FIRST DIVISION

[G. R. No. 120077. October 13, 2000]

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD. petitioners,
vs. NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J.
DIOSANA AND MARCELO G. SANTOS, respondents.

DECISION
PARDO, J.:

The case before the Court is a petition for certiorari[1] to annul the following orders of
the National Labor Relations Commission (hereinafter referred to as NLRC) for having
been issued without or with excess jurisdiction and with grave abuse of discretion: [2]
(1) Order of May 31, 1993.[3] Reversing and setting aside its earlier resolution of
August 28, 1992.[4] The questioned order declared that the NLRC, not the Philippine
Overseas Employment Administration (hereinafter referred to as POEA), had jurisdiction
over private respondents complaint;
(2) Decision of December 15, 1994.[5] Directing petitioners to jointly and severally
pay private respondent twelve thousand and six hundred dollars (US$12,600.00)
representing salaries for the unexpired portion of his contract; three thousand six hundred
dollars (US$3,600.00) as extra four months salary for the two (2) year period of his
contract, three thousand six hundred dollars (US$3,600.00) as 14th month pay or a total
of nineteen thousand and eight hundred dollars (US$19,800.00) or its peso equivalent
and attorneys fees amounting to ten percent (10%) of the total award; and
(3) Order of March 30, 1995.[6] Denying the motion for reconsideration of the
petitioners.
In May, 1988, private respondent Marcelo Santos (hereinafter referred to as Santos)
was an overseas worker employed as a printer at the Mazoon Printing Press, Sultanate
of Oman. Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing,
Peoples Republic of China and later terminated due to retrenchment.
Petitioners are the Manila Hotel Corporation (hereinafter referred to as MHC) and the
Manila Hotel International Company, Limited (hereinafter referred to as MHICL).
When the case was filed in 1990, MHC was still a government-owned and controlled
corporation duly organized and existing under the laws of the Philippines.
MHICL is a corporation duly organized and existing under the laws of Hong
Kong.[7] MHC is an incorporator of MHICL, owning 50% of its capital stock.[8]
 By virtue of a management agreement[9] with the Palace Hotel (Wang Fu Company
Limited), MHICL[10] trained the personnel and staff of the Palace Hotel at Beijing, China.
Now the facts.
During his employment with the Mazoon Printing Press in the Sultanate of Oman,
respondent Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt,
General Manager, Palace Hotel, Beijing, China. Mr. Schmidt informed respondent Santos
that he was recommended by one Nestor Buenio, a friend of his.
Mr. Shmidt offered respondent Santos the same position as printer, but with a higher
monthly salary and increased benefits. The position was slated to open on October 1,
1988.[11]
On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance
of the offer.
On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to
sign employment contract to respondent Santos. Mr. Henk advised respondent Santos
that if the contract was acceptable, to return the same to Mr. Henk in Manila, together
with his passport and two additional pictures for his visa to China.
On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press,
effective June 30, 1988, under the pretext that he was needed at home to help with the
familys piggery and poultry business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr.
Henks letter. Respondent Santos enclosed four (4) signed copies of the employment
contract (dated June 4, 1988) and notified them that he was going to arrive in Manila
during the first week of July 1988.
The employment contract of June 4, 1988 stated that his employment would
commence September 1, 1988 for a period of two years. [12] It provided for a monthly
salary of nine hundred dollars (US$900.00) net of taxes, payable fourteen (14) times a
year.[13]
On June 30, 1988, respondent Santos was deemed resigned from the Mazoon
Printing Press.
On July 1, 1988, respondent Santos arrived in Manila.
On November 5, 1988, respondent Santos left for Beijing, China. He started to work
at the Palace Hotel.[14]
Subsequently, respondent Santos signed an amended employment agreement with
the Palace Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented
the Palace Hotel. The Vice President (Operations and Development) of petitioner MHICL
Miguel D. Cergueda signed the employment agreement under the word noted.
From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation
leave. He returned to China and reassumed his post on July 17, 1989.
 On July 22, 1989, Mr. Shmidts Executive Secretary, a certain Joanna suggested in a
handwritten note that respondent Santos be given one (1) month notice of his release
from employment.
On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed
by Mr. Shmidt that his employment at the Palace Hotel print shop would be terminated
due to business reverses brought about by the political upheaval in China.[15] We quote
the letter:[16]

After the unfortunate happenings in China and especially Beijing (referring to

Tiannamen Square incidents), our business has been severely affected. To reduce
expenses, we will not open/operate printshop for the time being.

We sincerely regret that a decision like this has to be made, but rest assured this does
in no way reflect your past performance which we found up to our expectations.

Should a turnaround in the business happen, we will contact you directly and give you
priority on future assignment.

On September 5, 1989, the Palace Hotel terminated the employment of respondent

Santos and paid all benefits due him, including his plane fare back to the Philippines.
On October 3, 1989, respondent Santos was repatriated to the Philippines.
On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr.
Shmidt, demanding full compensation pursuant to the employment agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:[17]

His service with the Palace Hotel, Beijing was not abruptly terminated but we followed
the one-month notice clause and Mr. Santos received all benefits due him.

For your information, the Print Shop at the Palace Hotel is still not operational and with
a low business outlook, retrenchment in various departments of the hotel is going on
which is a normal management practice to control costs.

When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now
shows a better approach.

In closing, when Mr. Santos received the letter of notice, he hardly showed up for work
but still enjoyed free accommodation/laundry/meals up to the day of his departure.

On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with
the Arbitration Branch, National Capital Region, National Labor Relations Commission
(NLRC). He prayed for an award of nineteen thousand nine hundred and twenty three
dollars (US$19,923.00) as actual damages, forty thousand pesos (P40,000.00) as
exemplary damages and attorneys fees equivalent to 20% of the damages prayed
for. The complaint named MHC, MHICL, the Palace Hotel and Mr. Shmidt as
respondents.
The Palace Hotel and Mr. Shmidt were not served with summons and neither
participated in the proceedings before the Labor Arbiter.[18]
On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against
petitioners, thus:[19]

WHEREFORE, judgment is hereby rendered:

1. directing all the respondents to pay complainant jointly and severally;

a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries;

b) P50,000.00 as moral damages;

c) P40,000.00 as exemplary damages; and

d) Ten (10) percent of the total award as attorneys fees.

SO ORDERED.

On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the
NLRC had jurisdiction over the case.
On August 28, 1992, the NLRC promulgated a resolution, stating: [20]

WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for
want of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.

SO ORDERED.

On September 18, 1992, respondent Santos moved for reconsideration of the afore-
quoted resolution. He argued that the case was not cognizable by the POEA as he was
not an overseas contract worker.[21]
On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC
directed Labor Arbiter Emerson Tumanon to hear the case on the question of whether
private respondent was retrenched or dismissed.[22]
On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on
the testimonial and documentary evidence presented to and heard by him. [23]
Subsequently, Labor Arbiter Tumanon was re-assigned as trial arbiter of the National
Capital Region, Arbitration Branch, and the case was transferred to Labor Arbiter Jose G.
de Vera.[24]
On November 25, 1994, Labor Arbiter de Vera submitted his report. [25] He found that
respondent Santos was illegally dismissed from employment and recommended that he
be paid actual damages equivalent to his salaries for the unexpired portion of his
contract.[26]
On December 15, 1994, the NLRC ruled in favor of private respondent, to wit: [27]

WHEREFORE, finding that the report and recommendations of Arbiter de Vera are
supported by substantial evidence, judgment is hereby rendered, directing the
respondents to jointly and severally pay complainant the following computed contractual
benefits: (1) US$12,600.00 as salaries for the un-expired portion of the parties contract;
(2) US$3,600.00 as extra four (4) months salary for the two (2) years period (sic) of the
parties contract; (3) US$3,600.00 as 14th month pay for the aforesaid two (2) years
contract stipulated by the parties or a total of US$19,800.00 or its peso equivalent, plus
(4) attorneys fees of 10% of complainants total award.

SO ORDERED.

On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor
Arbiter de Veras recommendation had no basis in law and in fact.[28]
On March 30, 1995, the NLRC denied the motion for reconsideration.[29]
Hence, this petition.[30]
On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance
of a temporary restraining order and/or writ of preliminary injunction and a motion for the
annulment of the entry of judgment of the NLRC dated July 31, 1995. [31]
On November 20, 1995, the Court denied petitioners urgent motion. The Court
required respondents to file their respective comments, without giving due course to the
petition.[32]
On March 8, 1996, the Solicitor General filed a manifestation stating that after going
over the petition and its annexes, they can not defend and sustain the position taken by
the NLRC in its assailed decision and orders. The Solicitor General prayed that he be
excused from filing a comment on behalf of the NLRC[33]
On April 30,1996, private respondent Santos filed his comment. [34]
On June 26, 1996, the Court granted the manifestation of the Solicitor General and
required the NLRC to file its own comment to the petition.[35]
On January 7, 1997, the NLRC filed its comment.
The petition is meritorious.
I. Forum Non-Conveniens
The NLRC was a seriously inconvenient forum.
We note that the main aspects of the case transpired in two foreign jurisdictions and
the case involves purely foreign elements. The only link that the Philippines has with the
case is that respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are
foreign corporations. Not all cases involving our citizens can be tried here.
 The employment contract.-- Respondent Santos was hired directly by the Palace
Hotel, a foreign employer, through correspondence sent to the Sultanate of Oman, where
respondent Santos was then employed. He was hired without the intervention of the
POEA or any authorized recruitment agency of the government.[36]
Under the rule of forum non conveniens, a Philippine court or agency may assume
jurisdiction over the case if it chooses to do so provided: (1) that the Philippine court is
one to which the parties may conveniently resort to; (2) that the Philippine court is in a
position to make an intelligent decision as to the law and the facts; and (3) that the
Philippine court has or is likely to have power to enforce its decision. [37] The conditions
are unavailing in the case at bar.
Not Convenient.-- We fail to see how the NLRC is a convenient forum given that all
the incidents of the case - from the time of recruitment, to employment to dismissal
occurred outside the Philippines. The inconvenience is compounded by the fact that the
proper defendants, the Palace Hotel and MHICL are not nationals of the
Philippines.Neither are they doing business in the Philippines. Likewise, the main
witnesses, Mr. Shmidt and Mr. Henk are non-residents of the Philippines.
No power to determine applicable law.-- Neither can an intelligent decision be
made as to the law governing the employment contract as such was perfected in foreign
soil. This calls to fore the application of the principle of lex loci contractus (the law of the
place where the contract was made).[38]
The employment contract was not perfected in the Philippines. Respondent Santos
signified his acceptance by writing a letter while he was in the Republic of Oman. This
letter was sent to the Palace Hotel in the Peoples Republic of China.
No power to determine the facts.-- Neither can the NLRC determine the facts
surrounding the alleged illegal dismissal as all acts complained of took place in Beijing,
Peoples Republic of China. The NLRC was not in a position to determine whether the
Tiannamen Square incident truly adversely affected operations of the Palace Hotel as to
justify respondent Santos retrenchment.
Principle of effectiveness, no power to execute decision.-- Even assuming that a
proper decision could be reached by the NLRC, such would not have any binding effect
against the employer, the Palace Hotel. The Palace Hotel is a corporation incorporated
under the laws of China and was not even served with summons. Jurisdiction over its
person was not acquired.
This is not to say that Philippine courts and agencies have no power to solve
controversies involving foreign employers. Neither are we saying that we do not have
power over an employment contract executed in a foreign country. If Santos were an
overseas contract worker, a Philippine forum, specifically the POEA, not the NLRC,
would protect him.[39] He is not an overseas contract worker a fact which he admits with
conviction.[40]
Even assuming that the NLRC was the proper forum, even on the merits, the NLRCs
decision cannot be sustained.
II. MHC Not Liable
 Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and
(2) that MHICL was liable for Santos retrenchment, still MHC, as a separate and distinct
juridical entity cannot be held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital
stock. However, this is not enough to pierce the veil of corporate fiction between MHICL
and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend a crime.[41] It is done only when a corporation is a mere alter ego or business
conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals,[42] we held that the mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself a sufficient reason for disregarding the fiction of separate
corporate personalities.
The tests in determining whether the corporate veil may be pierced are: First, the
defendant must have control or complete domination of the other corporations finances,
policy and business practices with regard to the transaction attacked. There must be proof
that the other corporation had no separate mind, will or existence with respect the act
complained of. Second, control must be used by the defendant to commit fraud or
wrong. Third, the aforesaid control or breach of duty must be the proximate cause of the
injury or loss complained of. The absence of any of the elements prevents the piercing of
the corporate veil.[43]
It is basic that a corporation has a personality separate and distinct from those
composing it as well as from that of any other legal entity to which it may be
related.[44] Clear and convincing evidence is needed to pierce the veil of corporate
fiction.[45] In this case, we find no evidence to show that MHICL and MHC are one and the
same entity.
III. MHICL not Liable
Respondent Santos predicates MHICLs liability on the fact that MHICL signed his
employment contract with the Palace Hotel. This fact fails to persuade us.
First, we note that the Vice President (Operations and Development) of MHICL,
Miguel D. Cergueda signed the employment contract as a mere witness. He merely
signed under the word noted.
When one notes a contract, one is not expressing his agreement or approval, as a
party would.[46] In Sichangco v. Board of Commissioners of Immigration,[47] the Court
recognized that the term noted means that the person so noting has merely taken
cognizance of the existence of an act or declaration, without exercising a judicious
deliberation or rendering a decision on the matter.
Mr. Cergueda merely signed the witnessing part of the document. The witnessing part
of the document is that which, in a deed or other formal instrument is that part
which comes after the recitals, or where there are no recitals, after the parties (emphasis
ours).[48] As opposed to a party to a contract, a witness is simply one who, being present,
personally sees or perceives a thing; a beholder, a spectator, or eyewitness. [49] One who
notes something just makes a brief written statement[50] a memorandum or observation.
Second, and more importantly, there was no existing employer-employee
relationship between Santos and MHICL. In determining the existence of an employer-
employee relationship, the following elements are considered:[51]

(1) the selection and engagement of the employee;

(2) the payment of wages;

(3) the power to dismiss; and

(4) the power to control employees conduct.

MHICL did not have and did not exercise any of the aforementioned powers. It
did not select respondent Santos as an employee for the Palace Hotel. He was referred
to the Palace Hotel by his friend, Nestor Buenio. MHICL did not engage respondent
Santos to work. The terms of employment were negotiated and finalized through
correspondence between respondent Santos, Mr. Schmidt and Mr. Henk, who were
officers and representatives of the Palace Hotel and not MHICL. Neither did respondent
Santos adduce any proof that MHICL had the power to control his conduct. Finally, it was
the Palace Hotel, through Mr. Schmidt and not MHICL that terminated respondent Santos
services.
Neither is there evidence to suggest that MHICL was a labor-only contractor.[52] There
is no proof that MHICL supplied respondent Santos or even referred him for employment
to the Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and
the same entity. The fact that the Palace Hotel is a member of the Manila Hotel Group
is not enough to pierce the corporate veil between MHICL and the Palace Hotel.
IV. Grave Abuse of Discretion
Considering that the NLRC was forum non-conveniens and considering further that
no employer-employee relationship existed between MHICL, MHC and respondent
Santos, Labor Arbiter Ceferina J. Diosana clearly had no jurisdiction over respondents
claim in NLRC NCR Case No. 00-02-01058-90.
Labor Arbiters have exclusive and original jurisdiction only over the following: [53]

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;

4. Claims for actual, moral, exemplary and other forms of damages arising from
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions
involving 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.

In all these cases, an employer-employee relationship is an indispensable

jurisdictional requirement.
The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code
is limited to disputes arising from an employer-employee relationship which can be
resolved by reference to the Labor Code, or other labor statutes, or their collective
bargaining agreements.[54]
To determine which body has jurisdiction over the present controversy, we rely on
the sound judicial principle that jurisdiction over the subject matter is conferred by law
and is determined by the allegations of the complaint irrespective of whether the plaintiff
is entitled to all or some of the claims asserted therein.[55]
The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the
complaint. His failure to dismiss the case amounts to grave abuse of discretion.[56]
V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the
orders and resolutions of the National Labor Relations Commission dated May 31, 1993,
December 15, 1994 and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR
Case No. 00-02-01058-90).
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

[1] Under Rule 65, 1964 Revised Rules of Court.

[2] Rollo, pp. 2-6.
[3]
In NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-
90), Commissioner Vicente S. E. Veloso, ponente, concurred in by Commissioners Edna
Bonto Perez and Alberto R. Quimpo.
[4]
Penned by Commissioner V. S. E. Veloso and concurred in by Commissioners
Bartolome S. Carale and Romeo B. Putong.
[5]
Penned by Commissioner V. S. E. Veloso and concurred in by Commissioners B. S.
Carale and A. R. Quimpo.
[6] Ibid.
[7]
With principal office at 18094 Swire House Charter Road, Hongkong, as shown by its
Articles of Association dated May 23, 1986.
[8]
MHC represented by its President Victor Sison and the Philippine Agency Limited
represented by its Director, Francis Cheung Kwoh-Nean are MHICLs incorporators
(Rollo, p. 76).
[9] The management agreement was terminated on April 1, 1990.
[10] Rollo, p. 71.
[11] Ibid., p. 65.
[12] Ibid., p. 96.
[13] Rollo, p. 65.
[14] Ibid., p. 97.
[15] Rollo, pp. 8-14.
[16] Rollo, p. 66.
[17] Ibid., pp. 66-67.
[18] Rollo, p. 72.
[19] Ibid., p. 126.
[20] Rollo, p. 99.
[21] Ibid., pp. 91-92.
[22] Ibid., pp. 81-83.
[23] Rollo, p. 52.
[24] Ibid., p. 63.
[25] Ibid.
[26] Ibid., pp. 78-79.
[27] Ibid., pp. 79-80.
[28] Rollo, pp. 51-62.
[29] Rollo, pp. 49-50.
[30]Filed on May 22, 1995, Rollo, pp. 2-48. On October 7, 1997, we resolved to give due
course to the petition (Rollo, p. 217). Petitioners filed their memorandum on December 1,
1997. The petition involves pure questions of law; thus, we except this case from the
ruling in San Martin Funeral Homes vs. NLRC, 295 SCRA 494 [1998]. Rather than refer
the case to the Court of Appeals, whose decision would be appealable to the Supreme
Court, our ruling would finally put an end to the litigation.
[31] Rollo, pp. 127-133.
[32] Rollo, p. 140.
[33] Rollo, pp. 148-149.
[34] Rollo, pp. 156.
[35] Rollo, p. 157.
[36] Rollo, p. 82.
[37]
Communication Materials and Design, Inc. v. Court of Appeals, 260 SCRA 673, 695
(1996).
[38] Triple Eight Integrated Services, Inc. v. NLRC, 299 SCRA 608, 618 (1998).
[39]Eastern Shipping Lines, Inc. v. POEA, 170 SCRA 54, 57 (1989), There we stated that,
the POEA shall have original and exclusive jurisdiction over all cases, including money
claims, involving employer-employee relationship arising out of or by virtue of any law or
contract involving Filipino workers for overseas employment, including seamen.
[40] Rollo, pp. 91-92.
[41]
San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631,
649-650 (1998); Complex Electronics Employees Association v. NLRC, 310 SCRA 403,
417-418 (1999).
[42] 269 SCRA 15, 29-30 (1997).
[43] Rufina Luy Lim v. Court of Appeals, G. R. No. 124715, January 24, 2000.
[44] ARB Construction Co., Inc. v. Court of Appeals, G. R. No. 126554, May 31, 2000.
[45]
Laguio v. National Labor Relations Commission, 262 SCRA 715, 720-221 (1996); De
La Salle University v. De La Salle University Employees Association, G. R. Nos. 109002
and 110072, April 12, 2000.
[46] Halili v. Court of Industrial Relations, 140 SCRA 73, 91 (1985).
[47] 94 SCRA 61, 69 (1979).
[48] Blacks Law Dictionary, Fifth Edition (1979), p. 1438.
[49] Ibid.
[50] Supra, p. 956.
[51] Philippine Airlines, Inc. v. NLRC, 263 SCRA 642, 654 (1996).
[52]
(a) the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machinery, 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. Asia Brewery, Inc. v. NLRC,
259 SCRA 185, 189-190 (1996).
[53] Labor Code of the Philippines, Article 217.
[54] Coca Cola Bottlers Phils., Inc. v. Jose S. Roque, 308 SCRA 215, 220 (1999).
[55] Marcina Saura v. Ramon Saura, Jr., 313 SCRA 465, 472 (1999).
[56] Philippine Airlines, Inc. v. NLRC, supra, p. 657.

FIRST DIVISION

[G. R. No. 120077. October 13, 2000]

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD. petitioners,
vs. NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J.
DIOSANA AND MARCELO G. SANTOS, respondents.

DECISION
PARDO, J.:

The case before the Court is a petition for certiorari[1] to annul the following orders of
the National Labor Relations Commission (hereinafter referred to as NLRC) for having
been issued without or with excess jurisdiction and with grave abuse of discretion: [2]
(1) Order of May 31, 1993.[3] Reversing and setting aside its earlier resolution of
August 28, 1992.[4] The questioned order declared that the NLRC, not the Philippine
Overseas Employment Administration (hereinafter referred to as POEA), had jurisdiction
over private respondents complaint;
(2) Decision of December 15, 1994.[5] Directing petitioners to jointly and severally
pay private respondent twelve thousand and six hundred dollars (US$12,600.00)
representing salaries for the unexpired portion of his contract; three thousand six hundred
dollars (US$3,600.00) as extra four months salary for the two (2) year period of his
contract, three thousand six hundred dollars (US$3,600.00) as 14th month pay or a total
of nineteen thousand and eight hundred dollars (US$19,800.00) or its peso equivalent
and attorneys fees amounting to ten percent (10%) of the total award; and
(3) Order of March 30, 1995.[6] Denying the motion for reconsideration of the
petitioners.
In May, 1988, private respondent Marcelo Santos (hereinafter referred to as Santos)
was an overseas worker employed as a printer at the Mazoon Printing Press, Sultanate
of Oman. Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing,
Peoples Republic of China and later terminated due to retrenchment.
Petitioners are the Manila Hotel Corporation (hereinafter referred to as MHC) and the
Manila Hotel International Company, Limited (hereinafter referred to as MHICL).
When the case was filed in 1990, MHC was still a government-owned and controlled
corporation duly organized and existing under the laws of the Philippines.
MHICL is a corporation duly organized and existing under the laws of Hong
Kong.[7] MHC is an incorporator of MHICL, owning 50% of its capital stock.[8]
By virtue of a management agreement[9] with the Palace Hotel (Wang Fu Company
Limited), MHICL[10] trained the personnel and staff of the Palace Hotel at Beijing, China.
Now the facts.
During his employment with the Mazoon Printing Press in the Sultanate of Oman,
respondent Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt,
General Manager, Palace Hotel, Beijing, China. Mr. Schmidt informed respondent Santos
that he was recommended by one Nestor Buenio, a friend of his.
Mr. Shmidt offered respondent Santos the same position as printer, but with a higher
monthly salary and increased benefits. The position was slated to open on October 1,
1988.[11]
On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance
of the offer.
On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to
sign employment contract to respondent Santos. Mr. Henk advised respondent Santos
that if the contract was acceptable, to return the same to Mr. Henk in Manila, together
with his passport and two additional pictures for his visa to China.
On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press,
effective June 30, 1988, under the pretext that he was needed at home to help with the
familys piggery and poultry business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr.
Henks letter. Respondent Santos enclosed four (4) signed copies of the employment
contract (dated June 4, 1988) and notified them that he was going to arrive in Manila
during the first week of July 1988.
 The employment contract of June 4, 1988 stated that his employment would
commence September 1, 1988 for a period of two years.[12] It provided for a monthly
salary of nine hundred dollars (US$900.00) net of taxes, payable fourteen (14) times a
year.[13]
On June 30, 1988, respondent Santos was deemed resigned from the Mazoon
Printing Press.
On July 1, 1988, respondent Santos arrived in Manila.
On November 5, 1988, respondent Santos left for Beijing, China. He started to work
at the Palace Hotel.[14]
Subsequently, respondent Santos signed an amended employment agreement with
the Palace Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented
the Palace Hotel. The Vice President (Operations and Development) of petitioner MHICL
Miguel D. Cergueda signed the employment agreement under the word noted.
From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation
leave. He returned to China and reassumed his post on July 17, 1989.
On July 22, 1989, Mr. Shmidts Executive Secretary, a certain Joanna suggested in a
handwritten note that respondent Santos be given one (1) month notice of his release
from employment.
On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed
by Mr. Shmidt that his employment at the Palace Hotel print shop would be terminated
due to business reverses brought about by the political upheaval in China. [15] We quote
the letter:[16]

After the unfortunate happenings in China and especially Beijing (referring to

Tiannamen Square incidents), our business has been severely affected. To reduce
expenses, we will not open/operate printshop for the time being.

We sincerely regret that a decision like this has to be made, but rest assured this does
in no way reflect your past performance which we found up to our expectations.

Should a turnaround in the business happen, we will contact you directly and give you
priority on future assignment.

On September 5, 1989, the Palace Hotel terminated the employment of respondent

Santos and paid all benefits due him, including his plane fare back to the Philippines.
On October 3, 1989, respondent Santos was repatriated to the Philippines.
On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr.
Shmidt, demanding full compensation pursuant to the employment agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:[17]
His service with the Palace Hotel, Beijing was not abruptly terminated but we followed
the one-month notice clause and Mr. Santos received all benefits due him.

For your information, the Print Shop at the Palace Hotel is still not operational and with
a low business outlook, retrenchment in various departments of the hotel is going on
which is a normal management practice to control costs.

When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now
shows a better approach.

In closing, when Mr. Santos received the letter of notice, he hardly showed up for work
but still enjoyed free accommodation/laundry/meals up to the day of his departure.

On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with
the Arbitration Branch, National Capital Region, National Labor Relations Commission
(NLRC). He prayed for an award of nineteen thousand nine hundred and twenty three
dollars (US$19,923.00) as actual damages, forty thousand pesos (P40,000.00) as
exemplary damages and attorneys fees equivalent to 20% of the damages prayed
for. The complaint named MHC, MHICL, the Palace Hotel and Mr. Shmidt as
respondents.
The Palace Hotel and Mr. Shmidt were not served with summons and neither
participated in the proceedings before the Labor Arbiter.[18]
On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against
petitioners, thus:[19]

WHEREFORE, judgment is hereby rendered:

1. directing all the respondents to pay complainant jointly and severally;

a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries;

b) P50,000.00 as moral damages;

c) P40,000.00 as exemplary damages; and

d) Ten (10) percent of the total award as attorneys fees.

SO ORDERED.

On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the
NLRC had jurisdiction over the case.
On August 28, 1992, the NLRC promulgated a resolution, stating: [20]
WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for
want of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.

SO ORDERED.

On September 18, 1992, respondent Santos moved for reconsideration of the afore-
quoted resolution. He argued that the case was not cognizable by the POEA as he was
not an overseas contract worker.[21]
On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC
directed Labor Arbiter Emerson Tumanon to hear the case on the question of whether
private respondent was retrenched or dismissed.[22]
On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on
the testimonial and documentary evidence presented to and heard by him. [23]
Subsequently, Labor Arbiter Tumanon was re-assigned as trial arbiter of the National
Capital Region, Arbitration Branch, and the case was transferred to Labor Arbiter Jose G.
de Vera.[24]
On November 25, 1994, Labor Arbiter de Vera submitted his report. [25] He found that
respondent Santos was illegally dismissed from employment and recommended that he
be paid actual damages equivalent to his salaries for the unexpired portion of his
contract.[26]
On December 15, 1994, the NLRC ruled in favor of private respondent, to wit: [27]

WHEREFORE, finding that the report and recommendations of Arbiter de Vera are
supported by substantial evidence, judgment is hereby rendered, directing the
respondents to jointly and severally pay complainant the following computed contractual
benefits: (1) US$12,600.00 as salaries for the un-expired portion of the parties contract;
(2) US$3,600.00 as extra four (4) months salary for the two (2) years period (sic) of the
parties contract; (3) US$3,600.00 as 14th month pay for the aforesaid two (2) years
contract stipulated by the parties or a total of US$19,800.00 or its peso equivalent, plus
(4) attorneys fees of 10% of complainants total award.

SO ORDERED.

On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor
Arbiter de Veras recommendation had no basis in law and in fact.[28]
On March 30, 1995, the NLRC denied the motion for reconsideration.[29]
Hence, this petition.[30]
On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance
of a temporary restraining order and/or writ of preliminary injunction and a motion for the
annulment of the entry of judgment of the NLRC dated July 31, 1995. [31]
 On November 20, 1995, the Court denied petitioners urgent motion. The Court
required respondents to file their respective comments, without giving due course to the
petition.[32]
On March 8, 1996, the Solicitor General filed a manifestation stating that after going
over the petition and its annexes, they can not defend and sustain the position taken by
the NLRC in its assailed decision and orders. The Solicitor General prayed that he be
excused from filing a comment on behalf of the NLRC[33]
On April 30,1996, private respondent Santos filed his comment. [34]
On June 26, 1996, the Court granted the manifestation of the Solicitor General and
required the NLRC to file its own comment to the petition.[35]
On January 7, 1997, the NLRC filed its comment.
The petition is meritorious.
I. Forum Non-Conveniens
The NLRC was a seriously inconvenient forum.
We note that the main aspects of the case transpired in two foreign jurisdictions and
the case involves purely foreign elements. The only link that the Philippines has with the
case is that respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are
foreign corporations. Not all cases involving our citizens can be tried here.
The employment contract.-- Respondent Santos was hired directly by the Palace
Hotel, a foreign employer, through correspondence sent to the Sultanate of Oman, where
respondent Santos was then employed. He was hired without the intervention of the
POEA or any authorized recruitment agency of the government.[36]
Under the rule of forum non conveniens, a Philippine court or agency may assume
jurisdiction over the case if it chooses to do so provided: (1) that the Philippine court is
one to which the parties may conveniently resort to; (2) that the Philippine court is in a
position to make an intelligent decision as to the law and the facts; and (3) that the
Philippine court has or is likely to have power to enforce its decision. [37] The conditions
are unavailing in the case at bar.
Not Convenient.-- We fail to see how the NLRC is a convenient forum given that all
the incidents of the case - from the time of recruitment, to employment to dismissal
occurred outside the Philippines. The inconvenience is compounded by the fact that the
proper defendants, the Palace Hotel and MHICL are not nationals of the
Philippines.Neither are they doing business in the Philippines. Likewise, the main
witnesses, Mr. Shmidt and Mr. Henk are non-residents of the Philippines.
No power to determine applicable law.-- Neither can an intelligent decision be
made as to the law governing the employment contract as such was perfected in foreign
soil. This calls to fore the application of the principle of lex loci contractus (the law of the
place where the contract was made).[38]
 The employment contract was not perfected in the Philippines. Respondent Santos
signified his acceptance by writing a letter while he was in the Republic of Oman. This
letter was sent to the Palace Hotel in the Peoples Republic of China.
No power to determine the facts.-- Neither can the NLRC determine the facts
surrounding the alleged illegal dismissal as all acts complained of took place in Beijing,
Peoples Republic of China. The NLRC was not in a position to determine whether the
Tiannamen Square incident truly adversely affected operations of the Palace Hotel as to
justify respondent Santos retrenchment.
Principle of effectiveness, no power to execute decision.-- Even assuming that a
proper decision could be reached by the NLRC, such would not have any binding effect
against the employer, the Palace Hotel. The Palace Hotel is a corporation incorporated
under the laws of China and was not even served with summons. Jurisdiction over its
person was not acquired.
This is not to say that Philippine courts and agencies have no power to solve
controversies involving foreign employers. Neither are we saying that we do not have
power over an employment contract executed in a foreign country. If Santos were an
overseas contract worker, a Philippine forum, specifically the POEA, not the NLRC,
would protect him.[39] He is not an overseas contract worker a fact which he admits with
conviction.[40]
Even assuming that the NLRC was the proper forum, even on the merits, the NLRCs
decision cannot be sustained.
II. MHC Not Liable
Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and
(2) that MHICL was liable for Santos retrenchment, still MHC, as a separate and distinct
juridical entity cannot be held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital
stock. However, this is not enough to pierce the veil of corporate fiction between MHICL
and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend a crime.[41] It is done only when a corporation is a mere alter ego or business
conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals,[42] we held that the mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself a sufficient reason for disregarding the fiction of separate
corporate personalities.
The tests in determining whether the corporate veil may be pierced are: First, the
defendant must have control or complete domination of the other corporations finances,
policy and business practices with regard to the transaction attacked. There must be proof
that the other corporation had no separate mind, will or existence with respect the act
complained of. Second, control must be used by the defendant to commit fraud or
wrong. Third, the aforesaid control or breach of duty must be the proximate cause of the
injury or loss complained of. The absence of any of the elements prevents the piercing of
the corporate veil.[43]
It is basic that a corporation has a personality separate and distinct from those
composing it as well as from that of any other legal entity to which it may be
related.[44] Clear and convincing evidence is needed to pierce the veil of corporate
fiction.[45] In this case, we find no evidence to show that MHICL and MHC are one and the
same entity.
III. MHICL not Liable
Respondent Santos predicates MHICLs liability on the fact that MHICL signed his
employment contract with the Palace Hotel. This fact fails to persuade us.
First, we note that the Vice President (Operations and Development) of MHICL,
Miguel D. Cergueda signed the employment contract as a mere witness. He merely
signed under the word noted.
When one notes a contract, one is not expressing his agreement or approval, as a
party would.[46] In Sichangco v. Board of Commissioners of Immigration,[47] the Court
recognized that the term noted means that the person so noting has merely taken
cognizance of the existence of an act or declaration, without exercising a judicious
deliberation or rendering a decision on the matter.
Mr. Cergueda merely signed the witnessing part of the document. The witnessing part
of the document is that which, in a deed or other formal instrument is that part
which comes after the recitals, or where there are no recitals, after the parties (emphasis
ours).[48] As opposed to a party to a contract, a witness is simply one who, being present,
personally sees or perceives a thing; a beholder, a spectator, or eyewitness. [49] One who
notes something just makes a brief written statement[50] a memorandum or observation.
Second, and more importantly, there was no existing employer-employee
relationship between Santos and MHICL. In determining the existence of an employer-
employee relationship, the following elements are considered:[51]

(1) the selection and engagement of the employee;

(2) the payment of wages;

(3) the power to dismiss; and

(4) the power to control employees conduct.

MHICL did not have and did not exercise any of the aforementioned powers. It
did not select respondent Santos as an employee for the Palace Hotel. He was referred
to the Palace Hotel by his friend, Nestor Buenio. MHICL did not engage respondent
Santos to work. The terms of employment were negotiated and finalized through
correspondence between respondent Santos, Mr. Schmidt and Mr. Henk, who were
officers and representatives of the Palace Hotel and not MHICL. Neither did respondent
Santos adduce any proof that MHICL had the power to control his conduct. Finally, it was
the Palace Hotel, through Mr. Schmidt and not MHICL that terminated respondent Santos
services.
Neither is there evidence to suggest that MHICL was a labor-only contractor.[52] There
is no proof that MHICL supplied respondent Santos or even referred him for employment
to the Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and
the same entity. The fact that the Palace Hotel is a member of the Manila Hotel Group
is not enough to pierce the corporate veil between MHICL and the Palace Hotel.
IV. Grave Abuse of Discretion
Considering that the NLRC was forum non-conveniens and considering further that
no employer-employee relationship existed between MHICL, MHC and respondent
Santos, Labor Arbiter Ceferina J. Diosana clearly had no jurisdiction over respondents
claim in NLRC NCR Case No. 00-02-01058-90.
Labor Arbiters have exclusive and original jurisdiction only over the following: [53]

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;

4. Claims for actual, moral, exemplary and other forms of damages arising from
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions
involving 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.

In all these cases, an employer-employee relationship is an indispensable

jurisdictional requirement.
The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code
is limited to disputes arising from an employer-employee relationship which can be
resolved by reference to the Labor Code, or other labor statutes, or their collective
bargaining agreements.[54]
To determine which body has jurisdiction over the present controversy, we rely on
the sound judicial principle that jurisdiction over the subject matter is conferred by law
and is determined by the allegations of the complaint irrespective of whether the plaintiff
is entitled to all or some of the claims asserted therein.[55]
The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the
complaint. His failure to dismiss the case amounts to grave abuse of discretion.[56]
V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the
orders and resolutions of the National Labor Relations Commission dated May 31, 1993,
December 15, 1994 and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR
Case No. 00-02-01058-90).
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.
 SECOND DIVISION

[G.R. No. 121605. February 2, 2000]

PAZ MARTIN JO and CESAR JO, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION and PETER MEJILA, respondents.

DECISION

QUISUMBING, J.:

This petition for certiorari seeks to set aside the Decision[1] of National Labor Relations
Commission (Fifth Division) promulgated on November 21, 1994, and its Resolution
dated June 7, 1995, which denied petitioners motion for reconsideration.

Private respondent Peter Mejila worked as barber on a piece rate basis at Dinas Barber
Shop. In 1970, the owner, Dina Tan, sold the barbershop to petitioners Paz Martin Jo
and Cesar Jo. All the employees, including private respondent, were absorbed by the
new owners. The name of the barbershop was changed to Windfield Barber Shop.

The owners and the barbers shared in the earnings of the barber shop. The barbers got
two-thirds (2/3) of the fee paid for every haircut or shaving job done, while one-third
(1/3) went to the owners of the shop.

In 1977, petitioners designated private respondent as caretaker of the shop because the
former caretaker became physically unfit. Private respondents duties as caretaker, in
addition to his being a barber, were: (1) to report to the owners of the barbershop
whenever the airconditioning units malfunctioned and/or whenever water or electric
power supply was interrupted; (2) to call the laundry woman to wash dirty linen; (3) to
recommend applicants for interview and hiring; (4) to attend to other needs of the shop.
For this additional job, he was given an honorarium equivalent to one-third (1/3) of the
net income of the shop.

When the building occupied by the shop was demolished in 1986, the barbershop
closed. But soon a place nearby was rented by petitioners and the barbershop resumed
operations as Cesars Palace Barbershop and Massage Clinic. In this new location,
private respondent continued to be a barber and caretaker, but with a fixed monthly
honorarium as caretaker, to wit: from February 1986 to 1990 - P700; from February
1990 to March 1991 - P800; and from July 1992 P1,300.

In November 1992, private respondent had an altercation with his co-barber, Jorge
Tinoy. The bickerings, characterized by constant exchange of personal insults during
working hours, became serious so that private respondent reported the matter to Atty.
Allan Macaraya of the labor department. The labor official immediately summoned
private respondent and petitioners to a conference. Upon investigation, it was found out
that the dispute was not between private respondent and petitioners; rather, it was
between the former and his fellow barber. Accordingly, Atty. Macaraya directed
petitioners counsel, Atty. Prudencio Abragan, to thresh out the problem.

During the mediation meeting held at Atty. Abragans office a new twist was added.
Despite the assurance that he was not being driven out as caretaker-barber, private
respondent demanded payment for several thousand pesos as his separation pay and
other monetary benefits. In order to give the parties enough time to cool off, Atty.
Abragan set another conference but private respondent did not appear in such meeting
anymore.

Meanwhile, private respondent continued reporting for work at the barbershop. But, on
January 2, 1993, he turned over the duplicate keys of the shop to the cashier and took
away all his belongings therefrom. On January 8, 1993, he began working as a regular
barber at the newly opened Goldilocks Barbershop also in Iligan City.

On January 12, 1993, private respondent filed a complaint[2] for illegal dismissal with
prayer for payment of separation pay, other monetary benefits, attorneys fees and
damages. Significantly, the complaint did not seek reinstatement as a positive relief.

In a Decision dated June 15, 1993, the Labor Arbiter found that private respondent was
an employee of petitioners, and that private respondent was not dismissed but had left
his job voluntarily because of his misunderstanding with his co-worker.[3] The Labor
Arbiter dismissed the complaint, but ordered petitioners to pay private respondent his
13th month pay and attorneys fees.

Both parties appealed to the NLRC. In a Decision dated November 21, 1994, it set
aside the labor arbiters judgment. The NLRC sustained the labor arbiters finding as to
the existence of employer-employee relationship between petitioners and private
respondent, but it ruled that private respondent was illegally dismissed. Hence, the
petitioners were ordered to reinstate private respondent and pay the latters backwages,
13th month pay, separation pay and attorneys fees, thus:

"For failure of respondents to observe due process before dismissing the

complainant, We rule and hold that he was illegally terminated.
Consequently, he should be reinstated and paid his backwages starting
from January 1, 1993 up to the time of his reinstatement and payment of
separation pay, should reinstatement not be feasible on account of a
strained employer-employee relationship.

As complainants income was mixed, (commission and caretaker), he

becomes entitled to 13th month pay only in his capacity as caretaker at
the last rate of pay given to him.

With respect to separation pay, even workers paid on commission are

given separation pay as they are considered employees of the company.
Complainant should be adjudged entitled to separation pay reckoned from
 1970 up to the time he was dismissed on December 31, 1992 at one-half
month pay of his earning as a barber; and as a caretaker the same should
be reckoned from 1977 up to December 31, 1992.

As complainant has been assisted by counsel not only in the preparation

of the complaint, position paper but in hearings before the Labor Arbiter a
quo, attorneys fees equivalent to 10% of the money awards should
likewise be paid to complainant.

WHEREFORE, the decision appealed from is Vacated and Set Aside and
a new one entered in accordance with the above-findings and awards.

SO ORDERED."[4]

Its motion for reconsideration having been denied in a Resolution dated June 7, 1995,
petitioners filed the instant petition.

The issues for resolution are as follows:

1. Whether or not there exists an employer-employee relationship

between petitioners and private respondent.

2. Whether or not private respondent was dismissed from or had

abandoned his employment.

Petitioners contend that public respondent gravely erred in declaring that private
respondent was their employee. They claim that private respondent was their "partner in
trade" whose compensation was based on a sharing arrangement per haircut or shaving
job done. They argue that private respondents task as caretaker could be considered an
employment because the chores are very minimal.

At the outset, we reiterate the doctrine that the existence of an employer-employee

relationship is ultimately a question of fact and that the findings thereon by the labor
arbiter and the NLRC shall be accorded not only respect but even finality when
supported by ample evidence.[5]

In determining the existence of an employer-employee relationship, the following

elements are considered: (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, with the latter assuming primacy in the overall consideration. The
power of control refers to the existence of the power and not necessarily to the actual
exercise thereof. It is not essential for the employer to actually supervise the
performance of duties of the employee; it is enough that the employer has the right to
wield that power.[6]
Absent a clear showing that petitioners and private respondent had intended to pursue
a relationship of industrial partnership, we entertain no doubt that private respondent
was employed by petitioners as caretaker-barber. Initially, petitioners, as new owners of
the barbershop, hired private respondent as barber by absorbing the latter in their
employ. Undoubtedly, the services performed by private respondent as barber is related
to, and in the pursuit of the principal business activity of petitioners. Later on, petitioners
tapped private respondent to serve concurrently as caretaker of the shop. Certainly,
petitioners had the power to dismiss private respondent being the ones who engaged
the services of the latter. In fact, private respondent sued petitioners for illegal
dismissal, albeit contested by the latter. As a caretaker, private respondent was paid by
petitioners wages in the form of honorarium, originally, at the rate of one-third (1/3) of
the shops net income but subsequently pegged at a fixed amount per month. As a
barber, private respondent earned two-thirds (2/3) of the fee paid per haircut or shaving
job done. Furthermore, the following facts indubitably reveal that petitioners controlled
private respondents work performance, in that: (1) private respondent had to inform
petitioners of the things needed in the shop; (2) he could only recommend the hiring of
barbers and masseuses, with petitioners having the final decision; (3) he had to be at
the shop at 9:00 a.m. and could leave only at 9:00 p.m. because he was the one who
opened and closed it, being the one entrusted with the key.[7] These duties were
complied with by private respondent upon instructions of petitioners. Moreover, such
task was far from being negligible as claimed by petitioners. On the contrary, it was
crucial to the business operation of petitioners as shown in the preceding discussion.
Hence, there was enough basis to declare private respondent an employee of
petitioners. Accordingly, there is no cogent reason to disturb the findings of the labor
arbiter and NLRC on the existence of employer-employee relationship between herein
private parties.

With regard to the second issue, jurisprudence has laid out the rules regarding
abandonment as a just and valid ground for termination of employment. To constitute
abandonment, there must be concurrence of the intention to abandon and some overt
acts from which it may be inferred that the employee concerned has no more interest in
working.[8] In other words, there must be a clear, deliberate and unjustified refusal to
resume employment and a clear intention to sever the employer-employee relationship
on the part of the employee.[9]

In the case at bar, the labor arbiter was convinced that private respondent was not
dismissed but left his work on his own volition because he could no longer bear the
incessant squabbles with his co-worker. Nevertheless, public respondent did not give
credence to petitioners claim that private respondent abandoned his job. On this score,
public respondent gravely erred as hereunder discussed.

At the outset, we must stress that where the findings of the NLRC contradict those of
the labor arbiter, the Court, in the exercise of its equity jurisdiction, may look into the
records of the case and reexamine the questioned findings.[10]
In this case, the following circumstances clearly manifest private respondents intention
to sever his ties with petitioners. First, private respondent even bragged to his co-
workers his plan to quit his job at Cesars Palace Barbershop and Massage Clinic as
borne out by the affidavit executed by his former co-workers.[11] Second, he surrendered
the shops keys and took away all his things from the shop. Third, he did not report
anymore to the shop without giving any valid and justifiable reason for his absence.
Fourth, he immediately sought a regular employment in another barbershop, despite
previous assurance that he could remain in petitioners employ. Fifth, he filed a
complaint for illegal dismissal without praying for reinstatement.

Moreover, public respondents assertion that the institution of the complaint for illegal
dismissal manifests private respondents lack of intention to abandon his job[12] is
untenable. The rule that abandonment of work is inconsistent with the filing of a
complaint for illegal dismissal is not applicable in this case. Such rule applies where the
complainant seeks reinstatement as a relief. Corollarily, it has no application where the
complainant does not pray for reinstatement and just asks for separation pay
instead[13] as in the present case. It goes without saying that the prayer for separation
pay, being the alternative remedy to reinstatement,[14] contradicts private respondents
stance. That he was illegally dismissed is belied by his own pleadings as well as
contemporaneous conduct.

We are, therefore, constrained to agree with the findings of the Labor Arbiter that private
respondent left his job voluntarily for reasons not attributable to petitioners. It was error
and grave abuse of discretion for the NLRC to hold petitioners liable for illegal dismissal
of private respondent.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of

public respondent NLRC are reversed and set aside. The decision of the Labor Arbiter
dated June 15, 1993, is hereby reinstated. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 97492 December 8, 1992

CANLUBANG SECURITY AGENCY CORPORATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, ARSENIO A. BARTOLAY,
REYNALDO ACOSTA, JANUARIO AGUADA, AUGUSTIA E. AGUILA, LEONCIO
AGUILA, RODEL APOSTOL, CELSO ARANA, SITO BANNA, RODOLFO BELLEZA,
NICOLAS BENEDICTO, SALVADOR BORSIGUE, LUISITO BROSOTO, ROLANDO
CABUNOC, ALFREDO CARIAGA, PAQUITO CARSON, MACARIO DEL CASTILLO,
JULIET B. CONCEPCION, SANTIAGO CONTRERAS, MANALO CRUZIN, MATIAS
DAGSA, EFRAIM DOMAGAS, ARMANDO DORIA, JESUS ERESE, ANGELITO
ESCATRON, EDWIN ESCURO, ROBERTO EVARDO, LAMBERTO FIGURACION,
OSCAR GARCIA, ARNULFO GENETIA, HENRY GULLON, CECILIA DE GUZMAN,
ANTONIO ISORENA, ARDEN LUBUGUIN, NOE MANALO, CONFESSOR MANZALA,
ALBERTO MEDALLO, HELEN DJ. MEDALLO, MAGNO MONIS, ALEX NOGRALES,
ARNULFO NOJOR, REOM ONIO, EUFROCINA G. PATION, ALFREDO QUINDOZA,
SANTOS ROSANTO, CRISPIN SANTIAGO, ROMMEL SERQUIÑA, FERMILIANO
SUILIN, RANULFO TOGONON, RODOLFO UGAY, MILA VILLASAYA, TEOFILO
ZARATE and CANLUBANG AUTOMOTIVE RESOURCES
CORPORATION, respondents.

GRIÑO-AQUINO, J.:

The real issue raised in this illegal dismissal case is whether or not respondent National
Labor Relations Commission (NLRC) committed grave abuse of discretion in ruling that
the petitioner, Canlubang Security Agency (CSA, for short ), and not Canlubang
Automotive Resources Corporation (CARCO, for short), was the employer of private
respondents, Arsenio A. Bartolay, et al. (hereinafter referred to as "private
respondents").

The facts, as narrated by the Solicitor General, are as follows:

CARCO had a security service contract with CSA whereby the latter
agreed to secure, guard and protect CARCO's properties and interest.
This contractual relation continued until February 14, 1985 when CARCO
notified CSA that in view of recent developments and performance of the
security personnel detailed with CARCO, the latter decided to engage the
services of another agency (Annex "B", Petition).
Sometime in February, 1985, several security guards, supervisors, and
officers headed by private respondent Arsenio A. Bartolay, filed a
complaint for illegal termination against CSA and CARCO. On May 14,
1985, however, private respondents filed a Motion to Dismiss said
complaint as against CSA (Annex "H", Petition). Pertinent allegations of
said Motion read:

"2. After a careful and thorough analysis of the

circumstances giving rise to this case, we are convinced and
of the conviction that we have no cause of action whatsoever
against CSA, the latter not being our employer but CARCO.

3. Hence, we hereby forever release and discharge CSA, its

owners, officers, employees, successors and assigns from
any and all manner of actions, suits, debts, claims, demands
and liabilities whatsoever we now have or may have in law
or equity against the said company, its owners, officers,
employees, successors and assigns by reason or as a
consequence of, or in connection with, or incident to, our
employment as security guards, our intention being to
release and discharge completely, absolutely and finally said
CSA, its owners, officers, employees, successors or assigns;

4. We further hereby waive, renounce and forego all claims,

particularly separation pay, sick leave, vacation leave and
any other claim under any law or contract which we have or
might have against CSA by virtue of our employment as
security guards.

Labor Arbiter Cresencio Ramos, in his Order dated May 5, 1985 (Annex
"J", Petition), granted said Motion. CARCO appealed therefrom and
resolving the same, the NLRC, in its Resolution dated January 26, 1986,
set aside the Order of Labor Arbiter Ramos and remanded the case to the
Arbitration Branch for further proceedings. The NLRC observed that the
Labor Arbiter erred in dismissing the case as against CSA which is an
indispensable party to the case and as such should be impleaded as party
respondent (Annex "N", Petition).

In said hearing, the CSA did not present any evidence and opted to adopt
the evidence presented by private respondents.

In the Decision dated September 15, 1988 (Annex "B", Petition) Labor
Arbiter Alvarez found private respondents' dismissal to be illegal but held
only CSA liable therefor and dismissed the complaint as against CARCO
for lack of employer-employee relationship.
 In an appeal therefrom, the NLRC, in its Resolution dated October 12,
1989 modified the foregoing Decision by dismissing the complaint as
against both CSA and CARCO (Annex "F", Petition).

Private respondents moved to reconsider the foregoing Decision and the

NLRC, in this Resolution dated December 19, 1990 (Annex "A", Petition)
granted the same and reinstated the appealed Decision of Labor Arbiter
Alvarez which found only CSA liable to private respondents for illegal
termination.

CSA's Motion for Reconsideration was denied by the NLRC in its

Resolution dated January 31, 1991 (Annex "C", Petition).

Hence, this Petition upon the contention that:

In issuing the Resolution (Annex "A") complained of Public

Respondent National Labor Relations Commission (NLRC)
acted with great abuse of discretion making the
followingfindings which are contrary to law and evidence, to
wit:

I. NLRC's findings that the quitclaim clearly . . .

was premised on an erroneous belief that
respondent CARCO is the real employer (p. 9).

II. NLRC's finding that exonerate respondency

(sic) CSA is contrary to the declared policy of
the law to afford protection to labor and to
assure them the right to security of tenure (p.
9).

III. NLRC's finding that while rights may be

waived, the same must not be contrary to law,
public order, morals and good customs or
prejudicial to a third person with a right
recognized by law (p. 9).

IV. NLRC's finding that the affidavit of Antonio

Yulo, as officer of CSA is indeed self-serving
and should be held suspect. His declaration
cannot overcome the documentary evidence
presented by respondent CARCO to controvert
the same. (pp. 225-229, Rollo.)

The petition is without merit.

In determining the existence of employer-employee relationship, the following elements
are generally considered, namely: (1) the selection and engagement of the employee;
(2) the payment of wages; (3) the power of dismissal; (4) the power to control the
employee's conduct — although the latter is the most important element (Brotherhood
Labor Unity Movement of the Philippines vs. Zamora, 147 SCRA 49; Social Security
System vs. Court of Appeals, 156 SCRA 383; Broadway Motors, Inc. vs. NLRC, 156
SCRA 522; Bautista vs. Inciong, 158 SCRA 665).

In the case at bar, the contract for security service entered into between CSA and
CARCO provided, among other terms, as follows:

1. Firearms and other ammunitions needed by the guards for effectively

securing CARCO's premises shall be provided by CSA.

2. Replacement of security guards shall be reposed on CSA.

3. Discipline of the guards as well as their dismissal shall be within the

regulation of the agency or CSA.

4. The guards are employees of the agency and not that of the client
company.

5. All wages, benefits, and increments due under existing laws to the
guards shall be the sole and exclusive responsibility of CSA.

6. The agency shall hold CARCO "free from any liability, claim or causes
of action, case, claim, which may be filed by security guards employed by
the agency which matters involve the provisions of wage act or laws . . . or
where such claim involve the question of employment as said guards are
in no sense personnel or employees of the client company." (pp. 52-
53, Rollo.)

The right-of-control test, i.e., "where the person for whom the services are performed
reserves a right to control not only the end to be achieved but also the means to be
used in reaching such an end" (Sevilla vs. Court of Appeals, 160 SCRA 171) belonging
to petitioner CSA by express stipulation of its contract with CARCO, is determinative of
the existence of employer-employee relationship between CSA and its guards, the
private respondents herein. Where no employer-employee relationship has been proven
to exist between the private respondents and CARCO, the labor case filed by the
private respondents against CARCO with DOLE's arbitration body should be dismissed
for there is no legal basis for the private respondents' claims for separation pay and
other benefits against CARCO.

In the similar case of AMERICAN PRESIDENT LINES vs. CLAVE (114 SCRA 826,
833), we ruled:
 In the light of the foregoing standards, We fail to see how the complaining
watchmen of the Marine Security Agency can be considered as
employees of the petitioner. It is the agency that recruits, hires, and
assigns the work of its watchmen. Hence, a watchman cannot perform any
security service for the petitioner's vessels unless the agency first accepts
him as its watchmen. With respect to his wages, the amount to be paid to
a security guard is beyond the power of the petitioner to determine.
Certainly, the lump sum amount paid by the petitioner to the agency in
consideration of the latter's service is much more than the wages of any
one watchman. In point of fact, it is the agency that quantifies and pays
the wages to which the watchman is entitled.

Neither does the petitioner have any power to dismiss the security guards.
In fact, We fail to see any evidence in the record that it wielded such a
power. It is true that it may request the agency to change a particular
guard. But this, precisely, is proof that the power lies in the hands of the
agency.

Since the petitioner has to deal with the agency, and not the individual
watchmen, on matters pertaining to the contracted task, it stands to
reason that the petitioner does not exercise any power over the
watchman's conduct. Always, the agency stands between the petitioner
and the watchmen; and it is the agency that is answerable to the petitioner
for the conduct of its guards.

Petitioner CSA disclaims any liability for the termination of private respondents from
their employment because of the QUITCLAIM/WAIVER contained in the latter's Motion
to Dismiss their complaint against CSA based on their belief that their employer was
CARCO and not CSA.

That argument deserves scant consideration for as the Solicitor General aptly observed:

The alleged Quitclaim/Waiver is patently invalid being premised on a

wrong conviction or belief. As pointed out above, the existence of an
employer-employee relationship, as a condition for the availment of
provisions of the Labor Code, is determined by evidence and
jurisprudence and the task of determining the same is judicial in character.

Consequently, private respondents may not arrogate unto themselves the

authority to determine unilaterally, the existence of an employer-employee
relationship, otherwise, the disposition of the case would be made to
depend, to a large extent, on the "belief and conviction" of a party litigant
and not on the evidence adduced and jurisprudence applicable thereto.
(pp. 230-231, Rollo.)
The issue of whether employer-employee relationship existed between the parties is a
question of fact which was resolved by the labor arbiter against CSA and upheld by the
NLRC. Review of the labor cases are confined to questions of jurisdiction or grave
abuse of discretion. (Aboitiz Shipping Employees Association vs. NLRC, 186 SCRA
825.) In this case, we find that no grave abuse of discretion was committed by the
NLRC. The findings of facts of the labor arbiter and the NLRC are binding on this Court.

WHEREFORE, the petition for certiorari is DISMISSED for lack of merit. No costs.

SO ORDERED.
 FIRST DIVISION

OSCAR VILLAMARIA, JR. G.R. No. 165881

Petitioner,
Present:

PANGANIBAN, C.J.,
Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ.
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

COURT OF APPEALS and Promulgated:

JERRY V. BUSTAMANTE,
Respondents. April 19, 2006

x-----------------------------------------------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of
Court assailing the Decision[1] and Resolution[2] of the Court of Appeals (CA) in CA-G.R.
SP No. 78720 which set aside the Resolution[3] of the National Labor Relations
Commission (NLRC) in NCR-30-08-03247-00, which in turn affirmed the Decision[4] of the
Labor Arbiter dismissing the complaint filed by respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole
proprietorship engaged in assembling passenger jeepneys with a public utility franchise
to operate along the Baclaran-Sucat route. By 1995, Villamaria stopped assembling
jeepneys and retained only nine, four of which he operated by employing drivers on a
boundary basis. One of those drivers was respondent Bustamante who drove the jeepney
with Plate No. PVU-660. Bustamante remitted P450.00 a day to Villamaria as boundary
and kept the residue of his daily earnings as compensation for driving the vehicle. In
August 1997, Villamaria verbally agreed to sell the jeepney to Bustamante under the
boundary-hulog scheme, where Bustamante would remit to Villarama P550.00 a day for
a period of four years; Bustamante would then become the owner of the vehicle and
continue to drive the same under Villamarias franchise. It was also agreed that
Bustamante would make a downpayment of P10,000.00.
 On August 7, 1997, Villamaria executed a contract entitled Kasunduan ng Bilihan
ng Sasakyan sa Pamamagitan ng Boundary-Hulog[5] over the passenger jeepney with
Plate No. PVU-660, Chassis No. EVER95-38168-C and Motor No. SL-26647. The parties
agreed that if Bustamante failed to pay the boundary-hulog for three days, Villamaria
Motors would hold on to the vehicle until Bustamante paid his arrears, including a penalty
of P50.00 a day; in case Bustamante failed to remit the daily boundary-hulog for a period
of one week, the Kasunduan would cease to have legal effect and Bustamante would
have to return the vehicle to Villamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle without
prior authority from Villamaria Motors. Thus, Bustamante was authorized to operate the
vehicle to transport passengers only and not for other purposes. He was also required to
display an identification card in front of the windshield of the vehicle; in case of failure to
do so, any fine that may be imposed by government authorities would be charged against
his account. Bustamante further obliged himself to pay for the cost of replacing any parts
of the vehicle that would be lost or damaged due to his negligence. In case the vehicle
sustained serious damage, Bustamante was obliged to notify Villamaria Motors before
commencing repairs. Bustamante was not allowed to wear slippers, short pants or
undershirts while driving. He was required to be polite and respectful towards the
passengers. He was also obliged to notify Villamaria Motors in case the vehicle was
leased for two or more days and was required to attend any meetings which may be called
from time to time. Aside from the boundary-hulog, Bustamante was also obliged to pay
for the annual registration fees of the vehicle and the premium for the vehicles
comprehensive insurance. Bustamante promised to strictly comply with the rules and
regulations imposed by Villamaria for the upkeep and maintenance of the jeepney.

Bustamante continued driving the jeepney under the supervision and control of
Villamaria. As agreed upon, he made daily remittances of P550.00 in payment of the
purchase price of the vehicle. Bustamante failed to pay for the annual registration fees of
the vehicle, but Villamaria allowed him to continue driving the jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement with
Villamaria Motors failed to pay their respective boundary-hulog. This prompted Villamaria
to serve a Paalala,[6] reminding them that under the Kasunduan, failure to pay the daily
boundary-hulog for one week, would mean their respective jeepneys would be returned
to him without any complaints. He warned the drivers that the Kasunduan would
henceforth be strictly enforced and urged them to comply with their obligation to avoid
litigation.

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and
barred the latter from driving the vehicle.
 On August 15, 2000, Bustamante filed a Complaint [7] for Illegal Dismissal against
Villamaria and his wife Teresita. In his Position Paper,[8] Bustamante alleged that he was
employed by Villamaria in July 1996 under the boundary system, where he was required
to remit P450.00 a day. After one year of continuously working for them, the spouses
Villamaria presented the Kasunduan for his signature, with the assurance that he
(Bustamante) would own the jeepney by March 2001 after paying P550.00 in daily
installments and that he would thereafter continue driving the vehicle along the same
route under the same franchise. He further narrated that in July 2000, he informed the
Villamaria spouses that the surplus engine of the jeepney needed to be replaced, and
was assured that it would be done. However, he was later arrested and his drivers license
was confiscated because apparently, the replacement engine that was installed was
taken from a stolen vehicle. Due to negotiations with the apprehending authorities, the
jeepney was not impounded. The Villamaria spouses took the jeepney from him on July
24, 2000, and he was no longer allowed to drive the vehicle since then unless he paid
them P70,000.00.

Bustamante prayed that judgment be rendered in his favor, thus:

WHEREFORE, in the light of the foregoing, it is most respectfully

prayed that judgment be rendered ordering the respondents, jointly and
severally, the following:

1. Reinstate complainant to his former position without loss of

seniority rights and execute a Deed of Sale in favor of the complainant
relative to the PUJ with Plate No. PVU-660;

2. Ordering the respondents to pay backwages in the amount

of P400.00 a day and other benefits computed from July 24, 2000 up to the
time of his actual reinstatement;

3. Ordering respondents to return the amount of P10,000.00

and P180,000.00 for the expenses incurred by the complainant in the repair
and maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred

(P100.00) Pesos per day counted from August 7, 1997 up to June 2000 or
a total of P91,200.00;

5. To pay moral and exemplary damages of not less

than P200,000.00;

6. Attorneys fee[s] of not less than 10% of the monetary award.

Other just and equitable reliefs under the premises are also being
prayed for.[9]
In their Position Paper,[10] the spouses Villamaria admitted the existence of
the Kasunduan, but alleged that Bustamante failed to pay the P10,000.00 downpayment
and the vehicles annual registration fees. They further alleged that Bustamante
eventually failed to remit the requisite boundary-hulog of P550.00 a day, which prompted
them to issue the Paalaala. Instead of complying with his obligations, Bustamante
stopped making his remittances despite his daily trips and even brought the jeepney to
the province without permission. Worse, the jeepney figured in an accident and its license
plate was confiscated; Bustamante even abandoned the vehicle in a gasoline station in
Sucat, Paraaque City for two weeks. When the security guard at the gasoline station
requested that the vehicle be retrieved and Teresita Villamaria asked Bustamante for the
keys, Bustamante told her: Di kunin ninyo. When the vehicle was finally retrieved, the
tires were worn, the alternator was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v. NLRC[11] and Canlubang

Security Agency Corporation v. NLRC,[12] the spouses Villamaria argued that Bustamante
was not illegally dismissed since the Kasunduan executed on August 7,
1997 transformed the employer-employee relationship into that of vendor-vendee.Hence,
the spouses concluded, there was no legal basis to hold them liable for illegal
dismissal. They prayed that the case be dismissed for lack of jurisdiction and patent lack
of merit.

In his Reply,[13] Bustamante claimed that Villamaria exercised control and

supervision over the conduct of his employment. He maintained that the rulings of the
Court in National Labor Union v. Dinglasan,[14] Magboo v. Bernardo,[15] and Citizen's
League of Free Workers v. Abbas[16] are germane to the issue as they define the nature
of the owner/operator-driver relationship under the boundary system. He further
reiterated that it was the Villamaria spouses who presented the Kasunduan to him and
that he conformed thereto only upon their representation that he would own the vehicle
after four years. Moreover, it appeared that the Paalalawas duly received by him, as he,
together with other drivers, was made to affix his signature on a blank piece of paper
purporting to be an attendance sheet.

On March 15, 2002, the Labor Arbiter rendered judgment[17] in favor of the spouses
Villamaria and ordered the complaint dismissed on the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as

the PAALALA, to prove their claim that complainant violated the terms of
their contract and afterwards abandoned the vehicle assigned to him. As
against the foregoing, [the] complaints (sic) mere allegations to the contrary
cannot prevail.
 Not having been illegally dismissed, complainant is not entitled to damages
and attorney's fees.[18]

Bustamante appealed the decision to the NLRC,[19] insisting that

the Kasunduan did not extinguish the employer-employee relationship between him and
Villamaria. While he did not receive fixed wages, he kept only the excess of the boundary-
hulog which he was required to remit daily to Villamaria under the
agreement. Bustamante maintained that he remained an employee because he was
engaged to perform activities which were necessary or desirable to Villamarias trade or
business.
The NLRC rendered judgment[20] dismissing the appeal for lack of merit, thus:

WHEREFORE, premises considered, complainant's appeal is

hereby DISMISSED for reasons not stated in the Labor Arbiter's decision
but mainly on a jurisdictional issue, there being none over the subject matter
of the controversy.[21]

The NLRC ruled that under the Kasunduan, the juridical relationship between
Bustamante and Villamaria was that of vendor and vendee, hence, the Labor Arbiter had
no jurisdiction over the complaint. Bustamante filed a Motion for Reconsideration, which
the NLRC resolved to deny on May 30, 2003.[22]

Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that
the NLRC erred

I
IN DISMISSING PETITIONERS APPEAL FOR REASON NOT STATED IN
THE LABOR ARBITERS DECISION, BUT MAINLY ON JURISDICTIONAL
ISSUE;

II
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE
WHEN IT DECLARED THAT THE RELATIONSHIP WHICH WAS
ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE
PROTECTIVE MANTLE OF OUR LABOR LAWS.[23]

Bustamante insisted that despite the Kasunduan, the relationship between him and
Villamaria continued to be that of employer-employee and as such, the Labor Arbiter had
jurisdiction over his complaint. He further alleged that it is common knowledge that
operators of passenger jeepneys (including taxis) pay their drivers not on a regular
monthly basis but on commission or boundary basis, or even the boundary-
hulog system. Bustamante asserted that he was dismissed from employment without any
lawful or just cause and without due notice.
 For his part, Villamaria averred that Bustamante failed to adduce proof of their
employer-employee relationship. He further pointed out that the Dinglasan case pertains
to the boundary system and not the boundary-hulog system, hence inapplicable in the
instant case. He argued that upon the execution of the Kasunduan, the juridical tie
between him and Bustamante was transformed into a vendor-vendee relationship. Noting
that he was engaged in the manufacture and sale of jeepneys and not in the business of
transporting passengers for consideration, Villamaria contended that the daily fees which
Bustmante paid were actually periodic installments for the the vehicle and were not the
same fees as understood in the boundary system. He added that the boundary-hulog plan
was basically a scheme to help the driver-buyer earn money and eventually pay for the
unit in full, and for the owner to profit not from the daily earnings of the driver-buyer but
from the purchase price of the unit sold. Villamaria further asserted that the apparently
restrictive conditions in the Kasunduan did not mean that the means and method of
driver-buyers conduct was controlled, but were mere ways to preserve the vehicle for the
benefit of both parties: Villamaria would be able to collect the agreed purchase price,
while Bustamante would be assured that the vehicle would still be in good running
condition even after four years. Moreover, the right of vendor to impose certain conditions
on the buyer should be respected until full ownership of the property is vested on the
latter. Villamaria insisted that the parallel circumstances obtaining in Singer Sewing
Machine Company v. Drilon[24] has analogous application to the instant issue.

In its Decision[25] dated August 30, 2004, the CA reversed and set aside the NLRC
decision. The fallo of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned

resolutions of the NLRC must be, as they are hereby are, REVERSED AND
SET ASIDE, and judgment entered in favor of petitioner:

1. Sentencing private respondent Oscar Villamaria, Jr.

to pay petitioner Jerry Bustamante separation pay computed
from the time of his employment up to the time of termination
based on the prevailing minimum wage at the time of
termination; and,

2. Condemning private respondent Oscar Villamaria,

Jr. to pay petitioner Jerry Bustamante back wages computed
from the time of his dismissal up to March 2001 based on the
prevailing minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.[26]
 The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamantes
complaint. Under the Kasunduan, the relationship between him and Villamaria was dual:
that of vendor-vendee and employer-employee. The CA ratiocinated that Villamarias
exercise of control over Bustamantes conduct in operating the jeepney is inconsistent
with the formers claim that he was not engaged in the transportation business. There was
no evidence that petitioner was allowed to let some other person drive the jeepney.

The CA further held that, while the power to dismiss was not mentioned in
the Kasunduan, it did not mean that Villamaria could not exercise it. It explained that the
existence of an employment relationship did not depend on how the worker was paid but
on the presence or absence of control over the means and method of the employees
work. In this case, Villamarias directives (to drive carefully, wear an identification card,
don decent attire, park the vehicle in his garage, and to inform him about provincial trips,
etc.) was a means to control the way in which Bustamante was to go about his work. In
view of Villamarias supervision and control as employer, the fact that the boundary
represented installment payments of the purchase price on the jeepney did not remove
the parties employer-employee relationship.

While the appellate court recognized that a weeks default in paying the boundary-
hulog constituted an additional cause for terminating Bustamantes employment, it held
that the latter was illegally dismissed. According to the CA, assuming that Bustamante
failed to make the required payments as claimed by Villamaria, the latter nevertheless
failed to take steps to recover the unit and waited for Bustamante to abandon it. It also
pointed out that Villamaria neither submitted any police report to support his claim that
the vehicle figured in a mishap nor presented the affidavit of the gas station guard to
substantiate the claim that Bustamante abandoned the unit.

Villamaria received a copy of the decision on September 8, 2004, and filed,

on September 17, 2004, a motion for reconsideration thereof. The CA denied the motion
in a Resolution[27] dated November 2, 2004, and Villamaria received a copy thereof
on November 8, 2004.

Villamaria, now petitioner, seeks relief from this Court via petition for review
on certiorari under Rule 65 of the Rules of Court, alleging that the CA committed grave
abuse of its discretion amounting to excess or lack of jurisdiction in reversing the decision
of the Labor Arbiter and the NLRC. He claims that the CA erred in ruling that the juridical
relationship between him and respondent under the Kasunduan was a combination of
employer-employee and vendor-vendee relationships. The terms and conditions of
the Kasunduan clearly state that he and respondent Bustamante had entered into a
conditional deed of sale over the jeepney; as such, their employer-employee relationship
had been transformed into that of vendor-vendee. Petitioner insists that he had the right
to reserve his title on the jeepney until after the purchase price thereof had been paid in
full.

In his Comment on the petition, respondent avers that the appropriate remedy of
petitioner was an appeal via a petition for review on certiorari under Rule 45 of the Rules
of Court and not a special civil action of certiorari under Rule 65. He argues that petitioner
failed to establish that the CA committed grave abuse of its discretion amounting to
excess or lack of jurisdiction in its decision, as the said ruling is in accord with law and
the evidence on record.

Respondent further asserts that the Kasunduan presented to him by petitioner

which provides for a boundary-hulog scheme was a devious circumvention of the Labor
Code of the Philippines. Respondent insists that his juridical relationship with petitioner is
that of employer-employee because he was engaged to perform activities which were
necessary or desirable in the usual business of petitioner, his employer.

In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in
his favor; hence, it behooves the Court to resolve the merits of his petition.

We agree with respondents contention that the remedy of petitioner from the CA decision
was to file a petition for review on certiorari under Rule 45 of the Rules of Court and not
the independent action of certiorari under Rule 65. Petitioner had 15 days from receipt of
the CA resolution denying his motion for the reconsideration within which to file the
petition under Rule 45.[28] But instead of doing so, he filed a petition for certiorari under
Rule 65 on November 22, 2004, which did not, however, suspend the running of the 15-
day reglementary period; consequently, the CA decision became final and executory
upon the lapse of the reglementary period for appeal. Thus, on this procedural lapse, the
instant petition stands to be dismissed.[29]

It must be stressed that the recourse to a special civil action under Rule 65 of the Rules
of Court is proscribed by the remedy of appeal under Rule 45. As the Court elaborated
in Tomas Claudio Memorial College, Inc. v. Court of Appeals:[30]

We agree that the remedy of the aggrieved party from a decision or final
resolution of the CA is to file a petition for review on certiorari under Rule
45 of the Rules of Court, as amended, on questions of facts or issues of law
within fifteen days from notice of the said resolution. Otherwise, the decision
of the CA shall become final and executory. The remedy under Rule 45 of
the Rules of Court is a mode of appeal to this Court from the decision of the
CA. It is a continuation of the appellate process over the original case. A
review is not a matter of right but is a matter of judicial discretion. The
aggrieved party may, however, assail the decision of the CA via a petition
for certiorari under Rule 65 of the Rules of Court within sixty days from
notice of the decision of the CA or its resolution denying the motion for
 reconsideration of the same. This is based on the premise that in issuing
the assailed decision and resolution, the CA acted with grave abuse of
discretion, amounting to excess or lack of jurisdiction and there is no plain,
speedy and adequate remedy in the ordinary course of law. A remedy is
considered plain, speedy and adequate if it will promptly relieve the
petitioner from the injurious effect of the judgment and the acts of the lower
court.

The aggrieved party is proscribed from filing a petition for certiorari if appeal
is available, for the remedies of appeal and certiorari are mutually exclusive
and not alternative or successive. The aggrieved party is, likewise, barred
from filing a petition for certiorari if the remedy of appeal is lost through his
negligence. A petition for certiorari is an original action and does not
interrupt the course of the principal case unless a temporary restraining
order or a writ of preliminary injunction has been issued against the public
respondent from further proceeding. A petition for certiorari must be based
on jurisdictional grounds because, as long as the respondent court acted
within its jurisdiction, any error committed by it will amount to nothing more
than an error of judgment which may be corrected or reviewed only by
appeal.[31]

However, we have also ruled that a petition for certiorari under Rule 65 may be
considered as filed under Rule 45, conformably with the principle that rules of procedure
are to be construed liberally, provided that the petition is filed within the reglementary
period under Section 2, Rule 45 of the Rules of Court, and where valid and compelling
circumstances warrant that the petition be resolved on its merits.[32] In this case, the
petition was filed within the reglementary period and petitioner has raised an issue of
substance: whether the existence of a boundary-hulog agreement negates the employer-
employee relationship between the vendor and vendee, and, as a corollary, whether the
Labor Arbiter has jurisdiction over a complaint for illegal dismissal in such case.
We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as well as,
which court or agency of the government has jurisdiction over the same, are determined
by the material allegations of the complaint in relation to the law involved and the
character of the reliefs prayed for, whether or not the complainant/plaintiff is entitled to
any or all of such reliefs.[33] A prayer or demand for relief is not part of the petition of the
cause of action; nor does it enlarge the cause of action stated or change the legal effect
of what is alleged.[34] In determining which body has jurisdiction over a case, the better
policy is to consider not only the status or relationship of the parties but also the nature
of the action that is the subject of their controversy.[35]

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive
original jurisdiction only over the following:
 x x x (a) Except as otherwise provided under this Code, the Labor
Arbiters shall have original and exclusive jurisdiction to hear and decide,
within thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of stenographic
notes, the following cases involving all workers, whether agricultural or non-
agricultural:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement,
those cases that workers may file involving wage, rates of
pay, hours of work, and other terms and conditions of
employment;
4. Claims for actual, moral, exemplary and other
forms of damages arising from the employer-employee
relations;
5. Cases arising from 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 relationship,
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.

(b) The Commission shall have exclusive appellate jurisdiction over

all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of

collective bargaining agreements, and those arising from the interpretation
or enforcement of company personnel policies shall be disposed of by the
Labor Arbiter by referring the same to the grievance machinery and
voluntary arbitration as may be provided in said agreements.

In the foregoing cases, an employer-employee relationship is an indispensable

jurisdictional requisite.[36] The jurisdiction of Labor Arbiters and the NLRC under Article
217 of the Labor Code is limited to disputes arising from an employer-employee
relationship which can only be resolved by reference to the Labor Code, other labor
statutes or their collective bargaining agreement.[37] Not every dispute between an
employer and employee involves matters that only the Labor Arbiter and the NLRC can
resolve in the exercise of their adjudicatory or quasi-judicial powers. Actions between
employers and employees where the employer-employee relationship is merely incidental
is within the exclusive original jurisdiction of the regular courts.[38] When the principal relief
is to be granted under labor legislation or a collective bargaining agreement, the case
falls within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though a
claim for damages might be asserted as an incident to such claim.[39]

We agree with the ruling of the CA that, under the boundary-hulog scheme
incorporated in the Kasunduan, a dual juridical relationship was created between
petitioner and respondent: that of employer-employee and vendor-
vendee. The Kasunduan did not extinguish the employer-employee relationship of the
parties extant before the execution of said deed.
As early as 1956, the Court ruled in National Labor Union v. Dinglasan[40] that the
jeepney owner/operator-driver relationship under the boundary system is that of
employer-employee and not lessor-lessee. This doctrine was affirmed, under similar
factual settings, in Magboo v. Bernardo[41] and Lantaco, Sr. v. Llamas,[42] and was
analogously applied to govern the relationships between auto-calesa owner/operator and
driver,[43] bus owner/operator and conductor,[44] and taxi owner/operator and driver.[45]

The boundary system is a scheme by an owner/operator engaged in transporting

passengers as a common carrier to primarily govern the compensation of the driver, that
is, the latters daily earnings are remitted to the owner/operator less the excess of the
boundary which represents the drivers compensation. Under this system, the
owner/operator exercises control and supervision over the driver. It is unlike in lease of
chattels where the lessor loses complete control over the chattel leased but the lessee is
still ultimately responsible for the consequences of its use. The management of the
business is still in the hands of the owner/operator, who, being the holder of the certificate
of public convenience, must see to it that the driver follows the route prescribed by the
franchising and regulatory authority, and the rules promulgated with regard to the
business operations. The fact that the driver does not receive fixed wages but only the
excess of the boundary given to the owner/operator is not sufficient to change the
relationship between them. Indubitably, the driver performs activities which are usually
necessary or desirable in the usual business or trade of the owner/operator.[46]

Under the Kasunduan, respondent was required to remit P550.00 daily to

petitioner, an amount which represented the boundary of petitioner as well as
respondents partial payment (hulog) of the purchase price of the jeepney.
Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus,
the daily remittances also had a dual purpose: that of petitioners boundary and
respondents partial payment (hulog) for the vehicle. This dual purpose was expressly
stated in the Kasunduan. The well-settled rule is that an obligation is not novated by an
instrument that expressly recognizes the old one, changes only the terms of payment,
and adds other obligations not incompatible with the old provisions or where the new
contract merely supplements the previous one. [47] The two obligations of the respondent
to remit to petitioner the boundary-hulog can stand together.

In resolving an issue based on contract, this Court must first examine the contract
itself, keeping in mind that when the terms of the agreement are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning of its stipulations shall
prevail.[48] The intention of the contracting parties should be ascertained by looking at the
words used to project their intention, that is, all the words, not just a particular word or two
or more words standing alone. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them
taken jointly.[49] The parts and clauses must be interpreted in relation to one another to
give effect to the whole. The legal effect of a contract is to be determined from the whole
read together.[50]

Under the Kasunduan, petitioner retained supervision and control over the conduct
of the respondent as driver of the jeepney, thus:

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng

boundary hulog ay ang mga sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG

PANIG ang sasakyan ipinagkatiwala sa kanya ng TAUHAN NG UNANG
PANIG.

2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN

NG IKALAWANG PANIG sa paghahanapbuhay bilang pampasada o
pangangalakal sa malinis at maayos na pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG

IKALAWANG PANIG sa mga bagay na makapagdudulot ng kahihiyan,
kasiraan o pananagutan sa TAUHAN NG UNANG PANIG.

4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng

UNANG PANIG.

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang

maglagay ng ID Card sa harap ng windshield upang sa pamamagitan nito
ay madaliang malaman kung ang nagmamaneho ay awtorisado ng
VILLAMARIA MOTORS o hindi.
 6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga
ng] multa kung sakaling mahuli ang sasakyang ito na hindi nakakabit ang
ID card sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang

materyales o piyesa na papalitan ng nasira o nawala ito dahil sa kanyang
kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang

hinuhulugan pa rin ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang

ipinagkaloob ng TAUHAN NG UNANG PANIG, ang TAUHAN NG
IKALAWANG PANIG ay obligadong itawag ito muna sa VILLAMARIA
MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng
VILLAMARIA MOTORS.

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG

sa panahon ng pamamasada na ang nagmamaneho ay naka-tsinelas,
naka short pants at nakasando lamang. Dapat ang nagmamaneho ay
laging nasa maayos ang kasuotan upang igalang ng mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado

niyang driver ay magpapakita ng magandang asal sa mga pasaheros at
hindi dapat magsasalita ng masama kung sakali man may pasaherong
pilosopo upang maiwasan ang anumang kaguluhan na maaaring
kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG

ang TAUHAN NG IKALAWANG PANIG sa loob ng tatlong (3) araw ay ang
opisina ng VILLAMARIA MOTORS ang may karapatang mangasiwa ng
nasabing sasakyan hanggang matugunan ang lahat ng
responsibilidad. Ang halagang dapat bayaran sa opisina ay may
karagdagang multa ng P50.00 sa araw-araw na ito ay nasa pangangasiwa
ng VILLAMARIA MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi

makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang
ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa
TAUHAN NG UNANG PANIG.

14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa

rehistro, comprehensive insurance taon-taon at kahit anong uri ng
aksidente habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.
 15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong
dumalo sa pangkalahatang pagpupulong ng VILLAMARIA MOTORS sa
tuwing tatawag ang mga tagapangasiwa nito upang maipaabot ang
anumang mungkahi sa ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat

ng mga patakaran na magkakaroon ng pagbabago o karagdagan sa mga
darating na panahon at hindi magiging hadlang sa lahat ng mga balakin ng
VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng
Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging

buwaya sa pasahero upang hindi kainisan ng kapwa driver at maiwasan
ang pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang

kalagayan lalo na sa umaga bago pumasada, at sa hapon o gabi naman
ay sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at

aabutin ng dalawa o higit pang araw sa lalawigan ay dapat lamang na
ipagbigay alam muna ito sa VILLAMARIA MOTORS upang maiwasan ang
mga anumang suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang

pakikipag-unahan sa kaninumang sasakyan upang maiwasan ang
aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon

sasabihin sa VILLAMARIA MOTORS mabuti man or masama ay iparating
agad ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino]
lamang upang maiwasan ang anumang usapin. Magsadya agad sa opisina
ng VILLAMARIA MOTORS.

22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at

puso kong sinasang-ayunan at buong sikap na pangangalagaan ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan at gagamitin
lamang ito sa paghahanapbuhay at wala nang iba pa.[51]

The parties expressly agreed that petitioner, as vendor, and respondent, as

vendee, entered into a contract to sell the jeepney on a daily installment basis of P550.00
payable in four years and that petitioner would thereafter become its owner. A contract is
one of conditional sale, oftentimes referred to as contract to sell, if the ownership or title
over the
property sold is retained by the vendor, and is not passed to the vendee unless and until
there is full payment of the purchase price and/or upon faithful compliance with the other
terms and conditions that may lawfully be stipulated.[52] Such payment or satisfaction of
other preconditions, as the case may be, is a positive suspensive condition, the failure of
which is not a breach of contract, casual or serious, but simply an event that would prevent
the obligation of the vendor to convey title from acquiring binding force. [53] Stated
differently, the efficacy or obligatory force of the vendor's obligation to transfer title is
subordinated to the happening of a future and uncertain event so that if the suspensive
condition does not take place, the parties would stand as if the conditional obligation had
never existed.[54] The vendor may extrajudicially terminate the operation of the contract,
refuse conveyance, and retain the sums or installments already received, where such
rights are expressly provided for.[55]

Under the boundary-hulog scheme, petitioner retained ownership of the jeepney

although its material possession was vested in respondent as its driver. In case
respondent failed to make his P550.00 daily installment payment for a week, the
agreement would be of no force and effect and respondent would have to return the
jeepney to petitioner; the employer-employee relationship would likewise be terminated
unless petitioner would allow respondent to continue driving the jeepney on a boundary
basis of P550.00 daily despite the termination of their vendor-vendee relationship.

The juridical relationship of employer-employee between petitioner and

respondent was not negated by the foregoing stipulation in the Kasunduan, considering
that petitioner retained control of respondents conduct as driver of the vehicle. As
correctly ruled by the CA:

The exercise of control by private respondent over petitioners

conduct in operating the jeepney he was driving is inconsistent with private
respondents claim that he is, or was, not engaged in the transportation
business; that, even if petitioner was allowed to let some other person drive
the unit, it was not shown that he did so; that the existence of an
employment relation is not dependent on how the worker is paid but on the
presence or absence of control over the means and method of the work;
that the amount earned in excess of the boundary hulog is equivalent to
wages; and that the fact that the power of dismissal was not mentioned in
the Kasunduan did not mean that private respondent never exercised such
power, or could not exercise such power.

Moreover, requiring petitioner to drive the unit for commercial use, or

to wear an identification card, or to don a decent attire, or to park the vehicle
in Villamaria Motors garage, or to inform Villamaria Motors about the fact
that the unit would be going out to the province for two days of more, or to
drive the unit carefully, etc. necessarily related to control over the means by
which the petitioner was to go about his work; that the ruling applicable here
is not Singer Sewing Machine but National Labor Union since the latter
 case involved jeepney owners/operators and jeepney drivers, and that the
fact that the boundary here represented installment payment of the
purchase price on the jeepney did not withdraw the relationship from that of
employer-employee, in view of the overt presence of supervision and
control by the employer.[56]

Neither is such juridical relationship negated by petitioners claim that the terms
and conditions in the Kasunduan relative to respondents behavior and deportment as
driver was for his and respondents benefit: to insure that respondent would be able to pay
the requisite daily installment of P550.00, and that the vehicle would still be in good
condition despite the lapse of four years. What is primordial is that petitioner retained
control over the conduct of the respondent as driver of the jeepney.

Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is
entitled to exercise supervision and control over the respondent, by seeing to it that the
route provided in his franchise, and the rules and regulations of the Land Transportation
Regulatory Board are duly complied with. Moreover, in a business establishment, an
identification card is usually provided not just as a security measure but to mainly identify
the holder thereof as a bona fide employee of the firm who issues it.[57]

As respondents employer, it was the burden of petitioner to prove that respondents

termination from employment was for a lawful or just cause, or, at the very least, that
respondent failed to make his daily remittances of P550.00 as boundary. However,
petitioner failed to do so. As correctly ruled by the appellate court:

It is basic of course that termination of employment must be effected

in accordance with law. The just and authorized causes for termination of
employment are enumerated under Articles 282, 283 and 284 of the Labor
Code.

Parenthetically, given the peculiarity of the situation of the parties

here, the default in the remittance of the boundary hulog for one week or
longer may be considered an additional cause for termination of
employment. The reason is because the Kasunduan would be of no force
and effect in the event that the purchaser failed to remit the
boundary hulog for one week. The Kasunduan in this case pertinently
stipulates:

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi

makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at
kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang
nasabing sasakyan sa TAUHAN NG UNANG PANIG na wala ng
paghahabol pa.
Moreover, well-settled is the rule that, the employer has the burden of
proving that the dismissal of an employee is for a just cause. The failure of
the employer to discharge this burden means that the dismissal is not
justified and that the employee is entitled to reinstatement and back wages.

In the case at bench, private respondent in his position paper before

the Labor Arbiter, alleged that petitioner failed to pay the miscellaneous fee
of P10,000.00 and the yearly registration of the unit; that petitioner also
stopped remitting the boundary hulog, prompting him (private respondent)
to issue a Paalala, which petitioner however ignored; that petitioner even
brought the unit to his (petitioners) province without informing him (private
respondent) about it; and that petitioner eventually abandoned the vehicle
at a gasoline station after figuring in an accident. But private respondent
failed to substantiate these allegations with solid, sufficient proof. Notably,
private respondents allegation viz, that he retrieved the vehicle from the gas
station, where petitioner abandoned it, contradicted his statement in
the Paalala that he would enforce the provision (in the Kasunduan) to the
effect that default in the remittance of the boundary hulog for one week
would result in the forfeiture of the unit. The Paalala reads as follows:

Sa lahat ng mga kumukuha ng sasakyan

Sa pamamagitan ng BOUNDARY HULOG

Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan

particular na ang paragrapo 13 na nagsasaad na kung hindi kayo
makapagbigay ng Boundary Hulog sa loob ng isang linggo ay kusa ninyong
ibabalik and nasabing sasakyan na inyong hinuhulugan ng wala ng
paghahabol pa.

Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong

ipatutupad ang nasabing Kasunduan kayat aking pinaaalala sa inyong lahat
na tuparin natin ang nakalagay sa kasunduan upang maiwasan natin ito.

Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na

tayo makaabot pa sa korte kung sakaling hindi ninyo isasauli ang inyong
sasakyan na hinuhulugan na ang mga magagastos ay kayo pa ang
magbabayad sapagkat ang hindi ninyo pagtupad sa kasunduan ang naging
dahilan ng pagsampa ng kaso.

Sumasainyo

Attendance: 8/27/99
(The Signatures appearing herein
include (sic) that of petitioners) (Sgd.)
OSCAR VILLAMARIA, JR.
 If it were true that petitioner did not remit the boundary hulog for one week
or more, why did private respondent not forthwith take steps to recover the
unit, and why did he have to wait for petitioner to abandon it?

On another point, private respondent did not submit any police report to
support his claim that petitioner really figured in a vehicular mishap. Neither
did he present the affidavit of the guard from the gas station to substantiate
his claim that petitioner abandoned the unit there.[58]

Petitioners claim that he opted not to terminate the employment of respondent

because of magnanimity is negated by his (petitioners) own evidence that he took the
jeepney from the respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the
Court of Appeals in CA-G.R. SP No. 78720 is AFFIRMED. Costs against petitioner.

SO ORDERED.
 FIRST DIVISION

ABS-CBN BROADCASTING G.R. No. 164156

CORPORATION,
Petitioner, Present

PANGANIBAN, C.J., Chairperson,

YNARES-SANTIAGO,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
MARLYN NAZARENO, Promulgated:
MERLOU GERZON,
JENNIFER DEIPARINE,
and JOSEPHINE LERASAN,
Respondents. September 26, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals
(CA) in CA-G.R. SP No. 76582 and the Resolution denying the motion for reconsideration
thereof. The CA affirmed the Decision[2] and Resolution[3] of the National Labor Relations
Commission (NLRC) in NLRC Case No. V-000762-2001 (RAB Case No. VII-10-1661-
2001) which likewise affirmed, with modification, the decision of the Labor Arbiter
declaring the respondents Marlyn Nazareno, Merlou Gerzon, Jennifer Deiparine and
Josephine Lerasan as regular employees.
The Antecedents

Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is engaged in the

broadcasting business and owns a network of television and radio stations, whose
operations revolve around the broadcast, transmission, and relay of telecommunication
signals. It sells and deals in or otherwise utilizes the airtime it generates from its radio
and television operations. It has a franchise as a broadcasting company, and was likewise
issued a license and authority to operate by the National Telecommunications
Commission.

Petitioner employed respondents Nazareno, Gerzon, Deiparine, and Lerasan as

production assistants (PAs) on different dates. They were assigned at the news and
public affairs, for various radio programs in the Cebu Broadcasting Station, with a monthly
compensation of P4,000. They were issued ABS-CBN employees identification cards and
were required to work for a minimum of eight hours a day, including Sundays and
holidays. They were made to perform the following tasks and duties:

a) Prepare, arrange airing of commercial broadcasting based on the

daily operations log and digicart of respondent ABS-CBN;

b) Coordinate, arrange personalities for air interviews;

c) Coordinate, prepare schedule of reporters for scheduled news

reporting and lead-in or incoming reports;

d) Facilitate, prepare and arrange airtime schedule for public service

announcement and complaints;

e) Assist, anchor program interview, etc; and

f) Record, log clerical reports, man based control radio.[4]

Their respective working hours were as follows:

Name Time No. of Hours

1. Marlene Nazareno 4:30 A.M.-8:00 A.M. 7
8:00 A.M.-12:00 noon
2. Jennifer Deiparine 4:30 A.M.-12:00M.N. (sic) 7
3. Joy Sanchez 1:00 P.M.-10:00 P.M.(Sunday) 9 hrs.
9:00 A.M.-6:00 P.M. (WF) 9 hrs.
4. Merlou Gerzon 9:00 A.M.-6:00 P.M. 9 hrs.[5]
The PAs were under the control and supervision of Assistant Station Manager
Dante J. Luzon, and News Manager Leo Lastimosa.

On December 19, 1996, petitioner and the ABS-CBN Rank-and-File Employees

executed a Collective Bargaining Agreement (CBA) to be effective during the period
from December 11, 1996 to December 11, 1999. However, since petitioner refused to
recognize PAs as part of the bargaining unit, respondents were not included to the CBA.[6]

On July 20, 2000, petitioner, through Dante Luzon, issued a Memorandum

informing the PAs that effective August 1, 2000, they would be assigned to non-drama
programs, and that the DYAB studio operations would be handled by the studio
technician. Thus, their revised schedule and other assignments would be as follows:

Monday Saturday
4:30 A.M. 8:00 A.M. Marlene Nazareno.
Miss Nazareno will then be assigned at the Research Dept.
From 8:00 A.M. to 12:00
 4:30 P.M. 12:00 MN Jennifer Deiparine

Sunday
5:00 A.M. 1:00 P.M. Jennifer Deiparine
1:00 P.M. 10:00 P.M. Joy Sanchez

Respondent Gerzon was assigned as the full-time PA of the TV News Department

reporting directly to Leo Lastimosa.

On October 12, 2000, respondents filed a Complaint for Recognition of Regular

Employment Status, Underpayment of Overtime Pay, Holiday Pay, Premium Pay, Service
Incentive Pay, Sick Leave Pay, and 13th Month Pay with Damages against the petitioner
before the NLRC. The Labor Arbiter directed the parties to submit their respective position
papers. Upon respondents failure to file their position papers within the reglementary
period, Labor Arbiter Jose G. Gutierrez issued an Order dated

April 30, 2001, dismissing the complaint without prejudice for lack of interest to pursue
the case. Respondents received a copy of the Order on May 16, 2001.[7]Instead of re-
filing their complaint with the NLRC within 10 days from May 16, 2001, they filed, on June
11, 2001, an Earnest Motion to Refile Complaint with Motion to Admit Position Paper and
Motion to Submit Case For Resolution.[8] The Labor Arbiter granted this motion in an
Order dated June 18, 2001, and forthwith admitted the position paper of the complainants.
Respondents made the following allegations:

1. Complainants were engaged by respondent ABS-CBN as regular and

full-time employees for a continuous period of more than five (5) years with
a monthly salary rate of Four Thousand (P4,000.00) pesos beginning 1995
up until the filing of this complaint on November 20, 2000.

Machine copies of complainants ABS-CBN Employees Identification Card

and salary vouchers are hereto attached as follows, thus:

I. Jennifer Deiparine:
Exhibit A - ABS-CBN Employees Identification Card
Exhibit B, - ABS-CBN Salary Voucher from Nov.
Exhibit B-1 & 1999 to July 2000 at P4,000.00
Exhibit B-2
Date employed: September 15, 1995
Length of service: 5 years & nine (9) months

II. Merlou Gerzon - ABS-CBN Employees Identification Card

Exhibit C
Exhibit D
Exhibit D-1 &
 Exhibit D-2 - ABS-CBN Salary Voucher from March
1999 to January 2001 at P4,000.00
Date employed: September 1, 1995
Length of service: 5 years & 10 months

III. Marlene Nazareno

Exhibit E - ABS-CBN Employees Identification Card
Exhibit E - ABS-CBN Salary Voucher from Nov.
Exhibit E-1 & 1999 to December 2000
Exhibit :E-2
Date employed: April 17, 1996
Length of service: 5 years and one (1) month

IV. Joy Sanchez Lerasan

Exhibit F - ABS-CBN Employees Identification Card
Exhibit F-1 - ABS-CBN Salary Voucher from Aug.
Exhibit F-2 & 2000 to Jan. 2001
Exhibit F-3
Exhibit F-4 - Certification dated July 6, 2000
Acknowledging regular status of
Complainant Joy Sanchez Lerasan
Signed by ABS-CBN Administrative
Officer May Kima Hife
Date employed: April 15, 1998
Length of service: 3 yrs. and one (1) month[9]
Respondents insisted that they belonged to a work pool from which petitioner
chose persons to be given specific assignments at its discretion, and were thus under its
direct supervision and control regardless of nomenclature. They prayed that judgment be
rendered in their favor, thus:

WHEREFORE, premises considered, this Honorable Arbiter is most

respectfully prayed, to issue an order compelling defendants to pay
complainants the following:

1. One Hundred Thousand Pesos (P100,000.00) each

and by way of moral damages;
2. Minimum wage differential;
3. Thirteenth month pay differential;
4. Unpaid service incentive leave benefits;
5. Sick leave;
6. Holiday pay;
7. Premium pay;
8. Overtime pay;
9. Night shift differential.
 Complainants further pray of this Arbiter to declare them regular and
permanent employees of respondent ABS-CBN as a condition precedent
for their admission into the existing union and collective bargaining unit of
respondent company where they may as such acquire or otherwise perform
their obligations thereto or enjoy the benefits due therefrom.

Complainants pray for such other reliefs as are just and equitable
under the premises.[10]

For its part, petitioner alleged in its position paper that the respondents were PAs
who basically assist in the conduct of a particular program ran by an anchor or
talent. Among their duties include monitoring and receiving incoming calls from listeners
and field reporters and calls of news sources; generally, they perform leg work for the
anchors during a program or a particular production. They are considered in the industry
as program employees in that, as distinguished from regular or station employees, they
are basically engaged by the station for a particular or specific program broadcasted by
the radio station. Petitioner asserted that as PAs, the complainants were issued talent
information sheets which are updated from time to time, and are thus made the basis to
determine the programs to which they shall later be called on to assist. The program
assignments of complainants were as follows:

a. Complainant Nazareno assists in the programs:

1) Nagbagang Balita (early morning edition)
2) Infor Hayupan
3) Arangkada (morning edition)
4) Nagbagang Balita (mid-day edition)

b. Complainant Deiparine assists in the programs:

1) Unzanith
2) Serbisyo de Arevalo
3) Arangkada (evening edition)
4) Balitang K (local version)
5) Abante Subu
6) Pangutana Lang

c. Complainant Gerzon assists in the program:

1) On Mondays and Tuesdays:
(a) Unzanith
(b) Serbisyo de Arevalo
(c) Arangkada (evening edition)
(d) Balitang K (local version)
(e) Abante Sugbu
(f) Pangutana Lang
2) On Thursdays
Nagbagang Balita
 3) On Saturdays
(a) Nagbagang Balita
(b) Info Hayupan
(c) Arangkada (morning edition)
(d) Nagbagang Balita (mid-day edition)
4) On Sundays:
(a) Siesta Serenata
(b) Sunday Chismisan
(c) Timbangan sa Hustisya
(d) Sayri ang Lungsod
(e) Haranahan[11]

Petitioner maintained that PAs, reporters, anchors and talents occasionally

sideline for other programs they produce, such as drama

talents in other productions. As program employees, a PAs engagement is coterminous

with the completion of the program, and may be extended/renewed provided that the
program is on-going; a PA may also be assigned to new programs upon the cancellation
of one program and the commencement of another. As such program employees, their
compensation is computed on a program basis, a fixed amount for performance services
irrespective of the time consumed. At any rate, petitioner claimed, as the payroll will show,
respondents were paid all salaries and benefits due them under the law. [12]
Petitioner also alleged that the Labor Arbiter had no jurisdiction to involve the CBA and
interpret the same, especially since respondents were not covered by the bargaining unit.

On July 30, 2001, the Labor Arbiter rendered judgment in favor of the respondents,
and declared that they were regular employees of petitioner; as such, they were awarded
monetary benefits. The fallo of the decision reads:

WHEREFORE, the foregoing premises considered, judgment is hereby

rendered declaring the complainants regular employees of the respondent
ABS-CBN Broadcasting Corporation and directing the same respondent to
pay complainants as follows:

I - Merlou A. Gerzon P12,025.00

II - Marlyn Nazareno 12,025.00
III - Jennifer Deiparine 12,025.00
IV - Josephine Sanchez Lerazan 12,025.00
_________
P48,100.00
 plus ten (10%) percent Attorneys Fees or a TOTAL aggregate amount of
PESOS: FIFTY TWO THOUSAND NINE HUNDRED TEN (P52,910.00).

Respondent Veneranda C. Sy is absolved from any liability.

SO ORDERED.[13]

However, the Labor Arbiter did not award money benefits as provided in the CBA on his
belief that he had no jurisdiction to interpret and apply the agreement, as the same was
within the jurisdiction of the Voluntary Arbitrator as provided in Article 261 of the Labor
Code.

Respondents counsel received a copy of the decision on August 29,

2001. Respondent Nazareno received her copy on August 27, 2001, while the other
respondents received theirs on September 8, 2001. Respondents signed and filed their
Appeal Memorandum on September 18, 2001.

For its part, petitioner filed a motion for reconsideration, which the Labor Arbiter
denied and considered as an appeal, conformably with Section 5, Rule V, of the NLRC
Rules of Procedure. Petitioner forthwith appealed the decision to the NLRC, while
respondents filed a partial appeal.

In its appeal, petitioner alleged the following:

1. That the Labor Arbiter erred in reviving or re-opening this case which had
long been dismissed without prejudice for more than thirty (30) calendar
days;

2. That the Labor Arbiter erred in depriving the respondent of its

Constitutional right to due process of law;

3. That the Labor Arbiter erred in denying respondents Motion for

Reconsideration on an interlocutory order on the ground that the same
is a prohibited pleading;

4. That the Labor Arbiter erred when he ruled that the complainants
are regular employees of the respondent;

5. That the Labor Arbiter erred when he ruled that the complainants
are entitled to 13th month pay, service incentive leave pay and salary
differential; and
 6. That the Labor Arbiter erred when he ruled that complainants are
entitled to attorneys fees.[14]

On November 14, 2002, the NLRC rendered judgment modifying the decision of the Labor
Arbiter. The fallo of the decision reads:

WHEREFORE, premises considered, the decision of Labor Arbiter

Jose G. Gutierrez dated 30 July 2001 is SET ASIDE and VACATED and a
new one is entered ORDERING respondent ABS-CBN Broadcasting
Corporation, as follows:

1. To pay complainants of their wage differentials and other benefits

arising from the CBA as of 30 September 2002 in the aggregate amount
of Two Million Five Hundred, Sixty-One Thousand Nine Hundred Forty-
Eight Pesos and 22/100 (P2,561,948.22), broken down as follows:
a. Deiparine, Jennifer - P 716,113.49
b. Gerzon, Merlou - 716,113.49
c. Nazareno, Marlyn - 716,113.49
d. Lerazan, Josephine Sanchez - 413,607.75
Total - P 2,561,948.22

2. To deliver to the complainants Two Hundred Thirty-Three (233) sacks

of rice as of 30 September 2002 representing their rice subsidy in the
CBA, broken down as follows:
a. Deiparine, Jennifer - 60 Sacks
b. Gerzon, Merlou - 60 Sacks
c. Nazareno, Marlyn - 60 Sacks
d. Lerazan, Josephine Sanchez - 53 Sacks
Total 233 Sacks; and

3. To grant to the complainants all the benefits of the CBA after 30

September 2002.

SO ORDERED.[15]

The NLRC declared that the Labor Arbiter acted conformably with the Labor Code
when it granted respondents motion to refile the complaint and admit their position paper.
Although respondents were not parties to the CBA between petitioner and the ABS-CBN
Rank-and-File Employees Union, the NLRC nevertheless granted and computed
respondents monetary benefits based on the 1999 CBA, which was effective until
September 2002. The NLRC also ruled that the Labor Arbiter had jurisdiction over the
complaint of respondents because they acted in their individual capacities and not as
members of the union. Their claim for monetary benefits was within the context of Article
217(6) of the Labor Code. The validity of respondents claim does not depend upon the
interpretation of the CBA.

The NLRC ruled that respondents were entitled to the benefits under the CBA
because they were regular employees who contributed to the profits of petitioner through
their labor. The NLRC cited the ruling of this Court in New Pacific Timber & Supply
Company v. National Labor Relations Commission.[16]

Petitioner filed a motion for reconsideration, which the NLRC denied.

Petitioner thus filed a petition for certiorari under Rule 65 of the Rules of Court
before the CA, raising both procedural and substantive issues, as follows: (a) whether the
NLRC acted without jurisdiction in admitting the appeal of respondents; (b) whether the
NLRC committed palpable error in scrutinizing the reopening and revival of the complaint
of respondents with the Labor Arbiter upon due notice despite the lapse of 10 days from
their receipt of the July 30, 2001 Order of the Labor Arbiter; (c) whether respondents were
regular employees; (d) whether the NLRC acted without jurisdiction in entertaining and
resolving the claim of the respondents under the CBA instead of referring the same to the
Voluntary Arbitrators as provided in the CBA; and (e) whether the NLRC acted with grave
abuse of discretion when it awarded monetary benefits to respondents under the CBA
although they are not members of the appropriate bargaining unit.

On February 10, 2004, the CA rendered judgment dismissing the petition. It held
that the perfection of an appeal shall be upon the expiration of the last day to appeal by
all parties, should there be several parties to a case. Since respondents received their
copies of the decision on September 8, 2001 (except respondent Nazareno who received
her copy of the decision on August 27, 2001), they had until September 18, 2001 within
which to file their Appeal Memorandum. Moreover, the CA declared that respondents
failure to submit their position paper on time is not a ground to strike out the paper from
the records, much less dismiss a complaint.
Anent the substantive issues, the appellate court stated that respondents are not
mere project employees, but regular employees who perform tasks necessary and
desirable in the usual trade and business of petitioner and not just its project employees.
Moreover, the CA added, the award of benefits accorded to rank-and-file employees
under the 1996-1999 CBA is a necessary consequence of the NLRC ruling that
respondents, as PAs, are regular employees.

Finding no merit in petitioners motion for reconsideration, the CA denied the same
in a Resolution[17] dated June 16, 2004.
 Petitioner thus filed the instant petition for review on certiorari and raises the
following assignments of error:

1. THE HONORABLE COURT OF APPEALS ACTED WITHOUT

JURISDICTION AND GRAVELY ERRED IN UPHOLDING THE NATIONAL
LABOR RELATIONS COMMISSION NOTWITHSTANDING THE PATENT
NULLITY OF THE LATTERS DECISION AND RESOLUTION.

2. THE HONORABLE COURT OF APPEALS GRAVELY

ERRED IN AFFIRMING THE RULING OF THE NLRC FINDING
RESPONDENTS REGULAR EMPLOYEES.

3. THE HONORABLE COURT OF APPEALS GRAVELY

ERRED IN AFFIRMING THE RULING OF THE NLRC AWARDING CBA
BENEFITS TO RESPONDENTS.[18]

Considering that the assignments of error are interrelated, the Court shall resolve
them simultaneously.

Petitioner asserts that the appellate court committed palpable and serious error of
law when it affirmed the rulings of the NLRC, and entertained respondents appeal from
the decision of the Labor Arbiter despite the admitted lapse of the reglementary period
within which to perfect

the same. Petitioner likewise maintains that the 10-day period to appeal must be reckoned
from receipt of a partys counsel, not from the time the party learns of the decision, that is,
notice to counsel is notice to party and not the other way around. Finally, petitioner argues
that the reopening of a complaint which the Labor Arbiter has dismissed without prejudice
is a clear violation of Section 1, Rule V of the NLRC Rules; such order of dismissal had
already attained finality and can no longer be set aside.

Respondents, on the other hand, allege that their late appeal is a non-issue
because it was petitioners own timely appeal that empowered the NLRC to reopen the
case. They assert that although the appeal was filed 10 days late, it may still be given
due course in the interest of substantial justice as an exception to the general rule that
the negligence of a counsel binds the client. On the issue of the late filing of their position
paper, they maintain that this is not a ground to strike it out from the records or dismiss
the complaint.

We find no merit in the petition.

 We agree with petitioners contention that the perfection of an appeal within the
statutory or reglementary period is not only mandatory, but also jurisdictional; failure to
do so renders the assailed decision final and executory and deprives the appellate court
or body of the legal authority to alter the final judgment, much less entertain the appeal.
However, this Court has time and again ruled that in exceptional cases, a belated appeal
may be given due course if greater injustice may occur if an appeal is not given due
course than if the reglementary period to appeal were strictly followed. [19] The Court
resorted to this extraordinary measure even at the expense of sacrificing order and
efficiency if only to serve the greater principles of substantial justice and equity. [20]
In the case at bar, the NLRC did not commit a grave abuse of its discretion in giving
Article 223[21] of the Labor Code a liberal application to prevent the miscarriage of justice.
Technicality should not be allowed to stand in the way of equitably and completely
resolving the rights and obligations of the parties.[22] We have held in a catena of cases
that technical rules are not binding in labor cases and are not to be applied strictly if the
result would be detrimental to the workingman.[23]

Admittedly, respondents failed to perfect their appeal from the decision of the
Labor Arbiter within the reglementary period therefor. However, petitioner perfected its
appeal within the period, and since petitioner had filed a timely appeal, the NLRC acquired
jurisdiction over the case to give due course to its appeal and render the decision
of November 14, 2002. Case law is that the party who failed to appeal from the decision
of the Labor Arbiter to the NLRC can still participate in a separate appeal timely filed by
the adverse party as the situation is considered to be of greater benefit to both parties.[24]

We find no merit in petitioners contention that the Labor Arbiter abused his
discretion when he admitted respondents position paper which had been belatedly filed.
It bears stressing that the Labor Arbiter is mandated by law to use every reasonable
means to ascertain the facts in each case speedily and objectively, without technicalities
of law or procedure, all in the interest of due process.[25] Indeed, as stressed by the
appellate court, respondents failure to submit a position paper on time is not a ground for
striking out the paper from the records, much less for dismissing a complaint. [26] Likewise,
there is simply no truth to petitioners assertion that it was denied due process when the
Labor Arbiter admitted respondents position paper without requiring it to file a comment
before admitting said position paper. The essence of due process in administrative
proceedings is simply an opportunity to explain ones side or an opportunity to seek
reconsideration of the action or ruling complained of. Obviously, there is nothing in the
records that would suggest that petitioner had absolute lack of opportunity to be
heard.[27] Petitioner had the right to file a motion for reconsideration of the Labor Arbiters
admission of respondents position paper, and even file a Reply thereto. In fact, petitioner
filed its position paper on April 2, 2001. It must be stressed that Article 280 of the Labor
Code was encoded in our statute books to hinder the circumvention by unscrupulous
employers of the employees right to security of tenure by indiscriminately and absolutely
ruling out all written and oral agreements inharmonious with the concept of regular
employment defined therein.[28]

We quote with approval the following pronouncement of the NLRC:

The complainants, on the other hand, contend that respondents

assailed the Labor Arbiters order dated 18 June 2001 as violative of the
NLRC Rules of Procedure and as such is violative of their right to procedural
due process. That while suggesting that an Order be instead issued by the
Labor Arbiter for complainants to refile this case, respondents impliedly
submit that there is not any substantial damage or prejudice upon the
refiling, even so, respondents suggestion acknowledges complainants right
to prosecute this case, albeit with the burden of repeating the same
procedure, thus, entailing additional time, efforts, litigation cost and
precious time for the Arbiter to repeat the same process twice. Respondents
suggestion, betrays its notion of prolonging, rather than promoting the early
resolution of the case.

Although the Labor Arbiter in his Order dated 18 June 2001 which
revived and re-opened the dismissed case without prejudice beyond the ten
(10) day reglementary period had inadvertently failed to follow Section 16,
Rule V, Rules Procedure of the NLRC which states:

A party may file a motion to revive or re-open a case

dismissed without prejudice within ten (10) calendar days
from receipt of notice of the order dismissing the same;
otherwise, his only remedy shall be to re-file the case in the
arbitration branch of origin.

the same is not a serious flaw that had prejudiced the respondents right to
due process. The case can still be refiled because it has not yet
prescribed. Anyway, Article 221 of the Labor Code provides:

In any proceedings before the Commission or any of the Labor

Arbiters, the rules of evidence prevailing in courts of law or
equity shall not be controlling and it is the spirit and intention
of this Code that the Commission and its members and the
Labor Arbiters shall use every and all reasonable means to
ascertain the facts in each case speedily and objectively and
without regard to technicalities of law or procedure, all in the
interest of due process.

The admission by the Labor Arbiter of the complainants Position Paper and
Supplemental Manifestation which were belatedly filed just only shows that
he acted within his discretion as he is enjoined by law to use every
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. Indeed, the failure to submit a position paper on
time is not a ground for striking out the paper from the records, much less
for dismissing a complaint in the case of the
complainant. (University of Immaculate Conception vs. UIC Teaching and
Non-Teaching Personnel Employees, G.R. No. 144702, July 31, 2001).

In admitting the respondents position paper albeit late,

the Labor Arbiter acted within her discretion. In fact, she is
enjoined by law to use every reasonable means to ascertain
the facts in each case speedily and objectively, without
technicalities of law or procedure, all in the interest of due
process. (Panlilio vs. NLRC, 281 SCRA 53).

The respondents were given by the Labor Arbiter the opportunity to

submit position paper. In fact, the respondents had filed their position paper
on 2 April 2001. What is material in the compliance of due process is the
fact that the parties are given the opportunities to submit position papers.

Due process requirements are satisfied where the

parties are given the opportunities to submit position
papers. (Laurence vs. NLRC, 205 SCRA 737).

Thus, the respondent was not deprived of its Constitutional right to

due process of law.[29]

We reject, as barren of factual basis, petitioners contention that respondents are

considered as its talents, hence, not regular employees of the broadcasting
company. Petitioners claim that the functions performed by the respondents are not at all
necessary, desirable, or even vital to its trade or business is belied by the evidence on
record.

Case law is that this Court has always accorded respect and finality to the findings
of fact of the CA, particularly if they coincide with those of the Labor Arbiter and the
National Labor Relations Commission, when supported by substantial evidence. [30] The
question of whether respondents are regular or project employees or independent
contractors is essentially factual in nature; nonetheless, the Court is constrained to
resolve it due to its tremendous effects to the legions of production assistants working in
the Philippine broadcasting industry.

We agree with respondents contention that where a person has rendered at least
one year of service, regardless of the nature of the activity performed, or where the work
is continuous or intermittent, the employment is considered regular as long as the activity
exists, the reason being that a customary appointment is not indispensable before one
may be formally declared as having attained regular status. Article 280 of the Labor Code
provides:

ART. 280. REGULAR AND CASUAL EMPLOYMENT.The provisions

of written agreement to the contrary notwithstanding and regardless of the
oral agreement of the parties, an employment shall be deemed to be regular
where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the
employer except where the employment has been fixed for a specific project
or undertaking the completion or termination of which has been determined
at the time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for
the duration of the season.

In Universal Robina Corporation v. Catapang,[31] the Court reiterated the test in

determining whether one is a regular employee:

The primary standard, therefore, of determining regular employment

is the reasonable connection between the particular activity performed by
the employee in relation to the usual trade or business of the employer. The
test is whether the former is usually necessary or desirable in the usual
business or trade of the employer. The connection can be

determined by considering the nature of work performed and its relation to

the scheme of the particular business or trade in its entirety. Also, if the
employee has been performing the job for at least a year, even if the
performance is not continuous and merely intermittent, the law deems
repeated and continuing need for its performance as sufficient evidence of
the necessity if not indispensability of that activity to the business. Hence,
the employment is considered regular, but only with respect to such activity
and while such activity exists.[32]

As elaborated by this Court in Magsalin v. National Organization of Working

Men:[33]

Even while the language of law might have been more definitive, the
clarity of its spirit and intent, i.e., to ensure a regular workers security of
tenure, however, can hardly be doubted. In determining whether an
employment should be considered regular or non-regular, the applicable
test is the reasonable connection between the particular activity performed
by the employee in relation to the usual business or trade of the
employer. The standard, supplied by the law itself, is whether the work
undertaken is necessary or desirable in the usual business or trade of the
 employer, a fact that can be assessed by looking into the nature of the
services rendered and its relation to the general scheme under which the
business or trade is pursued in the usual course. It is distinguished from a
specific undertaking that is divorced from the normal activities required in
carrying on the particular business or trade. But, although the work to be
performed is only for a specific project or seasonal, where a person thus
engaged has been performing the job for at least one year, even if the
performance is not continuous or is merely intermittent, the law deems the
repeated and continuing need for its performance as being sufficient to
indicate the necessity or desirability of that activity to the business or trade
of the employer. The employment of such person is also then deemed to be
regular with respect to such activity and while such activity exists.[34]

Not considered regular employees are project employees, the completion or

termination of which is more or less determinable at the time of employment, such as
those employed in connection with a particular construction project, and seasonal
employees whose employment by its nature is only desirable for a limited period of
time. Even then, any employee who has rendered at least one year of service, whether
continuous or intermittent, is deemed regular with respect to the activity performed and
while such activity actually exists.

It is of no moment that petitioner hired respondents as talents. The fact that

respondents received pre-agreed talent fees instead of salaries, that they did not observe
the required office hours, and that they were permitted to join other productions during
their free time are not conclusive of the nature of their employment. Respondents cannot
be considered talents because they are not actors or actresses or radio specialists or
mere clerks or utility employees. They are regular employees who perform several
different duties under the control and direction of ABS-CBN executives and supervisors.

Thus, there are two kinds of regular employees under the law: (1) those engaged
to perform activities which are necessary or desirable in the usual business or trade of
the employer; and (2) those casual employees who have rendered at least one year of
service, whether continuous or broken, with respect to the activities in which they are
employed.[35]

The law overrides such conditions which are prejudicial to the interest of the worker
whose weak bargaining situation necessitates the succor of the State. What determines
whether a certain employment is regular or otherwise is not the will or word of the
employer, to which the worker oftentimes acquiesces, much less the procedure of hiring
the employee or the manner of paying the salary or the actual time spent at work. It is the
character of the activities performed in relation to the particular trade or business taking
into account all the circumstances, and in some cases the length of time of its
performance and its continued existence.[36] It is obvious that one year after they were
employed by petitioner, respondents became regular employees by operation of law.[37]

Additionally, respondents cannot be considered as project or program employees

because no evidence was presented to show that the duration and scope of the project
were determined or specified at the time of their engagement. Under existing
jurisprudence, project could refer to two distinguishable types of activities. First, a project
may refer to a particular job or undertaking that is within the regular or usual business of
the employer, but which is distinct and separate, and identifiable as such, from the other
undertakings of the company. Such job or undertaking begins and ends at determined or
determinable times. Second, the term project may also refer to a particular job or
undertaking that is not within the regular business of the employer. Such a job or
undertaking must also be identifiably separate and distinct from the ordinary or regular
business operations of the employer. The job or undertaking also begins and ends at
determined or determinable times.[38]

The principal test is whether or not the project employees were assigned to carry
out a specific project or undertaking, the duration and scope of which were specified at
the time the employees were engaged for that project.[39]

In this case, it is undisputed that respondents had continuously performed the

same activities for an average of five years. Their assigned tasks are necessary or
desirable in the usual business or trade of the petitioner. The persisting need for their
services is sufficient evidence of the necessity and indispensability of such services to
petitioners business or trade.[40] While length of time may not be a sole controlling test for
project employment, it can be a strong factor to determine whether the employee was
hired for a specific undertaking or in fact tasked to perform functions which are vital,
necessary and indispensable to the usual trade or business of the employer.[41] We note
further that petitioner did not report the termination of respondents employment in the
particular project to the Department of Labor and Employment Regional Office having
jurisdiction over the workplace within 30 days following the date of their separation from
work, using the prescribed form on employees termination/ dismissals/suspensions.[42]

As gleaned from the records of this case, petitioner itself is not certain how to
categorize respondents. In its earlier pleadings, petitioner classified respondents
as program employees, and in later pleadings, independent contractors. Program
employees, or project employees, are different from independent contractors because in
the case of the latter, no employer-employee relationship exists.

Petitioners reliance on the ruling of this Court in Sonza v. ABS-CBN Broadcasting

Corporation[43] is misplaced. In that case, the Court explained why Jose Sonza, a well-
known television and radio personality, was an independent contractor and not a regular
employee:

A. Selection and Engagement of Employee

ABS-CBN engaged SONZAS services to co-host its television and

radio programs because of SONZAS peculiar skills, talent and celebrity
status. SONZA contends that the discretion used by respondent in
specifically selecting and hiring complainant over other broadcasters of
possibly similar experience and qualification as complainant belies
respondents claim of independent contractorship.

Independent contractors often present themselves to possess

unique skills, expertise or talent to distinguish them from ordinary
employees. The specific selection and hiring of SONZA, because of his
unique skills, talent and celebrity status not possessed by ordinary
employees, is a circumstance indicative, but not conclusive, of an
independent contractual relationship. If SONZA did not possess such
unique skills, talent and celebrity status, ABS-CBN would not have entered
into the Agreement with SONZA but would have hired him through its
personnel department just like any other employee.

In any event, the method of selecting and engaging SONZA does not
conclusively determine his status. We must consider all the circumstances
of the relationship, with the control test being the most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his
fees going to MJMDC. SONZA asserts that this mode of fee payment shows
that he was an employee of ABS-CBN. SONZA also points out that ABS-
CBN granted him benefits and privileges which he would not have enjoyed
if he were truly the subject of a valid job contract.

All the talent fees and benefits paid to SONZA were the result of
negotiations that led to the Agreement. If SONZA were ABS-CBNs
employee, there would be no need for the parties to stipulate on benefits
such as SSS, Medicare, x x x and 13th month pay which the law
automatically incorporates into every employer-employee
contract. Whatever benefits SONZA enjoyed arose from contract and not
because of an employer-employee relationship.

SONZAs talent fees, amounting to P317,000 monthly in the second and

third year, are so huge and out of the ordinary that they indicate more an
independent contractual relationship rather than an employer-employee
relationship. ABS-CBN agreed to pay SONZA such huge talent fees
 precisely because of SONZAS unique skills, talent and celebrity status not
possessed by ordinary employees. Obviously, SONZA acting alone
possessed enough bargaining power to demand and receive such huge
talent fees for his services. The power to bargain talent fees way above the
salary scales of ordinary employees is a circumstance indicative, but not
conclusive, of an independent contractual relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not
negate the status of SONZA as an independent contractor. The parties
expressly agreed on such mode of payment. Under the Agreement,
MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over
any talent fee accruing under the Agreement.[44]

In the case at bar, however, the employer-employee relationship between

petitioner and respondents has been proven.

First. In the selection and engagement of respondents, no peculiar or unique skill,

talent or celebrity status was required from them because they were merely hired through
petitioners personnel department just like any ordinary employee.

Second. The so-called talent fees of respondents correspond to wages given as a

result of an employer-employee relationship. Respondents did not have the power to
bargain for huge talent fees, a circumstance negating independent contractual
relationship.

Third. Petitioner could always discharge respondents should it find their work
unsatisfactory, and respondents are highly dependent on the petitioner for continued
work.

Fourth. The degree of control and supervision exercised by petitioner over

respondents through its supervisors negates the allegation that respondents are
independent contractors.

The presumption is that when the work done is an integral part of the regular
business of the employer and when the worker, relative to the employer, does not
furnish an independent business or professional service, such work is a regular
employment of such employee and not an independent contractor.[45] The Court will
peruse beyond any such agreement to examine the facts that typify the parties actual
relationship.[46]

It follows then that respondents are entitled to the benefits provided for in the
existing CBA between petitioner and its rank-and-file employees. As regular employees,
respondents are entitled to the benefits granted to all other regular employees of
petitioner under the CBA.[47] We quote with approval the ruling of the appellate court, that
the reason why production assistants were excluded from the CBA is precisely because
they were erroneously classified and treated as project employees by petitioner:

x x x The award in favor of private respondents of the benefits

accorded to rank-and-file employees of ABS-CBN under the 1996-1999
CBA is a necessary consequence of public respondents ruling that private
respondents as production assistants of petitioner are regular
employees. The monetary award is not considered as claims involving the
interpretation or implementation of the collective bargaining
agreement. The reason why production assistants were excluded from the
said agreement is precisely because they were classified and treated as
project employees by petitioner.

As earlier stated, it is not the will or word of the employer which

determines the nature of employment of an employee but the nature of the
activities performed by such employee in relation to the particular business
or trade of the employer. Considering that We have clearly found that
private respondents are regular employees of petitioner, their exclusion
from the said CBA on the misplaced belief of the parties to the said
agreement that they are project employees, is therefore not proper. Finding
said private respondents as regular employees and not as mere project
employees, they must be accorded the benefits due under the said
Collective Bargaining Agreement.

A collective bargaining agreement is a contract entered into by the

union representing the employees and the employer. However, even the
non-member employees are entitled to the benefits of the contract. To
accord its benefits only to members of the union without any valid reason
would constitute undue discrimination against non-members. A collective
bargaining agreement is binding on all employees of the
company. Therefore, whatever benefits are given to the other employees of
ABS-CBN must likewise be accorded to private respondents who were
regular employees of petitioner.[48]

Besides, only talent-artists were excluded from the CBA and not production
assistants who are regular employees of the respondents. Moreover, under Article 1702
of the New Civil Code: In case of doubt, all labor legislation and all labor contracts shall
be construed in favor of the safety and decent living of the laborer.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The
assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 76582
are AFFIRMED. Costs against petitioner.
 THIRD DIVISION

[G.R. No. 157214. June 7, 2005]

PHILIPPINE GLOBAL COMMUNICATIONS, INC., petitioner, vs. RICARDO DE

VERA, respondent.

DECISION
GARCIA, J.:

Before us is this appeal by way of a petition for review on certiorari from the 12
September 2002 Decision[1] and the 13 February 2003 Resolution[2] of the Court of
Appeals in CA-G.R. SP No. 65178, upholding the finding of illegal dismissal by the
National Labor Relations Commission against petitioner.
As culled from the records, the pertinent facts are:
Petitioner Philippine Global Communications, Inc. (PhilCom), is a corporation
engaged in the business of communication services and allied activities, while respondent
Ricardo De Vera is a physician by profession whom petitioner enlisted to attend to the
medical needs of its employees. At the crux of the controversy is Dr. De Veras status vis
a vis petitioner when the latter terminated his engagement.
It appears that on 15 May 1981, De Vera, via a letter dated 15 May 1981,[3] offered
his services to the petitioner, therein proposing his plan of works required of a practitioner
in industrial medicine, to include the following:

1. Application of preventive medicine including periodic check-up of employees;

2. Holding of clinic hours in the morning and afternoon for a total of five (5) hours
daily for consultation services to employees;

3. Management and treatment of employees that may necessitate hospitalization

including emergency cases and accidents;

4. Conduct pre-employment physical check-up of prospective employees with no

additional medical fee;

5. Conduct home visits whenever necessary;

 6. Attend to certain medical administrative function such as accomplishing medical
forms, evaluating conditions of employees applying for sick leave of absence
and subsequently issuing proper certification, and all matters referred which
are medical in nature.

The parties agreed and formalized respondents proposal in a document denominated

as RETAINERSHIP CONTRACT[4] which will be for a period of one year subject to
renewal, it being made clear therein that respondent will cover the retainership the
Company previously had with Dr. K. Eulau and that respondents retainer fee will be at
P4,000.00 a month. Said contract was renewed yearly. [5] The retainership arrangement
went on from 1981 to 1994 with changes in the retainers fee. However, for the years 1995
and 1996, renewal of the contract was only made verbally.
The turning point in the parties relationship surfaced in December 1996 when
Philcom, thru a letter[6] bearing on the subject boldly written as TERMINATION
RETAINERSHIP CONTRACT, informed De Vera of its decision to discontinue the latters
retainers contract with the Company effective at the close of business hours of December
31, 1996 because management has decided that it would be more practical to provide
medical services to its employees through accredited hospitals near the company
premises.
On 22 January 1997, De Vera filed a complaint for illegal dismissal before the
National Labor Relations Commission (NLRC), alleging that that he had been actually
employed by Philcom as its company physician since 1981 and was dismissed without
due process. He averred that he was designated as a company physician on retainer
basis for reasons allegedly known only to Philcom. He likewise professed that since he
was not conversant with labor laws, he did not give much attention to the designation as
anyway he worked on a full-time basis and was paid a basic monthly salary plus fringe
benefits, like any other regular employees of Philcom.
On 21 December 1998, Labor Arbiter Ramon Valentin C. Reyes came out with a
decision[7] dismissing De Veras complaint for lack of merit, on the rationale that as a
retained physician under a valid contract mutually agreed upon by the parties, De Vera
was an independent contractor and that he was not dismissed but rather his contract with
[PHILCOM] ended when said contract was not renewed after December 31, 1996.
On De Veras appeal to the NLRC, the latter, in a decision[8] dated 23 October 2000,
reversed (the word used is modified) that of the Labor Arbiter, on a finding that De Vera
is Philcoms regular employee and accordingly directed the company to reinstate him to
his former position without loss of seniority rights and privileges and with full backwages
from the date of his dismissal until actual reinstatement. We quote the dispositive portion
of the decision:

WHEREFORE, the assailed decision is modified in that respondent is ordered to

reinstate complainant to his former position without loss of seniority rights and privileges
with full backwages from the date of his dismissal until his actual reinstatement
computed as follows:
 Backwages:

a) Basic Salary
From Dec. 31, 1996 to Apr. 10, 2000 = 39.33 mos.
P44,400.00 x 39.33 mos. P1,750,185.00
b) 13th Month Pay:
1/12 of P1,750,185.00 145,848.75
c) Travelling allowance:
P1,000.00 x 39.33 mos. 39,330.00

GRAND TOTAL P1,935,363.75

The decision stands in other aspects.

SO ORDERED.

With its motion for reconsideration having been denied by the NLRC in its order of 27
February 2001,[9] Philcom then went to the Court of Appeals on a petition for certiorari,
thereat docketed as CA-G.R. SP No. 65178, imputing grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the NLRC when it reversed the
findings of the labor arbiter and awarded thirteenth month pay and traveling allowance to
De Vera even as such award had no basis in fact and in law.
On 12 September 2002, the Court of Appeals rendered a decision,[10] modifying that
of the NLRC by deleting the award of traveling allowance, and ordering payment of
separation pay to De Vera in lieu of reinstatement, thus:

WHEREFORE, premises considered, the assailed judgment of public respondent, dated

23 October 2000, is MODIFIED. The award of traveling allowance is deleted as the
same is hereby DELETED. Instead of reinstatement, private respondent shall be paid
separation pay computed at one (1) month salary for every year of service computed
from the time private respondent commenced his employment in 1981 up to the actual
payment of the backwages and separation pay. The awards of backwages and
13th month pay STAND.

SO ORDERED.

In time, Philcom filed a motion for reconsideration but was denied by the appellate
court in its resolution of 13 February 2003.[11]
Hence, Philcoms present recourse on its main submission that -

THE COURT OF APPEALS ERRED IN SUSTAINING THE DECISION OF THE

NATIONAL LABOR RELATIONS COMMISSION AND RENDERING THE
QUESTIONED DECISION AND RESOLUTION IN A WAY THAT IS NOT IN ACCORD
WITH THE FACTS AND APPLICABLE LAWS AND JURISPRUDENCE WHICH
DISTINGUISH LEGITIMATE JOB CONTRACTING AGREEMENTS FROM THE
EMPLOYER-EMPLOYEE RELATIONSHIP.

We GRANT.
Under Rule 45 of the Rules of Court, only questions of law may be reviewed by this
Court in decisions rendered by the Court of Appeals. There are instances, however,
where the Court departs from this rule and reviews findings of fact so that substantial
justice may be served. The exceptional instances are where:

xxx xxx xxx (1) the conclusion is a finding grounded entirely on speculation, surmise
and conjecture; (2) the inference made is manifestly mistaken; (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) the Court of Appeals went beyond the issues of the case and
its findings are contrary to the admissions of both appellant and appellees; (7) the
findings of fact of the Court of Appeals are contrary to those of the trial court; (8) said
findings of facts are conclusions without citation of specific evidence on which they are
based; (9) the facts set forth in the petition as well as in the petitioners main and reply
briefs are not disputed by the respondents; and (10) the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and contradicted by the
evidence on record.[12]

As we see it, the parties respective submissions revolve on the primordial issue of
whether an employer-employee relationship exists between petitioner and respondent,
the existence of which is, in itself, a question of fact[13] well within the province of the
NLRC. Nonetheless, given the reality that the NLRCs findings are at odds with those of
the labor arbiter, the Court, consistent with its ruling in Jimenez vs. National Labor
Relations Commission,[14] is constrained to look deeper into the attendant circumstances
obtaining in this case, as appearing on record.
In a long line of decisions,[15] the Court, in determining the existence of an employer-
employee relationship, has invariably adhered to the four-fold test, to wit: [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, or the so-called control test,
considered to be the most important element.
Applying the four-fold test to this case, we initially find that it was respondent himself
who sets the parameters of what his duties would be in offering his services to petitioner.
This is borne by no less than his 15 May 1981 letter[16] which, in full, reads:

May 15, 1981

Mrs. Adela L. Vicente

Vice President, Industrial Relations
PhilCom, Paseo de Roxas
Makati, Metro Manila

Madam:
I shall have the time and effort for the position of Company physician with your
corporation if you deemed it necessary. I have the necessary qualifications, training and
experience required by such position and I am confident that I can serve the best
interests of your employees, medically.

My plan of works and targets shall cover the duties and responsibilities required of a
practitioner in industrial medicine which includes the following:

1. Application of preventive medicine including periodic check-up of employees;

2. Holding of clinic hours in the morning and afternoon for a total of five (5)
hours daily for consultation services to employees;

3. Management and treatment of employees that may necessitate

hospitalization including emergency cases and accidents;

4. Conduct pre-employment physical check-up of prospective employees with

no additional medical fee;

5. Conduct home visits whenever necessary;

6. Attend to certain medical administrative functions such as accomplishing

medical forms, evaluating conditions of employees applying for sick leave of
absence and subsequently issuing proper certification, and all matters
referred which are medical in nature.

On the subject of compensation for the services that I propose to render to the
corporation, you may state an offer based on your belief that I can very well qualify for
the job having worked with your organization for sometime now.

I shall be very grateful for whatever kind attention you may extend on this matter and
hoping that it will merit acceptance, I remain

Very truly yours,

(signed)
RICARDO V. DE VERA, M.D.

Significantly, the foregoing letter was substantially the basis of the labor arbiters
finding that there existed no employer-employee relationship between petitioner and
respondent, in addition to the following factual settings:

The fact that the complainant was not considered an employee was recognized by the
complainant himself in a signed letter to the respondent dated April 21, 1982 attached
as Annex G to the respondents Reply and Rejoinder. Quoting the pertinent portion of
said letter:
To carry out your memo effectively and to provide a systematic and workable time
schedule which will serve the best interests of both the present and absent employee,
may I propose an extended two-hour service (1:00-3:00 P.M.) during which period I can
devote ample time to both groups depending upon the urgency of the situation. I shall
readjust my private schedule to be available for the herein proposed extended hours,
should you consider this proposal.

As regards compensation for the additional time and services that I shall render to the
employees, it is dependent on your evaluation of the merit of my proposal and your
confidence on my ability to carry out efficiently said proposal.

The tenor of this letter indicates that the complainant was proposing to extend his time
with the respondent and seeking additional compensation for said extension. This
shows that the respondent PHILCOM did not have control over the schedule of the
complainant as it [is] the complainant who is proposing his own schedule and asking to
be paid for the same. This is proof that the complainant understood that his relationship
with the respondent PHILCOM was a retained physician and not as an employee. If he
were an employee he could not negotiate as to his hours of work.

The complainant is a Doctor of Medicine, and presumably, a well-educated person. Yet,

the complainant, in his position paper, is claiming that he is not conversant with the law
and did not give much attention to his job title- on a retainer basis. But the same
complainant admits in his affidavit that his service for the respondent was covered by a
retainership contract [which] was renewed every year from 1982 to 1994. Upon reading
the contract dated September 6, 1982, signed by the complainant himself (Annex C of
Respondents Position Paper), it clearly states that is a retainership contract. The
retainer fee is indicated thereon and the duration of the contract for one year is also
clearly indicated in paragraph 5 of the Retainership Contract. The complainant cannot
claim that he was unaware that the contract was good only for one year, as he signed
the same without any objections. The complainant also accepted its renewal every year
thereafter until 1994. As a literate person and educated person, the complainant cannot
claim that he does not know what contract he signed and that it was renewed on a year
to year basis.[17]

The labor arbiter added the indicia, not disputed by respondent, that from the time he
started to work with petitioner, he never was included in its payroll; was never deducted
any contribution for remittance to the Social Security System (SSS); and was in fact
subjected by petitioner to the ten (10%) percent withholding tax for his professional fee,
in accordance with the National Internal Revenue Code, matters which are simply
inconsistent with an employer-employee relationship. In the precise words of the labor
arbiter:

xxx xxx xxx After more than ten years of services to PHILCOM, the complainant would
have noticed that no SSS deductions were made on his remuneration or that the
respondent was deducting the 10% tax for his fees and he surely would have
complained about them if he had considered himself an employee of PHILCOM. But he
never raised those issues. An ordinary employee would consider the SSS payments
important and thus make sure they would be paid. The complainant never bothered to
ask the respondent to remit his SSS contributions. This clearly shows that the
complainant never considered himself an employee of PHILCOM and thus, respondent
need not remit anything to the SSS in favor of the complainant.[18]

Clearly, the elements of an employer-employee relationship are wanting in this case.

We may add that the records are replete with evidence showing that respondent had to
bill petitioner for his monthly professional fees.[19] It simply runs against the grain of
common experience to imagine that an ordinary employee has yet to bill his employer to
receive his salary.
We note, too, that the power to terminate the parties relationship was mutually vested
on both. Either may terminate the arrangement at will, with or without cause.[20]
Finally, remarkably absent from the parties arrangement is the element of control,
whereby the employer has reserved the right to control the employee not only as to the
result of the work done but also as to the means and methods by which the same is to be
accomplished.[21]
Here, petitioner had no control over the means and methods by which respondent
went about performing his work at the company premises. He could even embark in the
private practice of his profession, not to mention the fact that respondents work hours and
the additional compensation therefor were negotiated upon by the parties. [22] In fine, the
parties themselves practically agreed on every terms and conditions of respondents
engagement, which thereby negates the element of control in their relationship. For sure,
respondent has never cited even a single instance when petitioner interfered with his
work.
Yet, despite the foregoing, all of which are extant on record, both the NLRC and the
Court of Appeals ruled that respondent is petitioners regular employee at the time of his
separation.
Partly says the appellate court in its assailed decision:

Be that as it may, it is admitted that private respondents written retainer contract was
renewed annually from 1981 to 1994 and the alleged renewal for 1995 and 1996, when
it was allegedly terminated, was verbal.

Article 280 of the Labor code (sic) provides:

The provisions of written agreement to the contrary notwithstanding and regardless

of the oral agreements of the parties, an employment shall be deemed to be regular
where the employee has been engaged to perform in the usual business or trade of the
employer, except where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of
the engagement of the employee or where the work or services to be performed is
seasonal in nature and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: Provided, That, any employee who has rendered at least one (1) year
of service, whether such is continuous or broken, shall be considered a regular with
respect to the activity in which he is employed and his employment shall continue
while such activity exists.

Parenthetically, the position of company physician, in the case of petitioner, is usually

necessary and desirable because the need for medical attention of employees cannot
be foreseen, hence, it is necessary to have a physician at hand. In fact, the importance
and desirability of a physician in a company premises is recognized by Art. 157 of the
Labor Code, which requires the presence of a physician depending on the number of
employees and in the case at bench, in petitioners case, as found by public respondent,
petitioner employs more than 500 employees.

Going back to Art. 280 of the Labor Code, it was made therein clear that the provisions
of a written agreement to the contrary notwithstanding or the existence of a mere oral
agreement, if the employee is engaged in the usual business or trade of the employer,
more so, that he rendered service for at least one year, such employee shall be
considered as a regular employee. Private respondent herein has been with petitioner
since 1981 and his employment was not for a specific project or undertaking, the period
of which was pre-determined and neither the work or service of private respondent
seasonal. (Emphasis by the CA itself).

We disagree to the foregoing ratiocination.

The appellate courts premise that regular employees are those who perform activities
which are desirable and necessary for the business of the employer is not determinative
in this case. For, we take it that any agreement may provide that one party shall render
services for and in behalf of another, no matter how necessary for the latters
business, even without being hired as an employee. This set-up is precisely true in the
case of an independent contractorship as well as in an agency agreement. Indeed, Article
280 of the Labor Code, quoted by the appellate court, is not the yardstick for determining
the existence of an employment relationship. As it is, the provision merely distinguishes
between two (2) kinds of employees, i.e., regular and casual. It does not apply where, as
here, the very existence of an employment relationship is in dispute. [23]
Buttressing his contention that he is a regular employee of petitioner, respondent
invokes Article 157 of the Labor Code, and argues that he satisfies all the requirements
thereunder. The provision relied upon reads:

ART. 157. Emergency medical and dental services. It shall be the duty of every
employer to furnish his employees in any locality with free medical and dental
attendance and facilities consisting of:

(a) The services of a full-time registered nurse when the number of employees
exceeds fifty (50) but not more than two hundred (200) except when the
employer does not maintain hazardous workplaces, in which case the
 services of a graduate first-aider shall be provided for the protection of the
workers, where no registered nurse is available. The Secretary of Labor
shall provide by appropriate regulations the services that shall be required
where the number of employees does not exceed fifty (50) and shall
determine by appropriate order hazardous workplaces for purposes of this
Article;

(b) The services of a full-time registered nurse, a part-time physician and

dentist, and an emergency clinic, when the number of employees exceeds
two hundred (200) but not more than three hundred (300); and

(c) The services of a full-time physician, dentist and full-time registered nurse
as well as a dental clinic, and an infirmary or emergency hospital with one
bed capacity for every one hundred (100) employees when the number of
employees exceeds three hundred (300).

In cases of hazardous workplaces, no employer shall engage the services of a

physician or dentist who cannot stay in the premises of the establishment for at least
two (2) hours, in the case of those engaged on part-time basis, and not less than eight
(8) hours in the case of those employed on full-time basis. Where the undertaking is
nonhazardous in nature, the physician and dentist may be engaged on retained basis,
subject to such regulations as the Secretary of Labor may prescribe to insure immediate
availability of medical and dental treatment and attendance in case of emergency.

Had only respondent read carefully the very statutory provision invoked by him, he
would have noticed that in non-hazardous workplaces, the employer may engage the
services of a physician on retained basis. As correctly observed by the petitioner, while it
is true that the provision requires employers to engage the services of medical
practitioners in certain establishments depending on the number of their employees,
nothing is there in the law which says that medical practitioners so engaged be actually
hired as employees,[24] adding that the law, as written, only requires the employer to
retain, not employ, a part-time physician who needed to stay in the premises of the non-
hazardous workplace for two (2) hours.[25]
Respondent takes no issue on the fact that petitioners business of
telecommunications is not hazardous in nature. As such, what applies here is the last
paragraph of Article 157 which, to stress, provides that the employer may engage the
services of a physician and dentist on retained basis, subject to such regulations as the
Secretary of Labor may prescribe. The successive retainership agreements of the parties
definitely hue to the very statutory provision relied upon by respondent.
Deeply embedded in our jurisprudence is the rule that courts may not construe a
statute that is free from doubt. Where the law is clear and unambiguous, it must be taken
to mean exactly what it says, and courts have no choice but to see to it that the mandate
is obeyed.[26] As it is, Article 157 of the Labor Code clearly and unequivocally allows
employers in non-hazardous establishments to engage on retained basis the service of a
dentist or physician. Nowhere does the law provide that the physician or dentist so
engaged thereby becomes a regular employee. The very phrase that they may be
engaged on retained basis, revolts against the idea that this engagement gives rise to an
employer-employee relationship.
With the recognition of the fact that petitioner consistently engaged the services of
respondent on a retainer basis, as shown by their various retainership contracts, so can
petitioner put an end, with or without cause, to their retainership agreement as therein
provided.[27]
We note, however, that even as the contracts entered into by the parties invariably
provide for a 60-day notice requirement prior to termination, the same was not complied
with by petitioner when it terminated on 17 December 1996 the verbally-renewed
retainership agreement, effective at the close of business hours of 31 December 1996.
Be that as it may, the record shows, and this is admitted by both parties,[28] that
execution of the NLRC decision had already been made at the NLRC despite the
pendency of the present recourse. For sure, accounts of petitioner had already been
garnished and released to respondent despite the previous Status Quo Order [29] issued
by this Court. To all intents and purposes, therefore, the 60-day notice requirement has
become moot and academic if not waived by the respondent himself.
WHEREFORE, the petition is GRANTED and the challenged decision of the Court of
Appeals REVERSED and SET ASIDE. The 21 December 1998 decision of the labor
arbiter is REINSTATED.
No pronouncement as to costs.
SO ORDERED.
 SECOND DIVISION

[G.R. No. 146530. January 17, 2005]

PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION,

SUPREME PACKAGING, INC. and ALVIN LEE, Plant Manager, respondents.

DECISION
CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari of the Resolution [1] dated
December 15, 2000 of the Court of Appeals (CA) reversing its Decision dated April 28,
2000 in CA-G.R. SP No. 52485. The assailed resolution reinstated the Decision dated
July 10, 1998 of the National Labor Relations Commission (NLRC), dismissing the
complaint for illegal dismissal filed by herein petitioner Pedro Chavez. The said NLRC
decision similarly reversed its earlier Decision dated January 27, 1998 which, affirming
that of the Labor Arbiter, ruled that the petitioner had been illegally dismissed by
respondents Supreme Packaging, Inc. and Mr. Alvin Lee.
The case stemmed from the following facts:
The respondent company, Supreme Packaging, Inc., is in the business of
manufacturing cartons and other packaging materials for export and distribution. It
engaged the services of the petitioner, Pedro Chavez, as truck driver on October 25,
1984. As such, the petitioner was tasked to deliver the respondent companys products
from its factory in Mariveles, Bataan, to its various customers, mostly in Metro Manila.
The respondent company furnished the petitioner with a truck. Most of the petitioners
delivery trips were made at nighttime, commencing at 6:00 p.m. from Mariveles, and
returning thereto in the afternoon two or three days after. The deliveries were made in
accordance with the routing slips issued by respondent company indicating the order,
time and urgency of delivery. Initially, the petitioner was paid the sum of P350.00 per trip.
This was later adjusted to P480.00 per trip and, at the time of his alleged dismissal, the
petitioner was receiving P900.00 per trip.
Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent
companys plant manager, his (the petitioners) desire to avail himself of the benefits that
the regular employees were receiving such as overtime pay, nightshift differential pay,
and 13th month pay, among others. Although he promised to extend these benefits to the
petitioner, respondent Lee failed to actually do so.
On February 20, 1995, the petitioner filed a complaint for regularization with the
Regional Arbitration Branch No. III of the NLRC in San Fernando, Pampanga. Before the
case could be heard, respondent company terminated the services of the petitioner.
Consequently, on May 25, 1995, the petitioner filed an amended complaint against the
respondents for illegal dismissal, unfair labor practice and non-payment of overtime pay,
nightshift differential pay, 13th month pay, among others. The case was docketed as
NLRC Case No. RAB-III-02-6181-95.
The respondents, for their part, denied the existence of an employer-employee
relationship between the respondent company and the petitioner. They averred that the
petitioner was an independent contractor as evidenced by the contract of service which
he and the respondent company entered into. The said contract provided as follows:

That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to
hire and the Contractor [referring to Pedro Chavez], by nature of their specialized line or
service jobs, accepts the services to be rendered to the Principal, under the following
terms and covenants heretofore mentioned:

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

contractor to the principal, shall only cover travel route from Mariveles to Metro
Manila. Otherwise, any change to this travel route shall be subject to further
agreement by the parties concerned.
2. That the payment to be made by the Principal for any hauling or delivery
transport services fully rendered by the Contractor shall be on a per trip basis
depending on the size or classification of the truck being used in the transport
service, to wit:

a) If the hauling or delivery service shall require a truck of six wheeler, the
payment on a per trip basis from Mariveles to Metro Manila shall be
THREE HUNDRED PESOS (P300.00) and EFFECTIVE December 15,
1984.

b) If the hauling or delivery service require a truck of ten wheeler, the payment
on a per trip basis, following the same route mentioned, shall be THREE
HUNDRED FIFTY (P350.00) Pesos and Effective December 15, 1984.

3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at
least two (2) helpers;
4. The Contractor shall exercise direct control and shall be responsible to the
Principal for the cost of any damage to, loss of any goods, cargoes, finished
products or the like, while the same are in transit, or due to reckless [sic] of its
men utilized for the purpose above mentioned;
5. That the Contractor shall have absolute control and disciplinary power over its
men working for him subject to this agreement, and that the Contractor shall
hold the Principal free and harmless from any liability or claim that may arise
by virtue of the Contractors non-compliance to the existing provisions of the
Minimum Wage Law, the Employees Compensation Act, the Social Security
System Act, or any other such law or decree that may hereafter be enacted, it
being clearly understood that any truck drivers, helpers or men working with
and for the Contractor, are not employees who will be indemnified by the
 Principal for any such claim, including damages incurred in connection
therewith;
6. This contract shall take effect immediately upon the signing by the parties,
subject to renewal on a year-to-year basis.[2]
This contract of service was dated December 12, 1984. It was subsequently renewed
twice, on July 10, 1989 and September 28, 1992. Except for the rates to be paid to the
petitioner, the terms of the contracts were substantially the same. The relationship of the
respondent company and the petitioner was allegedly governed by this contract of
service.
The respondents insisted that the petitioner had the sole control over the means and
methods by which his work was accomplished. He paid the wages of his helpers and
exercised control over them. As such, the petitioner was not entitled to regularization
because he was not an employee of the respondent company. The respondents, likewise,
maintained that they did not dismiss the petitioner. Rather, the severance of his
contractual relation with the respondent company was due to his violation of the terms
and conditions of their contract. The petitioner allegedly failed to observe the minimum
degree of diligence in the proper maintenance of the truck he was using, thereby exposing
respondent company to unnecessary significant expenses of overhauling the said truck.
After the parties had filed their respective pleadings, the Labor Arbiter rendered the
Decision dated February 3, 1997, finding the respondents guilty of illegal dismissal. The
Labor Arbiter declared that the petitioner was a regular employee of the respondent
company as he was performing a service that was necessary and desirable to the latters
business. Moreover, it was noted that the petitioner had discharged his duties as truck
driver for the respondent company for a continuous and uninterrupted period of more than
ten years.
The contract of service invoked by the respondents was declared null and void as it
constituted a circumvention of the constitutional provision affording full protection to labor
and security of tenure. The Labor Arbiter found that the petitioners dismissal was
anchored on his insistent demand to be regularized. Hence, for lack of a valid and just
cause therefor and for their failure to observe the due process requirements, the
respondents were found guilty of illegal dismissal. The dispositive portion of the Labor
Arbiters decision states:

WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring

respondent SUPREME PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with
business address at BEPZ, Mariveles, Bataan guilty of illegal dismissal, ordering said
respondent to pay complainant his separation pay equivalent to one (1) month pay per
year of service based on the average monthly pay of P10,800.00 in lieu of reinstatement
as his reinstatement back to work will not do any good between the parties as the
employment relationship has already become strained and full backwages from the time
his compensation was withheld on February 23, 1995 up to January 31, 1997 (cut-off
date) until compliance, otherwise, his backwages shall continue to run. Also to pay
complainant his 13th month pay, night shift differential pay and service incentive leave
pay hereunder computed as follows:
 a) Backwages .. P248,400.00
b) Separation Pay .... P140,400.00
c) 13th month pay .P 10,800.00
d) Service Incentive Leave Pay .. 2,040.00
TOTAL P401,640.00

Respondent is also ordered to pay ten (10%) of the amount due the complainant as
attorneys fees.

SO ORDERED.[3]

The respondents seasonably interposed an appeal with the NLRC. However, the
appeal was dismissed by the NLRC in its Decision[4] dated January 27, 1998, as it
affirmed in toto the decision of the Labor Arbiter. In the said decision, the NLRC
characterized the contract of service between the respondent company and the petitioner
as a scheme that was resorted to by the respondents who, taking advantage of the
petitioners unfamiliarity with the English language and/or legal niceties, wanted to evade
the effects and implications of his becoming a regularized employee.[5]
The respondents sought reconsideration of the January 27, 1998 Decision of the
NLRC. Acting thereon, the NLRC rendered another Decision[6] dated July 10, 1998,
reversing its earlier decision and, this time, holding that no employer-employee
relationship existed between the respondent company and the petitioner. In reconsidering
its earlier decision, the NLRC stated that the respondents did not exercise control over
the means and methods by which the petitioner accomplished his delivery services. It
upheld the validity of the contract of service as it pointed out that said contract was silent
as to the time by which the petitioner was to make the deliveries and that the petitioner
could hire his own helpers whose wages would be paid from his own account. These
factors indicated that the petitioner was an independent contractor, not an employee of
the respondent company.
The NLRC ruled that the contract of service was not intended to circumvent Article
280 of the Labor Code on the regularization of employees. Said contract, including the
fixed period of employment contained therein, having been knowingly and voluntarily
entered into by the parties thereto was declared valid citing Brent School, Inc. v.
Zamora.[7]The NLRC, thus, dismissed the petitioners complaint for illegal dismissal.
The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied
by the NLRC in its Resolution dated September 7, 1998. He then filed with this Court a
petition for certiorari, which was referred to the CA following the ruling in St. Martin
Funeral Home v. NLRC.[8]
The appellate court rendered the Decision dated April 28, 2000, reversing the July
10, 1998 Decision of the NLRC and reinstating the decision of the Labor Arbiter. In the
said decision, the CA ruled that the petitioner was a regular employee of the respondent
company because as its truck driver, he performed a service that was indispensable to
the latters business. Further, he had been the respondent companys truck driver for ten
continuous years. The CA also reasoned that the petitioner could not be considered an
independent contractor since he had no substantial capital in the form of tools and
machinery. In fact, the truck that he drove belonged to the respondent company. The CA
also observed that the routing slips that the respondent company issued to the petitioner
showed that it exercised control over the latter. The routing slips indicated the
chronological order and priority of delivery, the urgency of certain deliveries and the time
when the goods were to be delivered to the customers.
The CA, likewise, disbelieved the respondents claim that the petitioner abandoned
his job noting that he just filed a complaint for regularization. This actuation of the
petitioner negated the respondents allegation that he abandoned his job. The CA held
that the respondents failed to discharge their burden to show that the petitioners dismissal
was for a valid and just cause. Accordingly, the respondents were declared guilty of illegal
dismissal and the decision of the Labor Arbiter was reinstated.
In its April 28, 2000 Decision, the CA denounced the contract of service between the
respondent company and the petitioner in this wise:

In summation, we rule that with the proliferation of contracts seeking to prevent workers
from attaining the status of regular employment, it is but necessary for the courts to
scrutinize with extreme caution their legality and justness. Where from the
circumstances it is apparent that a contract has been entered into to preclude
acquisition of tenurial security by the employee, they should be struck down and
disregarded as contrary to public policy and morals. In this case, the contract of service
is just another attempt to exploit the unwitting employee and deprive him of the
protection of the Labor Code by making it appear that the stipulations of the parties
were governed by the Civil Code as in ordinary transactions.[9]

However, on motion for reconsideration by the respondents, the CA made a complete

turn around as it rendered the assailed Resolution dated December 15, 2000 upholding
the contract of service between the petitioner and the respondent company. In
reconsidering its decision, the CA explained that the extent of control exercised by the
respondents over the petitioner was only with respect to the result but not to the means
and methods used by him. The CA cited the following circumstances: (1) the respondents
had no say on how the goods were to be delivered to the customers; (2) the petitioner
had the right to employ workers who would be under his direct control; and (3) the
petitioner had no working time.
The fact that the petitioner had been with the respondent company for more than ten
years was, according to the CA, of no moment because his status was determined not by
the length of service but by the contract of service. This contract, not being contrary to
morals, good customs, public order or public policy, should be given the force and effect
of law as between the respondent company and the petitioner. Consequently, the CA
reinstated the July 10, 1998 Decision of the NLRC dismissing the petitioners complaint
for illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000
Resolution of the appellate court alleging that:
(A)
 THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
AMOUNTING TO EXCESS OF JURISDICTION IN GIVING MORE
CONSIDERATION TO THE CONTRACT OF SERVICE ENTERED INTO BY
PETITIONER AND PRIVATE RESPONDENT THAN ARTICLE 280 OF THE LABOR
CODE OF THE PHILIPPINES WHICH CATEGORICALLY DEFINES A REGULAR
EMPLOYMENT NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE
CONTRARY AND REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;
(B)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
AMOUNTING TO EXCESS OF JURISDICTION IN REVERSING ITS OWN
FINDINGS THAT PETITIONER IS A REGULAR EMPLOYEE AND IN HOLDING
THAT THERE EXISTED NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN
PRIVATE RESPONDENT AND PETITIONER IN AS MUCH AS THE CONTROL
TEST WHICH IS CONSIDERED THE MOST ESSENTIAL CRITERION IN
DETERMINING THE EXISTENCE OF SAID RELATIONSHIP IS NOT PRESENT.[10]
The threshold issue that needs to be resolved is whether there existed an employer-
employee relationship between the respondent company and the petitioner. We rule in
the affirmative.
The elements to determine the existence of an employment relationship are: (1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the employers power to control the employees conduct. [11] The most
important element is the employers control of the employees conduct, not only as to the
result of the work to be done, but also as to the means and methods to accomplish it.[12] All
the four elements are present in this case.
First. Undeniably, it was the respondents who engaged the services of the petitioner
without the intervention of a third party.
Second. Wages are defined as remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time,
task, piece or commission basis, or other method of calculating the same, which is
payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be
rendered.[13] That the petitioner was paid on a per trip basis is not significant. This is
merely a method of computing compensation and not a basis for determining the
existence or absence of employer-employee relationship. One may be paid on the basis
of results or time expended on the work, and may or may not acquire an employment
status, depending on whether the elements of an employer-employee relationship are
present or not.[14] In this case, it cannot be gainsaid that the petitioner received
compensation from the respondent company for the services that he rendered to the
latter.
Moreover, under the Rules Implementing the Labor Code, every employer is required
to pay his employees by means of payroll.[15] The payroll should show, among other
things, the employees rate of pay, deductions made, and the amount actually paid to the
employee. Interestingly, the respondents did not present the payroll to support their claim
that the petitioner was not their employee, raising speculations whether this omission
proves that its presentation would be adverse to their case.[16]
Third. The respondents power to dismiss the petitioner was inherent in the fact that
they engaged the services of the petitioner as truck driver. They exercised this power by
terminating the petitioners services albeit in the guise of severance of contractual relation
due allegedly to the latters breach of his contractual obligation.
Fourth. As earlier opined, of the four elements of the employer-employee relationship,
the control test is the most important. Compared to an employee, an independent
contractor is one who carries on a distinct and independent business and undertakes to
perform the job, work, or service on its own account and under its own responsibility
according to its own manner and method, free from the control and direction of the
principal in all matters connected with the performance of the work except as to the results
thereof.[17] Hence, while an independent contractor enjoys independence and freedom
from the control and supervision of his principal, an employee is subject to the employers
power to control the means and methods by which the employees work is to be performed
and accomplished.[18]
Although the respondents denied that they exercised control over the manner and
methods by which the petitioner accomplished his work, a careful review of the records
shows that the latter performed his work as truck driver under the respondents
supervision and control. Their right of control was manifested by the following attendant
circumstances:

1. The truck driven by the petitioner belonged to respondent company;

2. There was an express instruction from the respondents that the truck shall be used
exclusively to deliver respondent companys goods; [19]

3. Respondents directed the petitioner, after completion of each delivery, to park the
truck in either of two specific places only, to wit: at its office in Metro Manila at 2320
Osmea Street, Makati City or at BEPZ, Mariveles, Bataan;[20] and

4. Respondents determined how, where and when the petitioner would perform his task
by issuing to him gate passes and routing slips. [21]

a. The routing slips indicated on the column REMARKS, the chronological order and
priority of delivery such as 1st drop, 2nd drop, 3rd drop, etc. This meant that the petitioner
had to deliver the same according to the order of priority indicated therein.

b. The routing slips, likewise, showed whether the goods were to be delivered urgently
or not by the word RUSH printed thereon.

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

As against the gratuitous allegation of the respondent that complainant was not
dismissed from the service but due to complainants breach of their contractual relation,
i.e., his violation of the terms and conditions of the contract, we are very much inclined
to believe complainants story that his dismissal from the service was anchored on his
insistent demand that he be considered a regular employee. Because complainant in
his right senses will not just abandon for that reason alone his work especially so that it
is only his job where he depends chiefly his existence and support for his family if he
was not aggrieved by the respondent when he was told that his services as driver will
be terminated on February 23, 1995.[28]

Thus, the lack of a valid and just cause in terminating the services of the petitioner
renders his dismissal illegal. Under Article 279 of the Labor Code, an employee who is
unjustly dismissed is entitled to reinstatement, without loss of seniority rights and other
privileges, and to the payment of full backwages, inclusive of allowances, and other
benefits or their monetary equivalent, computed from the time his compensation was
withheld from him up to the time of his actual reinstatement.[29] However, as found by the
Labor Arbiter, the circumstances obtaining in this case do not warrant the petitioners
reinstatement. A more equitable disposition, as held by the Labor Arbiter, would be an
award of separation pay equivalent to one month for every year of service from the time
of his illegal dismissal up to the finality of this judgment in addition to his full backwages,
allowances and other benefits.
WHEREFORE, the instant petition is GRANTED. The Resolution dated December
15, 2000 of the Court of Appeals reversing its Decision dated April 28, 2000 in CA-G.R.
SP No. 52485 is REVERSED and SET ASIDE. The Decision dated February 3, 1997 of
the Labor Arbiter in NLRC Case No. RAB-III-02-6181-5, finding the respondents guilty of
illegally terminating the employment of petitioner Pedro Chavez, is REINSTATED.
SO ORDERED.
 FIRST DIVISION

ANGELINA FRANCISCO, G.R. No. 170087

Petitioner,
Present:
Panganiban, C.J. (Chairperson),
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ.
NATIONAL LABOR RELATIONS
COMMISSION, KASEI CORPORATION,
SEIICHIRO TAKAHASHI, TIMOTEO
ACEDO, DELFIN LIZA, IRENE
BALLESTEROS, TRINIDAD LIZA Promulgated:
and RAMON ESCUETA,
Respondents.
August 31, 2006
x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul
and set aside the Decision and Resolution of the Court of Appeals dated October 29,
2004[1] and October 7, 2005,[2] respectively, in CA-G.R. SP No. 78515 dismissing the
complaint for constructive dismissal filed by herein petitioner Angelina Francisco. The
appellate court reversed and set aside the Decision of the National Labor Relations
Commission (NLRC) dated April 15, 2003,[3] in NLRC NCR CA No. 032766-02 which
affirmed with modification the decision of the Labor Arbiter dated July 31, 2002, [4] in
NLRC-NCR Case No. 30-10-0-489-01, finding that private respondents were liable for
constructive dismissal.

In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was
designated as Accountant and Corporate Secretary and was assigned to handle all the
accounting needs of the company. She was also designated as Liaison Officer to the City
of Makati to secure business permits, construction permits and other licenses for the initial
operation of the company.[5]

Although she was designated as Corporate Secretary, she was not entrusted with
the corporate documents; neither did she attend any board meeting nor required to do
so. She never prepared any legal document and never represented the company as its
Corporate Secretary. However, on some occasions, she was prevailed upon to sign
documentation for the company.[6]

In 1996, petitioner was designated Acting Manager. The corporation also hired
Gerry Nino as accountant in lieu of petitioner. As Acting Manager, petitioner was assigned
to handle recruitment of all employees and perform management administration
functions; represent the company in all dealings with government agencies, especially
with the Bureau of Internal Revenue (BIR), Social Security System (SSS) and in the city
government of Makati; and to administer all other matters pertaining to the operation of
Kasei Restaurant which is owned and operated by Kasei Corporation. [7]

For five years, petitioner performed the duties of Acting Manager. As of December
31, 2000 her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share
in the profit of Kasei Corporation.[8]
 In January 2001, petitioner was replaced by Liza R. Fuentes as
Manager. Petitioner alleged that she was required to sign a prepared resolution for her
replacement but she was assured that she would still be connected with Kasei
Corporation. Timoteo Acedo, the designated Treasurer, convened a meeting of all
employees of Kasei Corporation and announced that nothing had changed and that
petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji
Kamura and in charge of all BIR matters.[9]

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning

January up to September 2001 for a total reduction of P22,500.00 as of September
2001. Petitioner was not paid her mid-year bonus allegedly because the company was
not earning well. On October 2001, petitioner did not receive her salary from the
company. She made repeated follow-ups with the company cashier but she was advised
that the company was not earning well.[10]

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of
the officers but she was informed that she is no longer connected with the company. [11]

Since she was no longer paid her salary, petitioner did not report for work and filed
an action for constructive dismissal before the labor arbiter.

Private respondents averred that petitioner is not an employee of Kasei

Corporation. They alleged that petitioner was hired in 1995 as one of its technical
consultants on accounting matters and act concurrently as Corporate Secretary. As
technical consultant, petitioner performed her work at her own discretion without control
and supervision of Kasei Corporation. Petitioner had no daily time record and she came
to the office any time she wanted. The company never interfered with her work except
that from time to time, the management would ask her opinion on matters relating to her
profession. Petitioner did not go through the usual procedure of selection of employees,
but her services were engaged through a Board Resolution designating her as technical
consultant. The money received by petitioner from the corporation was her professional
fee subject to the 10% expanded withholding tax on professionals, and that she was not
one of those reported to the BIR or SSS as one of the companys employees.[12]

Petitioners designation as technical consultant depended solely upon the will of

management. As such, her consultancy may be terminated any time considering that her
services were only temporary in nature and dependent on the needs of the corporation.

To prove that petitioner was not an employee of the corporation, private

respondents submitted a list of employees for the years 1999 and 2000 duly received by
the BIR showing that petitioner was not among the employees reported to the BIR, as
well as a list of payees subject to expanded withholding tax which included
petitioner. SSS records were also submitted showing that petitioners latest employer was
Seiji Corporation.[13]

The Labor Arbiter found that petitioner was illegally dismissed, thus:

WHEREFORE, premises considered, judgment is hereby rendered as

follows:

1. finding complainant an employee of respondent corporation;

2. declaring complainants dismissal as illegal;
3. ordering respondents to reinstate complainant to her former
position without loss of seniority rights and jointly and severally pay
complainant her money claims in accordance with the following
computation:

a. Backwages 10/2001 07/2002 275,000.00

(27,500 x 10 mos.)
b. Salary Differentials (01/2001 09/2001) 22,500.00
c. Housing Allowance (01/2001 07/2002) 57,000.00
 d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
g. Moral and exemplary damages 100,000.00
h. 10% Attorneys fees 87,076.50
P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay

complainant separation pay with additional backwages that would accrue
up to actual payment of separation pay.

SO ORDERED.[14]

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor
Arbiter, the dispositive portion of which reads:

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby

MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay

computed at one month per year of service in addition to full backwages
from October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10%

share in profit in the respective accounts of P100,000.00 and P361,175.00
are deleted;

3) The award of 10% attorneys fees shall be based on salary

differential award only;
 4) The awards representing salary differentials, housing allowance,
mid year bonus and 13th month pay are AFFIRMED.

SO ORDERED.[15]

On appeal, the Court of Appeals reversed the NLRC decision, thus:

WHEREFORE, the instant petition is hereby GRANTED. The decision of

the National Labor Relations Commissions dated April 15, 2003 is hereby
REVERSED and SET ASIDE and a new one is hereby rendered dismissing
the complaint filed by private respondent against Kasei Corporation, et al.
for constructive dismissal.

SO ORDERED.[16]

The appellate court denied petitioners motion for reconsideration, hence, the present
recourse.

The core issues to be resolved in this case are (1) whether there was an employer-
employee relationship between petitioner and private respondent Kasei Corporation; and
if in the affirmative, (2) whether petitioner was illegally dismissed.

Considering the conflicting findings by the Labor Arbiter and the National Labor
Relations Commission on one hand, and the Court of Appeals on the other, there is a
need to reexamine the records to determine which of the propositions espoused by the
contending parties is supported by substantial evidence.[17]

We held in Sevilla v. Court of Appeals[18] that in this jurisdiction, there has been no
uniform test to determine the existence of an employer-employee relation. Generally,
courts have relied on the so-called right of control test where the person for whom the
services are performed reserves a right to control not only the end to be achieved but
also the means to be used in reaching such end. In addition to the standard of right-of-
control, the existing economic conditions prevailing between the parties, like the inclusion
of the employee in the payrolls, can help in determining the existence of an employer-
employee relationship.

However, in certain cases the control test is not sufficient to give a complete picture
of the relationship between the parties, owing to the complexity of such a relationship
where several positions have been held by the worker. There are instances when, aside
from the employers power to control the employee with respect to the means and methods
by which the work is to be accomplished, economic realities of the employment relations
help provide a comprehensive analysis of the true classification of the individual, whether
as employee, independent contractor, corporate officer or some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the
putative employers power to control the employee with respect to the means and methods
by which the work is to be accomplished; and (2) the underlying economic realities of the
activity or relationship.

This two-tiered test would provide us with a framework of analysis, which would
take into consideration the totality of circumstances surrounding the true nature of the
relationship between the parties. This is especially appropriate in this case where there
is no written agreement or terms of reference to base the relationship on; and due to the
complexity of the relationship based on the various positions and responsibilities given to
the worker over the period of the latters employment.

The control test initially found application in the case of Viaa v. Al-Lagadan and
Piga,[19] and lately in Leonardo v. Court of Appeals,[20] where we held that there is an
employer-employee relationship when the person for whom the services are performed
reserves the right to control not only the end achieved but also the manner and means
used to achieve that end.
 In Sevilla v. Court of Appeals,[21] we observed the need to consider the existing
economic conditions prevailing between the parties, in addition to the standard of right-
of-control like the inclusion of the employee in the payrolls, to give a clearer picture in
determining the existence of an employer-employee relationship based on an analysis of
the totality of economic circumstances of the worker.

Thus, the determination of the relationship between employer and employee

depends upon the circumstances of the whole economic activity,[22] such as: (1) the extent
to which the services performed are an integral part of the employers business; (2) the
extent of the workers investment in equipment and facilities; (3) the nature and degree of
control exercised by the employer; (4) the workers opportunity for profit and loss; (5) the
amount of initiative, skill, judgment or foresight required for the success of the claimed
independent enterprise; (6) the permanency and duration of the relationship between the
worker and the employer; and (7) the degree of dependency of the worker upon the
employer for his continued employment in that line of business.[23]

The proper standard of economic dependence is whether the worker is dependent

on the alleged employer for his continued employment in that line of business. [24] In the
United States, the touchstone of economic reality in analyzing possible employment
relationships for purposes of the Federal Labor Standards Act is dependency. [25] By
analogy, the benchmark of economic reality in analyzing possible employment
relationships for purposes of the Labor Code ought to be the economic dependence of
the worker on his employer.

By applying the control test, there is no doubt that petitioner is an employee of

Kasei Corporation because she was under the direct control and supervision of Seiji
Kamura, the corporations Technical Consultant. She reported for work regularly and
served in various capacities as Accountant, Liaison Officer, Technical Consultant, Acting
Manager and Corporate Secretary, with substantially the same job functions, that is,
rendering accounting and tax services to the company and performing functions
necessary and desirable for the proper operation of the corporation such as securing
business permits and other licenses over an indefinite period of engagement.

Under the broader economic reality test, the petitioner can likewise be said to be
an employee of respondent corporation because she had served the company for six
years before her dismissal, receiving check vouchers indicating her salaries/wages,
benefits, 13th month pay, bonuses and allowances, as well as deductions and Social
Security contributions from August 1, 1999 to December 18, 2000. [26] When petitioner
was designated General Manager, respondent corporation made a report to the SSS
signed by Irene Ballesteros. Petitioners membership in the SSS as manifested by a copy
of the SSS specimen signature card which was signed by the President of Kasei
Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces
the existence of an employer-employee relationship between petitioner and respondent
corporation.[27]

It is therefore apparent that petitioner is economically dependent on respondent

corporation for her continued employment in the latters line of business.

In Domasig v. National Labor Relations Commission,[28] we held that in a business

establishment, an identification card is provided not only as a security measure but mainly
to identify the holder thereof as a bona fide employee of the firm that issues it. Together
with the cash vouchers covering petitioners salaries for the months stated therein, these
matters constitute substantial evidence adequate to support a conclusion that petitioner
was an employee of private respondent.

We likewise ruled in Flores v. Nuestro[29] that a corporation who registers its

workers with the SSS is proof that the latter were the formers employees. The coverage
of Social Security Law is predicated on the existence of an employer-employee
relationship.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly
established that petitioner never acted as Corporate Secretary and that her designation
as such was only for convenience. The actual nature of petitioners job was as Kamuras
direct assistant with the duty of acting as Liaison Officer in representing the company to
secure construction permits, license to operate and other requirements imposed by
government agencies. Petitioner was never entrusted with corporate documents of the
company, nor required to attend the meeting of the corporation. She was never privy to
the preparation of any document for the corporation, although once in a while she was
required to sign prepared documentation for the company.[30]

The second affidavit of Kamura dated March 7, 2002 which repudiated the
December 5, 2001 affidavit has been allegedly withdrawn by Kamura himself from the
records of the case.[31] Regardless of this fact, we are convinced that the allegations in
the first affidavit are sufficient to establish that petitioner is an employee of Kasei
Corporation.

Granting arguendo, that the second affidavit validly repudiated the first one, courts
do not generally look with favor on any retraction or recanted testimony, for it could have
been secured by considerations other than to tell the truth and would make solemn trials
a mockery and place the investigation of the truth at the mercy of unscrupulous
witnesses.[32] A recantation does not necessarily cancel an earlier declaration, but like
any other testimony the same is subject to the test of credibility and should be received
with caution.[33]

Based on the foregoing, there can be no other conclusion that petitioner is an

employee of respondent Kasei Corporation. She was selected and engaged by the
company for compensation, and is economically dependent upon respondent for her
continued employment in that line of business. Her main job function involved accounting
and tax services rendered to respondent corporation on a regular basis over an indefinite
period of engagement. Respondent corporation hired and engaged petitioner for
compensation, with the power to dismiss her for cause. More importantly, respondent
corporation had the power to control petitioner with the means and methods by which the
work is to be accomplished.

The corporation constructively dismissed petitioner when it reduced her salary by

P2,500 a month from January to September 2001. This amounts to an illegal termination
of employment, where the petitioner is entitled to full backwages. Since the position of
petitioner as accountant is one of trust and confidence, and under the principle of strained
relations, petitioner is further entitled to separation pay, in lieu of reinstatement. [34]
 A diminution of pay is prejudicial to the employee and amounts to constructive
dismissal. Constructive dismissal is an involuntary resignation resulting in cessation of
work resorted to when continued employment becomes impossible, unreasonable or
unlikely; when there is a demotion in rank or a diminution in pay; or when a clear
discrimination, insensibility or disdain by an employer becomes unbearable to an
employee.[35] In Globe Telecom, Inc. v. Florendo-Flores,[36] we ruled that where an
employee ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment rendering
it impossible for such employee to continue working for her employer. Hence, her
severance from the company was not of her own making and therefore amounted to an
illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities
regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance
the fragile relationship between employees and employers, we are mindful of the fact that
the policy of the law is to apply the Labor Code to a greater number of employees. This
would enable employees to avail of the benefits accorded to them by law, in line with the
constitutional mandate giving maximum aid and protection to labor, promoting their
welfare and reaffirming it as a primary social economic force in furtherance of social
justice and national development.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the

Court of Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R.
SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the National Labor
Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02,
is REINSTATED. The case is REMANDED to the Labor Arbiter for the recomputation of
petitioner Angelina Franciscos full backwages from the time she was illegally terminated
until the date of finality of this decision, and separation pay representing one-half month
pay for every year of service, where a fraction of at least six months shall be considered
as one whole year.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 155207 August 13, 2008

WILHELMINA S. OROZCO, petitioner,

vs.
THE FIFTH DIVISION OF THE HONORABLE COURT OF APPEALS, PHILIPPINE
DAILY INQUIRER, and LETICIA JIMENEZ MAGSANOC, respondents.

DECISION

NACHURA, J.:

The case before this Court raises a novel question never before decided in our
jurisdiction – whether a newspaper columnist is an employee of the newspaper which
publishes the column.

In this Petition for Review under Rule 45 of the Revised Rules on Civil Procedure,
petitioner Wilhelmina S. Orozco assails the Decision1 of the Court of Appeals (CA) in
CA-G.R. SP No. 50970 dated June 11, 2002 and its Resolution2 dated September 11,
2002 denying her Motion for Reconsideration. The CA reversed and set aside the
Decision3 of the National Labor Relations Commission (NLRC), which in turn had
affirmed the Decision4 of the Labor Arbiter finding that Orozco was an employee of
private respondent Philippine Daily Inquirer (PDI) and was illegally dismissed as
columnist of said newspaper.

In March 1990, PDI engaged the services of petitioner to write a weekly column for its
Lifestyle section. She religiously submitted her articles every week, except for a six-
month stint in New York City when she, nonetheless, sent several articles through mail.
She received compensation of P250.00 – later increased to P300.00 – for every column
published.5

On November 7, 1992, petitioner’s column appeared in the PDI for the last time.
Petitioner claims that her then editor, Ms. Lita T. Logarta,6 told her that respondent
Leticia Jimenez Magsanoc, PDI Editor in Chief, wanted to stop publishing her column
for no reason at all and advised petitioner to talk to Magsanoc herself. Petitioner
narrates that when she talked to Magsanoc, the latter informed her that it was PDI
Chairperson Eugenia Apostol who had asked to stop publication of her column, but that
in a telephone conversation with Apostol, the latter said that Magsanoc informed her
(Apostol) that the Lifestyle section already had many columnists.7
On the other hand, PDI claims that in June 1991, Magsanoc met with the Lifestyle
section editor to discuss how to improve said section. They agreed to cut down the
number of columnists by keeping only those whose columns were well-written, with
regular feedback and following. In their judgment, petitioner’s column failed to improve,
continued to be superficially and poorly written, and failed to meet the high standards of
the newspaper. Hence, they decided to terminate petitioner’s column. 8

Aggrieved by the newspaper’s action, petitioner filed a complaint for illegal dismissal,
backwages, moral and exemplary damages, and other money claims before the NLRC.

On October 29, 1993, Labor Arbiter Arthur Amansec rendered a Decision in favor
of petitioner, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered, finding complainant to be an

employee of respondent company; ordering respondent company to reinstate her
to her former or equivalent position, with backwages.

Respondent company is also ordered to pay her 13th month pay and service
incentive leave pay.

Other claims are hereby dismissed for lack of merit.

SO ORDERED.9

The Labor Arbiter found that:

[R]espondent company exercised full and complete control over the means and
method by which complainant’s work – that of a regular columnist – had to be
accomplished. This control might not be found in an instruction, verbal or oral,
given to complainant defining the means and method she should write her
column. Rather, this control is manifested and certained (sic) in respondents’
admitted prerogative to reject any article submitted by complainant for
publication.

By virtue of this power, complainant was helplessly constrained to adopt her

subjects and style of writing to suit the editorial taste of her editor. Otherwise, off
to the trash can went her articles.

Moreover, this control is already manifested in column title, "Feminist Reflection"

allotted complainant. Under this title, complainant’s writing was controlled and
limited to a woman’s perspective on matters of feminine interests. That
respondent had no control over the subject matter written by complainant is
strongly belied by this observation. Even the length of complainant’s articles were
set by respondents.
 Inevitably, respondents would have no control over when or where complainant
wrote her articles as she was a columnist who could produce an article in thirty
(3) (sic) months or three (3) days, depending on her mood or the amount of
research required for an article but her actions were controlled by her obligation
to produce an article a week. If complainant did not have to report for work eight
(8) hours a day, six (6) days a week, it is because her task was mainly mental.
Lastly, the fact that her articles were (sic) published weekly for three (3) years
show that she was respondents’ regular employee, not a once-in-a-blue-moon
contributor who was not under any pressure or obligation to produce regular
articles and who wrote at his own whim and leisure.10

PDI appealed the Decision to the NLRC. In a Decision dated August 23, 1994, the
NLRC Second Division dismissed the appeal thereby affirming the Labor Arbiter’s
Decision. The NLRC initially noted that PDI failed to perfect its appeal, under Article 223
of the Labor Code, due to non-filing of a cash or surety bond. The NLRC said that the
reason proffered by PDI for not filing the bond – that it was difficult or impossible to
determine the amount of the bond since the Labor Arbiter did not specify the amount of
the judgment award – was not persuasive. It said that all PDI had to do was compute
based on the amount it was paying petitioner, counting the number of weeks from
November 7, 1992 up to promulgation of the Labor Arbiter’s decision.11

The NLRC also resolved the appeal on its merits. It found no error in the Labor Arbiter’s
findings of fact and law. It sustained the Labor Arbiter’s reasoning that respondent PDI
exercised control over petitioner’s work.

PDI then filed a Petition for Review12 before this Court seeking the reversal of the NLRC
Decision. However, in a Resolution13 dated December 2, 1998, this Court referred the
case to the Court of Appeals, pursuant to our ruling in St. Martin Funeral Homes v.
National Labor Relations Commission.14

The CA rendered its assailed Decision on June 11, 2002. It set aside the NLRC
Decision and dismissed petitioner’s Complaint. It held that the NLRC misappreciated
the facts and rendered a ruling wanting in substantial evidence. The CA said:

The Court does not agree with public respondent NLRC’s conclusion. First,
private respondent admitted that she was and [had] never been considered by
petitioner PDI as its employee. Second, it is not disputed that private respondent
had no employment contract with petitioner PDI. In fact, her engagement to
contribute articles for publication was based on a verbal agreement between her
and the petitioner’s Lifestyle Section Editor. Moreover, it was evident that private
respondent was not required to report to the office eight (8) hours a day. Further,
it is not disputed that she stayed in New York for six (6) months without
petitioner’s permission as to her leave of absence nor was she given any
disciplinary action for the same. These undisputed facts negate private
respondent’s claim that she is an employee of petitioner.
 Moreover, with regards (sic) to the control test, the public respondent NLRC’s
ruling that the guidelines given by petitioner PDI for private respondent to follow,
e.g. in terms of space allocation and length of article, is not the form of control
envisioned by the guidelines set by the Supreme Court. The length of the article
is obviously limited so that all the articles to be featured in the paper can be
accommodated. As to the topic of the article to be published, it is but logical that
private respondent should not write morbid topics such as death because she is
contributing to the lifestyle section. Other than said given limitations, if the same
could be considered limitations, the topics of the articles submitted by private
respondent were all her choices. Thus, the petitioner PDI in deciding to publish
private respondent’s articles only controls the result of the work and not the
means by which said articles were written.

As such, the above facts failed to measure up to the control test necessary for an
employer-employee relationship to exist.15

Petitioner’s Motion for Reconsideration was denied in a Resolution dated September

11, 2002. She then filed the present Petition for Review.

In a Resolution dated April 29, 2005, the Court, without giving due course to the petition,
ordered the Labor Arbiter to clarify the amount of the award due petitioner and,
thereafter, ordered PDI to post the requisite bond. Upon compliance therewith, the
petition would be given due course. Labor Arbiter Amansec clarified that the award
under the Decision amounted to P15,350.00. Thus, PDI posted the requisite bond on
January 25, 2007.16

We shall initially dispose of the procedural issue raised in the Petition.

Petitioner argues that the CA erred in not dismissing outright PDI’s Petition
for Certiorari for PDI’s failure to post a cash or surety bond in violation of Article 223 of
the Labor Code.

This issue was settled by this Court in its Resolution dated April 29, 2005. 17 There, the
Court held:

But while the posting of a cash or surety bond is jurisdictional and is a condition
sine qua non to the perfection of an appeal, there is a plethora of jurisprudence
recognizing exceptional instances wherein the Court relaxed the bond
requirement as a condition for posting the appeal.

xxxx

In the case of Taberrah v. NLRC, the Court made note of the fact that the
assailed decision of the Labor Arbiter concerned did not contain a computation of
the monetary award due the employees, a circumstance which is likewise
present in this case. In said case, the Court stated,
 As a rule, compliance with the requirements for the perfection of an appeal
within the reglamentary (sic) period is mandatory and jurisdictional.
However, in National Federation of Labor Unions v. Ladrido as well as in
several other cases, this Court relaxed the requirement of the posting of
an appeal bond within the reglementary period as a condition for
perfecting the appeal. This is in line with the principle that substantial
justice is better served by allowing the appeal to be resolved on the merits
rather than dismissing it based on a technicality.

The judgment of the Labor Arbiter in this case merely stated that petitioner was
entitled to backwages, 13th month pay and service incentive leave pay without
however including a computation of the alleged amounts.

xxxx

In the case of NFLU v. Ladrido III, this Court postulated that "private respondents
cannot be expected to post such appeal bond equivalent to the amount of the
monetary award when the amount thereof was not included in the decision of the
labor arbiter." The computation of the amount awarded to petitioner not having
been clearly stated in the decision of the labor arbiter, private respondents had
no basis for determining the amount of the bond to be posted.

Thus, while the requirements for perfecting an appeal must be strictly followed as
they are considered indispensable interdictions against needless delays and for
orderly discharge of judicial business, the law does admit of exceptions when
warranted by the circumstances. Technicality should not be allowed to stand in
the way of equitably and completely resolving the rights and obligations of the
parties. But while this Court may relax the observance of reglementary periods
and technical rules to achieve substantial justice, it is not prepared to give due
course to this petition and make a pronouncement on the weighty issue obtaining
in this case until the law has been duly complied with and the requisite appeal
bond duly paid by private respondents.18

Records show that PDI has complied with the Court’s directive for the posting of the
bond;19 thus, that issue has been laid to rest.

We now proceed to rule on the merits of this case.

The main issue we must resolve is whether petitioner is an employee of PDI, and if the
answer be in the affirmative, whether she was illegally dismissed.

We rule for the respondents.

The existence of an employer-employee relationship is essentially a question of

fact.20 Factual findings of quasi-judicial agencies like the NLRC are generally accorded
respect and finality if supported by substantial evidence.21
Considering, however, that the CA’s findings are in direct conflict with those of the Labor
Arbiter and NLRC, this Court must now make its own examination and evaluation of the
facts of this case.

It is true that petitioner herself admitted that she "was not, and [had] never been
considered respondent’s employee because the terms of works were arbitrarily decided
upon by the respondent."22 However, the employment status of a person is defined and
prescribed by law and not by what the parties say it should be. 23

This Court has constantly adhered to the "four-fold test" to determine whether there
exists an employer-employee relationship between parties.24 The four elements of an
employment relationship are: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employer’s power to control
the employee’s conduct.25

Of these four elements, it is the power of control which is the most crucial 26 and most
determinative factor,27 so important, in fact, that the other elements may even be
disregarded.28 As this Court has previously held:

the significant factor in determining the relationship of the parties is the presence
or absence of supervisory authority to control the method and the details of
performance of the service being rendered, and the degree to which the principal
may intervene to exercise such control.29

In other words, the test is whether the employer controls or has reserved the right to
control the employee, not only as to the work done, but also as to the means and
methods by which the same is accomplished.30

Petitioner argues that several factors exist to prove that respondents exercised control
over her and her work, namely:

a. As to the Contents of her Column – The PETITIONER had to insure that the
contents of her column hewed closely to the objectives of its Lifestyle Section
and the over-all principles that the newspaper projects itself to stand for. As
admitted, she wanted to write about death in relation to All Souls Day but was
advised not to.

b. As to Time Control – The PETITIONER, as a columnist, had to observe the

deadlines of the newspaper for her articles to be published. These deadlines
were usually that time period when the Section Editor has to "close the pages" of
the Lifestyle Section where the column in located. "To close the pages" means to
prepare them for printing and publication.

As a columnist, the PETITIONER’s writings had a definite day on which it was

going to appear. So she submitted her articles two days before the designated
day on which the column would come out.
 This is the usual routine of newspaper work. Deadlines are set to fulfill the
newspapers’ obligations to the readers with regard to timeliness and freshness of
ideas.

c. As to Control of Space – The PETITIONER was told to submit only two or

three pages of article for the column, (sic) "Feminist Reflections" per week. To go
beyond that, the Lifestyle editor would already chop off the article and publish the
rest for the next week. This shows that PRIVATE RESPONDENTS had control
over the space that the PETITIONER was assigned to fill.

d. As to Discipline – Over time, the newspaper readers’ eyes are trained or

habituated to look for and read the works of their favorite regular writers and
columnists. They are conditioned, based on their daily purchase of the
newspaper, to look for specific spaces in the newspapers for their favorite write-
ups/or opinions on matters relevant and significant issues aside from not being
late or amiss in the responsibility of timely submission of their articles.

The PETITIONER was disciplined to submit her articles on highly relevant and
significant issues on time by the PRIVATE RESPONDENTS who have a say on
whether the topics belong to those considered as highly relevant and significant,
through the Lifestyle Section Editor. The PETITIONER had to discuss the topics
first and submit the articles two days before publication date to keep her column
in the newspaper space regularly as expected or without miss by its readers. 31

Given this discussion by petitioner, we then ask the question: Is this the form of control
that our labor laws contemplate such as to establish an employer-employee relationship
between petitioner and respondent PDI?

It is not.

Petitioner has misconstrued the "control test," as did the Labor Arbiter and the NLRC.

Not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former. Rules which serve as general guidelines towards the
achievement of the mutually desired result are not indicative of the power of
control.32 Thus, this Court has explained:

It should, however, be obvious that not every form of control that the hiring party
reserves to himself over the conduct of the party hired in relation to the services
rendered may be accorded the effect of establishing an employer-employee
relationship between them in the legal or technical sense of the term. A line must
be drawn somewhere, if the recognized distinction between an employee and an
individual contractor is not to vanish altogether. Realistically, it would be a rare
contract of service that gives untrammelled freedom to the party hired and
eschews any intervention whatsoever in his performance of the engagement.
 Logically, the line should be drawn between rules that merely serve as guidelines
towards the achievement of the mutually desired result without dictating the
means or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The
first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means
used to achieve it. x x x.33

The main determinant therefore is whether the rules set by the employer are meant to
control not just the results of the work but also the means and method to be used by the
hired party in order to achieve such results. Thus, in this case, we are to examine the
factors enumerated by petitioner to see if these are merely guidelines or if they indeed
fulfill the requirements of the control test.

Petitioner believes that respondents’ acts are meant to control how she executes her
work. We do not agree. A careful examination reveals that the factors enumerated by
the petitioner are inherent conditions in running a newspaper. In other words, the so-
called control as to time, space, and discipline are dictated by the very nature of the
newspaper business itself.

We agree with the observations of the Office of the Solicitor General that:

The Inquirer is the publisher of a newspaper of general circulation which is widely

read throughout the country. As such, public interest dictates that every article
appearing in the newspaper should subscribe to the standards set by the
Inquirer, with its thousands of readers in mind. It is not, therefore, unusual for the
Inquirer to control what would be published in the newspaper. What is important
is the fact that such control pertains only to the end result, i.e., the submitted
articles. The Inquirer has no control over [petitioner] as to the means or method
used by her in the preparation of her articles. The articles are done by [petitioner]
herself without any intervention from the Inquirer.34

Petitioner has not shown that PDI, acting through its editors, dictated how she was to
write or produce her articles each week. Aside from the constraints presented by the
space allocation of her column, there were no restraints on her creativity; petitioner was
free to write her column in the manner and style she was accustomed to and to use
whatever research method she deemed suitable for her purpose. The apparent
limitation that she had to write only on subjects that befitted the Lifestyle section did not
translate to control, but was simply a logical consequence of the fact that her column
appeared in that section and therefore had to cater to the preference of the readers of
that section.

The perceived constraint on petitioner’s column was dictated by her own choice of her
column’s perspective. The column title "Feminist Reflections" was of her own choosing,
as she herself admitted, since she had been known as a feminist writer.35Thus,
respondent PDI, as well as her readers, could reasonably expect her columns to speak
from such perspective.

Contrary to petitioner’s protestations, it does not appear that there was any actual
restraint or limitation on the subject matter – within the Lifestyle section – that she could
write about. Respondent PDI did not dictate how she wrote or what she wrote in her
column. Neither did PDI’s guidelines dictate the kind of research, time, and effort she
put into each column. In fact, petitioner herself said that she received "no comments on
her articles…except for her to shorten them to fit into the box allotted to her column."
Therefore, the control that PDI exercised over petitioner was only as to the finished
product of her efforts, i.e., the column itself, by way of either shortening or outright
rejection of the column.

The newspaper’s power to approve or reject publication of any specific article she wrote
for her column cannot be the control contemplated in the "control test," as it is but
logical that one who commissions another to do a piece of work should have the right to
accept or reject the product. The important factor to consider in the "control test" is still
the element of control over how the work itself is done, not just the end result thereof.

In contrast, a regular reporter is not as independent in doing his or her work for the
newspaper. We note the common practice in the newspaper business of assigning its
regular reporters to cover specific subjects, geographical locations, government
agencies, or areas of concern, more commonly referred to as "beats." A reporter must
produce stories within his or her particular beat and cannot switch to another beat
without permission from the editor. In most newspapers also, a reporter must inform the
editor about the story that he or she is working on for the day. The story or article must
also be submitted to the editor at a specified time. Moreover, the editor can easily pull
out a reporter from one beat and ask him or her to cover another beat, if the need
arises.

This is not the case for petitioner. Although petitioner had a weekly deadline to meet,
she was not precluded from submitting her column ahead of time or from submitting
columns to be published at a later time. More importantly, respondents did not dictate
upon petitioner the subject matter of her columns, but only imposed the general
guideline that the article should conform to the standards of the newspaper and the
general tone of the particular section.

Where a person who works for another performs his job more or less at his own
pleasure, in the manner he sees fit, not subject to definite hours or conditions of work,
and is compensated according to the result of his efforts and not the amount thereof, no
employer-employee relationship exists.36

Aside from the control test, this Court has also used the economic reality test. The
economic realities prevailing within the activity or between the parties are examined,
taking into consideration the totality of circumstances surrounding the true nature of the
relationship between the parties.37 This is especially appropriate when, as in this case,
there is no written agreement or contract on which to base the relationship. In our
jurisdiction, the benchmark of economic reality in analyzing possible employment
relationships for purposes of applying the Labor Code ought to be the economic
dependence of the worker on his employer.38

Petitioner’s main occupation is not as a columnist for respondent but as a women’s

rights advocate working in various women’s organizations.39 Likewise, she herself
admits that she also contributes articles to other publications.40 Thus, it cannot be said
that petitioner was dependent on respondent PDI for her continued employment in
respondent’s line of business.41

The inevitable conclusion is that petitioner was not respondent PDI’s employee but an
independent contractor, engaged to do independent work.

There is no inflexible rule to determine if a person is an employee or an independent

contractor; thus, the characterization of the relationship must be made based on the
particular circumstances of each case.42 There are several factors43 that may be
considered by the courts, but as we already said, the right to control is the dominant
factor in determining whether one is an employee or an independent contractor.44

In our jurisdiction, the Court has held that an independent contractor is one who carries
on a distinct and independent business and undertakes to perform the job, work, or
service on one’s own account and under one’s own responsibility according to one’s
own manner and method, free from the control and direction of the principal in all
matters connected with the performance of the work except as to the results thereof.45

On this point, Sonza v. ABS-CBN Broadcasting Corporation46 is enlightening. In that

case, the Court found, using the four-fold test, that petitioner, Jose Y. Sonza, was not
an employee of ABS-CBN, but an independent contractor. Sonza was hired by ABS-
CBN due to his "unique skills, talent and celebrity status not possessed by ordinary
employees," a circumstance that, the Court said, was indicative, though not conclusive,
of an independent contractual relationship. Independent contractors often present
themselves to possess unique skills, expertise or talent to distinguish them from
ordinary employees.47 The Court also found that, as to payment of wages, Sonza’s
talent fees were the result of negotiations between him and ABS-CBN.48 As to the
power of dismissal, the Court found that the terms of Sonza’s engagement were
dictated by the contract he entered into with ABS-CBN, and the same contract provided
that either party may terminate the contract in case of breach by the other of the terms
thereof.49 However, the Court held that the foregoing are not determinative of an
employer-employee relationship. Instead, it is still the power of control that is most
important.

On the power of control, the Court found that in performing his work, Sonza only needed
his skills and talent – how he delivered his lines, appeared on television, and sounded
on radio were outside ABS-CBN’s control.50 Thus:
We find that ABS-CBN was not involved in the actual performance that produced
the finished product of SONZA’s work. ABS-CBN did not instruct SONZA how to
perform his job. ABS-CBN merely reserved the right to modify the program
format and airtime schedule "for more effective programming." ABS-CBN’s sole
concern was the quality of the shows and their standing in the ratings. Clearly,
ABS-CBN did not exercise control over the means and methods of performance
of SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-
CBN’s power over the means and methods of the performance of his work.
Although ABS-CBN did have the option not to broadcast SONZA’s show, ABS-
CBN was still obligated to pay SONZA’s talent fees... Thus, even if ABS-CBN
was completely dissatisfied with the means and methods of SONZA’s
performance of his work, or even with the quality or product of his work, ABS-
CBN could not dismiss or even discipline SONZA. All that ABS-CBN could do is
not to broadcast SONZA’s show but ABS-CBN must still pay his talent fees in
full.

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by

the obligation to continue paying in full SONZA’s talent fees, did not amount to
control over the means and methods of the performance of SONZA’s work. ABS-
CBN could not terminate or discipline SONZA even if the means and methods of
performance of his work - how he delivered his lines and appeared on television -
did not meet ABS-CBN’s approval. This proves that ABS-CBN’s control was
limited only to the result of SONZA’s work, whether to broadcast the final product
or not. In either case, ABS-CBN must still pay SONZA’s talent fees in full until the
expiry of the Agreement.

In Vaughan, et al. v. Warner, et al., the United States Circuit Court of Appeals
ruled that vaudeville performers were independent contractors although the
management reserved the right to delete objectionable features in their shows.
Since the management did not have control over the manner of performance of
the skills of the artists, it could only control the result of the work by deleting
objectionable features.

SONZA further contends that ABS-CBN exercised control over his work by
supplying all equipment and crew. No doubt, ABS-CBN supplied the equipment,
crew and airtime needed to broadcast the "Mel & Jay" programs. However, the
equipment, crew and airtime are not the "tools and instrumentalities" SONZA
needed to perform his job. What SONZA principally needed were his talent or
skills and the costumes necessary for his appearance. Even though ABS-CBN
provided SONZA with the place of work and the necessary equipment, SONZA
was still an independent contractor since ABS-CBN did not supervise and control
his work. ABS-CBN’s sole concern was for SONZA to display his talent during
the airing of the programs.
 A radio broadcast specialist who works under minimal supervision is an
independent contractor. SONZA’s work as television and radio program host
required special skills and talent, which SONZA admittedly possesses. The
records do not show that ABS-CBN exercised any supervision and control over
how SONZA utilized his skills and talent in his shows.51

The instant case presents a parallel to Sonza. Petitioner was engaged as a columnist
for her talent, skill, experience, and her unique viewpoint as a feminist advocate. How
she utilized all these in writing her column was not subject to dictation by respondent.
As in Sonza, respondent PDI was not involved in the actual performance that produced
the finished product. It only reserved the right to shorten petitioner’s articles based on
the newspaper’s capacity to accommodate the same. This fact, we note, was not unique
to petitioner’s column. It is a reality in the newspaper business that space constraints
often dictate the length of articles and columns, even those that regularly appear
therein.

Furthermore, respondent PDI did not supply petitioner with the tools and
instrumentalities she needed to perform her work. Petitioner only needed her talent and
skill to come up with a column every week. As such, she had all the tools she needed to
perform her work.

Considering that respondent PDI was not petitioner’s employer, it cannot be held guilty
of illegal dismissal.

WHEREFORE, the foregoing premises considered, the Petition is DISMISSED. The

Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 50970 are
hereby AFFIRMED.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 100388. December 14, 2000]

SOCIAL SECURITY SYSTEM, petitioner, vs. THE COURT OF APPEALS and

CONCHITA AYALDE, respondents.

DECISION
YNARES-SANTIAGO, J.:

In a petition before the Social Security Commission, Margarita Tana, widow of the
late Ignacio Tana, Sr., alleged that her husband was, before his demise, an employee of
Conchita Ayalde as a farmhand in the two (2) sugarcane plantations she owned (known
as Hda. No. Audit B-70 located in Pontevedra, La Carlota City) and leased from the
University of the Philippines (known as Hda. Audit B-15-M situated in La Granja, La
Carlota City). She further alleged that Tana worked continuously six (6) days a week, four
(4) weeks a month, and for twelve (12) months every year between January 1961 to April
1979. For his labor, Tana allegedly received a regular salary according to the minimum
wage prevailing at the time. She further alleged that throughout the given period, social
security contributions, as well as medicare and employees compensation premiums were
deducted from Tanas wages. It was only after his death that Margarita discovered that
Tana was never reported for coverage, nor were his contributions/premiums remitted to
the Social Security System (SSS). Consequently, she was deprived of the burial grant
and pension benefits accruing to the heirs of Tana had he been reported for coverage.
Hence, she prayed that the Commission issue an order directing:
1. respondents Conchita Ayalde and Antero Maghari as her administrator to pay
the premium contributions of the deceased Ignacio Tana, Sr. and report his
name for SSS coverage; and
2. the SSS to grant petitioner Margarita Tana the funeral and pension benefits
due her.[1]
The SSS, in a petition-in-intervention, revealed that neither Hda. B-70 nor
respondents Ayalde and Maghari were registered members-employers of the SSS, and
consequently, Ignacio Tana, Sr. was never registered as a member-employee. Likewise,
SSS records reflected that there was no way of verifying whether the alleged premium
contributions were remitted since the respondents were not registered members-
employers. Being the agency charged with the implementation and enforcement of the
provisions of the Social Security Law, as amended, the SSS asked the Commissions
leave to intervene in the case.[2]
In his answer, respondent Antero Maghari raised the defense that he was a mere
employee who was hired as an overseer of Hda. B-70 sometime during crop years 1964-
65 to 1971-72, and as such, his job was limited to those defined for him by the employer
which never involved matters relating to the SSS. Hence, he prayed that the case against
him be dismissed for lack of cause of action.[3]
For her part, respondent Ayalde belied the allegation that Ignacio Tana, Sr. was her
employee, admitting only that he was hired intermittently as an independent contractor to
plow, harrow, or burrow Hda. No. Audit B-15-M. Tana used his own carabao and other
implements, and he followed his own schedule of work hours. Ayalde further alleged that
she never exercised control over the manner by which Tana performed his work as an
independent contractor. Moreover, Ayalde averred that way back in 1971, the University
of the Philippines had already terminated the lease over Hda. B-15-M and she had since
surrendered possession thereof to the University of the Philippines.Consequently, Ignacio
Tana, Sr. was no longer hired to work thereon starting in crop year 1971-72, while he was
never contracted to work in Hda. No. Audit B-70. She also prayed for the dismissal of the
case considering that Ignacio Tana, Sr. was never her employee.[4]
After hearing both parties, the Social Security Commission issued a Resolution on
January 28, 1988, the dispositive portion of which reads:

After a careful evaluation of the testimonies of the petitioner and her witnesses, as well
as the testimony of the respondent together with her documentary evidences, this
Commission finds that the late Ignacio Tana was employed by respondent Conchita
Ayalde from January 1961 to March 1979. The testimony of the petitioner which was
corroborated by Agaton Libawas and Aurelio Tana, co-workers of the deceased Ignacio
Tana, sufficienty established the latters employment with the respondent.

As regards respondent Antero Maghari, he is absolved from liability because he is a

mere employee of Conchita Ayalde.

PREMISES CONSIDERED, this Commission finds and so holds that the late Ignacio
Tana had been employed continuously from January 1961 to March 1979 in Hda. B-70
and Hda. B-15-M which are owned and leased, respectively, by respondent Conchita
(Concepcion) Ayalde with a salary based on the Minimum Wage prevailing during his
employment.

Not having reported the petitioners husband for coverage with the SSS, respondent
Conchita (Concepcion) Ayalde is, therefore, liable for the payment of damages
equivalent to the death benefits in the amount of P7,067.40 plus the amount of P750.00
representing funeral benefit or a total of P7,817.40.

Further, the SSS is ordered to pay to the petitioner her accrued pension covering the
period after the 5-year guaranteed period corresponding to the employers liability.

SO ORDERED.[5]

Respondent Ayalde filed a motion for reconsideration[6]which the Commission denied

for lack of merit in an Order dated November 3, 1988.[7]
 Not satisfied with the Commissions ruling, Ayalde appealed to the Court of Appeals,
docketed as CA-G.R. SP No. 16427, raising the following assignment of errors:

The Social Security Commission erred in not finding that there is sufficient evidence to
show that:

(a) The deceased Ignacio Tana, Sr. never worked in the farmland of respondent-
appellant situated in Pontevedra, La Carlota City, otherwise known as Hacienda No.
Audit B-70, (Pontevedra B-70 Farm for short), in any capacity, whether as a daily or
monthly laborer or as independent contractor;

(b) During the time that respondent-appellant was leasing a portion of the land of the
University of the Philippines, otherwise known as Hacienda Audit No. B-15-M, (La
Granja B-15 Farm for short), the deceased Ignacio Tana, Sr. was hired thereat on a
pakyaw basis, or as an independent contractor, performing the services of an arador
(Plower), for which he was proficient, using his own carabao and farming implements on
his own time and discretion within the period demanded by the nature of the job
contracted.

II

The Social Security Commission erred in holding that there is no evidence whatsoever
to show that respondent-appellant was no longer leasing La Granja B-15 Farm.

III

The Social Security Commission erred in not holding that the deceased Ignacio Tana,
having been hired as an independent contractor on pakyaw basis, did not fall within the
coverage of the Social Security Law.[8]

The Court of Appeals rendered judgment in favor of respondent-appellant Conchita

Ayalde and dismissed the claim of petitioner Margarita Tan.
The SSS, as intervenor-appellee, filed a Motion for Reconsideration, which was
denied on the ground that the arguments advanced are mere reiterations of issues and
arguments already considered and passed upon in the decision in question which are
utterly insufficient to justify a modification or reversal of said decision. [9]
Hence, this petition for review on certiorari on the following assigned errors:
 1) The Court of Appeals was in error in ruling that an employee working under
the pakyaw system is considered under the law to be an independent
contractor.
2) The Court of Appeals was in error in not giving due consideration to the
fundamental tenet that doubts in the interpretation and implementation of labor
and social welfare laws should be resolved in favor of labor.
3) The Court of Appeals was in error in disregarding the settled rule that the
factual findings of administrative bodies on matters within their competence
shall not be disturbed by the courts.
4) The Court of Appeals was in error in ruling that even granting arguendo that
Ignacio Tana was employed by Conchita Ayalde, such employment did not
entitle him to compulsory coverage since he was not paid any regular daily
wage or basic pay and he did not work for an uninterrupted period of at least
six months in a year in accordance with Section 8(j) (1) of the SS Law.
The pivotal issue to be resolved in this petition is whether or not an agricultural laborer
who was hired on pakyaw basis can be considered an employee entitled to compulsory
coverage and corresponding benefits under the Social Security Law.
Petitioner, Social Security System (or SSS), argues that the deceased Ignacio Tana,
Sr., who was hired by Conchita Ayalde on pakyaw basis to perform specific tasks in her
sugarcane plantations, should be considered an employee; and as such, his heirs are
entitled to pension and burial benefits.
The Court of Appeals, however, ruled otherwise, reversing the ruling of the Social
Security Commission and declaring that the late Ignacio Tana, Sr. was an independent
contractor, and in the absence of an employer-employee relationship between Tana and
Ayalde, the latter cannot be compelled to pay to his heirs the burial and pension benefits
under the SS Law.
At the outset, we reiterate the well-settled doctrine that the existence of an employer-
employee relationship is ultimately a question of fact.[10] And while it is the general rule
that factual issues are not within the province of the Supreme Court, said rule is not
without exception. In cases, such as this one, where there are conflicting and
contradictory findings of fact, this Court has not hesitated to scrutinize the records to
determine the facts for itself.[11] Our disquisition of the facts shall be our guide as to whose
findings are supported by substantial evidence.
The mandatory coverage under the SSS Law (Republic Act No. 1161, as amended
by PD 1202 and PD 1636) is premised on the existence of an employer-employee
relationship, and Section 8(d) defines an employee as any person who performs services
for an employer in which either or both mental and physical efforts are used and who
receives compensation for such services where there is an employer-employee
relationship. The essential elements of an employer-employee relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the power of control with regard to the means and methods by which
the work is to be accomplished, with the power of control being the most determinative
factor.[12]
There is no question that Tana was selected and his services engaged by either
Ayalde herself, or by Antero Maghari, her overseer. Corollarily, they also held the
prerogative of dismissing or terminating Tanas employment. The dispute is in the
question of payment of wages. Claimant Margarita Tana and her corroborating witnesses
testified that her husband was paid daily wages per quincena as well as
on pakyaw basis. Ayalde, on the other hand, insists that Tana was paid solely
on pakyaw basis. To support her claim, she presented payrolls covering the period
January of 1974 to January of 1976;[13] and November of 1978 to May of 1979.[14]
A careful perusal of the records readily show that the exhibits offered are not
complete, and are but a mere sampling of payrolls. While the names of the supposed
laborers appear therein, their signatures are nowhere to be found. And while they cover
the years 1975, 1976 and portions of 1978 and 1979, they do not cover the 18-year period
during which Tana was supposed to have worked in Ayaldes plantations. Also an
admitted fact is that these exhibits only cover Hda. B70, Ayalde having averred that all
her records and payrolls for the other plantation (Hda. B-15-M) were either destroyed or
lost.[15]
To our mind, these documents are not only sadly lacking, they are also unworthy of
credence. The fact that Tanas name does not appear in the payrolls for the years 1975,
1976 and part of 1978 and 1979, is no proof that he did not work in Hda. B70 in the years
1961 to 1974, and the rest of 1978 and 1979. The veracity of the alleged documents as
payrolls are doubtful considering that the laborers named therein never affixed their
signatures to show that they actually received the amounts indicated corresponding to
their names. Moreover, no record was shown pertaining to Hda. B-15-M, where Tana was
supposed to have worked. Even Ayalde admitted that she hired Tana as arador and
sometimes as laborer during milling in Hda. B-15-M.[16] In light of her incomplete
documentary evidence, Ayaldes denial that Tana was her employee in Hda. B-70 or Hda.
B-15-M must fail.
In contrast to Ayaldes evidence, or lack thereof, is Margarita Tanas positive
testimony, corroborated by two (2) other witnesses. On the matter of wages, they testified
as follows:
Margarita Tana:
Q. During the employment of your late husband, was he paid any wages?
A. Yes, he was paid.
Q. What was the manner of payment of his salary, was it on pakyaw or daily basis?
A. Daily basis.
Q. How many times did he receive his salary in a months time?
A. 2 times.
Q. You mean, payday in Hda. B-70 is every 15 days?
A. Yes, sir.
xxxxxxxxx
ATTY. GALVAN:
To prove that it is material to the main question because if ever the hacienda
maintains complete payrolls of their employees, then the burden of proof lies in
the petitioner..
HEARING OFFICER:
Let the witness answer, if she knows.
WITNESS:
There was no payroll, only pad paper.
ATTY. GALVAN: (continuing)
Q. Were the names of workers of the hacienda all listed in that pad paper every
payday?
A. Yes, we just sign on pad paper because we have no payroll to be signed.
xxxxxxxxx
Q. What do you understand by payroll?
A. Payroll is the list where the whole laborers are listed and receive their salaries.
Q. And how did that differ from the pad paper which you said you signed?
A. There is a difference.
Q. What is the difference?
A. In the payroll, at the end there is a column for signature but in the pad paper, we
only sign directly.
Q. Did it contain the amount that you receive?
A. Yes, sir.
Q. And the date corresponding to the payroll pad?
A. I am not sure but it only enumerates our names and then we were given our
salaries.
Q. Now, did you have a copy of that?
ATTY. GALVAN:
Objection, Your Honor, it is not the petitioner who had a copy, it is usually the owner
because the preparation of the payrolls is done by the employer who..
ATTY. UNGCO:
That is why Im asking ..
 HEARING OFFICER:
Let the witness answer. Objection overruled.
WITNESS:
I dont have.
xxxxxxxxx
Q. When you are receiving daily wage of P4.00 how much was your quincenal
together with your husband?
A. The highest salary I received for my own was P30.00 in one quincena.
Q. What about the salary of your husband, how much?
A. The same.
Q. Was this P30.00 per quincena later on increased?
A. There was an increase because formerly it was P4.00 now it is P8.00.
Q. In 1979 how much was your husbands salary per quincena?
A. In one quincena my husband receives P60.00 while I only receive P30.00.[17]
AGATON LIBAWAS:
Q. During your employment, do you sign payrolls everytime you draw your salary?
A. We sign on intermediate pad.
Q. You mean, the practice of the hacienda is to have the names of the laborers
receiving that salaries listed on that intermediate pad?
A. Yes, sir.[18]
AURELIO TANA:
Q. By the way, how many times did you receive your salaries in a month?
A. We receive our wages twice a month that is, every 15 days.
Q. Did you sign payrolls everytime you received your salaries?
A. In the pad paper as substitute payroll.
Q. Do you know if all the workers of the hacienda were listed in that payrolls?
A. Yes, sir.
Q. Who was in charge in giving your salaries?
A. Antero Maghari.[19]
These witnesses did not waver in their assertion that while Tana was hired by Ayalde
as an arador on pakyaw basis, he was also paid a daily wage which Ayaldes overseer
disbursed every fifteen (15) days. It is also undisputed that they were made to
acknowledge receipt of their wages by signing on sheets of ruled paper, which are
different from those presented by Ayalde as documentary evidence. In fine, we find that
the testimonies of Margarita Tana, Agaton Libawas and Aurelio Tana prevail over the
incomplete and inconsistent documentary evidence of Ayalde.
In the parallel case of Opulencia Ice Plant and Storage v. NLRC, the petitioners
argued that since Manuel P. Esitas name does not appear in the payrolls of the company
it necessarily means that he was not an employee. This Court held:

Petitioners further argue that complainant miserably failed to present any documentary
evidence to prove his employment. There was no timesheet, pay slip and/or
payroll/cash voucher to speak of. Absence of these material documents are necessarily
fatal to complainants cause.

We do not agree. No particular form of evidence is required to prove the existence of an

employer-employee relationship. Any competent and relevant evidence to prove the
relationship may be admitted. For, if only documentary evidence would be required to
show that relationship, no scheming employer would ever be brought before the bar of
justice, as no employer would wish to come out with any trace of the illegality he has
authored considering that it should take much weightier proof to invalidate a written
instrument. Thus, as in this case where the employer-employee relationship between
petitioners and Esita was sufficiently proved by testimonial evidence, the absence of
time sheet, time record or payroll has become inconsequential.[20] (Underscoring ours)

Clearly, then, the testimonial evidence of the claimant and her witnesses constitute
positive and credible evidence of the existence of an employer-employee relationship
between Tana and Ayalde. As the employer, the latter is duty-bound to keep faithful and
complete records of her business affairs, not the least of which would be the salaries of
the workers. And yet, the documents presented have been selective, few and incomplete
in substance and content. Consequently, Ayalde has failed to convince us that, indeed,
Tana was not her employee.
The argument is raised that Tana is an independenent contractor because he was
hired and paid wages on pakyaw basis. We find this assertion to be specious for several
reasons.
First, while Tana was sometimes hired as an arador or plower for intermittent periods,
he was hired to do other tasks in Ayaldes plantations. Ayalde herself admitted as much,
although she minimized the extent of Tanas labors. On the other hand, the claimant and
her witnesses were direct and firm in their testimonies, to wit:
MARGARITA TANA:
Q. Was your late husbands work continuous or not?
A. His work was continuous except on Sundays.
Q. Mrs. Witness, in January 1961, how many days in a week did your late husband
work?
A. 4 weeks in January 1961.
Q. And how many months for that year did he work?
A. 12 months.
Q. Is this working pattern of your husband, considering that you testified that he
worked continuously, the same all throughout his employment from 1961 to
1978?
A. Yes, he worked continuously from 1961 to 1978 for 6 days a week, 4 weeks a
month and 12 months each year.
Q. Mrs. Witness, how many months did your husband work in 1979 considering that
he died in 1979?
A. 3 months.
Q. What was the nature of the work of your late husband from 1961 until his death in
1979?
A. Cutting canes, hauling canes with the use of canecarts, plowing, hauling fertilizers,
weeding and stubble cleaning.
xxxxxxxxx
Q. Now, the other co-workers of yours, you said they were Agaton Libawas, Narciso
Dueas, Juan Dueas, and Aurelio Tana, what were their jobs?
A. Hauling canes by the use of bull carts and cutting canes. Their works are the same
with that of my husbands.
Q. But you mentioned among the duties of your husband as arador meaning plowing
the fields?
A. Yes, he was also plowing because that is one of his duties.[21]
AGATON LIBAWAS:
Q. How about petitioner Margarita Tana and the late Ignacio Tana, were they regular
workers, or extra workers?
A. They were regular workers.
Q. In your case, Mr. Witness, considering that according to you, you are only a relief
worker, please inform the Commission how many months each year from 1961 to
1984 did you work in Hda. B-70 and Hda. B-15M with Conchita Ayalde?
A. During milling season, I worked 2 months, during cultivation if they are short of
plowers then they would call me to work for at least 3 months as a plower.
Q. So, all in all, each year, from 1961 to 1984 your average working months in Hda.
B-70 and B-15M are 5 months each year?
A. Yes, sir.
Q. Mr. Witness, to prove that you have worked there, will you please inform at least 5
laborers of Hda. B-70 and B-15M of Conchita Ayalde?
A. Juan Dueas, Narciso Dueas, Aurelio Tana, Ignacio and Margarita Tana.
xxxxxxxxx
Q. Will you please inform the Commission if the deceased Ignacio Tana which is
according to you, was a regular worker of the 2 haciendas, if how many months
did he work during lifetime from 1961 until he died in 1979?
A. His work was continuous.
Q. And by continuous you mean he worked straight 12 months each year except in
1979?
A. He worked only for 10 months because the 2 months are already preparation for
cultivation.
xxxxxxxxx
Q. And according to you, in a years time, you worked only for at least 5 months in
Hda. B-70 and B-15M, is that correct?
A. Yes.
Q. And during this time that you are working in your riceland you will agree with me
that you do not know whether the laborers of this Hda. B-70 and Had B-15M are
really working because you are devoting your time in your riceland, is that
correct?
A. I knew because the place of their work is just near my house, it is along the way.
Q. How about when the canes are already tall, can you actually see the workers in
Hda. B-70 and B-15M when you are busy at your riceland?
A. Yes, because they have to pass in my house.
Q. Is there no other passage in that hacienda except that road in front of your house?
A. Yes.
Q. Are you sure about that?
A. Yes, I am sure.[22]
AURELIO TANA:
Q. Do you know what is the work of the petitioner during the time when you were
together working in the field?
A. We were working together, like cutting and loading canes, hoeing, weeding,
applying fertilizers, digging canals and plowing.
Q. During your employment in the said hacienda where were you residing?
A. There inside the hacienda.
 Q. What about the petitioner?
A. The same.
Q. How far is your house from the house of the petitioner?
A. About 20 arms-length.
Q. How far is Hda. B-70 from Hda. B-15.
A. It is very near it is divided by the road.
Q. What road are you referring to?
A. Highway road from Barangay Buenavista to La Granja.
Q. During your employment will you please inform the Commission the frequency of
work of the late Ignacio Tana?
A. 4 weeks a month, 6 days a week, 12 months a year.
Q. Why is it that you are in a position to inform the Commission about the period of
employment of Ignacio Tana?
A. Because we were together working.[23]
It is indubitable, therefore, that Tana worked continuously for Ayalde, not only
as arador on pakyaw basis, but as a regular farmhand, doing backbreaking jobs for
Ayaldes business. There is no shred of evidence to show that Tana was only a seasonal
worker, much less a migrant worker. All witnesses, including Ayalde herself, testified that
Tana and his family resided in the plantation. If he was a mere pakyaw worker or
independent contractor, then there would be no reason for Ayalde to allow them to live
inside her property for free. The only logical explanation is that he was working for most
part of the year exclusively for Ayalde, in return for which the latter gratuitously allowed
Tana and his family to reside in her property.
The Court of Appeals, in finding for Ayalde, relied on the claimants and her witnesses
admission that her husband was hired as an arador on pakyaw basis, but it failed to
appreciate the rest of their testimonies. Just because he was, for short periods of time,
hired on pakyaw basis does not necessarily mean that he was not employed to do other
tasks for the remainder of the year. Even Ayalde admitted that Tana did other jobs when
he was not hired to plow. Consequently, the conclusion culled from their testimonies to
the effect that Tana was mainly and solely an arador was at best a selective appreciation
of portions of the entire evidence. It was the Social Security Commission that took into
consideration all the documentary and testimonial evidence on record.
Secondly, Ayalde made much ado of her claim that Tana could not be her employee
because she exercised no control over his work hours and method of performing his task
as arador. It is also an admitted fact that Tana, Jr. used his own carabao and tools. Thus,
she contends that, applying the control test, Tana was not an employee but an
independent contractor.
 A closer scrutiny of the records, however, reveals that while Ayalde herself may not
have directly imposed on Tana the manner and methods to follow in performing his tasks,
she did exercise control through her overseer.
Be that as it may, the power of control refers merely to the existence of the power. It
is not essential for the employer to actually supervise the performance of duties of the
employee; it is sufficient that the former has a right to wield the power.[24] Certainly,
Ayalde, on her own or through her overseer, wielded the power to hire or dismiss, to
check on the work, be it in progress or quality, of the laborers. As the owner/lessee of the
plantations, she possessed the power to control everyone working therein and everything
taking place therein.
Jurisprudence provides other equally important considerations which support the
conclusion that Tana was not an independent contractor. First, Tana cannot be said to be
engaged in a distinct occupation or business. His carabao and plow may be useful in his
livelihood, but he is not independently engaged in the business of farming or
plowing.Second, he had been working exclusively for Ayalde for eighteen (18) years prior
to his demise. Third, there is no dispute that Ayalde was in the business of growing
sugarcane in the two plantations for commercial purposes. There is also no question that
plowing or preparing the soil for planting is a major part of the regular business of Ayalde.
Under the circumstances, the relationship between Ayalde and Tana has more of the
attributes of employer-employee than that of an independent contractor hired to perform
a specific project. In the case of Dy Keh Beng v. International Labor,[25] we cited our long-
standing ruling in Sunripe Coconut Products Co. v. Court of Industrial Relations, to wit:

When a worker possesses some attributes of an employee and others of an

independent contractor, which make him fall within an intermediate area, he may be
classified under the category of an employee when the economic facts of the relations
make it more nearly one of employment than one of independent business enterprise
with respect to the ends sought to be accomplished. (Underscoring Ours)[26]

We find the above-quoted ruling to be applicable in the case of Tana. There is

preponderance of evidence to support the conclusion that he was an employee rather
than an independent contractor.
The Court of Appeals also erred when it ruled, on the alternative, that if ever Tana
was an employee, he was still ineligible for compulsory coverage because he was not
paid any regular daily wage and he did not work for an uninterrupted period of at least six
months in a year in accordance with Section 8(j) (I) of the Social Security Law. There is
substantial testimonial evidence to prove that Tana was paid a daily wage, and he worked
continuously for most part of the year, even while he was also occasionally called on to
plow the soil on a pakyaw basis. As a farm laborer who has worked exclusively for Ayalde
for eighteen (18) years, Tana should be entitled to compulsory coverage under the Social
Security Law, whether his service was continuous or broken.
Margarita Tana alleged that SSS premiums were deducted from Tanas salary,
testifying, thus:
 Q. Were there deductions from the salaries of your husband while he was employed
with the respondent from 1961 to 1979?
A. Yes, there were deductions but I do not know because they were the ones
deducting it.
Q. Why do you know that his salaries were deducted for SSS premiums?
A. Because Antero Maghari asked me and my husband to sign SSS papers and he
told us that they will take care of everything.
Q. How much were the deductions every payday?
A. I do not know how much because our daily wage was only P4.00.[27]
Agaton Libawas, also testified:
Q. Mr. Witness, in your 15-day wages do you notice any deductions from it?
A. There were deductions and we were informed that it was for SSS.
Q. Mr. Witness, since when were there deductions from your salaries?
A. Since 1961.
Q. Up to when?
A. Up to 1979.
Q. Mr. Witness, are you a member of the SSS?
A. No.
Q. How about petitioner, if you know?
A. No, also.
Q. What happened to the deductions did you not ask your employer?
A. We asked but we were answered that we were being remitted for our SSS.
Q. Did you not verify?
A. No, because I just relied on their statement.[28]
Ayalde failed to counter these positive assertions. Even on the assumption that there
were no deductions, the fact remains that Tana was and should have been covered under
the Social Security Law. The circumstances of his employment place him outside the
ambit of the exception provided in Section 8(j) of Republic Act No. 1611, as amended by
Section 4 of R.A. 2658.
WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals in
C.A.-G.R. SP No. 16427 and the Resolution dated June 14, 1991 are hereby REVERSED
and SET ASIDE. The Resolution of the Social Security Commission in SSC Case No.
8851 is REINSTATED.
No costs.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO,
respondents.

Tirol & Tirol for petitioner.

Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

NARVASA, J.:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the
Company) and Melecio T. Basiao entered into a contract 1 by which:

1. Basiao was "authorized to solicit within the Philippines applications for

insurance policies and annuities in accordance with the existing rules and
regulations" of the Company;

2. he would receive "compensation, in the form of commissions ... as

provided in the Schedule of Commissions" of the contract to "constitute a
part of the consideration of ... (said) agreement;" and

3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as
well as all its circulars ... and those which may from time to time be
promulgated by it, ..." were made part of said contract.

The contract also contained, among others, provisions governing the relations of the
parties, the duties of the Agent, the acts prohibited to him, and the modes of termination
of the agreement, viz.:

RELATION WITH THE COMPANY. The Agent shall be free to exercise

his own judgment as to time, place and means of soliciting insurance.
Nothing herein contained shall therefore be construed to create the
relationship of employee and employer between the Agent and the
Company. However, the Agent shall observe and conform to all rules and
regulations which the Company may from time to time prescribe.
 ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from
giving, directly or indirectly, rebates in any form, or from making any
misrepresentation or over-selling, and, in general, from doing or
committing acts prohibited in the Agent's Manual and in circulars of the
Office of the Insurance Commissioner.

TERMINATION. The Company may terminate the contract at will, without

any previous notice to the Agent, for or on account of ... (explicitly
specified causes). ...

Either party may terminate this contract by giving to the other notice in
writing to that effect. It shall become ipso facto cancelled if the Insurance
Commissioner should revoke a Certificate of Authority previously issued or
should the Agent fail to renew his existing Certificate of Authority upon its
expiration. The Agent shall not have any right to any commission on
renewal of premiums that may be paid after the termination of this
agreement for any cause whatsoever, except when the termination is due
to disability or death in line of service. As to commission corresponding to
any balance of the first year's premiums remaining unpaid at the
termination of this agreement, the Agent shall be entitled to it if the
balance of the first year premium is paid, less actual cost of collection,
unless the termination is due to a violation of this contract, involving
criminal liability or breach of trust.

ASSIGNMENT. No Assignment of the Agency herein created or of

commissions or other compensations shall be valid without the prior
consent in writing of the Company. ...

Some four years later, in April 1972, the parties entered into another contract — an
Agency Manager's Contract — and to implement his end of it Basiao organized an
agency or office to which he gave the name M. Basiao and Associates, while
concurrently fulfilling his commitments under the first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly
seeking a reconsideration, Basiao sued the Company in a civil action and this, he was
later to claim, prompted the latter to terminate also his engagement under the first
contract and to stop payment of his commissions starting April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the
Company and its president. Without contesting the termination of the first contract, the
complaint sought to recover commissions allegedly unpaid thereunder, plus attorney's
fees. The respondents disputed the Ministry's jurisdiction over Basiao's claim, asserting
that he was not the Company's employee, but an independent contractor and that the
Company had no obligation to him for unpaid commissions under the terms and
conditions of his contract. 5
The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the
underwriting agreement had established an employer-employee relationship between
him and the Company, and this conferred jurisdiction on the Ministry of Labor to
adjudicate his claim. Said official's decision directed payment of his unpaid commissions
"... equivalent to the balance of the first year's premium remaining unpaid, at the time of
his termination, of all the insurance policies solicited by ... (him) in favor of the
respondent company ..." plus 10% attorney's fees. 6

This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission. 7 Hence, the present petition for certiorari and prohibition.

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become
the Company's employee by virtue of the contract invoked by him, thereby placing his
claim for unpaid commissions within the original and exclusive jurisdiction of the Labor
Arbiter under the provisions of Section 217 of the Labor Code, 8 or, contrarily, as the
Company would have it, that under said contract Basiao's status was that of an
independent contractor whose claim was thus cognizable, not by the Labor Arbiter in a
labor case, but by the regular courts in an ordinary civil action.

The Company's thesis, that no employer-employee relation in the legal and generally
accepted sense existed between it and Basiao, is drawn from the terms of the contract
they had entered into, which, either expressly or by necessary implication, made Basiao
the master of his own time and selling methods, left to his judgment the time, place and
means of soliciting insurance, set no accomplishment quotas and compensated him on
the basis of results obtained. He was not bound to observe any schedule of working
hours or report to any regular station; he could seek and work on his prospects
anywhere and at anytime he chose to, and was free to adopt the selling methods he
deemed most effective.

Without denying that the above were indeed the expressed implicit conditions of
Basiao's contract with the Company, the respondents contend that they do not
constitute the decisive determinant of the nature of his engagement, invoking
precedents to the effect that the critical feature distinguishing the status of an employee
from that of an independent contractor is control, that is, whether or not the party who
engages the services of another has the power to control the latter's conduct in
rendering such services. Pursuing the argument, the respondents draw attention to the
provisions of Basiao's contract obliging him to "... observe and conform to all rules and
regulations which the Company may from time to time prescribe ...," as well as to the
fact that the Company prescribed the qualifications of applicants for insurance,
processed their applications and determined the amounts of insurance cover to be
issued as indicative of the control, which made Basiao, in legal contemplation, an
employee of the Company. 9

It is true that the "control test" expressed in the following pronouncement of the Court in
the 1956 case of Viana vs. Alejo Al-Lagadan10
 ... In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employees' conduct —
although the latter is the most important element (35 Am. Jur. 445). ...

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without
question a valid test of the character of a contract or agreement to render service. It
should, however, be obvious that not every form of control that the hiring party reserves
to himself over the conduct of the party hired in relation to the services rendered may be
accorded the effect of establishing an employer-employee relationship between them in
the legal or technical sense of the term. A line must be drawn somewhere, if the
recognized distinction between an employee and an individual contractor is not to
vanish altogether. Realistically, it would be a rare contract of service that gives
untrammelled freedom to the party hired and eschews any intervention whatsoever in
his performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines
towards the achievement of the mutually desired result without dictating the means or
methods to be employed in attaining it, and those that control or fix the methodology
and bind or restrict the party hired to the use of such means. The first, which aim only to
promote the result, create no employer-employee relationship unlike the second, which
address both the result and the means used to achieve it. The distinction acquires
particular relevance in the case of an enterprise affected with public interest, as is the
business of insurance, and is on that account subject to regulation by the State with
respect, not only to the relations between insurer and insured but also to the internal
affairs of the insurance company. 12 Rules and regulations governing the conduct of the
business are provided for in the Insurance Code and enforced by the Insurance
Commissioner. It is, therefore, usual and expected for an insurance company to
promulgate a set of rules to guide its commission agents in selling its policies that they
may not run afoul of the law and what it requires or prohibits. Of such a character are
the rules which prescribe the qualifications of persons who may be insured, subject
insurance applications to processing and approval by the Company, and also reserve to
the Company the determination of the premiums to be paid and the schedules of
payment. None of these really invades the agent's contractual prerogative to adopt his
own selling methods or to sell insurance at his own time and convenience, hence
cannot justifiably be said to establish an employer-employee relationship between him
and the company.

There is no dearth of authority holding persons similarly placed as respondent Basiao to

be independent contractors, instead of employees of the parties for whom they worked.
In Mafinco Trading Corporation vs. Ople, 13the Court ruled that a person engaged to sell
soft drinks for another, using a truck supplied by the latter, but with the right to employ
his own workers, sell according to his own methods subject only to prearranged routes,
observing no working hours fixed by the other party and obliged to secure his own
licenses and defray his own selling expenses, all in consideration of a peddler's
discount given by the other party for at least 250 cases of soft drinks sold daily, was not
an employee but an independent contractor.

In Investment Planning Corporation of the Philippines us. Social Security System 14 a

case almost on all fours with the present one, this Court held that there was no
employer-employee relationship between a commission agent and an investment
company, but that the former was an independent contractor where said agent and
others similarly placed were: (a) paid compensation in the form of commissions based
on percentages of their sales, any balance of commissions earned being payable to
their legal representatives in the event of death or registration; (b) required to put up
performance bonds; (c) subject to a set of rules and regulations governing the
performance of their duties under the agreement with the company and termination of
their services for certain causes; (d) not required to report for work at any time, nor to
devote their time exclusively to working for the company nor to submit a record of their
activities, and who, finally, shouldered their own selling and transportation expenses.

More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a
rice miller to buy and sell rice and palay without compensation except a certain
percentage of what he was able to buy or sell, did work at his own pleasure without any
supervision or control on the part of his principal and relied on his own resources in the
performance of his work, was a plain commission agent, an independent contractor and
not an employee.

The respondents limit themselves to pointing out that Basiao's contract with the
Company bound him to observe and conform to such rules and regulations as the latter
might from time to time prescribe. No showing has been made that any such rules or
regulations were in fact promulgated, much less that any rules existed or were issued
which effectively controlled or restricted his choice of methods — or the methods
themselves — of selling insurance. Absent such showing, the Court will not speculate
that any exceptions or qualifications were imposed on the express provision of the
contract leaving Basiao "... free to exercise his own judgment as to the time, place and
means of soliciting insurance."

The Labor Arbiter's decision makes reference to Basiao's claim of having been
connected with the Company for twenty-five years. Whatever this is meant to imply, the
obvious reply would be that what is germane here is Basiao's status under the contract
of July 2, 1968, not the length of his relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not an
employee of the petitioner, but a commission agent, an independent contractor whose
claim for unpaid commissions should have been litigated in an ordinary civil action. The
Labor Arbiter erred in taking cognizance of, and adjudicating, said claim, being without
jurisdiction to do so, as did the respondent NLRC in affirming the Arbiter's decision. This
conclusion renders it unnecessary and premature to consider Basiao's claim for
commissions on its merits.
WHEREFORE, the appealed Resolution of the National Labor Relations Commission is
set aside, and that complaint of private respondent Melecio T. Basiao in RAB Case No.
VI-0010-83 is dismissed. No pronouncement as to costs.

SO ORDERED.