G.R. No.

L-2779

October 18, 1950

DANIEL SANCHEZ, ET AL., plaintiffs-appellees,

vs.
HARRY LYONS CONSTRUCTION, INC., ET AL., defendants-appellants.
Gibbs, Gibbs, Chuidian and Quasha for appellant Harry Lyons Construction, Inc.
Cecilio I. Lim and Antonio M. Castro for appellees.

MORAN, C. J.:
This case originated in the Municipal Court of Manila upon a complaint filed on March 9, 1948, by
the herein appellees as plaintiffs, against the herein appellants as defendants, for the sum of P2,210
plus interest, which plaintiffs claimed as one month advance pat due them. On April 28, 1948, the
parties entered into a stipulation of facts upon which said municipal court rendered judgment for the
plaintiffs. Upon denial of their motion for reconsideration of this judgment, the defendants filed an
appeal to the Court of First Instance of Manila, wherein the parties submitted the case upon the
same facts agreed upon in the Municipal Court. On October 2, 1948, the Court of First Instance of
Manila rendered its decision holding for plaintiffs, as follows:
Wherefore judgment is hereby rendered
1. Ordering defendant Material Distributors, Inc. to pay plaintiff Enrique Ramirez the sum of
P360 and plaintiff Juan Ramirez the sum of P250 with legal interest on each of the said sums
from the date of the filing of the complaint in the Municipal Court of Manila until the date of
full payment thereof; and
2. Ordering defendant Harry Lyons Construction, Inc. to pay plaintiff Daniel Sanchez the sum
of P250, and plaintiff Mariano Javier, Venancio Diaz, Esteban Bautista, Faustino Aquillo,
Godofredo Diamante, Marcial Lazaro, Ambrosio de la Cruz, and Marcelino Maceda the sum
of P150 each, with legal interest on each of the said sums from the date of the filing of the
complaint in the Municipal Court of Manila until the date of full payment thereof.
One half of the costs is to be paid by Material Distributors, Inc. and the other half by Harry
Lyons Construction, Inc.
From this judgment, defendants filed an appeal with this court purely upon a question of law. The
stipulation of facts entered into by the parties on April 28, 1948, is as follows:
lawphil.net

STIPULATION OF FACTS.
Come now the plaintiffs and the defendants, by their respective undersigned attorneys and to
this Honorable Court, respectfully submit the following stipulation of facts:
1. That the plaintiffs were respectively employed as follows:
EMPLOYED BY DEFENDANT MATERIAL DISTRIBUTORS, INC.

Name Date of Position Salary

employment
Enrique Ramirez .............. 12/16/46 Warehouseman P450 a mo.
Juan Ramirez ................... do do 250 a mo.
NOTE. The salary of Enrique Ramirez was later reduced to P360 per month. This was the
amount he was receiving at the time of his dismissal.
EMPLOYED BY DEFENDANT HARRY LYONS CONSTRUCTION, INC.
Daniel Sanchez ................ 1/1/47 Carpenter- P250 a mo.
Foreman
Mariano Javier ................. ....do.................. Guard................. 5 a day
Venancio Diaz ................. ....do.................. do....................... 5 a day
Esteban Bautista ............ ....do.................. do....................... 5 a day
Faustino Aquillo ............ ....do.................. do....................... 5 a day
Godofredo Diamante ..... ....do.................. do....................... 5 a day
Marcial Lazaro ................ ....do.................. do....................... 5 a day
Ambrosio de la Cruz ..... ....do.................. do....................... 5 a day
Marcelino Macada ........ ....do.................. do....................... 5 a day
as per contracts of employment, copies of which are attached to defendants' answer marked
Exhibits 1 to 11 inclusive
2. That in said contracts of employment the plaintiff agreed as follows:
"I accept the foregoing appointment, and in consideration thereof I hereby agree that such
employment may be terminated at any time, without previous notice, and I further agree that
salary and wages, shall be computed and paid at the rate specified up to the date of such
termination.
"Also in consideration of such employment I hereby expressly waive the benefit of article 302
of the Code of Commerce and that of any other law, ruling, or custom which might require
notice of discharge or payment of salary or wages after date of the termination of such
employment."
3. That the plaintiffs were dismissed by the defendants on December 31, 1947 without one
months' previous notice.
4. That each of the plaintiffs demanded payment of one month's salary from the defendants
and that the latter refused to pay the same.
WHEREFORE, it is respectfully prayed that judgment on the foregoing stipulation of facts be
rendered by this Honorable Court.
The points in issue herein are: first, whether plaintiffs, both those paid on a monthly and daily basis,
are entitled to the benefit granted in article 302 of the Code of Commerce; and secondly, if they are
so entitled, was their waiver of such benefits legal and valid?
Article 302 of the Code of Commerce reads as follows:

ART. 302. In cases in which no special time is fixed in the contracts of service, any one of
the parties thereto may cancel it, advising the other party thereof one month in advance.
The factor or shop clerk shall be entitled, in such case, to the salary due for said month.
It is a clear doctrine, as gleaned from the provision of the law and settled jurisprudence, 1 that in a
mercantile contract of service in which no special time is fixed, any one of the parties may cancel said contract upon giving of a one-month
notice, called a mesada, to the other party. The law gives an added proviso that in the case of factors or shop clerks, these shall be entitled
to salary during this one month of standing notice. In any case, the one-month notice must be given to any employee, whether factor, shop
clerk or otherwise, so long as the two conditions concur, namely, that no special time is fixed in the contract of service, and that said
employee is a commercial employee. And when such notice is not given under these conditions, not only the factor or shop clerk but any
employee discharged without cause, is entitled to indemnity which may be one month's salary. 2

In the instant case, there lies no doubt that plaintiffs are commercial employees of appellant
corporations, rendering service as warehousemen, carpenter-foreman and guards. There is likewise
no doubt as can be seen from the contracts of employment submitted as exhibits, that no special
time has been fixed in the contracts of services between plaintiffs-appellees and defendantsappellants. The stated computation or manner of payment, whether monthly or daily, does not
represent nor determine a special time of employment. Thus, a commercial employee may be
employed for one year and yet receive his salary on the daily or weekly or monthly or other basis.
Appellants allege that the use of the word "temporary" in the contracts of services of some of the
plaintiffs shows that their employment was with a term, and the term was "temporary, on a day to
day basis." The record discloses that this conclusion is unwarranted. The contracts simply say
"You are hereby employed as temporary guard with a compensation at the rate of P5 a day . . . ."
The word "temporary" as used herein does not mean the special time fixed in the contracts referred
to in article 302 of the Code of Commerce. The daily basis therein stipulated is for the computation
of pay, and is not necessarily the period of employment. Hence, this Court holds that plaintiffsappellants come within the purview of article 302 of the Code of Commerce.
Now, as the second question, namely, the validity of plaintiffs' waiver of the benefits given them by
said article 302. This court holds that such a waiver, made in advance, is void as being contrary to
public policy. Granting that the "mesada" given in article 302 of the Code of Commerce, is for the
bilateral benefit of both employer and employee, nevertheless, this does not preclude the finding that
a waiver of such "mesada" in advance by the employee is contrary to public policy.
Public policy, with regard to labor, is clearly stated in article II, section 5, of the Philippine
Constitution, which reads
The promotion of social justice to insure the well-being and economic security of all the
people should be the concern of the State.
and article XIV, section 6, which reads
The State shall afford protection to labor, especially to working women and minors, and shall
regulate the relations between land-owner and tenant, and between labor and capital in
industry and in agriculture. . . .
Article 302 of the Code of Commerce must be applied in consonance with these provisions of our
constitution. In the matter of employment bargaining, there is no doubt that the employer stands on
higher footing than the employee. First of all, there is greater supply than demand for labor.
Secondly, the need for employment by labor comes from vital and even desperate, necessity.
Consequently, the law must protect labor, at least, to the extent of raising him to equal footing in

bargaining relations with capital and to shield him from abuses brought about by the necessity for
survival. It is safe to presume therefore, that an employee or laborer who waives in advance any
benefit granted him by law does so, certainly not in his interest or through generosity but under the
forceful intimidation of urgent need, and hence, he could not have so acted freely and voluntarily.
For all the foregoing, this court hereby affirms the decision of the lower court, with costs against
appellants.
Ozaeta, Paras, Feria, Pablo, Tuason, Bengzon and Reyes, JJ., concur.

G.R. No. 200094

June 10, 2013

BENIGNO M. VIGILLA, ALFONSO M. BONGOT, ROBERTO CALLESA, LINDA C. CALLO, NILO

B. CAMARA, ADELIA T. CAMARA, ADOLFO G. PINON, JOHN A. FERNANDEZ, FEDERICO A.
CALLO, MAXIMA P. ARELLANO, JULITO B. COST ALES, SAMSON F. BACHAR, EDWIN P.
DAMO, RENA TO E. FERNANDEZ, GENARO F.CALLO, JIMMY C. ALETA, and EUGENIO
SALINAS, Petitioners,
vs.
PHILIPPINE COLLEGE OFCRIMINOLOGY INC. and/or GREGORY ALAN F.
BAUTISTA, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the September
16, 2011 Decision1 of the Court of Appeals (CA), in CA-G.R. SP No. 120225, which affirmed the
February 11, 2011 Resolution2 and the April 28, 20113 Resolution of the National Labor Relations
Commission (NLRC). The two NLRC resolutions affirmed with modifications the July 30, 2010
Decision4 of the Labor Arbiter (LA) finding that (a) Metropolitan Building Services, Inc. (MBMSI) was
a labor-only contractor; (b) respondent Philippine College of Criminology Inc. (PCCr) was the
petitioners real principal employer; and (c) PCCr acted in bad faith in dismissing the petitioners. The
NLRC, however, declared that the claims of the petitioners were settled amicably because of the
releases, waivers and quitclaims they had executed.
The Antecedents
PCCr is a non-stock educational institution, while the petitioners were janitors, janitresses and
supervisor in the Maintenance Department of PCCr under the supervision and control of Atty.
Florante A. Seril (Atty. Seril), PCCrs Senior Vice President for Administration. The petitioners,
however, were made to understand, upon application with respondent school, that they were under
MBMSI, a corporation engaged in providing janitorial services to clients. Atty. Seril is also the
President and General Manager of MBMSI.
Sometime in 2008, PCCr discovered that the Certificate of Incorporation of MBMSI had been
revoked as of July 2, 2003. On March 16, 2009, PCCr, through its President, respondent Gregory
Alan F. Bautista (Bautista), citing the revocation, terminated the schools relationship with MBMSI,
resulting in the dismissal of the employees or maintenance personnel under MBMSI, except Alfonso
Bongot (Bongot) who was retired.
In September, 2009, the dismissed employees, led by their supervisor, Benigno Vigilla (Vigilla), filed
their respective complaints for illegal dismissal, reinstatement, back wages, separation pay (for
Bongot), underpayment of salaries, overtime pay, holiday pay, service incentive leave, and 13th
month pay against MBMSI, Atty. Seril, PCCr, and Bautista.
In their complaints, they alleged that it was the school, not MBMSI, which was their real employer
because (a) MBMSIs certification had been revoked; (b) PCCr had direct control over MBMSIs
operations; (c) there was no contract between MBMSI and PCCr; and (d) the selection and hiring of
employees were undertaken by PCCr.
On the other hand, PCCr and Bautista contended that (a) PCCr could not have illegally dismissed
the complainants because it was not their direct employer; (b) MBMSI was the one who had

complete and direct control over the complainants; and (c) PCCr had a contractual agreement with
MBMSI, thus, making the latter their direct employer.
On September 11, 2009, PCCr submitted several documents before LA Ronaldo Hernandez,
including releases, waivers and quitclaims in favor of MBMSI executed by the complainants to prove
that they were employees of MBMSI and not PCCr.5 The said documents appeared to have been
notarized by one Atty. Ramil Gabao. A portion of the releases, waivers and quitclaims uniformly
reads:
For and in consideration of the total amount of ______________, as and by way of separation pay
due to the closure of the Company brought about by serious financial losses, receipt of the total
amount is hereby acknowledged, I _______________, x x x forever release and discharge x x x
METROPOLITAN BUILDING MAINTENANCE SERVICES, INC., of and from any and all claims,
demands, causes of actions, damages, costs, expenses, attorneys fees, and obligations of any
nature whatsoever, known or unknown, in law or in equity, which the undersigned has, or may
hereafter have against the METROPOLITAN BUILDING MAINTENANCE SERVICES, INC., whether
administrative, civil or criminal, and whether or not arising out of or in relation to my employment with
the above company or third persons.6
Ruling of the Labor Arbiter
After due proceedings, the LA handed down his decision, finding that (a) PCCr was the real principal
employer of the complainants ; (b) MBMSI was a mere adjunct or alter ego/labor-only contractor; (c)
the complainants were regular employees of PCCr; and (d) PCCr/Bautista were in bad faith in
dismissing the complainants.
The LA ordered the respondents (a) to reinstate petitioners except Bongot who was deemed
separated/retired; (b) to pay their full back wages from the date of their illegal dismissal until actual
reinstatement (totalingP2,963,584.25); (c) to pay Bongots separation or retirement pay benefit under
the Labor Code (amounting toP254,010.00); (d) to pay their 3-year Service Incentive Leave Pay
(P4,245.60 each) except Vigilla (P5,141.40); (e) to pay all the petitioners moral and exemplary
damages in the combined amount of P150,000.00; and finally (f) to pay 10% of the total computable
award as Attorneys Fees.
The LA explained that PCCr was actually the one which exercised control over the means and
methods of the work of the petitioners, thru Atty. Seril, who was acting, throughout the time in his
capacity as Senior Vice President for Administration of PCCr, not in any way or time as the
supposed employer/general manager or president of MBMSI.
Despite the presentation by the respondents of the releases, waivers and quitclaims executed by
petitioners in favor of MBMSI, the LA did not touch on the validity and authenticity of the same.
Neither did he discuss the effects of such releases, waivers and quitclaims on petitioners claims.
Ruling of the NLRC
Not satisfied, the respondents filed an appeal before the NLRC. In its Resolution, dated February 11,
2011, the NLRC affirmed the LAs findings. Nevertheless, the respondents were excused from their
liability by virtue of the releases, waivers and quitclaims executed by the petitioners. Specifically, the
NLRC pointed out:
As Respondent MBMSI and Atty. Seril, together are found to be labor only contractor, they are
solidarily liable with Respondent PCCr and Gregory Alan F. Bautista for the valid claims of

Complainants pursuant to Article 109 of the Labor Code on the solidary liability of the employer and
indirect employer. This liability, however, is effectively expunged by the acts of the 17 Complainants
of executing Release, Waiver, and Quitclaims (pp. 170-184, Records) in favor of Respondent
MBMSI. The liability being joined, the release of one redounds to the benefit of the others, pursuant
to Art. 1217 of the Civil Code, which provides that "Payment made by one of the solidary debtors
extinguishes the obligation. x x x."7
In their motion for reconsideration, petitioners attached as annexes their affidavits denying that they
had signed the releases, waivers, and quitclaims. They prayed for the reinstatement in toto of the
July 30, 2010 Decision of the LA.8 MBMSI/Atty. Seril also filed a motion for
reconsideration9 questioning the declaration of the NLRC that he was solidarily liable with PCCr.
On April 28, 2011, NLRC modified its February 11, 2011 Resolution by affirming the July 30, 2010
Decision10 of the LA only in so far as complainants Ernesto B. Ayento and Eduardo B. Salonga were
concerned. As for the other 17 complainants, the NLRC ruled that their awards had been
superseded by their respective releases, waivers and quitclaims.
The seventeen (17) complainants filed with the CA a petition for certiorari under Rule 65 faulting the
NLRC with grave abuse of discretion for absolving the respondents from their liability by virtue of
their respective releases, waivers and quitclaims.
Ruling of the Court of Appeals
On September 16, 2011, the CA denied the petition and affirmed the two Resolutions of the NLRC,
dated February 11, 2011 and April 28, 2011. The CA pointed out that based on the principle of
solidary liability and Article 121711 of the New Civil Code, petitioners respective releases, waivers
and quitclaims in favor of MBMSI and Atty. Seril redounded to the benefit of the respondents. The
CA also upheld the factual findings of the NLRC as to the authenticity and due execution of the
individual releases, waivers and quitclaims because of the failure of petitioners to substantiate their
claim of forgery and to overcome the presumption of regularity of a notarized document. Petitioners
motion for reconsideration was likewise denied by the CA in its January 4, 2012 Resolution.
Hence, this petition under Rule 45 challenging the CA Decision anchored on the following
GROUNDS
The Hon. Court of Appeals COMMITTED REVERSIBLE ERRORS when:
A. IT CONSIDERED RESPONDENT METROPOLITAN BUILDING MAINTENANCE
SERVICES, INC.S LIABILITY AS SOLIDARY TO RESPONDENT PHILIPPINE COLLEGE
OF CRIMINOLOGY, INC., WHEN IN FACT THERE IS NO LEGAL BASIS TO THAT
EFFECT.
B. IT DID NOT AFFIRM THE DECISION OF THE HON. LABOR ARBITER, DATED JULY
30, 2010, AS TO 17 PETITIONERS IN THIS CASE, DISREGARDING THE CORPORATION
LAW AND JURISPRUDENCE OF THE HON. SUPREME COURT IN SO FAR AS
QUITLCLAIMS, RELEASE AND WAIVERS ARE CONCERNED IN LABOR CASES.
C. IT AFFIRMED THE DECISION OF THE HON. NATIONAL LABOR RELATIONS
COMMISSION, THAT THE 17 COMPLAINANTS HAVE SETTLED THEIR CLAIMS BY

VIRTUE OF ALLEGED RELEASES, WAIVERS AND QUITCLAIMS SIGNED BY THE

COMPLAINANTS IN FAVOR OF METROPOLITAN BUILDING MAINTENANCE, INC.
D. IT DID NOT TAKE INTO CONSIDERATION SUBSTANTIAL EVIDENCE OF
PETITIONERS/COMPLAINANTS DISPUTING THE ALLEGED WAIVERS, RELEASES AND
QUITCLAIMS, INCLUDING THE ALLEGED NOTARIZATION THEREOF.12
The petition fails.
The grounds cited by the petitioners boil down to this basic issue: whether or not their claims against
the respondents were amicably settled by virtue of the releases, waivers and quitclaims which they
had executed in favor of MBMSI.
In resolving this case, the Court must consider three (3) important sub-issues, to wit:
(a) whether or not petitioners executed the said releases, waivers and quitclaims;
(b) whether or not a dissolved corporation can enter into an agreement such as releases,
waivers and quitclaims beyond the 3-year winding up period under Section 122 of the
Corporation Code; and
(c) whether or not a labor-only contractor is solidarily liable with the employer.
The Releases, Waivers and
Quitclaims are Valid
Petitioners vehemently deny having executed any release, waiver or quitclaim in favor of MBMSI.
They insist that PCCr forged the documents just to evade their legal obligations to them, alleging
that the contents of the documents were written by one person, whom they identified as Reynaldo
Chavez, an employee of PCCr, whose handwriting they were familiar with.13
To begin with, their posture was just an afterthought. Petitioners had several opportunities to
question the authenticity of the said documents but did not do so. The records disclose that during
the proceedings before the LA, PCCr submitted several documents, including the subject releases,
waivers and quitclaims executed on September 11, 2009 in favor of MBMSI,14 but petitioners never
put their genuineness and due execution at issue. These were brought up again by the respondents
in their Memorandum of Appeal,15 but again petitioners did not bother to dispute them.
It was only after the NLRCs declaration in its February 11, 2011 Resolution that the claims of
petitioners had been settled amicably by virtue of the releases, waivers and quitclaims, that
petitioners, in their motion for reconsideration,16 denied having executed any of these instruments.
This passiveness and inconsistency of petitioners will not pass the scrutiny of this Court.
At any rate, it is quite apparent that this petition raises questions of fact inasmuch as this Court is
being asked to revisit and assess anew the factual findings of the CA and the NLRC regarding the
validity, authenticity and due execution of the subject releases, waivers and quitclaims.
Well-settled is the rule that this Court is not a trier of facts and this doctrine applies with greater force
in labor cases. Questions of fact are for the labor tribunals to resolve.17 Only errors of law are
generally reviewed in petitions for review on certiorari criticizing decisions of the CA. Moreover,
findings of fact of quasi-judicial bodies like the NLRC, as affirmed by the CA, are generally

conclusive on this Court.18 Hence, as correctly declared by the CA, the following NLRC factual
findings are binding and conclusive on this Court:
We noted that the individual quitclaims, waivers and releases executed by the complainants showing
that they received their separation pay from MBMSI were duly notarized by a Notary Public. Such
notarization gives prima facie evidence of their due execution. Further, said releases, waivers, and
quitclaims were not refuted nor disputed by complainants herein, thus, we have no recourse but to
uphold their due execution.19
Even if the Court relaxes the foregoing rule, there is still no reason to reverse the factual findings of
the NLRC and the CA. What is on record is only the self-serving allegation of petitioners that the
releases, waivers and quitclaims were mere forgeries. Petitioners failed to substantiate this
allegation. As correctly found by the CA: "petitioners have not offered concrete proof to substantiate
their claim of forgery. Allegations are not evidence."20
On the contrary, the records confirm that petitioners were really paid their separation pay and had
executed releases, waivers and quitclaims in return. In his motion for reconsideration of the February
11, 2011 Resolution of the NLRC, Atty. Seril, President and General Manager of MBMSI, stated that
the amount of 2,000,000.00 "was coursed by PCCr to me, to be handed to the complainants,
through its employee, Rey Chavez."21
Petitioners requested the Court to take a look at such releases, waivers and quitclaims, particularly
their contents and the handwriting, but they failed to attach to the records copies of the said
documents which they claimed to have been forged. The petition is dismissible on this ground alone.
The Rules of Court require the petition to be accompanied by such material portions of the record as
would support the petition.22 Failure to comply with the requirements regarding "the contents of and
the documents which should accompany the petition" is a ground for the dismissal of the appeal.23
Moreover, mere unsubstantiated allegations of lack of voluntariness in executing the documents will
not suffice to overcome the presumption of authenticity and due execution of a duly notarized
document. As correctly held by the NLRC, "such notarization gives prima facie evidence of their due
execution."24
Petitioners contend that the alleged notarization of the releases, waivers and quitclaims by one Atty.
Ramil Gabao did not take place, because there were no records of such documents in the Notary
Section of Manila. Thus, the prima facie evidence thereof has been disputed.
The Court is not moved. Respondents should not be penalized for the failure of the notary public to
submit his Notarial Report. In Destreza v. Rinoza-Plazo,25 this Court stated that "the notarized deed
of sale should be admitted as evidence despite the failure of the Notary Public in submitting his
notarial report to the notarial section of the RTC Manila." The Court expounded:
It is the swearing of a person before the Notary Public and the latters act of signing and affixing his
seal on the deed that is material and not the submission of the notarial report. Parties who appear
before a notary public to have their documents notarized should not be expected to follow up on the
submission of the notarial reports. They should not be made to suffer the consequences of the
negligence of the Notary Public in following the procedures prescribed by the Notarial Law.26
It would have been different if the notary public was not a lawyer or was not commissioned as such.
In this regard, however, petitioners offered no proof.

On the Revocation of MBMSIs

Certificate of Incorporation
Petitioners further argue that MBMSI had no legal personality to incur civil liabilities as it did not exist
as a corporation on account of the fact that its Certificate of Incorporation had been revoked on July
2, 2003. Petitioners ask this Court to exempt MBMSI from its liabilities because it is no longer
existing as a corporation.
The Court cannot accommodate the prayer of petitioners.
The executed releases, waivers and quitclaims are valid and binding notwithstanding the revocation
of MBMSIs Certificate of Incorporation. The revocation does not result in the termination of its
liabilities. Section 12227 of the Corporation Code provides for a three-year winding up period for a
corporation whose charter is annulled by forfeiture or otherwise to continue as a body corporate for
the purpose, among others, of settling and closing its affairs.
Even if said documents were executed in 2009, six (6) years after MBMSIs dissolution in 2003, the
same are still valid and binding upon the parties and the dissolution will not terminate the liabilities
incurred by the dissolved corporation pursuant to Sections 122 and 14528 of the Corporation Code. In
the case of Premiere Development Bank v. Flores,29 the Court held that a corporation is allowed to
settle and close its affairs even after the winding up period of three (3) years. The Court wrote:
As early as 1939, this Court held that, although the time during which the corporation, through its
own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is
limited to three years from the time the period of dissolution commences, there is no time limit within
which the trustees must complete a liquidation placed in their hands. What is provided in Section
122 of the Corporation Code is that the conveyance to the trustees must be made within the threeyear period. But it may be found impossible to complete the work of liquidation within the three-year
period or to reduce disputed claims to judgment. The trustees to whom the corporate assets have
been conveyed pursuant to the authority of Section 122 may sue and be sued as such in all matters
connected with the liquidation.
Furthermore, Section 145 of the Corporation Code clearly provides that "no right or remedy in favor
of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any
liability incurred by any such corporation, stockholders, members, directors, trustees, or officers,
shall be removed or impaired either by the subsequent dissolution of said corporation." Even if no
trustee is appointed or designated during the three-year period of the liquidation of the corporation,
the Court has held that the board of directors may be permitted to complete the corporate liquidation
by continuing as "trustees" by legal implication.30 [Emphases supplied; citations omitted]
A Labor-only Contractor is Solidarily
Liable with the Employer
The issue of whether there is solidary liability between the labor-only contractor and the employer is
crucial in this case. If a labor-only contractor is solidarily liable with the employer, then the releases,
waivers and quitclaims in favor of MBMSI will redound to the benefit of PCCr. On the other hand, if a
labor-only contractor is not solidarily liable with the employer, the latter being directly liable, then the
releases, waivers and quitclaims in favor of MBMSI will not extinguish the liability of PCCr.
On this point, petitioners argue that there is no solidary liability to speak of in case of an existence of
a labor-only contractor. Petitioners contend that under Article 10631 of the Labor Code, a labor-only
contractors liability is not solidary as it is the employer who should be directly responsible to the

supplied worker. They argue that Article 10932 of the Labor Code (solidary liability of
employer/indirect employer and contractor/subcontractor) and Article 1217 of the New Civil Code
(extinguishment of solidary obligation) do not apply in this case. Hence, the said releases, waivers
and quitclaims which they purportedly issued in favor of MBMSI and Atty. Seril do not automatically
release respondents from their liability.
Again, the Court disagrees.
The NLRC and the CA correctly ruled that the releases, waivers and quitclaims executed by
petitioners in favor of MBMSI redounded to the benefit of PCCr pursuant to Article 1217 of the New
Civil Code. The reason is that MBMSI is solidarily liable with the respondents for the valid claims of
petitioners pursuant to Article 109 of the Labor Code.
As correctly pointed out by the respondents, the basis of the solidary liability of the principal with
those engaged in labor-only contracting is the last paragraph of Article 106 of the Labor Code, which
in part provides: "In such cases labor-only contracting, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him."
Section 19 of Department Order No. 18-02 issued by the Department of Labor and Employment
(DOLE), which was still in effect at the time of the promulgation of the subject decision and
resolution, interprets Article 106 of the Labor Code in this wise:
Section 19. Solidary liability. The principal shall be deemed as the direct employer of the contractual
employees and therefore, solidarily liable with the contractor or subcontractor for whatever monetary
claims the contractual employees may have against the former in the case of violations as provided
for in Sections 5 (LaborOnly contracting), 6 (Prohibitions), 8 (Rights of Contractual Employees) and
16 (Delisting) of these Rules. In addition, the principal shall also be solidarily liable in case the
contract between the principal and contractor or subcontractor is preterminated for reasons not
attributable to the fault of the contractor or subcontractor. [Emphases supplied].
The DOLE recognized anew this solidary liability of the principal employer and the labor-only
contractor when it issued Department Order No. 18-A, series of 2011, which is the latest set of rules
implementing Articles 106-109 of the Labor Code. Section 27 thereof reads:
Section 27. Effects of finding of labor-only contracting and/or violation of Sections 7, 8 or 9 of the
Rules. A finding by competent authority of labor-only contracting shall render the principal jointly and
severally liable with the contractor to the latters employees, in the same manner and extent that the
principal is liable to employees directly hired by him/her, as provided in Article 106 of the Labor
Code, as amended.
A finding of commission of any of the prohibited activities in Section 7, or violation of either Sections
8 or 9 hereof, shall render the principal the direct employer of the employees of the contractor or
subcontractor, pursuant to Article 109 of the Labor Code, as amended. (Emphasis supplied.)
These legislative rules and regulations designed to implement a primary legislation have the force
and effect of law. A rule is binding on the courts so long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature.33
Jurisprudence is also replete with pronouncements that a job-only contractor is solidarily liable with
the employer. One of these is the case of Philippine Bank of Communications v. NLRC34 where this
Court explained the legal effects of a job-only contracting, to wit:

Under the general rule set out in the first and second paragraphs of Article 106, an employer who
enters into a contract with a contractor for the performance of work for the employer, does not
thereby create an employer-employees relationship between himself and the employees of the
contractor. Thus, the employees of the contractor remain the contractor's employees and his alone.
Nonetheless when a contractor fails to pay the wages of his employees in accordance with the Labor
Code, the employer who contracted out the job to the contractor becomes jointly and severally liable
with his contractor to the employees of the latter "to the extent of the work performed under the
contract" as such employer were the employer of the contractor's employees. The law itself, in other
words, establishes an employer-employee relationship between the employer and the job
contractor's employees for a limited purpose, i.e., in order to ensure that the latter get paid the
wages due to them.
A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor-i.e "the
person or intermediary" - is considered "merely as an agent of the employer." The employer is made
by the statute responsible to the employees of the "labor only" contractor as if such employees had
been directly employed by the employer. Thus, where "labor-only" contracting exists in a given case,
the statute itself implies or establishes an employer-employee relationship between the employer
(the owner of the project) and the employees of the "labor only" contractor, this time for a
comprehensive purpose: "employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code." The law in effect holds both the employer and the
"laboronly" contractor responsible to the latter's employees for the more effective safeguarding of the
employees' rights under the Labor Code.35 [Emphasis supplied].
The case of San Miguel Corporation v. MAERC Integrated Services, Inc.36 also recognized this
solidary liability between a labor-only contractor and the employer. In the said case, this Court gave
the distinctions between solidary liability in legitimate job contracting and in labor-only contracting, to
wit:
In legitimate job contracting, the law creates an employer-employee relationship for a limited
purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes
jointly and severally liable with the job contractor only for the payment of the employees' wages
whenever the contractor fails to pay the same. Other than that, the principal employer is not
responsible for any claim made by the employees.
On the other hand, in labor-only contracting, the statute creates an employer-employee relationship
for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered
merely an agent of the principal employer and the latter is responsible to the employees of the laboronly contractor as if such employees had been directly employed by the principal employer. The
principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful
claims of the employees.37 [Emphases supplied; Citations omitted]
Recently, this Court reiterated this solidary liability of labor-only contractor in the case of 7K
Corporation v. NLRC38 where it was ruled that the principal employer is solidarily liable with the
labor-only contractor for the rightful claims of the employees.
Conclusion
Considering that MBMSI, as the labor-only contractor, is solidarily liable with the respondents, as the
principal employer, then the NLRC and the CA correctly held that the respondents solidary liability
was already expunged by virtue of the releases, waivers and quitclaims executed by each of the
petitioners in favor of MBMSI pursuant to Article 1217 of the Civil Code which provides that
"payment made by one of the solidary debtors extinguishes the obligation."

This Court has constantly applied the Civil Code provisions on solidary liability, specifically Articles
1217 and 1222,39 to labor cases. In Varorient Shipping Co., Inc. v. NLRC,40 this Court held:
The POEA Rules holds her, as a corporate officer, solidarily liable with the local licensed manning
agency. Her liability is inseparable from those of Varorient and Lagoa. If anyone of them is held
liable then all of them would be liable for the same obligation. Each of the solidary debtors, insofar
as the creditor/s is/are concerned, is the debtor of the entire amount; it is only with respect to his codebtors that he/she is liable to the extent of his/her share in the obligation. Such being the case, the
Civil Code allows each solidary debtor, in actions filed by the creditor/s, to avail himself of all
defenses which are derived from the nature of the obligation and of those which are personal to him,
or pertaining to his share [citing Section 1222 of the Civil Code]. He may also avail of those defenses
personally belonging to his co-debtors, but only to the extent of their share in the debt. Thus,
Varorient may set up all the defenses pertaining to Colarina and Lagoa; whereas Colarina and
Lagoa are liable only to the extent to which Varorient may be found liable by the court.
1w phi 1

xxxx
If Varorient were to be found liable and made to pay pursuant thereto, the entire obligation would
already be extinguished [citing Article 1217 of the Civil Code] even if no attempt was made to
enforce the judgment against Colarina. Because there existed a common cause of action against the
three solidary obligors, as the acts and omissions imputed against them are one and the same, an
ultimate finding that Varorient was not liable would, under these circumstances, logically imply a
similar exoneration from liability for Colarina and Lagoa, whether or not they interposed any
defense.41 [Emphases supplied]
In light of these conclusions, the Court holds that the releases, waivers and quitclaims executed by
petitioners in favor of MBMSI redounded to the respondents' benefit. The liabilities of the
respondents to petitioners are now deemed extinguished. The Court cannot allow petitioners to reap
the benefits given to them by MBMSI in exchange for the releases, waivers and quitclaims and,
again, claim the same benefits from PCCr.
While it is the duty of the courts to prevent the exploitation of employees, it also behooves the courts
to protect the sanctity of contracts that do not contravene the law.42 The law in protecting the rights of
the laborer authorizes neither oppression nor self-destruction of the employer. While the Constitution
is committed to the policy of social justice and the protection of the working class, it should not be
supposed that every labor dispute will be automatically decided in favor of labor. Management also
has its own rights, which, as such, are entitled to respect and enforcement in the interest of simple
fair play. Out of its concern for those with less privileges in life, the Court has inclined more often
than not toward the worker and upheld his cause in his conflicts with the employer. Such favoritism,
however, has not blinded the Court to the rule that justice is in every case for the deserving, to be
dispensed in the light of the established facts and applicable law and doctrine.43
WHEREFORE, the petition is DENIED.
SO ORDERED.

G.R. No. 80609 August 23, 1988

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION and MARILYN ABUCAY, respondents.
Nicanor G. Nuevas for petitioner.

CRUZ, J.:
The only issue presented in the case at bar is the legality of the award of financial assistance to an
employee who had been dismissed for cause as found by the public respondent.
Marilyn Abucay, a traffic operator of the Philippine Long Distance Telephone Company, was
accused by two complainants of having demanded and received from them the total amount of
P3,800.00 in consideration of her promise to facilitate approval of their applications for telephone
installation. 1 Investigated and heard, she was found guilty as charged and accordingly separated from
the service. 2 She went to the Ministry of Labor and Employment claiming she had been illegally removed.
After consideration of the evidence and arguments of the parties, the company was sustained and the
complaint was dismissed for lack of merit. Nevertheless, the dispositive portion of labor arbiter's decision
declared:

WHEREFORE, the instant complaint is dismissed for lack of merit.

Considering that Dr. Helen Bangayan and Mrs. Consolacion Martinez are not totally
blameless in the light of the fact that the deal happened outhide the premises of
respondent company and that their act of giving P3,800.00 without any receipt is
tantamount to corruption of public officers, complainant must be given one month pay
for every year of service as financial assistance. 3
Both the petitioner and the private respondent appealed to the National Labor Relations Board,
which upheld the said decision in toto and dismissed the appeals. 4 The private respondent took no
further action, thereby impliedly accepting the validity of her dismissal. The petitioner, however, is now
before us to question the affirmance of the above- quoted award as having been made with grave abuse
of discretion.

In its challenged resolution of September 22, 1987, the NLRC said:

... Anent the award of separation pay as financial assistance in complainant's favor,
We find the same to be equitable, taking into consideration her long years of service
to the company whereby she had undoubtedly contributed to the success of
respondent. While we do not in any way approve of complainants (private
respondent) mal feasance, for which she is to suffer the penalty of dismissal, it is for
reasons of equity and compassion that we resolve to uphold the award of financial
assistance in her favor. 5
The position of the petitioner is simply stated: It is conceded that an employee illegally dismissed is
entitled to reinstatement and backwages as required by the labor laws. However, an employee
dismissed for cause is entitled to neither reinstatement nor backwages and is not allowed any relief
at all because his dismissal is in accordance with law. In the case of the private respondent, she has

been awarded financial assistance equivalent to ten months pay corresponding to her 10 year
service in the company despite her removal for cause. She is, therefore, in effect rewarded rather
than punished for her dishonesty, and without any legal authorization or justification. The award is
made on the ground of equity and compassion, which cannot be a substitute for law. Moreover, such
award puts a premium on dishonesty and encourages instead of deterring corruption.
For its part, the public respondent claims that the employee is sufficiently punished with her
dismissal. The grant of financial assistance is not intended as a reward for her offense but merely to
help her for the loss of her employment after working faithfully with the company for ten years. In
support of this position, the Solicitor General cites the cases of Firestone Tire and Rubber Company
of the Philippines v. Lariosa 6 and Soco v. Mercantile Corporation of Davao, 7 where the employees
were dismissed for cause but were nevertheless allowed separation pay on grounds of social and
compassionate justice. As the Court put it in the Firestone case:

In view of the foregoing, We rule that Firestone had valid grounds to dispense with
the services of Lariosa and that the NLRC acted with grave abuse of discretion in
ordering his reinstatement. However, considering that Lariosa had worked with the
company for eleven years with no known previous bad record, the ends of social and
compassionate justice would be served if he is paid full separation pay but not
reinstatement without backwages by the NLRC.
In the said case, the employee was validly dismissed for theft but the NLRC nevertheless awarded
him full separation pay for his 11 years of service with the company. In Soco, the employee was also
legally separated for unauthorized use of a company vehicle and refusal to attend the grievance
proceedings but he was just the same granted one-half month separation pay for every year of his
18-year service.
Similar action was taken in Filipro, Inc. v. NLRC, 8 where the employee was validly dismissed for
preferring certain dealers in violation of company policy but was allowed separation pay for his 2 years of
service. In Metro Drug Corporation v. NLRC, 9 the employee was validly removed for loss of confidence
because of her failure to account for certain funds but she was awarded separation pay equivalent to onehalf month's salary for every year of her service of 15 years. In Engineering Equipment, Inc. v.
NLRC, 10 the dismissal of the employee was justified because he had instigated labor unrest among the
workers and had serious differences with them, among other grounds, but he was still granted three
months separation pay corresponding to his 3-year service. In New Frontier Mines, Inc. v. NLRC, 11 the
employee's 3- year service was held validly terminated for lack of confidence and abandonment of work
but he was nonetheless granted three months separation pay. And in San Miguel Corporation v. Deputy
Minister of Labor and Employment, et al ., 12 full separation pay for 6, 10, and 16 years service,
respectively, was also allowed three employees who had been dismissed after they were found guilty of
misappropriating company funds.

The rule embodied in the Labor Code is that a person dismissed for cause as defined therein is not
entitled to separation pay. 13 The cases above cited constitute the exception, based upon considerations
of equity. Equity has been defined as justice outside law, 14 being ethical rather than jural and belonging
to the sphere of morals than of law. 15 It is grounded on the precepts of conscience and not on any
sanction of positive law. 16 Hence, it cannot prevail against the expressed provision of the labor laws
allowing dismissal of employees for cause and without any provision for separation pay.

Strictly speaking, however, it is not correct to say that there is no express justification for the grant of
separation pay to lawfully dismissed employees other than the abstract consideration of equity. The
reason is that our Constitution is replete with positive commands for the promotion of social justice,
and particularly the protection of the rights of the workers. The enhancement of their welfare is one
of the primary concerns of the present charter. In fact, instead of confining itself to the general

commitment to the cause of labor in Article II on the Declaration of Principles of State Policies, the
new Constitution contains a separate article devoted to the promotion of social justice and human
rights with a separate sub- topic for labor. Article XIII expressly recognizes the vital role of labor,
hand in hand with management, in the advancement of the national economy and the welfare of the
people in general. The categorical mandates in the Constitution for the improvement of the lot of the
workers are more than sufficient basis to justify the award of separation pay in proper cases even if
the dismissal be for cause.
The Court notes, however, that where the exception has been applied, the decisions have not been
consistent as to the justification for the grant of separation pay and the amount or rate of such
award. Thus, the employees dismissed for theft in the Firestone case and for animosities with fellow
workers in the Engineering Equipment case were both awarded separation pay notnvithstanding that
the first cause was certainly more serious than the second. No less curiously, the employee in the
Soco case was allowed only one-half month pay for every year of his 18 years of service, but in
Filipro the award was two months separation pay for 2 years service. In Firestone, the emplovee
was allowed full separation pay corresponding to his 11 years of service, but in Metro, the employee
was granted only one-half month separation pay for every year of her 15year service. It would seem
then that length of service is not necessarily a criterion for the grant of separation pay and neither
apparently is the reason for the dismissal.
The Court feels that distinctions are in order. We note that heretofore the separation pay, when it
was considered warranted, was required regardless of the nature or degree of the ground proved, be
it mere inefficiency or something graver like immorality or dishonesty. The benediction of
compassion was made to cover a multitude of sins, as it were, and to justify the helping hand to the
validly dismissed employee whatever the reason for his dismissal. This policy should be reexamined. It is time we rationalized the exception, to make it fair to both labor and management,
especially to labor.
There should be no question that where it comes to such valid but not iniquitous causes as failure to
comply with work standards, the grant of separation pay to the dismissed employee may be both just
and compassionate, particularly if he has worked for some time with the company. For example, a
subordinate who has irreconcilable policy or personal differences with his employer may be validly
dismissed for demonstrated loss of confidence, which is an allowable ground. A working mother who
has to be frequently absent because she has also to take care of her child may also be removed
because of her poor attendance, this being another authorized ground. It is not the employee's fault
if he does not have the necessary aptitude for his work but on the other hand the company cannot
be required to maintain him just the same at the expense of the efficiency of its operations. He too
may be validly replaced. Under these and similar circumstances, however, the award to the
employee of separation pay would be sustainable under the social justice policy even if the
separation is for cause.
But where the cause of the separation is more serious than mere inefficiency, the generosity of the
law must be more discerning. There is no doubt it is compassionate to give separation pay to a
salesman if he is dismissed for his inability to fill his quota but surely he does not deserve such
generosity if his offense is misappropriation of the receipts of his sales. This is no longer mere
incompetence but clear dishonesty. A security guard found sleeping on the job is doubtless subject
to dismissal but may be allowed separation pay since his conduct, while inept, is not depraved. But if
he was in fact not really sleeping but sleeping with a prostitute during his tour of duty and in the
company premises, the situation is changed completely. This is not only inefficiency but immorality
and the grant of separation pay would be entirely unjustified.

We hold that henceforth separation pay shall be allowed as a measure of social justice only in those
instances where the employee is validly dismissed for causes other than serious misconduct or
those reflecting on his moral character. Where the reason for the valid dismissal is, for example,
habitual intoxication or an offense involving moral turpitude, like theft or illicit sexual relations with a
fellow worker, the employer may not be required to give the dismissed employee separation pay, or
financial assistance, or whatever other name it is called, on the ground of social justice.
A contrary rule would, as the petitioner correctly argues, have the effect, of rewarding rather than
punishing the erring employee for his offense. And we do not agree that the punishment is his
dismissal only and that the separation pay has nothing to do with the wrong he has committed. Of
course it has. Indeed, if the employee who steals from the company is granted separation pay even
as he is validly dismissed, it is not unlikely that he will commit a similar offense in his next
employment because he thinks he can expect a like leniency if he is again found out. This kind of
misplaced compassion is not going to do labor in general any good as it will encourage the
infiltration of its ranks by those who do not deserve the protection and concern of the Constitution.
The policy of social justice is not intended to countenance wrongdoing simply because it is
committed by the underprivileged. At best it may mitigate the penalty but it certainly will not condone
the offense. Compassion for the poor is an imperative of every humane society but only when the
recipient is not a rascal claiming an undeserved privilege. Social justice cannot be permitted to be
refuge of scoundrels any more than can equity be an impediment to the punishment of the guilty.
Those who invoke social justice may do so only if their hands are clean and their motives blameless
and not simply because they happen to be poor. This great policy of our Constitution is not meant for
the protection of those who have proved they are not worthy of it, like the workers who have tainted
the cause of labor with the blemishes of their own character.
Applying the above considerations, we hold that the grant of separation pay in the case at bar is
unjustified. The private respondent has been dismissed for dishonesty, as found by the labor arbiter
and affirmed by the NLRC and as she herself has impliedly admitted. The fact that she has worked
with the PLDT for more than a decade, if it is to be considered at all, should be taken against her as
it reflects a regrettable lack of loyalty that she should have strengthened instead of betraying during
all of her 10 years of service with the company. If regarded as a justification for moderating the
penalty of dismissal, it will actually become a prize for disloyalty, perverting the meaning of social
justice and undermining the efforts of labor to cleanse its ranks of all undesirables.
The Court also rules that the separation pay, if found due under the circumstances of each case,
should be computed at the rate of one month salary for every year of service, assuming the length of
such service is deemed material. This is without prejudice to the application of special agreements
between the employer and the employee stipulating a higher rate of computation and providing for
more benefits to the discharged employee. 17
WHEREFORE, the petition is GRANTED. The challenged resolution of September 22,1987, is
AFFIRMED in totoexcept for the grant of separation pay in the form of financial assistance, which is
hereby DISALLOWED. The temporary restraining order dated March 23, 1988, is LIFTED. It is so
ordered.
Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and
Medialdea, JJ., concur.

Separate Opinions

FERNAN, C.J., dissenting:

The majority opinion itself declares that the reason for granting separation pay to lawfully dismissed
employees is that "our Constitution is replete with positive commands for the promotion of social
justice, and particularly the protection of the rights of the workers." 1
It is my firm belief that providing a rigid mathematical formula for determining the amounts of such
separation pay will not be in keeping with these constitutional directives. By computing the allowable
financial assistance on the formula suggested, we shall be closing our eyes to the spirit underlying
these constitutional mandates that "those who have less in life should have more in law." It cannot
be denied that a low salaried employee who is separated from work would suffer more hardship than
a well-compensated one. Yet, if we follow the formula suggested, we would in effect be favoring the
latter instead of the former, as it would be the low- salaried employee who would encounter difficulty
finding another job.
I am in accord with the opinion of Justice Sarmiento that we should not rationalize compassion and
that of Justice Padilla that the awards of financial assistance should be left to the discretion of the
National Labor Relations Commission as may be warranted by the "environmental facts" of the case.
PADILIA, J., separate opinion
I concur in the decision penned by Mr. Justice Cruz when it disallows separation pay, as financial
assistance, to the private respondent, since the ground for termination of employment is dishonesty
in the performance of her duties.
I do not, however, subscribe to the view that "the separation pay, if found due under the
circumstances of each case, should be computed at the rate of one month salary for every year of
service, assuming the length of such service is deemed material." (p.11, Decision). It is my
considered view that, except for terminations based on dishonesty and serious misconduct involving
moral turpitude-where no separation pay should be allowed--in other cases, the grant of separation
pay, i.e. the amount thereof, as financial assistance to the terminated employee, should be left to the
judgment of the administrative agency concemed which is the NLRC. It is in such cases- where the
termination of employment is for a valid cause without, however, involving dishonesty or serious
misconduct involving moral turpitude-that the Constitutional policy of affording protection to labor
should be allowed full play; and this is achieved by leaving to the NLRC the primary jurisdiction and
judgment to determine the amount of separation pay that should be awarded to the terminated
employee in accordance with the "environmental facts" of each case.
It is further my view that the Court should not, as a rule, disturb or alter the amount of separation pay
awarded by the NLRC in such cases of valid termination of employment but with the financial
assistance, in the absence of a demonstrated grave abuse of discretion on the part of the NLRC.
GRIO AQUINO, J., dissent:
We should not rationalize compassion. I vote to affirm the grant of financial assistance.

Separate Opinions
FERNAN, C.J., dissenting:
The majority opinion itself declares that the reason for granting separation pay to lawfully dismissed
employees is that "our Constitution is replete with positive commands for the promotion of social
justice, and particularly the protection of the rights of the workers." 1
It is my firm belief that providing a rigid mathematical formula for determining the amounts of such
separation pay will not be in keeping with these constitutional directives. By computing the allowable
financial assistance on the formula suggested, we shall be closing our eyes to the spirit underlying
these constitutional mandates that "those who have less in life should have more in law." It cannot
be denied that a low salaried employee who is separated from work would suffer more hardship than
a well-compensated one. Yet, if we follow the formula suggested, we would in effect be favoring the
latter instead of the former, as it would be the low- salaried employee who would encounter difficulty
finding another job.
I am in accord with the opinion of Justice Sarmiento that we should not rationalize compassion and
that of Justice Padilla that the awards of financial assistance should be left to the discretion of the
National Labor Relations Commission as may be warranted by the "environmental facts" of the case.
PADILIA, J., separate opinion
I concur in the decision penned by Mr. Justice Cruz when it disallows separation pay, as financial
assistance, to the private respondent, since the ground for termination of employment is dishonesty
in the performance of her duties.
I do not, however, subscribe to the view that "the separation pay, if found due under the
circumstances of each case, should be computed at the rate of one month salary for every year of
service, assuming the length of such service is deemed material." (p.11, Decision). It is my
considered view that, except for terminations based on dishonesty and serious misconduct involving
moral turpitude-where no separation pay should be allowed--in other cases, the grant of separation
pay, i.e. the amount thereof, as financial assistance to the terminated employee, should be left to the
judgment of the administrative agency concemed which is the NLRC. It is in such cases- where the
termination of employment is for a valid cause without, however, involving dishonesty or serious
misconduct involving moral turpitude-that the Constitutional policy of affording protection to labor
should be allowed full play; and this is achieved by leaving to the NLRC the primary jurisdiction and
judgment to determine the amount of separation pay that should be awarded to the terminated
employee in accordance with the "environmental facts" of each case.
It is further my view that the Court should not, as a rule, disturb or alter the amount of separation pay
awarded by the NLRC in such cases of valid termination of employment but with the financial
assistance, in the absence of a demonstrated grave abuse of discretion on the part of the NLRC.
GRIO AQUINO, J., dissent:
We should not rationalize compassion. I vote to affirm the grant of financial assistance.

G.R. No. 184520

March 13, 2013

ROLANDO DS.TORRES, Petitioner,

vs.
RURAL BANK OF SAN JUAN, INC., ANDRES CANO CHUA, JOBEL GO CHUA, JESUS CANO
CHUA, MEINRADO DALISAY, JOSE MANALANSAN III, OFELIA GINA BE and NATY
ASTRERO, Respondents.
DECISION
REYES, J.:
This Petition for Review on Certiorari,1 under Rule 45 of the Rules of Court, seeks to reverse and set
aside the Decision2 dated February 21, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 94690
dismissing the complaint for illegal dismissal filed by petitioner Rolando OS. Torres (petitioner)
against respondent Rural Bank of San Juan, Inc. (RBSJT) and its officers who are the herein
individual respondents, namely: Andres Cano Chua (Andres), Jobel Go Chua (Jobel), Jesus Cano
Chua (Jesus), Meinrado Dalisay, Jose Manalansan III (Jose), Ofelia Ginabe (Ofelia) and Naty
Astrero (collectively referred to as respondents).3
Likewise assailed is the CA Resolution4 dated June 3, 2008 which denied reconsideration.
The antecedents
Culled from the rulings of the labor tribunals and the appellate court are the ensuing factual milieu:5
The petitioner was initially hired by RBSJI as Personnel and Marketing Manager in 1991. After a sixmonth probationary period and finding his performance to be satisfactory, RBSJI renewed his
employment for the same post to a permanent/regular status. In June 1996, the petitioner was
offered the position of Vice-President for RBSJIs newly created department, Allied Business
Ventures. He accepted the offer and concomitantly relinquished his post. The vacancy created was
filled by respondent Jobel who temporarily held the position concurrently as a Corporate Planning
and Human Resources Development Head.
On September 24, 1996, the petitioner was temporarily assigned as the manager of RBSJIs N.
Domingo branch in view of the resignation of Jacinto Figueroa (Jacinto).
On September 27, 1996, Jacinto requested the petitioner to sign a standard employment clearance
pertaining to his accountabilities with RBSJI. When the petitioner declined his request, Jacinto threw
a fit and shouted foul invectives. To pacify him, the petitioner bargained to issue a clearance but only
for Jacintos paid cash advances and salary loan.
About seven months later or on April 17, 1997, respondent Jesus issued a memorandum to the
petitioner requiring him to explain why no administrative action should be imposed on him for his
unauthorized issuance of a clearance to Jacinto whose accountabilities were yet to be audited.
Jacinto was later found to have unliquidated cash advances and was responsible for a questionable
transaction involving P11 million for which RBSJI is being sued by a certain Actives Builders
Manufacturing Corporation. The memorandum stressed that the clearance petitioner issued
effectively barred RBSJI from running after Jacinto.6

The petitioner submitted his explanation on the same day clarifying that the clearance was limited
only to Jacintos paid cash advances and salary loan based on the receipts presented by Lily Aguilar
(Lily), the cashier of N. Domingo branch. He emphasized that he had no foreknowledge nor was he
forewarned of Jacintos unliquidated cash advances and questionable transactions and that the
clearance did not extend to those matters.7
After conducting an investigation, RBSJIs Human Resources Department recommended the
petitioners termination from employment for the following reasons, to wit:
1. The issuance of clearance to Mr. Jacinto Figueroa by the petitioner have been prejudicial
to the Bank considering that damages [sic] found caused by Mr. Figueroa during his stay
with the bank;
2. The petitioner is not in any authority to issue said clearance which is a violation of the
Company Code of Conduct and Discipline under Category B Grave Offense No. 1 (falsifying
or misrepresenting persons or other company records, documents or papers) equivalent to
termination; and
3. The nature of his participation in the issuance of the said clearance could be a reasonable
ground for the Management to believe that he is unworthy of the trust and confidence
demanded by his position which is also a ground for termination under Article 282 of the
Labor Code.8
On May 19, 1997, RBSJIs Board of Directors adopted the above recommendation and issued
Resolution No. 97-102 terminating the petitioner from employment, the import of which was
communicated to him in a Memorandum dated May 30, 1997.9
Feeling aggrieved, the petitioner filed the herein complaint for illegal dismissal, illegal deduction,
non-payment of service incentive, leave pay and retirement benefits.10 The petitioner averred that the
supposed loss of trust and confidence on him was a sham as it is in fact the calculated result of the
respondents dubious plot to conveniently oust him from RBSJI.
He claimed that he was deceived to accept a Vice-President position, which turned out to be a mere
clerical and menial work, so the respondents can install Jobel, the son of a major stockholder of
RBSJI, as Personnel and Marketing Manager. The plot to oust the petitioner allegedly began in 1996
when Jobel annexed the Personnel and Marketing Departments to the Business Development and
Corporate Planning Department thus usurping the functions of and displacing the petitioner, who
was put on a floating status and stripped of managerial privileges and allowances.
The petitioner further alleged that he was cunningly assigned at N. Domingo branch so he can be
implicated in the anomalous transaction perpetrated by Jacinto. He narrated that on September 27,
1996, the officers of RBSJI, namely: Jobel, Andres, Jose and Ofelia, were actually at the N.
Domingo branch but they all suspiciously left him to face the predicament caused by Jacinto.
He recounted that the next day he was assigned back at the Tarlac extension office and thereafter
repeatedly harassed and forced to resign. He tolerated such treatment and pleaded that he be
allowed to at least reach his retirement age. On March 7, 1996, he wrote a letter to George Cano
Chua (George) expressing his detestation of how the "new guys" are dominating the operations of
the company by destroying the image of pioneer employees, like him, who have worked hard for the
good image and market acceptability of RBSJI. The petitioner requested for his transfer to the
operations or marketing department. His request was, however, not acted upon.

The petitioner claimed that on March 19, 1997, respondent Jesus verbally terminated him from
employment but he later on retracted the same and instead asked the petitioner to tender a
resignation letter. The petitioner refused. A month thereafter, the petitioner received the
memorandum asking him to explain why he cleared Jacinto of financial accountabilities and
thereafter another memorandum terminating him from employment.
For their part, the respondents maintained that the petitioner was validly dismissed for loss of trust
and confidence precipitated by his unauthorized issuance of a financial accountability clearance
sans audit to a resigned employee. They averred that a copy of the clearance mysteriously
disappeared from RBSJIs records hence, the petitioners claim that it pertained only to Jacintos
paid cash advances and salary loan cannot stand for being uncorroborated.
Attempts at an amicable settlement were made but the same proved futile hence, the Labor
Arbiter11 (LA) proceeded to rule on the complaint.
Ruling of LA
In its Decision12 dated November 27, 1998, the LA sustained the claims of the petitioner as against
the factually unsubstantiated allegation of loss of trust and confidence propounded by the
respondents. The LA observed that the petitioners selfless dedication to his job and efforts to
achieve RBSJIs stability, which the respondents failed to dispute, negate any finding of bad faith on
his part when he issued a clearance of accountabilities in favor of Jacinto. As such, the said act
cannot serve as a valid and justifiable ground for the respondents to lose trust and confidence in
him.
The LA further held that the failure of both parties to present a copy of the subject clearance amidst
the petitioners explanation that it did not absolutely release Jacinto from liability, should work
against the respondents since it is the proof that will provide basis for their supposed loss of trust
and confidence.
The LA upheld the petitioners contention that the loss of trust and confidence in him was indeed a
mere afterthought to justify the respondents premeditated plan to ease him out of RBSJI. The LAs
conclusion was premised on the convergence of the following circumstances: (1) the petitioners stint
from 1991-1996 was not marred with any controversy or complaint regarding his performance; (2)
when Jobel joined RBSJI in the latter part of 1996, he took over the department led by the petitioner
thus placing the latter in a floating status; and (3) the petitioners temporary transfer to the N.
Domingo branch was designed to deliberately put him in a bind and blame him on whatever course
of action he may take to resolve the same.
Accordingly, the petitioner was found to have been illegally dismissed and thus accorded the
following reliefs in the decretal portion of the LA Decision, viz:
WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Bank and
individual respondents, to reinstate [the petitioner to his previous or equivalent position, without loss
of seniority rights and other benefits and privileges appurtaining [sic] to him, and to pay the petitioner
the following:
1. The petitioners partial backwages and other emoluments in the form of allowances, as
gasoline, maintenance, representation, uniform and membership allowances, from the time
of his dismissal up to his actual date of reinstatement, which as of this date amount to:
Backwages (Partial) P244,800.00

Gasoline Allowances .. 63,000.00

Maintenance Allowance . 45,000.00
Representation Allowance .. 54,000.00
Membership Allowance .. 12,000.00
Uniform Allowance 8,000.00
Total P426,800.00
2. The petitioners 13th month pay from the time of his dismissal up to actual date of
reinstatement, which as of this date amounts to Twenty-Seven Thousand Two Hundred
(P27,200.00) Pesos;
3. Moral and exemplary damages in the amount of Fifty Thousand ([P]50,000.00) Pesos
each, respectively; and
4. Attorneys fees amounting to ten percent (10%) of the total award, specifically amounting
to Fifty-Five Thousand Nine Hundred Twenty-Three Pesos and Eight ([P]55,923.08)
Centavos.
All other claims are hereby Dismissed for lack of merit.
SO ORDERED.13
Ruling of the National Labor Relations Commission (NLRC)
In its Resolution14 dated April 14, 2000, the NLRC disagreed with the LAs conclusion and opined
that it was anchored on irrelevant matters such as the petitioners performance and the preferential
treatment given to relatives of RBSJIs stockholders. The NLRC held that the legality of the
petitioners dismissal must be based on an appreciation of the facts and the proof directly related to
the offense charged, which NLRC found to have weighed heavily in favor of the respondents.
The NLRC remarked that the petitioner was indisputably not authorized to issue the clearance. Also,
the tantrums and furious attitude exhibited by Jacinto are not valid reasons to submit to his
demands. The fact that the N. Domingo branch had been sued civilly on February 25, 1997 for a tax
scam while under Jacintos leadership, should have alerted the petitioner into issuing him a
clearance. The action taken by the petitioner lacked the prudence expected from a man of his
stature thus prejudicing the interests of RBSJI. Accordingly, the dispositive portion of the decision
reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Let a new one
[sic] entered DISMISSING the instant case for lack of merit. However, respondent should pay the
petitioner his proportionate 13th month pay for 1997 as he was dismissed on May 30, 1997.
SO ORDERED.15
The petitioner sought reconsideration16 which was admitted by the NLRC in an Order dated
September 30, 2005. From such Order, the respondents filed a motion for reconsideration on the

ground that the petitioner failed to present a copy of his purported motion bearing the requisite proof
of filing.17
Traversing both motions, the NLRC issued its Decision18 dated March 3, 2006: (1) granting the
petitioners plea for the reconsideration of its Resolution dated April 14, 2000 thus effectively
reversing and nullifying the same; and (2) denying the respondents motion for reconsideration of the
Order dated September 30, 2005.
Anent the first disposition, the NLRC accorded weight to the explanations proffered by the petitioner
that the clearance issued to Jacinto was limited only to his paid cash advances and salary loan. The
NLRC further held that the offense imputed to the petitioner is not covered by Category B, Grave
Offense No. 1 of RBSJIs Code of Conduct and Discipline as it does not appear that he falsified or
misrepresented personal or other company records, documents or papers.19
Taking an entirely opposite stance, the NLRC declared that the clearance issued by the petitioner
did not prejudice RBSJIs interest as it was limited in scope and did not entirely clear Jacinto from all
his financial accountabilities. Also, the petitioner was only "a day old" at the N. Domingo branch and
thus he cannot be reasonably expected to be aware of the misdeeds purportedly committed by
Jacinto.20
For the foregoing reasons, the NLRC reversed its earlier ruling and reinstated the LAs Decision
dated November 27, 1998, thus:
WHEREFORE, the Arbiters decision of 27 November 1998 is hereby AFFIRMED and
REINSTATED.
Accordingly, the Resolution of 14 April 2000 is REVERSED and SET ASIDE.
Finally, the respondents Motion for Reconsideration dated 2 November 2005 is DENIED for lack of
merit.
SO ORDERED.21
Ruling of the CA
The respondents sought recourse with the CA,22 which in its Decision23 dated February 21, 2008
reversed and set aside the NLRC Decision dated March 3, 2006 and ruled that the petitioner was
dismissed for a just cause. The appellate court articulated that as the Acting Manager of RBSJIs N.
Domingo branch, the petitioner held a highly sensitive and critical position which entailed the
conscientious observance of company procedures. Not only was he unauthorized to issue the
clearance, he also failed to exercise prudence in clearing Jacinto of his accountabilities given the
fact that the same were yet to be audited. Such omission financially prejudiced RBSJI and it
amounted to gross negligence and incompetence sufficient to sow in his employer the seed of
mistrust and loss of confidence.24 The decretal portion of the CA Decision thus reads:
IN VIEW OF ALL THE FOREGOING, the petition is GRANTED. The March 03, 2006 Decision of the
National Labor Relations Commission is REVERSED and SET ASIDE. The April 14, 2000 Decision
of the National Labor Relations Commission is hereby REINSTATED. No costs.
SO ORDERED.25

The petitioner moved for reconsideration26 but the motion was denied in the CA Resolution27 dated
June 3, 2008. Hence, the present appeal.
Arguments of the parties
The petitioner avers that the respondents claim of loss of trust and confidence is not worthy of
credence since they failed to present a copy of the clearance purportedly showing that he cleared
Jacinto of all his financial accountabilities and not merely as to his paid cash advances and salary
loan. He points out that RBSJI must be in custody thereof considering that it is a vital official record.
The petitioner insists that the alleged loss of trust and confidence in him is a mere subterfuge to
cover the respondents ploy to oust him out of RBSJI. He asserts that the seven-month gap between
the date when he issued the subject clearance and the date when he was sent a memorandum for
the said act shows that the respondents supposed loss of trust and confidence was a mere
afterthought.28
On the other hand, the respondents invoke the ratiocinations of the CA that they were justified in
losing the trust and confidence reposed on the petitioner since he failed to exercise the degree of
care expected of his managerial position. They reiterate the petitioners admission that no audit was
yet conducted as to the accountabilities of Jacinto when he issued the clearance.
The respondents further assert that as a former Personnel Manager, the petitioner is well-aware of
RBSJIs policy that before a resigned employee can be cleared of accountabilities, he must be first
examined or audited. However, the petitioner opted to violate this policy and yield to Jacintos
tantrums.29
The above arguments yield the focal issue of whether or not the petitioner was validly dismissed
from employment.
The Courts Ruling
The petition is impressed with merit.
Settled is the rule that when supported by substantial evidence, the findings of fact of the CA are
conclusive and binding on the parties and are not reviewable by this Court.30 As such, only errors of
law are reviewed by the Court in petitions for review of CA decisions. By way of exception, however,
the Court will exercise its equity jurisdiction and re-evaluate, review and re-examine the factual
findings of the CA when, as in this case, the same are contradicting31 with the findings of the labor
tribunals.
The respondents failed to prove that the petitioner was dismissed for a just cause.
As provided in Article 28232 of the Labor Code and as firmly entrenched in jurisprudence,33 an
employer has the right to dismiss an employee by reason of willful breach of the trust and confidence
reposed in him.
To temper the exercise of such prerogative and to reconcile the same with the employees
Constitutional guarantee of security of tenure, the law imposes the burden of proof upon the
employer to show that the dismissal of the employee is for just cause failing which would mean that
the dismissal is not justified. Proof beyond reasonable doubt is not necessary but the factual basis
for the dismissal must be clearly and convincingly established.34

Further, the law mandates that before validity can be accorded to a dismissal premised on loss of
trust and confidence, two requisites must concur, viz: (1) the employee concerned must be holding a
position of trust; and (2) the loss of trust must be based on willful breach of trust founded on clearly
established facts.35
There is no arguing that the petitioner was part of the upper echelons of RBSJIs management from
whom greater fidelity to trust is expected. At the time when he committed the act which allegedly led
to the loss of RBSJIs trust and confidence in him, he was the Acting Manager of N. Domingo
branch. It was part of the petitioners responsibilities to effect a smooth turn-over of pending
transactions and to sign and approve instructions within the limits assigned to the position under
existing regulations.36 Prior thereto and ever since he was employed, he has occupied positions that
entail the power or prerogative to dictate management policies as Personnel and Marketing
Manager and thereafter as Vice-President.
The presence of the first requisite is thus certain. Anent the second requisite, the Court finds that the
respondents failed to meet their burden of proving that the petitioners dismissal was for a just
cause.
The act alleged to have caused the loss of trust and confidence of the respondents in the petitioner
was his issuance, without prior authority and audit, of a clearance to Jacinto who turned out to be
still liable for unpaid cash advances and for an P11-million fraudulent transaction that exposed
RBSJI to suit. According to the respondents, the clearance barred RBSJI from running after Jacinto.
The records are, however, barren of any evidence in support of these claims.
As correctly argued by the petitioner and as above set forth, the onus of submitting a copy of the
clearance allegedly exonerating Jacinto from all his accountabilities fell on the respondents. It was
the single and absolute evidence of the petitioners act that purportedly kindled the respondents loss
of trust. Without it, the respondents allegation of loss of trust and confidence has no leg to stand on
and must thus be rejected. Moreover, one can reasonably expect that a copy of the clearance, an
essential personnel document, is with the respondents. Their failure to present it and the lack of
explanation for such failure or the documents unavailability props up the presumption that its
contents are unfavorable to the respondents assertions.
At any rate, the absence of the clearance upon which the contradicting claims of the parties could
ideally be resolved, should work against the respondents. With only sworn pleadings as proof of their
opposite claims on the true contents of the clearance, the Court is bound to apply the principle that
the scales of justice should be tilted in favor of labor in case of doubt in the evidence presented.37
RBSJI also failed to substantiate its claim that the petitioners act estopped them from pursuing
Jacinto for his standing obligations. There is no proof that RBSJI attempted or at least considered to
demand from Jacinto the payment of his unpaid cash advances. Neither was RBSJI able to show
that it filed a civil or criminal suit against Jacinto to make him responsible for the alleged fraud. There
is thus no factual basis for RBSJIs allegation that it incurred damages or was financially prejudiced
by the clearance issued by the petitioner.
More importantly, the complained act of the petitioner did not evince intentional breach of the
respondents trust and confidence. Neither was the petitioner grossly negligent or unjustified in
pursuing the course of action he took.
It must be pointed out that the petitioner was caught in the quandary of signing on the spot a
standard employment clearance for the furious Jacinto sans any information on his outstanding
accountabilities, and refusing to so sign but risk alarming or scandalizing RBSJI, its employees and

clients. Contrary to the respondents allegation, the petitioner did not concede to Jacintos demands.
He was, in fact, able to equalize two equally undesirable options by bargaining to instead clear
Jacinto only of his settled financial obligations after proper verification with branch cashier Lily. It was
only after Lily confirmed Jacintos recorded payments that the petitioner signed the clearance. The
absence of an audit was precisely what impelled the petitioner to decline signing a standard
employment clearance to Jacinto and instead issue a different one pertaining only to his paid
accountabilities.
Under these circumstances, it cannot be concluded that the petitioner was in any way prompted by
malicious motive in issuing the clearance. He was also able to ensure that RBSJIs interests are
protected and that Jacinto is pacified. He did what any person placed in a similar situation can
prudently do. He was able to competently evaluate and control Jacintos demands and thus prevent
compromising RBSJIs image, employees and clients to an alarming scene.
The Court has repeatedly emphasized that the act that breached the trust must be willful such that it
was done intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from
an act done carelessly, thoughtlessly, heedlessly or inadvertently.38 The conditions under which the
clearance was issued exclude any finding of deliberate or conscious effort on the part of the
petitioner to prejudice his employer.
Also, the petitioner did not commit an irregular or prohibited act. He did not falsify or misrepresent
any company record as it was officially confirmed by Lily that the items covered by the clearance
were truly settled by Jacinto. Hence, the respondents had no factual basis in declaring that the
petitioner violated Category B Grave Offense No. 1 of the Company Code of Conduct and Discipline.
The respondents cannot capitalize on the petitioners lack of authority to issue a clearance to
resigned employees. First, it remains but an unsubstantiated allegation despite the several
opportunities for them in the proceedings below to show, through bank documents, that the
petitioner is not among those officers so authorized. Second, it is the Courts considered view that by
virtue of the petitioners stature in respondent bank, it was well-within his discretion to sign or certify
the truthfulness of facts as they appear in RBSJIs records. Here, the records of RBSJI cashier Lily
clearly showed that Jacinto paid the cash advances and salary loan covered by the clearance issued
by the petitioner.
Lastly, the seven-month gap between the clearance incident and the April 17, 1997 memorandum
asking the petitioner to explain his action is too lengthy to be ignored. It likewise remains
uncontroverted that during such period, respondent Jesus verbally terminated the petitioner only to
recall the same and instead ask the latter to tender a resignation letter. When the petitioner refused,
he was sent the memorandum questioning his issuance of a clearance to Jacinto seven months
earlier. The confluence of these undisputed circumstances supports the inference that the clearance
incident was a mere afterthought used to gain ground for the petitioners dismissal.
Loss of trust and confidence as a ground for dismissal has never been intended to afford an
occasion for abuse because of its subjective nature. It should not be used as a subterfuge for
causes which are illegal, improper and unjustified. It must be genuine, not a mere afterthought
intended to justify an earlier action taken in bad faith.39
All told, the unsubstantiated claims of the respondents fall short of the standard proof required for
valid termination of employment. They failed to clearly and convincingly establish that the petitioners
act of issuing a clearance to Jacinto rendered him unfit to continue working for RBSJI. The petitioner
was illegally dismissed from employment and is entitled to back wages, to be computed from the
date he was illegally dismissed until the finality of this decision.40

The disposition of the case made by the LA in its Decision dated November 27, 1998, as affirmed by
the NLRC in its Decision dated March 6, 2006, is most in accord with the above disquisitions hence,
must be reinstated. However, the monetary awards therein should be clarified.
The petitioner is entitled to separation pay in lieu of reinstatement and his back wages shall earn
legal interest.
In accordance with current jurisprudence, the award of back wages shall earn legal interest at the
rate of six percent (6%) per annum from the date of the petitioners illegal dismissal until the finality
of this decision.41Thereafter, it shall earn 12% legal interest until fully paid42 in accordance with the
guidelines in Eastern Shipping Lines, Inc., v. Court of Appeals.43
In addition to his back wages, the petitioner is also entitled to separation pay. It cannot be gainsaid
that animosity and antagonism have been brewing between the parties since the petitioner was
gradually eased out of key positions in RBSJI and to reinstate him will only intensify their hostile
working atmosphere.44 Thus, based on strained relations, separation pay equivalent to one (1) month
salary for every year of service, with a fraction of a year of at least six (6) months to be considered
as one (1) whole year, should be awarded in lieu of reinstatement, to be computed from date of his
engagement by RBSJI up to the finality of this decision.45
The award of separation pay in case of strained relations is more beneficial to both parties in that it
liberates the employee from what could be a highly oppressive work environment in as much as it
releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it
could no longer trust.46
The award of moral and exemplary damages is not warranted.
In M+W Zander Philippines, Inc. v. Enriquez,47 the Court decreed that illegal dismissal, by itself
alone, does not entitle the dismissed employee to moral damages; additional facts must be pleaded
and proven to warrant the grant of moral damages, thus:
Moral damages are recoverable only where the dismissal of the employee was attended by bad faith
or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good
customs or public policy. Such an award cannot be justified solely upon the premise that the
employer fired his employee without just cause or due process. Additional facts must be pleaded
and proven to warrant the grant of moral damages under the Civil Code, i.e., that the act of dismissal
was attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a
manner contrary to morals, good customs or public policy; and, of course, that social humiliation,
wounded feelings, grave anxiety, and similar injury resulted therefrom.48 (Citations omitted)
Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive
or interest or ill will; it partakes of the nature of fraud.49
Here, the petitioner failed to prove that his dismissal was attended by explicit oppressive, humiliating
or demeaning acts. The following events merely sketch the struggle for power within the upper
management of RBSJI between the "old guys" and the "new guys"; they do not convincingly prove
that the respondents schemed to gradually ease the petitioner out, viz: (1) his promotion as VicePresident; (2) his replacement by Jobel as Personnel and Marketing Manager; (2) his designation as
Acting Manager of N. Domingo branch and the recall thereof on the very next day; (3) the presence
of Andres, Jose and Ofelia at the N. Domingo branch in the morning of

September 27, 1996; and (4) Georges inaction on the petitioners request to be transferred to the
operations or marketing department. As disagreeable as they may seem, these acts cannot be
equated with bad faith that can justify an award of damages.
Since no moral damages can be granted under the facts of the case, exemplary damages cannot
also be awarded.50
The solidary liability of individual respondents as corporate officers must be recalled.
In the same vein, the individual respondents cannot be made solidarily liable with RBSJI for the
illegal dismissal. Time and again, the Court has held that a corporation has its own legal personality
separate and distinct from those of its stockholders, directors or officers. Hence, absent any
evidence that they have exceeded their authority, corporate officers are not personally liable for their
official acts. Corporate directors and officers may be held solidarily liable with the corporation for the
termination of employment only if done with malice or in bad faith.51 As discussed above, the acts
imputed to the respondents do not support a finding of bad faith.
In addition, the lack of a valid cause for the dismissal of an employee does not ipso facto mean that
the corporate officers acted with malice or bad faith. There must be an independent proof of malice
or bad faith,52 which is absent in the case at bar.
The award of 13th month pay is ncorrect.
Being a managerial employee, the petitioner is not entitled to 13th month pay. Pursuant to
Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of
the 13th Month Pay Law dated November 16, 1987, managerial employees are exempt from
receiving such benefit without prejudice to the granting of other bonuses, in lieu of the 13th month
pay, to managerial employees upon the employers discretion.53
1w phi 1

The award of attorneys fees is proper.

It is settled that where an employee was forced to litigate and, thus, incur expenses to protect his
rights and interest, the award of attorneys fees is legally and morally justifiable.54 Pursuant to Article
111 of the Labor Code, ten percent (10%) of the total award is the reasonable amount of attorneys
fees that can be awarded.
WHEREFORE, the petition is GRANTED. The Decision dated February 21, 2008 and Resolution
dated June 3, 2008 of the Court of Appeals in CA-G.R. SP No. 94690 are REVERSED and SET
ASIDE. The Decision of the Labor Arbiter dated November 27, 1998 is REINSTATED with the
following MODIFICATIONS/CLARIFICATIONS: Petitioner Rolando DS. Torres is entitled to the
payment of: (a) back wages reckoned from May 30, 1997 up to the finality of this Decision, with
interest at six percent (6%) per annum, and 12% legal interest thereafter until fully paid; and (b) in
lieu of reinstatement, separation pay equivalent to one (1) month salary for every year of service,
with a fraction of at least six (6) months to be considered as one (1) whole year, to be computed
from the date of his employment up to the finality of this decision.
The amounts awarded as moral damages, exemplary damages and 13th month pay are DELETED.
Only respondent Rural Bank of San Juan, Inc. is liable for the illegal dismissal and the consequential
monetary awards arising therefrom. The other portions of and monetary awards in the Labor
Arbiter's Decision dated November 27, 1998 are AFFIRMED. SO ORDERED.

G.R. No. 185556

March 28, 2011

SUPREME STEEL CORPORATION, Petitioner,

vs.
NAGKAKAISANG MANGGAGAWA NG SUPREME INDEPENDENT UNION (NMS-INDAPL), Respondent.
DECISION
NACHURA, J.:
This petition for review on certiorari assails the Court of Appeals (CA) Decision1 dated September
30, 2008, and Resolution dated December 4, 2008, which affirmed the finding of the National Labor
Relations Commission (NLRC) that petitioner violated certain provisions of the Collective Bargaining
Agreement (CBA).
Petitioner Supreme Steel Pipe Corporation is a domestic corporation engaged in the business of
manufacturing steel pipes for domestic and foreign markets. Respondent Nagkakaisang
Manggagawa ng Supreme Independent Union is the certified bargaining agent of petitioners rankand-file employees. The CBA2 in question was executed by the parties to cover the period from June
1, 2003 to May 31, 2008.
The Case
On July 27, 2005, respondent filed a notice of strike with the National Conciliation and Mediation
Board (NCMB) on the ground that petitioner violated certain provisions of the CBA. The parties failed
to settle their dispute. Consequently, the Secretary of Labor certified the case to the NLRC for
compulsory arbitration pursuant to Article 263(g) of the Labor Code.
Respondent alleged eleven CBA violations, delineated as follows:
A. Denial to four employees of the CBA- provided wage increase
Article XII, Section 1 of the CBA provides:
Section 1. The COMPANY shall grant a general wage increase, over and above to all employees,
according to the following schedule:
A. Effective June 1, 2003 P14.00 per working day;
B. Effective June 1, 2004 P12.00 per working day; and
C. Effective June 1, 2005 P12.00 per working day.3
Respondent alleged that petitioner has repeatedly denied the annual CBA increases to at least four
individuals: Juan Nio, Reynaldo Acosta, Rommel Talavera, and Eddie Dalagon. According to
respondent, petitioner gives an anniversary increase to its employees upon reaching their first year
of employment. The four employees received their respective anniversary increases and petitioner
used such anniversary increase to justify the denial of their CBA increase for the year.4

Petitioner explained that it has been the companys long standing practice that upon reaching one
year of service, a wage adjustment is granted, and, once wages are adjusted, the increase provided
for in the CBA for that year is no longer implemented. Petitioner claimed that this practice was not
objected to by respondent as evidenced by the employees pay slips.5
Respondent countered that petitioner failed to prove that, as a matter of company practice, the
anniversary increase took the place of the CBA increase. It contended that all employees should
receive the CBA stipulated increase for the years 2003 to 2005.6
B. Contracting-out labor
Article II, Section 6 of the CBA provides:
Section 6. Prohibition of Contracting Out of Work of Members of Bargaining Unit. Thirty (30) days
from the signing of this CBA, contractual employees in all departments, except Warehouse and
Packing Section, shall be phased out. Those contractual employees who are presently in the
workforce of the COMPANY shall no longer be allowed to work after the expiration of their contracts
without prejudice to being hired as probationary employees of the COMPANY.7
Respondent claimed that, contrary to this provision, petitioner hired temporary workers for five
months based on uniformly worded employment contracts, renewable for five months, and assigned
them to almost all of the
departments in the company. It pointed out that, under the CBA, temporary workers are allowed only
in the Warehouse and Packing Section; consequently, employment of contractual employees
outside this section, whether direct or agency-hired, was absolutely prohibited. Worse, petitioner
never regularized them even if the position they occupied and the services they performed were
necessary and desirable to its business. Upon the expiration of their contracts, these workers would
be replaced with other workers with the same employment status. This scheme is a clear
circumvention of the laws on regular employment. 8
Respondent argued that the right to self-organization goes beyond the maintenance of union
membership. It emphasized that the CBA maintains a union shop clause which gives the regular
employees 30 days within which to join respondent as a condition for their continued employment.
Respondent maintained that petitioners persistent refusal to grant regular status to its employees,
such as Dindo Buella, who is assigned in the Galvanizing Department, violates the employees right
to self-organization in two ways: (1) they are deprived of a representative for collective bargaining
purposes; and (2) respondent is deprived the right to expand its membership. Respondent
contended that a unions strength lies in its number, which becomes crucial especially during
negotiations; after all, an employer will not bargain seriously with a union whose membership
constitutes a minority of the total workforce of the company. According to respondent, out of the 500
employees of the company, only 147 are union members, and at least 60 employees would have
been eligible for union membership had they been recognized as regular employees.9
For its part, petitioner admitted that it hired temporary workers. It purportedly did so to cope with the
seasonal increase of the job orders from abroad. In order to comply with the job orders, petitioner
hired the temporary workers to help the regular workers in the production of steel pipes. Petitioner
maintained that these workers do not affect respondents membership. Petitioner claimed that it
agreed to terminate these temporary employees on the condition that the regular employees would
have to perform the work that these employees were performing, but respondent refused.
Respondents refusal allegedly proved that petitioner was not contracting out the services being

performed by union members. Finally, petitioner insisted that the hiring of temporary workers is a
management prerogative.10
C. Failure to provide shuttle service
Petitioner has allegedly reneged on its obligation to provide shuttle service for its employees
pursuant to Article XIV, Section 7 of the CBA, which provides:
Section 7. Shuttle Service. As per company practice, once the company vehicle used for the
purpose has been reconditioned.11
Respondent claimed that the company vehicle which would be used as shuttle service for its
employees has not been reconditioned by petitioner since the signing of the CBA on February 26,
2004.12 Petitioner explained that it is difficult to implement this provision and simply denied that it has
reneged on its obligation.13
D. Refusal to answer for the medical expenses incurred by three employees
Respondent asserted that petitioner is liable for the expenses incurred by three employees who
were injured while in the company premises. This liability allegedly stems from Article VIII, Section 4
of the CBA which provides:
Section 4. The COMPANY agrees to provide first aid medicine and first aid service and consultation
free of charge to all its employees.14
According to respondent, petitioners definition of what constitutes first aid service is limited to the
bare minimum of treating injured employees while still within the company premises and referring the
injured employee to the Chinese General Hospital for treatment, but the travel expense in going to
the hospital is charged to the employee. Thus, when Alberto Guevarra and Job Canizares, union
members, were injured, they had to payP90.00 each for transportation expenses in going to the
hospital for treatment and going back to the company thereafter. In the case of Rodrigo Solitario,
petitioner did not even shoulder the cost of the first aid medicine, amounting to P2,113.00, even if he
was injured during the company sportsfest, but the amount was deducted, instead, from his salary.
Respondent insisted that this violates the above cited provision of the CBA.15
Petitioner insisted that it provided medicine and first aid assistance to Rodrigo Solitario. It alleged
that the latter cannot claim hospitalization benefits under Article VIII, Section 116 of the CBA because
he was not confined in a hospital.17
1avv phi 1

E. Failure to comply with the time-off with pay provision

Article II, Section 8 of the CBA provides:
Section 8. Time-Off with Pay. The COMPANY shall grant to the UNIONs duly authorized
representative/s or to any employee who are on duty, if summoned by the UNION to testify, if his/her
presence is necessary, a paid time-off for the handling of grievances, cases, investigations, labormanagement conferences provided that if the venue of the case is outside Company premises
involving [the] implementation and interpretation of the CBA, two (2) representatives of the UNION
who will attend the said hearing shall be considered time-off with pay. If an employee on a night shift
attends grievance on labor-related cases and could not report for work due to physical condition, he
may avail of union leave without need of the two (2) days prior notice.18

Respondent contended that under the said provision, petitioner was obliged to grant a paid time-off
to respondents duly authorized representative or to any employee who was on duty, when
summoned by respondent to testify or when the employees presence was necessary in the
grievance hearings, meetings, or investigations.19
Petitioner admitted that it did not honor the claim for wages of the union officers who attended the
grievance meetings because these meetings were initiated by respondent itself. It argued that since
the union officers
were performing their functions as such, and not as employees of the company, the latter should not
be liable. Petitioner further asserted that it is not liable to pay the wages of the union officers when
the meetings are held beyond company time (3:00 p.m.). It claimed that time-off with pay is allowed
only if the venue of the meeting is outside company premises and the meeting involves the
implementation and interpretation of the CBA.20
In reply, respondent averred that the above quoted provision does not make a qualification that the
meetings should be held during office hours (7:00 a.m. to 3:00 p.m.); hence, for as long as the
presence of the employee is needed, time spent during the grievance meeting should be paid.21
F. Visitors free access to company premises Respondent charged petitioner with violation of Article
II, Section 7 of the CBA which provides:
Section 7. Free Access to Company Premises. Local Union and Federation officers (subject to
companys security measure) shall be allowed during working hours to enter the COMPANY
premises for the following reasons:
a. To investigate grievances that have arisen;
b. To interview Union Officers, Stewards and members during reasonable hours; and
c. To attend to any meeting called by the Management or the UNION.22
G. Failure to comply with reporting time-off provision
Respondent maintained that a brownout is covered by Article XII, Section 3 of the CBA which states:
Section 3. Reporting Time-Off. The employees who have reported for work but are unable to
continue working because of emergencies such as typhoons, flood, earthquake, transportation
strike, where the COMPANY is affected and in case of fire which occurs in the block where the home
of the employee is situated and not just across the street and serious illness of an immediate
member of the family of the employee living with him/her and no one in the house can bring the sick
family member to the hospital, shall be paid as follows:
a. At least half day if the work stoppage occurs within the first four (4) hours of work; and
b. A whole day if the work stoppage occurs after four (4) hours of work.23
Respondent averred that petitioner paid the employees salaries for one hour only of the four-hour
brownout that occurred on July 25, 2005 and refused to pay for the remaining three hours. In
defense, petitioner simply insisted that brownouts are not included in the above list of emergencies.24

Respondent rejoined that, under the principle of ejusdem generis, brownouts or power outages
come within the "emergencies" contemplated by the CBA provision. Although brownouts were not
specifically identified as one of the emergencies listed in the said CBA provision, it cannot be denied
that brownouts fall within the same kind or class of the enumerated emergencies. Respondent
maintained that the intention of the provision was to compensate the employees for occurrences
which are beyond their control, and power outage is one of such occurrences. It insisted that the list
of emergencies is not an exhaustive list but merely gives an idea as to what constitutes an actual
emergency that is beyond the control of the employee.25
H. Dismissal of Diosdado Madayag
Diosdado Madayag was employed as welder by petitioner. He was served a Notice of Termination
dated March 14, 2005 which read:
Please consider this as a Notice of Termination of employment effective March 14, 2005 under Art.
284 of the Labor Code and its Implementing Rules.
This is based on the medical certificate submitted by your attending physician, Lucy Anne E.
Mamba, M.D., Jose R. Reyes Memorial Medical Center dated March 7, 2005 with the following
diagnosis:
Diabetes Mellitus Type 2
Please be guided accordingly.26
Respondent contended that Madayags dismissal from employment is illegal because petitioner
failed to obtain a certification from a competent public authority that his disease is of such nature or
at such stage that it cannot be cured within six months even after proper medical treatment.
Petitioner also failed to prove that Madayags continued employment was prejudicial to his health or
that of his colleagues.27
Petitioner, on the other hand, alleged that Madayag was validly terminated under Art. 28428 of the
Labor Code and that his leg was amputated by reason of diabetes, which disease is not workrelated. Petitioner claimed that it was willing to pay Madayag 13 days for every year of service but
respondent was asking for additional benefits.29
I. Denial of paternity leave benefit to two employees
Article XV, Section 2 of the CBA provides:
Section 2. Paternity Leave. As per law[,] [t]he Company shall, as much as possible, pay paternity
leave within 2 weeks from submission of documents.30
Petitioner admitted that it denied this benefit to the claimants for failure to observe the requirement
provided in the Implementing Rules and Regulations of Republic Act No. 8187 (Paternity Leave Act
of 1995), that is, to notify the employer of the pregnancy of their wives and the expected date of
delivery.31
Respondent argued that petitioner is relying on technicalities by insisting that the denial was due to
the two employees failure to notify it of the pregnancy of their respective spouses. It maintained that
the notification requirement runs counter to the spirit of the law. Respondent averred that, on

grounds of social justice, the oversight to notify petitioner should not be dealt with severely by
denying the two claimants this benefit.32
J. Discrimination and harassment
According to respondent, petitioner was contemptuous over union officers for protecting the rights of
union members. In an affidavit executed by Chito Guadaa, union secretary, he narrated that Alfred
Navarro, Officer-in-Charge of the Packing Department, had been harsh in dealing with his fellow
employees and would even challenge some workers to a fight. He averred that Navarro had an
overbearing attitude during work and grievance meetings. In November 2004, Navarro removed
Guadaa, a foreman, from his position and installed another foreman from another section. The
action was allegedly brought about by earlier grievances against Navarros abuse. Petitioner
confirmed his transfer to another section in violation of Article VI, Section 6 of the CBA,33 which
states in part:
Section 6. Transfer of Employment. No permanent positional transfer outside can be effected by
the COMPANY without discussing the grounds before the Grievance Committee. All transfer shall be
with advance notice of two (2) weeks. No transfer shall interfere with the employees exercise of the
right to self-organization.34
Respondent also alleged that Ariel Marigondon, union president, was also penalized for working for
his fellow employees. One time, Marigondon inquired from management about matters concerning
tax discrepancies because it appeared that non-taxable items were included as part of taxable
income. Thereafter, Marigondon was transferred from one area of operation to another until he was
allegedly forced to accept menial jobs of putting control tags on steel pipes, a kind of job which did
not require his 16 years of expertise in examining steel pipes.35
Edgardo Masangcay, respondents Second Vice President, executed an affidavit wherein he cited
three instances when his salary was withheld by petitioner. The first incident happened on May 28,
2005 when petitioner refused to give his salary to his wife despite presentation of a proof of
identification (ID) and letter of authorization. On June 18, 2005, petitioner also refused to release his
salary to Pascual Lazaro despite submission of a letter of authority and his ID and, as a result, he
was unable to buy medicine for his child who was suffering from asthma attack. The third instance
happened on June 25, 2005 when his salary was short of P450.00; this amount was however
released the following week.36
Petitioner explained that the transfer of the employee from one department to another was the result
of downsizing the Warehouse Department, which is a valid exercise of management prerogative. In
Guadaas case, Navarro denied that he was being harsh but claimed that he merely wanted to
stress some points. Petitioner explained that Guadaa was transferred when the section where he
was assigned was phased out due to the installation of new machines. Petitioner pointed out that the
other workers assigned in said section were also transferred.37
For the petitioner, Emmanuel Mendiola, Production Superintendent, also executed an affidavit
attesting that the allegation of Ariel Marigondon, that he was harassed and was a victim of
discrimination for being respondents President, had no basis. Marigondon pointed out that after the
job order was completed, he was reassigned to his original shift and group.38
Petitioner also submitted the affidavits of Elizabeth Llaneta Aguilar, disbursement clerk and hiring
staff, and Romeo T. Sy, Assistant Personnel Manager. Aguilar explained that she did not mean to
harass Masangcay, but she merely wanted to make sure that he would receive his salary. Affiant Sy
admitted that he refused to release Masangcays salary to a woman who presented herself as his

(Masangcays) wife since nobody could attest to it. He claimed that such is not an act of harassment
but a precautionary measure to protect Masangcays interest.39
K. Non-implementation of COLA in Wage Order Nos. RBIII-10 and 11
Respondent posited that any form of wage increase granted through the CBA should not be treated
as compliance with the wage increase given through the wage boards. Respondent claimed that, for
a number of years, petitioner has complied with Article XII, Section 2 of the CBA which provides:
Section 2. All salary increase granted by the COMPANY shall not be credited to any future
contractual or legislated wage increases. Both increases shall be implemented separate and distinct
from the increases stated in this Agreement. It should be understood by both parties that contractual
salary increase are separate and distinct from legislated wage increases, thus the increase brought
by the latter shall be enjoyed also by all covered employees.40
Respondent maintained that for every wage order that was issued in Region 3, petitioner never
hesitated to comply and grant a similar increase. Specifically, respondent cited petitioners
compliance with Wage Order No. RBIII-10 and grant of the mandated P15.00 cost of living
allowance (COLA) to all its employees. Petitioner, however, stopped implementing it to nonminimum wage earners on July 24, 2005. It contended that this violates Article 100 of the Labor
Code which prohibits the diminution of benefits already enjoyed by the workers and that such grant
of benefits had already ripened into a company practice.41
Petitioner explained that the COLA provided under Wage Order No. RBIII-10 applies to minimum
wage earners only and that, by mistake, it implemented the same across the board or to all its
employees. After realizing its mistake, it stopped integrating the COLA to the basic pay of the
workers who were earning above the minimum wage.42
The NLRCs Ruling
Out of the eleven issues raised by respondent, eight were decided in its favor; two (denial of
paternity leave benefit and discrimination of union members) were decided in favor of petitioner;
while the issue on visitors free access to company premises was deemed settled during the
mandatory conference. The dispositive portion of the NLRC Decision dated March 30, 2007 reads:
WHEREFORE, Supreme Steel Pipe Corporation (the Company) is hereby ordered to:
1) implement general wage increase to Juan Nio, Eddie Dalagon and Rommel Talavera
pursuant to the CBA in June 2003, 2004 and 2005;
2) regularize workers Dindo Buella and 60 other workers and to respect CBA provision on
contracting-out labor;
3) recondition the company vehicle pursuant to the CBA;
4) answer for expenses involved in providing first aid services including transportation
expenses for this purpose, as well as to reimburse Rodrigo Solitario the sum of P2,113.00;
5) pay wages of union members/officers who attended grievance meetings as follows:

1) D. Serenilla

- P115.24375

2) D. Miralpes

- P115.80625

3) E. Mallari

4) C. Cruz

- P114.65313

5) J. Patalbo

6) J.J. Muoz

- P111.19375

7) C. Guadaa

P56.94375

8) J. Patalbo

P161.0625

9) E. Mallari

P108.7625

10) C. Guadaa

P113.8875

P108.7625

P161.0625

11) A. Marigondon - P170.30625

12) A. Marigondon -

P181.66

13) A. Marigondon -

P181.66

14) E. Masangcay

P175.75

15) A. Marigondon -

P181.66

16) E. Masangcay

P175.75

17) A. Marigondon -

P181.66

18) F. Servano

P174.02

19) R. Estrella

P181.50

20) A. Marigondon -

P181.66

6) pay workers their salary for the 3 hours of the 4 hour brownout as follows:
1) Alagon, Jr., Pedro

- P130.0875

2) Aliwalas, Cristeto

- P108.5625

3) Baltazar, Roderick

P 90.1875

4) Baez, Oliver

P 90.9375

5) Prucal, Eduardo

P126.015

6) Calimquin, Rodillo

- P131.0362

7) Clave, Arturo

8) Cadavero, Rey

- P108.5625

P125.64

9) De Leon, Romulo

P124.35

10) Lactao, Noli

P126.015

11) Layco, Jr., Dandino - P130.5375

12) Legaspi, Melencio

P127.63

13) Quiachon, Rogelio

- P130.5525

14) Sacmar, Roberto

- P108.9375

15) Tagle, Farian

- P129.3375

16) Villavicencio, Victor -

P126.015

17) Agra, Romale

P126.015

18) Basabe, Luis

- P128.5575

19) Bornasal, Joel

20) Casitas, Santiago

- P128.5575

21) Celajes, Bonifacio

- P128.1825

22) Avenido, Jerry

- P133.2487

23) Gagarin, Alfredo

- P108.9375

24) Layson, Paulo

25) Lledo, Asalem

- P128.5575

26) Marigondon, Ariel

P131.745

27) Orcena, Sonnie

P126.015

28) Servano, Fernando -

P126.015

29) Versola, Rodrigo

P126.015

P127.53

P131.745

7) reinstate Diosdado Madayag to his former position without loss of seniority rights and to
pay full backwages and other benefits from 14 March 2005, date of dismissal, until the date
of this Decision; if reinstatement is impossible[,] to pay separation pay of one month pay for
every year of service in addition to backwages;
8) dismiss the claim for paternity leave for failure of claimants to observe the requirements;
9) dismiss the charge of harassment and discrimination for lack of merit; and to
10) continue to implement COLA under Wage Order Nos. [RBIII]-10 & 11 across the board.
The issue on Visitors Free Access to Company Premises is dismissed for being moot and academic
after it was settled during the scheduled conferences.

SO ORDERED.43
Forthwith, petitioner elevated the case to the CA, reiterating its arguments on the eight issues
resolved by the NLRC in respondents favor.
The CAs Ruling
On September 30, 2008, the CA rendered a decision dismissing the petition, thus:
WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and
accordingly DISMISSED, for lack of merit. The assailed Decision dated March 30, 2007 and
Resolution dated April 28, 2008 of the National Labor Relations Commission in NLRC NCR CC No.
000305-05 are hereby AFFIRMED.
With costs against the petitioner.
SO ORDERED.44
According to the CA, petitioner failed to show that the NLRC committed grave abuse of discretion in
finding that it violated certain provisions of the CBA. The NLRC correctly held that every employee is
entitled to the wage increase under the CBA despite receipt of an anniversary increase. The CA
concluded that, based on the wording of the CBA, which uses the words "general increase" and
"over and above," it cannot be said that the parties have intended the anniversary increase to be
given in lieu of the CBA wage increase.45
The CA declared that the withdrawal of the COLA under Wage Order No. RBIII-10 from the
employees who were not minimum wage earners amounted to a diminution of benefits because
such grant has already ripened into a company practice. It pointed out that there was no ambiguity
or doubt as to who were covered by the wage order. Petitioner, therefore, may not invoke error or
mistake in extending the COLA to all employees and such act can only be construed as "as a
voluntary act on the part of the employer."46 The CA opined that, considering the foregoing, the ruling
in Globe Mackay Cable and Radio Corp. v. NLRC47 clearly did not apply as there was no doubtful or
difficult question involved in the present case.48
The CA sustained the NLRCs interpretation of Art. VIII, Section 4 of the CBA as including the
expenses for first aid medicine and transportation cost in going to the hospital. The CA stressed that
the CBA should be construed liberally rather than narrowly and technically, and the courts must
place a practical and realistic construction upon it, giving due consideration to the context in which it
was negotiated and the purpose which it intended to serve.49
Based on the principle of liberal construction of the CBA, the CA likewise sustained the NLRCs
rulings on the issues pertaining to the shuttle service, time-off for attendance in grievance
meetings/hearings, and time-off due to brownouts.50
The CA further held that management prerogative is not unlimited: it is subject to limitations found in
law, a CBA, or the general principles of fair play and justice. It stressed that the CBA provided such
limitation on management prerogative to contract-out labor, and compliance with the CBA is
mandated by the express policy of the law.51
Finally, the CA affirmed the NLRCs finding that Madayags dismissal was illegal. It emphasized that
the burden to prove that the employees disease is of such nature or at such stage that it cannot be

cured within a period of six months rests on the employer. Petitioner failed to submit a certification
from a competent public authority attesting to such fact; hence, Madayags dismissal is illegal.52
Petitioner moved for a reconsideration of the CAs decision. On December 4, 2008, the CA denied
the motion for lack of merit.53
Dissatisfied, petitioner filed this petition for review on certiorari, contending that the CA erred in
finding that it violated certain provisions of the CBA.
The Courts Ruling
The petition is partly meritorious.
It is a familiar and fundamental doctrine in labor law that the CBA is the law between the parties and
compliance therewith is mandated by the express policy of the law. If the terms of a CBA are clear
and there is no doubt as to the intention of the contracting parties, the literal meaning of its
stipulation shall prevail.54 Moreover, the CBA must be construed liberally rather than narrowly and
technically and the Court must place a practical and realistic construction upon it.55 Any doubt in the
interpretation of any law or provision affecting labor should be resolved in favor of labor.56
Upon these well-established precepts, we sustain the CAs findings and conclusions on all the
issues, except the issue pertaining to the denial of the COLA under Wage Order No. RBIII-10 and 11
to the employees who are not minimum wage earners.
The wording of the CBA on general wage increase cannot be interpreted any other way: The CBA
increase should be given to all employees "over and above" the amount they are receiving, even if
that amount already includes an anniversary increase. Stipulations in a contract must be read
together, not in isolation from one another.57 Consideration of Article XIII, Section 2 (non-crediting
provision), bolsters such interpretation. Section 2 states that "[a]ll salary increase granted by the
company shall not be credited to any future contractual or legislated wage increases." Clearly then,
even if petitioner had already awarded an anniversary increase to its employees, such increase
cannot be credited to the "contractual" increase as provided in the CBA, which is considered
"separate and distinct."
Petitioner claims that it has been the company practice to offset the anniversary increase with the
CBA increase. It however failed to prove such material fact. Company practice, just like any other
fact, habits, customs, usage or patterns of conduct must be proven. The offering party must allege
and prove specific, repetitive conduct that might constitute evidence of habit,58 or company practice.
Evidently, the pay slips of the four employees do not serve as sufficient proof.
Petitioners excuse in not providing a shuttle service to its employees is unacceptable. In fact, it can
hardly be considered as an excuse. Petitioner simply says that it is difficult to implement the
provision. It relies on the fact that "no time element [is] explicitly stated [in the CBA] within which to
fulfill the undertaking." We cannot allow petitioner to dillydally in complying with its obligation and
take undue advantage of the fact that no period is provided in the CBA. Petitioner should recondition
the company vehicle at once, lest it be charged with and found guilty of unfair labor practice.
Petitioner gave a narrow construction to the wording of the CBA when it denied (a) reimbursement
for the first-aid medicines taken by Rodrigo Solitario when he was injured during the company
sportsfest and the transportation cost incurred by Alberto Guevara and Job Canizares in going to the
hospital, (b) payment of the wages of certain employees during the time they spent at the grievance
meetings, and (c) payment of the employees wages during the brownout that occurred on July 25,

2002. As previously stated, the CBA must be construed liberally rather than narrowly and technically.
It is the duty of the courts to place a practical and realistic construction upon the CBA, giving due
consideration to the context in which it is negotiated and the purpose which it is intended to serve.
Absurd and illogical interpretations should be avoided.59 A CBA, like any other contract, must be
interpreted according to the intention of the parties.60
The CA was correct in pointing out that the concerned employees were not seeking hospitalization
benefits under Article VIII, Section 1 of the CBA, but under Section 4 thereof; hence, confinement in
a hospital is not a prerequisite for the claim. Petitioner should reimburse Solitario for the first aid
medicines; after all, it is the duty of the employer to maintain first- aid medicines in its
premises.61 Similarly, Guevara and Canizares should also be reimbursed for the transportation cost
incurred in going to the hospital. The Omnibus Rules Implementing the Labor Code provides that,
where the employer does not have an emergency hospital in its premises, the employer is obliged to
transport an employee to the nearest hospital or clinic in case of emergency.62
We likewise agree with the CA on the issue of nonpayment of the time-off for attending grievance
meetings. The intention of the parties is obviously to compensate the employees for the time that
they spend in a grievance meeting as the CBA provision categorically states that the company will
pay the employee "a paid time-off for handling of grievances, investigations, labor-management
conferences." It does not make a qualification that such meeting should be held during office hours
or within the company premises.
The employees should also be compensated for the time they were prevented from working due to
the brownout. The CBA enumerates some of the instances considered as "emergencies" and these
are "typhoons, flood earthquake, transportation strike." As correctly argued by respondent, the CBA
does not exclusively enumerate the situations which are considered "emergencies." Obviously, the
key element of the provision is that employees "who have reported for work are unable to continue
working" because of the incident. It is therefore reasonable to conclude that brownout or power
outage is considered an "emergency" situation.
Again, on the issue of contracting-out labor, we sustain the CA. Petitioner, in effect, admits having
hired "temporary" employees, but it maintains that it was an exercise of management prerogative,
necessitated by the increase in demand for its product.
Indeed, jurisprudence recognizes the right to exercise management prerogative. Labor laws also
discourage interference with an employer's judgment in the conduct of its business. For this reason,
the Court often declines to interfere in legitimate business decisions of employers. The law must
protect not only the welfare of employees, but also the right of employers.63 However, the exercise of
management prerogative is not unlimited. Managerial prerogatives are subject to limitations provided
by law, collective bargaining agreements, and general principles of fair play and justice.64 The CBA is
the norm of conduct between the parties and, as previously stated, compliance therewith is
mandated by the express policy of the law.65
The CBA is clear in providing that temporary employees will no longer be allowed in the company
except in the Warehouse and Packing Section. Petitioner is bound by this provision. It cannot
exempt itself from compliance by invoking management prerogative. Management prerogative must
take a backseat when faced with a CBA provision. If petitioner needed additional personnel to meet
the increase in demand, it could have taken measures without violating the CBA.
Respondent claims that the temporary employees were hired on five-month contracts, renewable for
another five months. After the expiration of the contracts, petitioner would hire other persons for the
same work, with the same employment status.

Plainly, petitioners scheme seeks to prevent employees from acquiring the status of regular
employees. But the Court has already held that, where from the circumstances it is apparent that the
periods of employment have been imposed to preclude acquisition of security of tenure by the
employee, they should be struck down or disregarded as contrary to public policy and morals.66 The
primary standard to determine a regular employment is the reasonable connection between the
particular activity performed by the employee in relation to the business or trade of the employer.
The test is whether the former is usually necessary or desirable in the usual business or trade of the
employer. If the employee has been performing the job for at least one year, even if the performance
is not continuous or merely intermittent, the law deems the repeated and continuing need for its
performance as sufficient evidence of the necessity, if not indispensability, of that activity to the
business of the employer. Hence, the employment is also considered regular, but only with respect
to such activity and while such activity exists.67
We also uphold the CAs finding that Madayags dismissal was illegal. It is already settled that the
burden to prove the validity of the dismissal rests upon the employer. Dismissal based on Article 284
of the Labor Code is no different, thus:
The law is unequivocal: the employer, before it can legally dismiss its employee on the ground of
disease, must adduce a certification from a competent public authority that the disease of which its
employee is suffering is of such nature or at such a stage that it cannot be cured within a period of
six months even with proper treatment.
xxxx
In Triple Eight Integrated Services, Inc. v. NLRC, the Court explains why the submission of the
requisite medical certificate is for the employers compliance, thus:
The requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed
with; otherwise, it would sanction the unilateral and arbitrary determination by the employer of the
gravity or extent of the employees illness and thus defeat the public policy on the protection of labor.
x x x x68
However, with respect to the issue of whether the COLA under Wage Order Nos. RBIII-10 and 11
should be implemented across the board, we hold a different view from that of the CA. No diminution
of benefits would result if the wage orders are not implemented across the board, as no such
company practice has been established.
Diminution of benefits is the unilateral withdrawal by the employer of benefits already enjoyed by the
employees. There is diminution of benefits when it is shown that: (1) the grant or benefit is founded
on a policy or has ripened into a practice over a long period of time; (2) the practice is consistent and
deliberate; (3) the practice is not due to error in the construction or application of a doubtful or
difficult question of law; and (4) the diminution or discontinuance is done unilaterally by the
employer.69
To recall, the CA arrived at its ruling by relying on the fact that there was no ambiguity in the wording
of the wage order as to the employees covered by it. From this, the CA concluded that petitioner
actually made no error or mistake, but acted voluntarily, in granting the COLA to all its employees. It
therefore took exception to the Globe Mackay case which, according to it, applies only when there is
a doubtful or difficult question involved.

The CA failed to note that Globe Mackay primarily emphasized that, for the grant of the benefit to be
considered voluntary, "it should have been practiced over a long period of time, and must be shown
to have been consistent and deliberate."70 The fact that the practice must not have been due to error
in the construction or application of a doubtful or difficult question of law is a distinct requirement.
The implementation of the COLA under Wage Order No. RBIII-10 across the board, which only
lasted for less than a year, cannot be considered as having been practiced "over a long period of
time." While it is true that jurisprudence has not laid down any rule requiring a specific minimum
number of years in order for a practice to be considered as a voluntary act of the employer, under
existing jurisprudence on this matter, an act carried out within less than a year would certainly not
qualify as such. Hence, the withdrawal of the COLA Wage Order No. RBIII-10 from the salaries of
non-minimum wage earners did not amount to a "diminution of benefits" under the law.
There is also no basis in enjoining petitioner to implement Wage Order No. RBIII-11 across the
board. Similarly, no proof was presented showing that the implementation of wage orders across the
board has ripened into a company practice. In the same way that we required petitioner to prove the
existence of a company practice when it alleged the same as defense, at this instance, we also
require respondent to show proof of the company practice as it is now the party claiming its
existence. Absent any proof of specific, repetitive conduct that might constitute evidence of the
practice, we cannot give credence to respondents claim. The isolated act of implementing a wage
order across the board can hardly be considered a company practice,71 more so when such
implementation was erroneously made.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The CA Decision
September 30, 2008 and Resolution dated December 4, 2008 are AFFIRMED with MODIFICATION
that the order for petitioner to continue implementing Wage Order No. RBIII-10 and 11 across the
board is SET ASIDE. Accordingly, item 10 of the NLRC Decision dated March 30, 2007 is modified
to read "dismiss the claim for implementation of Wage Order Nos. RBIII-10 and 11 to the employees
who are not minimum wage earners."
SO ORDERED.

G.R. No. L-50999 March 23, 1990

JOSE SONGCO, ROMEO CIPRES, and AMANCIO MANUEL, petitioners,
vs
NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION), LABOR ARBITER FLAVIO
AGUAS, and F.E. ZUELLIG (M), INC., respondents.
Raul E. Espinosa for petitioners.
Lucas Emmanuel B. Canilao for petitioner A. Manuel.
Atienza, Tabora, Del Rosario & Castillo for private respondent.

MEDIALDEA, J.:
This is a petition for certiorari seeking to modify the decision of the National Labor Relations
Commission in NLRC Case No. RB-IV-20840-78-T entitled, "Jose Songco and Romeo Cipres,
Complainants-Appellants, v. F.E. Zuellig (M), Inc., Respondent-Appellee" and NLRC Case No. RNIV-20855-78-T entitled, "Amancio Manuel, Complainant-Appellant, v. F.E. Zuellig (M), Inc.,
Respondent-Appellee," which dismissed the appeal of petitioners herein and in effect affirmed the
decision of the Labor Arbiter ordering private respondent to pay petitioners separation pay
equivalent to their one month salary (exclusive of commissions, allowances, etc.) for every year of
service.
The antecedent facts are as follows:
Private respondent F.E. Zuellig (M), Inc., (hereinafter referred to as Zuellig) filed with the Department
of Labor (Regional Office No. 4) an application seeking clearance to terminate the services of
petitioners Jose Songco, Romeo Cipres, and Amancio Manuel (hereinafter referred to as petitioners)
allegedly on the ground of retrenchment due to financial losses. This application was seasonably
opposed by petitioners alleging that the company is not suffering from any losses. They alleged
further that they are being dismissed because of their membership in the union. At the last hearing of
the case, however, petitioners manifested that they are no longer contesting their dismissal. The
parties then agreed that the sole issue to be resolved is the basis of the separation pay due to
petitioners. Petitioners, who were in the sales force of Zuellig received monthly salaries of at least
P40,000. In addition, they received commissions for every sale they made.
The collective Bargaining Agreement entered into between Zuellig and F.E. Zuellig Employees
Association, of which petitioners are members, contains the following provision (p. 71, Rollo):
ARTICLE XIV Retirement Gratuity
Section l(a)-Any employee, who is separated from employment due to old age,
sickness, death or permanent lay-off not due to the fault of said employee shall
receive from the company a retirement gratuity in an amount equivalent to one (1)
month's salary per year of service. One month of salaryas used in this paragraph
shall be deemed equivalent to the salary at date of retirement; years of service shall
be deemed equivalent to total service credits, a fraction of at least six months being
considered one year, including probationary employment. (Emphasis supplied)

On the other hand, Article 284 of the Labor Code then prevailing provides:
Art. 284. Reduction of personnel. The termination of employment of any employee
due to the installation of labor saving-devices, redundancy, retrenchment to prevent
losses, and other similar causes, shall entitle the employee affected thereby to
separation pay. In case of termination due to the installation of labor-saving devices
or redundancy, the separation pay shall be equivalent to one (1) month pay or to at
least one (1) month pay for every year of service, whichever is higher. In case of
retrenchment to prevent losses and other similar causes, the separation pay shall be
equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of
service, whichever is higher. A fraction of at least six (6) months shall be considered
one (1) whole year. (Emphasis supplied)
In addition, Sections 9(b) and 10, Rule 1, Book VI of the Rules Implementing the Labor Code
provide:
xxx
Sec. 9(b). Where the termination of employment is due to retrechment initiated by the
employer to prevent losses or other similar causes, or where the employee suffers
from a disease and his continued employment is prohibited by law or is prejudicial to
his health or to the health of his co-employees, the employee shall be entitled to
termination pay equivalent at least to his one month salary, or to one-half
month pay for every year of service, whichever is higher, a fraction of at least six (6)
months being considered as one whole year.
xxx
Sec. 10. Basis of termination pay. The computation of the termination pay of an
employee as provided herein shall be based on his latest salary rate, unless the
same was reduced by the employer to defeat the intention of the Code, in which case
the basis of computation shall be the rate before its deduction. (Emphasis supplied)
On June 26,1978, the Labor Arbiter rendered a decision, the dispositive portion of which reads (p.
78, Rollo):
RESPONSIVE TO THE FOREGOING, respondent should be as it is hereby, ordered
to pay the complainants separation pay equivalent to their one month salary
(exclusive of commissions, allowances, etc.) for every year of service that they have
worked with the company.
SO ORDERED.
The appeal by petitioners to the National Labor Relations Commission was dismissed for lack of
merit.
Hence, the present petition.
On June 2, 1980, the Court, acting on the verified "Notice of Voluntary Abandonment and
Withdrawal of Petition dated April 7, 1980 filed by petitioner Romeo Cipres, based on the ground that

he wants "to abide by the decision appealed from" since he had "received, to his full and complete
satisfaction, his separation pay," resolved to dismiss the petition as to him.
The issue is whether or not earned sales commissions and allowances should be included in the
monthly salary of petitioners for the purpose of computation of their separation pay.
The petition is impressed with merit.
Petitioners' position was that in arriving at the correct and legal amount of separation pay due them,
whether under the Labor Code or the CBA, their basic salary, earned sales commissions and
allowances should be added together. They cited Article 97(f) of the Labor Code which includes
commission as part on one's salary, to wit;
(f) 'Wage' paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered, and includes the fair and reasonable value, as
determined by the Secretary of Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee. 'Fair reasonable value' shall not include
any profit to the employer or to any person affiliated with the employer.
Zuellig argues that if it were really the intention of the Labor Code as well as its implementing rules
to include commission in the computation of separation pay, it could have explicitly said so in clear
and unequivocal terms. Furthermore, in the definition of the term "wage", "commission" is used only
as one of the features or designations attached to the word remuneration or earnings.
Insofar as the issue of whether or not allowances should be included in the monthly salary of
petitioners for the purpose of computation of their separation pay is concerned, this has been settled
in the case of Santos v. NLRC, et al., G.R. No. 76721, September 21, 1987, 154 SCRA 166, where
We ruled that "in the computation of backwages and separation pay, account must be taken not only
of the basic salary of petitioner but also of her transportation and emergency living allowances." This
ruling was reiterated in Soriano v. NLRC, et al., G.R. No. 75510, October 27, 1987, 155 SCRA 124
and recently, in Planters Products, Inc. v. NLRC, et al., G.R. No. 78524, January 20, 1989.
We shall concern ourselves now with the issue of whether or not earned sales commission should
be included in the monthly salary of petitioner for the purpose of computation of their separation pay.
Article 97(f) by itself is explicit that commission is included in the definition of the term "wage". It has
been repeatedly declared by the courts that where the law speaks in clear and categorical language,
there is no room for interpretation or construction; there is only room for application (Cebu Portland
Cement Co. v. Municipality of Naga, G.R. Nos. 24116-17, August 22, 1968, 24 SCRA 708; Gonzaga
v. Court of Appeals, G.R.No. L-2 7455, June 28,1973, 51 SCRA 381). A plain and unambiguous
statute speaks for itself, and any attempt to make it clearer is vain labor and tends only to obscurity.
How ever, it may be argued that if We correlate Article 97(f) with Article XIV of the Collective
Bargaining Agreement, Article 284 of the Labor Code and Sections 9(b) and 10 of the Implementing
Rules, there appears to be an ambiguity. In this regard, the Labor Arbiter rationalized his decision in
this manner (pp. 74-76, Rollo):
The definition of 'wage' provided in Article 96 (sic) of the Code can be correctly be
(sic) stated as a general definition. It is 'wage ' in its generic sense. A careful perusal

of the same does not show any indication that commission is part of salary. We can
say that commission by itself may be considered a wage. This is not something novel
for it cannot be gainsaid that certain types of employees like agents, field personnel
and salesmen do not earn any regular daily, weekly or monthly salaries, but rely
mainly on commission earned.
Upon the other hand, the provisions of Section 10, Rule 1, Book VI of the
implementing rules in conjunction with Articles 273 and 274 (sic) of the Code
specifically states that the basis of the termination pay due to one who is sought to
be legally separated from the service is 'his latest salary rates.
x x x.
Even Articles 273 and 274 (sic) invariably use 'monthly pay or monthly salary'.
The above terms found in those Articles and the particular Rules were intentionally
used to express the intent of the framers of the law that for purposes of separation
pay they mean to be specifically referring to salary only.
.... Each particular benefit provided in the Code and other Decrees on Labor has its
own pecularities and nuances and should be interpreted in that light. Thus, for a
specific provision, a specific meaning is attached to simplify matters that may arise
there from. The general guidelines in (sic) the formation of specific rules for particular
purpose. Thus, that what should be controlling in matters concerning termination pay
should be the specific provisions of both Book VI of the Code and the Rules. At any
rate, settled is the rule that in matters of conflict between the general provision of law
and that of a particular- or specific provision, the latter should prevail.
On its part, the NLRC ruled (p. 110, Rollo):
From the aforequoted provisions of the law and the implementing rules, it could be
deduced that wage is used in its generic sense and obviously refers to the basic
wage rate to be ascertained on a time, task, piece or commission basis or other
method of calculating the same. It does not, however, mean that commission,
allowances or analogous income necessarily forms part of the employee's salary
because to do so would lead to anomalies (sic), if not absurd, construction of the
word "salary." For what will prevent the employee from insisting that emergency
living allowance, 13th month pay, overtime, and premium pay, and other fringe
benefits should be added to the computation of their separation pay. This situation, to
our mind, is not the real intent of the Code and its rules.
We rule otherwise. The ambiguity between Article 97(f), which defines the term 'wage' and Article
XIV of the Collective Bargaining Agreement, Article 284 of the Labor Code and Sections 9(b) and 10
of the Implementing Rules, which mention the terms "pay" and "salary", is more apparent than real.
Broadly, the word "salary" means a recompense or consideration made to a person for his pains or
industry in another man's business. Whether it be derived from "salarium," or more fancifully from
"sal," the pay of the Roman soldier, it carries with it the fundamental idea of compensation for
services rendered. Indeed, there is eminent authority for holding that the words "wages" and "salary"
are in essence synonymous (Words and Phrases, Vol. 38 Permanent Edition, p. 44 citing Hopkins
vs. Cromwell, 85 N.Y.S. 839,841,89 App. Div. 481; 38 Am. Jur. 496). "Salary," the etymology of
which is the Latin word "salarium," is often used interchangeably with "wage", the etymology of
which is the Middle English word "wagen". Both words generally refer to one and the same meaning,

that is, a reward or recompense for services performed. Likewise, "pay" is the synonym of "wages"
and "salary" (Black's Law Dictionary, 5th Ed.). Inasmuch as the words "wages", "pay" and "salary"
have the same meaning, and commission is included in the definition of "wage", the logical
conclusion, therefore, is, in the computation of the separation pay of petitioners, their salary base
should include also their earned sales commissions.
The aforequoted provisions are not the only consideration for deciding the petition in favor of the
petitioners.
We agree with the Solicitor General that granting, in gratia argumenti, that the commissions were in
the form of incentives or encouragement, so that the petitioners would be inspired to put a little more
industry on the jobs particularly assigned to them, still these commissions are direct remuneration
services rendered which contributed to the increase of income of Zuellig . Commission is the
recompense, compensation or reward of an agent, salesman, executor, trustees, receiver, factor,
broker or bailee, when the same is calculated as a percentage on the amount of his transactions or
on the profit to the principal (Black's Law Dictionary, 5th Ed., citing Weiner v. Swales, 217 Md. 123,
141 A.2d 749, 750). The nature of the work of a salesman and the reason for such type of
remuneration for services rendered demonstrate clearly that commission are part of petitioners'
wage or salary. We take judicial notice of the fact that some salesmen do not receive any basic
salary but depend on commissions and allowances or commissions alone, are part of petitioners'
wage or salary. We take judicial notice of the fact that some salesman do not received any basic
salary but depend on commissions and allowances or commissions alone, although an employeremployee relationship exists. Bearing in mind the preceeding dicussions, if we adopt the opposite
view that commissions, do not form part of wage or salary, then, in effect, We will be saying that this
kind of salesmen do not receive any salary and therefore, not entitled to separation pay in the event
of discharge from employment. Will this not be absurd? This narrow interpretation is not in accord
with the liberal spirit of our labor laws and considering the purpose of separation pay which is, to
alleviate the difficulties which confront a dismissed employee thrown the the streets to face the harsh
necessities of life.
Additionally, in Soriano v. NLRC, et al., supra, in resolving the issue of the salary base that should
be used in computing the separation pay, We held that:
The commissions also claimed by petitioner ('override commission' plus 'net deposit
incentive') are not properly includible in such base figure since such commissions
must be earned by actual market transactions attributable to petitioner.
Applying this by analogy, since the commissions in the present case were earned by actual market
transactions attributable to petitioners, these should be included in their separation pay. In the
computation thereof, what should be taken into account is the average commissions earned during
their last year of employment.
The final consideration is, in carrying out and interpreting the Labor Code's provisions and its
implementing regulations, the workingman's welfare should be the primordial and paramount
consideration. This kind of interpretation gives meaning and substance to the liberal and
compassionate spirit of the law as provided for in Article 4 of the Labor Code which states that "all
doubts in the implementation and interpretation of the provisions of the Labor Code including its
implementing rules and regulations shall be resolved in favor of labor" (Abella v. NLRC, G.R. No.
71812, July 30,1987,152 SCRA 140; Manila Electric Company v. NLRC, et al., G.R. No. 78763, July
12,1989), and Article 1702 of the Civil Code which provides that "in case of doubt, all labor
legislation and all labor contracts shall be construed in favor of the safety and decent living for the
laborer.

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

[G.R. No. 118651. October 16, 1997]

PIONEER TEXTURIZING CORP. and/or JULIANO LIM, petitioners,

vs. NATIONAL LABOR RELATIONS COMMISSION, PIONEER
TEXTURIZING WORKERS UNION and LOURDES A. DE
JESUS, respondents.
DECISION
FRANCISCO, J.:

The facts are as follows:

Private respondent Lourdes A. de Jesus is petitioners reviser/trimmer
since 1980. As reviser/trimmer, de Jesus based her assigned work on a paper
note posted by petitioners. The posted paper which contains the
corresponding price for the work to be accomplished by a worker is identified
by its P.O. Number. On August 15, 1992, de Jesus worked on P.O. No. 3853
by trimming the cloths ribs. She thereafter submitted tickets corresponding to
the work done to her supervisor. Three days later, de Jesus received from
petitioners personnel manager a memorandum requiring her to explain why
no disciplinary action should be taken against her for dishonesty and
tampering of official records and documents with the intention of cheating as
P.O. No. 3853 allegedly required no trimming. The memorandum also placed
her under preventive suspension for thirty days starting from August 19,
1992. In her handwritten explanation, de Jesus maintained that she merely
committed a mistake in trimming P.O. No. 3853 as it has the same style and
design as P.O. No. 3824 which has an attached price list for trimming the ribs
and admitted that she may have been negligent in presuming that the same
work was to be done with P.O. No. 3853, but not for dishonesty or tampering
Petitioners personnel department, nonetheless, terminated her from
employment and sent her a notice of termination dated September 18, 1992.
On September 22, 1992, de Jesus filed a complaint for illegal dismissal
against petitioners. The Labor Arbiter who heard the case noted that de Jesus
was amply accorded procedural due process in her termination from
service. Nevertheless, after observing that de Jesus made some further
trimming on P.O. No. 3853 and that her dismissal was not justified, the Labor
Arbiter held petitioners guilty of illegal dismissal. Petitioners were accordingly
ordered to reinstate de Jesus to her previous position without loss of seniority
rights and with full backwages from the time of her suspension on August 19,
1992. Dissatisfied with the Labor Arbiters decision, petitioners appealed to the

public respondent National Labor Relations Commission (NLRC). In its July

21, 1994 decision, the NLRC ruled that de Jesus was negligent in presuming
that the ribs of P.O. No. 3853 should likewise be trimmed for having the same
style and design as P.O. No. 3824, thus petitioners cannot be entirely faulted
for dismissing de Jesus. The NLRC declared that the status quo between
them should be maintained and affirmed the Labor Arbiters order of
reinstatement, but without backwages. The NLRC further directed petitioner to
pay de Jesus her back salaries from the date she filed her motion for
execution on September 21, 1993 up to the date of the promulgation of [the]
decision. Petitioners filed their partial motion for reconsideration which the
NLRC denied, hence this petition anchored substantially on the alleged
NLRCs error in holding that de Jesus is entitled to reinstatement and back
salaries. On March 6, 1996, petitioners filed its supplement to the petition
amplifying further their arguments. In a resolution dated February 20, 1995,
the Court required respondents to comment thereon. Private respondent de
Jesus and the Office of the Solicitor General, in behalf of public respondent
NLRC, subsequently filed their comments. Thereafter, petitioners filed two
rejoinders
[should
be
replies]
to
respondents
respective
comments. Respondents in due time filed their rejoinders.
[1]

[2]

These are two interrelated and crucial issues, namely: (1) whether or not de Jesus was
illegally dismissed, and (2) whether or not an order for reinstatement needs a writ of
execution.
Petitioners insist that the NLRC gravely abused its discretion in holding that de Jesus
is entitled to reinstatement to her previous position for she was not illegally dismissed
in the first place. In support thereof, petitioners quote portions of the NLRC decision
which stated that respondent [petitioners herein] cannot be entirely faulted for
dismissing the complaint and that there was no illegal dismissal to speak of in the
case at bar. Petitioners further add that de Jesus breached the trust reposed in her,
hence her dismissal from service is proper on the basis of loss of confidence, citing as
authority the cases ofOcean Terminal Services, Inc. v. NLRC, 197 SCRA 491; CocaCola Bottlers Phil., Inc. v. NLRC, 172 SCRA 751, and Piedad v. Lanao del Norte
Electric Cooperative, 154 SCRA 500.
[3]

[4]

[5]

The arguments lack merit.

The entire paragraph which comprises the gist of the NLRCs decision from
where petitioners derived and isolated the aforequoted portions of the NLRCs
observation reads in full as follows:
We cannot fully subscribe to the complainants claim that she trimmed the ribs
of PO3853 in the light of the sworn statement of her supervisor Rebecca

Madarcos (Rollo, p. 64) that no trimming was necessary because the ribs were
already of the proper length. The complainant herself admitted in her
sinumpaang salaysay (Rollo, p. 45) that Aking napansin na hindi pantaypantay ang lapad ng mga ribs PO3853 - mas maigsi ang nagupit ko sa mga ribs
ng PO3853 kaysa sa mga ribs ng mga nakaraang POs. The complaint being an
experienced reviser/trimmer for almost twelve (12) years should have called
the attention of her supervisor regarding her observation of PO3853. It should
be noted that complainant was trying to claim as production output 447 pieces
of trimmed ribs of PO3853 which respondents insists that complainant did not
do any. She was therefore negligent in presuming that the ribs of PO3853
should likewise be trimmed for having the same style and design as
PO3824. Complainant cannot pass on the blame to her supervisor whom she
claimed checked the said tickets prior to the submission to the Accounting
Department. As explained by respondent, what the supervisor does is merely
not the submission of tickets and do some checking before forwarding the
same to the Accounting Department. It was never disputed that it is the
Accounting Department who does the detailed checking and computation of
the tickets as has been the company policy and practice. Based on the
foregoing and considering that respondent cannot be entirely faulted for
dismissing complainant as the complainant herself was also negligent in the
performance of her job, We hereby rule that status quo between them should
be maintained as a matter of course. We thus affirm the decision of Labor
Arbiter reinstating the complainant but without backwages. The award of
backwages in general are granted on grounds of equity for earnings which a
worker or employee has lost due to his illegal dismissal. (Indophil Acrylic
Mfg. Corporation vs. NLRC, G.R. No. 96488 September 27, 1993) There
being no illegal dismissal to speak in the case at bar, the award for backwages
should necessarily be deleted.
[6]

We note that the NLRCs decision is quite categorical in finding that de

Jesus was merely negligent in the performance of her duty. Such negligence,
the Labor Arbiter delineated, was brought about by the petitioners plain
improvidence. Thus:
After careful assessment of the allegations and documents available on record,
we are convinced that the penalty of dismissal was not justified.
At the outset, it is remarkable that respondents did not deny nor dispute that
P.O. 3853 has the same style and design as P.O. 3824; that P.O. 3824 was
made as guide for the work done on P.O. 3853; and, most importantly, that the
notation correction on P.O. 3824 was made only after the error was discovered
by respondents Accounting Department.

Be sure that as it may, the factual issue in this case is whether or not complaint
trimmed the ribs of P.O. 3853?
Respondents maintained that she did not because the record in Accounting
Department allegedly indicates that no trimming is to be done on P.O.
3853. Basically, this allegation is unsubstantiated.
It must be emphasized that in termination cases the burdent of proof rests upon
the employer.
In the instant case, respondents mere allegation that P.O. 3853 need not be
trimmed does not satisfy the proof required to warrant complainants dismissal.
Now, granting that the Accounting record is correct, we still believe that
complainant did some further trimming on P.O. 3853 based on the following
grounds:
First, Supervisor Rebecca Madarcos who ought to know the work to be
performed because she was in-charged of assigning jobs, reported no anomally
when the tickets were submitted to her.
Incidentally, supervisor Madarcos testimony is suspect because if she could
recall what she ordered the complainant to do seven (7) months ago (to revise
the collars and plackets of shirts) there was no reason for her not to detect the
alleged tampering at the time complainant submitted her tickets, after all, that
was part of her job, if not her main job.
Secondly, she did not exceed her quota, otherwise she could have simply
asked for more.
That her output was remarkably big granting misinterpreted it is true, is well
explained in that the parts she had trimmed were lesser compared to those
which she had cut before.
In this connection, respondents misinterpreted the handwritten explanation of
the complainant dated 20 August 1992, because the letter never admits that she
never trimmed P.O. 3853, on the contrary the following sentence,
Sa katunayan nakapagbawas naman talaga ako na di ko inaasahang inalis na
pala ang presyo ng Sec. 9 P.O. 3853 na ito.
is crystal clear that she did trim the ribs on P.O. 3853.

[7]

Gleaned either from the Labor Arbiters observations or from the NLRCs
assessment, it distinctly appears that petitioners accusation of dishonesty and
tampering of official records and documents with intention of cheating against
de Jesus was not substantiated by clear and convincing evidence. Petitioners
simply failed, both before the Labor Arbiter and the NLRC, to discharge the

burdent of proof and to validly justify de Jesus dismissal from service. The
law, in this light, directs the employers, such as herein petitioners, not to
terminate the services of an employee except for a just or authorized cause
under the Labor Code. Lack of a just cause in the dismissal from service of
an employee, as in this case, renders the dismissal illegal, despite the
employers observance of procedural due process. And while the NLRC
stated that there was no illegal dismissal to speak of in the case at bar and
that petitioners cannot be entirely faulted therefor, said statements are
inordinate pronouncements which did not remove the assailed dismissal from
the realm of illegality. Neither can these pronouncements preclude us from
holding otherwise.
[8]

[9]

We also find the imposition of the extreme penalty of dismissal against de

Jesus as certainly harsh and grossly disproportionate to the negligence
committed, especially where said employee holds a faithful and an
untarnished twelve-year service record. While an employer has the inherent
right to discipline its employees, we have always held that this right must
always be exercised humanely, and the penalty it must impose should be
commensurate to the offense involved and to the degree of its infraction. The
employer should bear in mind that, in the exercise of such right, what is at
stake is not only the employees position but her livelihood as well.
[10]

Equally unmeritorious is petitioners assertion that the dismissal is justified

on the basis of loss of confidence. While loss of confidence, as correctly
argued by petitioners, is one of the valid grounds for termination of
employment, the same, however, cannot be used as a pretext to vindicate
each and every instance of unwarranted dismissal. To be a valid ground, it
must shown that the employee concerned is responsible for the misconduct or
infraction and that the nature of his participation therein rendered him
absolutely unworthy of the trust and confidence demanded by his position. In
this cae, petitioners were unsuccessful in establishing their accusations of
dishonesty and tampering of records with intention of cheating.Indeed, even if
petitioners allegations against de Jesus were true, they just the same failed to
prove that her position needs the continued and unceasing trust of her
employees functions. Surely, de Jesus who occupies the position of a
reviser/trimmer does not require the petitioners perpetual and full
confidence. In this regard, petitioners reliance on the cases of Ocean Terminal
Services, Inc. v. NLRC; Coca-Cola Bottlers Phil., Inc. v. NLRC; and Piedad v.
Lanao del Norte Electric Cooperative, which when perused involve positions
that require the employers full trust and confidence, is wholly
misplaced. In Ocean Terminal Services, for instance, the dismissed
employee was designated as expediter and canvasser whose responsibility is
[11]

[12]

mainly to make emergency procurements of tools and equipments and was

entrusted with the necessary cash for buying them. The case of Coca-Cola
Bottlers, on the other hand, involves a sales agent whose job exposes him to
the everyday financial transactions involving the employers goods and funds,
while that of Piedad concerns a bill collector who essentially handles the
employers cash collections. Undoubtedly, the position of a reviser/trimmer
could not be equated with that of a canvasser, sales agent, or a bill
collector. Besides, the involved employees in the three aforementioned cases
were clearly proven guilty of infractions unlike private respondent in the case
at bar. Thus, petitioners dependence on these cited cases is inaccurate, to
say the least. More, whether or not de Jesus meets the days quota of work
she, just the same, is paid the daily minimum wage.
[13]

Corollary to our determination that de Jesus was illegally dismissed is her

imperative entitlement to reinstatement and backwages as mandated by
law. Whence, we move to the second issue, i.e., whether or not an order for
reinstatement needs a writ of execution.
[14]

Petitioners theory is that an order for reinstatement is not selfexecutory. They stress that there must be a writ of execution which may be
issued by the NLRC or by the Labor Arbitermotu proprio or on motion of an
interested party. They further maintain that even if a writ of execution was
issued, a timely appeal coupled by the posting of appropriate supersedeas
bond, which they did in this case, effectively forestalled and stayed execution
of the reinstatement order of the Labor Arbiter. As supporting authority,
petitioners emphatically cite and bank on the case of Maranaw Hotel Resort
Corporation (Century Park Sheraton Manila) v. NLRC, 238 SCRA 190.
Private respondent de Jesus, for her part, maintains that petitioners should
have reinstated her immediately after the decision of the Labor Arbiter
ordering her reinstatement was promulgated since the law mandates that an
order for reinstatement is immediately executory. An appeal, she says, could
not stay the execution of a reinstatement order for she could either be
admitted back to work or merely reinstated in the payroll without need of a writ
of execution. De Jesus argues that a writ of execution is necessary only for
the enforcement of decisions, orders, or awards which have acquired
finality. In effect, de Jesus is urging the Court to re-examine the ruling laid
down in Maranaw.
Article 223 of the Labor Code, as amended by R.A. No. 6715 which took
effect on March 21, 1989, pertinently provides:
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. Such
appeal maybe entertained only on any of the following grounds:
xxx xxx xxx
In an event, the decision of the Labor Arbiter reinstating a dismissed or
separated employee, insofar as the reinstatement aspect is concerned, shall
immediately be executory, even pending appeal. The employee shall either be
admitted back to work under the same terms and conditions prevailing prior to
his dismissal or separation or, at the option of the employer, merely reistated in
the payroll. The posting of a bond by the employer shall not stay the execution
for reinstatement provided herein.
xxx xxx xxx
We initially interpreted the aforequoted provision in Inciong v. NLRC. The
Court made this brief comment:
[15]

[16]

The decision of the Labor Arbiter in this case was rendered on December 18,
1988, or three (3) months before Article 223 of the Labor Code was amended
by Republic Act 6715 (which became law on March 21, 1989), providing that a
decision of the Labor Arbiter ordering the reinstatement of a dismissed or
separated employee shall be immediately executory insofar as the reinstatement
aspect is concerned, and the posting of an appeal bond by the employer shall
not stay such execution. Since this new law contains no provision giving it
retroactive effect (Art. 4, Civil Code), the amendment may not be applied to
this case.
which the Court adopted and applied in Callanta v. NLRC. In Zamboanga
City Water District v. Buat, the Court construed Article 223 to mean exactly
what it says. We said:
[17]

[18]

Under the said provision of law, the decision of the Labor Arbiter reinstating a
dismissed or separated employee insofar as the reinstatement aspect is
concerned, shall be immediately executory, even pending appeal. The employer
shall reinstate the employee concerned either by: (a) actually admitting him
back to work under the same terms and conditions prevailing prior to his
dismissal or separation; or (b) at the option of the employer, merely reinstating
him in the payroll. Immediate reinstatement is mandated and is not stayed by
the fact that the employer has appealed, or has posted a cash or surety bond
pending appeal.
[19]

We expressed a similar view a year earlier in Medina v. Consolidated

Broadcasting System (CBS) DZWX and laid down the rule that an employer
who fails to comply with an order of reinstatement makes him liable for the
employees salaries. Thus:
[20]

Petitioners construe the above paragraph to mean that the refusal of the employer to
reinstate an employee as directed in an executory order of reinstatement would make
it liable to pay the latters salaries.This interpretation is correct. Under Article 223 of
the Labor Code, as amended, an employer has two options in order for him to comply
with an order of reinstatement, which is immediately executory, even pending
appeal. Firstly, he can admit the dismissed employee back to work under the same
terms and conditions prevailing prior to his dismissal or separation or to a
substantially equivalent position if the former position is already filled up as we have
ruled in Union of Supervisors (RB) NATU vs. Sec. of Labor, 128 SCRA 442 [1984];
and Pedroso vs. Castro, 141 SCRA 252 [1986]. Secondly, he can reinstate the
employee merely in the payroll. Failing to exercise any of the above options, the
employer can be compelled under pain of contempt, to pay instead the salary of the
employee. This interpretation is more in consonance with the constitutional protection
to labor (Section 3, Art. XIII, 1987 Constitution). The right of a person to his labor is
deemed to be property within the meaning of the constitutional guaranty that no one
shall be deprived of life, liberty, and property without due process of law. Therefore,
he should be protected against any arbitrary and unjust deprivation of his job (Bondoc
vs. Peoples Bank and Trust Co., Inc., 103 SCRA 599 [1981]). The employee should
not be left without any remedy in case the employer unreasonably delays
reinstatement. Therefore, we hold that the unjustified refusal of the employer to
reinstate an illegally dismissed employee entitles the employee to payment of his
salaries x x x.
[21]

The Court, however, deviated from this construction in the case

of Maranaw. Reinterpreting the import of Article 223 in Maranaw, the
Court declared that the reinstatement aspect of the Labor Arbiters decision
needs a writ of execution as it is not self-executory, a declaration the Court
recently reiterated and adopted in Archilles Manufacturing Corp. v. NLRC.
[22]

[23]

We note that prior to the enactment of R.A. No. 6715, Article 223 of the
Labor Code contains no provision dealing with the reinstatement of an illegally
dismissed employee. The amendment introduced by R.A. No. 6715 is an
innovation and a far departure from the old law indicating therby the
legislatures unequivocal intent to insert a new rule that will govern the
reinstatement aspect of a decision or resolution in any given labor dispute. In
fact, the law as now worded employs the phrase shall immediately be
executory without qualification emphasizing the need for prompt
compliance. As a rule, shall in a statute commonly denotes an imperative
obligation and is inconsistent with the idea of discretion and that the
presumption is that the word shall, when used in a statute, is mandatory. An
appeal or posting of bond, by plain mandate of the law, could not even
forestall nor stay the executory nature of an order of reinstatement. The law,
[24]

[25]

[26]

moreover, is unambiguous and clear. Thus, it must be applied according to its

plain and obvious meaning, according to its express terms. In Globe-Mackay
Cable and Radio Corporation v. NLRC, we held that:
[27]

Under the principles of statutory construction, if a statute is clear, plain and free from
ambiguity, it must be given its literal meaning and applied without attempted
interpretation. This plain-meaning rule orverba 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 intent by the
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]

And in conformity with the executory nature of the reinstatement order, Rule
V, Section 16 (3) of the New Rules of Procedure of the NLRC strictly
requires the Labor Arbiter to direct the employer to immediately
reinstate the dismissed employee. Thus:
In case the decision includes an order of reinstatement, the Labor Arbiter shall direct
the employer to immediately reinstate the dismissed or separated employee even
pending appeal. The order of reinstatement shall indicate that the employee shall
either be admitted back to work under the same terms and conditions prevailing prior
to his dismissal or separation or, at the option of the employer, merely reinstated in
the payroll.
In declaring that reinstatement order is not self-executory and needs a writ
of execution, the Court, in Maranaw, adverted to the rule provided under
Article 224. We said:
It must be stressed, however, that although the reinstatement aspect of the
decision is immediately executory, it does not follow that it is selfexecutory. There must be a writ of execution which may be issued motu
proprio or on motion of an interested party. Article 224 of the Labor Code
provides:
ART. 224. Execution of decisions, orders or awards. (a) The Secretary of
Labor and Employment or any Regional Director, the Commission or any
Labor Arbiter, or med-arbiter or voluntary arbitrator may, motu propio or on
motion of any interested party, issue a writ of execution on a judgment within
five (5) years from the date it becomes final and executory (emphasis
supplied)
The second paragraph of Section 1, Rule VIII of the New Rules of Procedure
of the NLRC also provides:

The Labor Arbiter, POEA Administrator, or the Regional Director, or his duly
authorized hearing officer of origin shall, motu propio or on motion of any interested
party, issue a writ of execution on a judgment within five (5) years from the date it
becomes final and executory . No motion for execution shall be entertained nor a writ
be issued unless the Labor Arbiter is in possession of the records of the case which
shall include an entry of judgment. (emphasis supplied)
xxx xxx xxx
In the absence them of an order for the issuance of a writ of execution on the
reinstatement aspect of the decision of the Labor Arbiter, the petitioner was
under no legal obligation to admit back to work the private respondent under
the terms and conditions prevailing prior to her dismissal or, at the petitioners
option, to merely reinstate her in the payroll. An option is a right of election
to exercise a privilege, and the option in Article 223 of the Labor Code is
exclusively granted to the employer. The event that gives rise for its exercise
is not the reinstatement decree of a Labor Arbiter, but the writ for its
execution commanding the employer to reinstate the employee, while the
final act which compels the employer to exercise the option is the service
upon it of the writ of execution when, instead of admitting the employee back
to his work, the employer chooses to reinstate the employee in the payroll
only. If the employer does not exercise this option, it must forthwith admit
the employee back to work, otherwise it may be punished for contempt.
[29]

A closer examination, however, shows that the necessity for a writ of

execution under Article 224 applies only to final and executory decisions
which are not within the coverage of Article 223. For comparison, we quote
the material portions of the subject articles:
ART. 223. Appeal. x x x
In any event, the decision of the Labor Arbiter reinstating a dismissed or
separated employee, insofar as the reinstatement aspect is concerned, shall
immediately be executory, even pending appeal. The employee shall either
be admitted back to work under the same terms and conditions prevailing
prior to his dismissal or separation or, at the option of the employer, merely
reinstated in the payroll. The posting of a bond by the employer shall not
stay the execution for reinstatement provided herein.
xxx xxx xxx
ART. 224. Execution of decisions, orders, or awards. --(a) The Secretary of
Labor and Employment or any Regional Director, the Commission or any
Labor Arbiter, or med-arbiter or voluntary arbitrator may, motu propio or on

motion of any interested party, issue a writ of execution on a judgment

within five (5) years from the date it becomes final and executory, requiring
a sheriff or a duly deputized officer to execute or enforce final decicions,
orders or awards of the Secretary of Labor and Employment or regional
director, the Commission, the arbiter or med-arbiter, or voluntary
arbitrators. In any case, it shall be the duty of the responsible officer to
separately furnish immediately the counsels of record and the parties with
copies of said decisions, orders or awards. Failure to comply with the duty
prescribed herein shall subject such responsible officer to appropriate
administrative sanctions."
Article 224 states that the need for a writ of execution applies only within five
(5) years from the date a decision, an order or awards becomes final and
executory. It cannot relate to an award or order of reinstatement still to be
appealed or pending appeal which Article 223 contemplates. The provision of
Article 223 is clear that an award for reinstatement shall be immediately
executory even pending appeal and the posting of a bond by the
employer shall not stay the execution for reinstatement. The legislative
content is quite obvious, i.e., to make an award of reinstatement immediately
enforceable, even pending appeal. To require the application for and issuance
of a writ of execution as prerequisites for the execution of a reinstatement
award would certainly betray and run counter to the very object and intent of
Article 223, i. e., the immediate execution of a reinstatement order. The
reason is simple. An application for a writ of execution and its issuance could
be delayed for numerous reasons. A mere continuance or postponement of a
scheduled hearing, for instance, or an inaction on the part of the Labor Arbiter
or the NLRC could easily delay the issuance of the writ thereby setting at
naught the strict mandate and noble purpose envisioned by Article 223. In
other words, if the requirements of Article 224 were to govern, as we so
declared in Maranaw, then the executory nature of a reinstatement order or
award contemplated by Article 223 will be unduly circumscribed and rendered
ineffectual. In enacting the law, the legislature is presumed to have ordaineda
valid and sensible law, one which operates no further than may be necessary
to achieve its specific purpose. Statutes, as a rule, are to be construed in the
light of the purpose to be achieved and the evil sought to be remedied. And
where statues are fairly susceptible of two or more construction, that
construction should be adopted which will most tend to give effect to the
manifest intent of the law maker and promote the object for which the statute
was enacted, and a construction should be rejected which would tend to
render abortive other provisions of the statute and to defeat the object which
the legislator sought to attain by its enactment. In introducing a new rule on
the reinstatement aspect of a labor decision under R.A. No. 6715, Congress
[30]

[31]

should not be considered to be indulging in mere semantic exercise. On

appeal, however, the appellate tribunal concerned may enjoin or suspend the
reinstatement order in the exercise of its sound discretion.
Furthermore, the rule is that all doubts in the interpretation and
implementation of labor laws should be resolved in favor of labor. In ruling that
an order or award for reinstatement does not require a writ of execution the
Court is simply adhering and giving meaning to this rule. Henceforth, we rule
that an award or order for reinstatement is self-executory. After receipt of the
decision or resolution ordering the employee's reinstatement, the employer
has the right to choose whether to re-admit the employee to work under the
same terms and conditions prevailing prior to his dismissal or to reinstate the
employee in the payroll. In either instance, the employer has to inform the
employee of his choice. The notification is based on practical considerations
for without notice, the employee has no way of knowing if he has to report for
work or not.
WHEREFORE, the petition is DENIED and the decision of the Labor
Arbiter is hereby REINSTATED.
Costs against petitioner.
SO ORDERED.

G.R. No. L-52415 October 23, 1984

INSULAR BANK OF ASIA AND AMERICA EMPLOYEES' UNION (IBAAEU), petitioner,
vs.
HON. AMADO G. INCIONG, Deputy Minister, Ministry of Labor and INSULAR BANK OF ASIA
AND AMERICA, respondents.
Sisenando R. Villaluz, Jr. for petitioner.
Abdulmaid Kiram Muin colloborating counsel for petitioner.
The Solicitor General Caparas, Tabios, Ilagan Alcantara & Gatmaytan Law Office and Sycip,
Salazar, Feliciano & Hernandez Law Office for respondents.

MAKASIAR, J.:

+.wp h!1

This is a petition for certiorari to set aside the order dated November 10, 1979, of respondent Deputy
Minister of Labor, Amado G. Inciong, in NLRC case No. RB-IV-1561-76 entitled "Insular Bank of Asia
and America Employees' Union (complainant-appellee), vs. Insular Bank of Asia and America"
(respondent-appellant), the dispositive portion of which reads as follows:
t.hqw

xxx xxx xxx

ALL THE FOREGOING CONSIDERED, let the appealed Resolution en banc of the
National Labor Relations Commission dated 20 June 1978 be, as it is hereby, set
aside and a new judgment. promulgated dismissing the instant case for lack of merit
(p. 109 rec.).
The antecedent facts culled from the records are as follows:
On June 20, 1975, petitioner filed a complaint against the respondent bank for the payment of
holiday pay before the then Department of Labor, National Labor Relations Commission, Regional
Office No. IV in Manila. Conciliation having failed, and upon the request of both parties, the case
was certified for arbitration on July 7, 1975 (p. 18, NLRC rec.
On August 25, 1975, Labor Arbiter Ricarte T. Soriano rendered a decision in the above-entitled
case, granting petitioner's complaint for payment of holiday pay. Pertinent portions of the decision
read:
t.hqw

xxx xxx xxx

The records disclosed that employees of respondent bank were not paid their wages
on unworked regular holidays as mandated by the Code, particularly Article 208, to
wit:
t.hqw

Art. 208. Right to holiday pay.

(a) Every worker shall be paid his regular daily wage during regular
holidays, except in retail and service establishments regularly
employing less than 10 workers.
(b) The term "holiday" as used in this chapter, shall include: New
Year's Day, Maundy Thursday, Good Friday, the ninth of April the first
of May, the twelfth of June, the fourth of July, the thirtieth of
November, the twenty-fifth and the thirtieth of December and the day
designated by law for holding a general election.
xxx xxx xxx
This conclusion is deduced from the fact that the daily rate of pay of the bank
employees was computed in the past with the unworked regular holidays as
excluded for purposes of determining the deductible amount for absences
incurred Thus, if the employer uses the factor 303 days as a divisor in determining
the daily rate of monthly paid employee, this gives rise to a presumption that the
monthly rate does not include payments for unworked regular holidays. The use of
the factor 303 indicates the number of ordinary working days in a year (which
normally has 365 calendar days), excluding the 52 Sundays and the 10 regular
holidays. The use of 251 as a factor (365 calendar days less 52 Saturdays, 52
Sundays, and 10 regular holidays) gives rise likewise to the same presumption that
the unworked Saturdays, Sundays and regular holidays are unpaid. This being the
case, it is not amiss to state with certainty that the instant claim for wages on regular
unworked holidays is found to be tenable and meritorious.
WHEREFORE, judgment is hereby rendered:
(a) xxx xxxx xxx
(b) Ordering respondent to pay wages to all its employees for all regular h(olidays
since November 1, 1974 (pp. 97-99, rec., underscoring supplied).
Respondent bank did not appeal from the said decision. Instead, it complied with the order of Arbiter
Ricarte T. Soriano by paying their holiday pay up to and including January, 1976.
On December 16, 1975, Presidential Decree No. 850 was promulgated amending, among others,
the provisions of the Labor Code on the right to holiday pay to read as follows:
t.hqw

Art. 94. Right to holiday pay. (a) Every worker shall be paid his regular daily
wages during regular holidays, except in retail and service establishments regularly
employing less than ten (10) workers;
(b) The employer may require an employee to work on any holiday but such
employee shall be paid a compensation equivalent to twice his regular rate and
(c) As used in this Article, "holiday" includes New Year's Day, Maundy Thursday,
Good Friday, the ninth of April, the first of May, the twelfth of June, the fourth of July,
the thirtieth of November, the twenty-fifth and the thirtieth of December, and the day
designated by law for holding a general election.

Accordingly, on February 16, 1976, by authority of Article 5 of the same Code, the Department of
Labor (now Ministry of Labor) promulgated the rules and regulations for the implementation of
holidays with pay. The controversial section thereof reads:
t.hqw

Sec. 2. Status of employees paid by the month. Employees who are uniformly
paid by the month, irrespective of the number of working days therein, with a salary
of not less than the statutory or established minimum wage shall be presumed to be
paid for all days in the month whether worked or not.
For this purpose, the monthly minimum wage shall not be less than the statutory
minimum wage multiplied by 365 days divided by twelve" (italics supplied).
On April 23, 1976, Policy Instruction No. 9 was issued by the then Secretary of Labor (now Minister)
interpreting the above-quoted rule, pertinent portions of which read:
t.hqw

xxx xxx xxx

The ten (10) paid legal holidays law, to start with, is intended to benefit principally
daily employees. In the case of monthly, only those whose monthly salary did not yet
include payment for the ten (10) paid legal holidays are entitled to the benefit.
Under the rules implementing P.D. 850, this policy has been fully clarified to
eliminate controversies on the entitlement of monthly paid employees, The new
determining rule is this: If the monthly paid employee is receiving not less than P240,
the maximum monthly minimum wage, and his monthly pay is uniform from January
to December, he is presumed to be already paid the ten (10) paid legal holidays.
However, if deductions are made from his monthly salary on account of holidays in
months where they occur, then he is still entitled to the ten (10) paid legal holidays.
..." (emphasis supplied).
Respondent bank, by reason of the ruling laid down by the aforecited rule implementing Article 94 of
the Labor Code and by Policy Instruction No. 9, stopped the payment of holiday pay to an its
employees.
On August 30, 1976, petitioner filed a motion for a writ of execution to enforce the arbiter's decision
of August 25, 1975, whereby the respondent bank was ordered to pay its employees their daily wage
for the unworked regular holidays.
On September 10, 1975, respondent bank filed an opposition to the motion for a writ of execution
alleging, among others, that: (a) its refusal to pay the corresponding unworked holiday pay in
accordance with the award of Labor Arbiter Ricarte T. Soriano dated August 25, 1975, is based on
and justified by Policy Instruction No. 9 which interpreted the rules implementing P. D. 850; and (b)
that the said award is already repealed by P.D. 850 which took effect on December 16, 1975, and by
said Policy Instruction No. 9 of the Department of Labor, considering that its monthly paid employees
are not receiving less than P240.00 and their monthly pay is uniform from January to December, and
that no deductions are made from the monthly salaries of its employees on account of holidays in
months where they occur (pp. 64-65, NLRC rec.).
On October 18, 1976, Labor Arbiter Ricarte T. Soriano, instead of issuing a writ of execution, issued
an order enjoining the respondent bank to continue paying its employees their regular holiday pay on
the following grounds: (a) that the judgment is already final and the findings which is found in the
body of the decision as well as the dispositive portion thereof is res judicata or is the law of the case

between the parties; and (b) that since the decision had been partially implemented by the
respondent bank, appeal from the said decision is no longer available (pp. 100-103, rec.).
On November 17, 1976, respondent bank appealed from the above-cited order of Labor Arbiter
Soriano to the National Labor Relations Commission, reiterating therein its contentions averred in its
opposition to the motion for writ of execution. Respondent bank further alleged for the first time that
the questioned order is not supported by evidence insofar as it finds that respondent bank
discontinued payment of holiday pay beginning January, 1976 (p. 84, NLRC rec.).
On June 20, 1978, the National Labor Relations Commission promulgated its resolution en
banc dismissing respondent bank's appeal, the dispositive portion of which reads as follows:

t.hqw

In view of the foregoing, we hereby resolve to dismiss, as we hereby dismiss,

respondent's appeal; to set aside Labor Arbiter Ricarte T. Soriano's order of 18
October 1976 and, as prayed for by complainant, to order the issuance of the proper
writ of execution (p. 244, NLRC rec.).
Copies of the above resolution were served on the petitioner only on February 9, 1979 or almost
eight. (8) months after it was promulgated, while copies were served on the respondent bank on
February 13, 1979.
On February 21, 1979, respondent bank filed with the Office of the Minister of Labor a motion for
reconsideration/appeal with urgent prayer to stay execution, alleging therein the following: (a) that
there is prima facie evidence of grave abuse of discretion, amounting to lack of jurisdiction on the
part of the National Labor Relations Commission, in dismissing the respondent's appeal on pure
technicalities without passing upon the merits of the appeal and (b) that the resolution appealed from
is contrary to the law and jurisprudence (pp. 260-274, NLRC rec.).
On March 19, 1979, petitioner filed its opposition to the respondent bank's appeal and alleged the
following grounds: (a) that the office of the Minister of Labor has no jurisdiction to entertain the
instant appeal pursuant to the provisions of P. D. 1391; (b) that the labor arbiter's decision being
final, executory and unappealable, execution is a matter of right for the petitioner; and (c) that the
decision of the labor arbiter dated August 25, 1975 is supported by the law and the evidence in the
case (p. 364, NLRC rec.).
On July 30, 1979, petitioner filed a second motion for execution pending appeal, praying that a writ
of execution be issued by the National Labor Relations Commission pending appeal of the case with
the Office of the Minister of Labor. Respondent bank filed its opposition thereto on August 8, 1979.
On August 13, 1979, the National Labor Relations Commission issued an order which states:

t.hqw

The Chief, Research and Information Division of this Commission is hereby directed
to designate a Socio-Economic Analyst to compute the holiday pay of the employees
of the Insular Bank of Asia and America from April 1976 to the present, in
accordance with the Decision of the Labor Arbiter dated August 25, 1975" (p. 80,
rec.).
On November 10, 1979, the Office of the Minister of Labor, through Deputy Minister Amado G.
Inciong, issued an order, the dispositive portion of which states:
t.hqw

ALL THE FOREGOING CONSIDERED, let the appealed Resolution en banc of the
National Labor Relations Commission dated 20 June 1978 be, as it is hereby, set
aside and a new judgment promulgated dismissing the instant case for lack of merit
(p. 436, NLRC rec.).
Hence, this petition for certiorari charging public respondent Amado G. Inciong with abuse of
discretion amounting to lack or excess of jurisdiction.
The issue in this case is: whether or not the decision of a Labor Arbiter awarding payment of regular
holiday pay can still be set aside on appeal by the Deputy Minister of Labor even though it has
already become final and had been partially executed, the finality of which was affirmed by the
National Labor Relations Commission sitting en banc, on the basis of an Implementing Rule and
Policy Instruction promulgated by the Ministry of Labor long after the said decision had become final
and executory.
WE find for the petitioner.
I
WE agree with the petitioner's contention that Section 2, Rule IV, Book III of the implementing rules
and Policy Instruction No. 9 issued by the then Secretary of Labor are null and void since in the
guise of clarifying the Labor Code's provisions on holiday pay, they in effect amended them by
enlarging the scope of their exclusion (p. 1 1, rec.).
Article 94 of the Labor Code, as amended by P.D. 850, provides:

t.hqw

Art. 94. Right to holiday pay. (a) Every worker shall be paid his regular daily wage
during regular holidays, except in retail and service establishments regularly
employing less than ten (10) workers. ...
The coverage and scope of exclusion of the Labor Code's holiday pay provisions is spelled out
under Article 82 thereof which reads:
t.hqw

Art. 82. Coverage. The provision of this Title shall apply to employees in all
establishments and undertakings, whether for profit or not, but not to government
employees, managerial employees, field personnel members of the family of the
employer who are dependent on him for support domestic helpers, persons in the
personal service of another, and workers who are paid by results as determined by
the Secretary of Labor in appropriate regulations.
... (emphasis supplied).
From the above-cited provisions, it is clear that monthly paid employees are not excluded from the
benefits of holiday pay. However, the implementing rules on holiday pay promulgated by the then
Secretary of Labor excludes monthly paid employees from the said benefits by inserting, under Rule
IV, Book Ill of the implementing rules, Section 2, which provides that: "employees who are uniformly
paid by the month, irrespective of the number of working days therein, with a salary of not less than
the statutory or established minimum wage shall be presumed to be paid for all days in the month
whether worked or not. "

Public respondent maintains that "(T)he rules implementing P. D. 850 and Policy Instruction No. 9
were issued to clarify the policy in the implementation of the ten (10) paid legal holidays. As
interpreted, 'unworked' legal holidays are deemed paid insofar as monthly paid employees are
concerned if (a) they are receiving not less than the statutory minimum wage, (b) their monthly pay is
uniform from January to December, and (c) no deduction is made from their monthly salary on
account of holidays in months where they occur. As explained in Policy Instruction No, 9, 'The ten
(10) paid legal holidays law, to start with, is intended to benefit principally daily paid employees. In
case of monthly, only those whose monthly salary did not yet include payment for the ten (10) paid
legal holidays are entitled to the benefit' " (pp. 340-341, rec.). This contention is untenable.
It is elementary in the rules of statutory construction that when the language of the law is clear and
unequivocal the law must be taken to mean exactly what it says. In the case at bar, the provisions of
the Labor Code on the entitlement to the benefits of holiday pay are clear and explicit - it provides for
both the coverage of and exclusion from the benefits. In Policy Instruction No. 9, the then Secretary
of Labor went as far as to categorically state that the benefit is principally intended for daily paid
employees, when the law clearly states that every worker shall be paid their regular holiday pay.
This is a flagrant violation of the mandatory directive of Article 4 of the Labor Code, which states that
"All doubts in the implementation and interpretation of the provisions of this Code, including its
implementing rules and regulations, shall be resolved in favor of labor." Moreover, it shall always be
presumed that the legislature intended to enact a valid and permanent statute which would have the
most beneficial effect that its language permits (Orlosky vs. Haskell, 155 A. 112.)
Obviously, the Secretary (Minister) of Labor had exceeded his statutory authority granted by Article 5
of the Labor Code authorizing him to promulgate the necessary implementing rules and regulations.
Public respondent vehemently argues that the intent and spirit of the holiday pay law, as expressed
by the Secretary of Labor in the case of Chartered Bank Employees Association v. The Chartered
Bank (NLRC Case No. RB-1789-75, March 24, 1976), is to correct the disadvantages inherent in the
daily compensation system of employment holiday pay is primarily intended to benefit the daily
paid workers whose employment and income are circumscribed by the principle of "no work, no
pay." This argument may sound meritorious; but, until the provisions of the Labor Code on holiday
pay is amended by another law, monthly paid employees are definitely included in the benefits of
regular holiday pay. As earlier stated, the presumption is always in favor of law, negatively put, the
Labor Code is always strictly construed against management.
While it is true that the contemporaneous construction placed upon a statute by executive officers
whose duty is to enforce it should be given great weight by the courts, still if such construction is so
erroneous, as in the instant case, the same must be declared as null and void. It is the role of the
Judiciary to refine and, when necessary, correct constitutional (and/or statutory) interpretation, in the
context of the interactions of the three branches of the government, almost always in situations
where some agency of the State has engaged in action that stems ultimately from some legitimate
area of governmental power (The Supreme Court in Modern Role, C. B. Swisher 1958, p. 36).
Thus. in the case of Philippine Apparel Workers Union vs. National Labor Relations
Commission (106 SCRA 444, July 31, 1981) where the Secretary of Labor enlarged the scope of
exemption from the coverage of a Presidential Decree granting increase in emergency allowance,
this Court ruled that:
t.hqw

... the Secretary of Labor has exceeded his authority when he included paragraph (k)
in Section 1 of the Rules implementing P. D. 1 1 23.
xxx xxx xxx

Clearly, the inclusion of paragraph k contravenes the statutory authority granted to

the Secretary of Labor, and the same is therefore void, as ruled by this Court in a
long line of cases . . . ..
t.hqw

The recognition of the power of administrative officials to promulgate

rules in the administration of the statute, necessarily limited to what is
provided for in the legislative enactment, may be found in the early
case of United States vs. Barrios decided in 1908. Then came in a
1914 decision, United States vs. Tupasi Molina (29 Phil. 119)
delineation of the scope of such competence. Thus: "Of course the
regulations adopted under legislative authority by a particular
department must be in harmony with the provisions of the law, and for
the sole purpose of carrying into effect its general provisions. By such
regulations, of course, the law itself cannot be extended. So long,
however, as the regulations relate solely to carrying into effect the
provisions of the law, they are valid." In 1936, in People vs.
Santos, this Court expressed its disapproval of an administrative
order that would amount to an excess of the regulatory power vested
in an administrative official We reaffirmed such a doctrine in a 1951
decision, where we again made clear that where an administrative
order betrays inconsistency or repugnancy to the provisions of the
Act, 'the mandate of the Act must prevail and must be followed.
Justice Barrera, speaking for the Court in Victorias Milling inc. vs.
Social Security Commission, citing Parker as well as Davis did tersely
sum up the matter thus: "A rule is binding on the Courts so long as
the procedure fixed for its promulgation is followed and its scope is
within the statutory authority granted by the legislature, even if the
courts are not in agreement with the policy stated therein or its innate
wisdom. ... On the other hand, administrative interpretation of the law
is at best merely advisory, for it is the courts that finally determine
chat the law means."
"It cannot be otherwise as the Constitution limits the authority of the
President, in whom all executive power resides, to take care that the
laws be faithfully executed. No lesser administrative executive office
or agency then can, contrary to the express language of the
Constitution assert for itself a more extensive prerogative.
Necessarily, it is bound to observe the constitutional mandate. There
must be strict compliance with the legislative enactment. Its terms
must be followed the statute requires adherence to, not departure
from its provisions. No deviation is allowable. In the terse language of
the present Chief Justice, an administrative agency "cannot amend
an act of Congress." Respondents can be sustained, therefore, only if
it could be shown that the rules and regulations promulgated by them
were in accordance with what the Veterans Bill of Rights provides"
(Phil. Apparel Workers Union vs. National Labor Relations
Commission, supra, 463, 464, citing Teozon vs. Members of the
Board of Administrators, PVA 33 SCRA 585; see also Santos vs.
Hon. Estenzo, et al, 109 Phil. 419; Hilado vs. Collector of Internal
Revenue, 100 Phil. 295; Sy Man vs. Jacinto & Fabros, 93 Phil. 1093;
Olsen & Co., Inc. vs. Aldanese and Trinidad, 43 Phil. 259).

This ruling of the Court was recently reiterated in the case of American Wire & Cable Workers Union
(TUPAS) vs. The National Labor Relations Commission and American Wire & Cable Co., Inc., G.R.
No. 53337, promulgated on June 29, 1984.
In view of the foregoing, Section 2, Rule IV, Book III of the Rules to implement the Labor Code and
Policy instruction No. 9 issued by the then Secretary of Labor must be declared null and void.
Accordingly, public respondent Deputy Minister of Labor Amado G. Inciong had no basis at all to
deny the members of petitioner union their regular holiday pay as directed by the Labor Code.
II
It is not disputed that the decision of Labor Arbiter Ricarte T. Soriano dated August 25, 1975, had
already become final, and was, in fact, partially executed by the respondent bank.
However, public respondent maintains that on the authority of De Luna vs. Kayanan, 61 SCRA 49,
November 13, 1974, he can annul the final decision of Labor Arbiter Soriano since the ensuing
promulgation of the integrated implementing rules of the Labor Code pursuant to P.D. 850 on
February 16, 1976, and the issuance of Policy Instruction No. 9 on April 23, 1976 by the then
Secretary of Labor are facts and circumstances that transpired subsequent to the promulgation of
the decision of the labor arbiter, which renders the execution of the said decision impossible and
unjust on the part of herein respondent bank (pp. 342-343, rec.).
This contention is untenable.
To start with, unlike the instant case, the case of De Luna relied upon by the public respondent is not
a labor case wherein the express mandate of the Constitution on the protection to labor is applied.
Thus Article 4 of the Labor Code provides that, "All doubts in the implementation and interpretation
of the provisions of this Code, including its implementing rules and regulations, shall be resolved in
favor of labor and Article 1702 of the Civil Code provides that, " In case of doubt, all labor legislation
and all labor contracts shall be construed in favor of the safety and decent living for the laborer.
Consequently, contrary to public respondent's allegations, it is patently unjust to deprive the
members of petitioner union of their vested right acquired by virtue of a final judgment on the basis
of a labor statute promulgated following the acquisition of the "right".
On the question of whether or not a law or statute can annul or modify a judicial order issued prior to
its promulgation, this Court, through Associate Justice Claro M. Recto, said:
t.hqw

xxx xxx xxx

We are decidedly of the opinion that they did not. Said order, being unappealable,
became final on the date of its issuance and the parties who acquired rights
thereunder cannot be deprived thereof by a constitutional provision enacted or
promulgated subsequent thereto. Neither the Constitution nor the statutes, except
penal laws favorable to the accused, have retroactive effect in the sense of annulling
or modifying vested rights, or altering contractual obligations" (China Ins. & Surety
Co. vs. Judge of First Instance of Manila, 63 Phil. 324, emphasis supplied).
In the case of In re: Cunanan, et al., 19 Phil. 585, March 18, 1954, this Court said: "... when a court
renders a decision or promulgates a resolution or order on the basis of and in accordance with a
certain law or rule then in force, the subsequent amendment or even repeal of said law or rule may

not affect the final decision, order, or resolution already promulgated, in the sense of revoking or
rendering it void and of no effect." Thus, the amendatory rule (Rule IV, Book III of the Rules to
Implement the Labor Code) cannot be given retroactive effect as to modify final judgments. Not even
a law can validly annul final decisions (In re: Cunanan, et al., Ibid).
Furthermore, the facts of the case relied upon by the public respondent are not analogous to that of
the case at bar. The case of De Luna speaks of final and executory judgment, while iii the instant
case, the final judgment is partially executed. just as the court is ousted of its jurisdiction to annul or
modify a judgment the moment it becomes final, the court also loses its jurisdiction to annul or
modify a writ of execution upon its service or execution; for, otherwise, we will have a situation
wherein a final and executed judgment can still be annulled or modified by the court upon mere
motion of a panty This would certainly result in endless litigations thereby rendering inutile the rule of
law.
Respondent bank counters with the argument that its partial compliance was involuntary because it
did so under pain of levy and execution of its assets (p. 138, rec.). WE find no merit in this argument.
Respondent bank clearly manifested its voluntariness in complying with the decision of the labor
arbiter by not appealing to the National Labor Relations Commission as provided for under the Labor
Code under Article 223. A party who waives his right to appeal is deemed to have accepted the
judgment, adverse or not, as correct, especially if such party readily acquiesced in the judgment by
starting to execute said judgment even before a writ of execution was issued, as in this case. Under
these circumstances, to permit a party to appeal from the said partially executed final judgment
would make a mockery of the doctrine of finality of judgments long enshrined in this jurisdiction.
Section I of Rule 39 of the Revised Rules of Court provides that "... execution shall issue as a matter
of right upon the expiration of the period to appeal ... or if no appeal has been duly perfected." This
rule applies to decisions or orders of labor arbiters who are exercising quasi-judicial functions since
"... the rule of execution of judgments under the rules should govern all kinds of execution of
judgment, unless it is otherwise provided in other laws" Sagucio vs. Bulos 5 SCRA 803) and Article
223 of the Labor Code provides that "... decisions, awards, or orders of the Labor Arbiter or
compulsory arbitrators are final and executory unless appealed to the Commission by any or both of
the parties within ten (10) days from receipt of such awards, orders, or decisions. ..."
Thus, under the aforecited rule, the lapse of the appeal period deprives the courts of jurisdiction to
alter the final judgment and the judgment becomes final ipso jure (Vega vs. WCC, 89 SCRA 143,
citing Cruz vs. WCC, 2 PHILAJUR 436, 440, January 31, 1978; see also Soliven vs. WCC, 77 SCRA
621; Carrero vs. WCC and Regala vs. WCC, decided jointly, 77 SCRA 297; Vitug vs. Republic, 75
SCRA 436; Ramos vs. Republic, 69 SCRA 576).
In Galvez vs. Philippine Long Distance Telephone Co., 3 SCRA 422, 423, October 31, 1961, where
the lower court modified a final order, this Court ruled thus:
t.hqw

xxx xxx xxx

The lower court was thus aware of the fact that it was thereby altering or modifying
its order of January 8, 1959. Regardless of the excellence of the motive for acting as
it did, we are constrained to hold however, that the lower court had no authorities to
make said alteration or modification. ...
xxx xxx xxx

The equitable considerations that led the lower court to take the action complained of
cannot offset the dem ands of public policy and public interest which are also
responsive to the tenets of equity requiring that an issues passed upon in
decisions or final orders that have become executory, be deemed conclusively
disposed of and definitely closed for, otherwise, there would be no end to litigations,
thus setting at naught the main role of courts of justice, which is to assist in the
enforcement of the rule of law and the maintenance of peace and order, by settling
justiciable controversies with finality.
xxx xxx xxx
In the recent case of Gabaya vs. Mendoza, 113 SCRA 405, 406, March 30, 1982, this Court said:

t.hqw

xxx xxx xxx

In Marasigan vs. Ronquillo (94 Phil. 237), it was categorically stated that the rule is
absolute that after a judgment becomes final by the expiration of the period provided
by the rules within which it so becomes, no further amendment or correction can be
made by the court except for clerical errors or mistakes. And such final judgment is
conclusive not only as to every matter which was offered and received to sustain or
defeat the claim or demand but as to any other admissible matter which must have
been offered for that purpose (L-7044, 96 Phil. 526). In the earlier case of Contreras
and Ginco vs. Felix and China Banking Corp., Inc. (44 O.G. 4306), it was stated
that the rule must be adhered to regardless of any possible injustice in a particular
case for (W)e have to subordinate the equity of a particular situation to the overmastering need of certainty and immutability of judicial pronouncements
xxx xxx xxx
III
The despotic manner by which public respondent Amado G. Inciong divested the members of the
petitioner union of their rights acquired by virtue of a final judgment is tantamount to a deprivation of
property without due process of law Public respondent completely ignored the rights of the petitioner
union's members in dismissing their complaint since he knew for a fact that the judgment of the labor
arbiter had long become final and was even partially executed by the respondent bank.
A final judgment vests in the prevailing party a right recognized and protected by law under the due
process clause of the Constitution (China Ins. & Surety Co. vs. Judge of First Instance of Manila, 63
Phil. 324). A final judgment is "a vested interest which it is right and equitable that the government
should recognize and protect, and of which the individual could no. be deprived arbitrarily without
injustice" (Rookledge v. Garwood, 65 N.W. 2d 785, 791).
lt is by this guiding principle that the due process clause is interpreted. Thus, in the pithy language of
then Justice, later Chief Justice, Concepcion "... acts of Congress, as well as those of the Executive,
can deny due process only under pain of nullity, and judicial proceedings suffering from the same
flaw are subject to the same sanction, any statutory provision to the contrary notwithstanding (Vda.
de Cuaycong vs. Vda. de Sengbengco 110 Phil. 118, emphasis supplied), And "(I)t has been
likewise established that a violation of a constitutional right divested the court of jurisdiction; and as a
consequence its judgment is null and void and confers no rights" (Phil. Blooming Mills Employees
Organization vs. Phil. Blooming Mills Co., Inc., 51 SCRA 211, June 5, 1973).

Tested by and pitted against this broad concept of the constitutional guarantee of due process, the
action of public respondent Amado G. Inciong is a clear example of deprivation of property without
due process of law and constituted grave abuse of discretion, amounting to lack or excess of
jurisdiction in issuing the order dated November 10, 1979.
WHEREFORE, THE PETITION IS HEREBY GRANTED, THE ORDER OF PUBLIC RESPONDENT
IS SET ASIDE, AND THE DECISION OF LABOR ARBITER RICARTE T. SORIANO DATED
AUGUST 25, 1975, IS HEREBY REINSTATED.
COSTS AGAINST PRIVATE RESPONDENT INSULAR BANK OF ASIA AND AMERICA
SO ORDERED.

1w ph1.t

G.R. No. L-48645 January 7, 1987

"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO
CASBADILLO, PROSPERO TABLADA, ERNESTO BENGSON, PATRICIO SERRANO, ANTONIO
B. BOBIAS, VIRGILIO ECHAS, DOMINGO PARINAS, NORBERTO GALANG, JUANITO
NAVARRO, NESTORIO MARCELLANA, TEOFILO B. CACATIAN, RUFO L. EGUIA, CARLOS
SUMOYAN, LAMBERTO RONQUILLO, ANGELITO AMANCIO, DANILO B. MATIAR, ET
AL., petitioners,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, OFFICE OF
THE PRESIDENT, HON. AMADO G. INCIONG, UNDERSECRETARY OF LABOR, SAN MIGUEL
CORPORATION, GENARO OLIVES, ENRIQUE CAMAHORT, FEDERICO OATE, ERNESTO
VILLANUEVA, ANTONIO BOCALING and GODOFREDO CUETO, respondents.
Armando V. Ampil for petitioners.
Siguion Reyna, Montecillo and Ongsiako Law Office for private respondents.

GUTIERREZ, JR., J.:

The elemental question in labor law of whether or not an employer-employee relationship exists
between petitioners-members of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM)
and respondent San Miguel Corporation, is the main issue in this petition. The disputed decision of
public respondent Ronaldo Zamora, Presidential Assistant for legal Affairs, contains a brief summary
of the facts involved:
1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now
defunct Court of Industrial Relations, charging San Miguel Corporation, and the
following officers: Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio
Eugenia Jr., Ernesto Villanueva, Antonio Bocaling and Godofredo Cueto of unfair
labor practice as set forth in Section 4 (a), sub-sections (1) and (4) of Republic Act
No. 875 and of Legal dismissal. It was alleged that respondents ordered the
individual complainants to disaffiliate from the complainant union; and that
management dismissed the individual complainants when they insisted on their union
membership.
On their part, respondents moved for the dismissal of the complaint on the grounds
that the complainants are not and have never been employees of respondent
company but employees of the independent contractor; that respondent company
has never had control over the means and methods followed by the independent
contractor who enjoyed full authority to hire and control said employees; and that the
individual complainants are barred by estoppel from asserting that they are
employees of respondent company.
While pending with the Court of Industrial Relations CIR pleadings and testimonial
and documentary evidences were duly presented, although the actual hearing was
delayed by several postponements. The dispute was taken over by the National
Labor Relations Commission (NLRC) with the decreed abolition of the CIR and the
hearing of the case intransferably commenced on September 8, 1975.

On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was
concurred in by the NLRC in a decision dated June 28, 1976. The amount of
backwages awarded, however, was reduced by NLRC to the equivalent of one (1)
year salary.
On appeal, the Secretary in a decision dated June 1, 1977, set aside the NLRC
ruling, stressing the absence of an employer-mployee relationship as borne out by
the records of the case. ...
The petitioners strongly argue that there exists an employer-employee relationship between them
and the respondent company and that they were dismissed for unionism, an act constituting unfair
labor practice "for which respondents must be made to answer."
Unrebutted evidence and testimony on record establish that the petitioners are workers who have
been employed at the San Miguel Parola Glass Factory since 1961, averaging about seven (7) years
of service at the time of their termination. They worked as "cargadores" or "pahinante" at the SMC
Plant loading, unloading, piling or palleting empty bottles and woosen shells to and from company
trucks and warehouses. At times, they accompanied the company trucks on their delivery routes.
The petitioners first reported for work to Superintendent-in-Charge Camahort. They were issued gate
passes signed by Camahort and were provided by the respondent company with the tools,
equipment and paraphernalia used in the loading, unloading, piling and hauling operation.
Job orders emanated from Camahort. The orders are then transmitted to an assistant-officer-incharge. In turn, the assistant informs the warehousemen and checkers regarding the same. The
latter, thereafter, relays said orders to the capatazes or group leaders who then give orders to the
workers as to where, when and what to load, unload, pile, pallet or clean.
Work in the glass factory was neither regular nor continuous, depending wholly on the volume of
bottles manufactured to be loaded and unloaded, as well as the business activity of the company.
Work did not necessarily mean a full eight (8) hour day for the petitioners. However, work,at times,
exceeded the eight (8) hour day and necessitated work on Sundays and holidays. For this, they
were neither paid overtime nor compensation for work on Sundays and holidays.
Petitioners were paid every ten (10) days on a piece rate basis, that is, according to the number of
cartons and wooden shells they were able to load, unload, or pile. The group leader notes down the
number or volume of work that each individual worker has accomplished. This is then made the
basis of a report or statement which is compared with the notes of the checker and warehousemen
as to whether or not they tally. Final approval of report is by officer-in-charge Camahort. The pay
check is given to the group leaders for encashment, distribution, and payment to the petitioners in
accordance with payrolls prepared by said leaders. From the total earnings of the group, the group
leader gets a participation or share of ten (10%) percent plus an additional amount from the earnings
of each individual.
The petitioners worked exclusive at the SMC plant, never having been assigned to other companies
or departments of SMC plant, even when the volume of work was at its minimum. When any of the
glass furnaces suffered a breakdown, making a shutdown necessary, the petitioners work was
temporarily suspended. Thereafter, the petitioners would return to work at the glass plant.
Sometime in January, 1969, the petitioner workers numbering one hundred and forty (140)
organized and affiliated themselves with the petitioner union and engaged in union activities.
Believing themselves entitled to overtime and holiday pay, the petitioners pressed management,

airing other grievances such as being paid below the minimum wage law, inhuman treatment, being
forced to borrow at usurious rates of interest and to buy raffle tickets, coerced by withholding their
salaries, and salary deductions made without their consent. However, their gripes and grievances
were not heeded by the respondents.
On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of Labor Relations
in connection with the dismissal of some of its members who were allegedly castigated for their
union membership and warned that should they persist in continuing with their union activities they
would be dismissed from their jobs. Several conciliation conferences were scheduled in order to
thresh out their differences, On February 12, 1969, union member Rogelio Dipad was dismissed
from work. At the scheduled conference on February 19, 1969, the complainant union through its
officers headed by National President Artemio Portugal Sr., presented a letter to the respondent
company containing proposals and/or labor demands together with a request for recognition and
collective bargaining.
San Miguel refused to bargain with the petitioner union alleging that the workers are not their
employees.
On February 20, 1969, all the petitioners were dismissed from their jobs and, thereafter, denied
entrance to respondent company's glass factory despite their regularly reporting for work. A
complaint for illegal dismissal and unfair labor practice was filed by the petitioners.
The case reaches us now with the same issues to be resolved as when it had begun.
The question of whether an employer-employee relationship exists in a certain situation continues to
bedevil the courts. Some businessmen try to avoid the bringing about of an employer-employee
relationship in their enterprises because that judicial relation spawns obligations connected with
workmen's compensation, social security, medicare, minimum wage, termination pay, and unionism.
(Mafinco Trading Corporation v. Ople, 70 SCRA 139).
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 called "control test"
that is the most important element (Investment Planning Corp. of the Phils. v. The Social Security
System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra,and Rosario Brothers, Inc. v. Ople, 131
SCRA 72).
Applying the above criteria, the evidence strongly indicates the existence of an employer-employee
relationship between petitioner workers and respondent San Miguel Corporation. The respondent
asserts that the petitioners are employees of the Guaranteed Labor Contractor, an independent
labor contracting firm.
The facts and evidence on record negate respondent SMC's claim.
The existence of an independent contractor relationship is generally established by the following
criteria: "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 a specified piece of work; the control and supervision of the work to another; the
employer's power with respect to the hiring, firing and payment of the contractor's workers; the
control of the premises; the duty to supply the premises tools, appliances, materials and labor; and

the mode, manner and terms of payment" (56 CJS Master and Servant, Sec. 3(2), 46; See also 27
AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75 ALR 7260727)
None of the above criteria exists in the case at bar.
Highly unusual and suspect is the absence of a written contract to specify the performance of a
specified piece of work, the nature and extent of the work and the term and duration of the
relationship. The records fail to show that a large commercial outfit, such as the San Miguel
Corporation, entered into mere oral agreements of employment or labor contracting where the same
would involve considerable expenses and dealings with a large number of workers over a long
period of time. Despite respondent company's allegations not an iota of evidence was offered to
prove the same or its particulars. Such failure makes respondent SMC's stand subject to serious
doubts.
Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked
continuously and exclusively for the respondent company's shipping and warehousing department.
Considering the length of time that the petitioners have worked with the respondent company, there
is justification to conclude that they were engaged to perform activities necessary or desirable in the
usual business or trade of the respondent, and the petitioners are, therefore regular employees (Phil.
Fishing Boat Officers and Engineers Union v. Court of Industrial Relations, 112 SCRA 159 and RJL
Martinez Fishing Corporation v. National Labor Relations Commission, 127 SCRA 454).
As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission
(supra):
... [T]he employer-employee relationship between the parties herein is not
coterminous 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' vessels and then loading the same to refrigerated vans, are necessary
or desirable in the business of respondents. This circumstance makes the
employment of complainants a regular one, in the sense that it does not depend on
any specific project or seasonable activity. (NLRC Decision, p. 94, Rollo).
lwphl@it

so as it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for
repairs, the petitioners, thereafter, promptly returned to their jobs, never having been replaced, or
assigned elsewhere until the present controversy arose. The term of the petitioners' employment
appears indefinite. The continuity and habituality of petitioners' work bolsters their claim of employee
status vis-a-vis respondent company,
Even under the assumption that a contract of employment had indeed been executed between
respondent SMC and the alleged labor contractor, respondent's case will, nevertheless, fail.
Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides:
Job contracting. There is job contracting permissible under the Code if the
following conditions are met:
(1) The contractor carries on an independent business and undertakes the contract
work on his own account under his own responsibility according to his own manner

and method, free from the control and direction of his employer or principal in all
matters connected with the performance of the work except as to the results thereof;
and
(2) The contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary in
the conduct of his business.
We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor
investment to qualify as an independent contractor under the law. The premises, tools, equipment
and paraphernalia used by the petitioners in their jobs are admittedly all supplied by respondent
company. It is only the manpower or labor force which the alleged contractors supply, suggesting the
existence of a "labor only" contracting scheme prohibited by law (Article 106, 109 of the Labor Code;
Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor Code). In fact,
even the alleged contractor's office, which consists of a space at respondent company's warehouse,
table, chair, typewriter and cabinet, are provided for by respondent SMC. It is therefore clear that the
alleged contractors have no capital outlay involved in the conduct of its business, in the maintenance
thereof or in the payment of its workers' salaries.
The payment of the workers' wages is a critical factor in determining the actuality of an employeremployee relationship whether between respondent company and petitioners or between the alleged
independent contractor and petitioners. It is important to emphasize that in a truly independent
contractor-contractee relationship, the fees are paid directly to the manpower agency in lump sum
without indicating or implying that the basis of such lump sum is the salary per worker multiplied by
the number of workers assigned to the company. This is the rule in Social Security System v. Court
of Appeals (39 SCRA 629, 635).
The alleged independent contractors in the case at bar were paid a lump sum representing only the
salaries the workers were entitled to, arrived at by adding the salaries of each worker which depend
on the volume of work they. had accomplished individually. These are based on payrolls, reports or
statements prepared by the workers' group leader, warehousemen and checkers, where they note
down the number of cartons, wooden shells and bottles each worker was able to load, unload, pile or
pallet and see whether they tally. The amount paid by respondent company to the alleged
independent contractor considers no business expenses or capital outlay of the latter. Nor is the
profit or gain of the alleged contractor in the conduct of its business provided for as an amount over
and above the workers' wages. Instead, the alleged contractor receives a percentage from the total
earnings of all the workers plus an additional amount corresponding to a percentage of the earnings
of each individual worker, which, perhaps, accounts for the petitioners' charge of unauthorized
deductions from their salaries by the respondents.
Anent the argument that the petitioners are not employees as they worked on piece basis, we
merely have to cite our rulings in Dy Keh Beng v. International Labor and Marine Union of the
Philippines (90 SCRA 161), as follows:
"[C]ircumstances 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."

Article 106 of the Labor Code provides the legal effect of a labor only contracting scheme, to wit:
... the person or intermediary shall be considered merely as an agent of the employer
who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
Firmly establishing respondent SMC's role as employer is the control exercised by it over the
petitioners that is, control in the means and methods/manner by which petitioners are to go about
their work, as well as in disciplinary measures imposed by it.
Because of the nature of the petitioners' work as cargadores or pahinantes, supervision as to the
means and manner of performing the same is practically nil. For, how many ways are there to load
and unload bottles and wooden shells? The mere concern of both respondent SMC and the alleged
contractor is that the job of having the bottles and wooden shells brought to and from the warehouse
be done. More evident and pronounced is respondent company's right to control in the discipline of
petitioners. Documentary evidence presented by the petitioners establish respondent SMC's right to
impose disciplinary measures for violations or infractions of its rules and regulations as well as its
right to recommend transfers and dismissals of the piece workers. The inter-office memoranda
submitted in evidence prove the company's control over the petitioners. That respondent SMC has
the power to recommend penalties or dismissal of the piece workers, even as to Abner Bungay who
is alleged by SMC to be a representative of the alleged labor contractor, is the strongest indication of
respondent company's right of control over the petitioners as direct employer. There is no evidence
to show that the alleged labor contractor had such right of control or much less had been there to
supervise or deal with the petitioners.
The petitioners were dismissed allegedly because of the shutdown of the glass manufacturing plant.
Respondent company would have us believe that this was a case of retrenchment due to the closure
or cessation of operations of the establishment or undertaking. But such is not the case here. The
respondent's shutdown was merely temporary, one of its furnaces needing repair. Operations
continued after such repairs, but the petitioners had already been refused entry to the premises and
dismissed from respondent's service. New workers manned their positions. It is apparent that the
closure of respondent's warehouse was merely a ploy to get rid of the petitioners, who were then
agitating the respondent company for benefits, reforms and collective bargaining as a union. There
is no showing that petitioners had been remiss in their obligations and inefficient in their jobs to
warrant their separation.
As to the charge of unfair labor practice because of SMC's refusal to bargain with the petitioners, it is
clear that the respondent company had an existing collective bargaining agreement with the IBM
union which is the recognized collective bargaining representative at the respondent's glass plant.
There being a recognized bargaining representative of all employees at the company's glass plant,
the petitioners cannot merely form a union and demand bargaining. The Labor Code provides the
proper procedure for the recognition of unions as sole bargaining representatives. This must be
followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel
Corporation is hereby ordered to REINSTATE petitioners, with three (3) years backwages. However,
where reinstatement is no longer possible, the respondent SMC is ordered to pay the petitioners
separation pay equivalent to one (1) month pay for every year of service.
SO ORDERED.

EN BANC
[G.R. No. L-8967. May 31, 1956.]
ANASTACIO VIAA, Petitioner, vs. ALEJO AL-LAGADAN and FILOMENA PIGA, Respondents.

DECISION
CONCEPCION, J.:
Petitioner Anastacio Viaa owned the fishing sailboat Magkapatid, which, in the night of September 3,
1948, sunk in the waters between the province of Bataan and the island of Corregidor, as a consequence
of a collision with the USS TINGLES, a vessel of the U.S. Navy. Inasmuch as Alejandro Al-Lagadan, a
member of the crew of the Magkapatid, disappeared with the craft, his parents, Respondent Alejo AlLagadan and Filomena Piga, filed the corresponding claim for compensation under Act No. 3428. After
appropriate proceedings, a Referee of the Workmens Compensation Commission rendered a decision,
dated February 23, 1953:
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1. Ordering Mr. Anastacio Viaa to pay the above-named claimants through the Workmens
Compensation Commission, Manila, the sum of P1,560 in lump sum with interest at 6 per cent from
September 3, 1948 until fully paid; and.
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To pay the sum of P16 to the Workmens Compensation Commission as costs.

Said decision was, on petition for review filed by Viaa, affirmed by the Workmens Compensation
Commissioner, on or about October 22, 1954, with additional fee of P5.00. Said Commissioner, having
subsequently denied a reconsideration of this action, Viaa has brought the matter to us, for review by
certiorari, upon the ground that this case does not fall within the purview of Act No. 3428, because the
gross income of his business for the year 1947 was allegedly less than P10,000, and because Alejandro
Al-Lagadan was, at the time of his death, his (Petitioners) industrial partner, not his employee.
The first ground is untenable, Petitioner not having invoked it before the rendition of the Referees
decision on February 23, 1953. The objection to the application of Act No. 3428, upon said ground, was
made for the first time when Petitioner sought a review of said decision by the Workmens
Compensation Commissioner. The non- applicability of said Act to employers whose gross income does
not reach P20,000 is, however, a matter of defense, which cannot be availed of unless pleaded in the
employers answer to the claim for compensation filed by the employee or his heirs. Petitioner herein
having failed to do so, said defense may not now be entertained (Rolan vs. Perez, 63 Phil., 80, 85-86).
As regards the second ground, Petitioner maintains, contrary to the finding of the Referee and said
Commissioner, that the deceased was his industrial partner, not employee. In this connection, it is
alleged in paragraph (6) of the petition:
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That the practice observed then and now in engaging the services of crewmen of sailboats plying
between Mindoro and Manila is on a partnership basis, to wit: that the owner of the vessel, on one
hand receives one-half of the earnings of the sailboat after deducting the expenses for the maintenance
of the crew, the other half is divided pro rata among the members of the crew, the patron or captain
receiving four parts, the piloto or next in command three parts, the wheelsman or timonel 1 1/2 parts
and the rest of the members of the crew one part each, as per Annex B hereof.
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It appears that, before rendering his aforementioned decision, the Referee requested Mr. Manuel O.
Morente, an attorney of the Workmens Compensation Commission, to look into and inquire and
determine the method of and the basis of engaging the services of crewmen for sailboats (batel) of

twenty (20) tons or more plying between Manila and Mariveles and moored along Manila North
Harbor, and that, thereafter, said Atty. Morente reported:
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The basis of engaging the services of crewmen of a batel is determined in accordance with the contract
executed between the owner and the patron. The contract commonly followed is on a share basis after
deducting all the expenses incurred on the voyage. One half goes to the owner of the batel and the
other half goes to the patron and the members of the crew and divided among themselves on a share
basis also in accordance with their agreement with the patron getting the lions share. The hiring of the
crew is done by the patron himself. Usually, when a patron enters into a contract with the owner of the
batel, he has a crew ready with him. (Italics supplied.)
In sustaining the Referees finding to the effect that the deceased was an employee of Viaa, the
Workmens Compensation Commissioner said:
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The trial referee found that there was an employer-employee relation between the Respondentand the
deceased, Alejandro Al-Lagadan, and the share which the deceased received at the end of each trip was
in the nature of wages which is defined under section 39 of the Compensation Act. This is so because
such share could be reckoned in terms of money. In other words, there existed the relation of employer
and employee between the Respondent and Alejandro Al-Lagadan at the time of the latters death.
We believe that the trial referee did not err in finding the deceased an employee of theRespondent. We
cite the following cases which illustrate the point at issue:
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The officers and crews of whaling and other fishing vessels who are to receive certain proportions of
produce of the voyage in lieu of wages; (Rice vs. Austin, 17 Mass. 206; 2Y & C. 61); Captains of
merchant ships who, instead of wages, receive shares in the profits of the adventure; (4 Maule & C.
240); or who take vessels under an agreement to pay certain charges and receive a share of the
earnings; (Tagard vs. Loring, 16 Mass. 336, 8 Am. Dec. 140; Winsor vs. Cutts, 7 Greenl. Me. 261)
have generally been held not to be partners with theRespondent, and the like. Running a steamboat on
shares does not make the owners partners in respect to the vessel (The Daniel Koine, 35 Fed. 785); so
of an agreement between two parties to farm on shares; (Hooloway vs. Brinkley, 42 Ga. 226); A
seaman who is to receive pay in proportion to the amount of fish caught is not a partner; (Holdren vs.
French, 68 Me. 241);
sharing profits in lieu of wages is not a partnership. There is no true
contribution; (Crawford vs. Austin, 34 Md. 49; Whitehill vs. Shickle, 43 Mo. 538; Sankey vs. Iron
Works, 44 Ga. 228.) (Italics supplied.)
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In other words, in the opinion of the Referee, as well as of said Commissioner, the mere fact that
Alejandros share in the understanding could be reckoned in terms of money, sufficed to characterize
him as an employee of Viaa. We do not share this view. Neither can we accept, however, Petitioners
theory to the effect that the deceased was his partner, not an employee, simply because he (the
deceased) shared in the profits, not in the losses. In determining the existence of employer-employee
relationship, the following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
power to control the employees conduct although the latter is the most important element (35 Am.
Jur. 445). Assuming that the share received by the deceased could partake of the nature of wages on
which we need not, and do not, express our view and that the second element, therefore, exists in
the case at bar, the record does not contain any specific data regarding the third and fourth elements.
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With respect to the first element, the facts before us are insufficient to warrant a reasonable conclusion,
one way or the other. On the one hand, Atty. Morente said, in his aforementioned report, that the
contract commonly followed is on a share basis The hiring of a crew is done by the patron himself.
Usually, when a patron enters into a contract with the owner of the batel, he has a crew ready with
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him. This statement suggests that the members of the crew are chosen by the patron, seemingly, upon
his sole responsibility and authority. It is noteworthy, however, that said report referred to a practice
commonly and usually observed in a given place. The record is silent on whether such practice had
been followed in the case under consideration. More important still, the language used in said report
may be construed as intimating, not only that the patron selects and engages the crew, but, also, that
the members thereof are subject to his control and may be dismissed by him. To put it differently, the
literal import of said report is open to the conclusion that the crew has a contractual relation, not with
the owner of the vessel, but with the patron, and that the latter, not the former, is either their employer
or their partner.
Upon the other hand, the very allegations of the petition show otherwise, for Petitioner explicitly
averred therein that the deceased Alejandro Al-Lagadan was his industrial partner. This implies that a
contract of partnership existed between them and that, accordingly, if the crew was selected and
engaged by the patron, the latter did so merely as agent or representative ofPetitioner herein. Again,
if Petitioner were a partner of the crew members, then neither the former nor the patron could control
or dismiss the latter.
In the interest of justice and equity, and considering that a decision on the merits of the issue before us
may establish an important precedent, it would be better to remand the case to the Workmens
Compensation Commission for further evidence and findings on the following questions: (1) who
selected the crew of the Magkapatid and engaged their services; (2) if selected and engaged by the
patron, did the latter act in his own name and for his own account, or on behalf and for the account of
Viaa; (3) could Viaa have refused to accept any of the crew members chosen and engaged by the
patron; (4) did Petitioner have authority to determine the time when, the place where and/or the
manner or conditions in or under which the crew would work; and (5) who could dismiss its members.
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Wherefore, let the case be remanded to the Workmens Compensation Commission, for further
proceedings in conformity with this decision, without special pronouncement as to costs. SO ORDERED.

VICTOR METEORO, REY CAGA,

JIMMY CORONEL, COSME TAMOR,
FELIXES LATONERO, ENRIQUE
SALAZAR, MAYLA LAQUI, ORLY
BANUA, BERNARDO MADRID, ARIEL
REYES, ALFREDO REYES, JAVIER
TIMERESA, ARMANDO MACA, JR.,
ROLANDO FALQUERA, JOSE
BENITEZ, RODOLFO TIMERESA,
ROLANDO LUCENA, NOEL
SUBTINIENTE, GUILLERMA
QUIMADO, BENIGNO REGALADO,
RANDY DELA CRUZ, JUVY MACA,
AMBROSIO CANARIA, JR.,
FELICIANO PAJARO, PETER
BADIANA, DANILO JORDAN, DENNIS
EDIESCA, JOGIL AVILA, ABRAHAM
BURCE, ONOFRE VINAS, DENNIS
VITARA, ARIEL GALUPO and
ALBERT AUSTERO,
Petitioners,

G.R. No. 171275

Present:
YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

- versus Promulgated:
CREATIVE CREATURES, INC.,
Respondent.

July 13, 2009

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

DECISION
NACHURA, J.:

Assailed in this petition for review on certiorari are the Court of Appeals
Decision[1] dated May 31, 2005 and Resolution[2] dated January 27, 2006 in CAG.R. SP No. 76942.
The facts of the case are as follows:
Respondent is a domestic corporation engaged in the business of producing,
providing, or procuring the production of set designs and set construction services
for television exhibitions, concerts, theatrical performances, motion pictures and
the like. It primarily caters to the production design requirements of ABS-CBN
Broadcasting Corporation in Metro Manila and nationwide.[3] On the other hand,
petitioners were hired by respondent on various dates as artists, carpenters and
welders. They were tasked to design, create, assemble, set-up and dismantle props,
and provide sound effects to respondents various TV programs and movies.[4]
Sometime in February and March 1999, petitioners filed their respective
complaints for non-payment of night shift differential pay, overtime pay, holiday
pay, 13th month pay, premium pay for Sundays and/or rest days, service incentive
leave pay, paternity leave pay, educational assistance, rice benefits, and illegal
and/or unauthorized deductions from salaries against respondent, before the
Department of Labor and Employment (DOLE), National Capital Region
(NCR). Their complaints were consolidated and docketed as NCR00-9902-IS011.[5]
After the inspection conducted at respondents premises, the labor inspector noted
that the records were not made available at the time of the inspection; that
respondent claimed that petitioners were contractual employees and/or independent
talent workers; and that petitioners were required to punch their cards.[6]
In its position paper, respondent argued that the DOLE-NCR had no jurisdiction
over the complaint of the petitioners because of the absence of an employeremployee relationship. It added that petitioners were free-lance individuals,
performing special services with skills and expertise inherently exclusive to them
like actors, actresses, directors, producers, and script writers, such that they were
treated as special types of workers.[7]

Petitioners, on the other hand, averred that they were employees of

respondent, as the elements of an employer-employee relationship existed.
Meanwhile, on April 12, 1999, petitioners filed a complaint for illegal dismissal
against petitioner, with prayer for payment of overtime pay, premium pay for
holiday and rest day, holiday pay, service incentive leave pay, 13 th month pay and
attorneys fees before the National Labor Relations Commission (NLRC). The case
was docketed as NLRC-NCR Case No. 00-04-04459-9.[8]
On October 11, 1999, DOLE Regional Director Maximo Baguyot Lim issued an
Order[9] directing respondent to pay petitioners the total amount
of P2,694,709.00. The dispositive portion of the Order reads as follows:
WHEREFORE, premises considered, this Office finds merit in the
complaint. Accordingly, Respondent Creative Creatures, Inc. and/or Mr.
Edmond Ty, is hereby ordered to pay thirty three (33) Complainants,
within ten (10) days from receipt hereof, the total amount of TWO
MILLION SIX HUNDRED NINETY FOUR THOUSAND SEVEN
HUNDRED NINE PESOS (P2,694,709.00) representing unpaid
13th month pay, vacation and sick leave benefits, regular holiday pay,
rest day and holiday premiums, overtime pay, educational allowance,
and rice allowance presented as follows:
xxxx
Failure to pay Complainants within the given period will constrain
this Office to issue a WRIT OF EXECUTION for the immediate
enforcement of this order.
SO ORDERED.[10]

The Regional Director sustained petitioners claim on the existence of an employeremployee relationship using the determinants set forth by the Labor Code,
specifically, the elements of control and supervision, power of dismissal, payment
of wages, and the selection and engagement of employees. He added that since the
petitioners had worked for more than one year doing the same routine work, they
were regular employees with respect to the activity in which they were

employed. Lastly, he upheld the DOLE-NCRs jurisdiction to hear and determine

cases in violation of labor standards law.[11]
On appeal, then DOLE Secretary Patricia A. Sto. Tomas affirmed the findings of
the DOLE Regional Director.[12] In upholding the jurisdiction of the DOLE-NCR,
she explained that the Secretary of Labor or his duly authorized representative is
allowed to use his visitorial and enforcement powers to give effect to labor
legislation, regardless of the amount involved, pursuant to Article 128 of the Labor
Code, as amended by Republic Act (R.A.) No. 7730.
For failure to obtain a favorable decision, respondent elevated the matter to the
Court of Appeals in CA-G.R. SP No. 76942. On May 31, 2005, the appellate court
rendered the assailed decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the instant petition
is GRANTED. For lack of jurisdiction, the Orders dated October 18,
2002 and February 5, 2003, issued by respondent Secretary are hereby
declared NULL and VOID. However, in view of the filing of a similar
case before the NLRC, referral of the instant case to the NLRC for
appropriate determination is no longer necessary.
SO ORDERED.[13]

While recognizing the visitorial and enforcement powers of the Regional Director
and his jurisdiction to entertain money claims, the appellate court noted that Article
128 of the Labor Code provides an instance when he (Regional Director) may be
divested of jurisdiction. The CA pointed out that respondent had consistently
disputed the existence of employer-employee relationship, thereby placing the case
beyond the jurisdiction of the Regional Director.
Petitioners now come before this Court in this petition for review
on certiorari raising the lone issue of:
Whether or not the Court of Appeals committed an error when it ruled
that the instant case falls within the exception clause of Article 128 (b)
of the Labor Code, as amended, and in annulling and setting aside the
Orders of the Secretary of Labor which affirmed the Order of the
Regional Director of DOLE-NCR awarding the claims of the petitioners

for benefits under the Labor Standards laws, namely, 13 th month benefit,
overtime pay, night shift differentials, premium on rest days, vacation
and sick leave and other benefits accorded to employees of the
responden[t] in the exercise of its visitorial powers pursuant to Article
128 (b) of the Labor Code as amended.[14]

In fine, we are tasked to determine which body/tribunal has jurisdiction over

petitioners money claims --- the DOLE Secretary or his duly authorized
representative, or the NLRC.
We sustain the appellate courts conclusion that the instant case falls within
the exclusive jurisdiction of the NLRC.
The DOLE Secretary and her authorized representatives, such as the DOLENCR Regional Director, have jurisdiction to enforce compliance with labor
standards laws under the broad visitorial and enforcement powers conferred by
Article 128 of the Labor Code, and expanded by Republic Act (R.A.) No.
7730,[15] to wit:[16]
Art. 128. Visitorial and Enforcement Power
(a) The Secretary of Labor or his duly authorized representatives,
including labor regulation officers, shall have access to employers
records and premises at anytime of the day or night whenever work is
being undertaken therein, and the right to copy therefrom, to question
any employee and investigate any fact, condition or matter which may be
necessary to determine violations or which may aid in the enforcement
of this Code and of any labor law, wage order or rules and regulations
issued pursuant thereto.
(b) Notwithstanding the provisions of Article 129 and 217 of this
Code to the contrary, and in cases where the relationship of employeremployee relation still exists, the Secretary of Labor and Employment or
his duly authorized representatives shall have the power to issue
compliance orders to give effect to the labor standards provisions of this
Code and other labor legislation based on the findings of labor
employment and enforcement officers or industrial safety engineers
made in the course of inspection. The Secretary or his duly authorized

representatives shall issue writs of execution, to the appropriate authority

for the enforcement of their orders, except in cases where the employer
contests the findings of the labor employment and enforcement officer
and raises issues supported by documentary proofs which were not
considered in the course of inspection.
xxxx

As it is now worded, and as consistently held in a number of cases,[17] the

visitorial and enforcement powers of the Secretary, exercised through his
representatives, encompass compliance with all labor standards laws and other
labor legislation, regardless of the amount of the claims filed by workers.
It is well to note that the Regional Directors visitorial and enforcement
powers have undergone a series of amendments. Confusion was engendered with
the promulgation of the decision in Servandos Inc. v. Secretary of Labor and
Employment.[18] In that case, this Court held that to harmonize Articles 217 (a)
(6),[19] 129,[20] and 128 of the Labor Code, the Secretary of Labor should be
deemed as clothed with plenary visitorial powers to order the inspection of all
establishments where labor is employed, and to look into all possible violations of
labor laws and regulations; but the power to hear and decide employees claims
exceeding P5,000.00 for each employee should be left to the Labor Arbiter as the
exclusive repository of the power to hear and decide such claims.
Jurisprudence,
however,
rendered
the Servando ruling
[21]
inapplicable. In Guico, Jr. v. Quisumbing, Allied Investigation Bureau, Inc. v.
Sec. of Labor,[22] and Cirineo Bowling Plaza, Inc. v. Sensing,[23] we had occasion to
explain that while it is true that under Articles 129 and 217 of the Labor Code, the
Labor Arbiter has jurisdiction to hear and decide cases where the aggregate money
claim of each employee exceeds P5,000.00, these provisions of law do not
contemplate or cover the visitorial and enforcement powers of the Secretary of
Labor or his duly authorized representatives. Thus, we upheld the jurisdiction of
the Regional Director, notwithstanding the fact that the amount awarded
exceeded P5,000.00 per employee.

In order to do away with the jurisdictional limitations imposed by

the Servando ruling and to finally settle any lingering doubts on the extent of the
visitorial and enforcement powers of the Secretary of Labor and Employment,
R.A. 7730 was enacted, amending Article 128 (b) to its present formulation, so as
to free it from the jurisdictional restrictions found in Articles 129 and 217.
This notwithstanding, the power of the Regional Director to hear and decide
the monetary claims of employees is not absolute. The last sentence of Article 128
(b) of the Labor Code, otherwise known as the exception clause, provides an
instance when the Regional Director or his representatives may be divested of
jurisdiction over a labor standards case.
Under prevailing jurisprudence, the so-called exception clause has the
following elements, all of which must concur:
(a) that the employer contests the findings of the labor regulations officer
and raises issues thereon;
(b) that in order to resolve such issues, there is a need to examine
evidentiary matters; and
(c) that such matters are not verifiable in the normal course of
inspection.[24]

In the present case, the CA aptly applied the exception clause. At the earliest
opportunity, respondent registered its objection to the findings of the labor
inspector. The labor inspector, in fact, noted in its report that respondent alleged
that petitioners were contractual workers and/or independent and talent workers
without control or supervision and also supplied with tools and apparatus
pertaining to their job.[25] In its position paper, respondent again insisted that
petitioners were not its employees. It then questioned the Regional Directors
jurisdiction to entertain the matter before it, primarily because of the absence of an
employer-employee relationship. Finally, it raised the same arguments before the
Secretary of Labor and the appellate court. It is, therefore, clear that respondent
contested and continues to contest the findings and conclusions of the labor
inspector.

To resolve the issue raised by respondent, that is, the existence of

an employer-employee relationship, there is need to examine evidentiary
matters. The following elementsconstitute the reliable yardstick to determine such
relationship: (a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employers power to control the
employees conduct.[26] There is no hard and fast rule designed to establish the
aforesaid elements. Any competent and relevant evidence to prove the relationship
may be admitted. Identification cards, cash vouchers, social security registration,
appointment letters or employment contracts, payrolls, organization charts, and
personnel lists, serve as evidence of employee status.[27] These pieces of evidence
are readily available, as they are in the possession of either the employee or the
employer; and they may easily be looked into by the labor inspector (in the course
of inspection) when confronted with the question of the existence or absence of an
employer-employee relationship.
Some businessmen, however, try to avoid an employer-employee
relationship from arising in their enterprises, because that juridical relation spawns
obligations connected with workmens compensation, social security, medicare,
termination pay, and unionism.[28] Thus, in addition to the above-mentioned
documents, other pieces of evidence are considered in ascertaining the true nature
of the parties relationship. This is especially true in determining the element of
control. The most important index of an employer-employee relationship is the socalled 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.[29]
In the case at bar, whether or not petitioners were independent
contractors/project employees/free lance workers is a question of fact that
necessitates the examination of evidentiary matters not verifiable in the normal
course of inspection. Indeed, the contracts of independent services, as well as the
check vouchers, were kept and maintained in or about the premises of the
workplace and were, therefore, verifiable in the course of inspection. However,
respondent likewise claimed that petitioners were not precluded from working
outside the service contracts they had entered into with it (respondent); and that
there were instances when petitioners abandoned their service contracts with the
respondent, because they had to work on another project with a different

company. Undoubtedly, the resolution of these issues requires the examination of

evidentiary matters not verifiable in the normal course of inspection. Verily, the
Regional Director and the Secretary of Labor are divested of jurisdiction to decide
the case.
We would like to emphasize that to contest means to raise questions as to the
amounts complained of or the absence of violation of labor standards laws; or, as
in the instant case, issues as to the complainants right to labor standards
benefits. To be sure, raising lack of jurisdiction alone is not the contest
contemplated by the exception clause.[30] It is necessary that the employer contest
the findings of the labor regulations officer during the hearing or after receipt of
the notice of inspection results.[31] More importantly, the key requirement for the
Regional Director and the DOLE Secretary to be divested of jurisdiction is that the
evidentiary matters be not verifiable in the course of inspection. Where the
evidence presented was verifiable in the normal course of inspection, even if
presented belatedly by the employer, the Regional Director, and later the DOLE
Secretary, may still examine it; and these officers are not divested of jurisdiction to
decide the case.[32]
In sum, respondent contested the findings of the labor inspector during and
after the inspection and raised issues the resolution of which necessitated the
examination of evidentiary matters not verifiable in the normal course of
inspection. Hence, the Regional Director was divested of jurisdiction and should
have endorsed the case to the appropriate Arbitration Branch of the
NLRC.[33] Considering, however, that an illegal dismissal case had been filed by
petitioners wherein the existence or absence of an employer-employee relationship
was also raised, the CA correctly ruled that such endorsement was no longer
necessary.
WHEREFORE, premises considered, the petition is DENIED for lack of
merit. The Court of Appeals Decision dated May 31, 2005 and its Resolution dated
January 27, 2006 in CA-G.R. SP No. 76942, are AFFIRMED.
SO ORDERED.

G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and
SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees)
entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the
first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party
of the second part, and hereinafter referred to as appellants, the Tourist World
Service, Inc. leased the premises belonging to the party of the first part at Mabini St.,
Manila for the former-s use as a branch office. In the said contract the party of the
third part held herself solidarily liable with the party of the part for the prompt
payment of the monthly rental agreed on. When the branch office was opened, the
same was run by the herein appellant Una 0. Sevilla payable to Tourist World
Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla,
4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World
Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears
to have been informed that Lina Sevilla was connected with a rival firm, the
Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist
World Service considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961
(Exhibits 12 and 13), the first abolishing the office of the manager and vice-president
of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the
corporate secretary to receive the properties of the Tourist World Service then
located at the said branch office. It further appears that on Jan. 3, 1962, the contract
with the appellees for the use of the Branch Office premises was terminated and
while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a
matter of fact appellants used it since Nov. 1961. Because of this, and to comply with
the mandate of the Tourist World Service, the corporate secretary Gabino Canilao
went over to the branch office, and, finding the premises locked, and, being unable to
contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the
interests of the Tourist World Service. When neither the appellant Lina Sevilla nor
any of her employees could enter the locked premises, a complaint wall filed by the
herein appellants against the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with counterclaims. For apparent
lack of interest of the parties therein, the trial court ordered the dismissal of the case
without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court a quo, in an order dated June 8, 1963, granted
permitting her to present evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees
and after the issues were joined, the reinstated counterclaim of Segundina Noguera
and the new complaint of appellant Lina Sevilla were jointly heard following which the
court a quo ordered both cases dismiss for lack of merit, on the basis of which was
elevated the instant appeal on the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0.
SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.)
WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO
HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS.
LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC.
EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE
NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT
MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at
the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and
3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was
entered into by and between her and appellee TWS with offices at the Ermita branch
office and that she was not an employee of the TWS to the end that her relationship
with TWS was one of a joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an

eminent eye, ear and nose specialist as well as a imediately
columnist had been in the travel business prior to the establishment
of the joint business venture with appellee Tourist World Service, Inc.
and appellee Eliseo Canilao, her compadre, she being the godmother
of one of his children, with her own clientele, coming mostly from her
own social circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated
19 October 1960 (Exh. 'A') covering the premises at A. Mabini St.,
she expressly warranting and holding [sic] herself 'solidarily' liable
with appellee Tourist World Service, Inc. for the prompt payment of
the monthly rentals thereof to other appellee Mrs. Noguera (pp. 1415, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee
Tourist World Service, Inc., which had its own, separate office located
at the Trade & Commerce Building; nor was she an employee
thereof, having no participation in nor connection with said business
at the Trade & Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own
passengers, her own bookings her own business (and not for any of
the business of appellee Tourist World Service, Inc.) obtained from
the airline companies. She shared the 7% commissions given by the
airline companies giving appellee Tourist World Service, Lic. 3%
thereof aid retaining 4% for herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of
maintaining the A. Mabini St. office, paying for the salary of an office
secretary, Miss Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some of fice furnishings
(pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in consideration for the 3%
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb.
16,1965).
6. It was the understanding between them that appellant Mrs. Sevilla
would be given the title of branch manager for appearance's sake
only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a
title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo
Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary
Gabino Canilao (pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of
the appellee Tourist World Service, Inc. and as such was designated manager. 1
xxx xxx xxx

The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World
Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the
premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World

Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of
Appeal 5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court, erred.
Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD
SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA
SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND
WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY
BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED
THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN
THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE
LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO
WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS
CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER
CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina
Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the
crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World
Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World
Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere
employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on
the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however,

that relation between the between parties was one of joint venture, but concede that "whatever might
have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined
Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the
padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World
Service, Inc., maintains, that the relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the case, labor disputes being the
exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant
to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employeremployee relation. In general, we have relied on the so-called right of control test, "where the person
for whom the services are performed reserves a right to control not only the end to be achieved but
also the means to be used in reaching such end." 10 Subsequently, however, we have considered, in
addition to the standard of right-of control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, in determining the existence of an employeremployee relationship. 11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means
used in connection therewith. In the first place, under the contract of lease covering the Tourist
Worlds Ermita office, she had bound herself insolidum as and for rental payments, an arrangement
that would be like claims of a master-servant relationship. True the respondent Court would later
minimize her participation in the lease as one of mere guaranty, 12 that does not make her an
employee of Tourist World, since in any case, a true employee cannot be made to part with his own
money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event,
the parties must be bound by some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the
same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any
airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot
be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in
pursuing the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in
commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee
then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending
on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As we said, employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a
partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her
letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to
stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over
the manner in which the business was run. A joint venture, including a partnership, presupposes
generally a of standing between the joint co-venturers or partners, in which each party has an equal
proprietary interest in the capital or property contributed 15 and where each party exercises equal rights in
the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the

building itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the
private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract that the agent renders services "in
representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so
for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the
proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November
28, 1961, pre-assumed her principal's authority as owner of the business undertaking. We are convinced,
considering the circumstances and from the respondent Court's recital of facts, that the ties had
contemplated a principal agent relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible
with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an
interest, the agency having been created for mutual interest, of the agent and the principal. 19 It
appears that Lina Sevilla is a bona fidetravel agent herself, and as such, she had acquired an interest in
the business entrusted to her. Moreover, she had assumed a personal obligation for the operation
thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her
own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the
commissions she earned as a result of her business transactions, but one that extends to the very subject
matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked
at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner,
Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court
of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the
telephone lines at the branch office. 20Yet, what cannot be denied is the fact that Tourist World Service,
Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the
disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must
shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For
the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it
any authority to terminate that contract without notice to its actual occupant, and to padlock the
premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a
third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted
from possession as summarily as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to
put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival
firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but
there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for
another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another
company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents
ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,
personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of
the Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc. did not find such a
need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend

that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could
not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its
business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it
had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice
and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for "breaches of contract where the defendant acted ... in bad
faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to
Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted
to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage. 24
ART. 2219. Moral damages 25 may be recovered in the following and analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the
same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has
been shown that she had connived with Tourist World Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages,25 and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair, and
reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on
July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The
private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and
severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages,
the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for
nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.

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

PHILIPPINE
GLOBAL
COMMUNICATIONS,
vs. RICARDO DE VERA, respondent.

INC., petitioner,

DECISION
GARCIA, J.:

Before us is this appeal by way of a petition for review on certiorari from

the 12 September 2002 Decision and the 13 February 2003 Resolution of
the Court of Appeals in CA-G.R. SP No. 65178, upholding the finding of illegal
dismissal by the National Labor Relations Commission against petitioner.
[1]

[2]

As culled from the records, the pertinent facts are:

Petitioner Philippine Global Communications, Inc. (PhilCom), is a
corporation engaged in the business of communication services and allied
activities, while respondent Ricardo De Vera is a physician by profession
whom petitioner enlisted to attend to the medical needs of its employees. At
the crux of the controversy is Dr. De Veras status vis a vis petitioner when the
latter terminated his engagement.
It appears that on 15 May 1981, De Vera, via a letter dated 15 May
1981, offered his services to the petitioner, therein proposing his plan of
works required of a practitioner in industrial medicine, to include the following:
[3]

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

2. Holding of clinic hours in the morning and afternoon for a total of five (5)
hours daily for consultation services to employees;
3. Management and treatment of employees that may necessitate hospitalization
including emergency cases and accidents;
4. Conduct pre-employment physical check-up of prospective employees with no
additional medical fee;
5. Conduct home visits whenever necessary;
6. Attend to certain medical administrative function such as accomplishing
medical forms, evaluating conditions of employees applying for sick leave

of absence and subsequently issuing proper certification, and all matters

referred which are medical in nature.
The parties agreed and formalized respondents proposal in a document
denominated as RETAINERSHIP CONTRACT which will be for a period of
one year subject to renewal, it being made clear therein that respondent will
cover the retainership the Company previously had with Dr. K. Eulau and that
respondents retainer fee will be at P4,000.00 a month. Said contract was
renewed yearly. The retainership arrangement went on from 1981 to 1994
with changes in the retainers fee. However, for the years 1995 and 1996,
renewal of the contract was only made verbally.
[4]

[5]

The turning point in the parties relationship surfaced in December 1996

when Philcom, thru a letter bearing on the subject boldly written as
TERMINATION RETAINERSHIP CONTRACT, informed De Vera of its
decision to discontinue the latters retainers contract with the Company
effective at the close of business hours of December 31, 1996 because
management has decided that it would be more practical to provide medical
services to its employees through accredited hospitals near the company
premises.
[6]

On 22 January 1997, De Vera filed a complaint for illegal dismissal before

the National Labor Relations Commission (NLRC), alleging that that he had
been actually employed by Philcom as its company physician since 1981 and
was dismissed without due process. He averred that he was designated as a
company physician on retainer basis for reasons allegedly known only to
Philcom. He likewise professed that since he was not conversant with labor
laws, he did not give much attention to the designation as anyway he worked
on a full-time basis and was paid a basic monthly salary plus fringe benefits,
like any other regular employees of Philcom.
On 21 December 1998, Labor Arbiter Ramon Valentin C. Reyes came out
with a decision dismissing De Veras complaint for lack of merit, on the
rationale that as a retained physician under a valid contract mutually agreed
upon by the parties, De Vera was an independent contractor and that he was
not dismissed but rather his contract with [PHILCOM] ended when said
contract was not renewed after December 31, 1996.
[7]

On De Veras appeal to the NLRC, the latter, in a decision dated 23

October 2000, reversed (the word used is modified) that of the Labor Arbiter,
on a finding that De Vera is Philcoms regular employee and accordingly
directed the company to reinstate him to his former position without loss of
seniority rights and privileges and with full backwages from the date of his
[8]

dismissal until actual reinstatement. We quote the dispositive portion of the

decision:
WHEREFORE, the assailed decision is modified in that respondent is ordered to
reinstate complainant to his former position without loss of seniority rights and
privileges with full backwages from the date of his dismissal until his actual
reinstatement computed as follows:
Backwages:
a) Basic Salary
From Dec. 31, 1996 to Apr. 10, 2000 = 39.33 mos.
P44,400.00 x 39.33 mos. P1,750,185.00
b) 13th Month Pay:
1/12 of P1,750,185.00 145,848.75
c) Travelling allowance:
P1,000.00 x 39.33 mos. 39,330.00
GRAND TOTAL P1,935,363.75
The decision stands in other aspects.
SO ORDERED.
With its motion for reconsideration having been denied by the NLRC in its
order of 27 February 2001, Philcom then went to the Court of Appeals on a
petition for certiorari, thereat docketed as CA-G.R. SP No. 65178, imputing
grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the NLRC when it reversed the findings of the labor arbiter and
awarded thirteenth month pay and traveling allowance to De Vera even as
such award had no basis in fact and in law.
[9]

On 12 September 2002, the Court of Appeals rendered a

decision, modifying that of the NLRC by deleting the award of traveling
allowance, and ordering payment of separation pay to De Vera in lieu of
reinstatement, thus:
[10]

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

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

the actual payment of the backwages and separation pay. The awards of backwages
and 13th month pay STAND.
SO ORDERED.
In time, Philcom filed a motion for reconsideration but was denied by the
appellate court in its resolution of 13 February 2003.
[11]

Hence, Philcoms present recourse on its main submission that THE COURT OF APPEALS ERRED IN SUSTAINING THE DECISION OF THE
NATIONAL LABOR RELATIONS COMMISSION AND RENDERING THE
QUESTIONED DECISION AND RESOLUTION IN A WAY THAT IS NOT IN
ACCORD WITH THE FACTS AND APPLICABLE LAWS AND
JURISPRUDENCE WHICH DISTINGUISH LEGITIMATE JOB CONTRACTING
AGREEMENTS FROM THE EMPLOYER-EMPLOYEE RELATIONSHIP.
We GRANT.
Under Rule 45 of the Rules of Court, only questions of law may be
reviewed by this Court in decisions rendered by the Court of Appeals. There
are instances, however, where the Court departs from this rule and reviews
findings of fact so that substantial justice may be served. The exceptional
instances are where:
xxx xxx xxx (1) the conclusion is a finding grounded entirely on speculation, surmise
and conjecture; (2) the inference made is manifestly mistaken; (3) there is grave abuse
of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings
of fact are conflicting; (6) the Court of Appeals went beyond the issues of the case and
its findings are contrary to the admissions of both appellant and appellees; (7) the
findings of fact of the Court of Appeals are contrary to those of the trial court; (8) said
findings of facts are conclusions without citation of specific evidence on which they
are based; (9) the facts set forth in the petition as well as in the petitioners main and
reply briefs are not disputed by the respondents; and (10) the findings of fact of the
Court of Appeals are premised on the supposed absence of evidence and contradicted
by the evidence on record.
[12]

As we see it, the parties respective submissions revolve on the primordial

issue of whether an employer-employee relationship exists between petitioner
and respondent, the existence of which is, in itself, a question of fact well
within the province of the NLRC. Nonetheless, given the reality that the
NLRCs findings are at odds with those of the labor arbiter, the Court,
consistent with its ruling in Jimenez vs. National Labor Relations
[13]

Commission, is constrained to look deeper into the attendant circumstances

obtaining in this case, as appearing on record.
[14]

In a long line of decisions, the Court, in determining the existence of an

employer-employee relationship, has invariably adhered to the four-fold test,
to wit: [1] the selection and engagement of the employee; [2] the payment of
wages; [3] the power of dismissal; and [4] the power to control the employees
conduct, or the so-called control test, considered to be the most important
element.
[15]

Applying the four-fold test to this case, we initially find that it was
respondent himself who sets the parameters of what his duties would be in
offering his services to petitioner. This is borne by no less than his 15 May
1981 letter which, in full, reads:
[16]

May 15, 1981

Mrs. Adela L. Vicente
Vice President, Industrial Relations
PhilCom, Paseo de Roxas
Makati, Metro Manila
Madam:
I shall have the time and effort for the position of Company physician with your
corporation if you deemed it necessary. I have the necessary qualifications, training
and experience required by such position and I am confident that I can serve the best
interests of your employees, medically.
My plan of works and targets shall cover the duties and responsibilities required of a
practitioner in industrial medicine which includes the following:
1. Application of preventive medicine including periodic check-up of
employees;
2. Holding of clinic hours in the morning and afternoon for a total of five (5)
hours daily for consultation services to employees;
3. Management and treatment of employees that may necessitate
hospitalization including emergency cases and accidents;
4. Conduct pre-employment physical check-up of prospective employees with
no additional medical fee;

5. Conduct home visits whenever necessary;

6. Attend to certain medical administrative functions such as accomplishing
medical forms, evaluating conditions of employees applying for sick leave
of absence and subsequently issuing proper certification, and all matters
referred which are medical in nature.
On the subject of compensation for the services that I propose to render to the
corporation, you may state an offer based on your belief that I can very well qualify
for the job having worked with your organization for sometime now.
I shall be very grateful for whatever kind attention you may extend on this matter and
hoping that it will merit acceptance, I remain
Very truly yours,
(signed)
RICARDO V. DE VERA, M.D.
Significantly, the foregoing letter was substantially the basis of the labor
arbiters finding that there existed no employer-employee relationship between
petitioner and respondent, in addition to the following factual settings:
The fact that the complainant was not considered an employee was recognized by the
complainant himself in a signed letter to the respondent dated April 21, 1982 attached
as Annex G to the respondents Reply and Rejoinder. Quoting the pertinent portion of
said letter:
To carry out your memo effectively and to provide a systematic and workable time
schedule which will serve the best interests of both the present and absent employee,
may I propose an extended two-hour service (1:00-3:00 P.M.) during which period I
can devote ample time to both groups depending upon the urgency of the situation. I
shall readjust my private schedule to be available for the herein proposed extended
hours, should you consider this proposal.
As regards compensation for the additional time and services that I shall render to the
employees, it is dependent on your evaluation of the merit of my proposal and your
confidence on my ability to carry out efficiently said proposal.
The tenor of this letter indicates that the complainant was proposing to extend his time
with the respondent and seeking additional compensation for said extension. This
shows that the respondent PHILCOM did not have control over the schedule of the
complainant as it [is] the complainant who is proposing his own schedule and asking

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

The labor arbiter added the indicia, not disputed by respondent, that from
the time he started to work with petitioner, he never was included in its payroll;
was never deducted any contribution for remittance to the Social Security
System (SSS); and was in fact subjected by petitioner to the ten (10%)
percent withholding tax for his professional fee, in accordance with the
National Internal Revenue Code, matters which are simply inconsistent with
an employer-employee relationship. In the precise words of the labor arbiter:
xxx xxx xxx After more than ten years of services to PHILCOM, the complainant
would have noticed that no SSS deductions were made on his remuneration or that the
respondent was deducting the 10% tax for his fees and he surely would have
complained about them if he had considered himself an employee of PHILCOM. But
he never raised those issues. An ordinary employee would consider the SSS payments
important and thus make sure they would be paid. The complainant never bothered to
ask the respondent to remit his SSS contributions. This clearly shows that the
complainant never considered himself an employee of PHILCOM and thus,
respondent need not remit anything to the SSS in favor of the complainant.
[18]

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

this case. We may add that the records are replete with evidence showing that
respondent had to bill petitioner for his monthly professional fees. It simply
runs against the grain of common experience to imagine that an ordinary
employee has yet to bill his employer to receive his salary.
[19]

We note, too, that the power to terminate the parties relationship was
mutually vested on both. Either may terminate the arrangement at will, with or
without cause.
[20]

Finally, remarkably absent from the parties arrangement is the element of

control, whereby the employer has reserved the right to control the employee
not only as to the result of the work done but also as to the means and
methods by which the same is to be accomplished.
[21]

Here, petitioner had no control over the means and methods by which
respondent went about performing his work at the company premises. He
could even embark in the private practice of his profession, not to mention the
fact that respondents work hours and the additional compensation therefor
were negotiated upon by the parties. In fine, the parties themselves
practically agreed on every terms and conditions of respondents engagement,
which thereby negates the element of control in their relationship. For sure,
respondent has never cited even a single instance when petitioner interfered
with his work.
[22]

Yet, despite the foregoing, all of which are extant on record, both the
NLRC and the Court of Appeals ruled that respondent is petitioners regular
employee at the time of his separation.
Partly says the appellate court in its assailed decision:
Be that as it may, it is admitted that private respondents written retainer contract was
renewed annually from 1981 to 1994 and the alleged renewal for 1995 and 1996,
when it was allegedly terminated, was verbal.
Article 280 of the Labor code (sic) provides:
The provisions of written agreement to the contrary notwithstanding and regardless
of the oral agreements of the parties, an employment shall be deemed to be regular
where the employee has been engaged to perform in the usual business or trade of the
employer, except where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time
of the engagement of the employee or where the work or services to be performed is
seasonal in nature and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: Provided, That, any employee who has rendered at least one (1) year
of service, whether such is continuous or broken, shall be considered a regular with
respect to the activity in which he is employed and his employment shall continue
while such activity exists.

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

necessary and desirable because the need for medical attention of employees cannot
be foreseen, hence, it is necessary to have a physician at hand. In fact, the importance
and desirability of a physician in a company premises is recognized by Art. 157 of the
Labor Code, which requires the presence of a physician depending on the number of
employees and in the case at bench, in petitioners case, as found by public respondent,
petitioner employs more than 500 employees.
Going back to Art. 280 of the Labor Code, it was made therein clear that the
provisions of a written agreement to the contrary notwithstanding or the existence of a
mere oral agreement, if the employee is engaged in the usual business or trade of the
employer, more so, that he rendered service for at least one year, such employee shall
be considered as a regular employee. Private respondent herein has been with
petitioner since 1981 and his employment was not for a specific project or
undertaking, the period of which was pre-determined and neither the work or service
of private respondent seasonal. (Emphasis by the CA itself).
We disagree to the foregoing ratiocination.
The appellate courts premise that regular employees are those who
perform activities which are desirable and necessary for the business of the
employer is not determinative in this case. For, we take it that any agreement
may provide that one party shall render services for and in behalf of another,
no matter how necessary for the latters business, even without being hired
as an employee. This set-up is precisely true in the case of an independent
contractorship as well as in an agency agreement. Indeed, Article 280 of the
Labor Code, quoted by the appellate court, is not the yardstick for determining
the existence of an employment relationship. As it is, the provision merely
distinguishes between two (2) kinds of employees, i.e., regular and casual. It
does not apply where, as here, the very existence of an employment
relationship is in dispute.
[23]

Buttressing his contention that he is a regular employee of petitioner,

respondent invokes Article 157 of the Labor Code, and argues that he
satisfies all the requirements thereunder. The provision relied upon reads:
ART. 157. Emergency medical and dental services. It shall be the duty of every
employer to furnish his employees in any locality with free medical and dental
attendance and facilities consisting of:
(a) The services of a full-time registered nurse when the number of employees
exceeds fifty (50) but not more than two hundred (200) except when the
employer does not maintain hazardous workplaces, in which case the

services of a graduate first-aider shall be provided for the protection of

the workers, where no registered nurse is available. The Secretary of
Labor shall provide by appropriate regulations the services that shall be
required where the number of employees does not exceed fifty (50) and
shall determine by appropriate order hazardous workplaces for purposes
of this Article;
(b) The services of a full-time registered nurse, a part-time physician and
dentist, and an emergency clinic, when the number of employees
exceeds two hundred (200) but not more than three hundred (300); and
(c) The services of a full-time physician, dentist and full-time registered nurse
as well as a dental clinic, and an infirmary or emergency hospital with
one bed capacity for every one hundred (100) employees when the
number of employees exceeds three hundred (300).
In cases of hazardous workplaces, no employer shall engage the services of a
physician or dentist who cannot stay in the premises of the establishment for at least
two (2) hours, in the case of those engaged on part-time basis, and not less than eight
(8) hours in the case of those employed on full-time basis. Where the undertaking is
nonhazardous in nature, the physician and dentist may be engaged on retained basis,
subject to such regulations as the Secretary of Labor may prescribe to insure
immediate availability of medical and dental treatment and attendance in case of
emergency.
Had only respondent read carefully the very statutory provision invoked by
him, he would have noticed that in non-hazardous workplaces, the employer
may engage the services of a physician on retained basis. As correctly
observed by the petitioner, while it is true that the provision requires
employers to engage the services of medical practitioners in certain
establishments depending on the number of their employees, nothing is there
in the law which says that medical practitioners so engaged be actually hired
as employees, adding that the law, as written, only requires the employer to
retain, not employ, a part-time physician who needed to stay in the premises
of the non-hazardous workplace for two (2) hours.
[24]

[25]

Respondent takes no issue on the fact that petitioners business of

telecommunications is not hazardous in nature. As such, what applies here is
the last paragraph of Article 157 which, to stress, provides that the employer
may engage the services of a physician and dentist on retained basis, subject
to such regulations as the Secretary of Labor may prescribe. The successive

retainership agreements of the parties definitely hue to the very statutory

provision relied upon by respondent.
Deeply embedded in our jurisprudence is the rule that courts may not
construe a statute that is free from doubt. Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts have
no choice but to see to it that the mandate is obeyed. As it is, Article 157 of
the Labor Code clearly and unequivocally allows employers in non-hazardous
establishments to engage on retained basis the service of a dentist or
physician. Nowhere does the law provide that the physician or dentist so
engaged thereby becomes a regular employee. The very phrase that they
may be engaged on retained basis, revolts against the idea that this
engagement gives rise to an employer-employee relationship.
[26]

With the recognition of the fact that petitioner consistently engaged the
services of respondent on a retainer basis, as shown by their various
retainership contracts, so can petitioner put an end, with or without cause, to
their retainership agreement as therein provided.
[27]

We note, however, that even as the contracts entered into by the parties
invariably provide for a 60-day notice requirement prior to termination, the
same was not complied with by petitioner when it terminated on 17 December
1996 the verbally-renewed retainership agreement, effective at the close of
business hours of 31 December 1996.
Be that as it may, the record shows, and this is admitted by both
parties, that execution of the NLRC decision had already been made at the
NLRC despite the pendency of the present recourse. For sure, accounts of
petitioner had already been garnished and released to respondent despite the
previous Status Quo Order issued by this Court. To all intents and purposes,
therefore, the 60-day notice requirement has become moot and academic if
not waived by the respondent himself.
[28]

[29]

WHEREFORE, the petition is GRANTED and the challenged decision of

the Court of Appeals REVERSED and SET ASIDE. The 21 December 1998
decision of the labor arbiter is REINSTATED.
No pronouncement as to costs.
SO ORDERED.

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

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.
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
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
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.
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 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 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
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.

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

PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS

COMMISSION, SUPREME PACKAGING, INC. and ALVIN LEE,
Plant Manager,respondents.
DECISION
CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari of the

Resolution dated December 15, 2000 of the Court of Appeals (CA) reversing
its Decision dated April 28, 2000 in CA-G.R. SP No. 52485. The assailed
resolution reinstated the Decision dated July 10, 1998 of the National Labor
Relations Commission (NLRC), dismissing the complaint for illegal dismissal
filed by herein petitioner Pedro Chavez. The said NLRC decision similarly
reversed its earlier Decision dated January 27, 1998 which, affirming that of
the Labor Arbiter, ruled that the petitioner had been illegally dismissed by
respondents Supreme Packaging, Inc. and Mr. Alvin Lee.
[1]

The case stemmed from the following facts:

The respondent company, Supreme Packaging, Inc., is in the business of
manufacturing cartons and other packaging materials for export and
distribution. It engaged the services of the petitioner, Pedro Chavez, as truck
driver on October 25, 1984. As such, the petitioner was tasked to deliver the
respondent companys products from its factory in Mariveles, Bataan, to its
various customers, mostly in Metro Manila. The respondent company
furnished the petitioner with a truck. Most of the petitioners delivery trips were
made at nighttime, commencing at 6:00 p.m. from Mariveles, and returning
thereto in the afternoon two or three days after. The deliveries were made in
accordance with the routing slips issued by respondent company indicating
the order, time and urgency of delivery. Initially, the petitioner was paid the
sum of P350.00 per trip. This was later adjusted to P480.00 per trip and, at
the time of his alleged dismissal, the petitioner was receiving P900.00 per trip.
Sometime in 1992, the petitioner expressed to respondent Alvin Lee,
respondent companys plant manager, his (the petitioners) desire to avail
himself of the benefits that the regular employees were receiving such as
overtime pay, nightshift differential pay, and 13th month pay, among others.
Although he promised to extend these benefits to the petitioner, respondent
Lee failed to actually do so.

On February 20, 1995, the petitioner filed a complaint for regularization

with the Regional Arbitration Branch No. III of the NLRC in San Fernando,
Pampanga. Before the case could be heard, respondent company terminated
the services of the petitioner. Consequently, on May 25, 1995, the petitioner
filed an amended complaint against the respondents for illegal dismissal,
unfair labor practice and non-payment of overtime pay, nightshift differential
pay, 13th month pay, among others. The case was docketed as NLRC Case
No. RAB-III-02-6181-95.
The respondents, for their part, denied the existence of an employeremployee relationship between the respondent company and the petitioner.
They averred that the petitioner was an independent contractor as evidenced
by the contract of service which he and the respondent company entered into.
The said contract provided as follows:
That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to
hire and the Contractor [referring to Pedro Chavez], by nature of their specialized line
or service jobs, accepts the services to be rendered to the Principal, under the
following terms and covenants heretofore mentioned:
1. That the inland transport delivery/hauling activities to be performed by the contractor
to the principal, shall only cover travel route from Mariveles to Metro Manila.
Otherwise, any change to this travel route shall be subject to further agreement by
the parties concerned.
2. That the payment to be made by the Principal for any hauling or delivery transport
services fully rendered by the Contractor shall be on a per trip basis depending on
the size or classification of the truck being used in the transport service, to wit:

a) If the hauling or delivery service shall require a truck of six wheeler, the
payment on a per trip basis from Mariveles to Metro Manila shall be
THREE HUNDRED PESOS (P300.00) and EFFECTIVE December 15,
1984.
b) If the hauling or delivery service require a truck of ten wheeler, the
payment on a per trip basis, following the same route mentioned, shall be
THREE HUNDRED FIFTY (P350.00) Pesos and Effective December
15, 1984.
3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at least
two (2) helpers;
4. The Contractor shall exercise direct control and shall be responsible to the Principal
for the cost of any damage to, loss of any goods, cargoes, finished products or the
like, while the same are in transit, or due to reckless [sic] of its men utilized for the
purpose above mentioned;

5. That the Contractor shall have absolute control and disciplinary power over its men
working for him subject to this agreement, and that the Contractor shall hold the
Principal free and harmless from any liability or claim that may arise by virtue of the
Contractors non-compliance to the existing provisions of the Minimum Wage Law,
the Employees Compensation Act, the Social Security System Act, or any other
such law or decree that may hereafter be enacted, it being clearly understood that
any truck drivers, helpers or men working with and for the Contractor, are not
employees who will be indemnified by the Principal for any such claim, including
damages incurred in connection therewith;
6. This contract shall take effect immediately upon the signing by the parties, subject to
renewal on a year-to-year basis.[2]

This contract of service was dated December 12, 1984. It was

subsequently renewed twice, on July 10, 1989 and September 28, 1992.
Except for the rates to be paid to the petitioner, the terms of the contracts
were substantially the same. The relationship of the respondent company and
the petitioner was allegedly governed by this contract of service.
The respondents insisted that the petitioner had the sole control over the
means and methods by which his work was accomplished. He paid the wages
of his helpers and exercised control over them. As such, the petitioner was not
entitled to regularization because he was not an employee of the respondent
company. The respondents, likewise, maintained that they did not dismiss the
petitioner. Rather, the severance of his contractual relation with the
respondent company was due to his violation of the terms and conditions of
their contract. The petitioner allegedly failed to observe the minimum degree
of diligence in the proper maintenance of the truck he was using, thereby
exposing respondent company to unnecessary significant expenses of
overhauling the said truck.
After the parties had filed their respective pleadings, the Labor Arbiter
rendered the Decision dated February 3, 1997, finding the respondents guilty
of illegal dismissal. The Labor Arbiter declared that the petitioner was a
regular employee of the respondent company as he was performing a service
that was necessary and desirable to the latters business. Moreover, it was
noted that the petitioner had discharged his duties as truck driver for the
respondent company for a continuous and uninterrupted period of more than
ten years.
The contract of service invoked by the respondents was declared null and
void as it constituted a circumvention of the constitutional provision affording
full protection to labor and security of tenure. The Labor Arbiter found that the
petitioners dismissal was anchored on his insistent demand to be regularized.
Hence, for lack of a valid and just cause therefor and for their failure to

observe the due process requirements, the respondents were found guilty of
illegal dismissal. The dispositive portion of the Labor Arbiters decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring
respondent SUPREME PACKAGING, INC. and/or MR. ALVIN LEE, Plant
Manager, with business address at BEPZ, Mariveles, Bataan guilty of illegal
dismissal, ordering said respondent to pay complainant his separation pay equivalent
to one (1) month pay per year of service based on the average monthly pay
ofP10,800.00 in lieu of reinstatement as his reinstatement back to work will not do
any good between the parties as the employment relationship has already become
strained and full backwages from the time his compensation was withheld on
February 23, 1995 up to January 31, 1997 (cut-off date) until compliance, otherwise,
his backwages shall continue to run. Also to pay complainant his 13th month pay,
night shift differential pay and service incentive leave pay hereunder computed as
follows:
a) Backwages .. P248,400.00
b) Separation Pay .... P140,400.00
c) 13th month pay .P 10,800.00
d) Service Incentive Leave Pay .. 2,040.00
TOTAL P401,640.00
Respondent is also ordered to pay ten (10%) of the amount due the complainant as
attorneys fees.
SO ORDERED.

[3]

The respondents seasonably interposed an appeal with the NLRC.

However, the appeal was dismissed by the NLRC in its Decision dated
January 27, 1998, as it affirmed in toto the decision of the Labor Arbiter. In the
said decision, the NLRC characterized the contract of service between the
respondent company and the petitioner as a scheme that was resorted to by
the respondents who, taking advantage of the petitioners unfamiliarity with the
English language and/or legal niceties, wanted to evade the effects and
implications of his becoming a regularized employee.
[4]

[5]

The respondents sought reconsideration of the January 27, 1998 Decision

of the NLRC. Acting thereon, the NLRC rendered another Decision dated
July 10, 1998, reversing its earlier decision and, this time, holding that no
employer-employee relationship existed between the respondent company
and the petitioner. In reconsidering its earlier decision, the NLRC stated that
the respondents did not exercise control over the means and methods by
[6]

which the petitioner accomplished his delivery services. It upheld the validity
of the contract of service as it pointed out that said contract was silent as to
the time by which the petitioner was to make the deliveries and that the
petitioner could hire his own helpers whose wages would be paid from his
own account. These factors indicated that the petitioner was an independent
contractor, not an employee of the respondent company.
The NLRC ruled that the contract of service was not intended to
circumvent Article 280 of the Labor Code on the regularization of employees.
Said contract, including the fixed period of employment contained therein,
having been knowingly and voluntarily entered into by the parties thereto was
declared valid citing Brent School, Inc. v. Zamora. The NLRC, thus,
dismissed the petitioners complaint for illegal dismissal.
[7]

The petitioner sought reconsideration of the July 10, 1998 Decision but it
was denied by the NLRC in its Resolution dated September 7, 1998. He then
filed with this Court a petition for certiorari, which was referred to the CA
following the ruling in St. Martin Funeral Home v. NLRC.
[8]

The appellate court rendered the Decision dated April 28, 2000, reversing
the July 10, 1998 Decision of the NLRC and reinstating the decision of the
Labor Arbiter. In the said decision, the CA ruled that the petitioner was a
regular employee of the respondent company because as its truck driver, he
performed a service that was indispensable to the latters business. Further,
he had been the respondent companys truck driver for ten continuous years.
The CA also reasoned that the petitioner could not be considered an
independent contractor since he had no substantial capital in the form of tools
and machinery. In fact, the truck that he drove belonged to the respondent
company. The CA also observed that the routing slips that the respondent
company issued to the petitioner showed that it exercised control over the
latter. The routing slips indicated the chronological order and priority of
delivery, the urgency of certain deliveries and the time when the goods were
to be delivered to the customers.
The CA, likewise, disbelieved the respondents claim that the petitioner
abandoned his job noting that he just filed a complaint for regularization. This
actuation of the petitioner negated the respondents allegation that he
abandoned his job. The CA held that the respondents failed to discharge their
burden to show that the petitioners dismissal was for a valid and just cause.
Accordingly, the respondents were declared guilty of illegal dismissal and the
decision of the Labor Arbiter was reinstated.
In its April 28, 2000 Decision, the CA denounced the contract of service
between the respondent company and the petitioner in this wise:

In summation, we rule that with the proliferation of contracts seeking to prevent

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

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

a complete turn around as it rendered the assailed Resolution dated
December 15, 2000 upholding the contract of service between the petitioner
and the respondent company. In reconsidering its decision, the CA explained
that the extent of control exercised by the respondents over the petitioner was
only with respect to the result but not to the means and methods used by him.
The CA cited the following circumstances: (1) the respondents had no say on
how the goods were to be delivered to the customers; (2) the petitioner had
the right to employ workers who would be under his direct control; and (3) the
petitioner had no working time.
The fact that the petitioner had been with the respondent company for
more than ten years was, according to the CA, of no moment because his
status was determined not by the length of service but by the contract of
service. This contract, not being contrary to morals, good customs, public
order or public policy, should be given the force and effect of law as between
the respondent company and the petitioner. Consequently, the CA reinstated
the July 10, 1998 Decision of the NLRC dismissing the petitioners complaint
for illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the
December 15, 2000 Resolution of the appellate court alleging that:
(A)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN GIVING
MORE CONSIDERATION TO THE CONTRACT OF SERVICE ENTERED
INTO BY PETITIONER AND PRIVATE RESPONDENT THAN ARTICLE
280 OF THE LABOR CODE OF THE PHILIPPINES WHICH
CATEGORICALLY
DEFINES
A
REGULAR
EMPLOYMENT
NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE

CONTRARY AND REGARDLESS OF THE ORAL AGREEMENT OF THE

PARTIES;
(B)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN
REVERSING ITS OWN FINDINGS THAT PETITIONER IS A REGULAR
EMPLOYEE AND IN HOLDING THAT THERE EXISTED NO
EMPLOYER-EMPLOYEE
RELATIONSHIP
BETWEEN
PRIVATE
RESPONDENT AND PETITIONER IN AS MUCH AS THE CONTROL
TEST WHICH IS CONSIDERED THE MOST ESSENTIAL CRITERION IN
DETERMINING THE EXISTENCE OF SAID RELATIONSHIP IS NOT
PRESENT.
[10]

The threshold issue that needs to be resolved is whether there existed an

employer-employee relationship between the respondent company and the
petitioner. We rule in the affirmative.
The elements to determine the existence of an employment relationship
are: (1) the selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the employers power to control the
employees conduct. The most important element is the employers control of
the employees conduct, not only as to the result of the work to be done, but
also as to the means and methods to accomplish it. All the four elements are
present in this case.
[11]

[12]

First. Undeniably, it was the respondents who engaged the services of the
petitioner without the intervention of a third party.
Second. Wages are defined as remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under
a written or unwritten contract of employment for work done or to be done, or
for service rendered or to be rendered. That the petitioner was paid on a per
trip basis is not significant. This is merely a method of computing
compensation and not a basis for determining the existence or absence of
employer-employee relationship. One may be paid on the basis of results or
time expended on the work, and may or may not acquire an employment
status, depending on whether the elements of an employer-employee
relationship are present or not. In this case, it cannot be gainsaid that the
petitioner received compensation from the respondent company for the
services that he rendered to the latter.
[13]

[14]

Moreover, under the Rules Implementing the Labor Code, every employer
is required to pay his employees by means of payroll. The payroll should
show, among other things, the employees rate of pay, deductions made, and
the amount actually paid to the employee. Interestingly, the respondents did
not present the payroll to support their claim that the petitioner was not their
employee, raising speculations whether this omission proves that its
presentation would be adverse to their case.
[15]

[16]

Third. The respondents power to dismiss the petitioner was inherent in the
fact that they engaged the services of the petitioner as truck driver. They
exercised this power by terminating the petitioners services albeit in the guise
of severance of contractual relation due allegedly to the latters breach of his
contractual obligation.
Fourth. As earlier opined, of the four elements of the employer-employee
relationship, the control test is the most important. Compared to an employee,
an independent contractor is one who carries on a distinct and independent
business and undertakes to perform the job, work, or service on its own
account and under its own responsibility according to its own manner and
method, free from the control and direction of the principal in all matters
connected with the performance of the work except as to the results
thereof. Hence, while an independent contractor enjoys independence and
freedom from the control and supervision of his principal, an employee is
subject to the employers power to control the means and methods by which
the employees work is to be performed and accomplished.
[17]

[18]

Although the respondents denied that they exercised control over the
manner and methods by which the petitioner accomplished his work, a careful
review of the records shows that the latter performed his work as truck driver
under the respondents supervision and control. Their right of control was
manifested by the following attendant circumstances:
1. The truck driven by the petitioner belonged to respondent company;
2. There was an express instruction from the respondents that the truck shall be used
exclusively to deliver respondent companys goods;
[19]

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

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

a. The routing slips indicated on the column REMARKS, the chronological order and
priority of delivery such as 1st drop, 2nd drop, 3rd drop, etc. This meant that the
petitioner had to deliver the same according to the order of priority indicated therein.
b. The routing slips, likewise, showed whether the goods were to be delivered
urgently or not by the word RUSH printed thereon.
c. The routing slips also indicated the exact time as to when the goods were to be
delivered to the customers as, for example, the words tomorrow morning was written
on slip no. 2776.
These circumstances, to the Courts mind, prove that the respondents
exercised control over the means and methods by which the petitioner
accomplished his work as truck driver of the respondent company. On the
other hand, the Court is hard put to believe the respondents allegation that the
petitioner was an independent contractor engaged in providing delivery or
hauling services when he did not even own the truck used for such services.
Evidently, he did not possess substantial capitalization or investment in the
form of tools, machinery and work premises. Moreover, the petitioner
performed the delivery services exclusively for the respondent company for a
continuous and uninterrupted period of ten years.
The contract of service to the contrary notwithstanding, the factual
circumstances earlier discussed indubitably establish the existence of an
employer-employee relationship between the respondent company and the
petitioner. It bears stressing that the existence of an employer-employee
relationship cannot be negated by expressly repudiating it in a contract and
providing therein that the employee is an independent contractor when, as in
this case, the facts clearly show otherwise. Indeed, the employment status of
a person is defined and prescribed by law and not by what the parties say it
should be.
[22]

Having established that there existed an employer-employee relationship

between the respondent company and the petitioner, the Court shall now
determine whether the respondents validly dismissed the petitioner.
As a rule, the employer bears the burden to prove that the dismissal was
for a valid and just cause. In this case, the respondents failed to prove any
such cause for the petitioners dismissal. They insinuated that the petitioner
abandoned his job. To constitute abandonment, these two factors must
concur: (1) the failure to report for work or absence without valid or justifiable
reason; and (2) a clear intention to sever employer-employee
relationship. Obviously, the petitioner did not intend to sever his relationship
[23]

[24]

with the respondent company for at the time that he allegedly abandoned his
job, the petitioner just filed a complaint for regularization, which was forthwith
amended to one for illegal dismissal. A charge of abandonment is totally
inconsistent with the immediate filing of a complaint for illegal dismissal, more
so when it includes a prayer for reinstatement.
[25]

Neither can the respondents claim that the petitioner was guilty of gross
negligence in the proper maintenance of the truck constitute a valid and just
cause for his dismissal. Gross negligence implies a want or absence of or
failure to exercise slight care or diligence, or the entire absence of care. It
evinces a thoughtless disregard of consequences without exerting any effort
to avoid them. The negligence, to warrant removal from service, should not
merely be gross but also habitual. The single and isolated act of the
petitioners negligence in the proper maintenance of the truck alleged by the
respondents does not amount to gross and habitual neglect warranting his
dismissal.
[26]

[27]

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

Thus, the lack of a valid and just cause in terminating the services of the
petitioner renders his dismissal illegal. Under Article 279 of the Labor Code,
an employee who is unjustly dismissed is entitled to reinstatement, without
loss of seniority rights and other privileges, and to the payment of full
backwages, inclusive of allowances, and other benefits or their monetary
equivalent, computed from the time his compensation was withheld from him
up to the time of his actual reinstatement. However, as found by the Labor
Arbiter, the circumstances obtaining in this case do not warrant the petitioners
reinstatement. A more equitable disposition, as held by the Labor Arbiter,
would be an award of separation pay equivalent to one month for every year
of service from the time of his illegal dismissal up to the finality of this
judgment in addition to his full backwages, allowances and other benefits.
[29]

WHEREFORE, the instant petition is GRANTED. The Resolution dated

December 15, 2000 of the Court of Appeals reversing its Decision dated April
28, 2000 in CA-G.R. SP No. 52485 is REVERSED and SET ASIDE. The
Decision dated February 3, 1997 of the Labor Arbiter in NLRC Case No. RABIII-02-6181-5, finding the respondents guilty of illegally terminating the
employment of petitioner Pedro Chavez, is REINSTATED.
SO ORDERED.

[G.R. No. 151228. August 15, 2002]

ROLANDO Y. TAN, petitioner, vs. LEOVIGILDO LAGRAMA and THE

HONORABLE COURT OF APPEALS, respondents.
DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision, [1] dated May 31, 2001, and
the resolution,[2] dated November 27, 2001, of the Court of Appeals in C.A.-G.R. SP. No.
63160, annulling the resolutions of the National Labor Relations Commission (NLRC)
and reinstating the ruling of the Labor Arbiter which found petitioner Rolando Tan guilty
of illegally dismissing private respondent Leovigildo Lagrama and ordering him to pay
the latter the amount of P136,849.99 by way of separation pay, backwages, and
damages.
The following are the facts.
Petitioner Rolando Tan is the president of Supreme Theater Corporation and the
general manager of Crown and Empire Theaters in Butuan City. Private respondent
Leovigildo Lagrama is a painter, making ad billboards and murals for the motion
pictures shown at the Empress, Supreme, and Crown Theaters for more than 10 years,
from September 1, 1988 to October 17, 1998.
On October 17, 1998, private respondent Lagrama was summoned by Tan and
upbraided: Nangihi na naman ka sulod sa imong drawinganan. (You again urinated
inside your work area.) When Lagrama asked what Tan was saying, Tan told him, Ayaw
daghang estorya. Dili ko gusto nga mo-drawing ka pa. Guikan karon, wala nay drawing.
Gawas. (Dont say anything further. I dont want you to draw anymore. From now on, no
more drawing. Get out.)
Lagrama denied the charge against him. He claimed that he was not the only one
who entered the drawing area and that, even if the charge was true, it was a minor
infraction to warrant his dismissal. However, everytime he spoke, Tan
shouted Gawas (Get out), leaving him with no other choice but to leave the premises.
Lagrama filed a complaint with the Sub-Regional Arbitration Branch No. X of the
National Labor Relations Commission (NLRC) in Butuan City. He alleged that he had
been illegally dismissed and sought reinvestigation and payment of 13th month pay,
service incentive leave pay, salary differential, and damages.
Petitioner Tan denied that Lagrama was his employee. He asserted that Lagrama
was an independent contractor who did his work according to his methods, while he
(petitioner) was only interested in the result thereof. He cited the admission of Lagrama
during the conferences before the Labor Arbiter that he was paid on a fixed piece-work
basis, i.e., that he was paid for every painting turned out as ad billboard or mural for the
pictures shown in the three theaters, on the basis of a no mural/billboard drawn, no pay

policy. He submitted the affidavits of other cinema owners, an amusement park owner,
and those supervising the construction of a church to prove that the services of
Lagrama were contracted by them. He denied having dismissed Lagrama and alleged
that it was the latter who refused to paint for him after he was scolded for his habits.
As no amicable settlement had been reached, Labor Arbiter Rogelio P. Legaspi
directed the parties to file their position papers. On June 17, 1999, he rendered a
decision, the dispositive portion of which reads:

WHEREFORE, premises considered judgment is hereby ordered:

1. Declaring complainants [Lagramas] dismissal illegal and
2. Ordering respondents [Tan] to pay complainant the following:

A. Separation Pay - P 59,000.00

B. Backwages - 47,200.00
(from 17 October 1998 to 17 June 1999)
C. 13th month pay (3 years) - 17,700.00
D. Service Incentive Leave
Pay (3 years) - 2, 949.99
E. Damages - 10,000.00
TOTAL [P136,849.99]
Complainants other claims are dismissed for lack of merit.

[3]

Petitioner Rolando Tan appealed to the NLRC Fifth Division, Cagayan de Oro City,
which, on June 30, 2000, rendered a decision [4] finding Lagrama to be an independent
contractor, and for this reason reversing the decision of the Labor Arbiter.
Respondent Lagrama filed a motion for reconsideration, but it was denied for lack of
merit by the NLRC in a resolution of September 29, 2000. He then filed a petition for
certiorari under Rule 65 before the Court of Appeals.
The Court of Appeals found that petitioner exercised control over Lagramas work by
dictating the time when Lagrama should submit his billboards and murals and setting
rules on the use of the work area and rest room. Although it found that Lagrama did
work for other cinema owners, the appeals court held it to be a mere sideline insufficient
to prove that he was not an employee of Tan. The appeals court also found no evidence
of any intention on the part of Lagrama to leave his job or sever his employment
relationship with Tan. Accordingly, on May 31, 2001, the Court of Appeals rendered a
decision, the dispositive portion of which reads:

IN THE LIGHT OF ALL THE FOREGOING, the Petition is hereby GRANTED. The
Resolutions of the Public Respondent issued on June 30, 2000 and September 29,
2000 are ANNULLED. The Decision of the Honorable Labor Arbiter Rogelio P.
Legaspi on June 17, 1999 is hereby REINSTATED.

Petitioner moved for a reconsideration, but the Court of Appeals found no reason to
reverse its decision and so denied his motion for lack of merit. [5] Hence, this petition for
review on certiorari based on the following assignments of errors:

I. With all due respect, the decision of respondent Court of Appeals in CA-G.R. SP
NO. 63160 is bereft of any finding that Public Respondent NLRC, 5th Division, had
no jurisdiction or exceeded it or otherwise gravely abused its discretion in its
Resolution of 30 June 2000 in NLRC CA-NO. M-004950-99.
II. With all due respect, respondent Court of Appeals, absent any positive finding on
its part that the Resolution of 30 June 2000 of the NLRC is not supported by
substantial evidence, is without authority to substitute its conclusion for that of said
NLRC.
III. With all due respect, respondent Court of Appeals discourse on freelance artists
and painters in the decision in question is misplaced or has no factual or legal basis in
the record.
IV. With all due respect, respondent Court of Appeals opening statement in its
decision as to employment, monthly salary of P1,475.00 and work schedule from
Monday to Saturday, from 8:00 oclock in the morning up to 5:00 oclock in the
afternoon as facts is not supported by the evidence on record.
V. With all due respect, the case of Lambo, et al., v. NLRC, et al., 317 SCRA 420
[G.R. No. 111042 October 26, 1999] relied upon by respondent Court of Appeals is
not applicable to the peculiar circumstances of this case.
[6]

The issues raised boil down to whether or not an employer-employee relationship

existed between petitioner and private respondent, and whether petitioner is guilty of
illegally dismissing private respondent. We find the answers to these issues to be in the
affirmative.
I.

In determining whether there is an employer-employee relationship, we have

applied a four-fold test, to wit: (1) whether the alleged employer has the power of
selection and engagement of employees; (2) whether he has control of the employee
with respect to the means and methods by which work is to be accomplished; (3)
whether he has the power to dismiss; and (4) whether the employee was paid
wages.[7] These elements of the employer-employee relationship are present in this
case.
First. The existence in this case of the first element is undisputed. It was petitioner
who engaged the services of Lagrama without the intervention of a third party. It is the
existence of the second element, the power of control, that requires discussion here.

Of the four elements of the employer-employee relationship, the control test is the
most important. Compared to an employee, an independent contractor is one who
carries on a distinct and independent business and undertakes to perform the job, work,
or service on its own account and under its own responsibility according to its own
manner and method, free from the control and direction of the principal in all matters
connected with the performance of the work except as to the results thereof. [8] Hence,
while an independent contractor enjoys independence and freedom from the control and
supervision of his principal, an employee is subject to the employers power to control
the means and methods by which the employees work is to be performed and
accomplished.
In the case at bar, albeit petitioner Tan claims that private respondent Lagrama was
an independent contractor and never his employee, the evidence shows that the latter
performed his work as painter under the supervision and control of petitioner. Lagrama
worked in a designated work area inside the Crown Theater of petitioner, for the use of
which petitioner prescribed rules. The rules included the observance of cleanliness and
hygiene and a prohibition against urinating in the work area and any place other than
the toilet or the rest rooms.[9]Petitioners control over Lagramas work extended not only to
the use of the work area, but also to the result of Lagramas work, and the manner and
means by which the work was to be accomplished.
Moreover, it would appear that petitioner not only provided the workplace, but
supplied as well the materials used for the paintings, because he admitted that he paid
Lagrama only for the latters services.[10]
Private respondent Lagrama claimed that he worked daily, from 8 oclock in the
morning to 5 oclock in the afternoon. Petitioner disputed this allegation and maintained
that he paid Lagrama P1,475.00 per week for the murals for the three theaters which
the latter usually finished in 3 to 4 days in one week. [11] Even assuming this to be true,
the fact that Lagrama worked for at least 3 to 4 days a week proves regularity in his
employment by petitioner.
Second. That petitioner had the right to hire and fire was admitted by him in his
position paper submitted to the NLRC, the pertinent portions of which stated:

Complainant did not know how to use the available comfort rooms or toilets in and
about his work premises. He was urinating right at the place where he was
working when it was so easy for him, as everybody else did and had he only wanted
to, to go to the comfort rooms. But no, the complainant had to make a virtual urinal
out of his work place! The place then stunk to high heavens, naturally, to the
consternation of respondents and everyone who could smell the malodor.
...
Given such circumstances, the respondents had every right, nay all the compelling
reason, to fire him from his painting job upon discovery and his admission of such

acts. Nonetheless, though thoroughly scolded, he was not fired. It was he who stopped
to paint for respondents.
[12]

By stating that he had the right to fire Lagrama, petitioner in effect acknowledged
Lagrama to be his employee. For the right to hire and fire is another important element
of the employer-employee relationship.[13] Indeed, the fact that, as petitioner himself said,
he waited for Lagrama to report for work but the latter simply stopped reporting for work
reinforces the conviction that Lagrama was indeed an employee of petitioner. For only
an employee can nurture such an expectancy, the frustration of which, unless
satisfactorily explained, can bring about some disciplinary action on the part of the
employer.
Third. Payment of wages is one of the four factors to be considered in determining
the existence of employer-employee relation. Wages are defined as remuneration or
earnings, however designated, capable of being expressed in terms of money, whether
fixed or ascertained on a time, task, piece, or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a written
or unwritten contract of employment for work done or to be done, or for services
rendered or to be rendered.[14] That Lagrama worked for Tan on a fixed piece-work basis
is of no moment. Payment by result is a method of compensation and does not define
the essence of the relation.[15] It is a method of computing compensation, not a basis for
determining the existence or absence of employer-employee relationship. One may be
paid on the basis of results or time expended on the work, and may or may not acquire
an employment status, depending on whether the elements of an employer-employee
relationship are present or not.[16]
The Rules Implementing the Labor Code require every employer to pay his
employees by means of payroll.[17] The payroll should show among other things, the
employees rate of pay, deductions made, and the amount actually paid to the
employee. In the case at bar, petitioner did not present the payroll to support his claim
that Lagrama was not his employee, raising speculations whether his failure to do so
proves that its presentation would be adverse to his case.[18]
The primary standard for determining regular employment is the reasonable
connection between the particular activity performed by the employee in relation to the
usual trade or business of the employer.[19] In this case, there is such a connection
between the job of Lagrama painting billboards and murals and the business of
petitioner. To let the people know what movie was to be shown in a movie theater
requires billboards. Petitioner in fact admits that the billboards are important to his
business.[20]
The fact that Lagrama was not reported as an employee to the SSS is not
conclusive on the question of whether he was an employee of petitioner. [21] Otherwise,
an employer would be rewarded for his failure or even neglect to perform his
obligation.[22]
Neither does the fact that Lagrama painted for other persons affect or alter his
employment relationship with petitioner. That he did so only during weekends has not
been denied by petitioner. On the other hand, Samuel Villalba, for whom Lagrama had

rendered service, admitted in a sworn statement that he was told by Lagrama that the
latter worked for petitioner.[23]
Lagrama had been employed by petitioner since 1988. Under the law, therefore, he
is deemed a regular employee and is thus entitled to security of tenure, as provided in
Art. 279 of Labor Code:

ART. 279. Security of Tenure. In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by
this Title. An employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to his full
backwages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to the
time of his actual reinstatement.
This Court has held that if the employee has been performing the job for at least
one year, even if not continuously but intermittently, the repeated and continuing need
for its performance is sufficient evidence of the necessity, if not indispensability, of that
activity to the business of his employer. Hence, the employment is also considered
regular, although with respect only to such activity, and while such activity exists. [24]
It is claimed that Lagrama abandoned his work. There is no evidence to show this.
Abandonment requires two elements: (1) the failure to report for work or absence
without valid or justifiable reason, and (2) a clear intention to sever the employeremployee relationship, with the second element as the more determinative factor and
being manifested by some overt acts.[25] Mere absence is not sufficient. What is more,
the burden is on the employer to show a deliberate and unjustified refusal on the part of
the employee to resume his employment without any intention of returning. [26] In the case
at bar, the Court of Appeals correctly ruled:

Neither do we agree that Petitioner abandoned his job. In order for abandonment to be
a just and valid ground for dismissal, the employer must show, by clear proof, the
intention of the employee to abandon his job. . . .
In the present recourse, the Private Respondent has not established clear proof of the
intention of the Petitioner to abandon his job or to sever the employment relationship
between him and the Private Respondent. On the contrary, it was Private Respondent
who told Petitioner that he did not want the latter to draw for him and thereafter
refused to give him work to do or any mural or billboard to paint or draw on.
More, after the repeated refusal of the Private Respondent to give Petitioner murals or
billboards to work on, the Petitioner filed, with the Sub-Regional Arbitration Branch
No. X of the National Labor Relations Commission, a Complaint for Illegal
Dismissal and Money Claims. Such act has, as the Supreme Court declared, negate
any intention to sever employment relationship. . . .
[27]

II.

The second issue is whether private respondent Lagrama was illegally dismissed.
To begin, the employer has the burden of proving the lawfulness of his employees
dismissal.[28] The validity of the charge must be clearly established in a manner
consistent with due process. The Implementing Rules of the Labor Code[29] provide that
no worker shall be dismissed except for a just or authorized cause provided by law and
after due process. This provision has two aspects: (1) the legality of the act of dismissal,
that is, dismissal under the grounds provided for under Article 282 of the Labor Code
and (2) the legality in the manner of dismissal. The illegality of the act of dismissal
constitutes discharge without just cause, while illegality in the manner of dismissal is
dismissal without due process.[30]
In this case, by his refusal to give Lagrama work to do and ordering Lagrama to get
out of his sight as the latter tried to explain his side, petitioner made it plain that
Lagrama was dismissed. Urinating in a work place other than the one designated for the
purpose by the employer constitutes violation of reasonable regulations intended to
promote a healthy environment under Art. 282(1) of the Labor Code for purposes of
terminating employment, but the same must be shown by evidence. Here there is no
evidence that Lagrama did urinate in a place other than a rest room in the premises of
his work.
Instead of ordering his reinstatement as provided in Art. 279 of the Labor Code, the
Labor Arbiter found that the relationship between the employer and the employee has
been so strained that the latters reinstatement would no longer serve any purpose. The
parties do not dispute this finding. Hence, the grant of separation pay in lieu of
reinstatement is appropriate. This is of course in addition to the payment of backwages
which, in accordance with the ruling in Bustamante v. NLRC,[31] should be computed
from the time of Lagramas dismissal up to the time of the finality of this decision, without
any deduction or qualification.
The Bureau of Working Conditions[32] classifies workers paid by results into two
groups, namely; (1) those whose time and performance is supervised by the employer,
and (2) those whose time and performance is unsupervised by the employer. The first
involves an element of control and supervision over the manner the work is to be
performed, while the second does not. If a piece worker is supervised, there is an
employer-employee relationship, as in this case. However, such an employee is not
entitled to service incentive leave pay since, as pointed out in Makati Haberdashery v.
NLRC[33] and Mark Roche International v. NLRC,[34] he is paid a fixed amount for work
done, regardless of the time he spent in accomplishing such work.
WHEREFORE, based on the foregoing, the petition is DENIED for lack of showing
that the Court of Appeals committed any reversible error. The decision of the Court of
Appeals, reversing the decision of the National Labor Relations Commission and
reinstating the decision of the Labor Arbiter, is AFFIRMED with the MODIFICATION that
the backwages and other benefits awarded to private respondent Leovigildo Lagrama
should be computed from the time of his dismissal up to the time of the finality of this
decision, without any deduction and qualification. However, the service incentive leave
pay awarded to him is DELETED. SO ORDERED.