G.R. No.

L-12582

January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

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

January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondentsappellees.
Nicanor S. Sison for petitioner-appellant.
Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.
CONCEPCION, J.:
Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review by certiorari of an
order of the Court of Industrial Relations in Case No. 306-MC thereof, certifying the Philippine
Musicians Guild (FFW), petitioner therein and respondent herein, as the sole and exclusive
bargaining agency of all musicians working with said companies, as well as with the Premiere
Productions, Inc., which has not appealed. The appeal of LVN Pictures, Inc., has been docketed as
G.R. No. L-12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc. Involving as
they do the same order, the two cases have been jointly heard in this Court, and will similarly be
disposed of.
In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as the
Guild, averred that it is a duly registered legitimate labor organization; that LVN Pictures, Inc.,
Sampaguita Pictures, Inc., and Premiere Productions, Inc. are corporations, duly organized under the
Philippine laws, engaged in the making of motion pictures and in the processing and distribution
thereof; that said companies employ musicians for the purpose of making music recordings for title
music, background music, musical numbers, finale music and other incidental music, without which a
motion picture is incomplete; that ninety-five (95%) percent of all the musicians playing for the
musical recordings of said companies are members of the Guild; and that the same has no
knowledge of the existence of any other legitimate labor organization representing musicians in said
companies. Premised upon these allegations, the Guild prayed that it be certified as the sole and
exclusive bargaining agency for all musicians working in the aforementioned companies. In their
respective answers, the latter denied that they have any musicians as employees, and alleged that
the musical numbers in the filing of the companies are furnished by independent contractors. The
lower court, however, rejected this pretense and sustained the theory of the Guild, with the result
already adverted to. A reconsideration of the order complained of having been denied by the Court en
banc, LVN Pictures, inc., and Sampaguita Pictures, Inc., filed these petitions for review forcertiorari.
Apart from impugning the conclusion of the lower court on the status of the Guild members as alleged
employees of the film companies, the LVN Pictures, Inc., maintains that a petition for certification
cannot be entertained when the existence of employer-employee relationship between the parties is
contested. However, this claim is neither borne out by any legal provision nor supported by any
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authority. So long as, after due hearing, the parties are found to bear said relationship, as in the case
at bar, it is proper to pass upon the merits of the petition for certification.
It is next urged that a certification is improper in the present case, because, "(a) the petition does not
allege and no evidence was presented that the alleged musicians-employees of the respondents
constitute a proper bargaining unit, and (b) said alleged musicians-employees represent a majority of
the other numerous employees of the film companies constituting a proper bargaining unit under
section 12 (a) of Republic Act No. 875."
The absence of an express allegation that the members of the Guild constitute a proper bargaining
unit is fatal proceeding, for the same is not a "litigation" in the sense in which this term is commonly
understood, but a mere investigation of a non-adversary, fact finding character, in which the
investigating agency plays the part of a disinterested investigator seeking merely to ascertain the
desires of employees as to the matter of their representation. In connection therewith, the court
enjoys a wide discretion in determining the procedure necessary to insure the fair and free choice of
bargaining representatives by employees.1 Moreover, it is alleged in the petition that the Guild it a
duly registered legitimate labor organization and that ninety-five (95%) percent of the musicians
playing for all the musical recordings of the film companies involved in these cases are members of
the Guild. Although, in its answer, the LVN Pictures, Inc. denied both allegations, it appears that, at
the hearing in the lower court it was merely the status of the musicians as its employees that the film
companies really contested. Besides, the substantial difference between the work performed by said
musicians and that of other persons who participate in the production of a film, and the peculiar
circumstances under which the services of that former are engaged and rendered, suffice to show
that they constitute a proper bargaining unit. At this juncture, it should be noted that the action of the
lower court in deciding upon an appropriate unit for collective bargaining purposes is discretionary
(N.L.R.B. v. May Dept. Store Co., 66 Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this respect
is entitled to almost complete finality, unless its action is arbitrary or capricious (Marshall Field & Co.
v. N.L.R.B. [C.C.A. 19431, 135 F. 2d. 891), which is far from being so in the cases at bar.
Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for the
musicians working in the aforesaid film companies. It does not intend to represent the other
employees therein. Hence, it was not necessary for the Guild to allege that its members constitute a
majority of all the employees of said film companies, including those who are not musicians. The real
issue in these cases, is whether or not the musicians in question are employees of the film
companies. In this connection the lower court had the following to say:
As a normal and usual course of procedure employed by the companies when a picture is
to be made, the producer invariably chooses, from the musical directors, one who will
furnish the musical background for a film. A price is agreed upon verbally between the
producer and musical director for the cost of furnishing such musical background. Thus, the
musical director may compose his own music specially written for or adapted to the picture.
He engages his own men and pays the corresponding compensation of the musicians
under him.
When the music is ready for recording, the musicians are summoned through 'call slips' in
the name of the film company (Exh 'D'), which show the name of the musician, his musical
instrument, and the date, time and place where he will be picked up by the truck of the film
company. The film company provides the studio for the use of the musicians for that
particular recording. The musicians are also provided transportation to and from the studio
by the company. Similarly, the company furnishes them meals at dinner time.
During the recording sessions, the motion picture director, who is an employee of the
company, supervises the recording of the musicians and tells what to do in every detail. He
Page 1

solely directs the performance of the musicians before the camera as director, he
supervises the performance of all the action, including the musicians who appear in the
scenes so that in the actual performance to be shown on the screen, the musical director's
intervention has stopped.
And even in the recording sessions and during the actual shooting of a scene, the
technicians, soundmen and other employees of the company assist in the operation.
Hence, the work of the musicians is an integral part of the entire motion picture since they
not only furnish the music but are also called upon to appear in the finished picture.
The question to be determined next is what legal relationship exits between the musicians
and the company in the light of the foregoing facts.
We are thus called upon to apply R.A. Act 875. which is substantially the same as and
patterned after the Wagner Act substantially the same as a Act and the Taft-Hartley Law of
the United States. Hence, reference to decisions of American Courts on these laws on the
point-at-issue is called for.
Statutes are to be construed in the light of purposes achieved and the evils sought to be
remedied. (U.S. vs. American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .
In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the
United States Supreme Court said the Wagner Act was designed to avert the 'substantial
obstruction to the free flow of commerce which results from strikes and other forms of
industrial unrest by eliminating the causes of the unrest. Strikes and industrial unrest result
from the refusal of employers' to bargain collectively and the inability of workers to bargain
successfully for improvement in their working conditions. Hence, the purposes of the Act
are to encourage collective bargaining and to remedy the workers' inability to bargaining
power, by protecting the exercise of full freedom of association and designation of
representatives of their own choosing, for the purpose of negotiating the terms and
conditions of their employment.'
The mischief at which the Act is aimed and the remedies it offers are not confined
exclusively to 'employees' within the traditional legal distinctions, separating them from
'independent contractor'. Myriad forms of service relationship, with infinite and subtle
variations in the term of employment, blanket the nation's economy. Some are within this
Act, others beyond its coverage. Large numbers will fall clearly on one side or on the other,
by whatever test may be applied. Inequality of bargaining power in controversies of their
wages, hours and working conditions may characterize the status of one group as of the
other. The former, when acting alone may be as helpless in dealing with the employer as
dependent on his daily wage and as unable to resist arbitrary and unfair treatment as the
latter.'
To eliminate the causes of labor dispute and industrial strike, Congress thought it
necessary to create a balance of forces in certain types of economic relationship. Congress
recognized those economic relationships cannot be fitted neatly into the containers
designated as 'employee' and 'employer'. Employers and employees not in proximate
relationship may be drawn into common controversies by economic forces and that the
very dispute sought to be avoided might involve 'employees' who are at times brought into
an economic relationship with 'employers', who are not their 'employers'. In this light, the
language of the Act's definition of 'employee' or 'employer' should be determined broadly in
doubtful situations, by underlying economic facts rather than technically and exclusively
established legal classifications. (NLRB vs. Blount, 131 F [2d] 585.)
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In other words, the scope of the term 'employee' must be understood with reference to the
purposes of the Act and the facts involved in the economic relationship. Where all the
conditions of relation require protection, protection ought to be given .
By declaring a worker an employee of the person for whom he works and by recognizing
and protecting his rights as such, we eliminate the cause of industrial unrest and
consequently we promote industrial peace, because we enable him to negotiate an
agreement which will settle disputes regarding conditions of employment, through the
process of collective bargaining.
The statutory definition of the word 'employee' is of wide scope. As used in the Act, the
term embraces 'any employee' that is all employees in the conventional as well in the legal
sense expect those excluded by express provision. (Connor Lumber Co., 11 NLRB 776.).
It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of industrial
unrest by protecting the exercise of their right to self-organization for the purpose of
collective bargaining. (b) To promote sound stable industrial peace and the advancement of
the general welfare, and the best interests of employers and employees by the settlement
of issues respecting terms and conditions of employment through the process of collective
bargaining between employers and representatives of their employees.
The primary consideration is whether the declared policy and purpose of the Act can be
effectuated by securing for the individual worker the rights and protection guaranteed by
the Act. The matter is not conclusively determined by a contract which purports to establish
the status of the worker, not as an employee.
The work of the musical director and musicians is a functional and integral part of the
enterprise performed at the same studio substantially under the direction and control of the
company.
In other words, to determine whether a person who performs work for another is the latter's
employee or an independent contractor, the National Labor Relations relies on 'the right to
control' test. Under this test an employer-employee relationship exist where the person for
whom the services are performed reserves the right to control not only the end to be
achieved, but also the manner and means to be used in reaching the end. (United
Insurance Company, 108, NLRB No. 115.).
Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.
'We find that the independent contractors and persons working under them are
employees' within the meaning of Section 2 (3) of its Act. However, we are of the
opinion that the independent contractors have sufficient authority over the
persons working under their immediate supervision to warrant their exclusion
from the unit. We shall include in the unit the employees working under the
supervision of the independent contractors, but exclude the contractors.'
'Notwithstanding that the employees are called independent contractors', the Board will
hold them to be employees under the Act where the extent of the employer's control over
them indicates that the relationship is in reality one of employment. (John Hancock
Insurance Co., 2375-D, 1940, Teller, Labor Dispute Collective Bargaining, Vol.).

Page 2

The right of control of the film company over the musicians is shown (1) by calling the
musicians through 'call slips' in 'the name of the company; (2) by arranging schedules in its
studio for recording sessions; (3) by furnishing transportation and meals to musicians; and
(4) by supervising and directing in detail, through the motion picture director, the
performance of the musicians before the camera, in order to suit the music they are playing
to the picture which is being flashed on the screen.
Thus, in the application of Philippine statutes and pertinent decisions of the United States
Courts on the matter to the facts established in this case, we cannot but conclude that to
effectuate the policies of the Act and by virtue of the 'right of control' test, the members of
the Philippine Musicians Guild are employees of the three film companies and, therefore,
entitled to right of collective bargaining under Republic Act No. 875.
In view of the fact that the three (3) film companies did not question the union's majority,
the Philippine Musicians Guild is hereby declared as the sole collective bargaining
representative for all the musicians employed by the film companies."
We are fully in agreement with the foregoing conclusion and the reasons given in support thereof.
Both are substantially in line with the spirit of our decision in Maligaya Ship Watchmen Agency vs.
Associated Watchmen and Security Union, L-12214-17 (May 28, 1958). In fact, the contention of the
employers in the Maligaya cases, to the effect that they had dealt with independent contractors, was
stronger than that of the film companies in these cases. The third parties with whom the management
and the workers contracted in the Maligaya cases were agencies registered with the Bureau of
Commerce and duly licensed by the City of Manila to engage in the business of supplying watchmen
to steamship companies, with permits to engage in said business issued by theCity Mayor and
the Collector of Customs. In the cases at bar, the musical directors with whom the film companies
claim to have dealt with had nothing comparable to the business standing of said watchmen
agencies. In this respect, the status of said musical directors is analogous to that of the alleged
independent contractor in Caro vs. Rilloraza, L-9569 (September 30, 1957), with the particularity that
the Caro case involved the enforcement of the liability of an employer under the Workmen's
Compensation Act, whereas the cases before us are merely concerned with the right of the Guild
to represent the musicians as a collective bargaining unit. Hence, there is less reason to be legalistic
and technical in these cases, than in the Caro case.
Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut Product
Co., Inc vs. CIR (46 Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos Vda. de
Geronimo, L-6968 (November 29, 1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa
Vda. de Cruz vs. The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the theory of said
petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is authority for herein
respondents-appellees. It was held that, although engaged as piece-workers, under the "pakiao"
system, the "parers" and "shellers" in the case were, not independent contractor, butemployees of
said company, because "the requirement imposed on the 'parers' to the effect that 'the nuts are pared
whole or that there is not much meat wasted,' in effect limits or controls the means or details by which
said workers are to accomplish their services" as in the cases before us.
The nature of the relation between the parties was not settled in the Viana case, the same having
been remanded to the Workmen's Compensation Commission for further evidence.
The case of the Philippine Manufacturing Co. involved a contract between said company and Eliano
Garcia, who undertook to paint a tank of the former. Garcia, in turn engaged the services of Arcadio
Geronimo, a laborer, who fell while painting the tank and died in consequence of the injuries thus
sustained by him. Inasmuch as the company was engaged in the manufacture of soap, vegetable
lard, cooking oil and margarine, it was held that the connection between its business and the painting
LabStan Cases

aforementioned was purely casual; that Eliano Garcia was an independent contractor; that Geronimo
was not an employee of the company; and that the latter was not bound, therefore, to pay the
compensation provided in the Workmen's Compensation Act. Unlike the Philippine Manufacturing
case, the relation between the business of herein petitioners-appellants and the work of the
musicians is not casual. As held in the order appealed from which, in this respect, is not contested by
herein petitioners-appellants "the work of the musicians is an integral part of the entire motion
picture." Indeed, one can hardly find modern films without music therein. Hence, in the Caro case
(supra), the owner and operator of buildings for rent was held bound to pay the indemnity prescribed
in the Workmen's Compensation Act for the injury suffered by a carpenter while working as such in
one of said buildings even though his services had been allegedly engaged by a third party who had
directly contracted with said owner. In other words, the repair work had not merely a casual
connection with the business of said owner. It was a necessary incident thereof, just as music is in
the production of motion pictures.
The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs materially
from the present cases. It involved the interpretation of Republic Act No. 660, which amends the law
creating and establishing the Government Service Insurance System. No labor law was sought to be
construed in that case. In act, the same was originally heard in the Court of First Instance of Manila,
the decision of which was, on appeal, affirmed by the Supreme Court. The meaning or scope if the
term "employee," as used in the Industrial Peace Act (Republic Act No. 875), was not touched
therein. Moreover, the subject matter of said case was a contract between the management of the
Manila Hotel, on the one hand, and Tirso Cruz, on the other, whereby the latter greed to furnish the
former the services of his orchestra, consisting of 15 musicians, including Tirso Cruz, "from 7:30 p.m.
to closing time daily." In the language of this court in that case, "what pieces the orchestra shall play,
and how the music shall be arranged or directed, the intervals and other details such are left to
the leader'sdiscretion."
This is not situation obtaining in the case at bar. The musical directors above referred to
have no such control over the musicians involved in the present case. Said musical directors control
neither the music to be played, nor the musicians playing it. The film companies summon the
musicians to work, through the musical directors. The film companies, through the musical directors,
fix the date, the time and the place of work. The film companies, not the musical directors, provide the
transportation to and from the studio. The film companies furnish meal at dinner time.
What is more in the language of the order appealed from "during the recording sessions, the
motion picture director who is an employee of the company" not the musical director
"supervises the recording of the musicians and tells them what to do in every detail". The motion
picture director not the musical director "solely directs and performance of the musicians before
the camera". The motion picture director "supervises the performance of all the actors, including the
musicians who appear in the scenes, so that in the actual performance to be shown in the screen, the
musical director's intervention has stopped." Or, as testified to in the lower court, "the movie director
tells the musical director what to do; tells the music to be cut or tells additional music in this part or he
eliminates the entire music he does not (want) or he may want more drums or move violin or piano,
as the case may be". The movie director "directly controls the activities of the musicians." He "says he
wants more drums and the drummer plays more" or "if he wants more violin or he does not like that.".
It is well settled that "an employer-employee relationship exists . . .where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also the
means to be used in reaching such end . . . ." (Alabama Highway Express Co., Express Co., v. Local
612, 108S. 2d. 350.) The decisive nature of said control over the "means to be used", is illustrated in
the case of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp. 1197, 1199-1201), in
which, by reason of said control, the employer-employee relationship was held to exist between the
management and the workers, notwithstanding the intervention of an alleged independent
contractor, who had, and exercise, the power to hire and fire said workers. The aforementioned
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control over the means to be used" in reading the desired end is possessed and exercised by the film
companies over the musicians in the cases before us.
WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners herein. It is
so ordered.
G.R. No. L-1299

November 16, 1903

VICENTE PEREZ, plaintiff-appellee,

vs.
EUGENIO POMAR, Agent of the Compaia General de Tabacos, defendant-appellant.
Francisco Dominguez for appellant.
Ledesma, Sumulong and Quintos for appellee.
TORRES, J.:
In a decision dated February 9, 1903, the judge of the Sixth Judicial District, deciding a case brought
by the plaintiff against the defendant for the recovery of wages due and unpaid, gave judgment
against the latter for the sum of $600 and the costs of suit, less the sum of $50, Mexican.
On August 27, 1902, Don Vicente Perez filed in the Court of First Instance of Laguna a complaint,
which was amended on the 17th of January of this year, asking that the court determine the amount
due the plaintiff, at the customary rate of compensation for interpreting in these Islands, for services
rendered in the Tabacalera Company, and that, in view of the circumstances of the case, judgment
be rendered in his favor for such sum. The complaint also asked that the defendant be condemned to
the payment of damages in the sum of $3,200, gold, together with the costs of suit. In this complaint it
was alleged that Don Eugenio Pomar, as general agent of the Compaia General de Tabacos in the
said province, verbally requested the plaintiff on the 8th of December, 1901, to act as interpreter
between himself and the military authorities; that after the date mentioned the plaintiff continued to
render such services up to and including May 31, 1902; that he had accompanied the defendant,
Pomar, during that time at conferences between the latter and the colonel commanding the local
garrison, and with various officers and doctors residing in the capital, and at conferences with Captain
Lemen in the town of Pilar, and with the major in command at the town of Pagsanjan, concerning the
shipment of goods from Manila, and with respect to Pagsanjan to this city; that the plaintiff during this
period held himself in readiness to render services whenever required; that on this account his private
business, and especially a soap factory established in the capital, was entirely abandoned; that to the
end that such services might be punctually rendered, the agent, Pomar, assured him that the
Tabacalera Company always generously repaid services rendered it, and that he therefore did not
trouble himself about his inability to devote the necessary amount of time to his business, the
defendant going so far as to make him flattering promises of employment with the company, which he
did not accept; that these statements were made in the absence of witnesses and that therefore his
only proof as to the same was Mr. Pomar's word as a gentleman; that the employees of the company
did not understand English, and by reason of the plaintiff's mediation between the agent, and the
military authorities large profits were obtained, as would appear from the account and letterpress
books of the agency corresponding to those dates. In the amended complaint it was added that the
defendant, on behalf of the company, offered to renumerate the plaintiff for the services rendered in
the most advantageous manner in which such services are compensated, in view of the
circumstances under which they were requested; and that the plaintiff, by rendering the company
such services, was obliged to abandon his own business, the manufacture of soap, and thereby
suffered damages in the sum of $3,200, United States currency.

LabStan Cases

The defendant, on the 25th of September, 1902, filed an answer asking for the dismissal of the
complaint, with costs to the plaintiff. In his answer the defendant denied the allegation in the first
paragraph of the complaint, stating that it was wholly untrue that the company, and the defendant as
its agent, had solicited the services of the plaintiff as interpreter before the military authorities for the
period stated, or for any other period, or that the plaintiff had accompanied Pomar at the conferences
mentioned, concerning shipments from Manila and exports from some of the towns of the province to
this capital. He stated that he especially denied paragraphs 2 of the complaint, as it was absolutely
untrue that the plaintiff had been at the disposal of the defendant for the purpose of rendering such
services; that he therefore had not been obliged to abandon his occupation or his soap factory, and
that the statement that an offer of employment with the company had been made to him was false.
The defendant also denied that through the mediation of the plaintiff the company and himself had
obtained large profits. The statements in paragraphs 6, 7, 8, and 9 of the complaint were also denied.
The defendant stated that, on account of the friendly relations which sprang up between the plaintiff
and himself, the former borrowed from him from time to time money amounting to $175 for the
purposes of his business, and that he had also delivered to the plaintiff 36 arrobas of oil worth $106,
and three packages of resin for use in coloring his soap; that the plaintiff accompanied the defendant
to Pagsanjan, Pilar, and other towns when the latter made business trips to them for the purpose of
extending his business and mercantile relations therein; that on these excursions, as well as on
private and official visits which he had to make, the plaintiff occasionally accompanied him through
motives of friendship, and especially because of the free transportation given him, and not on behalf
of the company of which he was never interpreter and for which he rendered no services; that the
plaintiff in these conferences acted as interpreter of his own free will, without being requested to do
so by the defendant and without any offer of payment or compensation; that therefore there existed
no legal relation whatever between the company and the plaintiff, and that the defendant, when
accepting the spontaneous, voluntary and officious services of the plaintiff, did so in his private
capacity and not as agent of the company, and that it was for this reason that he refused to enter into
negotiations with the plaintiff, he being in no way indebted to the latter. The defendant concluded by
saying that he answered in his individual capacity.
A complaint having been filed against the Compaia General de Tabacos and Don Eugenio Pomar,
its agent in the Province of Laguna, the latter, having been duly summoned, replied to the complaint,
which was subsequently amended, and stated that he made such reply in his individual capacity and
not as agent of the company, with which the plaintiff had had no legal relations. The suit was
instituted between the plaintiff and Pomar, who, as such, accepted the issue and entered into the
controversy without objection, opposed the claim of the plaintiff, and concluded by asking that the
complaint be dismissed, with the costs to the plaintiff. Under these circumstances and construing the
statutes liberally, we think it proper to decide the case pending between both parties in accordance
with law and the strict principles of justice.
From the oral testimony introduced at the trial, it appears that the plaintiff, Perez, did on various
occasions render Don Eugenio Pomar services as interpreter of English; and that he obtained passes
and accompanied the defendant upon his journeys to some of the towns in the Province of Laguna. It
does not appear from the evidence, however, that the plaintiff was constantly at the disposal of the
defendant during the period of six months, or that he rendered services as such interpreter
continuously and daily during that period of time.
It does not appear that any written contract was entered into between the parties for the employment
of the plaintiff as interpreter, or that any other innominate contract was entered into; but whether the
plaintiff's services were solicited or whether they were offered to the defendant for his assistance,
inasmuch as these services were accepted and made use of by the latter, we must consider that
there was a tacit and mutual consent as to the rendition of the services. This gives rise to the
obligation upon the person benefited by the services to make compensation therefor, since the
bilateral obligation to render services as interpreter, on the one hand, and on the other to pay for the
services rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code). The supreme
court of Spain in its decision of February 12, 1889, holds, among other things, "that not only is there
Page 4

an express and tacit consent which produces real contract but there is also a presumptive consent
which is the basis of quasi contracts, this giving rise to the multiple juridical relations which result in
obligations for the delivery of a thing or the rendition of a service."
Notwithstanding the denial of that defendant, it is unquestionable that it was with his consent that the
plaintiff rendered him services as interpreter, thus aiding him at a time when, owing to the existence
of an insurrection in the province, the most disturbed conditions prevailed. It follows, hence, that there
was consent on the part of both in the rendition of such services as interpreter. Such service not
being contrary to law or to good custom, it was a perfectly licit object of contract, and such a contract
must necessarily have existed between the parties, as alleged by the plaintiff. (Art. 1271, Civil Code.)
The consideration for the contract is also evident, it being clear that a mutual benefit was derived in
consequence of the service rendered. It is to be supposed that the defendant accepted these
services and that the plaintiff in turn rendered them with the expectation that the benefit would be
reciprocal. This shows the concurrence of the three elements necessary under article 1261 of the
Civil Code to constitute a contract of lease of service, or other innominate contract, from which an
obligation has arisen and whose fulfillment is now demanded.

the article of the Code cited, which follows the provisions of law 1, title 8, of the fifth partida, the
contract for lease of services is one in which one of the parties undertakes to make some thing or to
render some service to the other for a certain price, the existence of such a price being understood,
as this court has held not only when the price has been expressly agreed upon but also when it may
be determined by the custom and frequent use of the place in which such services were rendered."
No exception was taken to the judgment below by the plaintiff on account of the rejection of his claim
for damages. The decision upon this point is, furthermore, correct.
Upon the supposition that the recovery of the plaintiff should not exceed 200 Mexican pesos, owing to
the inconsiderable number of times he acted as interpreter, it is evident that the contract thus
implicitly entered into was not required to be in writing and that therefore it does not fall within article
1280 of the Civil Code; nor is it included within the provisions of section 335 of the Code of Civil
Procedure, as this innominate contract is not covered by that section. The contract of lease of
services is not included in any of the cases expressly designated by that section of the procedural
law, as affirmed by the appellant. The interpretation of the other articles of the Code alleged to have
been infringed has also been stated fully in this opinion.

Article 1254 of the Civil Code provides that a contract exists the moment that one or more persons
consent to be bound, with respect to another or others, to deliver some thing or to render some
service. Article 1255 provides that the contracting parties may establish such covenants, terms, and
conditions as they deem convenient, provided they are not contrary to law, morals or public policy.
Whether the service was solicited or offered, the fact remains that Perez rendered to Pomar services
as interpreter. As it does not appear that he did this gratuitously, the duty is imposed upon the
defendant, having accepted the benefit of the service, to pay a just compensation therefor, by virtue
of the innominate contract of facio ut des implicitly established.

For the reasons stated, we are of the opinion that judgment should be rendered against Don Eugenio
Pomar for the payment to the plaintiff of the sum of 200 Mexican pesos, from which will be deducted
the sum of 50 pesos is made as to the costs of this instance. The judgment below is accordingly
affirmed in so far as it agrees with this opinion, and reversed in so far as it may be in conflict
therewith. Judgment will be entered accordingly twenty days after this decision is filed.

The obligations arising from this contract are reciprocal, and, apart from the general provisions with
respect to contracts and obligations, the special provisions concerning contracts for lease of services
are applicable by analogy.

STERLING PRODUCTS INTERNATIONAL, INC. and V. SAN PEDRO, petitioners,

vs.
LORETA C. SOL and COURT OF INDUSTRIAL RELATIONS, respondents.

In this special contract, as determined by article 1544 of the Civil Code, one of the parties undertakes
to render the other a service for a price certain. The tacit agreement and consent of both parties with
respect to the service rendered by the plaintiff, and the reciprocal benefits accruing to each, are the
best evidence of the fact that there was an implied contract sufficient to create a legal bond, from
which arose enforceable rights and obligations of a bilateral character.lawphi1.net

Chuidian Law Office for petitioners.

Gregorio E. Fajardo for respondent Loreta C. Sol.
Mariano B. Tuason for respondent Court of Industrial Relations.

In contracts the will of the contracting parties is law, this being a legal doctrine based upon the
provisions of articles 1254, 1258, 1262, 1278, 1281, 1282, and 1289 of the Civil Code. If it is a fact
sufficiently proven that the defendant, Pomar, on various occasions consented to accept an
interpreter's services, rendered in his behalf and not gratuitously, it is but just that he should pay a
reasonable remuneration therefor, because it is a well-known principle of law that no one should be
permitted to enrich himself to the damage of another.

This is a petition to review on certiorari the resolution of the Court of Industrial Relations, dated June
23, 1961 in Case No. 2292-ULP, ordering the herein petitioners to reinstate complainant-respondent
Loreta C. Sol, with back wages from the date of her dismissal until her reinstatement.

With respect to the value of the services rendered on different occasions, the most important of which
was the first, as it does not appear that any salary was fixed upon by the parties at the time the
services were accepted, it devolves upon the court to determine, upon the evidence presented, the
value of such services, taking into consideration the few occasions on which they were rendered. The
fact that no fixed or determined consideration for the rendition of the services was agreed upon does
not necessarily involve a violation of the provisions of article 1544 of the Civil Code, because at the
time of the agreement this consideration was capable of being made certain. The discretionary power
of the court, conferred upon it by the law, is also supported by the decisions of the supreme court of
Spain, among which may be cited that of October 18, 1899, which holds as follows: "That as stated in
LabStan Cases

G.R. No. L-19187

February 28, 1963

LABRADOR, J.:

Loreta C. Sol charged the herein petitioners Sterling Products International and its Radio Director V.
San Pedro with having committed an unfair labor practice act. In her complaint she alleged among
others that she has been a regular Radio Monitor of respondents-petitioners; that on January 8, 1960,
she filed a complaint against the said firm for underpayment, money equivalent of her vacation leave
from 1952 to 1959, and Christmas bonus for 1959, equivalent to one month salary. The complaint
resulted in her dismissal, without just cause, on December 16, 1960.
In their answer petitioners herein denied the charges and by way of affirmative defenses, alleged that
complainant is an independent contractor whose services were retained by petitioners to submit
reports of radio monitoring work performed outside of their (petitioners') office; that petitioners no
longer required complainant's services and therefore, it gave her notice of termination, as it did in fact
Page 5

terminate her services, as an independent contractor; that petitioners terminated the services of
complainant-respondent for good and justifiable reasons and in accordance with business
requirements; that the complaint states no cause of action and that petitioners did not and are not
engaged in unfair labor practice acts against the complainant within the meaning of Sec. 4(a),
subsection 5 of the Industrial Peace Act.
Judge Tabigne of the Court of Industrial Relations in a decision dated October 8, 1960 held that the
complainant is not an employee of the respondent firm but only an independent contractor and that
respondent firm was justified in dismissing the complainant due to economic reasons.
Complainant filed a motion to reconsider the decision, raising the question as to whether she is an
employee or an independent contractor. The lower court reversed the decision of Judge Tabigne,
ruling that complainant was an employee and not an independent contractor, and ordered her
reinstatement with back wages. The lower court further ruled that respondent firm was guilty of unfair
labor practice. In arriving at this ruling it considered the following circumstances: (1) Complainant was
given an identification card stating that "Bearer Loreta C. Sol is a bona fide employee of this
Company;" (2) when she applied for purchase of a lot from the PHHC, she was given a certificate to
show that she was indeed an employee of the respondent company for the last five years or six
years; and (3) as such employee, she enjoyed the privilege of borrowing money from the Employees
Loan Association of the firm.
The court further found that the company's control over respondent's work is shown by the fact that
she can not listen to broadcasts other than those that were contained in the schedule given to her by
the company. Supervision and control of her work could be done by checking or verifying the contents
of her reports on said broadcasts, said the court.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts. 1wph1.t
Further discussing the question the court states:
In the case at bar, the company not only hired and fired Mrs. Sol, without third party
intervention, but also reserved to itself, possessed and exercised its right to control 'the
end' to be achieved and 'the means' to be used in reaching such end, namely, the schedule
and other instructions by which the monitor shall be guided, and the reports with
specifications by which the company observes and verifies the performance of her work.
In consequence the court held that the respondent was an employee. It also found that the petitioners
herein are guilty of unfair labor practice, so it ordered petitioners to reinstate respondent Loreta C.
Sol, with back wages from the date of her dismissal until her reinstatement. Two judges dissented to
this decision.
In the petition now brought to Us by certiorari it is urged that respondent Sol was an independent
contractor because in the performance of her work, the elements of control and direction are lacking,
hence, no relationship of employer and employee must have existed, citing in support of this
contention Section 3, 35 Am. Jur. 445-446; and that since respondent was employed to work
according to her own methods and without being subject to control except as to its final result, she
may not be considered as an employee. (Ibid.) We cannot accept this argument. Respondent Sol was
directed to listen to certain broadcasts, directing her, in the instructions given her, when to listen and
what to listen, petitioners herein naming the stations to be listened to, the hours of broadcasts, and
the days when listening was to be done. Respondent Sol had to follow these directions. The mere
LabStan Cases

fact that while performing the duties assigned to her she was not under the supervision of the
petitioners does not render her a contractor, because what she has to do, the hours that she has to
work and the report that she has to submit all these are according to instructions given by the
employer. It is not correct to say, therefore, that she was an independent contractor, for an
independent contractor is one who does not receive instructions as to what to do, how to do, without
specific instructions.
Finally, the very act of respondent Sol in demanding vacation leave, Christmas bonus and additional
wages shows that she considered herself an employee. A contractor is not entitled to a vacation
leave or to a bonus nor to a minimum wage. This act of hers in demanding these privileges are
inconsistent with the claim that she was an independent contractor.
The next point at issue is whether or not the petitioners herein are guilty of unfair labor practice.
Petitioners claim that under the decision rendered by Us in the case of Royal Interocean Lines, et al.
vs. Court of Industrial Relations, et al., G.R. No. L-11745, Oct. 31, 1960, as respondent Sol was
merely an employee and was not connected with any labor union, the company cannot be considered
as having committed acts constituting unfair labor practice as defined in the Industrial Peace Act,
Rep. Act 875. We find this contention to be well-founded. The term unfair labor practice has been
defined as any of those acts listed in See. 4 of the Act. The respondent Sol has never been found to
commit any of the acts mentioned in paragraph (a) of Sec. 4. Respondent Sol was not connected with
any labor organization, nor has she ever attempted to join a labor organization, or to assist, or
contribute to a labor organization. The company cannot, therefore, be considered as having
committed an unfair labor practice.
The court below found that there is an employment contract (Exhibit "3") between petitioners and
respondent Sol in which it was expressly agreed that Sol could be dismissed upon fifteen days'
advance notice, if petitioners herein desire. Respondent Sol was dismissed on January 13, 1959 and
therefore the dismissal should be governed by the provisions of Republic Act 1787, which took effect
on June 21, 1957. Section 1 of the Act provides:
SECTION 1. In cases of employment, without a definite period, in a commercial, industrial,
or agricultural establishment or enterprise, the employer or the employee may terminate at
any time the employment with just cause; or without just cause in the case of an employee
by serving written notice on the employer at least one month in advance, or in the case of
an employer, by serving such notice to the employee at least one month in advance or onehalf month for every year of service of the employee, whichever is longer, a fraction of at
least six months being considered as one whole year.
The employer upon whom no such notice was served in case of termination of employment
without just cause may hold the employee liable for damages.
xxx

xxx

xxx

The following are just causes for terminating an employment without a definite period:
1. By the employer
a. The closing or cessation of operation of the establishment or enterprise,
unless the closing is for the purpose of defeating the intention of this law.

Page 6

The contract between the petitioners and the respondent Sol providing that the respondent Sol can
be dismissed upon fifteen days' notice is therefore null and void. Inasmuch as respondent Sol was
employed since the year 1952 and was in the employment of the petitioners from that time up to
1959, or a period of seven years, she is entitled to three and one-half months pay in accordance with
the above quoted section 1 of the Act.
WHEREFORE, that portion of the decision finding the petitioners herein guilty of unfair labor practice
and sentencing petitioners to reinstate respondent Sol in her former work is hereby set aside, and the
petitioners are sentenced to pay, as separation pay, three and one-half months' pay to respondent
Sol. In all other respects the decision is affirmed. No costs.

III
RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES
ADDUCED BY COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC) A
PATTERN OF DISCRIMINATION BY THE PETITIONER HEREIN.
IV
RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF
UNFAIR LABOR PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE
COMPLAINT.

G.R. No. L-32245 May 25, 1979

DY KEH BENG, petitioner,
vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET AL., respondents.
A. M Sikat for petitioner.

V
RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE
RESPONDENTS TO THEIR FORMER JOBS WITH BACKWAGES FROM
THEIR RESPECTIVE DATES OF DISMISSALS UNTIL FINALLY REINSTATED
WITHOUT LOSS TO THEIR RIGHT OF SENIORITY AND OF SUCH OTHER
RIGHTS ALREADY ACQUIRED BY THEM AND/OR ALLOWED BY LAW.

D. A. Hernandez for respondents.

The facts as found by the Hearing Examiner are as follows:

DE CASTRO, J.:
Petitioner Dy Keh Beng seeks a review by certiorari of the decision of the Court of Industrial Relations
dated March 23, 1970 in Case No. 3019-ULP and the Court's Resolution en banc of June 10, 1970
affirming said decision. The Court of Industrial Relations in that case found Dy Keh Beng guilty of the
unfair labor practice acts alleged and order him to
reinstate Carlos Solano and Ricardo Tudla to their former jobs with backwages
from their respective dates of dismissal until fully reinstated without loss to their
right of seniority and of such other rights already acquired by them and/or
allowed by law. 1
Now, Dy Keh Beng assigns the following errors 2 as having been committed by the Court of Industrial
Relations:
I
RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO
AND TUDLA WERE EMPLOYEES OF PETITIONERS.

A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a basket factory, for
discriminatory acts within the meaning of Section 4(a), sub-paragraph (1) and (4). Republic Act No.
875, 3 by dismissing on September 28 and 29, 1960, respectively, Carlos N. Solano and Ricardo
Tudla for their union activities. After preliminary investigation was conducted, a case was filed in the
Court of Industrial Relations for in behalf of the International Labor and Marine Union of the
Philippines and two of its members, Solano and Tudla In his answer, Dy Keh Beng contended that he
did not know Tudla and that Solano was not his employee because the latter came to the
establishment only when there was work which he did on pakiaw basis, each piece of work being
done under a separate contract. Moreover, Dy Keh Beng countered with a special defense of simple
extortion committed by the head of the labor union, Bienvenido Onayan.
After trial, the Hearing Examiner prepared a report which was subsequently adopted in toto by the
Court of Industrial Relations. An employee-employer relationship was found to have existed between
Dy Keh Beng and complainants Tudla and Solano, although Solano was admitted to have worked on
piece basis. 4 The issue therefore centered on whether there existed an employee employer relation
between petitioner Dy Keh Beng and the respondents Solano and Tudla .
According to the Hearing Examiner, the evidence for the complainant Union tended to show that
Solano and Tudla became employees of Dy Keh Beng from May 2, 1953 and July 15,
1955, 5 respectively, and that except in the event of illness, their work with the establishment was
continuous although their services were compensated on piece basis. Evidence likewise showed that
at times the establishment had eight (8) workers and never less than five (5); including the
complainants, and that complainants used to receive ?5.00 a day. sometimes less. 6

II
According to Dy Keh Beng, however, Solano was not his employee for the following reasons:
RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO
AND TUDLA WERE DISMISSED FROM THEIR EMPLOYMENT BY
PETITIONER.
LabStan Cases

(1) Solano never stayed long enought at Dy's establishment;

Page 7

(2) Solano had to leave as soon as he was through with the

(3) order given him by Dy;
(4) When there were no orders needing his services there was nothing for him to
do;
(5) When orders came to the shop that his regular workers could not fill it was
then that Dy went to his address in Caloocan and fetched him for these orders;
and
(6) Solano's work with Dy's establishment was not continuous. ,

According to petitioner, these facts show that respondents Solano and Tudla are only piece workers,
not employees under Republic Act 875, where an employee 8 is referred to as
shall include any employee and shag not be limited to the employee of a
particular employer unless the Act explicitly states otherwise and shall include
any individual whose work has ceased as a consequence of, or in connection
with any current labor dispute or because of any unfair labor practice and who
has not obtained any other substantially equivalent and regular employment.
while an employer

As to the contention that Solano was not an employee because he worked on piece basis, this Court
agrees with the Hearing Examiner that
circumstances must be construed to determine indeed if payment by the piece is
just a method of compensation and does not define the essence of the relation.
Units of time ... and units of work are in establishments like respondent (sic) just
yardsticks whereby to determine rate of compensation, to be applied whenever
agreed upon. We cannot construe payment by the piece where work is done in
such an establishment so as to put the worker completely at liberty to turn him
out and take in another at pleasure.
At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief Justice Ricardo Paras
who penned the decision in "Sunrise Coconut Products Co. v. Court of Industrial Relations" (83
Phil..518, 523), opined that
judicial notice of the fact that the so-called "pakyaw" system mentioned in this
case as generally practiced in our country, is, in fact, a labor contract -between
employers and employees, between capitalists and laborers.

includes any person acting in the interest of an employer, directly or indirectly but
shall not include any labor organization (otherwise than when acting as an
employer) or anyone acting in the capacity of officer or agent of such labor
organization.
Petitioner really anchors his contention of the non-existence of employee-employer relationship on
the control test. He points to the case of Madrigal Shipping Co., Inc. v. Nieves Baens del Rosario, et
al., L-13130, October 31, 1959, where the Court ruled that:
The test ... of the existence of employee and employer relationship is whether
there is an understanding between the parties that one is to render personal
services to or for the benefit of the other and recognition by them of the right of
one to order and control the other in the performance of the work and to direct
the manner and method of its performance.
Petitioner contends that the private respondents "did not meet the control test in the fight of the ...
definition of the terms employer and employee, because there was no evidence to show that
petitioner had the right to direct the manner and method of respondent's work. 10 Moreover, it is
argued that petitioner's evidence showed that "Solano worked on a pakiaw basis" and that he stayed
in the establishment only when there was work.
While this Court upholds the control test 11 under which an employer-employee relationship exists
"where the person for whom the services are performed reserves a right to control not only the end to
be achieved but also the means to be used in reaching such end, " it finds no merit with petitioner's
arguments as stated above. It should be borne in mind that the control test calls merely for the
existence of the right to control the manner of doing the work, not the actual exercise of the
LabStan Cases

right. 12 Considering the finding by the Hearing Examiner that the establishment of Dy Keh Beng is
"engaged in the manufacture of baskets known as kaing, 13 it is natural to expect that those working
under Dy would have to observe, among others, Dy's requirements of size and quality of thekaing.
Some control would necessarily be exercised by Dy as the making of the kaing would be subject to
Dy's specifications. Parenthetically, since the work on the baskets is done at Dy's establishments, it
can be inferred that the proprietor Dy could easily exercise control on the men he employed.

Insofar as the other assignments of errors are concerned, there is no showing that the Court of
Industrial Relations abused its discretion when it concluded that the findings of fact made by the
Hearing Examiner were supported by evidence on the record. Section 6, Republic Act 875 provides
that in unfair labor practice cases, the factual findings of the Court of Industrial Relations are
conclusive on the Supreme Court, if supported by substantial evidence. This provision has been put
into effect in a long line of decisions where the Supreme Court did not reverse the findings of fact of
the Court of Industrial Relations when they were supported by substantial evidence. 14
Nevertheless, considering that about eighteen (18) years have already elapsed from the time the
complainants were dismissed, 15 and that the decision being appealed ordered the payment of
backwages to the employees from their respective dates of dismissal until finally reinstated, it is fitting
to apply in this connection the formula for backwages worked out by Justice Claudio Teehankee in
"cases not terminated sooner." 16 The formula cans for fixing the award of backwages without
qualification and deduction to three years, "subject to deduction where there are mitigating
circumstances in favor of the employer but subject to increase by way of exemplary damages where
there are aggravating circumstances. 17 Considering there are no such circumstances in this case,
there is no reason why the Court should not apply the abovementioned formula in this instance.
WHEREFORE; the award of backwages granted by the Court of Industrial Relations is herein
modified to an award of backwages for three years without qualification and deduction at the
respective rates of compensation the employees concerned were receiving at the time of dismissal.
The execution of this award is entrusted to the National Labor Relations Commission. Costs against
petitioner. SO ORDERED.

Page 8

G.R. Nos. L-63550-51 January 31, 1984

RJL MARTINEZ FISHING CORPORATION and/or PENINSULA FISHING
CORPORATION, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and ANTONIO BOTICARIO, ISIDRO FARIOLAN,
FERNANDO SEVILLA, TOTONG ROLDAN, ROGER ESQUILLA, MARIO MIRANDA, EDUARDO
ESPINOSA, ALBERTO NOVERA, ANTONIO PATERNO, MARCIANO PIADORA, MARIO
ROMERO, CLINITO ESQUILLA, ALEJO BATOY, BOBBY QUITREZA, ROLANDO DELA TORRE,
HERNANI REVATEZ, RODOLFO SEVILLA, ROLANDO ANG, JUANITO PONPON, HOSPINIANO
CALINDEZ, JOSE MABULA, DEONG DE LEON, MELENCIO CONEL and ALFREDO
BULAONG, respondents.
Martinez, Bermudez & Associates for petitioners.
The Solicitor General for respondent NLRC.
MELENCIO-HERRERA, J.:
Petition for Certiorari, Prohibition and mandamus assailing the Decision of respondent National Labor
Relations Commission (NLRC) in Cases Nos. AB-4-11054-81 and AB-8-12354-81 entitled Antonio
Boticario, et al. vs. RJL Fishing Corporation and/or Peninsula Fishing Corporation, dated November
26, 1982, as well as the Order, dated February 14, denying petitioners' Manifestation and Omnibus
Motion to dismiss private respondents' appeal. The dispositive portion of the challenged resolution
reads:
WHEREFORE, in view of the foregoing considerations, the Decision appealed
from is hereby set aside and another one entered, directing respondentsappellees: (1) to reinstate complainants-appellants to their former work, without
loss of seniority rights and other privileges appertaining thereto; (2) to pay
complainants-appellants full backwages computed from the date they were
dismissed up to the date they are actually reinstated; (3) to pay complainantsappellants legal holiday pay, emergency living allowance and 13th month pay in
accordance with law; and (4) to pay complainants-appellants who are entitled to
incentive leave pay, as herein above determined, according to law.
The claims for overtime pay and premium pay for holiday and rest day are
dismissed.
SO ORDERED. 1
This case was originally assigned to the Second Division but because of the pendency of a lowernumbered case, G.R. No. 63474, entitled RJL Martinez Fishing Corporation vs. National Labor
Relations Commission, et als.before the First Division, involving the same petitioners and their
workers (albeit a different group and not exactly Identical issues), this case was transferred to the
latter, Division for proper action and determination. G.R. No. 63474 was dismissed by the First
Division on August 17, 1983 for lack of merit.
Petitioner corporations are principally engaged in the deep-sea fishing business. Since 1978, private
respondents were employed by them as stevedores at Navotas Fish Port for the unloading of tuna
fish catch from petitioners' vessels and then loading them on refrigerated vans for shipment abroad.
LabStan Cases

On March 27, 1981, private respondents Antonio Boticario, and thirty (30) others, upon the premise
that they are petitioners' regular employees, filed a complaint against petitioners for non-payment of
overtime pay, premium pay, legal holiday pay, emergency allowance under P.D. Nos. 525, 1123,
1614, 1634, 1678, 1713, 1751, 13th month pay (P.D. 851), service incentive leave pay and night shift
differential. 2
Claiming that they were dismissed from employment on March 29, 1981 as a retaliatory measure for
their having failed the said complaint private respondents filed on the said complaint, private
respondents filed on April 21, 1981 another complaint against petitioners for Illegal Dismissal and for
Violation of Article 118 of the Labor Code, as amended. 3 Upon petitioners' motion, these two cases
were consolidated and tried jointly.
In disputing any employer-employee relationship between them, petitioners contend that private
respondents are contract laborers whose work terminated upon completion of each unloading, and
that in the absence of any boat arrivals, private respondents did not work for petitioners but were free
to work or seek employment with other fishing boat operators.
On February 25, 1982, the Labor Arbiter upheld petitioners' position ruling that the latter are extra
workers, who were hired to perform specific tasks on contractual basis; that their work is intermittent
depending on the arrival of fishing vessels; that if there are no fish to unload and load, they work for
some other fishing boat operators; that private respondent Antonio Boticario had executed an
employment contract under which he agreed to act as a labor contractor and that the other private
respondents are his men; that even assuming that private respondents are employees of petitioners,
their employer-employee relation is co-terminous with each unloading and loading job; that in the
same manner, petitioners are not under any obligation to hire petitioners exclusively, hence, when
they were not given any job on March 29, 1981, no dismissal was effected but that they were merely
not rehired. 4
On April 1, 1982, private respondents received the Decision of the Labor Arbiter dismissing their
complaints. On April 19, 1982, they filed an appeal before respondent NLRC, which took cognizance
thereof.
In its Decision of November 26, 1982, the NLRC reversed the findings of the Labor Arbiter, and
resolved, as previously stated, to uphold the existence of employer-employee relationship between
the parties.
Petitioners resorted to a "Manifestation and Omnibus Motion to Dismiss Appeal and to Vacate and/or
to Declare Null and Void the Decision of this Honorable Commission Promulgated on November 25
(should be 26), 1982" but the same was denied, hence, the instant recourse.
As prayed for, a Temporary Restraining Order to enjoin the enforcement of the questioned decision of
respondent NLRC was issued on April 20, 1983, and on August 15, 1983, the Petition was given due
course by the Second Division.
Petitioners submit the following issues for resolution:
I. Whether or not the appeal from the decision of Labor Arbiter filed by private
respondents is within the l0-day reglementary period;
II. Whether or not respondent NLRC erred in reversing the decision of the Labor
Arbiter despite the failure to furnish petitioners with a copy of the appeal;
Page 9

III. Whether or not there is an employer-employee relationship between the

parties;

contracting is prohibited under Sec. 9(b), Rule VIII, Book III Rules and Regulations Implementing
the Labor Code as amended. 11 Directly in point and controlling is the ruling in an analogous
case, Philippine Fishing Boat Officers and Engineers Union vs. CIR, 12reading:

IV. Whether or not private respondents are entitled to legal holiday pay,
emergency living allowance, thirteenth month pay and incentive leave pay.
1. Petitioners, joined by the Solicitor General, contend that the appeal filed by private respondents
from the Decision of the Labor Arbiter was filed out of time considering that they received copy of the
same on April 1, 1982 but that they filed their appeal only on April 19, 1982, or 18 days later. If we
were to reckon the 10-day reglementary period to appeal as calendar days, as held in the case of VirJen Shipping and Marine Services, Inc. vs. NLRC, et al. 5 , private respondents' appeal was, indeed,
out of time. However, it was clear from Vir-Jen that the calendar day basis of computation would
apply only "henceforth" or to future cases. That ruling was not affected by this Court's Resolution of
November 18, 1983 reconsidering its Decision of July 20, 1982. When the appeal herein was filed on
April 19, 1982, the governing proviso was found in Section 7, Rule XIII of the Rules and Regulations
implementing the Labor Code along with NLRC Resolution No. 1, Series of 1977, which based the
computation on "working days". They very face of the Notice of Decision itself 6 indicated aggrieved
party could appeal within 10 "working days" from receipt of copy of the resolution appealed from.
From April 1 to April 19, 1982 is exactly ten (10) working days considering the Holy Week and the two
Saturdays and Sundays that supervened in between that period. In other words, private respondents'
appeal, having been filed during the time that the prevailing period of appeal was ten (10) working
days and prior to the Vir-Jen case promulgated on July 20, 1982, it must be held to have been timely
filed.
2. Anent the failure of private respondents to furnish petitioners with a copy of their memorandum on
appeal, suffice it to state that the same is not fatal to the appeal. 7

The Court holds, therefore, that the employer-employee relationship existed

between the parties notwithstanding evidence to the fact that petitioners Visayas
and Bergado, even during the time that they worked with respondent company
alternated their employment on different vessels when they were not assigned on
the company's vessels. For, as was stressed in the above-quoted case
ofIndustrial-Commercial-Agricultural Workers Organization vs. CIR, 16 SCRA
562 [1966], "that during the temporary layoff the laborers are considered free to
seek other employment is natural, since the laborers are not being paid, yet must
find means of support" and such temporary cessation of operations "should not
mean starvation for employees and their families."
4. Indeed, considering the length of time that private respondents have worked for petitioner since
1978 there is justification to conclude that they were engaged to perform activities usually
necessary or desirable in the usual business or trade of petitioners and are, therefore, regular
employees. 13 As such, they are entitled to the benefits awarded them by respondent NLRC.
WHEREFORE, the instant Petition for Certiorari, Prohibition and Mandamus is hereby dismissed and
the Temporary Restraining Order heretofore issued is hereby dissolved.
Costs against petitioners. SO ORDERED.
Dist. Employer/employee from each other

3. The issue of the existence of an employer-employee relationship between the parties is actually a
question of fact, and the finding of the NLRC on this point is bonding upon us, the exceptions to the
general rule being absent in this case. Besides the continuity of employment is not the determining
factor, but rather whether the work of the laborer is part of the regular business or occupation of the
employer. 8 We are thus in accord with the findings of respondent NLRC in this regard.
Although it may be that private respondents alternated their employment on different vessels when
they were not assigned to petitioners' boats, that did not affect their employee status. The evidence
also establishes that petitioners had a fleet of fishing vessels with about 65 ship captains, and as
private respondents contended, when they finished with one vessel, they were instructed to wait for
the next. As respondent NLRC had found:
We further find that the employer-employee relationship between the parties
herein is not co-terminous with each loading and unloading job. As earlier shown,
respondents are engaged in the business of fishing. For this purpose, they have
a fleet of fishing vessels. Under this situation, respondents' activity of catching
fish is a continuous process and could hardly be considered as seasonal in
nature. So that the activities performed by herein complainants, i.e. unloading the
catch of tuna fish from respondents' vessel and then loading the same to
refrigerated vans, are necessary or desirable in the business of respondents.
This circumstances makes the employment of complainants a regular one, in the
sense that it does not depend on any specific project or seasonal activity. 9
The employment contract signed by Antonio Boticario, 10 which described him as "labor contractor",
is not really so inasmuch as wages continued to be paid by petitioners and he and the other workers
were uniformly paid. He was merely asked the petitioners to recruit other workers. Besides, laborLabStan Cases

From independent contractor

G.R. No. L-9569

September 30, 1957

RAMON CARO, petitioner,

vs.
LUCAS RILLORAZA and WORKMEN'S COMPENSATION COMMISSION, respondents.
Ramon S. Ereneta for petitioner.
Sabino Padilla Romero for respondent Lucas Rilloraza.
CONCEPCION, J.:
Petitioner Ramon Castro seeks a review, by writ of certiorari, of a decision of the Workmen's
Compensation Commission, which affirmed that of a referee thereof, sentencing said petitioner to pay
the sum of P723.34 to respondent Lucas Rilloraza, by way of compensation for an injury suffered by
the latter, in addition to the fees of said Commission.
While constructing the window railing of a building located at No. 1049 R. Hidalgo Street, Manila, and
belonging to Mrs. Carmen Prieto de Carpo, but managed by her husband, petitioner Ramon Caro, as
administrator of their conjugal partnership, and President and General Manager of Ramcar Inc., on
August 4, 1953, at about 4:00 p.m. Lucas Rilloraza, a carpenter by occupation, fell to the ground and
broke his leg, as the wooden platform on which he and another carpenter were working collapsed.
Page 10

According to Dr. Fidel Guilateo, of the Workmen's Compensation Commission, said injury produced
temporary total disability for a period of six (6) months, and permanent partial disability of five (51%)
per cent of said leg.
The only question for determination in this case is whether Rilloraza was petitioner's employee, within
the purview of the Workmen's Compensation Act. Petitioner maintains the negative view, upon the
ground that Rilloraza was hired by one Daniel de la Cruz, who, allegedly, is an independent
contractor. This pretense was rejected, however by the Workmen's Compensation Commission which
was affirmed that De la Cruz was, at least, "merely an intermediary" and that petitioner is the "real
employer" of Rilloraza. In this connection, the decision of the referee, which was affirmed by the
Workmen's Compensation Commissioner, says:
As may be seen from the above resume of facts, preponderance of evidence tends to point
that defendant Ramon Caro is the employer in the sense contemplated by the Act. But
even assuming that Daniel de la Cruz, alleged contractor, engaged by respondent really
had such work undertaken for the latter, yet the former's participation as such contractor is
considered as merely an intermediary between Ramon Caro and the laborers working
under him. (Emphasis ours).
Petitioner Caro assails this finding, stating:
In support of his contention that Daniel de la Cruz was an independent contractor,
petitioner prescribed Exhibits 'A', 'B', 'C', and 'D', which were the contracts signed by Daniel
de la Cruz for the repairs job on the various portions of the building, specifying the nature of
the work to be done and the contract prices, and in all said contracts, Daniel de la Cruz had
invariably assumed all responsibility for whether accident may happen to his laborers
engaged in these jobs.
Said Exhibits1 do not justify the conclusion drawn therefrom by herein petitioner. Exhibits B, C and D
are dated respectively, December 9 and 16, 1953, and May 21, 1954, long after the accident that
disabled respondent Rilloraza, who, therefore, had nothing to do with the subject-matter of said
contracts. Exhibit A refers to the work of changing the "soleras" or floor joists, whereas, at the time of
the occurrence, Rilloraza was constructing a "window railing," which is not covered by said contract.

In regard to the first assignment of error, the defendant company pretends to show through
Venancio Nasol's own testimony that he was an independent contractor who undertook to
construct a railway line between Maropadlusan and Mantalisay, but as far as the record
shows, Nasol did not testify that the defendant company had no control over him as to the
manner or methods he employed in pursuing his work. On the contrary, he stated that he
was not bonded, and that he only depended upon the Manila Railroad for money to be paid
to his laborers. As stated by counsel for the plaintiffs, the word "independent contractor"
means 'one who exercises independent employment and contracts to do a piece of work
according to his own methods and without being subject to control of his employer except
as to result of the work.' Furthermore, if the employer claims that the workmen is an
independent contractor, for whose acts he is not responsible, the burden is on him to show
his independence. (Ruel Ligerwood, Rural Tel. Co. supra; emphasis ours.)
Tested by these definitions and by the fact that the defendant has presented practically no
evidence to determine whether Venancio Nasol was in reality an independent contractor or
not, we are inclined to think that he but an intermediary between the defendant and certain
laborers. It is indeed difficult to find that Nasol is an independent contractor; a person
who possesses no capital or money of his own to pay his obligations to them, who files no
bond to answer for any fulfillment of his contract with his employer andspecially subject to
the control and supervision of his employer, falls short of the requisites or conditions
necessary for the common and independent contractor. (Emphasis ours.)
Petitioner herein did not prove, or even try to prove, that De la Cruz had agreed to do a piece of work
"according to his own methods . . . without being subject to the control of his employer." On the
contrary, the reference, in Exhibit A, to the general nature of the work to be undertaken, without any
plans or specifications to be followed, indicates that the floor joists mentioned in said contract were to
be changed under the direction and control of Mr. Caro or his representative, and in the manner or by
the or by the method designated by either. In other words, Daniel de la Cruz was not an independent
contractor, within the purview of the Workmen's Compensation Act. In fact, the notice of injury filed by
Rilloraza on September 28, 1953, referred to De la Cruz as a "capataz". In other words, even if
Rilloraza had been engaged by De la Cruz, and there is no affirmative evidence thereon, the former
was induced to believe that the latter acted merely as foreman of Caro, who, in turn, was Rilloraza's
employer.
Moreover, pursuant to the Workmen's Compensation Act:

At any rate, the provision in Exhibit A (as well as in Exhibits B, C and D) relieving petitioner from
liability for any accident that may happen to the laborers placed in the job by De la Cruz, can not, and
does not, affect such obligations as petitioner may have under the Workmen's Compensation Act.
To begin with, De la Cruz spoke only for himself in the exhibits aforementioned. He did not represent
Rilloraza, and had no authority to represent him therein.1wphl.nt
Secondly, section 7 of said Act provides:
Any contract, regulation or device of any sort intended to exempt the employer from all part
of the liability created by this Act shall be null and void. (Emphasis ours)
Pursuant thereto, even if Exhibit A had been signed by Rilloraza himself, it could not affect his rights,
if any, to compensation from petitioner herein.1wphl.nt

When an employee suffers personal injury from any accident arising out of and in the
course of his employment, or contracts tuberculosis or other illness directly caused by such
employment, or either aggravated by or the result of the nature of such employment, his
employer shall pay compensation in the sums and to the person hereinafter specified. . .
(Section 2.)
The "employer" and the "employee" referred to in this provision are defined in section 39 of said Act,
as follows:
(a) 'Employer' includes every person or association of persons, incorporated or not, public
or private, and the legal representative of the deceased employer. It includes the owner or
lessee of a factory or establishment or place of work or any other person who is virtually the
owner or manager of the business carried on in the establishment or place of work but who,
for the reason that there is an independent contractor in the same, or for any other reason
is not the direct employer of laborers employed there.

Thirdly, as held in Andoyo vs. Manila Railroad Co., G. R. No. 34722 (March 28,1932); 56 Phil., 852
(unreported).
LabStan Cases

Page 11

(b) 'Laborer' is used as a synonym of 'Employee' and means every person who, has
entered the employment of, or works under a service . . . for an employer. It does not
include a person whose employment is purely casual and is not for the purpose of
the occupation or business of the employer. Any reference to a laborer injured shall, in
case he dies, include a reference to the person dependent on him, as defined in this Act, if
the context so requires or, if the employer is a minor or incapacitated to his guardian or
nearest of kin. (Emphasis supplied.)
In other words, the owner or lessee of a factory or place of work or the owner or the manager of the
business therein carried on, may be bound to pay the compensation provided in section 2, above
quoted, despite the intervention of an "independent contractor." Thus, in De los Santos vs. Javier (58
Phil., 82), it was held:1wphl.nt
. . . If we refer again to the definition of employer, we shall see that it comprises the owner
or lessee of a factory or establishment of place of work or any other person who is virtually
the owner or manager of the business carried on in the establishment or place of work but
who, for the reason that there is an independent contractor in the same, or for any other
reason, is not the direct employer of laborers employed there. We take this to mean
that although the owner of the factory is not the direct employer of the laborers employed
therein because there is an independent contractor in the factory, the owner of the factory
is nevertheless to be considered for the purposes of the Workmen's Compensation Act as
the employer of the laborers working under the independent contractor, but that is true only
with respect to laborers doing work which is in the usual course of the owner's business.
(Emphasis supplied.)
This was reiterated in Philippine Manufacturing Co. vs. Geronimo, (96 Phil., 276). The reason is that.
. . . If the owner of a factory were not liable for the injuries sustained by the employees of an
independent contractor engaged in the usual business of the owner, the owner of the factory by the
mere subterfuge of an independent in contractor could relieve himself of all liability and
completely defeat the purposes of the law. . . (The Law Governing Labor Disputes in the Philippines,
by Vicente J , Francisco (2nd Ed.), p. 813; Emphasis supplied.)
This is, exactly, what would happen if contracts like Exhibit A sufficed to place the aforementioned
owner or manager beyond the pale of the Workmen's Compensation Act. Indeed, Daniel de la Cruz
does not appear to have any office establishment, or even a license to engage in business as building
contractor. He would seem to be merely a free lancing carpenter (not uncommon in Manila), with
some experience in carpentry work, who goes around looking for minor repair or construction jobs, for
he has like the intermediary in Andoyo case "no capital or money to pay his laborers or to
comply with his obligations to them." Neither did he file a bond to answer either for the fulfillment of
his contract with petitioner herein, or for the satisfaction of such as may arise by reason of any injury
arising out of and in the ordinary course of the employment of the laborers engaged pursuant to see
Exhibit A. In the light of these facts, we fail to see the how De la Cruz could possibly be regarded an
"independent" contractor. Indeed, there is nothing to indicate that he could pay the compensation
prescribed in Republic Act 772.
Upon the other hand, the reference made therein, and in the decisions on this subject, to
"independent" contractors, shows already that such status was not meant to be given to every
contractor and that the party relying upon said status must establish to the satisfaction of the Court
the conditions essential therefore. The mere introduction of Exhibit A, 2 without even the testimony of
De la Cruz,3 and without any affirmative evidence to the effect that it was he, acting in his own name
and behalf, who engaged the services of Rilloraza, is far from sufficient to prove that De la Cruz was
an independent contractor, pursuant to the accepted standards thereon. Under these conditions, a
LabStan Cases

decision in favor of petitioner herein would, in effect, set at naught and completely nullify the
provisions of the Workmen's Compensation Act, inasmuch as the door would, thereby be left wide
open for the effective circumvention, and evasion of the responsibility therein created by the
expedient of engaging the services of an indigent and irresponsible intermediary willing to relieve the
employer from his liability under said Act.
It is well settled that the same "should be interpreted so as to accomplish not defeat the purpose for
which it was enacted by the Legislature."4 that it "is a social legislation designed to give relief to the
workman who has been a victim of an accident in the pursuit of his employment," 5 and that it should
be construed "fairly, reasonably or liberally in favor of and for the benefit of their dependents and all
doubts as to right to compensation resolved in their favor and all presumptions indulged in their
favor."6 In fact, the Workmen's Compensation Act7 specifically provides that "in any proceeding for the
enforcement of the claim for compensation" under the provisions thereof, "it shall be presumed in the
absence of substantial evidence to the contrary
1. That the claim comes within the provisions of this Act;"
Again, subdivisions (a) and (b) of section 39 of the Workmen's Compensation Act are explicit on the
conditions essential to be exempt from responsibility under section 2 of said Act, namely: (1) the
employment must be "purely casual" and, in addition thereto, (2) said employment must "not be for
the purposes of the occupation or business of the employee."
. . . When the law makes the owner of the factory the employer of the laborers
employed therein notwithstanding the intervention of an independent contractor, it refers to
laborers engaged in carrying on the usual business of the factory, and not to the laborers of
an independent contractor doing work separate and distinct from the usual business of the
owner of the factory. (The Law Governing Labor Disputes in the Philippines, by Vicente J.
Francisco [2nd Ed.], p. 812; emphasis supplied.)1wphl.nt
"Employment is 'casual' when it is irregular, unpredictable, sporadic and brief in nature.
Under most statutes; even if casual, it is not exempt unless it is also outside the business of
the employer. Under this test, most maintenance and repair activities, as well as even
remodelling and incidental construction, have been held to be within the usual course of a
business." (Larson's Workmen's Compensation Law, Vol. 1, p. 759; emphasis supplied.).
Accordingly, in Mansal vs. P. P. Gocheco Lumber Co., 96 Phil., 941 (April 30,1935), we held that a
laborer, who had been injured while stacking lumber in a lumber yard belonging to the defendant
company, was entitled to compensation from the latter, although he had been employed by a
contractor who undertook to do the stacking of lumber in said yard at a given rate. In the same case
we said:
The case at bar is similar or parallel to that of stevedores unloading cargo from a ship. The
fact that the stevedores work under the control of a contractor, who pays them, and that
they may seek other work under different carriers, and their work covers a short period of
time as to each carrier, does not exempt the carrier who had employed them in the
unloading of the cargo from paying compensation for death or injuries received by them
because the unloading of the cargo is an ordinary part of a carrier's duty. To this effect, is
our decision in the case of Flores. vs. Cia. Maritima, 57 Phil., 905 thus:
There is not the least shadow of doubt that the deceased was a laborer in the legal sense.
He had been recruited by order of the captain of the ship and he was engaged in the work
of unloading the ship's cargo at the time of the accident. There can be no dispute that this
Page 12

kind of work is included in the business in which the appellee is engaged. That the
deceased had been recruited by a contractor is of no moment because the latter, for
purposes of the law, was an agent or representative of the ships captain who in turn,
represents the appellee. (Emphasis supplied.)
Likewise in the case of Achijiro Idoma (23 Hawaii, 291), the facts and conclusion reached as
abstracted in the aforementioned work on the Philippine Labor Laws, were:
A sugar company let a contract to H. to build a road-bed on its plantation to be used in its
business, furnished H. with camps, tools, and appliances, the work to be to the satisfaction
of the company's engineers; the claimant, a workman employed by H. who alone had the
right to discharge him, was injured while working on the road-bed and filed with the
Industrial Accident Board his claim for compensation against the company and H. the
question of liability of the company was reserved to the Hawaii court. It was held that the
company was liable, it being an employer of the claimant within the language and intent of
the act. (Emphasis supplied.)
In the present case, the building in which Rilloraza worked was found to be "intended or used for
rental (business) purposes." Petitioner, in turn had control of such building, as manager of Ramcar,
Inc., and administrator, not only of his paraphernal properties, but, also, of those of his wife, Carmen
Prieto, "which properties have been incorporated with those of Prieto Hermanos." 8 Obviously, the
repair of said building is part of the usual business of the administration of the aforesaid properties, so
that the same may be suitable for the gainful purpose above referred to. Consequently, even if
Rilloraza, who did the repair work thereof, were a casual laborer, engaged directly by De la Cruz,
acting as an independent contractor, which he is not, the former would still be an employee of
petitioner herein, within the purview of the Workmen's Compensation Act, and, hence, would be
entitled to demand compensation from him.
During our deliberations on this case, the question arose which is not raised by petitioner
whether the word "business" appearing in the definition of the term "employer", is limited to
"commercial" enterprises only, as distinguished from undertakings of a "civil nature. In this
connection, Larson, in his work on "The Law of Workmen's Compensation," says:
. . . The crucial word here is 'business', and the courts, ever since the original leading case
of Marsh vs. Groner, have followed the example of that case in giving the meaning:
There are few words more current in our speech than the word 'business'; few that included
a a greater variety of subject, and yet none which in popular speech, has greater or more
marked singleness in denotement. When one's business is the subject of common speech,
no one can be in doubt as to the reference. It would be a very exceptional person we do not
know how to otherwise describe him-who would not understand that the reference is to the
habitual or regular occupation that the party is engaged in, with a view to winning a
livelihood or some again. (Vol. I, pp. 738-739; emphasis supplied.)
This view is borne out by the fact that the term "employee" as used in our Workmen's Compensation
Act, "does not include a person whose employment is purely casual and is not for the purposes of
the occupation or businessof the employer." In other words, within the purview of the terms
"employer" and "employee", as defined and used in said Act, "business' is synonymous with
"occupation", or the means by which a party, habitually or regularly earns a "livelihood or some gain."
. . . The owner of a building who entered it for income purposes, and maintained the
building in repair for that purpose, was liable to an employee of a contractor repairing the
LabStan Cases

building, as maintenance of the building was considered "part of the owner's business.
(Davis vs. Industrial Com. 297 III29, 130 N. E. 333; emphasis supplied.)
. . . where the home owner rents out the second floor, he is engaged in a business for a
pecuniary profit and hence liable for injuries sustained by claimant who fell from a scaffold
which had been set up to rebuild a chimney on the house. (Reibold vs. Doll, 283 App Div.
750,128 N. Y. S. 2d 45 [1954]; emphasis supplied.)
. . . it has been held that the work of taking up carpets or mattings, and of cleaning walls,
transons, and curtains is a necessary part of the business of keeping the rooms and
hallways of a lodging house in a state of cleanliness and good order, so that an employee
injured while engaged in that work, is in the usual course of the trade, business, profession
or occupation of the employer who conducted the lodging house. (23 R. C. L. Sec. 62,
p.769;) emphasis supplied.1wphl.nt
In fact, petitioner herein impliedly admitted9 and the writer of the dissenting opinion explicitly
conceded, during, our deliberations, that the liability of said petitioner would be incontestable had
he directly engaged the services of respondent Rilloraza. Said liability could not possibly exist had
those services, which were seemingly casual, not been given "for the purposes of the occupation or
business of the employer."10
The case of the Philippine Manufacturing Co. vs. Geronimo (L-6968),11 relied upon in the dissent, is
not in point, for the following reasons, namely:
1. The work of painting a water tank,12 during which the injury involved therein was sustained, had
been undertaken by one Garcia, who "used to engage in painting contracts," 13 under conditions giving
Garcia the status of an "independent" contractor, 14 which De la Cruz does not have in the present
case.
2. The Philippine Manufacturing Co. was engaged in the business of the manufacture of soap,
vegetable lard, cooking oil and margarine, not of painting any water tank. 15 But, when one's business
is to let houses for income purposes, the repair, maintenance and painting thereof, with a view to
attracting or keeping tenants and of inducing them to pay a good or increased rental is, most
certainly, part of said business.
Thus, for instance, in De los Santos vs. Javier (supra) the defendant, who intended to buy and sell
hogs and establish a plant for curing ham, entered into a contract with one Esquillo for the
construction by the latter of a corral for hogs and an office for the persons in charge of the corral.
While working on said construction, in which Javier had no direct intervention, De los Santos, a
laborer engaged by Esquillo, accidentally sustained injuries which caused his death. This Court held
that Javier was not bound to pay compensation therefor, the laborer not being his employee,
inasmuch as the business which Javier "was going to establish was that of buying and selling hogs
and curing ham." He "was not a building contractor , and it was not part of his business to construct
buildings." We added, however, that "if the defendant had made a contract with Esquillo to take the
hogs from the corral to the slaughter houses, and the deceased as one of the employees of Esquillo
had been fatally injured while engaged in that work, the defendant would have been liable to the heirs
of the deceased, although Esquillo was an independent contractor and the deceased his
employee."16 1wphl.nt
Wherefore, the decision appealed from is hereby affirmed, with costs against the petitioner. It is so
ordered.

Page 13

G.R. No. L-9069

March 28, 1958

VICENTE UY CHAO, petitioner,

vs.
MANUEL AGUILAR and ERNESTO RAMOS, respondents.
Pedro G. Uy for petitioner.
Alfredo R. Gomez for respondent Ernesto Ramos.
Paredes, San Diego and Paredes for respondent Manuel Aguilar.
PADILLA, J.:
This is an appeal under section 46, Act No. 3428, as amended by Act No. 3812, Commonwealth Act
No. 210 and Republic Act No. 772, from a decision rendered by the Workmen's Compensation
Commissioner on 18 March 1955, which affirmed a referee's amended decision of 7 December 1954,
awarding respondent Manuel Aguilar.
1. . . . the sum of FIVE HUNDRED THIRTY-THREE and 14/100 PESOS (P533.14) by way
of compensation still due and unpaid;
2. . . . the additional sum of FIFTEEN PESOS (P15.00) as reimbursement for medical
expenses incurred; and
3. . . . the sum of SEVEN PESOS (P7.00) as administrative costs.
to be paid by La Boda de Plata and absolved respondent , Ernesto Ramos from any liability (W.C.C.
Case No. 26372).
It appears that at about 10:00 o'clock in the evening of November 1953, respondent Aguilar suffered
physical injury as a result of the sudden fall of the whole save of a glassware store known as La Boda
de Plata and owned by the petitioner Uy Chao, while he (respondent Aguilar) together with two other
laborers was on top of said eave removing the galvanized iron sheets covering the frame of the eave.
In the afternoon of the same day respondent Ramos engaged respondent Aguilar for the said work.
In this appeal petitioner Uy Chao raises two questions of law: (1) respondent Ramos was the
statutory employer for the purposes of the Workmen's Compensation Act, and not he, the petitioner,
and (2) the employment of respondent Aguilar to repair or replace the eave of the glassware store
was casual and not for the purpose of the occupation or business of the petitioner.
The petitioner contends that respondent Ramos was an independent contractor and the statutory
employer of the injured laborer, respondent Aguilar; that as such respondent Ramos should be held
liable for the injuries sustained by the laborer; and that he (the petitioner) should be exempted from
any liability.
There is, however, no need of passing upon the point whether respondent Ramos was an
independent contractor, because even if the services of respondent Aguilar were engaged by
petitioner Uy Chao directly or through an agent or contractor, still respondent Aguilar, the injured
laborer, is not entitled to compensation for the simple reason that his employment was purely casual
and was not for the purposes of the petitioner's business or occupation.

LabStan Cases

Section 39 (b) of Act No. 3428 as amended, known otherwise as the Workmen's Compensation Act,
provides that
(b) "Laborer" is used as a synonym of "Employee" and means every person who has
entered the employment of, or works under a service or apprenticeship contract for an
employer. It does not include a person with those employment is purely casual and is not
for the purposes of occupation or business of the employer. . . . (Emphasis supplied.)
Clearly, the Workmen's Compensation Act does not include an employment for labor that is purely
casual and is not for the purposes of the employer's occupation or business. The employment of
respondent Aguilar to help in the repair or replacement of the eave of a commercial store owned by
petitioner Uy Chao was purely casual, because such work would occur only when the said structure
should be damaged or broken. When it would be broken and repaired, nobody could foresee. It may
safely be stated that the work on the eave would not be made at fixed intervals. The employment of a
carpenter and a tinsmith for its repair or replacement was therefore only occasional, sporadic and for
a short time.
It is clear that the repair or dismantlement of the eave was not for the purpose of the petitioner's
occupation or business. The petitioner was a glassware dealer. He bought and sold glassware. It is
difficult to see the connection of the repair or dismantlement with the buying and selling of glassware.
Repair is restoration to a sound or good state after decay, dilapidation, injury or partial destruction.1 It
is essentially a process of reconstruction, or of fixing broken or damaged parts of a structural whole.
On the other hand, selling glassware is transferring the ownership over commodities on goods from
the seller to the buyer for a certain valuable consideration.
Respondents contend that the repair of the eave was for the purposes of the petitioner's occupation
or business of selling glassware. They argue that the said structure "being part of petitioner's store, it
stands to reason that any repair made on it must be a repair made on petitioner's store and the
employment for such repair must, therefore, be an employment for petitioner's business that of
maintaining a store," and that "whatever was or is sold in that store, be it glassware or any other
commodity, is merely an incident to the petitioner's business of maintaining the store." In Philippine
Manufacturing Company vs. Santos Vda. de Geronimo et al., 96 Phil., 276, his Court ruled that the
painting of an elevated water tank belonging to the Philippine Manufacturing Company was not for the
purposes of the Company's business or occupation of manufacturing soap, vegetable lard, cooking oil
and margarine and in De los Santos vs. Javier, 58 Phil., 82, it was held by this Court that the
construction of a corral is not for the purposes of the business or occupation of buying and selling
hogs and curing ham, because the defendant who engages in buying and selling hogs and curing
ham "is not a buying contractor, and it was not his business to construct buildings."
The rule in Caro vs. Rilloraza et al., (102 Phil., 61), where this Court by a vote of 6 to 4 held that the
laborer who while constructing a window railing of a building "fell to the ground and broke his leg, as
the wooden platform on which he and another carpenter were working collapsed," was entitled to
receive compensation from the owner of the building, is not applicable to the present case, because
there the building was for lease for income purposes and the "repair, maintenance and painting
thereof, with a view to attracting or keeping tenants and of inducing them to pay a good or increased
rental is most certainly, part of said business." Here, the petitioner was engaged not in house-letting
business but in buying and selling glassware.
The decision of the Workmen's Compensation Commissioner appealed from is reversed, and the
petitioner Uy Chao absolved from liability, without pronouncement as to costs.

Page 14

G.R. No. L-57682 March 18, 1985

From independent peddlers

RONALD CABE and PURITA CABE, petitioners,

vs.
SOTERO L. TUMANG, Assistant Regional Director for Arbitration, and AMBROCIO SISON,
Acting Sheriff, Region 1, Ministry of Labor and Employment, and SAMUEL
TAMAYO, respondents.

G.R. No. L-23727 November 29, 1971

AQUINO, J.:
This case is about the jurisdiction of the Labor Regional Office over a breach of a construction
contract. Samuel Tamayo agreed in March, 1979 to construct for the spouses Ronald Cabe and
Purita Cabe their residential house for P106,000 in accordance with the plans and specifications
prepared by an architect.
Tamayo started the work. The Cabes dispensed with his services when he allegedly made certain
deviations from the plans. The house was finished by other persons.
Tamayo on June 28,1979 sued the Cabes in the Regional Office of the Department of Labor in Laoag
City for the recovery of P7,000 as payment of labor and materials. He filed the case as head
carpenter of his 18 co-workers, whose wages he had advanced, and for reimbursement of materials
which he had purchased (pp. 68-69, Rollo).
The Assistant Regional Director for Arbitration ordered the Cabes to pay Tamayo P6,400 as
contractual wages and P600 as reimbursement of materials. The Cabes assailed that decision by
certiorari. They contend that the Assistant Director acted without jurisdiction.
We hold that Tamayo was an independent contractor and not an employee of the Cabes. The Labor
Regional Office and the National Labor Relations Commission had no jurisdiction over his claim.
Their jurisdiction is confined to claims arising from employer-employee relationship (Art. 217, Labor
Code; Mafinco Trading Corporation vs. Ople, L-37790, March 25, 1976, 70 SCRA 139; Aguda vs.
Vallejos, G.R. No. 58133, March 26, 1982, 113 SCRA 69). Tamayo's claim is cognizable by the
municipal trial court.
WHEREFORE, the decision of respondent Assistant Regional Director Tumang is reversed and set
aside. No costs. SO ORDERED.

LabStan Cases

SNOW WHITE ICE CREAM & ICE DROP FACTORY and/or JOSE FUTCHIAN CHING (SHOULD
BE SO DEE),petitioners,
vs.
EMILIO GARCIA (Deceased), Substituted by: JOVITA LOZANO VDA. DE GARCIA, for herself
and in behalf of her minor children RODOLFO, ANGELITA, MARIA, EMILIO, JR., and
CORAZON, all surnamed GARCIA,respondents.
Antonio O. Capilitan for petitioners.
Juan B. Moreno for respondents.
FERNANDO, J.:
The specific legal question raised in this petition for review of a decision of the Workmen's
Compensation Commission is new, but not the governing principle decisive of the matter, which is
well-settled. It is whether the employer-employee relationship existed between the claimant Emilio
Garcia, now deceased, who in his lifetime was an ice drop vendor, now substituted by his heirs, the
private respondents, 1 and petitioner Snow White Ice Cream and Ice Drop Factory. Both the hearing
officer and the then Associate Commissioner Jose Sanchez of respondent Commission answered the
question in the affirmative. There was an appeal to the Commission, which issued a resolution of
affirmance, as a majority vote to set aside the award was lacking, Chairman Nieves Baens del
Rosario voting to sustain and the other member Cesareo Perez voting to reverse, the aforesaid
Commissioner having retired in the meanwhile. There was a motion for reconsideration, but with the
two Commissioners standing pat, the result was the same. Thus the award was not set aside. Hence,
this petition for review. It is our holding, as will hereafter be more fully explained, that there was an
existence of an employer-employee relationship based under the governing principle of the controlling
test first announced by this Court through Justice Makalintal inInvestment Planning Corporation v.
Social Security System. 2
According to the decision of Commissioner Sanchez, the then claimant, now deceased, Emilio Garcia
"began working with the respondent as an ice drop vendor in 1953. He was paid on commission basis
of P0.02 per ice drop that he sold, thereby earning approximately P7.00 a day, seven days a week.
As such vendor, his duties consisted mainly of breaking into small pieces the block of ice given to
him, and placing them in the ice drop push-cart to prevent the ice drops from melting. Claimant, when
not selling ice drops, repaired broken down pushcarts belonging to the respondent, being also a
carpenter by occupation. It appears that on July 27, 1960, while preparing the pushcart assigned to
him for peddling, a block of the ice he was carrying fell on his right foot, smashing three of his [toes].
After a week of medication, he resumed his work despite the fact that he was still limping; that while
pushing the ice drop pushcart along Solis Street, Tondo, Manila, his swollen right foot was hit by a
barbed wire. Claimant, however, continued working until August 27, 1960 when he stopped as he
could no longer withstand the pain and chilling sensation that he suffered. He was brought to the
North General Hospital where his right foot was amputated below the knee, the abscess having
already become gangrenous. He remained in said hospital until September 16, 1960. Dr. V. Roldan, a
private physician, continued treatment on the claimant while at home until the amputation wound was
completely healed nine months thereafter. Claimant alleged that he spent the total amount of P700.00
for said treatment." 3

Page 15

The facts which, according to him, were established, follow: "1. Claimant was charged P.03 by the
respondent for every ice drop that he gets which, in turn, he sells to the public at P.05 each; 2.
Claimant returned the unsold ice drops with full credit; and 3. Claimant was supplied by the
respondent with crushed ice, icepicks, salt, and cap and ice drop pushcart bearing respondent's trade
name." 4 Accordingly, in his decision of July 15, 1963, he found for the claimant, thereafter substituted
upon his death on September 3, 1962 by the legal heirs, now private respondents, the circumstances
in his opinion being not merely indicative, but actual proof, of employment and the injuries sustained
occurring while in the performance of his duties. A motive for reconsideration was filed with
respondent Commission. It was denied under the circumstances previously indicated. Then came this
petition for review.

alleged error as to the effect of a tie vote is likewise unavailing. A recent work on the Workmen's
Compensation Act discusses the matter thus: "Any party in interest may seek the reconsideration of
the decision or order of a member of the Commission, by the Commission en banc by filing a motion
or petition for reconsideration within ten (10) days from receipt of said decision or order. Upon the
filing of a motion or petition for reconsideration, the Commission en banc shall resolve the same. Two
affirmative or negative votes shall decide the appealed case. In case of a tie vote, the case shall be
calendared for another voting by the Commission en banc, and if this second vote again results in a
tie the original decision or order shall be deemed affirmed. As provided for in Sections 2 and 3 of Rule
17, the rules for the format of the motion or petition for reconsideration and that for extension of time
to file said motion or petition in the Commission level is practically the same as that in the regional
level." 12

As noted at the outset, we find for private respondents and sustain the award in their favor.
1. Under the controlling test as clarified by Justice Makalintal in the aforesaid Social Security System
v. Court of Appeals, 5 the criterion is whether the person or firm alleged to be the employer can direct
or require the party assertedly enjoying the employee status to do a certain kind of work and to
specify the means and methods by which the same is to be accomplished. As was emphasized by
Justice Makalintal in the above decision: "The logic of the situation indeed dictates that where the
element of control is absent; where a person who works, for another does so more or less at his own
pleasure and is not subject to definite hours or conditions of work, and in turn is compensated
according to the result of his efforts and not the amount thereof, we should not find that the
relationship of employer and employee exists." 6 From the facts as found, which we are not at liberty
to disregard, the deceased claimant was an employee of petitioner. While this is the first case of its
kind in the Philippines, it is not so in the United States. Thus from Larson's authoritative treatise on
Workmen's Compensation Law: "Just as the employer may buy his raw materials outright from an
independent businessman, so he can distribute his product by turning it over completely to a jobber
who is an independent businessman. But, since disposition of the product is normally an inherent part
of any business, there is an increasing tendency to indulge a presumption that salesman, distributors,
and deliverymen who fall short of the status of businessmen holding themselves out to the public as
such are employees. The circumstance that the salesman is devoting his entire time to the
distribution of the one employer's product is, in most lines, an indication that he is an employee." 7 An
American case cited by him, Cooper v. Colonial Lee Co., 8 lends support to the above view. As was
pointed out by Larson: "It is a stronger case for employment, in that the policeman did not own, the
ice wagon he used. It is weaker in that the ice, in form at least, was sold to the driver at $1.20 a block
with his compensation coming out of the difference between that price and his resale price of $1.80.
The privilege of returning unsold ice for credit tends to discredit the validity of the 'sale.' However, the
driver's business consisted not only of orders received by the company but also of whatever orders
he himself could get. There was some control, in that the driver had to begin work at 7 A.M. and quit
before dark. He was held to be an employee." 9
2. With the decisive question thus answered in favor of private respondents, it is quite clear why the
award in their favor should be sustained. The second alleged error as to the delay of fourteen months
in the filing of the claim for compensation after the alleged injuries does not suffice to call for a
reversal in the light of the impressive number of decisions rendered by this Court. As was held in a
recent case, Operators, Incorporated v. Cacatian 10 "It is much too late in the day to complain about
the long delay in instituting the claim here of seven years. This Court in 1965 categorically declared
that the failure to file a claim within the statutory period does not affect the jurisdiction, of the
Workmen's Compensation Commission. Such a doctrine found mention in a 1968
decision, Pampanga Sugar Mills v. Vda. de Espeleta, citing two cases decided the year before. In the
first, it took the claimant eight years and in the second, nine years before the right to compensation
was sought to be enforced. Its non-jurisdictional character was stressed anew in Victorias Milling Co.,
Inc. v. Workmen's Compensation Commission, announced less than two months later. To the same
effect are later cases likewise of 1968 vintage. We have had occasion this year to rule
similarly." 11 No discussion need be made of the third alleged error, being a question of fact, the
determination of which by the Workmen's Compensation Commission is to be respected. The fourth
LabStan Cases

WHEREFORE, the award in favor of the private respondents, as set forth in the decision of the then
Associate Commissioner Sanchez of July 15, 1963, is affirmed. With costs against petitioner.
G.R. No. L-37790 March 25, 1976
MAFINCO TRADING CORPORATION, Petitioner, vs. THE HON. BLAS F. OPLE, in his capacity as
Secretary of Labor, The NATIONAL LABOR RELATIONS COMMISSION RODRIGO
REPOMANTA and REY MORALDE,Respondents.
Tanada, Sanchez, Tanada & Tanada for petitioner.chanrobles virtual law library
Jose T. Maghari for private respondents.chanrobles virtual law library
Solicitor General Estelito P. Mendoza for all other respondents.
AQUINO, J.: chanrobles virtual law library
Mafinco Trading Corporation (Mafinco for short) filed these special civil actions of certiorari and
prohibition in order to annul the decision of the Secretary of Labor dated April 16, 1973. In that
decision the Secretary reversed an order of the old National Labor Relations Commission (NLRC)
and held that the NLRC had jurisdiction over the complaint lodged by the Federacion Obrera de la
Industria Tabaquera y Otros Trabajadores de Filipinas (FOITAF) against Mafinco for having
dismissed Rodrigo Repomanta and Rey Moralde (NLRC Case No. LR-086). The voluminous record
reveals the following facts:
Peddling contracts and their termination. - On April 30, 1968 Cosmos Aerated Water Factory, Inc.,
hereinafter called Cosmos, a firm based at Malabon, Rizal, appointed Mafinco as its sole distributor of
Cosmos soft drinks in Manila. On May 31, 1972 Rodrigo Repomanta and Mafinco executed a
peddling contract whereby Repomanta agreed to "buy and sell" Cosmos soft drinks. Rey Moralde
entered into a similar contract. The contracts were to remain in force for one year unless sooner
terminated by either party upon five days notice to the other. 1 The contract with Repomanta reads as
follows:
PEDDLING CONTRACT chanrobles virtual law library
KNOW ALL MEN BY THESE PRESENTS: chanrobles virtual law library
This CONTRACT, entered into by and between: chanrobles virtual law library
Page 16

The MAFINCO TRADING CORPORATION, a domestic corporation duly organized and existing
under the laws of the Philippines, doing business at Rm. 715 Equitable Bank Bldg., Juan Luna St.,
Manila, under the style MAFINCO represented in this act by its General Manager, SALVADOR C.
PICA, duly authorized for the purpose and hereinafter referred to as MAFINCO, and RODRIGO
REPOMANTA, married/single, of legal age, and a resident of 70-D Bo. Potrero, MacArthur Highway,
Malabon, Rizal hereinafter referred to as PEDDLER, WITNESSETH: chanrobles virtual law library
WHEREAS, MAFINCO has been appointed as the exclusive distributor of 'COSMOS' Soft Drink
Products for and within the City of Manila; chanrobles virtual law library
WHEREAS, the PEDDLER is desirous of buying and selling in Manila the 'COSMOS' Soft Drink
Products handled by MAFINCO; chanrobles virtual law library
NOW THEREFORE, for and in consideration of the foregoing premises and the covenants and
conditions hereinafter set forth, the parties hereto has agreed as follows:
1. That in consideration of the competence of the PEDDLER and his ability to promote mutual
benefits for the parties hereto, MAFINCO shall provide the PEDDLER with a delivery truck with which
the latter shall exclusively peddle the soft drinks of the former, under the terms set forth
herein; chanrobles virtual law library
2. The PEDDLER himself shall, carefully and in strict observance to traffic regulations, drive the truck
furnished him by MAFINCO or should he employ a driver or helpers such driver or helpers shall be
his employees under his direction and responsibility and not that of MAFINCO, and their
compensation including salaries, wages, overtime pay, separation pay, bonus or other remuneration
and privileges shall be for the PEDDLER'S own account; The PEDDLER shall likewise bind himself to
comply with the provisions of the Social Security Act and all the applicable labor laws in relation to his
employees; chanrobles virtual law library

8. The PEDDLER shall liquidate and pay all his accounts to MAFINCO'S authorized representative at
the end of each day, and his failure to do so shall subject his cash bond at once to answer for any
unliquidated accounts; chanrobles virtual law library
9. This contract shall be effective up to May 31, 1973 and supersedes any or all other previous
contracts, if any, that may have been entered into between the parties; However, either of the parties
may terminate the same upon five (5) days prior notice to the other; chanrobles virtual law library
10. Upon the. termination of this contract, unless the same is renewed, the delivery truck and such
other equipment furnished by MAFINCO to the PEDDLER shall be returned by the latter in good
order and workable condition, ordinary wear and tear excepted, und shall promptly settle his
outstanding account if any, with MAFINCO; chanrobles virtual law library
11. To assure performance by the PEDDLER of his obligation to his employees under the Social
Security Act, the applicable labor laws and for damages suffered by third persons, PEDDLER shall
furnish a performance bond of P1,000.00 in favor of MAFINCO from a SURETY COMPANY
acceptable to MAFINCO.
IN WITNESS WHEREOF, the parties hereto have signed this instrument at the City of Manila,
Philippines, this May 31, 1972.chanroblesvirtualawlibrary chanrobles virtual law library
MAFINCO TRADING CORPORATION chanrobles virtual law library
By: chanrobles virtual law library
(Sgd.) RODRIGO REPOMANTA (Sgd.) SALVADOR C. PICA chanrobles virtual law library
Peddler General Manager chanrobles virtual law library

3. The PEDDLER shall be responsible for any damage to property, death or injuries to persons or
damage to the truck used by him caused by his own acts or omission or that of his driver and
helpers; chanrobles virtual law library
4. MAFINCO shall furnish the gasoline and oil to run the said truck in business trips, bear the cost of
maintenance and repairs of the said truck arising from ordinary wear and tear; chanrobles virtual law
library

(Witnesses and notarial acknowledgment are omitted)

On December 7, 1972 Mafinco, pursuant to section 9 of the contract, terminated the same. The notice
to Repomanta reads as follows:
Dear Mr. Repomanta: chanrobles virtual law library

5. The PEDDLER shall secure at his own expense all necessary licenses and permits required by law
or ordinance and shall bear any and all expenses which may be incurred by him in the sales of the
soft drink products covered by the contract; chanrobles virtual law library
6. All purchases by the PEDDLER shall be charged to him at a price of P2.52 per case of 24 bottles,
ex-warehouse; PROVIDED, However, that if the PEDDLER purchases a total of not less than 250
cases a day, he shall be entitled further to a Peddler's Discount of P11.00; chanrobles virtual law
library

This has reference to the Peddling Contract you executed with the Mafinco Trading Corporation on
May 31, 1972. Please be informed that in accordance with the provisions of paragraph 9 of the said
peddling contract, we are hereby serving notice of termination thereof effective on December 12,
1972.chanroblesvirtualawlibrary chanrobles virtual law library
Yours truly, chanrobles virtual law library
(Sgd.) SALVADOR C. PICA chanrobles virtual law library

7. Upon the execution of this contract, the PEDDLER shall give a cash bond in the amount of
P1,500.00 against which MAFINCO shall charge the PEDDLER with any unpaid account at the end of
each day or with any damage to the truck of other account which is properly chargeable to the
PEDDLER; within 30 days after the termination of this contract, the cash bond, after deducting proper
charges, shall be returned to the PEDDLER; chanrobles virtual law library
LabStan Cases

General Manager

Page 17

Complaints of Repomanta and Moralde and NLRCs dismissal thereof. - Four days later or on
December 11, 1972 Repomanta and Moralde, through their union, the FOITAF, filed a complaint with
the NLRC, charging the general manager of Mafinco with having violated Presidential Decree No. 21,
issued on October 14, 1972, which created the NLRC and which was intended "to promote industrial
peace, maximize productivity and secure social justice for all". The brief complaint reads as follows:
Hon. Amado Gat Inciong, Chairman chanrobles virtual law library

74, Rapajon vs. Fung Kui, Resolution dated July 16, 1958).chanroblesvirtualawlibrary chanrobles
virtual law library
The complaint was referred to a factfinder who in a lengthy report dated January 22, 1973 found, after
"exhaustively and impartially" considering the contentions of the parties, that the peddlers were
employers or "independent businessmen', as held by the Court of Industrial Relations and the Court
of Appeals, and that that holding has the force of res judicata. The factfinder recommended the
dismissal of the complaint.chanroblesvirtualawlibrary chanrobles virtual law library

National Labor Relations Commission chanrobles virtual law library

Phoenix Bldg., Intramuros, chanrobles virtual law library
Manila chanrobles virtual law library
Sir: chanrobles virtual law library
Pursuant to the Presidential Decree No. 21, Sections 2 and 11, the FOITAF files a complaint against
SALVADOR C. PICA, General Manager of MAFINCO TRADING CORP. located at Room 715,
Equitable Bank Bldg., Juan Luna, Manila, for terminating union officials (sic), Mr. Rodrigo Refumanta
and
Mr.
Rey
Moralde,
which
is
a
violation
of
the
above
mentioned
decree.chanroblesvirtualawlibrary chanrobles virtual law library

The old NLRC, composed of Amado G. Inciong, Diego P. Atienza and Ricardo O. Castro, adopted
that recommendation in its order dated February 2, 1973. That order, which analyzes the peddling
contract and reviews the court rulings on the matter, is quoted below:
The question of whether peddling contracts of the kind entered into between the parties give rise to
an employer-employee relationship is not new. Nor are the contracts themselves of recent
vintage.chanroblesvirtualawlibrary chanrobles virtual law library
For at least twenty years respondent MAFINCO and its predecessor and/or principal, the ManilaCosmos Aerated Water Factory, have entered into contracts with peddlers, under the terms of which
the latter buy from the former at a special price, and sell in Manila, the former's soft drink products.
The distributor provides the peddler with a delivery truck with the distributor answering for the cost of
fuel and maintenance. If a peddler buys a certain number of cases or more a day, he is entitled to a
fixed amount of peddler's discount.chanroblesvirtualawlibrary chanrobles virtual law library

Notice of termination is herewith attach (sic).chanroblesvirtualawlibrary chanrobles virtual law library

We anticipate your due attention and assistance.chanroblesvirtualawlibrary chanrobles virtual law
library
Respectfully yours, chanrobles virtual law library
(Signed by National Secretary of FOITAF)
Mafinco filed a motion to dismiss the complaint on the ground that the NLRC had no jurisdiction
because Repomanta and Moralde were not its employees but were independent contractors. It
stressed that there was termination of the contract, not a dismissal of an employee. In Repomanta's
case, it pointed out that he was registered with the Social Security System as an employer who, as a
peddler, paid premiums for his employees; that he secured the mayor's permit to do business and the
corresponding peddler's license and paid the privilege tax and that he obtained workmen's
compensation insurance for his own employees or helpers. It alleged that Moralde was in the same
situation as Repomanta.chanroblesvirtualawlibrary chanrobles virtual law library
Mafinco further alleged that the Bureau of Labor Relations denied the application of peedlers for
registration as a labor union because they were not employees but employers in their own right of
delivery helpers (Decision dated January 4, 1966 by the Registrar of Labor Organizations in
Registration Proceeding No. 4, In the Matter of Cosmos Supervisors Association-PTGWO); that the
Court of Industrial Relations in Case No. 4399-ULP, Cosmos Supervisors' Association - PTGWO vs.
Manila Cosmos Aerated Water Factory, Inc., held in its decision dated July 17, 1967 that the peddlers
were not employees of Cosmos, and that the Court of Appeals held in Rapajon vs. Fong Kui and
Figueras vs. Asierto, CA-G.R. No. 19477-R and 21397-R, March 18, 1958 that the delivery helpers of
the peddlers were not employees of Cosmos, a ruling which this Court refused to review (L-14072-

LabStan Cases

The peddler himself drives the truck but if he engages a driver or helpers, the latter are his employees
and he assumes all the responsibilities of an employer in relation to them. He also obtains at his own
expense all licenses and permits required by law of salesmen.chanroblesvirtualawlibrary chanrobles
virtual law library
The peddler clears his accounts with the distributor at the end of each day, and unpaid accounts are
charged against the cash deposit or bond which he gives the distributor upon the execution of the
peddling contract. He answers for damages caused by him or his employees to third
persons.chanroblesvirtualawlibrary chanrobles virtual law library
Ruling upon this type of contracts, and the practices and relationships that attended its
implementation, the Court of Appeals, in CA-G.R. No. 19477-R, said that it did not create a
relationship of employer and employee; that the peddlers under such contract were not employees of
the manufacturer or distributor, and accordingly dismissed the complaints in the said case. (The
peddler-complainants in that case were claiming overtime pay and damages, among others.)
Elevated
to
the
Supreme
Court
on
review
(G.R.
Nos.
L-14072 to L-14074, 2 August 1958), the decision of the Court of Appeals was in effect affirmed, for
the petition for review was dismissed by the Supreme Court 'for being factual and for lack of
merit! chanrobles virtual law library
The Court of Industrial Relations is of the same persuasion. After inquiring extensively into
substantially the same terms and conditions of peddling contracts and the practices and relationships
that went into their implementation, the Court said in Case No. 4399ULP that the peddlers of the
Manila-Cosmos
Aerated
Water
Factory
were
not
employees
of
the
latter.chanroblesvirtualawlibrary chanrobles virtual law library
These precedents apply squarely to the case at hand. The complainants here have not shown that
their peddling contracts with the respondent differ in any substantial degree from those that were at
Page 18

issue in the Court of Industrial Relations, the Court of Appeals and the Supreme Court in the cases
cited above. Indeed, a comparison between the contracts involved in those cases and those in the
instant litigation do not show any difference that would warrant a different conclusion than that
reached by those courts. If at all, the additional stipulations in the present contracts strengthen the
position that the complainant peddlers are independent contractors or businessman, not employees
of the respondent.chanroblesvirtualawlibrary chanrobles virtual law library
Nor has there been shown any substantial change in the old practices of peddlers vis-a-vis the
distributor or manufacturer. The points raised by the complainants in their pleadings regarding these
practices were extensively discussed by the CIR in the ULP case above referred
to.chanroblesvirtualawlibrary chanrobles virtual law library
We are not prepared to depart from this rule of long standing. It is the law of the
case.chanroblesvirtualawlibrary chanrobles virtual law library
We therefore hold that the complainants in this case were not employees of MAFINCO and
Presidential Decree No. 21 does not I apply to them.
Complainants' appeal and the Labor Secretary's decision that they were employees of Mafinco. Complainants Repomanta and Moralde appealed to the Secretary of Labor. They argued that the
NLRC erred (1) in holding that they were independent contractors and not employees; (2) in relying
on the peddler's contract to determine the existence of employer-employee relationship; (3) in
anchoring its decisions on precedents which have only persuasive force and which did not rule
squarely on the issue of employer-employee relationship, and (4) in dismissing their
complaint.chanroblesvirtualawlibrary chanrobles virtual law library
As stated at the outset, the Secretary in his decision reversed al the NLRC order. He ruled that
Repomanta and Moralde were employees of Mafinco and that, consequently, the NLRC had
jurisdiction over their complaint. The Secretary directed the NLRC to hear the case on the
merits.chanroblesvirtualawlibrary chanrobles virtual law library
The Secretary found that the complainants "were driver-salesmen of the company, driving the trucks
and distributing the products of the company" and that they were not independent contractors
because they had no capital of their own. That finding was based on the following considerations:
(1) That the contracts are Identical; (2) that the complainants were originally plant drivers' of the
company; (3) that the complainants had no capital of their own; (4) that their delivery trucks were
provided by the company; (5) that the use of the trucks were 'exclusively' for peddling the products of
the company; (6) that they were required to observe regulations; (7) that they were required to drive
the trucks; (8) that the company furnished the gasoline and oil to run the said trucks in business trips;
(9) that the company shouldered the cost of maintenance and repair of the said trucks arising from an
ordinary wear and tear; (10) that the company required them to secure the necessary licenses and
permits; (11) that the company prohibited them from selling the company's products higher than the
fixed price of the company; and (12) that they and their helpers were paid on commission basis.
The Secretary relied on this Court's ruling that a person who possesses no capital or money of his
own to pay his obligations to his workers but relies-entirely upon the contract price to be paid by the
company, falls short of the requisites or conditions necessary for an independent contractor (Mansal
vs. Gocheco Lumber Co., 96 Phil. 941).chanroblesvirtualawlibrarychanrobles virtual law library
He observed that "behind the peddling cloak there was in fact employee-employer relationship". He
said:
LabStan Cases

While, generally, written employment contracts are held sufficient in determining the nature of
employment, such contracts, however, cannot be always held conclusive where the actual
circumstances of employment indicate otherwise. For example, some employers, in order to avoid or
evade coverage of the Workmen's Compensation Act, enter into pseudo contracts with their
employees who are named as 'employers' or 'independent contractors'. Such 'written contracts as
distinguished from oral Agreements, purporting to make persons independent contractors, no matter
how 'adroitly framed', can be carefully scanned and the real relationship ascertained' (Glielmi vs.
Netherlands Dairy Co., 254 N.Y. 60 (1930), Morabe & Inton, Workmen's Compensation Act. p.
69).chanroblesvirtualawlibrary chanrobles virtual law library
If the Peddling Contract were carefully scanned, the conclusion may be drawn that the contract is but
a device and subterfuge to evade coverage under the labor laws. There is more than meets the eye
in item 2 of the Peddling Contract which required the peddlers to do that which the law intends the
employer to have done.chanroblesvirtualawlibrary chanrobles virtual law library
In fact, such contracts, as the one in question, exempting or tending to exempt the employers from
their legal obligations to their workers are null and void under Sec. 7 of the Workmen's Compensation
Act, as amended, which states: chanrobles virtual law library
Any contract, regulation or device of any sort intended to exempt the employer from all or part of the
liability created by this Act shall be null and void.chanroblesvirtualawlibrary chanrobles virtual law
library
To rule otherwise would be to open the floodgate to employers in this territory to evade liabilities to
their workers by simply letting contracts for the doing of their business. 'Such construction could not
only narrow the provisions of the Act, but would defeat its intent and purposes in their entirety.
(Andoyo vs. Manila Railroad Co., supra).
The motion for the reconsideration of the decision was denied by the Secretary in his order of July
16,1973.chanroblesvirtualawlibrary chanrobles virtual law library
The Committee's report that the peddlers are independent contractors. - On July 25, 1973 Mafinco
moved for the clarification of the decision by inquiring whether the question of employee-employer
relationship would be included in the hearing on the merits.chanroblesvirtualawlibrary chanrobles
virtual law library
Action on the said motion was deferred until the receipt of the report of the committee created to
study the status of peddlers of Cosmos products. On September 3, 1973- the Secretary directed the
committee composed of Ernesto Valencia, Vicente R. Guzman and Eleo Cayapas to conduct an indepth study of the actual relationship existing between the Cosmos Bottling Co. and its
peddlers.chanroblesvirtualawlibrary chanrobles virtual law library
The committee in its report dated September 17, 1973 arrived at the conclusion that the relationship
actually existing between Cosmos and Mafinco, on one hand, and the peddlers of Cosmos products,
on the other, is not one of employer and employee and "that the peddlers are independent
contractors".chanroblesvirtualawlibrary chanrobles virtual law library
The committee after a perusal of the record of NLRC Case No. LR-086 interviewed twenty peddlers,
an officer of Cosmos and an officer of Mafinco. In the conduct of the interviews it 44 observed
judicious adherence to impartiality and openmindedness but with a modicum of friendliness and much
of informality". The report reads in part as follows: chanrobles virtual law library
Page 19

(1) Implications of the 'Agreement To Peddler Soft Drinks'. - Of vital importance to the mind of your
committee is the fact that this Agreement entered into between Cosmos and the Peddlers has, as its
prefatory statement but before the enumeration of its terms and conditions, the following:
That the Peddler has agreed to buy and sell the products of the MANUFACTURER under the
following conditions: chanrobles virtual law library

creation of a new or different one; that Courts cannot make for the parties better agreements than
they themselves have been satisfied to make, or rewrite contracts because they operate harshly or
inequitably as to one of the parties; and that there is no right to interpret an agreement as meaning
something different from what the parties intended as expressed by the language they saw fit to
employ.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx

Similarly, the 'Peddling Contract' entered into between Mafinco and the Peddlers. contains peculiarly
Identical wordings. viz: chanrobles virtual law library
WHEREAS, the PEDDLER is desirious of buying and selling in Manila the 'COSMOS' Soft Drink
Products handled by chanrobles virtual law library
MAFINCO: chanrobles virtual law library
It is immediately clear from the beginning that the relationship that the parties would want to establish
between them is one of buyer and seller of the Cosmos Products. Moreover, this type of Agreement
or Contract has its roots since some twenty (20) years earlier, with modifications only with respect to
the factory price, the amount of over prices or what the peddlers refer to as commission, and the
amount pertaining to the dealer's discount. which appear to vary depending upon the market
demands.chanroblesvirtualawlibrary chanrobles virtual law library
We are, however, tempted to argue, as did the Peddlers, that this Agreement or Contract might have
been contrived as a device to evade responsibilities imposed upon Cosmos or Mafinco under our
labor laws as well as under other national or municipal laws. Nevertheless, a close reading thereof
will show a flaw in this line of insistence, when we consider that this type of Agreement or Contract
has been substantially the same since the beginning of this relationship. More than this, it has
withstood the test of time by pronouncements of the CIR in ULP Case No. 4399, Cosmos Supervisors
Association vs. Manila Cosmos Aerated Water Factory, Inc.' July 17, 1967; by judicial review of the
Court of Appeals in CA-G.R. Nos. 19477-R, 19478-R and 21397-R, 'Eustaquio Repajon, et al. vs.
Manila Cosmos Aerated Water Factory, Inc.', promulgated on March 18, 1958; and impliedly by
resolution of the Supreme Court in G.R. Nos. L-14072 to L-14074 when the Court of Appeals cases
were appealed to that Tribunal.chanroblesvirtualawlibrary chanrobles virtual law library
But the more basic and indeed forceful ratiocination in favor of the validity of the Agreement or
Contract which covenants that the relationship between the Peddlers and Cosmos or Mafinco is one
of buyer and seller of the Cosmos Products on the part of the Peddlers, and, therefore, one of an
independent contractorship, finds substantive support in our Civil Code which provides: (here arts.
1370 and 1374 of the Civil Code regarding interpretation of contracts are
quoted).chanroblesvirtualawlibrary chanrobles virtual law library
For its adjective interpretation, our Rules of Court specifically provides: (Here parol evidence rule in
see. 7, Rule 130, Rules of Court is quoted) chanrobles virtual law library
It must b restated at this point for purposes of emphasis that the validity of the aforesaid Agreement
or Contract has not been seriously assailed by the parties. In fact, their rallying cause was the
Agreement or Contract itself. To strengthen these provisions of the Civil Code and the Rules of Court,
stabilized jurisprudence have held that it is elementary rule of contract that the laws in force at the
time the contract was made must govern its interpretation and application; that the terms of the
contract, where unambiguous, are conclusive, in the absence of averment and proof of mistake, the
question being, not what intention existed in the minds of the parties, but what intention is expressed
by the language used; that interpretation of an agreement does not include its modifications or the
LabStan Cases

(1) The selection and engagement of the employees.-Nothing in the Agreement to Peddler Soft
Drinks in the case of Cosmos and in the Peddling Contract in the case of Mafinco, will reveal and we
cannot logically infer therefrom, that the Peddlers were engaged as employees of Cosmos or
Mafinco. The selection of the Peddlers who will buy and sell Cosmos products is left entirely between
the parties; it is not the sole prerogative of either one of the parties. There must be meeting of the
minds in order to consummate the Agreement or Contract and no evidence of coercion or imposition
of the will of one over the other is evident or apparent from the Peddlers' or Managements' interviews
had by the members of your Committee. This test, therefore, cannot be invoked by the Peddlers in
their attempt at presenting arguments to the effect that they are employees of Cosmos or Mafinco.
Upon the other hand, the Agreement or Contract itself provides that the Peddlers can hire helpers
and drivers under their direction and responsibility, and to whom they shall be liable for payment of
'salaries, wages, overtime pay, separation pay, bonus and other remuneration and privileges.' As a
matter of fact, drivers were employed by Mrs. Victoria Ariz and M. Fong Kui, who are peddlers in their
own right. This evidently shows the discretion granted the peddlers to hire employees of their
own.chanroblesvirtualawlibrary chanrobles virtual law library
(2) The payment of wages. - On the basis of the clear terms of the Agreement or Contract, no
mention is made of the wages of the Peddlers; neither can an inference be made that any salary or
wage is given to Peddlers. In the interviews, however, with the Peddlers, they vehemently take the
position that the 'dealer's discount' which was given to them at the rate of Pll.50 in excess of 200
cases of Cosmos products they sell a day, constitutes their 'wages'. The term 'wages' as defined in
Section 2 of the Minimum Wage Law (Rep. Act No. 602, as amended) is as follows: chanrobles virtual
law library
(g) 'Wage' paid to any employee shall mean the remuneration or earnings, however designated,
capable of being expressed in terms of money whether fixed or ascertained on a time, task, piece,
commission basis, or other method of calculating the same, which is payable by an employer to an
under a written or unwritten contract of employement for work done or to be done or for services
rendered or to be rendered, and includes the fair and reasonable value, as determined by the
Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the
employee. ...
Section 10 (k) of the same law provides as follows:
(k) Notification of wage conditions. - It shall be the duty of every employer to notify his employees at
the time of hiring of the wage conditions under which they are employed, which shall include the
following particulars: chanrobles virtual law library
(1) The rate of wages payable; chanrobles virtual law library
(2) The method of calculation of wages; chanrobles virtual law library
(3) The periodicity of wage payment; the day, the hour and pIace of payment; and chanrobles virtual
law library
Page 20

(4) Any change with respect to any of the foregoing items.

To the Committee's mind, all these requirements have not been shown to exist in the relationship
between the Peddlers and the Cosmos or Mafinco. If it were true that the Pedders' 'dealer's discount'
is in the nature of wages, then they must be notifed fully of the wage conditions. Moreover, such
'wages' must be paid to them periodically at least once every two weeks or twice a month. (See Par.
(h) of See. 10 of Act No. 602, as amended). The absence of such notification to the Peddlers and the
lack of periodicity of such payment in the manner and procedure contemplated in the Minimum Wage
Law destroy, quiet evidently, their allegation that the 'dealer's discount' was their 'wage'. Take note
that the 'dealer's discount' was given only about a week after the end of the month, and from the
evidence submitted by Cosmos, it appears clearly that the 'dealer's discount' varies from month to
month. Thus, the earnings of Mr. Salvador Abonales, who is a Peddler, from January to August,
1973, amounted to P12,520.70, while that of Mr. Alberto S. Garcia, for the same period, amounted to
P13,633.42, and 4 their earnings every month vary decisively. This factor defeats factually the
insistence
of
the
Peddlers
that
they
are
employees
of
Cosmos
or
Mafinco.chanroblesvirtualawlibrary chanrobles virtual law library
Upon the other hand, the Peddlers' declarations reveal that the wages of their helpers are taken from
the overprice or what is ordinarily termed as 'commission' of ten centavos (P0.10) per case that they
get-a factor which indicates that they are themselves employers of their helpers. In addition, the
Peddlers are reported as Employers of these helpers with the Social Security System, and that they
also purchase workmen's compensation policies in their names as Employers of their own helpers for
purposes of workmen's compensation insurance of their liabilities, which are all in accordance with
the terms and conditions of the Agreement or Contract and indicative of an attribute of one who is an
independent merchant.
(3) The power of dismissal. - In the case of 'Rodrigo Repomanta and Rey Moralde vs. Mafinco
Trading Corp.,' NLRC Case No. LR-086, which served as one of our bases for this study, the
complainants therein appear to have complained before the National Labor Relations Commission for
being allegedly illegally dismissed or that their services were terminated without cause. A search of
the alleged dismissal however shows that the Identical letters both dated December 7, 1972
addressed to the said complainants were not actually what complainants pictured them to be, but the
termination of the peddling in accordance with paragraph 9 of said Contract.
xxx xxx xxx chanrobles virtual law library
Thus, complainants' services were not terminated, only their Peddling Contracts with Mafinco were.
The power of dismissal is not lodged with either Mafinco or Cosmos, for based on the Agreement or
Contract none whatsoever exists. Certainly, to attribute a power of dismissal to Cosmos or Mafinco
where none exists is careless imprudence and a height of inaccuracy. This power of dismissal by
Cosmos
or
Mafinco
is
not
countenanced
in
the
Agreement
or
Contract.chanroblesvirtualawlibrary chanrobles virtual law library

(a) That the delivery trucks assigned to the Peddlers are available to them early in the morning and
are free to get them, which they usually do between 5:30 A.M. to 6:30 A.M. There was no compulsion
on the part of the Peddlers to report for work at that time, as in fact, they did not sign any time record.
The practice of getting the delivery trucks early in the morning is more beneficial to the Peddlers than
to Cosmos or Mafinco since they can finish the peddling of Cosmos products much earlier and spend
the rest of the day at their own pleasure. The signing of the 'logbooks' is both pertinent and necessary
since the trucks used in the delivery of Cosmos products are owned by Cosmos or Mafinco and are
simply utilized by Peddlers as a measure of convenience and for advertising purposes. But peddlers
are
not
precluded
from
getting
trucks
of
their
own
should
they
so
desire.chanroblesvirtualawlibrary chanrobles virtual law library
(b) That liaison officers (supervisors) are assigned by Cosmos or Mafinco in definite areas routes or
zones, not so much of supervision over Peddlers, since their areas, routes or zones were already
agreed upon or pre-arranged among them through the Cosmos Peddlers Association, Inc. of which all
Peddlers are members, as principally for market analysis since soft drinks selling is a highly
competitive business, and also to inquire or check on sales, and the result of which, report is made
direct to the Office of Cosmos or Mafinco.chanroblesvirtualawlibrary chanrobles virtual law library
(c) That the use of the uniform does not seem to be an imposition by management of Cosmos or
Mafinco upon the Peddlers, but a voluntary arrangement among the Peddlers themselves. For, from
the documents submitted to this Committee, it appears that the Cosmos Peddlers Association, in a
meeting held on August 5, 1967, adopted a resolution to 'always wear their uniform while in the
performance of their sales work,' and in their meeting on January 25, 1969, it adopted another
resolution penalizing Peddlers who failed to wear their uniform in the amount of P2.00 per violation.
Certainly, the resolutions of the Cosmos Peddlers Association, an independent association of
Peddlers and duly registered with the Securities and Exchange Commission, and possessing an
entirely distinct existence, cannot be taken as impositions from
Cosmos or
Mafinco.chanroblesvirtualawlibrary chanrobles virtual law library
(d) That the matter of turning in of sales of collection which, if found short, is charged against the
Peddler's cash bond, is to the mind of the Committee, giving effect to the valid terms and conditions
of the Agreement or Contract, and also an ordinary business practice which necessarily requires
liquidation of the day's accounts. We do not see any evidence of control on the part of Cosmos or
Mafinco over the activities, including the sales, of the Cosmos products by the Peddlers themselves
who are, apparently, left to their own choices of routes, areas or zones as pre-arranged, with no
definite, much less supervised, time schedule.chanroblesvirtualawlibrary chanrobles virtual law library
(e) That in the matter of reprimand or discipline which the peddlers attempt to project when they failed
to report for work, your Committee found no substantial evidence on this point. The evidence shows
that the peddlers are free to choose their time. Obviously, any absence that they may incur means so
much reduction from their earnings. Thus, if their attention is incidentally called on this matter it is for
the
observance
of
their
agreements
which
is
present
in
any
contractual
relations.chanroblesvirtualawlibrary chanrobles virtual law library

There is, however, an allegation by the Peddlers that the hiring and firing of the helpers ultimately rest
on Cosmos or Mafinco. This allegation nevertheless, is controverted by Cosmos and Mafinco.
Nonetheless, we checked the basic document - the Agreement or Contract - and we find that the
hiring and, impliedly firing, we is a prerogative of the Peddlers and not of Cosmos or Mafinco.

As to the aspect of employer-employee relation, therefore, between Cosmos or Mafinco and the
Peddlers, your Committee does not have sufficient basis to reasonably sustain the stand of the
Peddlers that there is such relationship.chanroblesvirtualawlibrary chanrobles virtual law library

(4) The power to control the employee's conduct. - From the interviews had by your Committee with
both the Peddlers and the representatives of Cosmos and Mafinco, we gather that the following
findings on the power of control are substantially correct:

(c) Attributes of an independent contractor. - As a countercheck, as it were, to the issue of employeremployee relationship your committee has taken the task of testing such relationship against the
attributes of an independent contractor which, from the interviews and documents submitted by the
parties, appear to exists on the part of the Peddlers. The earlier case of Andoyo vs. Manila Railroad

LabStan Cases

Page 21

Co., G.R. No. 34722, promulgated on March 28, 1932, furnishes us the definition of an 'independent
contractor.' Our Supreme Court of pre-war composition, ruled: chanrobles virtual law library
An independent contractor is one who exercises independent employment and contracts to do a
piece of work according to his own methods and without being subject to control of his employer
except as to the resuIt of thework. A person who has no capital or money of his own to pay his
laborers or to comply with his obligations to them, who files no bond to answer for the fulfillment of his
contract with his employer, falls short of the requisites or conditions necessary to classify him as
independent contractor.chanroblesvirtualawlibrary chanrobles virtual law library
These requisites and conditions were reiterated in the postwar cases of Philippine Manufacturing Co.,
Inc. vs. Geronimo, G. R. No. L-6968, promulgated on November 29, 1954, and Koppel (Phil.), Inc. vs.
Darlucio et, al., G.R. No. L-14903, promulgated on August. 29, 1960. Analyzing the definition of
'independent contractor', the following may be gathered from the relationship between the Peddlers,
on the one hand, and Cosmos or Mafinco, on the other:
(1) Peddlers contract to sell and buy Cosmos products from Cosmos or Mafinco, the latter furnishing
the delivery truck, but the former sell Cosmos products according to their own methods, subject to the
pre-arranged routes, areas and zones, and go back to the Company compound to return the delivery
truck and to make accounting of the day's sales collection at any time in the morning or in the
afternoon. Essentially, control, if at all, extends only as to observance of traffic regulations which is
inherent in ownership of the delivery truck by Cosmos or Mafinco and the end result which is the
liquidation of the sales collection. Control over the details of the Peddlers' sales activities seems to be
farfetched in this case.chanroblesvirtualawlibrary chanrobles virtual law library
(2) Capital or money of the Peddlers to pay their own helpers is evidently within their prerogative,
although it appears that the wages of helpers are uniform at P6.00 per trip. But can we safely say that
the cash bond of Pl,500.00 by the Peddlers constitute their capital? For big-time businessmen, this
small amount may not be considered capital, but when it is taken as a 'deposit on consignment' since
the same answers for any deficiencies that the Peddlers may incur during the day's sales collection,
then it can be taken to mean 'capital' within its signification that it allocates to every day business
dealing. The amount of capital, to us, is immaterial; it is the purpose for which the same is deposited
that is most significant.chanroblesvirtualawlibrary chanrobles virtual law library
(3) The Peddlers are required under the Agreement to Peddler Soft Drinks and Peddling Contract to
put up not only the cash bond of P1,500.00, but also a performance bond of P1,000.00 as embodied
in said Agreement to Peddler Soft Drinks as follows: chanrobles virtual law library
(4) To assure performance by the PEDDLER of his obligation to his employees under the Social
Security Act, the applicable labor laws, and for damages suffered by third persons PEDDLER shall
furnish a performance bond of P1,000.00 in favor of the MANUFACTURER from a surety Company
acceptable to the MANUFACTURER. And, in case Performance Bond within 30 days from the date of
signing of this Contract, such failure shall be sufficient ground for the MANUFACTURER to suspend
the business relationship with the Peddler until the Peddler complies with this provision.
Again, to the mind of your Committee, the amount of the Performance Bond is not so relevant and
material as to the purpose for which the same is executed- which is to assure performance of the
Peddlers' obligations as employer of his helpers. This is an attribute of an independent contractor to
which
the
Peddlers
are
bound
under
the
Agreement
or
Contract.chanroblesvirtualawlibrary chanrobles virtual law library

LabStan Cases

(4) Peddlers are doing business for themselves since they took out licenses in the City of Manila, and
have paid their corresponding professional or occupation tax to the Bureau of Internal Avenue. This
fact strengthens the Committee findings that the peddlers are carrying on a business as independent
merchants.
The Secretary in his resolution of October 18, 1973 ignored the committee's conclusion. He clarified
that the NLRC should determine whether the two complainants were illegally dismissed and that the
jurisdictional issue should not be taken up anymore.
The instant petition; the issue and the ruling thereon. - Mafinco filed the instant actions on November
14, 1973. It prayed for a declaration that the Secretary of Labor and the NLRC had no jurisdiction to
entertain the complaints of Repomanta and Moralde; that the Secretary's decision should be set
aside, and that the NLRC and the Secretary be enjoined from further proceeding in NLRC Case No.
LR-086.chanroblesvirtualawlibrary chanrobles virtual law library
Parenthetically, it should be noted that under section 5 of Presidential Decree No. 21 the Secretary's
decision "is appealable" to the President of the Philippines (Nation Multi Service Labor Union vs.
Agcaoili, L-39741, May 30, 1975, 64 SCRA 274). However, under section 22 of the old NLRC
regulations, an appeal to the President should be made only "in national interest
cases".chanroblesvirtualawlibrary chanrobles virtual law library
On the other hand, judicial review of the decision of an administrative agency or official exercising
quasi-judicial functions is proper in cases of lack of jurisdiction, error of law, grave abuse of
discretion, fraud or collusion or in case the administrative action or resolution is "corrupt, arbitrary or
capricious (San Miguel Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56;
Commissioner of Customs vs. Valencia, 100 Phil. 165; Villegas vs. Auditor General, L-21352,
November 29, 1966, 18 SCRA 877, 891).chanroblesvirtualawlibrary chanrobles virtual law library
After the parties had submitted their illuminating memoranda, Mafinco filed a motion in this Court for
the dismissal of the complaint in the defunct NLRC on three grounds, to wit: (1) that the NLRC had no
jurisdiction over the case because Repomanta and Moralde had not sought reinstatement or
backwages; (2) that the employer's failure to secure written clearance from the Secretary of Labor
before dismissing an employee might constitute a crime punishable under article 327 of the Labor
Code and not mere contempt, as contemplated in section 10 of Presidential Decree No. 21, and (3)
that the contempt provisions of that decree were abrogated by the Labor
Code.chanroblesvirtualawlibrary chanrobles virtual law library
Mafinco in support of its motion for dismissal cited Quisaba vs. Sta. Ines-Melale Veneer & Plywood,
Inc., L-38088, August 30, 1974, 58 SCRA 771, where it was held that the regular court, not the
NLRC, has jurisdiction over an employee's action for damages against his employer's act of demoting
him.chanroblesvirtualawlibrary chanrobles virtual law library
Respondent Repomanta and Moralde opposed that motion to dismiss. They Pointed out that,
inasmuch as their complaint is pending in the new NLRC, this Court cannot dismiss it. They also
observed that article 327 was eliminated from the Labor Code which, as amended by Presidential
Decrees Nos. 570-A, 626 and 643, contains only 292 articles. Article 327 was superseded by article
278 of the amended Code.chanroblesvirtualawlibrary chanrobles virtual law library
The truth is that Mafinco's motion merely adduced additional grounds to support its stand that the
Secretary of Labor had no jurisdiction over the complaint of Repomanta and
Moralde.chanroblesvirtualawlibrary chanrobles virtual law library

Page 22

This case was not rendered moot by the Labor Code. Although the Code abolished the old NLRC
(Art. 289), it created a new NLRC (Art. 213) and provided that cases pending before the old NLRC
should be transferred to, and processed by, the corresponding labor relations division or the new
NLRC and should be decided in accordance with Presidential Decree No. 21 and the rules and
regulations
adopted
thereunder
(Art.
290.
See
Sec.
5,
P.D.
No.
626).chanroblesvirtualawlibrary chanrobles virtual law library
The issue is whether the dismissal of Repomanta and Moralde was within the jurisdiction of the old
NLRC. If, as held by the old NLRC, it had no jurisdiction over their complaint because they were not
employees of Mafinco but independent contractors, then the Secretary of Labor had no jurisdiction to
remand
the
case
to
the
NLRC
for
a
hearing
on
the
merits
of
the
complaint.chanroblesvirtualawlibrary chanrobles virtual law library
Hence, the crucial issue is whether Repomanta and Moralde were employees of Mafinco under the
peddling contract already quoted. Is the contract an employment contract or a contract to sell or
distribute Cosmos products? chanrobles virtual law library
The question of whether an employer-employee relationship exists in a certain situation has
bedevilled the courts. Businessmen, with the aid of lawyers, have tried to avoid the bringing about of
an employer-employee relationship in some of their enterprises because that juridical relation spawns
obligations connected with workmen's compensation, social security, medicare, minimum wage,
termination pay and unionism.chanroblesvirtualawlibrary chanrobles virtual law library
Presidential Decree No. 21 provides:

Repomanta and Moralde contend that their peddling contracts were terminated because of their
activities in organizing a union among the peddlers. Annexed to their memorandum is a joint affidavit
of sixty-three sales agents of Cosmos products who described therein the nature of their work, the
organization of their union and the dismissal of Repomanta and Moralde. Annexed to their answer is
Resolution No. 921 of the Social Security Commission dated November 16, 1972 in SSS Case No.
602 wherein it was held that peddlers and their helpers were employees of
Cosmos.chanroblesvirtualawlibrary chanrobles virtual law library
Like the Solicitor General, Repomanta and Moralde harp on the argument that the peddling contracts
were a scheme to camouflage an employer-employee relationship and thus evade the coverage of
labor laws.chanroblesvirtualawlibrary chanrobles virtual law library
The parties in their pleadings and memoranda injected conflicting factual allegations to support their
diametrically opposite contentions. From the factual angle, the case has become highly
controversial.chanroblesvirtualawlibrary chanrobles virtual law library
In a certiorari and prohibition case, like the instant case, only legal issues affecting the jurisdiction of
the tribunal, board or officer involved may be resolved on the basis of undisputed facts. Sections 1, 2
and 3, Rule 65 of the Rules of Court require that in the verified petition for certiorari, mandamus and
prohibition the petitioner should allege "facts with certainty".chanroblesvirtualawlibrary chanrobles
virtual law library
In this case the facts have become uncertain. Controversial evidentiary facts have been alleged.
What is certain and indubitable is that a notarized peddling contract was
executed.chanroblesvirtualawlibrary chanrobles virtual law library

SEC. 2. The Commission shall have original and exclusive jurisdiction over the following:
1) All matters involving employee-employer relations including all disputes and grievances which may
otherwise lead to strikes and lockouts under Republic Act No. 875;
xxx xxx xxx chanrobles virtual law library
SEC. 10. The President of the Philippines, on recommendation of the Commission and the Secretary
of Labor, may order the arrest and detention of any person held in contempt by the Commission for
non-compliance and defiance of any subpoena, order or decision duly issued by the Commission in
accordance with this Decree and its implementing rules and regulations and for any violation of the
provisions of this Decree.chanroblesvirtualawlibrary chanrobles virtual law library
SEC. 11. No employer may shut down his establishment or dismiss or terminate the services of
regular employees with at least one year of service without the written clearance of the Secretary of ,
Labor.
The Solicitor General, as counsel for the old NLRC and the Secretary of Labor, argues that the
question of whether Repomanta and Morale are independent contractors or employees is factual in
character and cannot be resolved by merely construing the peddling contracts; that other relevant
facts aliunde or dehors the said contracts should be taken into account, and that the contracts were a
part of an "intricate network of devices (of Mafinco and Cosmos) developed. and perfected through
the years to conceal the true nature of their relationship to their sales
agents".chanroblesvirtualawlibrary chanrobles virtual law library

LabStan Cases

This Court is not a trier of facts. It would be difficult, if not anomalous, to decide the jurisdictional issue
on the basis of the parties' contradictory factual submissions. The record has become voluminous
because of their efforts to persuade this Court to accept their discordant factual
statements.chanroblesvirtualawlibrary chanrobles virtual law library
Pro hac vice the issue of whether Repomanta and Moralde were employees of Mafinco or were
independent contractors should be resolved mainly in the light of their peddling contracts. A different
approach would lead this Court astray into the field of factual controversy where its legal
pronouncements would not rest on solid grounds.chanroblesvirtualawlibrary chanrobles virtual law
library
A restatement of the provisions of the peddling contract is necessary in order to find out whether
under that instrument Repomanta and Moralde were independent contractors or mere employees of
Mafinco.chanroblesvirtualawlibrary chanrobles virtual law library
Under the peddling contract, Mafinco would provide the peddler with a delivery truck to be used in the
distribution of Cosmos soft drinks (Par. 1). Should the peddler employ a driver and helpers, he would
be responsible for their compensation and social security contributions and he should comply with
applicable labor laws "in relation to his employees" (Par. 2).chanroblesvirtualawlibrary chanrobles
virtual law library
The peddler would be responsible for any damage to persons or property or to the truck caused by
his own acts or omissions or those of his driver and helpers (Par. 3). Mafinco would bear the cost of
gasoline and maintenance of the truck (Par. 4). The peddler would secure at his own expense the
necessary licenses and permits and bear the expenses to be incurred in the sale of Cosmos products
(Par. 5).chanroblesvirtualawlibrary chanrobles virtual law library
Page 23

The soft drinks would be charged to the peddler at P2.52 per case of 24 bottles, ex-warehouse.
Should he purchase at least 250 cases a day, he would be entitled to a peddler's discount of eleven
pesos (Par. 6). The peddler would post a cash bond in the sum of P1,500 to answer for his
obligations to Mafinco (Par. 7) and another cash bond of P1,000 to answer for his obligations to his
employees (Par. 11). He should liquidate his accounts at the end of each day (Par. 8). The contract
would be effective up to May 31, 1973. Either party might terminate it upon five days' prior notice to
the other (Par. 9).chanroblesvirtualawlibrary chanrobles virtual law library
We hold that under their peddling contracts Repomanta and Moralde were not employees of Mafinco
but were independent contractors as found by the NLRC and its fact-finder and by the committee
appointed by the Secretary of Labor to look into the status of Cosmos and Mafinco peddlers. They
were distributors of Cosmos soft drinks with their own capital and employees. Ordinarily, an employee
or a mere peddler does not execute a formal contract of employment. He is simply hired and he
works under the direction and control of the employer.chanroblesvirtualawlibrary chanrobles virtual
law library
Repomanta and Moralde voluntarily executed with Mafinco formal peddling contracts which indicate
the manner in which they would sell Cosmos soft drinks. That Circumstance signifies that they were
acting as independent businessmen. They were to sign or not to sign that contract. If they did not
want to sell Cosmos products under the conditions defined in that contract; they were free to reject
it.chanroblesvirtualawlibrary chanrobles virtual law library
But having signed it, they were bound by its stipulations and the consequences thereof under existing
labor laws. One such stipulation is the right of the parties to terminate the contract upon five days'
prior notice (Par. 9). Whether the termination in this case was an unwarranted dismissal of an
employee, as contended by Repomanta and Moralde, is a point that cannot be resolved without
submission of evidence. Using the contract itself as the sole criterion, the termination should perforce
be characterized as simply the exercise of a right freely stipulated upon by the
parties.chanroblesvirtualawlibrary chanrobles virtual law library
"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" (Viana vs. Al-Lagadan and Piga, 99 Phil. 408, 411, citing 35 Am. Jur.
445).chanroblesvirtualawlibrary chanrobles virtual law library

on the shadowy borderline that separates an employee

contractor.chanroblesvirtualawlibrary chanrobles virtual law library

from

an

independent

In determining whether the relationship is that of employer and employee or whether one is an
independent contractor, "each case must be determined on its own facts and all the features of the
relationship are to be considered" (56 C.J.S. 45). We are convinced that on the basis of the peddling
contract, no employer-employee relationship was created. Hence, the old NLRC had no jurisdiction
over the termination of the peddling contract.chanroblesvirtualawlibrarychanrobles virtual law library
However, this ruling is without prejudice to the right of Repomanta and Moralde and the other
peddlers to sue in the proper Court of First Instance and to ask for a reformation of the instrument
evidencing the contract or for its annulment or to secure a declaration that, disregarding the peddling
contract, the actual juridical relationship between them and Mafinco or Cosmos is that of employer
and employee. In that action a fulldress trial may be held and the parties may introduce the evidence
necessary to sustain their respective contentions.chanroblesvirtualawlibrary chanrobles virtual law
library
Paragphrasing the dictum in the Quisaba case, supra, if Mafinco and Cosmos had acted oppressively
towards their peddlers, as contemplated in article 1701 of the Civil Code, then they should file the
proper action for damages in the regular courts. Where there is a right, there is a remedy (Ubi jus, ubi
remedium).chanroblesvirtualawlibrary chanrobles virtual law library
WHEREFORE, the decision, order and resolution of the Secretary of Labor in NLRC Case No. LR086 dated April 16, July 16 and October 18, 1973, respectively, are set aside and the order of the
NLRC dated February 2, 1973, dismissing the case for lack of jurisdiction, is affirmed. No
costs.chanroblesvirtualawlibrary chanrobles virtual law library SO ORDERED.
G.R. No. L-46058 December 14, 1987
SOCIAL SECURITY SYSTEM, petitioner,
vs.
COURT OF APPEALS and the QUALITY TOBACCO CORPORATION, respondents.
PARAS, J.:

On the other hand, an independent contractor is "one who exercises independent employment and
contracts to do a piece of work according to his own methods and without being subject to control of
his employer except as to the result of the work" (Mansal vs. P.P. Gocheco Lumber Co., supra).
Among the factors to be considered are whether the contractor is carrying on an independent
business; whether the work is part of the employer's general business; the nature and extent of the
work; the skill required; the term and duration of the relationship; the right to assign the performance
of the work to another; the power to terminate the relationship; the existence of a contract for the
performance of a specified piece of work; the control and supervision of the work; the employer's
powers and duties with respect to the hiring, firing, and payment of the contractor's servants; the
control of the premises; the duty to supply the premises, tools, appliances, material and labor; and the
mode, manner, and terms of payment. (56 C.J.S. 46).

This is a petition for review on certiorari of the decision of the Court of Appeals * dated March 16,
1977 in CA-G.R. No. 05087-SP entitled Romeo Carreon, petitioner-appellee vs. Quality Tobacco
Corporation, respondent-appellant and Social Security System, intervenor-appellee, reversing the
Resolution dated January 21, 1976 of the Social Security System and dismissing the petition filed by
Romeo Carreon.
The facts are found by the Court of Appeals are as follows:
QTC, formerly U.S. Tobacco Corporation, is a firm engaged in the manufacture
and sale of cigarettes. On August 12, 1972, QTC, as VENDOR, entered into an
agreement with CARREON, as VENDEE, the salient provisions of which are as
follows:

Those tests to determine the existence of an employer-employee relationship or whether the person
doing a particular work for another is an independent contractor cannot be satisfactorily applied in the
instant case. It should be obvious by now that the instant case is a penumbral, sui generis case lying
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Page 24

2. The VENDEE shall purchase one or more brands of cigarettes of the

VENDOR on cash basis only, subject to the discretion of the VENDOR as to the
brand and quantity thereof;

On April 29, 1974, CARREON filed a petition with the Social Security
Commission alleging that he was an employee of QTC, and asking that QTC be
ordered to report him for coverage under the Social Security Law QTC answered
claiming that CARREON has not been an employee but was an 'Independent
businessman.' The Social Security System intervened and, taking the side of
CARREON, also asked that QTC be ordered to pay Social Security contributions
in respect of CARREON. On January 21, 1976, the Social Security Commission
resolved CARREON's petition, finding him to be an employee of QTC. The
rulings in U.S. Tobacco Corporation vs. Benjamin Serna, et al., CA-G.R. No.
32041, September 5, 1967, and The Shell Co. Phil. Ltd. vs. Fireman's Insurance
Co. of Newark, et al., 100 Phil. 757, were inter alia, relied upon.

xxx xxx xxx

3. The VENDEE shall sell the cigarettes herein mentioned only within Quezon
Province and or such other places as may be designated and or limited
thereafter by the VENDOR and only to residents of, or retailers or jobbers doing,
and having their place of business in, said assigned territory, strictly, at such
prices set by the VENDOR from time to time for the aforementioned respective
brands of cigarettes in the sale thereof by the VENDEE in said assigned territory.
The VENDEE is fully aware that a violation of this particular paragraph will cause
grave and serious consequences to the VENDOR and that he shall be liable for
all damages caused by said violation.

Cognizant of the striking similarities obtaining in the case before it and the Mafinco vs. Ople case
decided by this Court on March 25, 1976, and relying solely on the doctrine laid down in said case,
the Court of Appeals issued the herein assailed decision dated March 16, 1977, the dispositive part of
which reads:

4. The VENDEE shall be solely responsible for the cigarettes delivered to him by
the VENDOR as well as for the aforementioned proceeds from the sale thereof,
and any loss thereof due to any cause shall be solely for his own risk and
account.
xxx xxx xxx
6. The VENDOR may loan a delivery truck or trucks to the VENDEE, which truck
or trucks shall be used by the VENDEE exclusively in connection with this
contract and at all time maintained by the said VENDEE in good condition; and
for as long as the VENDEE may be allowed the use of the VENDOR's truck or
trucks, the VENDEE shall pay all the expenses for gasoline, oil, repairs,
operating costs, maintenance, tires, spare parts, etc., but the VENDOR may at its
discretion assume the payment of major repair.
xxx xxx xxx
9. This contract, may, however, be terminated upon one (1) week's notice of
either party at any time.
10. In the event a court litigation should be necessary to recover from the
VENDEE any amount due to the VENDOR, the VENDEE shall pay to the
VENDOR all such damages that the VENDOR may suffer arising from the
violation by the VENDEE of any of the terms and conditions of this contract
and/or implementation and/or instructions mentioned in Paragraph 7 hereof plus
the cost of suit and attorney's fees of at least 20% of the amount sought to be
recovered, which in no case shall be less than Five Hundred Pesos (P500.00) for
the purposes of this paragraph, venue of actions is hereby agreed to be in the
City of Manila and the VENDEE hereby waives any other proper venue in any
action which may be brought by or against him in connection with this contract or
in connection with other actions which may be brought incident thereto.
The contract with CARREON was terminated by QTC on December 18,1972.

LabStan Cases

WHEREFORE, the Resolution of the Social Security Commission of January 21,

1976 in its Case No. 2543 is hereby REVERSED and the petition filed in said
case by Romeo Carreon is dismissed.
In a Motion for Reconsideration dated March 25, 1977, the Social Security System sought the
reconsideration of the aforequoted decision (Rollo, pp. 43-49). However, finding no merit in said
motion, the Court of Appeals denied the same in its resolution dated April 14, 1977 (Rollo, pp. 50-51).
Hence this petition.
The First Division of this Court without giving due course to said petition resolved to require the
respondents to comment (Rollo, p. 64). Private respondent filed its Comment on August 9, 1977
(Rollo, p. 69).
Thereafter, this Court resolved to give due course to the petition and required the parties to submit
simultaneous memoranda (Rollo, p. 74). On September 23, 1977, private respondent and petitioner
filed their respective memoranda (Rollo, pp. 80-118).
The issue raised by the petitioner before this Court is the very same issue resolved by the Court of
Appeals-that is, whether or not Romeo Carreon is an employee or an independent contractor under
the contract aforequoted. Corollary thereto the question as to whether or not the Mafinco case is
applicable to this case was raised by the parties.
The Court took cognizance of the fact that the question of whether or not an employer-employee
relationship exists in a certain situation continues to bedevil the courts. Some businessmen with the
aid of lawyers have tried to avoid the bringing about of an employer-employee relationship in some of
their enterprises because that juridical relation spawns obligations connected with workmen's
compensation, social security, medicare, minimum wage, termination pay and unionism.
For this reason, in order to put the issue at rest, this Court has laid down in a formidable line of
decisions the elements to be generally considered in determining the existence of an employeremployee relationship, as follows: a) selection and engagement of the employee; b) the payment of
wages; c) the power of dismissal; and d) the employer's power to control the employee with respect to
the means and method by-which the work is to be accomplished. The last which is the so-called
"control test" is the most important element (Brotherhood Labor Unity Movement of the Phils. vs.
Page 25

Zamora, 147 SCRA 49 [1987]; Dy Ke Beng vs. International Labor and Marine Union of the Phil., 90
SCRA 162 [1979]; Mafinco Trading Corp. vs. Ople, 70 SCRA 141 [1976]; Social Security System vs.
Court of Appeals, 37 SCRA 579 [1971]).
Applying the control test, that is, whether the employer controls or has reserved the right to control
the employee not only as to the result of the work to be done but also as to the means and method by
which the same is to be accomplished, the question of whether or not there is an employer-employee
relationship for purposes of the Social Security Act has been settled in this jurisdiction in the case of
Investment Planning Corp. vs. SSS, 21 SCRA 924 (1967). In other words, where the element of
control is absent; where a person who works for another does so more or less at his own pleasure
and is not subject to definite hours or conditions of work, and in turn is compensated according to the
result of his effort, the relationship of employer-employee does not exist. (SSS vs. Court of Appeals,
30 SCRA 210 [1969]).
It is the contention of petitioner that the Mafinco case which has been the sole basis of the Court of
Appeals' finding that Romeo Carreon is an independent contractor is not applicable in the instant
petition, there being no substantial parallelism between said contract and the contract of purchase
and sale in this case. It pointed out that there are in the Mafinco contract provisions which by express
implication point to the status of the peddler as an independent contractor such as: a) that should the
peddler employ a driver or helpers, the latter shall be his employee/s and his/their compensation shall
be for the peddler's account; that the peddler shall comply with the provisions of the Social Security
Act and all applicable laws (par. 2); b) peddler is responsible for damage to property, death or injuries
to persons covered by his own acts or omissions or those of his driver or helpers (par. 3); c) peddler
is required to secure at his own expense all necessary licenses and permits and to bear all expenses
which may be incurred in the sale of soft drinks (par. 5); d) the peddler is to furnish a performance
bond of P l,000.00 in favor of Mafinco to assure performance by the peddler of his obligation to his
employee under the Social Security Act (par. 11), which provisions are notably absent in the contract
in the case at bar (Rollo, pp. 103-104).
It further contends that the Court of Appeals in an effort to justify its holding picked out only
paragraphs 1, 2, 4, 6 and 9 of the Mafinco contract and thereafter concluded that the two contracts
are similar.
Private respondent on the other hand, avers that the Mafinco contract is applicable to the case at bar.
The two contracts need not embody almost the same provisions in order that they may be considered
similar. It is enough that the aspect of similarity arising from the terms and condition be considered
because of their relevance to the issue, is relatively much stronger than the dissimilarity.
Private respondent likewise maintains that the decision was correctly concluded not only on the
similarity of the two contracts but also on factual evidence adduced at the trial and since respondent
Court has already examined the facts and passed judgment on the basis thereof, its decision is no
longer subject to review. Stated otherwise, the Court of Appeals "looked behind the contract" but
found the evidence insufficient to justify a finding that the terms of the contract were not followed.
That the evidence for Carreon and SSS failed to pierce" the contract (Rollo, p. 83).

is well-known. There is a question of law in a given case when the doubt or

difference arises as to what the law is in a certain state of facts; there is a
question of fact when the doubt arises as to the truth or the falsehood of alleged
facts.
cited in G.R. No. L-39767, Lorenzo Hernandez vs. The Court of Appeals, March 31, 1987.
In the case at bar, it is evident that the basic contention is what the law is in the given state of facts.
More than that, the well-settled rule that the finding of facts of the Court of Appeals is conclusive on
the parties, admits of exceptions among which are: (1) when the findings of fact of the Court of
Appeals are contrary to those of the trial court and (2) when the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and are contradicted by evidence on
record (Sacay vs. Sandiganbayan, 142 SCRA 609 [1986]; Manlapaz vs. Court of Appeals, 147 SCRA
239 [1987]).
In this case, the Court of Appeals ruled that there is not enough evidence to show that the contract
between Carreon and QTC was not reflective of their agreement to warrant reformation. As earlier
pointed out, the Court of Appeals did not consider the entirety of the contract but only portions thereof
which led to the conclusion that Carreon was an independent contractor.
Thus, after a study of the records and applying the "control tests," there appears to be no question
that the existence of an employer-employee relationship between Romeo Carreon and QTC has been
established, based on the following "undisputed" facts as pointed out by the Solicitor General, to wit:
(a) QTC assigned a definite sales territory for Romeo Carreon; (b) QTC provided Romeo Carreon
with a delivery truck for the exclusive use of the latter in his sales activities; (c) QTC dictated the price
of the cigarettes sold by Romeo Carreon; (d) QTC prescribed what brand of cigarettes Romeo
Carreon could sell; (e) QTC determined the persons to whom Romeo Carreon could sell, (f) QTC
issued circulars and memoranda relative to Romeo Carreon's sales activities; (g) QTC required
Romeo Carreon to submit to it daily, weekly and monthly reports; (h) QTC grounded Romeo Carreon
for six months in 1966; (i) Romeo Carreon was supervised by sales coordinators of QTC; (j) Romeo
Carreon was subject to payment of damages and loss even of accrued rights for any violation of
instructions made by QTC in relation to his sales activities; and (k) Romeo Carreon was paid an
allowance by QTC. All these indicate control and supervision over Carreon's work.
Moreover, it is elementary that findings of administrative agencies are generally accorded not only.
respect but also of finality (Rosario Bros, Inc. vs. Ople, 131 SCRA 72 [1984]).
PREMISES CONSIDERED, the decision of the Court of Appeals dated March 16, 1987 and its
resolution of April 14, 1977 are hereby REVERSED and SET ASIDE, and the resolution of the Social
Security Commission dated January 21,1976 is AFFIRMED and REINSTATED.
SO ORDERED.

Private respondent's contention is untenable.

The distinction between a question of law and a question of fact is explained in our jurisprudence in
Ramos vs. Pepsi Cola Bottling Co. (19 SCRA 289, 292 [1967]), to wit:
For a question to be one of law it must involve no examination of the probative
value of the evidence presented by the litigants or any of them and the distinction
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Page 26

From independent salesmen

G.R. No. L-14280

the members of the petitioning Union in any of their respective collective bargaining
agreement with the Company.

May 30, 1960

JUAN YSMAEL & COMPANY, INC., petitioner,

vs.
THE COURT OF INDUSTRIAL RELATIONS, THE HONORABLE JOSE S. BAUTISTA, ARSENIO I.
MARTINEZ, BALTAZAR M. VILLANUEVA, and EMILIANO C. TABIGNE, JUDGES OF THE
COURT OF INDUSTRIAL RELATIONS, and YSMAEL STEEL SALESMEN'S UNION, respondents.
Roxas and Sarmiento for petitioner.
Pascual Y. Reyes for respondent CIR.
Luis B. Mauricio for respondent Union.
Cipriano Cid as Amicus Curiae.
CONCEPCION, J.:
An appeal, taken by Juan Ysmael & Co., Inc., hereafter referred to as the Company, from an order of
the Presiding Judge of the Court of Industrial Relations, which was affirmed by the Court sitting in
banc, certifying the Ysmael Steel Salemen's Union, hereafter referred to as the petitioning Union, as
the sole and exclusive bargaining representative of all the salesmen of the Company, with all the
rights and obligations imposed by law.
On November 27, 1957, the petitioning Union, a legitimate labor organization duly registered with the
Department of Labor, filed a petition praying for the aforesaid certification, upon the ground that it is a
labor organization composed of all the salesmen working for the Ysmael Steel Manufacturing Co.,
which is operated by the Company, as a subsidiary thereof, both of which are employers of the
aforementioned salesmen; that there are in the Company two (2) other labor unions, namely, the
Ysmael Steel Labor Organization (PAFLU), the membership of which is composed mainly of manual
factory workers (non-supervisors), and the Ysmael Steel Employees Union, the membership of which
is composed of supervisors, non-supervisors who are technical employees, office non-technical
employees and clerical factory workers, and that the members of petitioning Union are not included in
or represented by any of said two (2) unions in their collective bargaining agreement with the
Company, for the economic factors affecting the members of petitioning Union are different and they
constitute a separate and distinct union for an appropriate bargaining unit. The Company filed an
answer objecting to the petition upon several grounds, which were, in effect, overruled by the Court in
the order appealed from.

Furthermore, after a careful examination of the records, particularly the respective

memoranda filed by both of the petitioning Union and the Company, and after a mature
consideration of all the proofs submitted in evidence in this case by both parties, the Court
believes and so holds that there exists an employer-employee relationship between the
members of the petitioning Union and the Company; that all the salesmen working with the
Company may constitute a distinct and separate appropriate unit for bargaining purposes
with the Company; and that the members of the petitioning Union constitute the majority of
the salesmen working for the Company. The certification of the petitioning Union, therefore,
as the sole and exclusive bargaining representative of all the salesmen working with the
Company is in order.
The foregoing findings constitute a substantial compliance with the constitutional mandate invoked by
the Company. In any event, this Court held in Talabon vs. Provincial Warden (78 Phil., 599; 44 Off.
Gaz. 4326) that failure to comply with said requirement of our fundamental law does not nullify or
affect the validity of the decision or order in question.
The main issue is whether the members of petitioning Union are employees of the Company, for
purposes of certification of the former as the sole and exclusive bargaining representative of all the
salesmen of the latter. The Company maintains the negative upon the ground that the members of
petitioning Union are mere commission agents or sales representatives, whose form of selection and
engagement is different from that of the employees of the Company, for unlike such employees,
commission agents are not required to undergo physical examination, to submit a police clearance,
and to punch the bundy clock, and are not provided with identification cards. It is further urged that
commission agents are paid neither wages nor salaries, but are granted commissions, the amount of
which depends on their sales, and that their conduct as agents is not subject to the control or
supervision of the Company, which, moreover, has no power of dismissal over them.
The aforementioned difference in the manner of "selection and engagement" does not prove,
however, the alleged absence of employer-employee relationship. Most business enterprises have
employees of different classes, necessarily requiring different methods of selection and contracts of
services of various types, without detracting from the existence of said relationship. Besides, the very
evidence for the Company shows that commission agents are dispensed from physical examination
and from punching the bundy clock because their duties are extraneous to the factory work and they
have no fixed hours to contact their customers.
Again, the records disclose the following facts, among others:

The Company assails the same as null and void for alleged want of a clear and distinct statement of
the law and facts on which it is based, in violation, it is claimed, of Article VIII, Section 12, of the
Constitution. The pertinent part of the order appealed from reads as follows:
At the hearing of this case on February 11, March 12, 26 and May 5, 1958, the following
facts appear to have been established in evidence: That the petitioning Union is duly
registered by the Department of Labor and is, therefore, a legitimate labor organization
within the meaning of Section 2(f) of the Act; that the Company is a corporation engaged in
the manufacture of steel equipment, machines, etc., owned and operated by the Juan
Ysmael & Company, Inc; that at the time of the instant petition for certification was filed,
there were twenty (20) salesmen or commission agents working for the Company, but that
as of March 26, 1958, only fourteen (14) of them were left; and that neither of the two
unions existing in the Company, namely the Ysmael Steel Employees' Union, represents

LabStan Cases

1. One who wishes to be a commission agent must file an application therefor. Then he is given a
two-month probationary period, within which technical men of the Company train him. On the basis of
his performance during said period, the Company, thereafter, decides whether or not he will be taken
as a regular commission agent.
2. His duties as such include the following: (a) One hundred per centum (100%) "loyalty to the
Company", and "disloyalty of any form or free-lancing for any other company during their tour of duty,
will be sufficient cause for cutting allowances and withdrawal of the authority to sell for the Company."
(b) He must check in at 8:00 a.m., to "report daily all visits made", and "any misrepresentation with
regard to coverage will be sufficient cause for cutting allowances." He was, also, required, before, to
check in at 4:00 p.m., but subsequently, this requirement was eliminated. (c) He "must list in his daily
report all items offered to customers, plus results." (d) He "has to visit his accounts at least twice
Page 27

every month", and "if he fails to visit an account within two (2) months, he shall automatically lose any
claim to his account."
3. The Company directs the details of the work of making sales, through a sales manager, under
whose authority commission agents are.
4. As the agents or salesmen report for work each morning, they are given transportation allowances
of P1.50 or P2.00 each. They have, also, a drawing allowance, the amount of which varies depending
upon past performances, deductible from future commissions.
5. The Company exercises the power of dismissal: (a) by cutting off these allowances, when the
agent makes a misrepresentation with regards to coverage or report on daily visits made, or is guilty
of disloyalty in any form or free-lancing for any other company during his tour of duty; (b) by
withdrawing the authority to sell in case of such disloyalty or free-lanching, or when an agent fails to
make any reasonably good sale within a reasonable period; and (c) by forcing him to resign for any
compelling reason, as the company has done in the case of commission agents Jose S. Esquivias,
Melecio Data and Felicidad Sinope.
6. The company has adopted the foregoing norms unilaterally generally by the promulgation of
pertinent rules without the intervention or consent of the agents, and without any objection on their
part. Both parties have thereby indicated that the Company has full authority to determine the manner
and conditions under which the agents shall perform their duties. In other words, the Company has
control over the conduct of its salesmen or agents. Thus, absence of any duty on their part to keep
regular office hours, submit a police clearance and punch the bundy clock, and of other additional
duties, is due, not to lack of power or authority to impose the same, but merely to a policy of the
management which deems it, for the time being, either unnecessary or inexpedient or both, owing to
the peculiar nature of the task of commission agents.
7. All sales of products of Ysmael Steel Manufacturing Company are seemingly effected through the
aforementioned salesmen or commission agents. There are no other persons, apart from the sales
manager and sales supervisor of the Company, charged with the duty to sell therefor said products.
8. The salesmen or agents in question are, according to the assistant general manager of the
Company, registered as members of the Social Security System, established by Republic Act No.
1161, as amended by Republic Act No. 1792, sections 9 and 8(d) of which reads:
xxx

xxx

An employer includes any person acting in the interest of an employer, directly or indirectly,
but shall not include any labor organization (otherwise than when acting as an employer) or
anyone acting in the capacity of officer or agent of such labor organization.(Sec. 2[c], Rep.
Act No. 875.)
The term "employee" shall include any employee and shall not be limited to the employee
of a particular employer unless the Act explicitly states otherwise and shall include any
individual whose work has ceased as a consequence of, or in connection with, any current
labor dispute or because of any labor practice and who has not obtained any other
substantially equivalent and regular employment. (Sec. 2[d], id.)
In the light of the foregoing, it is our considered opinion that the lower court did not err in holding that
the members of petitioning Union are employees of the Company within the purview of the terms
"employer" and "employee" as defined in the Industrial Peace Act for purposes of certification of
said union as the bargaining representative of its salesmen or commission agents.
It is next argued by the Company that said members of petitioning Union do not constitute a majority
of its salesmen or commission agents. This pretense is, however, contrary to the above quoted
findings of fact of the lower court, which, admittedly, are borne out by Exhibit C, a list of the salesmen
or agents affiliated to petitioning Union. Hence, said findings may not be disturbed in this proceeding
for review by certiorari. (Rule 44, Sec. 2, Rules of Court; Sec. 14. Com. Act No. 103, Philippine
Refining Co. Workers' Union vs. Philippine Refining Co., Inc., 80 Phil., 531; 45 Off. Gaz., 159).
Besides, although the Company now says that said list, Exhibit C, is not correct, the fact is that, in its
answer, filed with the lower court, it merely averred that it is "not certain" that the members of
petitioning Union constitute a majority of the salesmen or commission agents of said Company. At
any rate, the record shows that the same had twenty (20) salesmen or commission agents when this
case was instituted; that, at the time of the hearing in the lower court, there were only fourteen (14) of
them working for the Company; and that, with the exception of one (1) of them, the remaining thirteen
(13) salesmen or commission agents are members of petitioning Union, and there is no accuracy of
the finding to this effect in the order appealed from simply because only three (3) of these salesmen
or agents appeared at the aforementioned hearing. Apart from the fact they were not required to be
present at said hearing, the reluctance of employees or agents to do anything that may antagonize
the employer, or may give occasion for antagonism, is readily understandable.
Wherefore, the order appealed from is hereby affirmed, with costs against petitioner herein, Juan
Ysmael & Co., Inc. It is so ordered.

xxx

SEC. 9. Compulsory coverage. Coverage in the System shall be compulsory upon all
employees between the ages of sixteen and sixty years, inclusive, if they have been for at
least six months in the service of an employer who is a member of the System ... .
SEC. 8. Terms defined. For the purposes of this Act, the following shall, unless the
context indicates otherwise, have the following meanings:
(d) Employee. 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.
Pursuant to section 2, paragraphs (c) and (d), of Republic Act No. 875:
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Page 28

G.R. No. L-19124

November 18, 1967

INVESTMENT PLANNING CORPORATION OF THE PHILIPPINES, petitioner-appellant,

vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.

compensation is paid not by it but by the investor, as shown by the basis on which the amount of the
commission is fixed and the manner in which it is collected.
Petitioner submits that its commission agents, engaged under the terms and conditions already
enumerated, are not employees but independent contractors, as defined in Article 1713 of the Civil
Code, which provides:

MAKALINTAL, J.:
Petitioner is a domestic corporation engaged in business management and the sale of securities. It
has two classes of agents who sell its investment plans: (1) salaried employees who keep definite
hours and work under the control and supervision of the company; and (2) registered representatives
who work on commission basis.
On August 27, 1960 petitioner, through counsel, applied to respondent Social Security Commission
for exemption of its so-called registered representatives from the compulsory coverage of the Social
Security Act. The application was denied in a letter signed by the Secretary to the Commission on
January 16, 1961. A motion to reconsider was filed and also denied, after hearing, by the
Commission itself in its resolution dated September 8, 1961. The matter was thereafter elevated to
this Court for review.
The issue submitted for decision here is whether petitioner's registered representatives are
employees within the meaning of the Social Security Act (R.A. No. 1161 as amended). Section 8 (d)
thereof defines the term "employee" for purposes of the Act 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, employer-employee relationship." (As
amended by Sec.4, R.A. No. 2658). These representatives are in reality commission agents. The
uncontradicted testimony of petitioner's lone witness, who was its assistant sales director, is that
these agents are recruited and trained by him particularly for the job of selling "'Filipinos Mutual Fund"
shares, made to undergo a test after such training and, if successful, are given license to practice by
the Securities and Exchange Commission. They then execute an agreement with petitioner with
respect to the sale of FMF shares to the general public. Among the features of said agreement which
respondent Commission considered pertinent to the issue are: (a) an agent is paid compensation for
services in the form of commission; (b) in the event of death or resignation he or his legal
representative shall be paid the balance of the commission corresponding to him; (c) he is subject to
a set of rules and regulations governing the performance of his duties under the agreement; (d) he is
required to put up a performance bond; and (e) his services may be terminated for certain causes. At
the same time the Commission found from the evidence and so stated in its resolution that the agents
"are not required to report (for work) at any time; they do not have to devote their time exclusively to
or work solely for petitioner; the time and the effort they spend in their work depend entirely upon their
own will and initiative; they are not required to account for their time nor submit a record of their
activities; they shoulder their own selling expenses as well as transportation; and they are paid their
commission based on a certain percentage of their sales." The record also reveals that the
commission earned by an agent on his sales is directly deducted by him from the amount he receives
from the investor and turns over to the company the amount invested after such deduction is made.
The majority of the agents are regularly employed elsewhere either in the government or in private
enterprises.
Of the three requirements under Section 8 (d) of the Social Security Act it is admitted that the first is
present in respect of the agents whose status is in question. They exert both mental and physical
efforts in the performance of their services. The compensation they receive, however, is not
necessarily for those efforts but rather for the results thereof, that is, for actual sales that they make.
This point is relevant in the determination of whether or not the third requisite is also present, namely,
the existence of employer-employee relationship. Petitioner points out that in effect such
LabStan Cases

Art. 1713. By the contract for a piece of work the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also furnish the material.
We are convinced from the facts that the work of petitioner's agents or registered representatives
more nearly approximates that of an independent contractor than that of an employee. The latter is
paid for the labor he performs, that is, for the acts of which such labor consists; the former is paid for
the result thereof. This Court has recognized the distinction in Chartered Bank, et al. vs. Constantino,
56 Phil. 717, where it said:
On this point, the distinguished commentator Manresa in referring to Article 1588 of the
(Spanish) Civil Code has the following to say. . . .
The code does not begin by giving a general idea of the subject matter, but by fixing its two
distinguishing characteristics.
But such an idea was not absolutely necessary because the difference between the lease
of work by contract or for a fixed price and the lease of services of hired servants or
laborers is sufficiently clear. In the latter, the direct object of the contract is the lessor's
labor; the acts in which such labor consists, performed for the benefit of the lessee, are
taken into account immediately. In work done by contract or for a fixed price, the lessor's
labor is indeed an important, a most important factor; but it is not the direct object of the
contract, nor is it immediately taken into account. The object which the parties consider,
which they bear in mind in order to determine the cause of the contract, and upon which
they really give their consent, is not the labor but its result, the complete and finished work,
the aggregate of the lessor's acts embodied in something material, which is the useful
object of the contract. . . . (Manresa Commentarios al Codigo Civil, Vol. X, ed., pp. 774775.)
Even if an agent of petitioner should devote all of his time and effort trying to sell its investment plans
would not necessarily be entitled to compensation therefor. His right to compensation depends upon
and is measured by the tangible results he produces.
The specific question of when there is "employer-employee relationship" for purposes of the Social
Security Act has not yet been settled in this jurisdiction by any decision of this Court. But in other
connections wherein the term is used the test that has been generally applied is the so-called control
test, that is, whether the "employer" controls or has reserved the right to control the "employee" not
only as to the result of the work to be done but also as to the means and methods by which the same
is to be accomplished.
Thus in Philippine Manufacturing Company vs. Geronimo, et al., L-6968, November 29, 1954,
involving the Workmen's Compensation Act, we read:

Page 29

. . . Garcia, a painting contractor, had a contract undertaken to paint a water tank belonging
to the Company "in accordance with specifications and price stipulated," and with "the
actual supervision of the work (being) taken care of by" himself. Clearly, this made Garcia
an independent contractor, for while the company prescribed what should be done, the
doing of it and the supervision thereof was left entirely to him, all of which meant that he
was free to do the job according to his own method without being subject to the control of
the company except as to the result.
Cruz, et al. vs. The Manila Hotel Company, L-9110, April 30, 1957, presented the issue of who were
to be considered employees of the defendant firm for purposes of separation gratuity. LVN Pictures,
Inc. vs. Phil. Musicians Guild, et al., L-12582, January 28, 1961, involved the status of certain
musicians for purposes of determining the appropriate bargaining representative of the employees. In
both instances the "control" test was followed. (See also Mansal vs. P.P. Gocheco Lumber Co., L8017, April 30, 1955; and Viana vs. Allagadan, et al., L-8967, May 31, 1956.)
In the United States, the Federal Social Security Act of 1935 set forth no definition of the term
'employee' other than that it 'includes an officer of a corporation.' Under that Act the U.S. Supreme
Court adopted for a time and in several cases the so-called 'economic-reality' test instead of the
'control' test. (U.S. vs. Silk and Harrison, 91 Law Ed. 1757; Bartels vs. Birmingham, Ibid, 1947, both
decided in June 1947). In the Bartels case the Court said:
In United States v. Silk, No. 312, 331 US 704, ante, 1957, 67 SCt 1463, supra, we held that
the relationship of employer-employee, which determines the liability for employment taxes
under the Social Security Act was not to be determined solely by the idea of control which
an alleged employer may or could exercise over the details of the service rendered to his
business by the worker or workers. Obviously control is characteristically associated with
the employer-employee relationship, but in the application of social legislation employees
are those who as a matter of economic reality are dependent upon the business to which
they render service. In Silk, we pointed out that permanency of the relation, the skill
required, the investment in the facilities for work and opportunities for profit or less from the
activities were also factors that should enter into judicial determination as to the coverage
of the Social Security Act. It is the total situation that controls. The standards are as
important in the entertainment field as we have just said, in Silk, that they were in that of
distribution and transportation. (91 Law, Ed. 1947, 1953;)
However, the 'economic-reality' test was subsequently abandoned as not reflective of the intention of
Congress in the enactment of the original Security Act of 1935. The change was accomplished by
means of an amendatory Act passed in 1948, which was construed and applied in later cases.
In Benson vs. Social Security Board, 172 F. 2d. 682, the U.S. Supreme Court said:

While it is not necessary to explore the full effect of this enactment in the determination of
the existence of employer-employee relationships arising in the future, we think it can fairly
be said that the intent of Congress was to say that in determining in a given case whether
under the Social Security Act such a relationship exists, the common-law elements of such
a relationship, as recognized and applied by the courts generally at the time of the passage
of the Act, were the standard to be used . . . .
The common-law principles expressly adopted by the United States Congress are summarized in
Corpus Juris Secundum as follows:
Under the common-law principles as to tests of the independent contractor relationship,
discussed in Master and Servant, and applicable in determining coverage under the Social
Security Act and related taxing provisions, the significant factor in determining the
relationship of the parties is the presence or absence of a supervisory power to control the
method and detail of performance of the service, and the degree to which the principal may
intervene to exercise such control, the presence of such power of control being indicative of
an employment relationship and the absence of such power being indicative of the
relationship of independent contractor. In other words, the test of existence of the
relationship of independent contractor, which relationship is not taxable under the Social
Security Act and related provisions, is whether the one who is claimed to be an
independent contractor has contracted to do the work according to his own methods and
without being subject to the control of the employer except as to the result of the work. (81
C.J.S. Sec. 5, pp. 24-25); See also Millard's Inc. vs. United States, 46 F. Supp. 385;
Schmidt vs. Ewing, 108 F. Supp. 505; Ramblin vs. Ewing, 106 F. Supp. 268.
In the case last cited (Rambin v. Ewing) the question presented was whether the plaintiff there, who
was a sales representative of a cosmetics firm working on a commission basis, was to be considered
an employee. Said the Court:
Plaintiff's only remuneration was her commission of 40%, plus $5 extra for every $250 of
sales. Plaintiff was not guaranteed any minimum compensation and she was not allowed a
drawing account or advance of any kind against unearned commissions. Plaintiff paid all of
her traveling expenses and she even had to pay the postage for sending orders to Avon.
The only office which Avon maintained in Shreveport was an office for the city manager.
Plaintiff worked from her own home and she was never furnished any leads. The
relationship between plaintiff and Avon was terminable at will . . .
xxx

After the decision by the Supreme Court in the Silk case, the Treasury Department
revamped its Regulation, 12 Fed. Reg. 7966, using the test set out in the Silk case for
determining the existence of an employer-employee relationship. Apparently this was not
the concept of such a relationship that Congress had in mind in the passage of such
remedial acts as the one involved here because thereafter on June 14, 1948, Congress
enacted Public Law 642, 42 U.S C.A. Sec. 1301 (a) (6). Section 1101(a) (6) of the Social
Security Act was amended to read as follows:
The term "employee" includes an officer of a corporation, but such term does not
include (1) any individual who, under the usual common-law rules applicable in
determining the employer-employee relationship, has the status of an
independent contractor or (2) any individual (except an officer of a corporation)
who is not an employee under such common law rules.
LabStan Cases

xxx

xxx

. . . A long line of decisions holds that commission sales representatives are not employees
within the coverage of the Social Security Act. The underlying circumstances of the
relationship between the sales representatives and company often vary widely from case to
case, but commission sales representatives have uniformly been held to be outside the
Social Security Act.
Considering the similarity between the definition of "employee" in the Federal Social Security Act
(U.S.) as amended and its definitions in our own Social Security Act, and considering further that the
local statute is admittedly patterned after that of the United States, the decisions of American courts
on the matter before us may well be accorded persuasive force. The logic of the situation indeed
dictates that where the element of control is absent; where a person who works for another does so
more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn
Page 30

is compensated according to the result of his efforts and not the amount thereof, we should not find
that the relationship of employer and employee exists.

the law on agency under the Civil Code and hence a purely civil obligation cognizable by the regular
courts.

We have examined the contract form between petitioner and its registered representatives and found
nothing therein which would indicate that the latter are under the control of the former in respect of
the means and methods they employ in the performance of their work. The fact that for certain
specified causes the relationship may be terminated (e.g., failure to meet the annual quota of sales,
inability to make any sales production during a six-month period, conduct detrimental to petitioner,
etc.) does not mean that such control exists, for the causes of termination thus specified have no
relation to the means and methods of work that are ordinarily required of or imposed upon
employees.

On January 17, 1973, Labor Arbiter Magno C. Cruz rendered a decision in favor of private respondent
ordering petitioners to pay all the claims amounting to P26,397.80. 2

In view of the foregoing considerations, the resolution of respondent Social Security Commission
subject of this appeal is reversed and set aside, without pronouncement as to costs.
G.R. No. 73199 October 26, 1988
DR. RENATO SARA and/or ROMEO ARANA petitioners,
vs.
CERILA AGARRADO and the NATIONAL LABOR RELATIONS COMMISSION, respondents.
Amparo & Barcelona Law Offices for petitioners.
The Solicitor General for public respondent. Nicanor A. Magno for private respondent.
FERNAN, C.J.:
Challenged in this petition for certiorari is the jurisdiction of the Labor Tribunal over Case No. LRDROXII-006-82, a claim for unpaid commissions and reimbursement of certain sums of money filed by
herein private respondent Cerila Agarrado against herein petitioners Dr. Renato Sara and Romeo
Arabia.
Private respondent Cerila Agarrado was an attendant in the clinic of petitioner Dr. Renato Sara She
quit her job in 1973. Four years later, petitioners Dr. Sara and Romeo Arabia, being owners of a rice
mill and having begun to engage in the buy and sell of palay and rice, entered into a verbal
agreement with private respondent Agarrado whereby it was agreed that the latter would be paid
P2.00 commission per sack of milled rice sold as well as a commission of 10% per kilo of palay
purchased. It was further agreed that private respondent would spend her own money for the
undertaking, but to enable her to carry out the agreement more effectively, she was authorized to
borrow money from other persons, as in fact she did, subject to reimbursement by petitioners. 1
In 1982, private respondent filed with the National Labor Relations Commission (NLRC) Regional
Arbitration Branch No. XI, Cotabato City, a complaint against petitioners for unpaid commission of
P4,598.00 on milled rice sold, P2,982.80 on palay sold, reimbursement of P17,500.00 which she had
borrowed from various persons and Pl,749.00 of her own money which petitioners allegedly had not
reimbursed (LRD-ROXII-006- 82).
By way of defense, petitioners raised the issue of lack of jurisdiction on the part of the Labor Arbiter to
take cognizance of the case, there being no employer-employee relationship between the parties.
They averred that the claim for alleged unpaid commission and certain sums of money is governed by
LabStan Cases

Petitioner appealed the decision to the NLRC, which in a resolution dated June 25, 1986 affirmed the
Labor Arbiter's decision and dismissed the appeal. 3
Their motion for reconsideration having been denied, petitioners took the present recourse,
maintaining lack of jurisdiction on the part of the Labor Tribunal as well as grave abuse of discretion
on its part in finding them liable to private respondent.
In his comment, the Solicitor General agreed with petitioners that there was no employer-employee
relationship between the parties and that by reason thereof the Labor Arbiter had no jurisdiction over
the case. The Solicitor General's comment was accompanied by a manifestation and motion stating
that he was filing the comment on his own behalf and that the public respondent NLRC had been
informed about his contrary stand. 4
The primordial issue in this case is whether an employer-employee relationship exists between
petitioners and private respondent as to warrant cognizance by the Labor Arbiter of LRD-ROXII-00682.
To determine the existence of an employer-employee relationship, this Court in a long line of
decisions 5 has invariably applied the following four-fold test: [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
employee's conduct.
In the case at bar, we find that although there was a selection and engagement of private respondent
in 1977, the verbal agreement between the parties negated the existence of the other requisites.
As to the payment of wages, the verbal agreement entered into by the parties stipulated that private
respondent would be paid a commission of P2.00 per sack of milled rice sold as well as a 10%
commission on palay purchase. The arrangement thus was explicitly on a commission basis
dependent on the volume of sale or purchase. Private respondent was not guaranteed any minimum
compensation nor was she allowed any drawing account or advance of any kind against unearned
commissions. Her right to compensation depended upon and was measured by the tangible results
she produced the quantity of rice sold and the quantity of palay purchased.
The power to terminate the relationship was mutually vested upon the parties. Either may terminate
the business arrangement at will, with or without cause.
Finally, noticeably absent from the agreement between the parties is the element of control. Among
the four (4) requisites, control is deemed the most important that the other requisites may even be
disregarded. 6 Under the control test, an employer-employee relationship exists if 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. 7 Otherwise, no such relationship
exists.
We observe that the means and methods of purchasing and selling rice or palay by private
respondent were totally independent of petitioners' control. As established by the NLRC:
Page 31

... Sometime in June 1977, respondent re-engaged the services of herein

complainant to sell milled rice to the customers of the former, as well as to buy
palay for and in behalf of Dr. Renato Sara, with the verbal agreement that to
carry out effectively the said task, complainant was duly authorized by
respondent, Dr. Sara to spend her own money, if necessary but subject to
reimbursment and if that would not be sufficient, to borrow money from other
sources with further understanding that Dr. Sala will repay the ill thru the
complainant; ... ([Emphasis supplied], p. 21, Rollo)
Note that private respondent was never given capital by his supposed employer but relied on her own
resources and if insufficient, she borrowed money from others. Petitioners did not supply private
respondent with tools and appliances needed to enable her to carry her undertaking, except to
authorize her to borrow money from others, subject to reimbursement.
The absence of control is made more evident by the fact that private respondent was not even
obliged to sell the palay she purchased to petitioners. She was at liberty to sell the palay to any trader
offering higher buying rates. She was thus free to sell it to anybody whom she pleased.
Moreover, private respondent worked for petitioners at her own pleasure and was not subject to
definite hours or conditions of work. She could even delegate the task of buying and selling to others,
if she so desired, or simultaneously engaged in other means of livelihood while selling and
purchasing rice or palay.
Under the conditions set forth in their agreement, private respondent was an independent contractor,
who exercising independent employment, contracted to do a piece of work according to her own
method and without being subject to the control of her employer except as to the result of her work.
She was paid for the result of her labor, unlike an employee who is paid for the labor he performs. 8
The verbal agreement devoid as it was of any stipulations indicative of control leaves no doubt that
private respondent was not an employee of petitioners but was rather an independent contractor.
The Labor Tribunal's jurisdiction being primarily predicated upon the existence of an employeremployee relationship between the parties, the absence of such element, as in the case at bar,
removes the controversy from the scope of its limited jurisdiction.
WHEREFORE, the instant petition for certiorari is granted. Case No. LRD-ROXII-006-82 of the
National Labor Relations Commission is hereby ordered DISMISSED for lack of jurisdiction.
SO ORDERED.

From agency
[G.R. No. 66541. November 20, 1990.]
GUARDEX ENTERPRISES and/or MARCELINA A. ESCANDOR, Petitioners, v. NATIONAL
LABOR RELATIONS COMMISSION and JUMBEE ORBETA, Respondents.
Rogelio B. De Guzman, for Petitioners.
Vicente R. Guzman for Private Respondent.

SYLLABUS

1. REMEDIAL LAW; CRIMINAL PROCEDURE; SEARCH WARRANT; PROBABLE CAUSE;

DEFINITION AND REQUISITES THEREOF. The right against unreasonable searches and
seizures is guaranteed under Article III (Bill of Rights), Section 2 of the 1987 Constitution of the
Philippines. Under this provision, the issuance of a search warrant is justified only upon a finding of
probable cause. Probable cause for a search has been defined as such facts and circumstances
which would lead a reasonably discreet and prudent man to believe that an offense has been
committed and that the objects sought in connection with the offense are in the place sought to be
searched (Burgos, Sr. v. Chief of Staff, G.R. No. 64261, Dec. 26, 1984, 133 SCRA 800). In
determining the existence of probable cause, it is required that: 1) the judge (or) officer must examine
the . . witnesses personally; 2) the examination must be under oath; and (3) the examination must be
reduced to writing in the form of searching questions and answers (Marinas v. Sioco, 104 SCRA 403,
Ponsica v. Ignalaga, G.R. No. 72301, July 31, 1987, 152 SCRA 647). These requirements are
provided under Section 4, Rule 126 of the New Rules of Criminal Procedure.
2. ID.; ID.; ID.; ID.; FINDING OR OPINION THEREOF BY THE EXAMINING JUDGE, MUST BE
SUPPORTED BY THE RECORD; NOT OBSERVED IN THE CASE AT BAR. It has been ruled that
the existence of probable cause depends to a large degree upon the finding or opinion of the judge
conducting the examination (Luna v. Plaza, G.R. No. L-27511, Nov. 29, 1968), however, the opinion
or finding of probable cause must, to a certain degree, be substantiated or supported by the record. In
this case, We find that the requirement mandated by the law and the rules that the judge must
personally examine the applicant and his witnesses in the form of searching questions and answers
before issuing the warrant, was not sufficiently complied with. The applicant himself was not asked
any searching question by Judge Magallanes. The records disclose that the only part played by the
applicant, Lieutenant Rojas was to subscribe the application before Judge Magallanes. The
application contained pre-typed questions, none of which stated that applicant had personal
knowledge of a robbery or a theft and that the proceeds thereof are in the possession and control of
the person against whom the search warrant was sought to be issued. In the case of Roan v.
Gonzales, G.R. No. 71410, Nov. 25, 1986, 145 SCRA 687, citing the case of Mata v. Bayona, G.R.
No. 50720, March 26, 1984, 128 SCRA 388, where the applicant himself was not subjected to an
interrogation but was questioned only "to ascertain, among others, if he knew and understood (his
affidavit) and only because the application was not yet subscribed and sworn to," We held that: "It is
axiomatic that the examination must be probing and exhaustive, not merely routinary or pro forma, if
the claimed probable cause is to be established. The examining magistrate must not simply rehash
the contents of the affidavit but must make his own inquiry on the intent and justification of the
application."cralaw
virtua1aw
library
3. ID.; ID.; ID.; ARTICLES SOUGHT TO BE SEIZED, MUST BE DESCRIBED WITH
PARTICULARITY. Another infirmity of Search Warrant No. 181 is its generality. The law requires
that the articles sought to be seized must be described with particularity. The items listed in the
warrant, to wit: "NAPOCOR Galvanized bolts, grounding motor drive assembly, aluminum wires and

LabStan Cases

Page 32

other NAPOCOR Towers parts and line accessories" are so general that the searching team can
practically take half of the business of Kener Trading, the premises searched. Kener Trading, as
alleged in petitioners petition before respondent Court of Appeals and which has not been denied by
respondent, is engaged in the business of buying and selling scrap metals, second hand spare parts
and accessories and empty bottles. Far more important is that the items described in the application
do not fall under the list of personal property which may be seized under Section 2, Rule 126 of the
Rules on Criminal Procedure because neither the application nor the joint deposition alleged that the
item/s sought to be seized were: a) the subject of an offense; b) stolen or embezzled property and
other proceeds or fruits of an offense; and c) used or intended to be used as a means of committing
an
offense.

Rubberworld, and asked for P250.00 as representation expenses. Escandor agreed and gave him the
money.

4. ID.; ID.; ID.;SEIZURE OF INCRIMINATING ARTICLES, CANNOT VALIDATE AN INVALID

WARRANT. No matter how incriminating the articles taken from the petitioner may be, their
seizure cannot validate an invalid warrant. Again, in the case of Mata v. Bayona, G.R. No. 50720,
March 26, 1984, 128 SCRA 388: ". . . that nothing can justify the issuance of the search warrant but
the fulfillment of the legal requisites. It might be well to point out what has been said in Asian Surety &
Insurance Co., Inc. v. Herrera: It has been said that of all the rights of a citizen, few are of greater
importance or more essential to his peace and happiness than the right of personal security, and that
involves the exemption of his private affairs, books and papers from inspection and scrutiny of others.
While the power to search and seize is necessary to the public welfare, still it must be exercised and
the law enforced without transgressing the constitutional rights of the citizens, for the enforcement of
no statute is of sufficient importance to justify indifference to the basic principles of government."
"Thus, in issuing a search warrant the Judge must strictly comply with the requirements of the
Constitution and the statutory provisions. A liberal construction should be given in favor of the
individual to prevent stealthy encroachment upon, or gradual depreciation of the rights secured by the
Constitution. No presumption of regularity are to be invoked in aid of the process when an officer
undertakes to justify it."

About seven months afterwards, Escandor herself finally concluded a contract with Rubberworld for
the latters purchase of a fire truck. The transaction was consummated with the delivery of the truck
and
full
payment
thereof
by
Rubberworld.

When no word was received by Escandor from Orbeta after three days, she herself inquired in writing
from Rubberworld about her offer of sale of a fire truck. Having apparently received an encouraging
response, Escandor sent Rubberworld a revised price quotation some ten days later.
In the meantime, Orbeta sold to other individuals some of Escandors fire extinguishers, receiving
traveling expenses in connection therewith as well as the corresponding commissions. He then
dropped
out
of
sight.

At this point, Orbeta suddenly reappeared and asked for his commission for the sale of the fire truck
to Rubberworld. Escandor refused, saying that he had had nothing to do with the offer, negotiation
and
consummation
of
the
sale.
Insisting that he was entitled to the commission, Orbeta filed a complaint against Escandor with the
Ministry of Labor. The Labor Arbiter agreed with him and rendered judgment in his favor, on August
26, 1982. That judgment was affirmed by the National Labor Relations Commission on December 29,
1983, on appeal taken by Escandor. 2 Hence, this petition for certiorari, to annul those judgments as
having been rendered with grave abuse of discretion if not indeed without or in excess of jurisdiction.
It is claimed that an implied agency had been created between Escandor and Orbeta on the basis of
the
following
circumstances:chanrobles
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1)

the

alleged

verbal

authority

given

to

him

to

offer

fire

truck

to

Rubberworld;

DECISION
2) the alleged written authority to sell the truck contained in a letter of Escandors dated August 14,
1978;
NARVASA, J.:
3)
A claim for alleged unpaid commissions of an agent is what is basically involved in the action at bar.
Somehow, it twice escaped outright rejection for lack of jurisdiction in the Department of Labor where
the case was resolved at the first instance and on appeal. Both the Labor Arbiter and the National
Labor Relations Commission appeared unaware of the utter lack of labor-related issues in the parties
conflicting contentions as to the existence of agency relations between them, and proceeded to
decide the case. Neither of them of course had competence to do so. Be that as it may, the instant
petition for certiorari will be decided on its merits to the end that the controversy may now be laid to
rest
without
further
proceedings.chanrobles
virtual
lawlibrary
The

protagonists

in

this

case

are:chanrob1es

virtual

1aw

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1) Marcelina A. Escandor engaged, under the name and style of Guardex Enterprises, in (a) the
manufacture and sale of fire-fighting equipment such as fire extinguishers, fire hose cabinets and
related products, and (b) occasionally, the building or fabrication of fire trucks; and
2)

Jumbee

Orbeta

"freelance"

salesman.

having

given

Orbeta

P250.00

as

representation

expenses;

and

4) Orbetas submission of a price quotation to Rubberworld and his having arranged a meeting
between
Escandor
and
Rubberworlds
Purchasing
Manager.
The circumstances

have not

been correctly read by Orbeta and his

co-respondents.

Escandor denies that she had ever given Orbeta any such verbal authority. Indeed, months prior to
Orbetas approaching Escandor, the latter had already made a written offer of a fire truck to
Rubberworld. All that she consented to was for Orbeta to "follow up" that pending offer. In truth, it
does not even appear that on the strength of this "arrangement" vague as it was Orbeta
undertook the promised follow-up at all. He reported nothing of his efforts or their fruits to Escandor. It
was Escandor who, in the months that followed her initial meeting with Orbeta, determinedly pushed
the Rubberworld deal. Orbeta was simply nowhere to be found. Furthermore, it seems fairly evident
that the "representation allowance" of P250 was meant to cover the expenses for the "follow-up"
offered by Orbeta an ambiguous fact which does not of itself suggest the creation of an agency
and is not at all inconsistent with the theory of its absence in this case.

It appears that Orbeta somehow learned that Escandor had offered to fabricate a fire truck for
Rubberworld (Phil.) Inc. He wrote to Escandor inquiring about the amount of commission for the sale
of a fire truck. Escandor wrote back on the same day to advise that it was P15,000.00 per unit. Four
days later, Orbeta offered to look after (follow-up) Escandors pending proposal to sell a fire truck to
LabStan Cases

Escandors

Even a finding that under these circumstances, an agency had indeed been constituted will not save
the day for Orbeta, because nothing in the record tends to prove that he succeeded in carrying out its
terms or even as much as attempted to do so. The evidence in fact clearly indicates otherwise. The
terms of Escandors letter of August 14, 1978 assuming that it was indeed an "authority to sell," as
Orbeta insists are to the effect that entitlement to the P15,000 commission is contingent on the
Page 33

purchase by a customer of a fire truck, the implicit condition being that the agent would earn the
commission if he was instrumental in bringing the sale about. Orbeta certainly had nothing to do with
the sale of the fire truck, and is not therefore entitled to any commission at all.
Furthermore, even if Orbeta is considered to have been Escandors agent for the time he was
supposed to "follow up" the offer to sell, such agency would have been deemed revoked upon the
resumption of direct negotiations between Escandor and Rubberworld, Orbeta having in the
meantime abandoned all efforts (if indeed any were exerted) to secure the deal in Escandors
behalf.chanrobles
law
library
:
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It has of course already been stated at the outset that, given the sole issue raised by the parties
concededly from the cases inception (i.e., whether or not Orbeta is Escandors agent as regards the
sale of a fire truck to Rubberworld), the competence to resolve the controversy did not pertain to
either the Labor Arbiter or the NLRC. The jurisdiction vested in them by the Labor Code extends,
generally speaking, only to cases arising from employer-employee relationships.3 What has all along
been at issue here, as advanced by the parties themselves and as is evident from the facts, is the
existence of a contract of agency 4 not employment or lease of services. It is indeed a puzzle how
the fundamental differences between the two 5 altogether escaped not only the parties counsel in
this case but also the tribunals before which it had been brought. Nevertheless, since no one has
thought to question their authority even up to this late stage, as in fact all the parties appear to have
completely accepted the validity of their exercise of jurisdiction over the case, the Court has opted, as
already stated, to render judgment on its merits and end the controversy once and for all. 6
WHEREFORE, the petition for certiorari is GRANTED, and the judgment of the National Labor
Relations Commission dated December 29, 1983, and that of the Labor Arbiter dated August 26,
1982, are hereby REVERSED and SET ASIDE and another one rendered dismissing respondent
Jumbee
Orbetas
claim
for
unpaid
commissions.chanrobles
virtual
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regarding remuneration (overriding commissions in accordance with a fixed schedule), limitation of

authority, and termination of the agreement inter alia by written notice without cause.[3]
Subsequently, Carungcong and Sun Life executed another Agreement made and effective
as of January 1, 1986 by which the former was named New Business Manager with the function
generally to manage a New Business Office established by the ** (latter), ** to obtain applications
for life insurance policies and other products offered by or distributed through Sun Life and to perform
such other duties in connection therewith as Sun Life may require from time to time. [4] The
Agreement governed such matters as the New Business Managers duties: limitations on authority;
compensation; expenses; termination of relation, by among others, notice in writing with or without
cause. Like the Career Agents (or Unit Managers) Agreement first signed by Carungcong, [5] this
latest Agreement stressed that the New Business Manager in performance of his duties defined
herein, shall be considered an independent contractor and not ** an employee of Sun Life, and that
(u)nder no circumstance shall the New Business Manager and/or his employees be considered
employees of Sun Life.
Now, it appears that sometime in November, 1989, Ms. Eleizer Sibayan, Manager of Sun Lifes
Internal Audit Department, commenced an inquiry into the special fund availments of Carungcong
and other New Business Managers; this, allegedly because the Companys Vice President for Far
East Asia, respondent Lance Kemp, had been receiving reports of anomalies in relation thereto from
unit managers and agents. [6] These special fund availments are governed by the following portion of
the Agreement of January 1, 1986 under the sub-head, New Business Managers Expenses, viz:
Sun Life agrees to reimburse the New Business Manager for actual reasonable expenses properly
incurred in performing his duties as New Business Manager provided such expenses are within the
guidelines issued by Sun Life from time to time and are incurred for the purposes of gaining or
producing income and that they are accounted for in the manner established by Sun Life and made
known to the New Business Manager.

SO ORDERED.

[G.R. No. 118086. December 15, 1997]

SUSAN G. CARUNGCONG, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, SUN
LIFE ASSURANCE CO. OF CANADA, LANCE KEMP and MERTON DEVEZA, respondents.
DECISION
NARVASA, C.J.:
Susan Carungcong began her career in the insurance industry in 1974 as an agent of Sun Life
Assurance Company of Canada (hereinafter Sun Life). She signed an Agent Agreement with Sun
Life on September 10, 1974 (retroactive to June, 1974), [1] in virtue of which she was designated the
latters agent to solicit applications for ** (its) insurance and annuity policies. The contract set out in
detail the terms and conditions particularly those concerning the commissions payable to her
under which her relationship with the company would be governed. This contract was superseded
some five years later when she signed two (2) new agreements, both dated July 1, 1979
The first, denominated Career Agents (or Unit Managers Agreement, dealt with such matters
as the agents commissions, his obligations, limitations on his authority, and termination of the
agreement by death, or by written notice with or without cause. It declared that the Agent shall be
an independent contractor and none of the terms of ** (the ) Agreement shall be construed as
creating an employer-employee relationship. [2]
The second was titled, MANAGERS Supplementary Agreement. Making explicit reference to
the first (Agents [the Unit Managers] Agreement) which became effective on the 1st day of July,
1979, said second contract explicitly described as a further agreement contained provisions
LabStan Cases

Such reimbursement by Sun Life of said expenses will be made only upon the submission by the
New Business Manager of a statement in form and content acceptable to Sun Life detailing said
expenses attached receipts.
It also appears that Ms. Sibayan drew up a report (Summary of Availments) [7] after having
examined and analyzed the pertinent records, and interviewed the unit managers and agents
mentioned in the receipts presented by Carungcong to support her claims for reimbursement of
expenses for 1987, 1988 and 1989. Thereafter, on January 4, 1990, and again on January 10, 1990,
Carungcong was confronted with and asked to explain the discrepancies set out in Sibayans
report. On January 11, 1990, she was given a letter signed by Metron V. Deveza, CLU, Director,
Marketing, which advised of the termination of her relationship with Sun Life, viz.: [8]
In our meeting with you yesterday we presented the charge of fraudulent reimbursement of the
Branch Special Fund against you. Accordingly, you admitted having said act.
For dishonesty, disloyalty and breach of your Agents Agreement and New Business Managers
Agreement with Sun Life of Canada dated June 10, 1974 and January 1, 1986, respectively, the
Management has decided to terminate you as Agent and New Business Manager of Sun Life of
Canada effective immediately.
Carungcong promptly instituted proceedings for vindication in the Arbitration Branch of the
National Labor Relations Commissions on January 16, 1990. There she succeeded in obtaining a
favorable judgment. [9] Labor Arbiter Ernesto S. Dinopol found that there existed an employeremployee relationship between her and Sun Life; ruled that she had been illegally dismissed, thus
entitled to reinstatement without loss of seniority rights and other benefits; and ordered Sun Life, and
Page 34

its co-respondents Lance Kemp and Merton Deveza, [10] jointly and severally to pay
her P12,475,973.25 as back commissions,P8,000,000.00 as moral damages, P2,000,000.00 as
exemplary damages, and P2,047,597.32 as attorneys fees a total of P22,523,570.57. [11]
On appeal, the National Labor Relations Commission reversed the Arbiters judgment. It
affirmed that no employment relationship existed between Carungcong and Sun Life. Nevertheless, it
awarded to her P2,696,252.00 as lost average commission on the ground that during the appeal,
she had neither been restored to work nor reinstated in payroll. [12] However, the NLRC later
eliminated this monetary award in a second decision promulgated on October 28, 1994 on the basis
of a motion for reconsideration of Sun Life and its co-respondents. The NLRC declared itself without
competence to make such an award absent an employment relationship between the parties. [13]
Opting not to file a motion for reconsideration of the Commissions judgment, [14] Carungcong
forthwith initiated the special civil action of certiorari at bar (after obtaining an extension of time to do
so), in which she seeks invalidation of the Commissions decision of October 28, 1994, and
consequent restoration of the Labor Arbiters awards.
Carungcong claims that although she was not, as new business manager, required either to
account for her time or perform her duties in a fixed manner, she was nonetheless an employee
subject to the control and supervision of Sun Life like any other managerial employee. She brands as
ludicrous the accusation leveled against her, of having defrauded Sun Life of the sum of P6,000.00,
since her annual income at that time was in excess of P3,000.00. [15] She contends that the
accusation was a mere fabrication of her Unit Managers, Jorge Chua and Corazon de Mesa, who
were promoted to Branch Managers after termination of her employment, [16] and that she actually
had no hand in the preparation of the vouchers involved in the imputed anomaly, this task being
entrusted to the branch office secretary, Lilet Ginete, selected and hired by Sun Life.
She also contends that in dismissing her, Sun failed to observe procedural due process. She
was not furnished with copies of the audit report of her supposedly fraudulent use of her special fund
availments, and was never afforded an opportunity to be heard by Sun Life officials prior to
termination of her employment. [17] She assails the decisions of the NLRC as tainted with bias and
grave abuse of discretion, particularly in ignoring the deluge of evidence adduced before the labor
arbiter.
On the other hand, Sun Life and its co-respondents argue that the challenged decisions were in
fact precisely based on Carungcongs so-called deluge of evidence, and thus cannot in any sense
be deemed capricious, whimsical, arbitrary or depotic. [18] They invoke the familiar rule that the
findings of fact of administrative agencies are accorded respect, if not indeed finality, by this
Court. They assert that jurisprudence and Carungcongs admissions before the Labor Arbiter negate
the existence of an employment relationship: that in truth Carungcong was duly informed of the
charge of fraud and dishonesty, a charge supported by adequate proof; and that therefore the
cancellation of the business relationship between them and Carungcong was valid and legal, effected
with due process and for just cause.
The facts involved in this case are laid bare in considerable detail and the issues identified and
extensively discussed by the parties, in their pleadings, namely: respondents Comment dated May 4,
1995; [19] petitioners Reply thereto dated September 11, 1995; [20] respondents Rejoinder of October
31, 1995; [21] their Manifestation dated November 2, 1995, submitting copies of their exhibits in the
proceedings a quo; [22] Comment on the petition of the Office of the Solicitor General, dated
November 22, 1995 [23] -- in which it makes common cause with Carungcong; petitioners SurRejoinder dated December 11, 1995; [24] her Counter-Manifestation of December 11, 1995, submitting
copies of her own exhibits in the proceedings below; [25] respondents Reply (dated January 8, 1996)
to the Comment of the Solicitor Generals Office; [26] the Addendum to Respondents Comment, dated
July 15, 1997; [27] and petitioners Reply to Private Respondents 'Addendum' filed without leave of
court, with Motion to Expunge **, dated July 30, 1997.[28]
The record does indeed disclose what Carungcong calls a deluge of evidence submitted by
the parties before the Labor Arbiter. Carungcong submitted two (2) affidavits of hers (Exhibits A and
LabStan Cases

B) in lieu of her direct examination, and numerous documents marked as Exhibits C to Z, inclusive,
and from AA to ZZ, and again from AAA to EEE and EEE-1 (to FFF and FFF-7) [29] Sun Life and its
co-respondents in turn submitted more than thirty-eight (38) exhibits, including the affidavits of five
witnesses. [30] Facts are thereby established which the Court cannot ignore.
As already mentioned, as Sun Lifes New Business Manager. Carungcong had the prerogative
under her contract to claim reimbursement "for actual reasonable expenses properly incurred in
performing ** (her) duties **." Reimbursement was to be made by Sun Life only upon ** (her)
submission ** of a statement in form and content acceptable to Sun Life detailing said expenses with
attached receipts. Availing of this prerogative, Carungcong presented several statements of
reimbursable expenses (appending the corresponding receipts), on the strength of which she duly
received full reimbursement from Sun Life. These statements included claims for reimbursement for:
1) more than P30,000.00, representing the cost of prizes or awards ostensibly advanced
by Susan Carungcong; and
2) several sums of money, representing the cost of food and drinks shouldered by
Carungcong for dinner or snacks in various restaurants and on different dates to
which she had supposedly invited agents of Sun Life, namely: Jorge Chua, Unit
Manager. Prosperity Unit; Corazon de Mesa. Dynamic Unit: Robert Tan. Royal Unit,
NNBO; Lucila L. Natividad. Samaritan Unit; Cristina J. Gloton, NNBO; Cynthia Suan;
Zenaida B. Lim; Maynard Granados.
The record reveals the fraudulent character of these claims, that is to say, the unclean hands
with which Carungcong has come to court. Her claims are categorically belied by no less than the
eight (8) insurance managers and agents specifically named by her in her supporting documents,
about whose impartiality or credibility the Court has been cited to no persuasive cause for doubt or
misgiving. Jorge Chua [31] and Corazon de Mesa [32] deposed that as regards the special fund raised
by Carungcong for prizes, awards, and outings, they had in fact contributed thereto but the latter had
made it appear that she had raised and disbursed the entire fund by herself, and although she later
obtained reimbursement therefor in the sum of more thanP30,000.00, she never returned to them
what they had contributed.
Chua and de Mesa also denied Carungcongs claim that she had treated them to food and
drinks on December 7, 1987 atKimpura (the bill amounting to P570.90), at Jade Garden on January
20, 1988 (the bill being P734.16), or at Flavors & Spiceson November 5, 1988 (the bill coming
to P420.66). [33] De Mesa also affirmed that contrary to Carungcongs claim, she had not been treated
by the latter at the Kamayan (the chit being in the sum of P1,099.71) or at Tropical Hut (the bill
being P378.50).[34]
Robert Tan belied Carungcongs claim that she had paid for their food or drinks at the Emerald
Garden (the bill presented being in the sum of P742.33) or at Sugarhouse (the bill being P220.02).[35]
Lucila L. Natividad also belied Carungcongs assertion that she had treated her at Flavours and
Spices (the bill beingP834.48).[36]
So, too, Cristina J. Gloton gave the lie to Carungcongs claim that she had treated her at
the Hotel Intercontinental (the bill on one occasion being P559.98).[37]
Cynthia Suan denied having been entertained by Carungcong at the Manila Peninsula (the bill
supposedly being in the sum of P359.75).[38]
Zenaida B. Lim confirmed her earlier denial that Carungcong had paid for their snacks at BingBings (the bill beingP182.40).[39]
Maynard Granados denied, among other things, that he was treated to dinner by Carungcong
at the Hotel Intercontinentalon March 29, 1988 (the bill being supposedly P473.95).[40]

Page 35

The record thus appears to establish adequate cause for Sun Life to terminate its relationship
with Susan Carungcong. Her attention was drawn to the perfidious nature of her claims for
reimbursement; she was accorded an opportunity to explain the same; she refused to do so.
Prescinding therefrom, the contracts she had willingly and knowingly signed with Sun
Life [41] repeatedly and clearly provided that said agreements were teminable by either party by written
notice with or without cause. Her Career Agents (or Unit Managers) Agreemen inter alia provided
for termination of the agreement by death, or by written notice with or without
cause. [42] Her MANAGERS Supplementary Agreement, effective July 1, 1979, contained
provisions regarding termination of the agreement inter alia by written notice without cause. [43] A
subsequent agreement by which she was named Manager for New Business, dated January 1, 1986,
similarly provided for termination of relation, by among others, notice in writing with or without cause.
Noteworthy is that this last agreement of January 1, 1986 emphasized, like the Career Agents
(or Unit Managers) Agreement first signed by her, [44] that in performance of her duties defined
herein. Carungcong would be considered an independent contractor and not ** an employee of Sun
Life, and that (u)nder no circumstance shall the New Business Manager and/or his employees be
considered employees of Sun Life.
It is germane to advert to the fact, which should by now be apparent, that Carungcong was not
your ordinary run-of-the-mill employee, nor even your average managerial employee or
supervisor. Her stated annual income from her occupation is impressive by any standards: in excess
of P3,000,000.00, exclusive of overriding commissions. [45] Certainly, she may not be likened to an
ordinary person applying for employment, or an ordinary employee striving to keep his job, under the
moral dominance of the hiring entity or individual. By no means may Carungcong be considered as
dealing, or having dealt, with Sun Life from an inferior position, as a disadvantage, morally-dominated
person. She must be deemed as having transacted with Sun Lifes executives on more or less equal
terms.
These considerations impel concurrence with the conclusions of the challenged decision and
resolution of respondent Commission which considered Carungcong an independent contractor, not
an employee of Sun Life. It is significant that this issue of the precise status of Carungcong as an
independent contractor, evidently deemed decisive by respondent Commission, was discussed by it
at some length not once, but twice, first in its Decision of July 29, 1994, and then in its second
Decision of October 28, 1994 resolving the separate motions for reconsideration of the parties.
In the Decision of July 29, 1994, the Commissions said: [46]
A thorough review of the facts and evidence adduced on record compels us to rule in the negative
(on the question of whether or not complainant Carungcong is a regular employee of
respondents). Complainant, to our considered view is not, contrary to the findings erroneously made
in the challenged decision below, a regular employee of respondents but an independent contractor.
Her contracts/ agreement since she started as insurance agent, then as unit manager and finally as
business/branch manager expressly say so. Besides, it cannot be gainsaid that complainant was
never aware of the status as such, for indicated in the very face of her latest contract is the fact that
she was accorded all the chances she needed to seek professional and legal advice relative thereto
before she signed the said contract.
Indeed, as adverted to by herein respondents, the contracts/agreements entered into by the parties
herein are the laws between the said parties.
Moreover, it is true that complainant Carungcongs duties and functions derived from her then existing
agreements/contracts were made subject to rules and regulations issued by respondent company,
and for that matter, have likewise been made subject of certain limitations imposed by said
LabStan Cases

respondent company. Nonetheless, these are not sufficient to accord the effect of establishing
employer-employee relationship absent in this case. This is so because the insurance business is
not just any other ordinary business. It is one that is imbued with public interest hence, it must be
governed by rules and regulations of the state. The controls adverted to by complainant are latent in
the kind of business she is into and are mainly aimed at promoting the results the parties so desire
and do not necessarily create any employer-employee relationships, where the employers controls
have to interfere in the methods and means by which the employee would like to employ to arrive at
the desired results.
This is not without any jurisprudential support as earlier pointed out by herein respondents. The
Supreme Court in the case of Insular Life Assurance Co., Ltd., versus National Labor Relations
Commission and Melencio Basiao (179 SCRA 459) emphatically discoursed in this wise:
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 to 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 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. 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. (Underscoring supplied)
Complainant having admitted that she was free to work as she pleases, at the place and time she felt
convenient for her to do so is not unlike Melencio Basiao in the aforequoted case (supra) where in
spite of the controls imposed by respondents, she suffered no interference whatsoever in relation to
the manner and methodology she used for her to achieve her desired results, this is clear from her
testimony given in this wise:
A. Yes, and as I said as a branch manager, we have no specific time to stay in the office because its
either if I am not in the office, I am monitoring my agents in the field or a unit manager I trained them
in the field or recruit. (pp. 28-29, TSN, 31 May 1991. Underscoring supplied.)
For that matter, complainant Carungcong was never paid a fixed wage or salary but was mainly paid
by commissions, depending on the level and volume of her performance/production, the number of
trained agents, when taken in and assigned to her, being responsible for her added income as she
gets a certain percentage from the said agents production as part of her commission.
In the second judgment of October 28, 1994,
points:

[47]

respondent Commission stressed the following

Arrayed against complainants arguments that she was respondents employee are her own
admissions during the trial on the merits. Said differently, her admissions completely diluted the
supposed potency or her theory that an employer-employee relationship existed. Complainant
admitted that her renumerations were based on her levels of production (TSN, June 27, 1991, page
72 et. seq.). She admitted she could solicit insurance anywhere or at any time she deemed
convenient (TSN, May 31, 1991, page 33 et. seq.). She never accounted for her working time (TSN,
May 20, 1991, page 66 et seq.) or that daily working hours were never applicable to her situation
(TSN, May 20, 1991, page 75). She gave unequivocal testimony that she performed her duties as a
New Business Manager, i.e., monitoring, training, recruitment and sales, at her own time and
Page 36

convenience, at however she deemed convenient, and with whomsoever she chose (TSN, May 31,
1991, page 35 et. seq., TSN, May 20, 1991, page 72, et seq.; TSN, May 31, 1991, page 321 et seq.;
TSN, May 31, 1991, page 84 et. seq.). We cannot help but agree with respondents submission that,
plainly, complainant alone judged the elements of time, place and means in the performance of her
duties and responsibilities.
Complainants theory of the case appears to be limited to pointing out that respondent company
issued rules and regulations to which she should conform. However, no showing has been made that
such rules and regulations effectively and actually controlled or restricted her choice of methods in
performing her duties as New Business Manager. Without such proof, there can be no plausible
reason to believe that her contractual declaration that she was an independent contractor has been
qualified.
Thus, we see no reason to deviate from our original conclusion that complainant was never
respondents employee. Complainants motion for reconsideration is, therefore, denied.
Of course, Carungcong disagrees with these dispositions. Quite possibly, others may share
her opinion, and insist that there was error in either the appreciation of the evidence or the choice of
law or jurisprudence applied by the Commission. But such errors of judgment as might be ascribed to
the Commissions reasoned conclusions may not be accorded so egregious a cast as to be fairly
considered to constitute grave abuse of discretion meriting correction by the extraordinary writ
of certiorari,
It should be apparent that no whimsically, capriciousness, or want of logic or foundation may
rationally be imputed to NLRC in its marshalling and analysis of the evidence, its identification of the
issues, in its assessment of the arguments thereon, and its conclusions on the basis thereof. It is
simply not possible in the premises to opine that grave abuse of discretion was attendant on its
challenged decisions.
WHEREFORE, the petition is DISMISSED, with costs against petitioner.
SO ORDERED.

[G.R. No. 119930. March 12, 1998]

INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION (Fourth Division, Cebu City), LABOR ARBITER NICASIO P. ANINON
and PANTALEON DE LOS REYES, respondents.
DECISION
BELLOSILLO, J.:
On 17 June 1994 respondent Labor Arbiter dismissed for lack of jurisdiction NLRC RAB-VII
Case No. 03-0309-94 filed by private respondent Pantaleon de los Reyes against petitioner Insular
Life Assurance Co., Ltd. (INSULAR LIFE), for illegal dismissal and nonpayment of salaries and back
wages after findings no employer-employee relationship between De los Reyes and petitioner
INSULAR LIFE.[1] On appeal by private respondent, the order of dismissal was reversed by the
National Labor Relations Commission (NLRC) which ruled that respondent De los Reyes was an
employee of petitioner.[2] Petitioners motion for reconsideration having been denied, the NLRC
remanded the case to the Labor Arbiter for hearing on the merits.
Seeking relief through this special civil action for certiorari with prayer for a restraining order
and/or preliminary injunction, petitioner now comes to us praying for annulment of the decision of
respondent NLRC dated 3 March 1995 and its Order dated 6 April 1995 denying the motion for
LabStan Cases

reconsideration of the decision. It faults NLRC for acting without jurisdiction and/or with grave abuse
of discretion when, contrary to established facts and pertinent law and jurisprudence, it reversed the
decision of the Labor Arbiter and held instead that the complaint was properly filed as an employeremployee relationship existed between petitioner and private respondent.
Petitioner reprises the stand it assumed below that it never had any employer-employee
relationship with private respondent, this being an express agreement between them in the agency
contracts, particularly reinforced by the stipulation therein de los Reyes was allowed discretion to
devise ways and means to fulfill his obligations as agent and would be paid commission fees based
on his actual output. It further insists that the nature of this work status as described in the contracts
had already been squarely resolved by the Court in the earlier case of Insular Life Assurance Co.,
Ltd. v. NLRC and Basiao[3]where the complainant therein, Melecio Basiao, was similarly situated as
respondent De los Reyes in that he was appointed first as an agent and then promoted as agency
manager, and the contracts under which he was appointed contained terms and conditions Identical
to those of De los Reyes. Petitioner concludes that since Basiao was declared by the Court to be an
independent contractor and not an employee of petitioner, there should be no reason why the status
of De los Reyes herein vis--vis petitioner should not be similarly determined.
We reject the submissions of petitioner and hold that respondent NLRC acted appropriately
within the bounds of the law. The records of the case are replete with telltale indicators of an existing
employer-employee relationship between the two parties despite written contractual disavowals.
These facts are undisputed: on 21 August 1992 petitioner entered into an agency contract with
respondent Pantaleon de los Reyes[4] authorizing the latter to solicit within the Philippines
applications for life insurance and annuities for which he would be paid compensation in the form of
commissions. The contract was prepared by petitioner in its entirety and De los Reyes merely signed
his conformity thereto. It contained the stipulation that no employer-employee relationship shall be
created between the parties and that the agent shall be free to exercise his own judgment as to time,
place and means of soliciting insurance. De los Reyes however was prohibited by petitioner from
working for any other life insurance company, and violation of this stipulation was sufficient ground for
termination of the contract. Aside from soliciting insurance for the petitioner, private respondent was
required to submit to the former all completed applications for insurance within ninety (90)
consecutive days, deliver policies, receive and collect initial premiums and balances of first year
premiums, renewal premiums, deposits on applications and payments on policy loans. Private
respondent was also bound to turn over to the company immediately any and all sums of money
collected by him. In a written communication by petitioner to respondent De los Reyes, the latter was
urged to register with the Social Security System as a self-employed individual as provided under PD
No. 1636.[5]
On 1 March 1993 petitioner and private respondent entered into another contract [6]where the
latter was appointed as Acting Unit Manager under its office the Cebu DSO V (157). As such, the
duties and responsibilities of De los Reyes included the recruitment, training, organization and
development within his designated territory of a sufficient number of qualified, competent and
trustworthy underwriters, and to supervise and coordinate the sales efforts of the underwriters in the
active solicitation of new business and in the furtherance of the agencys assigned goals. It was
similarly provIded in the management contract that the relation of the acting unit manager and/or the
agents of his unit to the company shall be that of independent contractor. If the appointment was
terminated for any reason other than for cause, the acting unit manager would be reverted to agent
status and assigned to any unit. As in the previous agency contract, De los Reyes together with his
unit force was granted freedom to exercise judgment as to time, place and means of soliciting
insurance. Aside from being granted override commissions, the acting unit manager was given
production bonus, development allowance and a unit development financing scheme euphemistically
termed financial assistance consisting of payment to him of a free portion of P300.00 per month and
a valIdate portion of P1,200.00. While the latter amount was deemed as an advance against
expected commissions, the former was not and would be freely given to the unit manager by the
company only upon fulfillment by him of certain manpower and premium quota requirements. The
agents and underwriters recruited and trained by the acting unit manager would be attached to the
Page 37

unit but petitioner reserved the right to determine if such assignment would be made or, for any
reason, to reassign them elsewhere.
Aside from soliciting insurance, De los Reyes was also expressly obliged to participate in the
companys conservation program, i.e., preservation and maintenance of existing insurance policies,
and to accept moneys duly receipted on agents receipts provided the same were turned over to the
company. As long as he was unit manager in an acting capacity, De los Reyes was prohibited from
working for other life insurance companies or with the government. He could not also accept a
managerial or supervisory position in any firm doing business in the Philippines without the written
consent of petitioner.
Private respondent worked concurrently as agent and Acting Unit Manager until he was notified
by petitioner on 18 November 1993 that his services were terminated effective 18 December 1993.
On 7 March 1994 he filed a complaint before the Labor Arbiter on the ground that he was illegally
dismissed and that he was not paid his salaries and separation pay.
Petitioner filed a motion to dismiss the complaint of De los Reyes for lack of jurisdiction, citing
the absence of employer-employee relationship. it reasoned out that based on the criteria for
determining the existence of such relationship or the so-called four-fold test, i.e., (a) selection and
engagement of employee, (b) payment of wages, (c) power of dismissal, and, (d) power of control, De
los Reyes was not an employee but an independent contractor.
On 17 June 1994 the motion of petitioner was granted by the Labor Arbiter and the case was
dismissed on the ground thatthe element of control was not sufficiently established since the rules
and guidelines set by petitioner in its agency agreement with respondent De los Reyes were
formulated only to achieve the desired result without dictating the means or methods of attaining it.
Respondent NLRC however appreciated the evidence from a different perspective. It
determined that respondent De los Reyes was under the effective control of petitioner in the critical
and most important aspects of his work as Unit Manager. This conclusion was derived from the
provisions in the contract which appointed private respondent as Acting Unit Manager, to wit: (a) De
los Reyes was to serve exclusively the company, therefore, he was not an independent contractor;
(b) he was required to meet certain manpower and production quota; and, (c) petitioner controlled the
assignment to and removal of soliciting agents from his unit.
The NLRC also took into account other circumstances showing that petitioner exercised
employers prerogatives over De los Reyes, e.g., (a) limiting the work of respondent De los Reyes to
selling a life insurance policy known as Salary Deduction Insurance only to members of the
Philippine National Police, public and private school teachers and other employees of private
companies; (b) assigning private respondent to a particular place and table where he worked
whenever he has not in the field; (c) paying private respondent during the period of twelve (12)
months of his appointment as Acting Unit Manager the amount of P1,500.00 as Unit Development
Financing of which 20% formed his salary and the rest, i.e., 80%, as advance of his expected
commissions; and (d) promising that upon completion of certain requirements, he would be promoted
to Unit Manager with the right of petitioner to revert him to agent status when warranted.
Parenthetically, both petitioner and respondent NLRC treated the agency contract and the
management contract entered into between petitioner and De los Reyes as contracts of agency. We
however hold otherwise. Unquestionably there exist major distinctions between the two agreements.
While the first has the earmarks of an agency contract, the second is far removed from the concept of
agency in that provided therein are conditionalities that indicate an employer-employee relationship.
the NLRC therefore was correct in finding that private respondent was an employee of petitioner, but
this holds true only insofar as the management contract is concerned. In view thereof, he Labor
Arbiter has jurisdiction over the case.
It is axiomatic that the existence of an employer-employee relationship cannot be negated by
expressly repudiating it in the management contract and providing therein that the employee is an
independent contractor when the terms of agreement clearly show otherwise. For, the employment
LabStan Cases

status of a person is defined and prescribed by law and not by what the parties say it should be. [7] In
determining the status of the management contract, the four-fold test on employment earlier
mentioned has to be applied.
Petitioner contends that De los Reyes was never required to go through the pre-employment
procedures and that the probationary employment status was reserved only to employees of
petitioner. On this score, it insists that the first requirement of selection and engagement of the
employee was not met.
A look at the provisions of the contract shows that private respondent was appointed as Acting
Unit Manager only upon recommendation of the District Manager. [8] This indicates that private
respondent was hired by petitioner because of the favorable endorsement of its duly authorized
officer. But, this approbation could only have been based on the performance of De los Reyes with
petitioner was nothing more than a trial or probationary period for his eventual appointment as Acting
Unit Manager of petitioner. Then, again, the very designation of the appointment of private
respondent as acting unit manager obviously implies a temporary employment status which may be
made permanent only upon compliance with company standards such as those enumerated under
Sec. 6 of the management contract.[9]
On the matter of payment of wages, petitioner points out that respondent was compensated
strictly on commission basis, the amount of which was totally dependent on his total output. But, the
managers contract speaks differently. Thus
4. Performance Requirements.- To maintain your appointment as Acting Unit Manager
you must meet the following manpower and production requirements:
Quarter

1ST
2ND
3RD
4TH

Active
Production Agents

2
3
4
5

Calendar Year
Cumulative FYP
Production
P125,000
250,000
375,000
500,000

5.4 Unit Development Financing (UDF). As an Acting Unit Manager you shall be given
during the first 12 months of your appointment a financial assistance which is composed of two
parts:
5.4.1
Free Portion amounting to P300 per month, subject to your
meeting prescribed minimum performance requirement on manpower and premium
production. The free portion is not payable by you.
5.4.2 Validate Portion amounting to P1,200 per month, also subject to
meeting the same prescribed minimum performance requirements on manpower and
premium production. The valIdated portion is an advance against expected
compensation during the UDF period and thereafter as may be necessary.
The above provisions unquestionably demonstrate that the performance requirement imposed
on De los Reyes was applicable quarterly while his entitlement to the free portion (P300) and the
validated portion (P1,200) was monthly starting on the first month of the twelve (12) months of the
appointment. Thus, it has to be admitted that even before the end of the first quarter and prior to the
so-called quarterly performance evaluation, private respondent was already entitled to be paid both
Page 38

the free and validated portions of the UDF every month because his production performance could
not be determined until after the lapse of the quarter involved. This indicates quite clearly that the unit
managers quarterly performance had no bearing at all on his entitlement at least to the free portion of
the UDF which for all intents and purposes comprised the salary regularly paid to him by petitioner.
Thus it cannot be validly claimed that the financial assistance consisting of the free portion of the UDF
was purely dependent on the premium production of the agent. Be that as it may, it is worth
considering that the payment of compensation by way of commission does not militate against the
conclusion that private respondent was an employee of petitioner. Under Art. 97 of the Labor Code,
wage shall mean however designated, capable of being expressed in terms of money, whether
fixed or ascertained on a time, task, price or commission basis x x x x [10]
As to the matter involving the power of dismissal and control by the employer, the latter of
which is the most important of the test, petitioner asserts that its termination of De los Reyes was but
an exercise of its inherent right as principal under the contracts and that the rules and guIdelines it set
forth in the contract cannot, by any stretch of imagination, be deemed as an exercise of control over
the private respondent as these were merely directives that fixed the desired result without dictating
the means or method to be employed in attaining it. The following factual findings of the
NLRC[11] however contradict such claims:
A perusal of the appointment of complainant as Acting Unit Manager reveals that:
1. Complainant was to exclusively serve respondent company. Thus it is provIded: x
x x 7..7 Other causes of Termination: This Appointment may likewise be terminated for any of
the following causes: x x x 7..7..2. Your entering the service of the government or another life
insurance company; 7..7..3. Your accepting a managerial or supervisory position in any firm
doing business in the Philippines without the written consent of the Company; x x x
2. Complainant was required to meet certain manpower and production quotas.
3. Respondent (herein petitioner) controlled the assignment and removal of soliciting
agents to and from complainants unit, thus: x x x 7..2. Assignment of Agents: Agents
recruited and trained by you shall be attached to your unit unless for reasons of Company
policy, no such assignment should be made. The Company retains the exclusive right to
assign new soliciting agents appointed and assigned to the saId unit x x x x
It would not be amiss to state the respondents duty to collect the companys premiums using
company receipts under Sec. 7.4 of the management contract is further evIdence of petitioners
control over respondent, thus:
xxxx
7.4 Acceptance and Remittance of Premiums. x x x x the Company hereby authorizes you to accept
and receive sums of money in payment of premiums, loans, deposits on applications, with or without
interest, due from policy holders and applicants for insurance, and the like, specially from
policyholders of business solicited and sold by the agents attached to your unit provIded however,
that all such payments shall be duly receipted by you on the corresponding Companys Agents
Receipt to be provIded you for this purpose and to be covered by such rules and accounting
regulations the Company may issue from time to time on the matter. Payments received by you shall
be turned over to the Companys designated District or Service Office clerk or directly to the Home
Office not later than the next working day from receipt thereof x x x x

LabStan Cases

Petitioner would have us apply our ruling in Insular Life Assurance Co., Ltd. v. NLRC and
Basiao [12] to the instant case under the doctrine of stare decisis, postulating that both cases involve
parties similarly situated and facts which are almost Identical.
But we are not convinced that the cited case is on all fours with the case at bar. In Basiao, the
agent was appointed Agency Manager under an Agency Manager Contract. To implement his end of
the agreement, Melecio Basiao organized an agency office to which he gave the name M. Basiao and
Associates. The Agency Manager Contract practically contained the same terms and conditions as
the Agency Contract earlier entered into, and the Court observed that drawn from the terms of the
contract they had entered into, (which) either expressly or by necessary implication, Basiao (was)
made the master of his own time and selling methods, left to his own judgment the time, place and
means of soliciting insurance, set no accomplishmentquotas and compensated him on the bases 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 anytime he chose to and was free to
adopt the selling methods he deemed most effective. Upon these premises, Basiao was considered
as agent an independent contractor of petitioner INSULAR LIFE.
Unlike Basiao, herein respondent De los Reyes was appointed Acting Unit Manager, not
agency manager. There is not evidence that to implement his obligations under the management
contract, De los Reyes had organized an office. Petitioner in fact has admitted that it provIded De los
Reyes a place and a table at its office where he reported for and worked whenever he was not out in
the field. Placed under petitioners Cebu District Service Office, the unit was given a name by
petitioner De los Reyes and Associates and assigned Code No. 11753 and Recruitment No.
109398. Under the managership contract, De los Reyes was obliged to work exclusively for petitioner
in life insurance solicitation and was imposed premium productionquotas. Of course, the acting unit
manager could not underwrite other lines of insurance because his Permanent Certificate of Authority
was for life insurance only and for no other. He was proscribed from accepting a managerial or
supervisory position in any other office including the government without the written consent of
petitioner. De los Reyes could only be promoted to permanent unit manager if he met certain
requirements and his promotion was recommended by the petitioners District Manager and Regional
Manager and approved by its Division Manager. As Acting Unit Manager, De los Reyes performed
functions beyond mere solicitation of insurance business for petitioner. As found by the NLRC, he
exercised administrative functions which were necessary and beneficial to the business of INSULAR
LIFE.
In Great Pacific Life Insurance Company v. NLRC[13] which is closer in application
that Basiao to this present controversy, we found that the relationships of the Ruiz brothers and
Grepalife were those of employer-employee. First, their work at the time of their dismissal as zone
supervisor and district manager was necessary and desirable to the usual business of the insurance
company. They were entrusted with supervisory, sales and other functions to guard Grepalifes
business interests and to bring in more clients to the company, and even with administrative functions
to ensure that all collections, reports and data are faithfully brought to the company x x x x A cursory
reading of their respective functions as enumerated in their contracts reveals that the company
practically dictates the manner by which their jobs are to be carried out x x x x We need elaborate no
further.
Exclusivity of service, control of assignments and removal of agents under private respondents
unit, collection of premiums, furnishing of company facilities and materials as well as capital
described as Unit Development Fund are but hallmarks of the management system in which herein
private respondent worked. This obtaining, there is no escaping the conclusion that private
respondent Pantaleon de los Reyes was an employee of herein petitioner.
WHEREFORE, the petition of Insular Life Assurance Company, Ltd., is DENIED and the
Decision of the National Labor Relations Commission dated 3 March 1995 and its Order of 6 April
1996 sustaining it are AFFIRMED. Let this case be REMANDED to the Labor Arbiter a quo who is
directed to hear and dispose of this case with deliberate dispatch in light of the views expressed
herein. SO ORDERED.
Page 39

From agricultural tenancy

G.R. No. L-28280-81

November 28, 1969

GERONIMO DE LOS REYES, petitioner,

vs.
GREGORIO ESPINELI, RUPERTO ALCANTARA, JORGE LOBREN, PEDRO AMANTE, MATEO
GUTIERREZ, ISIDRO RAMOS, SANTOS DANGUE, MIGUEL RAMOS, CORNELIO GARCIA,
MARGARITO BELARMINO, IRENEO BATRALO, SIMPLICIO CASTRO, VICENTE ANIVES,
MIGUEL HERNANDEZ, EUGENIO DALISAY, LEON LACSAMANA, and BELEN
ALVAREZ, respondents.
Luis A. L. Javellana and Yolanda Q. Javellana for petitioner.
Manuel A. Cordero for respondents.

At the outset, we must resolve the question of existence of a contract, the petitioner alleging, as he
does, that his consent, express or implied, had never been given. His position, simply stated, is that
at the time the respondents were taken into his land by Belarmino, the latter was a mere laborer and
therefore without the requisite authority to contract in his behalf, and it was only later that he was
promoted to the position of overseer. However, in his "Amended Complaint" of April 22, 1968, 4 the
petitioner prayed that "judgment be rendered ... finding the defendants guilty of a breach of their
contractual obligation with the plaintiff," and in the body thereof he incorporated statements from
which it can plainly be seen that a contractual relationship existed between the parties.
Verily, there was and still is a contractual relationship between the petitioner and the respondents. In
our view the pith of the problem is, actually, whether the relationship is that of agricultural share
tenancy (as averred by the respondents) or that of farm employer and agricultural laborer (as
asserted by the petitioner). On a determination of this question depends the respective rights of the
parties, more particularly the proper assessment of the share of the respondents under the law.
Of fundamental relevance in this discussion are definitions of basic terms.

CASTRO, J.:
Petition for review of the decision of the Court of Appeals in C.A.-G.R. No. 37689-R and C.A.-G.R.
No. 37690-R modifying that of the Court of Agrarian Relations in CAR cases 1185 and 1186.
The petitioner Geronimo de los Reyes is the owner of a 200-hectare coconut plantation located in
Calauan, Laguna. In 1958 his overseer ("katiwala") therein was Gonzalo Belarmino, who took into the
land the 17 respondents under an agreement that the latter were to receive 1/7 portion of every
coconut harvest. Sometime in October, 1962, the petitioner dismissed Belarmino, upon the suspicion
that the latter had been deceiving him, in connivance with the respondents.
On March 2, 1963 Ruperto Alcantara, et al., and Gregorio Espineli (respondents here) filed separate
petitions (subsequently amended) against De los Reyes in the Court of Agrarian Relations, seeking
the delivery to them of the difference between the 1/7 share which the petitioner had been giving
them and the 30% share to which they, as share tenants, were allegedly entitled. Upon the finding
that the respondents were mere agricultural workers of the petitioner, the CAR ordered the latter to
retain them as such and to pay them the sum of P4,559.07 "which is the total of their unpaid share of
1/7 of the net coconut harvests for the period from September 13 to December 23, 1962 and
February 25 to May 28, 1963," plus P500 as attorney's fees. Upon respondents' appeal, the Court of
Appeals modified the decision of the CAR, by declaring the respondents tenants of the petitioner and
ordering the latter to pay them "the difference between the one-seventh (1/7) share of the crops and
the thirty (30%) per cent provided for in the Tenancy Law from the year 1958 up to the filing of the
petitions and so on; the resulting amount for this purpose to be arrived at in a liquidation to be
submitted, if and when this judgment shall have become final and the record remanded to the lower
court."

"Agricultural tenancy" is the physical possession by a person of land devoted to agriculture belonging
to, or legally possessed by, another for the purpose of production through the labor of the former and
of the members of his immediate farm household, in consideration of which the former agrees to
share the harvest with the latter, or to pay a price certain or ascertainable, either in produce or in
money, or in both.5 "Share tenancy" exists whenever two persons agree on a joint undertaking for
agricultural production wherein one party furnishes the land and the other his labor, with either or both
contributing any one or several of the items of production, the tenant cultivating the land personally
with the aid of labor available from members of his immediate farm household, and the produce
thereof to be divided between the landholder and the tenant in proportion to their respective
contributions.6 And a "share tenant" is a person who, himself and with the aid available from within his
immediate farm household, cultivates the land belonging to or possessed by another, with the latter's
consent, for purposes of production, sharing the produce with the landholder." 7
It is to be readily deduced from the foregoing definitions that aside from the usual essential requisites
of a contract,8 the characteristics of a share tenancy contract are: (1) the parties are a landholder,
who is a natural or juridical person and is the owner, lessee, usufructuary or legal possessor of
agricultural land,9 and a tenant who, himself and with the aid available from within his immediate farm
household, cultivates the land which is the subject-matter of the tenancy; (2) the subject-matter is
agricultural land; (3) the purpose of the contract is agricultural production; and (4) the cause or
consideration is that the landholder and the share tenant would divide the agricultural produce
between themselves in proportion to their respective contributions.

Basically, the petitioner contends that (1) there existed no contractual relationship between him and
the respondents; (2) the respondents were not his tenants; and (3) the decision of the Court of
Appeals deprives him of his property without due process of law.

While the Agricultural Tenancy Act did not define the term "agricultural laborer" or "agricultural
worker," the Agricultural Land Reform Code does. A "farm worker" is "any agricultural wage, salary or
piece worker but is not limited to a farm worker of a particular farm employer unless this Code
explicitly states otherwise, and any individual whose work has ceased as a consequence of, or in
connection with, a current agrarian dispute or an unfair labor practice and who has not obtained a
substantially equivalent and regular employment." The term includes "farm laborer and/or farm
employees."10 An "agricultural worker" is not a whit different from a "farm worker."

The respondents attempted to have the present appeal dismissed on the ground that it involves
questions of fact. If indeed the issues posed by the petitioner necessarily invite calibration of the
entire evidence,1 then the appeal should be dismissed since issues only of law may be raised in an
appeal from the Court of Appeals to this Court.2It seems to us clear, however, that the petitioner
accepts the findings of fact made by the appellate court, but takes exception to the conclusions drawn
therefrom. Such being the case, the questions here tendered for resolution are purely of law. 3

From the definition of a "farm worker" thus fashioned, it is quite apparent that there should be an
employer-employee relationship between the "farm employer"11 and the farm worker. In determining
the existence of an employer-employee relationship, the elements that are generally considered are
the following: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the employer's power to control the employee's conduct. It is this last
element that constitutes the most important index of the existence of relationship. 12

LabStan Cases

Page 40

This is not to say that agricultural workers or farm laborers are industrial workers. Not by any means,
although they may both appear in the same establishment. The difference lies in the kind of work they
do. Those whose labor is devoted to purely agricultural work are agricultural laborers. All others are
industrial workers.13Nonetheless, they belong to the same class. Both are workers. Both are
employees.
We are here primarily interested in the basic differences between a farm employer-farm worker
relationship and an agricultural sharehold tenancy relationship. Both, of course, are leases, but there
the similarity ends. In the former, the lease is one of labor, with the agricultural laborer as the lessor
of his services, and the farm employer as the lessee thereof. 14 In the latter, it is the landowner who is
the lessor, and the sharehold tenant is the lessee of agricultural land. As lessee he has possession of
the leased premises.15 But the relationship is more than a mere lease. It is a special kind of lease, the
law referring to it as a "joint undertaking."16 For this reason, not only the tenancy laws are applicable,
but also, in a suppletory way, the law on leases, the customs of the place and the civil code
provisions on partnership.17 The share tenant works for that joint venture. The agricultural laborer
works for the farm employer, and for his labor he receives a salary or wage, regardless of whether the
employer makes a profit.18 On the other hand, the share tenant participates in the agricultural
produce. His share is necessarily dependent on the amount of the harvest.
Since the relationship between farm employer and agricultural laborer is that of employer and
employee, the decisive factor is the control exercised by the former over the latter. On the other hand,
the landholder has the "right to require the tenant to follow those proven farm practices which have
been found to contribute towards increased agricultural production and to use fertilizer of the kind or
kinds shown by proven farm practices to be adapted to the requirements of the land." This is but the
right of a partner to protect his interest, not the control exercised by an employer. If landholder and
tenant disagree as to farm practices, the former may not dismiss the latter. It is the court that shall
settle the conflict according to the best interests of both parties.19
The record is devoid of evidentiary support for the notion that the respondents are farm laborers.
They do not observe set hours of work. The petitioner has not laid down regulations under which they
are supposed to do their work. The argument tendered is that they are guards. However, it does not
appear that they are under obligation to report for duty to the petitioner or his agent. They do not work
in shifts. Nor has the petitioner prescribed the manner by which the respondents were and are to
perform their duties as guards. We do not find here that degree of control and supervision evincive of
an employer-employee relationship. Furthermore, if the respondents are guards, then they are not
agricultural laborers, because the duties and functions of a guard are not agricultural in nature. 20 It is
the Industrial Court that has jurisdiction over any dispute that might arise between employer and
employee. Yet, the petitioner filed his complaint against the respondents in the Court of Agrarian
Relations.
We now proceed to determine if there are present here the salient characteristics of an agricultural
share tenancy contract. The subject-matter is coconut land, which is considered agricultural land
under both the Agricultural Land Tenancy ACT21 and the Agricultural Land Reform Code.22 The
purpose of the contract is the production of coconuts; the respondents would receive 1/7 of the
harvest. The petitioner is the landholder of the coconut plantation.
The crucial factors are that the tenant must have physical possession of the land for the purpose of
production23and he must personally cultivate the land. If the tenant does not cultivate the land
personally he cannot be considered a tenant even if he is so designated in the written agreement of
the parties.24
"Cultivation" is not limited to the plowing and harrowing of the land. It includes the various phrases of
farm labor described and provided by law, the maintenance, repair and weeding of dikes, paddies
LabStan Cases

and irrigation canals in the holding. Moreover, it covers attending to the care of the growing
plants.25 Where the parties agreed that they would "operate a citrus nursery upon the condition that
they would divide the budded citrus in the proportion of 1/3 share of respondents and 2/3 as share of
petitioner," and that the "petitioner would furnish all the necessary seedlings and seeds, as well as
the technical know-how in the care, cultivation, budding and balling of the budded citrus, while
respondents would furnish the land necessary for the nursery, the farm labor that may be needed to
plant and cultivate, and all the chemicals, fertilizers, and bud tapes that may be necessary for such
cultivation," then "the tenancy agreement entered into between the parties has relation to the
possession of agricultural land to be devoted to the production of agricultural products thru the labor
of one of the parties, and as such comes within the purview of the term 'agricultural tenancy' as
defined in section 3 of Republic Act No. 1199 as amended."26
In one instance,27 the landholder claimed that his caretaker was not an agricultural tenant because he
"does not till or cultivate the land in order to grow the fruit bearing trees because they are already full
grown," and "he does not even do the actual gathering of the fruits" but "merely supervises the
gathering, and after deducting the expenses, he gives one-half of the fruits to plaintiff all in
consideration of his stay in the land." This Court's answer was to the point:
Anyone who has had fruit trees in his yard will disagree with the above description of the
relationship. He knows the caretaker, must water the trees, even fertilize them for better
production, uproot weeds and turn the soil, sometimes fumigate to eliminate plant pests,
etc. Those chores obviously mean "working or cultivating" the land. Besides, it seems that
defendant planted other crops, [i.e., cultivated the lot] giving the landowner his
corresponding share.
The Court of Appeals made some essential findings of fact. The respondents were called "kasama."
They have plowing implements. The respondent Pedro Amante even used to have a carabao which
he subsequently exchanged for a horse. Almost all of the respondents have banana plantations on
the land. They live in the landholding. They are charge with the obligation to clean their respective
landholdings. Certain portions of the land are planted to palay.
These factual findings may not be reviewed by the Supreme Court. 28 Furthermore, the said facts are
supported by the testimony of the petitioner himself, who admitted that the respondents are his
"kasama," although he tried to minimize the effect of this admission by alleging that although called
"kasama," the respondents "do not perform the work of a "kasama," and that in Quezon the "kasama"
plow the land, they plant rice, but here in Laguna, they do not do anything." The appellate court was
correct in concluding that "kasama" means "tenant,"29 not worker or laborer, which is translated into
our national language as "manggagawa."30 Respecting farm implements, the petitioner admitted that
"they have the implements," but again he tried to minimize the significance of his statement by adding
that "they have not used it in the farm." However, the report of the CAR clerk of court, based on his
ocular inspection, pertinently states that he found "certain portions planted with palay."
The petitioner cannot deny that the respondents were all living in the landholding and that "all of them
have banana plantation, small or big, "though he averred," not one single banana was given to me as
my share."
We now come to the all-important question of whether the respondents have the duty to cultivate the
land in order that the trees would bear more coconuts. The petitioner's answers on cross-examination
are quite revealing. Thus:
Q.
Where these petitioners duty bound to do any cleaning or clearing of the underbrush
within the coconut land?
Page 41

A.
These laborers clean the land from where . . . They are getting their food and
subsistence.

From lease contract

G.R. No. L-21212

COURT:

A.
To make my answer short, I say that the responsibility is to Gonzalo Belarmino, to
him, because he is the one who engaged them.
xxx

xxx

September 23, 1966

The question is that, are they duty bound to clean the landholding in question?

xxx

A.
One, to guard the property and use their names as threat to people who might ...
have the intention of stealing my coconuts, and two, to assist in the clearing of the land
because that is the responsibility of Gonzalo Belarmino. . . .31

CITIZENS' LEAGUE OF FREEWORKERS AND/OR BALBINO EPIS, NICOLAS ROJO, ET

AL., petitioners,
vs.
HON. MACAPANTON ABBAS, Judge of the Court of First Instance of Davao and TEOFILO
GERONIMO and EMERITA MENDEZ, respondents.
Carlos Dominguez, Jr. for petitioners.
C. S. Nitorreda for respondents.
DIZON, J.:

Undeniably, the petitioner considers it one of the duties of the respondents to clear and clean the
land. Additionally, in his complaint the petitioner claimed that "the defendants have abandoned their
posts at the plaintiff's plantation and have likewise failed and refused to comply with their contractual
obligation with the plaintiffto keep the areas respectively assigned to them clean and clear of
undergrowths and cogonal grass at all times, with the result that it is now impossible for the plaintiff to
harvest the mature coconuts as these would only be lost amid the undergrowth and cogonal which
have now grown to unreasonable heights, thereby causing further damage and prejudice to the
plaintiff." (Emphasis supplied).
The petitioner clearly expected the respondents to perform the duties of a tenant, especially, to
maintain the land clean and clear "at all times," which not only would facilitate harvesting but, more
importantly, would necessarily result in greater production. As found by the CAR clerk of court during
the ocular inspection,
the planting of palay has a direct effect on the growing of the coconuts because in the
places he found planted with palay, the coconut trees displayed white leaves gray in color
with plenty of nuts or fruits, compared to the portion in the hacienda where we encountered
cogon grasses, under brushes and ipil-ipil tress, there is a need for thorough cleaning,
especially the ipil-ipil trees which are growing high for years already in-between the rows of
coconut trees.32
Therefore, the parties to the contract understood, in sum and substance, that the respondents were to
"cultivate" the land. Whether the latter had been remiss in the performance of their contractual
obligations, does not affect the nature of the contract which the appellate court analyzed and found to
be that of share tenancy. It is the principal features and stipulations which determine the true essence
of a contract.33 Considering then that the respondents are duty bound to cultivate their respective
holdings (of which they have possession), and that they share in the harvest, the Court of Appeals'
conclusion must be upheld. This, especially in the light of the facts that the respondents raise
secondary crops and have their homes in their respective holdings.
The petitioner having entered into a share tenancy contract with the respondents, it certainly cannot
be seriously claimed that the relationship of landlord and tenant is unjustifiably being imposed on him
without due process of law. It was the petitioner himself who voluntarily entered the relationship, and,
therefore, should shoulder the consequences thereof, one of which is that the tenants must be given,
as they are entitled to, a 30% share in the produce.34
ACCORDINGLY, the decision appealed from is affirmed, at petitioner's cost.
LabStan Cases

Petition for certiorari with a prayer for the issuance of a writ of preliminary injunction filed by the
Citizens' League of Freeworkers, a legitimate labor organization, hereinafter referred to as the
Union and its members against the spouses Teofilo Geronimo and Emerita Mendez, and the Hon.
Macapanton Abbas, as judge of the Court of First Instance of Davao. Its purpose is to set aside the
writ of preliminary injunction issued by the latter in Civil Case No. 3966 and restrain him from
proceeding with the case, on the ground that the controversy involves a labor dispute and is,
therefore, within the exclusive jurisdiction of the Court of Industrial Relations.
It appears that on March 11, 1963, respondents-spouses owners and operators of auto-calesas
in Davao City, filed a complaint with the Court of First Instance of Davao (Civil Case No. 3966) to
restrain the Union and its members, who were drivers of the spouses in said business, from
interfering with its operation, from committing certain acts complained of in connection therewith, and
to recover damages. The complaint alleged that the defendants named therein used to lease the
auto-calesas of the spouses on a daily rental basis; that, unable to get the spouses to recognize said
defendants as employees instead of lessees and to bargain with it on that basis, the Union declared a
strike on February 20, 1963 and since then had paralyzed plaintiffs' business operations through
threats, intimidation and violence. The complaint also prayed for the issuance of a writ of preliminary
injunction ex-parte restraining defendants therein from committing said acts of violence and
intimidation during the pendency of the case.
On March 11, 1963 the respondent judge granted the writ prayed for, while deferring action on
petitioners' motion to dissolve said writ to March 20 of the same year.
Meanwhile, on March 12, 1963, petitioners filed a complaint for unfair labor practice against the
respondents-spouses with the Court of Industrial Relations on the ground, among others, of the
latter's refusal to bargain with them. 1awphl.nt
On March 18, 1963, petitioners filed a motion to declare the writ of preliminary injunction void
on the ground that the same had expired by virtue of Section 9 (d) of Republic Act 875. In his order of
March 21, 1963, however, the respondent judge denied said motion on the ground that there was no
employer-employee relationship between respondents-spouses and the individual petitioners herein
and that, consequently, the Rules of Court and not Republic Act No. 875 applied to the matter of
injunction. Thereupon the petition under consideration was filed.
In the case of Isabelo Doce vs. Workmen's Compensation Commission, et al. (G.R. No. L9417, December 22, 1958), upon a similar if not an altogether identical set of facts, We held:
Page 42

This case falls squarely within our ruling in National Labor Union v. Dinglasan, 52
O.G., No. 4, 1933, wherein this Court held that a driver of a jeep who operates the same
under the boundary system is considered an employee within the meaning of the law and
as such the case comes under the jurisdiction of the Court of Industrial Relations. In that
case, Benedicto Dinglasan was the owner and operator of TPU jeepneys which were driven
by petitioner under verbal contracts that they will pay P7.50 for 10 hours use under the so
called "boundary system." The drivers did not receive salaries or wages from the owner.
Their day's earnings were the excess over the P7.50 they paid for the use of the jeepneys.
In the event that they did not earn more, the owner did not have to pay them anything. In
holding that the employer-employee relationship existed between the owner of the
jeepneys and the drivers even if the latter worked under the boundary system, this Court
said:
"The only features that would make the relationship of lessor and lessee
between the respondent, owner of the jeeps, and the drivers, members of the
petitioner union, are the fact that he does not pay them any fixed wage but their
compensation is the excess of the total amount of fares earned or collected by
them over and above the amount of P7.50 which they agreed to pay to the
respondent, and the fact that the gasoline burned by the jeeps is for the account
of the drivers. These two features are not, however, sufficient to withdraw the
relationship, between them from that of employer-employee, because the
estimated earnings for fares must be over and above the amount they agreed to
pay to the respondent for a ten-hour shift or ten-hour a day operation of the
jeeps. Not having any interest in the business because they did not invest
anything in the acquisition of the jeeps and did not participate in the management
thereof, their service as drivers of the jeeps being their only contribution to the
business, the relationship of lessor and lessee cannot be sustained."
Even assuming, arguendo, that the respondent court had jurisdiction to issue the
abovementioned writ of preliminary injunction in Civil Case No. 3966 at the time it was issued, We are
of the opinion, and so hold, that it erred in denying petitioners' motion to set aside said writ upon
expiration of the period of thirty days from its issuance, upon the wrong ground that there was no
labor dispute between the parties and that, therefore, the provisions of Republic Act No. 875 did not
apply to the case. As stated heretofore, there was a labor dispute between the parties from the
beginning.
Moreover, upon the filing of the unfair labor practice case on March 12, 1963, the Court of
Industrial Relations acquired complete jurisdiction over the labor dispute and the least that could be
done in Civil Case No. 3966 is either to dismiss it or suspend proceedings therein until the final
resolution of the former.
Wherefore, judgment is hereby rendered setting aside the writ of preliminary injunction issued
by the respondent judge in Civil Case No. 3966 of the Court of First Instance of Davao, with costs.

G.R. No. 119268

February 23, 2000

ANGEL JARDIN, DEMETRIO CALAGOS, URBANO MARCOS, ROSENDO MARCOS, LUIS DE

LOS ANGELES, JOEL ORDENIZA and AMADO CENTENO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) and GOODMAN TAXI (PHILJAMA
INTERNATIONAL, INC.) respondents.
QUISUMBING, J.:
This special civil action for certiorari seeks to annul the decision1 of public respondent promulgated on
October 28, 1994, in NLRC NCR CA No. 003883-92, and its resolution2 dated December 13, 1994
which denied petitioners motion for reconsideration.
Petitioners were drivers of private respondent, Philjama International Inc., a domestic corporation
engaged in the operation of "Goodman Taxi." Petitioners used to drive private respondent's taxicabs
every other day on a 24-hour work schedule under the boundary system. Under this arrangement, the
petitioners earned an average of P400.00 daily. Nevertheless, private respondent admittedly regularly
deducts from petitioners, daily earnings the amount of P30.00 supposedly for the washing of the taxi
units. Believing that the deduction is illegal, petitioners decided to form a labor union to protect their
rights and interests.
Upon learning about the plan of petitioners, private respondent refused to let petitioners drive their
taxicabs when they reported for work on August 6, 1991, and on succeeding days. Petitioners
suspected that they were singled out because they were the leaders and active members of the
proposed union. Aggrieved, petitioners filed with the labor arbiter a complaint against private
respondent for unfair labor practice, illegal dismissal and illegal deduction of washing fees. In a
decision3 dated August 31, 1992, the labor arbiter dismissed said complaint for lack of merit.
On appeal, the NLRC (public respondent herein), in a decision dated April 28, 1994, reversed and set
aside the judgment of the labor arbiter. The labor tribunal declared that petitioners are employees of
private respondent, and, as such, their dismissal must be for just cause and after due process. It
disposed of the case as follows:
WHEREFORE, in view of all the foregoing considerations, the decision of the Labor Arbiter
appealed from is hereby SET ASIDE and another one entered:
1. Declaring the respondent company guilty of illegal dismissal and accordingly it is directed
to reinstate the complainants, namely, Alberto A. Gonzales, Joel T. Morato, Gavino
Panahon, Demetrio L. Calagos, Sonny M. Lustado, Romeo Q. Clariza, Luis de los Angeles,
Amado Centino, Angel Jardin, Rosendo Marcos, Urbano Marcos, Jr., and Joel Ordeniza, to
their former positions without loss of seniority and other privileges appertaining thereto; to
pay the complainants full backwages and other benefits, less earnings elsewhere, and to
reimburse the drivers the amount paid as washing charges; and
2. Dismissing the charge of unfair [labor] practice for insufficiency of evidence.
SO ORDERED.4
Private respondent's first motion for reconsideration was denied. Remaining hopeful, private
respondent filed another motion for reconsideration. This time, public respondent, in its

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Page 43

decision5 dated October 28, 1994, granted aforesaid second motion for reconsideration. It ruled that it
lacks jurisdiction over the case as petitioners and private respondent have no employer-employee
relationship. It held that the relationship of the parties is leasehold which is covered by the Civil Code
rather than the Labor Code, and disposed of the case as follows:
VIEWED IN THE LIGHT OF ALL THE FOREGOING, the Motion under reconsideration is
hereby given due course.
Accordingly, the Resolution of August 10, 1994, and the Decision of April 28, 1994 are
hereby SET ASIDE. The Decision of the Labor Arbiter subject of the appeal is likewise SET
ASIDE and a NEW ONE ENTERED dismissing the complaint for lack of jurisdiction.
No costs.

notice of appeal was filed nor cash or surety bond was posted by private respondent. Nevertheless,
the labor tribunal took cognizance of the letter from private respondent and treated said letter as
private respondent's appeal. In a certiorari action before this Court, we ruled that the labor tribunal
acted with grave abuse of discretion in treating a mere letter from private respondent as private
respondent's appeal in clear violation of the rules on appeal prescribed under Section 3(a), Rule VI of
the New Rules of Procedure of NLRC.
In Philippine Airlines Inc. vs. NLRC,10 we held that the labor arbiter committed grave abuse of
discretion when he failed to resolve immediately by written order a motion to dismiss on the ground of
lack of jurisdiction and the supplemental motion to dismiss as mandated by Section 15 of Rule V of
the New Rules of Procedure of the NLRC.
In Unicane Workers Union-CLUP vs. NLRC,11 we held that the NLRC gravely abused its discretion by
allowing and deciding an appeal without an appeal bond having been filed as required under Article
223 of the Labor Code.

SO ORDERED.6
Expectedly, petitioners sought reconsideration of the labor tribunal's latest decision which was
denied. Hence, the instant petition.
In this recourse, petitioners allege that public respondent acted without or in excess of jurisdiction, or
with grave abuse of discretion in rendering the assailed decision, arguing that:
I
THE NLRC HAS NO JURISDICTION TO ENTERTAIN RESPONDENT'S SECOND MOTION FOR
RECONSIDERATION WHICH IS ADMITTEDLY A PLEADING PROHIBITED UNDER THE NLRC
RULES, AND TO GRANT THE SAME ON GROUNDS NOT EVEN INVOKED THEREIN.
II
THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES IS
ALREADY A SETTLED ISSUE CONSTITUTING RES JUDICATA, WHICH THE NLRC HAS NO
MORE JURISDICTION TO REVERSE, ALTER OR MODIFY.
III
IN ANY CASE, EXISTING JURISPRUDENCE ON THE MATTER SUPPORTS THE VIEW THAT
PETITIONERS-TAXI DRIVERS ARE EMPLOYEES OF RESPONDENT TAXI COMPANY.7

In Maebo vs. NLRC,12 we declared that the labor arbiter gravely abused its discretion in disregarding
the rule governing position papers. In this case, the parties have already filed their position papers
and even agreed to consider the case submitted for decision, yet the labor arbiter still admitted a
supplemental position paper and memorandum, and by taking into consideration, as basis for his
decision, the alleged facts adduced therein and the documents attached thereto.
In Gesulgon vs. NLRC,13 we held that public respondent gravely abused its discretion in treating the
motion to set aside judgment and writ of execution as a petition for relief of judgment. In doing so,
public respondent had, without sufficient basis, extended the reglementary period for filing petition for
relief from judgment contrary to prevailing rule and case law.
In this case before us, private respondent exhausted administrative remedy available to it by seeking
reconsideration of public respondent's decision dated April 28, 1994, which public respondent denied.
With this motion for reconsideration, the labor tribunal had ample opportunity to rectify errors or
mistakes it may have committed before resort to courts of justice can be had. 14 Thus, when private
respondent filed a second motion for reconsideration, public respondent should have forthwith denied
it in accordance with Rule 7, Section 14 of its New Rules of Procedure which allows only one motion
for reconsideration from the same party, thus:
Sec. 14. Motions for Reconsideration. Motions for reconsideration of any order,
resolution or decision of the Commission shall not be entertained except when based on
palpable or patent errors, provided that the motion is under oath and filed within ten (10)
calendar days from receipt of the order, resolution or decision with proof of service that a
copy of the same has been furnished within the reglementary period the adverse party
and provided further, that only one such motion from the same party shall be entertained.
[Emphasis supplied]

The petition is impressed with merit.

The phrase "grave abuse of discretion amounting to lack or excess of jurisdiction" has settled
meaning in the jurisprudence of procedure. It means such capricious and whimsical exercise of
judgment by the tribunal exercising judicial or quasi-judicial power as to amount to lack of power. 8 In
labor cases, this Court has declared in several instances that disregarding rules it is bound to observe
constitutes grave abuse of discretion on the part of labor tribunal.
In Garcia vs. NLRC,9 private respondent therein, after receiving a copy of the labor arbiter's decision,
wrote the labor arbiter who rendered the decision and expressed dismay over the judgment. Neither
LabStan Cases

The rationale for allowing only one motion for reconsideration from the same party is to assist the
parties in obtaining an expeditious and inexpensive settlement of labor cases. For obvious reasons,
delays cannot be countenanced in the resolution of labor disputes. The dispute may involve no less
than the livelihood of an employee and that of his loved ones who are dependent upon him for food,
shelter, clothing, medicine, and education. It may as well involve the survival of a business or an
industry.15
As correctly pointed out by petitioner, the second motion for reconsideration filed by private
respondent is indubitably a prohibited pleading16 which should have not been entertained at all. Public
Page 44

respondent cannot just disregard its own rules on the pretext of "satisfying the ends of
justice",17 especially when its disposition of a legal controversy ran afoul with a clear and long
standing jurisprudence in this jurisdiction as elucidated in the subsequent discussion. Clearly,
disregarding a settled legal doctrine enunciated by this Court is not a way of rectifying an error or
mistake. In our view, public respondent gravely abused its discretion in taking cognizance and
granting private respondent's second motion for reconsideration as it wrecks the orderly procedure in
seeking reliefs in labor cases.
But, there is another compelling reason why we cannot leave untouched the flip-flopping decisions of
the public respondent. As mentioned earlier, its October 28, 1994 judgment is not in accord with the
applicable decisions of this Court. The labor tribunal reasoned out as follows:
On the issue of whether or not employer-employee relationship exists, admitted is the fact
that complainants are taxi drivers purely on the "boundary system". Under this system the
driver takes out his unit and pays the owner/operator a fee commonly called "boundary" for
the use of the unit. Now, in the determination the existence of employer-employee
relationship, the Supreme Court in the case of Sara, et al., vs. Agarrado, et al. (G.R. No.
73199, 26 October 1988) has applied the following four-fold test: "(1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4)
the power of control the employees conduct."
"Among the four (4) requisites", the Supreme Court stresses that "control is deemed the
most important that the other requisites may even be disregarded". Under the control test,
an employer-employee relationship exists if 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. Otherwise, no such relationship exists.
(Ibid.)
Applying the foregoing parameters to the case herein obtaining, it is clear that the
respondent does not pay the drivers, the complainants herein, their wages. Instead, the
drivers pay a certain fee for the use of the vehicle. On the matter of control, the drivers,
once they are out plying their trade, are free to choose whatever manner they conduct their
trade and are beyond the physical control of the owner/operator; they themselves
determine the amount of revenue they would want to earn in a day's driving; and, more
significantly aside from the fact that they pay for the gasoline they consume, they likewise
shoulder the cost of repairs on damages sustained by the vehicles they are driving.
Verily, all the foregoing attributes signify that the relationship of the parties is more of a
leasehold or one that is covered by a charter agreement under the Civil Code rather than
the Labor Code.18
The foregoing ratiocination goes against prevailing jurisprudence.
In a number of cases decided by this Court, 19 we ruled that the relationship between jeepney
owners/operators on one hand and jeepney drivers on the other under the boundary system is that of
employer-employee and not of lessor-lessee. We explained that in the lease of chattels, the lessor
loses complete control over the chattel leased although the lessee cannot be reckless in the use
thereof, otherwise he would be responsible for the damages to the lessor. In the case of jeepney
owners/operators and jeepney drivers, the former exercise supervision and control over the latter.
The management of the business is in the owner's hands. The owner as holder of the certificate of
public convenience must see to it that the driver follows the route prescribed by the franchising
authority and the rules promulgated as regards its operation. Now, the fact that the drivers do not
receive fixed wages but get only that in excess of the so-called "boundary" they pay to the
LabStan Cases

owner/operator is not sufficient to withdraw the relationship between them from that of employer and
employee. We have applied by analogy the abovestated doctrine to the relationships between bus
owner/operator and bus conductor,20 auto-calesa owner/operator and driver,21 and recently between
taxi owners/operators and taxi drivers.22 Hence, petitioners are undoubtedly employees of private
respondent because as taxi drivers they perform activities which are usually necessary or desirable in
the usual business or trade of their employer.
As consistently held by this Court, 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. The requirement of notice and hearing is set-out in Article 277
(b) of the said Code. Hence, petitioners, being employees of private respondent, can be dismissed
only for just and authorized cause, and after affording them notice and hearing prior to termination. In
the instant case, private respondent had no valid cause to terminate the employment of petitioners.
Neither were there two (2) written notices sent by private respondent informing each of the petitioners
that they had been dismissed from work. These lack of valid cause and failure on the part of private
respondent to comply with the twin-notice requirement underscored the illegality surrounding
petitioners' dismissal.
Under the law, an employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances,
and to his other benefits or their monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement. 23 It must be emphasized, though, that
recent judicial pronouncements24 distinguish between employees illegally dismissed prior to the
effectivity of Republic Act No. 6715 on March 21, 1989, and those whose illegal dismissals were
effected after such date. Thus, employees illegally dismissed prior to March 21, 1989, are entitled to
backwages up to three (3) years without deduction or qualification, while those illegally dismissed
after that date are granted full backwages inclusive of allowances and other benefits or their monetary
equivalent from the time their actual compensation was withheld from them up to the time of their
actual reinstatement. The legislative policy behind Republic Act No. 6715 points to "full backwages"
as meaning exactly that, i.e., without deducting from backwages the earnings derived elsewhere by
the concerned employee during the period of his illegal dismissal. Considering that petitioners were
terminated from work on August 1, 1991, they are entitled to full backwages on the basis of their last
daily earnings.
With regard to the amount deducted daily by private respondent from petitioners for washing of the
taxi units, we view the same as not illegal in the context of the law. We note that after a tour of duty, it
is incumbent upon the driver to restore the unit he has driven to the same clean condition when he
took it out. Car washing after a tour of duty is indeed a practice in the taxi industry and is in fact
dictated by fair play.25 Hence, the drivers are not entitled to reimbursement of washing
charges.1wphi1.nt
WHEREFORE, the instant petition is GRANTED. The assailed DECISION of public respondent dated
October 28, 1994, is hereby SET ASIDE. The DECISION of public respondent dated April 28, 1994,
and its RESOLUTION dated December 13, 1994, are hereby REINSTATED subject to
MODIFICATION. Private respondent is directed to reinstate petitioners to their positions held at the
time of the complained dismissal. Private respondent is likewise ordered to pay petitioners their full
backwages, to be computed from the date of dismissal until their actual reinstatement. However, the
order of public respondent that petitioners be reimbursed the amount paid as washing charges is
deleted. Costs against private respondents.
SO ORDERED.

Page 45

From industrial partner

G.R. No. L-72654-61 January 22, 1990
ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON, LAURENTE BAUTU, JAIME BARBIN,
NICANOR FRANCISCO, PHILIP CERVANTES and ELEUTERIO BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE GUZMAN FISHING ENTERPRISES
and/or ARSENIO DE GUZMAN, respondents.
J.C. Espinas & Associates for petitioners.
Tomas A. Reyes for private respondent.
FERNAN, C.J.:
The issue to be resolved in the instant case is whether or not the fishermen-crew members of the
trawl fishing vessel 7/B Sandyman II are employees of its owner-operator, De Guzman Fishing
Enterprises, and if so, whether or not they were illegally dismissed from their employment.
Records show that the petitioners were the fishermen-crew members of 7/B Sandyman II, one of
several fishing vessels owned and operated by private respondent De Guzman Fishing Enterprises
which is primarily engaged in the fishing business with port and office at Camaligan, Camarines Sur.
Petitioners rendered service aboard said fishing vessel in various capacities, as follows: Alipio Ruga
and Jose Parma patron/pilot; Eladio Calderon, chief engineer; Laurente Bautu, second engineer;
Jaime Barbin, master fisherman; Nicanor Francisco, second fisherman; Philip Cervantes and
Eleuterio Barbin, fishermen.
For services rendered in the conduct of private respondent's regular business of "trawl" fishing,
petitioners were paid on percentage commission basis in cash by one Mrs. Pilar de Guzman, cashier
of private respondent. As agreed upon, they received thirteen percent (13%) of the proceeds of the
sale of the fish-catch if the total proceeds exceeded the cost of crude oil consumed during the fishing
trip, otherwise, they received ten percent (10%) of the total proceeds of the sale. The patron/pilot,
chief engineer and master fisherman received a minimum income of P350.00 per week while the
assistant engineer, second fisherman, and fisherman-winchman received a minimum income of
P260.00 per week. 1
On September 11, 1983 upon arrival at the fishing port, petitioners were told by Jorge de Guzman,
president of private respondent, to proceed to the police station at Camaligan, Camarines Sur, for
investigation on the report that they sold some of their fish-catch at midsea to the prejudice of private
respondent. Petitioners denied the charge claiming that the same was a countermove to their having
formed a labor union and becoming members of Defender of Industrial Agricultural Labor
Organizations and General Workers Union (DIALOGWU) on September 3, 1983.
During the investigation, no witnesses were presented to prove the charge against petitioners, and no
criminal charges were formally filed against them. Notwithstanding, private respondent refused to
allow petitioners to return to the fishing vessel to resume their work on the same day, September 11,
1983.

LabStan Cases

On September 22, 1983, petitioners individually filed their complaints for illegal dismissal and nonpayment of 13th month pay, emergency cost of living allowance and service incentive pay, with the
then Ministry (now Department) of Labor and Employment, Regional Arbitration Branch No. V,
Legaspi City, Albay, docketed as Cases Nos. 1449-83 to 1456-83. 2 They uniformly contended that
they were arbitrarily dismissed without being given ample time to look for a new job.
On October 24, 1983, private respondent, thru its operations manager, Conrado S. de Guzman,
submitted its position paper denying the employer-employee relationship between private respondent
and petitioners on the theory that private respondent and petitioners were engaged in a joint
venture. 3
After the parties failed to reach an amicable settlement, the Labor Arbiter scheduled the case for joint
hearing furnishing the parties with notice and summons. On December 27, 1983, after two (2)
previously scheduled joint hearings were postponed due to the absence of private respondent, one of
the petitioners herein, Alipio Ruga, the pilot/captain of the 7/B Sandyman II, testified, among others,
on the manner the fishing operations were conducted, mode of payment of compensation for services
rendered by the fishermen-crew members, and the circumstances leading to their dismissal. 4
On March 31, 1984, after the case was submitted for resolution, Labor Arbiter Asisclo S. Coralde
rendered a joint decision 5 dismissing all the complaints of petitioners on a finding that a "joint fishing
venture" and not one of employer-employee relationship existed between private respondent and
petitioners.
From the adverse decision against them, petitioners appealed to the National Labor Relations
Commission.
On May 30, 1985, the National Labor Relations Commission promulgated its resolution 6 affirming the
decision of the labor arbiter that a "joint fishing venture" relationship existed between private
respondent and petitioners.
Hence, the instant petition.
Petitioners assail the ruling of the public respondent NLRC that what exists between private
respondent and petitioners is a joint venture arrangement and not an employer-employee
relationship. To stress that there is an employer-employee relationship between them and private
respondent, petitioners invite attention to the following: that they were directly hired by private
respondent through its general manager, Arsenio de Guzman, and its operations manager, Conrado
de Guzman; that, except for Laurente Bautu, they had been employed by private respondent from 8
to 15 years in various capacities; that private respondent, through its operations manager, supervised
and controlled the conduct of their fishing operations as to the fixing of the schedule of the fishing
trips, the direction of the fishing vessel, the volume or number of tubes of the fish-catch the time to
return to the fishing port, which were communicated to the patron/pilot by radio (single side band);
that they were not allowed to join other outfits even the other vessels owned by private respondent
without the permission of the operations manager; that they were compensated on percentage
commission basis of the gross sales of the fish-catch which were delivered to them in cash by private
respondent's cashier, Mrs. Pilar de Guzman; and that they have to follow company policies, rules and
regulations imposed on them by private respondent.
Disputing the finding of public respondent that a "joint fishing venture" exists between private
respondent and petitioners, petitioners claim that public respondent exceeded its jurisdiction and/or
abused its discretion when it added facts not contained in the records when it stated that the pilotcrew members do not receive compensation from the boat-owners except their share in the catch
Page 46

produced by their own efforts; that public respondent ignored the evidence of petitioners that private
respondent controlled the fishing operations; that public respondent did not take into account
established jurisprudence that the relationship between the fishing boat operators and their crew is
one of direct employer and employee.
Aside from seeking the dismissal of the petition on the ground that the decision of the labor arbiter is
now final and executory for failure of petitioners to file their appeal with the NLRC within 10 calendar
days from receipt of said decision pursuant to the doctrine laid down in Vir-Jen Shipping and Marine
Services, Inc. vs. NLRC, 115 SCRA 347 (1982), the Solicitor General claims that the ruling of public
respondent that a "joint fishing venture" exists between private respondent and petitioners rests on
the resolution of the Social Security System (SSS) in a 1968 case, Case No. 708 (De Guzman
Fishing Enterprises vs. SSS), exempting De Guzman Fishing Enterprises, private respondent herein,
from compulsory coverage of the SSS on the ground that there is no employer-employee relations
between the boat-owner and the fishermen-crew members following the doctrine laid down in Pajarillo
vs. SSS, 17 SCRA 1014 (1966). In applying to the case at bar the doctrine in Pajarillo vs. SSS, supra,
that there is no employer-employee relationship between the boat-owner and the pilot and crew
members when the boat-owner supplies the boat and equipment while the pilot and crew members
contribute the corresponding labor and the parties get specific shares in the catch for their respective
contribution to the venture, the Solicitor General pointed out that the boat-owners in
the Pajarillo case, as in the case at bar, did not control the conduct of the fishing operations and the
pilot and crew members shared in the catch.
We rule in favor of petitioners.
Fundamental considerations of substantial justice persuade Us to decide the instant case on the
merits rather than to dismiss it on a mere technicality. In so doing, we exercise the prerogative
accorded to this Court enunciated in Firestone Filipinas Employees Association, et al. vs. Firestone
Tire and Rubber Co. of the Philippines, Inc., 61 SCRA 340 (1974), thus "the well-settled doctrine is
that in labor cases before this Tribunal, no undue sympathy is to be accorded to any claim of a
procedural misstep, the idea being that its power be exercised according to justice and equity and
substantial merits of the controversy."
Circumstances peculiar to some extent to fishermen-crew members of a fishing vessel regularly
engaged in trawl fishing, as in the case of petitioners herein, who spend one (1) whole week or
more 7 in the open sea performing their job to earn a living to support their families, convince Us to
adopt a more liberal attitude in applying to petitioners the 10-calendar day rule in the filing of appeals
with the NLRC from the decision of the labor arbiter.
Records reveal that petitioners were informed of the labor arbiter's decision of March 31, 1984 only
on July 3,1984 by their non-lawyer representative during the arbitration proceedings, Jose Dialogo
who received the decision eight (8) days earlier, or on June 25, 1984. As adverted to earlier, the
circumstances peculiar to petitioners' occupation as fishermen-crew members, who during the
pendency of the case understandably have to earn a living by seeking employment elsewhere,
impress upon Us that in the ordinary course of events, the information as to the adverse decision
against them would not reach them within such time frame as would allow them to faithfully abide by
the 10-calendar day appeal period. This peculiar circumstance and the fact that their representative is
a non-lawyer provide equitable justification to conclude that there is substantial compliance with the
ten-calendar day rule of filing of appeals with the NLRC when petitioners filed on July 10, 1984, or
seven (7) days after receipt of the decision, their appeal with the NLRC through registered mail.
We have consistently ruled that in determining the existence of an employer-employee relationship,
the elements that are generally considered are the following (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to
LabStan Cases

control the employee with respect to the means and methods by which the work is to be
accomplished. 8 The employment relation arises from contract of hire, express or implied. 9 In the
absence of hiring, no actual employer-employee relation could exist.
From the four (4) elements mentioned, We have generally relied on the so-called right-of-control
test 10 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. The test calls merely for the
existence of the right to control the manner of doing the work, not the actual exercise of the right. 11
The case of Pajarillo vs. SSS, supra, invoked by the public respondent as authority for the ruling that
a "joint fishing venture" existed between private respondent and petitioners is not applicable in the
instant case. There is neither light of control nor actual exercise of such right on the part of the boatowners in the Pajarillo case, where the Court found that the pilots therein are not under the order of
the boat-owners as regards their employment; that they go out to sea not upon directions of the boatowners, but upon their own volition as to when, how long and where to go fishing; that the boatowners do not in any way control the crew-members with whom the former have no relationship
whatsoever; that they simply join every trip for which the pilots allow them, without any reference to
the owners of the vessel; and that they only share in their own catch produced by their own efforts.
The aforementioned circumstances obtaining in Pajarillo case do not exist in the instant case. The
conduct of the fishing operations was undisputably shown by the testimony of Alipio Ruga, the
patron/pilot of 7/B Sandyman II, to be under the control and supervision of private respondent's
operations manager. Matters dealing on the fixing of the schedule of the fishing trip and the time to
return to the fishing port were shown to be the prerogative of private respondent. 12 While performing
the fishing operations, petitioners received instructions via a single-side band radio from private
respondent's operations manager who called the patron/pilot in the morning. They are told to report
their activities, their position, and the number of tubes of fish-catch in one day. 13 Clearly thus, the
conduct of the fishing operations was monitored by private respondent thru the patron/pilot of 7/B
Sandyman II who is responsible for disseminating the instructions to the crew members.
The conclusion of public respondent that there had been no change in the situation of the parties
since 1968 when De Guzman Fishing Enterprises, private respondent herein, obtained a favorable
judgment in Case No. 708 exempting it from compulsory coverage of the SSS law is not supported by
evidence on record. It was erroneous for public respondent to apply the factual situation of the parties
in the 1968 case to the instant case in the light of the changes in the conditions of employment
agreed upon by the private respondent and petitioners as discussed earlier.
Records show that in the instant case, as distinguished from the Pajarillo case where the crew
members are under no obligation to remain in the outfit for any definite period as one can be the crew
member of an outfit for one day and be the member of the crew of another vessel the next day, the
herein petitioners, on the other hand, were directly hired by private respondent, through its general
manager, Arsenio de Guzman, and its operations manager, Conrado de Guzman and have been
under the employ of private respondent for a period of 8-15 years in various capacities, except for
Laurente Bautu who was hired on August 3, 1983 as assistant engineer. Petitioner Alipio Ruga was
hired on September 29, 1974 as patron/captain of the fishing vessel; Eladio Calderon started as a
mechanic on April 16, 1968 until he was promoted as chief engineer of the fishing vessel; Jose
Parma was employed on September 29, 1974 as assistant engineer; Jaime Barbin started as a pilot
of the motor boat until he was transferred as a master fisherman to the fishing vessel 7/B Sandyman
II; Philip Cervantes was hired as winchman on August 1, 1972 while Eleuterio Barbin was hired as
winchman on April 15, 1976.
While tenure or length of employment is not considered as the test of employment, nevertheless the
hiring of petitioners to perform work which is necessary or desirable in the usual business or trade of
Page 47

private respondent for a period of 8-15 years since 1968 qualify them as regular employees within the
meaning of Article 281 of the Labor Code as they were indeed engaged to perform activities usually
necessary or desirable in the usual fishing business or occupation of private respondent. 14
Aside from performing activities usually necessary and desirable in the business of private
respondent, it must be noted that petitioners received compensation on a percentage commission
based on the gross sale of the fish-catch i.e. 13% of the proceeds of the sale if the total proceeds
exceeded the cost of the crude oil consumed during the fishing trip, otherwise only 10% of the
proceeds of the sale. Such compensation falls within the scope and meaning of the term "wage" as
defined under Article 97(f) of the Labor Code, thus:
(f) "Wage" paid to any employee shall mean the remuneration or earnings,
however designated, capable of being expressed in terms of money, whether
fixed or ascertained on a time, task, piece or commission basis, or other method
of calculating the same, which is payable by an employer to an employee under
a written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered, and included the fair and reasonable value,
as determined by the Secretary of Labor, of board, lodging, or other facilities
customarily furnished by the employer to the employee. . . .
The claim of private respondent, which was given credence by public respondent, that petitioners get
paid in the form of share in the fish-catch which the patron/pilot as head of the team distributes to his
crew members in accordance with their own understanding 15 is not supported by recorded evidence.
Except that such claim appears as an allegation in private respondent's position paper, there is
nothing in the records showing such a sharing scheme as preferred by private respondent.
Furthermore, the fact that on mere suspicion based on the reports that petitioners allegedly sold their
fish-catch at midsea without the knowledge and consent of private respondent, petitioners were
unjustifiably not allowed to board the fishing vessel on September 11, 1983 to resume their activities
without giving them the opportunity to air their side on the accusation against them unmistakably
reveals the disciplinary power exercised by private respondent over them and the corresponding
sanction imposed in case of violation of any of its rules and regulations. The virtual dismissal of
petitioners from their employment was characterized by undue haste when less extreme measures
consistent with the requirements of due process should have been first exhausted. In that sense, the
dismissal of petitioners was tainted with illegality.
Even on the assumption that petitioners indeed sold the fish-catch at midsea the act of private
respondent virtually resulting in their dismissal evidently contradicts private respondent's theory of
"joint fishing venture" between the parties herein. A joint venture, including partnership, presupposes
generally a parity of standing between the joint co-venturers or partners, in which each party has an
equal proprietary interest in the capital or property contributed 16 and where each party exercises
equal lights in the conduct of the business. 17 It would be inconsistent with the principle of parity of
standing between the joint co-venturers as regards the conduct of business, if private respondent
would outrightly exclude petitioners from the conduct of the business without first resorting to other
measures consistent with the nature of a joint venture undertaking, Instead of arbitrary unilateral
action, private respondent should have discussed with an open mind the advantages and
disadvantages of petitioners' action with its joint co-venturers if indeed there is a "joint fishing venture"
between the parties. But this was not done in the instant case. Petitioners were arbitrarily dismissed
notwithstanding that no criminal complaints were filed against them. The lame excuse of private
respondent that the non-filing of the criminal complaints against petitioners was for humanitarian
reasons will not help its cause either.

LabStan Cases

We have examined the jurisprudence on the matter and find the same to be supportive of petitioners'
stand. InNegre vs. WCC 135 SCRA 653 (1985), we held that fishermen crew members who were
recruited by one master fisherman locally known as "maestro" in charge of recruiting others to
complete the crew members are considered employees, not industrial partners, of the boat-owners. In
an earlier case of Abong vs. WCC, 54 SCRA 379 (1973) where petitioner therein, Dr. Agustin Abong,
owner of the fishing boat, claimed that he was not the employer of the fishermen crew members
because of an alleged partnership agreement between him, as financier, and Simplicio Panganiban,
as his team leader in charge of recruiting said fishermen to work for him, we affirmed the finding of
the WCC that there existed an employer-employee relationship between the boat-owner and the
fishermen crew members not only because they worked for and in the interest of the business of the
boat-owner but also because they were subject to the control, supervision and dismissal of the boatowner, thru its agent, Simplicio Panganiban, the alleged "partner" of Dr. Abong; that while these
fishermen crew members were paid in kind, or by "pakiao basis" still that fact did not alter the
character of their relationship with Dr. Abong as employees of the latter.
In Philippine Fishing Boat Officers and Engineers Union vs. Court of Industrial Relations, 112 SCRA
159 (1982), we held that the employer-employee relationship between the crew members and the
owners of the fishing vessels engaged in deep sea fishing is merely suspended during the time the
vessels are drydocked or undergoing repairs or being loaded with the necessary provisions for the
next fishing trip. The said ruling is premised on the principle that all these activities i.e., drydock,
repairs, loading of necessary provisions, form part of the regular operation of the company fishing
business.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The questioned resolution of the
National Labor Relations Commission dated May 30,1985 is hereby REVERSED and SET ASIDE.
Private respondent is ordered to reinstate petitioners to their former positions or any equivalent
positions with 3-year backwages and other monetary benefits under the law. No pronouncement as to
costs. SO ORDERED.
Villavilla vs. CA
G.R. No. 72409 December 29, 1986
MAMERTO S. BESA, doing business under the name and style of BESA'S CUSTOMBUILT
SHOES,petitioner,
vs.
THE HONORABLE CRESENCIANO B. TRAJANO, DIRECTOR OF THE BUREAU OF LABOR
RELATIONS, MINISTRY OF LABOR AND EMPLOYMENT, AND KAISAHAN NG
MANGGAGAWANG PILIPINO (KAMPIL-KATIPUNAN), respondents.
De Asis and Hernando Law Office for petitioner.
Estebal M. Mendoza for private respondent.
PARAS, J.:
This petition questions the decision of the Director of the Bureau of Labor Relations in BLR Case No.
A-8-165-85, which affirmed the appealed order of the Med-Arbiter, Labor Relations Division, NCR in
NCR-LRD-M-1-044-85, a certification election case. More specifically, petitioner seeks the resolution
of the question as to whether or not an employer-employee relationship exists between herein
petitioner and the seventeen (17) shoeshiners-members of the respondent union, who, if the
Page 48

relationship does exist, should be entitled to the rights, privileges and benefits of an employee as
provided in the Labor Code.
Sometime in January, 1985, private respondent Kaisahan ng Mangagawang Pilipino KAMPIL for
short) a legitimate labor union duly registered with the Ministry of Labor and Employment (MOLE, for
short), filed a Petition for Certification Election, docketed as NCR-LRD-M-1-044-85 in the National
Labor Relations Division of the National Capital Region. Petitioner opposed it alleging that

Thus the Petition of the Union (KAMPIL) before the Med-Arbiter for the holding of the certification
election was granted. While the pre-election conference was in progress, petitioner herein BESAS
filed with Us with petition for certiorari with Prohibition and simultaneously filed with the Med-Arbiter a
motion to suspend the pre-election conference. The petition filed before Us was dismissed for lack of
merit but was reconsidered upon Motion of petitioner. In its Motion for Reconsideration, petitioner
raised the following grounds:
I

1. There is no employer-employee relationship between Besa's and the petitionerssignatories to the petition;
2. The subject of the present petition had previously been decided by the defunct Court of
Industrial Relations, and is therefore barred under the principle of res judicata;
3. The petition fails to comply with the mandatory formal requirements under Sec. 2, Book
V, of the Omnibus Rules Implementing the Labor Code; and
4. This Hon. Commission has no jurisdiction over the subject matter and parties to the
petition.
Acting on the Petition, the Opposition thereto, and the Reply to the Opposition, the Med-Arbiter on
June 27, 1985, issued an order declaring that there was an employer-employee relationship between
the parties and directed that an election be conducted.

THE INSTANT PETITION PRESENTS QUESTIONS OF LAW AND SUBSTANCE TO

MERIT THE CONSIDERATION OF THIS HONORABLE COURT.
II
THE QUESTIONED DECISION OF THE RESPONDENT DIRECTOR WAS NOT
SUPPORTED BY SUBSTANTIAL EVIDENCE AND THE SAME IS PURELY BASED ON
SPECULATIONS, SURMISES AND CONJECTURES.
III
THE QUESTIONED DECISION OF THE RESPONDENT DIRECTOR IS CONTRARY TO
LAW AND APPLICABLE DECI SIONS OF THE SUPREME COURT ON THE MATTER.
IV

Petitioner appealed the order to the Director of BLR citing among others the following reasons
1. That the subject of the present petition has previously been decided by the defunct Court
of Industrial Relations, and is therefore barred under the principle of res judicata (CIR Case
Nos. 2783, 2751 and 2949 ULP December 21, 1965);
2. That on May 28, 1985, Director Severo Pucan of the Ministry of Labor and Employment,
in dismissing the case for underpayment of commissions and non-payment of ECOLA, filed
by the shoeshiners against Besas Custombuilt Shoes, for lack of jurisdiction petition,
declared that there was no employer-employee relationship between the shoeshiners and
petitioner Besas (Order in NCR-LSED1-020-85);
Director Pucan's findings were based on a letter-opinion of the Director of the Bureau of
Working Conditions of the MOLE (Annex "B-2", Petition for Certiorari). The legal ground
therein cited was res judicata.
xxx xxx xxx
Appeal was dismissed by the Director of BLR as contained in his decision dated Sept. 27, 1985
upholding the finding of the Med-Arbiter that supervisors were appointed to oversee the bootblacks'
performance. It declared that such is a finding of fact that is entitled to respect and that res
judicata does not he as the parties and the causes of action in the certification election case are
different from the parties and causes of action in CIR Cases Nos. 2783-ULP 2751-ULP and 2949
ULP

LabStan Cases

THE PETITION FOR CERTIFICATION ELECTION FILED BY RESPONDENT UNION

WITH THE MINISTRY OF LABOR AND EMPLOYMENT FAILED TO COMPLY WITH THE
MANDATORY REQUIREMENTS UNDER ARTICLE 258 OF THE LABOR CODE, AS
AMENDED, AND ITS IMPLEMENTING RULES.
V
THE RESPONDENT DIRECTOR ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION IN DECIDING THAT THERE EXISTS AN
EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PETITIONER AND THE
SHOESHINER-MEMBERS OF THE RESPONDENT UNION,
VI
THE RESPONDENT DIRECTOR ACTED WITHOUT JURISDICTION IN TAKING
COGNIZANCE OF THE BASIC PETITION CONSIDERING THAT THE SUBJECT
MATTER AND THE PARTIES THEREOF HAVE BEEN DECIDED BY THE DEFUNCT
COURT OF INDUSTRIAL RELATIONS AND IS THEREFORE BABRED BY THE
PRINCIPLE OF RES ADJUDICATA.
The main thrust of the instant petition is the question of employer-employee relationship between
petitioner BESAS and 17 of the members of the herein respondent Union who are designated as
shoeshiners. During the certification election held on Nov. 26, 1985 at BESAS of the 53 eligible
voters, 49 cast their votes. 33 voted for the union while 16 voted for no union. Among the 33 voters
who opted for a union 17 persons are shoeshiners while 16 persons are non-shoeshiners.
Page 49

The question of employer-employee relationship became a primodial consideration in resolving

whether or not the subject shoeshiners have the juridical personality and standing to present a
petition for certification election as well as to vote i therein. It is the position of petitioner that if the
shoeshiners are not considered as employees of Besa's the basic petition for certification election
must necessarily be dismissed for failure to comply with the mandatory requirements of the Labor
Code, as amended, that at least thirty (30%) percent of the employees must support the petition for
certification election and that in order to be certified as the sole and exclusive bargaining agent, the
union must be obtained a majority of the valid votes cast by eligible voters. In the instant case, if the
17 shoeshiners are declared ineligible and their votes are consequently nullified the result of the
certification election would be 16 "Yes" votes (33 minus 17) and 16 "No" votes, which is a tie. Since
the respondent union did not obtain a clear majority for the "Yes" votes as required under Rule IV
Sec. 8(f) of the Omnibus Rules of the Labor Code, it necessarily follows that the respondent union
cannot be certified as the sole and exclusive bargaining agent of the workers of Besa's.

The most important condition to be considered is the exercise of control and supervision
over the employees, per our conversation, the persons concerned under your query are the
shoe shiners and based on the decision rendered by Associate Judge Emiliano Tabigne of
the defunct Court of Industrial Relations, these shoe shiners are not employees of the
company, but are partners instead. This is due to the fact that the owner/manager does not
exercise control and supervision over the shoe shiners. That the shiners have their own
customers from whom they charge the fee and divide the proceeds equally with the owner,
which make the owner categorized them as on purely commission basis. The attendant
circumstances clearly show that there is no employer-employee relationship existing, and
such the owner/manager is not by law, under obligation to extend to those on purely
commission basis the benefit of Wage Order No. 2. However, the law does not preclude the
employer in giving such benefit to all its employees including those which may not be
covered by the mandate of the law.

The present petition merits Our consideration. The records of the case reveal that an employeremployee relationship does not exist between the 17 shoeshiners and petitioner.

(Letter dated December 27, 1985 addressed to petitioner Annex B-2, Petition)

Be it noted that the defunct CIR in dismissing the cases for unfair labor practice filed by the
shoeshiners against herein petitioner BESA declared in its Decision dated December 21, 1965 that:

The Office of the Solicitor General as counsel for public respondent agrees that in the present case,
no employer-employee relationship exists.
The Supreme Court in the Rosario Brothers case ruled that;

The shoe shiner is distinct from a piece worker because while the latter is paid for work
accomplished, he does not, however, contribute anything to the capital of the employer
other than his service. It is the employer of the piece worker who pays his wages, while the
shoe shiner in this instance is paid directly by his customer. The piece worker is paid for
work accomplished without regard or concern to the profit as derived by his employer, but
in the case of the shoe shiners, the proceeds derived from the trade are always divided
share and share alike with respondent BESA. The shoe shiner can take his share of the
proceeds everyday if he wanted to or weekly as is the practice of qqqBesas The employer
of the piece worker supervises and controls his work, but in the case of the shoe shiner,
respondent BESA does not exercise any degree of control or supervision over their person
and their work. All these are not obtaining in the case of a piece worker as he is in fact an
employee in contemplation of law, distinct from the shoe shiner in this instance who, in
relation to respondent MAMERTO B. BESA, is a partner in the trade. Consequently,
employer-employee relationship between members of the Petitioning union and respondent
MAMERTO B. BESA being absent the latter could not be held guilty of the unfair tabor
practice acts imputed against him. (p. 6, Annex "B1 " of said Decision).<re||an1w>
Then too on Dec. 27, 1983, then Director Augusto Sanchez of the Bureau of Working Conditions,
MOLE, in response to a letter of petitioner relative to the implementation of wage Order No. 2 which
provided for an increase both in minimum wage and cost of living allowance, opined as follows:

A basic factor underlying the exercise of rights under the Labor Code is the status of
employment. It is important in the determination of who shall be included in a proposed
bargaining unit because it is sine qua non. The fundamental and essential condition that a
bargaining unit be composed of employees. Failure to establish this juridical relationship
between the union members and the employer affects the legality of the union itself. It
means the ineligibility of the union members to present a petition for certification election as
well as to vote therein.
Existence of employer-employee relationship is determined by the following elements,
namely, a] selection and engagement of the employee; b] payment of wages; c] powers of
dismissal; and d] power to control the employee's conduct although the latter is the most
important element (Rosario Brothers Inc, vs. Ople, 131 SCRA 72, 1984)
WHEREFORE, judgment is hereby rendered giving due course to the Petition and declaring VOID the
decision of the Director of the Bureau of Labor Relations dated September 27, 1985. The Petition in
BLR Case No. A-8-165-85 (NCR-LRD-M1-044-85) is therefore hereby DISMISSED.
SO ORDERED.

Entitlement of the minimum requirements of the law particularly on wages and allowances
presupposes the existence of employer-employee relationship which is determined by the
concurrence of the following conditions:
1. right to hire
2. payment of wages
3. right to fire; and
4. control and supervision
LabStan Cases

Page 50

contending that the latter was liable for the statutory increases, while PTS moved to dismiss on the
ground that it belonged to the public sector and was not covered by the Labor Code.

107 (Indirect employee)

G.R. No. 82868 August 5, 1991
DIOSCORO RABAGO, JOSELITO LAGUNA, MELCHOR ESCOLTURA MORENO MANGABAT,
FORTUNATO SARSONAS, ELESEO ASEDELLO, ROMAN DELOS ARCOS, GREGORIO
RETARDO, PAULINO IGNACIO, EMILIANO LAGAHIT, RODOLFO DACORO, ARNEL PERILLO,
NARCISO BUERA, LITO REYES, CRISANTO SUSING, DERVIN SOTTO, JOEY SOTTO, LARRY
FULGENCIO, ANTONIO SIGUA, ALBERTO LASERNA, RODEL PANOTES, GAVINO ARUGAY,
ROMUALDO REVELLAME, CASTOR NATIVIDAD, ERNESTO ASUNCION, CONRADO MONZON,
ARNULFO BALMORES, ARIEL MEDINA, DOMINADOR OBANDO, MOISES AFABLE, ORLANDO
ARRIOLA, DANTE BADAJOS, FEDERICO COMNANG, MAMERTO ROMERO, RODOLFO
NAVALTA, ROBERTO GABRAL, ROBERTO LAGUNA, RIZAL MARASIGAN, ANTONIO,
PASTRO, FRANCISCO PALASIGUE and ANGELINA PANAGSAGAN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and PHILIPPINE TUBERCULOSIS SOCIETY,
INC., respondents.
G.R. No. 82932 August 5, 1991
ACE BUILDING CARE, represented by its Acting Manager, AMERICO A. RAZON, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, DIOSCORO RABAGO and Forty (40) others,
and PHILIPPINE TUBERCULOSIS SOCIETY, INC., respondents.
Wilfredo Taganas for petitioners in G.R. No. 82868.
Rito B. Samson for petitioners in G.R. No. 82932.
Quiason, Makalintal, Barot Torres and Ibarra for private respondent PTSI.
Luis S. Vengua for Bondsman FCAC Inc.

On the basis of the position papers and other evidence submitted by the parties, Labor Arbiter Felipe
T. Garduque II held on September 30,1987, that the complainants were not entitled to legal holiday
pay and to reimbursement of cash bond or separation pay except for five of them who were allowed
separation pay. The decision also awarded incentive leave with pay except for seven of them, who
had worked less than one year. 1
The Labor Arbiter also held ABC and PTSI jointly and severally liable for payment of the wage
differentials under Wage Orders Nos. 5 and 6.
Both ABC and PTSI appealed to the NLRC, which on February 15, 1988, affirmed the decision with
respect to the award of separation pay and service incentive leave with pay but held that it was ABC
alone that should pay the wage differentials under Wage Orders Nos. 5 and 6. 2
The complainants and ABC filed their respective motions for reconsideration and, upon denial
thereof, filed the separate petitions for certiorari with this Court. Upon motion of ABC, we issued on
May 11, 1988, a temporary restraining order enjoining the NLRC from enforcing and/or carrying out is
decision dated February 15, 1988. On September 28, 1988, we consolidated the two petitions.
In G.R. No. 82868, the petitioners-complainants argue that the respondent Commission erred in not
holding respondents PTS and ABC jointly and solidarily liable for the differential pay required under
Wage Orders Nos. 5 and 6.
In G.R. No. 82932, petitioner ABC raises three issues, to wit:
1. Whether or not herein petitioner Ace Building Care is liable for the wages and
allowances mandated by Wage Orders Nos. 5 and 6; and whether or not herein
respondent Philippine Tuberculosis Society Inc. should be exempted from the
payment of the wages and allowances under the said Wage Orders to the
individual respondents.
2. Whether or not herein petitioner is liable to the individual respondents for the
payment of the service incentive pay.
3. Whether or not herein petitioner is liable to the five individual respondents for
the payment of separation pay.

CRUZ, J.:p
In 1981, Ace Building Care and the Philippine Tuberculosis Society entered into a contract under
which the former would provide the latter with janitorial and allied services for a stipulated
consideration, subject to such adjustment as might be subsequently required by law. The contract
was renewed yearly until 1985, when the services were placed under public bidding and a new
contract was awarded to another company, which then took over from ABC.
On September 9, 1985, the 41 janitors ABC had earlier detailed to PTS filed a complaint with the
National Labor Relations Commission against both ABC and PTS for unpaid wage differentials under
Wage Order Nos. 5 and 6, holiday premium pay, damages and attorney's fees, reimbursement of
cash bond, incentive leave pay and bonus and separation pay. ABC filed a cross-claim against PTS,
LabStan Cases

The first and common issue in these two petitions has already been resolved by this Court in Eagle
Security Agency, Inc. vs. NLRC, 3 where we held:
Petitioners' solidary liability for the amounts due the security guards finds support
in Articles 106, 107 and 109 of the Labor Code which state that:
Art. 106. Contractor or subcontractor. - Whenever an employer enters into a
contract with another person for the performance of the former's work, the
employees of the contractor and of the latters' subcontractor, if any, shall be paid
in accordance with the provisions of this Code.

Page 51

In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to the
extent that he is liable to employees directly employed by him.
xxxxxxxxx
Art. 107. Indirect employer. - The provisions of the immediately preceding Article
shall likewise apply to any person, partnership, association or corporation which,
not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project.

branches, subdivisions and instrumentalities, all government-owned or controlled

corporations and institutions (Article 97(b), Labor Code).
In his Manifestation dated November 8, 1989, the Solicitor General declared that his office was
"abiding by the aforementioned ruling of the Honorable Court". PTS, on the other hand, urges us to
re-examine the said case, insisting that the Philippine Tuberculosis Society is expressly mentioned as
belonging to the public sector in Section 3 of the Rules Implementing Title II, Book IV of the Labor
Code, thus:
SEC. 3. Employer - (a) The term shall mean any person natural or juridical,
domestic or foreign, who carries on in the Philippines any trade, business,
industry, undertaking or activity of any kind and uses the services of another
person who is under his orders as regards the employment.

xxxxxxxxx

(b) an employer shall belong to either:

Art. 109. Solidary liability. - The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible
with his contractor or subcontractor for any violation of this Code. For purposes
of determining the extent of the civil liability under this Chapter, they shall be
considered as direct employers.
This joint and several liability of the contractor and the principal is mandated by
the Labor Code to assure compliance of the provisions therein including the
statutory minimum wage (Article 99, Labor Code). The contractor is made liable
by virtue of his status as direct employer. The principal, on the other hand, is
made the indirect employer of the contractor's employees for purposes of paying
the employees their wages should the contractor be unable to pay them. This
joint and several liability facilitates, if not guarantees, payment of the workers'
performance of any work, task, job or project, thus giving the workers ample
protection as mandated by the 1987 Constitution (See Article II, Sec. 18 and
Article XIII, Sec. 3).
In the case at bar, it is beyond dispute that the security guards are the
employees of EAGLE (See Article VII, Sec. 2 of the Contract for Security
Services; G.R. No. 81447, Rollo, p. 34). That they were assigned to guard the
premises of PTSI pursuant to the latter's contract with EAGLE and that neither of
these two entities paid their wage and allowance increases under the subject
wage orders are also admitted (See Labor Arbiter's Decision, p. 2; G.R. No.
81447, Rollo, p. 75). Thus, the application of the aforecited provisions of the
Labor Code on joint and several liability of the principal and contractor is
appropriate (See Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, G.R.
No. 64204, May 31,1985,136 SCRA 669).
On the disavowal of liability by PTS on the ground that it belongs to the public sector, the Court
declared through Justice Cortes:
PTSI also alleges that it is exempt from payment under the subject Wage Orders
because it is a public sector employer while the Wage Orders cover only
employers and employees in the private sector (G. R. No. 81447, Petition, p. 9;
Rollo, p. 10). This is unmeritorious. The definition of a public sector employer
relied upon by PTSI is relevant only for purposes of coverage under the
Employees' Compensation. Moreover, the Labor Code provides that as used in
Book Title II on Wages, the term "employer" includes "the Government and all its
LabStan Cases

(1) The public sector covered by the GSIS, comprising the National Government,
including government-owned or controlled corporations, the Philippine
Tuberculosis Society, the Philippine National Red Cross, and the Philippine
Veterans Bank;
(2) The private sector covered by the SSS, comprising all employers other than
those defined in the immediately preceding paragraph. (Emphasis supplied)
PTS adds:
While it is true that the term "employer" as used in Title II, Book Three of the
Labor Code, includes "the Government and all its branches, subdivisions and
instrumentalities, all government-owned or controlled corporations and
institutions . . .," it does not follow that the government and all its branches,
subdivisions, agencies and instrumentalities are covered by Wage Orders Nos. 5
and 6. If it were so, then every employee in the government receiving the
minimum wage would be entitled to wage adjustments thereunder, This,
however, is not what the wage orders intended so their application had to be
limited to "workers in the private sector".
We disagree.
As the Court sees it, the wage orders do not apply to the direct employees of PTS who in fact are
members of the Government Service Insurance System. The complainants in G.R. No. 82868
unquestionably belong to the private sector and for this reason are covered by the Social Security
System. They are the indirect employees of the PTS and as such are entitled to hold it liable,
solidarity with their direct employer, for their unpaid wage differentials. In this sense, the PTS is
correctly classified as an employer coming under the private sector. The reference to it as belonging
to the public sector relates only to its direct employees "for purposes of coverage under the
Employees' Compensation Commission," not to its indirect employees coming from the private sector.
The issues regarding the separation pay and the service incentive leave pay are factual. We have
said often enough that the findings of fact of quasi-judicial agencies which have acquired expertise on
the specific matters entrusted to their jurisdiction are accorded by this Court not only respect but even
finality if they are supported by substantial evidence. 4
Page 52

We are satisfied that the complainants were able to establish by Exhibit "B" their length of service to
entitle them to service incentive leave with pay. The argument that the affidavit is hearsay because
the affiants were not presented for cross-examination is not persuasive because the rules of evidence
are not strictly observed in proceedings before administrative bodies like the NLRC, where decisions
may be reached on the basis of position papers only. It is also worth noting that ABC has not
presented any evidence of its own to disprove the complainant's claim. As the Solicitor General
correctly points out, it would have been so easy to submit the complainants' employment records,
which were in the custody of ABC, to show that they had served for less than one year.
A slight modification must be made, though, in the case of Norma Moreno Mangabat, who was
denied the service incentive leave with pay, possibly through an oversight. Exhibit "B" shows that her
employment was from "7/79 to 12/81 and 3/84 to 7/84." Section 3 of Rule V, Book III of the Omnibus
Rules Implementing the Labor Code, provides that the term "at least one year service" shall mean
service within 12 months, whether continuous or broken, reckoned from the date the employee
started working.
The submission that the five complainants awarded separation pay were not entitled thereto because
their terms expired it with the contract with PTS is also not acceptable. ABC never offered any
evidence that the employment of the claimants was co-terminal with the janitorial contract. We agree
that the termination of ABC's contract with PTS resulted in a partial closure or cessation of operations
of ABC that called for the application (if only by analogy) of Article 283 of the Labor Code providing in
part as follows:
... In case of retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent to
one (1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one
(1) whole year.
Our conclusion is that Ace Building Care and the Philippine Tuberculosis Society are solidarily liable
to the complainants for their differential pay under Wage Orders Nos. 5 and 6, PTS being considered
in the circumstances of this case to be the indirect employer of workers in the private sector. ABC is
liable for the payment of the separation pay and incentive leave pay of the complainants mentioned in
the challenged decisions, with the modification only that Norma Moreno Mangabat shall also be
entitled to service incentive leave with pay:
In view of the above findings, it is no longer necessary to resolve the motion of the complainants that
the supersedeas bond fixed by the Court for the issuance of the temporary restraining order on May
11, 1988, be increased to P500,000.00.
ACCORDINGLY, judgment is rendered as follows:
(1) In G.R. No. 82868, the decision of respondent NLRC is
SET ASIDE and that of Labor Arbiter Felipe Garduque II is
REINSTATED, with the modification that Norma Moreno
Mangabat shall also be granted service incentive leave with
pay.
(2) In G.R. No. 82932, the petition is DISMISSED, with costs
against the petitioner.

LabStan Cases

(3) The temporary restraining order dated May 11, 1988, is

LIFTED.

SO ORDERED

Labor-only contractor (105-107)

G.R. No. L-77629 May 9, 1990
KIMBERLY INDEPENDENT LABOR UNION FOR SOLIDARITY, ACTIVISM AND NATIONALISMORGANIZED LABOR ASSOCIATION IN LINE INDUSTRIES AND AGRICULTURE (KILUSANOLALIA), ROQUE JIMENEZ, MARIO C. RONGALEROS and OTHERS, petitioners,
vs.
HON. FRANKLIN M. DRILON, KIMBERLY-CLARK PHILIPPINES, INC., RODOLFO POLOTAN,
doing business under the firm name "Rank Manpower Co." and UNITED KIMBERLY-CLARK
EMPLOYEES UNION-PHILLIPPINE TRANSPORT AND GENERAL WORKERS ORGANIZATION
(UKCEU-PTGWO), respondents.
KIMBERLY INDEPENDENT LABOR UNION FOR SOLIDARITY, ACTIVITISM AND NATIONALISMOLALIA (KILUSAN-OLALIA), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, MANUEL AGUILAR, MA. ESTRELLA ALDA,
CAPT. REY L. LANADA, COL. VIVENCIO MANAIG and KIMBERLY-CLARK PHILIPPINES,
INC., respondents.
REGALADO, J.:
Before us are two consolidated petitions for certiorari filed by the above-named petitioner union
(hereinafter referred to as KILUSAN-OLALIA, for conciseness) and individual complainants therein, to
wit (a) G.R. 77629, which seeks to reverse and set aside the decision, dated November 13,
1986, 1 and the resolution, dated January 9, 1987, 2 respectively handed down by the two former
Ministers of Labor, both rendered in BLR Case No. NS-5-164-86; and (b) G.R. No. 78791, which
prays for the reversal of the resolutions of the National Labor Relations Commission, dated May 25,
1987 3 and June 19,1987 4 issued in Injunction Case No. 1442 thereof.
Kimberly-Clark Philippines, Inc. (KIMBERLY, for brevity) executed a three-year collective bargaining
agreement (CBA) with United Kimberly-Clark Employees Union-Philippine Transport and General
Workers' Organization (UKCEU-PTGWO) which expired on June 30, 1986.
Within the 60-day freedom period prior to the expiration of and during the negotiations for the renewal
of the aforementioned CBA, some members of the bargaining unit formed another union called
"Kimberly Independent Labor Union for Solidarity, Activism and Nationalism-Organized Labor
Association in Line Industries and Agriculture (KILUSAN-OLALIA)."
On April 21, 1986, KILUSAN-OLALIA filed a petition for certification election in Regional Office No. IV,
Ministry of Labor and Employment (MOLE), docketed as Case No. RO4-OD-M-415-86. 5 KIMBERLY
and (UKCEU-PTGWO) did not object to the holding of a certification election but objected to the
inclusion of the so-called contractual workers whose employment with KIMBERLY was coursed
Page 53

through an independent contractor, Rank Manpower Company (RANK for short), as among the
qualified voters.
Pending resolution of the petition for certification election by the med-arbiter, KILUSAN-OLALIA filed
a notice of strike on May 7, 1986 with the Bureau of Labor Relations, docketed as BLR Case No. NS5-164-86, 6 charging KIMBERLY with unfair labor practices based on the following alleged acts: (1)
dismissal of union members (KILUSAN-OLALIA); (2) non-regularization of casuals/contractuals with
over six months service; (3) non-implementation of appreciation bonus for 1982 and 1983; (4) nonpayment of minimum wages; (5) coercion of employees; and (6) engaging in CBA negotiations
despite the pendency of a petition for certification election. This was later amended to withdraw the
charge of coercion but to add, as new charges, the dismissal of Roque Jimenez and the non-payment
of backwages of the reinstated Emerito Fuentes . 7
Conciliation proceedings conducted by the bureau proved futile, and KILUSAN-OLALIA declared a
strike at KIMBERLY's premises in San Pedro, Laguna on May 23, 1986.
On May 26, 1986, KIMBERLY petitioned MOLE to assume jurisdiction over the labor dispute. On May
30, 1986, finding that the labor dispute would adversely affect national interest, then Minister Augusto
S. Sanchez issued an assumption order, the dispositive portion whereof reads:
Wherefore, premises considered, immediately upon receipt of this order, the
striking union and its members are hereby enjoined to lift the picket and remove
all obstacles to the free ingress to and egress from the company premises and to
return to work, including the 28 contractual workers who were dismissed;
likewise, the company is directed to resume its operations immediately thereafter
and to accept all the employees back under the same terms and conditions of
employment prevailing prior to the industrial action. Further, all issues in the
notice of strike, as amended, are hereby assumed in this assumption order,
except for the representation issue pending in Region IV in which the Med-Arbiter
is also enjoined to decide the same the soonest possible time. 8
In obedience to said assumption order, KILUSAN-OLALIA terminated its strike and picketing activities
effective June 1, 1986 after a compliance agreement was entered into by it with KIMBERLY. 9
On June 2, 1986, Med-Arbiter Bonifacio 1. Marasigan, who was handling the certification election
case (RO4-OD-M-4-1586), issued an order 10 declaring the following as eligible to vote in the
certification election, thus:
1. The regular rank-and-file laborers/employees of the respondent company
consisting of 537 as of May 14, 1986 should be considered qualified to vote;
2. Those casuals who have worked at least six (6) months as appearing in the
payroll months prior to the filing of the instant petition on April 21, 1986; and

the parties that the 64 voters shall be allowed to cast their votes but that their ballots shall be
segregated and subject to challenge proceedings. The certification election was conducted on July I.,
1986, with the following results: 11
1. KILUSAN-OLALIA = 246 votes
2. (UKCEU-PTGWO) = 266 votes
3. NO UNION = 1 vote
4. SPOILED BALLOTS = 4 votes
5. CHALLENGED BALLOTS = 64 votes

TOTAL 581 votes

On July 2, 1986, KILUSAN-OLALIA filed with the med-arbiter a "Protest and Motion to Open and
Count Challenged Votes" 12 on the ground that the 64 workers are employees of KIMBERLY within
the meaning of Article 212(e) of the Labor Code. On July 7, 1986, KIMBERLY filed an opposition to
the protest and motion, asserting that there is no employer-employee relationship between the casual
workers and the company, and that the med-arbiter has no jurisdiction to rule on the issue of the
status of the challenged workers which is one of the issues covered by the assumption order. The
med-arbiter opted not to rule on the protest until the issue of regularization has been resolved by
MOLE. 13
On November 13, 1986, then Minister Sanchez rendered a decision in BLR Case No. NS-5-16486, 14 the disposition wherein is summarized as follows:
1. The service contract for janitorial and yard maintenance service between
KIMBERLY and RANK was declared legal;
2. The other casual employees not performing janitorial and yard maintenance
services were deemed labor-only contractual and since labor-only contracting is
prohibited, such employees were held to have attained the status of regular
employees, the regularization being effective as of the date of the decision;
3. UKCEU-PTGWO having garnered more votes than KILUSAN-OLALIA was
certified as the exclusive bargaining representative of KIMBERLY's employees;
4. The reinstatement of 28 dismissed KILUSAN-OLALIA members was ordered;

3. Those contractual employees who are allegedly in the employ of an

independent contractor and who have also worked for at least six (6) months as
appearing in the payroll month prior to the filing of the instant petition on April 21,
1986.

5. Roque Jimenez was ordered reinstated without backwages, the period when
he was out of work being considered as penalty for his misdemeanor;

During the pre-election conference, 64 casual workers were challenged by KIMBERLY and (UKCEUPTGWO) on the ground that they are not employees, of KIMBERLY but of RANK. It was agreed by all

6. The decision of the voluntary arbitrator ordering the reinstatement of Ermilo

Fuentes with backwages was declared as already final and unappealable; and

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Page 54

7. KIMBERLY was ordered to pay appreciation bonus for 1982 and 1983.
On November 25, 1986, KIMBERLY flied a motion for reconsideration with respect to the
regularization of contractual workers, the appreciation bonus and the reinstatement of Roque
Jimenez. 15 In a letter dated November 24, 1986, counsel for KILUSAN-OLALIA demanded from
KIMBERLY the implementation of the November 13, 1986 decision but only with respect to the
regularization of the casual workers. 16

than one (1) year of service as of the filing of the Notice of Strike on May 7, 1986
and are not engaged in janitorial and yard maintenance work, are concerned
5. Rank Manpower Company had already pulled out, reassigned or replaced the
contractual employees engaged in janitorial and yard maintenance work, as well
as those with less than one year service; and
6. The company has reinstated Roque Jimenez as of January 11, 1987.

On December 11, 1986, KILUSAN-OLALIA filed a motion for reconsideration questioning the
authority of the Minister of Labor to assume jurisdiction over the representation issue. In the
meantime, KIMBERLY and UKCEU-PTGWO continued with the negotiations on the new collective
bargaining agreement (CBA), no restraining order or junctive writ having been issued, and on
December 18, 1986, a new CBA was concluded and ratified by 440 out of 517 members of the
bargaining unit. 17
In an order dated January 9, 1987, former Labor Minister Franklin Drilon denied both motions for
reconsideration filed by KIMBERLY and KILUSAN-OLALIA. 18 On March 10, 1987, the new CBA
executed between KIMBERLY and UKCEU-PTGWO was signed.
On March 16, 1987, KILUSAN-OLALIA filed a petition for certiorari in this Court docketed as G.R. No.
77629, seeking to set aside the aforesaid decision, dated November 13, 1986, and the order, dated
January 9, 1987, rendered by the aforesaid labor ministers.
On March 25, 1987, this Court issued in G.R. No. 77629 a temporary restraining order, enjoining
respondents from enforcing and/or carrying out the decision and order above stated, particularly that
portion (1) recognizing respondent UKCEU-PTGWO as the exclusive bargaining representative of all
regular rank-and-file employees in the establishment of respondent company, (2) enforcing and/or
implementing the alleged CBA which is detrimental to the interests of the members of the petitioner
union, and (3) stopping respondent company from deducting monthly dues and other union
assessments from the wages of all regular rank-and-file employees of respondent company and from
remitting the said collection to respondent UKCEU-PTGWO issued in BLR Case No. NS-5-164-86,
entitled, "In Re: Labor Dispute at Kimberly-Clark Philippines, Inc.," of the Department of Labor and
Employment, Manila, 19
In its comment, 20 respondent company pointed out certain events which took place prior to the filing
of the petition in G.R. No. 77629, to wit:
1. The company and UKCEU-PTGWO have concluded a new collective
bargaining agreement which had been ratified by 440 out of 517 members of the
bargaining unit;
2. The company has already granted the new benefits under the new CBA to all
its regular employees, including members of petitioner union who, while refusing
to ratify the CBA nevertheless readily accepted the benefits arising therefrom;
3. The company has been complying with the check-off provision of the CBA and
has been remitting the union dues to UKCEU-PTGWO
4. The company has already implement the decision of November 13, 1986
insofar as the regularization of contractual employees who have rendered more

LabStan Cases

In G.R. No. 78791, the records 21 disclose that on May 4, 1987, KILUSAN-OLALIA filed another notice
of strike with the Bureau of Labor Relations charging respondent company with unfair labor practices.
On May 8, 1987, the bureau dismissed and considered the said notice as not filed by reason of the
pendency of the representation issue before this Court in G.R. No. 77629. KILUSAN-OLALIA moved
to reconsider said order, but before the bureau could act on said motion, KILUSAN-OLALIA declared
a strike and established a picket on respondent company's premises in San Pedro, Laguna on May
17, 1987.
On May 18, 1987, KIMBERLY filed a petition for injunction with the National Labor Relations
Commission (NLRC), docketed as Injunction Case No. 1442. A supplement to said petition was filed
on May 19, 1987. On May 26, 1987, the commission en banc issued a temporary restraining order
(TRO) on the basis of the ocular inspection report submitted by the commission's agent, the
testimonies of KIMBERLY's witnesses, and pictures of the barricade. KILUSAN-OLALIA moved to
dissolve the TRO on the ground of lack of jurisdiction.
Immediately after the expiration of the first TRO on June 9, 1987, the striking employees returned to
their picket lines and reestablished their barricades at the gate. On June 19, 1987, the commission en
banc issued a second TRO.
On June 25, 1987, KILUSAN-OLALIA filed another petition for certiorari and prohibition with this
Court, docketed as G.R. No. 78791, questioning the validity of the temporary restraining orders
issued by the NLRC on May 26, 1987 and June 19, 1987. On June 29, 1987, KILUSAN-OLALIA filed
in said case an urgent motion for a TRO to restrain NLRC from implementing the questioned orders.
An opposition, as well as a reply thereto, were filed by the parties.
Meanwhile, on July 3, 1987, KIMBERLY filed in the NLRC an urgent motion for the issuance of a writ
of preliminary injunction when the strikers returned to the strike area after the second TRO expired.
After due hearing, the commission issued a writ of preliminary injunction on July 14, 1987, after
requiring KIMBERLY to post a bond in the amount of P20,000.00.
Consequently, on July 17, 1987, KILUSAN-OLALIA filed in G.R. No. 78791 a second urgent motion
for the issuance of a TRO by reason of the issuance of said writ of preliminary injunction, which
motion was opposed by KIMBERLY.
Thereafter, in its memorandum 22 filed on December 28, 1989 and in its motion for early
resolution 23 filed on February 28, 1990, both in G.R. No. 78791, KILUSAN-OLALIA alleged that it had
terminated its strike and picketing activities and that the striking employees had unconditionally
offered to return to work, although they were refused admission by KIMBERLY. By reason of this
supervening development, the petition in G.R. No. 78791, questioning the propriety of the issuance of
the two temporary restraining orders and the writ of injunction therein, has been rendered moot and
academic.

Page 55

In G.R. No. 77629, the petition of KILUSAN-OLALIA avers that the respondent Secretary of Labor
and/or the former Minister of Labor have acted with grave abuse of discretion and/or without
jurisdiction in (1) ruling on the issue of bargaining representation and declaring respondent UKCEUPTGWO as the collective bargaining representative of all regular rank-and-file employees of the
respondent company; (2) holding that petitioners are not entitled to vote in the certification election;
(3) considering the regularization of petitioners (who are not janitors and maintenance employees) to
be effective only on the date of the disputed decision; (4) declaring petitioners who are assigned
janitorial and yard maintenance work to be employees of respondent RANK and not entitled to be
regularized; (5) not awarding to petitioners differential pay arising out of such illegal work scheme;
and (6) ordering the mere reinstatement of petitioner Jimenez.
The issue of jurisdiction actually involves a question of whether or not former Minister Sanchez
committed a grave abuse of discretion amounting to lack of jurisdiction in declaring respondent
UKCEU-PTGWO as the certified bargaining representative of the regular employees of KIMBERLY,
after ruling that the 64 casual workers, whose votes are being challenged, were not entitled to vote in
the certification election.
KILUSAN-OLALIA contends that after finding that the 64 workers are regular employees of
KIMBERLY, Minister Sanchez should have remanded the representation case to the med-arbiter
instead of declaring UKCEU-PTGWO as the winner in the certification election and setting aside the
med-arbiter's order which allowed the 64 casual workers to cast their votes.
Respondents argue that since the issues of regularization and representation are closely interrelated
and that a resolution of the former inevitably affects the latter, it was necessary for the former labor
minister to take cognizance of the representation issue; that no timely motion for reconsideration or
appeal was made from his decision of November 13, 1986 which has become final and executory;
and that the aforesaid decision was impliedly accepted by KILUSAN-OLALIA when it demanded from
KIMBERLY the issuance of regular appointments to its affected members in compliance with said
decision, hence petitioner employees are now stopped from questioning the legality thereof.
We uphold the authority of former Minister Sanchez to assume jurisdiction over the issue of the
regularization of the 64 casual workers, which fact is not even disputed by KILUSAN-OLALIA as may
be gleaned from its request for an interim order in the notice of strike case (BLR-NS-5-164-86),
asking that the regularization issue be immediately resolved. Furthermore, even the med-arbiter who
ordered the holding of the certification election refused to resolve the protest on the ground that the
issue raised therein correctly pertains to the jurisdiction of the then labor minister. No opposition was
offered by KILUSAN-OLALIA. We hold that the issue of regularization was properly addressed to the
discretion of said former minister.
However, the matter of the controverted pronouncement by former Minister Sanchez, as reaffirmed
by respondent secretary, regarding the winner in the certification election presents a different
situation.
It will be recalled that in the certification election, UKCEU-PTGWO came out as the winner, by
garnering a majority of the votes cast therein with the exception of 64 ballots which were subject to
challenge. In the protest filed for the opening and counting of the challenged ballots, KILUSANOLALIA raised the main and sole question of regularization of the 64 casual workers. The med-arbiter
refused to act on the protest on the ground that the issue involved is within the jurisdiction of the then
Minister of Labor. KILUSAN-OLALIA then sought an interim order for an early resolution on the
employment status of the casual workers, which was one of the issues included in the notice of strike
filed by KILUSAN-OLALIA in BLR Case No. NS-5-164-86. Consequently, Minister Sanchez rendered
the questioned decision finding that the workers not engaged in janitorial and yard maintenance
service are regular employees but that they became regular only on the date of his decision, that is,
LabStan Cases

on November 13, 1986, and, therefore, they were not entitled to vote in the certification election. On
the basis of the results obtained in the certification election, Minister Sanchez declared UKCEUPTGWO as the winner.
The pivotal issue, therefore, is when said workers, not performing janitorial or yard maintenance
service, became regular employees of KIMBERLY.
We find and so hold that the former labor minister gravely abused his discretion in holding that those
workers not engaged in janitorial or yard maintenance service attained the status of regular
employees only on November 13, 1986, which thus deprived them of their constitutionally protected
right to vote in the certification election and choose their rightful bargaining representative.
The Labor Code defines who are regular employees, as follows:
Art. 280. Regular and Casual Employment. The provisions of written
agreement to the contrary not withstanding 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 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 under 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 year of
service, whether such service is continuous or broken, shall be considered a
regular employee with respect to the activity in which he is employed and his
employment shall continue while such activity exists.
The law thus provides for two. kinds of regular employees, namely: (1) those who are engaged to
perform activities which are usually necessary or desirable in the usual business or trade of the
employer; and (2) those who have rendered at least one year of service, whether continuous or
broken, with respect to the activity in which they are employed. The individual petitioners herein who
have been adjudged to be regular employees fall under the second category. These are the
mechanics, electricians, machinists machine shop helpers, warehouse helpers, painters, carpenters,
pipefitters and masons It is not disputed that these workers have been in the employ of KIMBERLY
for more than one year at the time of the filing of the Petition for certification election by KILUSANOLALIA.
Owing to their length of service with the company, these workers became regular employees, by
operation of law, one year after they were employed by KIMBERLY through RANK. While the actual
regularization of these employees entails the mechanical act of issuing regular appointment papers
and compliance with such other operating procedures as may be adopted by the employer, it is more
in keeping with the intent and spirit of the law to rule that the status of regular employment attaches to
the casual worker on the day immediately after the end of his first year of service. To rule otherwise,
and to instead make their regularization dependent on the happening of some contingency or the
fulfillment of certain requirements, is to impose a burden on the employee which is not sanctioned by
law.
That the first stated position is the situation contemplated and sanctioned by law is further enhanced
by the absence of a statutory limitation before regular status can be acquired by a casual employee.
Page 56

The law is explicit. As long as the employee has rendered at least one year of service, he becomes a
regular employee with respect to the activity in which he is employed. The law does not provide the
qualification that the employee must first be issued a regular appointment or must first be formally
declared as such before he can acquire a regular status. Obviously, where the law does not
distinguish, no distinction should be drawn.
The submission that the decision of November 13, 1986 has become final and executory, on the
grounds that no timely appeal has been made therefrom and that KILUSAN-OLALIA has impliedly
acceded thereto, is untenable.
Rule 65 of the Rules of Court allows original petitions for certiorari from decisions or orders of public
respondents provided they are filed within a reasonable time. We believe that the period from January
9, 1987, when the motions for reconsideration separately filed by KILUSAN-OLALIA and KIMBERLY
were denied, to March 16, 1987, when the petition in G.R. No. 77629 was filed, constitutes a
reasonable time for availing of such recourse.

1. Ordering the med-arbiter in Case No. R04-OD-M-4-15-86 to open and count the 64 challenged
votes, and that the union with the highest number of votes be thereafter declared as the duly elected
certified bargaining representative of the regular employees of KIMBERLY;
2. Ordering KIMBERLY to pay the workers who have been regularized their differential pay with
respect to minimum wage, cost of living allowance, 13th month pay, and benefits provided for under
the applicable collective bargaining agreement from the time they became regular employees.
All other aspects of the decision appealed from, which are not so modified or affected thereby, are
hereby AFFIRMED. The temporary restraining order issued in G.R. No. 77629 is hereby made
permanent.
The petition filed in G.R. No. 78791 is hereby DISMISSED.
SO ORDERED.

We likewise do not subscribe to the claim of respondents that KILUSAN-OLALIA has impliedly
accepted the questioned decision by demanding compliance therewith. In the letter of KILUSANOLALIA dated November 24, 1986 24 addressed to the legal counsel of KIMBERLY, it is there
expressly and specifically pointed out that KILUSAN-OLALIA intends to file a motion for
reconsideration of the questioned decision but that, in the meantime, it was demanding the issuance
of regular appointments to the casual workers who had been declared to be regular employees. The
filing of said motion for reconsideration of the questioned decision by KILUSAN-OLALIA, which was
later denied, sustains our position on this issue and denies the theory of estoppel postulated by
respondents.

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

VIRGINIA G. NERI and JOSE CABELIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC)
and BUILDING CARE CORPORATION, respondents.
R.L. Salcedo & Improso Law Office for petitioners.

On the basis of the foregoing circumstances, and as a consequence of their status as regular
employees, those workers not perforce janitorial and yard maintenance service were performance
entitled to the payment of salary differential, cost of living allowance, 13th month pay, and such other
benefits extended to regular employees under the CBA, from the day immediately following their first
year of service in the company. These regular employees are likewise entitled to vote in the
certification election held in July 1, 1986. Consequently, the votes cast by those employees not
performing janitorial and yard maintenance service, which form part of the 64 challenged votes,
should be opened, counted and considered for the purpose of determining the certified bargaining
representative.
We do not find it necessary to disturb the finding of then Minister Sanchez holding as legal the service
contract executed between KIMBERLY and RANK, with respect to the workers performing janitorial
and yard maintenance service, which is supported by substantial and convincing evidence. Besides,
we take judicial notice of the general practice adopted in several government and private institutions
and industries of hiring a janitorial service on an independent contractor basis. Furthermore, the
occasional directives and suggestions of KIMBERLY are insufficient to erode primary and continuous
control over the employees of the independent contractor. 25 Lastly, the duties performed by these
workers are not independent and integral steps in or aspects of the essential operations of
KIMBERLY which is engaged in the manufacture of consumer paper products and cigarette paper,
hence said workers cannot be considered regular employees.
The reinstatement of Roque Jimenez without backwages involves a question of fact best addressed
to the discretion of respondent secretary whose finding thereon is binding and conclusive upon this
Court, absent a showing that he committed a grave abuse in the exercise thereof.
WHEREFORE, judgment is hereby rendered in G.R. No. 77629:
LabStan Cases

Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for Bldg. Care Corp.
Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.
BELLOSILLO, J.:
Respondents are sued by two employees of Building Care Corporation, which provides janitorial and
other specific services to various firms, to compel Far Bast Bank and Trust Company to recognize
them as its regular employees and be paid the same wages which its employees receive.
Building Care Corporation (BCC, for brevity), in the proceedings below, established that it had
substantial capitalization of P1 Million or a stockholders equity of P1.5 Million. Thus the Labor Arbiter
ruled that BCC was only job contracting and that consequently its employees were not employees of
Far East Bank and Trust Company (FEBTC, for brevity). on appeal, this factual finding was affirmed
by respondent National Labor Relations Commission (NLRC, for brevity). Nevertheless, petitioners
insist before us that BCC is engaged in "labor-only" contracting hence, they conclude, they are
employees of respondent FEBTC.
Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were hired by,
respondent BCC, a corporation engaged in providing technical, maintenance, engineering,
housekeeping, security and other specific services to its clientele. They were assigned to work in the
Cagayan de Oro City Branch of respondent FEBTC on 1 May 1979 and 1 August 1980, respectively,
Neri an radio/telex operator and Cabelin as janitor, before being promoted to messenger on 1 April
1989.
Page 57

On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before Regional
Arbitration Branch No. 10 of the Department of Labor and Employment to compel the bank to accept
them as regular employees and for it to pay the differential between the wages being paid them by
BCC and those received by FEBTC employees with similar length of service.
On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of merit. 1 Respondent
BCC was considered an independent contractor because it proved it had substantial capital. Thus,
petitioners were held to be regular employees of BCC, not FEBTC. The dismissal was appealed to
NLRC which on 28 September 1990 affirmed the decision on appeal. 2 On 22 October 1990, NLRC
denied reconsideration of its affirmance, 3prompting petitioners to seek redress from this Court.
Petitioners vehemently contend that BCC in engaged in "labor-only" contracting because it failed to
adduce evidence purporting to show that it invested in the form of tools, equipment, machineries,
work premises and other materials which are necessary in the conduct of its business. Moreover,
petitioners argue that they perform duties which are directly related to the principal business or
operation of FEBTC. If the definition of "labor-only" contracting 4 is to be read in conjunction with job
contracting, 5 then the only logical conclusion is that BCC is a "labor only" contractor. Consequently,
they must be deemed employees of respondent bank by operation of law since BCC is merely an
agent of FEBTC following the doctrine laid down in Philippine Bank of Communications v. National
Labor Relations Commission 6 where we ruled that where "labor-only" contracting exists, the Labor
Code itself establishes an employer-employee relationship between the employer and the employees
of the "labor-only" contractor; hence, FEBTC should be considered the employer of petitioners who
are deemed its employees through its agent, "labor-only" contractor BCC.
We cannot sustain the petition.
Respondent BCC need not prove that it made investments in the form of tools, equipment,
machineries, work premises, among others, because it has established that it has sufficient
capitalization. The Labor Arbiter and the NLRC both determined that BCC had a capital stock of P1
million fully subscribed and paid for. 7 BCC is therefore a highly capitalized venture and cannot be
deemed engaged in "labor-only" contracting.
It is well-settled that there is "labor-only" contracting where: (a) the person supplying workers to an
employer does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others; and, (b) the workers recruited and placed by such person
are performing activities which are directly related to the principal business of the employer. 8
Article 106 of the Labor Code defines "labor-only" contracting thus
Art. 106. Contractor or subcontractor. . . . . There is "labor-only" contracting
where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited by such persons are
performing activities which are directly related to the principal business of such
employer . . . . (emphasis supplied).
Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it has
substantial capital. While there may be no evidence that it has investment in the form of tools,
equipment, machineries, work premises, among others, it is enough that it has substantial capital, as
was established before the Labor Arbiter as well as the NLRC. In other words, the law does not
require both substantial capital and investment in the form of tools, equipment, machineries, etc. This
is clear from the use of the conjunction "or". If the intention was to require the contractor to prove that
LabStan Cases

he has both capital and the requisite investment, then the conjunction "and" should have been used.
But, having established that it has substantial capital, it was no longer necessary for BCC to further
adduce evidence to prove that it does not fall within the purview of "labor-only" contracting. There is
even no need for it to refute petitioners' contention that the activities they perform are directly related
to the principal business of respondent bank.
Be that as it may, the Court has already taken judicial notice of the general practice adopted in
several government and private institutions and industries of hiring independent contractors to
perform special services. 9These services range from janitorial, 10 security 11 and even technical or
other specific services such as those performed by petitioners Neri and Cabelin. While these services
may be considered directly related to the principal business of the employer, 12 nevertheless, they are
not necessary in the conduct of the principal business of the employer.
In fact, the status of BCC as an independent contractor was previously confirmed by this Court
in Associated Labor Unions-TUCP v. National Labor Relations Commission, 13 where we held thus
The public respondent ruled that the complainants are not employees of the bank
but of the company contracted to serve the bank. Building Care Corporation is a
big firm which services, among others, a university, an international bank, a big
local bank, a hospital center, government agencies, etc. It is a qualified
independent contractor. The public respondent correctly ruled against petitioner's
contentions . . . . (Emphasis supplied).
Even assuming ex argumenti that petitioners were performing activities directly related to the principal
business of the bank, under the "right of control" test they must still be considered employees of BCC.
In the case of petitioner Neri, it is admitted that FEBTC issued a job description which detailed her
functions as a radio/telex operator. However, a cursory reading of the job description shows that what
was sought to be controlled by FEBTC was actually the end-result of the task, e.g., that the daily
incoming and outgoing telegraphic transfer of funds received and relayed by her, respectively, tallies
with that of the register. The guidelines were laid down merely to ensure that the desired end-result
was achieved. It did not, however, tell Neri how the radio/telex machine should be operated. In
the Shipside case, 14 we ruled
. . . . If in the course of private respondents' work (referring to the workers),
SHIPSIDE occasionally issued instructions to them, that alone does not in the
least detract from the fact that only STEVEDORES is the employer of the private
respondents, for in legal contemplation, such instructions carry no more weight
than mere requests, the privity of contract being between SHIPSIDE and
STEVEDORES . . . .
Besides, petitioners do not deny that they were selected and hired by BCC before being assigned to
work in the Cagayan de Oro Branch of FFBTC. BCC likewise acknowledges that petitioners are its
employees. The record is replete with evidence disclosing that BCC maintained supervision and
control over petitioners through its Housekeeping and Special Services Division: petitioners reported
for
work
wearing
the
prescribed
uniform
of
BCC;
leaves
of absence were filed directly with BCC; and, salaries were drawn only from BCC. 15
As a matter of fact, Neri even secured a certification from BCC on 16 May 1986 that she was
employed by the latter. On the other hand, on 24 May 1988, Cabelin filed a complaint for
underpayment of wages, non-integration of salary adjustments mandated by Wage Orders Nos. 5 & 6
and R.A. 6640 as well as for illegal deduction 16against BCC alone which was provisionally dismissed
on 19 August 1988 upon Cabelin's manifestation that his money claim was negligible. 17
Page 58

More importantly, under the terms and conditions of the contract, it was BCC alone which had the
power to reassign petitioners. Their deployment to FEBTC was not subject to the bank's acceptance.
Cabelin was promoted to messenger because the FEBTC branch manager promised BCC that two
(2) additional janitors would be hired from the company if the promotion was to be
effected. 18 Furthermore, BCC was to be paid in lump sum unlike in the situation in Philippine Bank of
Communications 19 where the contractor, CESI, was to be paid at a daily rate on a per person basis.
And, the contract therein stipulated that the CESI was merely to provide manpower that would render
temporary services. In the case at bar, Neri and Cabelin were to perform specific special services.
Consequently, petitioners cannot be held to be employees of FEBTC as BCC "carries an independent
business" and undertaken the performance of its contract with various clients according to its "own
manner and method, free from the control and supervision" of its principals in all matters "except as to
the results thereof." 20
Indeed, the facts in Philippine Bank of Communications do not square with those of the instant case.
Therein, the Court ruled that CESI was a "labor-only" contractor because upholding the contract
between the contractor and the bank would in effect permit employers to avoid the necessity of hiring
regular or permanent employees and would enable them to keep their employees indefinitely on a
temporary or casual basis, thus denying them security of tenure in their jobs. This of course violates
the Labor Code. BCC has not committed any violation. Also, the former case was for illegal dismissal;
this case, on the other hand, is for conversion of employment status so that petitioners can receive
the same salary being given to regular employees of FEBTC. But, as herein determined, petitioners
are not regular employees of FEBTC but of BCC. At any rate, the finding that BCC in a qualified
independent contractor precludes us from applying the Philippine Bank of Communications doctrine
to the instant petition.
The determination of employer-employee relationship involves factual findings. 21 Absent any grave
abuse of discretion, and we find none in the case before us, we are bound by the findings of the
Labor Arbiter as affirmed by respondent NLRC.
IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED. SO ORDERED.
G.R. No. 126586

August 25, 2000

ALEXANDER VINOYA, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD CORPORATION AND/OR
RICKY SEE (PRESIDENT), respondents.
RESOLUTION
KAPUNAN, J.:
This treats of a motion for reconsideration filed by private respondent Regent Food Corporation
(RFC) of our Decision, promulgated on 2 February 2000, which affirmed the decision of the labor
arbiter ordering RFC to reinstate petitioner Alexander Vinoya to his former position and pay him
backwages and other benefits.
In its first motion for partial reconsideration,1 filed on 8 March 2000, RFC alleges that it respects and
abides by the finding of the Supreme Court that it is the employer of petitioner. However, RFC points
out that in view of the existing employment contract between petitioner and Peninsula Manpower
Company, Inc. (PMCI) and the service contract between RFC and PMCI, both of which have not been
LabStan Cases

declared as void by the Court, RFC claims that petitioner still appears to be the employee of PMCI,
since petitioner was merely assigned to it by PMCI by virtue of its own declaration in the aforesaid
contracts. Along this line, RFC argues that since PMCI held itself out to the public as a qualified and
legitimate independent contractor which convinced RFC to enter into a contract of service with PMCI,
when it truth and as held by the Court, it was not so, PMCI should be made to reimburse RFC of the
amount it will pay to petitioner as the adjudged employer of the latter.
Subsequently, on 24 March 2000, a supplemental motion for reconsideration 2 was filed by RFC. In
this motion, RFC pleads that in the event that the Court sustains its original decision and denies its
first partial motion for reconsideration, it prays that the Court modify the award of reinstatement of
petitioner and instead order the payment of separation pay in favor of the latter.
In a Resolution,3 dated 5 April 2000, the Court required the petitioner to file his comment to the
motion for partial reconsideration filed by RFC. On 12 May 2000, petitioner filed his
comment/opposition4 to the motion for partial reconsideration. Petitioner argues that the motion filed
by RFC dealt with issues already resolved and discussed by the Court in its decision. Thus, petitioner
prays that the motion for partial reconsideration be dismissed for lack of merit.
We have carefully examined and studied the records of the case but we have found no reason to
modify our finding that RFC is the true employer of petitioner. Indeed, despite the existence of the
alleged contracts of service and employment, the status of petitioner as the employee of RFC is not
affected. As we have previously held in our 2 February 2000 Decision, RFC is the rightful employer of
petitioner under the four-fold test of employer-employee relations.5 Moreover, PMCI, based on the
standards set by the Labor Code, is merely a labor-only contractor and, as such, cannot be properly
considered as the employer of petitioner. On this score, we deny the first motion for partial
reconsideration of RFC.
However, we find merit in the supplemental motion for reconsideration filed by
RFC.1wphi1 Previously, we have held that an illegally dismissed employee is entitled to: (1) either
reinstatement, if viable, or separation pay if reinstatement is no longer viable, and (2) backwages.
Private respondent claims that reinstatement is no longer feasible due to the parties strained
relations. As a general rule, strained relations is an issue factual in nature that should be raised and
proved before the Labor Arbiter.6 However, the case before us presents peculiar circumstances as
the strained relations arose after the filing of the case. As pointed out by the private respondent, the
antagonistic feelings of the parties towards each other stemmed from the filing by the petitioner of the
complaint before the labor arbiter and deepened during the eight-year pendency of the case. This
fact, petitioner has failed to deny in his comment to the motion for reconsideration. Petitioner merely
opposes private respondents motion for reconsideration on the ground that the same does not raise
any new issues not resolved in the decision. However, the issue of strained relations was never
squarely dealt with in the decision being reconsidered. The Court finds that it would be impractical
and not in the best interest of the parties if we insist that petitioner be reinstated to his former position.
Considering further that petitioners former position as sales representatives involves the handling of
accounts and other property of RFC, it would not be equitable on the part of RFC to be forced to
maintain petitioner in its employ since it may only inspire vindictiveness on the part of petitioner.
Accordingly in lieu of reinstatement, payment of separation pay equivalent to one months salary for
every year of service may be awarded.7
WHEREFORE, premises considered, the motion for reconsideration is hereby PARTIALLY
GRANTED. The dispositive portion of the 2 February 2000 decision is hereby MODIFIED in that
private respondent is ordered to pay petitioner separation pay equivalent to one months salary for
every year of service in lieu of reinstatement, plus full backwages, without deduction or qualification,
counted from the date of dismissal until the finality of this resolution including other benefits to which
he is entitled under the law. SO ORDERED.
Page 59

[G.R. No. 113347. June 14, 1996]

FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, LABOR ARBITER VOLTAIRE A. BALITAAN, FELIPE
LOTERTE and DE LIMA TRADING & GENERAL SERVICES, respondents.
SYLLABUS
1. LABOR AND SOCIAL LEGISLATION; LABOR STANDARDS; LABOR-ONLY CONTRACTING;
ELEMENTS THEREOF; NOT PRESENT IN CASE AT BAR. We agree that there is sufficient
evidence to show that private respondent DE LIMA is an independent job contractor, not a
mere labor-only contractor. Under the Labor Code, two (2) elements must exist for a finding of
labor-only contracting: (a) the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises,
among others, and (b) the workers recruited and placed by such persons are performing
activities directly related to the principal business of such employer. These two (2) elements do
not exist in the instant case. As pointed out by petitioner, private respondent DE LIMA is a
going concern duly registered with the Securities and Exchange Commission with substantial
capitalization of P1,600,000.00, P400,000.00 of which is actually subscribed. Hence, it cannot
be considered as engaged in labor-only contracting being a highly capitalized venture.
Moreover, while the janitorial services performed by Felipe Loterte pursuant to the agreement
between FILSYN and DE LIMA may be considered directly related to the principal business of
FILSYN which is the manufacture of polyester fiber, nevertheless, they are not necessary in its
operation. On the contrary, they are merely incidental thereto, as opposed to being integral,
without which production and company sales will not suffer. Judicial notice has already been
taken of the general practice in private as well as in government institutions and industries of
hiring janitorial services on an independent contractor basis. Consequently, DE LIMA being an
independent job contractor, no direct employer-employee relationship exists between petitioner
FILSYN and private respondent Felipe Loterte.
2. ID.; ID.; INDIRECT EMPLOYER JOINT AND SEVERALLY LIABLE WITH THE DIRECT
EMPLOYER; CASE AT BAR. With respect to FILSYNs liability, petitioner cannot totally
exculpate itself from the fact that respondent DE LIMA is an independent job contractor. We
agree with the Solicitor General that notwithstanding the lack of a direct employer-employee
relationship between FILSYN and Felipe Loterte, the former is still jointly and severally liable
with respondent DE LIMA for Lotertes monetary claims under Art. 109 of the Labor Code.
APPEARANCES OF COUNSEL
Sycip, Salazar, Hernandez & Gatmaitan for petitioner.
Benedicto Palacol for De Lima Trading & General Services.
DECISION
BELLOSILLO, J.:
Filipinas Synthetic Fiber Corporation (FILSYN) assails the decision of the National Labor
Relations Commission (NLRC) of 16 September 19931 upholding the ruling of the Labor Arbiter that
there exists an employer-employee relationship between FILSYN and private respondent Felipe
Loterte.2
On 4 April 1991 FILSYN. a domestic corporation engaged in the manufacture of polyester fiber,
contracted with De Lima Trading and General Services (DE LIMA) for the performance of specific
janitorial services at the former's plant in Brgy. Don Jose, Sta. Rosa, Laguna. 3 Pursuant to the
agreement Felipe Loterte, among others, was deployed at FILSYN to take care of the plants and
maintain general cleanliness around the premises.

LabStan Cases

On 24 February 1992 Loterte sued FILSYN and DE LIMA as alternative defendants 4 for illegal
dismissal, underpayment of wages, non-payment of legal holiday pay, service incentive leave pay
and 13th month pay alleging that he was first assigned to perform janitorial work at FILSYN in 1981
by the La Saga General Services; that the La Saga was changed to DE LIMA on August 1991; that
when a movement to demand increased wages and 13th month pay arose among the workers on
December 1991 he was accused by a certain Dodie La Flores of having posted in the bulletin board
at FILSYN an article attributing to management a secret understanding to block the demand; and, for
denying responsibility, his gate pass was unceremoniously cancelled on 6 February 1992 and he was
subsequently dismissed.5
The Labor Arbiter ruled in favor of Loterte. He was classified as a regular employee on the
ground that he performed tasks usually necessary or desirable in the main business of FILSYN for
more than ten (10) years or since 1981 under the ruling inGuarin v. NLRC.6 FILSYN was declared to
be the real employer of Loterte and DE LIMA as a mere labor contractor. 7 Hence, FILSYN was
adjudged liable for Loterte's reinstatement, payment of salary differentials and back wages from 6
February 1992up to the date of judgment, in addition to his unpaid legal holiday pay, service incentive
leave pay and 13th month pay in the total amount of P56,394.90.
FILSYN appealed to the NLRC contending that the application of the Guarin ruling was
misplaced since the contractor in said case was not able to prove that it had substantial capital,
hence the reason for its being declared as a labor-only contractor. In the case of DE LIMA, however,
sufficient evidence existed consisting of its Certificate of Registration issued by the Securities &
Exchange Commission (SEC) and Articles of Incorporation and By-Laws to prove that it had
substantial capitalization, hence, could not be considered as a mere labor contractor.
The NLRC debunked the claim of FILSYN and affirmed the Labor Arbiter in finding DE LIMA as
a labor-only contractor. When a motion for reconsideration proved futile, FILSYN filed the instant
petition.
On 23 February 1994 a temporary restraining order to stay the execution of the NLRC decision
was issued by the Court upon approval of a bond in the amount of P56,000.00 to be effective during
the pendency of this petition.8
Petitioner contends that the NLRC committed grave abuse of discretion in holding DE LIMA as
a labor-only contractor with no substantial capital or investment. Petitioner insists that the evidence9 it
presented shows DE LIMA to be a corporation duly registered with the SEC with substantial
capitalization of P1,600,000.00, P400,000.00 of which is actually subscribed. Hence, DE LIMA cannot
possibly be considered as without substantial capital. But, assuming arguendo that DE LIMA is
without substantial capital or investment, petitioner contends that it cannot still be considered as the
real employer of Loterte since his work is not necessary in the principal business of FILSYN which is
the manufacture of polyester, and that present jurisprudence holds that the performance of janitorial
services, although directly related to the principal business of the alleged employer, is nonetheless
unnecessary since non-performance thereof will not cause production and company sales to suffer. 10
In his Comment the Solicitor General agrees with petitioner that DE LIMA is not a labor-only
contractor. However, while he concedes that no employer-employee relationship exists between
FILSYN and Loterte, the Solicitor General opines that the former is still liable solidarily with DE LIMA,
its contractor, for the satisfaction of the Labor Arbiter's awards in favor of Loterte as an indirect
employer under Art. 106 of the Labor Code.11
In its Consolidated Reply FILSYN contends that Art. 106 of the Labor Code cited by the
Solicitor General applies only in cases where there is failure to pay wages, not in cases where the
employee was illegally dismissed, as in the case of Loterte.
We agree that there is sufficient evidence to show that private respondent DE LIMA is an
independent job contractor, not a mere labor-only contractor. Under the Labor Code, two (2) elements
must exist for a finding of labor-only contracting: (a) the person supplying workers to an employer
does not have substantial capital or investment in the form of tools, equipment, machineries, work
Page 60

premises, among others, and (b) the workers recruited and placed by such persons are performing
activities directly related to the principal business of such employer.12
These two (2) elements do not exist in the instant case. As pointed out by petitioner, private
respondent DE LIMA is a going concern duly registered with the Securities and Exchange
Commission with substantial capitalization of P1,600,000.00, P400,000.00 of which is actually
subscribed.13 Hence, it cannot be considered as engaged in labor-only contracting being a highly
capitalized venture.14 Moreover, while the janitorial services performed by Felipe Loterte pursuant to
the agreement between FILSYN and DE LIMA may be considered directly related to the principal
business of FILSYN which is the manufacture of polyester fiber, nevertheless, they are not necessary
in its operation.15 On the contrary, they are merely incidental thereto, as opposed to being integral,
without which production and company sales will not suffer.16 Judicial notice has already been taken
of the general practice in private as well as in government institutions and industries of hiring janitorial
services on an independent contractor basis.17 Consequently, DE LIMA being an independent job
contractor, no direct employer- employee relationship exists between petitioner FILSYN and private
respondent Felipe Loterte.18
With respect to its liability, however, petitioner cannot totally exculpate itself from the fact that
respondent DE LIMA is an independent job contractor. We agree with the Solicitor General that
notwithstanding the lack of a direct employer-employee relationship between FILSYN and Felipe
Loterte, the former is still jointly and severally liable with respondent DE LIMA for Loterte's monetary
claims under Art. 109 of the Labor Code19 which explicitly provides
The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer
shall be held responsible with his contractor or subcontractor for any violation of any provision of this
Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be
considered as direct employers (Italics supplied).
However, a reduction of the Labor Arbiter's awards is in order. In his decision of 31 May 1993,
the Labor Arbiter in computing the 13th month pay and service incentive leave pay due Loterte
erroneously included the period starting June 1989 to the date of his decision. From the admission of
Loterte himself,20 he started working for DE LIMA only in August 1991 and that
the Agreement between FILSYN and DE LIMA is dated 4 April 1991.21 Consequently, the joint and
several liability of FILSYN and DE LIMA could not have covered the period before said date. Thus,
without prejudice to the right of petitioner to seek reimbursement from DE LIMA for whatever amount
it will have to pay Loterte, we determine their joint and several liability on the basis of the computation
of the Labor Arbiter, affirmed by the NLRC (which is not disputed by petitioner except only as to the
awards for the period prior to August 1991), as follows

B. 13th Month Pay:

From Aug. to Dec. 1991
(P113.00 x 314 = P35,482.00)
(P35,482.00 12 = P2,956.83)
(P2,956.83 x 5 mos. = P14,784.15)
LabStan Cases

P1,232.01

C. Service Incentive Leave Pay:

1991 (P113.00 x 5 days) =
D. Backwages:
From 6 Feb. 1992 to 31 May 1993
(P113.00 x 314 = P35,482.00)
(P35,482.00 12= P2,956.83)
(P2,956.83 x 15 mos. & 25 days =
1992 13th month pay =
1992 service incentive leave pay =
Total back wages due =

P565.00

P46,816.47
2,956.83
565.00
P50,338.30

WHEREFORE, the questioned decision of respondent National Labor Relations Commission

affirming that of the Labor Arbiter as well as its resolution denying petitioner's motion for
reconsideration is REVERSED and SET ASIDE and a new one entered:
1. Declaring the relationship between petitioner Filipinas Synthetic Fiber Corporation (FILSYN)
and private respondent De Lima Trading and General Services (DE LIMA) as one of job
contractorship;
2. Ordering private respondent De Lima Trading and General Services (DE LIMA) to reinstate
private respondent FELIPE LOTERTE to his former position or its equivalent without loss of seniority
rights; and
3. Ordering private respondent De Lima Trading and General Services (DE LIMA) jointly and
severally with petitioner Filipinas Synthetic Fiber Corporation (FILSYN) to pay private respondent
FELIPE LOTERTE the following amounts: P1,452.24 for salary differentials, P1,232.01 for 13th
month pay, P565.00 for service incentive leave pay, and P50,338.30 for backwages, or a total of
P53,587.55 due and payable, without prejudice to FILSYN seeking reimbursement from DE LIMA for
whatever amount the former may pay or have paid the latter by virtue hereof. SO ORDERED.
[G.R. No. 120466. May 17, 1999]
COCA COLA BOTTLERS PHILS., INC., petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION and RAMON B. CANONICATO, respondents.
DECISION
BELLOSILLO, J.:

A. Underpayment:
From August 1991 to 5 Feb. 1992
(P113.00 x 314 = P35,482.00)
(P35,482.00 12 = P2,956.83)
P2,956.83 x 6 mos. & 5 days =
Less: Amount received
(P104 x 314 = P32,656.00)
(P32,656.00 12 = P2,721.33)
P2,721.33 x 6mos. & 5 days =
Total underpayment due =

P14,784.15 12 =

P18,233.78

16,781.54
P1,452.24

This petition for certiorari under Rule 65 of the Revised Rules of Court assails the 3 January
1995 decision[1] of the National Labor Relations Commission (NLRC) holding that private respondent
Ramon B. Canonicato is a regular employee of petitioner Coca Cola Bottlers Phils. Inc. (COCA
COLA) entitled to reinstatement and back wages. The NLRC reversed the decision of the Labor
Arbiter of 28 April 1994[2]which declared that no employer-employee relationship existed between
COCA COLA and Canonicato thereby foreclosing entitlement to reinstatement and back wages.
On 7 April 1986 COCA COLA entered into a contract of janitorial services with Bacolod
Janitorial Services (BJS) stipulating[3] among others That the First Party (COCA COLA) desires to engage the services of the Second Party (BJS), as an
Independent Contractor, to perform and provide for the maintenance, sanitation and cleaning services
for the areas hereinbelow mentioned, all located within the aforesaid building of the First Party x x x x

Page 61

1. The scope of work of the Second Party includes all floors, walls, doors, vertical and horizontal
areas, ceiling, all windows, glass surfaces, partitions, furniture, fixtures and other interiors within the
aforestated covered areas.
2. Except holidays which are rest days, the Second Party will undertake daily the following: 1)
Sweeping, damp-mopping, spot scrubbing and polishing of floors; 2) Cleaning, sanitizing and
disinfecting agents to be used on commodes, urinals and washbasins, water spots on chrome and
other fixtures to be checked; 3) Cleaning of glass surfaces, windows and glass partitions that require
daily attention; 4) Cleaning and dusting of horizontal and vertical surfaces; 5) Cleaning of fixtures,
counters, panels and sills; 6) Clean, pick-up cigarette butts from sandburns and ashtrays and trash
receptacles; 7) Trash and rubbish disposal and burning.
In addition, the Second Party will also do the following once a week, to wit: 1) Cleaning, waxing and
polishing of lobbies and offices; 2) Washing of windows, glasses that require cleaning; 3) Thorough
disinfecting and cleaning of toilets and washrooms.
3. The Second Party shall supply the necessary utensils, equipment and supervision, and it shall only
employ the services of fifteen (15) honest, reliable, carefully screened, cooperative and trained
personnel, who are in good faith, in the performance of its herein undertaking x x x x
4. The Second Party hereby guarantees against unsatisfactory workmanship. Minor repair of comfort
rooms are free of charge provided the First Party will supply the necessary materials for such repairs
at its expense. As may be necessary, the Second Party shall also report on such part or areas of the
premises covered by this contract which may require repairs from time to time x x x (italics supplied).
Every year thereafter a service contract was entered into between the parties under similar
terms and conditions until about May 1994.[4]
On 26 October 1989 COCA COLA hired private respondent Ramon Canonicato as a casual
employee and assigned him to the bottling crew as a substitute for absent employees. In April 1990
COCA COLA terminated Canonicato's casual employment. Later that year COCA COLA availed of
Canonicato's services, this time as a painter in contractual projects which lasted from fifteen (15) to
thirty (30) days.[5]
On 1 April 1991 Canonicato was hired as a janitor by BJS [6] which assigned him to COCA
COLA considering his familiarity with its premises. On 5 and 7 March 1992 Canonicato started
painting the facilities of COCA COLA and continued doing so several months thereafter or so for a
few days every time until 6 to 25 June 1993.[7]
Goaded by information that COCA COLA employed previous BJS employees who filed a
complaint against the company for regularization pursuant to a compromise agreement,[8] Canonicato
submitted a similar complaint against COCA COLA to the Labor Arbiter on 8 June 1993. [9] The
complaint was docketed as RAB Case No. 06-06-10337-93.
Without notifying BJS, Canonicato no longer reported to his COCA COLA assignment starting
29 June 1993. On 15 July 1993 he sent his sister Rowena to collect his salary from BJS. [10] BJS
released his salary but advised Rowena to tell Canonicato to report for work. Claiming that he was
barred from entering the premises of COCA COLA on either 14 or 15 July 1993, Canonicato met with
the proprietress of BJS, Gloria Lacson, who offered him assignments in other firms which he however
refused.[11]
On 23 July 1993 Canonicato amended his complaint against COCA COLA by citing instead as
grounds therefor illegal dismissal and underpayment of wages. He included BJS therein as a corespondent.[12] On 28 September 1993 BJS sent him a letter advising him to report for work within
three (3) days from receipt, otherwise, he would be considered to have abandoned his job. [13]
LabStan Cases

On 28 April 1994 the Labor Arbiter ruled that: (a) there was no employer-employee relationship
between COCA COLA and Ramon Canonicato because BJS was Canonicato's real employer; (b)
BJS was a legitimate job contractor, hence, any liability of COCA COLA as to Canonicato's salary or
wage differentials was solidary with BJS in accordance with pars. 1 and 2 of Art. 106, Labor Code; (c)
COCA COLA and BJS must jointly and severally pay Canonicato his wage differentials amounting
to P2,776.80 and his 13th month salary of P1,068.00, including ten (10%) percent attorney's fees in
the sum of P384.48. The Labor Arbiter also ordered that all other claims by Canonicato against
COCA COLA be dismissed for lack of employer-employee relationship; that the complaint for illegal
dismissal as well as all the other claims be likewise dismissed for lack of merit; and that COCA COLA
and BJS deposit P4,429.28 with the Department of Labor Regional Arbitration Branch Office within
ten (10) days from receipt of the decision.[14]
The NLRC rejected on appeal the decision of the Labor Arbiter on the ground that the janitorial
services of Canonicato were found to be necessary or desirable in the usual business or trade of
COCA COLA. The NLRC accepted Canonicato's proposition that his work with the BJS was the
same as what he did while still a casual employee of COCA COLA. In so holding the NLRC applied
Art. 280 of the Labor Code and declared that Canonicato was a regular employee of COCA COLA
and entitled to reinstatement and payment of P18,105.10 in back wages.[15]
On 26 May 1995 the NLRC denied COCA COLA's motion for reconsideration for lack of
merit.[16] Hence, this petition, assigning as errors: (a) NLRC's finding that janitorial services were
necessary and desirable in COCA COLA's trade and business; (b) NLRC's application of Art. 280 of
the Labor Code in resolving the issue of whether an employment relationship existed between the
parties; (c) NLRC's ruling that there was an employer-employee relationship between petitioner and
Canonicato despite its virtual affirmance that BJS was a legitimate job contractor; (d) NLRC's
declaration that Canonicato was a regular employee of petitioner although he had rendered the
company only five (5) months of casual employment; and, (e) NLRC's order directing the
reinstatement of Canonicato and the payment to him of six (6) months back wages. [17]
We find good cause to sustain petitioner. Findings of fact of administrative offices are generally
accorded respect by us and no longer reviewed for the reason that such factual findings are
considered to be within their field of expertise. Exception however is made, as in this case, when the
NLRC and the Labor Arbiter made contradictory findings.
We perceive at the outset the disposition of the NLRC that janitorial services are necessary and
desirable to the trade or business of petitioner COCA COLA. But this is inconsistent with our
pronouncement in Kimberly Independent Labor Union v. Drilon[18] where the Court took judicial notice
of the practice adopted in several government and private institutions and industries of hiring janitorial
services on an "independent contractor basis." In this respect, although janitorial services may be
considered directly related to the principal business of an employer, as with every business, we
deemed them unnecessary in the conduct of the employer's principal business.[19]
This judicial notice, of course, rests on the assumption that the independent contractor is a
legitimate job contractor so that there can be no doubt as to the existence of an employer-employee
relationship between contractor and the worker. In this situation, the only pertinent question that may
arise will no longer deal with whether there exists an employment bond but whether the employee
may be considered regular or casual as to deserve the application of Art. 280 of the Labor Code.
It is an altogether different matter when the very existence of an employment relationship is in
question. This was the issue generated by Canonicato's application for regularization of his
employment with COCA COLA and the subsequent denial by the latter of an employer-employee
relationship with the applicant. It was error therefore for the NLRC to apply Art. 280 of the Labor
Code in determining the existence of an employment relationship of the parties herein, especially in
light of our explicit holding in Singer Sewing Machine Company v. Drilon[20]that x x x x [t]he definition 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. Any agreement
Page 62

may provide that one party shall render services for and in behalf of another for a consideration (no
matter how necessary for the latter's business) even without being hired as an employee. This is
precisely true in the case of an independent contractorship as well as in an agency agreement. The
Court agrees with the petitioner's argument that Article 280 is not the yardstick for determining the
existence of an employment relationship because it merely distinguishes between two kinds of
employees, i.e., regular employees and casual employees, for purposes of determining the right of an
employee to certain benefits, to join or form a union, or to security of tenure. Article 280 does not
apply where the existence of an employment relationship is in dispute.
In determining the existence of an employer-employee relationship it is necessary to determine
whether the following factors are present: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power to dismiss; and, (d) the power to control the employee's
conduct.[21] Notably, these are all found in the relationship between BJS and Canonicato and not
between Canonicato and petitioner COCA COLA. As the Solicitor-General manifested[22]In the instant case, the selection and engagement of the janitors for petitioner were done by
BJS. The application form and letter submitted by private respondent (Canonicato) to BJS show that
he acknowledged the fact that it was BJS who did the hiring and not petitioner x x x x
BJS paid the wages of private respondent, as evidenced by the fact that on July 15, 1993, private
respondent sent his sister to BJS with a note authorizing her to receive his pay.

law, namely, (a) the ability to carry on an independent business and undertake the contract work on
its own account under its own responsibility according to its manner and method, free from the control
and direction of its principal or client in all matters connected with the performance of the work except
as to the results thereof; and, (b) the substantial capital or investment in the form of tools, equipment,
machinery, work premises, and other materials which are necessary in the conduct of its business. [25]
It is to be noted that COCA COLA is not the only client of BJS which has its roster of clients like
San Miguel Corporation, Distileria Bago Incorporated, University of Negros Occidental-Recolletos,
University of St. La Salle, Riverside College, College Assurance Plan Phil., Inc., and Negros
Consolidated Farmers Association, Inc.[26] This is proof enough that BJS has the capability to carry on
its business of janitorial services with big establishments aside from petitioner and has sufficient
capital or materials necessary therefor.[27] All told, there being no employer-employee relationship
between Canonicato and COCA COLA, the latter cannot be validly ordered to reinstate the former
and pay him back wages.
WHEREFORE, the petition is GRANTED. The NLRC decision of 3 January 1995 declaring
Ramon B. Canonicato a regular employee of petitioner Coca Cola Bottlers Phils., Inc., entitled to
reinstatement and back wages is REVERSED and SET ASIDE. The decision of the Labor Arbiter of
28 April 1994 finding no employer-employee relationship between petitioner and private respondent
but directing petitioner Coca Cola Bottlers Phils., Inc., instead and Bacolod Janitorial Services to pay
jointly and severally Ramon B. Canonicato P2,776.80 as wage differentials, P1,068.00 as 13th month
pay and P384.48 as attorney's fees, is REINSTATED. SO ORDERED.

Power of dismissal is also exercised by BJS and not petitioner. BJS is the one that assigns the
janitors to its clients and transfers them when it sees fit. Since BJS is the one who engages their
services, then it only follows that it also has the power to dismiss them when justified under the
circumstances.
Lastly, BJS has the power to control the conduct of the janitors. The supervisors of petitioner, being
interested in the result of the work of the janitors, also gives suggestions as to the performance of the
janitors, but this does not mean that BJS has no control over them. The interest of petitioner is only
with respect to the result of their work. On the other hand, BJS oversees the totality of their
performance.
The power of the employer to control the work of the employee is said to be the most the most
significant determinant. Canonicato disputed this power of BJS over him by asserting that his
employment with COCA COLA was not interrupted by his application with BJS since his duties before
and after he applied for regularization were the same, involving as they did, working in the
maintenance department and doing painting tasks within its facilities. Canonicato cited the Labor
Utilization Reports of COCA COLA showing his painting assignments. These reports, however, are
not expressive of the true nature of the relationship between Canonicato and COCA COLA; neither
do they detract from the fact that BJS exercised real authority over Canonicato as its employee.
Moreover, a closer scrutiny of the reports reveals that the painting jobs were performed by
Canonicato sporadically, either in a few days within a month and only for a few months in a
year.[23] This infrequency or irregularity of assignments countervails Canonicatos submission that he
was assigned specifically to undertake the task of painting the whole year round. If anything, it hews
closely to the assertion of BJS that it assigned Canonicato to these jobs to maintain and sanitize the
premises of petitioner COCA COLA pursuant to its contract of services with the company. [24]
It is clear from these established circumstances that NLRC should have recognized BJS as the
employer of Canonicato and not COCA COLA. This is demanded by the fact that it did not disturb,
and therefore it upheld, the finding of the Labor Arbiter that BJS was truly a legitimate job-contractor
and could by itself hire its own employees. The Commission could not have reached any other
legitimate conclusion considering that BJS satisfied all the requirements of a job-contractor under the
LabStan Cases

Page 63

G.R. Nos. 97320-27 July 30, 1993

VALLUM SECURITY SERVICES and BAGUIO LEISURE CORPORATION (HYATT TERRACES
BAGUIO),petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, RUBEN ABELLERA, MANUEL
GANANCIAL, SAMSON ALEJERA, ROMEO BAUTISTA, CARLOS BANIAGO, GABRIEL
CABASAL, ARTEMIO CARIO, BENJAMIN LARON, SANTIAGO PACULAN, FRANCISCO
OBEDOZA, CEFERINO GARCIA, ARNOLD PAMINLAN, ROMAN PALIMA, JOSEFINO LOZANO,
PEDRO DULAY, JR., CLAUDIO PANGANIBAN, RONNIE BALDERAS, AVELINO PINTO, BEN
ENRIQUE ESTOCAPIO, ESABELITO ANGARA, ROBERT AGUIMBAG, WILSON ESTAVILLO,
FELIXBERTO NARVASA, PABLITO ROSARIO, EDGAR PALISOC, DONIE PERALTA, WILLY
QUESADA, MARIO URBANO, EDWIN JACOB, JOSE VIRGILIO LUSTERIO, MA. NESTOR
LABADOR, ROMEO LOPEZ, MANOLO MAGAT, MARIANO MARCENA, WILSON MUNAR.
ROSEMARIE DUMLAO, FLORENTINO CASTAEDA, RUBEN PANTERIA, JOHNNY
VILLANUEVA, DELIA ROSARIO, GARY JAVATE, DEAN PASAMIC, VALERIE BRIONES,
NEMENCIO CUTCHON, PHILIP MORIS, VINCENT NOEL CABRERA and JAIME
GIMENO, respondents.
Sanidad Law Offices for petitioners.

On 19 May 1989, the Labor Arbiter rendered a decision dismissing the complaints. He found Vallum
to be an independent contractor and, consequently, declined to hold Hyatt Baguio liable for dismissal
of private respondents. He also held that the termination of services of private respondents by Vallum
did not constitute an unfair labor practice, considering that such termination had been brought about
by lack of work. Furthermore, the Labor Arbiter held that private respondents were not entitled to
backwages or separation pay, in line with the "no work, no pay" principle. Lastly, he found no violation
of the labor standard provisions on payment of wages and other employee benefits. 1
Private respondents appealed the Labor Arbiter's decision to the NLRC. On 31 July 1990, the NLRC
promulgated a resolution reversing the Labor Arbiter's decision, the dispositive portion of which
resolution reads as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and set aside
and a new one entered ordering the respondent Hyatt Terraces Baguio to
reinstate the complainants to their former positions with full backwages limited to
one (1) year. In view of supervening event which makes the reinstatement
imposible, respondents Hyatt Terraces Baguio and Vallum Security Services
Corporation, are directed, jointly and severally to pay complainants, in lieu of
reinstatement, separation pay equal to one (1) month per year of service. Service
of six month shall be considered a year for the purpose of the same. 2

Cabato Law Office for respondents.

Petitioners moved for reconsideration, without success.

FELICIANO, J.:

Vallum and Hyatt Baguio are hence before this Court on certiorari seeking to: (a) reverse and annul
the Resolutions of the NLRC of 31 July 1990 and 31 January 1991; and (b) reinstate the decision of
the Labor Arbiter dated 19 May 1989. Petitioners assert that the NLRC's finding that an employeremployee relationship had existed between Hyatt Baguio and private respondents, is tainted with
arbitrariness.

On 1 September 1986, petitioner Baguio Leisure Corporation (Hyatt Terraces Baguio) ("Hyatt
Baguio") and petitioner Vallum Security Services ("Vallum") entered into a contract for security
services under the terms of which Vallum agreed to protect the properties and premises of Hyatt
Baguio by providing fifty (50) security guards, on a 24-hour basis, a day.
On 1 June 1988, Heinrich L. Maulbecker, Hyatt Baguio's General Manager, wrote to Domingo A.
Inocentes, President of Vallum advising that effective 1 July 1988, the contract of security services
would be terminated.
Vallum informed Mr. Maulbecker, on 22 June 1988, that it was agreeable to the termination of the
contract.
On 30 June 1988, private respondents, who were security guards provided by Vallum to Hyatt
Baguio, were informed by Vallum's Personnel Officer that the contract between the two (2) had
already expired. Private respondents were directed to report to Vallum's head office at Sucat Road, in
Muntinlupa, Metropolitan Manila, not later than 15 July 1988 for re-assignment. They were also told
that failure to report at Sucat would be taken to mean that they were no longer interested in being reassigned to some other client of Vallum.
None of the private respondents reported at Sucat for re-assignment. Instead, between July and
September 1988, private respondents filed several complaints against petitioners in the National
Labor Relations Commission's Office ("NLRC") in Baguio City for illegal dismissal and unfair labor
practices; for violation of labor standards relating to underpayment of wages, premium holiday and
restday pay, uniform allowances and meal allowances. They prayed for reinstatement with full
backwages. The several cases were consolidated together.

LabStan Cases

The main issue here presented and addressed below is whether or not private respondent security
guards are indeed employees of petitioner Hyatt Baguio.
In determining whether a given set of circumstances constitute or exhibit an employer-employee
relationship, the accepted rule is that the elements or circumstances relating to the following matters
shall be examined and considered:
1. the selection and engagement of the employee;.
2.
the
payment
of
wages;
3.
the
power
of
dismissal;
and
3
4. the power to control the employees' conduct.
Of the above, control of the employees' conduct is commonly regarded as the most crucial and
determinative indicator of the presence or absence of an employer-employee relationship. 4 We
examine below the circumstances of the relationship between petitioners and private respondents
under the above four (4) rubrics.
In respect of the selection and engagement of the employees, the records here show that private
respondents filled up Hyatt employment application forms and submitted the executed forms directly
to the Security Department of Hyatt Baguio. 5 It appears that these executed application forms were
returned to the respective applicants; 6nonetheless, however, a few days after the applications to
Hyatt Baguio were submitted, Vallum sent letters of acceptance to private respondents. Petitioners do
not deny that private respondent had applied for employment at Hyatt's Security Department and that
Page 64

Security Department was used to process the applications. Petitioners argue that because the
premises to be secured were located in Baguio, Vallum found it more advantageous to recruit security
guards from the Baguio area. It would have been most inconvenient for applicants from the Baguio
area to have gone all the way to Sucat in Makati to file and follow-up their applications; accordingly,
Vallum was provided with its own office at Hyatt Baguio and there the applications, with the
assistance of Hyatt Baguio's Security Department, were processed. 7 Petitioners' argument here,
while understandable, does not negate the fact that the process of selection and engagement of
private respondents had been carried out in Hyatt Baguio and subject to the scrutiny of officers and
employees of Hyatt Baguio.
In respect of the mode or manner of payment of wages, private respondents submitted in evidence
four hundred twenty-three (423) pay slips (Exhibits "A" for complainants-private respondents), which
bore Hyatt Baguio's logo. 8These pay slips show that it was Hyatt Baguio which paid their wages
directly and that Hyatt Baguio deducted therefrom the necessary amounts for SSS premiums, internal
revenue withholding taxes, and medicare contributions. The Labor Arbiter had found that a separate
payroll was maintained for Vallum by Hyatt Baguio; the NLRC, however, held that this finding had no
factual basis, and we are compelled to agree with this finding. It is true that a subsequent agreement
(10 September 1986) between Vallum and Hyatt Baguio had provided:
1. That for the purposes of facilitating and prevention of delays in the distribution
of payroll to all Security guards assigned at the premises of the company and as
embraced in the contract of Security services, the [vallum] shall herewith
authorize the [Hyatt Baguio] to undertake the distribution of the payroll directly to
the guards as mentioned herein. (Emphasis supplied)
2. That for purposes of the payroll distribution as stated above, the company
shall devise ways to ensure the efficient and prompt distribution to the guards of
their respective salaries. 9 (Emphasis supplied)
The fact that this agreement had stipulated for direct payment by Hyatt Baguio of private respondents'
wages did not, of course, dissolve the relevance of such direct payment as an indicator of an
employer-employee relationship between Hyatt Baguio and private respondents. Vallum did not even
provide Hyatt Baguio with Vallum's own pay slips or payroll vouchers for such direct payments. What
clearly emerges is that Hyatt Baguio discharged a function which was properly a function of the
employer.
Turning to the matter of location of the power of dismissal, we note that the contract provided that
upon loss of confidence on the part of Hyatt Baguio vis-a-vis any security guard furnished by Vallum,
such security guard "maybe changed immediately upon the request to [Vallum] by [Hyatt Baguio]."
Notwithstanding the terms of the formal contract between petitioners, the NLRC found that, in
operative
fact,
it
was
Hyatt
Baguio's
Chief
Security
Officer
who exercised the power of enforcing disciplinary measures over the security guards. 10 In the matter
of termination of services of particular security guards, Hyatt Baguio had merely used Vallum as a
channel to implement its decisions, much as it had done in the process of selection and recruitment of
the guards.
Coming then to the location of the power of control over the activities of the security guards, the
following factors lead us to the conclusion that power was effectively located in Hyatt Baguio rather
than in Vallum:
(a) the assignments of particular security guards was subject to the approval of
Hyatt Baguio's Chief Security Officer; 11
LabStan Cases

(b) promotions of the security guards from casual to regular employees were
approved or ratified by the Chief Security Officer of Hyatt Baguio; 12
(c) Hyatt Baguio's Chief Security Officer decided who among the various security
guards should be an duty or on call, as well as who, in cases of disciplinary
matters, should be suspended or dismissed; 13
(d) the petitioners themselves admitted that Hyatt Baguio, through its Chief
Security Officer, awarded citations to individual security guards for meritorious
services. 14
Petitioners contend that what existed between Vallum and Hyatt Baguio was simply close
coordination and dove-tailing of operations, rather than control and supervision by one over the
operations of the other, and that Hyatt Baguio's Chief Security Officer had acted as the conduit
between Hyatt Baguio and Vallum in respect of the implementation of the contract of security
services. That is not, however, the characterization given by the NLRC to the details of the factual
relationships between Hyatt Baguio (acting through its Chief Security Officer) and Vallum and private
respondent security guards and it is clear to the Court that the characterization reached by the NLRC
is not without the support of substantial evidence of record. We agree with the NLRC's
characterization.
One final circumstance seems worthy of note: orders received by private respondent security guards
were set forth on paper bearing the letterheads of both Hyatt Baguio and Vallum. 15 It appears to us,
therefore, that Hyatt Baguio explicitly purported, at the very least, to share with Vallum the exercise of
the power of control and supervision with Vallum over the security guards, if indeed Vallum was not
functioning merely as an alter ego of Hyatt Baguio in respect of the operations of the security guards.
In the ordinary course of business, security guard agencies are engaged because of their specialized
capabilities in the matter of physical security. It is a security agency's business to know the most
efficacious manner of protecting and securing a particular place at a particular time. In the case at
bar, the functions performed by Hyatt Baguio's Chief Security Officer were precisely the duties which
the head or senior officer of a legitimate security agency would be exercising over its own employees.
Finally, we note that the contract for security services between Vallum and Hyatt Baguio contained
the following provisions:
xxx xxx xxx
3. The AGENCY shall exercise discipline, supervision, control and administration
over the security guard so assigned to the premises of the COMPANY in
accordance with the Rules and Regulations of the PCSUSIA, the Local Police
Departments, the AGENCY and the COMPANY.
4. The AGENCY shall provide at its own expense all necessary, proper and duly
licensed firearms, ammunitions, nightsticks, and other paraphernalia for security
purposes, to the guards it assigns to the COMPANY and shall shoulder all taxes
and licenses relating to the Security Services referred to in this agreement.
5. It is expressly understood and mutually agreed by the parties hereto that the
AGENCY shall be held solely liable for any claim for security guards' wages
and/or damages arising out of personal injury including death caused, either by
the AGENCY's guard upon a third party or by the AGENCY'S guard or third party
upon a guard assigned by the AGENCY to the COMPANY, and should the
Page 65

COMPANY be held liable therefore, the AGENCY shall reimburse the

COMPANY for any and all amounts that it may have been called upon to pay.

(2) The contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are
necessary in the conduct of his business.

xxx xxx xxx

7. The AGENCY shall always detail within the hours the period provided for and
in the paragraph 1 of this contract, an authorized representative who shall handle
for the AGENCY all matters regarding security and enforcement which the
COMPANY may wish to implement.
The thrust of the foregoing discussion, however, is that the relationship between Vallum and Hyatt
Baguio as actually conducted departed significantly from the formal written terms of their agreement.
It is to us self-evident that the characterization in law of such relationship cannot conclusively be
made in terms alone of the written agreement which constitutes but one factor out of many that the
Court must take into account but must rest upon an examination of the detailed facts of such
relationship in the world of time and space.
We find no basis for overturning the conclusions reached by the NLRC that Vallum, in the specific
circumstances of this case, was not an independent contractor but was, rather, a "labor-only"
contracor. Section 9 of Rule VII of Book III entitled "Conditions of Employment" of the Omnibus Rules
Implementing the Labor Code provides as follows:
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers
to an employer shall be deemed to be engaged in labor-only contracting where
such person:
(1) Does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises and
other materials; and

In the case at bar, we noted that Vallum did not have a branch office in Baguio City and that Hyatt
Baguio provided Vallum with offices at Hyatt's own premises and allowed Vallum to use its Security
Department in the processing of applications. That was the reason too why Vallum had stipulated that
Hyatt Baguio was to distribute the salaries of the security guards directly to them and that Hyatt had
used its own corporate forms and pay slips in doing so. The security guards were clearly performing
activities directly related to the business operations of Hyatt Baguio, since the undertaking to
safeguard the person and belongings of hotel guests is one of the obligations of a hotel vis-a-vis its
guests and the general public.
Where labor-only contracting exists in a given case, the law itself implies or establishes an employeremployee relationship between the employer (the owner of the project or establishment) (here, Hyatt
Baguio) and the employees of the labor-only contractor (here, Vallum) to prevent any violation or
circumvention of provisions of the Labor Code. 16
The issue of illegal dismissal need not detain us for long. It has not been alleged by petitioners that a
just or authorized cause for terminating private respondents' services had existed. And even if such
lawful cause existed, it is not alleged that private respondents' rights to procedural due process in that
connection had been appropriately observed.
We conclude that petitioners have not shown any grave abuse of discretion or any act without or any
in excess of jurisdiction on the part of the National Labor Relations Commission in rendering its
Resolutions dated 31 July 1990 and 31 January 1991.
WHEREFORE, premises considered, the Petition for Certiorari is hereby DISMISSED for lack of
merit. Costs against petitioners.

(2) The workers recruited and placed by such person are

performing activities which are directly related to the
principal business or operations of the employer in which
workers are habitually employed.
(b) Labor-only contracting as defined herein is hereby prohibited and the person
acting as contractor shall be considered merely as an agent or intermediary of
the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
xxx xxx xxx
Sec. 8. Job contracting. There is job contracting permissible under the Code if
the following conditions are met:
(1) The contractor carries on an independent business and undertakes the
contract work on his own account under his own responsibility according his own
manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except as to
results thereof; and
LabStan Cases

Page 66

[G.R. No. 103606. October 13, 1999]

- and -

RELIGIOUS OF THE VIRGIN MARY, petitioner, vs. THE NATIONAL LABOR RELATIONS
COMMISSION, COLEGIO DE SAN PASCUAL BAYLON (Girls Department), AUREA
EVANGELISTA, CLARITA ALEJO, JOCELYN ANSELMO, BENITA APOLONIO, JULITA
BERNARDO, JOSEFINA CASTRO, ELENITA CONTRERAS, NARCELITA DELA CRUZ,
PATRICIA ESPINA, VERONICA ESPINOSA, MARIZA FAUSTINO, ERLINDA MALAY,
CONSOLACION MANALAYSAY, NENISCA RAYMUNDO, PRIMA SABALBERINO,
MERCEDITA SANCHEZ, AURORA SAN DIEGO, NILDA TALAG, ERLINDA VALERA,
GLENDORA VICTORIO, LOURDES CRISOSTOMO, SUSAN DEL MUNDO, SOCORRO
FERNANDEZ, CYNTHIA GARCIA, CELERINA IGNACIO, TERESITA LIWANAG, DIOSA
MAGAT, EMILINO MAKISIG, WINEFREDA MARTIN, ANGELITA MILAD, TERESITA
SAN ANTONIO, ISMAEL SANTIAGO III, CIPRIANA SIGUA, MARTINIANO VENTURA,
TEODORA SIOSON, MA. CLARA BIGCAS, JUDILYN ESPIRITU, LOLITA MERCADO,
ROSALINA MANALAYSAY, PERLITA SANTOS, ESPERANZA TERMULO, LINDA
WONG, GERONIMO FORNAL, FELIX LABAY, JOSE LATORZA, and VIRGINIA
MARTIN, respondents.
DECISION
MENDOZA, J.:
This is a petition for certiorari of the decision,[1] dated November 18, 1991, of the National Labor
Relations Commission, affirming the decision of then Labor Arbiter Ireneo B. Bernardo, dated April
28, 1989, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of complainants, directing respondents R.V.M.
and CDSPB to pay jointly and severally to complainants their unpaid salaries and wages due them for
the month of May 1987, amounting to P67,139.84, plus 10% thereof or P6,713.98 as attorneys fees
for the complainants counsel of record.
The facts are as follows:
Private respondent Colegio de San Pascual Baylon (CDSPB)[2] is a religious educational
institution owned by the Diocese of Malolos, Bulacan, which operates two high school departments
(the Boys and the Girls departments) in Obando, Meycauayan, Bulacan.
On July 18, 1983, CDSPB, represented by the Bishop of Malolos, entered into an
Agreement[3] with petitioner Religious of the Virgin Mary (RVM), a religious congregation, whereby the
latter was designated to run, administer and operate the [CDSPB] Girls Department. The
Agreement was for a term of 10 years, commencing in the school year 1983-1984. The Agreement
provided:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS
This instrument is made and entered into by and between -THE ROMAN CATHOLIC BISHOP OF MALOLOS, INC., a corporation sole duly registered and
existing under and by virtue of the laws of the Philippines with principal office of Malolos, Bulacan,
represented by His Excellency, the MOST REVEREND CIRILO R. ALMARIO, JR., D.D., Bishop of
Malolos, herein-after referred to as the BISHOP,
LabStan Cases

THE RELIGIOUS OF THE VIRGIN MARY, a religious corporation duly organized and existing under
the laws of the Philippines, with address at 214 N. Domingo St., Quezon City, represented by REV.
M. MARIA JOSEFINA C. YAMZON, R.V.M., Superior General, hereinafter referred to as the
CONGREGATION,
WITNESSETH:

THAT -

WHEREAS, the Parish of Obando, Bulacan, under and within the jurisdiction of the BISHOP, has and
owns a parochial school called ST. PASCUAL INSTITUTION, with a Boys and Girls Department
occupying separate quarters and premises;
WHEREAS, the Girls Department of ST. PASCUAL INSTITUTION is situated at and occupies a
parcel of land in Obando, Bulacan, owned by the BISHOP and more particularly described as follows:
Parcel 357 - part of lot No. 11, situated in the Municipality of Obando, Province of Bulacan, containing
an area of FOUR THOUSAND ONE HUNDRED EIGHTY SIX (4,186) SQUARE METERS, more or
less, (Full technical Description of which in Original Certificate of Title No. 361 of the Register of
Deeds for the Province of Bulacan, which is hereby made an integral part thereof, by way of
reference) including the building connected to the Parish Church of Obando, and the Home
Economics Building.
WHEREAS, the CONGREGATION is competent to run, administer and operate an educational
institution, and the CONGREGATION has the BISHOPs permission to reside in Obando, Bulacan,
where the CONGREGATION is engaged in educational work;
NOW, THEREFORE, for and in consideration of the foregoing premises and the covenants and
stipulations, terms and conditions hereunder set forth, the parties have agreed, as they hereby agree
as follows:
1. The BISHOP has appointed and designated, as he hereby appoints and designates,
and the CONGREGATION has accepted, as it hereby accepts, the aforesaid
appointment and designation, to run, administer and operate the Girls Department of
ST. PASCUAL INSTITUTION; PROVIDED, however, that during the entire period of
this Agreement, the parish Priest of Obando, Bulacan, shall remain as and be the
DIRECTOR of the ST. PASCUAL INSTITUTION, including the Girls Department;
2. By virtue of, in connection with and in furtherance of the purposes of the aforesaid
appointment and designation of the CONGREGATION, by the BISHOP, to run,
administer and operate the Girls Department of the ST. PASCUAL INSTITUTION,
the BISHOP does hereby entrust and cede into the CONGREGATION, and the
CONGREGATION does hereby accept, the use and care of the parcel of land
mentioned in the Second WHEREAS above, including the buildings mentioned
therein;
3. The CONGREGATION undertakes as its sole responsibility and expense the
administration, management and operation of the Girls Department of ST. PASCUAL
INSTITUTION, (Hereinafter, the word School shall refer to the Girls Department of
St. Pascual Institution);

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Girls Department

4. The CONGREGATION shall provide the school with Sisters qualified to handle the
direction and the teaching of the different courses and classes of the school, and if
necessary, employ other qualified teachers;

Obando, Bulacan

5. The expenses of operating and maintaining the school including, but not limited to, the
upkeep of equipment, buildings and other property located in the school; salaries,
allowances and other benefits due to teachers and other personnel of the school;
repairs and improvements of the school; and all expenses relative to the school shall
be for the exclusive account and responsibility of the CONGREGATION;
6. The school shall be operated at all times with a view to serving the needs of the
ordinary children of the parish and its vicinity and for that reason, the tuition and other
school fees should be as moderate as possible;
7. The CONGREGATION shall at its sole expenses, comply with all laws, ordinances,
regulations or circulars of the government, whether national, provincial or municipal,
and instrumentalities thereof, relating to the land, school and its building and
improvements;
8. Whatever net profit that may result from the operation of the school, after deducting
the expenses of management, administration and supervision, as above-mentioned
shall belong exclusively to the CONGREGATION, except as herein under provided;
and any loss shall be borne by the CONGREGATION exclusively;
9. Upon failure of the CONGREGATION to comply with the provisions of this Agreement,
the BISHOP may declare this contract terminated;
10.

11.

July 14, 1986

APPOINTMENT
MRS. SUSAN V. DEL MUNDO
Malanday, Val. Metro Mla.
Dear Mrs. Del Mundo,
You are hereby appointed classroom teacher in the Colegio de San Pascual Baylon at the rate of
Eighteen thousand five hundred forty eight and forty centavos (P18,548.40) per annum.
This appointment shall be deemed in full force and subsisting unless expressly terminated by either
party for a valid cause or causes and after due process, and approved by the Regional Director.
(Sgd.) Mila Loredo, RVM

Unless otherwise earlier terminated under the provisions of paragraph 8

above, this Agreement shall be valid and effective for a period of ten (10) school
years, commencing with the school year 1983-1984;
Upon the termination or expiration of this contract, or of its renewal, it is
agreed:
a. The CONGREGATION shall deliver the land herein above mentioned,
together with all the buildings and improvements existing thereat, to the
BISHOP;
b. The BISHOP shall indemnify the CONGREGATION for any constructions or
improvements introduced by the CONGREGATION other than the buildings
and improvements belonging to the BISHOP according to their value, taking
into consideration the depreciation of such constructions or improvements, at
the time of departure of the CONGREGATION;
c. Should the CONGREGATION not agree to the appraisal of the BISHOP, both
parties shall appoint their respective experts to make a re-appraisal. The
decision of those experts may be appealed to the competent Sacred
Congregation in Rome, and the decision of the latter shall be final and
unappealable;
d. The amount to be indemnified by the BISHOP to the CONGREGATION shall
be payable in five (5) equal and successive yearly installments.

Pursuant to the terms of the above agreement, petitioner hired teachers and administrative
personnel for the Girls Department under pro forma appointment papers, viz.:
COLEGIO DE SAN PASCUAL BAYLON

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(Signature of Principal)
CONFORME:
(Sgd). Susan V. Del Mundo
For Permanent employment only.
Other conditions: I hereby voluntarily and willingly conform to the following conditions:
1. To carry out the objectives of the school and my department in my area(s) of
responsibility.
2. To fulfill and carry out my rules and functions as specified in the Faculty Handbook.
3. To attend all official school functions such as meetings, seminars, conferences,
programs, etc.
4. To be regular and punctual in the admission of requirements.
5. To follow faithfully the provisions of the Faculty Handbook.
As likewise provided in the Agreement, petitioner received all the income from the Girls
Department, in the form of tuition fees and other charges, and paid all the expenses for the operation
of the department.[4]
On April 10, 1987, the Bishop of Malolos pre-terminated the Agreement. As a result, petitioner
moved out of the school premises, and CDSPB, through the Bishop of Malolos and his
representatives, took over the administration of the Girls Department.[5] Apparently, the teaching and
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non-teaching personnel hired by petitioner for school year 1986-1987 continued to render services
even after the Agreement was terminated, but they were not paid their salaries for the month of May
1987. Hence, they filed a complaint[6] for unpaid salaries with the NLRC-Regional Arbitration Branch
III, naming CDSPB and petitioner as respondents. After the parties had submitted their respective
position papers, Labor Arbiter Cresencio J. Ramos rendered a decision, [7] dated October 20, 1987, in
favor of the complainant-teachers and ordered CDSPB to pay them their claim for salaries. Petitioner
was absolved from any liability. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the complainants, ordering respondent
Colegio de San Pascual Baylon to pay the sum of P67,139.84, to the complainants plus ten per cent
(10%) attorneys fees in the amount of P6,713.98 [in] favor of Atty. Liberato C. Taneza, counsel of the
complainants.
CDSPB appealed the decision to the NLRC on the ground that it was denied due process since
it was not notified of the hearings set by the labor arbiter.[8]
On May 31, 1988, the NLRC set aside the decision of the Labor Arbiter and remanded the case
for further proceedings.
The case was subsequently assigned to then Labor Arbiter Ireneo B. Bernardo. When called to
a hearing for the reception of further evidence, the parties asked to be allowed instead to file
supplemental memoranda. Their request was granted. After the parties had submitted their
memoranda, Labor Arbiter Bernardo rendered a decision[9] on April 28, 1989, holding CDSPB and
petitioner jointly and severally liable to complainants for the payment of their salaries for May
1987. He explained:
From the standpoint of this Office, respondent RVM, may, in the wider spectrum of labor relations, be
considered an independent contractor. It exercised greater degree of autonomy and independence in
running the affairs of respondent CDSPB, with whose real owner/operator it had an Agreement. The
hiring and paying of salaries of the complainants primarily rest on it and eventually, the substantial
attributes of a direct employer were exercised by it. The respondent CDSPB had actually exercised
minimal supervision although it could exercise substantial supervision and control over respondent
RVM, as it did when the former preterminated the Agreement it had with the latter. Thus, respondent
CDSPB may be considered the statutory or indirect employer of the complainants, insofar as the
operation of that institution of learning is concerned. As indirect employer, CDSPB shall be jointly
and severally liable with its contractor, the respondent RVM, for the unpaid wages and salaries of the
latters employees, the herein complainants. It is for this reason that the indirect employer is allowed
to require the contractor or sub-contractor to post/furnish a bond at least equal to the cost of labor
under contract on condition that the bond will answer for the wages due the employees should the
contractor or sub-contractor fail to pay the same.[10]
On appeal, the NLRC adopted the findings of the labor arbiter and affirmed his
decision. Hence, this petition. Petitioner assigns the following errors:
1. THE COMPLAINT A QUO BEING A REMANDED CASE ON THE GROUND THAT
THE OTHER RESPONDENT BELOW COLEGIO DE SAN PASCUAL BAYLON WAS
DENIED DUE PROCESS OF LAW AND THE PARTIES HAVE NOT PRESENTED
ANY NEW EVIDENCE BEFORE SECOND LABOR ARBITER IRENEO B.
BERNARDO, IT WAS GRAVE ERROR ON THE PART OF THE NLRC TO AFFIRM
THE DECISION OF ARBITER BERNARDO WHICH DISREGARDED THE EARLIER
DECISION OF THIS CASE RENDERED BY FIRST LABOR ARBITER CRESENCIO
J. RAMOS DATED OCTOBER 20, 1987.
2. THE OTHER RESPONDENT BELOW COLEGIO DE SAN PASCUAL BAYLON IS
THE EMPLOYER OF THE PRIVATE RESPONDENTS HEREIN AND NOT THE
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PETITIONER HEREIN RVM CONGREGATION WHICH WAS MERELY THE

ADMINISTRATOR OR MANAGER OF THE GIRLS DEPARTMENT OF THE
SCHOOL DULY APPOINTED BY THE BISHOP OF MALOLOS AS OWNER OF THE
SCHOOL.
3. THE RVM CONGREGATIONS APPOINTMENT AS ADMINISTRATOR OR
MANAGER FOR THE GIRLS DEPARTMENT OF THE SCHOOL WAS REVOKED
OR TERMINATED ON APRIL 10, 1987 AND SO, IT HAD NO MORE ACCESS TO
THE INCOME OF THE GIRLS DEPARTMENT FOR THE MONTHS OF APRIL AND
MAY 1987 WITH WHICH TO PAY THE MAY 1987 SALARIES OF THE HEREIN
PRIVATE RESPONDENTS.
4. THE RVM CONGREGATION IS NOT AN INDEPENDENT CONTRACTOR.
CDSPB likewise questions the decision of the NLRC. It argues:[11]
1. RESPONDENT CDSPB ALSO ASSAILS THE DECISION DATED 18 NOVEMBER
1991 OF THE THIRD DIVISION OF THE NLRC.
2. PETITIONER RVM CONGREGATION, BEING THE EMPLOYER OF THE
COMPLAINANTS, IS SOLELY RESPONSIBLE FOR THE LATTERS PAY FOR MAY
1987.
3. PETITIONER RVM CONGREGATION, NONETHELESS, RECOGNIZES ITS LEGAL
AND MORAL OBLIGATIONS TO PAY THE COMPLAINANTS SALARIES FOR MAY
1987
4. TO HOLD RESPONDENT CDSPB JOINTLY AND SEVERALLY LIABLE WITH
PETITIONER RVM CONGREGATION IS CLEARLY UNJUST AND PREJUDICIAL
TO THE FORMER.
The parties agree that private respondents have not been paid their salaries for the month of
May 1987 and that they are entitled to the payment thereof. The only question in this case is the
liability of either or both of them for payment of private respondents salaries. It is thus necessary to
determine the relationship between petitioner and CDSPB under the Agreement.
Petitioner contends that CDSPB is the employer of complainants. It maintains that it is not an
independent contractor but merely the manager or administrator of the Girls Department, and that
after the Agreement was terminated on April 10, 1987, it no longer had any access to the income of
the school to entitle and enable it to pay the salaries of complainants.[12]
CDSPB, on the other hand, contends that petitioner is not an independent contractor but the
sole employer of private respondents-complainants. It further argues that the payment of salaries for
the month of May 1987 should come from the fees collected by petitioner during the school year
1986-1987.[13]
For its part, the Solicitor General, representing the NLRC, contends that, as regards private
respondents-complainants, petitioner and CDSPB are employer and contractor, respectively, under
Article 106 of the Labor Code. They should, therefore, be held solidarily liable for payment of private
respondents salaries under Article 109 of the Code.[14]
We find petitioners arguments to be meritorious and the position of CDSPB and the ruling of
the NLRC untenable.
The Agreement shows that petitioner entered into the same not as an independent contractor
but, as it claims, a manager or administrator of the school. It is true that under the Agreement,
petitioner had the sole responsibility and expense [over] the administration, management and
operation of the Girls Department, as well as the authority to employ teachers needed by the school,
impose and collect tuition fees, and pay the expenses of operations. However, control and
Page 69

supervision over the schools operations remained in the hands of the Diocese of Malolos, owner of
CDSPB, represented by the Parish Priest of Obando, Bulacan, who acted as school director. The
extent of his authority over the management and operations of the school is clearly shown in a
memorandum,[15] dated September 30, 1986, issued by the Bishop of Malolos, which reads:
COLEGIO DE SAN PASCUAL BAYLON

dean or principal concerned, in proper cases, initiate the necessary proceedings, for
the separation from service of any of them.
9. He shall submit through the Board, an annual report of the operation of the Colegio at
the close of the school year, and make recommendations thereto, said report to be
given to MECS.
10.

He shall submit to the Board of Trustees the annual budget of the Colegio with
estimates of income and expenses as prepared by the dean, the principals and the
treasurer.

THE DIRECTOR

11.

He shall make, sign, deliver, and execute contracts, agreements and other
documents wherein the Colegio is a party in the name and in behalf of the school.

1. He shall have general control and supervision over all academic and administrative
matters.

12.

He shall sign all checks, negotiable instruments, and other evidence of

payments in the name of the school.

2. All officers, faculty members and employees of the institution shall be responsible to
and shall be under the direction of the Director.

13.

He shall have the power to authorize expenses from the miscellaneous items
in the budget for maintenance and repairs or remodeling and modification of
buildings and grounds and equipment without prior action by the Board of Trustees,
provided the total amount does not exceed ____________ pesos (P _______)

14.

As the academic leader of the Colegio, he shall represent it in meetings,

conferences, conventions in which the Colegio may be interested and speak when
occasion arises.

5. All letters, appeal, complaints, etc. by the dean, principals, faculty members,
employees, and students of the Colegio shall be coursed through him, otherwise they
shall not be recognized by the Board; provided, however, that the Director may not
withhold from the Board any communication addressed to it.

15.

Within the limits of the law and proper decorum, he shall try to secure for the
Colegio, aside from the parish appropriation, additional funds and/or property in the
form of prizes, scholarships, donations, and endowments and land grants to enable
the Colegio to accomplish better the purpose of its establishment.

6. Upon consultation with the dean and principals concerned as the case may be, he
shall appoint qualified persons to fill vacancies.

16.

For the proper conduct of the business of the Colegio, for the implementation
of all resolutions of the Board, for the maintenance of the highest possible standard
of instruction in the Colegio, for the promotion of peace and order, for the
development of cordial relations among the three components of the Colegio Administration, Faculty and Student Body - the Director shall have such other powers
as specially authorized by the Board of Trustees and such as are inherent in or
usually pertaining to the Office of the Director of a Colegio. He is also authorized to
delegate in writing any of his specific functions to any office under his control and
supervision, provided that he shall, at all times, be responsible for the acts of his
delegates to the Board of Trustees.

Pag-Asa, Obando, Bulacan

3. He shall determine and prepare the agenda of all meetings of the Board without
prejudice to the right of any member of the Board to have any matter included
therein.
4. He shall preside at commencement exercises and other functions of the Colegio.

7. More specifically, as academic and administrative head, the Director shall exercise the
following powers, subject to confirmation by the Board of Trustees.
a. To accept the resignation of faculty members and employees;
b. To grant or deny leaves of absence with or without pay and/or extend such
leaves;
c. To recommend to the Board of Trustees the retirement of the members of the
faculty and employees;
d. To make interim appointments;
e. To renew appointments for not more than one year if the budget permits and
the services are necessary.
f. To supervise and control, through the Coordinator of Student Affairs, all extracurricular activities of the students and to promulgate rules for the
organization and operation of student organization and for the election and
qualifications of the officers thereof.
The Director shall inform the Board of Trustees of all actions taken by him in accordance
with these functions.
8. He shall hold officers, faculty members, and employees, to the full discharge of their
duties; if in his judgment the necessity arises, he shall, after consultation with the
LabStan Cases

This memorandum leaves no room for doubt that CDSPB, as represented by the director,
exercised absolute control and supervision over the schools administration. Under it, the authority to
hire, discipline and terminate the employment of personnel is vested in the director, as academic and
administrative head of the school.
CDSPB contends, however, that
...[T]he designation of the parish priest as director was not unilateral but by mutual agreement
between the diocese of Malolos and [petitioner]. This being the case, the parish priests designation
as such director merely makes him, in effect, a member of the school administration which is under
the actual and direct control and supervision of the congregation.[16]
The argument has no merit. As this Court has consistently ruled, the power of control is the
most
decisive
factor[17] in
determining
the
existence
of
an
employer-employee
relationship. In Encyclopedia Britannica (Phils.), Inc. v. NLRC,[18] we held:
Page 70

In determining the existence of an employer-employee relationship the following elements must be

present: (1) selection and engagement of the employee; (2) payment of wages; (3) power of
dismissal; and (4) the power to control the employees conduct. Of the above, control of employees
conduct is commonly regarded as the most crucial and determinative indicator of the presence or
absence of an employer-employee relationship. Under the control test, an employer-employee
relationship exists where the person for whom the services are performed reserves the right to control
not only the end to be achieved, but also the manner and means to be used in reaching that end.
In this case, CDSPB reserved the right to control and supervise the operations of the Girls
Department. As noted by the labor arbiter himself and affirmed by the NLRC, although CDSPB
actually exercised minimal supervision over petitioner, [it] could exercise substantial supervision and
control as it did when [it] preterminated the Agreement. There was, therefore, no basis in finding that
petitioner had a greater degree of autonomy and independence in running the affairs of the
school. The presence of the school director, whose vast powers have already been noted, negates
any suggestion or semblance of autonomy.
Nor is there any merit in the claim that actual and effective control was exercised by petitioner
since the designation of the parish priest as director was a mere formality, as he did perform
functions which are purely ministerial and figurative in nature.[19] Time and again we have held that
the control test only requires the existence of the right to control the manner of doing the work not
necessarily the actual exercise of the power by him, which he can delegate. [20] Indeed, although the
letters of appointment were signed by the principal/representative of petitioner, they bore the
name/letterhead of CDSPB and clearly indicated therein that the employees were hired as
teachers/personnel by CDSPB, and not by RVM. Moreover, CDSPB itself admits that its name not
petitioners appears in the employees payroll ledger cards.[21]
One other crucial fact to consider is that private respondents-complainants continued to render
services beyond April 10, 1987, the termination date of the Agreement. If they were employees of
petitioner and not of CDSPB, their services should have been terminated the moment the Agreement
was no longer in effect. Instead, CDSPB continued to honor their respective employment
contracts/appointment papers and avail of their services even after petitioner turned over the schools
administration to CDSPB. Indeed, it does not appear that there was a break or change in the
employment status of private respondents-complainants, neither are they claiming separation pay
from petitioner, unlike in cases where there is a supposed change in employers.[22]
Based on the Agreement and other evidence on record, it thus appears that petitioner was
merely the agent or administrator of CDSPB, and that private respondents are its
employees. In Ponce v. NLRC,[23] this Court held:
Under Section 8, Rule VIII, Book III, of the Omnibus Rules Implementing the Labor Code, an
independent contractor is one who undertakes job contracting, i.e., a person who (a) carries on an
independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the
results thereof, and (b) has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of the
business. Jurisprudential holdings are to the effect that in determining the existence of an
independent contractor relationship, several factors might be considered such as, but not necessarily
confined to, whether or not the contractor is carrying on an independent business; the nature and
extent of the work; the skill required; the term and duration of the relationship; the right to assign the
performance of specified pieces of work, the control and supervision of the work to another; the
employers power with respect to the hiring, firing and payment of the contractors workers; the control
of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode,
manner and terms of payment.

LabStan Cases

As above stated, petitioner was subject to the control and supervision of CDSPB in running the
Girls Department. Petitioner has not been shown to have substantial capital or investment necessary
in the conduct of the business. Under the Agreement, the ownership of the parcel of land and the
building thereon remained with CDSPB. Tested by the standards announced in Ponce, petitioner
cannot be considered an independent contractor.
CDSPB nonetheless argues that petitioner should be made liable to pay the salaries for the
month of May 1987 since petitioner collected the revenues for school year 1986-1987 from which said
salaries should be sourced.[24] Petitioner, on the other hand, claims that it has been its uniform and
traditional practice in its administration of various schools throughout the Philippines to fix the school
budget from May 1 to April 30.[25]
It is unnecessary to pass upon this claim. The fact that CDSPB is the direct and only employer
of private respondents makes it solely liable to pay the salaries for the month of May 1987 to the
concerned employees. Whether or not said salaries should come from the fees collected by its agent
(petitioner) for the previous year is a matter to be litigated between CDSPB and RVM. Here, the only
issue is who is the employer of private respondents.
WHEREFORE, the petition is hereby GRANTED and the decision, dated November 18, 1991,
of the National Labor Relations Commission is SET ASIDE. Colegio de San Pascual Baylon is
ORDERED to pay private respondents their salaries for the month of May 1987, in the amount
of P67,139.84, and P6,713.98 as attorneys fees. SO ORDERED.

[G.R. No. 112139. January 31, 2000]

LAPANDAY AGRICULTURAL DEVELOPMENT CORPORATION, petitioner, vs. THE
HONORABLE COURT OF APPEALS (Former Eighth Division) and COMMANDO SECURITY
SERVICE AGENCY, INC.,respondents.
DECISION
GONZAGA-REYES, J.:
Before us is a Petition for Review on Certiorari of the decision[1] of the Court of Appeals[2] in CA-G.R.
CV No. 33893 entitled COMMANDO SECURITY SERVICE AGENCY, INCORPORATED vs.
LAPANDAY AGRICULTURAL DEVELOPMENT CORPORATION which affirmed the decision[3] of the
Regional Trial Court, 11th Judicial Region, Branch 9, Davao City in Civil Case No. 19203-88.
The pertinent facts as found by the Court of Appeals are as follows:
"The evidence shows that in June 1986, plaintiff Commando Security Service
Agency, Inc., and defendant Lapanday Agricultural Development Corporation
entered into a Guard Service Contract. Plaintiff provided security guards in
defendants banana plantation. The contract called for the payment to a guard of
P754.28 on a daily 8-hour basis and an additional P565.72 for a four hour
overtime while the shift-in-charge was to be paid P811.40 on a daily 8-hour basis
and P808.60 for the 4-hour overtime.
Wage Orders increasing the minimum wage in 1983 were complied with by the
defendant. On June 16, 1984, Wage Order No. 5 was promulgated directing an
increase of P3.00 per day on the minimum wage of workers in the private sector
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and a P5.00 increase on the ECOLA. This was followed on November 1, 1984 by
Wage Order No. 6 which further increased said minimum wage by P3.00 on the
ECOLA. Both Wage Orders contain the following provision:
"In the case of contract for construction projects and for
security, janitorial and similar services, the increase in the
minimum wage and allowances rates of the workers shall be
borne by the principal or client of the construction/service
contractor and the contracts shall be deemed amended
accordingly, subject to the provisions of Sec. 3 (b) of this
order" (Sec. 6 and Sec. 9, Wage Orders No. 5 and 6,
respectively)."
Plaintiff demanded that its Guard Service Contract with defendant be upgraded in
compliance with Wage Order Nos. 5 and 6. Defendant refused. Their Contract
expired on June 6, 1986 without the rate adjustment called for Wage Order Nos.
5 and 6 being implemented. By the time of the filing of plaintiffs Complaint, the
rate adjustment payable by defendant amounted toP462,346.25. Defendant
opposed the Complaint by raising the following defenses: (1) the rate adjustment
is the obligation of the plaintiff as employer of the security guards; (2) assuming
its liability, the sum it should pay is less in amount; and (3) the Wage Orders
violate the impairment clause of the Constitution.

an adjustment, considering that the

contract had expired and had not been
renewed. (Eagle Security Agency vs.
NLRC and Phil. Tuberculosis Society,
Inc. vs. NLRC, et al., 18 May 1989).
"As to the issue that Wage Orders Nos. 5 and 6 constitute
impairments of contracts in violation of constitutional
guarantees, the High Court ruled" The Supreme Court has
rejected the impairment of contract argument in sustaining
the validity and constitutionality of labor and social legislation
like the Blue Sunday Law, compulsory coverage of private
sector employees in the Social Security System, and the
abolition of share tenancy enacted pursuant to the police
power of the state (Eagle Security Agency, Inc. vs. National
Labor Relation Commission and Phil. Tuberculosis Society,
Inc. vs. NLRC, et al., May 18, 1989)."
Petitioners motion for reconsideration was denied;[4] hence this petition where petitioner cites the
following grounds to support the instant petition for review:
"1. THE WAGE INCREASES PROVIDED FOR IN THE WAGE ORDERS WERE
DUE TO THE GUARDS AND NOT THE SECURITY AGENCY;

The trial court decided in favor of the plaintiff. It held:

xxx
"However, in order for the security agency to pay the security
guards, the Wage Orders made specific provisions to amend
existing contracts for security services by allowing the
adjustment of the consideration paid by the principal to the
security agency concerned. (Eagle Security Agency, Inc. vs.
NLRC, Phil. Tuberculosis Society, Inc. vs. NLRC, et al., May
18, 1989).
The Wage Orders require the amendment of the contract as
to the consideration to cover the service contractors
payment of the increases mandated. However, in the case at
bar, the contract for security services had earlier been
terminated without the corresponding amendment. Plaintiff
now demands adjustment in the contract price as the same
was deemed amended by Wage Order Nos. 5 and 6.
Before the plaintiff could pay the minimum wage as
mandated by law, adjustments must be paid by the principal
to the security agency concerned.
"Given these circumstances, if PTS
pays the security guards, it cannot claim
reimbursements from Eagle. But if its
Eagle that pays them, the latter can
claim reimbursement from PTS in lieu of
LabStan Cases

2. A SECURITY AGENCY WHO DID NOT PAY WAGE INCREASE TO ITS

GUARDS IT HAD ALREADY TERMINATED AND WITHOUT THEIR
AUTHORIZATION CANNOT INSTITUTE AN ACTION TO RECOVER SAID
WAGE INCREASE FOR ITS BENEFIT;
3. IN THE ABSENCE OF BAD FAITH AND WITHOUT THE TRIAL COURT
CORRECTLY ESTABLISHING THE BASIS FOR ATTORNEYS FEES, THE
SAME MAY NOT BE AWARDED.
4. THE NATIONAL LABOR RELATIONS (SIC) IS THE PROPER FORUM THAT
HAS THE JURISDICTION TO RESOLVE THE ISSUE OF WHETHER OR NOT
THE PETITIONER IS LIABLE TO PAY THE PRIVATE RESPONDENT THE
WAGE AND ALLOWANCE INCREASES MANDATED UNDER WAGE ORDER
NOS. 5 AND 6."[5]
Reiterating its position below, petitioner asserts that private respondent has no factual and legal basis
to collect the benefits under subject Wage Order Nos. 5 and 6 intended for the security guards
without the authorization of the security guards concerned. Inasmuch as the services of the forty-two
(42) security guards were already terminated at the time the complaint was filed on August 15, 1988,
private respondents complaint partakes of the nature of an action for recovery of what was
supposedly due the guards under said Wage Orders, amounts that they claim were never paid by
private respondent and therefore not collectible by the latter from the petitioner. Petitioner also assails
the award of attorneys fees in the amount of P115,585.31 or 25% of the total adjustment claim
of P462,341.25 for lack of basis and for being unconscionable.
Moreover, petitioner submits that it is the National Labor Relations Commission (NLRC) and not the
civil courts that has jurisdiction to resolve the issue involved in this case for it refers to the
enforcement of wage adjustment and other benefits due to private respondents security guards
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mandated under Wage Order Nos. 5 and 6. Considering that the RTC has no jurisdiction, its decision
is without force and effect.[6]

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

On the other hand, private respondent contends that the basis of its action against petitionerappellant is the enforcement of the Guard Service Contract entered into by them, which is deemed
amended by Section 6 of Wage Order No. 5 and Section 9 of Wage Order No. 6; that pursuant to
their amended Guard Service Contract, the increases/adjustments in wages and ECOLA are due to
private respondent and not to the security guards who are not parties to the said contract. It is
therefore immaterial whether or not private respondent paid its security guards their wages as
adjusted by said Wage Orders and that since the forty-two (42) security guards are not parties to the
Guard Service Contract, there is no need for them to authorize the filing of, or be joined in, this suit.

5.
Cases arising from any violation of Article 264 of this Code, including
questions involving legality of strikes and lockouts; and

As regards the award to private respondent of the amount of P115,585.31 as attorneys fees, private
respondent maintains that there is enough evidence and/or basis for the grant thereof, considering
that the adamant attitude of the petitioner (in implementing the questioned Wage Orders) compelled
the herein private respondent, to litigate in court. Furthermore, since the legal fee payable by private
respondent to its counsel is essentially on contingent basis, the amount of P115,583.31 granted by
the trial court which is 25% of the total claim is not unconscionable.
As regards the jurisdiction of the RTC, private respondent alleges that the suit filed before the trial
court is for the purpose of securing the upgrading of the Guard Service Contract entered into by
herein petitioner and private respondent in June 1983. The enforcement of this written contract does
not fall under the jurisdiction of the NLRC because the money claims involved therein did not arise
from employer-employee relations between the parties and is intrinsically a civil dispute. Thus,
jurisdiction lies with the regular courts. Private respondent further contends that petitioner is estopped
or barred from raising the question of jurisdiction for the first time before the Supreme Court after
having voluntarily submitted to the jurisdiction of the regular courts below and having lost its case
therein.[7]
We resolve to grant the petition.
We resolve first the issue of jurisdiction. We agree with the respondent that the RTC has jurisdiction
over the subject matter of the present case. It is well settled in law and jurisprudence that where no
employer-employee relationship exists between the parties and no issue is involved which may be
resolved by reference to the Labor Code, other labor statutes or any collective bargaining agreement,
it is the Regional Trial Court that has jurisdiction.[8] In its complaint, private respondent is not seeking
any relief under the Labor Code but seeks payment of a sum of money and damages on account of
petitioners alleged breach of its obligation under their Guard Service Contract. The action is within
the realm of civil law hence jurisdiction over the case belongs to the regular courts. [9] While the
resolution of the issue involves the application of labor laws, reference to the labor code was only for
the determination of the solidary liability of the petitioner to the respondent where no employeremployee relation exists. Article 217 of the Labor Code as amended vests upon the labor arbiters
exclusive original jurisdiction only over the following:
1.

Unfair labor practices;

2.

Termination disputes;

3.
If accompanied with a claim for reinstatement, those cases that workers
may file involving wages, rates of pay, hours of work and other terms and
conditions of employment;

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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
requisite;[10] and there is none in this case.
On the merits, the core issue involved in the present petition is whether or not petitioner is liable to
the private respondent for the wage adjustments provided under Wage Order Nos. 5 and 6 and for
attorneys fees.
Private respondent admits that there is no employer-employee relationship between it and the
petitioner. The private respondent is an independent/job contractor[11] who assigned security guards
at the petitioners premises for a stipulated amount per guard per month. The Contract of Security
Services expressly stipulated that the security guards are employees of the Agency and not of the
petitioner.[12] Articles 106 and 107 of the Labor Code provides the rule governing the payment of
wages of employees in the event that the contractor fails to pay such wages as follows:
"Art. 106. Contractor or subcontractor. Whenever an employer enters into a
contract with another person for the performance of the formers work, the
employees of the contractor and of the latters subcontractor, if any, shall be paid
in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.
xxx
ART. 107. Indirect employer. The provisions of the immediately preceding
Article shall likewise apply to any person, partnership, association or corporation
which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project."
It will be seen from the above provisions that the principal (petitioner) and the contractor (respondent)
are jointly and severally liable to the employees for their wages. This Court held in Eagle Security,
Inc. vs. NLRC[13] and Spartan Security and Detective Agency, Inc. vs. NLRC[14] that the joint and
several liability of the contractor and the principal is mandated by the Labor Code to assure
compliance with the provisions therein including the minimum wage. The contractor is made liable by
virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer
of the contractors employees to secure payment of their wages should the contractor be unable to
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pay them.[15] Even in the absence of an employer-employee relationship, the law itself establishes
one between the principal and the employees of the agency for a limited purpose i.e. in order to
ensure that the employees are paid the wages due them. In the above-mentioned cases, the solidary
liability of the principal and contractor was held to apply to the aforementioned Wage Order Nos. 5
and 6.[16] In ruling that under the Wage Orders, existing security guard services contracts are
amended to allow adjustment of the consideration in order to cover payment of mandated increases,
and that the principal is ultimately liable for the said increases, this Court stated:
"The Wage Orders are explicit that payment of the increases are to be borne by
the principal or client. To be borne, however, does not mean that the principal,
PTSI in this case, would directly pay the security guards the wage and allowance
increases because there is no privity of contract between them. The security
guards contractual relationship is with their immediate employer, EAGLE. As an
employer, EAGLE is tasked, among others, with the payment of their wages [See
Article VII Sec. 3 of the Contract for Security Services, supra and Bautista vs.
Inciong, G. R. No. 52824, March 16, 1988, 158 SCRA 665].
On the other hand, there existed a contractual agreement between PTSI and
EAGLE wherein the former availed of the security services provided by the latter.
In return, the security agency collects from its client payment for its security
services. This payment covers the wages for the security guards and also
expenses for their supervision and training, the guards bonds, firearms with
ammunitions, uniforms and other equipments, accessories, tools, materials and
supplies necessary for the maintenance of a security force.
Premises considered, the security guards immediate recourse for the payment of
the increases is with their direct employer, EAGLE. However, in order for the
security agency to comply with the new wage and allowance rates it has to pay
the security guards, the Wage Orders made specific provision to amend existing
contracts for security services by allowing the adjustment of the consideration
paid by the principal to the security agency concerned. What the Wage Orders
require, therefore, is the amendment of the contracts as to the consideration to
cover the service contractors payment of the increases mandated. In the end,
therefore, ultimate liability for the payment of the increases rests with the
principal.

He who made payment may claim from his codebtors only the share which
corresponds to each, with interest for the payment already made. If the payment
is made before the debt is due, no interest for the intervening period may be
demanded. xxx"
Pursuant to the above provision, the right of reimbursement from a co-debtor is recognized in favor of
the one who paid.
It will be seen that the liability of the petitioner to reimburse the respondent only arises if and when
respondent actually pays its employees the increases granted by Wage Order Nos. 5 and 6.
Payment, which means not only the delivery of money but also the performance, in any other manner,
of the obligation,[18] is the operative fact which will entitle either of the solidary debtors to seek
reimbursement for the share which corresponds to each of the debtors.
The records show that judgment was rendered by Labor Arbiter Newton R. Sancho holding both
petitioner and private respondent jointly and solidarily liable to the security guards in a
Decision[19] dated October 17, 1986 (NLRC Case No. 2849-MC-XI-86).[20] However, it is not disputed
that the private respondent has not actually paid the security guards the wage increases granted
under the Wage Orders in question. Neither is it alleged that there is an extant claim for such wage
adjustments from the security guards concerned, whose services have already been terminated by
the contractor. Accordingly, private respondent has no cause of action against petitioner to recover
the wage increases. Needless to stress, the increases in wages are intended for the benefit of the
laborers and the contractor may not assert a claim against the principal for salary wage adjustments
that it has not actually paid. Otherwise, as correctly put by the respondent, the contractor would be
unduly enriching itself by recovering wage increases, for its own benefit.
Finally, considering that the private respondent has no cause of action against the petitioner, private
respondent is not entitled to attorneys fees.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated May 24, 1993 is
REVERSED and SET ASIDE. The complaint of private respondent COMMANDO SECURITY
SERVICE AGENCY, INC. is hereby DISMISSED. SO ORDERED.

In view of the foregoing, the security guards should claim the amount of the
increases from EAGLE. Under the Labor Code, in case the agency fails to pay
them the amounts claimed, PTSI should be held solidarily liable with EAGLE
[Articles 106, 107 and 109]. Should EAGLE pay, it can claim an adjustment from
PTSI for an increase in consideration to cover the increases payable to the
security guards."[17]
It is clear also from the foregoing that it is only when contractor pays the increases mandated that it
can claim an adjustment from the principal to cover the increases payable to the security guards. The
conclusion that the right of the contractor (as principal debtor) to recover from the principal as solidary
co-debtor) arises only if he has paid the amounts for which both of them are jointly and severally
liable is in line with Article 1217 of the Civil Code which provides:
"Art. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may choose
which offer to accept.

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Page 74

[G.R. No. 157010. June 21, 2005]

PHILIPPINE NATIONAL BANK, petitioner, vs. FLORENCE O. CABANSAG, respondent.
DECISION
PANGANIBAN, J.:

On December 7, 1998, Ruben C. Tobias wrote a letter to Florence O. Cabansag offering her a
temporary appointment, as Credit Officer, at a basic salary of Singapore Dollars 4,500.00, a month
and, upon her successful completion of her probation to be determined solely, by the Bank, she may
be extended at the discretion of the Bank, a permanent appointment and that her temporary
appointment was subject to the following terms and conditions:
1.
You will be on probation for a period of three (3) consecutive months from the date of your
assumption of duty.

The Court reiterates the basic policy that all Filipino workers, whether employed locally or
overseas, enjoy the protective mantle of Philippine labor and social legislations. Our labor statutes
may not be rendered ineffective by laws or judgments promulgated, or stipulations agreed upon, in a
foreign country.

2.
You will observe the Banks rules and regulations and those that may be adopted from time
to time.
3.
You will keep in strictest confidence all matters related to transactions between the Bank
and its clients.

The Case
4.
You will devote your full time during business hours in promoting the business and interest
of the Bank.
Before us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, seeking
to reverse and set aside the July 16, 2002 Decision[2] and the January 29, 2003 Resolution[3] of the
Court of Appeals (CA) in CA-GR SP No. 68403. The assailed Decision dismissed the CA Petition
(filed by herein petitioner), which had sought to reverse the National Labor Relations Commission
(NLRC)s June 29, 2001 Resolution,[4] affirming Labor Arbiter Joel S. Lustrias January 18, 2000
Decision.[5]
The assailed CA Resolution denied herein petitioners Motion for Reconsideration.

The facts are narrated by the Court of Appeals as follows:

xxx

In late 1998, [herein Respondent Florence Cabansag] arrived in Singapore as a tourist. She applied
for employment, with the Singapore Branch of the Philippine National Bank, a private banking
corporation organized and existing under the laws of the Philippines, with principal offices at the PNB
Financial Center, Roxas Boulevard, Manila. At the time, the Singapore PNB Branch was under the
helm of Ruben C. Tobias, a lawyer, as General Manager, with the rank of Vice-President of the
Bank. At the time, too, the Branch Office had two (2) types of employees: (a) expatriates or the
regular employees, hired in Manila and assigned abroad including Singapore, and (b) locally (direct)
hired. She applied for employment as Branch Credit Officer, at a total monthly package of
$SG4,500.00, effective upon assumption of duties after approval. Ruben C. Tobias found her
eminently qualified and wrote on October 26, 1998, a letter to the President of the Bank in Manila,
recommending the appointment of Florence O. Cabansag, for the position.
xxx

xxx

The President of the Bank was impressed with the credentials of Florence O. Cabansag that he
approved the recommendation of Ruben C. Tobias. She then filed an Application, with the Ministry
of Manpower of the Government of Singapore, for the issuance of an Employment Pass as an
employee of the Singapore PNB Branch. Her application was approved for a period of two (2) years.

LabStan Cases

6.
Termination of your employment with the Bank may be made by either party after notice of
one (1) day in writing during probation, one month notice upon confirmation or the equivalent of one
(1) days or months salary in lieu of notice.
Florence O. Cabansag accepted the position and assumed office. In the meantime, the Philippine
Embassy in Singapore processed the employment contract of Florence O. Cabansag and, on March
8, 1999, she was issued by the Philippine Overseas Employment Administration, an Overseas
Employment Certificate, certifying that she was a bona fide contract worker for Singapore.

The Facts

xxx

5.
You will not, without prior written consent of the Bank, be employed in anyway for any
purpose whatsoever outside business hours by any person, firm or company.

xxx

xxx

Barely three (3) months in office, Florence O. Cabansag submitted to Ruben C. Tobias, on March 9,
1999, her initial Performance Report. Ruben C. Tobias was so impressed with the Report that he
made a notation and, on said Report: GOOD WORK. However, in the evening of April 14, 1999,
while Florence O. Cabansag was in the flat, which she and Cecilia Aquino, the Assistant VicePresident and Deputy General Manager of the Branch and Rosanna Sarmiento, the Chief Dealer of
the said Branch, rented, she was told by the two (2) that Ruben C. Tobias has asked them to tell
Florence O. Cabansag to resign from her job. Florence O. Cabansag was perplexed at the sudden
turn of events and the runabout way Ruben C. Tobias procured her resignation from the Bank. The
next day, Florence O. Cabansag talked to Ruben C. Tobias and inquired if what Cecilia Aquino and
Rosanna Sarmiento had told her was true. Ruben C. Tobias confirmed the veracity of the
information, with the explanation that her resignation was imperative as a cost-cutting measure of the
Bank. Ruben C. Tobias, likewise, told Florence O. Cabansag that the PNB Singapore Branch will be
sold or transformed into a remittance office and that, in either way, Florence O. Cabansag had to
resign from her employment. The more Florence O. Cabansag was perplexed. She then asked
Ruben C. Tobias that she be furnished with a Formal Advice from the PNB Head Office in Manila.
However, Ruben C. Tobias flatly refused. Florence O. Cabansag did not submit any letter of
resignation.

Page 75

On April 16, 1999, Ruben C. Tobias again summoned Florence O. Cabansag to his office and
demanded that she submit her letter of resignation, with the pretext that he needed a Chinesespeaking Credit Officer to penetrate the local market, with the information that a Chinese-speaking
Credit Officer had already been hired and will be reporting for work soon. She was warned that,
unless she submitted her letter of resignation, her employment record will be blemished with the
notation DISMISSED spread thereon. Without giving any definitive answer, Florence O. Cabansag
asked Ruben C. Tobias that she be given sufficient time to look for another job. Ruben C. Tobias told
her that she should be out of her employment by May 15, 1999.

3. Solidarily to pay complainant actual damages in the amount of SGD 1,978.00 or its
equivalent in Philippine Currency at the time of payment, and moral damages in the
amount of PhP 200,000.00, exemplary damages in the amount of PhP 100,000.00;
4. To pay complainant the amount of SGD 5,039.81 or its equivalent in Philippine
Currency at the time of payment, representing attorneys fees.
SO ORDERED. [6] [Emphasis in the original.]

However, on April 19, 1999, Ruben C. Tobias again summoned Florence O. Cabansag and
adamantly ordered her to submit her letter of resignation. She refused. On April 20, 1999, she
received a letter from Ruben C. Tobias terminating her employment with the Bank.
xxx

xxx

xxx

PNB appealed the labor arbiters Decision to the NLRC. In a Resolution dated June 29, 2001,
the Commission affirmed that Decision, but reduced the moral damages to P100,000 and the
exemplary damages to P50,000. In a subsequent Resolution, the NLRC denied PNBs Motion for
Reconsideration.

On January 18, 2000, the Labor Arbiter rendered judgment in favor of the Complainant and against
the Respondents, the decretal portion of which reads as follows:
WHEREFORE, considering the foregoing premises, judgment is hereby rendered finding
respondents guilty of Illegal dismissal and devoid of due process, and are hereby ordered:
1. To reinstate complainant to her former or substantially equivalent position without loss
of seniority rights, benefits and privileges;
2. Solidarily liable to pay complainant as follows:

LabStan Cases

a)

To pay complainant her backwages from 16 April 1999 up to her actual

reinstatement. Her backwages as of the date of the promulgation of this
decision amounted to SGD 40,500.00 or its equivalent in Philippine Currency
at the time of payment;

b)

Mid-year bonus in the amount of SGD 2,250.00 or its equivalent in Philippine

Currency at the time of payment;

c)

Allowance for Sunday banking in the amount of SGD 120.00 or its equivalent in
Philippine Currency at the time of payment;

d)

Monetary equivalent of leave credits earned on Sunday banking in the amount

of SGD 1,557.67 or its equivalent in Philippine Currency at the time of
payment;

e)

Monetary equivalent of unused sick leave benefits in the amount of SGD

1,150.60 or its equivalent in Philippine Currency at the time of payment.

f)

Monetary equivalent of unused vacation leave benefits in the amount of SGD

319.85 or its equivalent in Philippine Currency at the time of payment.

g)

13th month pay in the amount of SGD 4,500.00 or its equivalent in Philippine
Currency at the time of payment;

Ruling of the Court of Appeals

In disposing of the Petition for Certiorari, the CA noted that petitioner bank had failed to adduce
in evidence the Singaporean law supposedly governing the latters employment Contract with
respondent. The appellate court found that the Contract had actually been processed by the
Philippine Embassy in Singapore and approved by the Philippine Overseas Employment
Administration (POEA), which then used that Contract as a basis for issuing an Overseas
Employment Certificate in favor of respondent.
According to the CA, even though respondent secured an employment pass from the
Singapore Ministry of Employment, she did not thereby waive Philippine labor laws, or the jurisdiction
of the labor arbiter or the NLRC over her Complaint for illegal dismissal. In so doing, neither did she
submit herself solely to the Ministry of Manpower of Singapores jurisdiction over disputes arising
from her employment. The appellate court further noted that a cursory reading of the Ministrys letter
will readily show that no such waiver or submission is stated or implied.
Finally, the CA held that petitioner had failed to establish a just cause for the dismissal of
respondent. The bank had also failed to give her sufficient notice and an opportunity to be heard and
to defend herself. The CA ruled that she was consequently entitled to reinstatement and back wages,
computed from the time of her dismissal up to the time of her reinstatement.
Hence, this Petition.[7]

Issues

Petitioner submits the following issues for our consideration:

1.

Whether or not the arbitration branch of the NLRC in the National Capital Region has
jurisdiction over the instant controversy;

2.

Whether or not the arbitration of the NLRC in the National Capital Region is the most
convenient venue or forum to hear and decide the instant controversy; and

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3.

Whether or not the respondent was illegally dismissed, and therefore, entitled to recover
moral and exemplary damages and attorneys fees.[8]

In addition, respondent assails, in her Comment,[9] the propriety of Rule 45 as the procedural
mode for seeking a review of the CA Decision affirming the NLRC Resolution. Such issue deserves
scant consideration. Respondent miscomprehends the Courts discourse in St. Martin Funeral Home
v. NLRC,[10] which has indeed affirmed that the proper mode of review of NLRC decisions, resolutions
or orders is by a special civil action for certiorari under Rule 65 of the Rules of Court. The Supreme
Court and the Court of Appeals have concurrent original jurisdiction over such petitions for certiorari.
Thus, in observance of the doctrine on the hierarchy of courts, these petitions should be initially filed
with the CA.[11]
Rightly, the bank elevated the NLRC Resolution to the CA by way of a Petition for Certiorari. In
seeking a review by this Court of the CA Decision -- on questions of jurisdiction, venue and validity of
employment termination -- petitioner is likewise correct in invoking Rule 45.[12]
It is true, however, that in a petition for review on certiorari, the scope of the Supreme Courts
judicial review of decisions of the Court of Appeals is generally confined only to errors of law. It does
not extend to questions of fact. This doctrine applies with greater force in labor cases. Factual
questions are for the labor tribunals to resolve. [13] In the present case, the labor arbiter and the NLRC
have already determined the factual issues. Their findings, which are supported by substantial
evidence, were affirmed by the CA. Thus, they are entitled to great respect and are rendered
conclusive upon this Court, absent a clear showing of palpable error or arbitrary disregard of
evidence.[14]

The Courts Ruling

The Petition has no merit.

3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wage, rates of pay, hours of work and other terms and conditions of
employment
4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including questions
involving the legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
of exceeding five thousand pesos (P5,000.00) regardless of whether accompanied
with a claim for reinstatement.
(b)
The commission shall have exclusive appellate jurisdiction over all cases decided by Labor
Arbiters.
xxx

The jurisdiction of labor arbiters and the NLRC is specified in Article 217 of the Labor Code as
follows:
ART. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as otherwise provided
under this Code the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide,
within thirty (30) calendar days after the submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the following cases involving all workers,
whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;

LabStan Cases

x x x.

More specifically, Section 10 of RA 8042 reads in part:

SECTION 10. Money Claims. Notwithstanding any provision of law to the contrary, the Labor
Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive
jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the complaint, the
claims arising out of an employer-employee relationship or by virtue of any law or contract involving
Filipino workers for overseas deployment including claims for actual, moral, exemplary and other
forms of damages.
xxx

First Issue:
Jurisdiction

xxx

xxx

x x x

Based on the foregoing provisions, labor arbiters clearly have original and exclusive jurisdiction
over
claims
arising
from
employer-employee
relations,
including termination
disputes involving all workers, among whom are overseas Filipino workers (OFW). [15]
We are not unmindful of the fact that respondent was directly hired, while on a tourist status in
Singapore, by the PNB branch in that city state. Prior to employing respondent, petitioner had to
obtain an employment pass for her from the Singapore Ministry of Manpower. Securing the pass was
a regulatory requirement pursuant to the immigration regulations of that country. [16]
Similarly, the Philippine government requires non-Filipinos working in the country to first obtain
a local work permit in order to be legally employed here. That permit, however, does not
automatically mean that the non-citizen is thereby bound by local laws only, as averred by petitioner.
It does not at all imply a waiver of ones national laws on labor. Absent any clear and convincing
evidence to the contrary, such permit simply means that its holder has a legal status as a worker in
the issuing country.
Noteworthy is the fact that respondent likewise applied for and secured an Overseas
Employment Certificate from the POEA through the Philippine Embassy in Singapore. The
Certificate, issued on March 8, 1999, declared her a bona fide contract worker for Singapore. Under
Philippine law, this document authorized her working status in a foreign country and entitled her to all
benefits and processes under our statutes. Thus, even assuming arguendo that she was considered
at the start of her employment as a direct hire governed by and subject to the laws, common
Page 77

practices and customs prevailing in Singapore[17] she subsequently became a contract worker or an
OFW who was covered by Philippine labor laws and policies upon certification by the POEA. At the
time her employment was illegally terminated, she already possessed the POEA employment
Certificate.
Moreover, petitioner admits that it is a Philippine corporation doing business through a branch
office in Singapore.[18]Significantly, respondents employment by the Singapore branch office had to
be approved by Benjamin P. Palma Gil,[19] the president of the bank whose principal offices were in
Manila. This circumstance militates against petitioners contention that respondent was locally
hired; and totally governed by and subject to the laws, common practices and customs of
Singapore, not of the Philippines. Instead, with more reason does this fact reinforce the presumption
that respondent falls under the legal definition of migrant worker, in this case one deployed in
Singapore. Hence, petitioner cannot escape the application of Philippine laws or the jurisdiction of
the NLRC and the labor arbiter.

Filipino worker.[21] Undeniably, respondent was employed by petitioner in its branch office in
Singapore. Admittedly, she is a Filipino and not a legal resident of that state. She thus falls within
the category of migrant worker or overseas Filipino worker.
As such, it is her option to choose the venue of her Complaint against petitioner for illegal
dismissal. The law gives her two choices: (1) at the Regional Arbitration Branch (RAB) where she
resides or (2) at the RAB where the principal office of her employer is situated. Since her dismissal
by petitioner, respondent has returned to the Philippines -- specifically to her residence at Filinvest II,
Quezon City. Thus, in filing her Complaint before the RAB office in Quezon City, she has made a
valid choice of proper venue.

Third Issue:
Illegal Dismissal

In any event, we recall the following policy pronouncement of the Court in Royal Crown
Internationale v. NLRC:[20]
x x x. Whether employed locally or overseas, all Filipino workers enjoy the protective mantle of
Philippine labor and social legislation, contract stipulations to the contrary notwithstanding. This
pronouncement is in keeping with the basic public policy of the State to afford protection to labor,
promote full employment, ensure equal work opportunities regardless of sex, race or creed, and
regulate the relations between workers and employers. For the State assures the basic rights of all
workers to self-organization, collective bargaining, security of tenure, and just and humane co
nditions of work [Article 3 of the Labor Code of the Philippines; See also Section 18, Article II and
Section 3, Article XIII, 1987 Constitution]. This ruling is likewise rendered imperative by Article 17 of
the Civil Code which states that laws which have for their object public order, public policy and good
customs shall not be rendered ineffective by laws or judgments promulgated, or by determination or
conventions agreed upon in a foreign country.

Second Issue:
Proper Venue

Section 1(a) of Rule IV of the NLRC Rules of Procedure reads:

Section 1. Venue (a) All cases which Labor Arbiters have authority to hear and decide may be filed
in the Regional Arbitration Branch having jurisdiction over the workplace of the complainant/petitioner;
Provided, however that cases of Overseas Filipino Worker (OFW) shall be filed before the Regional
Arbitration Branch where the complainant resides or where the principal office of the
respondent/employer is situated, at the option of the complainant.
For purposes of venue, workplace shall be understood as the place or locality where the employee is
regularly assigned when the cause of action arose. It shall include the place where the employee is
supposed to report back after a temporary detail, assignment or travel. In the case of field
employees, as well as ambulant or itinerant workers, their workplace is where they are regularly
assigned, or where they are supposed to regularly receive their salaries/wages or work instructions
from, and report the results of their assignment to their employers.
Under the Migrant Workers and Overseas Filipinos Act of 1995 (RA 8042), a migrant
worker refers to a person who is to be engaged, is engaged or has been engaged in a remunerated
activity in a state of which he or she is not a legal resident; to be used interchangeably with overseas
LabStan Cases

The appellate court was correct in holding that respondent was already a regular employee at
the time of her dismissal, because her three-month probationary period of employment had already
ended. This ruling is in accordance with Article 281 of the Labor Code: An employee who is allowed
to work after a probationary period shall be considered a regular employee. Indeed, petitioner
recognized respondent as such at the time it dismissed her, by giving her one months salary in lieu of
a one-month notice, consistent with provision No. 6 of her employment Contract.

Notice and Hearing

Not Complied With

As a regular employee, respondent was entitled to all rights, benefits and privileges provided
under our labor laws. One of her fundamental rights is that she may not be dismissed without due
process of law. The twin requirements of notice and hearing constitute the essential elements of
procedural due process, and neither of these elements can be eliminated without running afoul of the
constitutional guarantee.[22]
In dismissing employees, the employer must furnish them two written notices: 1) one to apprise
them of the particular acts or omissions for which their dismissal is sought; and 2) the other to inform
them of the decision to dismiss them. As to the requirement of a hearing, its essence lies simply in
the opportunity to be heard.[23]
The evidence in this case is crystal-clear. Respondent was not notified of the specific act or
omission for which her dismissal was being sought. Neither was she given any chance to be heard,
as required by law. At any rate, even if she were given the opportunity to be heard, she could not
have defended herself effectively, for she knew no cause to answer to.
All that petitioner tendered to respondent was a notice of her employment termination effective
the very same day, together with the equivalent of a one-month pay. This Court has already held that
nothing in the law gives an employer the option to substitute the required prior notice and opportunity
to be heard with the mere payment of 30 days salary.[24]
Well-settled is the rule that the employer shall be sanctioned for noncompliance with the
requirements of, or for failure to observe, due process that must be observed in dismissing an
employee.[25]

Page 78

No Valid Cause
for Dismissal

Moreover, Articles 282,[26] 283[27] and 284[28] of the Labor Code provide the valid grounds or
causes for an employees dismissal. The employer has the burden of proving that it was done for any
of those just or authorized causes. The failure to discharge this burden means that the dismissal was
not justified, and that the employee is entitled to reinstatement and back wages.[29]
Notably, petitioner has not asserted any of the grounds provided by law as a valid reason for
terminating the employment of respondent. It merely insists that her dismissal was validly effected
pursuant to the provisions of her employment Contract, which she had voluntarily agreed to be bound
to.
Truly, the contracting parties may establish such stipulations, clauses, terms and conditions as
they want, and their agreement would have the force of law between them. However, petitioner
overlooks the qualification that those terms and conditions agreed upon must not be contrary to law,
morals, customs, public policy or public order.[30] As explained earlier, the employment Contract
between petitioner and respondent is governed by Philippine labor laws. Hence, the stipulations,
clauses, and terms and conditions of the Contract must not contravene our labor law provisions.
Moreover, a contract of employment is imbued with public interest. The Court has time and time
again reminded parties that they are not at liberty to insulate themselves and their relationships from the
impact of labor laws and regulations by simply contracting with each other.[31] Also, while a contract is
the law between the parties, the provisions of positive law that regulate such contracts are deemed
included and shall limit and govern the relations between the parties.[32]
Basic in our jurisprudence is the principle that when there is no showing of any clear, valid, and
legal cause for the termination of employment, the law considers the matter a case of illegal
dismissal.[33]

fraudulent and in bad faith, because on 16 April 1999 she was given a period of [sic] until 15 May
1999 within which to leave. Fourth, the pressures made on her to resign were highly oppressive, antisocial and caused her absolute torture, as [petitioners] disregarded her situation as an overseas
worker away from home and family, with no prospect for another job. She was not even provided
with a return trip fare. Fifth, the notice of termination is an utter manifestation of bad faith and whim
as it totally disregards [respondents] right to security of tenure and due process. Such notice
together with the demands for [respondents] resignation contravenes the fundamental guarantee and
public policy of the Philippine government on security of tenure.
[Respondent] likewise established that as a proximate result of her dismissal and prior demands for
resignation, she suffered and continues to suffer mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock and social humiliation. Her standing in the social and
business community as well as prospects for employment with other entities have been adversely
affected by her dismissal. [Petitioners] are thus liable for moral damages under Article 2217 of the
Civil Code.
xxx

xxx

xxx

[Petitioners] likewise acted in a wanton, oppressive or malevolent manner in terminating

[respondents] employment and are therefore liable for exemplary damages. This should served [sic]
as protection to other employees of [petitioner] company, and by way of example or correction for the
public good so that persons similarly minded as [petitioners] would be deterred from committing the
same acts.[36]
The Court also affirms the award of attorneys fees. It is settled that when an action is instituted
for the recovery of wages, or when employees are forced to litigate and consequently incur expenses
to protect their rights and interests, the grant of attorneys fees is legally justifiable. [37]
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution AFFIRMED.
Costs against petitioner. SO ORDERED.

Awards for Damages

Justified

Finally, moral damages are recoverable when the dismissal of an employee is attended by bad
faith or constitutes an act oppressive to labor or is done in a manner contrary to morals, good
customs or public policy.[34] Awards for moral and exemplary damages would be proper if the
employee was harassed and arbitrarily dismissed by the employer.[35]
In affirming the awards of moral and exemplary damages, we quote with approval the following
ratiocination of the labor arbiter:
The records also show that [respondents] dismissal was effected by [petitioners] capricious and
high-handed manner, anti-social and oppressive, fraudulent and in bad faith, and contrary to morals,
good customs and public policy. Bad faith and fraud are shown in the acts committed by [petitioners]
before, during and after [respondents] dismissal in addition to the manner by which she was
dismissed. First, [respondent] was pressured to resign for two different and contradictory reasons,
namely, cost-cutting and the need for a Chinese[-]speaking credit officer, for which no written advice
was given despite complainants request. Such wavering stance or vacillating position indicates bad
faith and a dishonest purpose. Second, she was employed on account of her qualifications,
experience and readiness for the position of credit officer and pressured to resign a month after she
was commended for her good work. Third, the demand for [respondents] instant resignation on 19
April 1999 to give way to her replacement who was allegedly reporting soonest, is whimsical,
LabStan Cases

Page 79

[G.R. No. 163448. March 08, 2005]

At the pre-trial, the only issue raised was whether or not respondent is entitled to recover from
NFA the wage related benefits of the security guards.[12]

NATIONAL FOOD AUTHORITY (NFA), and JUANITO M. DAVID, in his capacity as Regional
Director, NFA Regional Office No. 1, San Juan, La Union, petitioners, vs. MASADA
SECURITY AGENCY, INC., represented by its Acting President & General Manager,
COL. EDWIN S. ESPEJO (RET.), respondents.

On September 19, 2002, the trial court rendered a decision[13] in favor of respondent holding
that NFA is liable to pay the security guards wage related benefits pursuant to RA 6727, because the
basis of the computation of said benefits, like overtime pay, holiday pay, SSS and Pag-ibig premium,
is the increased minimum wage. It also found NFA liable for the consequential adjustments in
administrative costs and margin. The trial court absolved defendant Juanito M. David having been
impleaded in his official capacity as Regional Director of NFA Regional Office No. 1, San Juan, La
Union. The dispositive portion thereof, reads:

DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review under Rule 45 of the Rules of Court is the February 12, 2004
decision[1] of the Court of Appeals in CA-G.R. CV No. 76677, which dismissed the appeal filed by
petitioner National Food Authority (NFA) and its April 30, 2004 resolution denying petitioners motion
for reconsideration.
The antecedent facts show that on September 17, 1996, respondent MASADA Security
Agency, Inc., entered into a one year[2] contract[3] to provide security services to the various offices,
warehouses and installations of NFA within the scope of the NFA Region I, comprised of the
provinces of Pangasinan, La Union, Abra, Ilocos Sur and Ilocos Norte. Upon the expiration of said
contract, the parties extended the effectivity thereof on a monthly basis under same terms and
condition.[4]
Meanwhile, the Regional Tripartite Wages and Productivity Board issued several wage orders
mandating increases in the daily wage rate. Accordingly, respondent requested NFA for a
corresponding upward adjustment in the monthly contract rate consisting of the increases in the daily
minimum wage of the security guards as well as the corresponding raise in their overtime pay, holiday
pay, 13th month pay, holiday and rest day pay. It also claimed increases in Social Security System
(SSS) and Pag-ibig premiums as well as in the administrative costs and margin. NFA, however,
granted the request only with respect to the increase in the daily wage by multiplying the amount of
the mandated increase by 30 days and denied the same with respect to the adjustments in the other
benefits and remunerations computed on the basis of the daily wage.
Respondent sought the intervention of the Office of the Regional Director, Regional Office No.
I, La Union, as Chairman of the Regional Tripartite Wages and Productivity Board and the DOLE
Secretary through the Executive Director of the National Wages and Productivity Commission.
Despite the advisory[5] of said offices sustaining the claim of respondent that the increase mandated
by Republic Act No. 6727 (RA 6727) and the wage orders issued by the RTWPB is not limited to the
daily pay, NFA maintained its stance that it is not liable to pay the corresponding adjustments in the
wage related benefits of respondents security guards.
On May 4, 2001, respondent filed with the Regional Trial Court of Quezon, City, Branch 83, a
case for recovery of sum of money against NFA. Docketed as Civil Case No. Q-01-43988, the
complaint[6] sought reimbursement of the following amounts allegedly paid by respondent to the
security guards, to wit: P2,949,302.84, for unpaid wage related benefits brought about by the
effectivity of Wage Order Nos. RB 1-05 and RB CAR-04;[7] RB 1-06 and RB CAR-05;[8] RB 1-07 and
RB CAR-06;[9] and P975,493.04 for additional cost and margin, plus interest. It also prayed for
damages and litigation expenses.[10]
In its answer with counterclaim,[11] NFA denied that respondent paid the security guards their
wage related benefits and that it shouldered the additional costs and margin arising from the
implementation of the wage orders. It admitted, however, that it heeded respondents request for
adjustment only with respect to increase in the minimum wage and not with respect to the other wage
related benefits. NFA argued that respondent cannot demand an adjustment on said salary related
benefits because it is bound by their contract expressly limiting NFAs obligation to pay only the
increment in the daily wage.
LabStan Cases

WHEREFORE, judgment is hereby rendered in favor of plaintiff MASADA Security Agency, Inc., and against
defendant National Food Authority ordering said defendant to make the corresponding adjustment in the
contract price in accordance with the increment mandated under the various wage orders, particularly Wage
Order Nos. RBI-05, RBCAR-04, RBI-06, RBCAR-05, RBI-07 and RBCAR-06 and to pay plaintiff the amounts
representing the adjustments in the wage-related benefits of the security guards and consequential increase in its
administrative cost and margin upon presentment by plaintiff of the corresponding voucher claims.
Plaintiffs claims for damages and attorneys fees and defendants counterclaim for damages are
hereby DENIED.
Defendant Juanito M. David is hereby absolved from any liability.
SO ORDERED.[14]
NFA appealed to the Court of Appeals but the same was dismissed on February 12, 2004. The
appellate court held that the proper recourse of NFA is to file a petition for review under Rule 45 with
this Court, considering that the appeal raised a pure question of law. Nevertheless, it proceeded to
discuss the merits of the case for purposes of academic discussion and eventually sustained the
ruling of the trial court that NFA is under obligation to pay the administrative costs and margin and the
wage related benefits of the respondents security guards.[15]
On April 30, 2004, the Court of Appeals denied NFAs motion for reconsideration.[16] Hence, the
instant petition.
The issue for resolution is whether or not the liability of principals in service contracts under
Section 6 of RA 6727 and the wage orders issued by the Regional Tripartite Wages and Productivity
Board is limited only to the increment in the minimum wage.
At the outset, it should be noted that the proper remedy of NFA from the adverse decision of
the trial court is a petition for review under Rule 45 directly with this Court because the issue involved
a question of law. However, in the interest of justice we deem it wise to overlook the procedural
technicalities if only to demonstrate that despite the procedural infirmity, the instant petition is
impressed with merit.[17]
RA 6727[18] (Wage Rationalization Act), which took effect on July 1, 1989, [19] declared it a policy
of the State to rationalize the fixing of minimum wages and to promote productivity-improvement and
gain-sharing measures to ensure a decent standard of living for the workers and their families; to
guarantee the rights of labor to its just share in the fruits of production; to enhance employment
generation in the countryside through industrial dispersal; and to allow business and industry
reasonable returns on investment, expansion and growth.[20]
In line with its declared policy, RA 6727, created the National Wages and Productivity
Commission (NWPC),[21] vested,inter alia, with the power to prescribe rules and guidelines for the
determination of appropriate minimum wage and productivity measures at the regional, provincial or
Page 80

industry levels;[22] and the Regional Tripartite Wages and Productivity Boards (RTWPB) which, among
others, determine and fix the minimum wage rates applicable in their respective region, provinces, or
industries therein and issue the corresponding wage orders, subject to the guidelines issued by the
NWPC.[23] Pursuant to its wage fixing authority, the RTWPB issue wage orders which set the daily
minimum wage rates.[24]
Payment of the increases in the wage rate of workers is ordinarily shouldered by the employer.
Section 6 of RA 6727, however, expressly lodged said obligation to the principals or indirect
employers in construction projects and establishments providing security, janitorial and similar
services. Substantially the same provision is incorporated in the wage orders issued by the
RTWPB.[25] Section 6 of RA 6727, provides:
SEC. 6. In the case of contracts for construction projects and for security, janitorial and similar services, the
prescribed increases in the wage rates of the workers shall be borne by the principals or clients of the
construction/service contractors and the contract shall be deemed amended accordingly. In the event, however,
that the principal or client fails to pay the prescribed wage rates, the construction/service contractor shall be
jointly and severally liable with his principal or client. (Emphasis supplied)
NFA claims that its additional liability under the aforecited provision is limited only to the
payment of the increment in the statutory minimum wage rate, i.e., the rate for a regular eight (8) hour
work day.
The contention is meritorious.
In construing the word wage in Section 6 of RA 6727, reference must be had to Section 4 (a)
of the same Act. It states:
SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates for all workers and employees
in the private sector, whether agricultural or non-agricultural, shall be increased by twenty-five pesos (P25)
per day (Emphasis supplied)
The term wage as used in Section 6 of RA 6727 pertains to no other than the statutory
minimum wage which is defined under the Rules Implementing RA 6727 as the lowest wage rate
fixed by law that an employer can pay his worker. [26] The basis thereof under Section 7 of the same
Rules is the normal working hours, which shall not exceed eight hours a day. Hence, the prescribed
increases or the additional liability to be borne by the principal under Section 6 of RA 6727 is the
increment or amount added to the remuneration of an employee for an 8-hour work.
Expresio unius est exclusio alterius. Where a statute, by its terms, is expressly limited to
certain matters, it may not, by interpretation or construction, be extended to others.[27] Since the
increase in wage referred to in Section 6 pertains to the statutory minimum wage as defined herein,
principals in service contracts cannot be made to pay the corresponding wage increase in the
overtime pay, night shift differential, holiday and rest day pay, premium pay and other benefits
granted to workers. While basis of said remuneration and benefits is the statutory minimum wage,
the law cannot be unduly expanded as to include those not stated in the subject provision.
The settled rule in statutory construction is that if the statute is clear, plain and free from
ambiguity, it must be given its literal meaning and applied without interpretation. This plain meaning
rule or verba legis derived from the maxim index animi sermo est (speech is the index of intention)
rests on the valid presumption that the words employed by the legislature in a statute correctly
express its intention or will and preclude the court from construing it differently. The legislature is
presumed to know the meaning of the words, to have used words advisedly, and to have expressed
its intent by use of such words as are found in the statute. Verba legis non est recedendum, or from
the words of a statute there should be no departure.[28]

LabStan Cases

The presumption therefore is that lawmakers are well aware that the word wage as used in
Section 6 means the statutory minimum wage. If their intention was to extend the obligation of
principals in service contracts to the payment of the increment in the other benefits and remuneration
of workers, it would have so expressly specified. In not so doing, the only logical conclusion is that
the legislature intended to limit the additional obligation imposed on principals in service contracts to
the payment of the increment in the statutory minimum wage.
The general rule is that construction of a statute by an administrative agency charged with the
task of interpreting or applying the same is entitled to great weight and respect. The Court, however,
is not bound to apply said rule where such executive interpretation, is clearly erroneous, or when
there is no ambiguity in the law interpreted, or when the language of the words used is clear and
plain, as in the case at bar. Besides, administrative interpretations are at best advisory for it is the
Court that finally determines what the law means.[29] Hence, the interpretation given by the labor
agencies in the instant case which went as far as supplementing what is otherwise not stated in the
law cannot bind this Court.
It is not within the province of this Court to inquire into the wisdom of the law for indeed, we are
bound by the words of the statute.[30] The law is applied as it is. At any rate, the interest of the
employees will not be adversely affected if the obligation of principals under the subject provision will
be limited to the increase in the statutory minimum wage. This is so because all remuneration and
benefits other than the increased statutory minimum wage would be shouldered and paid by the
employer or service contractor to the workers concerned. Thus, in the end, all allowances and
benefits as computed under the increased rate mandated by RA 6727 and the wage orders will be
received by the workers.
Moreover, the law secures the welfare of the workers by imposing a solidary liability on
principals and the service contractors. Under the second sentence of Section 6 of RA 6727, in the
event that the principal or client fails to pay the prescribed wage rates, the service contractor shall be
held solidarily liable with the former. Likewise, Articles 106, 107 and 109 of the Labor Code provides:
ART. 106. Contractor or Subcontractor. Whenever an employer enters into contract with another person for
the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any,
shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wage of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.

ART. 107. Indirect Employer. The provisions of the immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not being an employer, contracts with an independent
contractor for the performance of any work, task, job or project.
ART. 109. Solidary Liability. The provisions of existing laws to the contrary notwithstanding, every employer
or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any
provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they
shall be considered as direct employers.
Based on the foregoing interpretation of Section 6 of RA 6727, the parties may enter into
stipulations increasing the liability of the principal. So long as the minimum obligation of the
principal, i.e., payment of the increased statutory minimum wage is complied with, the Wage
Rationalization Act is not violated.
Page 81

The Factual Antecedents

In the instant case, Article IV.4 of the service contract provides:

IV.4. In the event of a legislated increase in the minimum wage of security guards and/or in the PADPAO rate,
the AGENCY may negotiate for an adjustment in the contract price. Any adjustment shall be applicable only to
the increment, based on published and circulated rates and not on mere certification. [31]
In the same vein, paragraph 3 of NFA Memorandum AO-98-03- states:
3. For purposes of wage adjustments, consider only the rate based on the wage Order
issued by the Regional Tripartite Wage Productivity Board (RTWPB). Unless
otherwise provided in the Wage Order issued by the RTWPB, the wage adjustment
shall be limited to the increment in the legislated minimum wage; [32]
The parties therefore acknowledged the application to their contract of the wage orders issued
by the RTWPB pursuant to RA 6727. There being no assumption by NFA of a greater liability than
that mandated by Section 6 of the Act, its obligation is limited to the payment of the increased
statutory minimum wage rates which, as admitted by respondent, had already been satisfied by
NFA.[33] Under Article 1231 of the Civil Code, one of the modes of extinguishing an obligation is by
payment. Having discharged its obligation to respondent, NFA no longer have a duty that will give
rise to a correlative legal right of respondent. The latters complaint for collection of remuneration and
benefits other than the increased minimum wage rate, should therefore be dismissed for lack of
cause of action.
The same goes for respondents claim for administrative cost and margin. Considering that
respondent failed to establish a clear obligation on the part of NFA to pay the same as well as to
substantiate the amount thereof with documentary evidence, the claim should be denied.
WHEREFORE, the petition is GRANTED. The February 12, 2004 decision and the April 30,
2004 resolution of the Court of Appeals which dismissed petitioner National Food Authoritys appeal
and motion for reconsideration, respectively, in CA-G.R. CV No. 76677, are REVERSED and SET
ASIDE. The complaint filed by respondent MASADA Security Agency, Inc., docketed as Civil Case
No. Q-01-43988, before the Regional Trial Court of Quezon, City, Branch 83, is ordered DISMISSED.
SO ORDERED.

[G.R. No. 158324. March 14, 2005]

ROBERTO RAVAGO, petitioner, vs. ESSO EASTERN MARINE, LTD. and TRANS-GLOBAL
MARITIME AGENCY, INC., respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Court, as
amended, of the Decision[1] of the Court of Appeals (CA) as well as its Resolution in CA-G.R. SP No.
66234 which denied the motion for reconsideration thereof.

The Esso Eastern Marine Ltd. (EEM), now the Petroleum Shipping Ltd., is a foreign company
based in Singapore and engaged in maritime commerce. It is represented in the Philippines by its
manning agent and co-respondent Trans-Global Maritime Agency, Inc. (Trans-Global), a corporation
organized under the Philippine laws.
Roberto Ravago was hired by Trans-Global to work as a seaman on board various Esso
vessels. On February 13, 1970, Ravago commenced his duty as S/N wiper on board the Esso
Bataan under a contract that lasted until February 10, 1971. Thereafter, he was assigned to work in
different Esso vessels where he was designated diverse tasks, such as oiler, then assistant
engineer. He was employed under a total of 34 separate and unconnected contracts, each for a fixed
period, by three different companies, namely, Esso Tankers, Inc. (ETI), EEM and Esso International
Shipping (Bahamas) Co., Ltd. (EIS), Singapore Branch. Ravago worked with Esso vessels until
August 22, 1992, a period spanning more than 22 years, thus:
CONTRACT
FROM
13 Feb 70
07 May 71
07 Aug 72
03 Oct 73
18 Sep 74
23 Oct 75

DURATION TO

POSITION

VESSEL

COMPANY

10 Feb 71
27 May 72
02 Jul 73
30 Jun 74
26 July 75
22 Jun 76

SN/Wiper
Wiper
Oiler
Oiler
Oiler
Oiler

ETI[2]
EEM[3]
EEM
ETI
EEM
EEM

10 Sep 76
27 Dec 76

26 Dec 76
29 Apr 77

08 Jul 77
03 Jun 78
04 Apr 79
25 Jun 79
17 Jul 79
10 Feb 80
19 Jan 81

15 Mar 78
03 Feb 79
24 Jun 79
16 Jul 79
05 Dec 79
25 Oct 80
03 Jun 81

Oiler
Temporary Jr.
3AE
Jr. 3AE
Temporary 3AE
3AE
3AE
3AE
3AE
3AE

Esso Bataan
Esso Yokohama
Esso Kure
Esso Bangkok
Esso Yokohama
Esso Port
Dickson
Esso Bangkok
Esso Bangkok

ETI
ETI
EEM
EEM
EEM
EEM
EEM

04 Jun 81
06 Dec 81
21 Apr 82
03 Nov 82
07 Feb 83
31 Aug 83
04 May 84

11 Sep 81
20 Apr 82
01 Aug 82
06 Feb 83
10 Jul 83
13 Mar 84
08 Jan 85

3AE
3AE
Temporary 2AE
2AE
2AE
2AE
2AE

13 Mar 85
29 Dec 85
13 Sep 86
21 Mar 87

31 Oct 85
22 Jul 86
09 Jan 87
15 Oct 87

2AE
2AE
2AE
2AE

20 Nov 87

18 Dec 87
Temporary
25 Jun 88

1AE

Esso Bombay
Esso Hongkong
Esso Orient
Esso Yokohama
Esso Orient
Esso Orient
Esso Port
Dickson
Esso Orient
Esso Chawan
Esso Chawan
Esso Jurong
Esso Yokohama
Esso Tumasik
Esso Port
Dickson
Esso Castellon
Esso Jurong
Esso Orient
Esso Port
Dickson
Esso Chawan

2AE

Esso Melbourne

EIS

19 Dec 87
LabStan Cases

ETI
ETI

EEM
EEM
EEM*
EEM
EEM
EEM
EEM
EEM
EIS[4]
EIS
EIS
EIS

Page 82

04 Aug 88

19 Mar 89

Temporary 1AE

20 Mar 89

19 May 89

1AE

28 Jul 89
17 Feb 90
1AE
16 Apr 90
11 Dec 90
1AE
09 Feb 91
06 Oct 91
1AE
16 Dec 91
22 Aug 92
1AE
* Upgraded/Confirmed on regular rank on board.[5]

Esso Port
Dickson
Esso Port
Dickson
Esso Melbourne
Esso Orient
Esso Melbourne
Esso Orient

EIS*

However, on March 22, 1993, Ravago filed a complaint[14] for illegal dismissal with prayer for
reinstatement, backwages, damages and attorneys fees against Trans-Global and EIS with the
Philippine Overseas Employment Administration Adjudication Office.

EIS
EIS
EIS
EIS

In their Answer dated April 14, 1993, respondents denied that Ravago was dismissed without
notice and just cause. Rather, his services were no longer engaged in view of the disability he
suffered which rendered him unfit to work as a seafarer. This fact was further validated by the
company doctor and Ravagos attending physician. They averred that Ravago was a contractual
employee and was hired under 34 separate contracts by different companies.

EIS

On August 24, 1992, or shortly after completing his latest contract with EIS, Ravago was
granted a vacation leave with pay from August 23, 1992 until October 28, 1992. Preparatory to his
embarkation under a new contract, he was ordered to report, on September 28, 1992, for a Medical
Pre-Employment Examination.[6] The Pre-Employment Physical Examination Record shows that
Ravago passed the medical examination conducted by the O.P. Jacinto Medical Clinic, Inc. on
October 6, 1992.[7]He, likewise, attended a Pre-Departure Orientation Seminar conducted by the
Capt. I.P. Estaniel Training Center, a division of Trans-Global, on October 7, 1992.[8]
On the night of October 12, 1992, a stray bullet hit Ravago on the left leg while he was waiting
for a bus ride in Cubao, Quezon City. He fractured his left proximal tibia and was hospitalized at the
Philippine Orthopedic Hospital. Ravagos wife, Lolita, informed Trans-Global and EIS of the incident
on October 13, 1992 for purposes of availing medical benefits. As a result of his injury, Ravagos
doctor opined that he would not be able to cope with the job of a seaman and suggested that he be
given a desk job.[9] Ravagos left leg had become apparently shorter, making him walk with a limp.
For this reason, the company physician, Dr. Virginia G. Manzo, found him to have lost his dexterity,
making him unfit to work once again as a seaman.[10] Citing the opinion of Ravagos doctor, Dr.
Manzo wrote:
Because of his unsteady gait, pronounced limp, and loss of normal dexterity of his leg and foot, we
doubted whether Mr. Ravago can physically tackle the usual activities of a seaman in the course of
his work without any added risk over and above the ordinary or standard risk inherent to his job.
These activities include climbing up and down the engine room through a long flight of iron stairs with
narrow steps which could be slippery at times due to grease or oil, jumping from an unsteady and
floating motor launch or boat to board or alight a tanker through a flight of steps or climbing up and
down a pilot ladder, wearing of heavy safety shoes, etc.
Mr. Ravagos doctor replied that, after being informed about the nature of the job, he believes that Mr.
Ravago would not be able to cope with these kinds of activities. In effect, the Orthopedic doctor said
Mr. Ravago is not fit to go back to his work as a seaman.

In his position paper, Ravago insisted that he was fit to resume pre-injury activities as
evidenced by the certification[15]issued by Dr. Marciano Foronda M.D., one of his attending physicians
at the Philippine Orthopedic Hospital, that at present, fracture of tibia has completely healed and
patient is fit to resume pre-injury activities anytime.[16] Ravago, likewise, asserted that he was not a
mere contractual employee because the respondents regularly and continuously rehired him for 23
years and, for his continuous service, was awarded a CEIP payment upon his termination from
employment.
On December 15, 1996, Labor Arbiter Ramon Valentin C. Reyes rendered a decision in favor of
Ravago, the complainant. He ruled that Ravago was a regular employee because he was engaged
to perform activities which were usually necessary or desirable in the usual trade or business of the
employer. The Labor Arbiter noted that Ravagos services were repeatedly contracted; he was even
given several promotions and was paid a monthly service experience bonus. This was in keeping
with the increasing number of long term careers established with the respondents. Finally, the Labor
Arbiter resolved that an employer cannot terminate a workers employment on the ground of disease
unless there is a certification by a competent public health authority that the said disease is of such
nature or at such a stage that it cannot be cured within a period of six months even with proper
medical treatment. He concluded that Ravago was illegally dismissed. The decretal portion of the
Labor Arbiters decision reads:
WHEREFORE, premises considered, judgment is hereby rendered finding the dismissal illegal and
ordering respondents to reinstate complainant to his former position without loss of seniority rights
and other benefits. Further, the respondents are jointly and severally liable to pay complainant
backwages from the time of his dismissal up to the promulgation of this decision. Such backwages is
provisionally fixed at US$96,285.00 less the P162,285.83 (sic) paid to the complainant as Career
Employment Incentive Plan. And ordering respondents to pay complainant 10% of the total monetary
award as attorneys fees.
All other claims are dismissed for lack of merit.
SO ORDERED.[17]

We concur with the opinion of the doctor that Mr. Ravago is not fit to go back to his job as a seaman
in view of the risk of physical injury to himself as result of the deformity and loss of dexterity of his
injured leg.
As a seaman, we consider his inability partial permanent. His injury corresponds to Grade 13 in the
Schedule of Disability of the Standard Employment Contract. [11]
Consequently, instead of rehiring Ravago, EIS paid him his Career Employment Incentive Plan
(CEIP)[12] as of March 1, 1993 and his final tax refund for 1992. After deducting his Social Security
System and medical contributions from November 1992 to February 1993, EIS remitted the net
amount of P162,232.65, following Ravagos execution of a Deed of Quitclaim and/or Release. [13]

LabStan Cases

Aggrieved, the respondents appealed the decision to the National Labor Relations Commission
(NLRC) on July 3, 1997, raising the following grounds:
THE DECISION IS VITIATED BY SERIOUS ERRORS IN THE FINDINGS OF FACT WHICH, IF NOT
CORRECTED, WOULD CAUSE GRAVE OR IRREPARABLE DAMAGE OR INJURY TO THE
RESPONDENTS. THESE FINDINGS ARE:
(A)

THAT COMPLAINANT WAS A REGULAR EMPLOYEE BECAUSE HE WAS

HIRED AND REHIRED IN VARIOUS CAPACITIES ON BOARD ESSO
VESSELS IN A SPAN OF 23 YEARS;

Page 83

(B)

THAT COMPLAINANT WAS A REGULAR EMPLOYEE BECAUSE HE WAS

ENGAGED IN THE SERVICES INDISPENSABLE IN THE OPERATION
OF THE VARIOUS VESSELS OF RESPONDENTS;

In their comment on Ravagos motion, the respondents professed that the case before the CA
did not involve a labor dispute within the meaning of Article 212(l)[24] of the Labor Code of the
Philippines, but a money claim against the employer as a result of termination of employment.

(C)

THAT COMPLAINANT WAS FIT TO RESUME PRE-INJURY ACTIVITIES

AND HIS FRACTURE COMPLETELY HEALED NOTWITHSTANDING A
CONTRARY MEDICAL OPINION OF COMPLAINANTS OWN PHYSICIAN
AND RESPONDENTS COMPANY PHYSICIAN; AND

On August 28, 2002, the CA rendered a decision in favor the respondents. The fallo of the
decision reads:

(D)

THAT COMPLAINANT WAS ILLEGALLY DISMISSED BY RESPONDENTS.[18]

On April 26, 2001, the NLRC rendered a decision affirming that of the Labor Arbiter. The NLRC
based its decision in the case of Millares v. National Labor Relations Commission,[19] wherein it was
held that:
It is, likewise, clear that petitioners had been in the employ of the private respondents for 20 years.
The records reveal that petitioners were repeatedly re-hired by private respondents even after the
expiration of their respective eight-month contracts. Such repeated re-hiring which continued for 20
years, cannot but be appreciated as sufficient evidence of the necessity and indispensability of
petitioners service to the private respondents business or trade.
Verily, as petitioners had rendered 20 years of service, performing activities which were necessary
and desirable in the business or trade of private respondents, they are, by express provision of Article
280 of the Labor Code, considered regular employees.[20]
The NLRC, likewise, declared that Ravago was illegally dismissed and that the quitclaim
executed by him could not be considered as a waiver of his right to question the validity of his
dismissal and seek reinstatement and other reliefs. According to the NLRC, such quitclaim is against
public policy, considering the economic disadvantage of the employee and the inevitable pressure
brought about by financial capacity.
The respondents filed a motion for reconsideration of the decision, claiming that the ruling of
the Court in Millares v. NLRC[21] had not yet become final and executory. However, the NLRC denied
the motion.
Thereafter, the respondents filed a petition for certiorari before the CA on the following grounds:
(a) the ruling in Millares v. NLRC had not yet acquired finality, nor has it become a law of the case
or stare decisis because the Court was still resolving the pending motion for reconsideration; (b)
Ravago was not illegally dismissed because after the expiration of his contract, there was no
obligation on the part of the respondents to rehire him; and (c) the quitclaim signed by Ravago was
voluntarily entered into and represented a reasonable settlement of the account due him.
On August 29, 2001, the respondents filed an Urgent Application for the Issuance of a
Temporary Restraining Order and Writ of Preliminary Injunction to enjoin and restrain the Labor
Arbiter from enforcing his decision. On September 5, 2001, the CA issued a Resolution[22] temporarily
restraining NLRC Sheriff Manolito Manuel from enforcing and/or implementing the decision of the
Labor Arbiter as affirmed by the NLRC.
On November 14, 2001, the CA granted the application for preliminary injunction upon filing by
the respondents of a bond in the amount of P500,000.00. Thus, the respondents filed the surety
bond as directed by the appellate court. Before the approval thereof, however, Ravago filed a motion
to set aside the Resolution dated November 14, 2001, principally arguing that the instant case was a
labor dispute, wherein an injunction is proscribed under Article 254[23] of the Labor Code of the
Philippines.

LabStan Cases

WHEREFORE, the petition is GRANTED. The assailed decisions of the NLRC are
hereby REVERSED and SET ASIDE and the injunctive writ issued on November 14, 2001, is hereby
made PERMANENT.
SO ORDERED.[25]
The CA ratiocinated as follows:
The employment, deployment, rights and obligation of Filipino seafarers are particularly set forth
under the rules and regulations governing overseas employment promulgated by the POEA. Section
C, Part I of the Standard Employment Contract Governing the Employment of All Filipino Seamen on
Board Ocean-Going Vessels emphatically provides the following:
SECTION C. DURATION OF CONTRACT
The period of employment shall be for a fix (sic) period but in no case to exceed 12 months and shall
be stated in the Crew Contract. Any extension of the Contract period shall be subject to the mutual
consent of the parties.
It is clear from the foregoing that seafarers are contractual employees whose terms of employment
are fixed for a certain period of time. A fixed term is an essential and natural appurtenance of
seamens employment contracts to which, whatever the nature of the engagement, the concept of
regular employment under Article 280 of the Labor Code does not find application. The contract
entered into by a seafarer with his employer sets in detail the nature of his job, the amount of his
wage and, foremost, the duration of his employment. Only a satisfactory showing that both parties
dealt with each other on more or less equal terms with no dominance exercised by the employer over
the seafarer is necessary to sustain the validity of the employment contract. In the absence of duress,
as it is in this case, the contract constitutes the law between the parties. [26]
The CA noted that the employment status of seafarers has been established with finality by the
Courts reconsideration of its decision in Millares v. National Labor Relations Commission,[27] wherein
it was ruled that seamen are contractual employees. According to the CA, the fact that Ravago was
not rehired upon the completion of his contract did not result in his illegal dismissal; hence, he was
not entitled to reinstatement or payment of separation pay. The CA, likewise, affirmed the writ of
preliminary injunction it earlier issued, declaring that an injunction is a preservative remedy issued for
the protection of a substantive right or interest, an antidote resorted to only when there is a pressing
necessity to avoid injurious consequences which cannot be rendered under any standard
compensation.
Hence, the present recourse.
Ravago, now the petitioner, has raised the following issues:
I.

Page 84

[WHETHER OR NOT] THE COURT OF APPLEALS GRAVELY ERRED AND VIOLATED THE
LABOR CODE WHEN IT ISSUED A RESTRAINING ORDER AND THEREAFTER A WRIT OF
PRELIMINARY INJUNCTION IN CA-G.R. SP NO. 66234.
II.
[WHETHER OR NOT] THE COURT OF APPEALS GRAVELY ERRED, [AND] BLATANTLY
DISREGARDED THE CONSTITUTIONAL MANDATE ON PROTECTION TO FILIPINO OVERSEAS
WORKERS, AND COUNTENANCED UNWARRANTED DISCRIMINATION WHEN IT RULED THAT
PETITIONER CANNOT BECOME A REGULAR EMPLOYEE.[28]
On the first issue, the petitioner asserts that the CA violated Article 254 of the Labor Code
when it issued a temporary restraining order, and thereafter a writ of preliminary injunction, to derail
the enforcement of the final and executory judgment of the Labor Arbiter as affirmed by the NLRC.
On the other hand, the respondents contend that the issue has become academic since the CA had
already decided the case on its merits.

The respondents, on the other hand, asseverate that there is no law or administrative rule or
regulation imposing an obligation to rehire a seafarer upon the completion of his contract. Their
refusal to secure the services of the petitioner after the expiration of his contract can never be
tantamount to a termination. The respondents aver that the petitioner is not entitled to backwages,
not only because it is without factual justification but also because it is not warranted under the law.
Furthermore, the respondents assert that the rulings in the Coyoca v. NLRC,[35] and the latest Millares
case remain good and valid precedents that need to be reaffirmed. The respondents cited the ruling
of the Court in Coyoca case where the Court ruled that a Filipino seamans contract does not provide
for separation or termination pay because it is governed by the Rules and Regulations Governing
Overseas Employment.
The contention of the respondents is correct.
In a catena of cases, this Court has consistently ruled that seafarers are contractual, not
regular, employees.
In Brent School, Inc. v. Zamora,[36] the Court ruled that seamen and overseas contract workers
are not covered by the term regular employment as defined in Article 280 of the Labor Code. The
Court said in that case:

The contention of the petitioner does not persuade.

The petitioners reliance on Article 254[29] of the Labor Code is misplaced. The law proscribes
the issuance of injunctive relief only in those cases involving or growing out of a labor dispute. The
case before the NLRC neither involves nor grows out of a labor dispute. It did not involve the fixing of
terms or conditions of employment or representation of persons with respect thereto. In fact, the
petitioners complaint revolves around the issue of his alleged dismissal from service and his claim for
backwages, damages and attorneys fees. Moreover, Article 254 of the Labor Code specifically
provides that the NLRC may grant injunctive relief under Article 218 thereof.
Besides, the anti-injunction policy of the Labor Code, basically, is freedom at the workplace. It
is more appropriate in the promotion of the primacy of free collective bargaining and negotiations,
including voluntary arbitration, mediation and conciliation, as modes of settling labor and industrial
disputes.[30]
Generally, an injunction is a preservative remedy for the protection of a persons substantive
rights or interests. It is not a cause of action in itself but a mere provisional remedy, an appendage to
the main suit. Pressing necessity requires that it should be resorted to only to avoid injurious
consequences which cannot be remedied under any measure of consideration. The application of an
injunctive writ rests upon the presence of an exigency or of an exceptional reason before the main
case can be regularly heard. The indispensable conditions for granting such temporary injunctive
relief are: (a) that the complaint alleges facts which appear to be satisfactory to establish a proper
basis for injunction, and (b) that on the entire showing from the contending parties, the injunction is
reasonably necessary to protect the legal rights of the plaintiff pending the litigation.[31]
It bears stressing that in the present case, the respondents petition contains facts sufficient to
warrant the issuance of an injunction under Article 218, paragraph (e) of the Labor Code of the
Philippines.[32] Further, respondents had already posted a surety bond more than adequate to cover
the judgment award.
On the second issue, the petitioner earnestly urges this Court to re-examine its Resolution
dated July 29, 2002 in Millares v. National Labor Relations Commission[33] and reinstate the doctrine
laid down in its original decision rendered on March 14, 2000, wherein it was initially determined that
a seafarer is a regular employee. The petitioner asserts that the decision of the CA and, indirectly,
that of the Resolution of this Court dated July 29, 2002, are violative of the constitutional mandate of
full protection to labor,[34] whether local or overseas, because it deprives overseas Filipino workers,
such as seafarers, an opportunity to become regular employees without valid and serious reasons.
The petitioner maintains that the decision is discriminatory and violates the constitutional provision on
equal protection of the laws, in addition to being partial to and overly protective of foreign employers.
LabStan Cases

The question immediately provoked ... is whether or not a voluntary agreement on a fixed term or
period would be valid where the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer. The definition seems non
sequitur. From the premise that the duties of an employee entail activities which are usually
necessary or desirable in the usual business or trade of the employer the conclusion does not
necessarily follow that the employer and employee should be forbidden to stipulate any period of time
for the performance of those activities. There is nothing essentially contradictory between a definite
period of an employment contract and the nature of the employees duties set down in that contract
as being usually necessary or desirable in the usual business or trade of the employer. The
concept of the employees duties as being usually necessary or desirable in the usual business or
trade of the employer is not synonymous with or identical to employment with a fixed term. Logically,
the decisive determinant in term employment should not be the activities that the employee is called
upon to perform, but theday certain agreed upon by the parties for the commencement and
termination of their employment relationship, a day certain being understood to be that which must
necessarily come, although it may not be known when. Seasonal employment, and employment for
a particular project are merely instances of employment in which a period, were not expressly set
down, is necessarily implied.[37]
...
Some familiar examples may be cited of employment contracts which may be neither for seasonal
work nor for specific projects, but to which a fixed term is an essential and natural
appurtenance: overseas employment contracts, for one, to which, whatever the nature of the
engagement, the concept of regular employment with all that it implies does not appear ever to have
been applied, Article 280 of the Labor Code notwithstanding; also appointments to the positions of
dean, assistant dean, college secretary, principal, and other administrative offices in educational
institutions, which are by practice or tradition rotated among the faculty members, and where fixed
terms are a necessity without which no reasonable rotation would be possible. ... [38]
...
Accordingly, and since the entire purpose behind the development of legislation culminating in the
present Article 280 of the Labor Code clearly appears to have been, as already observed, to prevent
circumvention of the employees right to be secure in his tenure, the clause in said article
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indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of
regular employment as defined therein should be construed to refer to the substantive evil that the
Code itself has singled out: agreements entered into precisely to circumvent security of tenure. It
should have no application to instances where a fixed period of employment was agreed upon
knowingly and voluntarily by the parties, without any force, duress or improper pressure being
brought to bear upon the employee and absent any other circumstances vitiating his consent, or
where it satisfactorily appears that the employer and employee dealt with each other on more or less
equal terms with no moral dominance whatever being exercised by the former over the latter. Unless,
thus, limited in its purview, the law would be made to apply to purposes other than those explicitly
stated by its framers; it thus becomes pointless and arbitrary, unjust in its effects and apt to lead to
absurd and unintended consequences.[39]

The period of employment shall be for a fixed period but in no case to exceed 12 months and shall be
stated in the Crew Contract. Any extension of the Contract period shall be subject to the mutual
consent of the parties.

The Court made the same ruling in Coyoca v. National Labor Relations Commission[40] and
declared that a seafarer, not being a regular employee, is not entitled to separation or termination
pay.

Such contention is untenable. Undeniably, this circumstance of continuous re-hiring was dictated by
practical considerations that experienced crew members are more preferred. Petitioners were only
given priority or preference because of their experience and qualifications but this does not detract
the fact that herein petitioners are contractual employees. They can not be considered regular
employees. We quote with favor the explanation of the NLRC in this wise:

Furthermore, petitioners contract did not provide for separation benefits. In this connection, it is
important to note that neither does the POEA standard employment contract for Filipino seamen
provide for such benefits.
As a Filipino seaman, petitioner is governed by the Rules and Regulations Governing Overseas
Employment and the said Rules do not provide for separation or termination pay. ...
...
Therefore, although petitioner may not be a regular employee of private respondent, the latter would
still have been liable for payment of the benefits had the principal failed to pay the same. [41]
In the July 29, 2002 Resolution of this Court in Millares v. National Labor Relations
Commission,[42] it reiterated its ruling that seafarers are contractual employees and, as such, are not
covered by Article 280 of the Labor Code of the Philippines:
From the foregoing cases, it is clear that seafarers are considered contractual employees. They
cannot be considered as regular employees under Article 280 of the Labor Code. Their employment
is governed by the contracts they sign every time they are rehired and their employment is terminated
when the contract expires. Their employment is contractually fixed for a certain period of time. They
fall under the exception of Article 280 whose employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of 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. We need not depart from the rulings of the Court in the
two aforementioned cases which indeed constitute stare decisis with respect to the employment
status of seafarers.
...
... The Standard Employment Contract governing the Employment of All Filipino Seamen on Board
Ocean-Going Vessels of the POEA, particularly in Part I, Sec. C, specifically provides that the
contract of seamen shall be for a fixed period. And in no case should the contract of seamen be
longer than 12 months. It reads:
Section C. Duration of Contract
LabStan Cases

Petitioners make much of the fact that they have been continually re-hired or their contracts renewed
before the contracts expired (which has admittedly been going on for twenty [20] years). By such
circumstance they claim to have acquired regular status with all the rights and benefits appurtenant to
it.

xxx The reference to permanent and probationary masters and employees in these papers is a
misnomer and does not alter the fact that the contracts for enlistment between complainantsappellants and respondent-appellee Esso International were for a definite periods of time, ranging
from 8 to 12 months. Although the use of the terms permanent and probationary is unfortunate,
what is really meant is eligible for-re-hire. This is the only logical conclusion possible because the
parties cannot and should not violate POEAs requirement that a contract of enlistment shall be for a
limited period only; not exceeding twelve (12) months.
From all the foregoing, we hereby state that petitioners are not considered regular or permanent
employees under Article 280 of the Labor Code.Petitioners employment have automatically ceased
upon the expiration of their contracts of enlistment (COE). Since there was no dismissal to speak of,
it follows that petitioners are not entitled to reinstatement or payment of separation pay or backwages,
as provided by law. [43]
The Court ruled that the employment of seafarers for a fixed period is not discriminatory against
seafarers and in favor of foreign employers. As explained by this Court in its July 29, 2002
Resolution in Millares:
Moreover, it is an accepted maritime industry practice that employment of seafarers are for a fixed
period only. Constrained by the nature of their employment which is quite peculiar and unique in
itself, it is for the mutual interest of both the seafarer and the employer why the employment status
must be contractual only or for a certain period of time. Seafarers spend most of their time at sea and
understandably, they can not stay for a long and an indefinite period of time at sea. Limited access to
shore society during the employment will have an adverse impact on the seafarer. The national,
cultural and lingual diversity among the crew during the COE is a reality that necessitates the
limitation of its period.[44]
In Pentagon International Shipping, Inc. v. William B. Adelantar,[45] the Court cited its rulings
in Millares and Coyocaand reiterated that a seafarer is not a regular employee entitled to backwages
and separation pay:
Therefore, Adelantar, a seafarer, is not a regular employee as defined in Article 280 of the Labor
Code. Hence, he is not entitled to full backwages and separation pay in lieu of reinstatement as
provided in Article 279 of the Labor Code. As we held in Millares, Adelantar is a contractual
employee whose rights and obligations are governed primarily by [the] Rules and Regulations of the
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POEA and, more importantly, by R.A. 8042, or the Migrant Workers and Overseas Filipinos Act of
1995.
The latest ruling of the Court in Marcial Gu-Miro v. Rolando C. Adorable and Bergesen D.Y.
Manila[46] reaffirmed yet again its rulings that a seafarer is employed only on a contractual basis:
Clearly, petitioner cannot be considered as a regular employee notwithstanding that the work he
performs is necessary and desirable in the business of respondent company. As expounded in the
above-mentioned Millares Resolution, an exception is made in the situation of seafarers. The
exigencies of their work necessitates that they be employed on a contractual basis.
Thus, even with the continued re-hiring by respondent company of petitioner to serve as Radio Officer
onboard Bergesens different vessels, this should be interpreted not as a basis for regularization but
rather a series of contract renewals sanctioned under the doctrine set down by the
second Millares case. If at all, petitioner was preferred because of practical considerations namely,
his experience and qualifications. However, this does not alter the status of his employment from
being contractual.
The petitioner failed to convince the Court why it should restate its decision in Millares and
reverse its July 29, 2002 Resolution in the same case.
IN LIGHT OF ALL THE FOREGOING, the petition is hereby DENIED. The assailed Decision
dated August 28, 2002 of the Court of Appeals is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Union itself as employer

G.R. No. L-52824 March 16, 88
REYNALDO BAUTISTA, petitioner,
vs.
HON. AMADO C. INCIONG, in his capacity as Deputy Minister of Labor and ASSOCIATED
LABOR UNIONS (ALU), respondents.
GUTIERREZ, JR., J.:
This is an illegal dismissal case. The respondent Deputy Minister dismissed the complaint of herein
petitioner principally on the ground that no employer-employee relationship existed between the
petitioner and respondent Associated Labor Unions (ALU).
The facts as found by the National Capital Region Director of the then ministry of Labor (MOL)
Region IV are as follows:
Complainant (petitioner) was employed by ALU as 'Organizer' in 1972 with a
starting salary of P250.00 a month. As such he paid his monthly SSS
contributions, with the respondent as his employer. On March 15, 1979, He was
left in the office of ALU while his other co-organizers were in Cainta, Rizal
attending a certification election at Chrysler Philippines, as he was not the
organizer assigned in said company. On March 16, 1979, he went on sick leave
LabStan Cases

for ten (10) days. His SSS sickness benefit application form signed by ALU's
physician was given to ALU for submission to the SSS. On March 16, 1979,
complainant reported back for work upon expiration of his leave but was informed
by ALU's Area Vice-President for Luzon of his termination effective March 15,
1979. Hence, this complaint filed on March 28, 1979. On April 18, 1979,
however, ALU filed a clearance application to terminate complainant's services
effective March 16, 1979 on the ground of abandonment of work. (p. 48, Rollo)
Based on these findings, the Director ruled in favor of the petitioner and ordered the respondent
Union to reinstate the petitioner to his former position with full backwages and to pay him emergency
allowance, 13th month pay and to refund his Mutual Aid Fund Deposit in the amount of P 370.00
Respondent ALU appealed to the Ministry of Labor. On October 23,1979, the respondent Deputy
Minister set aside the order of the Director and dismissed the petitioner's complaint for lack of merit.
In his order, the Deputy Minister found that the petitioner was merely accomodated by the respondent
union after he was dismissed by his former employer sometime in 1972 and that his membership
coverage with the SSS which shows that respondent ALU is the one paying the employer's share in
the premiums is not conclusive proof that respondent is the petitioner's employer because such
payments were performed by the respondent as a favor for all those who were performing full time
union activities with it to entitle them to SSS benefits. The Deputy Minister further ruled that the nonexistence of an employer-employee relationship between the parties is bolstered by the fact that
respondent ALU is not an entity for profit but a duly registered labor union whose sole purpose is the
representation of its bona fide organization units where it is certified as such.
In this petition, the petitioner contends that the respondent Deputy minister committed grave abuse of
discretion in holding that there was no employer-employee relationship between him and the
respondent union so much so that he is not entitled to the benefits that he is praying for.
We agree with the petitioner.
There is nothing in the records which support the Deputy minister's conclusion that the petitioner is
not an employee of respondent ALU. The mere fact that the respondent is a labor union does not
mean that it cannot be considered an employer of the persons who work for it. Much less should it be
exempted from the very labor laws which it espouses as labor organization. In case of es
v. Brotherhood Labor Unity Movement in the Phillipines Zamora, , (147 SCRA 49, 54), we outlined the
factors in ascertaining an employer-employee realtionship:
In determining the existence of an employer-employee relationship, the elements
that are generally considered are the following : (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the employee with respect to
the means and methods by which the work is to be accomplished. It is the socalled 'control test' that is the most important element (Investment Planning Corp.
of the Phils. v. The Social Security System, 21 SCRA 492; Mafinco Trading Corp.
v. Ople, supra, and Rosario Brothers, Inc. v. Ople, 131 SCRA 72)
In the case at bar, the Regional director correctly found that the petitioner was an employee of the
respondent union as reflected in the latter's individual payroll sheets and shown by the petitioner's
membership with the Social Security System (SSS) and the respondent union's share of remittances
in the petitioner's favor. Even more significant, is the respondent union's act of filing a clearance
application with the MOL to terminate the petitioner's services. Bautista was selected and hired by the
Union. He was paid wages by the Union. ALU had the power to dismiss him as indeed it dismissed
Page 87

him. And definitely, the Union tightly controlled the work of Bautista as one of its organizers. There is
absolutely no factual or legal basis got deputy Minister Inciong's decision.
We are, thus, constrained to reverse the findings of the respondent Deputy Minister. However, the
records show that antipathy and antagonism between the petitioner and the respondent union militate
against the former's reinstatement. ALU would not want to have a union organizer whom it does not
trust and who could sabotage its efforts to unionize commercial and industrial establishments.
Severance pay, therefore, is more proper in order. As we have ruled in the case of Asiaworld
Publishing House, Inc. v. Hon. Blas Ople, et al., (G.R. No. 56398, July 23, 1987) quoting the cast
of Balaquezon EWTU v. Zamora, (97 SCRA 5,8):

G.R. No. 80258 February 26, 1990

UNITED STATES OF AMERICA, MAJOR GENERAL MICHAEL P. C. CARNS, AIC ERNEST E.
RIVENBURGH, AIC ROBIN BLEVINS, SGT. NOEL A. GONZALES, SGT. THOMAS MITCHELL,
SGT. WAYNE L. BENJAMIN, ET AL.,petitioners,
vs.
HON. CONCEPCION S. ALARCON VERGARA, as Presiding Judge, Branch 62 REGIONAL
TRIAL COURT, Angeles City, and RICKY SANCHEZ, FREDDIE SANCHEZ AKA FREDDIE
RIVERA, EDWIN MARIANO, AKA JESSIE DOLORES SANGALANG, ET AL., respondents.
Luna, Sison & Manas Law Office for petitioners.

It should be underscored that the backwages are being awarded on the basis of
equity or in the nature of severance pay. This means that a monetary award is to
be paid to the employees as an alternative to reinstatement which can no longer
be effected in view of the long passage of time or because of the realities of the
situation. (Emphasis supplied)
WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Deputy Minister
is ANNULLED and SET ASIDE. The Order of Regional Director Francisco L. Estrella is REINSTATED
and ordered executed but instead of returning the petitioner to his former position, the private
respondent is ordered to pay him an amount equal to his backwages for only three years and the
separation pay to which he may be entitled as of the end of the three year period under the applicable
law or collective bargaining agreement. SO ORDERED.
Employment in foreign embassies
G.R. No. 76607 February 26, 1990
UNITED STATES OF AMERICA, FREDERICK M. SMOUSE AND YVONNE REEVES, petitioners,
vs.
HON. ELIODORO B. GUINTO, Presiding Judge, Branch LVII, Regional Trial Court, Angeles
City, ROBERTO T. VALENCIA, EMERENCIANA C. TANGLAO, AND PABLO C. DEL
PILAR, respondents.
G.R. No. 79470 February 26, 1990
UNITED STATES OF AMERICA, ANTHONY LAMACHIA, T/SGT. USAF, WILFREDO BELSA,
PETER ORASCION AND ROSE CARTALLA, petitioners,
vs.
HON. RODOLFO D. RODRIGO, as Presiding Judge of Branch 7, Regional Trial Court (BAGUIO
CITY), La Trinidad, Benguet and FABIAN GENOVE, respondents.
G.R. No. 80018 February 26, 1990
UNITED STATES OF AMERICA, TOMI J. KINGI, DARREL D. DYE and STEVEN F.
BOSTICK, petitioners,
vs.
HON. JOSEFINA D. CEBALLOS, As Presiding Judge, Regional Trial Court, Branch 66, Capas,
Tarlac, and LUIS BAUTISTA, respondents.

CRUZ, J.:
These cases have been consolidated because they all involve the doctrine of state immunity.
The United States of America was not impleaded in the complaints below but has moved to
dismiss on the ground that they are in effect suits against it to which it has not consented. It is
now contesting the denial of its motions by the respondent judges.
In G.R. No. 76607, the private respondents are suing several officers of the U.S. Air Force
stationed in Clark Air Base in connection with the bidding conducted by them for contracts for
barber services in the said base.
On February 24, 1986, the Western Pacific Contracting Office, Okinawa Area Exchange, U.S.
Air Force, solicited bids for such contracts through its contracting officer, James F. Shaw.
Among those who submitted their bids were private respondents Roberto T. Valencia,
Emerenciana C. Tanglao, and Pablo C. del Pilar. Valencia had been a concessionaire inside
Clark for 34 years; del Pilar for 12 years; and Tanglao for 50 years.
The bidding was won by Ramon Dizon, over the objection of the private respondents, who
claimed that he had made a bid for four facilities, including the Civil Engineering Area, which
was not included in the invitation to bid.
The private respondents complained to the Philippine Area Exchange (PHAX). The latter,
through its representatives, petitioners Yvonne Reeves and Frederic M. Smouse explained
that the Civil Engineering concession had not been awarded to Dizon as a result of the
February 24, 1986 solicitation. Dizon was already operating this concession, then known as
the NCO club concession, and the expiration of the contract had been extended from June 30,
1986 to August 31, 1986. They further explained that the solicitation of the CE barbershop
would be available only by the end of June and the private respondents would be notified.
On June 30, 1986, the private respondents filed a complaint in the court below to compel
PHAX and the individual petitioners to cancel the award to defendant Dizon, to conduct a
rebidding for the barbershop concessions and to allow the private respondents by a writ of
preliminary injunction to continue operating the concessions pending litigation. 1
Upon the filing of the complaint, the respondent court issued an ex parte order directing the
individual petitioners to maintain the status quo.
On July 22, 1986, the petitioners filed a motion to dismiss and opposition to the petition for
preliminary injunction on the ground that the action was in effect a suit against the United

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Page 88

States of America, which had not waived its non-suability. The individual defendants, as
official employees of the U.S. Air Force, were also immune from suit.

This motion was denied by the respondent judge on June 4, 1987, in an order which read in
part:

On the same date, July 22, 1986, the trial court denied the application for a writ of preliminary
injunction.

It is the understanding of the Court, based on the allegations of the

complaint which have been hypothetically admitted by defendants upon
the filing of their motion to dismiss that although defendants acted
initially in their official capacities, their going beyond what their functions
called for brought them out of the protective mantle of whatever immunities
they may have had in the beginning. Thus, the allegation that the acts
complained of were illegal, done. with extreme bad faith and with preconceived sinister plan to harass and finally dismiss the plaintiff, gains
significance. 5

On October 10, 1988, the trial court denied the petitioners' motion to dismiss, holding in part
as follows:
From the pleadings thus far presented to this Court by the parties, the
Court's attention is called by the relationship between the plaintiffs as well
as the defendants, including the US Government, in that prior to the
bidding or solicitation in question, there was a binding contract between
the plaintiffs as well as the defendants, including the US Government. By
virtue of said contract of concession it is the Court's understanding that
neither the US Government nor the herein principal defendants would
become the employer/s of the plaintiffs but that the latter are the employers
themselves of the barbers, etc. with the employer, the plaintiffs herein,
remitting the stipulated percentage of commissions to the Philippine Area
Exchange. The same circumstance would become in effect when the
Philippine Area Exchange opened for bidding or solicitation the questioned
barber shop concessions. To this extent, therefore, indeed a commercial
transaction has been entered, and for purposes of the said solicitation,
would necessarily be entered between the plaintiffs as well as the
defendants.
The Court, further, is of the view that Article XVIII of the RP-US Bases
Agreement does not cover such kind of services falling under the
concessionaireship, such as a barber shop concession. 2
On December 11, 1986, following the filing of the herein petition for certiorari and prohibition
with preliminary injunction, we issued a temporary restraining order against further
proceedings in the court below. 3
In G.R. No. 79470, Fabian Genove filed a complaint for damages against petitioners Anthony
Lamachia, Wilfredo Belsa, Rose Cartalla and Peter Orascion for his dismissal as cook in the
U.S. Air Force Recreation Center at the John Hay Air Station in Baguio City. It had been
ascertained after investigation, from the testimony of Belsa Cartalla and Orascion, that
Genove had poured urine into the soup stock used in cooking the vegetables served to the
club customers. Lamachia, as club manager, suspended him and thereafter referred the case
to a board of arbitrators conformably to the collective bargaining agreement between the
Center and its employees. The board unanimously found him guilty and recommended his
dismissal. This was effected on March 5, 1986, by Col. David C. Kimball, Commander of the
3rd Combat Support Group, PACAF Clark Air Force Base. Genove's reaction was to file Ms
complaint in the Regional Trial Court of Baguio City against the individual petitioners. 4
On March 13, 1987, the defendants, joined by the United States of America, moved to dismiss
the complaint, alleging that Lamachia, as an officer of the U.S. Air Force stationed at John Hay
Air Station, was immune from suit for the acts done by him in his official capacity. They
argued that the suit was in effect against the United States, which had not given its consent to
be sued.

LabStan Cases

The petitioners then came to this Court seeking certiorari and prohibition with preliminary
injunction.
In G.R. No. 80018, Luis Bautista, who was employed as a barracks boy in Camp O' Donnell, an
extension of Clark Air Base, was arrested following a buy-bust operation conducted by the
individual petitioners herein, namely, Tomi J. King, Darrel D. Dye and Stephen F. Bostick,
officers of the U.S. Air Force and special agents of the Air Force Office of Special
Investigators (AFOSI). On the basis of the sworn statements made by them, an information for
violation of R.A. 6425, otherwise known as the Dangerous Drugs Act, was filed against
Bautista in the Regional Trial Court of Tarlac. The above-named officers testified against him
at his trial. As a result of the filing of the charge, Bautista was dismissed from his
employment. He then filed a complaint for damages against the individual petitioners herein
claiming that it was because of their acts that he was removed. 6
During the period for filing of the answer, Mariano Y. Navarro a special counsel assigned to
the International Law Division, Office of the Staff Judge Advocate of Clark Air Base, entered a
special appearance for the defendants and moved for an extension within which to file an
"answer and/or other pleadings." His reason was that the Attorney General of the United
States had not yet designated counsel to represent the defendants, who were being sued for
their official acts. Within the extended period, the defendants, without the assistance of
counsel or authority from the U.S. Department of Justice, filed their answer. They alleged
therein as affirmative defenses that they had only done their duty in the enforcement of the
laws of the Philippines inside the American bases pursuant to the RP-US Military Bases
Agreement.
On May 7, 1987, the law firm of Luna, Sison and Manas, having been retained to represent the
defendants, filed with leave of court a motion to withdraw the answer and dismiss the
complaint. The ground invoked was that the defendants were acting in their official capacity
when they did the acts complained of and that the complaint against them was in effect a suit
against the United States without its consent.
The motion was denied by the respondent judge in his order dated September 11, 1987, which
held that the claimed immunity under the Military Bases Agreement covered only criminal and
not civil cases. Moreover, the defendants had come under the jurisdiction of the court when
they submitted their answer. 7
Following the filing of the herein petition for certiorari and prohibition with preliminary
injunction, we issued on October 14, 1987, a temporary restraining order. 8

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In G.R. No. 80258, a complaint for damages was filed by the private respondents against the
herein petitioners (except the United States of America), for injuries allegedly sustained by the
plaintiffs as a result of the acts of the defendants. 9 There is a conflict of factual allegations
here. According to the plaintiffs, the defendants beat them up, handcuffed them and
unleashed dogs on them which bit them in several parts of their bodies and caused extensive
injuries to them. The defendants deny this and claim the plaintiffs were arrested for theft and
were bitten by the dogs because they were struggling and resisting arrest, The defendants
stress that the dogs were called off and the plaintiffs were immediately taken to the medical
center for treatment of their wounds.
In a motion to dismiss the complaint, the United States of America and the individually named
defendants argued that the suit was in effect a suit against the United States, which had not
given its consent to be sued. The defendants were also immune from suit under the RP-US
Bases Treaty for acts done by them in the performance of their official functions.
The motion to dismiss was denied by the trial court in its order dated August 10, 1987, reading
in part as follows:
The defendants certainly cannot correctly argue that they are immune from
suit. The allegations, of the complaint which is sought to be dismissed, had
to be hypothetically admitted and whatever ground the defendants may
have, had to be ventilated during the trial of the case on the merits. The
complaint alleged criminal acts against the individually-named defendants
and from the nature of said acts it could not be said that they are Acts of
State, for which immunity should be invoked. If the Filipinos themselves
are duty bound to respect, obey and submit themselves to the laws of the
country, with more reason, the members of the United States Armed Forces
who are being treated as guests of this country should respect, obey and
submit themselves to its laws. 10
and so was the motion for reconsideration. The defendants submitted their answer as
required but subsequently filed their petition for certiorari and prohibition with preliminary
injunction with this Court. We issued a temporary restraining order on October 27, 1987. 11
II
The rule that a state may not be sued without its consent, now expressed in Article XVI,
Section 3, of the 1987 Constitution, is one of the generally accepted principles of international
law that we have adopted as part of the law of our land under Article II, Section 2. This latter
provision merely reiterates a policy earlier embodied in the 1935 and 1973 Constitutions and
also intended to manifest our resolve to abide by the rules of the international community.
Even without such affirmation, we would still be bound by the generally accepted principles of
international law under the doctrine of incorporation. Under this doctrine, as accepted by the
majority of states, such principles are deemed incorporated in the law of every civilized state
as a condition and consequence of its membership in the society of nations. Upon its
admission to such society, the state is automatically obligated to comply with these principles
in its relations with other states.
As applied to the local state, the doctrine of state immunity is based on the justification given
by Justice Holmes that "there can be no legal right against the authority which makes the law
on which the right depends." 12 There are other practical reasons for the enforcement of the
LabStan Cases

doctrine. In the case of the foreign state sought to be impleaded in the local jurisdiction, the
added inhibition is expressed in the maxim par in parem, non habet imperium. All states are
sovereign equals and cannot assert jurisdiction over one another. A contrary disposition
would, in the language of a celebrated case, "unduly vex the peace of nations." 13
While the doctrine appears to prohibit only suits against the state without its consent, it is
also applicable to complaints filed against officials of the state for acts allegedly performed by
them in the discharge of their duties. The rule is that if the judgment against such officials will
require the state itself to perform an affirmative act to satisfy the same, such as the
appropriation of the amount needed to pay the damages awarded against them, the suit must
be regarded as against the state itself although it has not been formally impleaded. 14 In such a
situation, the state may move to dismiss the complaint on the ground that it has been filed
without its consent.
The doctrine is sometimes derisively called "the royal prerogative of dishonesty" because of
the privilege it grants the state to defeat any legitimate claim against it by simply invoking its
non-suability. That is hardly fair, at least in democratic societies, for the state is not an
unfeeling tyrant unmoved by the valid claims of its citizens. In fact, the doctrine is not
absolute and does not say the state may not be sued under any circumstance. On the
contrary, the rule says that the state may not be sued without its consent, which clearly
imports that it may be sued if it consents.
The consent of the state to be sued may be manifested expressly or impliedly. Express
consent may be embodied in a general law or a special law. Consent is implied when the state
enters into a contract or it itself commences litigation.
The general law waiving the immunity of the state from suit is found in Act No. 3083, under
which the Philippine government "consents and submits to be sued upon any moneyed claim
involving liability arising from contract, express or implied, which could serve as a basis of
civil action between private parties." In Merritt v. Government of the Philippine Islands, 15 a
special law was passed to enable a person to sue the government for an alleged tort. When
the government enters into a contract, it is deemed to have descended to the level of the other
contracting party and divested of its sovereign immunity from suit with its implied
consent. 16 Waiver is also implied when the government files a complaint, thus opening itself
to a counterclaim. 17
The above rules are subject to qualification. Express consent is effected only by the will of the
legislature through the medium of a duly enacted statute. 18 We have held that not all contracts
entered into by the government will operate as a waiver of its non-suability; distinction must
be made between its sovereign and proprietary acts. 19 As for the filing of a complaint by the
government, suability will result only where the government is claiming affirmative relief from
the defendant. 20
In the case of the United States of America, the customary rule of international law on state
immunity is expressed with more specificity in the RP-US Bases Treaty. Article III thereof
provides as follows:
It is mutually agreed that the United States shall have the rights, power and
authority within the bases which are necessary for the establishment, use,
operation and defense thereof or appropriate for the control thereof and all
the rights, power and authority within the limits of the territorial waters and
air space adjacent to, or in the vicinity of, the bases which are necessary to
provide access to them or appropriate for their control.
Page 90

The petitioners also rely heavily on Baer v. Tizon, 21 along with several other decisions, to
support their position that they are not suable in the cases below, the United States not
having waived its sovereign immunity from suit. It is emphasized that in Baer, the Court held:
The invocation of the doctrine of immunity from suit of a foreign state
without its consent is appropriate. More specifically, insofar as alien armed
forces is concerned, the starting point is Raquiza v. Bradford, a 1945
decision. In dismissing a habeas corpus petition for the release of
petitioners confined by American army authorities, Justice Hilado speaking
for the Court, cited Coleman v. Tennessee, where it was explicitly declared:
'It is well settled that a foreign army, permitted to march through a friendly
country or to be stationed in it, by permission of its government or
sovereign, is exempt from the civil and criminal jurisdiction of the place.'
Two years later, in Tubb and Tedrow v. Griess, this Court relied on the
ruling in Raquiza v. Bradford and cited in support thereof excerpts from the
works of the following authoritative writers: Vattel, Wheaton, Hall,
Lawrence, Oppenheim, Westlake, Hyde, and McNair and Lauterpacht.
Accuracy demands the clarification that after the conclusion of the
Philippine-American Military Bases Agreement, the treaty provisions
should control on such matter, the assumption being that there was a
manifestation of the submission to jurisdiction on the part of the foreign
power whenever appropriate. More to the point is Syquia v. Almeda Lopez,
where plaintiffs as lessors sued the Commanding General of the United
States Army in the Philippines, seeking the restoration to them of the
apartment buildings they owned leased to the United States armed forces
stationed in the Manila area. A motion to dismiss on the ground of nonsuability was filed and upheld by respondent Judge. The matter was taken
to this Court in a mandamus proceeding. It failed. It was the ruling that
respondent Judge acted correctly considering that the 4 action must be
considered as one against the U.S. Government. The opinion of Justice
Montemayor continued: 'It is clear that the courts of the Philippines
including the Municipal Court of Manila have no jurisdiction over the
present case for unlawful detainer. The question of lack of jurisdiction was
raised and interposed at the very beginning of the action. The U.S.
Government has not given its consent to the filing of this suit which is
essentially against her, though not in name. Moreover, this is not only a
case of a citizen filing a suit against his own Government without the
latter's consent but it is of a citizen firing an action against a foreign
government without said government's consent, which renders more
obvious the lack of jurisdiction of the courts of his country. The principles
of law behind this rule are so elementary and of such general acceptance
that we deem it unnecessary to cite authorities in support thereof then
came Marvel Building Corporation v. Philippine War Damage Commission,
where respondent, a United States Agency established to compensate
damages suffered by the Philippines during World War II was held as
falling within the above doctrine as the suit against it would eventually be a
charge against or financial liability of the United States Government
because ... , the Commission has no funds of its own for the purpose of
paying money judgments.' The Syquia ruling was again explicitly relied
upon in Marquez Lim v. Nelson, involving a complaint for the recovery of a
motor launch, plus damages, the special defense interposed being 'that the
vessel belonged to the United States Government, that the defendants
merely acted as agents of said Government, and that the United States
Government is therefore the real party in interest.' So it was
in Philippine Alien Property Administration v. Castelo, where it was held
that a suit against Alien Property Custodian and the Attorney General of
LabStan Cases

the United States involving vested property under the Trading with the
Enemy Act is in substance a suit against the United States. To the same
effect is Parreno v. McGranery, as the following excerpt from the opinion of
justice Tuazon clearly shows: 'It is a widely accepted principle of
international law, which is made a part of the law of the land (Article II,
Section 3 of the Constitution), that a foreign state may not be brought to
suit before the courts of another state or its own courts without its
consent.' Finally, there is Johnson v. Turner, an appeal by the defendant,
then Commanding General, Philippine Command (Air Force, with office at
Clark Field) from a decision ordering the return to plaintiff of the
confiscated military payment certificates known as scrip money. In
reversing the lower court decision, this Tribunal, through Justice
Montemayor, relied on Syquia v. Almeda Lopez, explaining why it could not
be sustained.
It bears stressing at this point that the above observations do not confer on the United States
of America a blanket immunity for all acts done by it or its agents in the Philippines. Neither
may the other petitioners claim that they are also insulated from suit in this country merely
because they have acted as agents of the United States in the discharge of their official
functions.
There is no question that the United States of America, like any other state, will be deemed to
have impliedly waived its non-suability if it has entered into a contract in its proprietary or
private capacity. It is only when the contract involves its sovereign or governmental capacity
that no such waiver may be implied. This was our ruling in United States of America v.
Ruiz, 22 where the transaction in question dealt with the improvement of the wharves in the
naval installation at Subic Bay. As this was a clearly governmental function, we held that the
contract did not operate to divest the United States of its sovereign immunity from suit. In the
words of Justice Vicente Abad Santos:
The traditional rule of immunity exempts a State from being sued in the
courts of another State without its consent or waiver. This rule is a
necessary consequence of the principles of independence and equality of
States. However, the rules of International Law are not petrified; they are
constantly developing and evolving. And because the activities of states
have multiplied, it has been necessary to distinguish them between
sovereign and governmental acts (jure imperii) and private, commercial
and proprietary acts (jure gestionis). The result is that State immunity now
extends only to acts jure imperii The restrictive application of State
immunity is now the rule in the United States, the United kingdom and
other states in Western Europe.
xxx xxx xxx
The restrictive application of State immunity is proper only when the
proceedings arise out of commercial transactions of the foreign sovereign,
its commercial activities or economic affairs. Stated differently, a State may
be said to have descended to the level of an individual and can thus be
deemed to have tacitly given its consent to be sued only when it enters into
business contracts. It does not apply where the contract relates to the
exercise of its sovereign functions. In this case the projects are an integral
part of the naval base which is devoted to the defense of both the United
States and the Philippines, indisputably a function of the government of the
Page 91

highest order; they are not utilized for nor dedicated to commercial or
business purposes.
The other petitioners in the cases before us all aver they have acted in the discharge of their
official functions as officers or agents of the United States. However, this is a matter of
evidence. The charges against them may not be summarily dismissed on their mere assertion
that their acts are imputable to the United States of America, which has not given its consent
to be sued. In fact, the defendants are sought to be held answerable for personal torts in
which the United States itself is not involved. If found liable, they and they alone must satisfy
the judgment.
In Festejo v. Fernando, 23 a bureau director, acting without any authority whatsoever,
appropriated private land and converted it into public irrigation ditches. Sued for the value of
the lots invalidly taken by him, he moved to dismiss the complaint on the ground that the suit
was in effect against the Philippine government, which had not given its consent to be sued.
This Court sustained the denial of the motion and held that the doctrine of state immunity was
not applicable. The director was being sued in his private capacity for a personal tort.
With these considerations in mind, we now proceed to resolve the cases at hand.
III
It is clear from a study of the records of G.R. No. 80018 that the individually-named petitioners
therein were acting in the exercise of their official functions when they conducted the buybust operation against the complainant and thereafter testified against him at his trial. The
said petitioners were in fact connected with the Air Force Office of Special Investigators and
were charged precisely with the function of preventing the distribution, possession and use of
prohibited drugs and prosecuting those guilty of such acts. It cannot for a moment be
imagined that they were acting in their private or unofficial capacity when they apprehended
and later testified against the complainant. It follows that for discharging their duties as
agents of the United States, they cannot be directly impleaded for acts imputable to their
principal, which has not given its consent to be sued. As we observed in Sanders v.
Veridiano: 24
Given the official character of the above-described letters, we have to
conclude that the petitioners were, legally speaking, being sued as officers
of the United States government. As they have acted on behalf of that
government, and within the scope of their authority, it is that government,
and not the petitioners personally, that is responsible for their acts.
The private respondent invokes Article 2180 of the Civil Code which holds the government
liable if it acts through a special agent. The argument, it would seem, is premised on the
ground that since the officers are designated "special agents," the United States government
should be liable for their torts.
There seems to be a failure to distinguish between suability and liability and a misconception
that the two terms are synonymous. Suability depends on the consent of the state to be sued,
liability on the applicable law and the established facts. The circumstance that a state is
suable does not necessarily mean that it is liable; on the other hand, it can never be held liable
if it does not first consent to be sued. Liability is not conceded by the mere fact that the state
has allowed itself to be sued. When the state does waive its sovereign immunity, it is only
giving the plaintiff the chance to prove, if it can, that the defendant is liable.
LabStan Cases

The said article establishes a rule of liability, not suability. The government may be held liable
under this rule only if it first allows itself to be sued through any of the accepted forms of
consent.
Moreover, the agent performing his regular functions is not a special agent even if he is so
denominated, as in the case at bar. No less important, the said provision appears to regulate
only the relations of the local state with its inhabitants and, hence, applies only to the
Philippine government and not to foreign governments impleaded in our courts.
We reject the conclusion of the trial court that the answer filed by the special counsel of the
Office of the Sheriff Judge Advocate of Clark Air Base was a submission by the United States
government to its jurisdiction. As we noted in Republic v. Purisima, 25 express waiver of
immunity cannot be made by a mere counsel of the government but must be effected through
a duly-enacted statute. Neither does such answer come under the implied forms of consent as
earlier discussed.
But even as we are certain that the individual petitioners in G.R. No. 80018 were acting in the
discharge of their official functions, we hesitate to make the same conclusion in G.R. No.
80258. The contradictory factual allegations in this case deserve in our view a closer study of
what actually happened to the plaintiffs. The record is too meager to indicate if the defendants
were really discharging their official duties or had actually exceeded their authority when the
incident in question occurred. Lacking this information, this Court cannot directly decide this
case. The needed inquiry must first be made by the lower court so it may assess and resolve
the conflicting claims of the parties on the basis of the evidence that has yet to be presented
at the trial. Only after it shall have determined in what capacity the petitioners were acting at
the time of the incident in question will this Court determine, if still necessary, if the doctrine
of state immunity is applicable.
In G.R. No. 79470, private respondent Genove was employed as a cook in the Main Club
located at the U.S. Air Force Recreation Center, also known as the Open Mess Complex, at
John Hay Air Station. As manager of this complex, petitioner Lamachia is responsible for
eleven diversified activities generating an annual income of $2 million. Under his executive
management are three service restaurants, a cafeteria, a bakery, a Class VI store, a coffee and
pantry shop, a main cashier cage, an administrative office, and a decentralized warehouse
which maintains a stock level of $200,000.00 per month in resale items. He supervises 167
employees, one of whom was Genove, with whom the United States government has
concluded a collective bargaining agreement.
From these circumstances, the Court can assume that the restaurant services offered at the
John Hay Air Station partake of the nature of a business enterprise undertaken by the United
States government in its proprietary capacity. Such services are not extended to the American
servicemen for free as a perquisite of membership in the Armed Forces of the United States.
Neither does it appear that they are exclusively offered to these servicemen; on the contrary, it
is well known that they are available to the general public as well, including the tourists in
Baguio City, many of whom make it a point to visit John Hay for this reason. All persons
availing themselves of this facility pay for the privilege like all other customers as in ordinary
restaurants. Although the prices are concededly reasonable and relatively low, such services
are undoubtedly operated for profit, as a commercial and not a governmental activity.
The consequence of this finding is that the petitioners cannot invoke the doctrine of state
immunity to justify the dismissal of the damage suit against them by Genove. Such defense
will not prosper even if it be established that they were acting as agents of the United States
when they investigated and later dismissed Genove. For that matter, not even the United
Page 92

States government itself can claim such immunity. The reason is that by entering into the
employment contract with Genove in the discharge of its proprietary functions, it impliedly
divested itself of its sovereign immunity from suit.

WHEREFORE, after considering all the above premises, the Court hereby renders judgment as
follows:
1. In G.R. No. 76607, the petition is DISMISSED and the respondent judge is
directed to proceed with the hearing and decision of Civil Case No. 4772.
The temporary restraining order dated December 11, 1986, is LIFTED.

But these considerations notwithstanding, we hold that the complaint against the petitioners
in the court below must still be dismissed. While suable, the petitioners are nevertheless not
liable. It is obvious that the claim for damages cannot be allowed on the strength of the
evidence before us, which we have carefully examined.

2. In G.R. No. 79470, the petition is GRANTED and Civil Case No. 829-R(298)
is DISMISSED.

The dismissal of the private respondent was decided upon only after a thorough investigation
where it was established beyond doubt that he had polluted the soup stock with urine. The
investigation, in fact, did not stop there. Despite the definitive finding of Genove's guilt, the
case was still referred to the board of arbitrators provided for in the collective bargaining
agreement. This board unanimously affirmed the findings of the investigators and
recommended Genove's dismissal. There was nothing arbitrary about the proceedings. The
petitioners acted quite properly in terminating the private respondent's employment for his
unbelievably nauseating act. It is surprising that he should still have the temerity to file his
complaint for damages after committing his utterly disgusting offense.

3. In G.R. No. 80018, the petition is GRANTED and Civil Case No. 115-C-87
is DISMISSED. The temporary restraining order dated October 14, 1987, is
made permanent.
4. In G.R. No. 80258, the petition is DISMISSED and the respondent court is
directed to proceed with the hearing and decision of Civil Case No. 4996.
The temporary restraining order dated October 27, 1987, is LIFTED.

Concerning G.R. No. 76607, we also find that the barbershops subject of the concessions
granted by the United States government are commercial enterprises operated by private
person's. They are not agencies of the United States Armed Forces nor are their facilities
demandable as a matter of right by the American servicemen. These establishments provide
for the grooming needs of their customers and offer not only the basic haircut and shave (as
required in most military organizations) but such other amenities as shampoo, massage,
manicure and other similar indulgences. And all for a fee. Interestingly, one of the
concessionaires, private respondent Valencia, was even sent abroad to improve his tonsorial
business, presumably for the benefit of his customers. No less significantly, if not more so, all
the barbershop concessionaires are under the terms of their contracts, required to remit to the
United States government fixed commissions in consideration of the exclusive concessions
granted to them in their respective areas.

All without any pronouncement as to costs. SO ORDERED.

This being the case, the petitioners cannot plead any immunity from the complaint filed by the
private respondents in the court below. The contracts in question being decidedly
commercial, the conclusion reached in the United States of America v. Ruiz case cannot be
applied here.

Juan, Luces, Luna and Associates for petitioner.

The Court would have directly resolved the claims against the defendants as we have done in
G.R. No. 79470, except for the paucity of the record in the case at hand. The evidence of the
alleged irregularity in the grant of the barbershop concessions is not before us. This means
that, as in G.R. No. 80258, the respondent court will have to receive that evidence first, so it
can later determine on the basis thereof if the plaintiffs are entitled to the relief they seek.
Accordingly, this case must also be remanded to the court below for further proceedings.
IV
There are a number of other cases now pending before us which also involve the question of
the immunity of the United States from the jurisdiction of the Philippines. This is cause for
regret, indeed, as they mar the traditional friendship between two countries long allied in the
cause of democracy. It is hoped that the so-called "irritants" in their relations will be resolved
in a spirit of mutual accommodation and respect, without the inconvenience and asperity of
litigation and always with justice to both parties.
LabStan Cases

G.R. No. 108813 December 15, 1994

JUSMAG PHILIPPINES, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION (Second Division) and FLORENCIO
SACRAMENTO, Union President, JPFCEA, respondents.

Galutera & Aguilar Law Offices for private respondent.

PUNO, J.:
The immunity from suit of the Joint United States Military Assistance Group to the Republic of the
Philippines (JUSMAG-Philippines) is the pivotal issue in the case at bench.
JUSMAG assails the January 29, 1993 Resolution of the NATIONAL LABOR RELATIONS
COMMISSION (public respondent), in NLRC NCR CASE NO. 00-03-02092-92, reversing the July 30,
1991 Order of the Labor Arbiter, and ordering the latter to assume jurisdiction over the complaint for
illegal dismissal filed by FLORENCIO SACRAMENTO (private respondent) against petitioner.
First, the undisputed facts.
Private respondent was one of the seventy-four (74) security assistance support personnel (SASP)
working at JUSMAG-Philippines. 1 He had been with JUSMAG from December 18, 1969, until his
dismissal on April 27, 1992. When dismissed, he held the position of Illustrator 2 and was the
Page 93

incumbent President of JUSMAG PHILIPPINES-FILIPINO CIVILIAN EMPLOYEES ASSOCIATION

(JPFCEA), a labor organization duly registered with the Department of Labor and Employment. His
services were terminated allegedly due to the abolition of his position. 2He was also advised that he
was under administrative leave until April 27, 1992, although the same was not charged against his
leave.
On March 31, 1992, private respondent filed a complaint with the Department of Labor and
Employment on the ground that he was illegally suspended and dismissed from service by
JUSMAG. 3 He asked for his reinstatement.
JUSMAG then filed a Motion to Dismiss invoking its immunity from suit as an agency of the United
States. It further alleged lack of employer-employee relationship and that it has no juridical personality
to sue and be sued. 4
In an Order dated July 30, 1991, Labor Arbiter Daniel C. Cueto dismissed the subject complaint " for
want of jurisdiction." 5 Private respondent appealed 6 to the National Labor Relations Commission
(public respondent), assailing the ruling that petitioner is immune from suit for alleged violation of our
labor laws. JUSMAG filed its Opposition, 7 reiterating its immunity from suit for its non-contractual,
governmental and/or public acts.
In a Resolution, dated January 29, 1993, the NLRC 8 reversed the ruling of the Labor Arbiter as it held
that petitioner had lost its right not to be sued. The resolution was predicated on two grounds: (1) the
principle ofestoppel that JUSMAG failed to refute the existence of employer-employee relationship
under the "control test"; and (2) JUSMAG has waived its right to immunity from suit when it hired the
services of private respondent on December 18, 1969.
The NLRC relied on the case of Harry Lyons vs. United States of America, 9 where the "United States
Government (was considered to have) waived its immunity from suit by entering into (a) contract of
stevedoring services, and thus, it submitted itself to the jurisdiction of the local courts."
Accordingly, the case was remanded to the labor arbiter for reception of evidence as to the issue on
illegal dismissal.

THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK AND/OR EXCESS OF JURISDICTION
A. WHEN IT FOUND AN EMPLOYER-EMPLOYEE
RELATIONSHIP BETWEEN JUSMAG AND PRIVATE
RESPONDENT; AND
B. WHEN IT CONSIDERED JUSMAG ESTOPPED FROM
DENYING THAT PRIVATE RESPONDENT IS ITS
EMPLOYEE FOR FAILURE TO PRESENT PROOF TO THE
CONTRARY.
We find the petition impressed with merit.
It is meet to discuss the historical background of the JUSMAG to determine its immunity from suit.
JUSMAG was created pursuant to the Military Assistance Agreement 10 dated March 21, 1947,
between the Government of the Republic of the Philippines and the Government of the United States
of America. As agreed upon, JUSMAG shall consist of Air, Naval and Army group, and its primary
task was to advise and assist the Philippines, on air force, army and naval matters. 11
Article 14 of the 1947 Agreement provides, inter alia, that "the cost of all services required by the
Group, including compensation of locally employed interpreters, clerks, laborers, and other personnel,
except personal servants, shall be borne by the Republic of the Philippines."
This set-up was to change in 1991. In Note No 22, addressed to the Department of Foreign Affairs
(DFA) of the Philippines, dated January 23, 1991, the United States Government, thru its Embassy,
manifested its preparedness "to provide funds to cover the salaries of security assistance support
personnel" and security guards, the rent of JUSMAG occupied buildings and housing, and the cost of
utilities. 12 This offer was accepted by our Government, thru the DFA, in Note No. 911725, dated April
18, 1991. 13
Consequently, a Memorandum of Agreement 14 was forged between the Armed Forces of the
Philippines and JUSMAG-Philippines, thru General Lisandro C. Abadia and U.S. Brigadier General
Robert G. Sausser. The Agreement delineated the terms of the assistance-in-kind of JUSMAG for
1991, the relevant parts of which read:

Hence, this petition, JUSMAG contends:

I
THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK AND/OR EXCESS OF JURISDICTION
A. IN REVERSING THE DECISION OF THE LABOR
ARBITER AND IN NOT AFFIRMING THE DISMISSAL OF
THE COMPLAINT IT BEING A SUIT AGAINST THE
UNITED STATES OF AMERICA WHICH HAD NOT GIVEN
ITS CONSENT TO BE SUED; AND
B. IN FINDING WAIVER BY JUSMAG OF IMMUNITY
FROM SUIT;

a. The term salaries as used in this agreement include those for the security
guards currently contracted between JUSMAG and A' Prime Security Services
Inc., and the Security Assistance Support Personnel (SASP). . . . .
b. The term Security Assistance Support Personnel (SASP) does not include
active duty uniformed members of the Armed Forces of the Philippines
performing duty at JUSMAG.
c. It is understood that SASP are employees of the Armed Forces of the
Philippines (AFP). Therefore,the AFP agrees to appoint, for service with
JUSMAG, no more than 74 personnel to designated positions with JUSMAG.

II
LabStan Cases

Page 94

d. SASP are under the total operational control of the Chief, JUSMAGPhilippines. The term "Operational Control" includes, but is not limited to, all
personnel administrative actions, such as: hiring recommendations; firing
recommendations; position classification; discipline; nomination and approval of
incentive awards; and payroll computation. Personnel administration will be
guided by Annex E of JUSMAG-Philippines Memo 10-2. For the period of time
that there is an exceptional funding agreement between the government of the
Philippines and the United States Government (USG), JUSMAG will pay the total
payroll costs for the SASP employees. Payroll costs include only regular salary;
approved overtime, costs of living allowance; medical insurance; regular
contributions to the Philippine Social Security System, PAG-IBIG Fund and
Personnel Economic Relief Allowance (PERA); and the thirteenth-month bonus.
Payroll costs do not include gifts or other bonus payments in addition to those
previously defined above. Entitlements not considered payroll costs under this
agreement will be funded and paid by the AFP.
e. All SASP employed as of July 1, 1990 will continue their service with JUSMAG
at their current rate of pay and benefits up to 30 June 1991, with an annual
renewal of employment thereafter subject to renewal of their appointment with
the AFP (employees and rates of pay are indicated at Enclosure 3). No
promotion or transfer internal to JUSMAG of the listed personnel will result in the
reduction of their pay and benefits.
f. All SASP will, after proper classification, be paid salaries and benefits at
established AFP civilian rates. Rules for computation of pay and allowances will
be made available to the Comptroller, JUSMAG, by the Comptroller, GHQ, AFP.
Additionally, any legally mandated changes in salary levels or methods of
computation shall be transmitted within 48 hours of receipt by Comptroller, GHQ
to Comptroller, JUSMAG.
g. The AFP agrees not to terminate SASP without 60 days prior written notice to
Chief, JUSMAG-Philippines. Any termination of these personnel thought to be
necessary because of budgetary restrictions or manpower ceiling will be subject
to consultations between AFP and JUSMAG to ensure that JUSMAG's mission of
dedicated support to the AFP will not be degraded or harmed in any way.
h. The AFP agrees to assume the severance pay/retirement pay liability for all
appointed SASP. (Enclosure 3 lists the severance pay liability date for current
SASP). Any termination of services, other than voluntary resignations or
termination for cause, will result in immediate payments of AFP of all termination
pay to the entitled employee. Vouchers for severance/retirement pay and
accrued bonuses and annual leave will be presented to the Comptroller, GHQ,
AFP, not later than 14 calendar days prior to required date of payment.
i. All SASP listed in Enclosure 3 will continue to participate in the Philippine
Social Security System.
A year later, or in 1992, the United States Embassy sent another note of similar import to the
Department of Foreign Affairs (No. 227, dated April 8, 1992), extending the funding agreement for the
salaries of SASP and security guards until December 31, 1992.

Agreement dated March 21, 1947. Hence, we agree with petitioner that the suit is, in effect, one
against the United States Government, albeit it was not impleaded in the complaint. Considering that
the United States has not waived or consented to the suit, the complaint against JUSMAG cannot not
prosper.
In this jurisdiction, we recognize and adopt the generally accepted principles of international law as
part of the law of the land. 15 Immunity of State from suit is one of these universally recognized
principles. In international law, "immunity" is commonly understood as an exemption of the state and
its organs from the judicial jurisdiction of another state. 16 This is anchored on the principle of the
sovereign equality of states under which one state cannot assert jurisdiction over another in violation
of the maxim par in parem non habet imperium (an equal has no power over an equal). 17
Under the traditional rule of State immunity, a state cannot be sued in the courts of another State,
without its consent or waiver. However, in Santos, et al., vs. Santos, et al., 18 we recognized an
exception to the doctrine of immunity from suit by a state, thus:
. . . . Nevertheless, if, where and when the state or its government enters into a
contract, through its officers or agents, in furtherance of a legitimate aim and
purpose and pursuant to constitutional legislative authority, whereby mutual or
reciprocal benefits accrue and rights and obligations arise therefrom, and if the
law granting the authority to enter into such contract does not provide for or
name the officer against whom action may be brought in the event of a breach
thereof, the state itself may be sued, even without its consent, because by
entering into a contract, the sovereign state has descended to the level of the
citizen and its consent to be sued is implied from the very act of entering into
such contract. . . . . (emphasis ours)
It was in this light that the state immunity issue in Harry Lyons, Inc., vs. United States of
America 19 was decided.
In the case of Harry Lyons, Inc., the petitioner entered into a contract with the United States
Government for stevedoring services at the U.S. Naval Base, Subic Bay, Philippines. It then sought to
collect from the US government sums of money arising from the contract. One of the issues posed in
the case was whether or not the defunct Court of First Instance had jurisdiction over the defendant
United States, a sovereign state which cannot be sued without its consent. This Court upheld the
contention of Harry Lyons, Inc., that "when a sovereign state enters into a contract with a private
person, the state can be sued upon the theory that it has descended to the level of an individual from
which it can be implied that it has given its consent to be sued under the contract."
The doctrine of state immunity from suit has undergone further metamorphosis. The view evolved that
the existence of a contract does not, per se, mean that sovereign states may, at all times, be sued in
local courts. The complexity of relationships between sovereign states, brought about by their
increasing commercial activities, mothered a more restrictive application of the doctrine. 20 Thus,
in United States of America vs. Ruiz, 21 we clarified that our pronouncement in Harry Lyons, supra,
with respect to the waiver of State immunity, was obiterand "has no value as an imperative authority."
As it stands now, the application of the doctrine of immunity from suit has
been restricted to sovereign orgovernmental activities ( jure imperii). 22 The mantle of state
immunity cannot be extended to commercial, private and proprietary acts ( jure gestionis). As aptly
stated by this Court (En banc) in US vs. Ruiz, supra:

From the foregoing, it is apparent that when JUSMAG took the services of private respondent, it was
performing a governmental function on behalf of the United States pursuant to the Military Assistance
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Page 95

The restrictive application of State immunity is proper when the proceedings

arise out of commercial transactions of the foreign sovereign, its commercial
activities or economic affairs. Stated differently, a State may be said to have
descended to the level of an individual and thus can be deemed to have tacitly
given its consent to be used only when it enters into business contracts. It
does not apply where the contract relates to the exercise of its sovereign
functions. (emphasis ours)
We held further, that the application of the doctrine of state immunity depends on the legal nature of
the act. Ergo, since a governmental function was involved the transaction dealt with the
improvement of the wharves in the naval installation at Subic Bay it was held that the United
States was not deemed to have waived its immunity from suit.
Then came the case of United States vs. Hon. Rodrigo, et al. 23 In said case, Genove was employed
as a cook in the Main Club located at U.S. Air Force Recreation Center, John Hay Air Station. He was
dismissed from service after he was found to have polluted the stock of soup with urine. Genove
countered with a complaint for damages. Apparently, the restaurant services offered at the John Hay
Air Station partake of the nature of a business enterprise undertaken by the United States
government in its proprietary capacity. The Court then noted that the restaurant is well known and
available to the general public, thus, the services are operated for profit, as a commercial and not a
governmental activity. Speaking through Associate Justice Isagani Cruz, the Court (En Banc) said:
The consequence of this finding is that the petitioners cannot invoke the doctrine
of state immunity to justify the dismissal of the damage suit against them by
Genove. Such defense will not prosper even if it be established that they were
acting as agents of the United States when they investigated and later dismissed
Genove. For the matter, not even the United States government itself can claim
such immunity. The reason is that by entering into the employment contract with
Genove in the discharge of its proprietary functions, it impliedly divested itself of
its sovereign immunity from suit. (emphasis ours)
Conversely, if the contract was entered into in the discharge of its governmental functions, the
sovereign state cannot be deemed to have waived its immunity from suit. 24 Such is the case at
bench. Prescinding from this premise, we need not determine whether JUSMAG controls the
employment conditions of the private respondent.
We also hold that there appears to be no basis for public respondent to rule that JUSMAG is stopped
from denying the existence of employer-employee relationship with private respondent. On the
contrary, in its Opposition before the public respondent, JUSMAG consistently contended that the
(74) SASP, including private respondent, working in JUSMAG, are employees of the Armed Forces of
the Philippines. This can be gleaned from: (1) the Military Assistance Agreement, supra, (2) the
exchange of notes between our Government, thru Department of Foreign Affairs, and the United
States, thru the US Embassy to the Philippines, and (3) the Agreement on May 21,
1991,supra between the Armed Forces of the Philippines and JUSMAG.
We symphatize with the plight of private respondent who had served JUSMAG for more than twenty
(20) years. Considering his length of service with JUSMAG, he deserves a more compassionate
treatment. Unfortunately, JUSMAG is beyond the jurisdiction of this Court. Nonetheless, the
Executive branch, through the Department of Foreign Affairs and the Armed Forces of the
Philippines, can take the cudgel for private respondent and the other SASP working for JUSMAG,
pursuant to the aforestated Military Assistance Agreement.

LabStan Cases

IN VIEW OF THE FOREGOING, the petition for certiorari is GRANTED. Accordingly, the impugned
Resolution dated January 29, 1993 of the National Labor Relations Commission is REVERSED and
SET ASIDE. No costs. SO ORDERED.
G.R. No. 72222 January 30, 1989
INTERNATIONAL CATHOLIC MIGRATION COMMISSION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and BERNADETTE GALANG, respondents.
FERNAN, C.J.:
The issue to be resolved in the instant case is whether or not an employee who was terminated
during the probationary period of her employment is entitled to her salary for the unexpired portion of
her six-month probationary employment.
The facts of the case are undisputed.
Petitioner International Catholic Migration Commission (ICMC), a non-profit organization dedicated to
refugee service at the Philippine Refugee Processing Center in Morong, Bataan engaged the
services of private respondent Bernadette Galang on January 24, 1983 as a probationary cultural
orientation teacher with a monthly salary of P2,000.00.
Three (3) months thereafter, or on April 22, 1983, private respondent was informed, orally and in
writing, that her services were being terminated for her failure to meet the prescribed standards of
petitioner as reflected in the performance evaluation of her supervisors during the teacher evaluation
program she underwent along with other newly-hired personnel.
Despite her termination, records show that private respondent did not leave the ICMC refugee camp
at Morong, Bataan, but instead stayed thereat for a few days before leaving for Manila, during which
time, she was observed by petitioner to be allegedly acting strangely.
On July 24, 1983, private respondent returned to Morong, Bataan on board the service bus of
petitioner to accomplish the clearance requirements. In the evening of that same day, she was found
at the Freedom Park of Morong wet and shivering from the rain and acting bizarrely. She was then
taken to petitioner's hospital where she was given the necessary medical attention.
Two (2) days later, or on July 26, 1983, she was taken to her residence in Manila aboard petitioner's
service bus. Thru a letter, her father expressed appreciation to petitioner for taking care of her
daughter. On that same day, her father received, on her behalf, the proportionate amount of her 13th
month pay and the equivalent of her two week pay.
On August 22, 1983, private respondent filed a complaint 1 for illegal dismissal, unfair labor practice
and unpaid wages against petitioner with the then Ministry of Labor and Employment, praying for
reinstatement with backwages, exemplary and moral damages.
On October 8, 1983, after the parties submitted their respective position papers and other pleadings,
Labor Arbiter Pelagio A. Carpio rendered his decision dismissing the complaint for illegal dismissal as
well as the complaint for moral and exemplary damages but ordering the petitioner to pay private
Page 96

respondent the sum of P6,000.00 as payment for the last three (3) months of the agreed employment
period pursuant to her verbal contract of employment. 2
Both parties appealed the decision to the National Labor Relations Commission. In her appeal,
private respondent contended that her dismissal was illegal considering that it was effected without
valid cause. On the other hand, petitioner countered that private respondent who was employed for a
probationary period of three (3) months could not rightfully be awarded P6,000.00 because her
services were terminated for failure to qualify as a regular employee in accordance with the
reasonable standards prescribed by her employer.
On August 22, 1985, the NLRC, by a majority vote of Commissioners Guillermo C. Medina and
Gabriel M. Gatchalian, sustained the decision of the Labor Arbiter and thus dismissed both appeals
for lack of merit. Commissioner Miguel Varela, on the other hand, dissented and voted for the
reversal of the Labor Arbiter's decision for lack of legal basis considering that the termination of
services of complainant, now private respondent, was effected during her probationary period on valid
grounds made known to her. 3
Dissatisfied, petitioner filed the instant petition.
Petitioner maintains that private respondent is not entitled to the award of salary for the unexpired
three-month portion of the probationary period since her services were terminated during such period
when she failed to qualify as a regular employee in accordance with the reasonable standards
prescribed by petitioner; that having been terminated on valid grounds during her probationary period,
or specifically on April 24, 1983, petitioner is not liable to private respondent for services not rendered
during the unexpired three-month period, otherwise, unjust enrichment of her part would result; that
under Article 282 (now Article 281) of the Labor Code, if the employer finds that the probationary
employees does not meet the standards of employment set for the position, the probationary
employee may be terminated at any time within the six-month period, without need of exhausting raid
entire six-month term. 4
The Solicitor General, on the other hand, contends that a probationary employment for six (6)
months, as in the case of herein private respondent, is an employment for a definite period of time
and, as such, the employer is duty-bound to allow the probationary employee to work until the
termination of the probationary employment before her re- employment could be refused; that when
petitioner disrupted the probationary employment of private respondent, without giving her the
opportunity to improve her method of instruction within the said period, it held itself liable to pay her
salary for the unexpired portion of such employment by way of damages pursuant to the general
provisions of civil law that he who in any manner contravenes the terms of his obligation without any
valid cause shall be liable for damages; 5 that, as held in Madrigal v. Ogilvie, et al, 6 the damages so
awarded are equivalent to her salary for the unexpired portion of her employment for a fixed period. 7
We find for petitioner.
There is justifiable basis for the reversal of public respondent's award of salary for the unexpired
three-month portion of private respondent's six-month probationary employment in the light of its
express finding that there was no illegal dismissal. There is no dispute that private respondent was
terminated during her probationary period of employment for failure to qualify as a regular member of
petitioner's teaching staff in accordance with its reasonable standards. Records show that private
respondent was found by petitioner to be deficient in classroom management, teacher-student
relationship and teaching techniques. 8 Failure to qualify as a regular employee in accordance with
the reasonable standards of the employer is a just cause for terminating a probationary employee
specifically recognized under Article 282 (now Article 281) of the Labor Code which provides thus:
LabStan Cases

ART. 281. Probationary employment. Probationary employment shall not

exceed six months from the date the employee started working, unless it is
covered by an apprenticeship agreement stipulating a longer period. The
services of an employer who has been engaged in a probationary basis may be
terminated for a just cause or when he fails to qualify as a regular employer in
accordance with reasonable standard made known by the employer to the
employer at the time of his engagement. An employee who is allowed to work
after a probationary period shall be considered a regular employee. (Emphasis
supplied.)
It must be noted that notwithstanding the finding of legality of the termination of private respondent,
public respondent justified the award of salary for the unexpired portion of the probationary
employment on the ground that a probationary employment for six (6) months is an employment for a
"definite period" which requires the employer to exhaust the entire probationary period to give the
employee the opportunity to meet the required standards.
The legal basis of public respondent is erroneous. A probationary employee, as understood under
Article 282 (now Article 281) of the Labor Code, is one who is on trial by an employer during which
the employer determines whether or not he is qualified for permanent employment. A probationary
appointment is made to afford the employer an opportunity to observe the fitness of a probationer
while at work, and to ascertain whether he will become a proper and efficient employee. 9 The word
"probationary", as used to describe the period of employment, implies the purpose of the term or
period, but not its length. 10
Being in the nature of a "trial period" 11 the essence of a probationary period of employment
fundamentally lies in the purpose or objective sought to be attained by both the employer and the
employee during said period. The length of time is immaterial in determining the correlative rights of
both in dealing with each other during said period. While the employer, as stated earlier, observes the
fitness, propriety and efficiency of a probationer to ascertain whether he is qualified for permanent
employment, the probationer, on the other, seeks to prove to the employer, that he has the
qualifications to meet the reasonable standards for permanent employment.
It is well settled that the employer has the right or is at liberty to choose who will be hired and who will
be denied employment. In that sense, it is within the exercise of the right to select his employees that
the employer may set or fix a probationary period within which the latter may test and observe the
conduct of the former before hiring him permanently. The equality of right that exists between the
employer and the employee as to the nature of the probationary employment was aptly emphasized
by this Court in Grand Motor Parts Corporation v. Minister of Labor, et al., 130 SCRA 436 (1984),
citing the 1939 case of Pampanga Bus. Co., Inc. v. Pambusco Employees Union, Inc. 68 Phil. 541,
thus:
The right of a laborer to sell his labor to such persons as he may choose is, in its
essence, the same as the right of an employer to purchase labor from any
person whom it chooses. The employer and the employee have thus an equality
of right guaranteed by the Constitution. If the employer can compel the employee
to work against the latter's will, this is servitude. If the employee can compel the
employer to give him work against the employer's will, this is oppression.
As the law now stands, Article 281 of the Labor Code gives ample authority to the employer to
terminate a probationary employee for a just cause or when he fails to qualify as a regular employee
in accordance with reasonable standards made known by the employer to the employee at the time of
his engagement. There is nothing under Article 281 of the Labor Code that would preclude the
employer from extending a regular or a permanent appointment to an employee once the employer
Page 97

finds that the employee is qualified for regular employment even before the expiration of the
probationary period. Conversely, if the purpose sought by the employer is neither attained nor
attainable within the said period, Article 281 of the Labor Code does not likewise preclude the
employer from terminating the probationary employment on justifiable causes as in the instant case.
We find unmeritorious, therefore, public respondents argument that the security of tenure of
probationary employees within the period of their probation, as in the case of herein private
respondent, justified the award of salary for the unexpired portion of her probationary employment.
The termination of private respondent predicated on a just cause negates the application in this case
of the pronouncement in the case of Biboso v. Victories Milling Co., Inc., 12 on the right of security of
tenure of probationary employees.

G.R. No. 86773 February 14, 1992

SOUTHEAST ASIAN FISHERIES DEVELOPMENT CENTER-AQUACULTURE DEPARTMENT
(SEAFDEC-AQD), DR. FLOR LACANILAO (CHIEF), RUFIL CUEVAS (HEAD, ADMINISTRATIVE
DIV.), BEN DELOS REYES (FINANCE OFFICER), petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JUVENAL LAZAGA, respondents.
Ramon Encarnacion for petitioners.
Caesar T. Corpus for private respondent.

Upon inquiry by the then Ministry of Labor and Employment as a consequence of the illegal dismissal
case filed by private respondent before it, docketed as Case No. NLRC NCR-8-3786-83, it was found
that there was no illegal dismissal involved in the case, hence, the circumvention of the rights of the
probationary employees sought to be regulated as pointed out in Biboso v. Victorias Milling Co.,
Inc., 13 is wanting.
There was no showing, as borne out by the records, that there was circumvention of the rights of
private respondent when she was informed of her termination. Her dismissal does not appear to us as
arbitrary, fanciful or whimsical. Private respondent was duly notified, orally and in writing, that her
services as cultural orientation teacher were terminated for failure to meet the prescribed standards of
petitioner as reflected in the performance evaluation conducted by her supervisors during the teacher
evaluating program. The dissatisfaction of petitioner over the performance of private respondent in
this regard is a legitimate exercise of its prerogative to select whom to hire or refuse employment for
the success of its program or undertaking. More importantly, private respondent failed to show that
there was unlawful discrimination in the dismissal.
It was thus a grave abuse of discretion on the part of public respondent to order petitioner to pay
private respondent her salary for the unexpired three-month portion of her six-month probationary
employment when she was validly terminated during her probationary employment. To sanction such
action would not only be unjust, but oppressive on the part of the employer as emphasized
in Pampanga Bus Co., Inc., v. Pambusco Employer Union, Inc. 14
WHEREFORE, in view of the foregoing, the petition is GRANTED. The Resolution of the National
Labor Relations Commission dated August 22, 1985, is hereby REVERSED and SET ASIDE insofar
as it ordered petitioner to pay private respondent her P6,000.00 salary for the unexpired portion of her
six-month probationary employment. No cost.

SO ORDERED

NOCON, J.:
This is a petition for certiorari to annul and set aside the July 26, 1988 decision of the National Labor
Relations Commission sustaining the labor arbiter, in holding herein petitioners Southeast Asian
Fisheries Development Center-Aquaculture Department (SEAFDEC-AQD), Dr. Flor Lacanilao, Rufil
Cuevas and Ben de los Reyes liable to pay private respondent Juvenal Lazaga the amount of
P126,458.89 plus interest thereon computed from May 16, 1986 until full payment thereof is made, as
separation pay and other post-employment benefits, and the resolution denying the petitioners'
motion for reconsideration of said decision dated January 9, 1989.
The antecedent facts of the case are as follows:
SEAFDEC-AQD is a department of an international organization, the Southeast Asian Fisheries
Development Center, organized through an agreement entered into in Bangkok, Thailand on
December 28, 1967 by the governments of Malaysia, Singapore, Thailand, Vietnam, Indonesia and
the Philippines with Japan as the sponsoring country (Article 1, Agreement Establishing the
SEAFDEC).
On April 20, 1975, private respondent Juvenal Lazaga was employed as a Research Associate an a
probationary basis by the SEAFDEC-AQD and was appointed Senior External Affairs Officer on
January 5, 1983 with a monthly basic salary of P8,000.00 and a monthly allowance of P4,000.00.
Thereafter, he was appointed to the position of Professional III and designated as Head of External
Affairs Office with the same pay and benefits.
On May 8, 1986, petitioner Lacanilao in his capacity as Chief of SEAFDEC-AQD sent a notice of
termination to private respondent informing him that due to the financial constraints being
experienced by the department, his services shall be terminated at the close of office hours on May
15, 1986 and that he is entitled to separation benefits equivalent to one (1) month of his basic salary
for every year of service plus other benefits (Rollo, p. 153).
Upon petitioner SEAFDEC-AQD's failure to pay private respondent his separation pay, the latter filed
on March 18, 1987 a complaint against petitioners for non-payment of separation benefits plus moral
damages and attorney's fees with the Arbitration Branch of the NLRC (Annex "C" of Petition
for Certiorari).
Petitioners in their answer with counterclaim alleged that the NLRC has no jurisdiction over the case
inasmuch as the SEAFDEC-AQD is an international organization and that private respondent must
first secure clearances from the proper departments for property or money accountability before any

LabStan Cases

Page 98

claim for separation pay will be paid, and which clearances had not yet been obtained by the private
respondent.
A formal hearing was conducted whereby private respondent alleged that the non-issuance of the
clearances by the petitioners was politically motivated and in bad faith. On the other hand, petitioners
alleged that private respondent has property accountability and an outstanding obligation to
SEAFDEC-AQD in the amount of P27,532.11. Furthermore, private respondent is not entitled to
accrued sick leave benefits amounting to P44,000.00 due to his failure to avail of the same during his
employment with the SEAFDEC-AQD (Annex "D", Id.).
On January 12, 1988, the labor arbiter rendered a decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering
respondents:
1. To pay complainant P126,458.89, plus legal interest thereon computed from
May 16, 1986 until full payment thereof is made, as separation pay and other
post-employment benefits;
2. To pay complainant actual damages in the amount of P50,000, plus 10%
attorney's fees.
All other claims are hereby dismissed.
SO ORDERED. (Rollo, p. 51, Annex "E")
On July 26, 1988, said decision was affirmed by the Fifth Division of the NLRC except as to the award
of P50,000.00 as actual damages and attorney's fees for being baseless. (Annex "A", p. 28, id.)
On September 3, 1988, petitioners filed a Motion for Reconsideration (Annex "G", id.) which was
denied on January 9, 1989. Thereafter, petitioners instituted this petition for certiorari alleging that the
NLRC has no jurisdiction to hear and decide respondent Lazaga's complaint since SEAFDEC-AQD is
immune from suit owing to its international character and the complaint is in effect a suit against the
State which cannot be maintained without its consent.

governments of the Center, hereinafter called the "Members", and through

collaboration with international organizations and governments external to the
Center. (Agreement Establishing the SEAFDEC, Art. 1; Annex "H" Petition)
(p.310, Rollo)
SEAFDEC-AQD was organized during the Sixth Council Meeting of SEAFDEC on July 3-7, 1973 in
Kuala Lumpur, Malaysia as one of the principal departments of SEAFDEC (Annex "I", id.) to be
established in Iloilo for the promotion of research in aquaculture. Paragraph 1, Article 6 of the
Agreement establishing SEAFDEC mandates:
1. The Council shall be the supreme organ of the Center and all powers of the
Center shall be vested in the Council.
Being an intergovernmental organization, SEAFDEC including its Departments (AQD), enjoys
functional independence and freedom from control of the state in whose territory its office is located.
As Senator Jovito R. Salonga and Former Chief Justice Pedro L. Yap stated in their book, Public
International Law (p. 83, 1956 ed.):
Permanent international commissions and administrative bodies have been
created by the agreement of a considerable number of States for a variety of
international purposes, economic or social and mainly non-political. Among the
notable instances are the International Labor Organization, the International
Institute of Agriculture, the International Danube Commission. In so far as they
are autonomous and beyond the control of any one State, they have a distinct
juridical personality independent of the municipal law of the State where they are
situated. As such, according to one leading authority "they must be deemed to
possess a species of international personality of their own." (Salonga and Yap,
Public International Law, 83 [1956 ed.])
Pursuant to its being a signatory to the Agreement, the Republic of the Philippines agreed to be
represented by one Director in the governing SEAFDEC Council (Agreement Establishing SEAFDEC,
Art. 5, Par. 1, Annex "H",ibid.) and that its national laws and regulations shall apply only insofar as its
contribution to SEAFDEC of "an agreed amount of money, movable and immovable property and
services necessary for the establishment and operation of the Center" are concerned (Art. 11, ibid.). It
expressly waived the application of the Philippine laws on the disbursement of funds of petitioner
SEAFDEC-AQD (Section 2, P.D. No. 292).

The petition is impressed with merit.

Petitioner Southeast Asian Fisheries Development Center-Aquaculture Department (SEAFDEC-AQD)
is an international agency beyond the jurisdiction of public respondent NLRC.
It was established by the Governments of Burma, Kingdom of Cambodia, Republic of Indonesia,
Japan, Kingdom of Laos, Malaysia. Republic of the Philippines, Republic of Singapore, Kingdom of
Thailand and Republic of Vietnam (Annex "H", Petition).
The Republic of the Philippines became a signatory to the Agreement establishing SEAFDEC on
January 16,1968. Its purpose is as follows:
The purpose of the Center is to contribute to the promotion of the fisheries
development in Southeast Asia by mutual co-operation among the member
LabStan Cases

The then Minister of Justice likewise opined that Philippine Courts have no jurisdiction over
SEAFDEC-AQD in Opinion No. 139, Series of 1984
4. One of the basic immunities of an international organization is immunity from
local jurisdiction, i.e.,that it is immune from the legal writs and processes issued
by the tribunals of the country where it is found. (See Jenks, Id., pp. 37-44) The
obvious reason for this is that the subjection of such an organization to the
authority of the local courts would afford a convenient medium thru which the
host government may interfere in there operations or even influence or control its
policies and decisions of the organization; besides, such subjection to local
jurisdiction would impair the capacity of such body to discharge its
responsibilities impartially on behalf of its member-states. In the case at bar, for
instance, the entertainment by the National Labor Relations Commission of Mr.
Madamba's reinstatement cases would amount to interference by the Philippine
Page 99

Government in the management decisions of the SEARCA governing board;

even worse, it could compromise the desired impartiality of the organization since
it will have to suit its actuations to the requirements of Philippine law, which may
not necessarily coincide with the interests of the other member-states. It is
precisely to forestall these possibilities that in cases where the extent of the
immunity is specified in the enabling instruments of international organizations,
jurisdictional immunity from the host country is invariably among the first
accorded. (See Jenks, Id.; See also Bowett, The Law of International Institutions,
pp. 284-1285).
Respondent Lazaga's invocation of estoppel with respect to the issue of jurisdiction is unavailing
because estoppel does not apply to confer jurisdiction to a tribunal that has none over a cause of
action. Jurisdiction is conferred by law. Where there is none, no agreement of the parties can provide
one. Settled is the rule that the decision of a tribunal not vested with appropriate jurisdiction is null
and void. Thus, in Calimlim vs. Ramirez, this Court held:
A rule, that had been settled by unquestioned acceptance and upheld in
decisions so numerous to cite is that the jurisdiction of a court over the subject
matter of the action is a matter of law and may not be conferred by consent or
agreement of the parties. The lack of jurisdiction of a court may be raised at any
stage of the proceedings, even on appeal. This doctrine has been qualified by
recent pronouncements which it stemmed principally from the ruling in the cited
case of Sibonghanoy. It is to be regretted, however, that the holding in said case
had been applied to situations which were obviously not contemplated therein.
The exceptional circumstances involved in Sibonghanoy which justified the
departure from the accepted concept of non-waivability of objection to jurisdiction
has been ignored and, instead a blanket doctrine had been repeatedly upheld
that rendered the supposed ruling in Sibonghanoy not as the exception, but
rather the general rule, virtually overthrowing altogether the time-honored
principle that the issue of jurisdiction is not lost by waiver or by estoppel.
(Calimlim vs. Ramirez, G.R. No. L-34362, 118 SCRA 399; [1982])

Cooperative as employer
G.R. No. 62386 November 9, 1988
BATANGAS-I ELECTRIC COOPERATIVE LABOR UNION, petitioner,
vs.
ROMEO A. YOUNG, OFFICER IN CHARGE, BUREAU OF LABOR RELATIONS, AND
BATANGAS-I ELECTRIC COOPERATIVE, INC., respondents.
G.R. No. 70880 November 9, 1988
BULACAN II ELECTRIC COOPERATIVE, INC., petitioner,
vs.
HON. ELISEO A. PEAFLOR, THE CHIEF MED-ARBITER OF THE REGIONAL ARBITRATION
OFFICE, BRANCH NO. III, SAN FERNANDO, PAMPANGA, HON. CRESENCIANO B. TRAJANO,
THE DIRECTOR, BUREAU OF LABOR RELATIONS, MINISTRY OF LABOR AND EMPLOYMENT,
MANILA, AND FEDERATION OF FREE WORKERS (BECO II COOP., INC.,
CHAPTER), respondents.
G.R. No. 74560 November 9, 1988
ALBAY ELECTRIC COOPERATIVE I, petitioner,
vs.
CRESENCIANO B. TRAJANO, DIRECTOR, BUREAU OF LABOR RELATIONS AND FFW ALECO
I CHAPTER,respondents.
Pedro N. Belmi for petitioner in G.R. No. 62386.
Estebal & Associates Law firm for petitioner in G.R. No. 70880.

Respondent NLRC'S citation of the ruling of this Court in Lacanilao v. De Leon (147 SCRA 286
[1987]) to justify its assumption of jurisdiction over SEAFDEC is misplaced. On the contrary, the Court
in said case explained why it took cognizance of the case. Said the Court:

Juan B. Cabredo IV for petitioner in G.R. No. 74560.

The Solicitor General for public respondent.

We would note, finally, that the present petition relates to a controversy between
two claimants to the same position; this is not a controversy between the
SEAFDEC on the one hand, and an officer or employee, or a person claiming to
be an officer or employee, of the SEAFDEC, on the other hand. There is before
us no question involving immunity from the jurisdiction of the Court, there being
no plea for such immunity whether by or on behalf of SEAFDEC, or by an official
of SEAFDEC with the consent of SEAFDEC (Id., at 300; emphasis supplied).
WHEREFORE, finding SEAFDEC-AQD to be an international agency beyond the jurisdiction of the
courts or local agency of the Philippine government, the questioned decision and resolution of the
NLRC dated July 26, 1988 and January 9, 1989, respectively, are hereby REVERSED and SET
ASIDE for having been rendered without jurisdiction. No costs.
SO ORDERED.

LabStan Cases

Ricardo T. Diaz for private respondent in G.R. No. 62386.

Ireneo P. Bernardo for respondent FFW in G. R. No. 7 0880.
MEDIALDEA, J.:
This refers to three (3) separate petitions for certiorari under Rule 65 of the Rules of Court, namely:
(1) G.R. No. 62386, entitled "BATANGAS-I ELECTRIC COOPERATIVE LABOR UNION, Petitioner,
versus ROMEO A. YOUNG, OFFICER IN CHARGE, BUREAU OF LABOR RELATIONS, AND
BATANGAS-I ELECTRIC COOPERATIVE INC., Respondents;" (2) G.R. No. 70880, entitled
"BULACAN II ELECTRIC COOPERATIVE, INCORPORATED, Petitioner, versus HON. ELISEO A.
PENAFLOR, The Chief Med-Arbiter of the Regional Arbitration Office, Branch IN, San Fernando,
Pampanga, et al., Respondents, and (3) G.R. No. 74560, entitled "ALBAY ELECTRIC
COOPERATIVE I, Petitioner, versus CRESENCIO B. TRAJANO, DIRECTOR, BUREAU OF LABOR
Page 100

RELATIONS AND FFW ALECO I CHAPTER, Respondents." The same issue is involved in these
petitions. The antecedent facts are as follows:

Petitioner also advanced the theory that if self-employed persons are allowed to
form a labor organization under Article 244, Presidential Decree 442, as
amended, then it is with more reason that employees of the cooperative should
also be allowed to form their union. Article 244, PD 442 as amended, provides:

G.R. No. 62386

On June 1, 1981, the Batangas-I Electric Cooperative Union (hereinafter referred to as UNION) filed
with the Regional Office No. IV-A, Ministry of Labor and Employment (now Department of Labor and
Employment), at San Pablo City, a petition for certification election. The UNION alleged, inter alia,
that it is a legitimate labor organization; that the Batangas-I Electric Cooperative Inc. BATELEC has
150 employees, more or less; that the UNION desires to represent the regular rank and file
employees of BATELEC for purposes of collective bargaining; that there is no other union existing in
BATELEC except the UNION; that there is no certified collective bargaining agreement in the said
cooperative; and that there has been no certification election conducted in BATELEC during the last
twelve (12) months preceding the filing of the petition. On August 20, 1981, Med-Arbiter Paterno D.
Adap issued a resolution (pp. 21-23, Rollo) which gave due course to the petition and ordered the
holding of a certification election. On August 31, 1981, BATELEC filed a motion for reconsideration
(pp. 24-30, Rollo) of the Med-Arbiter's resolution contending, inter alia, that there was a legal
impediment to the holding of a certification election considering that the formation of a union in a
cooperative is illegal and invalid, the officers and members of the union being the owners thereof.
This motion was treated as an appeal from the Med-Arbiter's resolution of August 20, 1981. On
November 27, 1981, a resolution (pp. 38-40, Rollo) was issued by Romeo A. Young, Officer in
Charge, Bureau of Labor Relations, granting the appeal and revoking the Med-Arbiter's order
mandating the holding of a certification election. This Resolution, inter alia, stated:
The sole issue that confronts Us in the instant case is whether or not employees
of an electric cooperative who are at the same time members of the cooperative,
may be allowed to form or join a labor union in the electric cooperative for
purposes of collective bargaining.
We rule in the negative.
A cursory analysis of Section 35, Presidential Decree 269, as amended, readily
shows that employees of an electric cooperative who are themselves members
of the cooperative have no right to form or join a labor organization for purposes
of collective bargaining.
In the first instance, a cooperative is established primarily for the mutual aid and
protection of the members thereof. It was never intended to operate like an
ordinary company or corporation. A cooperative is a non-profit organization, so
that if ever there are gains, income or benefits derived therefrom, the same are
equally divided among its members. For all legal intents and purposes, therefore,
members of a cooperative are part-owners thereof.
In the instant case, petitioner strongly contended that they are not co-owners of
the cooperative because the only benefits that they derive therefrom are in the
form of electrical services and that they never exercise the attributes of
ownership recognized under Article 428 of the New Civil Code. We do not
concur. The fact that these employees/members enjoy free electrical services
which are not available to non-members is a clear indication that these
employees are co-owners of the cooperative. Petitioner must be reminded that
benefits from cooperative accruing to co-owners may not come only in the form
of monetary benefits but also in the form of services.
LabStan Cases

... Ambulant, intermittent and itinerant workers, self

employed people, rural workers and those without any
definite employers may form a labor organization for their
mutual aid and protection.
It must be noted that although the self- employed people are allowed by the
Labor Code to form a labor organization, the purpose of such organization is for
mutual aid and protection but not for the purpose of collective bargaining.
Finally, while Article 244, PD 442, as amended, now allows workers of non- profit
institutions to form labor organizations, nevertheless, the same provisions can
not extend to a cooperative considering the absence of employer-employee
relationship therein. (p. 39-40, Rollo).
After its motion for reconsideration was denied, the UNION filed the instant petition contending that
the respondent Director of the Bureau of Labor Relations committed a palpable error of law and/or
grave abuse of discretion amounting to lack of and/or in excess of jurisdiction in finding and
concluding that employees of an electric cooperative who are at the same time members of the
cooperative are not allowed to form or join a labor union in the electric cooperative for purposes of
collective bargaining, and in revoking and setting aside the resolution dated August 20, 1981 of the
Med-Arbiter directing the holding of a certification election among the rank and file employees of
BATELEC.
G.R. No. 70880
On September 1, 1982, the Federation of Free Workers (FFW) filed with the Regional Office IN,
Ministry of Labor and Employment (now Department of Labor and Employment), at San Fernando,
Pampanga, a petition for certification election. The petition alleged, inter alia, that the FFW is a
legitimate labor organization; that the Bulacan II Electric Cooperative Inc. BECO II) is engaged in the
service and supply of electric current and, therefore, an employer under the provisions of the Labor
Code; that the FFW seeks to be certified as the sole and exclusive collective bargaining
representative of the regular rank and file employees and workers of BECO II for purposes of
collective bargaining; that there are more or less 140 regular rank and file employees and workers of
BECO II; that there is no other union existing in BECO II except the FFW and that there is no certified
collective bargaining agreement in said establishment; and that there has been no certification
election conducted in BECO II during the last twelve (12) months preceding the filing of the petition.
On September 24, 1982, BECO II filed its answer (pp. 17-18, Rollo) contending that the petition does
not comply with the 30% jurisdictional requirement considering that it has a total of 143 employees,
24 of whom are members of the cooperative, 28 are managerial employees, 3 are confidential
employees, 23 are contractual employees and 28 are casual employees, thereby leaving only 37
employees belonging to the rank and file; and that to grant the petition would be violative of Article
244 (now Article 243) of the Labor Code and Section 35 of PD 269.
Later, the FFW filed its position paper contending that it has complied substantially with the 30%
jurisdictional requirement with the 73 signatures it submitted and that there is nothing in the law that
prohibits or restricts cooperative members from joining labor organizations.
Page 101

On the other hand, BECO II, through its position paper dated October 4, 1982 (pp. 19-26, Rollo),
contended, inter alia, that it is not among those covered by Article 244 of the Labor Code, as
amended by BP 70, as it is not a commercial, industrial or agricultural enterprise and neither is it a
religious, charitable, medical or educational institution; that since electric cooperatives are subject to
the supervision and control of the National Electrification Administration pursuant to PD 269, as
amended by PD 1645, BECO II in effect is a government institution; and that there is no
representation issue as there is no other labor organization involved except the FFW.
On October 14, 1982, Eliseo A. Peaflor, Chief Med-Arbiter of the Regional Office III, issued an order
(pp. 27-28,Rollo) directing the holding of a certification election among the rank and file employees
and workers of BECO II.
BECO II appealed from this Order to the Bureau of Labor Relations. On January 16,1985, Director
Cresenciano Trajano of the said bureau rendered a decision (pp. 42-43, Rollo) dismissing the appeal
and affirming the questioned order. This decision, inter alia, stated:
xxx xxx xxx
... We dismiss the Appeal.
Our resolution in the case of Batangas I Electric Cooperative Labor Union dated
27 November 1981 is not applicable in the case at bar as the facts therein are
different. There, the petition for certification election was supported by workers
who are members of the cooperative. No employer-employee relationship exists
between the members and the cooperative firm. In the case at bai respondent did
admit the existence of employer-employee relationship with workers of the
cooperative who are not cooperative members when it alleced that of the total
143 employees only 24 are cooperative members. Thus, even if we deduct the
24 cooperative members from the numbelof workers supporting the petition,
there still remain 49 signatures which aie more than enough compliance with the
30% requirement.
Going to Presidential Decree No. 269, there is no showing that that such
prohibits formation of unions between and among employees who are members
of the cooperative. Rather, Section 35 of PD 269 shows that the prohibition
against formation of a labor organization for purposes of collective bar-dining
extends to employees of an electric cooperative who ale themselves members of
the cooperative.
Finally, the fact that tlie petition foi cel tificatioll election was filed already gives
1ise to representation issue, irrespective of whetheronly one union is involved.
Considering satisfaction of the 30% subscriptional requirement coupled with the
findings that the workers who aie not members of the cooperative are eligible to
uinoii membership, we have no other-alternative but to affirm the Order of the
MedAibitei to hold a certification election. ... (p. 43, Rollo).
BECO II filed the instant petition contending that the public respondents acted with grave abuse of
discretion in ruling that under Article 244 (now Article 243) of the Labor Code, members and part
owners of electric cooperatives are eligible to form, join or assist labor organizations for purposes of
collective bargaining.
LabStan Cases

On May 29, 1985, a temporary restraining order was issued by this Court enjoiililig the respondents
from enforcing the questioned orders.
G.R. No. 74560
On October 1, 1985, the Federation of Free Workers (FFW) ALECO I Chapter filed a petition for
certification election, alleging, inter alia, that it is a legitimate labor onganization" that the Albay
Electric Cooperative I ALECO 1) is an electric cooperative servicing electricity in the Province of
Albay- that ALECO I has 160 employees, more or less, majority of whom are FFW members; that
there is no other union existing nor a collective bargaining agreement existing in the,cooperative" that
no certification election has been held for the past twelve (12) months prior to the filing of the petition.
On November 29, 1985, the FFW submitted 63 signatures in support of the petition for certification
election. On the same date, counsel for ALECO I employees for a "NO-UNION STAND" intervened
and submitted a copy of the ALECO I 1985 budget showing that the said cooperative has a total of
141 rank and file employees.On December 11, 1985, the FFW filed its position paper
contending, inter alia, that the ALECO I is covered by the Labor Code: that it has a right to organize
and be represented by a union; that there is no legal impediment to the holding of a certification
election considering that out of the 141 rank and file employees, 63 supported the petition.
On December 18, 1985, ALECO I filed its position paper seeking the dismissal of the petition on the
allegation that FFW failed to comply with 30% requirement considering that 112 rank and file
employees have manifested in a "declaration" they that do not desire to be represented by any union.
On December 24,1985, intervenor ALECO I employees for a "NO-UNION STAND") filed its position
paper (pp. 15- 17, Rollo) seeking likewise the dismissal of the petition, alleging that the 30% written
consent requirement has not been complied with. It alleged that of the 63 signatories to the petition,
51 are not qualified to join the union as they are members-consumers of the ALECO I and are
considered joint owners of the cooperative pursuant to PD 269, and Art. II Sec. I of the revised by
laws of ALECO I.
FFW in its reply (pp. 18-20, Rollo), argued that the 51 disputed signatories to the petition are regular
rank and file employees and workers of ALECO I and are entitled to selforganization under Article
244 (now Article 243) of the Labor Code.
On February 26, 1986, the Med-Arbiter, finding that there was compliance with the 30% subscription
requirement, issued an Order (pp. 21-25, Rollo) calling for a certification election. ALECO I appealed
from this order to the Bureau of Labor Relations.
In the meantime, on April 25, 1986, the Association of Democratic Labor Organization ADLO moved
to intervene in the petition claiming that it has a legal interest to protect.
On May 15, 1986, Cresenciano B. Trajano, Director of the Bureau of Labor Relations, rendered a
decision (pp. 27-29, Rollo) dismissing ALECO Is appeal for lack of merit, claiming that there was a
"clear proof of compliance with the 30% subscription requirement, coupled with the finding that the
subscribers to the petition who are members/owners of the respondent cooperative can validly be
eligible for union membership." This decision, inter alia, stated:
The sole issue now for resolution is whether or not the petitioners who are
members/owners of the cooperative are eligible to join a labor organization for
the purpose of collective bargaining.
Page 102

We find for petitioner.

While it may be true that the subscribers to the petition are in themselves
members/owners of the cooperative, nevertheless, as we have often ruled, that
alone does not militate against their exercise of the right of self-organization. ln
the present petition, they are not acting in the capacity of part-owners/members
but as mere employees of the cooperative. As such, they do not have direct
control and management of the affairs and operation of the cooperative. We thus
see no conflict of interest between the organization of the employees into a union
and their being members of the cooperative.
Moreover, the existence of employer- employee relationship with the workers of
the cooperative was not disputed by respondent. Like all other workers, the
petitioners are entitled to the exercise of the right to self organization and
collective bargaining as guaranteed by the Constitution. Surely, it is not the
intention of Presidential Decree No. 269 to discourage unionism of employees.
The encouragement of the right to self organization is expected to promote
industrial peace through the promotion of the workers' moral, social and
economic well-being.
There being clear proof of compliance with the 30% subscription requirement,
coupled with the finding that the subscribers to the petition who are
members/owners of the respondent cooperative can validly be eligible for union
membership, we rule to affirm the Order of the Med-Arbiter.
WHEREFORE, premises considered, the instant appeal is hereby denied for lack
of merit and the Order of the MedAlbiter dated 26 February 1986 is affirmed with
the modification that the Association of Democratic Labor Organizations ADLO
shall be included as a contending party in the certification election. Let the
records of the case be immediately forwarded to the office of origin for
implementation of this Decision.

"Batangas Electric Cooperative Labor Union vs. BLR Officer in Charge Romeo A.
Young, et. al." In that case respondent BLR Officer-in-Chairge Romeo Young
ruled that employees who aie at the same time members of an electric
cooperative are not entitled to form ol join a labor union. This Office in its
comment sustained the decision of BLR OIC Romeo Young, as follows:
xxx xxx xxx
Petitioner claims that the members of the cooperative may form or join a labor
union within the cooperative for the purpose of collective bargaining because
they fall within the ambit of Art. 244 of the Labor Code, as amended by BP 70, as
follows;
Coverage and employees right to self-organization. All
persons employed in commercial, industrial and agricultural
elitelprises aild in religious, charitable, medical or
educational institutions whether operating for profit oi not,
shall have the iiht to self-organization and to form, join or
assist labor organization of their own choosin folthe purpose
of collective bargaining. ...
It is submitted that this provision does not apply to the members of the petitionerunion since they are co-owners of the cooperative. The word 'employed' within
the meaning of the above-cited provisions, eliminates members of cooperatives
who are co-owners of the corporation. Said term means persons strictly under
hire and without any involvement in the ownership of the firm. This construction is
buttressed by the qualification that the labor union formed was for the purpose of
collective bargaining. The duty to bargain exists only between employer and its
employees. An employer has no duty to bargain with its cooperatives of the
corporation.
xxx xxx xxx

SO ORDERED (pp. 28-29, Rollo).

Hence, ALECO I filed the instant petition contending that the public respondent erred in holding that
the FFW ALECO I CHAPTER whose members are members/part owners of the cooperative are
eligible to join a labor organization for collective bargaining.
On June 6, 1986, a temporary restraining order was issued by this Court enjoining the respondents
from enforcing the questioned decision.
The Solicitor General who was earlier required to give his comment, filed on June 11, 1986, a
manifestation and motion to be excused from filing said comment, which was later granted by this
Court. In the said manifestation, the Solicitor General stated:

At this point, it may be emphasized that the exclusion from the right to self
organization is limited only to membersowners of the electric cooperative.
Employees who are not members of the cooperative are not prohibited to form,
join or assist labor unions because they are not co-owners. However, as already
discussed, members of petitioner union are necessarily co-owners of the electric
cooperative. Therefore, being co-owners of the electric cooperative, members of
petitioner union are not entitled to the right to self- organization within the electric
cooperative.
4. Assuming a position contrary to that taken by BLR OIC Romeo Young in the
above case, public respondent BLR Director Cresenciano B. Trajano in this case
ruled that employees most of whom are members of the electric cooperative may
form or join a labor organization in said cooperative.

xxx xxx xxx

2. The issue presented in tlie petition is whether private respondents most of
whom aie members of petitioner Albay Electric Cooperative I may form or joili a
labor union within said cooperative. The same issue was raised in BLR Case No.
A-0265-81, elevated to this Honorable Court as G.R. No. 62386, entitled
LabStan Cases

5. For this Office, therefore, to sustain the decision of respondent BLR Director
Cresenciano B. Trajano in this case, would be to assume a position directly
opposite and in conflict with that it had previously taken in G.R. No. 62386, now
pending before this Honorable Court (pp. 47-50, Rollo).

Page 103

The common issue raised in these three (3) instant petitions is whether or not employees of electric
cooperatives are qualified to form or join labor organizations for purposes of collective bargaining.
Eligibility to form, join or assist labor organizations for purposes of collective bargaining is governed
by Article 243 (formerly Article 244) of the Labor Code, as amended, which provides:
Art. 243. Coverage and employees' right to self-organization. All persons
employed in commercial, industrial and agricultural enterprises and in religious,
charitable, medical, or educational institutions whether operating for profit or not,
shall have the right to selforganization and to form, join, or assist labor
organizations of their own choosing for purposes of collective bargaining.
Ambulant, intermittent and itinerant workers, self-employed people, rural workers
and those without any definite employers may form labor organizations for their
mutual aid and protection.
In Cooperative Rural Bank of Davao City, Inc. vs. Pura Ferrer-Calleja, Director, Bureau of Labor
Relations, et al., G.R. No. 77951, September 26, 1988, it was held that an employee of a cooperative
who is a member and co-owner thereof cannot invoke the right to collective bargaining. The decision
in the case, inter alia, stated:
xxx xxx xxx
A cooperative, therefore, is by its nature different from an ordinary business
concern being run either by persons, partnerships, or corporations. Its owners
and/or members are the ones who run and operate the business while the others
are its employees. As above stated, irrespective of the name of shares owned by
its member they are entitled to cast one vote each in deciding upon the affair of
the cooperative. Their share capital eam limited interests. They enjoy special
privileges as exemption from income tax and sales taxes, preferential right to
supply their products to State agencies and even exemption from the minimum
wage laws.
An employee therefore of such a cooperative who is a member and co-owner
thereof cannot invoke the right to collective bargaining for certainly an owner
cannot bargain with himself or his co-owners. In the opinion of August 14, 1981
of the Solicitor General he correctly opined that employees of cooperatives who
are themselves members of the cooperative have no right to form orjoin labor
organizations for purposes of collective bargaining for being themselves coowners of the cooperative.
However, in so far as it involves cooperatives with employees who are not
members or co-owners thereof, certainly such employees are entitled to exercise
the rights of all workers to organization, collective bargaining, negotiations and
others as are enshrined in the Constitution and existing laws of the country.
In the light of the above-stated pronouncement, the assailed resolution dated November 27, 1981 of
Romeo A. Young, Officer-in-Charge, Bureau of Labor Relations, in G.R. No. 62386, revoking the
Med-Arbiter's order calling for a certification election must be upheld. The records in this case do not
show that minus the rank and file employees (also members of the respondent BATELEC) who
supported the petition, there was still a sufficient number to constitute 30% of the bargaining unit as a
jurisdictional requirement. On the contrary, there is sufficient evidence showing that all those who
supported the petition were such members. Petitioner UNION admitted in its petition that its officers
LabStan Cases

and members are also membersconsumers of the cooperative (p. 6, Rollo). Such being the case, the
employees belonging to petitioner UNION are not qualified to form a labor organization and bargain
collectively.
The records in G.R. No. 70880 show that the petitioner BECO II has 143 employees and that 73
employees of the petitioner supported the petition for certification election. No clear evidence was
adduced by petitioner to prove that 28 of its employees are managerial employees. However, 24
employees are members of the cooperative. Thus, even if the 24 cooperative members, assuming, in
gratia arguinenti that all of them supported the petition, are to be deducted from the said 73
employees, there still remain forty-nine (49), a sufficient compliance with the 30% jurisdictional
requirement provided in the old Article 258 of the Labor Code, the law then prevailing.
In sustaining the order of the Med-Arbiter, Director Trajano, inter alia, said:
Considering satisfaction of the 30% subscriptional requirement coupled with the
findings that the workers who are not members of the cooperative are eligible to
union membership, we have no other alternative but to aff iim the Order of the
Med-Arbiter to hold a certification election. (p. 43, Rollo).<re||an1w>
We find no valid reason to disturb this finding. Employees of a cooperative who are not members
thereof are entitled to exercise the rights of all workers to form, join or assist labor organizations for
purposes of collective bargaining. Compliance with the jurisdictional requirement makes it mandatory
on the part of the Bureau of Labor Relations to order the
In the present Article 257 of the Labor Code, it is now provided that in any establishment where there
is no certified bargaining agent, the petition for certification election filed by a legitimate labor
organization shall be supported by the written consent of at least twenty (20%) percent of all the
employees in the bargaining unit holding of a certification election in order to determine the exclusive
bargaining agent of the employees. With such, the Bureau is left without any discretion but to order
the holding of a certification election Arguelles vs. Young, G.R. No. 59880, September 11, 1987,153
SCRA 690).
With respect to G.R. No. 74560, the decision dated May 15, 1986 of the respondent Director of the
Bureau of Labor Relations, affirming the Med-Arbiter's order for the holding of a certification election,
is reversed. It is clear from the records in this case that the petitioner ALECO I has 141 rank and file
employees. Hence, there are 90 rank and file employees, nonmembers of the cooperative, who may
validly form, join or assist labor organizations for purposes of collective bargaining.
It is likewise clear that 63 rank and file employees supported the petition for certification election but
51 of them are members of the petitioner cooperative, a fact not disputed by the private respondent
union. Hence, only 12 rank and file employees who were qualified to form, join or assist labor
organizations for purposes of collective bargaining, signed the petition, which definitely is a number
short of the 30% jurisdictional requirement as provided in Article 258 of the Labor Code, the law then
prevailing. Thirty (30%) percent of the 90 rank and file employees who are not members of the
cooperative is 27.
ACCORDINGLY, judgment is hereby rendered as follows:
1. In G.R. No. 62386, the petition is DISMISSED and the challenged decision dated November 27,
1981 of respondent Romeo A. Young, OIC of the Bureau of Labor Relations is AFFIRMED.

Page 104

2. In G.R. No. 70880, the petition is DISMISSED and the decision dated January 16, 1985 of
respondent Cresenciano B. Trajano, Director, Bureau of Labor Relations, ordering the holding of a
certification election is hereby AFFIRMED. Notwithstanding the inclusion of the 24 members or coowners of the cooperative, the 30% subscriptional requirement for the filing of a petition for
certification election has been satisfied. The temporary restraining order dated May 29,1985 is LIFMD
3. In G.R. No. 74560, the petition is GRANTED and the assailed decision dated May 15, 1986 of
respondent Cresenciano B. Trajano, Director, Bureau of Labor Relations is hereby REVERSED and
SET ASIDE. The temporary restraining order dated June 2, 1986 is LIFTED. SO ORDERED.
G.R. No. 94045 September 13, 1991
CENTRAL NEGROS ELECTRIC COOPERATIVE, INC. (CENECO), petitioner,
vs.
HONORABLE SECRETARY, DEPARTMENT OF LABOR AND EMPLOYMENT, and CENECO
UNION OF RATIONAL EMPLOYEES (CURE), respondents.
Enrique S. Tabino for petitioner.
Edmundo G. Manlapao for private respondent.

However, the withdrawal from membership was denied by CENECO on February 27, 1990 under
Resolution No. 90 "for the reason that the basis of withdrawal is not among the grounds covered by
Board Resolution No. 5023, dated November 22, 1989 and that said request is contrary to Board
Resolution No. 5033 dated December 13, 1989, ..." 4
By reason of CENECO's refusal to renegotiate a new CBA, CURE filed a petition for direct recognition
or for certification election, supported by 282 or 72% of the 388 rank-and-file employees in the
bargaining unit of CENECO.
CENECO filed a motion to dismiss on the ground that there are legal constraints to the filing of the
certification election, citing the ruling laid down by this Court in Batangas I Electric Cooperative Labor
Union vs. Romeo A. Young, 5 (BATANGAS case) to the effect that "employees who at the same time
are members of an electric cooperative are not entitled to form or join unions for purposes of
collective bargaining agreement, for certainly an owner cannot bargain with himself or his co-owners."
Med-Arbiter Felizardo T. Serapio issued an order, 6 granting the petition for certification election
which, in effect, was a denial of CENECO's motion to dismiss, and directing the holding of a
certification election between CURE and No Union.
CENECO appealed to the Department of Labor and Employment which issued the questioned order
modifying the aforestated order of the med-arbiter by directly certifying CURE as the exclusive
bargaining representative of the rank-and-file employees of CURE.

REGALADO, J.:p
Hence, this petition.
In this special civil action for certiorari, petitioner Central Negros Electric Cooperative, Inc. (CENECO)
seeks to annul the order 1 issued by then Acting Secretary of Labor Bienvenido E. Laguesma on June
6, 1990, declaring the projected certification election unnecessary and directing petitioner CENECO
to continue recognizing private respondent CENECO Union of Rational Employees (CURE) as the
sole and exclusive bargaining representative of all the rank-and-file employees of petitioner's electric
cooperative for purposes of collective bargaining.
It appears from the records that on August 15, 1987, CENECO entered into a collective bargaining
agreement with CURE, a labor union representing its rank-and-file employees, providing for a term of
three years retroactive to April 1, 1987 and extending up to March 31, 1990. On December 28, 1989,
CURE wrote CENECO proposing that negotiations be conducted for a new collective bargaining
agreement (CBA).
On January 18, 1990, CENECO denied CURE's request on the ground that, under applicable
decisions of the Supreme Court, employees who at the same time are members of an electric
cooperative are not entitled to form or join a union. 2
Prior to the submission of the proposal for CBA renegotiation, CURE members, in a general
assembly held on December 9, 1989, approved Resolution No. 35 whereby it was agreed that 'tall
union members shall withdraw, retract, or recall the union members' membership from Central
Negros Electric Cooperative, Inc. in order to avail (of) the full benefits under the existing Collective
Bargaining Agreement entered into by and between CENECO and CURE, and the supposed benefits
that our union may avail (of) under the renewed CBA. 3 This was ratified by 259 of the 362 union
members. CENECO and the Department of Labor and Employment, Bacolod District, were furnished
copies of this resolution.

Petitioner CENECO argues that respondent Secretary committed a grave abuse of discretion in not
applying to the present case the doctrine enunciated in the BATANGAS case that employees of an
electric cooperative who at the same time are members of the electric cooperative are prohibited from
forming or joining labor unions for purposes of a collective bargaining agreement. While CENECO
recognizes the employees' right to self-organization, it avers that this is not absolute. Thus, it opines
that employees of an electric cooperative who at the same time are members thereof are not allowed
to form or join labor unions for purposes of collective bargaining. However, petitioner does not
hesitate to admit that the prohibition does not extend to employees of an electric cooperative who are
not members of the cooperative.
The issue, therefore, actually involves a determination of whether or not the employees of CENECO
who withdrew their membership from the cooperative are entitled to form or join CURE for purposes
of the negotiations for a collective bargaining agreement proposed by the latter.
As culled from the records, it is the submission of CENECO that the withdrawal from membership in
the cooperative and, as a consequence, the employees' acquisition of membership in the union
cannot be allowed for the following reasons:
1. It was made as a subterfuge or to subvert the ruling in the BATANGAS case:
2. To allow the withdrawal of the members of CENECO from the cooperative
without justifiable reason would greatly affect the objectives and goals of
petitioner as an electric cooperative;
3. The Secretary of Labor, as well as the Med-Arbiter, has no jurisdiction over the
issue of the withdrawal from membership which is vested in the National

LabStan Cases

Page 105

Electrification Administration (NEA) which has direct control and supervision over
the operations of electric cooperatives; and
4. Assuming that the Secretary has jurisdiction, CURE failed to exhaust
administrative remedies by not referring the matter of membership withdrawal to
the NEA.
The petition is destitute of merit; certiorari will not lie.
We first rule on the alleged procedural infirmities affecting the instant case. CENECO avers that the
med-arbiter has no jurisdiction to rule on the issue of withdrawal from membership of its employees in
the cooperative which, it claims, is properly vested in the NEA which has control and supervision over
all electric cooperatives.
From a perusal of petitioner's motion to dismiss filed with the med-arbiter, it becomes readily apparent
that the sole basis for petitioner's motion is the illegality of the employees' membership in respondent
union despite the fact that they allegedly are still members of the cooperative. Petitioner itself adopted
the aforesaid argument in seeking the dismissal of the petition for certification election filed with the
med-arbiter, and the finding made by the latter was merely in answer to the arguments advanced by
petitioner. Hence, petitioner is deemed to have submitted the issue of membership withdrawal from
the cooperative to the jurisdiction of the med-arbiter and it is now estopped from questioning that
same jurisdiction which it invoked in its motion to dismiss after obtaining an adverse ruling thereon.
Under Article 256 of the Labor Code, to have a valid certification election at least a majority of all
eligible voters in the unit must have cast their votes. It is apparent that incidental to the power of the
med-arbiter to hear and decide representation cases is the power to determine who the eligible voters
are. In so doing, it is axiomatic that the med-arbiter should determine the legality of the employees'
membership in the union. In the case at bar, it obviously becomes necessary to consider first the
propriety of the employees' membership withdrawal from the cooperative before a certification
election can be had.
Lastly, it is petitioner herein who is actually questioning the propriety of the withdrawal of its members
from the cooperative. Petitioner could have brought the matter before the NEA if it wanted to and. if
such remedy had really been available, and there is nothing to prevent it from doing so. It would be
absurd to fault the employees for the neglect or laxity of petitioner in protecting its own interests.
The argument of CENECO that the withdrawal was merely to subvert the ruling of this Court in the
BATANGAS case is without merit. The case referred to merely declared that employees who are at
the same time members of the cooperative cannot join labor unions for purposes of collective
bargaining. However, nowhere in said case is it stated that member-employees are prohibited from
withdrawing their membership in the cooperative in order to join a labor union.
As discussed by the Solicitor General, Article I, Section 9 of the Articles of Incorporation and ByLaws of CENECO provides that "any member may withdraw from membership upon compliance with
such uniform terms and conditions as the Board may prescribe." The same section provides that
upon withdrawal, the member is merely required to surrender his membership certificate and he is to
be refunded his membership fee less any obligation that he has with the cooperative. There appears
to be no other condition or requirement imposed upon a withdrawing member. Hence, there is no just
cause for petitioner's denial of the withdrawal from membership of its employees who are also
members of the union. 7

LabStan Cases

The alleged board resolutions relied upon by petitioner in denying the withdrawal of the members
concerned were never presented nor their contents disclosed either before the med-arbiter or the
Secretary of Labor if only to prove the ratiocination for said denial. Furthermore, CENECO never
averred non-compliance with the terms and conditions for withdrawal, if any. It appears that the
Articles of Incorporation of CENECO do not provide any ground for withdrawal from membership
which accordingly gives rise to the presumption that the same may be done at any time and for
whatever reason. In addition, membership in the cooperative is on a voluntary basis. Hence,
withdrawal therefrom cannot be restricted unnecessarily. The right to join an organization necessarily
includes the equivalent right not to join the same.
The right of the employees to self-organization is a compelling reason why their withdrawal from the
cooperative must be allowed. As pointed out by CURE, the resignation of the member- employees is
an expression of their preference for union membership over that of membership in the cooperative.
The avowed policy of the State to afford fall protection to labor and to promote the primacy of free
collective bargaining mandates that the employees' right to form and join unions for purposes of
collective bargaining be accorded the highest consideration.
Membership in an electric cooperative which merely vests in the member a right to vote during the
annual meeting becomes too trivial and insubstantial vis-a-vis the primordial and more important
constitutional right of an employee to join a union of his choice. Besides, the 390 employees of
CENECO, some of whom have never been members of the cooperative, represent a very small
percentage of the cooperative's total membership of 44,000. It is inconceivable how the withdrawal of
a negligible number of members could adversely affect the business concerns and operations of
CENECO.
We rule, however, that the direct certification ordered by respondent Secretary is not proper. By virtue
of Executive Order No. 111, which became effective on March 4, 1987, the direct certification
originally allowed under Article 257 of the Labor Code has apparently been discontinued as a method
of selecting the exclusive bargaining agent of the workers. This amendment affirms the superiority of
the certification election over the direct certification which is no longer available now under the
change in said provision. 8
We have said that where a union has filed a petition for certification election, the mere fact that no
opposition is made does not warrant a direct certification. 9 In said case which has similar features to
that at bar, wherein the respondent Minister directly certified the union, we held that:
... As pointed out by petitioner in its petition, what the respondent Minister
achieved in rendering the assailed orders was to make a mockery of the
procedure provided under the law for representation cases because: ... (c) By
directly certifying a Union without sufficient proof of majority representation, he
has in effect arrogated unto himself the right, vested naturally in the employee's
to choose their collective bargaining representative. (d) He has in effect imposed
upon the petitioner the obligation to negotiate with a union whose majority
representation is under serious question. This is highly irregular because while
the Union enjoys the blessing of the Minister, it does not enjoy the blessing of the
employees. Petitioner is therefore under threat of being held liable for refusing to
negotiate with a union whose right to bargaining status has not been legally
established.
While there may be some factual variances, the rationale therein is applicable to the present case in
the sense that it is not alone sufficient that a union has the support of the majority. What is equally
important is that everyone be given a democratic space in the bargaining unit concerned. The most

Page 106

effective way of determining which labor organization can truly represent the working force is by
certification election. 10

On September 21, 1994, the Labor Arbiter hearing the case promulgated his decision[10] in favor
of respondent declaring the latters dismissal from the cooperative illegal and directing the
cooperative through Capt. Sarael to pay respondent the monetary awards set forth therein.

WHEREFORE, the questioned order for the direct certification of respondent CURE as the bargaining
representative of the employees of petitioner CENECO is hereby ANNULLED and SET ASIDE. The
med-arbiter is hereby ordered to conduct a certification election among the rank-and- file employees
of CENECO with CURE and No Union as the choices therein. SO ORDERED.

Instead of interposing an appeal from said adverse decision to the NLRC, petitioners, however,
filed a Petition forCertiorari, Prohibition and Annulment of Judgment[11] before the Regional Trial
Court, Branch 9, in Davao City and docketed as Special Civil Case No. 23, 239-94. Petitioners
assailed the Labor Arbiters decision on the ground that jurisdiction did not pertain to the latter.

[G.R. No. 118693. July 23, 1998]

AIR SERVICES COOPERATIVE, and CAPT. ANTONIO S. SARAEL, petitioners, vs. THE COURT
OF APPEALS (Special Second Division, HONORABLE LEONOR T. SUMCAD,
Regional Trial Court, Branch 9, 11th Judicial Region, Davao City, LABOR ARBITER
ANTONIO M. VILLANUEVA, Regional Arbitration Branch XI, Department of Labor and
Employment, and RECARIDO BATICAN, respondents.
DECISION
ROMERO, J.:
The instant petition presents a question of procedure: May a decision of the Labor Arbiter
allegedly rendered without jurisdiction over the subject matter be annulled in a petition before the
Regional Trial Court?
The records disclose that petitioner Air Services Cooperative (the Cooperative) is a duly
registered entity[1] involved in the aviation business. It primarily services rural areas in the
transportation of farm products, control of crop infestation, transport of patients and other rural air
services. Both the cooperatives co-petitioner, Capt. Antonio S. Sarael,[2] and respondent Capt.
Recarido Batican are members of the said cooperative being its original cooperators.[3]
In the course of the operation of the cooperatives business, however, it appears that
respondent was allegedly reported to have been illegally draining aviation fuel from the aircraft
assigned to him by the cooperatives client Stanfilco (Dole Philippines, Inc.) for which reason Capt.
Sarael issued a memorandum[4] dated January 20, 1993 calling his attention and directing him to
cease and desist from said practice. Apparently, the warning fell on deaf ears, thus, prompting the
cooperatives Board of Directors itself to issue a memorandum[5] on February 22, 1993 this time giving
a final warning that respondents services would be terminated should he be found guilty of illegally
draining aviation fuel again. Shortly thereafter, Capt. Sarael required respondent in a
memorandum[6] dated March 1, 1993 to explain within forty-eight hours why no disciplinary action
should be taken against him on account of the reported acts of repeated pilferage despite prior
warning. On March 8, 1993, after considering respondents explanation and conducting a thorough
investigation on the matter, the cooperatives Board of Directors resolved to cancel and revoke
respondents membership in the cooperative.[7] After respondents expulsion, the cooperatives client
Stanfilco likewise filed a formal criminal complaint for qualified theft against him on March 26, 1993
for which a warrant of arrest had been subsequently issued. [8]
Aggrieved by his expulsion, respondent filed before the National Labor Relations Commission
(NLRC) a complaint[9] on May 18, 1993, both against the cooperative and Capt. Sarael for illegal
dismissal, reimbursement of the value of six (6) shares of stock, vacation/sick leave conversion,
unpaid commission for the month of February and non-payment of the 13th month pay.

LabStan Cases

On November 10, 1994, the trial court motu proprio dismissed the foregoing petition for lack of
jurisdiction. It explained that a petition for certiorari before it is not a substitute for an appeal to the
NLRC which recourse is specifically provided for under Article 223 of the Labor Code. Furthermore,
the trial court stressed that it is cautious against issuing injunctions in cases growing out of labor
disputes or ordering prohibition where administrative remedies have not yet been exhausted and
there are yet adequate remedies available to the petitioners.[12]
From this adverse decision, petitioners elevated the matter to the Court of Appeals on
November 23, 1994 through a Petition for Certiorari with prayer for Preliminary Injunction and/or
Temporary Restraining Order[13] seeking to set aside and annul both the order of the trial court in
Special Civil Case No. 23, 239-94 and the decision of the Labor Arbiter in Case No. RAB-11-0300261-93. Without necessarily giving due course to the petition, the appellate court, in a
resolution[14] of November 25, 1994, required respondent to comment thereto while at the same time
temporarily restraining the conduct of further proceedings in the two aforementioned cases on appeal.
The Comment having been filed, the appellate court promulgated its decision[15] dated January
25, 1995 denying due course to the petition and stressing that an appeal to the NLRC should be the
proper recourse, petitioners not having shown that such an appeal would be inadequate or ineffectual
under the premises. It further ruled that being the administrative agency especially tasked with the
review of labor cases, the NLRC is in a far better position to determine whether petitioners grounds
for certiorari are meritorious. Finally, the appellate court opined that the Labor Arbiters decision does
not appear tinged with grave abuse of discretion, thus, rendering certiorari unavailing.
Hence, the present recourse.
In this Courts resolution of February 25, 1995, we required respondent to file its Comment to
which it complied arguing in the main that the decision of the Labor Arbiter already became final and
executory after the lapse of ten (10) days from receipt of a copy thereof due to petitioners failure to
file a seasonable appeal to the NLRC. Moreover, respondent faults petitioners for being in estoppel
as they have allegedly voluntarily submitted to the jurisdiction of the Labor Arbiter and for engaging in
forum-shopping.[16]
In their Reply,[17] petitioners vehemently refuted respondents allegations essentially contending
that it was neither in estoppel nor did the Labor Arbiters decision become final and executory since it
was null and void in the first place, the Labor Arbiter not having acquired jurisdiction over the nature
of the dispute.
After the parties had submitted their respective Memoranda, [18] the Court then considered the
case submitted for decision.
As stated at the outset, at the heart of this controversy is the issue of whether it is procedurally
sound to impugn and seek the annulment of the Labor Arbiters decision over the dispute herein
mentioned before the Regional Trial Court. It is petitioners unwavering stance that said recourse
was a proper one and justified it thus:
Jurisdictional errors can be the subject of certiorari. It is an extraordinary remedy available in
extraordinary cases where a tribunal, board or officer, among others, completely acted without
jurisdiction. That means that the proceedings of such tribunal, board or officer is absolutely null and
Page 107

void ab initio, as in the instant case where the respondent labor arbiter was without jurisdiction to take
over the functions of the Cooperative Development Authority (CDA).

ART. 217. Jurisdiction of Labor Arbiters and the Commission. --xxx

If the error committed by the respondent labor arbiter in taking cognizance of disputes between
cooperative members is mere error of judgment, then appeal would have been the proper remedy.
But not an error in jurisdiction, where certiorari would lie. As errors of jurisdiction and not errors of
judgment are reviewable in certiorari proceedings (Herderson vs Tan, L-3223, October 10, 1950).
As regards the supposed inadequacy of appeal before the NLRC, petitioners assert that:
Contrary to public respondent Court of Appeals contention, the respondent labor arbiter is not in a
better position to determine whether petitioners grounds for certiorari are meritorious because it does
not involve any labor dispute. Appeal to the Commission (NLRC) would also be not be speedy (sic)
decided within twenty (20) days as pretended by the respondent Court (CA Decision, Annex A, par.
1, p. 4) for it is candidly a common knowledge and experience to legal practitioners and the Courts
that the Commission (NLRC) decides appealed cases before it in two (2) years time or more.
Truly, while certiorari will not lie as a substitute for an appeal, such general rule, is not absolute and
may be disregarded where the broader interest of justice requires, where the order or judgment is
completely null and void, or appeal is not considered the appropriate remedy (Telephone Engineering
& Services, Co., Inc. vs. Workmens Compensation Commission, 104 SCRA 354). In the instant case,
appeal is inadequate and ineffectual to nullify the void judgment precipitately sought to be executed
by the respondent thus rendering the issues herein moot and academic.
We deny the petition.
A reading of petitioners discussion will readily indicate that in seeking recourse to the Regional
Trial Court to have the Labor Arbiters decision annulled, petitioners consistently stress that the Labor
Arbiter was bereft of jurisdiction to hear the dispute between the cooperative and/or Capt. Sarael, on
the one hand, and Capt. Batican, another member of the said cooperative, on the other, because
according to them it was the Cooperative Development Authority (CDA) which should have taken
cognizance thereof. On account of this supposed lack of jurisdiction by the Labor Arbiter, petitioners
conclude that his decision was null and void and may be impugned as such pursuant to
the certiorari power granted to the trial court. This reasoning of the petitioners is, of course, flawed.
To begin with, we do not consider it important at this point to determine the merit of petitioners
contention as to whether Capt. Baticans complaint should have been filed in the first place before
the Labor Arbiter or the CDA. This is because regardless of the correctness of petitioners theory
regarding the body with which Capt. Baticans complaint should have been filed, the crucial issue
remains whether in questioning the alleged erroneous assumption of jurisdiction by the Labor Arbiter,
the petitioners had recourse to the correct forum to have such error rectified, if there be any. On this
score, this Court believes that petitioners failed.
Indeed, we find it odd that petitioners should entertain the notion that the Labor Arbiters
decision may be assailed in the trial court when the law clearly provides for the proper manner by
which a party may have such decision reviewed. Hence, in Article 223 of Presidential Decree No.
442, as amended, otherwise known as The Labor Code of the Philippines, we find that:
ART. 223. Appeal. --- Decisions, awards, or orders of the Labor Arbiter are final and executory
unless appealed to the Commission by any or both parties within ten (10) calendar days from receipt
of such decisions, awards, or orders... [Underscoring supplied].

xxx

xxx

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor
Arbiters. [Underscoring supplied].
From our understanding of petitioners pleadings, petitioners are of the view that since they are
squarely putting at issue a jurisdictional question and not merely an error of judgment, it is the
extraordinary remedy of certiorari, and not just an appeal as provided in the Code, which should be
availed of. Be that as it may, still recourse to the trial court by the petitioners was not called for. For
one thing, as we have stated earlier, we do not deem it necessary at this stage to settle the issue of
jurisdiction on which petitioners theory on the nullity of the questioned decision of the Labor Arbiter
hinges. Also, while the title of Article 223 seems to provide only for the remedy of appeal as that term
is understood in procedural law and as distinguished from the office of certiorari, nonetheless, a
closer reading thereof reveals that it is not as limited as understood by the petitioners. Said provision
provides:
ART. 223. Appeal. --- xxx Such appeal may be entertained only on any of the following grounds:
(a)
If there is prima facie evidence of abuse of discretion on the part of the Labor Arbiter;
[Underscoring supplied].
Abuse of discretion is admittedly within the ambit of certiorari and its grant of review thereof to
the NLRC indicates the lawmakers intention to broaden the meaning of appeal as that term is used in
the Code. For this reason, petitioners cannot argue now that the NLRC is devoid of any corrective
power to rectify a supposed erroneous assumption of jurisdiction by the Labor Arbiter and justify
recourse to the trial court.
That this is the rule is not without reason. In Balais v. Velasco,[19] this Court declared:
Well-settled is the principle that regular courts have no jurisdiction to hear and decide questions
which arise and are incidental to the enforcement of decisions, orders or awards rendered in labor
cases by appropriate officers and tribunals of the Department of Labor and Employment. To hold
otherwise, is to sanction split jurisdiction which is obnoxious to the orderly administration of
justice. As this rule has ripened into dogma, it, thus, commands adherence not breach by the parties
concerned. [Underscoring supplied].
In the same vein, we clarified in Asuncion v. National Labor Relations Commission[20] that if a
party complains of a decision as being void, then the proper remedy would have been to appeal said
judgment to the NLRC. [Underscoring supplied].
Moreover, we subscribe to the appellate courts reasoning that:
We do not see how appeal would have been inadequate or ineffectual under the premises. On the
other hand, being the administrative agency especially tasked with the review of labor cases, it is in a
far better position to determine whether petitioners grounds for certiorari are meritorious. Neither is
there any cause for worry that appeal to the Commission would not be speedy as the Labor Code
provides that the Commission shall decide cases before it, within twenty (20) calendar days from
receipt of the Answer of Appellee (Article 223, Labor Code).

Also, in Article 217 (b), the same Code states:

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One final note. This Court recognizes the significance of the jurisdictional issue posed by
petitioners and they obviously invite the Court to give a definite pronouncement thereon. [21] We do not
feel, however, that the instant petition presents an opportune time for such kind of pronouncement as
it does not actually go into the required resolution of the case. As it is, whether petitioners are correct
in arguing that it is the CDA and not the Labor Arbiter which should have taken cognizance of the
case at the very beginning, the fact remains that for their failure to correctly appeal to the NLRC
instead of the Regional Trial Court, the Labor Arbiters judgment has already become final and
executory. Thus, it is said: Interest rei publicae ut finis sit litum. Public interest requires that by the
very nature of things there must be an end to a legal controversy. In Johnson & Johnson (Phils.), Inc.
v. Court of Appeals, et al.,[22] we declared emphatically:
We take this occasion to reiterate the ruling of this Court in an early case that litigations must end
and terminate sometime and somewhere, it being essential to the effective and efficient
administration of justice that once a judgment has become final, the winning party be not, through a
mere subterfuge, deprived of the fruits of the verdict... Furthermore, public policy and sound practice
demand that at the risk of occasional errors, judgments of courts should become final and irrevocable
at some definite date fixed by law...
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.
R. SP No. 35774 promulgated on January 25, 1995 is AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.

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