomes final
and executory after the lapse of ten calendar days from receipt thereof by the parties, the adverse party is not
precluded from assailing it via Petition for Certiorari under Rule 65 before the Court of Appeals and then to this
Court via a Petition for Review under Rule 45. x x x[8] (Emphasis supplied)

Rule 65 gives the adverse party, petitioner in this case, 60 days from the date of receipt of the order denying
petitioner's motion for reconsideration within which to file a petition for certiorari with the CA. Thus, petitioner
took the proper procedural steps to question the NLRC Decision before the CA.

As to the merits of the petition, our oft-repeated ruling, reiterated in Reyes v. National Labor Relations
Commission,[9] must be emphasized, to wit:
x x x findings of facts of quasi-judicial bodies like the NLRC, and affirmed by the Court of Appeals in due
course, are conclusive on this Court, which is not a trier of facts.

xxxx

x x x Findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded not only respect, but finality
when affirmed by the Court of Appeals. Such findings deserve full respect and, without justifiable reason, ought
not to be altered, modified or reversed.

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The CA affirmed the finding of the NLRC that petitioner's salary for February 2000 was applied as payment for
his cash advances from the company amounting to about P95,000.00. The CA likewise upheld the NLRC's
finding that the evidence on record was insufficient to establish either that there was an agreement between
petitioner and respondents or that it was company policy to give commissions to employees.

Considering that the NLRC reversed the findings of the LA, it behooves the Court to re-examine the records
and resolve the conflicting rulings between the LA, on the one hand, and those of the NLRC and the CA, on
the other.[11]

The Court's examination of the records reveals that such factual findings of the NLRC, as affirmed by the CA,
are supported by substantial evidence; hence, there is no cogent reason for this Court to modify or reverse the
same.

In Duldulao v. Court of Appeals,[12] the Court held that:

There is constructive dismissal if an act of clear discrimination, insensibility, or disdain by an employer

becomes so unbearable on the part of the employee that it would foreclose any choice by him except to forego
his continued employment. It exists where there is cessation of work because continued employment is
rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank and a diminution in
pay.[13]
In this case, petitioner's allegations that respondents committed acts of harassment, i.e., the
withholding of his salary for the month of February and directing him to return the company car,
cellphone and office keys, have been rebutted and sufficiently explained by private respondent
company in its Position Paper.[14] Respondents were able to show that its acts were not intended to
harass or discriminate against petitioner.

There was valid reason for respondents' withholding of petitioner's salary for the month of February
2000. Petitioner does not deny that he is indebted to his employer in the amount of around P95,000.00.
Respondents explained that petitioner's salary for the period of February 1-15, 2000 was applied as
partial payment for his debt and for withholding taxes on his income; while for the period of February
15-28, 2000, petitioner was already on absence without leave, hence, was not entitled to any pay.[15]

With regard to the company car, respondents explained that the company car was actually issued to Franklin
D. Quiachon although petitioner and another employee, Nelson Gatbunton, may borrow the car for company
operations with the consent of Quiachon as stated in an office memorandum dated March 10, 1999. Since
Nelson Gatbunton had to attend to official business in Clark, said employee was then given use of the
company car.[16]

The taking of the office key from petitioner was also justified, as respondents stated that the company's office
consisted only of one big room without separate or individual offices, so it was only the main door that required
a key. The key to the office door could be borrowed by any employee from a co-employee in possession
thereof in case of overtime or weekend work, but not a single employee had the exclusive use of the key to the
Page 206 of 222
office. Thus, when another employee, Myrna Dumlao, had to work overtime, she borrowed the key from
petitioner on February 4, 2000. Thereafter, on February 18, 2000, respondents moved to another unit in the
same condominium building housing its office, so it was already useless to return the key to the door of the
former office to petitioner.[17]

As to the cellphone, respondents maintain that said phone remained the property of the company, and it
became company policy for its employees to pay for personal calls. When petitioner's debts and advances
accumulated, and he showed no intention of paying for them despite receipt of bonuses, the company had to
take measures to regulate the use of the company cellphones.[18]

Notably, petitioner never refuted respondents' explanations for withholding his salary and the reasons why he
was required to return the company car, key and cellphone. This constitutes admission by silence under
Section 32, Rule 130 of the Rules of Court, to wit:

Sec. 32. Admission by silence. - An act or declaration made in the presence and within the hearing or
observation of a party who does or says nothing when the act or declaration is such as naturally to call for
action or comment if not true, and when proper and possible for him to do so, may be given in evidence
against him.

Verily, the only conclusion that may be reached is that respondents' explanations are truthful and, based
thereon, the NLRC and the CA committed no grave abuse of discretion in ruling that there was no constructive
dismissal in this case.

Lastly, as to petitioner's claim for commissions, the NLRC and the CA were correct in not sustaining the award
thereof by the LA. It must be borne in mind that there is no law which requires employers to pay
commissions;[19] thus, it is incumbent upon petitioner to prove that that there is indeed an agreement between
him and his employer for payment of the same.

The only evidence presented by petitioner to prove that he is entitled to sales commissions are the
employment certificate, stating that he is an employee of respondents receiving P21,600.00 per month as
salary, exclusive of bonuses and sales commissions, and the undisputed fact that private respondent company
gave him and its other employees the amount of P85,418.00 sometime in 1998. However, the CA was correct
in ruling that the employment certificate was insufficient to prove that petitioner was indeed entitled to his claim
for sales commissions, as said document does not give the details as to the conditions for payment of the
same or the agreed percentage, if any. As to the amount of P85,418.00, respondents assert that said amount
is actually a one-time bonus, not a commission. Thus, even assuming arguendo that petitioner is entitled to
sales commissions, his evidence is inadequate to establish the amount to which he is entitled. In Ropali
Trading Corporation v. National Labor Relations Commission,[20] the employee presented a Memorandum
from his employer stating that he would be receiving a 20% overriding commission, including sales commission
and interest income on all sales he had successfully obtained. Yet, the Court still struck down petitioner's claim
for unpaid commissions, stating that the employee should present evidence, such as credible documents, to
prove his claim. Vague and doubtful sales documents, the origins of which have not been proven, are
considered insufficient to establish a claim for payment of commissions.

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Here, the NLRC and the CA found that the computations for commissions were determined and prepared
unilaterally by petitioner. Thus, it was correctly ruled that said computation, with its uncertain origin and
authenticity, is self-serving and cannot prove petitioner's claim for commissions in the amount of P892,780.37.

In sum, the Court sees no justification whatsoever to deviate from the ruling of the NLRC and the CA.

WHEREFORE, the petition is DENIED for lack of merit.

BLUER THAN BLUE v ESTEBAN

Petioner: Bluer than blue joint ventures company/Mary Ann Dela Vega
Respondent: Glyza Esteban
Citation:G.R. No. 192582
Date of Promulgation: April7, 2014
Ponente: Reyes, J

FACTS:
Respondent Glyza Esteban (Esteban) was employed in January 2004 as Sales Clerk, and assigned at Bluer
Than Blue Joint Ventures Company's (petitioner) EGG boutique in SM City Marilao, Bulacan, beginning the
year 2006.
Part of her primary tasks were attending to all customer needs, ensuring efficient inventory, coordinating
orders from clients, cashiering and reporting to the accounting department.
In November 2006, the petitioner received a report that several employees have access to its point-of-sale
(POS) system through a universal password given by Elmer Flores (Flores). Upon investigation, it was
discovered that it was Esteban who gave Flores the password.
The petitioner sent a letter memorandum to Esteban on November 8, 2006, asking her to explain in writing
why she should not be disciplinary dealt with for tampering with the companys POS system through the use
of an unauthorized password. Esteban was also placed under preventive suspension for ten days.
In her explanation, Esteban admitted that she used the universal password three times on the same day in
December 2005, after she learned of it from two other employees who she saw browsing through the
petitioners sales inquiry. She inquired how the employees were able to open the system and she was told
that they used the "123456" password.
On November 13, 2006, Estebans preventive suspension was lifted, but at the same time, a notice of
termination was sent to her, finding her explanation unsatisfactory and terminating her employment
immediately on the ground of loss of trust and confidence.
Esteban was given her final pay, including benefits and bonuses, less inventory variances incurred by the
store amounting to P8,304.93. Esteban signed a quitclaim and release in favor of the petitioner.

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 On December 6, 2006, Esteban filed a complaint for illegal dismissal, illegal suspension, holiday pay, rest
day and separation pay.

RULING OF THE LABOR ARBITER

The Labor Arbiter (LA) ruled in favor of Esteban and found that she was illegally dismissed. The LA also awarded
separation pay, backwages, unpaid salary during her preventive suspension and attorneys fees. Further, as
[Esteban] was illegally suspended she is entitled to salaries during her suspension from November 9-13, 2006.
In addition, an attorneys fees equivalent to ten (10%) percent of the total award is hereby granted.

RULING OF THE NLRC:

The NLRC reversed the decision of the LA and dismissed the case for illegal dismissal.

RULING OF THE CA
The CA granted Estebans petition and reinstated the LA decision

ISSUE:
Whether or not the deduction on Estebans wages of the negative variances in the sales is allowed by the Labor
Code, and such practice has been widely recognized in the retail industry

RULING:
The LA and the CA were one in ruling that Esteban was illegally dismissed by the petitioner. It was their
finding that the position occupied by Esteban was that of a rank-and-file employee and she is neither a
supervisor, manager nor a cashier; thus, she does not hold a position of trust and confidence.14 The CA also
affirmed the ruling of the LA that Estebans preventive suspension was not warranted.15 The CA also upheld
the finding of the NLRC that the deduction of P8,304.93, representing the stores negative variance, from
Estebans salary violates Article 113 of the Labor Code, which prohibits wage deduction.16

The NLRC, on the other hand, found that Esteban was dismissed for cause. According to the NLRC, Esteban
admitted that she violated the petitioner when she made an unauthorized access to the POS system, and even
shared the password to another employee. The NLRC also rejected Estebans assertion that her job as sales
clerk does not occupy a position of trust, and that her preventive suspension was not warranted. With regard to
her waiver and quitclaim, the NLRC upheld its validity as Esteban signed the same with full awareness that she
committed a wrong.17

Loss of trust and confidence as a valid ground for dismissal from employment

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The antecedent facts that gave rise to Estebans dismissal from employment are not disputed in this case. The
issue is whether Estebans acts constitute just cause to terminate her employment with the company on the
ground of loss of trust and confidence.

Loss of trust and confidence is premised on the fact that the employee concerned holds a position of
responsibility, trust and confidence. The employee must be invested with confidence on delicate matters, such
as the custody, handling, care and protection of the employers property and funds.18 "[W]ith respect to rank-
and-file personnel, loss of trust and confidence as ground for valid dismissal requires proof of involvement in the
alleged events in question, and that mere uncorroborated assertions and accusations by the employer will not
be sufficient."19

Esteban is, no doubt, a rank-and-file employee. The question now is whether she occupies a position of trust
and confidence.

Among the fiduciary rank-and-file employees are cashiers, auditors, property custodians, or those who, in the
normal exercise of their functions, regularly handle significant amounts of money or property.20 These
employees, though rank-and-file, are routinely charged with the care and custody of the employers money or
property, and are thus classified as occupying positions of trust and confidence.21

In this case, Esteban was a sales clerk. Her duties, however, were more than that of a sales clerk. Aside from
attending to customers and tending to the shop, Esteban also assumed cashiering duties. This, she does not
deny; instead, she insists that the competency clause provided that her tasks were that of a sales clerk and the
cashiering function was labelled "to follow."22 A perusal of the competency clause, however, shows that it is
merely an attestation on her part that she is competent to "meet the basic requirements needed for the position
[she] is applying for x x x". It does not define her actual duties. As consistently ruled by the Court, it is not the job
title but the actual work that the employee performs that determines whether he or she occupies a position of
trust and confidence.23 In Philippine Plaza Holdings, Inc. v. Episcope,24 the Court ruled that a service attendant,
who was tasked to attend to dining guests, handle their bills and receive payments for transmittal to the cashier
and was therefore involved in the handling of company funds, is considered an employee occupying a position
of trust and confidence. Similarly in Estebans case, given that she had in her care and custody the stores
property and funds, she is considered as a rank-and-file employee occupying a position of trust and confidence.

Proceeding from the above conclusion, the pivotal question that must be answered is whether Estebans acts
constitute just cause to terminate her employment.

Loss of trust and confidence to be a valid cause for dismissal must be work related such as would show the
employee concerned to be unfit to continue working for the employer and it must be based on a wilful breach of
trust and founded on clearly established facts.25 Such breach is wilful if it is done intentionally, knowingly, and
purposely, without justifiable excuse as distinguished from an act done carelessly, thoughtlessly, heedlessly or
inadvertently.26 The loss of trust and confidence must spring from the voluntary or wilful act of the employee, or
by reason of some blameworthy act or omission on the part of the employee.27

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In this case, the Court finds that the acts committed by Esteban do not amount to a wilful breach of trust. She
admitted that she accessed the POS system28 with the use of the unauthorized "123456" password. She did
so, however, out of curiosity and without any obvious intention of defrauding the petitioner. As professed by
Esteban, "she was acting in good faith in verifying what her co-staff told her about the opening of the computer
by the use of the "123456" password, x x x. She even told her co-staff not to open again said computer, and that
was the first and last time she opened said computer."29 Moreover, the petitioner even admitted that Esteban
has her own password to the POS system. If it was her intention to manipulate the stores inventory and funds,
she could have done so long before she had knowledge of the unauthorized password. But the facts on hand
show that she did not. The petitioner also failed to establish a substantial connection between Estebans use of
the "123456" password and any loss suffered by the petitioner. Indeed, it may be true that, as posited by the
petitioner, it is the fact that she used the password that gives cause to the loss of trust and confidence on
Esteban. However, as ruled above, such breach must have been done intentionally, knowingly, and purposely,
and without any justifiable excuse, and not simply something done carelessly, thoughtlessly, heedlessly or
inadvertently. To the Courts mind, Estebans lapse is, at best, a careless act that does not merit the imposition
of the penalty of dismissal.

The Court is not saying that Esteban is innocent of any breach of company policy.1wphi1 That she relayed the
password to another employee is likewise demonstrative of her mindless appreciation of her duties as a sales
clerk in the petitioners employ. But absent any showing that her acts were done with "moral perverseness" that
would justify the claimed loss of trust and confidence attendant to her job,30 the Court must sustain the
conclusion that Esteban was illegally dismissed. As stated by the CA, "[s]uspension would have sufficed as
punishment, considering that the petitioner had already been with the company for more than 2 years, and the
petitioner apologized and readily admitted her mistake in her written explanation, and considering that no clear
and convincing evidence of loss or prejudice, which was suffered by the [petitioner] from [Estebans] supposed
infraction."31

Preventive suspension during investigation

Preventive suspension is a measure allowed by law and afforded to the employer if an employees continued
employment poses a serious and imminent threat to the employers life or property or of his co-workers.32 It may
be legally imposed against an employee whose alleged violation is the subject of an investigation.33

In this case, the petitioner was acting well within its rights when it imposed a 10-day preventive suspension on
Esteban. While it may be that the acts complained of were committed by Esteban almost a year before the
investigation was conducted, still, it should be pointed out that Esteban was performing functions that involve
handling of the petitioners property and funds, and the petitioner had every right to protect its assets and
operations pending Estebans investigation.34

Sales negative variances as wage deductions

The petitioner deducted the amount of P8,304.93 from Estebans last salary. According to the petitioner, this
represents the stores negative variance for the year 2005 to 2006. The petitioner justifies the deduction on the
basis of alleged trade practice and that it is allowed by the Labor Code.

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Article 113 of the Labor Code provides that no employer, in his own behalf or in behalf of any person, shall make
any deduction from the wages of his employees, except in cases where the employer is authorized by law or
regulations issued by the Secretary of Labor and Employment, among others. The Omnibus Rules Implementing
the Labor Code, meanwhile, provides:

SECTION 14. Deduction for loss or damage. Where the employer is engaged in a trade, occupation or business
where the practice of making deductions or requiring deposits is recognized to answer for the reimbursement of
loss or damage to tools, materials, or equipment supplied by the employer to the employee, the employer may
make wage deductions or require the employees to make deposits from which deductions shall be made, subject
to the following conditions:

(a) That the employee concerned is clearly shown to be responsible for the loss or damage;

(b) That the employee is given reasonable opportunity to show cause why deduction should not be made;

(c) That the amount of such deduction is fair and reasonable and shall not exceed the actual loss or damage;
and

(d) That the deduction from the wages of the employee does not exceed 20 percent of the employees wages in
a week.

In this case, the petitioner failed to sufficiently establish that Esteban was responsible for the negative
variance it had in its sales for the year 2005 to 2006 and that Esteban was given the opportunity to show
cause the deduction from her last salary should not be made. The Court cannot accept the petitioners
statement that it is the practice in the retail industry to deduct variances from an employees salary,
without more. In Nia Jewelry Manufacturing of Metal Arts, Inc. v. Montecillo,35 the Court ruled that:

[T]he petitioners should first establish that the making of deductions from the salaries is authorized by law, or
regulations issued by the Secretary of Labor. Further, the posting of cash bonds should be proven as a
recognized practice in the jewelry manufacturing business, or alternatively, the petitioners should seek for the
determination by the Secretary of Labor through the issuance of appropriate rules and regulations that the policy
the former seeks to implement is necessary or desirable in the conduct of business. The petitioners failed in this
respect. It bears stressing that without proofs that requiring deposits and effecting deductions are recognized
practices, or without securing the Secretary of Labor's determination of the necessity or desirability of the same,
the imposition of new policies relative to deductions and deposits can be made subject to abuse by the
employers.1wphi1 This is not what the law intends.36

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated November 25, 2009 and
Resolution dated June 10, 2010 of the Court of Appeals in CA-G.R. SP No. 107573 insofar as it reinstated

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with modification the Decision of the Labor Arbiter dated September 28, 2007 are AFFIRMED. Insofar as
it affirmed respondent Glyza Esteban's preventive suspension, the same are hereby REVERSED.

The Labor Arbiter is hereby ORDERED to re-compute the monetary award in favor of Glyza Esteban and
to exclude the award of backwages during such period of preventive suspension, if any.

MILAN v NLRC
Petioner: Emer Milan, Randy Masangkay, Wilfredo Javier, Ronaldo David, Bonifacio Matundan, Nora Mendoza,
Et Al.
Respondent: National Labor Relations Commission, Solid Mills, Inc., And/Or Philip Ang
Citation:G.R. No. 202961
Date of Promulgation: February 4, 2015
Ponente: Leonen, J

FACTS:

In September 2003, petitioners were informed that effective October 10, 2003, Solid Mills would cease its
operations due to serious business losses. NAFLU recognized Solid Mills closure due to serious business
losses in the memorandum of agreement dated September 1, 2003.
The memorandum of agreement provided for Solid Mills grant of separation pay less accountabilities,
accrued sick leave benefits, vacation leave benefits, and 13th month pay to the employees. Pertinent
portions of the agreement provide:

WHEREAS, the COMPANYhas incurred substantial financial losses and is currently experiencing further
severe financial losses;
WHEREAS, in view of such irreversible financial losses, the COMPANY will cease its operations on
October 10, 2003;
WHEREAS, all employees of the COMPANY on account of irreversible financial losses, will bedismissed
from employment effective October 10, 2003;

In view thereof, the parties agree as follows:

1. That UNION acknowledges that the COMPANY is experiencing severe financial losses and as a consequence
of which, management is constrained to cease the companys operations.
2. The UNION acknowledges that under Article 283 of the Labor Code, separation pay is granted to employees
who are dismissed due to closures or cessation of operations NOT DUE to serious business losses.

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3. The UNION acknowledges that in view of the serious business losses the Company has been experiencing
as seen in their audited financial statements, employees ARE NOT granted separation benefits under the law.
4. The COMPANY, by way of goodwill and in the spirit of generosity agrees to grant financial assistance less
accountabilities to members of the Union based on length of service to be computed as follows: (Italics in this
paragraph supplied)
Number of days - 12.625 for every year of service
5. In view of the above, the members of the UNION will receive such financial assistance on an equal monthly
installments basis based on the following schedule:
First Check due on January 5, 2004 and every 5th of the month thereafter until December 5, 2004.
6. The COMPANY commits to pay any accrued benefits the Union members are entitled to, specifically those
arising from sick and vacation leave benefits and 13th month pay, less accountabilities based on the following
schedule:
One Time Cash Payment to bedistributed anywhere from. . . .
8. The foregoing agreement is entered into with full knowledge by the parties of their rights under the law and
they hereby bind themselves not to conduct any concerted action of whatsoever kind, otherwise the grant of
financial assistance as discussed above will be withheld.8 (Emphasis in the original)
Solid Mills filed its Department of Labor and Employment termination report on September 2, 2003.9

Later, Solid Mills, through Alfredo Jingco, sent to petitioners individual notices to vacate SMI Village.10

Petitioners were no longer allowed to report for work by October 10, 2003.11 They were required to sign a
memorandum of agreement with release and quitclaim before their vacation and sick leave benefits, 13th
month pay, and separation pay would be released.12 Employees who signed the memorandum of
agreement were considered to have agreed to vacate SMI Village, and to the demolition of the constructed
houses inside as condition for the release of their termination benefits and separation pay.
Petitioners refused to sign the documents and demanded to be paid their benefits and separation pay.

RULING OF THE LA
The Labor Arbiter ruled in favor of petitioners. According to the Labor Arbiter, Solid Mills illegally withheld
petitioners benefits and separation pay. Petitioners right to the payment of their benefits and separation pay
was vestedby law and contract. The memorandum of agreement dated September 1, 2003 stated no condition
to the effect that petitioners must vacate SolidMills property before their benefits could be given to them.
Petitioners possession should not be construed as petitioners "accountabilities" that must be cleared first before
the release of benefits.25 Their possession "is not by virtue of any employer-employee relationship." It is a civil
issue, which isoutside the jurisdiction of the Labor Arbiter.

RULING OF THE NLRC

The National Labor Relations Commission ruled that because of petitioners failure to vacate Solid Mills
property, Solid Mills was justified in withholding their benefits and separation pay.35 Solid Mills granted the

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petitioners the privilege to occupy its property on accountof petitioners employment.36 It had the prerogative
toterminate such privilege.37 The termination of Solid Mills and petitioners employer-employee relationship
made it incumbent upon petitioners to turn over the property to Solid Mills.38

RULING OF THE CA:

Dismiessed the petition

ISSUE:
1. Whether or not the payment of the monetary claims of petitioners should be held in abeyance pending
compliance of their accountabilities to respondent solid mills by turning over the subject lots they respectively
occupy at smi village, sucat, muntinlupa city.
2. Whether or not the petitioners are entitled to 12% interest per annum
3. Whether or not Teodora Mahilom and Carlito Damian are entitled to their claims.

RULING:
1. The National Labor Relations Commission may preliminarily determine issues related to rights arising from an
employer-employee relationship

The National Labor Relations Commission has jurisdiction to determine, preliminarily, the partiesrights over a
property, when it is necessary to determine an issue related to rights or claims arising from an employer-
employee relationship.

Article 217 provides that the Labor Arbiter, in his or her original jurisdiction, and the National Labor Relations
Commission, in its appellate jurisdiction, may determine issues involving claims arising from employeremployee
relations. Thus:

ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. (1) Except as otherwise provided
under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide within thirty
(30) calendar days after the submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of
pay, hours of work and other terms and conditions of employment;
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4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes
and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other
claims, arising from employer-employee relations including those of persons in domestic or household service,
involving an amount exceeding five thousand pesos (P5,000.00), regardless of whether accompanied with a
claim for reinstatement.

(2) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.
(Emphasis supplied)

Petitioners claim that they have the right to the immediate release of their benefits as employees separated from
respondent Solid Mills is a question arising from the employer-employee relationship between the parties.

Claims arising from an employer-employee relationship are not limited to claims by an employee. Employers
may also have claims against the employee, which arise from the same relationship. In Baez v. Valdevilla,74
this court ruled that Article 217 of the Labor Code also applies to employers claim for damages, which arises
from or is connected with the labor issue. Thus: Whereas this Court in a number of occasions had applied the
jurisdictional provisions of Article 217 to claims for damages filed by employees, we hold that by the designating
clause "arising from the employer-employee relations" Article 217 should apply with equal force to the claim of
an employer for actual damages against its dismissed employee, where the basis for the claim arises from or is
necessarily connected with the factof termination, and should be entered as a counterclaim in the illegal dismissal
case.75

Baez was cited in Domondon v. National Labor Relations Commission.76 One of the issues in Domondonis
whether the Labor Arbiter has jurisdiction to decide an issue on the transfer of ownership of a vehicle assigned
to the employee. It was argued that only regular courts have jurisdiction to decide the issue.77

This court ruled that since the transfer of ownership of the vehicle to the employee was connected to his
separation from the employer and arose from the employer-employee relationship of the parties, the employers
claim fell within the LaborArbiters jurisdiction.78

As a general rule, therefore, a claim only needs to be sufficiently connected to the labor issue raisedand must
arise from an employeremployee relationship for the labortribunals to have jurisdiction.

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In this case, respondent Solid Mills claims that its properties are in petitioners possession by virtue of their status
as its employees. Respondent Solid Mills allowed petitioners to use its property as an act of liberality. Put in
other words, it would not have allowed petitioners to use its property had they not been its employees. The return
of its properties in petitioners possession by virtue of their status as employees is an issue that must be resolved
to determine whether benefits can be released immediately. The issue raised by the employer is, therefore,
connected to petitioners claim for benefits and is sufficiently intertwined with the parties employeremployee
relationship. Thus, it is properly within the labor tribunals jurisdiction.

2. Institution of clearance procedures has legal bases

Requiring clearance before the release of last payments to the employee is a standard procedure among
employers, whether public or private. Clearance procedures are instituted to ensure that the properties, real or
personal, belonging to the employer but are in the possession of the separated employee, are returned tothe
employer before the employees departure.

As a general rule, employers are prohibited from withholding wages from employees. The Labor Code provides:

Art. 116. Withholding of wages and kickbacks prohibited.It shall be unlawful for any person, directly or
indirectly, to withhold any amount from the wages of a worker or induce him to give up any part of his
wages by force, stealth, intimidation, threat or by any other means whatsoever without the workers
consent.

The Labor Code also prohibits the elimination or diminution of benefits. Thus:

Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to
eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of
promulgation of this Code.

However, our law supports the employers institution of clearance procedures before the release of wages. As
an exception to the general rule that wages may not be withheld and benefits may not be diminished, the Labor
Code provides:

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

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

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

3. In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and
Employment. (Emphasis supplied)

The Civil Code provides that the employer is authorized to withhold wages for debts due:

Article 1706. Withholding of the wages, except for a debt due, shall not be made by the employer.

"Debt" in this case refers to any obligation due from the employee to the employer. It includes any accountability
that the employee may have to the employer. There is no reason to limit its scope to uniforms and equipment,
as petitioners would argue.

More importantly, respondent Solid Mills and NAFLU, the union representing petitioners, agreed that the release
of petitioners benefits shall be "less accountabilities."

"Accountability," in its ordinary sense, means obligation or debt. The ordinary meaning of the term
"accountability" does not limit the definition of accountability to those incurred in the worksite. As long as the debt
or obligation was incurred by virtue of the employer-employee relationship, generally, it shall be included in the
employees accountabilities that are subject to clearance procedures.

It may be true that not all employees enjoyed the privilege of staying in respondent Solid Mills property. However,
this alone does not imply that this privilege when enjoyed was not a result of the employer-employee relationship.
Those who did avail of the privilege were employees of respondent Solid Mills. Petitioners possession should,
therefore, be included in the term "accountability."

Accountabilities of employees are personal. They need not be uniform among all employees in order to be
included in accountabilities incurred by virtue of an employer-employee relationship. Petitioners do not
categorically deny respondent Solid Mills ownership of the property, and they do not claim superior right to it.
What can be gathered from the findings ofthe Labor Arbiter, National Labor Relations Commission, and the Court
ofAppeals is that respondent Solid Mills allowed the use of its property for the benefit of petitioners as its
employees. Petitioners were merely allowed to possess and use it out of respondent Solid Mills liberality. The
employer may, therefore, demand the property at will.79

The return of the propertys possession became an obligation or liability on the part of the employees when the
employer-employee relationship ceased. Thus, respondent Solid Mills has the right to withhold petitioners wages
and benefitsbecause of this existing debt or liability. In Solas v. Power and Telephone Supply Phils., Inc., et al.,
this court recognized this right of the employer when it ruled that the employee in that case was not constructively
dismissed.80 Thus:
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There was valid reason for respondents withholding of petitioners salary for the month of February 2000.
Petitioner does not deny that he is indebted to his employer in the amount of around 95,000.00. Respondents
explained that petitioners salary for the period of February 1-15, 2000 was applied as partial payment for his
debt and for withholding taxes on his income; while for the period of February 15-28, 2000, petitioner was already
on absence without leave, hence, was not entitled to any pay.81

The law does not sanction a situation where employees who do not even assert any claim over the
employers property are allowed to take all the benefits out of their employment while they
simultaneously withhold possession of their employers property for no rightful reason. Withholding of
payment by the employer does not mean that the employer may renege on its obligation to pay
employees their wages, termination payments, and due benefits. The employees benefits are also not
being reduced. It is only subjectedto the condition that the employees return properties properly
belonging to the employer. This is only consistent with the equitable principle that "no one shall be
unjustly enriched or benefited at the expense of another."

For these reasons, we cannot hold that petitioners are entitled to interest of their withheldseparation
benefits. These benefits were properly withheld by respondent Solid Mills because of their refusal to
return its property.

3. Mahilom and Damian are not entitled to the benefits claimed

Teodora Mahilom is not entitled to separation benefits.

Both the National Labor Relations Commission and the Court of Appeals found that Teodora Mahilom already
retired long before respondent Solid Mills closure. They found that she already received her retirement benefits.
We have no reason to disturb this finding. This court is not a trier of facts. Findings of the National Labor Relations
Commission, especially when affirmed by the Court of Appeals, are binding upon this court.83

Moreover, Teodora Mahiloms claim for retirement benefits was not included in her complaint filed before the
Labor Arbiter. Hence, it may not be raised in the appeal.

Similarly, the National Labor Relations Commission and the Court of Appeals found that Carlito Damian already
received his terminal benefits. Hence, he may no longer claim terminal benefits. The fact that respondent Solid
Mills has not yet demolished Carlito Damians house in SMI Village is not evidence that he did not receive his
benefits. Both the National Labor Relations Commission and the Court of Appeals found that he executed an
affidavit stating that he already received the benefits.

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A bsent any showing that the National Labor Relations Commission and the Court of Appeals misconstrued
these facts, we will not reverse these findings.

Our laws provide for a clear preference for labor. This is in recognition of the asymmetrical power of those with
capital when they are left to negotiate with their workers without the standards and protection of law. In cases
such as these, the collective bargaining unit of workers are able to get more benefits and in exchange, the
owners are able to continue with the program of cutting their losses or wind down their operations due to serious
business losses. The company in this case did all that was required by law.

The preferential treatment given by our law to labor, however, is not a license for abuse.84 It is not a signal to
commit acts of unfairness that will unreasonably infringe on the property rights of the company. Both labor and
employer have social utility, and the law is not so biased that it does not find a middle ground to give each their
due.

Clearly, in this case, it is for the workers to return their housing in exchange for the release of their
benefits.1wphi1 This is what they agreed upon. It is what is fair in the premises.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision is AFFIRMED.

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